I . PE1NCIPLES OF POLITICAL ECONOMY, PRINCIPLES OF POLITICAL ECONOMY WITH SOME OF THEIR APPLICATIONS TO SOCIAL PHILOSOPHY. BY JOHN STUAKT MILL. PEOPLE'S EDITION. 'LONDON : LONGMANS, GREEN, READER, AND DYER. 1875. X^-' f OF THE I UNIVERSITY , LONDON SAVILL BDWABDS AND CO., PBIHTEB6, CHAXDOS STREET. COVElfT 6ABDEN. PBEFACE. THE appearance of a treatise like the present, on a subject on which so many works of merit already exist, may be thought to require some explanation. It might perhaps be sufficient to say, that no existing treatise on Political Economy contains the latest improvements which have been made in the theory of the subject. Many new ideas, and new applica- tions of ideas, have been elicited by the discussions of the last few years, especially those on Currency, on Foreign Trade, and on the important topics connected more or less intimately with Colonization^ and there seems reason that the field of Political Economy should be re- surv eyed in its whole extent, if only for the purpose of incorporating the results of these speculations, and bringing them into harmony with the principles previously laid down by the best thinkers on the subject. To supply, however, these deficiencies in former treatises bearing a similar title, is not the sole, or even the principal object which the author has in view. 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. 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 expositions of the general principles of the subject, is that it invariably associates the principles with their applications. This of itself implies a much wider range of ideas and of topics, than are included in Political Economy, considered as a branch of abstract specu- lation. Eor practical purposes, Political Economy is inseparably intejc- twined with many other branches of social philosophy. Except on \ matters of mere detail, there are perhaps no practical questions, even ( among those which approach nearest to the character of purely ecouo- mical questions, which admit of being decided on economical premises k alone. And it is because Adam Smith never loses sight of this truth ; because, in his applications of Political Economy, he perpetually appeals to other and often far larger considerations than pure Political Economy affords that he gives that well-grounded feeling of command over the a 175823 vi PREFACE. principles of the subject for purposes of practice, owing to which the " Wealth of Nations," alone among treatises on Political Economy, has not only been popular with general readers, but has impressed itself strongly on the minds of men of the world and of legislators. It appears to the present writer, that a work similar in its object and general conception to that of Adam Smith, but adapted to the more extended knowledge and improved ideas of the present age, is the kind of contribution which Political Economy at present requires. The "Wealth of Nations" is in many parts obsolete, and in all, imperfect. Political Economy, properly so called, has grown up almost from infancy since the time of Adam Smith : and the philosophy of society, from which practically that eminent thinker never separated his more peculiar theme, though still in a very early stage of its progress, has advanced many steps beyond the point at which he left it. I\o attempt, however, has yet been made to combine his practical mode of treating his subject with the increased knowledge since acquired of its theory, or to exhibit the economical phenomena of society in the rela- tion in which they stand to the best social ideas of the present time, as lie did, with such admirable success, in reference to the philosophy of his century. Such is the idea which the writer of the present work has kept before him. To succeed even partially in realizing it, would be a sufficiently useful achievement, to induce him to incur willingly all the chances of failure. It is requisite, however, to add, that although his object is practical, and, as far as the nature of the subject admits, popular, he has not attempted to purchase either of those advantages by the sacrifice of strict scientific reasoning. Though he desires that his treatise should be more than a mere exposition of the abstract doctrines of Political Economy, lie is also desirous that such an exposition should be found in it. The present edition is an exact transcript from the sixth, except that all extracts and most phrases in foreign languages have been translated into English, and a very small number of quotations, or parts of quota- tions, which appeared superfluous, have been struck out. A reprint of an old controversy with the " Quarterly Review" on the condition of landed, property in France, which had been subjoined as an Appendix, has been dispensed with. CONTENTS. PIGS BT REMARKS .*-... 1 BOOK I. PEODUCTIOK CETAPTER I. Of the Requisites of Production. f 1. Eequisites of production, what 15 2. The function of labour defined ^ 16 3. Does nature contribute more to the efficacy of labour in some occu- pations than in others? 17 4. Some natural agents limited, others practically unlimited, in quantity It CHAPTER IT. Qf'Xtcibpur as an Agent of Production. 2. Labour employed eithe Directly about the thing produced, or in operations preparatory to its production 10 2. Labour employed in producing subsistence for subsequent labour . 20 3. in producing materials * 21 4. or implements 22 5. in the protection of labour 2o 6. in the transport and distribution of the produce 2-1 7. Labour which relates to human beings 25 JJ. Labour of invention and discovery . 26 9. Labour agricultural, manufacturing, and commercial 27 CHAPTER III. Of Unproductive Labour. 1. Labour docs not produce objects, but utilities 28 2. which are of three kinds ^ 29 8. Productive labour is that which produces utilities fixed and em- bodied in material objects 30 4. All other labour, however useful, is classed as unproductive . . 31 5. Productive and Unproductive Consumption ' 32 Ts of separation of employments analysed 73 3. Conlbination of labour between town and country ...... 74 4. The hiuher degrees of the division of labour 75 5. Analysis of its advantages 77 6. Limitations of the division of labour , 80 CHAPTEG IX. Of Producf/on on a Large, and Production on a Small Scale. | 1. Advantages of the large system of production in manufactures . 81 vantages and disadvantages of the joint-stock principle ... 84 3. Conditions necessary for the large system of production .... 87 4. Large and small farming compared 89 CHAPTEB X. Of the Laic of the Increase of Labour. 1. The law of the increase of production depends on those of three elements, Labour, Capital, and Land 9f their value, the Equation of Demand and Supply . . . 271 5. Miscellaneous cases falling under this law 272 CHAPTER III. Of Cost of Production, in its relation to Value. 1. Commodities \vHch are susceptible of indefinite multiplication without increase of cost. Law of their Value, Cost of Production 274 2. operating through potential, but not actual, alterations of supply 275 CHAPTER IV. Ultimate Analysis of Cost of Production. 1. i !ent in Cost of Production Quart' " 2. W . element in Coat of Production CONTENTS. xiii PAfilJ 279 3. except in so far as they vary from employment to employment 4. Profits an element in Cost of Production, in so far as they vary from employment to employment 2SO 5. or are spread over unequal lengths of time 281 6. Occasional elements in Cost of Production : taxes, and scarcity value of materials 283 CHAPTEE V. Of Rent, in its Relation to Value. & 1. Commodities which are susceptible of indefinite multiplication, but not without increase of cost. Law of their Value, Cost of Pro- duction in the most unfavourable existing circumstances . . . 255 2. Such commodities, when produced in circumstances more favour- able, yield a rent equal to the diffr ence of cost 283 3. Pent of mines and fisheries, and g .^id-rent of buildings . . . 288 4. Cases of extra profit analogous to rent 289 CHAPTEE VI. Summary of the Theory of Value. 1. The theory of Value recapitulated in a series of propositions . . 290 2. How modified by the case of labourers cultivating for subsistence . 292 3. by the case of slave labour '-93 ^ CHAPTEE VII. Of Money. 1. Purposes of a Circulating Medium 293 2. Gold and Silver, why fitted for those purposes 294 3. Money a mere contrivance for facilitating exchanges, which does not affect the laws of Value 296 CHAPTEE VIII. Of the Value of Money, as dependent on Demand and Supply. 1. Value of Money, an ambiguous expression 297 2. The value of money depends, casteris paribus, on its quantity . . 298 3. together with the rapidity of circulation 300 4. Explanations and limitations of this principle 301 CHAPTEE IX. Of the Value of Money, as dependent on Cost of Production. 1. The value of money, in a state of freedom, conforms to the value of the bullion contained in it ' . . 303 2. which is determined by the cost of production 304 3. This law, how related to the principle laid down in the preceding chapter 306 CHAPTEE X. Of a Double Standard, and Subsidiary Coins. 1. Objections to a double standard 307 2. The use of the two metals as money, Low obtained without making both of them legal tender 308 xiv CONTEXTS. CHAPTER XL Of Credit, as a Substitute for Money. P1GB 1. Credit not a creation but a transfer of the means of production . . 309 2. In -what manner it assists production 310 3. Function of credit in economizing the nse of money 311 4. Bills of exchange 312 5. Promissory notes 314 6- Depots and cheques 315 CHAPTEE XII. Influence of Credit on Prices. 1. The influence of bank notes, bills, and cheques, on price, a part of the- influence of Credit 315 2. Credit a purchasing power similar to money 317 3. Effects of great extensions and contractions of credit. Phenomena of a commercial crisis analysed 318 4. Bills a more powerful instrument for acting on prices than book credits, and bank notes than bills 320 5. the distinction of little practical importance 322 6. Cheques an instrument for acting on prices, equally powerful with banknotes 324 7. Are bank notes money? 32? 8. Xo generic distinction between bank notes and other forms of credit 327 CHAPTEE XIII. Of an Inconvertible Paper Currency. 1. The value of an inconvertible paper, depending on its quantity, is a matter of arbitrary regulation 328 2. If regulated by the price of bullion, an inconvertible currency might be safe, but not expedient 330 1 3. Examination of the doctrine that an inconvertible currency is safe if representing actual property 331 4. of the doctrine that an increase of the currency promotes industry 332 5. Depreciation of currency a tax on the community, and a fraud on creditors 334 6. Examination of some pleas for committing this fraud 334 CHAPTEB XIV. Of Excess of Supply. 1. Can there be an oversupply of commodities generally? .... 336 _'. The supply of commodities in general, cannot exceed the power of purchase 337 ? 3. never does exceed the inclination to consume 338 :. Origin and explanation of the notion of general overaupply . . . 339 CHAPTEE XV. Of a Measure cf Value. g 1. A Measure of Exchange Value, in what sense possible .... 341 2. A Measure of Cost of Production 342 O:TATTEE XVI. Of some Peculiar Cases of Value. i ii have a j- 2. \ , 'iids of agriculture CONTENTS. \ CHAPTER XVII. Of International Trade. PAGE 1. Cost of production not the regulator of international values . . . 347 2. Interchange of commodities between distant places, determined by differences not in their absolute, but in their comparative, cost of production 348 3. The direct benefits of commerce consist in increased efficiency of the productive powers of the world 349 4. not in a vent i'or exports, nor in the gains of merchants . . . 350 5. Indirect benefits of commerce, economical and moral; still greater than the direct 351 CHAPTER XVIII. Of International Values. | 1. The values of imported commodities depend on the terms of inter- national interchange 352 2. which depend on the Equation of International Demand . . . 353 3. Influence of cost of carriage on international values 350- 4. The law of values which holds between two countries, and two commodities, holds of any greater number 356 5. Effect of improvements in production, on international values . . 358 6. The preceding theory not complete 360 7. International values depend not solely on the quantities demanded, but also on the means of production available in each country for the supply of foreign markets 361 8. The practical result little affected by this additional element . . 363 9. The cost to a country of its imports, on what circumstances dependent 365 CHAPTER XIX. Of Money, considered as an Imported Commodity. % I. Money imported in two modes ; as a commodity, and as a medium of exchange 367 2. As a commodity, it obeys the same laws of value as other imported commodities 367 3. Its value does not depend exclusively on its cost of production at the mines 369 CHAPTER XX. Of the Foreign Exchanges. 1. Purposes for which money passes from country to country as a medium of exchange 370 2. Mode of adjusting international payments through the exchanges . 370 3. Distinction between variations in the exchanges which are self- adjusting, and those which can only be rectified through prices. 373 C^~ -^\ CHAPTER XXI. Of the Distribution of the Precious Metals through the Commercial World. 1. The siVbstitntion of money for barter makes no difference in exports and imports, nor in the law of international values 374 2. The preceding theorem further illustrated 376 CONTEXTS. PAGB 3. The precious metals, as money, are of the s.ime value, and dis- tribute themselves according to the same la\v, with the precious metals as a commodity 379 4. International payments of a non-commercial character .... 379 CHAPTER XXII. Influence of Currency on the Exchanges and on Foreign Trade. 1. Variations in the exchange, which originate in the currency . . 380 2. Eflc.-ct of a sudden increase of a metallic currency, or of the sudden creation of bank notes or other substitutes for money .... 381 3. Effect of the increase of an inconvertible paper currency. Real and nominal exchange . . 384 CHAPTER XXIII. Of the Sate of Interest. % 1. The rate of interest depends on the demand and supply of loans . 385 2. Circumstances which determine the permanent demand and supply of loans 386 3. Circumstances which determine the fluctuations 388 4. Ihe rate of interest, how far, and in what sense, connected with the value of money 390 5. The rate of interest determines the price of land and of securities . 393 CHAPTER XXIV. Of the Regulation of a Convertible Paper Currency. 1 . Two contrary theories respecting the influence of hank issues . . 394 2. Examination of each 395 3. Reasons for thinking that the Currency Act of 1844 produces a part of the beneficial effect intended by it 397 4. but produces mischiefs more than equivalent 400 .'>. Slio^M the issue of bank notes be confined to a single esta- blishment? 408 6. Should the holders of notes be protected in any peculiar manner against failure of payment? . 409 CHAPTER XXV. Of the Competition of different Countries in the same Market. 1. Causes which enable one country to undersell another .... 410 J. Low wages one of those causes 411 ,\ ;-;. when peculiar to certain branches of industry 412 4. but not when common to all 414 5. Some anomalous cases of trading communities examined . . . . 414 CHAPTER XXVI. Of Distribution, as affected iy Exchange. 1 Exchargc and ]\Icney make no difference in the law of wages . .416 C 2. in the law of rent. . . 417 / 1. nor in the law of profits 418 CONTEXTS. BOOK IV. INFLUENCE OF THE PEO GUESS OF SOCIETY ON PKODUCTION AND DISTRIBUTION. CHAPTER I. General Characteristics of a Progressive State of Wealth. PAGB 1. Introductory Kemarks 421 2. Tendency of tho progress of society towards increased command over the powers of natm*e ; increased security; and increased capacity of co-operation 42 1 CHAPTER II. Influence of the Progress of Industry and Population on Values and Prices. . 1. Tendency to a decline of the value and cost of production of all commodities 424 > 2. except the products of agriculture and mining, which have a tendency to rise 425 3. that tendency from time to time counteracted hy improvements in production 42 (> 4. Effect of tho progress of society in moderating fluctuations of value 427 5. Examination of the influence of speculators, and in particular of corn dealers 423 CHAPTER III. Influence of the Progress of Industry and Population on Rents, Profits, and IVayes. 1. First case; population increasing, capital stationary 4,10 .2. Second case ; capital increasing, population stationary .... 432 3. Third case ; population and capital increasing equally, the arts of production stationary 433 4. Fourth case; the arts of production progressive, capital and popu- lation stationary 433 5. Fifth case ; all the three elements progressive 437 CHAPTER IV. Of the Tendency of Profits to a Minimum. 1. Doctrine of Adam Smith on the competition of capital .... 430 2. Doctrine of Mr. Wakefield respecting tho field of employment . . 44; > 3. AY hat determines the minimum rate of profit 441 .'4. In opulent countries, profits habitually near to the minimum . . 443 5. prevented from reaching it by commercial revulsions . . . . 444 6. by improvements in production 445 7. by the importation of cheap necessaries and instruments . . 44;) 8. by the emigration of capital . 447 CONTENTS. V CHAPTER V. Consequences of the Tendency of Profits to a Minimum. PAGB 1. Abstraction of capital not necessarily a national loss 448 2. In opulent countries, the extension of machinery not detrimental but beneficial to labourers 450 CHAPTER VI. Of the Stationary State. ' 1. Stationaiy state of wealth and population, dreaded and deprecated by writers 452 ; 2. -r but not in itself undesirable 453 CHAPTER VII. On the Probable Futurity of the Labouring Classes. ,- 1. The theory of dependence and protection no longer applicable to the condition of modern society 455 2. The futm-e well-being of the labouring classes principally dependent on their own mental cultivation 453 3. Probable effects of improved intelligence in causing a better adjustment of population Would be promoted by the social independence of women 459 4. Tendency of society towards the disuse of the relation of hiring and service 459 5. Examples of the association of labourers with capitalists . . . . 4(H 6. of the association of labourers among themselves 4G5 7. Competition not pernicious, but useful and indispensable .... 476 BOOK V. ON THE INFLUENCE OF GOVERNMENT. CHAPTER I. Of the Functions of Government in general. 1. Necessary and optional functions of government distinguished . . 479 2. Multifarious character of the necessary functions of government . 480 3. Division of the subject 482 CHAPTER II. Of the General Principles of Taxation. 1. Four fundamental rules of taxation 483 2. Grounds of the principle of Equality of Taxation 484 3. Should the same percentage be levied on all amounts of income ? . 485 4. Should the same percentage be levied on perpetual and on termi- nable incomes? 488 5. The increase of the rent of land from natural causes a fit subject of peculiar taxation 492 6. A land tax, in some cases, not taxation, but a rent-charge in favour of the public 493 7. Taxes falling on capital, not necessarily objectionable .... 494 CONTENTS. xix CHAPTER III. Of Direct Taxes. PAGR 1. Direct taxes either on income or on expenditure ...... 495 2. Taxes on rent 498 3. on profits 493 4. on wages , , . 498 5. An Income Tax , . 499 6. A House Tax 501 , CHAPTER IV. Of Taxes on Commodities. 1. A Tax on all Commodities would fall on profits 504 2. Taxes on particular commodities fall on the consumer 505 3. Peculiar effects of taxes on necessaries 506 4. how modified by the tendency of profits to a minimum . . . 507 5. Effects of discriminating duties . 510 6. Effects produced on international exchange by duties on exports and on imports 512 CHAPTER V. Of some other Taxes. 1 . Taxes on contracts 517 2. Taxes on communication , . . . . 518 3. Law Taxes 519 4. Modes of taxation for local purposes 520 CHAPTER VI. Comparison between Direct and Indirect Taxation. % 1. Arguments for and against direct taxation 521 2. What forms of indirect taxation most eligible 523 3. Practical rules for indirect taxation 524 CHAPTER VII. Of a National Debt. 1 1. Is it desirable to defray extraordinary public expenses by loans ? . 526 2. Not desirable to redeem a national debt by a general contribution 528 3. In what cases desirable to maintain a surplus revenue for the redemption of debt . . 529 CHAPTER VIII. Of the Ordinary Functions of Government, considered as to their Economical Effects. f 1. Effects of imperfect security of person and property 531 2. Effects of over-taxation 532 3. Effects of imperfection in the system of the laws, and in the admi- nistration of justice 533 CHAPTER IX. The same subject continued. 1 1. Laws of Inheritance 536 2. Law and Custom of Primogeniture 537 3. Entails ". 539 xx CONTEXTS. 4. Law of compulsory equal division of inheritances 540 5. Laws of Partnership 541 6. Partnerships with limited liability. Chartered Companies . . . 542 7. Partnerships in commandite 545 8. Laws relating to insolvency 548 CHAPTEB X. Of Interferences of Government grounded on Erroneous Theories. 1. Doctrine of Protection to Native Industry 552 2. Usury Laws 558 3. Attempts to regulate the prices of commodities 561 4. Monopolies 562 5. Laws against Combination of "Workmen 563 6. Restraints on opinion or on its publication 566 CHAPTER XI. Oftlie Grounds and Limits oftlie Laisser-faire or Non-interference Principle. 1. Governmental intervention distinguished into authoritative and unauthoritative 507 2. Objections to government intervention the compulsory character of the intervention itself, or of the levy of funds to support it . . 3. increase of the power and influence of government .070 4. increase of the occupations and responsibilities of government . 570 ; 5. superior efficiency of private agency, owing to stronger interest in the work 571 6. importance of cultivating habits of collective action in the people 572 7. Laisser-faire the general rule 573 "AS. but liable to large exceptions. Cases in which the consumer is an incompetent judge of the commodity. Education .... 575 9. Case of persons exercising power over others. Protection of chil- dren and young persons ; of the lower animals. Case of women not analogous 577 10. Case of contracts in perpetuity 579 11. Cases of delegated management 579 12. Cases in which public intervention may be necessary to give effect to the wishes of the persons interested. Examples : hours of labour; disposal of colonial lands 581 13. Case of acts done for the benefit of others than the persons con- cerned. Poor Laws 583 14. Colonization 15. other miscellaneous examples 539 j 1C. Government intervention may be necessary in default of private agency, in cases where private agency would be more suitable . 590 UNIVER ' : PRINCIPLES POLITICAL ECONOMY. PRELIMINARY REMARKS. IN every department of human affairs, Practice long precedes Science : sys- tematic enquiry into the modes of action of the powers of nature, is the tardy product of a long course of efforts to use those powers for practical ends. The conception, accordingly, of Political Economy as a branch of science, is extremely modern ; but the subject with which its enquiries are conversant has in all ages necessarily constituted one of the chief practical interests of mankind, and, in some, a most unduly engrossing one. That subject is Wealth. Writers on Political Economy profess to teach, or to investigate, the nature of Wealth, and the laws of its production and dis- tribution: including, directly or re- motely, the operation of all the causes by which the condition of mankind, or of any society of human beings, in respect to this universal object of human desire, is made prosperous or the reverse. Not that any treatise on Political Economy can discuss or even Enumerate all these causes ; but it undertakes to set forth as much as is known of the laws and principles ac- cording to which they operate. Every one has a notion, sufficiently correct for common purposes, of what is meant by wealth. The enquiries which relate to it are in no danger of being confounded with those relating to any other of the great human in- terests. All know that it is one thing to be rich, another thing to be enlightened, brave, or humane ; that the questions how a nation is made wealthy, and how it is made free, or virtuous, or eminent in literature, in the fine arts, in arms, or in polity, are totally distinct enquiries. Those things, indeed, are all indirectly con- nected, and react upon one another, A people has sometimes become free,, because it had first grown wealthy ; or wealthy^ because it had first^ become free. The creed and laws of a people^ act powerfully upon their economisal ; condition ; and this again, by its influ- ' ence on their mental development and \ social relations, reacts upon their creed ^ and laws. But though the subjects are fii v^ry close contact, they are essentially different, and have never been supposed to be otherwise. It is no part of the design of this treatise to aim at metaphysical nicety of definition, where the ideas suggested by a term are already as determinate as practical purposes require. But, little as it might be expected that any mischievous confusion of ideas could take place on a subject so simple aa the question, what is to be considered as wealth, it is matter of history that such confusion of ideas has existed that theorists and practical politicians have been equally, and at one period universally, infected by it, and that for many generations it gave a tho- roughly false direction to the policy of Europe. I refer to the set of doc- trines designated, since the time of Adam Smith, by the appellation of the Mercantile System. E PRELIMINARY REMAKES. While tins system prevailed, it was assumed, either expressly or tacitly, in the whole policy of nations, that wealth consisted solely of money ; or of the precious metals, which, when not already in the state of money, are capable of being directly converted into it. Ac- cording to the doctrines then preva- whatever tended to heap up money or bullion in a country added to its wealth. Whatever sent the precious metals out of a country impoverished it. If a country possessed no gold or silver mines, the only industry by which it could be enriched was foreign trade, being the only one which could bring in money. Any branch of trade which was supposed to send out more money than it brought in, however ample and valuable might be the re- turns in another shape, was looked upon as a losing trade. Exportation of goods was favoured and encouraged (even by means extremely onerous to the real resources of the country), be- cause the exported goods being stipu- lated to be paid for in money, it was hoped that the returns would actually be made in gold and silver. Importa- tion of anything, other than the preci- ous metals, was regarded as a loss to the nation of the whole price of the things imported; unless they were brought in to be re-exported at a profit, or unless, being the materials or in- struments of some industry practised in the country itself, they gave the power of producing exportable articles at smaller cost, and thereby effecting a larger exportation. The commerce of the world was looked upon as a struggle among nations, which could draw to itself the largest share of the gold and silver in existence ; and in this competition no nation could gain anything, except by making others lose as much, or, at the least, prevent- ing them from gaining it. It often happens that the universal belief of one age of mankind a belief from which no one was, nor without an extraordinary effort of genius and courage, could at that time be free becomes to a subsequent age so palpa- ble an absurdity, that the only difficulty then is to imagine how such a thing can ever have appeared credible. It has so happened with the doctrine that money is synonymous with wealth. The conceit seems too preposterous to be thought of as a serious opinion. It looks like one of the crude fancies of childhood, instantly corrected by a word from any grown person. But let no one feel confident that he would have escaped the delusion if he had lived at the time when it prevailed. All the associations engendered by common life, and by the ordinary course of business, concurred in promoting it. So long as those associations were the only medium through which the sub- ject was looked at, what we now think so gross an absurdity seemed a truism. Once questioned/ indeed, it', was doomed ; but no one was likely to think of questioning it whose mind hacl not become familiar with certain modes of stating and of contemplating econo- mical phenomena, which have only found their way into the general understanding through the influence of Adam Smith and of his expositors. In common discourse, wealth is always expressed in money. If you ask how rich a person is, you are answered that he has so many thousand pounds. All income and expenditure, all gains and losses, everything by which one becomes richer or poorer, are reckoned as the coming in or going out of so much money. It is true that in the inventory of a person's fortune are included, not only the money in his actual possession, or due to him, but all other articles of value. These, however, enter, not in their own cha- racter, but in virtue of the sums of money which they would sell for ; and if they would sell for less, their owner is reputed less rich, though the things themselves are precisely the same. It is true, also, that people do not grow rich by keeping their money unused, and that they must be willing to spend in order to gain. Those who enrich themselves by commerce, do so by giving money for goods as well as goods for money; and the first is as necessary a part of the process as the last. But a person who buys goods for purposes of gain, does so to sell PRELIMINARY REMARKS. 8 them again for money, and in the ex- pectation of receiving more money than he laid out : to get money, therefore, seems even to the person himself the ultimate end of the whole. It often happens that he is not paid in money, hut in something else ; having bought goods to a value equivalent, which are set off against those he sold. But he accepted these at a money valuation, and in the belief that they would bring in more money eventually than the price at which they were made over to him. A dealer doing a large amount of business, and turning over his capital rapidly, has but a small portion of it in ready money at any one time. But he only feels it valuable to him as it is convertible into money : he considers no transaction closed until the net result is either paid or credited in money : when he retires from busi- ness it is into money that he converts the whole, and not until then does he deem himself to have realized his gains : just as if money were the only wealth, and money's worth were only the means of attaining it. If it be now asked for what end money is desirable, unless to supply the wants or pleasures of oneself or others, the champion of the system would not be at all embar- rassed by the question. True, he would say, these are the uses of wealth, and very laudable uses while confined to domestic commodities, because in that case, by exactly the amount which you expend, you enrich others of your countrymen. Spend your wealth, if you please, in whatever indulgences you have a taste for ; but your wealth is not the indulgences, it is the sum of money, or the annual money income, with which you purchase them. While there were so many things to render the assumption which is the basis of the mercantile system plausi- ble, there is also some small foundation in reason, though a very insufficient one, for the distinction which that sys- tem so emphatically draws between money and every other kind of valua- ble possession. We really, and justly, look upon a person as possessing the advantages of wealth, not in proportion to the useful and agreeable things of which he is in the actual enjoyment, but to his command over the general fund of things useful and agreeable; the power he possesses of providing for any exigency, or obtaining any object of desire Now, money is itself that pom_ while all other things, in a civilized state, seem to confer it only by their capacity of being exchanged for money. To possess any other arti- cle of wealth, is to possess that par- ticular thing, and nothing else : if you wish for another thing instead of it, you have first to sell it, or to submit to the inconvenience and delay (if not the impossibility) of finding some ono who has what you want, and is willing to barter it for what you have. But with money you are at once able to buy whatever things are for sale : and one whose fortune is in money, or in things rapidly convertible into it, seems both to himself and others to possess not any one thing, but all the things which the money places it at his option to purchase. The greatest part of the utility of wealth, beyond a very mode- rate quantity, is not the indulgences it procures, but the reserved power which its possessor holds in his hands of at- taining purposes generally ; and this power no other kind of wealth confers so immediately or so certainly as money. It is the only form of wealth which is not merely applicable to some one use, but can be turned at once to any use. And this distinction was the more likely to make an impression upon governments, as it is one of con- siderable importance to them. A civi- lized government derives comparatively little advantage from taxes unless it can collect them in money : and if it has large or sudden payments to make, especially payments in foreign countries for wars or subsidies, either for the sake of conquering or of not being conquered (the two chief objects of national policy until a late period), scarcely any medium of payment except money will serve the purpose. All these causes conspire to make both individuals and governments, in estimating their means, attach almost exclusive im- portance to money, either in esse or in posse, and look upon all other things 132 PRELIMESAKY REMARKS. (when viewed as part of their resources) scarcely otherwise than as the remote means of obtaining that which alone, when obtained, affords the indefinite, and at the same time instantaneous, command over objects of desire, which best answers to the idea of wealth. An absurdity. however, does not cease to be an absurdity when we have dis- covered what were the appearances which made it plausible ; and the Mer- cantile Theory could not fail to be seen in its true character when men began, eren in an imperfect manner, to explore into the foundations of things, and seek their premises from elementary facts, and not from the forms and phrases of common discourse. So soon as they asked themselves what is really meant by money what it is in its essential characters, and the precise nature of the functions it performs they reflected that money, like other things, is only a desirable possession on account of its uses : and that these, instead of being, as they delusively appear, indefinite, are of a strictly defined and Ijmj^d description, namely, to facilitate the- distribution of the produce of industry' according to the convenience of those among whom it is shared. Further consideration showed that the trselT^jf' money are in no respect promoted by increasing the quantity which exists and circulates in a country ; the service which it performs being as well rendered by a small as by a large aggregate amount. Two million quarters of corn will not feed so many persons as four millions; but two millions of pounds sterling will carry on as much traffic, will buy and sell as many commodities, as four millions, though at lower nomi- nal prices. Money, as money, satisfies no want ; its worth to any one, consists in its being a convenient shape in which to receive his incomings of all sorts, which incomings he afterwards, at the times which suit him best, converts into the forms in which they can be useful to him. Great as the difference would be between a country with money, and a countrv altogether without it, it would be only one of convenience ; a saving of time a*nd trouble, like grinding by water power instead of by hand, or (to use Adam Smith's illustration) like the benefit derived from roads : and to mis- take money for wealth, is the same sort of error as to mistake the highway which may be the easiest way of get- ting to your house or lands, for the house and lands themselves. Money, being the instrument of an important public and private purpose, is rightly regarded as wealth ; but everything else which serves any hu- man purpose, and which nature does not afford gratuitously, is wealth also. To be wealthy is to have a large stock of useful articles, or the means of pur- chasing them. Everything forms tTfenP fore a part of wealth, which has a power of purchasing ; for which anything use- ful or agreeable would be given in exchange. Things for which nothing could be obtained in exchange, how- ever useful or necessary they may be, are not wealth in the sense in which the term is used in PoliticaLEconomy. Air, for example, though the mo"sT"at> solute of necessaries, bears no price in the market, because it can be obtained gratuitously : to accumulate a stock of it would yield no profit or advantage to any one ; and the laws of its produc- tion and distribution are the subject of a very different study from Political Economy. But though air is not wealth, mankind are much richer by obtaining it gratis, since the time and labour which would otherwise be required for supplying the most pressing of all wants, can be devoted to other purposes. It is possible to imagine circumstances in which air would be a part of wealth. If it became customary to sojourn long in places where the air does not natur- ally penetrate, as in diving-bells sunk in the sea, a supply of air artificially furnished would, like water conveyed into houses, bear a price : and if from any revolution in nature the atmosphere became too scanty for the consumption, or could be monopolized, air might ac- quire a very high marketable value. In such a case, the possession of it, beyond his own wants, would be, to its owner, wealth; and the general wealth of mankind might at first sight appear to be increased, by what would be so great a calamity to them. The error would PRELIMINARY REMARKS. lie in not considering, that however , rich the possessor of air might become at the expense of the rest of the com- munity, all persons else would be poorer by all that they were compelled to pay for what they had before obtained with- out payment. This leads to an important distinc- tion in the meaning of the word wealth, applied to the possessions of an in- dividual, and to those of a nation, or of mankind. In the wealth of mankind, nothing is included which does not of itself answer some purpose of utility or pleasure. To an individual, anything is wealth, which, though useless in it- self, enables him to claim from others a part of their stock of things useful or pleasant. Take, for instance, a mort- gage of a thousand pounds on a landed estate. This is wealth to the person to whom it brings in a revenue, and who could perhaps sell it in the market for the full amount of the debt. But it is not wealth to the country ; if the engagement were annulled, the country would be neither poorer nor richer. The mortgagee would have lost a thousand pounds, and the owner of the land would have gained it. Speaking nationally, the mortgage was not itself wealth, but merely gave A a claim to a portion of the wealth of B. It was wealth to A, and wealth which he could transfer to a third person ; but what he so trans- ferred was in fact a joint ownership, to the extent of a thousand pounds, in the land of which B was nominally the sole proprietor. The position of fund- holders, or owners of the public debt of a country, is similar. They are mort- gagees on the general wealth of the country. The cancelling of the debt would be no destruction of wealth, but a transfer of it : a wrongful abstraction of wealth from certain members of the community, for the profit of the govern- ment, or of the tax-payers. Funded property therefore cannot be counted as part of the national wealth. This is not always borne in mind by the dealers in statistical calculations. For example, in estimates of the gross in- come of the country, founded on the proceeds of the income-tax, incomes derived from the funds are not always excluded: though the tax-payers are assessed on their whole nominal income, without being permitted to deduct from it the portion levied from them in luxa- tion to form the income of the fund- holder. In this calculation, therefore, one portion of the general income of the country is counted twice over, and the aggregate amount made to appear greater than it is by almost thirty mil- lions. A country, however, may include in its wealth all stock held by its citi- zens in the funds of foreign countries, and other debts due to them from abroad. But even this is only wealth to them by being a part ownership in wealth held by others. It forms no part of the collective wealth of the hu- man race. It is an element in the dis- tribution, but not in the composition, of the general wealth. It has been proposed to define wealth as signifying "instruments :" meaning not tools and machinery alone, but the whole accumulation possessed by indi- viduals or communities, of means for the attainment of their ends. Thus, a field is an instrument, because it is a means to the attainment of corn. Corn is an instrument, being a means to the attainment of flour. Flour is an instru- ment, being a means to the attainment of bread. Bread is an instrument, as a means to the satisfaction of hunger and to the support of life. Here we at last arrive at things which are not in- struments, being desired on their own account, and not as mere means to something beyond. This view of the subject is philosophically correct ; or rather, this mode of expression may be usefully employed along with others, not as conveying a different view of the sub- ject from the common one, but as giving more distinctness and reality to the common view. It departs, however, too widely from the custom of language, to be likely to obtain general acceptance, or to be of use for any other purpose than that of occasional illustration. Another example of a possession which is wealth to the person holding it, but not wealth to the nation, or to mankind, is slaves. It is by a strange confusion of ideas that slave property (as it is termed) is counted, at so much PRELIMINARY REMARKS. per head, in an estimate of the wealth, or of the capital, of the country which tolerates the existence of such property. If a human heing, considered as an object possessing productive powers, is part of the national wealth when his powers are owned by another man, he cannot be less a part of it when they are owned by himself. Whatever he is worth to' his master is so much pro- perty abstracted from himself, and its abstraction cannot augment the posses- sions of the two together, or of the country to which they both belong. In propriety of classification, however, the people of a country are not to be counted in its wealth. They are that for the sake of which its wealth exists. The term wealth is wanted to denote the de- sirable objects which they possess, not inclusive of, but in contradistinction to, their own persons. They are not wealth to themselves, though they are means iring it. Wealth, then, may be defined, all 'useful or agreeable things which possess exchangeable value ; or, in other words, all useful or agreeable things except those which can be obtained, in the quantity desired, without labour or sa- crifice. To this definition, the only objection seems to be, that it leaves in uncertainty a question which has been much debated whether what are called immaterial products are to be considered as wealth : whether, for example, the skill of a workman, or any other natural or acquired power of body or mind, shall be called wealth, or not : a question, not of very great importance, and which, so far as requiring discussion, will be more conveniently considered in another place.* These things having been premised respecting wealth, we shall next turn our attention to the extraordinary dif- ferences in respect to it, which exist between nation and nation, and be- tween difierent ages of the world ; dif- ferences both in the quantity of wealth, and in the kind of it ; as well as in the manner in which the wealth existing in the community is shared among its members. Uhere is, perhaps, no people or com- Juira, book i. ch&p. iii. munity, now existing, which subsists entirely on the spontaneous produce oi vegetation. But many tribes still live exclusively, or almost exclusively, on wild animals, the produce of hunting or fishing. Their clothing is skins ; theil habitations, huts rudely formed of logs or boughs of trees, and abandoned at an hour's notice. The food they use being little susceptible of storing up, they have no accumulation of it, and are often exposed to great privations. The wealth of such a community con- sists solely of the skins they wear ; a few ornaments, the taste for which exists among most savages ; some rude utensils ; the weapons with which they kill their game, or fight against hostile competitors for the means of subsistence; canoes for crossing rivers and lakes, or fishing in the sea ; and perhaps some furs or other productions of the wilder- ness, collected to be exchanged with civilized people for blankets, brandy, and tobacco ; of which foreign produce also there may be some unconsumed portion in store. To this scanty in- ventory of material wealth, ought to be added their land; an instrument of production of which they make slender use, compared with more settled com- munities, but which is still the source of their subsistence, and which has a marketable value if there be any agri- cultural community in the neighbour- hood requiring more land than it pos- sesses. This is the state of greatest poverty in which any entire community of human beings is known to exist ; though there are much richer commu- nities in which portions of the inhabit- ants are in a condition, as to subsist- ence and comfort, as little enviable as that of the savage. The first great advance beyond this state consists in the domestication of the more useful animals ; giving rise to the pastoral or nomad state, in which mankind do not live on the produce of hunting, but on milk and its products, and on the annual increase of flocks and herds. This condition is not only more desirable in itself, but more con- ducive to further progress ; and a much more considerable amount of wealth is accumulated under it. So long as the PRELIMINARY REMARKS. vast natural pastures of the earth are not yet so fully occupied as to be con- sumed more rapidly than they are spontaneously reproduced, a large and constantly increasing stock of subsist- ence may be collected and preserved, with little other labour than that of guarding the cattle from the attacks of wild beasts, and from the force or wiles of predatory men. Large flocks and herds, therefore, are in time possessed, by active and thrifty individuals through j their own exertions, and by the heads of families and tribes through the ex- ertions of those who are connected with them by allegiance. There thus arises, in the shepherd state, inequality of possessions ; a thing which scarcely exists in the savage state, Avhere no one has much more than absolute ne- cessaries, and in case of deficiency must share even those with his tribe. In the nomad state, some have an abundance of cattle, sufficient for the food of a mul- titude, while others have not contrived to appropriate and retain any super- fluity, or perhaps any cattle at all. But subsistence has ceased to be precarious, since the more successful have no other use which they can make of their sur- plus than to feed the less fortunate, while every increase in the number of persons connected with them is an in- crease both of security and of power : and thus they are enabled to divest themselves of all labour except that of government and superintendence, and acquire dependents to fight for them in war and to serve them in peace. One of the features of this state of society is, that a part of the community, and in some degree even the whole of it, possess leisure. Only a portion of time is required for procuring food, and the remainder is not engrossed by anxious thought for the morrow, or necessary repose from muscular activity. Such a life is highly favourable to the growth of new wants, and opens a possibility of their gratification. A desire arises for better clothing, utensils, and imple- ments, than the savage state contents itself with ; and the surplus food ren- ders it practicable to devote to these purposes the exertions of a part of the tribe. In all or most nomad commu- nities we find domestic manufactures of a coarse, and in some, of a tine kind. There is ample evidence that while those parts of the world which have been the cradle of modem civilization were still generally in the nomad state, considerable skill had been attained in spinning, weaving, and dyeing woollen garments, in the preparation of leather, and in what appears a still more diffi- cult invention, that of working in metals. Even speculative science took its first beginnings from the leisure character- istic of this stage of social progress. The earliest astronomical observations are attributed, by a tradition which has much appearance of truth, to the shep- herds of Chaldsea. From this state of society to the agricultural the transition is not indeed easy, (for no great change in the habits of mankind is otherwise than difficult, and in general either painful or very slow,) but it lies in what may be called the spontaneous course of events. Tiie growth of the population of men and cattle began in time to press upon the earth's capabilities of yielding natural pasture : and this cause doubtless pro- duced the first tilling of the ground, just as at a later period the same cause made the superfluous hordes of the nations which had remained nomad precipitate themselves upon those which had already become agricul- tural ; until, these having become suf- ficiently powerful to repel such inroads, the invading nations, deprived of this outlet, were obliged also to become agricultural communities. But after this great step had been completed, the subsequent progress of mankind seems by no means to have been so rapid (certain rare combina- tions of circumstances excepted) as might perhaps have been anticipated. The quantity of human food which the earth is capable of returning even to the most wretched system of agricul- ture, so much exceeds what could be obtained in the purely pastoral state, that a great increase of population is invariably the result. But this addi- tional food is only obtained by a great additional amount of labour; so that not only an agricultural has much ]<>^ PRELIMINARY REMARKS. leisure than a pastoral population, but, with the imperfect tools and unskilful processes which are for a long time employed (and which over the greater part of the earth have not even yet been abandoned), agriculturists do not, unless in unusually advantageous cir- cumstances of climate and soil, produce so great a surplus of food beyond their necessary consumption, as to support any large class of labourers engaged in other departments of industry. The surplus, too, whether small or great, is usually torn from the producers, either by the government to which they are subject, or by individuals, who by superior force, or by availing them- selves of religious or traditional feel- ings of subordination, have established themselves as lords of the soil. The first of these modes of appro- priation, by the government, is cha- racteristic of the extensive monarchies which from a time beyond historical record have occupied the plains of Asia. The government, in those coun- tries, though varying in its qualities according to the accidents of personal character, seldom leaves much to the cultivators beyond mere necessaries, and often strips them so bare even of these, that it finds itself obliged, after taking all they have, to lend part of it back to those from whom it has been taken, in order to pro vide them with seed, and enable them to support life until an- other harvest. Under the regime in question, though the bulk of the popu- lation are ill provided for, the govern- ment, by collecting small contributions from great numbers, is enabled, with any tolerable management, to make a show of riches quite out of proportion to the general condition of the society; and hence the inveterate impression, of which Europeans have only at a late period been disabused, concerning the great opulence of Oriental nations. In this wealth, without reckoning the large portion which adheres to the hands employed in collecting it, many persons of course participate, besides the immediate household of the sove- reign. A large part is distributed among the various functionaries of go- vernment, and among the objects of the sovereign's favour or caprice. A part is occasionally employed in works of public utility. The tanks, wells, and canals for irrigation, without which in many tropical climates cultivation could hardly be carried on ; the em- bankments which confine the rivers, the bazars for dealers, and the seraees for travellers, none of which could have been made by the scanty means in the possession of those using them, owe their existence to the liberality and enlightened self-interest of the better order of princes, or to the benevolence or ostentation of here and there a rich individual, whose fortune, if traced to its source, is always found to have been drawn immediately or remotely from the public revenue, most frequently by a direct grant of a portion of it from the sovereign. The ruler of a society of this descrip- tion, after providing largely for his own support, and that of all persons in whom he feels an interest, and after maintaining as many soldiers as he thinks needful for his security or his state, has a disposable residue, which he is glad to exchange for articles of luxury suitable to his disposition : as have also the class of persons who have been enriched by his favour, or by handling the public revenues. A de- mand thus arises for elaborate and costly manufactured articles, adapted to a narrow but a wealthy market. This demand is often supplied almost ex- clusively by the merchants of more advanced communities, but often also raises up in the country itself a class of artificers, by whom certain fabrics are carried to as high excellence as can be given by patience, quickness of perception and observation, and manual dexterity, without any con- siderable knowledge of the properties of objects^- such as some of the cotton fabrics of India. These artificers are fed by the surplus food which has been taken by the government and its agents as their share of the produce. So literally is this the case, that in some countries the workman, instead of taking the work home, and being PRELIMINARY REMARKS. paid for it after it is finished, proceeds with his tools to his customer's house, and is there subsisted until the work is complete. The insecurity, however, of all possessions in this state of society, induces even the richest purchasers to give a preference to such articles as, being of an imperishable nature, and containing great value in small bulk, are adapted for being concealed or car- ried off. Gold and jewels, therefore, constitute a large proportion of the wealth of these nations, and many a rich Asiatic carries nearly his whole fortune on his person, or on those of the women of his harem. No one, except the monarch, thinks of invest- ing his wealth in a manner not suscep- tible of removal. He, indeed, if he feels safe on his throne, and reasonably secure of transmitting it to his descen- dants, sometimes indulges a taste for durable edifices, and produces the Pyramids, or the Taj Mehal and the Mausoleum at Sekundra. The rude manufactures destined for the wants of the cultivators are worked up by vil- lage artisans, who are remunerated by land given to them rent-free to culti- vate, or by fees paid to them in kind from such share of the crop as is left to the villagers by the government. This state of society, however, is not destitute of a mercantile class ; com- posed of two divisions, grain dealers and money dealers. The grain dealers do not usually buy grain from the pro- ducers, but from the agents of govern- ment, who, receiving the revenue in kind, are glad to devolve upon others the business of conveying it to the places where the prince, his chief civil and military officers, the bulk of his troops, and the artisans who supply the wants of these various persons, are assembled. The money dealers lend to the unfortunate cultivators, when ruined by bad seasons or fiscal exac- tions, the means of supporting life and continuing their cultivation, and are repaid with enormous interest at the next harvest : or, on a larger scale, they lend to the government, or to those to whom it has granted a portion of the revenue, and are indemnified by assignments on the revenue collectors, or by having certain districts put into their possession,that they may pay them- selves from the revenues ; to enable them to do which, a great portion of the powers of government are usually made over simultaneously, to be exer- cised by them until either the districts are redeemed, or their receipts have liquidated the debt. Thus, the com- mercial operations of both these classes of dealers take place principally upon that part of the produce of the country which forms the revenue of the govern- ment. From that revenue their capital is periodically replaced with a profit, and that is also the source from which their original funds have almost always been derived. Such, in its general features, is the economical condition of most of the countries of Asia, as it has been from beyond the commencement of authentic history, and is still, wher- ever not disturbed by foreign influ- ences. In the agricultural communities of ancient Europe whose early condition is best known to us, the course of things was different. These, at their origin, were mostly small town-commu- nities, at the first plantation of which, in an unoccupied country, or in one from which the former inhabitants had been expelled, the land which was taken possession of was- regularly divided, in equal or in graduated allot- ments, among the families composing the community. In some cases, in- stead of a town there was a confedera- tion of towns, occupied by people of the same reputed race, and who were sup- posed to have settled in the country about the same time. Each family produced its own food and the mate- rials of its clothing, which were worked up within itself, usually by the women of the family, into the coarse fabrics with which the age was contented. Taxes there were none, as there were either no paid officers of government, or if there were, their payment had been provided for by a reserved portion of land, cultivated by slaves on account of the state ; and the army consisted of the body of citizens. The wholo 10 PRELIMINARY REMAEKS produce of the soil, therefore, belonged, without deduction, to the family which cultivated it. So long as the progress of events permitted this disposition of property to last, the state of society- was, for the majority of the free culti- vators, prohably not an undesirable one ; and under it, in some cases, the advance of mankind in intellectual cul- ture was extraordinarily rapid and brilliant. This more especially hap- pened where, along with advantageous circumstances of race and climate, and no doubt with many favourable acci- dents of which all trace is now lost, was combined the advantage of a position on the shores of a great inland sea, the other coasts of which were already occupied by settled commu- nities. The knowledge which in such a position was acquired of foreign pro- ductions, and the easy access of foreign ideas and inventions, made the chain of routine, usually so strong in a rude people, hang loosely on these commu- nities. To speak only of their indus- trial development ; they early acquired variety of wants and desires, which stimulated them to extract from their own soil the utmost which they knew how to make it yield ; and when their eoil was sterile, or after they had reached the limit of its capacity, they often became traders, and bought up the productions of foreign countries, to sell them in other countries with a profit. The duration, however, of this state of things was from the first precarious. These little communities lived in a state of almost perpetual war. For this there were many causes. In the ruder and purely ' agricultural commu- nities a frequent cause was the mere pressure of their increasing population upon their limited hind, aggravated as that pressure BO often was by deficient harvests in the rude state of their agri- culture, and depending as they did for food upon a very small extent of coun- 'n these occasions, the commu- -n emigrated in a body, or sent forth a swarm of its youth, to seek, sword in hand, for some less warlike people, who could be expelled from their land, or detained to cultivate it a slaves for the benefit of their despoilers. What the less advanced tribes did from necessity, the more prosperous did from ambition and the military spirit : and after a time the whole of these city-communities were either conquerors or conquered. In some cases, the conquering state contented itself with imposing a tribute on the vanquished: who being, in considera- tion of that burden, freed from the ex- pense and trouble of their own military and naval protection, might enjoy under it a considerable share of econo- mical prosperity, while the ascendant community obtained a surplus of wealth, available for purposes of collec- tive luxury or magnificence. From such a surplus the Parthenon and the Propylaea w r ere built, the sculptures of Pheidias paid for, and the festivals celebrated, for which ^Eschylus, Sopho- cles, Euripides, and Aristophanes com- posed their dramas. But this state of political relations, most useful, while it lasted, to the progress and ultimate interest of mankind, had not the ele- ments of durability. A small conquer- ing community which does not incor- porate its conquests, always ends by being conquered. Universal dominion, therefore, at last rested with the people who practised this art with the Romans; who, whatever were their other devices, always either began or ended by taking a great part of the land to enrich their own leading citi- zens, and by adopting into the govern- ing body the principal possessors of the remainder. It is unnecessary to dwell on the melancholy economical history of the Roman empire. When in- equality of wealth once commences, in a community not constantly engaged in repairing by industry the injuries of fortune, its advances are gigantic ; the great masses' of wealth swallow up the smaller. The Roman empire ulti- mately became covered with the vast landed possessions of a comparatively few families, for whose luxury, and still more for whose ostentation, the most costly products were raised, while the cultivators of the soil were slaves, or small tenants in a nearly servile condition. From this time the wealth PRELIMINARY REMARKS. 11 of the empire progressively declined. In the beginning, the public revenues, and the resources of rich individuals, sufficed at least to cover Italy with splendid edifices, public and private : but at length so dwindled under the enervating influences of misgovernment, that what remained was not even suffi- cient to keep those edifices from decay. The strength and riches of the civilized world became inadequate to make head against the nomad population which skirted its northern frontier: they overran the empire, and a different order of things succeeded. In the new frame in which European society was now cast, the population of each country may be considered as composed, in unequal proportions, of two distinct nations or races, the con- querors and the conquered : the first the proprietors of the land, the latter the tillers of it. These tillers were allowed to occupy the land on conditions which, being the product of force, were always onerous, but seldom to the extent of absolute slavery. Already, in the later times of the Roman empire, predial slavery had extensively transformed itself into a kind of serfdom : the coloni of the Romans were rather villeins than actual slaves ; and the incapacity and distaste of the barbarian conquerors for personally superintending industrial occupations, left no alternative but to allow to the cultivators, as an incentive to exertion, some real interest in the soil. If, for example, they were com- pelled to labour, three days in the week, for their t-uperior, the produce of the remaining days was their own. If they were required to supply the pro- visions of various sorts, ordinarily needed for the consumption of the castle,' and were often subject to requisitions in excess, yet after sup- plying these demands they were suf- fered to dispose at their will of what- ever additional produce they could raise. Under this system during the Middle Ages it was not impossible, no more than in modern Russia (where, up to the recent measure of emancipa- tion, the same system still essentially prevailed) for serfs to acquire property ; and in fact, their accumulations are the primitive source of the wealth of modern Europe. In that age of violence and disorder, the first use made by a serf of any small provision which he had been able to accumulate, was to buy his freedom and withdraw himself to some town or fortified village, which had remained undestroyed from the time of the Ro- man dominion ; or, without buying his freedom, to abscond thither. In that place of refuge, surrounded by others of his own class, he attempted to live, se- cured in some measure from the out- rages and exactions of the warrior caste, by his own prowess and that of his fel- lows. These emancipated serfs mostly became artificers; and lived by ex- changing the produce of their industry for the surplus food and material which the soil yielded to its feudal proprietors. This gave rise to a sort of European counterpart of the economical condition of Asiatic countries ; except that, ia lieu of a single monarch and a fluctua- ting body of favourites and employes, there was a numerous and in a consider able degree fixed class of great land- holders ; exhibiting far less splendour, because individually disposing of a much smaller surplus produce, and for a long time expending the chief part of it in maintaining the body of retainers whom the warlike habits of society, and the little protection afforded by govern- ment, rendered indispensable to their safety. The greater stability, the fixity of personal position, which this state of society afforded, in comparison with the Asiatic polity to which it economi- cally corresponded, was one main rea- son why it was also found more favour- able to improvement. From this time the economical advancement of society has not been further interrupted. Se- curity of person and property grew slowly, but steadily; the arts of life made constant progress; plunder ceased to be the principal source of accumula- tion ; and feudal Europe ripened into commercial and manufacturing Europe. In the latter part of the Middle Ages, the towns of Italy and Flanders, tho free cities of Germany, and some towns of France and England, contained a large and energetic population of arti- 12 sans, and many rich burghers, whose wealth had been acquired by manufac- turing industry, or by trading in the produce of such industry. The Com- mons of England, the Tiers-Etat of France, the bourgeoisie of the Conti- nent generally, are the descendants of this class. As these were a saving class, while the posterity of the feudal aristocracy were a squandering class, the former by degrees substituted them- selves for the latter as the owners of a great proportion of the land. This natural tendency was in some cases retarded by laws contrived for the pur- pose of detaining the land in the fami- lies of its existing possessors, in other cases accelerated by political revolu- tions. Gradually, though more slowly, the immediate cultivators of the soil, in all the more civilized countries, ceased to be in a servile or semi-servile state : though the legal position, as well as the economical condition attained by them, vary extremely in the different nations of Europe, and in the great communities which have been founded beyond the Atlantic by the descendants of Europeans. The world now contains several ex- tensive regions, provided with the va- rious ingredients of wealth in a degree of abundance of which former ages had not even the idea. "Without compulsory labour, an enormous mass of food is annually extracted from the soil, and maintains, besides the actual producers, an equal, sometimes a greater number of labourers, occupied in producing conveniences and luxuries of innumer- able kinds, or in transporting them from place to place ; also a multitude of per- sons employed in directing and super- intending these various labours; and over and above all these, a class more numerous than in the most luxurious ancient societies, of persons whose oc- cupations are of a Kind not directly productive, and of persons who have no occupation at all. The food thus raised, supports a far larger population than had ever existed (at least in the same regions) on an equal space of ground; and supports them with cer- tainty, exempt from those periodically PRELIMINARY REMARKS. recurring famines so abundant in the early history of Europe, and in Oriental countries even now not unfrequent. Besides this great increase in the quan- tity of food, it has greatly improved in quality and variety; while conveniences and luxuries, other than food, are no 1 longer limited to a small and opulent class, but descend, in great abundance, through many widening strata in so- ciety. The collective resources of one of these communities, when it chooses to put them forth for any unexpected purpose ; its ability to maintain fleets and armies, to execute public works, either useful or ornamental, to perform national acts of beneficence like the ransom of the West India slaves; to found colonies, to have its people taught, to do anything in short which requires expense, and to do it with no sacrifice of the necessaries or even the substantial comforts of its inhabitants, are such as the world never saw before. But in all these particulars, charac- teristic of the modern industrial com- munities, those communities differ widely from one another. Though abounding in wealth as compared with former ages, they do so in very different degrees. Even of the countries which are justly accounted the richest, some have made a more complete use of their productive resources, and have obtained, relatively to their territorial extent, a much larger produce, than others ; nor do they differ only in amount of wealth, but also in the rapidity of its increase. The diversities in the distribution of wealth ' are still greater than in the production. There are great differences in the condition of the poorest class in different countries ; and in the propor- tional numbers and opulence of the classes which are above the poorest. The very nature and designation of the classes who originally share among them the produce of the soil, vary not a little in different places. In some, the landowners are a class in them, selves, almost entirely separate from the classes engaged in industry: in others, the proprietor of the land is almost universally its cultivator, own* PRELIMINARY REMARKS. 1.3 Ing the plough, and often himself hold- ing it. Where the proprietor himself does not cultivate, there is sometimes, between him and the labourer, an in- termediate agency, that of the farmer, who advances the subsistence of the labourers, supplies the instruments of production, and receives, after paying a rent to the landowner, all the pro- duce : in other cases, the landlord, his paid agents, and the labourers, are the only sharers. Manufactures, again, are sometimes carried on by scattered individuals, who own or hire the tools or machinery they require, and employ little labour besides that of their own family ; in other cases, by large num- bers working together in one building, with expensive and complex machinery owned by rich manufacturers. The same difference exists in the operations of trade. The wholesale operations in- deed are everywhere carried on by large capitals, where such exist ; but the retail dealings, which collectively oc- cupy a very great amount of capital, are sometimes conducted in small shops, chiefly by the personal exertions of the dealers themselves, with their families, and perhaps an apprentice or two ; and sometimes in large establishments, of which the funds are supplied by a wealthy individual or association, and the agency is that of numerous salaried shopmen or shopwomen. Besides these differences in the economical pheno- mena presented by different parts of what is usually called the civilized world, all those earlier states which we previously passed in review, have con- tinued in some part or other of the world, down to our own time. Hunt- ing communities still exist in America, nomadic in Arabia and the steppes of Northern Asia; Oriental society is in essentials what it has always been ; the great empire of Russia is even now, in many respects, the scarcely modified image of feudal Europe. Every one of the great types of human society, down to that of the Esquimaux or Patago- nians, is still extant. These remarkable differences in the state of diffeient portions of the human race, with regard to the production and distribution of wealth, must, like all other phenomena, depend on causes. And it is not a sufficient explanation to ascribe them exclusively to the de- grees of knowledge, possessed at dif- ferent times and places, of the laws of nature and the physical arts of life. Many other causes co-operate ; and that very progress and unequal dis- tribution of physical knowledge, are partly tha effects, as well as partly the causes, of the state of the production and distribution of wealth. In so far as the economical condition of nations turns upon the state of phy- sical knowledge, it is a subject for the physical sciences, and the arts founded on them. But in so far as the causes are moral or psychological, dependent on institutions and social relations, or on the principles of human nature, their investigation belongs not to phy- sical, but to moral and social science, and is the object of what is called Po- litical Economy. The production of wealth ; the ex- traction of the instruments of human subsistence and enjoyment from the materials of the globe, is evidently not an arbitrary thing. It has its neces- sary conditions. Of these, some are physical, depending on the properties of matter, and on the amount of knowledge of those properties possessed at the particular place and time. These Political Economy does not investigate, but assumes; referring for the grounds, to physical science or common expe- rience. Combining with these facts of outward nature other truths relating to human nature, it attempts to trace the secondary or derivative laws, by which the production of wealth is de- termined; in which must lie the ex- planation of the diversities of riches and poverty in the present and past, and the ground of whatever in- crease in wealth is reserved for the future. Unlike the laws of Production, those of Distribution are partly of human institution : since the manner in which wealth is distributed in any given so- ciety, depends on the statutes or usages therein obtaining. But though govern PRELIMINARY REMARKS. ments or nations have the power of de- ciding what institutions shall exist, they cannot arbitrarily determine how those institutions shall work. The con- ditions on which the power they possess over the distribution of wealth is depen- dent, and the manner in which the dis- tribution is affected by the various modes of conduct which society may think fit to adopt, are as much a subject for scien- tific inquiry as any of the physical laws of nature. The laws of Production and Distri- bution, and some of the practical con- sequences deducible from them, are the subject of the following treatise. BOOK I PEODUCTIOIST. CHAPTER I. OP TIIK REQUISITES OF PRODUCTION. 1. THE requisites of production are two : labour, and appropriate joatural objects^ Labour is either bodily: or mental ; or, to express the distinction more com- prehensively, either muscular or nerv- ous ; and it is necessary to iWude in the idea, not solely the exeraron itself, but all feelings of a disagreeable kind, all bodily inconvenience or mental an- noyance, connected with the employ- ment of one's thoughts, or muscles, or both, in a particular occupation. Of the other requisite appropriate na- tural objects it is to be remarked, that some objects exist or grow up sponta- neously, of a kind suited to the supply of human wants. There are caves and hollow trees capable of affording shel- ter ; fruit, roots, wild honey, and other natural products, on which human life can be supported ; but even here a con- siderable quantity of labour is generally required, not for the purpose of creating, but of finding and appropriating them. In all but these few and (except in the very commencement of human society) unimportant cases, the objects supplied by nature are only instrumental to hu- man wants, after having undergone Borne degree of transformation by hu- man exertion. Even the wild animals of the forest and of the sea, from which the hunting and fishing tribes derive their sustenance though the labour of which they are the subject is chiefly that required for appropriating them must yet, before they are used as food, be killed, divided into fragments, and subjected in almost all cases to some culinary process, which are operations requiring a certain degree of human labour. The amount of transformation which natural substances undergo be- fore being brought into the shape in which they are directly applied to hu- man use, varies from this or a still less degree of alteration in the nature and appearance of the object, to a change so total that no trace is perceptible of the original shape and structure. There is little resemblance between a piece of a mineral substance found in the earth, and a plough, an axe, or a saw. There is less resemblance between porcelain and the decomposing granite of which it is made, or between sand mixed with sea-weed, and glass. The difference is greater still between the fleece of a sheep, or a handful of cotton seeds, and a web of muslin or broad cloth ; and the sheep and seeds themselves are not spontaneous growths, but results of pre- vious labour and care. In these se- veral cases the ultimate product is so extremely dissimilar to the substance supplied by nature, that in the custom of language nature is represented as only furnishing materials. Nature, however, does more than supply materials; she also supplies powers. The matter of the globe is not an inert recipient of forms and pro- perties impressed by human hands ; it has active energies by which it co-ope- rates with, and may even be used as a substitute for, labour. In the early ages people converted their corn into flour by pounding it between two stones; they next hit on a contrivance which 16 BOOK I. CHAPTER I. 2. enabled them, by turning a handle, to make one of the stones revolve upon the other ; and this process, a little im- proved, is still the common piactice of the East. The muscular exertion, however, which it required, was very severe and exhausting, insomuch that it was often selected as a punishment for slaves who had offended their masters. When the time came at which the labour and sufferings of slaves were thought worth economizing, the greater part of this bodily exertion was rendered unnecessary, by contriv- ing that the upper stone should be made to revolve upon the lower, not by human strength, but by the force of the wind or of falling water. In this case, natural agents, the wind or the gravitation of the water, are made to do a portion of the work previously done by labour. 2. Cases like this, in which a cer- tain amount of labour has been dis- pensed with, its work being devolved upon some natural agent, are apt to suggest an erroneous notion of the comparative functions of labour and natural powers ; as if the co-operation of those powers with human industry were limited to the cases in which they are made to perform what would other- wise be done by labour ; as if, in the case of things made (as the phrase is) v by hand, nature only furnished passive materials. This is an illusion. The powers of nature are as actively opera- tive in the one case as in the other. A workman takes a stalk of the flax or hemp plant, splits it into separate fibres, twines together several of these fibres with his fingers, aided by a simple instrument called a spindle ; having thus formed a thread, he lays many such threads side by side, and places other similar threads directly across them, so that each passes alternately (>Y:i at odd intervals, concurrently with the pursuit of his subsistence. He cannot obtain food itself in any abundance ; for every mode of so obtaining it, requires that there be already food in store. Agri- culture only brings forth food after the lapse of months ; and though the labours of the agriculturist are not necessarily continuous during the whole period, they must occupy a considera- ble part of it. Not only is agriculture impossible without food produced in advance, but there must be a very great quantity in advance to enable any considerable community to sup- port itself wholly by agriculture. A country like England or France is only able to carry on the agriculture of the present year, because that of past years has provided, in those countries or somewhere else, sufficient food to sup- port their agricultural population until the next harvest. They are only enabled to produce so many other things besides food, because the food which was in store at the close of the last harvest suffices to maintain not only the agricultural labourers, but a large industrious population besides. The labour employed in producing this stock of subsistence, forms a great and important part of the past labour which has been necessary to enable present labour to be carried on. But there is a difference, requiring parti- cular notice, between this and the other kinds of previous or preparatory labour. The miller, the reaper, the ploughman, the plough-maker, the waggoner and waggon-maker, even the sailor and ship-builder when employed, derive their remuneration from the ultimate product the bread made from the corn on which they have severally operated, or supplied the instruments for ope- rating. The labour that produced the food which fed all these labourers, is as necessary to the ultimate result, the bread of the present harvest, as any of those other portions of labour; but is not, like them, remunerated from it, That previous labour has received its remuneration from the previous food. In order to raise any product, there are needed labour, tools, and materials, and bod to feed the labourers. But the ools and materials are of no use except LABOUR AS AN AGENT OF PRODUCTION. 2] for obtaining the product, or at least are to be applied to no other use, and the labour of their construction can be remunerated only from the product when obtained. The food, on the con- trary, is intrinsically useful, and is ap- plied to the direct use of feeding human beings. The labour expended in pro- ducing the food, and recompensed by it, needs not be remunerated over again from the produce of the subsequent labour which it has fed. If we suppose that the same body of labourers carried on a manufacture, and grew food to sustain themselves while doing it, they have had for their trouble the food and the manufactured article ; but if they also grew the material and made the tools, they have had nothing for that trouble but the manufactured article alone. The claim to remuneration founded on the possession of food, available for the maintenance of labourers, is of an- other kind ; remuneration for abs^mence, not for labour. If a person has a store of food, he has it in his power to con- sume it himself in idleness, or in feed- ing others to attend on him, or to fight for him, or to sing or dance for him. If, instead of these things, he gives it to productive labourers to support them during their work, he can, and natur- ally will, claim a remuneration from the produce. He will not be content with simple repayment ; if he receives merely that, he is only in the same situation as at first, and has derived no advan- tage from delaying to apply his savings to his own benefit or pleasure. He will look for some equivalent for this for- bearance : he will expect his advance of food to come back to him with an increase, called in the language of busi- ness, a profit ; and the hope of this profit will generally have been a part of the inducement which made him accu- mulate a stock, by economizing in his own consumption ; or, at any rate,, which made him forego the application of it, when accumulated, to his personal ease or satisfaction. The food also which maintained other workmen while producing the tools or materials, must nave been provided in advance by some one, and he, too, must have his profit "from the ultimate product ; but there is this difference, that here the ultimate product has to supply not only the profit, but also the remuneration of the labour. The tool-maker (say, for in- stance, the plough-maker) does not in- deed usually wait for his payment until the harvest is reaped ; the farmer ad- vances it to him, and steps into his place by becoming the owner of the plough. Nevertheless, it is from tho harvest that the payment is to come , since the farmer would not undertake this outlay unless he expected that the harvest would repay him, and with a profit too on this fresh advance ; that is, unless the harvest would yield, be- sides the remuneration of the farm labourers (and a profit for advancing it), a sufficient residue to remunerate the plough-maker's labourers, give the plough-maker a profit, and a profit to the farmer on both. 3. From these considerations it ap- pears, that in an enumeration and clas- sification of the kinds of industry which are intended for the indirect or remote furtherance of other productive labour, we need not include the labour of pro- ducing subsistence or other necessaries of life to be consumed by productive labourers ; for the main end and pur- pose of this labour is the subsistence itself; and though the possession of a store of it enables other work to be done, this is but an incidental consequence. The remaining modes in which labour is indirectly instrumental to production, may be arranged under five neads. First : Labour employed in producing materials, on which industry is to be afterwards employed. This is, in many cases, a labour of mere appropriation ; extractive industry, as it has been aptly named by M. Dunoyer. The labour of the miner, for example, consists of ope- rations for digging out of the earth substances convertible by industry into various articles fitted for human use. Extractive industry, however, is not confined to the extraction of materials. Coal, for instance, is ^employed, not only in the processes of industry, but in directly warming human beings. ^Vhen so used, it is not a material of produc- 22 tion, but is itself the ultimate product. M of a mine of pre- cious stones. These are to some small extent employed in the productive arts, as diamonds by the glass-cutter, emery and corundum for polishing, but their principal destination, that of ornament, is a direct use ; though they commonly require, before being so used, some pro- cess of manufacture, which may per- haps warrant our regarding them as materials. 'Metallic ores of all sorts are materials merely. ruder tin.- head, production of mate- rials, we must include the industry of the wood-cutter, when employed in cutting anil preparing timber for build- ing, or wood for the purposes of the carpenter's or any other art. In the forests of America, Norway, Germany, the Pyrenees and Alps, this sort of labour is largely employed on trees of spontaneous growth. In other cases, we must add to the labour of the wood- cutter that of the planter and culti- vator. Under the same head are also com- prised the labours of the agriculturists in growing flax, hemp, cotton, feeding silk-worms, raising food for cattle, pro- ducing bark, dye-stuffs, some oleaginous plants, and many other things only useful because required in other de- partments of industry. So, too, the labour of the hunter, as far as his object is furs or feathers ; of the shep- herd and the cattle-breeder, in respect of wool, hides, horn, bristles, horse-hair, and the like. The things used as materials in some process or other of manufacture are of a most miscel- laneous character, drawn from almost every quarter of the animal, vegetable, and mineral kingdoms. And besides this, the finished products of many branches of industry are the materials of others. The thread produced by the spinner is applied to hardly any use except as material for the weaver. Even the product of the loom is chiefly material for the fabricators of articles of dress or furniture, or of further instruments of productive in- dustry, as in the case of the sailmaker. The currier and tanner find their \vholo occupation in converting raw BOOK I. CHAPTEE II. 4. ^material into what may be termed prepared material. In strictm speech, almost all food, as it cornea from the hands of the agriculturist, is nothing more than material for the occupation of the baker or the cook. 4. The second kind of indirect labour is that employed in making tools or impL-monts for the assistance of luLour. I UK; these terms in their most comprehensive sense, embracing all permanent instruments or helps to production, from a flint and steel for striking a light, to a steam ship, or the most complex apparatus of manu- facturing machinery. There may be some hesitation where to draw the line between implements and materials ; and some things used in production (such as fuel) would scarcely in com- mon language be called by either name, popular phraseology being shaped out by a different class of necessities from those of scientific exposition. To avoid a multiplication of classes and denominations answering to distinc- tions of no scientific importance, poli- tical economists generally include all things whjch are used as immediate means of jpr eduction (the means which are not immediate will be considered presently) either in the class of imple- ments or in that of. matejdals. Per- haps the line is most usually and most conveniently drawn; by considering as a material every instrument of produc- tion which can only be used once, being destroyed (at least as an instrument for the purpose in hand) by a single employment. Thus fuel, once burnt, cannot be again used as fuel; what can be so used is only any portion which has remained unburnt the first time. And not only it cannot be used without being consumed, but it is only useful by being consumed ; for if no part of the fuel were destroyed, no heat would be generated. A fleece, again, is destroyed as a fleece by being spun into thread ; and the thread can- not be used as thread when woven into cloth. But an axe is not de- stroyed as an axe by cutting down a tree : it may be used afterwards to cut down a hundred or a thousand LABOUR AS AN AGENT OF PEODUCTION. more; and though deteriorated in some small degree hy each use, it does not do its work by being deteriorated, as the coal and the fleece do theirs by Deing destroyed ; on the contrary, it is the better instrument the better it re- sists deterioration. There are some things, rightly classed as materials, which may be used as such a second and a third time, but not while the product to which they at first contri- buted remains in existence. The iron which formed a tank or a set of pipes may be melted to form a plough or a steam-engine ; the stones with which a house was built may be used after it is pulled down, to build another. But this cannot be done while the original product subsists ; their function as materials is suspended, until the ex- haustion of the first use. Not so with the things classed as implements ; they may be used repeatedly for fresh work, until the time, sometimes very distant, at which they are worn out, while the work already done by them may sub- sist unimpaired, and when it perishes, does so by its own laws, or by casual- ties of its own.* The only practical difference of much importance arising from the distinction between materials and implements, is one which has attracted our attention in another case. Since materials are destroyed as such by being once used, the whole of the labour required for their production, as well as the absti- nence of the person who supplied the means of carrying it on, must be remunerated from the fruits of that * The able and friendly reviewer of this treatise in the Edinburgh Review (October 1848) conceives the distinction between ma- terials and implements rather differently : proposing to consider as materials " all the things which, after having undergone the change implied in production, are them- selves matter of exchange," and as imple- ments (or instruments) " the things which are employed in producing that change, but do not themselves become part of the ex- changeable result." According to these definitions, the fuel consumed in a manufac- tory would be considered, not as a material, but as an instrument. This use of the terms accords better than that proposed in the text, with the primitive physical meaning of the word "material ;" but the distinction on which it is grounded is one almost irrelevant to political economy. single use. Implements, on the con trary, being susceptible of repeated employment, the whole of the products which they are instrumental in bring- ing into existence are a fund which can be drawn upon to remunerate the labour of their construction, and the abstinence of those by whose accumu- lations that labour was supported. It is enough if each product contributes a fraction, commonly an insignificant one, towards the remuneration of that labour and abstinence, or towards in- demnifying the immediate producer for advancing that remuneration to the person -vdio produced the tools. 5. Thirdly : Besides materials for industry to employ itself on, and implements to aid it, provision must be made to- prevent its operations from being disturbed and its products in- jured, either by the destroying agencies of nature, or by the violence or rapa- city of men. This gives rise to an- other mode in which labour not employed directly about the product itself, is instrumental to its production ; namely, when employed for the protec- tion oif industry. Such is the object of all buildings for industrial purposes; all manufactories, warehouses, docks, granaries, barns, farm-buildings de- voted to cattle, or to the operations of agricultural labour. I exclude those in which the labourers live, or which are destined for their personal accom- modation : these, like their food, supply actual wants, and must be counted in the remuneration of their labour. There are many modes in which labour is still more directly applied to the protection of productive operations. The herdsman has little other occupa- tion than to protect the cattle from harm : the positive agencies concerned in the realization of the product, go on nearly of themselves. I have already mentioned the labour of the hedgcr and ditcher, of the builder of walls or dykes. To these must be added that of the soldier, the policeman, and the judge. These functionaries are not indeed employed exclusively in the protection of industry, nor does their payment constitute, to the individual producer, 1'-. BOOKL CHAPTER IL f 6. a put of the expenses of production. fiat they are pud from the taxes, ...-..-. VBKJI are aenveQ nxm me proance 01 and in any tolerably go- mfay they render to its operations a service far more than equivalent to the cost. To society at large they are therefore part of the V_ 1 :: ::,: addition to all die othen . . 1 the other* required, least in that form and :-.:.:.- . - ... ~ " . :. " ^ - '. .'..- : . : -;-: >-.-.-.-;:._ , . .:.-, i: :-.': . . . - :: :. ::..; : ;.-::_::. \- --:.:: : ."."-. : .";:. "::":"- -.".~:1V:" : ' ' ;; :. : - .: : : -.i- :. . _-. - :-: :. : ',: -> isj :- doced. Under meats, the prc-dud pkjs j- -;- -.: I - --: : :--:- ' - M not the kst paid fir om te pro- dace. Each prodsee; in paying UB ; and if made widt any tol , . :.-. :!,. ::_:,-.. V- : - :- - - ::.: --;,: -_.,, ;_. ^ Oe cla= rr. ^ tL,v ^ 7 be te : :- '_'. : - - ',, - spare time on their hands. Bat . L .1 .: :,: . :- L ir . .- . - - - . . - -' , : M _ i . .7 .-". ' ~-- . ' - -. . . . -: : - iri'ri - . -__.. : ':,.::: ! : :'_ -: . .'-;_:_:.- ' : -:.;.=, " of -1- :_:.:.: i.::.Ti7 . : ::.:.:;..: :. :- once r twice a year. In covntry districts, remote ~: - -- :: 1 :_-, --;;;-. _-,= -i : -- -:- ::.r ; "_:: :- : : ;-: -:.tl.% I - -- -.; : --_. lisa nzedabOe and fixed ccstomere is s. to I LABOUR AS AN AGENT OF PRODUCTION. 25 consumers prefer resorting to him if he is conveniently accessible ; and dealers therefore find their advantage in esta- blishing themselves in every locality where there are sufficient consumers near at hand to afford them a remune- ration. In many cases the producers and dealers are the same persons, at least as to the ownership of the funds and the control of the operations. The tailor, the shoemaker, the baker, and many other tradesmen, are the pro- ducers of the articles they deal in, so far as regards the last stage in the production. This union, however, of the functions of manufacturer and re- tailer, is only expedient when the article can advantageously be made at or near the place convenient for retailing it, and is, besides, manufactured and sold in small parcels. When things have to be brought from a distance, the same person cannot effectually superin- tend both the making and the retailing of them : when they are best and most cheaply made on a large scale, a single manufactory requires so many local channels to carry off its supply, that the retailing is most conveniently dele- gated to other agency : and even shoes and coats, when they are to be furnished in large quantities at once, as for the supply of a regiment or of a workhouse, are usually obtained not directly from the producers, but from intermediate dealers, whe make it their business to ascertain from what producers they can be obtained best and cheapest. Even when things are destined to be at last sold by retail, convenience soon creates a class of wholesale dealers. When products and transactions have multi- plied beyond a certain point; when one manufactory supplies many shops, and one shop has often to obtain goods, from many different manufactories, the loss of time and trouble both to the manufacturers and to the retailers by treating directly with one another, makes it more convenient to them to treat with a smaller number of great dealers or merchants, who only buy to sell again, collecting goods from the various producers, and distributing them to the retailers, to be by them further distributed among the con- sumers. Of these various elements is composed the Distributing Class, whose agency is supplementary to that of the Producing Class : and the produce so distributed, or its price, is the source from which the distributors are remu- nerated for their exertions, and for the abstinence which enabled them to ad- vance the funds needful for the business of distribution. 7. We have now completed the enumeration of the modes in which labour employed on external nature is subservient to production. But there is yet another mode of employing labour which conduces equally, though still more remotely, to that end: this is, labour of which the subiecL-JaJjuman beings.. Every human being has been brought up from infancy at the expense of much labour to some person or per- sons, and if this labour or part of it, had not been bestowed, the child would never have attained the age and strength which enable him to become a labourer in his turn. To the com- munity at large, the labour and ex- pense of rearing its infant population form a part of the outlay which is a condition of production, and which is to be replaced "with increase from the future produce of their labour. By the individuals, this labour and expense are usually incurred from other motives than to obtain such ultimate return, and, for most purposes of political eco- nomy, need not be taken into account as expenses of production. But the technical or industrial education of the community; the labour employed in learning and in teaching the arts of production, in acquiring and communi- cating skill in those arts ; this labour is really, and in general solely, under- gone for the sake of the greater or more valuable produce thereby attained, and in order that a remuneration, equivalent or more than equivalent, may be reaped by the learner, besides an adequate re- muneration for the labour of the teacher, when a teacher has been employed. As the labour which con fens produc- . tive powers, whether of hand or of head, may be looked upon as part of the la- 26 BOOK 1. CHAPTER tt. 8. hour by which society accomplishes its probably, be taught to do it. The productive operations, or in other words, as part of what the produce costs to society, so too may the labour employed in keeping up productive powers; in preventing them from being destroyed or weakened by accident or disease. The labour of a physician or surgeon, when made use of by persons engaged in industry, must be regarded in the economy of society as a sacrifice in- curred, to preserve from perishing by death or infirmity that portion. ol the productive resources of society which is fixed in the lives and bodily or mental powers of its productive members. To the individuals, indeed, this forms but a part, sometimes an imperceptible part, of the motives that induce them to sub- mit to medical treatment: it is not principally from economical motives rsons have a limb amputated, or endeavour to be cured of a fever, dullest human being, instructed before* hand, is capable of turning a mill ; but a horse cannot turn it without some- body to drive and watch him. On tho other hand, there is some bodily ingre- dient in the labour most purely mental, when it generates any external result. Newton could not have produced the Principia without the bodily exertion either of penmanship or of dictation ; and he must have drawn many dia- grams, and written out many calcula- tions and demonstrations, while he was preparing it in his mind. Inventors, besides the labour of their brains, gene- rally go through much labour with their hands, in the models which they con- struct and the experiments they have to make before their idea can realize itself successfully in act. Whether mental, however, or bodilv, their labour is a part of that by which the produc- though when they do so, there is gene- ! tion is brought about. The labour of rally sufficient inducement for it even Watt in contriving the steam-engine on that score alone. This is, therefore, one of the cases of labour and outlay which, though conducive to production, et not being incurred for that end, or was as essential a part of production as that of the mechanics who build or the engineers who work the instru- ment ; and was undergone, no less than or the sake of the returns arising from theirs, in the prospect of a remuneration from the produce. The labour of inve it, are out of the sphere of most of the general propositions which political eco- nomy has occasion to assert respecting productive labour : though, when so- from the produce. The labour of inven- tion is often estimate'd and paid on the very same plan as that of execution. Alany manufacturers of ornamental ciety and not the individuals are con- goods have inventors in their employ- sidered, this labour and outlay must ' ment, who receive wages or salaries for be regarded as part of the advance by ! designing patterns, exactly as others do which society effects its productive ope- for copving them. All this is etrictly rations, and for which it is indemnified by the produce. 8. Another kind of labour, usually classed as mental, but conducing to the ultimate product as directly, though not so immediately, as manual labour itself, is the labour of the inventors of industrial processes. I say, usually classed as mental, because in reality it is not exclusively so. All human exer- tion is compounded of some mental and some bodily elements. The stupidest hodman, who repeats from day to day the mechanical act of climbing a ladder, performs a function partly intellectual ; so much so, indeed, that the most in- telligent dog or elephant could not, part of the labour of production ; as the labour of the author of a book is equally a part of its production with that of the printer and binder. In a national, or universal point of view, the labour of the savant, or spe- culative thinker, is as much a part of production in the very narrowest sense, as that of the inventor of a practical art ; many such inventions having been the direct consequences of theoretic discoveries, and every extension of knowledge of the powers of nature being fruitful of applications to the purposes of outward life. The electro- magnetic telegraph was the wonderful and most unexpected consequence of the experiments of (Ersted and the LABOUR AS AN AGENT OF PRODUCTION. 27 pere : and the modern art of naviga- tion is an unforeseen emanation from the purely speculative and apparently merely curious inquiry, by the mathe- maticians of Alexandria, into the pro- perties of three curves formed by the intersection of a plane surface and a cone. No limit can be set to the im- portance, even in a purely productive and material point of view, of mere thought. Inasmuch, however, as these material fruits, though the result, are seldom the direct purpose of the pur- suits of savants, nor is their remu- neration 111 general derived from the increased production which may be caused incidentally, and mostly after a long interval, by their discoveries; this ultimate influence does not, for most of the purposes of political eco- nomy, require to be taken into con- sideration; and speculative thinkers are generally classed as the producers only of the books, or other useable or saleable articles, which directly ema- nate from them. But when (as in po- litical economy one should always be prepared to do) we shift our point of view, and consider not individual acts, and the motives by which they are determined, but national and universal results, intellectual speculation must be looked upon as a most influential part of the productive labour of society, and the portion of its resources em- ployed in carrying on and in remune- rating such labour, as a highly produc- tive part of its expenditure. 9. In the foregoing survey of the modes of employing labour in further- ance of production, I have made little use of the popular distinction of indus- try into agricultural, manufacturing, and commercial. For, in truth, this division fulfils very badly the purposes of a classification. Many great branches of productive industry find no place in it, or not without much straining ; for example (not to speak of hunters or fishers) the miner, the road-maker, and the sailor. The limit, too, between agricultural and manufacturing indus- try cannot, be precisely drawn. The roiller, for instance, and the baker are they to be reckoned among agri- culturists, or among manufacturers? Their occupation is in its nature ma- nufacturing ; the food has finally parted company with the soil before it is handed over to them : this, however, might be said with equal truth of the thresher, the winnower, the makers of butter and cheese ; operations always counted as agricultural, probably be- cause it is the custom for them to be performed by persons resident on the farm, and under the same superinten- dence as tillage. For many purposes, all these persons, the miller and baker inclusive, must be placed in the same class with ploughmen and reapers. They are all concerned in producing food, and depend for their remuneration on the food produced: when the one class abounds and flourishes, the others do so too; they form collectively the "agricultural interest;" they render but one service to the community by their united labours, and are paid fiom one common source. Even the tillers of the soil, again, when the produce is not food, but the materials of what are commonly termed manufactures, belong in many respects to the same division in the economy of society as manufac- turers. The cotton-planter of Carolina, and the wool-grower of Australia, have more interests in common with the spinner and weaver than with the corn-grower. But, on the other hand, the industry which operates immedi- ately upon the soil has, as we shall see hereafter, some properties on which many important consequences depend, and which distinguish it from all the subsequent stages of production, whe- ther carried on by the same person or not ; from the industry of the thresher and winnower, as much as from that of the cotton-spinner. When I speak, therefore, of agricultural labour, I shall generally mean this, and this exclu- sively, unless the contrary is either stated or implied in the context. The term manufacturing is too vague to be of much use when precision is required, and when I employ it, I wish to be un- derstood as intending to speak pcpu- larly rather than scientifically. 26 BOOK I. CHAPTER III. 1. CHAPTER IIL OP UNPRODUCTIVE LABOUR. 1. LABOUR is indispensable to pro- duction, but has not always production for its effect. There is much labour, and of a high order of usefulness, of which production is not the object. Labour has accordingly been distin- guished into Productive and Unpro- ductive. There has been not a little controversy among political economists i m the question, what kinds of labour should be reputed to be unproductive ; and they have not always perceived, that there was in reality no matter of i'act in dispute between them. Many writers have been unwilling to class any labour as productive, unless its result is palpable in some material object, capable of being transferred from one person to another. There are others (among whom are Mr. M'Ctilloch and M. Say) who looking upon the word unproductive as a term of dis- paragement, remonstrate against im- posing it upon any labour which is regarded as useful which produces a benefit or a pleasure worth the cost. The labour of officers of government, of the army and navy, of physicians, lawyers, teachers, musicians, dancers, actors, domestic servants, &c. when they really accomplish what they are paid for, and are not more numerous than is required for its performance, ought not, say these writers, to be "stigmatized" as unproductive, an ex- pression which they appear to regard as synonymous with wasteful or worth- less. But this seems to be a misunder- standing of the matter in dispute. Pro- duction not being the sole end of human existence, the term unproductive does not necessarily imply any stigma ; nor was ever intended to do so in the pre- sent case. The question is one of mere language and classification. Differ- ences of language, however, are by no means unimportant, even when not grounded on (Miicrences of opinion ; for I though either of two expressions may be consistent with the whole truth, they generally tend to fix attention upon different parts of it. We must there- fore enter a little into the considera- tion of the various meanings which may attach to the words productive and unproductive when applied to labour. In the first place, even in what is called the production of material ob- jects, it must be remembered that what is produced is not the matter composing them. All the labour of all the human beings in the world could not produce one particle of matter. To weave broadcloth is but to re-arrange, in a peculiar manner, the particles of wool ; to grow corn is only to put a portion of matter called a seed, into a situation where it can draw together particles of matter from the earth and air, to form the new combination called a plant. Though we cannot create matter, we can cause it to assume properties, by which, from having been useless to us, it becomes useful. What we produce, or desire to produce, is always, as M. Say rightly terms it, an utility. La- bour is not creative of objects, but of utilities. Neither, again, do we con- sume and destroy the objects them- selves ; the matter of which they were composed remains, more or less altered in form : what ha* really been consumed is only the qualities by which they were fitted for the purpose they have been applied to. It is, therefore, pertinently asked by M. Say and others since, when we are said to produce objects, we only produce utility, why should not all labour which produces utility be accounted productive? Why refuse that title to the surgeon who sets a limb, the judge or legislator who con- fers security, and give it to the lapi- dary who cuts and polishes a diamond? Why deny it to the teacher from whom I learn an art by which I can gain my bread, and accord it to the confectioner UNPRODUCTIVE LABOUR. 20 who Makes bonbons for the momentary pleasure of a sense of taste ? It is quite true that all these kinds of labour are productive of utility ; and the question which now occupies us could not have been a question at all, if the production of utility were enough to satisfy the notion which mankind have usually formed of productive la- bour. Production, and productive, are of course elliptical expressions, involv- ing the idea of a something produced ; but this something, in common appre- hension, I conceive to be, not utility, but Wealth. Productive labour means labour productive of wealth. We are recalled, therefore, to the question touched upon in our first chapter, what Wealth is, and whether only material products, or all useful products, are to be included in it. 2. Now the utilities produced by labour are of three kinds. They are, First, utilities fixed and embodied in Coutward objects ; by . labour employed in investing external material things with properties which render them ser- viceable to human beings. This is the common case, and requires no illus- tration. Secondly, utilities fixed and embodied in human beings ; the labour 'being in this case employed in conferring on human beings, qualities which render them serviceable to themselves and others. To this class belongs the la- bour of all concerned in education ; not only schoolmasters, tutors, and profes- sors, but governments, so far as they aim successfully at the improvement of the people ; moralists, and clergymen, as far as productive of benefit ; the labour of physicians, as far as instru- mental in preserving life and physical or mental efficiency ; of the teachers of bodily exercises, and of the various trades, sciences, and arts, together with the labour of the learners in acquiring them ; and all labour bestowed by any persons, throughout life, in improving the knowledge or cultivating the bodily or mental faculties of themselves or others. Thjrdly and. Lastly utilities not fixed or embodied in any object, but consist- ing in a mere service rondom! ; a plea-) sure given, an inconvenience or a pain averted, during a longer or a shorter time, but without leaving a permanent acquisition in the improved qualities of any person or thing; the labour being employed in producing an utility di- rectly, not (as in the two former cases) in fitting some other thing to afford an utility. Such, for example, is the la- bour of the musical performer, the actor, the public declaimer or reciter, and the showman. Some good may no doubt be produced, and much more might be produced, beyond the moment, upon the feelings and disposition, or general state of enjoyment of the spectators ; or in- stead of good there may be harm ; but neither the one nor the other is the effect intended, is the result for which the exhibitor works and the spectator pays ; nothing but the immediate plea- sure. Such, again, is the labour of ffie army and navy ; they, at the best, pre- vent a country from being conquered, or from being injured or insulted, which is a service, but in all other respects leave the country neither improved nor deteriorated. Such, too, is the labour of the legislator, the judge, the officer of justice, and all other agents of go- vernment, in their ordinary functions, apart from any influence they may exert on the improvement of the na- tional mind. The service which they render, is to maintain peace and secu- rity ; these compose the utility which they produce. It may appear to some, that carriers, and merchants or dealers, should be placed in this same class, since theip labour does not add any properties to objects : but I reply that it does : it adds the property of being in the place where they are wanted, instead of being in some other place : which is a very useful property, and the utility it confers is embodied in the things themselves, which now actually are in the place where they are re- quired for use, and in consequence of that increased utility could be sold at an increased price, proportioned to the labour expended in conferring it. This labour, therefore, does not belong to the third class, but to the first. cO BOOK I. CHAPTER III. 3. 3. We have now to consider which of these three classes of labour should be accounted productive of -wealth, since that is what the term productive, when used by it sell', must be understood to import. Utilities of the third class, consisting in pleasures which only exist while being enjoyed, and services which only exist while being performed, can- not be spoken of as wealth, except by an acknowledged metaphor. It is es- sential to the idea of wealth to be sus- ceptible of accumulation : things which cannot, after being produced, be kept for some time before being used, are never, I think, regarded as wealth, since however much of them may be produced and enjoyed, the person bene- by them is no richer, is nowise .oved in circumstances. But there is not so distinct and positive a viola- tion of usage in considering as wealth any product which is both useful and ptible of accumulation. The skill, and the energy and perseverance, of the artisans of a country, are reckoned part of its wealth, no less than their tools and machinery.* According to this definition, we should regard all labour as productive which is employed * Some authorities look upon it as an essen- tial element in the idea of wealth, that it should he capable not solely of being accu- mulated, but of being transferred; and inas- much as the valuable qualities, and even the productive capacities, of a human being riot be detached from him and passed to some one else, they deny to these the appel- lation of wealth, and to the labour expended in acquiring them the name of productive labour. It seems to me, however, that the skill of an artisan (for instance) being both a desirable possession and one of a certain durability (not to say material wealth), there is no bette refusing to it the title of wealth because it is attached to a man, than to a coalpit or a manufactory because they are attached to a place. Besides, if the skill itself cannot be i.d with to a purchaser, the use of it may; if it cannot be sold it can be hired ; and it ill creating permanent utilities, whe-/ ther embodied in human beings, or in any other animate or inanimate objects. This nomenclature I have, in a former publication,! recommended as the most conducive to the ends of classification ; and I am still of that opinion. But in applying the term wealth to the industrial capacities of human be- ings, there seems always, in popular apprehension, to be a tacit reference to material products. The skill of an artisan is accounted wealth, only as being the means of acquiring wealth in a material sense ; and any qualities not tending visibly to that object are scarcely so regarded at all. A country would hardly be said to be richer, ex- cept by a metaphor, however precious a possession it might have in the genius, the virtues, or the accomplish- ments of its inhabitants ; unless indeed these were looked upon as marketable articles, by which it could attract the material wealth of other countries, as the Greeks of old, and several modern nations have done. While, therefore, I should prefer, were I constructing a new technical language, to make the distinction turn upon the permanence rather than upon the materiality of the product, yet when employing terms which common usage has taken com- plete possession of, it seems advisable so to employ them as to do the least possible violence to usage; since any improvement in terminology obtained by straining the received meaning of a popular phrase, is generally purchased T T 1 1 .t 1 beyond its value, bv the "obscurity ana one or a certain \ * *_ A- , -, , J y productive even of j ansmg from the conflict between new i is no better reason for and old associations. I shall, therefore, in this treatise, when speaking of wealth, understand by it only what is called material wealth, and by productive labour only\ ' those kinds of exertion which produce j utilities embodied in material objects. J But in limiting myself to this sense of the word, I mean to avail myself of the full extent of that restricted accepta- may be, and is, sold outright in all countries whose laws permit that the man himself bhould be sold along with it. Its defect of transferability does not result from a natural, but from a legal and moral obstacle. The human being himself (as formerly observed) " the purpose his acq means, and have been called into existence I t Es:fj s O n some Unsettled Question* of by labour, fall rightly, as it seems to me, Political Zco,iomy. Essay III. On the words within that designation. 1 Productive and Unproductive. ed) I do not class as wealth. He is tion, and I shall not refuse the appella- zrpose for which wealth exists. But tion productive, to labour which yields quired capacities, which exist only as \ UNPRODUCTIVE LABOUR. II no material product as its direct result, provided that an increase of material products is its ultimate consequence. Thus, labour expended in the acqui- sition of manufacturing skill, I class as productive, not in virtue of the skill itself, but of the manufactured products created by the skill, and to the creation of which the labour of learning the trade is essentially conducive. The labour of officers of government in affording the protection which, afforded in some manner or other, is indispen- sable to the prosperity of industry, must be classed as productive even of mate- rial wealth, because without it, mate- rial wealth, in anything like its pre- sent abundance, could not exist. Such labour may be said to be productive indirectly or mediately, in opposition to the labour of the ploughman and the cotton-spinner, which are productive immediately. They are all alike in this, that they leave the community richer in material products than they found it ; they increase, or tend to in- crease, material wealth. / 4. By Unproductive Labour, on\ 4 the contrary,^wnl be understood labour] which does not terminate in the crea- tion of material wealth ; which, how- ever largely or successfully practised, does not render the community, and the world at large, richer in material pro- ducts, but poorer by all that is con- sumed by the labourers while so em- ployed. All labour is, in the language of political economy, unproductive, which ends in immediate enjoyment, without ^any increase of the accumulated stock of permanent means of enjoyment. And all labour, according to our pre- sent definition, must be classed as un- productive, which terminates in a per- manent benefit, however important, provided that an increase of material products forms no part of that benetit. The labour of saving a friend's life is not productive, unless the friend is a productive labourer, and produces more than he consumes. To a religious per- son the saving of a soul must appear a far more important service than the caving of a life ; but he will not there- fore call a missionary or a cl< productive labourers, unless they touch, as the South Sea Missionaries have in some cases done, the arts of civilixatiou in addition to the doctrines of their religion. It is, on the contrary, evi- dent that the greater number of mis- sionaries or clergymen a nation main- tains, the less it has to expend on other things ; while the more it expends judiciously in keeping agriculturists and manufacturers at work, the more it will have for every other purpose. By the former it diminishes, -aete/'w part- A w.s, its stock of material products ; by the latter, it increases them. Unproductive may be as useful as pro- ductive labour ; it may be more useful, even in point of permanent advantage ; or its use may consist only in pleasur- able sensation, which when gone leaves no trace ; or it may not afford even this, but may be absolute waste. In any case society or mankind grow no richer by it, but poorer. All material products consumed by any one while he produces nothing, are so much sub- tracted, for the time, from the material products which society would other- wise have possessed. But though society grows no richer by unproduc- tive labour, the individual may. An unproductive labourer may receive for his labour, from those who derive pleasure or benefit from it, a remunera- tion which may be to him a considera- ble source of wealth ; but his gain is balanced by their loss ; they may have received a full equivalent for their expenditure, but they are so much poorer by it. When a tailor makes a coat and sells it, there is a transfer of the price from the customer to the tailor, and a coat besides which did not previously exist ; but what is gained by an actor is a mere transfer from the spectator's funds to his, leav- ing no article of wealth for the specta- tor's indemnification. Thus the com- munity collectively gains nothing by the actor's labour ; and it loses, of his receipts, all that portion which he con- sumes, retaining only that which he lays by. A community, ho\vevi.T, may acid to its wealth by unproductive labour, at tho expense of othur com- 32 BOOK I. CHAPTER III 5. intir.ities, as an individual may at the expense of other individuals. The gains of Italian opera singers, German governesses, French ballet dancers, &c., are a source of wealth, as far as they go, to their respective countries, if they return thither. The petty states of Greece, especially the ruder and more backward of those states, were nurseries of soldiers, who hired themselves to the princes and satraps of the East to carry on useless and de- structive wars, and returned with their savings to pass their declining years in their own country : these were unpro- ductive labourers, and the pay they received, together with the plunder they took, was an outlay without return to the countries which furnished it ; but, though no gain to the world, it was a gain to Greece. At a later period the same country and its colonies supplied the Eoman empire with another class of adventurers, who, under the name of philosophers or of rhetoricians, taught to the youth of the higher classes what were esteemed the most valuable ac- complishments : these were mainly unproductive labourers, but their ample recompense was a source of wealth to their own country. In none of these cases was there any accession of wealth to the world. The services of the labourers, if useful, were obtained at a sacrifice to the world of a portion of material wealth ; if useless, all that these labourers consumed was, to the world, waste. / To be wasted, however, is a liability (not confined to unproductive labour) Productive labour may eaually be wasted if more of it is expended than really conduces to production. If de- fect of skill in labourers, or of judgment in those who direct them, causes a misapplication of productive industiy ; if a farmer persists in ploughing with three horses and two men, when ex- perience has shown that two horses and one man are sufficient, the sur- plus labour, though employed for pur- poses of production, is wasted. If a new process is adopted which proves no better, or not so good as those before in use, the labour expended in perfect- ing the invention and in carrying it into pracLl.v, though employed for a productive purpose, is wasted. Pro- ductive labour may render a nation poorer, if the wealth it produces, that is, the increase it makes in the stock of useful or agreeable things, be of a kind not immediately wanted: as when a commodity is unsaleable, be- cause produced in a quantity beyond the present demand ; or when specula- tors build docks and warehouses before there is any trade. The bankrupt states of North America, with their premature railways and canals, have made this kind of mistake ; and it was for some time doubtful whether England, in the disproportionate de- velopment of railway enterprise, had not, in some degree, followed the example. Labour sunk in expectation of a distant return, when the great exigencies or limited resources of the community require that the return be rapid, may leave the country not only poorer in the meanwhile, by all which those labourers consume, but less rich even ultimately than if immediate re- turns had been sought in the first instance, and enterprises for distant profit postponed. 5. The distinction of Productive and Unproductive is applicable to con- sumption as well as to labour. All the members of the community are not labourers, but all are consumers, and consume either unproductively or pro- ductively. Whoever contributes no- thing directly or indirectly to produc- 1 tion, is an unproductive consumer. J The only productive consumers are productive labourers ; the labour of direction being of course included, as well as that of execution. But the consumption even of productive labour- ers is not all of it productive consump- tion. There is unproductive consump- tion by productive consumers. What they consume in keeping up or im- proving their health, strength, and capacities of work, or in rearing other productive labourers to succeed them, is productive consumption. But con- sumption on pleasures or luxuries, whether by the idle or by the indus- trious, since production is neither its efficiency of its instruments of produc- tion, or in its people, There are numerous products which may be said not to admit of being con- sumed otherwise than unproductively. The annual consumption of gold lace, pine apples, or champagne, must be reckoned unproductive, since these things give no assistance to produc- tion, nor any support to life or strength, but what would equally be given by- things much less costly. Hence it might be supposed that the labour em- ployed in producing them ought not to be regarded as productive, in the sense in which the term is understood by political economists. I grant that no labour tends to the permanent enrich- ment of society, which is employed in producing things for the use of unpro- ductive consumers. The tailor who makes a coat for a man who produces nothing, is a productive labourer ; but in a few weeks or months the coat is worn out, while the wearer has not produced anything to replace it, and the community is then no richer by the labour of the tailor, than if the same sum had been paid for a stall at the opera. Nevertheless, society has been richer by the labour while the coat lasted, that is, until society, through one of its unproductive members, chose to consume the produce of the labour unproductively. The case of the gold lace or the pine apple is no further different, than that they are still fur- ther removed than the coat from the character of necessaries. These things" also are wealth until they have been consumed. 6. We see, however, by this, that there is a distinction, more important F.E to UNPRODUCTIVE LABOUK object nor is in any way advanced by it, must be reckoned unproductive : with a reservation perhaps of a certain quantum of enjoyment which may be classed among necessaries, since any- thing short of it would not be consistent with the greatest efficiency of labour. That alone is productive consumption, which goes to maintain and increase the predictive powers of the commu- nity ; either those residing in its soil, in its materials, in the number and 33 the wealth of a community than even that between productive and un- productive labour; the distinction, namely, between labour for the supply of productive, and for the supply of unproductive, consumption ; between labour employed in keeping up or in adding to the productive resources of the country, and that which is em- ployed otherwise. Of the produce of the country, a part only is destined to be consumed productively; the re- mainder supplies the unproductive con- sumption of producers, and the entire consumption of the unproductive classes. Suppose that the proportion of the annual produce applied to the first pur- pose amounts to half; then one-half the productive labourers of the country are all that are employed in the opera- tions on which the permanent wealth of the country depends. The other half are occupied from year to year and from generation to generation in pro- ducing things which are consumed and disappear without return ; and what- ever this half consume is as completely lost, as to any permanent effect on the national resources, as if it were con- sumed unproductively. Suppose that this second half of the labouring popu- lation ceased to work, and that the government or their parishes main- tained them in idleness for a whole year : the first half would suffice to produce, as they had done before, their own necessaries and the necessaries of the second half, and to keep the stock of materials and implements undi- minished : the unproductive classes, indeed, would be either starved or obliged to produce their own subsist- ence, and the whole community would be reduced during a year to bare neces- saries; but the sources of production would be unimpaired, and the next year there would not necessarily be a smaller produce than if no such interval of inactivity had occurred ; while if the case had been reversed, if the first half of the labourers had suspended their accustomed occupations, and the second half had continued theirs, the country at the end of the twelvemonth would have been entirely impoverished. It would be a great error to iv-ivt 34 BOOK I. CHAPTER IV. 1. the large proportion of the annual pro- duce, which in an opulent country goes to supply unproductive consumption. It would he to lament that the com- munity has so much to spare from its necessities, for its pleasures and for all higher uses. This portion of the pro- duce is the fund from which all the wants of the community, other than that of mere living, are provided for ; the measure of its means of enjoyment, and of its power of accomplishing all purposes not productive. That so great a surplus should be available for such purposes, and that it should he applied to them, can only he a subject of con- gratulation. The things to be re- j gretted, and which are not incapable of being remedied, are the prodigious inequality with which this surplus is ' distributed, the little worth of the ob- I jects to which the greater part of it is devoted, and the large share which falla to the lot of persons who render no equivalent service in return. CHAPTER IV. ., OF CAPITAL. 1. IT has been seen in the pre- ceding chapters that besides the pri- mary and universal requisites of pro- duction, labour and natural agents, there is another requisite without which no productive operations beyond the rude and scanty beginnings of primitive industry, are possible : namely, a stock, previously accumulated, of the products of former labour. Thj^ accumulated I Rtf>rV of ili p prgduce_p'f laFom-isJermed, I ^Capital. . The function of Capital in production, it is of the utmost import- ance thoroughly to understand, since a number of the erroneous notions with which pur subject is infested, originate in an imperfect and confused appre- hension of this point. Capital, by persons wholly unused to reflect on the subject, is supposed to be synonymous with money. To ex- pose this misapprehension, would be to repeat what has been said in the intro- ductory chapter. Money is no more synonymous with capital than it is with wealth. Money cannot in itself perform any part of the office of capital, since it can afford no assistance to production. To do this, it must be exchanged for other things ; and any- thing, which is susceptible of being exchanged for other things, is capable of contributing to production in the fipme degree. What capital does for production, is to afford the shelter, protection, tools and materials which | the work requires, and to feed and{ otherwise maintain the labourers during ( the process. These are the services ' which present labour requires from past, and from the produce of past, labour. Whatever things are destined for this use destined to supply pro- ductive labour with these various pre- requisites are Capital. To familiarize ourselves with the conception, let us consider what is done with the capital invested in any of the branches of business which com- pose the productive industry of a country. A manufacturer, for example, has one part of his capital in the form of buildings, fitted and destined for carrying on his branch of manufacture. Another part he has in the form of machinery. A. third consists, if he be a spinner, of raw cotton, flax, or wool ; if a weaver, of flaxen, woollen, silk. or : cotton, thread ; and the like, according ' to the nature of the manufacture. Food and clothing for his operatives, it is not the custom of the present age that he should directly provide ; and. few capitalists, except the producers of food or clothing, have any portion worth mentioning of their capital in that shape. Instead of this, each capitalist has money, which he pays to CAPITAL. 36 his workpeople, and so enables them to supply themselves : he has also finished goods in his warehouses, by the sale of which he obtains more money, to em- ploy in the same manner, as well as to replenish his stock of materials, to keep his buildings and machinery in repair, and to replace them when worn out. His money and finished goods, however, are not wholly capital, for he does not wholly devote them to these purposes : he employs a part of the one, and of the proceeds of the other, in supplying his personal consumption and that of his family, or in hiring grooms and valets, or maintaining hunters and hounds, or in educating his children, or in paying taxes, or in charity. What then^i^lits capital? Precisely that part of his possessions, whatever it Ije. which is to constitute Tnsjund for carrying on fresh produc- It is of no consequence thaTa part, or even the whole of it, s n a form in which it cannot directly supply the wants of labourers. . -?^^,W-.ten^ Suppose, for instance, that the capi- talist is a hardware manufacturer, and that his stock in trade, over and above his machinery, consists at present wholly in iron goods. Iron goods cannot feed labourers. Nevertheless, by a mere change of the destination of these iron goods, he can cause labourers to be fed. Suppose that with a portion of the proceeds he intended to maintain a pack of hounds, or an establishment of servants ; and that he changes his intention, and employs it in his busi- ness, paying it in wages to additional le. These workpeople are enabled to buy and consume the food which would otherwise have been con- sumed by the hounds or by the ser- vants ; and thus without the employer's ^having seen or touched one particle of the food, his conduct has determined that so much more of the food existing in the country has been devoted to the use of productive labourers, and so much less consumed in a manner wholly unproductive. Now vary the hypothesis, and suppose that what is thus paid in wages would otherwise have been laid out not in feeding ser- vants or hounds, but in buying plate and jewels ; and in order to render the effect perceptible, let us suppose tlm the change takes place on a considera- ble scale, and that a large sum is diverted from buying plate and jewels to employing productive labourers, whom we shall suppose to have been previously, like the Irish peasantry, only half employed and half fed. Tin; labourers, on receiving their increased wages, will not lay, them out in plate and jewels, but in fV>d. There is not, however, additional food in the country ; nor any unproductive labourers or ani- mals, as in the former case, whose i\iad is set free for productive purposes. Food will therefore be imported if possible ; if not possible, the labourers will remain for a season on their short allowance : but the consequence of this change in the demand for com- modities, occasioned by the change in the expenditure of the capitalists from unproductive to productive, is that next year more food will be produced, and less plate and jewellery. So that again, without having had anything to do with the food of the labourers directly, the conversion by individuals of a portion of their property, no matter of what sort, from an unproductive destination to a productive, has had the effect of causing more food to be appro- priated to the consumption of produc- tive labourers. The distinctiofl^then, between Capital anJ~Nbt-capital7does not iiejntlie kind_oi_^ommodities, but ifinhlTnnnd of Ihecapitalist in his TStEer hovveverTflr~actapted in itself For the use of labourers, is a part of capital, so > soon as it, or the value to be received , from it, is set apart for productive re- \ investment. The sum of all the values .' so destined by their respective posses- ! sors, composes the capital of the country. ,' Whether all those values are in a shape directly applicable to productive uses, makes no difference. Their shape, whatever it may be, is a temporary accident; but, once destined fur pro- duction, they do not fail to find a way of transforming themselves into things capable of being applied to it. 36 BOOK I. the country is devoted toproduction is capital, so, conversely, the whole of the capital of the country is devoted to production. This second proposition, however, must, be taken with some limitations and explanations. A fund may be seeking for productive employ- ment, and find none, adapted to the inclinations of its possessor : it then is capital still, but unemployed capital. Or the stock may consist of unsold goods, not susceptible of direct applica- tion to productive uses, and not, at the moment, marketable : these, until sold, are in the condition of unemployed capital. Again, artificial or accidental circumstances may render it necessary to possess a larger stock in advance, that is, a larger capital before entering on production, than is required by the nature of things. Suppose that the government lays a tax on the produc- tion in one of its earlier stages, as for instance by taxing the material. The manufacturer has to advance the tax, before commencing the manufacture, and is therefore under a necessity of having a larger accumulated fund than is required for, or is actually employed in, the production which he carries on. He must have a larger capital, to maintain the same quantity of produc- tive labour ; or (what is equivalent) with a given capital he maintains less labour. This mode of levying taxes, therefore, limits unnecessarily the in- dustry of the country : a portion of the fund destined by its owners for produc- tion being diverted from its purpose, and kept in a constant state of advance to the government. For another example : a farmer may enter on his farm at such a time of the year, that he may be required to pay one, two, or even three quarters' rent before obtaining any return from the produce. This, therefore, must be paid out of his capital. Now rent, when paid for the land itself, and not for improvements made in it by labour, is not a productive expenditure. It is not an outlay for the support of labour. or for the provision of implements or materials the produce of labour. It is the price paid for the use of an appro- CHAPTER TV. 2. priated natural agent. This natural agent is indeed as indispensable (and even more so) as any implement : but the having to pay a price for it, is n*t. In the case of the implement (a thing produced by labour) a price of stme sort is the necessary condition of its existence : but the land exists by nature. The payment for it, therefore, is not one of the expenses of produc- tion ; and the necessity of making the payment out of capital, makes it requi- site that there should be a greater capital, a greater antecedent accumu- lation of the produce of past labour, than is naturally necessary, or than is needed where land is occupied On a different system. This extra capital, though intended by its owners for pro- duction, is in reality employed unpro- ductively, and annually replaced, not from any produce of its own, but from the produce of the labour supported by the remainder of the farmer's capital. Finally, that large portion of the productive capital of a country which is employed in paying the wages and salaries of labourers, evidently is not, all of it, strictly and indispensably necessary for production. As much of it as exceeds the actual necessaries of life and health (an excess which in the case of skilled labourers is usually con- siderable) is not expended in supporting labour, but in remunerating it, and the labourers could wait for this pau of their remuneration until the production is completed : it needs not necessarily pre-exist as capital: and if they un- fortunately had to forego it altogether, the same amount of production might take place. In order that the whole remuneration of the labourers should be advanced to them in daily or weekly payments, there must exist in advance, and be appropriated to productive use, a greater stock, or capital, than would suffice to carry on the existing extent of production : greater, by whatever amount of remuneration the labourers receive, beyond what the self-interest of a prudent slave-master would assign to his slaves. In truth, it is only after an abundant capital had already been accumulated, that the practice of pay- ing in advance any remuneration of CAPITAL. 37 labour beyond a bare subsistence, could possibly have arisen : since whatever is so paid, is not really applied to produc- tion, but to the unproductive consump- tion of productive labourers, indicating a fund for production sufficiently ample to admit of habitually diverting a part of it to a mere convenience. It wflL-be^ahaeisfid-^tfe-4-few assumed, that the labourej'iS arft always - gnbsigted: "^rom ^capital : and this is oBviously the fact, though the capital needs not necessarily be furnished by a person called a capitalist. When the labourer maintains himself by funds of his own, as when a peasant-farmer or arietor lives on the produce of his , or an artisan works on his own account, they are still supported by capital, that is, by funds provided in advance. The peasant does not subsist this year on the produce of this year's harvest, but on that of the last. The artisan is not living on the proceeds of the work he has in hand, but on those of work previously executed and dis- posed of. Each is supported by a small capital of his own, which he periodically replaces from the produce of his labour. The large capitalist is, in like manner, maintained from funds provided in' advance. If he personally conducts his operations, as much of his personal or household expenditure as does not exceed a fair remuneration of his labour at the market price, must be considered a part of his capital, expended, like any other capital, for production : and his personal consumption, so far as it con- sists of necessaries, is productive con- sumption. 3. At the risk of being tedious, I must add a few more illustrations, to bring out into a still clearer and stronger light the idea of Capital. As M. Say truly remarks, it is on the very elements of our subject that illustration is most usefully bestowed, since the greatest errors which prevail in it may be traced to the want of a thorough mastery over the-elementary ideas. Nor is this surprising : a branch may be diseased and all the rest healthy, but unsound- ness at the root diffuses unhealthiness through the whole tree. I Let us therefore consider whether, and in what cases, the property tt' those who live on the interest of what they possess, without being personally en- gaged in production, can be regarded as capital. It is so called in common language, and, with reference to the individual, not improperly. All funds - from which the possessor derives an in- come, which income he can use without sinking and dissipating the fund itself, are to him equivalent to capital. But to transfer hastily and inconsiderately to the general point of view, proposi- tions which are true of the individual, has been a source of innumerable errors in political economy. In the present instance, that which is virtually capital to the individual, is or is not capital to the nation, according as the fund which by the supposition he ha3 not dissipated, has or has not been dis- sipated by somebody else. For example, let property of the value of ten thousand pounds belonging to A, be lent to B, a farmer or manufac- turer, and employed profitably in B's occupation. It is as much capital as if it belonged to B. A is really a farmer or manufacturer, not personally, but in respect of his property. Capital worth ten thousand pounds is employed in production in maintaining labourers and providing tools and materials; which capital belongs to A, while B takes the trouble of employing it, and receives for his remuneration the dif- ference between the - profit which it yields and the interest he pays to A. This is the simplest case. Suppose next that A's ten thousand pounds, instead of being lent to B, are lent on mortgage to C, d, landed pro- prietor, by whom they are employed in improving the productive powers of his estate, by fencing, draining, road-mak- ing, or permanent manures. This ia productive employment. The ten thou- sand pounds are sunk, but not dis- sipated. They yield a permanent re- turn ; the land now affords an increase of produce, sufficient, in a few years, if the outlay has been judicious, to replace the amount, and in time to multiply it manifold. Here, then, is a value of ten thousand pounds, employed in in- BOOK I. CHAPTER IV. 3. creasing the produce of the country. This constitutes a capital, for which C, if he lets his land, receives the returns in the nominal form of increased rent ; and the mortgage entitles A to receive from these returns, in the shape of in- terest, such annual sum as has heen " agreed on. We will now vary the cir- cumstances, and suppose that C does not employ the loan in improving his land, but in paying off a former mort- ' r in making a provision for children. Whether the ten thousand pounds thus employed are capital or not, will depend on what is done with the amount by the ultimate receiver. If the children invest their fortunes in a productive employment, or the mort- gagee on being paid off lends the amount to another landholder to im- prove his land, or to a manufacturer to extend his business, it is still capital, because productively employed. Suppose, however, that C, the bor- rowing landlord, is a spendthrift, who burdens his land not to increase his fortune but to squander it, expending the amount in equipages and entertain- ments. In a year or two it is dissi- pated, and without return. A is as rich as before ; he has no longer his ten thousand pounds, but he has a lien on the land, which he could still sell for that amount. C, however, is 10,OOOZ. poorer than formerly; and nobody is richer. It may be said that those are richer who have made profit out of the money while it was being spent. No doubt if C lost it by gaming, or was cheated of it by his servants, that is a mere transfer, not a destruction, and those who have gained the amount may employ it productively. But if C has received the fair value for his expendi- ture in articles of subsistence or luxury, which he has consumed on himself, or by means of his servants or guests, these articles have ceased to exist, and nothing has been produced to replace them : while if the same sum had been employed in farming or manufacturing, the consumption which would have taken place would have been more than balanced at the end of the year by new products, created by the labour of those who would in that case have been the consumers. By C's prodigality, that which would have been consumed with a return, is consumed without return. C's tradesmen may have made a profit during the process ; but if the capital had been expended productively, an equivalent profit would have been made by builders, fencers, tool-makers, and the tradespeople who supply the con- sumption of the labouring classes ; while at the expiration of the time (to say nothing of any increase), C would have had the ten thousand pounds or its value replaced to him, which now he has not. There is, therefore, on the general result, a difference to the dis- advantage of the community, of at least ten thousand pounds, being the amount of G's unproductive expenditure. To A, the difference is not material, since his income is secured to him, and while the security is good, and the market rate of interest the same, he can always sell the mortgage at its original value. To A, therefore, the lien of ten thou- sand pounds on C's estate, is virtually a capital of that amount ; but is it so in reference to the community ? It is not. A had a capital of ten thousand pounds, but this has been extinguished dissipated and destroyed by C's pro- digality. A now receives his income, not from the produce of his capital, but from some other source of income be- longing to C, probably from the rent of his land, that is, from payments made to him by fanners- out of the produce of their capital. The national capital is diminished by ten thousand pounds, and the national income by all which those ten thousand pounds, employed as capital, would have produced. The loss does not fall on the owner of the destroyed capital, since the destroyer has agreed to indemnify him for it. But his loss is only a small portion of that sustained by the community, since what was devoted to the use and con- sumption of the proprietor was only the interest ; the capital itself was, or would have been, employed in the per- petual maintenance of an equivalent number of labourers, regularly repro- ducing what they consumed : and of this maintenance they are deprived without compensation. FUNDAMENTAL PROPOSITIONS ON CAPITAL. Let us now vary the hypothesis still further, and suppose that the money is borrowed, not by a landlord, but by the State. A lends his capital to Govern- ment to carry on a war : he buys from the State what are called government securities; that is, obligations on the government to pay a certain annual in- come. If the government employed the money in making a railroad, this might be a productive employment, and A's property would still be used as capital ; but since it is employed in war, that is, in the pay of officers and soldiers who produce nothing, and in destroying a quantity of gunpowder and bullets without return, the government is in the situation of C, the spendthrift landlord, and A's ten thousand pounds are so much national capital which once existed, but exists no longer: virtually thrown into the sea, as far as wealth or production is concerned ; though for other reasons the employ- ment of it may have been justifiable. A's subsequent income is derived, not from the produce of his own capital, but from taxes drawn from the produce of the remaining capital of the commu- nity ; to whom his capital is not yield- ing any return, to indemnify them for the payment; it is lost and go; what he now possesses is a claim on the returns to other people's capital and in- dustry. This claim he can sell, and get back the equivalent of his capital, which he may afterwards employ pro- ductively. True ; but he does not get back his own capital, or anything which it has produced ; that, and all its possi- ble returns, are extinguished : what he gets is the capital of some other per- son, which that person is willing to ex- change for his lien on the taxes. An- other capitalist substitutes himself for A as a mortgagee of the public, and A substitutes himself for the other capi- talist as the possessor of a fund em- ployed in production, or available for it. By this exchange the productive powers of the community are neither increased nor diminished. The breach in the capital of the country was made when the government spent A's money : whereby a value of ten thousand pounds was withdrawn or withheld from pro- ductive employment, placed in the fund for unproductive consumption, and de- stroyed without equivalent. CHAPTER V. FUNDAMENTAL PROPOSITIONS RESPECTING CAPITAL. 1. IP the preceding explanations / have answered their purpose, they have given not only a sufficiently complete possession of the idea of Capital accord- ing to its definition, but a sufficient familiarity with it in the concrete, and amidst the obscurity with which the complication of individual circumstances surrounds it, to have prepared even the unpractised reader for certain elemen- tary propositions or theorems respecting capital, the full comprehension of which is already a considerable step out of darkness into light. The first of these propositions is, (That industry is limited by capital. This is so obvious as to be taken ftrf granted in many common forms of speech ; but to see a truth occasionally is one thing, to recognise it habitually, and admit no propositions inconsistent with it, is another. The axiom was until lately almost universally disre- garded by legislators and. political writers ; and doctrines irreconcileable with it are still very commonly pro- fessed and inculcated. The following are common expres- sions, implying its truth. The act of directing industry to a particular em- ployment is described by the " applying capital " to the employment. To employ industry on the land is to apply capital to the land. To employ 40 labour in BOOK I. CHAPTER V. 1. a manufacture is to invest capital in the manufacture. This im- plies that industry cannot be employed to any greater extent than there is capital to invest. The proposition, in- deed, must be assented to as soon as it is distinctly apprehended. The ex- presson " appyng capital " course metahorical: what is of really applied is labour ; capital being an in- dispensable condition. Again, we often speak of the "productive powers of capital." This expression is not lite- rally correct. The only productive powers are those of labour and natural agents ; or if any portion of capital ment, without providing additional funds, could create additional employ- ment. A government would, by pro- hibitory laws, put a stop to the impor- tation of some commodity ; and when by this it had caused the commodity to be produced at home, it would plume itself upon having enriched the country with a new branch of industry, would parade in statistical tables the amount of produce yielded and labour em- ployed in the production, and take credit for the whole of this as a gain to the country, obtained through the prohibitory law. Although this sort of political arithmetic has fallen a can by a stretch of language be said to I little into discredit in England, it still have a productive power of its own, it flourishes in the nations of Continental Europe. Had legislators been aware that industry is limited by capital, is only tools and machinery, which, like wind or water,, may be said to co-ope rate with labour. The food of labourers and the materials of production have -~- no productive power ; but labour cannot exert its productive power unless pro- vided with them. There can be no more industry than is supplied with materials to work up and food to eat. Self-evident as the thing is, it is often forgotten that the people of a country are maintained and have their wants supplied, not by the produce of present labour, but of past. They consume what has been produced, not what is about to be produced. Now, of what has been produced, a part only is al- lotted to the support of productive labour ; and there will not and cannot be more of that labour than the por- tion so allotted (which is the capital of the country) can feed, and provide with the materials and instruments of production. Yet, in disregard of a fact so evident, it long continued to be believed that laws and governments, without creat- ing capital, could create industry. Not by making the people more labo- rious, or increasing the efficiency of their labour; these are objects to which the government can, in some degree, indirectly contribute. But without any increase in the skill or energy of the labourers, and without causing any persons to labour who had previously been maintained in idleness, it was still thought that the govern- they would have seen that, the aggre- gate capital of the country not having been increased, any portion of it which they by their laws had caused to be embarked in the newly-acquired branch, of industry must have been withdrawn or withheld from some other ; in which it gave, or would have given, employ- ment to probably about the same quan- tity of labour which it employs in its new occupation.* * An exception must be admitted when the industry created or upheld by the re- strictive law belongs to the class of what are called domestic manufaetures. These being carried on by persons already fed by la- bouring families, in the intervals of other employment no transfer of capital to the occupation is necessary to its being under- taken, beyond the value of the materials and tools, which is often inconsiderable If, therefore, a protecting duty causes this occu- pation to be carried on, when it otherwise would not, there is in this case a real increase of the production of the country. In order to render our theoretical proposi- tion invulnerable, this peculiar case must be allowed for : but it does not touch the prac- tical doctrine of free trade. Domestic manufactures cannot, from the very nature of things, require protection, since the sub- sistence of the labourers being provided from other sources, the price of the product, how- ever much it may be reduced, is nearly all clear gain. If, therefore, the domestic pro- ducers retire from the competition, it is never from necessity, but because the pro- duct is not worth the labour it costs, in the opinion of the best judges, those who enjoy the one and undergo the other. They prefer the sacrifice of buying their clothing to the labour of making it. They will not continue FUNDAMENTAL PKOPOSITIONS ON CAPITAL. 41 2. Because industry is limited by capital, we are not however to infer that it always reaches that limit. Capital may he temporarily unemployed, as in the case of unsold goods, or funds that have not yet found an investment ; during this interval it does not set in motion any industry. Or there may not he as many labourers obtainable, as the capital would maintain and em- ploy. This has been known to occur in new colonies, where capital has sometimes perished uselessly for want of labour-: the Swan Eiver settlement (now called Western Australia), in the first years after its foundation, was an instance. There are many persons maintained from existing capital, who produce nothing, or who might produce much more than they do. If the labourers were reduced to lower wages, or induced to work more hours for the same wages, or if their families, who are already maintained from capital, were employed to a greater extent than they now are in adding to the produce, a given capital would afford employment to more industry. The unproductive consumption of produc- tive labourers, the whole of which is now supplied by capital, might cease, or be postponed until the produce came in ; and additional productive labourers might be maintained with the amount. By such means society might obtain from its existing re- sources a greater quantity of produce : and to such means it has been driven, when the sudden destruction of some large portion of its capital rendered the employment of the remainder with the greatest possible effect, a matter of paramount consideration for the time. Where industry has not come up to the limit imposed by capital, governments may, in various ways, for example by importing additional labourers, bring it nearer to that limit : as by the im- portation of Coolies and free Negroes into the West Indies. There is an- other way in which governments can create additional industry. They can create capital. They may lay on their labour unless society will give them more for it, than in their own opinion its product is worth. taxes, and employ the amount produc- tively. They may do what is nearly equivalent ; they may lay taxes on income or expenditure, and apply the proceeds towards paying oft' the public debts. The fundholder, when paid off, would still desire to draw an income from his property, most of which there- fore would find its way into productive employment, while a great part of it would have been drawn from the fund for unproductive expenditure, since people do not wholly pay their taxes from what they would have saved, but partly, if not chiefly, from what they would have spent. It may be added, that any increase in the productive power of capital (or, more properly speaking, of labour) by improvements in the arts of life, or otherwise, tends to increase the employment for labour; since, when there is a greater produce altogether, it is always probable that some portion of the increase will bo saved and converted into capital ; especially when the increased returns to productive industry hold out an additional temptation to the conver- sion of funds from an unproductive destination to a productive. 3. While, on the one hand, in- dustry is limited by capital, so on the other, every increase of capital gives, or is capable of giving, additional em- ployment to industry ; and this with- out assignable limit. I do not mean to deny that the capital, or part of it, may be so employed as not to support labourers, being fixed in machinery, buildings, improvement of land, and the like. In any large increase of capital a considerable portion will generally be thus employed, and will only co-operate with labourers, not maintain them. What I do intend to'assert is, that the portion which is destined to their maintenance, may (supposing no altera- tion in anything else) be indefinitely increased, without creating an impos- sibility of finding them employment : in other words, that if there are human beings capable of work, and food t feed them, they may always be en>^ ployed in producing something. This proposition requires to be somewhat BOOK I. CHAPTER V. 3. dwelt open, being one of those which it is exceedingly easy to assent to when presented in general terms, but somewhat difficult to keep fast hold of, in the crowd and confusion of the actual facts of society. It is also very much opposed to common doctrines. There is not an opinion more general among mankind than this, that the unproductive expenditure of the rich is necessary to the employment of the poor. Before Adam Smith, the doc- trine had hardly been questioned ; and even since his time, authors of the highest name and of great merit* have contended, that if consumers were to save and convert into capital more than a limited portion of their income, and were not to devote to unproductive consumption an amount of means bear- ing a certain ratio to the capital of the country, the extra accumulation would be merely so much waste, since there would be no market for the commo- dities which the capital so created would produce. I conceive this to be one of the many errors arising in poli- tical economy, from the practice of not beginning with the examination of simple cases, but rushing at once into the complexity of concrete phenomena. Every one can see that if a benevo- lent government possessed all the food, and all the implements and materials, of the community, it could exact pro- ductive labour from all capable of it, to whom it allowed a share in the food, and could be in no danger of -wanting a field for the employment of this pro- ductive labour, since as long as there was a single want unsaturated (which material objects could supply), of any one individual, the labour of the com- munity could be turned to the produc- tion of something capable of satisfying that want. Now, the individual pos- sessors of capital, when they add to it by fresh accumulations, are doing pre- cisely the same thing which we sup- pose to be done by a benevolent govern- ment. As it is allowable to put any case by way of hypothesis, let us ima- gine the most extreme case conceiv- able. Suppose that every capitalist * For example, Mr. Malthus, Dr. Chalmers, II. de Sismondi. came to be of opinion that not being more meritorious than a well-conducted labourer, he ought not to fare better ; and accordingly laid by, from conscientious motives, the surplus of his profits ; or suppose this abstinence not sponta- neous, but imposed by law or opinion upon all capitalists, and upon land- owners likewise. Unproductive ex- penditure is now reduced to its lowest limit : and it is asked, how is the in- creased capital to find employment ? Who is to buy the goods which it will produce? There are no longer cus- tomers even for those which were pro- duced before. The goods, therefore, (it is said) will remain unsold ; they will perish in the warehouses ; until capital is brought down to what it was originally, or rather to as much less, as the demand of the consumers has lessened. But this is seeing only one- half of the matter. In the case sup- posed, there would no longer be any demand for luxuries, on the part of capitalists and landowners. But when these classes turn their in- come into capital, they do not thereby annihilate their power of consumption ; they do but transfer it from themselves to the labourers to whom they give employment. Now, there are two pos- sible suppositions in regard to the labourers ; either there is, or there is not, an increase of their numbers, pro- portional to the increase of capital. If there is, the case offers no difficulty. The production of necessaries for the new population, takes the place of the production of luxuries for a portion of the old, and supplies exactly the amount of employment which has been lost. But suppose that there is no in- crease of population. The whole of what was previously expended in luxuries, by capitalists and landlords, is distributed among the * labourers, in the form of additional wages. We will assume them to be already sufficiently supplied with neces- saries. What follows? That the- labourers become consumers of luxu- ries ; and the capital previously em- ployed in the production of luxuries, is still able to employ itself in the same manner : the diflerence beincr, that the FUNDAMENTAL PROPOSITIONS ON CAPITAL. 48 luxuries are shared among the com- munity generally, instead of being con- fined to a few. The increased accumu- lation and increased production might, rigorously speaking, continue, until every labourer had every indulgence of wealth, consistent with continuing to work ; supposing that the power of their labour were physically sufficient to produce all this amount of indulgences for their whole number. Tfeais the limit of wealth is never deficiency of consumers, but of producers and pro- ductive power. Every addition to capital gives to labour either additional employment, or additional remunera- tion ; enriches either the country, or the labouring class. If it finds addi- tional hands to set to work, it increases the aggregate produce : if only the same hands, it gives them a larger share of it ; and perhaps even in this case, by stimulating them to greater exertion, augments the produce itself. ^4. A second fundamental theorem respecting Capital, relates^to JJhe source from which it is derived. It is the_re- sult of saving. The evidence of this lies~7rbttndantly in what has been al- ready said on the subject. But the proposition needs some further illus- tration. If all persons were to expend in per- sonal indulgences all that they produce, and all the income they receive from what is produced by others, capital could not increase. All capital, with a trifling exception, was originally the result of saving. I say, with a trifling exception ; because a person who la- bours on his own account, may spend on his own account all he produces, without becoming destitute ; and the' provision of necessaries on which he subsists until he has reaped his harvest, or sold his commodity, though a real capital, cannot be said to have been saved, since it is all used for the sup- ply of his own wants, and perhaps as speedily as if it had been consumed in idleness. We may imagine a number of individuals or families settled on as many separate pieces of land, each living on what their own labour pro- duces, and consuming the whole pro- duce. But even these must trary, they continue to be produced as long as there are consumers for tiff and are produced in increased quanj to meet an increased demand ;JT choice made by a consumer to expenc five thousand a year in luxuries, keeps a corresponding number of labourers employed from year to year in pro- ducing things which can be of no use to production ; their services being lost so far as regards the increase of the national wealth, and the tools, mate- rials, and food which they annually consume being so much subtracted from the general stock of the commu- nity applicable to productive purposes^ In proportion as any class is improvi- dent or luxurious, the industry of the country takes the direction of producing luxuries for their use ; while not only the employment for productive labourers is diminished, but the subsistence and instruments which are the means of such employment do actually exist in smaller quantity. Saving, in short, enriches, and spend- ing impoverishes, the community along ! with the individual ; which is but say- ing in other words, tha,t society at large 1 is richer by what^iL expemU- in main taining and aiding productive labour. I but poorerjjy what it^conaimics in its enjoyments^ * It is worth while to direct attention to several circumstances which to a certain ex- tent diminish the detriment caused to the general wealth by the prodigality of in- 46 BOOK I. CHAPTER V. 6. 6. To return to our fundamental theorem. Everything which is pro- duced is consumed ; both what is saved and what is said to be spent ; and the former quite as rapidly as the latter. All the ordinary forms of language tend to disguise this. When people talk of the ancient wealth of a country, of riches inherited from ancestors, and similar expressions, the idea suggested is, that the riches so transmitted were produced long ago, at the time when they are said to have been first ac- quired, and that no portion of the capital of the country was produced this year, except as much as may have been this year added to the total amount. The fact is far otherwise. The greater part, in value, of the wealth now existing in England has been produced by human hands within the last twelve months. A very small proportion indeed of that large aggre- gate was in existence ten years ago ; of the present productive capital of the country scarcely any part, except farm-houses and manufactories, and a dividual?, or raise up a compensation, more or less ample, as a consequence of the detri- ment itself. One of these is that spend- thrifts do not usually succeed in consuming all they spend. Their habitual carelessness as to expenditure causes them to be cheated and robbed on all quarters, often by persons of frugal habits. Large accumulations are continually made by the agents, stewards, and even domestic servants, of improvident persons of fortune ; and they pay much higher prices for all purchases than people of careful habits, which accounts for their being popular as customers. They are, therefore, actually not able to get into their possession and destroy a quantity of wealth by any means equivalent to the fortune which they dissipate. Much of it is merely trans- ferred to others, by whom a part may be saved. Another thing to be observed is, that the prodigality of some may reduce others to a forced economy. Suppose a sud- den demand for some article of luxury, caused by the caprice of a prodigal, which not having been calculated on beforehand, there has been no increase of the usual supply. The price will rise ; and may rise beyond the means or the inclinations of some of the habitual consumers, who may in con- sequence forego their accustomed indulgence, and save the amount. If they do not, but continue to spend as great a value as before on the commodity, the dealers in it obtain, for only the same quantity of the article, a return increased by the whole of what the spendthrift has paid ; and thus the amount few ships and machines; and even these would not in most cases have survived so long, if fresh labour had not been employed within that period in putting them into repair. The land subsists, and the land is almost the only thing that subsists. Everything which is produced perishes, and most things very quickly. Most kinds of capital are not fitted by their nature to be long preserved. There are a few, and but a few productions, capable of a very prolonged existence. West- minster Abbey has lasted many cen- turies, with occasional repairs ; some Grecian sculptures have existed above two thousand years; the Pyramids perhaps double or treble that time. But these were objects devoted to un- productive use. If we except bridges and aqueducts (to which may in some countries be added tanks and* embank- ments), there are few instances of any edifice ajplied to industrial purposes which has been of great duration ; such buildings do not hold out against wear and tear, nor is it good economy which he loses is transferred bodily to them, and may be added to their capital : his in- creased personal consumption being made up by the privations of the other purchasers, who have obtained k-ss than usual of their accustomed gratification for the same equiva- lent. On the other hand, a counter-process must be going on somewhere, since the prodigal must have diminished his purchases in some other quarter to balance the aug- mentation in this ; he has perhaps called in funds, employed in sustaining productive la- bour, and the dealers in subsistence and in the instruments of production have had com- modities left on their hands, or have re- ceived, for the usual amount of commodities, a less than usual return. But such losses of income or capital, by industrious persons, except when of extraordinary amount, are generally made up by increased pinching and privation : so that the capital of the com- munity may not be, on the whole, impaired, and the prodigal may have had indulgence at the expense not of the perma- nent resources, but of the temporary plea- sures and comforts of others. For in every case the community are poorer by what any one spends, unless others are in consequence led to curtail their spending. There are yet other and more recondite ways in which the profusion of some may bring about its com- pensation in the extra savings of others; but these can only be considered in that part of the Fourth Book, which treats of' the limiting principle to the accumulation of capital. FUNDAMENTAL PROPOSITIONS ON CAPITAL. to construct them of the solidity necessary for permanency. Capital is kept in existence from age to age not by preservation, but by perpetual reproduction : every part of it is used and destroyed, generally very soon after it is produced, but those who consume it are employed meanwhile in produc- ing more. The growth of capital is similar to the growth of population. Every individual who is born, dies, but in each year the number born exceeds the number who die : the population, therefore, always increases, though not one person of those composing it was alive until a very recent date. 7.^ This perpetual consu: and reproduction of capital affoi explanation of what has so often excited wonder, the great rapidity with which countries recover from a state of devas- tation ; the disappearance, in a short time, of all traces of the mischiefs done by earthquakes, floods, hurricanes, and the ravages of war. An enemy lays waste a country by fire and sword, and destroys or carries away nearly all the moveable wealth existing in it : all the inhabitants are ruined, and yet in a few years after, everything is much as it was before. This vis medicatrix natures, has been a subject of sterile astonishment, or has been cited to ex- emplify the wonderful strength of the principle of saving, which can repair such enormous losses in so brief an in- terval. There is nothing at all won- derful in the matter. What the enemy have destroyed, would have been de- stroyed in a little time by the inhabit- ants themselves : the wealth which they so rapidly reproduce, would have needed to be reproduced and would have been reproduced in any case, and probably in as short a time. Nothing is changed, except that during the re- production they have not now the ad- vantage of consuming what had been produced previously. The possibility of a rapid repair of their disasters, mainly depends on whether the country has been depopulated. If its effective population have not been extirpated at the time, and are not starved after- wards ; then, with the same skill and knowledge which they had before, with their land and its permanent improve- ments undestroyed, and the more dur- able buildings probably unimpaired, or only partially injured, they have nearly all the requisites for their former amount of production. If there is as much of food left to them, or of valu- ables to buy food, as enables them by any amount of privation to remain alive and in working condition, they will in a short time have raised as great a produce, and acquired collec- tively as great wealth and as great a capital, as before ; by the mere conti- nuance of that ordinary amount of ex- ertion jjdud^they are accustomed to r occupations. Nor does this evince any strength in the princi- ple of saving, in the popular sense of the term, since what takes place is not intentional abstinence, but involuntary privation. Yet so fatal is the habit of thinking through the medium of only one set of technical phrases, and so little reason have studious men to value themselves on being exempt from the very same mental infirmities which beset the vuK gar, that this simple explanation was never given (so far as I am aware) by any political economist before Dr. Chalmers ; a writer many of whose opinions I think erroneous, but who has always the merit of studying phenomena at first hand, and expressing them in a language of his own, which often un- covers aspects of the truth that the re- ceived phraseologies only tend to hide 8. The same author carries out this train of thought to some important conclusions on another closely connected subject, that of government loans for war purposes or other unproductive ex- penditure. These loans, being drawn from capital (in lieu of taxes, which would generally have been paid from income, and made up in part or alto- gether by increased economy) must, according to the principles we have laid down, tend to impoverish the country : yet the years in which ex- penditure of this sort has been on the greatest scale, have often been years of great apparent prosperity : the wealth 48 BOOK I. CHAPTER V. 8. and rp?onrces of the country, instead of diminishing, have given every sign of rapid increase during the process, and of greatly expanded dimensions after its close. This was confessedly the case with Great Britain during the last long Continental war; and it would take some space to enumerate all the unfounded theories in political economy, to which that fact gave rise, and to which it secured temporary credence ; almost all tending to exalt unproduc- tive expenditure, at the expense of pro- ductive. Without entering into all the causes which operated, and which commonly do operate, to prevent these extraordinary drafts on the productive resources Of a country from being so much felt as it might seem reasonable to expect, we will suppose the most unfavourable case possible : that the whole amount borrowed and destroyed by the government, was abstracted by the lender from a productive . employ- ment in which it had actually been in- vested. The capital, therefore, of the country, is this year diminished by so much. But unless the amount ab- stracted is something enormous, there is no reason in the nature of the case why next year the national capital should not be as great as ever. The loan cannot have been taken from that portion of the capital of the country which consists of tools, machinery, and buildings./Tt must have been wholly] 'orawn from the portion employed in paying labourers : and the labourers will suffer accordingly. But if none of them are starved ; if their wages can bear such an amount of reduction, or if charity interposes between them and absolute destitution, there is no reason that their labour should produce less in the next year than in the year before. If they produce as much as usual, having been paid less by so many TCJllinns sterling, these millions are gained by their employers. The breach made in the capital of the country is thus instantly repaired, but repaired by the privations and often the real misery of the labouring class. Here is ample reason why such periods, even in the most unfavourable circum- stances, may easily be times of great gain to those whose prosperity usually passes, in the estimation of society, for national prosperity.* This leads to the vexed question to which Dr. Chalmers has very particu- larly adverted ; whether the funds re- quired by a government for extraor- dinary unproductive expenditure, are best raised by loans, the interest only bjeing provided by taxes, or whether taxes should be at once laid on lo the. whole amount ; which is called in the financial vocabulary, raising the whole of the supplies within the year. Dr. Chalmers is strongly for the latter method. He says, the common notion is that in calling for the whole amount in one year, you require what is either impossible, or very inconvenient ; that the people cannot, without great hard- ship, pay the whole at once out of their * On the other hand, it must be remem- bered that war abstracts from productive employment not only capital, but likewise labourers, that the funds withdrawn from the remuneration of productive labourer's are partly employed in paying the same ear other individuals for unproductive labour j and that by this portion of its effects, war expenditure acts in precisely the opposite manner to that which Dr. Chalmers points out, and, so far as it goes, directly counter- acts the effects described in the text. So far as labourers are taken from production to man the army and navy, the labouring classes are not damaged, the capitalists are not benefited, and the general produce of the country is diminished by war expendi- ture. Accordingly, Dr. Chalmers's doctrine, though true of this country, is wholly inap- plicable to countries differently circum- stanced ; to France, for example, during the Napoleon wars. At that period tlie draught on the labouring population of France, for a long series of years, was enormous, while the funds which supported the war were mostly supplied by contributions levied on the countries overrun by the French arms, a very small proportion alone consisting of French capital. In France, accordingly, the wages of labour did not fall, but rose ; the employers of labour were not benefited, but injured; while the wealth of the country was impaired by the suspension or total loss of so vast an amount of its productive labour. In England all this was reversed. England employed comparatively few additional soldiers and sailors of her own, while she diverted hundreds of millions of capital- from productive employment, to supply munitions of war and support armies for her Conti- nental allies. Consequently, as shown in the text, her labourers suffered, herjiapitalista prospered, an J her permanent productive resources did not fall off. FUNDAMENTAL PKOPOSITIONS ON CAPITAL. yearly income ; and that it is much better to require of them a small pay- ment every year in the shape of interest, than so great a sacrifice once for all. To which his answer is, that the sacri- fice is made equally in either case. Whatever is spent, cannot but be drawn from yearly income. The whole and every part of the wealth produced in the country, forms, or helps to form, the yearly income of somebody. The privation which it is supposed must result from taking the amount in the shape of taxes, is not avoided by taking it in a loan. The suffering is not averted, but only thrown upon the labouring classes, the least able, and who least ought, to bear it : while all the inconveniences, physical, moral, and political, produced by maintaining taxes for the perpetual payment of the interest, are incurred in pure loss. Whenever capital is withdrawn from production, or from the fund destined for production, to be lent to the State and expended unproductively, that whole sum is withheld from the labouring classes : the loan, therefore, is in truth paid off the same year ; the whole of the sacrifice necessary for paying it off is actually made : only it is paid to the wrong persons, and therefore does not extinguish the claim ; and paid by the very worst of taxes, a tax exclusively on the labouring class. And after having, in this most painful and unjust way, gone through the whole effort necessary for extinguishing the debt, the country remains charged with it, and with the payment of its interest in perpetuity. These views appear to me strictly just, in so far as the value absorbed in loans would otherwise have been em- ployed in productive industry within the country. The practical state of the case, however, seldom exactly corre- sponds with this supposition. The loans of the less wealthy countries are made chiefly with foreign capital, which would not, perhaps, have been brought in to be invested on any less security than that of the government : while those of rich and prosperous countries are generally made, not with funds withdrawn from productive employ- 1ML ment, but with the new accumulations constantly making from income, and often with a part of them which, if not so taken, would have migrated to colo- nies, or sought other investment? abroad. In these cases (which will be more particularly examined here- after*), the sum wanted may be ob- tained by loan without detriment to tho labourers, or derangement of the na- tional industry, and even perhaps with advantage to both, in comparison with raising the amount by taxation ; since taxes, especially when heavy, are al- most always partly paid at the expense of what would otherwise have been saved and added to capital. Besides, in a country which makes so great yearly additions to its wealth that a part can be taken and expended un- productively without diminishing capi- tal, or even preventing a considerable increase, it is evident that even if the whole of what is so taken would have become capital, and obtained employ- ment in the country, the effect on the labouring classes is far less prejudicial, and the case against the loan system much less strong, than in the case first supposed. This brief anticipation of a discussion which will find its proper place elsewhere, appeared necessary to prevent false inferences from the pre- mises previously laid down. ^ 9. We now pass to a fourth fun- damental theorem respecting Capital, which is, perhaps, oftener overlooked or misconceived than even any of the foregoing. What supports and employs productive labour, is the_capital ex- pended in setting it to~work, and not t^d^rM,n^^j)urchase^8_jorjt^ pro- djice_of__the J^tiOur_wJiejL^conipieted. Demand for commodities is not demand for labour. The demand for commodi- ties determines in what particuhu branch of production the labour and capital shall be employed; it deter- ___ mines the direction of the labour ; but not the more or less of the labour itself, or of the maintenance or payment of the labour. These depend on the amount of the capital, or other f'uuda * Infra, book iv. chaps, iv. v, E 50 BOOK I. CHAPTER V. 9. directly devoted to the sustenance and remuneration of labour. Suppose, for instance, that there is a demand for velvet ; a fund ready to be laid out in buying velvet, but no capital to establish the manufacture. It is of no consequence how great the demand may be ; unless capital is at- tracted into the occupation, there will be no velvet made, and consequently none bought ; unless, indeed, the desire of the intending purchaser for it is so strong, that he employs part of the price he would have paid for it, in making advances to work-people, that they may employ themselves in making velvet ; that is, unless he converts part of his income into capital, and invests that capital in the manufacture. Let us now reverse the hypothesis, and sup- pose that there is plenty of capital ready for making velvet, but no de- mand. Velvet will not be made ; but there is no particular preference on the part of capital for making velvet. Ma- nufacturers and their labourers do not produce for the pleasure of their cus- tomers, but for the supply of their own wants, and having still the capital and the labour which are the essentials of production, they can either produce something else which is in demand, or if there be no other demand, they themselves have one, and can produce the things which they want for their own consumption. So that the employ- ment afforded to labour does not depend on the purchasers, but on the capital. I am, of course, not taking into con- sideration the effects of a sudden change. If the demand ceases unex- pectedly, after the commodity to supply it is already produced, this introduces a different element into the question : the capital has actually been consumed in producing something which nobody wants or uses, and" it has therefore perished, and the employment which it gave to labour is at an end, not be- cause there is no longer a demand") but because there is no longer a capital. This case therefore does not test the principle. The proper test is, to sup- pose that the change is gradual and foreseen, and is attended with no waste of capital, the manufacture being dis- continued by merely not replacing the machinery as it wears out, and not re- investing the money as it comes in from the sale of the produce. The capital is thus ready for a new employment, in which it will maintain as much labour as before. The manufacturer and his work-people lose the benefit of the skill and knowledge which they had ac- quired in the particular business, and which can only be partially of use to them in any other; and that is the amount of loss to the community by the change. But the labourers can still work, and the capital which previously employed them will, either in the same hands, or by being lent to * others, employ either those labourers or an equivalent number in some other occu- pation. This theorem, that to purchase pro- duce is not to employ labour ; that the demand for labour is constituted by the wages which precede the production^ and not by the demand which may exist for the commodities resulting from the production ; is a proposition which greatly needs all the illustration it can receive. It is, to common apprehen- sion, a paradox ; and even among poli- tical economists of reputation, I can hardly point to any, except Mr. Eicardo and M. Say, who have kept it con- stantly and steadily in view. Almost all others occasionally express them- selves as if a person who buys com- modities, the produce of labour, was an employer of labour, and created a de- mand for it as really, and in the same sense, as if he bought the labour itself directly, by the payment of wages. It is no wonder that political economy advances slowly, when such a question as this still remains open at its very threshold. I apprehend, that if by de- mand for labour be meant the demand by which wages are raised, or th^ num- ber of labourers in employment in- creased, demand for commodities does not constitute demaad for labour. I conceive that a person who buys com- modities and consumes them 'himself, does no good to the labouring classes : and that it is only by what he abstains from consuming, and expends in direct payments to labourers in exchange for FUNDAMENTAL PEOPOS1TIONS ON CAPITAL. 51 labour, that he benefits the labouring classes, or adds anything to the amount of their employment. For the better illustration of the principle, let us put the following case. X consumer may expend his income either in buying services or commodi- ties. He may employ part of it in hiring journeymen bricklayers to build a house, or excavators to dig artificial lakes, or labourers to make plantations mid lay out pleasure-grounds; or, in- btead of this, he may expend the same value in buying velvet and lace. The question is, whether the difference be- tween these two modes of expending his income affects the interest of the labouring classes. It is plain that in the first of the two cases he employs labourers, who will be out of employ- ment, or at least out of that employ- ment, in the opposite case. But those from whom I differ say that this is of no consequence, because in buying velvet and lace he equally employs labourers, namely, those who make the velvet and lace. I contend, however, that in this last case he does not em- ploy labourers ; but merely decides in what kind of work some other person shall employ them. The consumer does not with his own funds pay to the weavers and lacemakers their day's wages. He buys the finished com- modity, which has been produced by labour and capital, the labour not being paid nor the capital furnished by him, but by the manufacturer. Suppose that he had been in the habit of ex- pending this portion of his income in hiring journeymen bricklayers, who laid out the amount of their wages in food and clothing, which were also pro- duced by labour and capital. He, however, determines to prefer velvet, for which he thus creates an extra de- mand. This demand cannot be satis- fied without an extra supply, nor can the supply be produced without an ex- tra capital : where, then, is the capital to come from? There is nothing in the consumer's change of purpose which makes the capital of the country greater than it otherwise was. It ap- pears, then, that the increased demand for velvet could not for the present be supplied, were it not that the very cir- cumstance which gave rise to it has set at liberty a capital of the exact amount required. The very sum which the consumer now employs in buying vel- vet, formerly passed into the hands of journeymen bricklayers, who expended it in food and necessaries, which they now either go without, or squeeze by their competition, from the shares of other labourers. The labour and ca- pital, therefore, which formerly pro- duced necessaries for the use of these bricklayers, are deprived of their mar- ket, and must look out for other em- ployment ; and they find it in making velvet for the new demand. I do not mean that the very same labour and capital which produced the necessaries turn themselves to producing the vel- vet; but, in some one or other of a hundred modes, they take the place of that which does. There was capital in existence to do one of two things to make the velvet, or to produce ne- cessaries for the journeymen brick- layers ; but not to do both. It was at the option of the consumer which of the two should happen ; and if he chooses the velvet, they go without the necessaries. For further illustration, let us sup- pose the same case reversed. The consumer has been accustomed to buy velvet, but resolves to discontinue th>t expense, and to employ the same annual sum in hiring bricklayers. If the common opinion be correct, this change in the mode of his expenditure gives no additional employment to labour, but only transfers employment from velvet-makers to bricklayers. On closer inspection, however, it will be seen that there is an increase of the total sum applied to the remuneration of labour. The veljej_majiufacturer, supposing him aware of the diminished demand for his commodity, diminishes the production, and sets at liberty a corresponding portion of the capital employed in the manufacture. This capital, thus withdrawn from the maintenance of velvet-makers, is not the same fund with that which the cus- tomer employs in maintaining brick- layers ; it is a second fund. There are Bfl BOOK L CHAPTER V. 9. therefore two funds to be employed in the maintenance and remuneration of labour, where before there was only one. There is not a transfer of em- ployment from velvet-makers to brick- layers ; there is a new employment created for bricklayers, and a transfer i of employment from velvet-makers to j some other labourers, most probably those who produce the food and other things which the bricklayers consume. In answer to this it is said, that though money laid out in buying velvet is not capital, it replaces a capital; | that though it does not create a new ' demand for labour, it is the necessary means of enabling the existing demand to be kept up. The funds (it may be said) of the manufacturer, while locked up in velvet, cannot be directly applied to the maintenance of labour ; they do not begin to constitute a demand for labour until the velvet is sold, and the capital which made it replaced from the outlay of the purchaser ; and thus, it may be said, the velvet-maker and the velvet-buyer have not two capitals, but only one capital between them, which by the act of purchase the buyer transfers to the manufacturer : and if instead of buying velvet he buys labour, he simply transfers this capital elsewhere, extinguishing as much de- mand for labour in one quarter as he creates in another. The premises of this argument are not denied. To set free a capital which would otherwise be locked up in a form useless for the support of labour, is, no doubt, the same thing to the in- terests of labourers as the creation of a new capital. It is perfectly true that if I expend 1000Z. in buying velvet, I enable the manufacturer to employ 1000Z. in the maintenance of labour, which could not have been so employed while the velvet remained unsold : and if it would have remained unsold for ever unless I bought it, then by chang- ing my purpose and hiring bricklayers instead, I undoubtedly create no new demand for labour : for while I employ 1000Z. in hiring labour on the one hand, I annihilate for ever 1000Z. of the velvet-maker's capital on the other. But this is confounding the effects arising from the mere suddenness of a. change with the effects of the change itself. If when the buyer ceased to pur- chase, the capital employed in making velvet for his use necessarily perished, then his expending the same amount in hiring bricklayers would be no crea- tion, but merely "a transfer, of employ- ment. The increased employment which I contend is given to labour, would not be given unless the capital of the velvet-maker could be liberated, and would not be given until it was liberated. But every one knows that the capital invested in an employment can be withdrawn from it, if sufficient time be allowed. . If the velvet-maker had previous notjqg, by not receiving the usual order, lie will have produced 1000Z. less velvet, and an equivalent portion of his capital will have been already set free. If he had no previous notice, and the article consequently re- mains on his hands, the increase of his stock will induce him next year to sus- pend or diminish his production until the surplus is carried off. "\Vhen this process is complete, the manufacturer will find himself as rich as before, with undiminished power of employing la- bour in general, though a portion of his capital will now be employed in main- taining some other kind of it. Until this adjustment has taken place, the demand for labour will be merely changed, not increased : but as soon as it has taken place, the demand for labour is increased. "Where there was formerly only one capital employed in maintaining weavers to make 1000Z. worth of velvet, there is now that same capital employed in making something else, and 1000Z. distributed among bricklayers besides. There are now two capitals employed in remunerating two sets of labourers; while before, one of those capitals, that of the eu&. tomer, only served as a wheel in the machinery by which the other capital, that of the manufacturer, carried on its employment of labour from year to year. The proposition for which I am con- tending is in reality equivalent to the following, which to some minds will appear a truism, though to others it is a paradox : that a person does good to FUNDAMENTAL PROPOSITIONS ON CAPITAL. 53 labourers, not by what he consumes on himself, but solely by what he does not so consume. If instead of laying out 100Z. in wine or silk, I expend it in wages, the demand for commodities is precisely equal in both cases : in the one, it is a demand for 100Z. worth of wine or silk, in the other, for the same value of bread, beer, labourers' clothing, fuel, and indulgences ; but the la- bourers of the community have in the latter case the value of 100Z. more of the produce of the community dis- tributed among them. I have con- sumed that much less, and made over my consuming power to them. If it were not so, my having consumed less would not leave more to be consumed by others ; which is a manifest contra- diction. When less is not produced, what one person forbears to consume is necessarily added to the share of those to whom he transfers his power of pur- chase. In the case supposed I do not necessarily consume less ultimately, since the labourers whom I pay may build a house for me, or make some- thing else for my future consumption. But I have at all events postponed my consumption, and have turned over part of my share of the present produce of the community to the labourers. If after an interval I am indemnified, it is not from the existing produce, but from a subsequent addition made to it. I have therefore left more of the exist- ing produce to be consumed by others ; and have put into the possession of labourers the power to consume it. There cannot be a better reductio ad absurdumot the opposite doctrine than that afforded by the Poor Law. If it be equally for the benefit of the labour- ing classes whether I consume my means in the form of things purchased for my own use, or set aside a portion in the shape of wages or alms for their direct consumption, on what ground can the policy be justified of taking my money from me to support paupers ? since my unproductive expenditure would have equally benefited them, while I should have enjoyed it too. If society can both eat its cake and have it, why should it not be allowed the double indulgence ? But common sense tells every one in his own case (though he does not see it on the larger s-iil.-) that the poor-rate which he pays is really subtracted from his own con- sumption ; and that no shifting of pay- ment backwards and forwards will enable two persons to eat the same food. If he had not been required to pay the rate, and had consequently laid out the amount on himself, the poor would have had as much less lor their share of the total produce of thu country, as he himself would have con- sumed more.* * The following case, which presents the argument in a somewhat different shape, may serve for still further illustration. Suppose that a rich individual, A, expends a certain amount daily in wages or alms, which, as soon as received, is expended and - consumed, in the form of coarse food, by the receivers. A dies, leaving his property to B, who discontinues this item of expenditure, and expends in lieu of it the same sum each day in delicacies for his own table. I have chosen this supposition, in order that the two cases may be similar in all their cir- cumstances except that which is the subject of comparison. In order not to obscure the essential facts of the case by exhibiting them through the hazy medium of a money trans- action, let us further suppose that A, and B after him, are landlords of the estate on which both the food consumed by the re- cipients of A's disbursements, and the arti- cles of luxury supplied for B's table, are produced; and that their rent is paid to them in kind, they giving previous notice what description of produce they shall re- quire. The question is, whether B's expen- diture gives as much employment or as much food to his poorer neighbours as A's gave. From the case as stated, it seems to follow that while A lived, that portion of his income which he expended in wages or alms, would be drawn by him from the farm in the shape of food for labourers, and would be used as such ; while B, who came after him, would require, instead of this, an equivalent value in expensive articles of food, to be consumed in his own household: that the farmer, therefore, would, under B's regime, produce that much less of ordinary food, and more of expensive delicacies, for each day of the year, than was produced in A's time, and that there would be that amount less of food shared, throughout the year, among the labouring and poorer classes. This is what would be conformable to the principles U down in the text. Those who think difft ently, must, on the other hand, suppose that the luxuries required by B would be pro- duced, not instead of, but in addition to, the food previously supplied to A's labourers, and that the aggregate produce of the country would be increased in amount. But when it is asked, how this double production 54 BOOK I. CHAPTER V. 9. It appears, then, that a demand de- layed until the work is completed, and furnishing no advances, but only re- imbursing advances made by others, contributes nothing to the demand for labour ; and that what is so expended, is, in all its effects, so far as regards the employment of the labouring class, a mere nullity ; it does not and cannot create any employment except at the expense of other employment which existed before. But though a demand for velvet does nothing more in regard to the employ- ment for labour .and capital, than to determine so much of the employment which already existed, into that par- ticular channel instead of any other ; still, to the producers already engaged be effected how the farmer, whose capital and labour were already fully employed, would be enabled to supply the new wants of B, without producing less of other things ; the only mode which presents itself is, that he should Jirst produce the food, and then, giving that food to the labourers whom A formerly fed, should by means of their labour, produce the luxuries wanted by B. This, accordingly, when the objectors are hard pressed, appears to be really their meaning. But it is an obvious answer, that on this supposition, B must wait for his luxuries till the second year, and they are wanted this year. By the original hypo- thesis, he consumes his luxurious dinner day by day, pari passu with the rations of bread and potatoes formerly served out by A to his labourers. There is not time to feed the labourers first, and supply B afterwards: he and they cannot both have their wants ministered to : he can only satisfy his own demand for commodities, by leaving as much of theiis, as was formerly supplied from that fund, unsatisfied. It may, indeed, be rejoined by an objector, that, since on the present showing, time is the only thing wanting to render the expen- diture of B consistent with as large an em- ployment to labour as was given by A, why may we not suppose that B postpones his in- creased consumption of personal luxuries until they can be furnished to him by the labour ot the persons whom A employed ? In that case, it may be said, he would employ and feed as much labour as his predecessors. Undoubtedly he would ; but why ? Because his income would be expended in exactly the same manner as his predecessor's; it would be expended in wage*. A reserved from his personal consumption a fund which he paid away directly tc labourers ; B does the same, only instead of paying it to them himself, he leaves it in the hands of the farmer, who pays it to them for him. On n.sition, B. in the first year, neither expending the amount, as far as he is pcr- in the velvet manufacture, and not in- tending to quit it, this is of the utmost importance. To them, a falling off in the demand is a real loss, and one which, even if none of their goods finally perish unsold, may mount to any height, up to that which would make them choose, as the smaller evil, to retire from the business. On the contrary, an increased demand enables them to extend their transactions to make a profit on a larger capital, if they have it, or can borrow it ; and, turning over their capital more rapidly, they will employ their labourers more constantly, or employ a greater num- ber than before. So that an increased demand for a commodity does really, in the particular department, often sonally concerned, in A's manner nor in his own, really saves that portion of his income, and lends it to the farmer. And if, in sub- sequent years, confining himself within the year's income, he leaves the farmer in arrears to that amount, it becomes an additional capital, with which the farmer may per- manently employ- and feed A's labourers. Nobody pretends that such a change as this, a change from spending an income in wacres of labour, to saving it for investment, de- prives any labourers of employment. What is affirmed to have that effect is, the change from hiring labourers to buying commodities for personal use ; as represented by our original hypothesis. In our illustration we have supposed no buying and selling, or use of money. But the case as we have put it, corresponds with actual fact in everything except the details of the mechanism. The whole of any country is virtually a single farm and manu- factory, from which every member of the community draws his appointed share of the produce, having a certain number of coun- ters, called pounds sterling, put into his hands, which, at his convenience, he brings back and exchanges for such goods as he pre- fers, up to the limit of the amount. He does not, as in our imaginary case, give notice beforehand what things he shall require; but the dealers and producers are quite capa- ble of finding it out by observation, and any change in the demand is promptly followed by an adaptation of the supply to it. If a consumer changes from paying away a part of his income in wages, to spending it that same day (not some subsequent and distant day) in things for his own consumption, and perseveres in this altered practice until pro- duction has had time to adapt itself to the alteration of demand, there will from that time be less food and other articles for the use of labourers, produced in the country, by exactly the value of the extra luxuries now demanded ; and the labourers, as a class, will be worse off by the precise amount. FUNDAMENTAL PKOPOSITIONS ON CAPITAL. 55 cause a greater employment to be given to labour by the same capital. The mistake lies in not perceiving that in the cases supposed, this advantage is given to labour and capital in one department, only by being withdrawn from another; and that when the change has produced its natural effect of attracting into the employment ad- ditional capital proportional to the in- creased demand, the advantage itself ceases. The grounds of a proposition, when well understood, usually give a tolera- ble indication of the limitations of it. The general principle, now stated, is,| that demand for commodities deter-J mines merely the direction of labour,! and the kind of wealth produced, bu^j not the quantity or efficiency of the labour, or the aggregate of wealth. But to this there are two exceptions. First ; when labour is supported, but not fully occupied, a new demand for something which it can produce, may stimulate the labour thus supported to increased exertions, of which the re- sult may be an increase of wealth, to the advantage of the labourers them- selves and of others. Work which can be done in the spare hours of persons subsisted from some other source, can (as before remarked) be undertaken without withdrawing capital from other occupations, beyond the amount (often very small) required to cover the ex- pense of tools and materials ; and even this will often be provided by savings made expressly for the purpose. The reason of our theorem thus failing, the theorem itself fails, and employment of this kind may, by the springing up of a demand for the commodity, be called into existence without depriving labour of an equivalent amount of em- ployment in any other quarter. The demand does not, even in this case, operate on labour any otherwise than through the medium of an existing capital ; but it affords an inducement which causes that capital to set im motion a greater amount of labour than it did before. The second exception, of which I shall speak at length in a subsequent chapter, consists in the known effect ,ies me he pro- I lines in / . be em- / itshal 1 / of an extension of the market for a com- modity, in rendering possible an in- creased development of the division of labour, and hence a more effective dis- tribution of the productive forces of so- ciety. This, like the former, is more an exception in appearance, than it is in reality. It is not the money paid by the purchaser which remunerates the labour ; it is the capital of the pro- ducer : the demand only determines what manner that capital shall be ployed, and what kind of labour remunerate ; but if it determines that the commodity shall be produced on a 7 large scale, it enables the same capital to produce more of the commodity, and may, by an indirect effect in causing an increase of capital, produce an even- tual increase of the remuneration of the labourer. The demand for commodities is a consideration of importance rather in the theory of exchange, than in that of production. Looking at things in the aggregate, and permanently, the remuneration of the producer is derived from the productive power of his own capital. The sale of the produce for money, and the subsequent expenditure of the money in buying other commo- dities, are a mere exchange of equiva- lent values, for mutual accommodation. It is true that, the division of employ- ments being one of the principal means of increasing the productive power of labour, the power of exchanging gives rise to a great increase of the produce ; but even then it is production, not ex- . change, which remunerates labour and \ capital. We cannot too strictly repre- sent to ourselves the operation of ex- change, whether conducted by barter of" through the medium of money, as the mere mechanism by which each person transforms the remuneration of his labour or of his capital into the par- ticular shape in which it is most conve- nient to him to possess it; but innowiso the source of the remuneratioirftseTFT~ 1 0. The preceding principles de- monstrate the fallacy of many popular arguments and doctrines, which are continually reproducing themselves in new forms. For example, it has beep 56 BOOK I. CHAPTER V. 10. contended, and by some from whom belt ing away of the small farmers in the north of Scotland, within the present century, was however a case of it ; and Ireland, since the potato famine and the repeal of the corn-laws, is another. The remarkable decrease which has lately attracted notice in the gross produce of Irish agriculture, is, to all appearance, partly attributable to tho diversion of land from maintaining human labourers to feeding cattle: ,-.n I it could not have taken place without the removal of a large part of the Irish population by emigration or death. BOOK I. CHAPTER YI. 2. ^"e have thus two recent instances in which what was regarded as an agri- cultural improvement, has diminWieil the power of the country to support its population. The effect, however, of all the improvements due to modern science is to increase, or at all events, not to diminish the gross produce. But this does not affect the substance of the argument. Suppose that the im- provement does not operate in the manner supposed does not enable a part of the labour previously employed on the land to be dispensed* with but only enables the same labour to raise a greater produce. Suppose, too, that the greater produce, which by means of the improvement can be raised from the soil with the same labour, is all wanted, and will find purchasers. The improver will in that case require the same number of labourers as before, at the same wages. But where will he find the means of paying them? He has no longer his original capital of two thousand quarters disposable for the purpose. One thousand of them are lost and gone consumed in making the improvement. If he is to employ as many labourers as before, and pay them as highly, he must borrow, or obtain from some other source, a thou- sand quarters to supply the deficit. But these thousand quarters already maintained, or were destined to main- tain, an equivalent quantity of labour. They are not a fresh creation; their destination is only changed from one productive employment to another; and though the agriculturist has made up the deficiency in his own circulating capital, the breach in the circulating capital of the community remains un- repaired. The argument relied on by most of those who contend that machinery can never be injurious to the labouring class, is, that by cheapening produc- tion it creates such an increased de- mand for the commodity, as enables, e! long, a greater number of persons than ever to find employment in pro- ducing it. This argument does not seem to me to have the weight com- monly ascribed to it. The fact, though too broadly stated, is, no doubt, often true. The copyists who were thrown out of employment by the invention of printing, were doubtless soon out- numbered by the compositors and pressmen who took their place : and the number of labouring persons now occupied in the cotton manufacture is many times greater than were so occu- pied previously to the inventions of Hargreaves and Arkwright, which shows that besides the enormous fixed capital now embarked in the manufac- ture, it also employs a far larger circu- lating capital than at any former time. But if this capital was drawn from other employments ; if the funds which took the place of the capital sunk in costly machinery, were supplied not by any additional saving consequent on the improvements, but by drafts on the general capital of the community; what better are the labouring classes for the mere transfer ? In what manner is the loss they sustained by the con- version of circulating into fixed capital, made up to them by a mere shifting of part of the remainder of the circulating capital from its old employments to a new one ? All attempts to make out that the labouring classes as a collective body cannot suffer temporarily by the intro- duction of machinery, or by the sinking of capital in permanent improvements, are, I conceive, necessarily fallacious. That they would suffer in the par- ticular department of industry to which the change applies, is generally ad- mitted, and obvious to common sense ; but it is often said, that though em- ployment is withdrawn from labour in one department, an exactly equivalent employment is opened for it in others, because what the consumers save in the increased cheapness of one par- ticular article enables them to augment their consumption of others, thereby increasing the demand for other kinds of labour. This is plausible, but, as was shown in the last chapter, involves a fallacy; demand for commodities being a totally different thing from demand for labour. It is true, the con- sumers have now additional means of buying other things ; but this will not create the other things, unless there is CIECULATING AND capital to produce them, and the im- provement has not set at liberty any capital, if even it has not absorbed some from other employments. The supposed increase of production and of employment for labour in other depart- ments therefore will not take place ; and the increased demand for com- modities by some consumers, will be balanced by a cessation of demand on the part of others, namely, the la- bourers who were superseded by the improvement, and who will now be maintained, if at all, by sharing, either in the way of competition or of chanty, in what was previously consumed by other people. 3. Nevertheless, I do not believe that as things are actually transacted, improvements in production are often, if ever, injurious, even temporarily, to the labouring classes in the aggregate. They would be so if they took place suddenly to a great amount, because much of the capital sunk must ne- cessarily in that case be provided from funds already employed as circulating capital. But improvements are always introduced very gradually, and are seldom or never made by withdrawing circulating capital from actual produc- tion, but are made by the employment of the annual increase. There are few, if any, examples of a great in- crease of fixed capital, at a time and place where circulating capital was not rapidly increasing likewise. It is not in poor or backward countries that great and costly improvements in pro- duction are made. To sink capital in land for a permanent return to intro- duce expensive machinery are acts involving immediate sacrifice for dis- tant objects ; and indicate, in the first place, tolerably complete security of property; in the second, considerable activity of industrial enterprise ; and in the third, a high standard of what has been called the " effective desire of accumulation :" which three things are the elements of a society rapidly progressive in its amount of capital. Although, therefore, the labouring classes must suffer, not only if the in- crease of fixed capital takes place at FIXED CAPITAL. 61 the expense of circulating, but even if it is so large and rapid as to retard that ordinary increase to which the growth of population has habitually adapted itself; yet, in point of fact, this is very unlikely to happen, since there is probably no country whose fixed capital increases in a ratio more than proportional to its circulating. If the whole of the railways which, during the speculative madness of 1845, obtained the sanction of Parlia- ment, had been constructed in the times fixed for the completion of each, this improbable contingency would, most likely, have been realized; but this very case has afforded a striking example of the difficulties which op- pose the diversion into new channels of any considerable portion of the capital that supplies the old : difficulties generally much more than sufficient to prevent enterprises that involve the sinking of capital, from extending themselves with such rapidity as to impair the sources of the existing em- ployment for labour. To these considerations must be added, that even if improvements did for a time decrease the aggregate pro- duce and the circulating capital of the community, they would not the less tend in the long run to augment both. They increase the return to capital ; and of this increase the benefit must necessarily accrue either to the capi- talist in greater profits, or to the cus- tomer in diminished prices ; affording, in either case, an augmented fund from which accumulation may be made, while enlarged profits also hold out an increased inducement to accumulation. In the case we before selected, in which the immediate result of the improve- ment was to diminish the gross pro- duce from two thousand four hundred quarters to one thousand five hundred, yet the profit of the capitalist being now five hundred quarters instead of four hundred, the extra one hundred quarters, if regularly saved, would in a few years replace the one thousand quarters subtracted from his circulating capital. Now the extension of business which almost certainly follows in any department in which an improvement BOOK I. CHAPTER VI. 3. has been made, affords a strong in- ducement to those engaged in it to add to their capital ; and hence, at the slow pace at which improvements are usually introduced, a great part of the capital which the improvement ultimately ab- sorbs, is drawn from the increased profits and increased savings which it has itself called forth. This tendency of improvements in production to cause increased accumu- lation, and thereby ultimately to in- crease the gross produce, even if tem- porarily diminishing it. will assume a still more decided character it it should appear that there are assignable limits both to the accumulation of capital, and to the increase of production from the land, which limits once attained, all further increase of produce must stop ; but that improvements in pro- duction, whatever may be their other effects, tend to throw one or both of these limits farther off. Now, these are truths which will appear in the clearest light in a subsequent stage of our investigation. It will be seen, that the quantity of capital which will, or even which can, be accumulated in any country, and the amount of gross produce which will, or even which can, be raised, bear a proportion to the state of the arts of production there exist- ing ; and that every improvement, even if for the time it diminish the circulating capital and the gross pro- duce, ultimately makes room for a larger amount of both, than could pos- sibly have existed otherwise. It is this which is the conclusive answer to the objections against machinery ; and the proof thence arising of the ulti- mate benefit to labourers of mechanical inventions even in the existing state of society, will hereafter be seen to be conclusive.* But this does not dis- charge governments from the obligation of alleviating, and if possible pre vent- evils of which this source of ultimate benefit is or may be produc- tive to an existing generation. If the sinking or fixing of capital in ma- chinery or useful works, were ever to proceed at such a pace as to impair materially the funds for the mainte- * Infra, book iv. chap. v. nance of labour, it would be inctirnbent on legislators to take measures for mo- derating its rapidity : and since im- provements which do not diminish employment on the whole, almost al- ways throw some particular class of labourers out of it, there cannot be a more legitimate object of the legisla- tor's care than the interests of those who are thus sacrificed to the gains of their fellow-citizens and of posterity. To return to the theoretical distinc- tion between fixed and circulating capital. Since all wealth which is destined to be employed for reproduc- tion comes within the designation of capital, there are parts of capital which do not agree with the definition of either species of it ; for instance, the stock of finished goods which a manu- facturer or dealer at any time possesses unsold in his warehouses. But this, though capital as to its destination, is not yet capital in actual exercise : it is not engaged in production, but has first to be sold or exchanged, that is, converted into an equivalent value of some other commodities ; and there- fore is not yet either fixed or circulating capital ; but will become either one or the other, or be eventually divided between them. With the proceeds of his finished goods, a manufacturer will partly pay his work-people, partly re- plenish his stock of the materials of his manufacture, and partly provide new buildings and machinery, or repair the old ; but how much will be devoted to one purpose, and how much to another, depends on the nature of the manufacture, and the requirements of the particular moment. It should be observed further, thai the portion of capital consumed in the form of seed or material, though, un- like fixed capital, it requires to be at once replaced from the gross produce, stands yet in the same relation to the employment of labour as fixed capital does. What is expended in materials is as much withdrawn from the main- tenance and remuneration of labourers, as what is fixed in machinery ; and if :;ow expended in wages were diverted to the providing of materials, the effect on the labourers would be as DEGREES OF PRODUCTIVENESS. 68 prejudicial as if it were converted into fixed capital. This, however, is a kind of change which never takes place. The tendency of improvements in pro- duction is always to economize, never to increase, the expenditure of seed or material for a given produce ; and the interest of the labourers has no detri- ment to apprehend from this source. CHAPTER VII. ON WHAT DEPENDS THE DEGREE OP PRODUCTIVENESS OF PRODUCTIVE AGENTS 1. WE have concluded our general survey of the requisites of production. We have found that they may be reduced to three : labour, capital^ and the mate- rials and motive forces affordecTTy nature. Of these, labour and the raw material of the globe are primary and indispensable. Natural motive powers may be called in to the assistance of labour, and are a help, but not an es- sential, of production. The remaining requisite, capital, is itself the product of labour : its instrumentality in pro- duction is therefore, in reality, that of labour in an indirect shape. It does not the less re"quire to be specified separately. A previous application of labour to produce the capital required for consumption during the work, is no less essential than the application of labour to the work itself. Of capital, again, one, and by far the largest, por- tion, conduces to production only by sustaining in existence the labour which produces : the remainder, namely the instruments and materials, contribute to it directly, in the same manner with natural agents, and the materials sup- plied by nature. We now advance to the second great question in political economy ; on what the degree of productiveness of these agents depends. For it is evident that' their productive efficacy varies greatly at various times and places. With the same population and extent of territory, some countries have a much larger amount of production than others, and the same country at one time a greater amount than itself at another. Com- pare England either with a similar extent of territory in Russia, or with an equal population of Russians. Com- pare England now with England in the Middle Ages; Sicily, Northern 'Af- rica, or Syria at present, with the same countries at the time of their greatest prosperity, before the Roman conquest. Some of the causes which contribute to this difference of productiveness are obvious ; others not so much so. We proceed to specify several of them. 2. The most evident cause of superior productiveness is what are called natural advantages. These are various. Fertility of soil is one of the principal. In this there are great varieties, from the deserts of Arabia to the alluvial plains of the Ganges, the Niger, and the Mississippi. A favourable climate is even more im- portant than a rich soil. There are countries capable of being inhabited, but too cold to be compatible with agriculture. Their inhabitants cannot pass beyond the nomadic state ; they must live, like the Laplanders, by the domestication of the rein-deer, if not by hunting or fishing, like the miser- able Esquimaux. There are countries where oats will ripen, but not wheat, such as the North of Scotland ; others where wheat can be grown, but from excess of moisture and want of sun- shine, affoi'ds but a precarious crop ; as in parts of Ireland. With each advance towards the south, or, in the European temperate region, towards the east, some new branch of agricul- ture becomes first possible, then advan- tageous ; the vine, maize, figs, olives, silk, rice, dates, successively present themselves, until we cpmo to the 04: BOOK L sugar, coffee, cotton, spices, &c. of climates which also afford, of the more common agricultural products, and with only a slight degree of cultiva- tion, two or even three harvests in a year. Nor is it in agriculture alone that differences of climate are impor- tant. Their influence is felt in many other branches of production : in the durability of all work which is exposed to the air ; of buildings, for example. If the temples of Karnac and Luxor had not been injured by men, they might have subsisted in their original perfection almost for ever, for the in- scriptions on some of them, though anterior to all authentic history, are fresher than is in our climate an in- scription fifty years old : while at St. Petersburg, the most massive works, solidly executed in granite hardly a generation ago, are already, as tra- vellers tell us, almost in a state to require reconstruction, from alternate exposure to summer heat and intense frost. The superiority of the woven fabrics of Southern Europe over those of England in the richness and clear- ness of many of their colours, is ascribed to the superior quality of the atmosphere, for which neither the know- ledge of chemists nor the skill of dyers has been able to provide, in our hazy and damp climate, a complete equivalent. Another part of the influence of climate consists in lessening the phy- sical requirements of the producers. In hot regions, mankind can exist in comfort with less perfect housing, less clothing ; fuel, that absolute necessary of life in cold climates, they can almost dispense with, except for industrial uses. They also require less aliment ; as experience had proved, long before theory had accounted for it by ascer- taining that most of what we consume as food is not required for the actual nutrition of the organs, but for keeping up the animal heat, and for supplying the necessary stimulus to the vital functions, which in hot climates is almost sufficiently supplied by air and sunshine. Much, therefore, of the labour elsewhere expended to procure the mere necessaries of life, not being required, more remains disposable for CHAPTER VII. 2. its higher uses and its enjoyments ; if the character of the inhabitants does not rather induce them to use up these advantages in over-population, or in the indulgence of repose. Among natural advantages, besides soil and climate, must be mentioned abundance of mineral productions, in convenient situations, and capable of being worked with moderate labour. Such are the coal-fields of Great Britain, which do so much to compen- sate its inhabitants for the disadvan- tages of climate ; and the scarcely inferior resource possessed by this country and the United States, in a copious supply of an easily reduced iron ore, at no great depth below the earth's surface, and in close proximity to coal deposits available for working it. In mountain and hill districts, the abundance of natural water-power makes considerable amends for the usually inferior fertility of those re- gions. But perhaps a greater advan- tage than all. these is a maritime situation, especially when accompanied with good natural harbours ; and, next to it, great navigable rivers, These advantages consist indeed wholly in saving the cost of carriage. But few who have not considered the subject, have any adequate notion how great an extent of economical advantage this comprises ; nor,, without having considered the influence exercised on production by exchanges, and by what is called the division of labour, can it be fully estimated. So important is it, that it often does more than counter- balance sterility of soil, and almost every other natural inferiority; es- pecially in that early stage of industry in which labour and science have not yet provided artificial means of com- munication capable of rivalling the natural. In the ancient world, and in the middle ages, the most prosperous communities were not those which had the largest territory, or the most fertile soil, but rather those which had been forced by natural sterility to make the utmost use of a convenient maritime situation ; as Athens, Tyre, Marseilles, Venice, the free cities on the Baltic, and the like. DEGREES OF PEODUCTIVENESS 3. So much for natural advan- tages; the value of which, cceteris paribus, is too obvious to be ever underrated. But experience testifies that natural advantages scarcely ever do for a community, no more than fortune and station do for an indivi- dual, anything like what it lies in their nature, or in their capacity, to do. Neither now nor in former ages have the nations possessing the best climate and soil been either the richest or the most powerful ; but (in so far as regards the mass of the people) gene- rally' among the poorest, though, in the midst of poverty, probably on the whole the most enjoying. Human life in those countries can be supported on BO little, that the poor seldom suffer from anxiety, and in climates in which mere existence is a pleasure, the luxury which they prefer is that of repose. Energy, at the call of passion, they possess in abundance, but not that which is manifested in sustained and persevering labour: and as they seldom concern themselves enough about remote objects to establish good political institutions, the incentives to industry are further weakened by im- perfect protection of its fruits. Suc- cessful production, like most other kinds of success, depends more on the qualities of the human agents, than on the circumstances in which they work : and it is difficulties, not facilities, that nourish bodily and mental energy. Accordingly the tribes of mankind who have overrun and conquered others, and compelled them to labour for their benefit, have been mostly reared amidst hardship. They have either been bred *in the forests of northern climates, or the deficiency of natural hardships has been supplied, as among the Greeks and Romans, by the artificial ones of a rigid military discipline. From the time when the circumstances of modern society per- mitted the discontinuance of that discipline, the South has no longer produced conquering nations ; military vigour, as well as speculative thought ano 1 industrial energy, have all had their principal seats in the less favoured North. As the second, therefore, of the causes of superior productiveness, wo nay rank the greater energy of labour. By this is not to be understood occa- ional, but regular and habitual energy. No one undergoes, without murmur- ng, a greater amount of occasional atigue and hardship, or has his bodily :>owers, and such faculties of mind as ae possesses, kept longer at their utmost stretch, than the North Ame- rican Indian; yet his indolence is proverbial, whenever he has a brief respite from the pressure of present wants. Individuals, or nations, do not differ so much in the efforts they are able and willing to make under strong immediate incentives, as in their capacity of present ex- ertion for a distant object, and in the thoroughness of their application to work on ordinary occasions. Some amount of these qualities is a necessary condition of any great improvement among mankind. To civilize a savage, he must be inspired with new wanta and desires, even if not of a very ele- vated kind, provided that their gratifi- cation can be a motive to steady and regular bodily and mental exertion. If the negroes of Jamaica and De- merara, after their emancipation, had contented themselves, as it was pre- dicted they would do, with the neces- saries of life, and abandoned all labour beyond the little which in a tropical climate, with a thin population and abundance of the richest land, is sufficient to support existence, they would have sunk into a condition more barbarous, though less unhappy, than their previous state of slavery^ -The motive which was most relied on for inducing them to work was their love of fine clothes and personal ornaments. No one will stand up for this taste as worthy of being cultivated, and in most societies its indulgence tends tc impoverish rather than to enrich ; but in the state of mind of the negroes it might have been the only incentive that could make them voluntarily, undergo systematic labour, and so ac- quire or maintain habits of voluntary industry which may be converted to more valuable ends. In England, it id 6ft BOOK I. CHAPTER VII. 4. not the desire of wealth that needs to be taught, but the use of wealth, and appreciation of the objects of desire which wealth cannot purchase, or for attaining which it is not required. Every real improvement in the cha- racter of the English, whether it consist in giving them higher aspira- tions, or only a juster estimate of the value of their present objects of desire, crease production and to economize labour, needs not be specially detailed in a work like the present : it will be found explained and exemplified, in a manner at once scientific and popular, in Mr. Babbage's well-known "Eco- nomy of Machinery and Manufac- tures." An entire chapter of Mr. Babbage's book is coir posed of in- stances of the efficacy of machinery in must necessarily moderate the ardour I "exerting forces too great for human of their devotion to the pursuit of wealth. There is no need, however, power, and executing operations too delicate for human touch." But to that it should diminish the strenuous \ find examples of work which could not and business-like application to the ; be performed at all by unassisted matter in hand, which is found in the labour, we need not go so far. \Vith- best English workmen, and is their j out pumps, worked by steam-engines or most valuable quality. The desirable medium is one which mankind have not often known how to hit : when they labour, to do it with all their might, and especially with all their mind ; but to devote to labour, for mere pecuniary gain, fewer hours in the day, fewer days in the year, and fewer years of life. 4. The third element which de- termines the productiveness of the , labour of a community, is the skill and \ knowledge therein existing; whether i it be the skill and knowledge of the labourers themselves, or of those who direct their labour. No illustration is requisite to show how the efficacy of industry is promoted by the manual dexterity of those who perform mere routine processes ; by the intelligence of those engaged in operations in which the mind has a considerable part ; and by the amount of knowledge of natural powers and of the properties of objects, which is turned to the pur- poses of industry. That the produc- tiveness of the labour of a people is limited by their knowledge of the arts of life, is self-evident; and that any progress in those arts, any improved application of the objects or powers of nature to industrial uses, enables the same quantity and intensity of labour to raise a greater produce. One principal department of these improvements consists in the invention and use of tools and machinery. The manner in which these serve to in otherwise, the water which collects in mines could not in many situations be got rid of at all, and the mines, after being worked to a little depth, must be abandoned : without ships or boats the sea could never have been crossed; without tools of some sort, trees could not be cut down, nor rocks excavated ; a plough, or at least a hoe, is necessary to any tillage of the ground. Very simple and rude instruments, however, are sufficient to render literally possible most works hitherto executed by man- kind ; and subsequent inventions have chiefly served to enable the work to be performed in greater perfection, and, above all, with a greatly diminished quantity of labour: the labour thus saved becoming disposable for other employment. The use of machinery is far from being the only mode in which the effects of knowledge in aiding produc- tion are exemplified. In agriculture and horticulture, machinery is only now beginning to show that it can do anything of importance, beyond the invention and progressive improve- ment of the plough and a few other simple instruments. The greatest agri- cultural inventions have consisted in the direct application of more judicious processes to the land itself, and to the plants growing on it : such as rotation of crops, to avoid the necessity of leaving the land uncultivated for one season in every two or three ; improved manures, to renovate its fertility when exhausted by cropping ; ploughing an.i DEGREES OF PRODUCTIVENESS. draining the subsoil as well as the surface ; conversion of bogs and marshes into cultivable land ; such modes of pruning, and of training and propping up plants and trees, as experience has shown to deserve the preference; in the case of the more expensive cultures, planting the roots or seeds further apart, and more completely pulverizing the soil in which they are placed, &c. In manufactures and commerce, some of the most important improvements consist in economizing time; in making the return follow more speedily upon the labour and* outlay. There are others of which the advantage consists in economy of material. 5. But the effects of the in- creased knowledge of a community in increasing its wealth, need the less illustration as they have become familiar to the most uneducated, from such conspicuous instances as railways and steam-ships. A thing not yet so well understood and recognised, is the economical value of the general diffu- sion of intelligence among the people. The number of persons fitted to direct and superintend any industrial enter- prise, or even to execute any process which cannot be reduced almost to an affair of memory and routine, is always far short of the demand ; as is evident from the enormous difference between the salaries paid to such persons, and the wages of ordinary labour. The deficiency of practical good sense, which renders the majority of the la- bouring class such bad calculators which makes, for instance, their do- mestic economy so improvident, lax, and irregular must disqualify them for any but a low grade of intelligent labour, and render their industry far less productive than with equal energy it otherwise might be. The impor- tance, even in Ais limited aspect, of popular education, is well worthy of the attention of politicians, especially in England ; since competent observers, accustomed to employ labourers of various nations, testify that in the workmen of other countries they often tind great intelligence wholly apart from instruction, but that if an English labourer is anything but a hewer <>:' ivood and a drawer of water, he is indebted for it to education, which in his case is almost always self-education. Mr. Escher, of Zurich, (an engineer and cotton manufacturer employing nearly two thousand working men of many different nations,) in his evidence annexed to the Report of the Poor Law Commissioners, in 1840, on the training of pauper children, gives a character of English as contrasted with Continental workmen, which all persons of similar experience will, I believe, confirm. " The Italians' quickness of percep- tion is shown in rapidly comprehending any new descriptions of labour put into their hands, in a power of quickly com- prehending the meaning of their em- ployer, of adapting themselves to new circumstances, much beyond what any other classes have. The French work- men have the like natural characteris- tics, only in a somewhat lower degree. The English, Swiss, German, and Dutch workmen, we find, have all much slower natural comprehension. As workmen only, the preference is un- doubtedly due to the English ; because, as we find them, they are all trained to special branches, on which they have had comparatively superior training, and have concentrated all their thoughts. As men of business or of general usefulness, and as men with whom an employer would best like to be surrounded, I should, however, deci- dedly prefer the Saxons and the Swiss, but more especially the Saxons, be- cause they have had a very careful gen- eral education, which has extended their capacities beyond any special employment, and rendered them fit to take up, after a short preparation, any employment to which they may be called. If I have an English work- man engaged in the erection of a steam-engine, he will understand that, and nothing else ; and for other cir- cumstances or other branches of me- chanics, however closely allied, he will be comparatively helpless to adapt hi in- self to all the circumstances that may arise, to make arrangements for them, and give sound advice or write clear F2 03 BOOK I. CHAPTER VH 5. statements and letters on his work in the various related branches of mechanics." On the connexion between mental cultivation and moral trustworthiness in the labouring class, the same wit- ness says, " The better educated work- men, we find, are distinguished by superior moral habits in every respect. In the first place, they are entirely so- ber ; they are discreet in their enjoy- ments, which are of a more rational and refined kind ; they have a taste for much better society, which they approach respectfully, and consequently find much readier admittance to it ; they cultivate music ; they read ; they enjoy the pleasures of scenery, and make parties for excursions in the country; they are economical, and their economy extends beyond their own purse to the stock of their master ; they are, consequently, honest and trustworthy." And in answer to a question respecting the English work- men, " Whilst in respect to the work to which they have been specially trained they are the most skilful, they are in conduct the most disorderly, de- bauched, and unruly, and least respect- able and trustworthy of any nation whatsoever whom we have employed ; and in saying this, I express the expe- rience of every manufacturer on the Continent to whom I have spoken, and especially of the English manufactu- rers, who make the loudest complaints. These characteristics of depravity do not apply to the English workmen who have received an education, but attach to the others in the degree in which they are in want of it. When the un- educated English workmen are re- leased from the bonds of iron discipline in which they have been restrained by their employers in England, and are treated with the urbanity and friendly feeling which the more educated work- men on the Continent expect and re- ceive from their employers, they, the English workmen, completely lose their balance : they do not understand their position, and after a certain time be- come totally unmanageable and use- less."* This result of observation is * The whole evidence of this intelligent borne out by experience in England itself. As soon as any idea of equal- ity enters the mind of an uneducated English working man, his head is turned by it. When he ceases to .be servile, he becomes insolent. The moral qualities of the labourers are fully as important to the efficiency and worth of their labour, as the in- tellectual. Independently of the effects of intemperance upon their bodily and mental faculties, and of flighty un- steady habits upon the energy and con- tinuity of their work (points so easily understood as not to require being in- sisted upon), it is well worthy of medi- tation, how much of the aggregate effect of their labour depends on their trustworthiness. All the labour now expended in watching that they fulfil their engagement, or in verifying that they have fulfilled it, is so much with- drawn from the real business of pro- duction, to be devoted to a subsidiary function rendered needful not by the necessity of things, but by the dis- honesty of men. Nor are the greatest outward precautions more than very imperfectly efficacious, where, as is now almost invariably the case with hired labourers, the slightest relaxation of vigilance is an opportunity eagerly seized for eluding performance of their contract. The advantage to mankind of being able to trust one another, pen- etrates into every crevice and cranny of human life : the economical is per- haps the smallest part of it, yet even this is incalculable. To consider only the most obvious part of the waste of wealth occasioned to society by human improbity ; there is in all rich commu- nities a predatory population, who live by pillaging or over-reaching other people ; their numbers cannot be authentically ascertained, but on the lowest estimate, in a country like England, it is very large. The sup- port of these persons is a direct bur- then on the national industry. The police, and the whole apparatus of pun- ishment, and of criminal and partly of and experienced employer of labour is de- serving of attention ; as well as much testi- mony on similar points by other witnesses, contained in the same volume. DEGREES OF PRODUCTIVENESS. 60 civil justice, are a second burthen ren- dered necessary by the first. The ex- orbitantly-paid profession of lawyers, so far as their work is not created by defects in the law of their own contri- ving, are required and supported prin- cipally by the dishonesty of mankind. As the standard of integrity in a com- munity rises higher, all these expenses become less. But this positive saving would be far outweighed by the im- mense increase in the produce of all kinds of labour, and saving of time and expenditure, which would be obtained if the labourers honestly performed what they undertake ; and by the in- creased spirit, the feeling of power and confidence, with which works of all sorts would be planned and earned on by those who felt that all whose aid was required would do their part faith- fully according to their contracts. Con- joint action is possible just in propor- tion as human beings can rely on each other. There are countries in Europe, of first-rate industrial capabilities, where the most serious impediment to conducting business concerns on a large scale, is the rarit} 7 of persons who are supposed fit to be trusted with the receipt and expenditure of large sums of money. There are nations whose commodities are looked shily upon by merchants, because they cannot depend on finding the quality of the article conformable to that of the sample. Such short-sighted frauds are far from unexampled in English exports. Every one has heard of "devil's dust :'' and among other instances given by Mr. Babbage, is one in which a branch of export trade was for a long time ac- tually stopped by the forgeries and frauds which had occurred in it. On the other hand the substantial advan- tage derived in business transactions from proved trustworthiness, is not less remarkably exemplified in the same work. " At one of our largest towns, sales and purchases on a very exten- sive scale are made daily in the course of business without any of the parties ever exchanging a written document." Spread over a year's transactions, how great a return, in saving of time, trouble, and expense, is brought in to the producers and dealers of such a town from their own integrity. " The influence of established character in producing confidence operated in a very remarkable manner at the time of the exclusion of British manufactures from the Continent during the last war. One of our largest establish- ments had been in the habit of doing extensive business with a house in the centre of Germany : but on the closing of the Continental ports against our manufactures, heavy penalties were inflicted on all those who contravened the Berlin and Milan decrees. The English manufacturer continued, never- theless, to receive orders, with direc- tions how to consign them, and appoint- ments for the time and mode of pay- ment, in letters, the handwriting of which was known to him, but which were never signed except by the Christian name of one of the firm, and even in some instances they were without any signature at all. These orders were executed, and in no in- stance was there the least irregularity in the payments."* * Some minor instances noticed by Mr. Babbage may be cited in further illustration of the waste occasioned to society through the inability of its members to trust one another. " The cost to the purchaser is the price he pays for any article, added to the cost of verifying the fact of its having that degree of goodness for which he contracts. In some cases, the goodness of the article is evident on mere inspection ; and in those cases there is not much difference of price at different shops. The goodness of loaf sugar, for in- stance, can be discerned almost at a glance ; and the consequence is, that the price is so uniform, and the profit upon it so small, that no grocer is at all anxious to sell it ; whilst on the other hand, tea, of which it is exceed- ingly difficult to judge, and which can be adulterated by mixture so as to deceive the skill even of a practised eye, has a great variety of different prices, and is that article which every grocer is most anxious to sell to his customers. The difficulty and expense of verification are in some instances so great as to justify the deviation from well-estab- lished principles. Thus it is a general maxim that Government can purchase any article at a cheaper rate than that at which they can manufacture it themselves. But it has, nevertheless, been considered more econo- mical to build extensive flour-mills (such as those at Deptford), and to grind their own corn, than to verify each sack of purchased flour, and to employ persons in devising me- BOOK I. CHAPTER VII. 6. 70 G. Among the secondary causes which determine the productiveness of productive agents, the most important is Security. By security I mean the completeness of the protection which society affords to its members. This consists of protection by the govern- ment, and protection against the go- vernment. The latter is the more important. AYhere a person known to possess anything worth taking away, can expect nothing hut to have it torn from him, with every circumstance of tyrannical violence, by the agents of a rapacious government, it is not likely that many will exert themselves to produce much more than necessaries. This is the acknowledged explanation of the poverty of many fertile tracts of Asia, which were once prosperous and populous. From this to the degree of security enjoyed in the best governed thods of detecting the new modes of adulte- ration which might be continually resorted to." A similar want of confidence might deprive a nation, such as the United States, of a large export trade in flour. Again : " Some years since, a mode of pre- paring old clover and trefoil seeds by a pro- cess called doctoring became so prevalent as to excite the attention of the House of Com- mons. It appeared in evidence before a Committee, that the old seed of the white clover was doctored by first wetting it slightly, and then drying it by the fumes of burning sulphur; and that the red clover seed had its colour improved by shaking it in a sack with a small quantity of indigo ; but this being detected after a time, the doctors then used a preparation of logwood, fined by a little copperas, and sometimes by verdigris ; thus at once improving the appearance of the old seed, and diminishing, if not destroying, its vegetative power, already enfeebled by age. Supposing no injury had resulted to good seed so prepared, it was proved that, from the improved appearance, the market price would be enhanced by this process from five to twenty-five shillings a hundred-weight. Hut the greatest evil arose from the circum- stance of these processes rendering old and worthless seed equal in appearance to the best. One witness had tried some doctored seed, and found that not above one grain in a hundred grew, and that those which did vegetate died away afterwards; whilst about eighty or ninety per cent of good seed usually grows. The seed so treated was sold to retail dealers in the country, who of course endeavoured to purchase at the cheapest rate, and from them it got into the hands of the farmers, neither of these classes being ca- pable of distinguishing the fraudulent from the genuine seed. Many cultivators in conse- quence diminished their consumption of the ' parts of Europe, there are numerous gradations. In many provinces of France, before the .Revolution, a vicious system of taxation on the land, and still more the absence of redress against the arbitrary exactions which were made under colour of the taxes, ren- dered it the interest of every cultivator to appear poor, and therefore to culti- vate badly. The only insecurity which, is altogether paralyzing to the active energies of producers, is that arising from the government, or from persons invested with its authority. Against all other depredators there is a hope of defending oneself. Greece and the Greek colonies in the ancient world, Flanders and Italy in the Middle Ages, by no means enjoyed what any one with modern ideas would call security : the state of society was most unsettled and turbulent ; person and property articles, and others were obliged to pay a higher price to those who had skill to distin- guish the mixed seed, and who had integrity and character to prevent them from dealing in it." The same writer states that Irish flax, though in natural quality inferior to none, sells, or did lately sell, in the market at a penny to twopence per pound less than foreign or British flax ; part of the difference arising from negligence in its preparation, but part from the cause mentioned in the evidence of Mr. Corry, many years Secretary to the Irish Linen Board : " The owners of the flax, who are almost always people in the lower classes of life, believe that they can best advance their own interests by imposing on the buyers. Flax being sold by weight, various expedients are used to increase it ; and every expedient is injurious, particularly the damping of it ; a very common practice, which makes the flax afterwards heat. The inside of every bundle (and the. bundles all vary in bulk) is often full of pebbles, or dirt of various kinds, to increase the weight. In this state it is purchased and exported to Great Britain." It was given in .evidence before a Com- mittee of the House of Commons that the lace trade at Nottingham h;i-l preatly fallen off, from the making of fraudulent and bad articles : that " a kind of lace called single- press was manufactured," (I still quote Mr. Babbage) " which, although good to the eye, became nearly spoiled in washing by the slipping of the threads ; that not one person in a thousand could distinguish the difference between single-press and double-press lace ; that even workmen and manufacturers were obliged to employ a magnifyin^-giass for that purpose; and that in another .-iinilar article, called warp-lace, such aid was essential." COMBINATION OF LABOUR. 71 were exposed to a thousand dangers. But they were free countries ; they were in general neither arbitrarily op- pressed, nor systematically plundered by their governments. Against other enemies the individual energy which their institutions called forth, enabled them to make successful resistance: their labour, therefore, was eminently productive, and their riches, while they remained free, were constantly on the increase. The Roman despotism, put- ting an end to wars and internal con- flicts throughout the empire, relieved the subject population from .much of the former insecurity : but because it left them under the grinding yoke of its own rapacity, they became ener- vated and impoverished, until they were an easy prey to barbarous but free invaders. They would neither fight nor labour, because they were no longer suffered to enjoy that for which they fought and laboured. Much of the security of person and property in modern nations is the effect of manners and opinion rather than of law. There are, or lately were, coun- tries in Europe where the monarch was nominally absolute, but where, from the restraints imposed by estab- lished usage, no subject felt practically in the smallest danger of having his possessions arbitrarily seized or a con- tribution levied on them by the govern- ment. There must, however, be in such governments much petty plunder and other tyranny by subordinate agents, for which redress is not ob- tained, owing to the want of publicity which is the ordinary character of absolute governments. In England the people are tolerably well protected, both by institutions and manners, against the agents of government ; but, for the security they enjoy against other evil- doers, they are very little indebted to their institutions. The laws cannot be said to afford protection to property, when they afford it only at such a cost as renders submission to injury in general the better calculation. Tho security of property in England is owing (except as regards open violence) to opinion, and the fear of exposure, much more than to the direct operation of the law and the courts of justice. Independently of all imperfection in the bulwarks which society purposely throws round what it recognises as property, there are various other modes in which defective institutions impede the employment of the productive re- sources of a country to the best ad- vantage. We shall have occasion for noticing many of these in the progress of our subject. It is sufficient here to remark, that the efficiency of industry may be expected to be great, in pro- portion as the fruits of industry are insured to the person exerting -it : and that all social arrangements are con- ducive to usefui exertion, according as they provide that the reward of every one for his labour shall be proportioned as much as possible to the benefit which it produces. J All laws or usages which favour one class or sort of persons to the disadvantage of others; which chain up the efforts of any part of the community in pursuit of their own good, or stand between those efforts and their natural fruits are (indepen- dently of all other grounds of condem- nation) violations of the fundamental principles of economical policy ; tend- ing to make the aggregate productive powers of the community productive in a less degree than they would other- wise be. CHAPTER VIII. OP CO-OPERATION, OR THE COMBINATION OF LABOUR. 1. IN the enumeration of the circumstances which promote the pro- ductiveness of labour, we have left one untouched, which, because of its importance, and of the many topics of discussion which it involves, requires 72 BOOK I. CHAPTER VIH. 1 tto be treated apart. This is, co-opera- /^tion, or the combined action of numbers. Of this great aid to production, a single department, known by the name I of Division of Labour, has engaged a large share of the attention of political economists; most deservedly indeed, but to the exclusion of other cases and exemplifications of the same compre- hensive law. Mr. Wakefield was, I believe, the first to point out, that a part of the subject had, with injurious effect, been mistaken for the whole; that a more fundamental principle lies beneath that of the division of labour, and comprehends it. (Co-operation, he observes,* is "of two distinct kinds: first, such co- operation as takes place when several persons help each other in the same em- ployment ; secondly, such co-operation as takes place when several persons help each other in different employ- ments. These may be termed Simple Co-operation and Complex Co-operation . " The advantage of simple co-opera- tion is illustrated by the case of two greyhounds running together, which, it is said, will kill more hares than four greyhounds running separately. In a vast number of simple operations performed by human exertion, it is quite obvious that two men working together will do more than four, or four times four men, each of whom should work alone. In the lifting of heavy weights, for example, in the felling of trees, in the sawing of timber, in the gathering of much hay or corn during a short period of fine weather, in draining a large extent of land during the short season when such a work may be properly conducted, in the pulling of ropes on board ship, in the rowing of large boats, in some mining operations, in the erection of a scaffolding for building, and in the breaking of stones for the repair of a road, so that the whole of the road shall always be kept in good order ; in all these simple operations, and thou- sands more, it is absolutely necessary that many persons should work to- gether, at the same time, in the same * Note to Wakefield's edition of Adam Smith, vol. i. o. 26. place, and in the same way. The savages of New Holland never help each other, even in the most simple operations ; and their condition is hardly superior, in some respects it is inferior, to that of the wild animals which they now and then catch. Let any one imagine that the labourers of England should suddenly desist from helping each other in simple employ- ments, and he will see at once the prodigious advantages of simple co- operation. In a countless number of employments, the produce of labour is, up to a certain point, in proportion to such mutual assistance amongst the workmen. This is the first step in social improvement." The second is, when " one body of men having com- bined their labour to raise more food than they require, another body of men are induced to combine their labour for the purpose of producing more clothes than they require, and with those clothes buying the surplus food of the other body of labourers; while, if both bodies together have produced more food and clothes than they both require, both bodies obtain, by means of exchange, a proper capital for setting more labourers to work in their respective occupations." To simple co-operation is thus super- added what Mr. Wakefield terms Complex Co-operation. The one is the combination of several labourers to help each other in the same set of operations ; the other is the combina- tion of several labourers to help one another by a division of operations. There is " an important distinction between simple and complex co-opera- tion. Of the former, one is always conscious at the time of practising it : it is obvious to the most ignorant and vulgar eye. Of the latter, but a very few of the vast numbers who practise it are in any degree conscious. The cause of this distinction is easily seen. When several men are employed in lifting the same weight, or pulling the same rope, at the same time, and in the same place, there can be no sort of doubt that they co-operate with each other; the fact is impressed on the mind by the mere sense of sight ; but COMBINATION OF LABOUR. when several men, or bodies of men, are employed at different times and places, and in different pursuits, their co-operation with each other, though it may be quite as certain, is not so readily perceived as in the other case : in order to perceive it, a complex ope- ration of the mind is required." In the present state of society the breeding and feeding of sheep is the occupation of one set of people, dress- ing the wool to prepare it for the spinner is that of another, spinning it into thread of a third, weaving the thread into broadcloth of a fourth, dyeing the cloth of a fifth, making it into a coat of a sixth, without counting the multitude of carriers, merchants, factors, and retailers put in requisition at the successive stages of this progress. All these persons, without knowledge of one another or previous understanding, co-operate in the production of the ultimate result, a coat. But these are far from being all who co-operate in it ; for each of these persons requires food, and many other articles of consump- tion, and unless he could have relied that other people would produce these for him, he could not have devoted his whole time to one step in the succes- sion of operations which produces one single commodity, a coat. Every person who took part in producing food or erecting houses for this series of producers, has, however uncon- sciously on his part, combined his labour with theirs. It is by a real, though unexpressed, concert, "that the body who raise more food than they want, can exchange with the body who raise more clothes than they want ; and if the two bodies were sepa- rated, either by distance or disincli- nation unless the two bodies should virtually form themselves into one, for the common object of raising enough food and clothes for the whole they could not divide into two distinct parts the whole operation of producing a sufficient quantity of food and clothes.'' 2. The influence exercised on production by the separation of em- ployments, is more fundamental than, from the mode in which the subject is usually treated, a reader might be in- duced to suppose. It is not merely that when the production of different things becomes the sole or principal occupation of different persons, a much greater quantity of each kind of article is produced. The truth is much be- yond this. Without some separation of employments, very few things would be produced at all. Suppose a set of persons, or a number of families, all employed precisely in the same manner; each family settled on a piece of its own land, on which it grows by its labour the food required for its own suste- nance, and as there are no persons to buy any surplus produce where all are producers, each family has to produce within itself whatever other articles it consumes. In such circumstances, if the soil was tolerably fertile, and population did not tread too closely on the heels of subsistence, there would be, no doubt, some kind of domestic manufactures ; clothing for the family might perhaps be spun and woven within it, by the labour probably of the women (a first step in the separation of employments) ; and a dwelling of some sort would be erected and kept in repair by their united labour. But beyond simple food (precarious, too, from the variations of the seasons), coarse clothing, and very imperfect lodging, it would be scarcely possible that the family should produce any- thing more. They would, in general, require their utmost exertions to ac complish so much. Their power even of extracting food from the soil would be kept within narrow limits by the quality of their tools, which would necessarily be of the most wretched description. To do almost anything in the way of producing for themselves articles of convenience or luxury, would require too much time, and, in many cases, their presence in a different place. Very few kinds of industry, therefore, would exist ; and that which did exist, namely the production of necessaries, would be extremely in- efficient, not solely from imperfect implements, but because, when the ground and the domestic industry fed 74 by it head been made to supply the necessaries of a single family in tole- rable abundance, there would be little motive, while the numbers of the family remained the same, to make either the land or the labour produce more. But suppose an event to occur, which would amount to a revolution in the circumstances of this little settlement. Suppose that a company of artificers, provided with tools, and with food sufficient to maintain them for a year, arrive in the country and establish themselves in the midst of the popu- lation. These new settlers occupy themselves in producing articles of use or ornament adapted to the taste of a simple people ; and before their food is exhausted they have produced these in considerable quantity, and are ready to exchange them for more food. The economical position of the landed popu- lation is now most materially altered. They have an opportunity given them of acquiring comforts and luxuries. Things which, while they depended solely on their own labour, they never could have obtained, because they could not have produced, are now ac- cessible to them if they can succeed in producing an additional quantity of food and necessaries. They are thus incited to increase the produc- tiveness of their industry. Among the conveniences for the first time made accessible to them, better tools are probably one ; and apart from this, they have a motive to labour more assiduously, and to adopt contrivances for making their labour more effectual. By these means they will generally succeed in compelling their land to produce, not only food for themselves, but a surplus for the new comers, wherewith to buy from them the pro- ducts of their industry. The new settlers constitute what is called a market for surplus agricultural pro- duce : and their arrival has enriched the settlement not only by the manu- factured articles which they produce, but by the food which would not have been produced unless they had been there to consume it. There is no inconsistency between BOOK I. CHAPTER VIII. 3. this doctrine, and the proposition we before maintained, that a market for commodities does not constitute em- ployment for labour.* The labour of the agriculturists was already pro- vided with employment ; they are not indebted to the demand of the new comers for being able to maintain themselves. What that demand does for them is, to call their labour into increased vigour and efficiency ; to stimulate them, by new motives, to new exertions. Neither do the new comers owe their maintenance and employment to the demand of the agri- culturists : with a year's subsistence in store, they could have settled side by side with the former inhabitants, and produced a similar scanty stock of food and necessaries. Nevertheless, we see of what supreme importance to the productiveness of the labour of pro- ducers, is the existence of other pro- ducers within reach, employed in a different kind of industry. The power of exchanging the products of one kind of labour for those of another, is a condition, but for which, there would almost always be a smaller quantity of labour altogether. When a new mar- ket is opened for any product of in- dustry, and a greater quantity of the article is consequently produced, the increased production is not always ob- tained at the expense of some other product ; it is often a new creation, the result of labour which would otherwise have remained unexerted ; or of assist- ance rendered to labour by improve- ments or by modes of co-operation to which recourse would not have been had if an inducement had not been offered for raiang a larger produce. ^'' 3. From .these considerations it a vs to his labourers, go to your work ; but when the small fanner has occasion to hire them, he says, come ; the intelli- gent reader will, I dare say, understand the difference." One of the objections most urged against small farms is, that they do not and cannot maintain, proportionally to their extent, so great a number of cattle as large farms, and that this occasions such a deficiency of manure, that a soil much subdivided must always be im- poverished. It will be found, however, that subdivision only produces this effect when it throws the land into the hands of cultivators so poor as not to possess the amount of live stock suit- able to the size of their farms. A small arm and a badly stocked farm are not synonymous. To make the comparison "airly, we must suppose the same * Prize Essay on the Management of Landed Property in Ireland, by "William Blacker, Esq. (1837,) p. 23. PEODUCTION ON A LAEGE AND ON A SMALL SCALE. 91 amount of capital which is possessed by the large farmers to he disseminated among the small ones. When this condition, or even any approach to it, exists, and when stall feeding is prac- tised (and stall feeding now begins to be considered good economy even on large farms), experience, far from bear- ing out the assertion that small farm- ing is unfavourable to the multiplica- tion of cattle, conclusively establishes the very reverse. The abundance of cattle, and copious use of manure, on the small farms of Flanders, are the most striking features in that Flemish agriculture which is the admiration of all competent judges, whether in Eng- land or on the Continent.* * " The number of beasts fed on a farm of which the whole is arable land," (says the elaborate and intelligent treatise on Flemish Husbandry, from personal observation and the best sources, published in the Library of the Society for the Diifusion of Useful Knowledge,) "is surprising to those who are not acquainted with the mode in which the food is prepared for the cattle. A beast for every three acres of land is a common pro- portion, and in very small occupations where much spade husbandry is used, the propor- tion is still greater. After comparing the accounts given in a variety of places and situations of the average quantity of milk which a cow gives when fed in the stall, the result is, that it greatly exceeds that of our best dairy farms, and the quantity of butter made from a given quantity of milk is also greater. It appears astonishing that the occupier of only ten or twelve acres of Hght arable land should be able to maintain four or five cows, but the fact is notorious in the Waes country." (pp. 59, 60.) This subject is treated very intelligently in the work of M. Passy, On Systems of Cul- tivation and their Influence on Social Economy, one of the most impartial discussions, as be- tween the two systems, which has yet ap- peared in France. " Without doubt it is England that, on an equal surface, feeds the greatest number of animals ; Holland and some parts of Lom- bardy can alone vie with her in this respect : but is this a consequence of the mode of cul- tivation, and have not climate and local situation a share in producing it ? Of this I think there can be no doubt. In fact, what- ever may have been said, wherever large and small cultivation meet in the same place, the latter, though it cannot suppoi't as many sheep, possesses, all things considered, the greatest quantity of manure-producing animals. " In Belgium, for example, the two pro- vinces of smallest farms are Antwerp and East Flanders, and they possess on an average for every 100 hectares (250 acres) of culti- vated land, 74 horned cattle and 14 sheep. The disadvantage, when disadvan- tage there is, of small, or rather of pea- sant farming, as compared with capi- talist farming, must chiefly consist in inferiority of skill and knowledge ; but it is not true, as a general fact, that such inferiority exists. Countries of small farms and peasant farming, Flan- ders and Italy, had a good agriculture many generations before England, and theirs is still, as a whole, probably the best agriculture in the world. The empirical skill, which is the effect of daily and close observation, peasant farmers often possess in an eminent degree. The traditional knowledge, for example, of the culture of the vine, possessed by the peasantry of the The two provinces where we find the large farms are Namur and Hainaut, and they average, for every 100 hectares of cultivated ground, only 30 horned cattle and 45 sheep. Reckoning, as is the custom, ten sheep a equal to one head of horned cattle, we find in the first case, the equivalent of 76 I cjst. to maintain the fecundity of the soil ; in the latter case less than 35, a difference which must be called enormous. (See the statisti- cal documents published by the Minister of the Interior.) The abundance of animals, in the parts of Belgium which are most sub~ divided, is nearly as great as in England. Calculating the number in England in pro- portion only to the cultivated ground, there are for each 100 hectares, 65 horned cattle and nearly 260 sheep, together equal to 91 of the former, being only an excess of 15. It should besides be remembered, that in Belgium stall feeding being continued nearly the whole year, hardly any of the manure is lost, while in England, grazing in the open fields diminishes considerably the quantity which can be completely utilized. " Again, in the Department of the Nord, the arrondissements which have the smallest farms support the' greatest quantity of animals. While the arrondissements ot Lille and Hazebrouck, besides a greater number of horses, maintain the equivalent of 52 and 40 head of horned cattle, those of Dunkirk and Avesnes, where the farms are larger, produce the equivalent of only 44 and 40 head. (See the statistics of France published by the Minister of Commerce ) " A similar examination extended to other portions of France would yield similar re- sults. In the immediate neighbourhood of towns, no doubt, the small farmers, having no difficulty in purchasing manure, do not maintain animals : but, as a general rule, the kind of cultivation which takes most out of the ground must be that which is obliged to be most active in renewing its fertility. Assur- edly the small farms cannot have numeruua flocks of sheep, and this is an inconvenience ; but they support more horned cattle than the 92 BOOK I. CHAPTER IX. 4. countries where the best wines are produced, is extraordinary. There is no doubt an absence of science, or at least of theory ; and to some extent a deficiency of the spirit of improvement, so far as relates to the introduction of new processes. There is also a want of means to make experiments, which can seldom be made with advantage except by rich proprietors or capitalists. As for those systematic improvements which operate on a large tract of coun- try at once (such as great works of draining or irrigation) or which for any other reason do really require large numbers of workmen combining their labour, these are not in general to be expected from small farmers, or even small proprietors ; though combination among them for such purposes is by no means unexampled, and will become more common as their intelligence is more developed. Against these disadvantages is to be placed, where the tenure of land is of the requisite kind, an ardour of indus- try absolutely unexampled in any other condition of agriculture. This is a subject on which the testimony of com- petent witnesses is unanimous. The working of the petite culture cannot be fairly judged where the small culti- vator is merely a tenant, and not even a tenant on fixed conditions, but (as large farms. To do so is a necessity they cannot escape from, in any country where the demands of consumers require their ex- istence : if they could not fulfil this condi- tion, they must perish. " The following are particulars, the exact- ness of which is fully attested by the excel- lence of the work from which I extract them, the statistics of the commune o f Vensat (department of Puy de Dome), lately pub- lished by Dr. Jusseraud, mayor of the com- mune. They are the more valuable, as they throw full light on the nature of the changes which the extension of small farming has, in that district, produced in the number and kind of animals by whose manure the pro- ductiveness of the soil is kept up and in- creased. The commune consists of 1612 hectares, divided into 4600 parcelles, owned by 591 proprietors, and of this extent 1466 hectares are under cultivation. In 1790, seventeen farms occupied two-thirds of the whole, and twenty others the remainder. Since then the land has been much divided, and the subdivision is now extreme. What has been the effect on the quantity of cattle ? A considerable increase. In 1790"there were until lately in Ireland) at a nominal rent greater than can be paid, and therefore practically at a varying rent always amounting to the utmost that can be paid. To understand the sub- ject, it must be studied where the cul- tivator is the proprietor, or at least a metayer with a permanent tenure; where the labour he exerts to increase the produce and value of the land avails wholly, or at least partly, to his own benefit and that of his descend- ants. In another division of our sub- ject, we shall discuss at some length the important subject of tenures of land, and I defer till then any citation of evidence on the marvellous industry of peasant proprietors. It may suffice here to appeal to the immense amount of gross produce which, even without a permanent tenure, English labourers generally obtain from their little allotments; a produce beyond com- parison greater than a large farmer extracts, or would find it his interest to extract, from the same piece of land. And this I take to be the true rea- son why large cultivation is generally most advantageous as a mere invest- ment for profit. Land occupied by a large farmer is not, in one sense of the word, farmed so highly. There is not nearly so much labour expended on it. only about 300 horned cattle, and from 1SOO to 2000 sheep ; there are now 676 of the former and only 533 of the latter. Thus 1300 sheep have been replaced by 3/6 oxen and cows, and (all things taken into ac- count) the quantity of manure has increased in the ratio of 490 to 729, or more than 48 per cent, not to mention that the animals being now stronger and better fed, yield a much greater contribution than formerly to the fertilization of the ground. " Such is the testimony of facts on the point. It is not true, then, that small farm- ing feeds fewer animals than large ; on the contrary, local circumstances being the same, it feeds a greater number : and this is only what might have been presumed ; for, requiring more from the soil, it is obliged to take greater pains for keeping up its pro- ductiveness. All the other reproaches cast upon small farming, when collated one by one with facts justly appreciated, will be seen to be no better founded, and to have been made only because the countries com- pared with one another were differently situated in respect to the general causes of agricultural prosperity." (pp. 116-120.) PRODUCTION ON A LAKGE AND ON A SMALL SCALE. 93 This is not on account of any economy arising from combination of labour, but because, by employing less, a greater return is obtained in proportion to the outlay. It does not answer to any one to pay others for exerting all the la- bour which, the peasant, or even the allotment holder, gladly undergoes when the fruits are to be wholly reaped by himself. This labour, however, is not unproductive ; it all adds to the gross produce. With, anything like equality of skill and knowledge, the large farmer does not obtain nearly so much from the soil as the small pro- prietor, or the small farmer with ade- quate motives to exertion : but though his returns are less, the labour is less in a still greater degree, and as what- ever labour he employs must be paid for, it does not suit his purpose to em- ploy more. But although the gross produce of the land is greatest, other things being the same, under small cultivation, and although, therefore, a country is able on that system to support a larger aggregate population, it is generally assumed by English writers that what is termed the net produce, that is, the surplus after feeding the cultivators, must be smaller; that therefore, the population disposable for all other pur- poses, for manufactures, for commerce and navigation, for national defence, for the promotion of knowledge, for the liberal professions, for the various functions of government, for the arts and literature, all of which are depen- dent on this surplus for their existence as occupations, must be less numerous ; and that the nation, therefore, (waving all question as to the condition of the actual cultivators,) must be inferior in the principal elements of national power, and in many of those of general well-being. This, however, has been taken for granted much too readily. Undoubtedly, the non-agricultural po- pulation will bear a less ratio to the agricultural, under small than under large cultivation. But that it will be less numerous absolutely, is by no means a consequence. If the total population, agricultural and non-ugri- cultural, is greater, the non-agricultural portion may be more numerous in itself, and may yet be a smaller proportion of the whole. If the gross produce is larger, the net produce may be larger, and yet bear a smaller ratio to the gross produce. Yet even Mr. Wake- field sometimes appears to confound these distinct ideas. In France it is computed that two-thirds of the whole population are agricultural. In Eng- land, at most, one-third. Hence Mr. Wakefield infers, that " as in France only three people are supported by the labour of two cultivators, while in Eng- land the labour of two cultivators sup- ports six people, English agriculture is twice as productive as French agri- culture," owing to the superior effi- ciency of large farming through com- bination of labour. But in the first place the facts themselves are over- stated. The labour of two persons in England does not quite support six people, for there is not a little food imported from foreign countries, and from Ireland. In France, too, the labour of two cultivators does much more than supply the food of three per- sons. It provides the three persons, and occasionally foreigners, with flax, hemp, and to a certain extent with silk, oils, tobacco, and latterly sugar, which in England are wholly obtained from abroad; nearly all the timber used in France is of home growth, nearly all which is used in England is imported ; the principal fuel of France is procured and brought to market by persons reckoned among agriculturists, in England by persons not so reckoned. I do not take into calculation hides and wool, these products being com- mon to both countries, nor wine or brandy produced for home consumption, since England has a corresponding production of beer and spirits ; but England has no material export of either article, and a great importation of the last, while France supplies wines and spirits to the whole world. I say nothing of fruit, eggs, and such minor articles of agricultural produce, in which the export trade of France is enormous. But, not to lay undue stress on these abatements, we will take the statement as it stands. Suppose that 94 BOOK I. CHAPTER IX. 4. two persons, in England, do bond fide produce the food of six, while in France, for the same purpose, the labour of four is requisite. Does it follow that Eng- land must have a larger surplus for the support of a non-agricultural popula- tion ? No ; but merely that she can devote two-thirds of her whole produce to the purpose, instead of one-third. Suppose the produce to be twice as great, and the one-third will amount to as much as the two-thirds. The fact might be, that owing to the greater quantity of labour employed on the French system, the same land would produce food for twelve persons which on the English system would only pro- duce it for six : and if this were so, which would be quite consistent with the conditions of the hypothesis, then although the food for twelve was pro- duced by the labour of eight, while the six were fed by the labour of only two, there would be the same number of hands disposable for other employment in the one country as in the other. I am not contending that the fact is so. I know that the gross produce per acre in France as a whole (though not in its most improved districts) averages much less than in England, and that, in proportion to the extent and fertility of the two countries, England has, in the sense we are now speaking of, much the largest disposable popula- tion. But the disproportion certainly is not to be measured by Mr. Wake- field's simple criterion. As well might it be said that agricultural labour in the United States, where, by a late census, four families in every five appeared to be engaged in agricul- ture, must be still more inefficient than in France. The inferiority of French cultivation (which, taking the country as a whole, must be allowed to be real, though much exaggerated,) is probably more owing to the lower general average of industrial skill and energy in that country, than to any special cause : and even if partly the effect of minute subdivision, it does not prove that small farming is disadvantageous, but only (what is- undoubtedly the fact) that tanas in France are very fre- quently too small, and, what is worse, broken up into an almost incredible number of patches orparcelles, most in- conveniently dispersed and parted from one another. As a question, not of gross, but of net produce, the comparative merits of the grande and the petite culture, especially when the small fanner is also the proprietor, cannot be looked upon as decided. It is a question on which good judges at present differ. The current of English opinion is in favour of large farms : on the Continent, the weight of authority seems to be on the other side. Profes- sor Eau, of Heidelberg, the author of one of the most comprehensive and elaborate of extant treatises on politi- cal economy, and who has that large acquaintance with facts and authorities on his own subject, which generally characterises his countrymen, lays it down as a settled truth, that small or moderate-sized farms yield not only a larger gross but a larger net produce: though, he adds, it is desirable there should be some great proprietors, to lead the way in new improvements.* The most apparently impartial and discriminating judgment that I have met with is that of M. Passy, who (always speaking with reference to net produce) gives his verdict in favour of large farms for grain and forage : but, for the kinds of culture which require much labour and attention, places the advantage wholly on the side of small cultivation ; including in this description, not only the vine and the olive, where a considerable amount of care and labour must be bestowed on each individual plant, but also roots, leguminous plants, and those which furnish the materials of manufactures. The small size, and consequent multi- plication, of farms, according to all authorities, are extremely favourable to the abundance of many minor pro- ducts of agriculture.f * See pp. 352 and 353 of a French transla- tion published at Brussels in 1839, by M. Fred, de Kemmeter, of Ghent. t " In the department of the Nord," says M. Passy, " a farm of 20 hectares (50 acres) produces in calves, dairy produce, poultry, and eggs, a value of sometimes 1000 franc* PKODUCTION ON A LAKGE AND ON A SMALL SCALE. 95 It is evident that every labourer who extracts from the land more than his own food, and that of any family he may have, increases the means of sup- porting a non-agricultural population. Even if his surplus is no more than enough to buy clothes, the labourers who make the clothes are a non- agricultural population, enabled to exist by food which he produces. Every agricultural family, therefore, which produces its own necessaries, adds to the net produce of agriculture ; and so does every person born on the land, who by employing himself on it, adds more to its gross produce than the mere food which he eats. It is questionable whether, even in the most subdivided districts of Europe which arc cultivated by the proprietors, the multiplication of hands on the soil has approached, or tends to approach, within a great distance of this limit. In France, though the subdivision is confessedly too great, there is proof positive that it is far from having reached the point at which it would begin to diminish the power of sup- porting a non-agricultural population. This is demonstrated by the great in- crease of the towns ; which have of late increased in a much greater ratio than the population generally,* show- ing (unless the condition of the town labourers is becoming rapidly de- teriorated, which there is no reason to believe) that even by the unfair and inapplicable test of proportions, the productiveness of agriculture must be on the increase. This, too, concur- rently with the amplest evidence that in the more improved districts of France, and in some which, until lately, were among the unimproved, there is a considerably increased con- sumption of country produce by the country population itself. (40) a year : which, deducting expenses, is an addition to the net produce of 15 to 20 francs per hectare." On Systems of Cultiva- tion, p. 114. * During the interval between the census of 1851 and that of 1856, the increase of the population of Paris alone, exceeded the ag- gregate increase of all France : while nearly all the other large towns li^yiss showed an jncrease, Impressed with the conviction that, of all faults which can be committed by a scientific writer on political and social subjects, exaggeration, and asser- tions beyond the evidence, most require to be guarded against, I limited myself in the early editions of this work to the foregoing very moderate statements. I little knew how much stronger my language might have been without exceeding the truth, and how much the actual progress of French agricul- ture surpassed anything which 1 had at that time sufficient grounds to affirm. The investigations of that eminent authority on agricultural sta- tistics, M. Leonce de Lavergne, under- taken by desire of the Academy of Moral and Political Sciences of the Institute of France, have led to the conclusion that since the Revolution of 1789, the total produce of French agri. culture has doubled ; profits and wages having both increased in about the same, and rent in a still greater ratio. M. de Lavergne, whose impartiality is one of his greatest merits, is, moreover, so far in this instance from the sus- picion of having a case to make out, that he is labouring to show, not how much French agriculture has accom- plished, but how much still remains for it to do. "We have required" (he says) " no less than seventy years to bring into cultivation two million hec- tares" (five million English acres) " of waste land, to suppress half our fallows, double our agricultural products, in- crease our population by 30 per cent, our wages by 100 per cent, our rent by 150 per cent. At this rate we shall require three quarters of a century more to arrive at the point which England has already attained."* After this evidence, we have surely now heard the last of the incompati- bility of small properties and small farms with agricultural improvement. The onby question which remains open is one of degree ; the comparative rapidity of agricultural improvement under the two systems ; and it is tho Economie Jlurale de la Franco ilcpuit 1789. Par M. Leonce de Lavergne, Membra de 1'lnstitut et de la Societd Centrale d'Agri* culture de France. 2me d. p. 69, BOOK I. CHAPTER X. 1. general opinion of those who are equally well acquainted with both, that im- provement is greatest under a due ad- mixture between them. In the present chapter, I do not enter on the question between great and small cultivation in any other respect than as a question of production, and of the efficiency of labour. We shall return to it hereafter as affecting the distribution of the produce, and the physical and social well-being of the cultivators themselves ; in which aspects it deserves, and requires, a still more particular examination. CHAPTER X. OP THE LAW OF THE INCREASE OF LABOUR. 1. WE have now successively considered each of the agents or condi- tions of production, and of the means by which the efficacy of these various agents is promoted. In order to come to an end of the questions Xvhich relate exclusively to produc- tion, one more, of primary importance, remains. Production is not a fixed, but an in- creasing thing. When not kept back by bad institutions, or a low state of the arts of life, the produce of industry has usually tended to increase ; stimu- lated not only by the desire of the pro- ducers to augment their means of consumption, but by the increasing number of the consumers. Nothing in political economy can be of more im- portance than to ascertain the law of this increase of production ; the condi- tions to which it is subject ; whether it has practically any limits, and what these are. There is also no subject in political economy which is popularly less understood, or on which the errors committed are of a character to pro- duce, and do produce, greater mis- chief. We have seen that the essential re- quisites of production are three labour, capital, and natural agents ; the term capital including all external and phy- sical requisites which are products of labour, the term natural agents all those which are not. But among natural agents we need not take into account j those which, existing in unlimited 1 quantity, being incapable of appropria- tion, and never altering in their quali- ties, are always ready to lend an equal degree of assistance to production, whatever may be its extent ; as air, and the light of the sun. Being now about to consider the impediments to production, not' the facilities for it, we need advert to no other natural agents than those which are liable to be deficient, either in quantity or in productive power. These may be all represented by the term land. Land, in the narrowest acceptation, as the source of agricultural produce, is the chief of them ; and if we extend the term to mines and fisheries to what is found in the earth itself, or in the waters which partly cover it, as well as to what is grown or fed on its surface, it embraces everything with which we need at present concern ourselves. We may say, then, without a greater stretch of language than under the necessary explanations is permissible, that the requisites of production are Labour, Capital, and Land. The in- crease of production, therefore, depends on the properties of these elements. It is a result of the increase either of the elements themselves, or of their pro- ductiveness. The law of the increase of production must be a consequence of the laws of these elements ; the limits to the increase of production must be the limits, whatever they are, set^ by those laws. We proceed to consider the three elements successively^ with LAAV OF THE INCREASE OF LABOUR. reference to this effect ; or in other words, the law of the increase of pro- duction, viewed in respect of its de- pendence, first on Labour, secondly on Capital, and lastly on Land. 2. The increase of labour is the increase of mankind ; of population. On this subject the discussions excited by the Essay of Mr. Malthus have made the truth, though by no means universally admitted, yet so fully known, that a briefer examination of the question than would otherwise have been necessary will probably on the present occasion suffice. The power of multiplication inherent in all organic life may be regarded as infinite. There is no one species of vegetable or animal, which, if the earth were entirely abandoned to it, and to the things on which it feeds, would not in a small number of years overspread every region of the globe, of which the climate was compatible with its ex- istence. The degree of possible rapidity is different in different orders of beings ; but in all it is sufficient, for the earth to be very speedily filled up. There are many species of vegetables of which a single plant will produce in one year the gerrns of a thousand ; if only two come to maturity, in fourteen years the two will have multiplied to sixteen thousand and more. It is but a mode- rate case of fecundity in animals to be capable of quadrupling their numbers in a single year ; if they only do as much in half a century, ten thousand will have swelled within two centuries to upwards of two millions and a half. The capacity of increase is necessarily in a geometrical progression : the nume- rical ratio alone is different. To this property of organized beings, the human species forms no exception. Its power of increase is indefinite, and the actual multiplication would be extraordinarily rapid, if the power were exercised to the utmost. It never is exercised to the utmost, and yet, in the most favourable circumstances known to exist, which are those of a fertile region colonized from an in- dustrious and civilized community, population has continued, for several P.E. generations, independently of fresh im- migration, to double itself in not much more than twenty years. * That the capacity of multiplication in the himi;m species exceeds even this, is evident if we consider how great is the ordinary number of children to a family, where the climate is good and early mar- riages usual ; and how small a propor- tion of them die before the age of maturity, in the present state of hygienic knowledge, where the locality is healthy, and the family adequately provided with the means of living. It is a very low estimate of the capacity of increase, if we only assume, that in a good sanitary condition of the people, each generation may be double the number of the generation which pre- ceded it. Twenty or thirty years ago, thesa propositions might still have required considerable enforcement and illustra- tion ; but the evidence of them is so ample and incontestable, that they have made their way against all kinds of opposition, and may now be re- garded as axiomatic : though the extreme reluctance felt to admitting them, every now and then gives birth to some ephemeral theory, speedily forgotten, ' of a different law of increase in different circumstances, through a providential adaptation of the fecundity of the human species to the exigencies of society .f The obstacle to a just * This has been disputed ; but the highest estimate I have seen of the term which population requires for doubling itself in the United States, independently of immigrants and of their progeny that of Mr. Carey does not exceed thirty years. t One of these theories, that of Mr. Double* day, may be thought to require a passing notice, because it has of late obtained somo followers, and because it derives a semblance of support from the general analogies of organic life. This theory maintains that the fecundity of the human animal, and of all other living beings, is in inverse proportion to the quantity of nutriment : that an under- fed population multiplies rapidly, but that all classes in comfortable circumstances are, by a physiological law, so unprolific, as sel- dom to keep up their numbers without being recruited from a poorer class. There is no doubt that a positive excess of nutriment, in animals as well as in fruit trees, is un- favourable to reproduction ; and it is quite possible, though by no means proved, that the physiological conditions of fecundity may 98 BOOK I. CHxVPTER X. 3. understanding of the subject does not arise from these theories, but from too confused a notion of the causes which, at most times and places, keep the actual increase of mankind so far behind the capacity. ?,. Those causes, nevertheless, are in no way mysterious. What pre- vents the population of hares and rabbits from overstocking the earth ? Not want of fecundity, but causes very different : many enemies, and in- sufficient subsistence; not enough to cat, and liability to being eaten. In the human race, which is not generally subject to the latter inconvenience, the equivalents for it are war and disease. If the multiplication of man- kind proceeded only, like that of the other animals, from a blind instinct, it would be limited in the same manner with theirs; the births would be as numerous as the physical constitution of the species admitted of, and the population would be kept down by exist in the greatest degree when the supply of food is somewhat stinted. But any one who might be inclined to draw from this, even if admitted, conclusions at variance with the principle of Mr. Malthus, needs only be invited to look through a volume of the Peerage, and observe the enormous fami- lies almost universal in that class ; or call to mind the large families of the English clergy, and generally ot the middle classes of England. It is, besides, well remarked by Mr. Carey, that, to be consistent with Mr. I), ulilcilay's theory, the increase of the popu- lation of the United States, apart from im- migration, ought to be one of the slowest on record. Mr. Carey has a theory of his own, also : on a physiological truth, that the total sum of nutriment received by an or- ganized body directs itself, in largest propor- tion, to the parts of the system which are most used ; from which he anticipates a diminution in the fecundity of human beings, not through more abundant feeding, but through the greater use of their brains inci- dent to an advanced civilization. There is considerable plausibility in this speculation, and experience may hereafter confirm it. But the change in the human constitution which it supposes, if ever realized, will con- duce to the expected effect rather by ren- dering physical self-restraint easier, than by dispensing with its necessity ; since the most \vn rate of multiplication is quite compatible with a very sparing employment pf the multiplying power. deaths.* But the conduct of human creatures is more or less influenced by foresight of consequences, and by im- pulses superior to mere animal in- stincts : and they do not, therefore, propagate like swine, but are capable, though in very unequal degrees, of being withheld by prudence, or by the social affections, from giving existence to beings born only to misery and pre- mature death. In proportion as man- kind rise above the condition of the beasts, population is restrained bv the fear of want, rather than by want itself. Even where there is no question of starvation, many are similarly acted upon by the apprehension of losing what have come to be regarded as the decencies of their situation in life. Hitherto no other motives than these two have been found strong enough, in the generality of mankind, to counter- act the tendency to increase. It has been the practice of a great majority of the middle and the poorer classes, whenever free from external control, to marry as early, and in most coun- tries to have as many children, as was consistent with maintaining themselves in the condition of life which they were born to, or were accustomed to consider as theirs. Among the middle classes, in many individual instances, there is an additional restraint exercised from the desire of doing more than main- * Mr. Carey expatiates on the absurdity ot supposing that matter tends to assume the highest form of organization, the human, at a more rapid rate than it assumes the lower forms which compose human food; that human beings multiply faster than turnips and cabbages. But the limit to the increase of mankind, according to the doctrine of Mr. Malthus, does not depend on the power of increase of turnips and cabbages, but on the limited quantity of the land on which they can be grown. So long as the quantity of land is practically unlimited, which it is in the United States, and food, consequently, can be increased at the highest rate which is natural to it, mankind also may, without augmented difficulty in obtaining subsistence, increase at their highest rate. When Mr. Carey can show, not that turnips and cab- bages but that the soil itself, or the nutritive elements contained in it, tend naturally to multiply, and that, too, at a rate exceeding the most rapid possible increase of mankind, h.c will have said something to the purpose. Till then, this part, at least, of his argument may be considered as non-existent. LAW OF THE INCREASE OF LABOUR. 9'J taining their circumstances of im- deaths are remarkably few in proper- proving them ; but such a desire is tion to the population ; the average duration of life is the longest ' rarely found, or rarely has that effect, in the labouring classes. If they can bring up a family as they were them- selves brought up, even the prudent among them are usually satisfied. Too often they do not think even of that, but rely on fortune, or on the resources to be found in legal or voluntary charity. In a very backward state of society, like that of Europe in the Middle Ages, and many parts of Asia at present, population is kept down by actual starvation. The starvation does not take place in ordinary years, but in seasons of scarcity, which in those states of society are much more fre- quent and more extreme than Europe is now accustomed to. In these seasons actual want, or the maladies conse- quent on it, carry off numbers of the population, which in a succession of favourable years again expands, to be again cruelly decimated. In a more improved state, few, even among the poorest of the people, are limited to actual necessaries, and to a bare sufficiency of those : and the increase is kept within bounds, not by excess of deaths, but by limitation of births. The limitation is brought about in various ways. In some countries, it is the result of prudent or conscientious self-restraint. There is a condition to which the labouring people are ha- bituated; they perceive that by having too numerous families, they must sink below that condition, or fail to trans- mit it to their children ; and this they do not choose to submit to. The countries in which, so far as is known, a great degree of voluntary prudence has been longest practised on this subject, are Norway and parts of Switzerland. Concerning both, there happens to be unusually authentic in- formation; many facts were carefully brought together by Mr. Malthus, and much additional evidence has been obtained since his time. In both these countries the increase of population is very slow ; and what checks it, ia not multitude of deaths, but fewness of births. Both the births and the comfortable support, ws, of which I shall Europe ; the population contains fewer children, and a greater proportional number of persons in the vigour of life, than is known to be the case in any other part of the world. The paucity of births tends directly to prolong life, by keeping the people in comfortable circumstances ; and the same prudence is doubtless exercised in avoiding causes of disease, as in keeping clear of the principal cause of poverty. It is worthy of remark that the two countries thus honourably distin- guished, are countries of small landed proprietors. There are other cases in which the prudence and forethought, which per- haps might not be exercised by the people themselves, are exercised by the state for their benefit ; marriage not being permitted until the contracting parties can show that they have the prospect of a Under these L speak more fully hereafter, the condi- tion of the people is reported to be good, and the illegitimate births not so numerous as might be expected. There are places, again, in which the restraining cause seems to be not so much individual prudence, as some general and perhaps even accidental habit of the country. In the rural districts of England, during the last century, the growth of population was very effectually repressed by the diffi- culty of obtaining a cottage to live in. It was the custom for unmanned la- bourers to lodge and board with their employers ; it was the custom for mar- ried labourers to have a cottage : and the rule of the English poor laws by which a parish was charged with the support of its unemployed poor, ren- dered landowners averse to promote marriage. About the end of the cen- tury, the great demand for men in war and manufactures, made it be thought a patriotic thing to encourage popula- tion: and about the same time the growing inclination of farmers to live like rich people, favoured as it was by h prices, BOOK I. CHAPTER XT. 1. 100 them desirous of keeping inferiors at a greater distance, and pecuniary motives arising from abuses of the poor laws being superadded, they gradually drove their labourers into cottages, which the landlords now no longer refused permission to build. In some countries an old standing custom that a girl should not marry until she had spun and woven for herself an ample trousseau (destined for the supply of her whole subsequent life), is said to have acted as a substantial check to population. In England, at present, the influence of prudence in keeping down multiplication is seen by the diminished number of marriages in the manufacturing districts in years when trade is bad. But whatever be the causes by which the population is anywhere limited to a comparatively slow rate of increase, an acceleration of the rate very speedily follows any diminution of the motives to restraint. It is but rarely that improvements in the con- dition of the labouring classes do any- thing more than give a temporary margin, speedily filled up by an in- crease of their numbers. The use they commonly choose to make of any ad- vantageous change in their circum- stances, is to take it out in the form which, by augmenting the population, deprives the succeeding generation of the benefit. Unless, either by their general improvement in intellectual and moral culture, or at least by raising their habitual standard of com- fortable living, they can be taught to make a better use of favourable cir- :ices, nothing permanent cn.n be done for them; the most promising schemes end only in having a more numerous, but not a happier people. By their habitual standard, 1 mean that (when any such there is) down to which they will multiply, but not, lower. Every advance they make in* education, civilization, and social im- provement, tends to raise this standard; and there is no doubt that it is gra- dually, though slowly, rising in the more advanced countries of Western Europe. Subsistence and employment in England have never increased more rapidly than in the last forty years, but every census since 1821 showed a smaller proportional increase of popula- tion than that of the period preceding; and the produce of French agriculture^ and industry is increasing in a pro- gressive ratio, while the population exhibits, in every quinquennial census, a smaller proportion of births to the population. The subject, however, of population, in its connexion with the condition of the labouring classes, will be con- sidered in another place : in the present, vre have to do with it solely as one of the elements of Production: and in that character we could not dis- pense with pointing out the unlimited extent of its natural powers of increase, and the causes owing to which so small a portion of that unliiui.cd power is for the most part actually exercised. After this brief indica- tion, we shall proceed to the other elements. CHAPTER XL OP THE LA"W OF THE INCREASE OF CAPITAL. 1. THE requisites of production being labour, capital, and land, it has been seen from the preceding chapter that the impediments to the increase of production do not arise from the first of these elements. On the side of labour there is no obstacle to an increase of production, indefinite in extent and of un slackening-- rapidity Population has the power of increasing in an uniform and rapid geometrical ratio. If the only essential condition LA W OF THE INCREASE OF CAPITAL. 101 of production were labour, the produce might, and naturally would, increase in the same ratio ; and there would be no limit, until the numbers of mankind were brought to a stand from actual want of space. But production has other requisites, of these, the one which we shall next consider is Capital. There cannot be more people in any country, or in the world, than can be supported from the produce of past labour until that of present labour comes in. There will be no greater number of productive labourers in any country, or in the world, than can be supported from that portion of the produce of past labour, which is spared from the enjoyments of its possessor for purposes of repro- ^duction, and is termed Capital. We have next, therefore, to inquire into the conditions of the increase of capi- tal ; the causes by which the rapidity of its increase is determined, and the necessary limitations of that in- Since all capital is the product of saving, that is, of abstinence from present consumption for the sake of a future good, the increase of capital must depend upon two things the amount of the fund from which saving can be made, and the strength of the dispositions which prompt to it. The fund from which saving can be made, is the surplus of the produce of labour, after supplying the necessaries of life to all concerned in the produc- tion: (including those employed in replacing the materials, and keeping the fixed capital in repair.) Mt>re than this surplus cannot be saved tinder any circumstances. As much as this, though it never is saved, always might be. This surplus? is the fund from which the enjoyments, as distinguished from the necessaries of the producers, are provided ; jLjs_t]je_ fund from which all are subsisted, who are not themselves engaged in produc- tion ; and from which all additions are made to capital. It is the real net produce of the country. The phrase, net produce, is often taken in a more limited sense, to denote only the profits of the capitalist and the rent of the landlord, under the idea that nothing can be included in the net produce of capital, but what is returned to the owner of the capital after replacing his expenses. But this is too narrow an acceptation of the term. The capital of the employer forms the revenue of the labourers, and if thia exceeds the necessaries of life, it gives them a surplus which they may either expend in enjoyments or save. For every purpose for which there can be occasion to speak of the net produce of industry, this surplus ought to be in- cluded in it. When this is included, and not otherwise, the net produce of the country is the measure of its effective power ; of what it can spare for any purposes of public utility, or private indulgence ; the portion of its produce of which it can dispose at pleasure ; which can be drawn upon to attain any ends, or gratify any wishes, either of the government or of individuals ; which it can either spend for its satisfaction, or save for future advantage. The amount of this fund, this net produce, this excess of production above the physical necessaries of the producers, is one of the elements that determine the amount of saving. The greater the produce of labour after supporting the labourers, the more there is which can be saved. Qhe same thing also partly contributes to determine how much will be saved. A part of the motive to saving consists in the prospect of deriving an income from savings ; in the fr.f>- thf 1 -* ^fl.pita.1, t e of I ^_ not only fftproducingrtself but yielding J an jmcrease. The greater the profit f. that can be made from capital, the stronger is the motive to its accumu- lation. That indeed which forms the inducement to save, is not the whole of the fund which supplies the means of saving, not the whole net produce of the land, capital, and labour of the country, but only a part of it, the part which forms the remuneration of the capitalist, and is called profit of stock. It will however be readily enough understood, even previously to the ex- planations which will be given here- 102 BOOK I. CHAPTER XI. 2. ';;it \vuen the general produc- tiveness of labour and capital is great, the returns to the capitalist are likely to be large, and that some proportion, though not an uniform one, will com- monly obtain between the two. 2. But the disposition to save does not wholly depend on the external inducement to it; on the amount of profit to be made from savings. With the same pecuniary inducement, the inclination is very different, in differ- ent persons, and in different commu- nities. The effective desire of accumu- lation is of unequal strength, not only according to the varieties of individual character, but to the general state of society and civilization. Like all other moral attributes, it is one in which the human race exhibits great differences, conformably to the diver- sity of its circumstances and the stage of its progress. On topics which if they were to be fully investigated would exceed the bounds that can be allotted to them in this treatise, it is satisfactory to be able to refer to other works in which the necessary developments have been presented more at length. On the subject of Population this valuable service has been rendered by the celebrated Essay of Mr. Malthus ; and on the point which now occupies us 1 can refer with equal confidence to another, though a less known work, "New Principles of Political Eco- nomy," by Dr. Bae.* In no other * This treatise is an example, such as not unfrequently presents itself, how much more depends on accident, than on the qualities of a book, in determining its reception. Had it appeared at a suitable time, and been fa- voured by circumstances, it would have had every requisite for great success. The author, a Scotchman settled in the United States, unites much knowledge, an original vein of thought, a considerable turn for philosophic generalities, and a manner of exposition and illustration calculated to make ideas tell not only for what they are worth, but for more than they are worth, and which sometimes, I think, has that effect in the writer's own mind. The principal fault of the book is the position of antagonism in which, with the controversial spirit apt to be found in those who have new thoughts on old subjects, he has placed himself towards Adam Smith. I call this a fault, (though I think many of book known to me is so much light thrown, both from principle and history, on the causes which deter- mine the accumulation of capital. All accumulation involves the sacri- fice of a present, for the sake of a future good. But the expediency of such a sacrifice varies very much in different states of circumstances ; and the wil- lingness to make it, varies still more. In weighing the future against the present, the uncertainty of all things future is a leading element ; and that uncertainty is of very different degrees. "All circumstances.'' therefore, "in- creasing the probability of the provi- sion we make for futurity being en- joyed by ourselves or others, tend" justly and reasonably " to give strength to the effective desire of accumulation. Thus a healthy climate or occupation, by increasing the pro- bability of life, has a tendency to add to this desire. When engaged in safe occupations, and living in healthy countries, men are much more apt to be frugal than in unhealthy or hazard- ous occupations, and in climates per- nicious to human life. Sailors and soldiers are prodigals. In the West Indies, New Orleans, the East Indies, the expenditure of the inhabitants is profuse. The same people, coming to reside in the healthy parts of Europe, and not getting into the vortex of extravagant fashion, live economically. War and pestilence have always waste and luxury among the other evils that follow in their train. For similar reasons, whatever gives security to the affairs of the community is favourable to the strength of this principle. In this respect the general prevalence of law and order, and the prospect of the continuance of peace and tranquillity, have considerable influence."f The more perfect the security, the greater the criticisms just, and some of them far- seeing), because there is much less real dif- ference of opinion than might be supposed from Dr. Rae's animadversions ; and because what he has found vulnerable in his great predecessor is chiefly the " human too much'' in his premises ; the portion of them that is over and above what was either required or is actually used for the establishment of his conclusions. tRae,p.!23. LAW OP THE INCKEASE OF CAPITAL. 103 will be the effective strength of the desire of accumulation. Where pro- perty is less safe, or the vicissitudes ruinous to fortunes are more frequent and severe, fewer persons will save at all, and of those who do, many will require the inducement of a higher rate of profit on capital, to make them prefer a doubtful future to the tempta- tion of present enjoyment. These are considerations which affect the expediency, in the eye of reason, of consulting future interests at the expense of present. But the inclination to make this sacrifice does not solely depend upon its expediency. The dis- position to save is often far short of what reason would dictate: and at other times is liable to be in excess of it. Deficient strength of the desire of accumulation may arise from improvi- dence, or from want of interest in others. Improvidence may be con- nected with intellectual as well as moral causes. Individuals and com- munities of a very low state of intelli- gence are always improvident. A certain measure of intellectual develop- ment seems necessary to ena'ble absent things, and especially things future, to act with any force on the imagination and will. The effect of want of interest in others in diminishing accumulation, will be admitted, if we consider how much saving at present takes place, which has for its object the interest of others rather than of ourselves; the education of children, their advance- ment in life, the future interests of other personal connexions, the power of promoting by the bestowal of money or time, objects of public or private usefulness. If mankind were generally in the state of mind to which some approach was seen in the declining period of the Roman empire caring nothing for their heirs, as well as nothing for friends, the public, or any object which survived them they would seldom deny themselves any in- dulgence for the sake of saving, beyond what was necessary for their own future years ; which they would place in life annuities, or in some other form which would make its existence and their 3. From these various causes, in- tellectual and moral, there is, in differ ent portions of the human race, a, greater diversity than is usually ad- verted to, in the strength of the effective desire of accumulation. A backward state of general civilization is often more the effect of deficiency in this particular than in many others which attract more attention. In the cir- cumstances, for example, of a hunting tribe, " man may be said to be neces- sarily improvident, and regardless of futurity, because, in this state, the future presents nothing which can be with certainty either foreseen or go- verned Besides a want of the motives exciting to provide for the needs of futurity through means of the abilities of the present, there is a want of the habits of perception and action, leading to a constant connexion in the mind of those distant points, and of the series of events serving to unite them. Even, therefore, if motives be awakened capable of producing the exertion ne- cessary to effect this connexion, there remains the task of training the mind to think and act so as to establish it." For instance: "Upon the banks of the St. Lawrence there are several little Indian villages. They are sur- rounded, in general, by a good deal of land, from which the wood seems to have been long extirpated, and have, besides, attached to them, extensive tracts of forest. The cleared land is rarely, I may almost say never, culti- vated, nor are any inroads made in the forest for such a purpose. The soil is, nevertheless, fertile, and were it not, manure lies in heaps by their houses. Were every family to inclose half an acre of ground, till it, and plant it in potatoes and maize, it would yield a sufficiency to support them one-half the year. They suffer, too, every now and then, extreme want, insomuch that, joined to occasional intemperance, it is rapidly reducing their numbers. This, to us, so strange apathy proceeds not, in any great degree, from repug- nance to labour ; on the contrary, they apply very diligently to it when its reward is immediate. Thus besides their peculiar occupations of hunting 104 BOOK I. CHAPTER XI. 3. and fishing, in which they are ever ready to engage, they are much em- ployed in the navigation of the St. Lawrence, and may be seen labouring at the oar, or setting with the pole, in the large boats used for the purpose, and always furnish the greater part of the additional hands necessary to con- duct rafts through some of the rapids. Nor is the obstacle aversion to airri- cultural labour. This is no doubt a prejudice of theirs ; but mere prejudices always yield, principles of action cannot be created. When the returns from agricultural labour are speedy and great, they are also agriculturists. Thus, some of the little islands on Lake St. Francis, near the Indian village of St. Ecgis, are favourable to the growth of maize, a plant yielding a return of a hundredfold, and forming, even when half ripe, a pleasant and substantial repast. Patches of the best land on these islands are, there- fore, every year cultivated by them for this purpose. As their situation renders them inaccessible to cattle, no fence is required ; were this additional outlay necessary, I suspect they would be neglected, like the commons adjoining their village. These had apparently, at one time, been under crop. The cattle of the neighbouring settlers would now, however, destroy any crop not securely fenced, and this additional necessary outlay consequently bars their culture. It removes them to an order of instruments of slower return than that which corresponds to the strength of the effective desire of accu- mulation in this little society. " It is here deserving of notice, that what instruments of this kind they do form, are completely formed. 'The small spots of corn they cultivate are thoroughly weeded and hoed. A little neglect in this part would indeed re- duce the crop very much ; of this ex- perience has made them perfectly aware, and they act accordingly. It is evidently not the necessary labour that is the obstacle to more extended cul- ture, but the distant return from that labour. I am assured, indeed, that among some of the more remote tribes, the labour thus expended much exceeds that given by the whites. The same portions of ground being cropped with- out remission, and manure not being used, they would scarcely yield any return, were not the soil most carefully broken and pulverized, both with the hoe and the hand. In such a situation a white man would clear a fresh piece of ground. It would perhaps scarce repay his labour the first year, and he would have to look for his reward in succeeding years. On the Indian, suc- ceeding years are too distant to make sufficient impression ; though, to obtain what labour may bring about in the course of a few months, he toils even more assiduously than the white man."* This view of things is confirmed by the experience of the Jesuits, in their in- teresting efforts to civilize the Indians of Paraguay. They gained the confi- dence of these savages in a most extraordinary degree. They acquired influence over them sufficient to make them change their whole manner of life. They obtained their absolute sub- mission and obedience. They estab- lished peace. They taught them all the operations of European agricul- ture, and many of the more difficult arts. There were everywhere to be seen, according to Charlevoix, " work- shops of gilders, painters, sculptors, goldsmiths, watchmakers, carpenters, joiners, dyers," &c. These occupations were not practised for the personal gain of the artificers : the produce was at the absolute disposal of the mis- sionaries, who ruled the people by a voluntary despotism. The obstacles arising from aversion to labour were therefore very completely overcome. The real difficulty was the improvi- dence of the people ; their inability to think for the future ; and the necessity accordingly of the most unremitting and minute superintendence on the part of their instructors. "Thus at first, if these gave up to them the care of the oxen with which they ploughed, their indolent thoughtlessness would probably leave them at evening still yoked to the implement. Worse than this, instances occurred where they cut them up for supper, thinking, when re- * Kae, p. 136, LAW OF THE INCREASE OF CAPITAL. 105 prehended, that they sufficiently ex- cused themselves by saying they were hungry. . . . These fathers, says Ul- loa, have to visit the houses, to examine what is really wanted: for, without this care, the Indians would never look after anything. They must be present, too, when animals are slaughtered, not only that the meat may be equally divided, but that nothing may be lost." " But notwithstanding all this care and su- perintendence," says Chai'levoix. " and all the precautions which are taken to prevent any want of the necessaries of life, the missionaries are sometimes much embarrassed. It often happens that they'' (the Indians) " do not reserve to themselves a sufficiency of grain, even for seed. As for their other pro- visions, were they not well looked after, they would soon be without where- withal to support life."* As an example intermediate, in the strength of the effective desire of accu- mulation, between the state of things thus depicted and that of modern Europe, the case of the Chinese de- serves attention. From various cir- cumstances in their personal habits and social condition, it might be an- ticipated that they would possess a degree of prudence and self-control greater than other Asiatics, but inferior to most European nations ; and the fol- lowing evidence is adduced of the fact. " Durability^ 4s one of the chief qualities, marking a high degree of the effective desire of accumulation. The testimony of travellers ascribes to the instruments formed by the Chinese, a very inferior durability to similar instruments constructed by Europeans. The houses, we are told, unless of the higher ranks, are in general of unburnt bricks, of clay, or of hurdles plastered with earth ; the roofs, of reeds fastened to laths. We can scarcely conceive more unsubstantial or temporary fabrics. Their partitions are of paper, requiring to be renewed every year. A similar observation may be made concerning their implements of husbandry, and other utensils. They are almost en- tirely of wood, the metals entering but very sparingly into their construc- * Kae, p. 140. tion ; consequently they soon wear out, and require frequent renewals. A greater degree of strength in the effec- tive desire of accumulation, would cause them to be constructed of mate- rials requiring a greater present ex- penditure, but being far more durable. From the same cause, much land, that in other countries would be cultivated, lies waste. All travellers take notice of large tracts of lands, chiefly swamps, which continue in a state of nature. To bring a swamp into tillage is gene- rally a process, to complete which, requires several years. It must be previously drained, the surface long exposed to the sun, and many opera- tions performed, before it can be made capable of bearing a crop. Though yielding, probably, a very considerable return for the labour bestowed on it, that return is not made until a long time has elapsed. The cultivation of such land implies a greater strength of the effective desire of accumulation than exists in the empire. " The produce of the harvest is, as we have remarked, always an instru- ment of some order or another ; it is a provision for future want, and regulated by the same laws as those to which other means of attaining a similar end conform. It is there chiefly rice, of which there are two harvests, the one in June, the other in October. The period then of eight months between October and June, is that for which provision is made each year, and the different estimate they make of to-day and this day eight months will appear in the self-denial they practise now, in order to guard against want then. The amount of this self-denial would seem to be small. The father Parennin, indeed, (who seems to have been one of the most intelligent of the Jesuits, and spent a long life among the Chinese of all classes,) asserts, that it is their great deficiency in fore- thought and frugality in this respect, which is the cause of the scarcities and iamines that frequently occur." That it is defect of providence, not de- fect of industry, that limits production among the Chinese, is still more ob- vious than in the case of the semi-agri- 106 BOOK I. CHAPTER XL 3. culturalised Indians. " Where the re- turns are quick, where the instruments formed require hut little time to bring the events for which they were formed to an issue," it is well known that "the great progress which has been made in the knowledge of the arts suited to the nature of the country and the wants of its inhabitants" makes industry energetic and effective. " The warmth of the climate, the natural fer- tility of the country, the knowledge which the inhabitants have acquired of the arts of agriculture, and the dis- covery and gradual adaptation to every soil of the most useful vegetable pro- ductions, enable them very speedily to draw from almost any part of the sur- face, what is there esteemed an equiva- lent to much more than the labour be- stowed in tilling and cropping it. They have commonly double, some- times treble harvests. These, when they consist of a grain so productive as rice, the usual crop, can scarce fail to yield to their skill, from almost any portion of soil that can be at once brought into culture, very ample re- turns. Accordingly there is no spot that labour can immediately bring under cultivation that is not made to yield to it. Hills, even mountains are ascended and formed into terraces; and water, in that country the great productive agent, is led to every part by drains, or earned up to it by the in- genious and simple hydraulic machines which have been in use from time im- memorial among this singular people. They effect this the more easily, from the soil, even in these situations, being very deep and covered with much vege- table mould. But what yet more than this marks the readiness with which labour is forced to form the most diffi- cult materials into instruments, where these instruments soon bring to an issue the events for which they are formed, is the frequent occurrence on many of their lakes and rivers, of struc- tures resembling the floating gardens of the Peruvians, rafts covered with vegetable soil and cultivated. Labour in this way draws from the materials en which it acts very speedy returns. Kothing can exceed the luxuriance of ; vegetation when the quickening powers of a genial sun are ministered to by a rich soil and abundant moisture. It is otherwise, as we have seen, in cases where the return, though copious, is distent. European travellers are sur- prised at meeting these little floating farms by the side of swamps which only require draining to render them tillable. It seems to them strange that labour should not rather be be- stowed on the solid earth, where its fruits might endure, than on structures that must decay and perish in a few years. The people they are among think not so much of future years-, as of the present time. The effective de- sire of accumulation is of very different strength in the one, from what it is in the other. The views of the European extend to a distant futurity, and he is surprised at the Chinese, condemned, through improvidence, and want of sufficient prospective care, to incessant toil, and as he thinks, insufferable wretchedness. The views of the Chinese are confined to narrower bounds ; he is content to live from day to day, and has learnt to conceive even a life of toil a blessing."* When a country has carried produc- tion as far as in the existing state of knowledge it can be carried with an amount of return corresponding to the average strength of the effective desire of accumulation in that country, it has reached what is called the stationary state ; the state in which no further ad- dition will be made to capital unless there takes place either some improve- ment in the arts of production, or an increase in the strength of the de- sire to accumulate. In the stationary state, though capital does not on the whole increase, some persons grow richer and others poorer. Those whose degree of providence is below the usual standard, become impoverished, their capital perishes, and makes room for the savings of those whose effective de- sire of accumulation exceeds the ave- rage. These become the natural pur- chasers of the land, manufactories, and other instruments of production owned by their less provident countrymen. * Rac, pp. 1515. LAW OF THE INCREASE OF CAPITAL. 107 What the causes are which make the return to capital greater in one country than in another, and which, in certain circumstances, make it impossible for any additional capital to find invest- ment unless at diminished returns, will appear clearly hereafter. In China, if that country has really attained, as it is supposed to have done, the sta- tionary state, accumulation has stopped when the returns to capital are still as high as is indicated by a rate of inte- rest legally twelve per cent, and prac- tically varying (it is said) between eighteen and thirty-six. It is to be presumed therefore that no greater amount of capital than the country already possesses, can find employment at this high rate of profit, and that any lower rate does not hold out to a Chinese sufficient temptation to induce him to abstain from present enjoyment. What a contrast with Holland, where, during the most flourishing period of its history, the government was able habitually to borrow at two per cent, and private individuals, on good secu- rity, at three. Since China is not a country like Burmah, or the native states of India, where an enormous in- terest is but an indispensable compen- sation for the risk incurred from the bad faith or poverty of the state, and of almost all private borrowers; the fact, if fact it be, that the increase of capital has come to a stand while the returns to it are still so large, denotes a much less degree of- the effective de- sire of accumulation, in other words a much lower estimate of the future rela- tively to the present, than that of most European nations. 4. We have hitherto spoken of countries in which the average strength of the desire to accumulate is short of that which, in circumstances of any tolerable security, reason and sober calculation would approve. We have now to speak of others in which it deci- dedly surpasses that standard. In the more prosperous countries of Europe, there are to be found abundance of prodigals ; in some of them (and in none more than England) the ordinary degree of economy and providence among those who live by manual la- bour cannot be considered high ; still, in a very numerous portion of the com- munity, the professional, manufactu- ring, and trading classes, being those who, generally speaking, unite more of the means with more of the motives for saving than any other class, the spirit of accumulation is so strong, that the signs of rapidly increasing wealth meet every eye : and the great amount of capital seeking investment excites astonishment, whenever peculiar cir- cumstances turning much of it into some one channel, such as railway construc- tion or foreign speculative adventure, bring the largeness of the total amount into evidence. There are many circumstances, which, in England, give a peculiar force to the accumulating propensity. The long exemption of the country from the ravages of war, and the far earlier period than elsewhere at which pro- perty was secure from military violence or arbitrary spoliation, have produced a long-standing and hereditary confidence in the safety of funds when trusted out of the owner's hands, which in most other countries is of much more re- cent origin, and less firmly established. The geographical causes which have made industry rather than war the natural source of power and importance to Great Britain, have turned an un- usual proportion of the most enter- prising and energetic characters into the direction of manufactures and com- merce ; into supplying their wants and gratifying their ambition by producing and saving, rather than by appropria- ting what has been produced and saved. Much also depended on the better political institutions of this country, which by the scope they have allowed to individual freedom of action, have encouraged personal activity and self-reliance, while by the liberty they confer of association and combination, they facilitate industrial enterprise on a large scale. The same institutions in another of their aspects, give a most direct and potent stimulus to the desire of acquiring wealth. The earlier de- cline of feudalism having removed or much weakened invidious distinctions 108 BOOK I. CHAPTER XII. $ 1. between the originally trading classes and those who had been accustomed to despise them ; and a polity having grown up which made wealth the real source of political influence; its acqui- sition was invested with a factitious value, independent of its intrinsic uti- lity. It became synonymous with power ; And since power with the common herd of mankind gives power, wealth became the chief source of personal considera- tion, and the measure and stamp of success in life. To get out of one rank in society into the next above it, is the great aim of English middle-class life, and the acquisition of wealth the means. And inasmuch as to be rich without industry, has always hitherto constituted a step in the social- scale above those who are rich by means of industry, it becomes the object of am- bition to save not merely as much as will afford a large income while in busi- ness, but enough to retire from business and live in affluence on realized gains. These causes have in England been greatly aided by that extreme incapa- city of the people for personal enjoy- ment, which is a characteristic of countries over which puritanism has passed. But if accumulation is, on one hand, rendered easier by the absence of a taste for pleasure, it is, on the other, made more difficult by the pre- sence of a very real taste for expense. So strong is the association between personal consequence and the signs of wealth, that the silly desire for the appearance of a large expenditure has the force of a passion, among large classes of a nation which derives less pleasure than perhaps any other in the world from what it spends. Owing to this circumstance, the ellective desire of ac- cumulation has never reached so high a pitch in England as it did in Hol- land, where, there being no rich idle class to set the example of a reckless expenditure, and the mercantile classes, who possessed the substantial power on which social influence always waits, being left to establish their own scale of living and standard of propriety, their habits remained frugal and unos- tentatious. In England and Holland, then, for a long time past, and now in most other countries in Europe (which are rapidly following England in the same race), the desire of accumulation does not require, to make it effective, the copious returns which it requires in Asia, but is sufficiently called into action by a rate of profit so low, that instead of slackening, accumulation seems now to proceed more rapidly than ever ; and the second requisite of increased production, increase of capi- tal, shows no tendency to become deficient. So far as that element is con- cerned, production is susceptible of an increase without any assignable bounds. The progress of accumulation would no doubt be considerably checked, if the returns to capital were to be reduced still lower than at present. But why should any possible increase of capital have that effect? This question carries the mind forward to the re- maining one of the three requisites of production. The limitation to produc- tion, not consisting in any necessary limit to the increase of the other two elements, labour and capital, must turn upon the properties of the only element which is inherently, and in itself, limited in quantity. It must depend on the properties of laud. / CHAPTER XIL OP THE LAW OP THE INCREASE OP PRODUCTION FROM LAND. 1. LAND differs from the^ other | definite increase. Its extent is limited, elements of production, labour and ; and the extent of the more productive capital, in not being susceptible of in- | kinds of it more limited still. It is LAW OF INCREASE OF PRODUCTION FROM LAND. 109 also evident that the quantity of pro- duce capable of being raised on any given piece of land is not indefinite. This limited quantity of land, and li- t mited productiveness of it, are the real" | limits to the increase of production. That they are the ultimate limits, must always have been clearly seen. But since the final barrier has never in any instance been reached ; since there is no country in which all the land, capable of yielding food, is so highly cultivated that a larger produce could not (even without supposing any fresh advance in agricultural know- ledge) be obtained from it, and since a large portion of the earth's surface still remains entirely uncultivated ; it is commonly thought, and is very natural at first to suppose, that for the present all limitation of production or population from this source is at an indefinite distance, and that ages must elapse before any practical necessity arises for taking the limiting principle into serious consideration. I apprehend this to be not only an error, but the most serious one, to be Jound in the whole field of political economy. The question is more im- portant and fundamental than any other ; it involves the whole subject of the causes of poverty, in a rich and industrious community; and unless this one matter be thoroughly under- stood, it is to no purpose proceeding any further in our inquiry. 2. The limitation to production from the properties of the soil, is not like the obstacle opposed by a wall, which stands immovable in one particular spot, and offers no hindrance to motion short of stopping it entirely. We may rather compare it to a highly elastic and extensible band, which is hardly ever so violently stretched that it could not possibly be stretched any more, yet the pressure of which is felt long before the final limit is reached, and felt more severely the nearer that limit is approached. After a certain, and not very ad- vanced, stage in the progress of agri- culture, it is the law of production from the land, that in any given state of agricultural skill and knowledge, by increasing the labour, the produce is not increased in an equal degree; doubling the labour dues not double the produce ; or, to express the same thing in other words, every increase of produce is obtained by a more than proportional increase in the applica- tion of labour to the land. This general law of agricultural' industry is the most important propo-t sition in political economy. Were the law different, nearly all the phenomena of the production and distribution of wealth would be other than they are. The most fundamental errors which still prevail on our subject, result from not perceiving this law at work under- neath the more superficial agencies on which attention fixes itself; but mistaking those agencies for the ulti- mate causes of effects of which they may influence the form and mode, but of which it alone determines the essence. When, for the purpose of raising an increase of produce, recourse is had to inferior land, it is evident that, so far, the produce does not increase in the same proportion with the labour. The very meaning of inferior land, is land which with equal labour returns a smaller amount of produce. Land may be inferior either in fertility or in situation. The one requires a greater proportional amount of labour for grow- ing the produce, the other for carrying it to market. If the land A yields a thousand quarters of wheat, to a given outlay in wages, manure, &c., and in order to raise another thousand re- course must be had to the land B, which is either less fertile or more distant from the market, the two thousand quarters will cost more than twice as much labour as the original thousand, and the produce of agriculture will be increased in a less ratio than the labour employed in pro- curing it. Instead of cultivating the land B, it would be possible, by higher culti- vation, to make the land A produce more. It might be ploughed or har- rowed twice instead of once, or three times instead of twice ; it might be 110 BOOK I. CHAPTER XII. 2. dug instead of being ploughed ; after ploughing, it might be gone over with a Iioe instead of a harrow, and the soil more completely pulverized ; it might be oftener or more thoroughly weeded; the implements used might be of higher finish, or more elaborate con- struction ; a greater quantity or more expensive kinds of manure might be applied, or when applied, they might be more carefully mixed and incor- porated with the soil. These are some of the modes by which the same land nuiy be made to yield a greater pro- duce ; and when a greater produce must be had, some of these are among the means usually employed for obtain- ing it. But, that it is obtained at a more than proportional increase of expense, is evident from the fact that inferior lands are cultivated. Inferior lands, or lands at a greater distance from the market, of course yield ^ an inferior return, and an increasing demand cannot be supplied from them unless at an augmentation of cost, and therefore of price. If the additional demand could continue to be supplied from the superior lands, by applying, additional labour and capital, at no greater proportional cost than that at which they yield the quantity first demanded of them, the owners or farmers of those lands could undersell all others, and engross the whole market. Lands of a lower degree of fertility or in a more remote situation/ might indeed be cultivated by their proprietors, for the sake of subsistence or independence ; but it never could be the interest of any one to farm them for profit. That a profit can be made from them, sufficient to attract capital to such an investment, is a proof that cultivation on the more eligible lands has reached a point, beyond which any greater application of labour and capi- tal would yield, at the best, no greater return than can be obtained at the same expense from less fertile or less f'avi mrably situated lands. The careful cultivation of a well- farmed district of England or Scotland is a symptom and an effect of the more unfavourable terms which the land has begun to exact for any increase of its fruits. Such elaborate cultivation costa much more in proportion, and requires a higher price to render it profitable, than farming on a more superficial system; and would not be adopted if access could be had to land of equal fertility, previously unoccupied. Where there is the choice of raising the in- creasing supply which society requires, from fresh land of as good quality as that already cultivated, no attempt is made to extract from land anything approaching to what it will yield on what are esteemed the best European modes of cultivating. The land is tasked up to the point at which the greatest return is obtained in proportion to the labour employed, but no further : any additional labour is carried else- where. " It is long," says an intelligent traveller in the United States,* " before an English eye becomes reconciled to the lightness of the crops and the care- less farming (as we should call it) which is apparent. One forgets that where land is so plentiful and labour so dear as it is here, a totally different prin- ciple must be pursued to that which prevails in populous countries, and that the consequence will of course be a want of tidiness, as it were, and finish, about everything which requires la- bour." Of the two causes mentioned, the plentifulness of land seems to me the true explanation, rather than the dearness of labour ; for, however dear labour may be, when food is wanted, labour will always be applied to pro- ducing it in preference to anything else. But this labour is more effective for its end by being applied to fresh soil, than if it were employed in bring- ing the soil already occupied into higher cultivation. Only when no soils remain to be broken up but such as either from distance or inferior quality require a considerable rise of price to render their cultivation profitable, can it become advantageous to apply the high farming of Europe to any American lands ; except, perhaps, in the imme- diate vicinity of towns, where saving in cost of carnage may compensate for * Leiters from America, by John Robert Godley, vol. i. p. 42. See also LyeWt Travel* in America, vo). ii. p. 83. LAW OF INCEEASE OF PRODUCTION FEOM LAND. Ill great inferiority in the return from the soil itself. As American farming is to English, so is the ordinary English to that of Flanders, Tuscany, or the Terra di Lavoro ; where by the application of a far greater quantity of labour there is obtained a considerably larger gross produce, but on such terms as would never be advantageous to a mere spe- culator for profit, unless made so by much higher prices of agricultural produce. 4 The principle which has now been stated must be received, no doubt, with certain explanations and limitations. Even after the land is so highly culti- vated that the mere application of ad- ditional labour, or of an additional amount of ordinary dressing, would yield no return proportioned to the ex- pense, it may still happen that the application of a much greater additional labour and capital to improving the soil itself, by draining or permanent manures, would be as liberally remu- nerated by the produce, as any portion of the labour and capital already em- ployed. It would sometimes be much more amply remunerated. This could not be, if capital always sought and found the most advantageous employ- ment; but if the most advantageous employment has to wait longest for its remuneration, it is only in a rather ad- vanced stage of industrial development that the preference will be given to it ; and even in that advanced stage, the laws or usages connected with property in land and the tenure of farms, are often such as to prevent the disposable capital of the country from flowing freely into the channel of agricultural improvement : and hence the increased supply, required by increasing popula- tion, is sometimes raised at an aug- menting cost by higher cultivation, when the means of producing \t without increase of cost are known and acces- sible. . There can be no doubt, that if capital were forthcoming to execute, within the next year, all known and recognised improvements in the land of the United Kingdom which would pay at the existing prices, that is, which would increase the produce in as great or a greater ratio than the expense ; the result would be such (especially if we include Ireland in the supposition) that inferior land would not for a long time require to be brought under tillage : probably a considerable part of the less productive lands now cultivated, which are not particularly favoured by situation, would go out of culture ; or (as the improvements in question are not so much applicable to good land, but operate rather by con- verting bad land into good) the con- traction of cultivation might principally take place by a less high dressing and less elaborate tilling of land generally ; a falling back to something nearer the character of American farming; such only of the poor lands being altogether abandoned as were not found suscep- tible of improvement. And thus the aggregate produce of the whole culti- vated land would bear a larger propor- tion than before to the labour expended on it ;' and the general law of diminish- ing return from land would have un- dergone, to that extent, a temporary supersession. No one, however, can suppose that even in these circum- stances, the whole produce required for the country could be raised exclusively from the best lands, together with those possessing advantages of situation to place them on a par with the best. Much would undoubtedly continue to be produced under less advantageous conditions, and with a smaller propor- tional return, than that obtained from the best soils and situations. And in proportion as the further increase of population required a still greater ad- dition to the supply, the general law would resume its course, and the further augmentation would be obtained at a more than proportionate expense of labour and capital. 3. That the produce of land in- creases, cceteris paribus, in a diminish- ing ratio to the increase in the labour employed, is a truth more often ignored or disregarded than actually denied. It has, however, met with a direct im- pugner in the well-known American political economist, Mr. H. C. Carey, who maintains, that the real law of agricultural industry is the very reverse 5 112 BOOK. I. CHAPTER XII. 3. luce increasing in a greater ratio tlum the labour, or in other words, affording to labour a perpetually in- creasing return. To substantiate this assertion, he argues, that cultivation does not begin with the better soils, and extend from them, as the demand increases, to the poorer, but begins with the poorer, and does not, till long after, extend itself to the more fertile. Settlers in a new country invariably commence on the high and thin lands ; the rich but swampy soils of the river bottoms cannot at tirst be brought into cultivation, by reason of their un- healtbiness, and of the great and pro- longed labour required for clearing and draining them. As population and wealth increase, cultivation travels down the hill sides, clearing _ them as it goes, and the most fertile soils, those of the low grounds, are generally (he even says universally) the latest culti- vated. These propositions, with the inferences which Air. Carey draws from them, are set forth at. much length in his latest and most elaborate treatise, "Principles of Social Science ;" and he considers them as subverting the very foundation of what he dalls the English political economy, with all its practical consequences, especially the doctrine of free trade. As far as words go, Mr. Carey has a good case against several of the highest authorities in political economy, who certainly did enunciate in too universal a manner the law which they laid down, not remarking that it is not true of the first cultivation in a newly- settled country. Where population is thin and capital scanty, land which requires a large outlay to render it fit for tillage must remain untilled; though such lands, when their time has come, often yield a greater pro- duce than those earlier cultivated, not only absolutely, but proportionally to the labour employed, even if we include that which had been expended in originally fitting them for culture. But it is not pretended that the law of diminishing return was opera- tive from the very beginning of society ; and though some political economists may have believed it to come into operation earlier than it does, it beo^ns quite early enough to support the conclusions they founded on it. Mr. Carey will hardly assert that in any old country in England and France, for example the lands left waste are, or have for centuries been, more naturally fertile than those under tillage. Judging even by his own im- perfect test, that of local situation ho\v imperfect, I need not stop to point out is it true that in England or France at the present day, the uncul- tivated part of the soil consists of the plains and valleys, and the cultivated of the hills ? Every one knows, on the contrary, that it is the high lands anu thin soils which are left to nature ; anii when the progress of population de- mands an increase of cultivation, the extension is from the plains to the hills. Once in a century, perhaps, a Bedford Level may be drained, or a Lake of Harlem pumped out ; but these are slight and transient exceptions to the normal progress of things ; and in old countries which are at all advanced in civilization, little of this sort remains to be done.* Mr. Carey himself unconsciously bears the strongest testimony to the reality of the law he contends against ; for one of the propositions most strenu- ously maintained by him is, that the raw products of the soil, in an advanc- ing community, steadily tend to rise in price. Now, the most elementary truths of political economy show that this could not happen, unless the cost of production, measured in labour, of those products, tended to rise. If the appli- cation of additional labour to the land was, as a general rule, attended with an increase in the proportional return, the price of produce, instea 1 of rising, must necessarily fall as society advances, unless the cost of production of gold * Ireland may be alleged as an exception ; a large fraction of the entire soil of that country being still incapable of cultivation for want of drainage. But, though Ireland is an old country, unfortunate social and political circumstances have kept it a poor and backward one. Neither is it at all cer- tain that the bogs of Ireland, if drained and brought under tillage, would take their place along with Mr. Carey's fertile river bottoms, or among any but the poorer soils. LAW OF INCBEASE OF PEODUCTION FROM LAND. 113 and silver fell still more : a case so rare, that there are only two periods in all history when it is known to have taken place : the one, that which fol- lowed the opening of the Mexican and Peruvian mines ; the other, that in which we now live. At all known pei-iods except these two, the cost of production of the precious metals has been either stationary or rising. If, therefore, it be true that the tendency of agricultural produce is to rise in money price as wealth and population increase, there needs no other evidence that the labour required for raising it from the soil tends to augment when a greater quantity is demanded. f I do not go so far as Mr. Carey : I do not assert that the cost of production and consequently the price, of agricul- tural produce, always and necessarily rises as population increases. It tends to do so, but the tendency may be, and sometimes is, even during long periods, held in check. The effect does not depend on a single principle, but on two antagonizing principles. There is another agency, in habitual antagonism to the law of diminishing return from land ; and to the considera- tion of this we shall now proceed. It is no other than the progress of civili- zation. I use this general and some- what vague expression, because the things to be included are so various, that hardly any term of a more re- stricted signification would comprehend them all. Of these, the most obvious is the progress of agricultural knowledge, skill, and invention. Improved pro- cesses of agriculture are of two kinds : some enable the land to yield a greater absolute produce, without an equivalent increase of labour ; others have not the power of increasing the produce, but have that of diminishing the labour and expense by which it is obtained. Among the first are to be reckoned the disuse of fallows, by means of the rota- tion of crops ; and the introduction of new articles of cultivation capable of entering advantageously into the rota- tion. The change made in British agriculture towards the close of the last century, by the introduction of P. E. turnip husbandry, is spoken of as amounting to a revolution. These im- provements operate not only by enabling the land to produce a crop every year, instead of remaining idle one year in every two or three to renovate its powers, but also by direct increase of its productiveness ; since the great ad- dition made to the number of cattle by the increase of their food, affords more abundant manure to fertilize the corn lands. Next in order comes introduction of new articles of food containing a greater amount of sus- tenance, like the potato, or more pro- ductive species or varieties of the same plant, such as the Swedish turnip. In the same class of improvements must be placed a better knowledge of the properties of manures, and of the most effectual modes of applying them ; the introduction of new and more powerful fertilizing agents, such as guano, and the conversion to the same purpose, of substances previously wasted; inven- tions like subsoil-ploughing or tile- draining ; improvements in the breed or feeding of labouring cattle ; aug- mented stock of the animals which con- sume and convert into human food what would otherwise be wasted ; and the like. The other sort of improve- ments, those which diminish labour, but without increasing the capacity oi the land to produce, are such as the improved construction of tools ; the in- troduction of new instruments which spare manual labour, as the winnow- ing and threshing machines ; a more kilful and economical application of muscular exertion, such as the intro- duction, so slowly accomplished in England, of Scotch ploughing, with two horses abreast and one man, in- stead of three or four horses in a team and two men, &c. These improve- ments do not add to the productiveness of the land, but they are equally calcu- lated with the former to counteract the tendency in the cost of production of agricultural produce, to rise with the progress of population and demand. Analogous in effect to this second class of agricultural improvements, are improved means of communication. Good roads are equivalent to good tools. 114 BOOK I. CHAPTER XH. 3. It is of 110 consequence whether the economy of labour takes place in ex- tracting the produce from the soil, or in conveying it to the place where it is co be consumed. Not to say in addi- tion, that the labour of cultivation itself is diminished by whatever lessens the cost of bringing manure from a distance, or facilitates the many opera- tions of transport from place to place which occur within the bounds of the farm. .Railways and canals are virtu- ally a diminution of the cost of produc- tion of all things sent to market by them ; and literally so of all those, the appliances and aids for producing which, they serve to transmit. By their means land can be cultivated, which would not otherwise have re- munerated the cultivators without a rise of price. Improvements in naviga- tion have, with respect to food or materials brought from beyond sea, a corresponding effect. From similar considerations, it ap- pears that many purely mechanical improvements, which have, apparently at least, no peculiar connexion with agriculture, nevertheless enable a given amount of food to be obtained with a smaller expenditure of labour. A great improvement in the process of melting iron, would tend to cheapen agricultural implements, diminish the cost of rail- roads, of waggons and carts, ships, and perhaps buildings, and many other things to which iron is not at present applied, because it is too costly ; and would thence diminish the cost of pro- duction of food. The same effect would follow from an improvement in those processes of what may be termed manufacture, to which the material of food is subjected after it is separated from the ground. The first applica- tion of wind or water power to grind corn, tended to cheapen bread as much as a very important discovery in agri- culture would have done ; and any great improvement in the construction of corn-mills, would have, in proportion, a similar influence. The effects of cheapening locomotion have been al- ready considered. There are also engineering inventions which facilitate all great operations on the earth's surface. An improvement in the art of taking levels is of importance to draining, not to mention canal and railway making. The fens of Holland, and of some parts of England, are drained by pumps worked by the wind or by steam. Where canals of irriga- tion, or where tanks or embankments are necessary, mechanical skill is a great resource for cheapening pro- duction. Those manufacturing improvements which cannot be made instrumental to facilitate, in any of its stages, the actual production of food, and there- fore do not help to counteract or retard the diminution of the proportional re- turn to labour from the soil, have, however, another effect, which is practi- cally equivalent. What they do not prevent, they yet, in some degree, compensate for. The materials of manufactures being all drawn from the land, and many of them from agriculture, which supplies in particular the entire material of clothing ; the general law of produc- tion from the land, the law of diminish- ing return, must in the last resort be applicable to manufacturing a ; to agricultural industry. As population increases, and the power of the land to yield increased produce is strained harder and harder, any additional supply of material, as well as of food, must be obtained by a more than pro- portionally increasing expenditure of labour. But the cost of the material forming generally a very small portion of the entire cost of the manufacture, the agricultural labour concerned in the production of manufactured goods is but a small fraction of the whole labour worked up in the commodity. All the rest of the labour tends con- stantly and strongly towards diminu- tion, as the amount of production in- creases. ^Manufactures are vastly more susceptible than agriculture, of me- chanical improvements, and contri- vances for saving labour ; and it has already been seen how greatly the division of labour, and its skilful and economical distribution, depend on the extent of the market, and on the possi- bility of production in large masses LAW OF INCKEASE OF PRODUCTION FROM LAND. 115 In manufactures, accordingly, the causes tending to increase the product- iveness of industry, preponderate greatly over the one cause which tends to diminish it: and the increase of production, called forth by the progress of society, takes place, not at an in- creasing, but at a continually diminish- ing proportional cost. This fact has manifested itself in the progressive fall of the prices and values of almost every kind of manufactured goods during two centuries past ; a fall accelerated by the mechanical inventions of the last seventy or eighty years, and susceptible of being prolonged and extended beyond any limit which it would be safe to specify. _ Now it is quite conceivable that the efficiency of agricultural labour might be undergoing, with the increase of produce, a gradual diminution ; that the price of food, in consequence, might "be progressively rising, and an ever growing proportion of the population might be needed to raise food for the whole ; while yet the productive power of labour in all other branches of in- dustry might be so rapidly augmented, that the required amount of labour could be spared from manufactures, and nevertheless a greater produce be ob- tained, and the aggregate wants of the community be on the whole better supplied, than before. The benefit might even extend to the poorest class. The increased cheapness of clothing and lodging might make up to them for the augmented cost of their food. There is, thus, no possible improve- ment in the arts of production which does not in one or another mode exer- cise an antagonist influence to the law of diminishing return to agricultu- ral labour. Nor is it only industrial improvements which have this effect. Improvements in government, and al- most every kind of moral and social advancement, operate in the same manner. Suppose a country in the condition of France before the Revolu- tion : taxation imposed almost exclu- sively on the industrious classes, and on such a principle as to be an actual penalty on production ; and no redress obtainable for any injury to property or person, when inflicted by people of rank or court influence. Was not the hurricane which swept away this system of things, even if we look no further than to its effect in augment- ing the productiveness of labour, equiva- lent to many industrial inventions ? The removal of a fiscal burthen on agricul- ture, such as tithe, has the same effect as if the labour necessary for obtaining the existing produce were suddenly reduced one-tenth. The abolition of corn laws, or of any other restrictions which prevent commodities from being produced where the cost of their pro- duction is lowest, amounts to a vast improvement in production. When fertile land, previously reserved as hunting ground, or for any other pur- pose of amusement, is set free for cul- ture, the aggregate productiveness of agricultural industry is increased. It is well known what has been the effect in England of badly administered poor laws, and the still worse effect in Ireland of a bad system of tenancy, in rendering agricultural labour slack and ineffective. No improvements operate more directly upon the productiveness of labour than those in the tenure of farms, and in the laws relating to landed property. The breaking up of entails, the cheapening of the transfer of property, and whatever else pro- motes the natural tendency of land in a system of freedom, to pass out of hands which can make little -of it into those which can make more ; the sub- stitution of long leases for tenancy at will, and of any tolerable system of tenancy whatever for the wretched cottier system ; above all, the acqui- sition of a permanent interest in the soil by the cultivators of it ; all these things are as real, and some of them as great, improvements in production, as the invention of the spinning jenny or the steam engine. We may say the same of improve- ment in education. The intelligence of the workman is a most important element in the productiveness of labour. So low, in some of the most civilized countries, is the present standard of in- telligence, that there is hardly any source from which a more indefinite I 2 116 BOOK I. CHAPTER XII. 3. amount of improvement may be looked for in productive power, than by en- dowing with brains those who now have only hands. The carefulness, economy, and general trustworthiness of labourers are as important as their intelligence. Friendly relations, and a community of interest and feeling between labourers and employers, are eminently so: I should rather say, would be ; for I know not where any such sentiment of friendly alliance now exists. Nor is it only in 'the labouring class that improvement of mind and character operates with beneficial effect even on industry. In the rich and idle classes, increased mental energy, more solid instruction, and stronger feelings of conscience, public spirit, or philanthropy, would qualify them to originate and promote the most valuable improvements, both in the economical resources of their coun- try, and in its institutions and customs. To look no further than the most ob- vious phenomena ; the backwardness of French agriculture in the precise points in which benefit might be ex- pected from the influence of an edu- cated class, is partly accounted for by the exclusive devotion of the richer landed proprietors to town interests and town pleasures. There is scarcely any possible amelioration of human affairs which would not, among its other benefits, have a favourable operation, direct or indirect, upon the productiveness of industry. The in- tensity of devotion to industrial occu- pations would indeed in many cases be moderated by a more liberal and genial mental culture, but the labour actually bestowed on those occupations would almost always be rendered more effec- tive. Before pointing out the principal inferences to be drawn from the nature of the two antagonist forces by which the productiveness of agricultural in- du>try is determined, we must observe that what we have said of agriculture is true, with little variation, of the other occupations which it represents ; of all the arts which extract materials from the globe. Mining industry, for example, usually yields an increase of produce at a more than proportional increase of expense. It does worse, for even its customary annual produce requires to be extracted by a greater and greater expenditure of labour and capital. As a mine does not repro- duce the coal or ore taken from it, not only are all mines at last exhausted, but even when they as yet show no signs of exhaustion, they must be worked at a continually increasing cost; shafts must be sunk deeper, galleries driven farther, greater power applied to keep them clear of water ; the produce must be lifted from a greater depth, or conveyed a greater distance. The law of diminishing return applies therefore to mining, in a still more unqualified sense than to agriculture : bat the antagonizing agency, that of improvements in pro- duction, also applies in a still greater degree. Mining operations are more susceptible of mechanical improve- ments than agricultural: the first great application of the steam engine was to mining ; and there are un- limited possibilities of improvement in the chemical processes by which the metals are extracted. There is an- other contingency, of no unfrequent oc- currence, which avails to counterba- lance the progress of all existing mines towards exhaustion: this is, the dis- covery of new ones, equal or superior in richness. To resume ; all natural agents v which are limited in quantity, are not only limited in their ultimate produc- tive power, but, long before that power is stretched to the utmost, they yield to any additional demands on pro- gressively harder terms. This law may however be suspended, or tempo- rarily controlled, by whatever adds to tbe general power of mankind over na- ture ; and especially by any extension of their knowledge, and their conse- quent command, of the properties and powers of natural agents. CONSEQUENCES OF THE FOREGOING LAWS. 117 CHAPTER XIII. CONSEQUENCES OF THE FOREGOING LAWS. 1. FROM the preceding exposition it appears that the limit to the increase of production is twofold; from defi- ciency of capital, or of land. Production comes to a pause, either because the effective desire of accumulation is not sufficient to give rise to any further in- crease of capital, or because, however disposed the possessors of surplus in- come may be to save a portion of it, the limited land at the disposal of the community does not permit additional capital to be employed with such a re- turn, as would be an equivalent to them for their abstinence. In countries where the principle of accumulation is as weak as it is in the various nations of Asia ; where people will neither save, nor work to obtain the means of saving, unless under the inducement of enormously high profits, nor even then if it is necessary to wait a considerable time for them ; where either productions remain scanty, or drudgery great, because there is neither capital forthcoming nor forethought sufficient for the adoption of the con- trivances by which natural agents are made to do the work of human labour ; the desideratum for such a country, economically considered, is an increase of industry, and of the effective desire of accumulation. The means are, first, a better government; more complete security of property ; moderate taxes, and freedom from arbitrary exaction under the name of taxes ; a more per- manent and more advantageous tenure of land, securing to the cultivator as far as possible the undivided benefits of the industry, skill, and economy he may exert. Secondly, improvement of the public intelligence ; the decay of usages or superstitions which interfere with the effective employment of in- dustry ; and the growth of mental ac- tivity, making the people alive to new objects of desire. Thirdly, the intro- duction of foreign arts, which raise the returns derivable from additional capi- tal, to a rate corresponding to the low strength of the desire of accumulation ; and the importation of foreign capital, which renders the increase of produc- tion no longer exclusively dependent on the thrift or providence of the in- habitants themselves, while it places before them a stimulating example, and by instilling new ideas and break- ing the chains of habit, if not by im- proving the actual condition of the population, tends to create in them new wants, increased ambition, and greater thought for the future. These considerations apply more or less to all the Asiatic populations, and to the less civilized and industrious part of Europe, as Russia, Turkey, Spain, and Ireland. 2. But there are other countries, and England is at the head of them, in which neither the spirit of industry nor the effective desire of accumulation need any encouragement ; where the people will toil hard for a small remu- neration, and save much for a small profit ; where, though the general thriftiness of the labouring class is much below what is desirable, the spirit of accumulation in the more prosperous part of the community re- quires abatement rather than increase. In these countries there would never be any deficiency of capital, if its in- crease were never checked or brought to a stand by too great a diminution of its returns. It is the tendency of the returns to a progressive diminution, which causes the increase of produc- tion to be often attended with a dete- rioration in the condition of the producers ; and this tendency, which would in time put an end to increase of production altogether, is a result of the necessary and inherent conditions of production from the Lind. In all countries which have passed beyond a rather early stage in the pro- gress of agriculture, every increase in 118 BOOK T. CHAPTER XIII. 2. the demand for food, occasioned by increased population, will always, un- less there is a simultaneous improve- ment in production, diminish the share which on a fair division would fall to each individual. An increased pro- duction, in default of unoccupied tracts of fertile land, or of fresh improve- ments tending to cheapen commo- dities, can never be obtained but by increasing the labour in more than the same proportion. The population must either work harder, or eat less, or ob- tain their usual food by sacrificing a part of their other customary comforts. Whenever this necessity is postponed, notwithstanding an increase of popula- tion, it is because the improvements which facilitate production continue progressive; because the contrivances of mankind for making their labour more effective, keep up an equal struggle with nature, and extort fresh resources from her reluctant powers as fast as human necessities occupy and engross the old. From this, results the important / corollary, that the necessity of restrain- ing population is not, as many persons believe, peculiar to a condition of great inequality of property. A greater num- be*r of people cannot, in any given state of civilization, be collectively so well provided for as a smaller The niggardliness of nature, not tfce injus- tice of society, is the cause of the penalty attached to over-population. An unjust distribution of wealth does not even aggravate the evil, but, at most, causes it to be somewhat earlier felt. It is in vain to say, that all mouths which the increase of mankind calls into existence, bring with them hands. The new mouths require as much food as the old ores, and the hands do not produce as much. If all instruments of production were held in joint property by the whole people, and the produce divided with perfect equality among them, and if in a society thus constituted, industry were as energetic and the produce as ample as at present, there would be enough to make all the existing population ex- tremely comfortable ; but when that population had doubled itself, as, with the existing habits of the people, nndev such an encouragement, it undoubtedly would in little more than twenty years, what would then be their condition ? Unless the arts of production were in the same time improved in an almost unexampled degree, the inferior soils which must be resorted to, and the more laborious and scantily remunera- tive cultivation which must be em- ployed on the superior soils, to procure food for so much larger a population, would, by an insuperable necessity, render erery individual in the com- munity poorer than before. If the population continued to increase at the same rate, a time would soon arrive when no one would have more than mere necessaries, and, soon after, a time when no one would have a suffi- ciency of those, and the further in- crease of population would be arrested by death.^ Whether, at the present or any other time, the produce of industry, proportionally to the labour employed, is increasing or diminishing, and the average condition of the people im- proving or deteriorating, depends upon whether population is advancing faster than improvement, or improvement than population. After a degree of density has been attained, sufficient to allow the principal benefits of combination of labour, all further increase tends in itself to mischief, so far as regards the average con- dition of the people ; but the progress of improvement has a counteracting operation, and allows of increased numbers without any deterioration, and even consistently with a higher average of comfort. Improvement must here be understood in a wide sense, including not only new in- dustrial inventions, or an extended use of those already known, but im- provements in institutions, education, opinions, and human affairs generally, provided they tend, as almost all im- provements do, to give new motives or new facilities to production. If the productive powers of the country in- crease as rapidly as advancing num- bers call for an augmentation of pro- duce, it is not necessary to obtain that CONSEQUENCES OF THE FOREGOING LAWS. 119 augmentation by the cultivation of Boils more sterile than the worst already under culture, or by applying additional labour to the old soils at a diminished advantage ; or at all events this loss of power is compensated by the increased efficiency with which, in the progress of improvement, labour is employed in manufactures. In one way or the other, the increased popula- tion is provided for, and all are as well off as before. But if the growth of human power over nature is suspended or slackened, and population does not slacken its increase ; if, with only the existing command over natural agencies, those agencies are called upon for an increased produce ; this greater produce will not be afforded to the increased population, without either demanding on the average a greater effort from each, or on the average reducing each to a smaller ration out of the aggregate produce. As a matter of fact, at some periods the progress of population has been the more rapid of the two, at others that of improvement. In England during a long interval preceding the French Revolution, population increased slowly; but the progress of improvement, at least in agriculture, would seem to have been still slower, since though nothing occurred to lower the value of the precious metals, the price of corn rose considerably, and England, from an exporting, became an importing coun- try. This evidence, however, is short of conclusive, inasmuch as the extra- ordinaiy number of abundant seasons during the first half of the century, not continuing during the last, was a cause of increased price in the later period, extrinsic to the ordinary pro- gress of society. Whether during the same period improvements in manufac- tures, or diminished cost of imported commodities, made amends for the diminished productiveness of labour on the land, is uncertain. But ever since the great mechanical inventions of Watt, Arkwright, and their cotempo- raries, the return to labour has pro- bably increased as fast as the popula- tion ; and would have outstripped it, if that very augmentation of return had not called forth an additional por- tion of the inherent power of multipli- cation in the human species. During the twenty or thirty years last elapsed, so rapid has been the extension of improved processes of agriculture, that even the land yields a greater produce in proportion to the labour employed ; the average price of corn had become decidedly lower, even before the repeal of the corn laws had so materially lightened, for the time being, the pres- sure of population upon production. But though improvement may during a certain space of time keep up with, or even surpass, the actual increase of population, it assuredly never comes up to the rate of increase of which population is capable : and nothing could have prevented a general dete- rioration in the condition of the human race, were it not that population has in fact been restrained. Had it been restrained still more, and the same im- provements taken place, there would have been a larger dividend than there now is, for the nation or the species at large. The new ground wrung from nature by the improvements would not have been all used up in the support of mere numbers. Though the gross produce would not have been so great, there would have been a greater pro- duce per head of the population. 3. When the growth of numbers outstrips the progress of improvement, and a country is driven to obtain the means of subsistence on terms more and more unfavourable, by the inability of its land to meet additional demands except on more onerous conditions ; there are two expedients by which it may hope to mitigate that disagreeable necessity, even though no change should take place in the habits of the people with respect to their rate of in- crease. One of these expedients is the importation of food from abroad. The other is emigration. The admission of cheaper food from a foreign country, is equivalent to an agricultural invention by which food could be raised at a similarly dimi- nished cost at home. It equally in- creases the productive power of labour. 120 BOOK I. CHAPTER XIH. 3. The return was, before, so much food for so much labour employed in the gro\rth of food : the return is now, a greater quantity of food, for the same labour employed in producing cottons or hardware, or some other commodity to be given in exchange for food. The one improvement, like the other, throws back the decline of the productive power of labour by a certain distance : but in the one case as in the other, it immediately resumes its course ; the tide which has receded, instantly be- gins to re-advance. It might seem, indeed, that when a country draws its supply of food from so wide a surface as the whole habitable globe, so little impression can be produced on that great expanse by any increase of mouths in one small corner of it, that the in- habitants of the country may double and treble their numbers* without feel- ing the effect in any increased tension of the springs of production, or any en- hancement of the price of food through- out the world. But in this calculation several things are overlooked. In the first place, the foreign regions from which corn can be imported do not comprise the whole globe, but those parts of it almost alone, which are in the immediate neighbourhood of coasts or navigable rivers. The coast is the part of most countries which is earliest and most thickly peopled, and has sel- dom any food to spare. The chief source of supply, therefore, is the strip of country along the banks of some navigable river, as the Nile, the Vis- tula, or the Mississippi ; and of such there is not, in the productive regions of the earth, so great a multitude, as to suffice during an indefinite time for a rapidly growing demand, without an increasing strain on the productive powers of the soil. To obtain auxiliary supplies of corn from the interior in any abundance, would, in the existing state of the communications, be hope- . 'V improved roads, and eventu- ally by canals and railways, the obstacle will be so reduced as not to be insuper- able : but this is a slow progress ; in all the food-exporting countries except America, a very slow progress ; and one which cannot keep peace with popu- lation, unless llie increase of the last is very effectually restrained. In the next place, even if the supply were drawn from the whole instead of a small part of the surface of the ex- porting countries, the quantity of food would still be limited, which could be obtained from them without an increase of the proportional cost. The countries which export food may be divided into two classes ; those in which the effec- tive desire of accumulation is strong, and those in which it is weak. In Australia and the United States of America, the effective desire of accu- mulation is strong; capital increases fast, and the production of food might be very rapidly extended. But in such countries population also increases with extraordinary rapidity. Their agricul- ture has to provide for their own ex- panding numbers, as well as for those of the importing countries. They must, therefore, from the nature of the case, be rapidly driven, if not to less fertile, at least what is equivalent, to remoter and less accessible lands, and to modes of cultivation like those of old countries, less productive in proportion to the labour and expense. But the countries which have at the same time cheap food and great indus- trial prosperity are few, being only those in which the arts of civilized life have been transferred full grown to a rich and uncultivated soil. Among old countries, those which are able to ex- port food, are able only because their industry is in a very backward state ; because capital, and hence population, have never increased sufficiently to make food rise to a higher price. Such countries are Kussia, Poland, and the plains of the Danube. In those regions the effective desire of accumulation is weak, the arts of production most im- perfect, capital scanty, and its increase, especially from domestic sources, slow. When an increased demand arose for food to be exported to other countries, it would only be very gradually that food could be produced to meet it. The capital needed could not be obtained by transfer from other employments, for such do not exist. The cottons or hardware which would be received from CONSEQUENCES OF THE FOKEGOING LAWS. England in exchange for corn, the Kussians and Poles do not now produce in the country : they go without them. Something might in time he expected from the increased exertions to which producers would he stimulated hy the market opened for their produce ; but to such increase of exertion, the habits of countries whose agricultural popula- tion consists of serfs, or of peasants who have but just emerged from a ser- vile condition, are the reverse of favour- able, and even in this age of movement these habits do not rapidly change. If a greater outlay of capital is relied on as the source from which the produce is to be increased, the means must either be obtained by the slow process of saving, under the impulse given by new commodities and more extended intercourse (and in that case the popu- lation would most likely increase as fast), or must be brought in from foreign countries. If England is to obtain a rapidly increasing supply of corn from Russia or Poland, English capital must go there to produce it. This, how- ever, is attended with so many dif- ficulties, as are equivalent to great positive disadvantages. It is opposed by differences of language, differences of manners, and a thousand obstacles arising from the institutions and social relations of the country : and after all it would inevitably so stimulate popu- lation on the spot, that nearly all the increase of food produced by its means, would probably be consumed without leaving the country : so that if it were not the almost only mode of introducing foreign arts and ideas, and giving an effectual spur to the backward civiliza- tion of those countries, little reliance could be placed on it for increasing the exports, and supplying other countries with a progressive and indefinite in- crease of food. But to improve the civilization of a country is a slow pro- cess, and gives time for so great an in- crease of population both in the country itself, and in those supplied from it, that its effect in keeping down the price of food against the increase of demand, is not likely to be more de- cisive on the scale of all Europe, than on the smaller one of a particular nation. The law, therefore, of diminishing return to industry, whenever population makes a more rapid progress than im- provement, is not solely applicable to countries which are fed from their own soil, but in substance applies quite as much to those which are willing to draw their food from any accessible quarter that can afford it cheapest. A sudden and great cheapening of food, indeed, in whatever manner produced, would, like any other sudden improve- ment in the arts of life, throw the na- tural tendency of affairs a stage or two further back, though without" altering its course. There is one contingency connected with freedom of importation, which may yet produce temporary ef- fects greater than were ever contem- plated either by the bitterest enemies or the most ardent adherents of free- trade in food. Maize, or Indian corn, is a product capable of being supplied in quantity sufficient to feed the whole country, at a cost, allowing for differ- ence of nutritive quality, cheaper even than the potato. If maize should ever substitute itself for wheat as the staple food of the poor, the productive power of labour in obtaining food would be so enormously increased, and the expense of maintaining a family so diminished, that it would requiro perhaps some generations for population, even if it started forward at an A.merican pace, to overtake this great accession to the facilities of its support. 4. Besides the importation of corn, there is another resource which can be invoked by a nation 'whose increasing numbers press hard, not against their capital, but against the productive capacity of their land : I mean Emigra- tion, especially in the form of Coloniza- tion. Of this remedy the efficacy as far as it goes is real, since it consists in seeking elsewhere those unoccupied tracts of fertile land, which if they ex- isted at home would enable the demand of an increasing population to be met without any falling off in the pro- ductiveness of labour. Accordingly, when the region to be colonized is near at hand, and the habits and tastes of the people sufficiently migratory, 122 BOOK I. CHAPTER XIII. 4. this remedy is completely effectual. The migration from the older parts of the American Confederation to the new territories, which is to all intents and purposes colonization, is what enables population to go on unchecked through- out the Union without having yet diminished the return to industry, or increased the difficulty of earning a nee. If Australia or the in- Oanada were as near to Great Britain as Wisconsin ar.d Iowa to New York ; if the superliuous people could remove to it without crossing the sea, and were of as adventurous and restless a character, and as little addicted to staying at home, as their kinsfolk of Xew England, those unpeopled conti- nents would render the same service to the United Kingdom which the old states of America derive from the new. But these things being as they are though a judiciously conducted emigra- tion is a most important resource for suddenly lightening the pressure of population by a single effort and though in such an extraordinary case as that of Ireland under the threefold 'peration of the potato failure, the poor lav.-. j ineral turning out of tenantry throughout the country, spontaneous emigration may at a par- ticular crisis remove greater multitudes than it was ever proposed to remove at once by any national scheme ; it still remains to be shown by experience whether a permanent stream of emigra- tion can be kept up, sufficient to Take off, as in America, all that portion of the annual increase (when proceeding at its greatest rapidity) which being in excess of the progress made during the same short period in the arts oi life, tends to render living more difficult for every averagely-situated individual in the community. And unless this can be done, emigration cannot, even in an economical point of view, dispense with the necessity of checks to popula- tion. Further than this we have not to speak of it in this place. The gene- ral subject of colonization as a practi- cal question, its importance to old countries, and the principles on which it should be conducted, will be dis- cussed at some length in a subsequent portion of this Treatise. BOOK IL DISTBIBUTION. CHAPTER L OP PROPERTY, 1. THE principles which have been set forth in the first part of this Treatise, are, in certain respects, strongly distinguished from those, on the consideration of which we are now about to enter. The laws and_.CQudi- tions of the productiorfof wealth, pur- take of the character of physical truths. There is nothing optional, or arbitrary in them. Whatever man- kind produce, must be produced in the modes, and under the conditions, im- posed by the constitution of external things, and by the inherent properties of their own bodily and mental struc- ture. Whether they like it or not, their productions will be limited by the amount of their previous accumulation, and, that being given, it will be pro- portional to their energy, their skill, the perfection of their machinery, and their judicious use of the advantages of combined labour. Whether they like it or not, a double quantity of labour will not raise, on the same land, a double quantity of food, unless.some im- provement takes place in the processes of cultivation. Whether they like it or not, the unproductive expenditure of individuals will pro tanto tend to im- poverish the community, and only their productive expenditure will enrich it. The opinions, or the wishes, which may exist on these different matters, do not control the things themselves. We cannot, indeed, foresee to what ex- tent the modes of production may be altered, or the productiveness of labour increased, by future extensions of our knowledge of the laws of nature, suggesting new processes of industry of which we have at present no con- ception. But howsoever we may suc- ceed in making for ourselves more space within the limits set by the constitution of things, we know that there must be limits. We cannot alter the ultimate properties either of matter or mind, but can only employ those properties more or less successfully, to bring about the events in which we are interested. It is not so with the Distribution of Wealth. That is^a-Jnoittor .of jnstitution solely/ The things once there, mankind^ individually or col- lectively, can do with them as they like. They can place them at the dis- posal of whomsoever they please, and on whatever terms. Further, in the social state, in every state except total solitude, any disposal whatever of them can only take place by the consent of society, or rather of those who dispose of its active force. Even what a person has produced by his individual toil, un- aided by any one, he cannot keeg, un- less by the permission of society. Not only can society take it from him, but individuals could and would take it from him, if society only remained passive ; if it did not either interfere en masse, or employ and pay people for the purpose of preventing him from being disturbed in the possession. The distribution of wealth, therefore, de- pends on the laws and customs of so- ciety. The rules by which it is de- termined, are what the opinions and feelings of the ruling portion of the 124 BOOK n. CHAPTER I. 2. community mate them, and are very ' show, that tribunals (which always pre- T/V .*-!* i - 1 - 1 _ _ \ 11 jl'l'l-T different in different ages and countries; and might be still more different, if mankind so chose. The opinions and feelings of man- kind, doubtless, are not a matter of chance. They are consequences of the fundamental laws of human nature, 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 of inquiry than political economy. \Ve have here to consider, not the causes, but the consequences of the rules ac- cording to which wealth may be dis- tributed. Those, at least, are as little arbitrary, and have as much the character of physical laws, as the laws of production. Human beings can control their own acts, but not the consequences of their acts either to themselves or to others. Societv can subject the distribution of wealth to whatever rules it thinks best ; but what practical results will flow from the opera- tion of those rules, must be discovered, like any other physical or mental truths, by observation and reasoning. We proceed, then, to the considera- tion of the different modes of distri- buting the produce of land and labour, which have been adopted in practice, or may be conceived in theory. Among these, our attention is first claimed by cede laws) were originally established, not to determine rights, but to repress violence and terminate quarrels. With this object chiefly in view, ttay_najjir- ally enough gave legal effect -to-first occupancy, by treating as the aggressor the person who first commenced vio- lence, by turning, or attempting to turn, another out of possession. The pre- servation of the peace, which was the original object of civil government, was thus attained ; while by confirming, to those who already possessed it, even what was not the fruit of personal ex- ertion, a guarantee was incidentally given to them and others that they would be protected in what was so. In considering the institution of pro- perty as a question in social philosophy, we must leave out of consideration its actual origin in any of the existing na- tions of Europe. We may suppose a community unhampered by any pre- vious possession ; a body of 'colonists, occupying for the first time an uninha- bited country ; bringing nothing with them but what belonged to them in common, and having a clear field for the adoption of the institutions and polity which they judged most expe- dient ; required, therefore, 'to choose whether they would conduct the work of production on the principle of indi- vidual property, or on some system of common ownership and collective agency. If private property were adopted, we ust presume that it must presume that it would be accom- panied by none of the initial inequa- that primary and fundamental institu- j lities and injustices which obstruct the tion, on which, unless in some excep- j beneficial operation of the principle in tional and very limited cases, the | old societies. Every full-grown man or economical arrangements of society j woman, we must suppose, would be have always rested, though in its se- j secured in the unfettered use and dis- posal of his or her bodily and mental i'aculties ; and the instruments of pro- duction, the land and tools, would be divided fairly among them, so that all condary features it has varied, and liable to vary. I mean, of course, the institution of individual property. 2. Private property, as an institu- tion, did not owe its origin to any of those considerations of utility, which plead for the maintenance of it when established. Enough is known of rude ages, both from history and from analo- gous states of society in our own time, to might start, in respect to outward ap- pliances, on equal terms. It is possible also to conceive that in this original apportionment, compensation might be made for the injuries of nature, and the balance redressed by assigning to the less robust members of the community PKOPEETY. advantages in the distribution, sufficient to put them on a par with the rest. But the division, once made, would not again be interfered with ; individuals would be left to their own exertions and to the ordinary chances, for making an ad- vantageous use of what was assigned to them. If individual property, on the contrary, were excluded, the plan which must be adopted would be to hold the land and all instruments of production as the joint property of the community, and to cany on the operations of in- dustry on the common account. The direction of the labour of the commu- nity would devolve upon a magistrate or magistrates, whom we may suppose elected by the suffrages of the commu- nity, and whom we must assume to be voluntarily obeyed by them. The di- vision of the produce would in like manner be a public act. The principle might either be that of complete equa- lity, or of apportionment to the neces- sities or deserts of individuals, in what- ever manner might be conformable to the ideas of justice or policy prevailing in the community. Examples of such associations, on a small scale, are the monastic orders, the Moravians, the followers of Eapp, and others : and from the hopes which they hold out of relief from the miseries and iniquities of a state of much in- equality of wealth, schemes for a larger application of the same idea have re- appeared and become popular at all periods of active speculation on the first principles of society. In an age like the present, when a general reconside- ration of all first principles is felt to be inevitable, and when more than at any former period of history the suffering portions of the community have a voice in the discussion, it was impossible but that ideas of this nature should spread far and wide. The late revolutions in Europe have thrown up a great amount of speculation of this character, and an unusual share of attention has conse- quently been drawn to the various forms which these ideas have assumed : nor is this attention likely to diminish, but on the contrary, to inci'ease more and more. The assailants of the principle of in- 125 dividual property may be divided into two classes : "those wjjoafLJ^beme iiu plies absolute "equality in the disTntm"^ tion^oi' the physical means oi Jifo anoT enjoyment, and those who admit in^ m;, 7 b ut grounded on some pnn- cipie, or supposed principle, of justice or general expediency, and not, like so many of the existing social inequalities, dependent on accident alone. At the head of the first class, as the earliest of those belonging to the present gene- ration, must be placed Mr. Owen and his followers. M. Louis Blanc and M. Cabet have more recently become con- spicuous as apostles of similar doctrines (though the former advocates equality of distribution only as a transition to a still higher standard of justice, that all should work according to their capa- city, and receive according to their wants). The characteristic name for this economical system isJCommunism, a word of continental origin/only oi late introduced into this country. The word Socialism, which originated among the English Communists, and was assumed by them as a name to designate their own doctrine, is now, on the Continent, employed in a larger sense ; not neces- sarily implying Communism, or the en- tire abolition of private property, but applied to any system which requires that the land and the instruments of production should be the property, not of individuals, but of communities or associations, or of the government. Among such systems, the two of highest ntual pretension are those which. intellectual pretension Mi ^ uuw ^ ,,^^, from the names of their real or reputed authors, have been called St. Simonism and Fourierism ; the former, defunct as a system, but which during the few years of its public promulgation, sowed the seeds of nearly all the Socialist tendencies which have since spread so widely in France : the second, still flourishing in the number, talent, and zeal of its adherents. 3. Whatever may be the merits or defects of these various schemes, they cannot be truly said to be impractica- ble. No reasonable person can doubt that a village community, composed of a few thousand inhabitants cultivating 126 BOOK H. CHAPTER I. 3. in joint Ownership the same extent o; ia:.'d which at present feeds that number of people, and producing by combined labour and the most improved processes the manuiactured articles which they required, could raise an amount of pro- ductions sufficient to maintain them in comfort ; and would find the means of obtaining, and if need be, exacting, the quantity of labour necessary for thi purpose, from every member of the association who was capable of work. The objection ordinarily made to a system of community of property and eqnal distribution of the produce, that each person would be incessantly occu- pied in evading his fair share of the work, points, undoubtedly, to a real difficulty. But those who urge this objection, forget to how great an extent the same difficulty exists under the system on which nine-tenths of the business of society is now conducted. The objection supposes, that honest and efficient labour is only to be had from those who are themselves individually to reap the benefit of their own exer- tions. But how small a part of all the labour performed in England, from the lowest paid to the highest, is done by persons working for their own benefit. From the Irish reaper or hodman to the chief justice or the minister of state, nearly all the work of society is remunerated by day wages or fixed salaries. A factory operative has less personal interest in his work than a member of a Communist association, since he is not, like him, working for a partnership of which he is himself a member. It will no doubt be said, that though the labourers themselves have not, in most cases, a personal in- terest in their work, they are watched and superintended, and their labour directed, and the mental part of the labour performed, by persons who have. Even this, however, is far from being universally the fact. In all public, and many of the largest and most successful private undertakings, not only the labours of detail, but the control and superintendence are en- trusted to salaried officers. And though the "master's eye," when^the master is vigilant and intelligent, is of proverbial value, it must be remem- bered that in a Socialist farm or manu- factory, each labourer would be under the eye not of one master, but of the whole community. In the extreme case of obstinate perseverance in not performing the due share of w;>rk, the community would have the same re- sources which society now has for com- pelling conformity to the necessary conditions of the association. Dis- missal, the only remedy at present, is no remedy when any other labourer who may be engaged does no better than his predecessor : the power of dismissal only enables an employer to obtain from his workmen the customary amount of labour, but that customary labour may be of any degree of ineffi- ciency. Even the labourer who loses his employment by idleness or negli- gence, has nothing worse to suffer, in the most unfavourable case, than the discipline of a workhouse, and if the desire to avoid this be a sufficient mo- tive in the 'one system, it would be sufficient in the other. I am not undervaluing the strength of the in- citement given to labour when the whole or a large share of the benefit of extra exertion belongs to the labourer. But under the present system of in- dustry this incitement, in the great majority of cases, does not exist. If Communistic labour might be less vigorous than that of a peasant pro- prietor, or a workman labouring on his own account, it would probably be more energetic than that of a labourer for hire, who has no personal interest in the matter at all. The neglect by the uneducated classes of labourers for hire, of the duties which they engage to perform, is in the present state of society most flagrant. Now it is an admitted condition of the Communist scheme that all shall be educated : and this being supposed, the duties of the members of the association would doubtless be as diligently performed as those of the generality of salaried offi- cers in the middle or higher classes ; who are not suppos-ed to be neces- sarily unfaithful to their trust, because o long as they are not dismissed, their jay is the same in however kx a COMMUNISM. 12? manner their duty is fulfilled. Un- doubtedly, as a general rule, remunera- tion by fixed salaries does not in any class of functionaries produce tlie maximum of zeal : and this is as much as ca?! be reasonably alleged against Communistic labour. That even this inferiority would necessarily exist, is by no means so certain as is assumed by those who are little used to carry their minds beyond the state of things with which they are familiar. Mankind are capable of a far greater amount of public spirit than the present age is accustomed to sup- pose possible. History bears witness Io the success with which large bodies of human beings may be trained to feel the public interest their own. And no soil could be more favourable to the growth of such a feeling, than a Com- munist association, since all the am- bition, and the bodily and mental activity, which are now exerted in the pursuit of separate and self-regarding interests, would require another sphere of employment, and would naturally find it in the pursuit of the general benefit of the community. The same cause, so often assigned in explanation of the devotion of the Catholic priest or monk to the interest of his order that he has no interest apart from it would, under Communism, attach the citizen to the community. And inde- pendently of the public motive, every member of the association would be amenable to the most universal, and one of the strongest of personal mo- tives, that of public opinion. The force of this motive in deterring from any act or omission positively reproved by the community, no one is likely to deny ; but the power also of emulation, in exciting to the most strenuous- exertions for the sake of the approba- tion and admiration of others, is borne witness to by experience in every situation in which human beings pub- licly compete with one another, even if it be in things frivolous, or from which the public derive no benefit. A contest, who can do most for the com- mon good, is not the kind of competi- tion which Socialists repudiate. To what extent, therefore, the energy of labour would be diminished by Com- munism, or whether in the long run it would be diminished at all, must IK- considered for the present an undecided question. Another of the objections to Com- munism is similar to that, so often urged against poor-laws : that ifjevery member of the community were as- sured of subsistence for himself . any number of children, on the sole condition of willingness to work, pru- dential restraint on the multiplication of mankind would be at an end, and population would start forward at a rate which would reduce the com- munity through successive stages of increasing discomfort to actual starva- tion. There would certainly be much ground for this apprehension if Com- munism provided no motives to re- straint, equivalent to those which it would take away. But Comnmnism is precisely the state of things in which opinion might be expected to declare itself with greatest intensity against this kind of selfish intemperance. Any augmentation of numbers which di- minished the comfort or increased the toil of the mass, would then cause (which now it does not) immediate and unmistakeable inconvenience to every individual in the association ; incon- venience which could not then be im- puted to the avarice of employers, or the unjust privileges of the rich. In such altered circumstances opinion could not fail to reprobate, and if repro- bation did not suffice, to repress by penalties of some description, this or any other culpable self-indulgence at the expense of the community. The Communistic scheme, instead of beipg peculiarly open to the objection drawn from danger of over-population, has the recommendation of tending in an especial degree to the prevention of that evil. A more real difficulty is that of fairly apportioning the labour of the commu- nity among its members. There arc many kinds of work, and by what standard are they to be measured one against another? Who- is to judge how much cotton spinning, or distributing goods from tho stores, or 128 BOOK H. CHAPTER J. 3. bricklaying, or chimney sweeping, is equivalent to so much ploughing? The difficulty of making the ^adjust- ment between different qualities of labour is so strongly felt by Com- munist writers, that they have usually thought it necessary to provide that all should work by turns at every de- scription of useful labour : an arrange- ment which by putting an end to the division of employments, would sacri- fice so much of the advantage of co- operative production as greatly to diminish the productiveness of labour. Besides, even in the same kind of work, nominal equality of labour would be BO great a real inequality, that the feeling of justice would revolt against its being enforced. Allpersons are not equally fit for all "labour ; and the same quantity of labour is an un- equal burthen on the weak and the strong, the hardy and the delicate, the quick and the slow, the dull and the intelligent. But these difficulties, though real, are not necessarily insuperable. The apportionment of work to the strength and capacities of individuals, the miti- gation of a general rule to provide for cases in which it would operate harshly, are not problems to which human in- telligence, guided by a sense of justice, would be inadequate. And the worst and most unjust arrangement which could be made of these points, under a system aiming at equality, would be so far short of the inequality and in- justice with which labour (not to speak of remuneration) is now ' apportioned, as to be scarcely worth counting in the comparison. "\Ve must remember too that Communism, as a system of society, exists only in idea ; that its difficulties, at present, are much better understood than its resources ; and that the intellect of mankind is only beginning to contrive the means of organizing it in detail, so as to over- come the one and derive the greatest advantage from the other. If, therefore, the choice were to be made between Communism with all its chances, - and the present state of society with all its sufferings and in- property necessarily carried with it as a consequence, that the produce of labour should be apportioned as we now see it, almost in an inverse ratio to the labour the largest portions to those who have never worked at all, the next i largest to those w T hose work is almost nominal, and so in a descending scale, the remuneration dwindling as the work grows harder and more disagree- able, until the most fatiguing and ex- hausting bodily labour cannot count with certainty on being able to earn even the necessaries of life ; if this, or Communism, were the alternative, all the difficulties, great or small, of Com- munism would be but as dust in the balance. But to make the comparison applicable, we must compare Com- 1 munism at its best, with the regime of individual property, not as it is, but as it might be made. The principle of private property has never yet had a fair trial in any country ; and less so, perhaps, in this country than in some others. The social arrangements of modern Europe commenced from a distribution of property which was the result, not of just partition, or acqui- sition by industry, but of conquest and violence : and notwithstanding what industry has been doing for many centuries to modify the work of force, the system still retains many and large traces of its origin. The laws of pro- perty have never yet conformed to the principles on which the justification of private property rests. They have made property of things which never ought to be property, and absolute property where only a qualified pro- perty ought to exist. They have not held the balance fairly between human beings, but have heaped impediments upon some, to give advantage to others; they have purposely fostered inequalities, and prevented all from starting fair in the race. That all should indeed start on perfectly equal terms, is inconsistent with any law of private property : but if as much pains as has been taken to aggravate the inequality of chances arising from the natural working of the principle, had been taken to temper that inequality justices; if the institution of private , by every means not subversive of the COMMUNISM. 129 itself; if the tendency of egislation had been to favour the dif- fusion, instead of the concentration of wealth to encourage the subdivision of the large masses, instead of striving to keep them together ; the principle of individual property would have been found to have no necessary connexion with the physical and social evils which almost all Socialist writers assume to be inseparable from it. Private property, in every defence made of it, is supposed to mean, the guarantee to individuals, of the fruits of their own labour and 'abstinence. The guarantee to them of the fruits of the labour and abstinence of others, transmitted to them without any merit or exertion of their own, is not of the essence of the institution, but a mere incidental consequence, which when it reaches a certain height, does not pro- mote, but conflicts with the ends which render private property legitimate. To judge of the final destination of the in- stitution of property, we must suppose everything rectified, which causes the institution to work in a manner op- posed to that equitable principle, of proportion between remuneration and exertion, on which in every vindication of it that will bear the light, it is as- sumed to be grounded. We must also suppose two conditions realized, with- out which neither Communism nor any other laws or institutions could make the condition of the mass of mankind other than degraded and miserable. t One of these conditions is, universal ^'education ;' the other, a due limitation of the numbers of the community. With these, there could be no poverty even under the present social institu- tions : and these being supposed, the question pf Socialism is not, as gener- ally stated by Socialists, a question of flying to the sole refuge against the evils which now bear down humanity ; but a mere question of comparative advantages, which futurity must deter- mine. We are too ignorant either of what individual agency in its best form, or Socialism in its best form, can accomplish, to be qualified to decide which of the two will be the ultimate form of human society. P.E. If a conjecture may bo hazarded, tho decision will probably depu;id mainly on one consideration, viz. which of tho two systems is consistent with thn greatest amount of human liberty and spontaneity. After the means of sub- sistence are assured, the next in strength of the personal wants of human beings is liberty; and (unlike the physical wants, which as civilization advances become more moderate and more ame- nable to control) it increases instead of diminishing in intensity, as the intel- ligence and the moral faculties are more developed. The perfection both of social arrangements and of practical morality would be, to secure to all persons com- plete independence and freedom of ac- tion, subject to no restriction but that of not doing injury to others : and the education which taught or the social institutions which required them to exchange the control of their own ac- tions for any amount of comfort or affluence, or to renounce liberty for the sake of equality, would deprive them of one of the most elevated characte- ristics of human nature. It remains to be discovered how far the preservation of this characteristic would be found compatible with the communistic or- ganization of society. No doubt, this, like all the other objections to tho Socialist schemes, is vastly exagge- rated. The members of the association need not be required to live together more than they do now, nor need they be controlled in the disposal of their individual share of the produce, and of the probably largo amount of leisure which, if they limited their production to things really worth producing, they would possess. Individuals need not be chained to an occupation, or to a particular locality. The restraints of Communism would be freedom in com- parison with the present condition of the majority of the human race. Tho generality of labourers in this and most other countries, have as little choice of occupation or freedom of locomotion, are practically as dependent on fixed rules and on the will of others, as they could be on any system short of actual slavery ; to say nothing of the entire domestic subjection of one half the 130 BOOK II. CHAPTER I. the signal most other forms of Socialism that they assign equal rights, iii all respects, with those of the hitherto dominant sex. But it 4. species, to which it is honour of Owenism and is not by comparison with the present had state of society that the claims of Communism can be estimated ; nor is it sufficient that it should promise greater personal and mental freedom than is now enjoyed by those who have not enough of either to deserve the name^ The question is whether there would be any asylum left for individuality of character ; whether public opinion would not be a tyran- nical yoke ; whether the absolute de- pendence of each on all, and surveil- lance of each by all, would not grind all down into a tame uniformity of thoughts, feelings, and actions. This is already one of the glaring evils of the existing state of society, notwith- standing a much greater diversity of education and pursuits, and a much less absolute dependence of the individual on the mass, than would exist in the Communistic regime. No society in which eccentricity is a matter of reproach, can be in a whole- some state. It is yet to be ascertained whether the Communistic scheme would be consistent with that multi- form development of human nature, those manifold unlikenesses, that diver- sity^ of tastes and talents, and variety of intellectual points of view, which not only form a great part of the inte- rest of human life, but by bringing in- tellects into a stimulating collision, and by presenting to each innumerable notions that he would not have con- ceived of himself, are the mainspring of mental and moral progression. 4. I have thus far confined my observations to the Communistic doc- trine, which forms the extreme limit of Socialism ; according to which not only the instruments of production, the land and capital, are the joint pro- perty of the community, but the pro- duce is divided and the labour appor- tioned, as far as possible, equally. The objections, whether well or ill grounded, to which Socialism is liable, apply to this form of it in their greatest force. The other varieties of Socialism mainly differ from Communism, in not relying solely on what M. Louis Blanc calis the point of honour of industry, but retaining more or less of the-incentives to labour derived from private pecu-" niary interest. Thus it is already a modification of the strict theory of Communism, when the principle is pro- fessed of proportioning remuneration to labour. The attempts which have been made in France to carry Social- ism into practical effect, by associa tions of workmen manufacturing on their own account, mostly began by sharing the remuneration equally, without regard to the quantity of work done by the individual : but in almost every case this plan was after a short time abandoned, and recourse was had to working by the piece. The original principle appeals to a higher standard ofjustice, and is adapted to a much higher moral condition of human nature. The proportioning of remu- neration to work done, is really just, only in so far as the more or less of the work is a matter of choice : when it depends on natural difference of strength or capacity, this principle of remune- ration is in itself an injustice : it is giving to those who have ; assigning most to those who are already most favoured by nature. Considered, how- ever, as a compromise with tie selfish type of character formed by the present standard of morality, and fostered by the existing social institutions, it is highly expedient ; and until education shall have been entirely regenerated, is far more likely to prove immediately successful, than an attempt at a higher ideal. The two elaborate forms of non- communistic Socialism known as St. Sirnonism and Fourierism, are totally free from the objections usually urged against Communism ; and though they are open to others of their own, yet by the great intellectual power which in many respects distinguishes them, and by their large and philoso- phic treatment of some of the funda- mental problems of society and mora- lity, they may justly be counted among FOURIERISM 131 the most remarkable productions of the past and present age. The St. Simonian scheme does not contemplate an equal, but an unequal division of the produce ; it does not propose that all should be occupied alike, but differently, according to their vocation or capacity ; the function of each being assigned, like grades in a regiment, by the choice of the direct- ing authority, and the remuneration being by salary, proportioned to the importance, in the eyes of that autho- rity, of the function itself, and the merits of the person who fulfils it. For the constitution of the ruling body, different plans might be adopted, con- sistently with the essentials of the system. It might be appointed by popular suffrage. In the idea of the original authors, the rulers were sup- posed to be persons of genius and vir- tue, who obtained the voluntary adhe- sion of the rest by the force of mental superiority. That the scheme might in some peculiar states of society Avork with advantage, is not improbable. There is indeed a successful experi- ment, of a somewhat similar kind, on record, to which I have once alluded ; that of the Jesuits in Paraguay. A race of savages, belonging to a pof- tion of mankind more averse to conse- cutive exertion for a distant object than any other authentically known to us, was brought under the mental do- minion of civilized and instructed men who were united among themselves by a system of community of goods. To the absolute authority of these men they reverentially submitted 'them- selves, and were induced by them to learn the arts of civilized life, and to practice labours for the community, which no inducement that could have been offered would have prevailed on them to practise for themselves. This social system was of short duration, being prematurely destroyed by diplo- matic arrangements and foreign force. That it could be brought into action at all was probably owing to the im- mense distance in point of knowledge and intellect which separated the few rulers from the whole body of the ruled, without any intermediate orders, either social or intellectual. In any other circumstances it would prubublV have been a complete failure. It sup- poses an absolute despotism in the heads of the association; which wonlj probably not be much improved if tl>. depositaries of the despotism (contrary to the views of the authors of the sys- tem) were varied from time to tiii.o according to the result of a popular canvass. , But to suppose that one or a few human beings, howsoever se- lected, could, by whatever machinery of subordinate agency, be qualified to adapt each person's work to his capa- city, and proportion each person's re- muneration to his merits to be, in fact, the dispensers of distributive jus- tice to every member of a community ; or that any use which they could make of this power would give general satisfaction, or would be submitted to without the aid of force is a supposi- tion almost too chimerical to be rea- soned against. A fixed rule, like that of equality, might be acquiesced in, and so might chance, or an external necessity ; but that a handful of human beings should weigh everybody in the balance, and give more to one and less to another at their sole pleasure and judgment, would not be borne, unless from persons believed to be more than men, and backed by supernatural terrors. The most skilfully combined, and with the greatest foresight of objec- tions, of all the forms of Socialism, is that commonly known as Fourierism. This system does not contemplate the abolition of private property, nor even of inheritance : on the contrary, it avowedly takes into consideration, as an element in the distribution of the produce, capital as well as labour. Jt proposes that the operations of indus- try should be carried on by associations of about two thousand members, com- bining their labour on a district of about a square league in extent, under the guidance of chiefs selected by themselves. In the distribution, a certain minimum is first assigned for the subsistence of every member of the community, whether capable or not of labour. The remainder of the produce K 2 BOOK. II. CHAPTER I. 4. /s shared In certain proportions, to be determined beforehand, among the ~hree elements, Labour, Capital, and Talent. The capital of the commu- nity may be owned in unequal shares Dy different members, who would in tfiat case receive, as in any other joint- stock company, proportional dividends. The claim of each person on the share of the produce apportioned to talent is estimated by the grade or rank which the individual occupies in the several groups of labourers to which he or she belongs ; these grades being in all cases confeiTed by the choice of his or her companions. The remunera- tion, when received, would not of necessity be expended or enjoyed in common ; there would be separate menages for all who preferred them, and no other community of living is contemplated, than that all the mem- bers of the association should reside in the same pile of buildings ; for saving of labour and expense, not only in building, but in every branch of do- mestic economy ; and in order that, the whole of the buying and selling operations of the community being performed by a single agent, the enor- mous portion of the produce of industry now carried oif by the profits of mere distributors might be reduced to the smallest amount possible. This system, unlike Communism, does not, in theory at least, withdraw any of the motives to exertion which exist in the present state of society. On the contrary, if the arrangement worked according to the intentions -of ils contrivers, it would even strengthen those motives ; since each person would have much more certainty of reaping individually the fruits of increased skill or energy, bodily or mental, than under the present social arrangements can be felt by anv but those who are in the most advan- tageous positions, or to whom the chapter of accidents is more than ordi- narily favourable. The Fourierists, however, have still another resource. They believe that they have solved the great and fundamental problem of rendering labour attractive. That this is not iniDracticable, they contend by very strong arguments ; in particular by one which they have in common with the Owenites, viz., that scarcely any labour, however severe, undergone by human beings for the sake of sub- sistence, exceeds in intensity that which other human beings, whose sub- sistence is already provided for, are found ready and even eager to undergo for pleasure. This certainly is a most significant fact, and one from which the student in social philosophy may draw important instruction. But the argument founded on it may easily be stretched too far. If occupations full of discomfort and fatigue are freely pursued by many persons as amuse- ments, who does not see that they are amusements exactly because they are pursued freely, and may be discon- tinued at pleasure? The liberty of quitting a position often makes the whole difference between its being painful and pleasurable. Many a per- son remains in the same town, street, or house from January to December, without a wish or a thought tending towards removal, who, if confined to that same place by the mandate of authority, would find the imprisonment absolutely intolerable. According to the Fourierists, scarcely any kind of useful labour is naturally and necessarily disagreeable, unless it is either regarded as dishonourable, or is immoderate in degree, or destitute of the stimulus of sympathy and emu- lation. Excessive toil needs not, they contend, be undergone by any one, in a society in which there would be no idle class, and no labour wasted, as so enormous an amount of labour is now wasted, in useless things ; and where full advantage would be taken of the power of association, both in increasing the efficiency of production, and in economizing consumption. The other requisites for rendering labour at- tractive would, they think, be found in the execution of all labour by social groups, to any number of which the same individual might simultaneously belong, at his or her own choice ; their grade in each being determined by the degree of service which they were found capable of rendering, as appro- PROPERTY. 133 dated by the suffrages of their com- rades. It is inferred from the diver- sity of tastes and talents, that every member of the community would be attached to several groups, employing themselves in various kinds of occupa- tion, some bodily, others mental, and would be capable of occupying a high place in some one or more ; so that a real equality, or something more nearly approaching to it than might at first be supposed, would practically result : not from the compression, but, on the contrary, from the largest possible de- velopment, of the various natural supe- riorities residing in each individual. Even from so brief an outline, it must be evident that this system does no violence to any of the general laws by which human action, even in the present imperfect state of moral and intellectual cultivation, is influenced ; and that it would be extremely rash to pronounce it incapable of success, or unfitted to realize a great part of the hopes founded on it by its partisans. With regard to this, as to all other varieties of Socialism, the thing to be desired, and to which they have a just claim, is opportunity of trial. They are all capable of being tried on a moderate scale, and at no risk, either personal or pecuniary, to any except those who try them. It is for expe- rience to determine how far or how soon any one or more of the possible systems of community of property will be fitted to substitute itself for the " organization of industry" based on private ownership of land and capital. In the meantime we may, without at- tempting to limit the ultimate capabi- lities of human nature, affirm, that the political economist, for a considerable time to come, will be chiefly concerned with the conditions of existence and progress belonging to a society founded on private property and individual competition ; and that the object to be principally aimed at in the present stage of human improvement, is not the subversion of the system of indi- vidual property, but the improvement of it, and the full participation of every member of the community in its benefits. CHAPTER II. THE SAME SUBJECT CONTINUED. 1. IT is next to be considered, what is included in the idea of private property, and by what considerations the application of the principle should be bounded. The institution of property, when limited to its essential elements, con- sists in the recognition, in each person, of a right to the exclusive disposal of what he or she have produced by their own exertions, or received either by gift or by fair agreement, without force or fraud, from those who produced it. The foundation of the whole is, the right of producers to what they them- selves have produced. It may be ob- jected, therefore, to the institution as it now exists, that it recognises rights of property in individuals over things which they have not produced. FOT example (it may be said) the opera- tives in a manufactory create, by their labour and skill, the whole produce ; yet, instead of its belonging to them, the law gives them only their stipu- lated hire, and transfers the produce to some one who has merely supplied the funds, without perhaps contribu- ting anything to the work itself, even in the form of superintendence. The answer to this is, that the labour of manufacture is only one of the condi- tions which must combine for the pro- duction of the commodity. The labour cannot be carried on without materials and machinery, nor without a stock of necessaries provided in advance, to maintain the labourers 134 BOOK II. CHAPTER II. 2. during the production. All these things are the fruits of previous labour. If the labourers were possessed of them, they would not need to divide the produce with any one ; but while they have them not, an equivalent must be given to those who have, both lor the antecedent labour, and for the abstinence by which the produce of that labour, instead of being expended on indulgences, has been reserved for this use. The capital may not have been, and in most cases was not, crea- ted by the labour and abstinence of the present possessor ; but it was created by the labour and abstinence of some former person, who may in- deed have been wrongfully dispossessed of it, but who, in the present age of the world, much more probably trans- ferred his cluims to the present capi- talist by gift or voluntary contract : find the al stinence at least must have been continued by each successive owner, down to the present. If it be said, as it may with truth, that those who have- inherited the savings of others have an advantage which they may have in no way deserved, over the industrious whose predecessors have not left them anything; I not only admit, but strenuously contend, that this unearned advantage should be curtailed, as much as is consistent with justice to those who thought fit to dispose of their savings by giving them to their descendants. But while it is true that the labourers are at a disadvantage compared with those whose predecessors have saved, it is also true that the labourers are far better off than if those predecessors had not saved. They share in the ad- vantage, though not to an equal extent with the inheritors. The terms of co- operation between present labour and the fruits of past labour and saving, are a subject tor adjustment between the two parties. Each is necessary to the other. The capitalists can do nothing without labourers, nor the labourers without capital. If the labourers compete for employment, the capitalists on their part compete for labour, to the full extent of the circu- lating capital of the country. Com- petition is often spoken of as if it were necessarily a cause of misery and degradation to the labouring class ; as if high wages were not precisely as much a product of competition as low wages. The remuneration of labour ia as much the result of the law of competition in the United States, as it is in Ireland, and much more com- pletely so than in England. The right of property includes, then, the freedom of acquiring by contract. The right of each to what he has pro- duced, implies a right to what has been produced by others, if obtained by their free consent; since the pro- ducers must either have given it from good will, or exchanged it for what they esteemed an equivalent, and to prevent them from doing so would be to infringe their right of pro- perty in the product of their own in- dustry. 2. Before proceeding to consider the things which the principle of indi- vidual property does not include, we must specify one more thing which it does include : and this is, that a title, after a certain period, should be given by prescription. According to the fun- damental idea of property, indeed, nothing ought to be treated as such, which has ^been acquired bj r force or fraud, or appropriated in ignorance of a prior title vested in some other per- son ; but it is necessary to the security of rightful possessors, that they should not be molested by charges of wrong- ful acquisition, when by the lapse of time witnesses must have perished or been lost sight of, and the real cha- racter of the transaction can no longer be cleared up. Possession which has not been legally questioned within a moderate number of years, ought to be, as by the laws of all nations it is, a complete title. Even when the acqui- sition was wrongful, the dispossession, after a generation has elapsed, of the probably bond fide possessors, by the revival of a claim which had been long dormant, would generally be a greater injustice, and almost always a greater private and public mischief, than leaving the original wrong without INHERITANCE. 135 atonement. It may seem hard, that a claim, originally just, should be de- feated by mere lapse of time ; but there is a time after which, (even look- ing at the individual case, and without regard to the general effect on the security of possessors,) the balance of hardship turns the other way. With the injustices of men, as with the con- vulsions and disasters of nature, the longer they remain unrepaired, the greater become the obstacles to re- pairing them, arising from the after- growths which would have to be torn up or broken through. In no human transactions, not even in the simplest and clearest, does it follow that a thing is fit to be clone now, because it was fit to be done sixty years ago. It is scarcely needful to remark, that these reasons for not disturbing acts of in- justice of old date, cannot apply to unjust systems or institutions ; since a bad law or usage is not one bad act, in the remote past, but a perpetual re- petition of bad acts, as long as the law or usage lasts. Such, then, being the essentials of private property, it is now to be con- sidered, to what extent the forms in which the institution has existed in different states of society, or still ex- ists, are necessary consequences of its principle, or are recommended by the reasons on which it is grounded. | 3. Nothing is implied in pro- perty but the right of each to his (or her) own faculties, to what he can produce by them, and to whatever he can get for them in a fair market : to- gether with his right to give this to any other person if he chooses, and the right of that other to receive and enjoy it. It follows, therefore, that although the right of bequest, or gift after death, forms part of the idea of private pro- perty, the right of inheritance, as distinguished from bequestj does not. That the property of persons who have made no disposition of it during their lifetime, should pass first to their chil- dren, and failing them, to the nearest relations, may be a proper arrange- ment or not but is no conseauence of the principle of private property, Although there belong to the decision of such questions many considerations besides those of political economy, it is not foreign to the plan of this work to suggest, for the judgment of thinkers, the view of them which most recommends itself to the writer's mind. No presumption in favour of existing ideas on this subject is to be derived from their antiquity. In early ages, the property of a deceased person passed to his children and nearest rela- tives by so natural and obvious an arrangement, that no other was likely to be even thought of in competition with it. In the first place, they were usually present on the spot : they were in possession, and if they had no other title, had that, so important in an early state of society, of first occupancy. Secondly, they were already, in a man- ner, joint owners of his property during his life. If the property was in land, it had generally been conferred by the State on a family rather than on an individual : if it consisted of cattle or moveable goods, it had probably been acquired, and was certainly protected and defended, by the united efforts of all members of the family who were of an age to work or fight. Exclusive individual property, in the modern sense, scarcely entered into the ideas of the time ; and when the first magis- trate of the association died, he really left nothing vacant but his own share in the division, which devolved on the member of the family who succeeded to his authority. To have disposed of the property otherwise, would have been to break up a little commonwealth, united by ideas, interest, and habits, and to cast them adrift on the world. These considerations, though rather felt than reasoned about, had so great an influence on the minds of mankind, as to create the idea of an inherent right in the children to the possessions of their ancestor ; a right which it was not competent to himself to deicat. Bequest, in a primitive state of so- ciety, was seldom recognised ; a clear proof, were there no other, that pro- perty was conceived in a manner 10- 136 BOOK II. CHAPTER II. 3. tally different from the conception of it in the present time.* But the feudal family, the last histo- rical form of patriarchal life, has long perished, and the unit of society is not now the family or clan, composed of all the reputed descendants of a common ancestor, but the individual ; or at most a pair of individuals, with their unemancipated children. Property is now inherent in individuals, not in families : the children when grown up do not follow the occupations or for- tunes of the parent : if they partici- pate in the parent's pecuniary means it is at his or her pleasure, and not by a voice in the ownership and govern- ment of the whole, but generally by the exclusive enjoyment of a part: and in this country at least (except as far as entails or settlements are an ob- stacle) it is in the power of parents to disinherit even their children, and leave their fortune to strangers. More distant relatives are in general almost as completely detached from the family and its interests as if they were in no way connected with it. The only claim they are supposed to have on their richer relations, is to a preference, cceteris parilus, in good offices, and some aid in case of actual necessity. So great a change in the constitu- tion of society must make a consider- able difference in the grounds on which the disposal of property by inheritance should rest. The reasons usually assigned by modern writers for giving the property of a person who dies in- testate, to the children, or nearest relatives, are first, the supposition that in so disposing of it, the law is more likely than in any other mode to do what the proprietor would have done, if he had done anything ; and secondly, the hardship, to those who lived with their parents and partook in their opulence, of being cast down from the enjoyments of wealth into poverty and privation. There is some force in both these arguments. The law ought, no doubt, * See, for admirable illustrations of this and many kindred points, Mr. Maine's pro- found work on Ancient Law and its relation to Modern Ideas. to do for the children or dependents of an intestate, whatever it was the duty of the parent or protector to have done, BO far as this can be known by any one besides himself. Since, however, the law cannot decide on individual claims, but must proceed by general rules, it is next to be considered what these rules should be. We may first remark, that in regard to collateral relatives, it is not, unless on grounds personal to the particular individual, the duty of any one to make a pecuniary provision for them. No one now expects it, unless there happens to be no direct heirs ; nor would it bo expected even then, if the expectation were not created by the provisions of the law in case of intestacy. I see, therefore, no reason why collateral inheritance should exist at all. Mr. Bentham long ago proposed, and other high authorities have agreed in the opinion, that if there are no heirs either in the descending or in the ascending line, the property, in case of intestacy, should escheat to the State. With .respect to the more remote degrees of collateral relation- ship, the point is not very likely to be disputed. Few will maintain that there is any good reason why the accumulations of some childless miser should on his death (as every now and then happens) go to enrich a distant relative who never saw him, who per- haps never knew himself to be related to him until there was something to be gained by it, and who had no moral claim upon him of any kind, more than the most entire stranger. But the reason of the case applies alike to all collaterals, even in the nearest degree Collaterals have no real claims, bu such as may be equally strong in th case of non-relatives ; and in the on case as in the other, where valid claim exist, the proper mode of paying regar to them is by bequest. ^The claims of children are of a different nature : they are real, and in- defeasible. But even of these, I venture to think that the measure usually taken is an erroneous one: what is "due to children is in some respects under- rated, in others, as it appears to me, INHERITANCE. 137 exaggerated. One of the most binding of all obligations, that of not bringing children into the world unless they can be maintained in comfort during child- hood, and brought up with a likelihood of supporting themselves when of full ttge, is both disregarded in practice and made light of in theory in a manner disgraceful to human intelligence. On the other hand, when the parent pos- sesses property, the claims of the children upon it seem to me to bo the subject of an opposite error. What- ever fortune a parent may have in- herited, or still more, may have ac- quired, I cannot admit that he owes to his children, merely because they are his children, to leave them rich, without the necessity of any exertion. I could not admit it, even if to be so left were always, and certainly, for the good of the children themselves. But this is in the highest degree uncertain. It depends on individual character. "Without supposing extreme cases, it may be affirmed that in a majority of instances the good not only of society but of the individuals would be better consulted by bequeathing to them a moderate, than a large pro vision. This, which is a common-place of moralists ancient and modern, is felt to be true by many intelligent parents, and would be acted upon much more frequently, if they did not allow themselves to consider less what really is, than what will be thought by others to be, ad- vantageous to the children. The duties of parents to their children are those which are indis- solubly attached to the fact of causing the existence of a human being. The parent owes to society to endeavour to make the child a good and valuable member of it, and owes to the children to provide, so far as depends on him, such education, and such appliances and means, as will enable them to start with a fair chance of achieving by their own exertions a successful life. To this every child has a claim ; and I cannot admit, that as a child he has a claim to more. There is a case in which these obligations present themselves in their true light, without any extrinsic circumstances to disguise or confuse them : it is that of an illegi- timate child. To such a child it is generally felt that there is due from the parent, the amount of provision for his welfare which will enable him to make his life on the whole a desir- able one. I hold that to no child, merely as such, anvthing more is due, than what is admitted to be due to an illegitimate child : and that no child for whom thus much has been dono, has, unless on the score of previously raised expectations, any grievance, if the remainder of the parent's fortune is devoted to public uses, or to the benefit of individuals on whom in the parent's opinion it is better bestowed. In order to give the children that fair chance of a desirable existence, to which they are entitled, it is gene- rally necessary that they should not be brought up from childhood in habits of luxury which they will not have the means of indulging in after life. This, again, is a duty often flagrantly vio- lated by possessors of terminable in- comes, who have little property to leave. When the children of rich parents have lived, as it is natural they should do, in habits correspond- ing to the scale of expenditure in which the parents indulge, it is gene- rally the duty of the parents to make a greater provision for them, than would suffice for children otherwise brought up. I say generally, because even here there is another side to the question. It is a proposition quite capable of being maintained, that to a strong nature which has to make its way against narrow circumstances, to have known early some of the feelings and experiences of wealth, is an ad- vantage both in the formation of cha- racter and in the happiness of life. But allowing that children have a just ground of complaint, who have been brought up to require luxuries which they are not afterwards likely to obtain, and that their claim, therefore, is good to a provision bearing some relation to the mode of their bringing up ; this, too, is a claim which is particularly liable to be stretched further than its reasons warrant. The case is exactly that of the younger children of the nobility 138 BOOK II. CHAPTER II. 4. and landed gentry, the bulk of whose fortune passes to the eldest son. The other sons, who are usually munerous, are brought up in the same habits of luxury as the future heir, and they receive, as a younger brother's portion, generally what the reason of the case dictates, namely, enough to support, in the habits of life to which they are accustomed, themselves, but not a wife or children. It really is no grievance to any man, that for the means of marrying and of supporting a family, he has to depend on his own exertions . A provision, then, such as is ad- mitted to be reasonable in the case of illegitimate children, of younger children, wherever in short the justice of the case, and the real interests of the individuals and of society, are the only things considered, is, I conceive, all that parents owe to their children, and all, therefore, which the state owes to the children of those who die intestate. The surplus, if any, I hold that it may rightfully appro- priate to the general purposes of the community. I would not, however, be supposed to recommend that parents should never do more for their children than what, merely as children, they have a moral right to. In some cases it is imperative, in many laudable, and in all allowable, to do much more. For this, however, the means are afforded by the liberty of bequest. It is due, not to the children but to the parents, that they should have the power of showing marks of affection, of requiting services and sacrifices, and of bestowing their wealth according to their own preferences, or their own judgment of fitness. 4. Whether the power of bequest should itself be subject to limitation, is an ulterior question of great import- ance. Unlike inheritance ab intestate, bequest is one of the attributes of pro- perty : the ownership of a thing can- not be looked upon as complete with- out the power of bestowing it, at death or during life, at the owner's pleasure : and all the reasons, which recommend that private property should exist, re commend pro tanto this extension of it. But property is only a means to an end, not itself the end. Like all other proprietary rights, and even in a greater degree than most, the power of bequest may be so exercised as to conflict with the permanent interests of the human race. It does so, when, not content with bequeathing an es- tate to A, the testator prescribes that on A's death it shall pass to his eldest son, and to that son's son, and so on for ever. No doubt, persons have occasionally exerted themselves more strenuously to acquire a fortune from the hope of founding a family in perpetuity; but the mischiefs to society of such perpetuities outweigh the value of this incentive to exertion, and the incentives in the case of those who have the opportunity of making large fortunes are strong enough with- out it. A similar abuse of the power of bequest is committed when a person who does the meritorious act of leaving property for public uses, attempts to prescribe the details of its application in perpetuity; when in founding a place of education, (for instance) he dictates, for ever, what doctrines shall be taught. It being impossible that any one should know what doctrines will be fit to be taught after he has been dead for centuries, the law ought not to give effect to such dispositions of property, unless subject to the per- petual revision (after a certain interval has elapsed) of a fitting authority. These are obvious limitations. But even the simplest exercise of the right of bequest, that of determining the person to whom property shall pass immediately on the death of the tes- tator, has always been reckoned among the privileges which might be limited or varied, according to views of ex- pediency. The limitations, hitherto, have been almost solely in favour of children. In England the right is in principle unlimited, almost the only impediment being that arising from a settlement by a former proprietor, in which case the holder for the time being cannot indeed bequeath his pos- sessions, but only because there is nothing to bequeath, he having merely a life interest. By the Roman law, BEQUESTS. 139 on which the civil legislation of the Continent of Europe is principally founded, bequest originally was not permitted at all, and even after it was introduced, a legitima portio was com- pulsorily reserved for each child ; and such is still the law in some of the Continental nations. By the French law since the Revolution, the parent can only dispose by will, of a portion equal to the share of one child, each of the children taking an equal portion. This entail, as it may be called, of the bulk of every one's property upon the children collectively, seems to me as little defensible in principle as an en- tail in favour of one child, though it does not shock so directly the idea of justice. I cannot admit that parents should be compelled to leave to their children even that provision which, as children, I have contended that they have a moral claim to. Children may forfeit that claim by general nn- worthiness, or particular ill-conduct to the parents : they may have other resources or prospects : what has been previously done for them, in the way of education and advancement in life, may fully satisfy their moral claim ; or others may have claims superior to theirs. The extreme restriction of the power of bequest in French law was adopted as a democratic expedient, to break down the custom of primogeniture, and counteract the tendency of inherited property to collect in large masses. I agree in thinking these objects emi- nently desirable ; but the means used are not, I think, the most judicious. Were I framing a code of laws accord- ing to what seems to me best in itself, without regard to existing opinions and sentiments, I should prefer to restrict, not what any one might bequeath, but what any one should be permitted to acquire, by bequest or inheritance. Each person should have power to dis- pose by will of his or her whole pro- perty ; but not to lavish it in enriching some one individual, beyond a certain maximum, which should be fixed suffi- ciently high to afford the means of comfortable independence. The in- equalities of property which arise from unequal industry, frugality, perse- verance, talents, and to a certain extent even opportunities, are inseparable from the principle of private property, and if we accept the principle, we must bear with these consequences of it : but I see nothing objectionable in fixing a limit to what any one may acquire by the mere favour of others, without any exercise of his faculties, and in requiring that if he desires any furthur accession of fortune, he shall work for it.* I do not conceive that the degree of limitation which this would impose on the right of bequest, would be felt as a burthensome restraint by any testator who estimated a large fortune at its true value, that of the pleasures and advantages that can be purchased with it : on even the most extravagant estimate of which, it must be apparent to every one, that the dif- ference to the happiness of the possessor between a moderate independence and five times as much, is insignificant when weighed against the. enjoyment that might be given, and the perma- nent benefits diffused, by some other disposal of the four-fifths. So long indeed as the opinion practically pre- vails, that the best thing which can be done for objects of affection is to heap on them to satiety those intrinsically worthless things on which large fortunes are mostly expended, there might be little use in enacting such a law, even if it were possible to get it passed, since if there were the inclination, there would generally be the power of * In the case of capital employed in the hands of the owner himself, in carrying on any of the operations of industry, there are strong grounds for leaving to him the power of bequeathing to one person the whole of the funds actually engaged in a single enter- prise. It is well that he should be enabled to leave the enterprise under the control of whichever of his heirs he regards as best fit- ted to conduct it virtuously and efficiently; and the necessity (very frequent and incon- venient under the French law) would be obviated, of breaking up a manufacturing or commercial establishment at the death of its chief. In like manner it should bo al- lowed to a proprietor who leaves to one of his successors the moral burthen of keeping up an ancestral mansion and park or plea- sure-ground, to bestow along with them as much other property as is required for their sufficient maintenance. 140 BOOK II. CHAPTER II. 5. evading it. The law would be unavail- ing unless the popular sentiment went energetically along with it; which (judging from the tenacious adherence of public opinion in France to the law of compulsory division) it would in some states of society and government be very likely to do, however much the contrary may be the fact in England and at the present time. If the re- striction could be made practically ef- fectual, the benefit would be great. Wealth which could no longer be em- ployed in over-enriching a few, would either be devoted to objects of public usefulness, or if bestowedon individuals, would be distributed among a larger number. AYhile those enormous for- tunes which no one needs for any per- sonal purpose but ostentation or im- proper power, would become much less numerous, there would be a great mul- tiplication of persons in easy circum- stances, with the advantages of leisure, and all the real enjoyments which wealth can give, except those of vanity ; a class by whom the services which a nation having leisured classes is enti- tled to expect from them, either by their direct exertions or by the tone they give to the feelings and tastes of the public, would be rendered in a much more beneficial manner than at present. A large portion also of the accumula- tions of successful industry would pro- bably be devoted to public uses, either by direct bequests to the State, or by the endowment of institutions; as is already done very largely in the United States, where the ideas and practice in the matter of inheritance seem to be unusually rational and beneficial.* * " Munificent bequests and donations for public purposes, whether charitable or edu- cational, form a striking feature in the modern history of the United States, and especially of New England. Not only is it common for rich capitalists to leave by will a portion of their fortune towards the en- dowment of national institutions, but indi- viduals during their lifetime make magni- ficent grants of money for the same objects. There is here no compulsory law for the equal partition of property among children, as in France, and on the other hand, no custom of entail or primogeniture, as in England, so that the affluent feel themselves at liberty to share their wealth between their landred and the public : it being im- 5. The next point to be consi- dered is, whether the reasons on which the institution of property rests, are applicable to ah 1 things in which a right of exclusive ownership is at present recognised ; and if not, on what other grounds the recognition is defensible. The essential principle of property being to assure to all persons what they have produced by their labour and accumulated by their abstinence, this principle cannot apply to what is not the produce of labour, the raw material of the earth. If the land derived its productive power wholly from nature, and not at all from industry, or if there were any means of discriminating what is derived from each source, it not only would not be necessary, but it would be the height of injustice, to let the gift of nature be engrossed by individuals. The use of the land in agriculture must indeed, for the time being, be of necessity exclusive; the same persoc who has ploughed and sown must be permitted to reap : but the land might be occupied for one season only, as among the ancient Germans ; or might be periodically redivided as population increased : or the State might be the universal landlord, and the cultivators tenants under it, either on lease or at will. But though land is not the produce of industry, most of its valuable quali- ties are so. Labour is not only requi- site for using, but almost equally so for fashioning the instrument. Consider- able labour is often required at the com- mencement, to clear the land for cul- tivation. In many cases, even when possible to found a family, and parents hav- ing frequently the happiness of seeing all their children well provided for and inde- pendent long before their death. I have seen a list of bequests and donations made during the last thirty years for the benefit of religious, charitable, and literary institu- tions in the State of Massachusetts alone, and they amounted to no less a sum than six millions of dollars, or more than a million sterling." Lyell's Tratelt in America, vol. i. p. 263. In England, whoever leaves anything, be- yond trifling legacies, for public or benefi- cent objects, when he has any near relatives living, does so at the risk of being declared insane by a jury after his death, cr .it the least, of having the property wasted in a Chancery suit to set aside the will. PIIOPERTY cleared, its productiveness is wholly v the effect of labour and art. The Bedford Level produced little or no- thing until artificially drained. The bogs of Ireland, until the same thing is done to them, can produce little besides fuel. One of the barrennest soils in the world, composed of the ma- terial of the Goodwin Sands, the Pays de Waes in Flanders, has been so fer- tilized by industry, as to have become one of the most productive in Europe. Cultivation also requires buildings and fences, which are wholly the pro- duce of labour. The fruits of this in- dustry cannot be reaped in a short period. The labour and outlay are immediate, the benefit is spread over many years, perhaps over all future time. A holder will not incur this labour and outlay when strangers and not himself will be benefited by it. If he undertakes such improvements, he must have a sufficient period before him in which to profit by them ; and he is in no way so sure of having al- ways a sufficient period as when his tenure is perpetual.* 6. These are the reasons which form the justification, in an economical point of view, of property in land. It is seen that they are only valid, in so far as the proprietor of land is its im- prover. 'Whenever, in any country, the proprietor, generally speaking, * " What endowed man with intelligence and perseverance in labour, what made him direct all his efforts towards an end useful to his race, was the sentiment jf perpetuity. The lands which the streams have deposited along their course are always the most fer- tile, but are also those which they menace with their inundations or corrupt by marshes. Under the guarantee of perpe- tuity men undertook long and painful la- bours to give the marshes an outlet, to erect embankments against inundations, to dis- tribute by irrigation-channels fertilizing waters over the same fields which the same waters had condemned to sterility. Under the same guarantee, man, no longer con- tenting himself with the annual products of the earth, distinguished among the wild ve- getation the perennial plants, shrubs, and trees which would be useful to him, im- proved them by culture, changed, it may almost be said, their very nature, and multi- plied their amount. There are fruits which it required centuries of cultivation to bring to their present perfection, and others which IN LAND. 141 ceases to be the improver, political economy has nothing to say in defence of landed property, as there established. In no sound theory of private property was it ever contemplated that the pro- prietor of land should be merely a sinecurist quartered on it. In Great Britain, the landed pro- prietor is not unfrequently an improver. But it cannot be said that he is gene- rally so. And in the majority of cases he grants the liberty of cultivation on such terms, as to prevent improvements from being made by any one else. In the southern parts of the island, as there are usually no leases, permanent improvements can scarcely be made except by the landlord's capital; ac- cordingly the South, compared with the North of England, and with the Lowlands of Scotland, is still extremely backward in agricultural improvement. The truth is, that any very general improvement of land by the landlords, is hardly compatible with a law or custom of primogeniture. When the land goes wholly to the heir, it gene- rally goes to him severed from the pecuniary resources which would ena- ble him to improve it, the personal property being absorbed by the provi- sion for younger children, and the land itself often heavily burthened for the same purpose. There is therefore but a small proportion of landlords who have the means of making expensive have been introduced from the most remote regions. Men have opened the earth to a great depth to renew the soil, and fertilize it by the mixture of its parts and by contact with the air; they have fixed on the hill- sides the soil which would have slid off, and have covered the face of the country with a vegetation everywhere abundant, and everywhere useful to the human race. Among their labours there are some of which the fruits can only be reaped at the end of ten or of twenty years; there are others by which their posterity will still benefit after several centuries. All have concurred in augmenting the productive force of nature, in giving to mankind a re- venue infinitely more abundant, a revenue of which a considerable part is consumed by those who have no share in the ownership of the land, but who would not have found a maintenance but for that appropriation of the soil by which they seem, at first sight, to have been disinherited." Sismondi, Studies in Political Economy, Third lissay, on Ter- ritorial Wealth. 142 BOOK II. CHAPTER II. 6. improvements, unless they do it with boirowed money, and by adding to the mortgages with which in most cases the land was already burthened when they received it. But the position of the owner of a deeply mortgaged estate is so precarious ; economy is so unwel- come to one whose apparent fortune greatly exceeds his real means, and the vicissitudes of rent and price which only trench upon the margin of his in- come, are so formidable to one who can call little more than the margin his own ; that it is no wonder if few land- lords find themselves in a condition to make immediate sacrifices for the sake of future profit. Were they ever so much inclined, these alone can pru- dently do it, who have seriously studied the principles of scientific agriculture : and great landlords have seldom seri- ously studied anything. They might at least hold out inducements to the fanners to do what they will not or cannot do themselves; but even in granting leases, it is in England a general complaint that they tie up their tenants by covenants grounded on the practices of an obsolete and ex- ploded agriculture : while most of them, by withholding leases altogether, and giving the farmer no guarantee of pos- session beyond a single harvest, keep the land on a footing little more favour- able to improvement than in the time of our barbarous ancestors, immetata quibus jugera liberas Fruges et Cererem ferunt, Nee cultura placet longior annua. Landed property in England is thus very far from completely fulfilling the conditions which render its existence economically justifiable. But if insuffi- ciently realized even in England, in Ireland those conditions are not com- plied with at all. With individual exceptions (some of them very honour- able ones), the owners of Irish estates do nothing for the land but drain it of its produce. What has been epi- grammatically said in the discussions on "peculiar burthens" is literally true when applied to them ; that the greatest "burthen on land" is the landlords. Returning nothing to the soil, they consume its whole produce, minus the potatoes strictly necessary to keep the inhabitants from dying of famine : and when they have any pur- pose of improvement, the preparatory step usually consists in not leaving even this pittance, but turning out tho people to beggary if not to starvation.* When landed property has placed it- self upon this footing it ceases to be defensible, and the time has come for making some new arrangement of '.ho matter. When the " sacredness of property " is talked of, it should always be remem- bered, that any such sacredness does not belong in the same degree to landed property. No man made the land. It is the original inheritance of the whole species. Its appropriation is wholly a question of general expe- diency. When private property in land is not expedient, it is unjust." It is no hardship to any one, to be ex- cluded from what others have pro- duced : they were not bound to produce it for his use, and he loses nothing by not sharing in what otherwise would not have existed at all. But it is some hardship to be bom into the world and to find all nature's gifts previously engrossed, and no place left for the new-comer. To reconcile peo- ple to this, after they have once admitted into their minds the idea that any moral rights belong to them as human beings, it will always be neces- sary to convince them that the exclu- sive appropriation is good for mankind on the whole, themselves included. But this is what no sane human being could be persuaded of, if the relation between the landowner and the cul- tivator were the same everywhere as it has been in Ireland. Landed property is felt even by those most tenacious of its rights, to be a different thing from other property ; and where the bulk of the community have been disinherited of their share of it, and it has become the exclusive * I must beg the reader to bear in mind that this paragraph was written eighteen years ago. So wonderful are the changes, both moral and economical, taking place in our age, that, without perpetually re-\\ riling a work like the present, it is impossible to keep up with them. PROPERTY IN LAND. 143 attribute of a small minority, men have generally tried to reconcile it, at least in theory, to their sense of justice, by endeavouring to attach duties to it, and erecting it into a sort of magis- tracy, either moral or legal. But if the state is at liberty to treat the possessors of land as public func- tionaries, it is only going one step further to say, that it is at liberty to discard them. The claim of the land- owners to the land is altogether subor- dinate to the general policy of the state. The principle of property gives them no right to the land, but only a right to compensation for whatever portion of their interest in the land it may be the policy of the state to deprive them of. To that, their claim is indefeasible. It is due to land- owners, and to owners of any property whatever, recognised as such by the state, that they should not be dis- possessed of it without receiving its pecuniary value, or an annual income equal to what they derived from it. This is due OD the general principles on which property rests. If the land was bought with the produce of the labour and abstinence of themselves or their ancestors, compensation is due to them on that ground ; even if other- wise, it is still due on the ground of prescription. Nor can it ever be neces- sary for accomplishing an object by which the community altogether will gain, that a particular portion of the community should be immolated. When the property is of a kind to which peculiar affections attach them- selves, the compensation ought to exceed a bare pecuniary equivalent. But, subject to this proviso, the state is at liberty to deal with landed pro- perty as the general interests of the community may require, even to the extent, if it so happen, of doing with the whole, what is done with a part whenever a bill is passed for a railroad or a new street. The community has too much at stake in the proper cul- tivation of the land, and in the condi- tions annexed to the occupancy of it, to leave these things to the discretion of a class of persons called landlords, when they have shown themselves unfit for the trust. Tho legislature, which if it pleased might convert the whole body of landlords into fund- holders or pensioners, might, ci fortiori, commute the average receipts of Irish landowners into a fixed rent charge, and raise the tenants into proprietors; supposing always that the full market value of the land was tendered to the landlords, in case they preferred that to accepting the conditions proposed. There will be another place for dis- cussing the various modes of landed property and tenure, and the advan- tages and inconveniences of each ; in this chapter our concern is with the right itself, the grounds which justify it, and (as a corollary from these) the conditions by which it should be limited. To me it seems almost an axiom that ' property in land should be interpreted strictly, and that the balance in all cases of doubt should incline against the proprietor. The reverse is the case with property in moveables, and in all things the product of labour: over these, the owner's power both of use and of exclusion should be abso- lute, except where positive evil to others would result from it ; but in tho case of land, no exclusive right should be permitted in any individual, which cannot be shown to be productive of positive good. To be allowed any ex- clusive right at all, over a portion of the common inheritance, while there are others who have no portion, is already a privilege. No quantity of moveable goods which a person can acquire by his labour, prevents others from acquiring the like by the same means ; but from the very nature of the case, whoever owns land, keeps others out of the enjoyment of it. The privilege, or monopoly, is only defensible as a necessary evil ; it be- comes an injustice when carried to any point to which the compensating good does not follow it. For instance, the exclusive right to the land for purposes of cultivation does not imply an exclusive right to it for purposes of access ; and no such right ought to be recognized, except to the extent necessary to protect the produce against damage, and the 144 BOOK H. CHAPTER II. cm-net's privacy against invasion. The pretension of two Dukes to shut up a part of the Highlands, and exclude the rest of mankind from many square miles of mountain scenery to prevent disturbance to wild animals, is an abuse ; it exceeds the legitimate bounds of the light of landed property. When land is not intended to be cultivated, no good reason can in general be given for Its being private property at all; and if any one is permitted to call it his, he ought to know that he holds it by sufferance of the community, and on an implied condition that his owner- ship, since it cannot possibly do them any good, at least shall not deprive them of any, which they could have derived from the land it it had been unappropriated. Even in the case of cultivated land, a man whom, though only one among millions, the law permits to hold thousands of acres as his single share, is not entitled to think that all this is given to him to use and abuse, and deal with as if it concerned nobody but himself. The rents or profits which he can obtain from it are at his sole disposal ; but with regard to the land, in everything which he does with it, and in everything which he abstains from doing, he is morally bound, and should whenever the case admits be legally compelled, to make his interest and pleasure consistent with the public good. The species at large still re- tains, of its original claim to the soil of the planet which it inhabits, as much as is compatible with the purposes for which it has parted with the remainder. 7. Besides property in the pro- duce of labour, and property in land, there are other things which are or have been subjects "of property, in which no proprietary rights ought to exist at all. iJut as the civilized world has in general made up its mind on most of these, there is no necessity for dwelling on them in this place. At the head of them, is property in human beings. It is almost superfluous to observe, that this institution can have no place in any society even pretending to be founded on justice, or on fellow- ship between liuman creatures. But, iniquitous as it is, yet when tli9 state has expressly legalized it, and human beings, for generations, have been bought, sold, and inherited under sanction of law, it is another wrong, iu abolishing the property, not to make > full compensation. This wrong was avoided by the great measure of justice in 1833, one of the most virtuous acts, as well as the most practically benefi- cent, ever done collectively by a nation. Other examples of property which ought not to have been created, are properties in public trusts ; such as judicial offices under the old French regime, and the heritable jurisdictions which, in countries not wholly emerged from feudality, pass with the land. Our own country affords, as cases in point, that of a commission in the army, and of an advowson, or right of nomination to an ecclesiastical bene- fice. A property is also sometimes " created in a right of taxing the public ; in a monopoly, for instance, or other exclusive privilege. These abuses pre- vail most in semibarbarous countries ; but are not without example in the most civilized. In France there are several important trades and profes- sions, including notaries, attorneys, brokers, appraisers, printers, and (until lately) bakers and butchers, of which the numbers are limited by law. The brevet or privilege of one of the per- mitted number consequently brings a high price in the market. When this is the case, compensation probably could not with justice be refused, on the abolition of the privilege. There are other cases in which this would be more doubtful. The question would turn upon what, in the peculiar cir- cumstances, was sufficient to constitute prescription ; and whether the legal recognition which the abuse had ob- tained, was sufficient to constitute it an institution, or amounted only to an occasional licence. It would be absurd to claim compensation for losses caused by changes in a tariff, a thing confes- sedly variable from year to year ; or for monopolies like those granted to indivi- duals by the Tudors, favours of a' despo- tic authority, which the power that gave was competent at any time to recaL CLASSES WHO DIVIDE THE PRODUCE. 145 So much on the institution of pro- perty, a subject of which, for the pur- poses of political economy, it was indispensable to treat, but" on which we could not usefully confine ourselves to economical considerations. We have now to inquire on what principles and with what results the distribution of the produce of land and labour is effected, under the relations which this institution creates among the different members of the community. CHAPTER III. OP THE CLASSES AMONG- WHOM THE PRODUCE IS DISTRIBUTED. 1. PRIVATE property being as- sumed as a fact, we have next to enu- merate the different classes of persons to whom it gives rise ; whose concur- rence, or at least whose permission, is necessary to production, and who are therefore able to stipulate for a share of the produce. We have to inquire, according to what laws the produce distributes itself among these classes, by the spontaneous action of the inte- rests of those concerned : after which, a further question will be, what effects are or might be produced by laws, in- stitutions, and measures of government, in superseding or modifying that spon- taneous distribution. The three requisites of production, as has been so often repeated, are labour, capital, and land : understand- ing by capital, the means and ap- pliances which are the accumulated results of previous labour, and by land, the materials and instruments supplied by nature, whether contained in the interior of the earth or constituting its surface. Since each of these elements of production may be separately appro- priated, the industrial community may be considered as .divided into land- owjiers^ capitalists, and prgduciive labourers. Each of these classes, as finch, obtains a share of the produce : 'no other person or class obtains any- thing, except by concession from them. The remainder of the community is, in fact, supported at their expense, giving, if any equivalent, one consist- ing of unproductive services. These three classes, therefore, are considered in political economy as making up the whole community. 2. But although these three sometimes exist as separate classes, dividing the produce among them, they do not necessarily or always so exist. The fact is so much otherwise, that there are only one or two communities in which the complete separation of these classes is the general rule. Eng- land and Scotland, with parts of Bel- gium and Holland, are almost the only countries in the world where the land, capital, and labour employed in agri- culture, are generally the property of separate owners. The ordinary case is, that the same person owns either two of these requisites, or all three. The case in which the same person owns all three, embraces the two ex- tremes of existing society, in respect to the independence and dignity of the labouring class. First, when the labourer himself is the proprietor. This is the commonest case in the Northern States of the American Union; one of the commonest in France, Switzerland, the three Scan- dinavian kingdoms, and parts of Ger- many ;* and a common case in parts * " The Norwegian return" (say tho Commissioners of Poor Law Enquiry, to whom information was furnished from nearly every country in Eijrope and America by the ambassadors and consuls there) " states that at the last census in 1825, out of a popu- lation of 1,051,318 persons, there were 59,404 freeholders. As by 59,464 freeholders must be meant 59,464 heads of families, or about 300,000 individuals ; the freeholders must form more than one-fourth of the whole popu- 146 BOOK n. CHAPTER III. 3. of Italy and in Belgium. In all these eoxmtries there are, no doubt, large landed properties, and a still greater number which, without being large, require the occasional or constant aid of hired labourers. Much, however, of the land is owned in portions too small to require any other labour than that of the peasant and his family, or fully to occupy even that. The capital employed is not always that of the peasant proprietor, many of these small properties being mortgaged to obtain the means of cultivating; but the capital is invested at the peasant's risk, and though he pays interest for it. it gives to no one any right of inter- ference, except perhaps eventually to take possession of the land, if the in- terest ceases to T>e paid. The other case in which the land, labour, and capital, belong to the same person, is the case of slave countries, in which the labourers themselves are owned by the landowner. Our West India colonies before emancipation, and the sugar colonies of the nations by whom a similar act of justice is still unperformed, are examples of large establishments for agricultural and manufacturing labour (the production cf sugar and rum is a combination of both) in which the land, the factories lation. Mr. Macsrregor states that in Den- mark (by which Zealand and the adjoining islands are probably meant) out of a popula- tion of 926,110, the" number of landed pro- prietors and farmers is 415,110, or nearly one-half. In Sleswick-Holstein, out of a popu ation of 604,085, it is 196,017, or about one-third. The proportion of proprietors and farmers to the whole population is not given in Sweden ; but the Stockholm return estimates the average quantity of land an- nexed to a labourer's habitation at from one to five acres; and though the Gottenburg return gives a lower estimate, it adds, that the peasants possess much of the land. In "\Vurtemburg we are told that more than two-thirds of the labouring population are the proprietors of their own habitations, and that almost all own at least a garden of from three-quai-ters of an acre to an acre and a half." In some of these statements, proprietors and farmers are not discrimi- nated ; but " all the returns concur in stating the number of day-labourers to be very small." (Preface toForeign Communications, p, xxxviii.) As the general status of the la- bouring people, the condition of a work- man for hire is almost peculiar to Great Britain. (if they may be so called), the ma- chinery, and the degraded labourers, are all the property of a capitalist. In this case, as well as in its extreme opposite, the case of the peasant pro- prietor, there is no division of the produce. 3. When the three requisites are not all owned by the same person, it often happens that two of them are so. Sometimes the same person owns the capital and the land, but not the labour. The landlord makes his engagement directly with the labourer, and supplies the whole or part of the stock neces- sary for cultivation. This system is the usual one in those parts of Conti- nental Europe, in which the labourers are neither serfs on the one hand, nor proprietors on the other. It was very common in France before the Revolu- tion, and is still much practised in some parts of that country, when the land is not the property of the culti- vator. It prevails generally in the level districts of Italy, except those principally pastoral, such as the Ma- remma of Tuscany and the Campagna of Rome. On this system the division of the produce is between two classes, the landowner and the labourer. In other cases again the labourer does not own the land, but owns the little stock employed on it, the land- lord not being in the habit of supplying any. This system generally prevails in Ireland. It is nearly universal in India, -and in most countries of the Esst ; whether the government retains, as it generally does, the ownership of the soil, or allows portions to become, either absolutely or in a qualified sense, the property of individuals. In India, however, things are so far better than in Ireland, that the owner of land is in the habit of making advances to the cultivators, if they cannot cultivate without them. For these advances the native landed proprietor usually demands high interest ; but the prin- cipal landowner, the government, makes them gratuitously, recovering the advance after the harvest, together with the rent. The produce is here divided, as before between the same COMPETITION AND CUSTOM. 147 t\vo classes, the landowner and the labourer. These are the principal variations in the classification of those among; whom the produce of agricultural labour is distributed. In the case of manufacturing industry there never are more than two classes, the labourers and the capitalists. The original artisans in all countries were either slaves, or the women of the family. In the manufacturing esta- blishments of the ancients, whether on a large or on a small scale, the labourers were usually the property of the capitalist. In general, if any manual labour was thought compatible with the dignity of a freeman, it was only agricultural labour. The converse system, in which the capital was owned by the labourer, was coeval with free labour, and under it the first great ad- vances of manufacturing industry were achieved. The artisan owned the loom or the few tools he used, and worked on his own account; or at least ended by doing so, though he usually worked for another, first as apprentice and next as journeyman, for a certain number of years before he could be admitted a master. But the status of a permanent journeyman, all his life a hired labourer and nothing more, had no place in the crafts and guilds of the Middle Ages. In country vil- lages, where a carpenter or a black- smith cannot live and support hired labourers on the returns of his business, he is even now his own workman ; and shopkeepers in similar circumstances are their own shopmen, or shopwomen. But wherever the extent of the market admits of it, the distinction is now fully established betsveen the class of capitalists, or employers of labour, and the class of labourers ; the capitalists, in general, contributing no other labour than that of direction and superin- tendence. CHAPTER IV. OF COMPETITION AND CUSTOM, 1. UNDER the rule of individual property, the division of the produce is the result of two determining agen- cies] Competition, and Custom. It is important to ascertain the amount of influence which belongs to each of these causes, and in what manner the opera- tion of one is modified by the other. Political economists generally, and English political economists above others, have been accustomed to lay amidst exclusive stress upon the first of these agencie^; to exaggerate the effect of competition, and to take into little account the other and conflicting principle. They are apt to express themselves as if they thought that competition actually does, in all cases, whatever it can be shown to be the tendency of competition to do. This is partly intelligible, if we consider that only through the principle of com- petition has political economy any pretension to the character of a science. So far as rents, profits, wages, prices, | are determined by competition, laws! may be assigned for them. Assume' competition to be their exclusive regu- lator, and principles of broad generality and scientific precision may be laid down, according to which they will be regulated. The political economist justly deems this his proper business : and, as an abstract or hypothetical sci- ence, political economy cannot be re- quired to do, and indeed cannot do, anything more. But it would be a great misconception of the actual course of human affairs, to suppose that com- petition exercises in fact this unlimited sway. I am not speaking of monopo- lies, either natural or artificial, or of any interferences of authority with the liberty of production or exchange, 148 EOOK II. CHAPTER IV. 2. Such disturbing causes have always been allowed for by political economists. I speak of cases in which there is no- thing to restrain competition : no hin- drance to it either in the nature of the case or in artificial obstacles; yet in which the result is not determined by competition, but by custom or usage ; competition either not taking place at all, or producing its effect in quite a different manner from that which is ordinarily assumed to be natural to it. 2. ^ Competition, in fact, has only become in any considerable degree tbe governing principle of contracts, at a comparatively modern period. The farther we look back into history, the more we see all transactions and en- gagements under the influence of fixed customs. The reason is evident. Cus- tom is the most powerful protector of the weak against the strong ; their sole protector where there are no laws or government adequate to the purpose. Custom is a barrier which, even in the most oppressed condition of mankind, tyranny is forced in some degree to respect. To the industrious population in a turbulent military community, freedom of competition is a vain phrase ; they are never in a condition to make terms for themselves by it : there is always a master who throws his sword into the scale, and the terms are such as he imposes. But though the law of the strongest decides, it is not the interest nor in general the practice of the strongest to strain that law to the utmost, and every relaxation of it has a tendency to become a custom, and every custom to become a right. Eights thus originating, and not competition in any shape, determine, in a rude state of society, the share of the produce en- joyed by those who produce it. The relations, more especially, between the landowner and the cultivator, and the payments made by the latter to the former, are, in all states of society but the most modern, determined by the usage of the country. Never until late times have the conditions of the occu- pancy of land been (as a general rule) an affair of competition. The occupier for the time has very commonly been considered to have a right to retain his holding, while he fulfils the cus- tomary requirements; and has thus become, in a certain sense, a co-pro- prietor of the soil. Even where the holder has not acquired this fixity of tenure, the terms of occupation have often been fixed and invariable. In India, for example, and other Asiatic communities similarly consti- tuted, the ryots, or peasant-farmers, are not regarded as tenants at will, nor even as tenants by virtue of a lease- In most villages there are indeed some ryots on this precarious footing, con- sisting of those, or the descendants of those, who have settled in the place at a known and comparatively recent period: but all who are looked upon as descendants or representatives of the original inhabitants, and even many mere tenants of ancient date, are thought entitled to retain their land, as long as they pay the customary rents. What these customary rents are, or ought to be, has indeed, in most cases, become a matter of obscurity ; usurpation, tyranny, and foreign con- quest having to a great degree obli- terated the evidences of them. But when an old and purely Hindoo prin- cipality falls under the dominion of the British Government, or the manage- ment of its officers, and when the details of the revenue system come to be inquired into, it is usually found that though the demands of the great landholder, the State, have been swelled by fiscal rapacity until all limit is practically lost sight of, it has yet been thought necessary to have a distinct name and a separate pretext for each increase of exaction ; so that the de- mand has sometimes come to consist of thirty or forty different items, in ad- dition to the nominal rent. This cir- cuitous mode of increasing the pay- ments assuredly would not have been resorted to, if there had been an ac- knowledged right in the landlord to increase the rent. Its adoption is a proof that there was once an effective limitation, a real customary rent ; and that the understood right of the ryot to the land, so long as he paid rent according to custom, was at some time COMPETITION or other more than nominal.* The British Government of India always simplifies the tenure by consolidating the various assessments into one, thus making the rent nominally as well as really an arbitrary thing, or at least a matter of specific agreement: but it scrupulously respects the right of the ryot to the land, though until the re- forms of the present generation (reforms even now only partially carried into effect) it seldom left him. much mere lhan a bare subsistence. In modern Europe the cultivators have gradually emerged from a state of personal slavery. The barbarian conquerors of the Western empire found that the easiest mode of ma- naging their conquests would be to leave the occupation of the land in the hands in which they found it, and to save themselves a labour so uncongenial as the superintendence of troops of slaves, by allowing the slaves to re tain in a certain degree the control of their own actions, under an obligation to furnish the lord with provisions and labour. A common expedient was to assign to the serf, for his exclusive use, as much land as was thought sufficient for his support, and to make him work on the other lands of his lord whenever re- quired. By degrees these indefinite obligations were transformed into a definite one, of supplying a fixed quan- tity of provisions or a fixed quantity of labour : and as the lords, in time, be- came inclined to employ their income in the purchase of luxuries rather than in the maintenance of retainers, the payments in kind were commuted for payments in money. Each concession, at first voluntary and revocable at pleasure, gradually acquired the force of custom, and was at last recognised and enforced by the tribunals. In this manner the serfs progressively rose into a free tenantry, who held their land in perpetuity on fixed conditions. The conditions were sometimes very onerous, and the people very miserable. * The ancient law books of the Hindoos mention in some cases one-sixth, in others one-fourth of the produce, as a proper rent ; but there is no evidence that the rules laid down in those books were, at any period of history, realJy acted upon. AND CUSTOM. 149 But their obligations were determined by the usage or law of the country, and not by competition. Where the cultivators had never been, strictly speaking, in personal bondage, or after they had ceased to be so, the exigencies of a poor and little advanced society gave rise to another arrangement, which in some parts of Europe, even highly improved parts, has been found sufficiently advan- tageous to be continued to the present day. I speak of the metayer system. Under this, the land is divided, in small farms, among single families, the land- < lord generally supplying the stock which the agricultural system of the country is considered to require, and receiving, in lieu of rent and profit, a fixed proportion of the produce. This proportion, which is generally paid in kind, is usually (as is implied in the words metayer, mezzaiuolo, and me- dietarius,} one-half. There are places, however, such as the rich volcanic soil of the province of Naples, where the landlord takes two-thirds, and yet the cultivator by means ot an excellent agriculture contrives to live. But whether the proportion is two-thirds or one-half, it is a fixed proportion ; not variable from farm to farm, or from tenant to tenant. The custom of the country is the universal rule ; nobody thinks of raising or lowering rents, or of letting land on other than the cus- tomary conditions. Competition, as a regulator of rent, has no existence. 3. Prices,.- whenever there was no monopoly, came earlier under the influence of competition, and are much more universally subject to it, than rents: but that influence is by no means, even in the present activity of mercantile competition, so absolute as is sometimes assumed. There is no proposition which meets us in the field of political economy oftener than this that there cannot be two prices in the same market. Such undoubtedly is the natural effect of unimpeded com- petition ; yet every one knows that there are, almost always, two prices in the same market. Not only are there in every largo town, and in almost 150 BOOK II. CHAPTER IV. 3. every trade, cheap shops and dear shop?, but the same shop often sells the same article at different prices to different customers : and, as a general rule, each retailer adapts his scale of prices to the class of customers whom he expects. The wholesale trade, in the great articles of commerce, is really tinder the dominion of competition. There, the buyers as well as sellers are traders or manufacturers, and their purchases are not influenced by indo- lence or vulgar finery, nor depend on the smaller motives of personal con- venience, but are business transactions. In the wholesale markets therefore it is true as a general proposition, that there are not two prices at one time for the same thing : there is at each time and place a market price, which can be quoted in a price-current. But retail price, the price paid by the actual consumer, seems to feel very slowly and imperfectly the effect of competition ; and when competition does exist, it often, instead of lowering prices, merely divides the gains of the high price among a greater number of dealers. Hence it is that, of the price paid by the consumer, so large a proportion is absorbed by the gains of retailers ; and any one who inquires into the amount which reaches the hands of those who made the things he buys, will often be astonished at its smaUness. When indeed the market, being that of a great city, holds out a sufficient induce- ment to large capitalists to engage in retail operations, it is generally found a better speculation to attract a large business by underselling others, than merely to divide the field of employ- ment with them. This influence of competition is making itself felt more and more through the principal branches of retail^trade in the large towns ; and the rapidity and cheapness of transport, by making consumers less dependent on the dealers in their immediate neighbourhood, are tending to assimilate more and more the whole country to a large town ; but hitherto it is only in the great centres of business lhat retail transactions have been chiefly, or even much, determined by competition. Elsewhere it rather acts, when it acts at all, as an occasional disturbing influence ; the habitual re- gulator is custom, modified from time to time by notions existing in the minds of purchasers and sellers, of some kind of equity or justice. In many trades the terms on which business is done are a matter of posi- tive arrangement among the trade, who use the means they always pos- sess of making the situation of any member of the body who departs from its fixed customs, inconvenient or dis- agreeable. It is well known that the bookselling trade was, until lately, one of these, and that notwithstanding the active spirit of rivalry in the trade, competition did not produce its natural effect in breaking down the trade rules. All professional remuneration is regu- lated by custom. The fees of physi- cians, surgeons, and barristers, the charges of attorneys, are nearly inva- riable. ?Sot certainly for want of abundant competition in those profes- sions, but because the competition ope- rates by diminishing each competitor's chance of fees, not by lowering the fees themselves. Since custom stands its ground against competition to so considerable an extent, even where, from the multi- tude of competitors and the general energy in the pursuit of gain, the spirit of competition is strongest, we may be sure that this is much more the case where people are content with smaller gains, and estimate their pecuniary interest at a lower rate when balanced against their ease or their pleasure. I believe it will often be found, in Con- tinental Europe, that prices and charges, of some or of all sorts, are much higher in some places than in others not far distant, without its being possible to assign any other cause than that it has always been so : the customers are used to it, and acquiesce in it. An enterprising competitor, with sufficient capital, might force down the charges, and make his fortune during the pro- cess ; but there are no enterprising competitors ; those who have capital prefer to leave it where it is, or to make less profit by it in a more quiet way. SLAVERY. 151 These observations must be received as a general correction, to be applied whenever relevant, whether expressly mentioned or not, to the conclusions contained in the subsequent portions of this Treatise. Our reasonings must, in general, proceed as if the known and natural effects of competition were actually produced by it, in all cases in which it is not restrained by some positive obstacle. Where competition, though free to exist, does not exist, or where it exists, but has its natural consequences overruled by any other agency, the conclusions will fail more or less of being applicable. To escape error, we ought, in applying the con- clusions of political economy to the actual affairs of life, to consider not only _ what will happen supposing the maximum of competition, but how far the result will be affected if compete tion falls short of the maximum. The states of economical relation which stand first in order, to be dis- cussed and appreciated, are those in which competition has no part, the arbiter of transactions being either brute force or established usage. These , ; will be the subject of the "next four chapters. CHAPTER V. OF SLAVERY. 1. AMONG the forms which so- ciety assumes under the influence of the institution of property, there are, as I have already remarked, two, otherwise of a widely dissimilar cha- racter, but resembling in this, that the ownership of the land, the labour, and the capital, is in the same hands. One of these cases is that of slavery, the other is that of peasant proprietors. In the one, the landowner owns the labour, in the other the labourer owns the land. We begin with the first. In this system all the produce be- longs to the landlord. The food and other necessaries of his labourers are part of his expenses. The labourers possess nothing but what he thinks fit to give them, and until he thinks fit to take it back : and they work as hard as he chooses, or is able, to compel them. Their wretchedness is only limited by his humanity, or his pecu- niary interest. With the first conside- ration, we have on the present occa- sion nothing to do. What the second in so detestable a constitution of PO- ciety may dictate, depends on the facilities for importing fresh slaves. ]f full-grown able-bodied slaves can be procured in sufficient numbers, and imported at a moderate expense, self- interest will recommend working the slaves to death, and replacing them by importation, in preference to the slow and expensive process of breeding them. Nor are the slave-owners gene- rally backward in learning this lesson. It is notorious that such was the prac- tice in our slave colonies, while the slave trade was legal; and it is said to be so still in Cuba. When, as among the ancients, the slave-market could only be supplied by captives either taken in war, or kidnapped from thinly scattered tribes on the remote confines of the known world, it was generally more profitable to keep up the number by breeding, which necessitates a far better treat- ment of them ; and for this reason, joined with several others, the condi- tion of slaves, notwithstanding occa- sional enormities, was probably much less bad in the ancient world than in the colonies of modern nations. The Helots are usually cited as the type of the most hideous form of personal slavery, but with how little truth, ap- pears from the fact that they were re gularly armed (though not with the panoply of the hcplite) and formed an 152 BOOK H. CHAPTER V. 2. int^crrai part of the military strength of the State. They were doubtless an inferior and degraded caste, but their slavery seems to have been one of the least "onerous varieties of serfdom. Slavery appears in far more frightful colours among the Romans, during the period in which the Roman aristocracy was gorging itself with the plunder of a newly conquered world. The Romans were a cruel people, and the worthless nobles sported with the lives of their myriads of slaves with the same reck- less prodigality with which they squan- dered any other part of their ill-ac- quired possessions. Yet, slavery is divested of one of its worst features when it is compatible with hope : en- franchisement was easy and common : enfranchised slaves obtained at once the full rights of citizens, and instances were frequent cf their acquiring not only riches, but latterly even honours. By the progress of milder legislation under the Emperors, much of the pro- tection of law was thrown round the slave, he became capable of possessing property, and the evil altogether as- sumed a considerably gentler aspect. Until, however, slavery assumes the mitigated form of villenage, in which not only the slaves have property and legal rights, but their obligations are more or less limited by usage, and they partly labour for their own bene- fit ; their condition is seldom such as to produce a rapid growth either of population or of production. 2. So long as slave countries are underpeopled in proportion to their cultivable land, the labour of the slaves, under any tolerable manage- ment, produces much more than is sufficient for their support ; especially us the great amount of superintendence which their labour requires, preventing the dispersion of the population, en- sures some of the advantages of com- bined labour. Hence, in a good soil and climate, and with reasonable care of his own interests, the owner of many slaves has the means of being rich. The influence, hovever, of such a state of society on production, is perfectly well understood, it is a truism to assert, that labour extorted by fear of punishment is inefficient and unpro- ductive. It is true that in some cir- cumstances, human beings can be driven by the lash to attempt, and even to accomplish, things which they would not have undertaken for any payment which it could have been worth while to an employer to offer them. And it is likely that productive operations which require much com- bination of labour, the production of sugar for example, would not have taken place so soon in the American colonies, if slavery had not existed tc keep masses of labour together. Ther<_ are also savage tribes so averse from regular industry, that industrial life is scarcely able to introduce itself among them until they are either conquered and made slaves of, or become con- querors and make others so. But after allowing the full value of these considerations, it remains certain that slavery is incompatible with any high state of the arts of life, and any great efficiency of labour. For all products which require much skill, slave coun- tries are usually dependent on fo- reigners. Hopeless slavery effectu- ally brutifies the intellect ; and intel- ligence in the slaves, though often encouraged in the ancient world and in the East, is in a more advanced state of society a source of so much danger and an object of so much dread to the masters, that in some of the States of America it is a highly penal offence to teach a slave to read. All processes carried on by slave labour are conducted in the rudest and most unimproved manner. . And even the animal strength of the slave is, on an average, not half exerted. The unpro- ductiveness and wastefulness of the in- dustrial system in the Slave States is instructively displayed in the valuable writings of Mr. Olmsted. The mildest form of slavery is certainly the condi- tion of the serf, who is attached to the soil, supports himself from his allot- ment, and works a certain number of days in the week for his lord. Yet there is but one opinion on the ex- treme inefficiency of serf labour. The following passage is from Professor SLAVERY. 153 Jones,* whose Essay on tlie Distribu- tion of Wealth (or rather on Kent), is a copious repertory of valuable facts on the landed tenures of different countries. " The Russians, or rather those German writers who have observed the manners and habits of Russia, state some strong facts on this point. Two Middlesex mowers, they say, will mow in a day as much grass as six Russian serfs, and in spite of the dearness of pro- visions in England and their cheapness in Russia, the mowing a quantity of hay which would cost an English farmer half a copeck, will cost a Rus- sion proprietor three or four copecks.f The Prussian counsellor of state, Jacob, is considered to have proved, that in Russia, where everything is cheap, the labour of a serf is doubly as expensive as that of a labourer in England. M. Schmalz gives a startling account of the unproductiveness of serf labour in Prussia, from his own knowledge and observation.:}: In Austria, it is dis- tinctly stated, that the labour of a serf is equal to only one-third of that of a free hired labourer. This calculation, made in an able work on agriculture (with some extracts from which I have been favoured), is applied to the prac- tical purpose of deciding on the number of labourers necessary to cul- tivate an estate of a given magnitude. So palpable, indeed, are the ill effects of labour rents on the industry of the agricultural population, that in Austria itself, where proposals of changes of any kind do not readily make their way, schemes and plans for the com- mutation of labour rents are as popular as in the more stirring German pro- vinces of the North." What is wanting in the quality of the labour itself, is not made up by any excellence in the direction and * Essay on the Distribution of Wealth and on the Sources of Taxation. By the Rev. Kichard Jones. Page 50. t " Schmalz. Economic Politique, French translation, vol. i. p. 6G." J Vol. ii. p. 107. The Hungarian revolutionary govern- ment, during its brief existence, bestowed on that country one of the greatest benefits it could receive, and one which the tyranny that succeeded has not dared to take away : superintendence. As the name writer* remarks, the landed proprietors " are necessarily, in their character of cul- tivators of their own domains, the only guides and directors of the in- dustry of the agricultural population," since there can be no intermediate class of capitalist farmers where the labourers are the property of the lord. Great landowners are everywhere an idle class, or if they labour at all, addict themselves only to the more exciting kinds of exertion ; that lion's share which superiors always reserve for themselves. " It would/' as Mr. Jones observes, "be hopeless and irrational to expect, that a race of noble pro- prietors, fenced round with privileges and dignity, and attracted to military and political pursuits by the advan- tages and habits of their station, should ever become attentive cultivators as a body." Even in England, if the cul- tivation of every estate depended upon its proprietor, any one can judge what would be the result. There would be a few cases of great science and energy, and numerous individual instances of moderate success, but the general state of agriculture would be contemptible. 3. Whether the proprietors them- selves would lose by the emancipation of their slaves, is a different question from the comparative effectiveness' of free and slave labour to the community. There has been much discussion of this question as an abstract thesis ; as if it could possibly admit of any uni- versal solution. Whether slavery or free labour is most profitable to tho employer, depends on the wages of tho free labourer. These, again, depend on the numbers of the labouring popu- lation, compared with the capital and the land. Hired labour is generally so much more efficient than slave Labour, that the employer can pay a considerably greater value in wages, than the maintenance of his slaves cost him before, and yet be a gainer t freed the peasantry from what remained )f the bondage of serfdom, the labour rents ; decreeing compensation to the landlords at the expense of the state, and not at that of the liberated peasants. * Jones, pp. 53, 54. 154 BOOK H. CHAPTER V. 3. by the change : but he cannot do this without limit. The decline of serfdom in Europe, and its extinction in the Western nations, were doubtless has- tened by the changes which the growth of population must have made in the pecuniary interests of the master. As population pressed harder upon the land, without any improvement in agriculture, the maintenance of the serfs necessarily became more costly, ind their labour less valuable. "With the rate of wages such as it is in Ire- land, or in England (where, in propor- tion to its efficiency, labour is quite as cheap as in Ireland), no one can for a Indian Negroes should see with com- placency, and encourage by their sym- pathies, the foundation of a great and powerful military commonwealth, pledged by its principles and driven by its strongest interests to be the armed propagator of slavery through every region of the earth into which its power can penetrate, discloses a men- tal state in the leading portion of our higher and middle classes, which it is melancholy to see, and will be a lasting blot in English history. Fortunately they have stopped short of actually aiding, otherwise than by words, the nefarious enterprise to which they have moment imagine that slavery could j not been ashamed of wishing succes be profitable. If the Irish peasantry ' were slaves, their masters would be as willing, as their landlords now are, to pay large sums merely to get rid of them. In the rich and underpeopled soil of the West India islands, there is just as little doubt that the balance of profits between free and slave labour was greatly on the side of slavery, and that the compensation granted to the slaveowners for its abolition was not more, perhaps even less, than an equi- valent for their loss. More needs not be said here on a cause so completely judged and decided as that of slavery. Its demerits are no longer a question requiring argu- ment; though the temper of mind manifested by the larger part of the influential classes in Great Britain respecting the struggle now taking place in America, shows how grievously the feelings of the present generation of Englishmen, on this subject, have fallen behind the positive acts of the generation which preceded them. That the sons of the deliverers of the West and it is now probable that at the ex- pense of the best blood of the Free States, but to their immeasurable ele- vation in mental and moral worth, the curse of slavery will be cast out from the great American republic, to find its last temporary refuge in Brazil and Cuba. No European country, except Spain alone, any longer participates in the enormity. Even serfage has now ceased to have a legal existence in Europe : Denmark has the honour of being the first Continental nation which imitated England in liberating its co- lonial slaves ; and the abolition of slavery was one of the earliest acts of the heroic and calumniated Provisional Government of France. The Dutch Government was not long behind, and its colonies and dependencies are now, I believe, without exception, free from actual slavery : though forced labour for the public authorities is still a re- cognised institution in Java, soon, we may hope, to be exchanged for complete personal freedom. IT FHOPBIETOBS. 155 3APTER VL SANT PROPRIETORS. 1. Ix the ivg pro- perties, as in that o ,'holc produce belongs to , and the distinction of and wages, does not e: other respects, the two s- y are the extreme oppos: )ther. The one is the state y, /pres- sion and degradation to the labouring class. The other is that in which they are the most uncontrolled arbiters of their own lot. The advantage, however, of small properties in land, is one of the most disputed questions in the range of poli- tical economy. On the Continent, though there are some dissentients from the prevailing opinion, the benefit of having a numerous proprietary po- pulation exists in the minds of most people in the form of an axiom. But English authorities are either unaware flf the judgment of Continental agricul- turists, or are content to put it aside, on the plea of their having no experi- ence of large properties in favourable circumstances : the advantage of large properties being only felt where there are also large farms; and as this, in arable districts, implies a greater accu- mulation of capital than usually exists on the Continent, the great Continental estates, except in the case of grazing farms, are mostly let out for cultivation in small portions. There is some truth in this ; but the argument admits of being retorted; for if the Continent knows little, by experience, of cultiva- tion on a large scale and by large capi- tal, the generality of English writers are no better acquainted practically with peasant proprietors, and have al- most always the most erroneous ideas of their social condition and mode of life. Yet the old traditions even of England are on the same side with the general opinion of the Continent. The " yeomanry" who were vaunted as the glory of England while they existed, and have been so much mourned over since they disappeared, were either small proprietors or small farmers, and if they were mostly the last, the cha- racter they bore for sturdy indepen- dence is the more noticeable. There is a part of England, unfortunately a very small part, where peasant proprie- tors are still common ; for such are the " statesmen" of Cumberland and West- moreland, though they pay, I believe, generally if not universally, certain customary dues, which, being fixed, no more affect their character of proprie- tors than the land-tax does. There ie but one voice, among those acquainted with the country, on the admirable ef- fects of this tenure of land in those counties. No other agricultural popu- lation in England could have furnished the originals of Wordsworth's pea- santry.* * In Mr. Wordsworth's little descriptive work on the scenery of the Lakes, he speaks of the upper part of the dales as having been for centuries " a perfect republic of shep- herds and agriculturists, proprietors, for the most part, of the lands which they occupied and cultivated. The plough of each man was confined to the maintenance of his own family, or to the occasional accommodation of his neighbour. Two or three cows fur- nished each family with milk and cheese. The chapel was the only edifice that pre- sided over these dwellings, the supreme head of this pure commonwealth ; the members of which existed in the midst of a powerful empire, like an ideal society, or an organized community, whose constitution had been imposed and regulated by the mountains which protected it. Neither high-born nobleman, knight, nor esquire was here; but many of these humble sons of the hills had a consciousness that the land which they walked over and tilled had for more than five hundred years been possessed by men of their name and blood. . . . Corn was grown in these vales sufficient upon each estate to furnish bread for each family, no more. The storms and moisture of the climate induced them to sprinkle their up- land property with outhouses of native stono, as places of shelter for their sheep, where, in tempestuous weather, food was distributed to them. Every family spun from its own flock the wool with which it was clothed ; a 150 The general system, however, of English cultivation, affording no expe- rience to render the nature and opera- tion of peasant properties familiar, and Englishmen being in general profoundly ignorant of the agricultural economy of ether countries, the very idea of pea- sant proprietors is strange to the Eng- lish mind, and does not easily find access to it. Even the forms of lan- guage stand in the way: the familiar designation for owners of land being "landlords," a term to which "tenants'' is always understood as a correlative. AVhc-n, at the time of the famine, the suggestion of peasant properties as a means of Irish improvement found its way into parliamentary and newspaper discussions, there were writers of pre- tension to whom the word "proprietor" was so far from conveying any distinct idea, that they mistook the small hold- ings of Irish cottier tenants for peasant properties. The subject being so little understood, I think it important, before entering into the theory of it, to do something towards showing how the case stands as to matter of fact; by exhibiting, at greater length than would otherwise be admissible, some of the testimony which exists respecting the state of cultivation, and the com- fort and happiness of the cultivators, in those countries and parts of countries, in which the greater part of the land has neither landlord nor farmer, other than the labourer who tills the soil. 2. I lay no stress on the condi- tion of Korth America, where, as is well known, the land, wherever free from the curse of slavery, is almost universally owned by the same person who holds the plough. A country combining the natural fertility of America with the knowledge and arts weaver was here and there found among them, and the vest of their wants was sup- plied by the produce of the yarn, which they ;arded and spun in their own houses, and .arried to market either under their arms, or more frequently on packhorses, a small train taking; their way weekly down the vailey, or ever the mountains, to the most commodious town." A Description of the r'the Lakes in the Xorth of England, 3rd edit. pp. 50 to 53 and 63 to 65. BOOK H. CHAPTER VI. ? 2. of modern Europe, is o r- civcumstancel, that scarcely unything, except insecurity of property or a ty- rannical government, could materially impair the prosperity of the industrious classes. 1 might, with Sismondi, in- sist more strongly on the case of an- cient Italy, - especially Latium, that Campagna which then swarmed with inhabitants in the very regions which under a contrary regime have become uninhabitable from malaria. But I prefer taking the evidence of the same writer on things known to him by per- sonal observation. " It is especially Switzerland," says M. de Sismondi, "which should be tra- versed and studied to judge of the happiness of peasant proprietors. It is from Switzerland we learn that agriculture practised by the very per- sons who enjoy its fruits, suffices to procure great comfort for a very nu- merous population ; a great indepen- dence of character, arising from inde- pendence of position ; a great com- merce of consumption, the result of the easy circumstances of all the inhabi- tants, even in a country whose climate is rude, whose soil is but moderately fer- tile, and where late frosts and incon- stancy of seasons often blight the hopes of the cultivator. It is impossible to see without admiration those timber houses of the poorest peasant, so vast, so well closed in, so covered with carvings. In the interior, spacious corridors separate the different cham- bers of the numerous family ; each chamber has but one bed, which is abundantly furnished with curtains, bedclothes, and the whitest linen; carefully kept furniture surrounds it: the wardrobes are filled with linen; the dairy is vast, well aired, and of exqui- site cleanness; under the same roof is a great provision of corn, salt meat, cheese and wood; in the cow-houses are the finest and most carefully tended cattle in Europe ; the garden is planted with flowers, both men and women are cleanly and warmly clad, the wo- men preserve with pride their ancient costume ; all carry in their faces the ' impress of health and strength. Let other nations boast of their opulence, PEASANT PKOPKIETORS. 157 Switzerland may always point with pride to her peasants."* The same eminent writer thus ex- presses his opinions on peasant pro- prietorship in general. " "Wherever we find peasant proprie- tors, we also find the comfort, security, confidence in the future, and indepen- dence, which assure at once happiness and virtue. The peasant who with his children does all the work of his little inheritance, who pays no rent to any one ahove him, nor wages to any one below, who regulates his produc- tion by his consumption, who eats his own corn, drinks his own wine, is clothed in his own hemp and wool, cares little for the prices of the mar- ket ; for he has little to sell and little to buy, and is never ruined by revul- sions of trade. Instead of fearing for the future, he sees it in the colours of hope ; for he employs every moment not required by the labours of the year, on something profitable to his chil- dren and to future generations. A few minutes' work suffices him to plant the seed which in a hundred years will be a large tree, to dig the channel which will conduct to him a spring of fresh water, to improve by cares often repeated, but stolen from odd times, all the species of animals and vegetables which surround him. His little patrimony is a true savings bank, always ready to receive all his little gains and utilize all his moments of leisure. The ever-acting power of na- ture returns them a hundred-fold. The peasant has a lively sense of the hap- piness attached t the condition of a proprietor. Accordingly .he is always eager to buy land at any price. He pays more for it than its value, more perhaps than it will bring him in ; but is he not right in estimating highly the advantage of having always an advantageous investment for his labour, without underbidding in the wages- market of being always able to find bread, without the necessity of buying it at a scarcity price ? " The peasant proprietor is of all cultivators the one who gets most from the soil, for he is the one who thinks * Studies in Political Economy. Essay III. most of the future, and who ha r ; 1> '>-.\ most instructed by experience. He is also the one who employs the human powers to most advantage, because dividing his occupations among all the members of his family, he reserves some for every day of the year, so that nobody is ever out of work. Of all cultivators he is the happiest, and at the same time the land nowhere occu- pies, and feeds amply without becom- ing exhausted, so many inhabitants as where they are proprietors. Finally, of all cultivators the peasant proprietor is the one who gives most encourage- ment to commerce and manufactures, because he is the richest."* This picture of unwearied assiduity, and what may be called affectionate interest in the land, is borne out in regard to the more intelligent Cantons of Switzerland by English observers. "In walking anywhere in the neigh- bourhood of Zurich," says Mr. Inglis, " in looking to the right or to the left, one is struck with the extraordinary industry of the inhabitants ; and if we learn that a proprietor here has a re. turn of ten per cent, we aro inclined to say, ' he deserves it.' 1 speak at present of country labour, though I * And in another work (New Principles of Political Economy, book iii. chap. 3) he says, " When we traverse nearly the whole of Switzerland, and several provinces of France, Italy, and Germany, we need never ask, in looking at any piece of land, if it belongs to a peasant proprietor or to a farmer. Thc ; intelligent care, the enjoyments provided for the labourer, the adornment which the country has received from his hands, are clear indications of the former. It is true an oppressive government may destroy the comfort and brutify the intelligence which should be the result of property ; taxation may abstract the best produce of the fields, the insolence of government officers may disturb the security of the peasant, the im- possibility of obtaining justice against a powerful neighbour may sow discourage- ment in his mind, and in the fine country which has been given back to the adminis- tration of the King of Sardinia, the pro- prietor, equally with the day-labourer, wears thf. livery of indigence." He was here speaking of Savoy, where the peasants were generally proprietors, and, according to au- thentic accounts, extremely miserable. But, as M. de Sismondi continues, " it is in vain to observe only one of the rules of political economy ; it cannot by itself suffice to pro- duce good; but at least it diminishes evil." 15S BOOK H. CHAPTER VI. 2. believe that in every kind of trade also, the people of Zurich are remark- able for their assiduity ; but in the industry they show in the cultivation of their land I may safely say they are unrivalled. When I used to open my casement between four and five in the morning to look out upon the lake and the distant Alps, I saw the labourer in the fields ; and when I re- turned from an evening walk, long after sunset, as late, perhaps, as half- past eight, there was the labourer, mowing his grass, or tying up his vines. ... It is impossible to look at a field, a garden, a hedging, scarcely even a tree, a flower, or a vegetable, without perceiving proofs of the ex- treme care and industry that are be- stowed upon the cultivation of the soil. If, for example, a path leads through or by the side of a field of grain, the corn is not, as in England, permitted to hang over the path, exposed to be pulled or trodden down by every passer- by ; it is everywhere bounded by .a fence, stakes are placed at intervals of about a yard, and, about two or three feet from the ground, boughs of trees are passed longitudinally along. If you look into a field towards even- ing, where there are large beds of cauliflower or cabbage, you will find that every single plant has been watered. In the gardens, which around Zurich are extremely large, the most punctilious care is evinced in every production that grows. The vege- tables are planted with seemingly mathematical accuracy ; not a single weed is to be seen, not a single stone. Plants are not earthed up as with us, but are planted in a small hollow, into each of which a little manure is put, and each plant is watered daily. Where seeds are sown, the earth directly above is broken into the finest powder ; every shrub, every flower is tied to a stake, and where there is wall-fruit, a trellice is erected against the wall, to which the boughs are fastened, and there is not single thing that has not its appropriate rest- ing place."* * Switzerland, the South of France, and the Pyrenees in 1830. By H. D.Inglis. Vol. i. ch. 2 Of one of the remote valleys of the High Alps the same writer thus ex- presses himself:* " In the whole of the Engadine the land belongs to the peasantry, who, like the inhabitants of every other place where this state of things exist, vary greatly in the extent of their pos- sessions. . . . Generally speaking, an Engadine peasant lives entirely upon the produce of his land, with the ex- ception of the few articles of foreign growth required in his family, such as coffee, sugar, and wine. Flax is grown, prepared, spun, and woven, without ever leaving his house. He has also his own wool, which is converted into a blue coat without passing through the hands of either the dyer or the tailor. The country is incapable of greater cultivation than it has received. All has been done for it that industry and an extreme love of gain can de- vise. There is not a foot of waste land in the Engadine, the lowest part of which is not much lower than the top of Snowdon. Wherever grass will grow, there it is ; wherever a rock will bear a blade, verdure is seen upon it ; wherever an ear of rye will ripen, there it is to be found. Barley and oats have also their appropriate spots; and wherever it is possible to ripen a little patch of wheat, the cultivation of it is attempted. In no country in Europe will be found so few poor as in the Engadine. In the village of Suss, which contains about six hun- dred inhabitants, there is not a single individual who has not wherewithal to live comfortably, not a single indi- vidual who is indebted to others for one morsel that he eats." Notwithstanding the general prospe- rity of the Swiss peasantry, this total absence of pauperism, and (it may al- most be said) of poverty, cannot bo predicated of the whole country; the largest and richest canton, that of Berne, being an example of the con trary ; for although, in the parts of it which are occupied by peasant pro- prietors, their industry is as remark- able and their ease and comfort as con- spicuous as elsewhere, the canton is * Ibid. cb. 8 and 10. PEASANT PKOPKIETOKS. 150 burthened with a numerous pauper population, through the operation of the worst regulated system of poor-law administration in Europe, except that of England before the new Poor Law.* Nor is Switzerland in some other re- spects a favourable example of all that peasant properties might effect. There exists a series of statistical accounts of the Swiss cantons, drawn up mostly with great care and intelligence, con- taining detailed information, of tole- rably recent date, respecting the con- dition of the land and of the people. From these, the subdivision appears to be often so minute, that it can hardly be supposed not to be excessive : and the indebtedness of the proprietors in the flourishing canton of Zurich "borders," as the writer expresses it, " on the incredible ;" so that " only the intensest industry, frugality, tem- perance, and complete freedom of com- merce enable them to stand their ground."f Yet the general conclusion ' dcducible from these books is that since the beginning of the century, and con- currently with the subdivision of many great estates which belonged to nobles or to the cantonal governments, there has been a striking and rapid improve- ment in almost every department of agriculture, as well as in the houses, the habits, and the food of the people. The writer of the account of Thiirgau goes so far as to say, that since the * There have been considerable changes in the Poor Law administration and legisla- tion of the Canton of Berne since the sen- tence in the text was written. But I am not sufficiently acquainted with the nature ando peration of these changes, to speak more particularly of them here. t Historical, Geographical, and Statistical Picture of Switzerland. Part I. Canton of Zurich. By Gerold Meyer Von Knonau, 1834, pp. 80-1 . There are villages in Zurich, he adds, in which there is not a single pro- perty unmortgaged. It does not, however, follow that each individual proprietor is deeply involved because the aggregate mass of incumbrances is large. In the Canton of Schaffhausen, for instance, it is stated tha u ' the landed properties are almost all mort- gaged, but rarely for more than one-half their registered value (Part XII. Canton of Schaffhausen, by Edward Im-Thurn, 1840, p. 52), and the mortgages are often for the improvement and enlargement of the estate. (Part XVII. Canton of Thiirgau, by J. A. Pupikofer, 1837, p. 209.) subdivision of tl.3 ferula! estates inh, peasant properties, it is not uncommon for a third or a fourth part of an estate to produce as much grain, and support as many head of cattle, as the whole estate did before.* 3. One of the countries in which peasant proprietors are of oldest date, and most numerous in proportion to the population, is Norway. Of the social and economical condition of that country an interesting account has been given by Mr. Laing. p]is testi- mony in favour of small landed pro- perties both there and elsewhere, is given with great decision. I shall quote a few passages. " If small proprietors are not good farmers, it is not from the same cause here which we are told makes them so in Scotland indolence and want of ex- ertign. The extent to which irrigation is carried on in these glens and valleys shows a spirit of exertion and co- operation^ " (I request particular atten- tion to this point), "to which the latter can show nothing similar. Hay being the principal winter support of live stock, and both it and corn, as well as potatoes, liable, from the shallow soil and powerful reflection of sunshine from the rocks, to be burnt and withered up, the greatest exertions are made to bring water from the head of each glen, along such a level as will give the command of it to each farmer at the head of his fields. This is done by leading it in wooden troughs (the half of a tree roughly scooped) from the highest perennial stream among the hills, through woods, across ravines, along the rocky, often perpendicular, sides of the glens, and from this main trough giving a lateral one to each farmer in passing the head of his farm. He distributes this supply by moveable troughs among Ijis fields ; and at this season waters each rig successively with scoops like those used by bleachers in watering cloth, laying his trough between every two rigs. One would not believe, without seeing it, how very large an extent of land is tra- versed expeditiously by these artificial * Thiirgau, p. 72. 160 BOOK II. CHAPTES VI. 3. showers. The extent of the main trouahs is very great. In one glen I walked ten miles, and found it troughed on both sides : on one, the chain is con- tinued down the main valley for forty miles.* Those may be bad farmers who do such things ; but they are not indolent, nor ignorant of the principle of working in concert, and keeping up establishments for common benefit. They are undoubtedly, in these respects, far in advance of any community of cottars in our Highland glens. They feel as proprietors, who receive the ad- vantage of their own exertions. The excellent state of the roads and bridges is another proof that the country is in- habited by people who have a common interest to keep them under repair. There are no tolls."f On the effects of peasant proprietor- ship on the Continent generally, the same writer expresses himself as fol- lows.J " If we listen to the large farmer, the scientific agriculturist, the " [English] "political economist, good farming must perish with large farms ; the very idea that good farming can exist, unless on large farms cultivated with great capital, they hold to be absurd. Draining, manuring, economical ar- rangement, cleaning the land, regular * Reichensperjjer (The Land Question) quoted by Mr. Kay (Social Condition and Education of the People in England and Europe,) observes, " that the parts of Europe where the most extensive and costly plans for watering the meadows and lands have been carried out in the greatest perfection, are those where the lands are very much subdivided, and are in the hands of small proprietors. He instances the plain round Valencia, several of the southern depart- ments of France, particularly those of Vau- cluse and Bouches du Rhone, Lombardy, Tuscany, the districts of Sienna, Lucca, and Bergamo, Piedmont, many parts of Germany, &c., in all which parts of Europe the land is very much subdivided among small proprie- tors. In all these parts great and expensive systems and plans of general irrigation have been carried out,and are nowbeing supported, by the small proprietors themselves ; thus Showing how they are able to accomplish, by means of combination, work requiring the expenditure of great quantities of capi- tal." Kay, i. 126. t Laing, Journal of a Residence in yortcay T>p. 36, 37. * Xotes of a Traveller, pp. 299 et seqq. rotations, valuable stock and imple- ments, all belong exclusively to large farms, worked by large capital, and by hired labour. This reads very well ; but if we raise our eyes from their books to their fields, and coolly compare what we see in the best districts farmed in large farms, with what we see in the best districts farmed in small farms, we see, and there is no blinking the fact, better crops on the ground in Flanders, East Friesland, Holstein, in short, on the whole line of the arable land of equal quality on the Continent, from the Sound to Calais, than we see on the line of British coast opposite to this line, and in the same latitudes, from the Frith of Forth all round to Dover. Minute labour on small portions of arable ground gives evidently, in equal soils and climate, a superior productiveness, where these small portions belong in property, as in Flanders, Holland, Friesland, and Ditmarsch in Holstein, to the farmer. It is not pretended by our agricultural writers, that our large farmers, even in Berwickshire, Roxburghshire, or the Lothians, approach to the garden-like cultivation, attention to manures, drain- age, and clean state of the land, or in productiveness from a small space of soil not originally rich, which distin- guish the small farmers of Flanders, or their system. In the best farmed parish in Scotland or England, more land is wasted in the corners and borders of the fields of large farms, in the roads through them, unnecessarily wide be- cause they are bad, and bad because they are wide, in neglected commons, waste spots, useless belts and clumps of sorry trees, and such unproductive areas, than would maintain the poor of the parish, if they were all laid to- gether and cultivated. But large capital applied to fanning is of course only applied to the very best of the soils of a country. It cannot touch the small unproductive spots which require more time and labour to fertilize them than is consistent with a quick return of capital. But although hired time and labour cannot be applied beneficially to such cultivation, the owner's own time aud labour may. He is working for PEASANT PROPRIETORS. 161 no higher terms at first from his land than a bare living. But in the course of generations fertility and value are produced ; a better living, and even very improved processes of husbandry, are attained. Furrow draining, stall feeding all summer, liquid manures, are universal in the husbandry of the small farms of Flanders, Lombardy, Switzer- land. Our most improving districts under large farms are but beginning to adopt them. Dairy husbandry even, and the manufacture of the largest cheeses by the co-operation of many small farmers,* the mutual assurance of property against fire and hail-storms, by the co-operation of small farmers the most scientific and expensive of all agricultural operations in modern times, the manufacture of beet-root sugar the supply of the European markets with flax and hemp, by the hus- bandry of small farmers the abund- ance of legumes, fruits, poultry, in the usual diet even of the lowest classes abroad, and the total want of such variety at the tables even of our middle classes, and this variety and abundance * The manner in which the Swiss peasants combine to carry on cheesemaking by their united capital deserves to be noted. " Each parish in Switzerland hires a man, generally from the district of Gruyere in the canton of Freyburg, to take care of the herd, and make the cheese. One cheeseman, one pressman or assistant, and one cowherd, are considered necessary for every forty cows. The owners of the cows get credit, each of them, in a book daily, for the quantity of milk given by each cow. The cheeseman and his assistants milk the cows, put the milk all together, and make cheese of it, and at the end of the season each owner receives the weight of cheese propor- tionable to the quantity of milk his cows have delivered. By this co-operative plan, instead of the small-sized unmarketable cheeses only, which each could produce out of his three or four cows' milk, he has the same weight in large marketable cheese superior in quality, because made by people who attend to no other business. The cheeseman and his as- sistants are paid so much per head of the cows, in money or in cheese, or sometimes they hire the cows, and pay the owners in money or cheese." Notes of a Traveller, p. 351. A similar system exists in the French Jura. See, for full details, Lavergne, Mural Economy of France, 2nd ed., pp. 139 et seqq. One of the most remarkable points in this interesting case of combination of labour, is the confidence which it supposes, and which experience must justify in the integrity of the persons employed P.E. essentially connected with the hus- bandry of small farmers all these are features in the occupation of a countrv by small proprietor-farmers, which must make the inquirer pause before he admits the dogma of our land doctors at home, that large farms worked by hired labour and great capital can alone bring out the greatest produc- tiveness of the soil and furnish the greatest supply of the necessaries and conveniences of life to the inhabitants of a country." 4. Among the many flourishing regions of Germany in which peasant properties prevail, I select the Palati- nate, for the advantage of quoting, from an English source, the results of recent personal observation of its agri- culture and its people. Mr. Howitt, a writer whose habit it is to see all English objects and English socialities on their brightest side, and who, in treating of the Khenish peasantry, certainly does not underrate the rude- ness of their implements, and the in- feriority of their ploughing, neverthe- less shows that under the invigorating influence of the feelings of proprietor- ship, they make up for the imperfec- tions of their apparatus by the inten- sity of their application. " The peasant harrows and clears his land till it is in the nicest order, and it is admirable to see the crops which he obtains."* "The peasants^ are the great and ever-present objects of country life. They are the great population of the country, because they themselves are the possessors. This country is, in fact, for the most part, in the hands of the people. It is parcelled out among the multitude The peasants are not, as with rp, for the most part, totally cut off from property in the soil they cultivate, totally dependent on the labour afforded by others they are themselves the proprietors. It is, perhaps, from this cause that they are probably the most industrious pea- santry in the world. They labour busily, early and late, because they * Rural and Domestic Life of Germany, p. 27. t Ibid. p. 40. 162 BOOK II. CHAPTER VI. 3. feel that they are labouring for them- selves The German peasants work hard, but they have no actual want. Every man has his house, his orchard, his roadside trees, commonly so heavy with fruit, that he is obliged to prop and secure them all ways, or they would be torn to pieces. He has his corn-plot, his plot for mangel- wurzel, for hemp, and so on. He is his own master ; and he, and every member of his family, have the strongest motives to labour. You see the effect of this in that unremitting diligence which is beyond that of the whole world besides, and his economy, which is still greater. The Germans, indeed, are not so active and lively as the English. You never see them in a bustle, or as though they meant to knock off a vast deal in a little time. . . . They are, on the contrary, slow, but for ever doing. They plod on from day to day, and year to year the most patient, untirable, and persever- ing of animals. The English peasant is so cut off from the idea of property, that he conies habitually to look upon it as a thing from which he is warned by the laws of the large proprietors, and becomes, in consequence, spirit- less, purposeless The German bauer, on the contrary, looks on the country as made for him and his fellow-men. He feels himself a- man ; he has a stake in the country, as good as that of the bulk of his neighbours ; no man can threaten him with ejec- tion, or the workhouse, so long as he is active and economical. He walks, therefore, with a bold step ; he looks you in the face with the air of a free man, but of a respectful one." Of their industry, the same writer thus further speaks : " There is not an hour of the year in which they do not find unceasing occupation. In the depth of winter, when the weather permits them by any means to get out of doors, they are always finding some- thing to do. They cany out their manure to their lands while the frost is in them. If there is not frost, they are busy cleaning ditches and felling old fruit trees, or such as do not bear welL Sach of them as are too poor to lay in a sufficient stock of wood, find plenty of work in ascending into the mountainous woods, and bringing thence fuel. It would astonish the English common people to see the in- tense labour with which the Germans earn their firewood. In the depth of frost and snow, go into any of their hills and woods, and there you find them hacking up stumps, cutting off branches, and gathering, by all means which the official wood-police will allow, boughs, stakes, and pieces of wood, which they convey home with the most incredible toil and patience."* After a description of their careful and laborious vineyard culture, he con- tinues, t " In England, with its great quantity of grass lands, and its large farms, so soon as the grain is in, and the fields are shut up for hay grass, the country seems in a comparative state of rest and quiet. But here they are everywhere, and for ever, hoeing and mowing, planting and cutting, weed- ing and gathering. They have a succession of crops like a market- gardener. They have their carrots, poppies, hemp, flax, saintfoin, lucerne, rape, colewort, cabbage, rotabaga, black turnips, Swedish and white tur- nips, teazles, Jerusalem artichokes, mangel-wurzel, parsnips, kidney-beans, field-beans and peas, vetches, Indian com, buckwheat, madder for the manu- facturer, potatoes, their great crop of tobacco, millet all, or the greater part, under the family management, in their own family allotments. They have had these things first to sow, many of them to transplant, to hoe, to weed, to clear off insects, to top ; many of them to mow and gather in successive crops. They have their water-meadows, of which kind almost all their meadows are, to flood, to mow, and reflood ; watercourses to reopen and to make anew ; their early fruits to gather, to bring to market with their green crops of vegetables; their cattle, sheep, calves, foals, most of them prisoners, and poultry to look after ; their vines, as they shoot rampantly in the sum- * Rural and Domestic Life of Germany p. 44. t Tbid. c. 50. PEASANT PROPRIETORS. 163 mer heat, to prune, and thin out the leaves when they arc too thick : and any one may imagine what a scene of incessant labour it is." This interesting sketch, to the general truth of which any observant traveller in that highly cultivated and populous region can bear witness, accords with the more elaborate de- lineation by a distinguished inhabitant, ' Professor Rau, in his little treatise "On the Agriculture of the Palati- nate."* Dr. Rau bears testimony not only to the industry, but to the skill and intelligence of the peasantry; their judicious employment of manures, and excellent rotation of crops ; the progressive improvement of their agri- culture for generations past, and the spirit of further improvement which is still active. " The indefatigableness of the country people, who may be seen in activity all the day and all the year, and are never idle, because they make a good distribution of their labours, and find for every interval of time a suitable occupation, is as well known as their zeal is praiseworthy in turning to use every circumstance which pre- sents itself, in seizing upon every use- ful novelty which offers, and even in searching out new and advantageous methods. One easily perceives that the peasant of this district has reflected much on his occupation : he can give reasons for his modes of proceeding, even if those reasons are not always tenable ; he is as exact an observer of proportions as it is possible to be from memory, without the aid of figures : he attends to such general signs of the times as appear "to augur him either benefit or harm." I The experience of all other parts of Germany is similar. "In Saxony," says Mr. Kay, " it is a notorious fact, that during the last thirty years, and since the peasants became the pro- prietors of the land, there has been a rapid and continual improvement in the condition of the houses, in the manner of living, in the dress of the peasants, * On the Agriculture of the Palatinate, and particularly in the territory of Heidelberg. By Dr. Karl Heinrich Rau. Heidelberg, 1830. t Rau, pp. 15, 16. and particularly in the culture of the land. I have twice walked through th;tt part of Saxony called Saxon Swit/, :- land, in company with a German guide, and on purpose to see the state of the villages and of the farming, and 1 can safely challenge contradiction when I affirm that there is no farming in all Europe superior to the laboriously care- ful cultivation of the valleys of that part of Saxony. There, as in the can- tons of Berne, Vaud, and Zurich, and in the Rhine provinces, the farms are singularly flourishing. They are kept in beautiful condition, and are always neat and well managed. The ground is cleared as if it were a garden. No hedges or brushwood encumber it. Scarcely a rush or thistle or a bit of rank grass is to be seen. The meadows are well watered every spring with liquid manure, saved from the drain- ings of the farm yards. The grass is so free from weeds that the Saxon meadows reminded me more of English lawns than of anything else I had seen. The peasants endeavour to outstrip one another in the quantity and quality of the produce, in the preparation of the ground, and in the general cultivation of their respective portions. All the little proprietors are eager to find out howtofarm so asto produce the greatest results ; they diligently seek after im- provements ; they send their children to the agricultural schools in order to fit them to assist their fathers ; and each proprietor soon adopts a new im- provement introduced by any of his neighbours."* If this be not over- stated, it denotes a state of intelligence very different not only from that of English labourers but of English farmers. Mr. Kay's book, published in 1850, contains a mass of evidence gathered from observation and inquiries in many different parts of Europe, together with attestations from many distinguished writers, to the beneficial effects of pea- * The Social Condition and Education of the People in England and Europe; showing the Results of the Primary Schools, and of the division of Landed Property in Foreign Countries. By Joseph Kay, Esq., M.A. Bar- rister-at-Law, and late Travelling Bachelor of the University of Cambridge. Vol. i. pp. M 2 164 BOOK H. CHAPTER VI. 5. sant properties. Among the testimonies which he cites respecting their effect on agriculture, I select the following. " Keicbensperger, himself an inhabi- tant of that part of Prussia where the land is the most subdivided, has published a long and very elaborate work to show the admirable consequences of a system of freeholds in land. He expresses a very decided opinion that not only are the gross products of any gi ven number of acres held and cultivated by small or peasant proprietors, greater than the gross products of an equal number of acres held by a few great proprietors, and cultivated by tenant farmers, but that the net products of the former, after deducting all the expenses of cultivation, are also greater than the net products of the latter. ... He mentions one fact which seems to prove that the fertility of the land in countries where the properties are small, must be rapidly increasing. He says that the price of the land which is divided into small properties in the Prussian Rhine provinces, is much higher, and has been rising much more rapidly, than the price of land on the great estates. He and Professor Rau both say that this rise in the price of the small estates would have ruined the more recent purchasers, unless the productiveness of the small estates had increased in at least an equal proportion ; and as the small proprietors have been gradually becoming more and more prosperous notwithstanding the increasing prices they have paid for their land, he argues, with apparent justness, that this would seem to show that not only the cross profits of the small estates, but the n^t profits also, have been gradually in- creasing, and that the net profits per acre, of land, when farmed by small proprietors, are greater than the net profits per acre of land farmed by a great proprietor. He says, with seem- ing truth, that the increasing price of land in the small estates cannot be the mere effect of competition, or it would have diminished the profits and the prosperity of the small proprietors, and that this result has not followed the rise. " Albrecht Timer, another celebrated German writer on the different systems of agriculture, in one of his later works (Principles of Rational Agriculture) expresses his decided conviction, that the net produce of land is greater when farmed by small proprietors than when farmed by great proprietors or their tenants. . . . This opinion of Thaer ia all thje more remarkable, as, during tho early part of his life, he was verj strongly in favour of the English sy sten* of great estates and great farms." Mr. Kay adds, from his own observa- tion, " The peasant fanning of Prussia, Saxony, Holland, and Switzerland is the most perfect and economical farm- ing I have ever witnessed in any country."* 5. But the most decisive example in opposition to the English prejudice against cultivation by peasant pro- prietors, is the case of Belgium. The soil is originally one of the worst in Europe. " The provinces," says Mr. M, * Pp. 78-9. 188 BOOK H. CHAPTER VIII. 3. and a pair of oxen. There is a pair of oxen between ten or twelve of the farmers ; they employ them succes- sively in the cultivation of all the farms. .... Almost every farm maintains a well-looking horse, which goes in a small two-wheeled cart, neatly made, and painted red ; they serve for all the purposes of draught for the farm, and and also to convey the farmer's daugh- ters to mass and to halls. Thus, on holidays, hundreds of these little carts are seen flying in all directions, carry- ing the young women, decorated with fiowers and ribbons." This is not a picture of poverty ; and so far as agriculture is concerned, it effectually redeems metayer cultiva- tion, as existing in these countries, from the reproaches of English writers ; but with respect to the condition of the cultivators, Chateauvieux's testi- mony is, in some points, not so favour- able. " It is* neither the natural ferti- lity of the soil, nor the abundance which strikes the eye of the traveller, which constitute the well-being of its inhabitants. It is the number of in- dividuals among whom the total pro- duce is divided, which fixes the portion that each is enabled to enjoy. Here it is very small. I have thus far, indeed, exhibited a delightful country, well watered, fertile, and covered with a perpetual vegetation ; I have shown it divided into countless inclosures, which, like so many beds in a garden, display a thousand varying produc- tions ; I have shown, that to all these inclosures are attached well-built houses, clothed with vines, and deco- rated with flowers ; but, on entering them, we find a total want of all the conveniences of life, a table more than frugal, and a general appearance of privation." Is not Chateauvieux here unconsciously contrasting the condition of the metayers with that of the fanners of other countries, when the proper standard with which to com- pare it is that of the agricultural day- labourers ? Arthur Young says,f " I was assured that these metayers are (especially near * Pp. 736. t Travel, vol. ii. p. 156. Florence) much at their ease ; that on holidays they are dressed remarkably well, and not without objects of luxury, as silver, gold, and silk : and live well, on plenty of bread, wine, and legumes. In some instances this may possibly be the case, but the general fact is con- trary. It is absurd to think that me- tayers, upon such a farm as is cul- tivated by a pair of oxen, can live at their ease ; and a clear proof of their poverty is this, that the landlord, who provides half the live stock, is often obliged to lend the peasant money to procure his half. The meta- yers, not in the vicinity of the city, are so poor, that landlords even lend them corn to eat : their food is black bread, made of a mixture with vetches ; and their drink is yery little wine, mixed with water, and called aquarotte / meat on Sundays only ; their dress very ordinary." Mr. Jones admits the su- perior comfort of the metayers near Florence, and attributes it partly to straw-plaiting, by which the women of the peasantry can earn, according to Chateauvieux,* from fifteen to twenty pence a-day. But even this fact tells in favour of the metayer system ; for in those parts of England in which either straw-plaiting or lace-making is carried on by the women and children of the labouring class, as in Bedford- shire and Buckinghamshire, the con- dition of the class is not better, but rather worse than elsewhere, the wages of agricultural labour being depressed by a full equivalent. In spite of Chateauvieux's state- ment respecting the poverty of the metayers, his opinion, in respect to Italy at least, is given in favour of the system. " It occupies! and constantly interests the proprietors, which is never the case with great proprietors who lease their estates at fixed rents. It establishes a community of interests, and relations of kindness between the proprietors and the metayers ; a kind- ness which I have often witnessed, and from which result great advantages in the moral condition of society. The proprietor, under this system, always * 1,-ettersjrom Italy, p. 75. t Ibid. pp. 295-G. METAYERS. interested in the success of the crop, never refuses to make an advance upon it, which the land promises to repay with interest. It is by these advances, and by the hope thus in- 189 it is there also that the metayer locks up his casks, his oil, and his grain. Almost always there is also a shed supported against the house, where ho can work under cover to mend his spired, that the rich proprietors ' oir | tools, or chop forage for his cattle. On land have gradually perfected the whole rural economy of Italy. It is to them that it owes the numerous systems of irrigation which water its soil, as also the -establishment of the terrace culture on the hills: gradual but permanent improvements, which common peasants, for want of means, could never have effected, and which could never have been accomplished by the farmers, nor by the great proprietors who let their estates at fixed rents, because they are not sufficiently interested. Thus the in- terested system forms of itself that alliance between the rich proprietor, whose means provide for the improve- ment of the culture^ and the metayer, whose care and labours are directed, by a common interest, to make the most of these advances." But the testimony most favourable to the system is that of Sismondi, which has the advantage of being specific, and from accurate knowledge ; his information being not that of a traveller, but that of a resident pro- prietor, intimately acquainted with rural life. His statements apply to Tuscany generally, and more par- ticularly to the Val di Nievole, in which his own property lay, and which is not within the supposed privileged circle immediately round Florence. It is one of the districts in which the size of farms appears to be the smallest. The following is his description of the dwellings and mode of life of the me- tayers of that district.* " The house, built of good walls with lime and mortar, has always at least one story, sometimes two, above the ground floor. On the ground floor are generally the kitchen, a cowhouse for twohorned cattle, and the storehouse, which takes its name, tinaia, from the iarge vats (tini) in which the wine is put to ferment, without any pressing : * From his Sixth Essay, formerly re- ferred to. the first and second stories are two, three, and often four bedrooms. The largest and most airy of these is generally destined by the metayer, in the months of May and June, to the bringing up of silkworms. Great chests to contain clothes and linen, and some wooden chairs, are the chief furniture of the chambers ; but a newly-married wife always brings with her a wardrobe of walnut wood. The beds are uncurtained and unroofed, but on each of them, besides a good pail- lasse filled with the elastic straw of the maize plant, there are one or two mattresses of wool, or, among the poorest, of tow, rf good blanket, sheets of strong hempen cloth, and on the best bed of the family a coverlet of silk padding, which is spread on festival days. The only fireplace is in the kitchen ; and there also is the great wooden table where the family dines, and the benches ; the great chest which serves at once for keeping the bread and other provisions, and for kneading ; a tolerably complete though cheap assortment of pans, dishes, and earthenware plates : one or two metal lamps, a steelyard, and at least two copper pitchers for drawing and hold- ing water. The linen and the work- ing clothes of the family have all b3en spun by the women of the house. The clothes, both of men and of women, are of the stuff called mezzo, lana when thick, mola when thin, and made of a coarse thread of hemp or tow, filled up with cotton or wool ; it is dried by the same women by whom it was spun. It would hardly be believed what a quan- tity of cloth and of mezza lana the peasant women are able to accumu- late by assiduous industry ; how many sheets there are in the store ; what a number of shirts, jackets, trowsers, petticoats, and gowns are possessed by every member of the family. By way of example I add in a note the inven- tory of the peasant family best known 190 BOOK H. CHAPTER V1I1. 3. to me : it is neither one of the richest nor of the poorest, and lives happily by its industry on half the produce of less than ten arpents of land.* The young women had a marriage portion of fifty crowns, twenty paid down, and the rest by instalments of two every year. The Tuscan crown is worth six francs [4s. lOtTJ. The commonest marriage portion of a peasant girl in the other parts of Tuscany, where the metairics are larger, is 100 crowns, 600 francs." Is this poverty, or consistent with poverty? When a common, M. de Sisinondi even says the common, mar- riage portion of a metayer's daughter is 241. English money, equivalent to at least 5UL in Italy and in that rank of life ; when one whose dowry is only half that amount, has the wardrobe described, which is represented by Sismondi as a fair average ; the class must be fully comparable, in general condition, to a large proportion even of capitalist farmers in other countries ; and incomparably above the day- labourers of any country, except a new colony, or the United States. Very- little can be inferred, against such evi- dence, from a traveller's impression of the poor quality of their food. Its in- expensive character may be rather the effect of economy than of necessity. Costly feeding is not the favourite luxury of a southern people ; their diet in all classes is principally vege- table, and no peasantry on the Continent has the superstition of the English labourer respecting white * Inventory of the trousseau of Jane, daughter of Valente Papini, on her marriage with Giovacchino Landi, the 29th of April 1835, at Porta Vecchia, near Pescia : " 23 shifts, 7 best dresses (of particular fabrics of silk), 7 dresses of printed cotton, 2 winter working dresses (mezzo, lana), 3 summer working dresses and petticoats (mola), 3 white petticoats, 5 aprons of printed linen, 1 of black silk, 1 of black merinos, 9 coloured working aprons (mola), 4 white, 8 coloured, and 3 silk, handkerchiefs, 2 em- broidered veils and one of tulle, 3 towels, 14 pairs of stockings, 2 hats (one of felt, the other of fine strav.-) ; 2 cameos set in gold, 2 golden earrings, 1 chaplet with two Roman silver crowns, 1 coral necklace with its cross of gold. . . . All the richer married women of the class have, besides, the veste di teta, the great holiday dress, which they only wear four or five times in their lives." bread. But the nourishment of the Tuscan peasants, according to Sis- mondi, " is wholesome and various : its basis is an excellent wheaten bread, brown, but pure from bran and from all mixture.'' In the bad season, they take but two meals a day: at ten in the morning they eat their pollenta, at the beginning of the night their soup, and after it bread with a relish of some sort (companatico). In summer they have three meals, at eight, at one, and in the evening ; but the fire is lighted only once a day, for dinner, which consists of soup, and a dish of salt meat or dried fish, or haricots, or greens, which are eaten with bread. Salt meat enters in a very small quantity into this diet, for it is reckoned that forty pounds of salt pork per head suffice amply for a year's provision; twice a week a small piece of it is put into the soup. On Sundays they have always on the table a dish of fresh meat, but a piece which weighs only a pound or a pound and a half suffices for the whole family, however numerous it may be. It must not be forgotten that the Tuscan peasants generally produce olive oil for their own con- sumption : they use it not only for lamps, but as seasoning to all the vegetables prepared for the table, which it renders both more savoury and more nutritive. At breakfast their food is bread, and sometimes cheese and fruit ; at supper, bread and salad. Their drink is composed of the inferior wine of the country, the vindla or piquette made by fermenting in water the pressed skins of the grapes. They always, however, reserve a little of their best wine for the day when they thresh their corn, and for some festivals which are kept in families. About fifty bottles of vinella per annum, and five sacks of wheat (about 1000 pounds of bread) are considered as the supply necessary for a full grown man." The remarks of Sismondi on the moral influences of this state of so- ciety are not less worthy of attention. The rights and obligations of the metayer being fixed by usage, and all taxes and rates being paid by the pro- METAYERS. 191 prietor, "the metayer lias the advan- tages of landed property without the burthen of defending it. It is the landlord to whom, with the land, be- long all its disputes : the tenant lives in peace with all his neighbours ; be- tween him and them there is no motive for rivality or distrust, he preserves a good understanding with them, as well as with his landlord, with the tax- collector, and with the church : he sells little, and buys little ; he touches little money, but he seldom has any to pay. The gentle and kindly character of the Tuscans is often spoken of, but without sufficiently remarking the cause which has contributed most to keep up that gentleness ; the tenure, by which the entire class of farmers, more than three-fourths of the popula- tion, are kept free from almost every occasion for quarrel.' 7 The fixity of tenure which the metayer, so long as he fulfils his own obligations, possesses by usage, though not by law, gives him the local attachments, and almost the strong sense of personal interest, characteristic of a proprietor. " The metayer lives on his metairie as on his inheritance, loving it with affection, labouring incessantly to improve it, confiding in the future, and making Bure that his land will be tilled after him by his children and his children's children. In fact, the majority of metayers live from generation to gene- ration on the same farm ; they know it in its details with a minuteness which the feeling of property can alone give. The plots terrassed up, one above the other, are often not above four feet wide ; but there is not one of them, the qualities of which the me- tayer has not studied. This one is dry, that other is cold and damp : here the soil is deep, there it is a mere crust which hardly covers the rock; wheat thrives best on one, rye on ano- ther: here it would be labour wasted to sow Indian corn, elsewhere the soil is unfit for beans and lupins, further off flax will grow admirably, the edge of this brook will be suited for hemp. In this way one learns with surprise from the metayer, that in a space of ten arpents, the soil, the aspect, and the inclination of the ground present greater variety than a rich farmer is generally able to distinguish in a farm of five hundred acres. ^For the latter knows that he is only a temporary occupant ; and moreover, that he must conduct his operations by general rules, and neglect details. But the expe- rienced metayer has had his intelli- gence so awakened by interest and affection, as to be the best of observers ; and with the whole future before him, he thinks not of himself alone, but of his children and grandchildren. There- fore, when he plants an olive, a tree which lasts for centuries, and exca- vates at -the bottom of the hollow in which he plants it, a channel to let out the water by which it would be in- jured, he studies all the strata of the earth which he has to dig out."* 4. I do not offer these quota- tions as evidence of the intrinsic excellence of the metayer system ; but they surely suffice to prove that neither "land miserably cultivated" nor a people in " the most abject po- verty," have any necessary connexion with it, and that the unmeasured vitu- peration lavished upon the system by English writers, is grounded on an * Of the intelligence of this interesting people, M. de Sismondi speaks in the most favourable terms. Few of them can read ; but there is often one member of the family destined for the priesthood, who reads to them on winter evenings. Their language differs little from the purest Italian. The taste for improvisation in verse is general. " The peasants of the Vale of Nievole fre- quent the theatre in summer on festival days, from ninetn eleven at night: their admission costs them little more than five French sous \2\d~]. Their favourite author is Alfieri; the whole history of the Atridse is familiar to these people who cannot read, and who seek from that austere poet a relaxation from their rude labours." Unlike most rustics, they find pleasure in the beauty of their country. " In the hills of the vale of Nievole there is in front of every house a threshing-ground, seldom of more than 25 or 30 square fathoms ; it is often the only level space in the whole farm : it is at the same time a terrace which commands the plains and the valley, and looksout upon a delight- ful country. Scarcely ever have I stood still to admire it, without the metayer's coming out to enjoy my admiration, and point out with his finger the beauties which he thought might have escaped my notice." 192 BOOK 11. CHAPTEli Vlll. 4. extremely narrow view of tlie subject. I look upon the rural economy of Italy as simply so much additional evidence in favour of small occupations with permanent tenure. It is an example of what can be accomplished by those two elements, even under the disad- vantage of the peculiar nature of the metayer contract, in which the motives to exertion on the part of the tenant are only half as strong as if he farmed the land on the same footing of per- petuity at a money-rent, either fixed, or varying according to some rule which would leave to the tenant the whole benefit of his own exertions. The metayer tenure is not one which we should be anxious to introduce where the exigencies of society had not naturally given birth to it ; but neither ought we to be eager to abolish it on a mere a priori view of its dis- advantages. If the system in Tus- cany works as well in practice as it is represented to do, with every appear- ance of minute knowledge, by so com- petent an authority as Sismondi; if the mode of living of the people, and the size of farms, have for ages main- tained and still maintain themselves* such as they are said to be by him, it were to be regretted that a state of rural well-being so much beyond what is realised in most European countries, should be put to hazard by an attempt to introduce, under the guise of agri- cultural improvement, a system of money-rents and capitalist farmers. Even where the metayers are poor, and the subdivision great, it is not to be assumed as of course, that the change would be for the better. The enlargement of farms, and the intro- duction of what are called agricultural improvements, usually diminish the * " We never," says Sismondi, " find a family of metayers proposing to their land- lord to divide the metairie, unless the work is really more than they can do, and they feel assured of retaining the same enjoyments on a smaller piece of ground. We never find several sons all marrying, and forming as many new families: only one marries and undertakes the charge of the household: none of the others marry unless the first is childless, or unless some one of them has the offer of a new metairie." New Principles of Political Economy, book iii. ch.5. number of labourers employed on the land ; and unless the growth of capital in trade and manufactures affords an opening for the displaced population, or unless there are reclaimable wastes on which they can be located, compe- tition will so reduce wages, that they will probably be worse off as day labourers than they were as metayers. Mr. Jones very properly objects against the French Economists of the last century, that in pursuing their favourite object of introducing money- rents, they turned "their minds solely to putting farmers in the place of metayers, instead of transforming tho existing metayers into farmers ; w T hich, as he justly remarks, can scarcely be effected, unless, to enable the metayers to save and become owners of stock, the proprietors submit for a conside- rable time to a diminution of income, instead of expecting an increase of it, which has generally been their imme- diate motive for making the attempt. If this transformation were effected, and no other change made in the me- tayer's condition ; if, preserving all the other rights which usage ensures to him, he merely got rid of the land- lord's claim to half the produce, paying in lieu of it a moderate fixed rent ; he would be so far in a better position than at present, as the whole, instead of only half the fruits of any improve- ment he made, would now belong to himself; but even so, the benefit would not be without alloy ; for a metayer, though not himself . capitalist, has a capitalist for his partner, and has the use, in Italy at least, of a considerable capital, as is proved by the excellence of the farm buildings : and it is not probable that the landowners would any longer consent to peril their move- able property on the hazards of agri- cultural enterprise, when assured of a fixed money income without it. Thus would the question stand, even if the change left undisturbed the metayer's virtual fixity of tenure, and converted him, in fact, into a peasant proprietor at a quit rent. But if we suppose him converted into a mere tenant, displace- able at the landlord's will, and liable to have his rent raised by competition to any amount which any unfortunate being in search of subsistence can bo found to oft'er or promise for it ; he would lose all the features in his con- dition which preserve it from being COTTIERS. 193 deteriorated : he would be cast down from his present position of a kind of half proprietor of the land, and would sink into a cottier tenant. CHAPTER IX. OP COTTIERS. i. BY the general appellation of cottier tenure, I shall designate all cases without exception, in which the labourer makes his contract for land without the intervention of a capitalist farmer, and in which the conditions of the contract, especially the amount of rent, are determined not by custom but by competition. The principal European example of this tenure is Ireland, and it is from that country that the term cottier is derived.* By far the greater part of the agricultural population of Ireland might until very lately have been said to be cottier-tenants ; except so far as the Ulster tenant- right constituted an exception. There was, indeed, a numerous class of labourers who (we may presume through the refusal either of proprie- tors or of tenants in possession to per- mit any further subdivision) had been unable to obtain even the smallest patch of land as permanent tenants. But, from the deficiency of capital, the custom of paying wages in land was so universal, that even those who worked as casual labourers for the cottiers or for such larger farmers as were found in the country, were usually paid not in money, but by permission to cultivate for the season a piece of ground, which was generally delivered to them by the farmer ready manured, and was known by the name * In its original acceptation, the word " cottier" designated a class of sub-tenants, who rent a cottage and an acre or two of land from the small farmers. But the usage of writers has long since stretched the term to include those small farmers themselves, and generally all peasant farmers whose rents are determined by competition. r.E. of conacre. For this they agreed to pay a money rent, often of several pounds an acre, but no money actually passed, the debt being worked out in labour, at a money valuation. The produce, on the cottier system, being divided into two portions, rent, and the remuneration of the labourer ; the one is evidently determined by the other. The labourer has whatever the landlord does not take : the con- dition of the labourer depends on the amount of rent. But rent, being regu- lated by competition, depends upon the relation between the demand for land, and the supply of it. The demand for land depends on tho number of com- petitors, and the competitors are the whole rural population. The effect, therefore, of this tenure, is to bring* the principle of population to act directly on the land, and not, as in England, on capital. Rent, in this state ot' things, depends on the proportion be- tween population and land. As the land is a fixed quantity, while popula- tion has an unlimited power of in- crease ; unless something checks that increase, the competition for land soon forces up rent to the highest point consistent with keeping tho population alive. The effects, there- fore, of cottier tenure depend on tho extent to which the capacity of popu- lation to increase is controlled, either by custom, by individual prudunce, or by starvation and disease. It would be an exaggeration to affirm, that cottier tenancy ia Abso- lutely incompatible with a prosperous condition of tho labouring class. If we could suppose it to exist among a BOOK H. CHAPTER IX. 1. 19-i people to whom a high standard of comfort was habitual ; whose require- ments were such, that they would not offer a higher rent for land than would leave them an ample subsistence, and whose moderate increase of numbers left no unemployed population to force up rents by competition, save when ihe increasing produce of the land from increase ^of skill would enable a higher rent to be paid without incon- venience ; the cultivating class might be as well remunerated, might have as large a share of the necessaries and comforts of life, on this system of tenure as on any other. They would not, however, while their rents were arbi- trary, enjoy any of the peculiar ad- vantages which metayers on the Tuscan system derive from their connexion with the land. They would neither have the use of a capital belonging to their landlords, nor would the want of this be made up by the intense motives to bodily and mental exertion which act upon the peasant who has a per- manent tenure. On the contrary, any increased value given to the land by the exertions of the tenant, would have no effect but to raise the rent against himself, either the next year, or at farthest when his lease expired. The landlords might have justice or good sense enough not to avail themselves of the advantage which competition would give them ; and different land- lords would do so in different degrees. But it is never safe to expect that a class or body of men will act in opposi- tion to their immediate pecuniary in- terest; and even a doubt on the subject would be almost as fatal as a certainty, for when a person is con- sidering whether or not to undergo a present exertion or sacrifice for a com- paratively remote future, the scale is turned by a very small probability that the fruits of the exertion or of the sacrifice would be taken from him. The only safeguard against these uncertainties would be the growth of a custom, insuring a perma- nence of tenure in the same occupant, without liability to any other increase of rent than might happen to be sanc- tioned by the general sentiments of the community. The Ulster tenant-right is such a custom. The very consider- able sums which outgoing tenants ob- tain from their successors, for the good- will of their farms,* in the first place actually limit the competition for land to persons who have such sums to offer : while the same fact also proves that full advantage is not taken by the landlord of even that more limited competition, since the landlord's rent does not amount to the whole of what the incoming tenant not only offers but actually pays. He does so in the full confidence that the rent will not be raised ; and for this he has the guaran- tee of a custom, not recognised by law, but deriving its binding force from another sanction, perfectly well under- stood in Ireland.f Without one or other of these supports, a custom limit- ing the rent of land is not likely to grow up in any progressive community. If wealth and population were stationary, rent also would generally be station- ary, and after remaining a long time unaltered, would probably come to be considered unalterable. But all pro- gress in wealth and population tends toa rise of rents. Under a metayer system there is an established mode in which the owner of land is sure of partici- pating in the increased produce drawn from it. But on the cottier system he can only do so by a readjustment of the * " It is not uncommon for a tenant with- out a lease to sell the bare privilege of occu- pancy or possession of his farm, without any visible sign of improvement having been made by him, at from ten to sixteen, up to twenty and even forty years purchase of the rent." (Digest of Evidence taken by Lord Decon's Commission, Introductory Chapter.) The compiler adds, " the comparative tranquillity of that district" (Ulster) " may perhaps be mainly attributable to this fact." f "It is in the great majority of cases not a reimbursement for outlay incurred, or im- provements effected on the land, but a mere life insurance or purchase of immunity from outrage." (Digest, ut supra.) "The present tenant-right of Ulster" (the writer judiciously remarks) " is an embryo copyhold." " Even there, if the tenant-right be disregarded, and a tenant be ejected w ithout having received the price of his good-will, outrages are gene- rally the consequence." (Ch. via.) " The disorganized state of Tipperary, and the agrarian combination throughout Ireland, are but a methodized war to obtain the Ulster tenant-right." COTTIERS. 195 contract, while that readjustment, in a progressive community, would almost always be to his advantage. His interest, therefore, is decidedly opposed to the growth of any custom commuting rent into a fixed demand. 2. Where the amount of rent is not limited, either by law or custom, a cottier system has the disadvantages of the worst metayer system, with scarcely any of the advantages by which, in the best forms of that tenure, they are compensated. It is scarcely possible that cottier agricul- ture should be other than miserable. There is not the same necessity that the condition of the cultivators should be so. Since by a sufficient restraint on population competition for land could be kept down, and extreme poverty prevented ; habits of prudence and a high standard of comfort, once established, would have a fair chance of maintaining themselves : though even in these favourable circumstances the motives to prudence would be consider- ably weaker than in the case of metay- ers, protected by custom (like those of Tuscany) from being deprived of their farms : since a metayer family, thus protected, could not be impoverished by any other improvident multiplication than their own, but a cottier family, however prudent and self-restraining, may have the rent raised against it by the consequences of the multiplication of other families. Any protection to the cottiers against this evil could only be derived from a salutary sentiment of duty or dignity, pervading the class. From this source, however, they might derive considerable protection. If the habitual standard of requirement among the class were high, a young man might not choose to offer a rent which would leave him in a worse condition than the preceding tenant ; or it might be the general custom, as it actually is in some countries, not to marry until a farm is vacant. But it is not where a high standard of comfort has rooted itself in the habits of the labouring classes, that we are ever called upon to consider the effects of a cottier system. That system is found only where the habitual reqinV- ments of the rural labourers are the lowest possible ; where, as long as they are not actually starving, they will multiply : and population is only checked by the diseases, and the short- ness of life, consequent on insufficiency of merely physical necessaries. This was the state of the largest portion of the Irish peasantry. When a people have sunk into this state, and still more when they have been in it from time immemorial, the cottier system is an almost insuperable obstacle to their emerging from it. When the habits of the people are such that their increase is never checked but by the impossi- bility of obtaining a bare support, and when this support can only be obtained from land, all stipulations and agree- ments respecting amount of rent are merely nominal ; the competition for land makes the tenants undertake to pay more than it is possible they should pay, and when they have paid all they can, more almost always remains due. "As it may fairly be said of the Irish peasantry," said Mr. Re vans, the Secretary to the Irish Poor Law En- quiry Commission,* "that every family which has not sufficient land to yield its food has one or more of its members supported by begging, it will easily be conceived that every endeavour is made by the peasantry to obtain small hold- ings, and that they are not influenced in their biddings by the fertility of the land, or by their ability to pay the rent, but solely by the offer which is most likely to gain them possession. The rents which they promise, the) are almost invariably incapable of pay- ing ; and consequently they become indebted to those under whom they hold, almost as soon as they take possession. They give up, in the shape of rent, the whole produce of the land with the exception of a sufficiency of potatoes for a subsistence ; but as this is rarely equal to the promised rent, Evils of the State of Ireland, their Cautet and their Remedy. Page 10. A pamphlet, containing, among other things, an exec-Unit digest and selection of evidence from the mass collected by the Commission presided over by Archbishop Whately. 196 BOOK H. CHAPTER IX. 3. they constantly have against them an increasing balance. In some cases, the largest quantity of produce which their holdings ever yielded, or -which, under their system of tillage, they could in the most favourable seasons be made to yield, would not be equal to the rent bid ; consequently, if the peasant fulfilled his engagement with his landlord, which he is rarely able to accomplish, he would till the ground for nothing, and give his landlord a premium for being allowed to till it. On the sea-coast, fishermen, and in the northern counties those who have looms, frequently pay more in rent than the market value of the whole produce of the land they hold. It might be supposed that they would be better without land under such circum- stances. But fishing might fail during a week or two, and so might the de- mand for the produce of the loom, when, did they not possess the land upon which their food is grown, they might starve. The full amount of the rent bid, however, is rarely paid. The peasant remains constantly in debt to his landlord; his miserable posses- sionsthe wretched clothing of him- self and of his family, the two or three stools, and the few pieces of crockery, which his wretched hovel contains, would not, if sold, liquidate the stand- ing and generally accumulating debt. The peasantry are mostly a year in arrear, and their excuse for not paying more is destitution. Should the pro- duce of the holding, in any year, be more than usually abundant, or should the peasant by any accident become possessed of any property, his comforts cannot be increased ; he cannot indulge in better food, nor in a greater quantity of it. His furniture cannot be increased, neither can his wife or children be better clothed. The acquisition must go to the person under whom he holds. The accidental addition will, enable him to reduce his arrear of rent, and thus to defer ejectment. But this must be the bound of his expectation." As an extreme instance of the in- tensity of competition for land, and of the monstrous height to which it occa- sionally forced up the nominal rent; we may cite from the evidence taken by Lord Devon's Commission,* a fact attested by Mr. Hurly, Clerk of the Crown for Kerry: "I'have known a tenant bid for a farm that I was per- fectly well acquainted with, worth 501. a-year : I saw the competition get up to such an extent, that he was declared the tenant at 450Z." 3. In such a condition, what can a tenant gain by any amount of in- dustry or prudence, and what lose by any recklessness ? If the landlord at any time exerted his full legal rights, the cottier would not be able even to live. If by extra exertion he doubled the produce of his bit of land, or if he prudently abstained from producing mouths to eat it up, his only gain would be to have more left to pay to his land- lord ; while, if he had twenty children, they would still be fed first, and the landlord could only take what was left. Almost alone amongst mankind the cottier is in this condition, that he can scarcely be either better or worse off by any act of his own. If he were industrious or prudent, nobody but his landlord would gain ; if he is lazy or intemperate, it is at his landlord's ex- pense. A situation more devoid of motives to either labour or self-com- mand, imagination itself cannot con- ceive. The inducements of free human beings are taken away, and those of a slave not substituted. He has nothing to hope, and nothing to fear, except being dispossessed of his holding, and against this he protects himself by the idtima ratio of a defensive civil war. Rockism and Whiteboyism were the determination of a people who had nothing that could be called theirs but a daily meal of the lowest description of food, not to submit to being deprived of that for other people's convenience. Is it not, then, a bitter satire on the mode in which opinions are formed on the most important problems of humaii nature and life, to find public instruc- tors of the greatest pretension, imput- ing the backwardness of Irish industry, and the want of energy of the Irish people in improving their condition, to * Evidence, p. 851. COTTIERS. 197 a peculiar indolence and recklessness in the Celtic race? Of all vulgar modes of escaping from the considera- tion of the effect of social and moral influences on the human mind, the most vulgar is that of attributing the diversities of conduct and character to inherent natural differences. What race would not be indolent and in- souciant when things are so arranged, that they derive no advantage from forethought or exertion ? If such ai-e the arrangements in the midst of which they live and work, what wonder if the listlessness and indifference so en- gendered are not shaken off the first moment an opportunity offers when ex- ertion would really be of use ? It is very natural that a pleasure-loving and sensitively organized people like the Irish, should be less addicted to steady routine labour than the English, because life has more excitements for them inde- pendent of it ; but they are not less fitted I or it than their Celtic brethren the French, nor less so than the Tuscans, or the ancient Greeks. An excitable organization is precisely that in which, by adequate inducements, it is easiest to kindle a spirit of animated exertion. It speaks nothing against the capaci- ties of industry in human beings, that they will not exert themselves without motive. No labourers work harder, in England or America, than the Irish ; but not under a cottier system. 4. The multitudes who till the soil of India, are in a condition suffi- ciently analogous to the cottier system, and at the same time sufficiently dif- ferent from it, to render the compari- son of the two a source of some in- struction. In most parts of India there are, and perhaps have always been, only two contracting parties, the landlord and the peasant : the landlord being generally the sovereign, except where he has, by a special instrument, conceded his rights to an individual, who becomes his representative. The payments, however, of the peasants, or ryots, -as they are termed, have seldom if ever been regulated, as in Ireland, by competition. Though the customs locally obtaining were infinitely va- rious, and though practically no cus- tom could be maintained against the sovereign's will, there was always a rule of some sort common to a neigh- bourhood : the collector did not make his separate bargain with the peasant, but assessed each according to tho rule adopted for the rest. The idea was thus kept up of a right of property in the tenant, or at all events, of a right to permanent possession ; and the anomaly arose of a fixity of tenure in the peasant-farmer, co-existing with an arbitrary power of increasing the rent. When the Mogul government sub- stituted itself throughout the greater part of India for the Hindoo rulers, it proceeded on a different principle. A minute survey was made of the land, and upon that survey an assessment was founded, fixing the specific pay- ment due to the government from each field. If this assessment had never been exceeded, the ryots would have been in the comparatively advantage- ous position of peasant-proprietors, sub- ject to a heavy, but a fixed quit-rent. The absence, however, of any real pro- tection against illegal extortions, ren- dered this improvement in their condi- tion rather nominal than real; and, except during the occasional accident of a humane and vigorous local admin- istrator, the exactions had no practical limit but the inability of the ryot to pay more. It was to this state of things that the English rulers of India succeeded ; and they were, at an early period, struck with the importance of putting an end to this arbitrary character of the land-revenue, and imposing a fixed limit to the government demand. They did not attempt to go back to the Mogul valuation. It has been in gene- ral the very rational practice of the English Government in India, to pay little regard to what was laid down as the theory of the native institutions, but to inquire into the rights winch existed and were respected in practice, and to protect and enlarge those. For a long time, however, it blundered grievously about matters of fact, and grossly misunderstood the usages and rights which it found existing. Its 198 ynistakes arose from the inability of ordinary minds to imagine a state of so- cial relations fundamentally different from those with which they are practi- cally familiar. England being accus- tomed to great estates and great land- lords, the English rulers took it for granted that India must possess the like ; and looking round for some set of people who might be taken for the objects of their search, they pitched upon a sort of tax-gatherers called zemindars. " Thezemindar,"says the philosophical historian of India,* "had some of the attributes which belong to a landowner ; he collected the rents of a particular district, he governed the cultivators of that district, lived in comparative splendour, and his son succeeded him when he died. The zemindars, therefore, it was inferred without delay, were the proprietors of the soil, the landed nobility and gentry of India. It was not considered that the zemindars, though they collected the rents, did not keep them ; but paid them all away, with a small deduction, to the government. It was not con- sidered that if they governed the ryots, and in many respects exercised over them despotic power, they did not govern them as tenants of theirs, hold- ing their lands either at will or by con- tract under them. The possession of the ryot was an hereditary possession ; from which it was unlawful for the zemindar to displace him : for every farthing which the zemindar drew from the ryot, he was bound to account; and it was only by fraud, if, out of all tliat he collected, he retained an ana more than the small proportion which, as pay for the collection, he was per- mitted to receive." " There was an opportunity in India,' ; continues the historian, " to which the history of the world presents not a parallel. Next after the sovereign, the immediate cultivators had, by far, the greatest portion of interest in the soil. For the rights (such as they were) of the zemindars, a complete compensation might have easily been made. The generous resolution was * Mill's History of British India, book vi. Ch. 8. BOOK H CHAPTER IX. 4. adopted, of sacrificing to the improve- ment of the country, the proprietary rights of the sovereign. The motives to improvement which property gives, and of which the power was so justly appreciated, might have been bestowed upon those upon whom they would have operated with a force incomparably greater than that with which they could operate upon any other class of men : they might have been bestowec upon those from whom alone, in ever;' country, the principal improvements in agriculture ^must be derived, the immediate cultivators of the soil. And a measure worthy to be ranked among the noblest that ever were taken for the improvement of any country, might have helped to compensate the people of India for the miseries of that mis- government which they had so long endured. But the legislators were English aristocrats ; and aristocratical prejudices prevailed." The measure proved a total failure, as to the main effects which its well- meaning promoters expected from it. Unaccustomed to estimate the mode in which the operation of any given insti- tution is modified even by such variety of circumstances as exists within a single kingdom, they flattered them- selves that they had created, through- out the Bengal provinces, English landlords, and it proved that they had only created Irish ones. The new landed aristocracy disappointed every expectation built upon them. They did nothing for the improvement of their estates, but everything for their own ruin. The same pains not being taken, as had been taken in Ireland, to enable the landlords to defy the conse- quences of their improvidence, nearly the whole land of Bengal had to be sequestrated and sold, for debts or arrears of revenue, and in one genera- tion most of the ancient zemindars had ceased to exist. Other families, mostly the descendants of Calcutta money dealers, or of native officials who had enriched themselves under the British government, now occupy their place ; and live as useless di-ones on the soil which has been given up to them. Whatever the government has sacri- MEANS OF ABOLISHING COTTIER TENANCY. 11,0 ficed of its pecuniary claims, for the creation of such a class, has at the best been wasted. In the parts of India into which the British rule has been more recently introduced, the blunder has been avoided of endowing a useless body of great landlords with gifts from the public revenue. In most parts of the Madras and in part of the Bombay Presidency, the rent is paid directly to the govern- ment by the immediate cultivator. In the North- Western Provinces, the government makes its engagement with the village community collec- tively, determining the share to be paid by each individual, but holding them jointly responsible for each other's de- fault. But in the greater part of India, the immediate cultivators have not ob- tained a perpetuity of tenure at a fixed rent. The government manages the land on the principle on which a good Irish landlord manages his estate : not putting it up to competition, not asking the cultivators what they will promise to pay, but determining for itself what they can afford to pay, and defining its demand accordingly. In many districts a portion of the cultivators are considered as tenants of the rest, the government making its demand from those only (often a numerous body) who are looked upon as the successors of the original settlers or conquerors of the village. Some- times the rent is fixed only for one year, sometimes for three or five ; but the uniform tendency of present policy is towards long leases, extending, in the northern provinces of India, to a term of thirty years. This arrange- ment has not existed for a sufficient time to have shown by experience, how far the motives to improvement which the long lease creates in the minds of the cultivators, fall short of the influence of a perpetual settle- ment.* But the two plans, of annual settlements and of short leases, are irrevocably condemned. They can only be said to have succeeded, in compari- son with the unlimited oppression which existed before. They are approved by nobody, and were never looked upon in any other light than as temporary ar- rangements, to be abandoned when a more complete knowledge of the capa- bilities of the country should afford j data for something more permanent. CHAPTER X. MEANS OF ABOLISHING- COTTIER TENANCY, 1. WHEN the first edition of this work was written and published, the question, what is to be done with a cottier population, was to the English Government the most urgent of prac- tical questions. The majority of a population of eight millions, having long grovelled in helpless inertness and abject poverty under the cottier sys- tem, reduced by its operation to mere food of the cheapest description, and to an incapacity of either doing or will- ing anything for the improvement of their lot, had at last, by the failure of that lowest quality of food, been plunged into a state in which the alternative seemed to be either death, or to be permanently supported by other people, or a radical change in the economical arrangements under which it had hitherto been their misfortune to live. Such an emergency had com- pelled attention to the subject from the legislature and from the nation, but it could hardly be said with much re- sult ; for, the evil having originated in a system of land tenancy which with- drew from the people every motive to * Since this -was written, the resolution has been adopted by the Indian Government of converting the long leases of the Northern Provinces into perpetual tenures at fixed rents. 200 BOOK II. CHAPTER X. 1. Industry or thrift except the fear of starvation, the remedy provided by Parliament was to take away even that, by conferring on them a legal claim to eleemosynary support : while, towards correcting the cause of the mischief, nothing was done, beyond vain complaints, though at the price to the national treasury of ten millions sterling for the delay. " It is needless," (I observed) "to expend any argument in proving that the very foundation of the economical evils of Ireland is the cottier system ; that while peasant rents fixed by com- petition are the practice of the co'untry, to expect industry, useful activity, any restraint on population but death, or any the smallest diminution of poverty, is to look for figs on thistles and grapes on thorns. If our practical statesmen are not ripe for the recognition of this fact ; or if while they acknowledge it in. theory, they have not a sufficient feeling of its reality, to be capable of founding upon it any course of con- duct ; there is still another, and a purely physical consideration, from which they will find it impossible to escape. If the one crop on which the people have hitherto supported them- selves continues to be precarious, either some new and great impulse must be given to agricultural skill and industry, or the soil of Ireland can no longer feed anything like its present population. The whole produce of the western half of the island, leaving nothing for rent, will not now keep permanently in ex- istence the whole of its people: and they will necessarily remain an annual charge on the taxation of the empire, until they are reduced either by emi- gration or by starvation to a number corresponding with the low state of their industry, or unless the means are found of making that industry much more productive." Since these words were written, events unforeseen by any one have taved the English rulers of Ireland from the embarrassments which would have been the just penalty of their indiffer- ence and want of foresight. Ireland, under cottier agriculture, could no longer supply food to its population : Parliament, by way of remedy, ap- plied a stimulus to population, but none at all to production ; the help, however, which had not been provided for the people of Ireland by political wisdom, came from an unexpected source. Self-supporting emigration the Wakefield system, brought into effect on the voluntary principle and on a gigantic scale (the expenses of those who followed being paid from the earnings of those who went before) has, for the present, reduced the popu- lation down to the number for which the existing agricultural system can find employment and support. The census of 1851, compared with that of 1841, showed in round numbers a diminution of population of a million and a half. The subsequent census (of 1861) shows a further diminution of about hah a million. The Irish hav- ing thus found the way to that flourishing continent which for genera- tions will be capable of supporting in undiminished comfort the increase of the population of the whole world ; the peasantry of Ireland having learnt to fix their eyes on a terrestrial paradise beyond the ocean, as a sure refuge both from the oppression of the Saxon and from the tyranny of nature ; there can be little doubt that however much the employment for agricultural labour may hereafter be diminished by the general introduction throughout Ire- land of English farming, or even if like the county of Sutherland all Ireland should be turned into a grazing farm, the superseded people would migrate to America with the same rapidity, and as free of cost to the nation, as the million of Irish who went thither during the three years previous to 185L Those who think that the land of a country exists for the sake, of a few thousand landowners, and that as long as rents are paid, society and govern- ment have fulfilled their function, may see in this consummation a happy end to Irish difficulties. But this is not a time, nor is the human mind now in a condition, in which such insolent pretensions can be maintained. The land of Ireland, the land of every country, belongs to the MEANS OF ABOLISHING COTTIER TENANCY. 201 people of that country. The individuals called landowners have no light, in morality and justice, to anything but the rent, or compensation for its sale- able value. With regard to the land itself, the paramount consideration is, by what mode of appropriation and of cultivation it can be made most useful iothe collective body of its inhabitants. To the owners of the rent it may be very convenient that the bulk of the inhabitants, despairing of justice in the country where they and their ances- tors have lived and suffered, should seek on another continent that property in land which is denied to them at home. But the legislature of the em- pire ought to regard with other eyes the forced expatriation of millions of people. When the inhabitants of a country quit the country en masse be- cause its Government will not make it a place fit for them to live in, the Government is judged and condemned. There is no necessity for depriving the landlords of one farthing o? the pecu- niary value of their legal rights ; but justice requires that the actual culti- vators should be enabled to become in Ireland what they will become in America proprietors of the soil which they cultivate. Good policy requires it no less. Those who, knowing neither Ireland nor any foreign country, take as their sole standard of social and economical ex- cellence English practice, propose as the single remedy for Irish wretched- ness, the transformation of the cottiers into hired labourers. But this is rather a scheme for the improvement of Irish agriculture, than of the condition of the Irish people. The status of a day- labourer has no charm for infusing fore- thought, frugality, or self-restraint, into a people devoid of them. If the Irish peasantry could be universally changed into receivers of wages, the old habits and mental characteristics of the people remaining,we should merely see four or five millions of people living as day- labourers in the same wretched manner in which as cottiers they h'ved before ; equally passive in the absence of every comfort, equally reckless in multipli- cation, and even, perhaps, equally list- less at their work ; since they could not be dismissed in a body, and if they could, dismissal would now be simply remand- ing them to the poor-rate. Far other would be the effect of making them peasant proprietors. A people who in industry and providence have every- thing to learn who are confessedly among the most backward of European populations in the industrial virtues require for their regeneration the most powerful incitements by which those virtues can be stimulated : and there ia no stimulus as yet comparable to pro- perty in land. A permanent interest in the soil to those who till it, is almost a guarantee for the most unwearied laboriousness : against over-popitlation, though not infallible, it is the best preservative yet known, and where it failed, any other plan would probably fail much more egregiously; the evil would be beyond the reach of merely economic remedies. The case of Ireland is similar in its requirements to that of India. In India, though great errors have from time to time been committed, no one ever pro- posed, under the name of agricultural improvement, to eject the ryots or pea- sant farmers from their possession ; the improvement that has been looked for, has been through making their tenure more secure to them, and the sole dif- ference of opinion is between those who contend for perpetuity, and those who think that long leases will suffice. The same question exists as to Ireland; and it would be idle to deny that long leases, under such landlords as are sometimes to be found, do effect wonders, even in Ireland. But then, they must be leases at a low rent. Long leases are in no way to be relied on for getting rid of cottierism. During the existence, of cottier tenancy, leases have always been long ; twenty-one years and three lives concurrent, was a usual term. But the rent being fi-xed by competition, at a higher amount than could be paid, so that the tenant neither had, nor could by any exertion acquire, a beneficial interest in the land, the ad van a lease was merely nominal. In India, the government, where it has not im- prudently made over its propriety y 202 BOOK H. CHAPTER X. 1. rights to the zemindars, is able to pre- vent this evil, because, being itself the landlord, it can fix the rent according to its own judgment ; but under indi- vidual landlords, while rents are fixed by competition, and the competitors are a peasantry struggling for subsistence, nominal rents are inevitable, unless the population is so thin, that the compe- tition itself is only nominal. The ma- jority of landlords will grasp at imme- diate money and immediate power ; and so long as they find cottiers eager to offer them everything, it is useless to rely on them for tempering the vicious practice by a considerate self-denial. A perpetuity is a stronger stimulus to improvement than a long lease : not only because the longest lease, before coming to an end, passes through all the varieties of short leases down to no lease at all ; but for more fundamental reasons. It is very shallow, even in pure economics, to take no account of the influence of imagination : there is a virtue in " for ever" beyond the longest term of years ; even if the term is long enough to include children, and all whom a person individually cares for, yet until he has reached that high degree of mental cultivation at which the public good (which also includes perpetuity) acquires a paramount as- cendancy over his feelings and desires, he will not exert himself with the same ardour to increase the value of an es- tate, his interest in which diminishes in value every year. Besides, while perpetual tenure is the general rule of landed property, as it is in all the countries of Europe, a tenure for a limited period, however long, is sure to be regarded as something of inferior consideration and dignity, and inspires less of ardour to obtain it, and of attach- ment to it when obtained. But where a country is under cottier tenure, the question of perpetuity if. quite secondary to the more important point, a limita- tion of the rent. Rent paid by a capi- talist who farms for profit, and not for bread, may safely be abandoned to competition ; rent paid by labourers cannot, unless the labourers were in a state of civilization and improvement which labourers have nowhere yet reached, and cannot easily reach under such a tenure. Peasant rents ought never to be arbitrary, never at the dis- cretion of the landlord : either by cus- tom or law, it is imperatively necessary that they should be fixed ; and where no mutually advantageous custom, such as the metayer system of Tuscany, has established itself, reason and experience recommend that they should be fixed by authority : thus changing the rent into a quit-rent, and the farmer into a peasant proprietor. For carrying this change into effect on a sufficiently large scale to accom- plish the complete abolition of cottier tenancy, the mode which most obvi- ously suggests itself is the direct one, of doing the thing outright by Act of Parliament ; making the whole land of Ireland the property of the tenants, subject to the rents now really paid (not the nominal rents), as a fixed rent charge. This, under the name of "fixity of tenure," was one of the de- mands of the Repeal Association dur* ing the most successful period of their agitation ; and was better expressed by Mr. Conner, its earliest, most enthusi- astic, and most indefatigable apostle,* by the words, " a valuation and a per- petuity." In such a measure there would not have been any injustice, pro- vided the landlords were compensated for the present value of the chances of increase which they were prospectively required to forego. The rupture of ex- isting social relations would hardly have been more violent than that effected by the ministers Stein and Hardenberg, when, by a series of edicts, in the early part of the present century, they revo- lutionized the state of landed property in the Prussian monarchy, and left their names to posterity among the greatest benefactors of their country. To en- lightened foreigners writing on Ireland, Von Raumer and Gustave de Beau- mont, a remedy of this sort seemed so exactly and obviously what the disease required, that they had some difficulty * Author of numerous pamphlets, entitled True Political Economy of Ireland," Letter to the Earl of Devon," "Two Letters on the Rackrent oppression of Ire- land," and others. Mr. Conner has been an agitator on the subject since 1832. MEANS OF ABOLISHING COTTIER TENANCY. 203 in comprehending how it was that the thing was not yet done. This, however, would have heen, in the first place, a complete expropriation of the higher classes of Ireland : which, if -there is any truth in the principles we have laid down, would he perfectly warrantable, hut only if it were the sole means of effecting a great puhlic good. In the second place, that there should be none hut peasant proprietors, is in itself far from desirable. Large farms, cultivated by large capital, and owned by persons of the best education which the country can give, persons qualified by instruction to appreciate scientific discoveries, and able to bear the delay and risk of costly experiments, are an important part of a good agricultural system. Many such landlords there are even in Ireland ; and it would be a public misfortune to drive them from their posts. A large proportion also of the present holdings are probably still too small to try the proprietary system under the greatest advantages : nor are the tenants always the persons one would desire to select as the first occu- pants of peasant-properties. There are numbers of them on whom it would have a more beneficial effect to give them the hope of acquiring a landed property by industry and frugality, than the property itself in immediate possession. There are, however, much milder measures, not open to similar objec- tions, and which, if pushed to the utmost extent of which they are sus- ceptible, would realize in no incon- siderable degree the object sought. One of them would be, to enact that whoever reclaims waste land becomes the owner of it, at a fixed quit-rent equal to a moderate interest on its mere value as waste. It would of course be a necessary part of this mea- sure, to make compulsory on landlords the surrender of waste lands (not of an ornamental character) whenever re- quired for reclamation. Another ex- pedient, and one in which individuals covjd co-operate, would be to buy as much as possible of the land offered for pale, and sell it again in small portions as peasant- properties. A Society for this purpose was at one time projected (though the attempt to establish it proved unsuccessful) on the principles, so far as applicable, of the Freehold Land Societies which have been so successfully established in England, not primarily for agricultural, but for electoral purposes. This is a mode in which private capital may be employed in renovating the social and agricultural economy of Ireland, not only without sacrifice but with considerable profit to its owners. The remarkable success of the Waste Land Improvement Society, which proceeded on a plan far less advan- tageous to the tenant, is an instance of what an Irish peasantry can be stimulated to do, by a sufficient assur- ance that what they do will be for their own advantage. It is not even indispensable to adopt perpetuity as the rule ; long leases at moderate rents, like those of the Waste Land Society, would suffice, if a prospect were held out to the farmers of being allowed to purchase their farms with the capital which they might acquire, as the Society's tenants were so rapidly acquiring under the influence of its beneficent system.* When the lands * Though this society, during the years succeeding the famine, was forced to wind up its affairs, the memory of what it accom- plished ought to be preserved. The follow- ing is an extract in the Proceedings of Lord Devon's Commission (page 84), from the re- port made to the society in 1845, by their intelligent manager, Colonel Robinson : " Two hundred and forty-five tenants, many of whom were a few years since in a state bordering on pauperism, the occupiers of small holdings of from ten to twenty plantation acres each, have, by their own free labour, with the society's aid, improved their farms to the value of 4396L ; 605/. having been added during the last year, being at the rate of 17/. 18*. per tenant for the whole term, and 21. 9s. for the past year ; the benefit of which improvements each tenant will enjoy during the unexpired term of a thirty- one years' lease. " These 245 tenants and their families have, by spade industry, reclaimed and brought into cultivation 1032 plantation acre- of land, previously unproductive mountain waste, upon which they grew, last year, crops valued by competent practical persons at 3S96/., being in the proportion of 151. 18s. each tenant; and their live stock, consisting of cattle, horses, sheep, and pigs, now actually upon the estates, is valued, according to the pre- sent prices of the neighbouring markets, at 204 were sold, the funds of the association would be liberated, and it might re- commence operations in some other quarter. 2. Thus far I had written in 1856. Since that time the great crisis of Irish industry has made further progress, and it is necessary to con- sider how its present state affects the opinions, on prospects or on practical measures, expressed in the previous part of this chapter. _ The principal change in the situa- tion consists in the great diminution, holding out a hope of the entire ex- tinction, of cottier tenure. The enor- mous decrease in the numher of small holdings, and increase in those of a medium size, attested by the statistical returns, sufficiently proves the general fact, and all testimonies show that the tendency still continues.* It is proba- 4162?., of which 1304/. has been added since February 1844, being at the rate of 161. 19. for the whole period, and 51. 6s. for the last year; during which time their stock has thus increased in value a sum equal to their present annual rent ; and by the statistical tables and returns referred to in previous reports, it is proved that the tenants, in general, improve their little farms, and increase their cultiva- tion and crops, in nearly direct proportion to the number of available working persons of both sexes, of which their families consist." There cannot be a stronger testimony to the superior amount of gross, and even of net produce, raised by small farming under any tolerable system of landed tenure; and it is worthy of attention that the industry and zeal were greatest among the smaller holders; Colonel Robinson noticing, as ex- ceptions to the remarkable and rapid pro- gress of improvement, some tenants who were " occupants of larger farms than twenty acres, a class too often deficient in the endur- ing industry indispensable for the successful prosecution of mountain improvements." * There is, however, a partial counter- current, of which I have not seen any public notice. " A class of men, not very numerous, but sufficiently so to do much mischief, have, through the Landed Estates Court, got into possession of land in Ireland, who, of all classes, are least likely to recognise the duties of a landlord's position. These are small traders in towns, who by dint of sheer parsimony, frequently combined with money-lending at usurious rates, have suc- ceeded, in the course of a long life, in scrap- ing together as much money as will enable them to buy fifty or a hundred acres of land. These people never think of turning far- mers, but, proud of their position as land- 'ords, proceed to turn it to the utmost BOOK II. CHAPTER X. *. ble that the repeal of the corn laws, necessitating a change in the exports of Ireland from the products of tillage to those of pasturage, would of itself have sufficed to hring about this revo- lution in tenure. A grazing farm can only be managed by a capitalist farmer, account. An instance of this kind came under my notice lately. The tenants on the property were, at the time of the purchase, some twelve years ago, in a tolerably com- fortable state. Within that period their rent has been raised three several times ; and it is now, as I am informed by the priest of the district, nearly double its amount at the commencement of the present proprietor's rcisjn. The result is that the people, who were formerly in tolerable comfort, are now reduced to poverty : two of them have left the property and squatted near an adja- cent turf bog, where they exist trusting for support to occasional jobs. If this man is not shot, he will injure himself through the deterioration of his property, but meantime he has been getting eight or ten per cent on his purchase-money. This is by no means a rare case. The scandal which such occur- rences! cause, casts its reflection on transac- tions of a wholly different and perfectly legitimate kind, where the removal of the tenants is simply an act of mercy for all parties. " The anxiety of landlords to get rid of cottiers is also to some extent neutralized by | the anxiety of middlemen to get them. About one-fourth of the whole land of Ireland is held under long leases ; the rent received when the lease is of long standing, being generally greatly under the real value of the land. It rarely happens that land thus held is cultivated by the owner of the lease ; in- stead of this, h* sublets it at a rack rent to small men, and lives on the excess of the rent which he receives orer that which he pays. Some of these leases are always running out ; and as they draw towards their close, the middleman has no other interest in the land than, at any cost of permanent deterio- ration, to get the utmost out of it during the unexpired period of the term. For this pur- pose the small cottier tenants precisely an- swer his turn. Middlemen in this position are as anxious to obtain cottiers as tenants, as the landlords are to be rid of them ; and the result is a transfer of this sort of tenant I from one class of estates to the other. The I movement is of limited dimensions, but it does exist, and so far as it exists, neutralizes the general tendency. Perhaps it may be thought that this system will reproduce itself; that the same motives which led to the existence of middlemen will perpetuate the class ; but there is no danger of this. Landowners are now perfectly alive to the ruinous consequences of this system, how- ever convenient for a time ; and a clause against sub-letting is now becoming a matter of course in every lease." (Private Commu- nication from Prcfcssor Cairnet.) MEANS OF ABOLISHING COTTIER TENANCY. 205 or by the landlord. But a change in- volving so great a displacement of the population, has been immensely facili- tated and made more rapid by the vast emigration, as well as by that greatest boon ever conferred on Ireland by any Government, the Encumbered Estates Act ; the best provisions of which have since, through the Landed Estates Court, been permanently incorporated into the social system of the country. The greatest part of the soil of Ireland, there is reason to believe, is now farmed either by the landlords, or by small capitalist farmers. That these far- mers are improving in circumstances, and accumulating capital, there is con- siderable evidence, in particular the great increase of deposits in the banks of which they are the principal cus- tomers. So far as that class is con- cerned, the chief thing still wanted is security of tenure, or assurance of compensation for improvements. The means of supplying these wants are now engaging the attention of the most competent minds ; Judge Long- field's address, in the autumn of 1864, and the sensation created by it, are an era in the subject, and a point has now been reached when we may confidently expect that within a very few years something effectual will be done. But what, meanwhile, is the con- dition of the displaced cottiers, so far as they have not emigrated ; and of the whole class who subsist by agricultural labour, without the occupation of any land ? As yet, their state is one of great poverty, with but slight prospect of improvement. Money wages, in- deed, have risen much above the wretched level of a generation ago ; but the cost of subsistence has also risen BO much above the old potato standard, that the real improvement is not equal to. the nominal ; and according to the best information to which I have access, there is little appearance of an im- proved standard of living among the class. The population, in fact, reduced though it be, is still far beyond what the country can support as a mere grazing district of England. It may not, perhaps, be strictly true that, if the present number of inhabitants are to be maintained at home, it can only be either on the old vicious system of cottierism, or as small proprietors grow- ing their own food. The lands which will remain under tillage would, no doubt, if sufficient security for outlay were given, admit of a more extensive employment of labourers by the small capitalist farmers ; and this, in the opinion of some competent judges, might enable the country to support the present number of its population in actual existence. But no. one will pre- tend that this resource is sufficient to maintain them in any condition in which it is fit that the great body of the peasantry of a country should exist. Accordingly the emigration, which for a time had fallen off, lias, under the additional stimulus of bad seasons, revived in all its strength. It is calculated that within the year 1864 not less than 100,000 emigrants left the Irish shores. As far as regards the emigrants themselves and their posterity, or the general interests of the human race, it would be folly to regret this result. The children of the immigrant Irish receive the education of Americans, and enter, more rapidly and completely than would have been possible in the country of their de- scent, into the benefits of a higher state of civilization. In twenty or thirty years they are not mentally dis- tinguishable from other Americans. The loss, and the disgrace, are England's : and it is the English people and government whom it chiefly concerns to ask themselves, how far it will be to their honour and advan- tage to retain the mere soil of Ire- land, but to lose its inhabitants. With the present feelings of the Irish people, and the direction which their hope of improving their condition seems to be permanently taking, England, it is pro- bable, has only the choice between the depopulation of Ireland, and the con- version of a part of the labouring population into peasant proprietors. The truly insular ignorance of her public men respecting a form of agri- cultural economy which predominates in nearly every other civilized country, makes it only too probable that she 206 BOOK II. CHAPTER X. will choose the worse side of the alter- native. Yet there are germs of a ten- dency to the formation of peasant pro prietors on Irish soil, which require only the aid of a friendly legislator to foster them ; as is shown in the follow- ing extract from a private communica- tion hy my eminent and valued friend, Professor Cairnes: " On the sale, some eight or ten years ago, of the Thomond, Portar- lington, and Kingston estates, in the Encumbered Estates Court, it was ob- eerved that a considerable number of occupying tenants purchased the fee of their farms. I have not been able to obtain any information as to what followed that proceeding whether the purchasers continued to farm their small properties, or under the mania of landlordism tried to escape from their former mode of life. But there are other facts which have a bearing on this question. In those parts of the country where tenant-right prevails, the prices given for the goodwill of a farm are enormous. The following figures, taken from the schedule of an estate in the neighbourhood of Howry, now passing through the Landed Estates Court, will give an idea, but a very inadequate one, of the prices which this mere customary right gene- rally fetches. " Statement showing the prices at which the tenant-right of certain farms near Newry was sold : _ -Rant Purchase-money Acres. Kent. O f tenant-right. Lot 1 23 .. 74 ... 33 2 24 .. 77 .. 240 3 13 .. 39 M 110 4 14 .. 34 ,, a5 .S 10 .. 33 M 172 5 .. 13 75 7 8 .. 2-i 130 8 11 .. 33 130 9 2 .. 5 .. 5 110 334 980 " The prices here represent on the whole about three years' purchase of the rental : but this, as I have said, gives but an inadequate idea of that which is frequently, indeed of that which is ordinarily, paid. The right, being purely customary, will vary in value with the confidence generally re- 2. aid in the good faith of the land- In the present instance, circum- stances have come to light in the course of the proceedings connected with the sale of the estate, which give reason to believe that the confidence in this case was not high ; consequently, the rates above given may be taken as consider- ably under those which ordinarily pre- vail. Cases, as I am informed on the highest authority, have in other parts of the country come to light, also in the Landed Estates Court, in which the price given for the tenant-right was equal to that of the whole fee of the land. It is a remarkable fact that people should be found to give, say twenty or twenty-five years' purchase, for land which is still subject to a good round rent. Why, it will be asked, do they not purchase land out and out for the same, or a slightly larger, sum ? The answer to this question, I believe, is to be found in the state of our land laws. The cost of transferring land in small portions is, relatively to the pur- chase money, very considerable, even in the Landed Estates Court; while the goodwill of a farm may be trans- ferred without any cost at all. The cheapest conveyance that could be drawn in that Court, where the utmost economy, consistent with the present mode of remunerating legal services, is strictly enforced, would, irrespective of stamp duties, cost 10Z. a very sensible addition to the purchase of a small peasant estate : a conveyance to transfer a thousand acres might not cost more, and would probably not cost much more. But in truth, the mere cost of conveyance represents but the least part of the obstacles which exist to obtaining land in small portions. A ar more serious impediment is the complicated state of the ownership of and, which renders it frequently im- )racticable to subdivide a property into such portions as would bring the land within the reach of small bidders. The emedy for this state of things, how- ever, lies in measures of a more radical ort than I fear it is at all probable hat any House of Commons we are soon likely to see would even with patience consider. A registry of titles * . I WAGES. may succeed in reducing this complex condition of ownership to its simplest expression ; but where real complica- tion exists, the difficulty is not to be got rid of by mere simplicity of form ; and a registry of titles while the powers of disposition at present enjoyed by ^ landowners remmn undimimshed, while every settlor and testator has an almost unbounded licence to multi- ply interests in land, as pride, the passion for dictation, or mere whim may suggest will, in my opinion, fail to reach the root of the evil. The effect of these circumstances is to place an immense premium upon large deal- ings in land indeed in most cases Eructically to preclude all other than irge dealings ; and while this is the state of the law, the experiment of peasant proprietorship, it is plain, 207 cannot be fairly tried. The facts, how- ever, which I have stated show, I think, conclusively, that there is no obstacle in the disposition of the people to the introduction of this system." I have concluded a discussion, which has occupied a space almost dispro- portioned to the dimensions of this work ; and I here close the examina- tion 4 of those simpler forms of social econotny in which the produce of the land either belongs unclividedly to one class, or is shared only between two classes. We now proceed to the hypo- thesis of a threefold division of the pro- duce, among labourers, landlords, and capitalists ; and in order to connect the coming discussion as closely as possible with those which have now lor some time occupied us, I shall commence with the subject of Wages. CHAPTER XI. OF WAGES. 1. UNDER the head of Wages are to be considered, first, the causes which determine or influence the wages -'of labour generally, and secondly, the differences that exist between the wages of different employments. It is convenient to keep these two classes of consideration separate ; and in dis- cussing the law of wages, to proceed in the first instance as if there were no other kind of labour than common un- skilled labour, of the average degree of hardness and disagreeableness. Wages, like other things, may be re- gulated either by competition or by custom. In this country there are few kinds of labour of which the remunera- tion would not be lower than it is, if the employer took the full ad vantage of com- petition. Competition, however, must be regarded, in the present state of society, as the principal regulator of wages, and custom or individual character only as A modifying circumstance, and that in a comparatively slight degree. [ Wages, thj&B, depend mainly upon the demand and supply of labour ; or as it is often expressed, on the propor- tion between population and capital. By population is here meant the num- ber only of the labouring class, or rather of those who work for hire ; and by capital, only circulating capital, and not even the whole of that, but the part which is expended in the direct pur- chase of labour. To this, however, must be added all funds which, with- out forming a part of capital, are paid in exchange for labour, such as the wages of soldiers, domestic servants, and all other unproductive labourers. There is unfortunately no mode of ex- pressing by one familiar term, the ag- gregate of what may be called the wages-fund of a country : and as the wages of productive labour form nearly the whole of that fund, it is usual to overlook the smaller and less important part, and -to say that wages depend on population and capifal. It will be con- venient to employ this expression ; re- membering, however, to consider it as 208 BOOK II. CHAPTER XL 2. elliptical, and not as a literal statement of the entire truth. With these limitations of the terms, wages not only depend upon the relative amount of capital and population, but cannot, under the rule of competition, be affected by anything else. Wages f (meaning, of course, the general rate) I cannot rise, but by an increase of the 1 aggregate funds employed in hiring J labourers, or a diminution in the num- A ber of the competitors for hire ; nor fall, ' : except either by a diminution of the funds devoted to paying labour, or by ( an increase in the number of labourers to be paid. 2. There a're, however, some facts in apparent contradiction to this doctrine, which it is incumbent on us to consider and explain. For instance, it is a common saying that wages are high when trade is good. The demand for labour in any particular employment is more press- ing, and higher wages are paid, when there is a brisk demand for the- com- modity produced; and the contrary when there is what is called a stagna- tion : then workpeople are dismissed, and those who are retained must sub- mit to a reduction of wages : though in these cases there is neither more nor less capital than before. This is true ; and is one of those complications in the concrete phenomena, which obscure and disguise, the operation of general^ causes ; but it is not really inconsistent 1 with the principles laid^down. Capi- tal which the owner does not employ in purchasing latxmr, but keeps idle in his hands, is the same thing to the labourers, for ihe time being, as if it did not exist. All capital is, from the variations of trade, occasionally in this state. A manufacturer, finding 'a slack demand for his commodity, forbears to employ labourers in in- creasing a stock 'which he finds it diffi- cult to dispose of ; or if he goes on un- til all his capital is locked up in unsold goods, then at least he must of neces- sity pause until he can get paid for. some of them. But no one expects either of these states to be permanent ; if ke did, ho would at the first oppor- tunity remove his capital to some other occupation, in which it would still continue to employ labour. The capital remains unemployed for a time, during which the labour market is overstocked, and wages fall. After- wards the demand revives, and per- haps becomes unusually brisk, en- abling the manufacturer to sell his commodity even faster than he can produce it : his whole capital is then brought into complete efficiency, and if he is able, he borrows capital in addi- tion, which would otherwise have gone into some other employment. At such times wages, in his particular occupa- tion, rise. If we suppose, what in strict- ness is not absolutely impossible, that one of these fits of briskness or of stag- nation should affect all occupations at the same time, wages altogether might undergo arise or a fall. These, however, are but temporary fluctuations : the capital now lying idle will next year be in active employment, that which is this year unable to keep up with the de- mand will in its turn be locked up in crowded warehouses ; and wages in these several departments will ebb and flow accordingly : but nothing can per- manently alter general wages, except an increase or a diminution of capital itself (always meaning by the term, the funds of all sorts, destined for the pay- ment of labour) compared with the quan- tity of labour offering itself to be hired. Again, it is another common notion that high prices make high wages ; because the producers and dealers, being better off, can afford to pay more to their labourers. 1 have already said that a brisk demand, which causes temporary high prices, causes also tem- porary high wages. But high prices, in themselves, can only raise wages if the dealers, receiving more, are induced to save more, and make an addition to their capital, or at least to their purchases of labour. This is indeed likely enough to be the case ; and if the high prices came di- rect from heaven, or even from abroad, the labouring 'class might be benefited, not by the high prices themselves, buf by the increase of capital occasioned by them. The same effect, h.oweverJ WAGES. 209 is often attributed to a high price which is the result of restrictive laws, or which is in some way or other to he paid by the remaining members of the community; they having no greater means than before to pay it with. High prices of this sort, if they benefit one class of labourers, can only do so at the expense of others ; since if the dealers by receiving high prices are enabled to make greater savings, or otherwise increase their purchases of labour, all other people by paying those high prices, have their means of saving, or of purchasing labour, reduced in an equal degree ; and it is a matter of accident whether the one alteration or the other will have the greatest effect on the labour market. Wages will probably be temporarily higher in the employment in which prices have risen, and somewhat lower in other employments : in which case, while the first half of the phenomenon excites notice, the other is generally over- looked, or if observed, is not ascribed to the cause which really produced it. Nor will the partial rise of wages last long : for though the dealers in that one employment gain more, it does not follow that there is room to employ a greater amount of savings in their own business : their increasing capital will probably flow over into other employ- ments, and there counterbalance the diminution previously made in the de- mand for labour by the diminished savings of other classes. Another opinion often maintained is,' that wages (meaning of course money wages) vary with the price of food; rising when it rises, and falling when it falls. This opinion is, I conceive, only partially true : and in so far as true, in no way affects the dependence of wages on the proportion Between capital and labour : since the price of food, when it affects wages at all, affects them through that law. Dear or cheap food caused by variety of seasons docs not affect wages (unless they are artificially adjusted to it by law or charity) : or rather, it has some ten- dency to affect them in the contrary way to that supposed ; since in times of scarcity people generally compete more P.E. violently for employment, and lower the labour market against themselves. But dearness or cheapness of food, when of a permanent character, and capable of being calculated on before- hand, may affect wages. In the first place, if the labourers have, as is often the case, no more than enough to keep them in working condition, and enable* them barely to support the ordinary number of children, it follows that if food grows permanently dearer without a rise of wages, a greater number of the children will prematurely die ; and thus wages will ultimately be higher, but only because the number of people will be smaller, than if food had re- mained cheap. But, secondly, even though wages were high enough to admit of food's becoming more costly without depriving the labourers and their families of necessaries ; though they could bear, physically speaking, to be worse off, perhaps they would not consent to be so. They might have habits of comfort which were to them as necessaries, and sooner than forego which, they would put an addi- tional restraint on their power of multi- plication ;( so that wages would rise, not by increase of deaths but by dimi- nution of births.) In these cases, then, wages do adapt themselves to the price of food, though after an interval of almost a generation. Mr. Eicardo considers these two cases to compre- hend all cases. He assumes, that there is everywhere a minimum rate of wages : either the lowest with which. it is physically possible to keep up the population, or the lowest with which the people will choose to do so. To this minimum he assumes that the general rate of wages always tends ; that they can never be lower, beyond the length of time required for a diminished rate of increase to make itself felt, and can never long continue higher. This assumption contains sufficient truth to render it admissible for the purposes of abstract science; and the conclusion which Mr. Kicardo draws from it, namely, that wages in the long run rise and fall with the per- manent rise of food, is, like almost all his conclusions, true hypothetical^, BOOK H. CHAPTER XI. 2. that is, granting the suppositions from which ho sets out. But in the appli- cation to practice, it is necessary to consider that the minimum of which he speaks, especially \vhen it is not a physical, but what may he termed a moral minimum, is itself liable to vary. If wages were previously so high that they could bear reduction, to which the obstacle was a high standard of com- fort habitual among the labourers, a rise of the price of food, or any other disadvantageous change in their cir- cumstances, may operate in two ways : it may correct itself by a rise of wages, brought about through a gradual effect on the prudential check to population ; or it may permanently lower the standard of living of the class, in case their previous habits in respect of popu- lation prove stronger than their pre- vious habits in respect of comfort. In that case the injury done to them will be permanent, and their deteriorated condition wiD become a new minimum, tending to perpetuate itself as the more ample minimum did before. It is to be feared that of the two modes in which the cause may operate, the last is the most frequent, or at all events sufficiently so, to render all propositions ascribing a self-repairing quality to the calamities which befal the labouring classes, prac- tically of no validity. There is con- siderable evidence that the circum- stances of the agricultural labourers in England have more than once in ou: history sustained great permanent de- terioration, from causes which operated by diminishing the demand for labour, and which, if population had exercised its power of self-adjustmest in obedi- ence to the previous standard of com- fort, could only have had a temporary effect : but unhappily the poverty in which the class was plunged during a long series of years, brought that pre- vious standard into disuse ; and the next generation, growing up without having possessed those pristine com- forts, multiplied in turn without any attempt to retrieve them.* * See the historical sketch of the condition of the English peasantry, prepared from the best authorities by Mr. William Thornton, The converse case occurs when, by improvements in agriculture, the repeal of corn law's, or other such causes, the necessaries of the labourers are cheapened, and they are enabled with the same wages, to command greater comforts than before. Wages will not fall immediately; it is even possible that they may rise : but they will fall at last, so as to leave the labourers no better off than before, unless, during this interval of prosperity, the standard of comfort regarded as indispensable by the class, is permanently raised. Un- fortunately this salutary effect is by no means to be counted upon : it is a much more difficult thing to raise, than to lower, the scale of living which the labourers will consider as more indis- pensable than marrying and having a lamily. If they content themselves with enjoying the greater comfort while it lasts, but do not learn to require it, they will people down to their old scale of living. If from poverty their children had previously been insufficiently fed or improperly nursed, a greater number will now be reared, and the competi- tion of these, when they grow up, will depress wages, probably in full pro- portion to the greater cheapness of food. If the effect is not produced in this mode, it will be produced by earlier ' more numerous marriages, or by an increased number of births to a marriage. According to all experi- ence, a great increase invariably takes place in the number of marriages, in asons of cheap food and full employ- ment. I cannot, therefore, agree in the importance so often attached to the repeal of the corn laws, considered merely as a labourer's question, or to any of the schemes, of which some one or other is at all times in vogue, for making the labourers a very little better off. Things which only affect them a very little, make no permanent impression upon their habits and requirements, and they soon slide back into their in his work entitled Ocer-Popula.fion and itt Remedy: a work honourably distinguished from most others which have been published in the present generation, by its rational treatment of questions atfecting the econo- mical condition of the labouring classes. WAGES. former state. To produce permanent advantage, the temporary cause operat- ing upon them must be sufficient to make a great change in their condi- tion a change such as will be felt for many years, notwithstanding any stimulus which it may give during one generation to the increase of people. When, indeed, the improvement is of this signal character, and a generation grows up which has always been used to an improved scale of comfort, the habits of this new generation in respect i/ 211 to population become formed upon a higher minimum, and the improvement in their condition becomes permanent. Of cases in point, the most remark- able is France after the Revolution. The majority of the population being suddenly raised from misery, to inde- pendence and comparative comfort ; the immediate effect was that popula- tion, notwithstanding the destructive wars of the period, started forward with unexampled rapidity, partly be- cause improved circumstances enabled many children to be reared who would otherwise have died, and partly from increase of births. The succeeding generation however grew up with habits considerably altered ; and though the country was never before in so' pros- perous a state, the annual number of births is now nearly stationary,* and the increase of population extremely slow.f * Supra, pp. 177, 178. t A similar, though not an equal improve- ment in the standard of living took place among the labourers of England during the remarkable fifty years from 1715 to 1765, which were distinguished by such an extra- ordinary succession of fine harvests (the years of decided deficiency not exceeding five in all that period) that the average Mr. Malthus computes that on the average of sixty years preceding 1720, the labourer could purchase with a day's earnings only two-thirds of a peck of wheat, while from 1720 to 1750 he could purchase a whole peck. The average price of wheat according to the Eton tables, for fifty years ending with 1715, was 41s. 7-fd. the quarter, and for the last twenty-three of these, 45s. 8d., while for the fifty years following, it was no more than 34s. lid. So considerable an improvement in the condition of the labouring class, though arising from the accidents of seasons, yet continuing for more thaa a generation, 3. f Wages depend, then, on the proportion between the number of the labouring population, and the capital or other funds devoted to the purchase of labour ; we will say, for shortness, the capital. If wages are higher at one time or place than at another, if the subsistence and comfort of the class of hired labourers are more ample, it is for no other reason than because capital bears a greater proportion to population. It is not the absolute amount of accumulation or of produc- tion, that is of importance to the labouring class ; it is not the amount even of the funds destined for distri- bution among the labourers : it is the proportion between those funds and the numbers among whom they are shared. The condition of the class can be bet- tered in no other way than by altering that proportion to their advantage : and every scheme for their benefit, which does not proceed on this as its foundation, is, for all permanent pur- poses, a delusion. In countries like North America and the Australian colonies, where the knowledge and arts of civilized life, and a high effective desire of accumu- lation, co-exist with a boundless extent of unoccupied land; the growth of capital easily keeps pace with the utmost possible increase of population, and is chiefly retarded by the im- practicability of obtaining labourers enough. All, therefore, who can pos- sibly be born, can find employment without overstocking the market : every labouring family enjoys in abun- dance the necessaries, many of the comforts, and some of the luxuries of life ; and, unless in case of individual misconduct, or actual inability 'to work, poverty does not, and dependence needs not, exist. A similar advantage, though in a less degree, is occasionally had time to work a change in the habitual requirements of the labouring class; and this period is always noted as the date of "a marked improvement of the quality of the food consumed, and a decided elevation in the standard of their comforts and conve- niences." (Malthus, Principiet qf Political Economy, p. 225.) For the character of the period, see Mr. Tooke's excellent M**ton of Prices, vol. i. pp. 38 to 61, and for the price* of corn, the Appendix to that work. I* 2 212 BOOK II. CHAPTER XI. 3. enjoyed by some special class of la- bourers in old countries, from an extra- ordinarily rapid growth, not of capital generally, but of the capital employed in a particular occupation. So gigantic has been the progress of the cotton manufacture since the inventions of Watt and Arkwright, that the capital engaged in it has probably quadrupled in the time which population requires for doubling. While, therefore, it has attracted from other employments nearly all the hands which geogra- phical circumstances and the habits or inclinations of the people rendered available ; and while the demand it created for infant labour has enlisted the immediate pecuniary interest of the operatives in favour of promoting, instead of restraining, the increase of population ; nevertheless wages in the great seats of the manufacture are generally so high, that the collective earnings of a family amount, on an average of years, to a very satisfactory sum ; and there is, as yet, no sign of permanent decrease, while the effect has also been felt in raising the general standard of agricultural wages in the counties adjoining. But those circumstances of a country, or of an occupation, in which popula- tion can with impunity increase at its utmost rate, are rare, and transitory. Very few are the countries presenting the needful union of conditions. Either" the industrial arts are backward and stationary, and capital therefore in- creases slowly ; or the effective desire of accumulation being low, the increase soon reaches its limit ; or, even though both these elements are at their highest known degree, the increase of capital is checked, because there is not fresh land to be resorted to, of as good quality as that already occupied. Though capital should for a time double itself simultaneously with popu- lation, if all this capital and popula- tion are to find employment on the same land, they cannot without an un- exampled succession of agricultural inventions continue doubh'ng the pro- duce ; therefore, if wages do not fall, profits must ; and when profits fall, increase of capital is slackened. Be- sides, even if wages did not fall, the price of food (as will be shown more fully hereafter) would in these circum- stances necessarily rise ; which is equi- valent to a fall of wages. Except, therefore, in the very pecu- liar cases which I have just noticed, of which the only one of any practical importance is that of a new colony, or a country in circumstances equivalent to it ; it is impossible that population should increase at its utmost rate without lowering wages. Nor will the fall be stopped at any point, short of that which either by its physical or its moral operation, checks the increase of population. In no old country, there- fore, does population increase at any- thing like its utmost rate ; in most, at a very moderate rate : in some countries not at all. These facts are only to be accounted for in two ways. Either the whole number of biiihs which nature admits of, and which happen in some circumstances, do not take place ; or if they do, a large proportion of those who are born, die. The re- tardation of increase results either from mortality or prudence ; from I\Ir. Mal- thus's positive, or from his preventive check : and one or the other of these must and does exist, and very power- fully too, in all old societies. Wherever population is not kept down by the pru- dence either of individuals or of the state, it is kept down by starvation or disease. Mr. Malthus has taken great pains to ascertain, for almost every country in the world, which of these checks it is that operates : and the evidence which he collected on the subject, in his Essay on Population, may even now be read with advantage. Through- out Asia, and formerly in most Euro- pean countries in which the labouring classes were not in personal bondage, there is, or was, no restrainer of popu- lation but death. The mortality was not always the result of poverty: much of it proceeded from unskilful and care- less management of children, from un- cleanly and otherwise unhealthy habits of life 'among the adult population, and from the almost periodical occurrence of destructive epidemics. Throughout Europe these causes of shortened life WAGES. iia have much diminished, but they have not ceased to exist. Until a period not very remote, hardly any of our large towns kept up its population, in- dependently of the stream always flowing into them from the rural dis- tricts : this was still true of Liverpool until very recently; and even in Lon- don, the mortality is larger, and the average duration of life shorter, than in rural districts where there is much greater poverty. In Ireland, epidemic fevers, and deaths from the exhaustion of the constitution by insufficient nutriment, have always accompanied even the most moderate deficiency of the potato crop. Nevertheless, it cannot in a direct or in an indirect form. The agency by which it is limited is chiefly preventive, not (in the language of Mr. Malthus) positive. But the pre- ventive remedy seldom, I believe, con- sists in the unaided operation of prudential motives on a class wholly or mainly composed of labourers for hire, and looking forward to no other lot. In England, for example, I much doubt if the generality of agricultural labourers practise any prudential re- straint whatever. They generally marry as early, and have as many children to a marriage, as they would or could do if they were settlers in the United States. During the geneiation which preceded the enactment of the present Poor Law, they received the most direct encouragement to this sort of improvidence: being not only as- sured of support, on easy terms, when- ever out of employment, but even when in employment, very commonly re- ceiving from the parish a weekly allow- ance proportioned to their number of children ; and the married with large families being always, from a short- sighted economy, employed in prefe- rence to the unmarried ; which last premium on population still exists. Under such prompting, the rural labourers acquired habits of reckless- ness, which are so congenial to the un- cultivated mind, that^ in whatever manner produced, they in general long survive their immediate causes. There are so many new elements at work in society, even in those deeper strata which are inaccessible to the mere movements on the surface, that it is hazardous to affirm anything positive on the mental state or practical im- pulses of classes and bodies of men, when the same assertion may be true to-day, and may require great modifi- cation in a few years time. It does, however, seem, that if the rate of in- crease of population depended solely on the agricultural labourers, it would, as far as dependent on births, and un- less repressed by deaths, be as rapid in the southern counties of England as in America. The restraining prin- ciple lies in the very great proportion of the population composed of the middle classes and the skilled artizans, who in this country almost equal in number the common labourers, and on whom prudential motives do, in a con- siderable degree, operate. 4. Where a labouring class who have no property but their daily wages, and no hope of acquiring it, refrain from over-rapid multiplication, the cause, I believe, has always hitherto been, either actual legal restraint, or a custom of some sort which, without intention on their part, insensibly moulds their conduct, or affords imme- diate inducements not to marry. It is not generally known in how many countries of Europe direct legal ob- stacles are opposed to improvident marriages. The communications made to the original Poor Law Commission by our foreign ministers and consuls in different parts of Europe, contain a considerable amount of information on this subject. Mr. Senior, in his pre- face to those communications,* says that in the countries which recognise a legal right to relief, " marriage on the part of persons in the actual receipt of relief appears to be everywhere prohi- bited, and the marriage of those who are not likely to possess the means of independent support is allowed by very * Forming an Appendix (F) to the General Report of the Commissioners, and also pub- lished by authority as a separate volume. 214 BOOK II. few. Thus we are told that, in Norway "jo one can many without ' showing, to the satisfaction of the clergyman, that he is permanently settled in such a manner as to offer a fair prospect that he can maintain a family.' "In Mecklenhurg, that 'marriages >re delayed by conscription in the twenty-second year, and military ser- vice for six years ; besides, the parties must have a dwelling, without which a clergyman is not permitted to marry them. The men marry at from twenty- five to thirty, the women not much earlier, as both must first gain by ser- vice enough to establish themselves.' " In Saxony, that ' a man may not marry before he is twenty-one years old, if liable to serve in the army. In Dresden, professionists (by which word artizans are probably meant) may not marry until they become masters in their trade.' " In Wurtemberg, that ' no man is allowed to marry till his twenty-fifth year, on account of his military duties, unless permission be especially ob- tained or purchased: at that age he must also obtain permission, which is granted on .proving that he and his wife would have together sufficient to maintain a family or to establish them- selves ; in large towns, say from 800 to 1000 florins (from 66?. 13s. 4d. to 84Z. 3s. 4d.) ; in smaller, from 400 to 500 florins: in villages, 200 florins (IfiZ. 13s. 4(7.)'"* The minister at Munich says, " The great cause why the number of the poor is kept so low in this country arises from the prevention by law of marriages in cases in which it cannot CHAPTER XI. 5. At Lubeck, " marriages among the pool a?3 delayed by the necessity a man is under, first, of previously prov- ing that he is in a regular employ, work, or profession, that will enable him to maintain a wife : and secondly, of becoming a burgher, and equipping himself in the uniform of the burgher guard, which together may cost him nearly 4Z."* At Frankfort, "the go- vernment prescribes no age for marry- ing, but the permission to marry is only granted on proving a livelihood."f The allusion, in some of these state- ments, to military duties, points out an indirect obstacle to marriage, in- terposed by the laws of some countries in which there is no direct legal re- straint. In Prussia, for instance, the institutions which compel every able- bodied man to serve for several years in the army, at the time of life at which imprudent marriages are most likely to take place, are probably a full equivalent, in effect on population, for the legal restrictions of the smaller German states. " So strongly," says Mr. Kay, "do the people of Switzerland understand from experience the expediency of their sons and daughters postponing the time of their marriages, that the coun- cils of state of four or five of the most democratic of the cantons, elected, be it remembered, by universal suffrage, have passed laws by which all young persons who marry before they have proved to the magistrate of their dis- trict that they are able to support a family, are rendered liable to a heavy fine. In Lucerne, Argovie, Unterwal- den, and I believe, St. Gall, Schweitz, be proved that the parties have reason- and Uri, laws of this character have _l_i _ r __i _ . __j j.1_- 1 _ f f able means of subsistence ; and this regulation is in all places and at all times strictly adhered to. The effect of a constant and firm observance of this rule has, it is true, a considerable influence in keeping down the popula- tion of Bavaria, which is at present low for the extent of country, but it has a most salutary effect in averting extreme poverty and consequent misery."f * Preface, p. xxxii. t Preface, p. xxxiii., or p. 554 of the Ap- pendix itself been in force for many years.' 5. Where there is no general law restrictive of marriage, there are often customs equivalent to it. When the guilds or trade corporations of the Middle Ages were in vigour, their bye- laws or regulations were conceived with a very vigilant eye to the advan- tage which the trade derived from limiting competition : and they made * Appendix, p. 419. t Ibid. p. 567. $ Kay, as before cited, i. 63. WAGES. 215 it very effectually the interest of arti- zans not to many until after passing through the two stages of apprentice and journeyman, and attaining the rank of master.* Inj Norway, where the labour is chiefly agricultural, it is forbidden to engage a farm- servant for less than a year ; which was the general English practice until the poor laws destroyed it, by enabling the farmer to cast his labourers on parish pay whenever he did not imme- diately require their labour. In con- sequence of this custom, and of its enforcement by law, the whole of the rather limited class of agricultural labourers in Norway have an engage- ment for a year at least, which if the parties are content with one another, naturally becomes a permanent engage- ment : hence it is known in every neighbourhood whether there is, or is likely to be, a vacancy, and unless there is, a young man does not marry, knowing that he could not obtain em- ployment. The custom still exists in * " In general," says Sismondi, " the num- ber of masters in each corporation was fixed, and no one but a master could keep a shop, or buy and sell on his own account. Each master could only train a certain number of apprentices, whom he instructed in his trade ; in some corporations he was only allowed one. Each master could also employ only a limited number of workmen, who were called companions, or journeymen ; and in the trades in which he could only take one ap- prentice, he was only allowed to have one, or at most two journeymen. No one was al- lowed to buy, sell, or work at a trade, unless he was either an apprentice, a journeyman, or a master ; no one could become a journey- man without having served a given number of years as an apprentice, nor a master, un- less he had served the same number of years as a journeyman, and unless he had also executed what was called his chefd'auvre, (masterpiece) a piece of work appointed in his trade, and which was to be judged of by the corporation. It is seen that this organi- zation threw entirely into the hands of the masters the recruiting of the trade. They alone could take apprentices ; but they were not compelled to take any; accordingly they required to be paid, often at a very high rate, for the favour ; and a young man could not enter into a trade if he had not, at start- ing, the sum required to be paid for his ap- prenticeship, and the means necessary for his support during that apprenticeship; since for four, five, or seven years, all his work Delonged to his master. His dependence on the master during that time was complete ; for the master's will, or even caprice, could Cumberland and Westmoreland, except that the term is half a year instead of a year; and seems to be still attended with the same consequences. '\ ho farm-servants are " lodged and boarded in their masters' houses, which they seldom leave until, through the death of some relation or neighbour, they succeed to the ownership or lease of a cottage farm. What is called surplus labour does not here exist."* I have mentioned in another chapter the check to population in England during the last century, from the difficulty of obtaining a separate dwelling place.f Other customs restrictive of popula- tion might be specified" : in some parts of Italy, it is the practice, according to Sismondi, among the poor, as it is well known to be in the higher ranks, that all but one of the sons remain tmmar ried. But such family arrangements are not likely to exist among day-labourers. They are the resource of small proprie- tors and metayers, for preventing too minute a subdivision of the land. close the door of a lucrative profession upon him. After the apprentice became a journey- man he had a little more freedom ; he could engage with any master he chose, or pass from one to another ; and as the condition of a journeyman was only accessible through apprenticeship, he now began to profit by the monopoly from which he had previously suf- fered, and was almost sure of getting well paid for a work which no one else was allowed to perform. He depended, however, on the corporation for becoming a master, and did not, therefore, regard himself as being yet assured of his lot, or as having a permanent position. In general he did not marry until he had passed as a mas- ter. " It is certain both in fact and in theory that the existence of trade corporations hin- dered, and could not but hinder, the birth of a superabundant population. By the sta- tutes of almost all the guilds, a man could not pass as a master before the ageof twenty-five : but if he had no capital of his own, if he had not made sufficient savings, he continued to work as a journeyman much longer ; some, perhaps the majority of artisans, remained journeymen all their lives. There was, however, scarcely an instance of their marry- ing before they were received as masters : had they been so imprudent as to des-iro it, no father would have given his daughter to a man without a position." New Principle! of Political Economy, book iv., ch. 10. See also Adam Smith, book i., ch. 1 0, part 2. * See Thornton on Over-Population, page 18, and the authorities there cited. t Supra, p. 99. 216 In England generally there is now scarcely a relic of these indirect checks to population ; except that in parishes owned by one or a very small number of landowners, the increase of resident labourers is still occasionally obstructed, by preventing cottages from being built, or by pulling down those which exist ; thus restraining the population liable to become locally chargeable, without any material effect on popula- tion generally, the work requ-d in those parishes being performed by labourers settled elsewhere. The sur- rounding districts always feel them- selves much aggrieved by this practice, against which they cannot defend themselves by similar means, since a single acre of land owned by any one who does not enter into the combina- tion, enables him to defeat the attempt, very profitably to himself, by covering that acre with cottages. To meet these complaints it has already been under the consideration of Parliament to abolish parochial settlements, and make the poor rate a charge not on the parish, but on the whole union. If this proposition be adopted, which for other reasons is very desirable, it will remove the small remnant of what was once a check to population : the value of which, however, from the narrow limits of its operation, must now be considered very trifling. 6. In the case, therefore, of the common agricultural labourer, the checks to population may almost be considered as non-existent. If the growth of the towns, and of the capital there employed, by which the factory- operatives are maintained at their present average rate of wages notwith- standing their rapid increase, did not also absorb a great part of the annual addition to the rural population, there seems no reason in the present habits of the people why they should not fall into as miserable a condition as the Irish previous to 1846; and it' the market for our manufactures should, 1 do not say fall oft', but even cease to expand at the ir.pil rate of the last irs, there is no certainty that Ibis fate may not be reserved for us. BOOK H. CHAPTER XI. 6. Without carrying onr anticipations forward to such a calamity, which the great and growing intelligence of the factory population would, it may be hoped, avert, by an adaptation of their habits to their circumstances ; the existing condition of the labourers of some of the most exclusively agricul- tural counties, Wiltshire, Somerset- shire, Dorsetshire, Bedfordshire, Buck- inghamshire, is sufficiently painful to contemplate. The labourers of these counties, with large families, and eight or perhaps nine shillings for their weekly wages when in full employment, have for some time been one of the stock objects of popular compassion : it is time that they had the benefit also of some application of common sense. TThhappily, sentimentality rather than common sense usually presides over the discussion of these subjects ; and while there is a growing sensitive- ness to the hardships of the poor, and a ready disposition to admit claims in them upon the good offices of other people, there is an all but universal unwillingness to face the real difficulty of their position, or advert at all to the conditions which nature has made in- dispensable to the improvement of their physical lot. Discussions on the condition of the labourers, lamenta- tions over its wretchedness, denuncia- tions of all who are supposed to be in- different to it, projects of one kind or another for improving it, were in no country and in no time of the world so rife as in the present generation ; but there is a tacit agreement to ignore totally the law of wages, or to dismiss it in a parenthesis, with such terms as "hard-hearted Malthusianism;" as if it were not a thousand times more hard-hearted to tell human beings that they may, than that they may not, call into existence swarms of creatures who are sure to be miserable, and most likely to be depraved ; and forgettin that the conduct, which it is reckone so cruel to disapprove, is a degrading slavery to a brute instinct in one of the persons concerned, and most com- monly, in the other, helpless submis- sion to a revolting abuse of power. I WAGES. 217 So long as mankind remained in a semi-barbarous state, with the indolence and the few wants of the savage, it probably was not desirable that popu- lation should be restrained : the pres- sure of physical want may have been a ' necessary stimulus, in that stage of the human mind, to the exertion of labour and ingenuity required for ac- complishing that greatest of all past changes in human modes of existence, by which industrial life attained pre- dominance over the hunting, the pas- toral, and the military or predatory state. Want, in that age of the world, had its uses, as even slavery had ; and there may be corners of the earth where those uses are not yet super- seded, though they might easily be so were a helping hand held out by more civilized communities. But in Europe the time, if it ever existed, is long past, when a life of privation had the smallest tendency to make men either better workmen ormore civilized beings. It is, on the contrary, evident, that if the agricultural labourers were better off, they would both work more effi- ciently, and be better citizens. I asl?7* then, is it true, or not, that if their numbers were fewer they would obtain higher wages ? This is the question, and no other : and it is idle to divert attention from it, by attacking any incidental position of Malthus or some other writer, and pretending that to refute that, is to disprove the prin- ciple of population. Some, for instance, have achieved an easy victory over a passing remark of Mr. Malthus, ha- zarded chiefly by way of illustration, that the increase of food may perhaps be assumed to take place in an arith- metical ratio, while population in- creases in a geometrical : when every .candid reader knows that Mr. Malthus laid no stress on this unlucky attempt to give numerical precision to things which do not admit of it, and every person capable of reasoning must see that it is wholly superfluous to his argument. Others have attached im- mense importance to a correction which more recent political economists have made in the mere language of the earlier followers of Mr. Malthus. Seve- ral writers have said that it is the tendency of population to increase faster than the means of subsistence. The assertion was true in the sense in which they meant it, namely that population would in most circumstances increase faster than the means of sub- sistence, if it were not checked either by mortality or by prudence. But in- asmuch as these checks act with un- equal force at different times and places, it was possible to interpret the language of these writers as if they had meant that population is usually gaining ground upon subsistence, and the poverty of the people becoming greater. Under this interpretation of their meaning, it was urged that the reverse is the truth : that as civiliza- tion advances, the prudential check tends to become stronger, and popula- tion to slacken its rate of increase, relatively to subsistence ; and that it is an error to maintain that popula- tion, in any improving community, tends to increase faster than, or even so fast as, subsistence. The word tendency is here used in a totally dif- ferent sense from that of the writers who affirmed the proposition: but waving the verbal question, is it not allowed on both sides, that in old countries, population presses too closely upon the means of subsistence ? And though its pressure diminishes, the more the id -:as and habits of the poorest class of labourers can be improved, to which it is to be hoped that there is always some tendency in a progressive country, yet since that tendency has hitherto been, and still is, extremely faint, and (to descend to particulars) has not yet extended to giving to the Wiltshire labourers higher wages than eight shillings a week, the only thing which it is necessary to consider is, whether that is a sufficient and suitable provision for a labourer ? for if not, population does, as an existing fact, bear too great a proportion to the wages fund; and whether it pressed still harder or not quite so ^ hard at some former period, is practically of no moment, except that, if the ratio is an improving one, there is the better hope that by proper aids and en- prove more and faster. It is not, however, against reason, that the argument on this subject has to struggle ; but against a feeling of dislike, which will only reconcile itself to the unwelcome truth, when every device is exhausted by which the recognition of that truth can be evaded. It is necessary, therefore, to enter into a detailed examination of these devices, 218 BOOK H. CHAPTER XII. 1. coaragenieiris it m&_> bo made to im. j atd to force every poattaii v/uich is taken tip by the enemies of the popula- tion principle, in their determination to find some refuge for the labourers, some plausible means of improving their condition, without requiring the exercise, either enforced or voluntary, of any self-restraint, or any greater control than at present over the animal power of multiplication. This will be the object of the next chapter. CHAPTER X1L OP POPULAR REMEDIES FOB LOTV WAGES. 1 . THE simplest expedient which can be imagined for keeping the wages of labour up to the desirable point, would be to fix them by law : and this is virtually the object aimed at in a variety of plans which have at different times been, or still are, current, for remodelling the relation between la- bourers and employers. No one pro- bably ever suggested that wages should be absolutely fixed ; since the interests of all concerned, often require that they should be variable ; but some have proposed to fix a minimum of wages, leaving the variations above that point to be adjusted by competition. Another plan, which has ibund many advocates among the leaders of the operatives, is that councils should be formed, which inEnglandhave been caDedlocal boards of trade, in France " conseils de prud'- hommes," and ofher names ; consisting of delegates from the workpeople and from the employers, who, meeting in conference, should agree upon a rate of wages, and promulgate it from ' authority, to be binding generally on employers and workmen ; the ground of decision being, not the state of the labour-market, but natural equity ; to provide that the workmen shall have reosonalle wages, and the capitalist reasonable profits. Others again (but these are rather philanthropists interesting themselves for the labouring classes, than the j labouring people themselves) are shy ' of admitting the interference of au- thority in contracts for labour: they fear that if law intervened, it would intervene rashly and ignorantly ; they are convinced that two parties, with opposite interests, attempting to adjust those interests by negotiation through their representatives on principles of equity, when no rule could be laid down to determine what was equitable, would merely exasperate their dif- ferences instead of healing them ; but what it is useless to attempt by the legal sanction, these persons desire to compass by the moral. Every em- ployer, they think, ought to give suffi- cient wages ; and if he does it not wil- lingly, should be compelled to it by general opinion ; the test of sufficient wages being their own feelings, or what they suppose to be those of the public. This is, I think, a fair representation of a considerable body of existing opi- nion on the subject. I desire to confine my remarks to the principle involved in all these sug- gestions, without taking into account practical difficulties, serious as these must at once be seen to be. I shall suppose that by one or other of these contrivances, wages could be kept above the point to which they would be brought by competition. This is as much as to say, above the highest rate which can be afforded by the POPULAR REMEDIES FOR LOW WAGES. 219 existing capital consistently with em- ploying all the labourers. For it is a mistake to suppose that competition merely keeps down wages. It is equally the means by which they are kept up. When there are any labour- ers unemployed, these, unless main- tained by charity, become competitors for hire, 'and wages fall; but when all who were out of work have found em- ployment, wages will not, under the freest system of competition, fall lower. There are strange notions afloat con- cerning the nature of competition. Some people seem to imagine that its effect is something indefinite ; that the competition of sellers may lower prices, and the competition of la- bourers may lower wages, down to zero, or some unassignable minimum. Nothing can be more unfounded. Goods can only be lowered in price by competition, to the point which calls forth buyers sufficient to take them off; and wages can only be lowered by competition until room is made to admit all the labourers to a share in the distribution of the wages- fund. If they fell below this point, a portion of capital would remain un- employed for want of labourers ; a counter-competition would commence on the side .of capitalists, and wages would rise. Since, therefore, the rate of wages which results from competition distri- butes the whole wages-fund among the whole labouring population ; if law or opinion succeeds in fixing wages above this rate, some labourers are kept out of employment ; and as it is not the intention of the philanthropists that these should starve, they must be pro- vided for by a forced increase of the wages-fund ; by a compulsory saving. It is nothing to fix a minimum of wages, unless there be a provision that work, or wages at least, be found for all who apply for it. This, accordingly, is always part of the scheme ; and is consistent with the ideas of more people than would approve of either a legal or a moral minimum of wages. Popular sentiment looks upon it as the duty of the rich, or of the state, to find employ- ment for all the poor. If the moral influence of opinion does -not induce the rich to spare fiora thei? consump- tion enough to set all the poor to work at " reasonable wages," it is supposed to be incumbent on the state to lay on taxes for the purpose, either by local rates or votes of public money. The proportion between labour and tho wages-fund would thus be modified to the advantage of the labourers, not by restriction of population, but by an increase of capital. 2. If this claim on society could be limited to the existing generation ; if nothing more were necessary than a compulsory accumulation, sufficient to provide permanent employment at am- ple wages for the existing numbers of the people ; such a proposition would have no more strenuous supporter than myself. Society mainly consists of those who live by bodily labour ; and if society, that is, if the labourers, lend their physical force to protect indivi- duals in the enjoyment of superfluities, they are entitled to do so, and have always done so, with the reservatioa of a power to tax those superfluities for purposes of public utility ; among which purposes the subsistence of the people is the foremost. Since no one is responsible for having been born, no pecuniary sacrifice is too great to be made by those who have more than enough, for the purpose of securing enough to all persons already in ex- istence. But it is another thing altogether, when those who have produced and accumulated are called upon to abstain from consuming, until they have given food and clothing, not only to all who now exist, but to all whom these or their descendants may think fit to call into existence. Such an obligation ac- knowledged and acted upon, would sus- pend all checks, both positive and pre- ventive ; there would be nothing to hinder population from starting for- ward at its rapidest rate ; and as tho natural increase of capital would, at the best, not be more rapid than before, taxation, to make up the growing de- ficiency, must advance with the same gigantic strides. The attempt would 220 BOOK H. CHAPTER XII. 2. of coarse be made to exact labour in exchange ibr support. But experience has shown the sort of work to be ex- pected from recipients of public charity. When the pay is not given for the sake of the work, but the work found for the sake of the pay, inefficiency is a matter of certainty : to extract real work from day-labourers without the power of dismissal, is only practicable by the power of the lash. It is conceivable, doubtless, that this objection might be got over. The fund raised by tax- ation might be spread over the labour- market generally, as seems to be in- tended by the supporters of the "right to employment" in France ; without giv- ing to any unemployed labourer a right to demand support in a particular place or from a particular functionary. The power of dismissal, as regards indi- vidual labourers, would then remain; the government only undertaking to create additional employment when there was a deficiency, and reserving, like other employers, the choice of its own workpeople. But let them work ever so efficiently, the increasing po- pulation could not, as we have so often shown, increase the produce propor- tionally: the surplus, after all were fed, would bear a less and less propor- tion to the whole produce and to the population : and the increase of people going on in a constant ratio, while the increase of produce went on in a di- minishing ratio, the surplus would in time be wholly absorbed ; taxation for the support of the poor would engross the whole income of the country ; the payers and the receivers would be melted down into one mass. The check to population either by death or prudence, could not then be staved off any longer, but must come into opera- tion suddenly and at once ; everything which places mankind above a nest of ants or a colony of beavers, having perished in the interval. These consequences have been BO often and so clearly pointed out by au- thors of reputation, in writings known and accessible, that ignorance of them on the part of educated persons is no longer pardonable. It is doubly dis- creditable in any person setting up ibr a public teacher, to ignore these con- siderations; to dismiss them silently, and discuss or declaim on wages and poor-laws, not as if these arguments could be refuted, but as if they did not exist. Every one has a right to live. "We will suppose this granted. But no one has a right to bring creatures into life, to be supported by other people. AVho- ever means to stand upon the first of these rights must renounce all preten- sion to the last. If a man cannot sup- port even himself unless others help him, those others are entitled to say that they do not also undertake the support of any offspring which it is physically possible for him to summon into the world. Yet there are abun- dance of writers and public speakers, including many of most ostentatious pretensions to high feeling, whose views of life are. so truly brutish, that they see hardship in preventing paupers from breeding hereditary paupers in the workhouse itself. Posterity will one day ask with astonishment, what sort of people it could be among whom such preachers could find proselytes. It would be possible for the state to guarantee employment at ample wages to all who are born. But if it does this, it is bound in self-protection, and for the sake of every purpose for which government exists, to provide that no person shall be born without its consent. If the ordinary and spontaneous mo- tives to self-restraint are removed, others must be substituted. Restric- tions on marriage, at least equivalent to those existing in some of the German States, or severe penalties on those who have children when unable to sup- port them, would then be indispensable. Society can feed the necessitous, it' it takes their multiplication under its control; or (if destitute of all moral feeling for the wretched offspring) it can leave the last to their discretion, abandoning the first to their own care. But it cannot with impunity take the feeding upon itself, and leave the mul- tiplying free. To give profusely to the people, whe- ther under the name of charity or of employment, without placing them POPULAR EEMEDIES FOli LOW WAGES. under such influences that prudential motives sh;vll act powerfully upon them, is to lavish the means of benefiting mankind, without attaining the object. Leave the people in a situation in which their condition manifestly de- pends upon their numbers, and the greatest permanent benefit may be derived from any sacrifice made to im- prove the physical well-being of the present generation, and raise, by that means, the habits of their children. But remove the regulation of their wages from their own control ; gua- rantee to them a certain payment, either by law, or by the feeling of the community ; and no amount of comfort that you can give them will make either them or their descendants look to their own self-restraint as the proper means for preserving them in that state. You will only make them in- dignantly claim the continuance of your guarantee, to themselves and their full complement of possible posterity. On these grounds some writers have altogether condemned the English poor-law, and any system of relief to the able-bodied, at least when uncom- bined.with systematic legal precautions against over-population. The famous Act of the 43d of Elizabeth undertook, on the part of the public, to provide work and wages for all the destitute able-bodied : and there is little doubt that if the intent of that Act had been fully carried out, and no means had been adopted by the administrators of relief to neutralize its natural tenden- cies, the poor-rate would by this time have absorbed the whole net produce of the land and labour of the country. It is not at all surprising, therefore, that Mr. Malthus and otheis should at first have concluded against all poor- laws, whatever. It required much ex- perience, and careful examination of different modes of poor-law manage- ment, to give assui'ance that the ad- mission of an absolute right to be sup- ported at the cost of other people, could exist in law and in fact, without fatally relaxing the springs of industry and the restraints of prudence. This, how- ever, was fully substantiated, by the investigations of the original Poor Law 221 Commissioners. Hostile as they are unjustly accused of being to tho principle of legal relief, they arc the first who fully proved the compatibility of any Poor Law in which a right to relief was recognised, with the perma- nent interests of the labouring class and of posterity. By a collection of facts, experimentally ascertained in parishes scattered throughout England, it was shown that the guarantee of support could be freed from its injurious effects upon the minds and habits of the people, if the relief, though ample in respect to necessaries, was accom- panied with conditions which they dis- liked, consisting of some restraints on their freedom, and the privation of some indulgences. Under this proviso, it may be regarded as irrevocably esta- blished, that the fate of no member of the community needs be abandoned to chance ; that society can, and therefore ought to ensure every individual be- longing to it against the extreme of want ; that the condition even of those who are unable to find their own sup- port, needs not be one of physical suf- fering, or the dread of it, but only of restricted indulgence, and enforced rigidity of discipline. This is surely something gained for humanity, impor- tant in itself, and still more so as a step to something beyond; and hu- manity has no worse enemies than those who lend themselves, either knowingly or unintentionally, to bring odium on this law, or on the principles in which it originated. 3. Next to the attempts to regu- late wages, and provide artificially that all who are willing to work shall receive an adequate price for their labour, we have to consider another class of popular remedies, which do not profess to interfere with freedom of contract; which leave wages to be fixed by the competition of the market, but, when they are considered insulti- cient, endeavour by some subsidiary resource to make up to the labourers for the insufficiency. Of this nature was the expedient resorted to by parish authorities during thirty or forty years previous to 1834, generally 222 known as the Allowance System. This was first introduced, when, through a succession of had seasons, and conse- quent high prices of food, the wages of labour had become inadequate to afford to the families of the agricultural labourers the amount of support to which they had been accustomed. Sentiments of humanity, joined with the idea then inculcated in high quarters, that people ought not to be allowed to suffer for having enriched their country with a multitude of inha- bitants, induced the magistrates of the rural districts to commence giving parish relief to persons already in private emplovment ; and when the practice had once been sanctioned, the immediate interest of the farmers, whom it enabled to throw part of the support of their labourers upon the other inhabitants of the parish, led to a great and rapid extension of it. The principle of this scheme being avowedly that of adapting the means of every family to its necessities, it was a natu- ral consequence that more should be given to the married than to the single, and to those who had large families than to those who had not: in fact, an allowance was usually granted for every child. So direct and positive an encouragement to population is not, however, inseparable from the scheme : the allowance in aid of wages might be a fixed thing, given to all labourers alike, and as this is the least objec- tionable form which the system can assume, we will give it the benefit of the supposition. It is obvious that this is merely another mode of fixing a minimum of wages ; no otherwise differing from the direct mode, than in allowing the employer to buy the labour at its market price, the difference being made up to the labourer from a public fund. The one kind of guarantee is open to all the objections which have been urged against the other. It pro- mises to the labourers that they shall all have a certain amount of wages, however numerous they may be : and removes, therefore, alike the positive and the prudential obstacles to an un- limited increase. But besides the BOOK II. CHAPTER XII. 3. objections common to all attempts to regulate wages without regulating population, the allowance system has a peculiar absurdity of its own. This is, that it inevitably takes from wages with one hand what it adds to them with the other. There is a rate of wages, either the lowest on which the people can, or the lowest on which they will consent, to live. We will suppose this to be seven shillings a- week. Shocked at the wretchedness of this pittance, the parish authorities hu- manely make it up to ten. But the labourers are accustomed to seven, and though they would gladly have more, will live on that (as the fact proves) rather than restrain the instinct of multiplication. Their habits will not be altered for the better by giving them parish pay. Receiving three shillings from the parish, they will be as well off as before though they should increase sufficiently to bring down wages to four shillings. They will accordingly people down to that point ; or perhaps, without waiting for an increase of numbers, there .are un- employed labourers enough in the workhouse to produce the effect at once. It is well known that the allow- ance system did practically operate in the mode described, and that under its influence wages sank to a lower rate than had been known in England before. During the last century, under a rather rigid administration of the poor-laws, population increased slowly, and agricultural wages were conside- rably above the starvation point. Under the allowance system the people increased so fast, and wages sank so low, that with wages and allowance together, families were worse off than they had been before with wages alone. When the labourer depends solely on wages, there is a virtual minimum. If wages fall below the lowest rate which will enable the population to be kept up, depopulation at least restores them to that lowest rate. But if the deficiency is to be made up by a forced contribution from all who have anything to give, wages may fall below starvation point ; they may fall almost to zero. This deplor- POPULAR REMEDIES able system, worse than any other form of poor-law abuse yet invented, inasmuch as it pauperizes not merely the unemployed part of the population but the whole, has been abolished, and of this one abuse at least it may be said that nobody professes to wish for its revival. 4. But while this is (it is to be hoped) exploded, there" is another mode of relief in aid of wages, which is still highly popular ; a mode greatly pre- ferable, morally and socially, to parish allowance, but tending, it is to be feared, to a very similar economical result: I mean the much -boasted Allotment System. This, too, is a con- trivance to compensate the labourer fof the insufficiency of his wages, by giving him something else as a supple- ment to them : but instead of having them made up from the poor-rate, he is enabled to make them up for himself, by renting a small piece of ground, which he cultivates like a garden by spade labour, raising potatoes and other vegetables for home consump- tion, with perhaps some additional quantity for sale. If he hires the ground ready manured, he sometimes pays for it at as high a rate as eight pounds an acre : but getting his own labour and that of his family for no- thing, he is able to gain several pounds by it even at so high a rent.* The patrons of the system make it a great point that the allotment shall be in aid of wages, and not a substitute for them ; that it shall not be such as a labourer can live on, but only sufficient to occupy the spare hours and days of a man in tolerably regular agricultural employment, with assistance from his wife and children. They usually limit the extent of a single allotment to a quarter, or something between a quar- ter and half an acre. If it exceeds this, without being enough to occupy him entirely, it will make him, they say, a bad and uncertain workman for hire : if it is sufficient to take him entirely out of the class of hired * See the Evidence on the subject of Allotments, collected by the Commissioners of Poor Law Enquiry. FOR LOW WAGES. 223 labourers, and to become his aolo means of subsistence, it will make him an Irish cottier: for which assertion, at the enormous rents usually de- manded, there is some foundation. But in their precautions against cot- tierism, these well-meaning persons do not perceive, that if the system they patronize is not a cottier system, it is, in essentials, neither more nor less than a system of conacre. There is no doubt a material diffe- rence between eking out insufficient wages by a fund raised by taxation, and doing the same thing by means which make a clear addition to the gross produce of the country. There is also a difference between helping a labourer by means of his own industry, and subsidizing him in a mode which tends to make him careless and idle. On both these points, allotments have an unquestionable advantage over parish allowances. But in their effect on wages and popUation, I see no reason why the two plans should sub- stantially differ. All subsidies in aid of wages enable the labourer to do with less remuneration, and therefore ultimately bring down the price of labour by the full amount, unless a change be wrought in the ideas and requirements of the labouring class; an alteration in the relative value which they set upon the gratification of their instincts, and upon the increase ot their comforts and the comforts of those connected with them. That any such change in their character should be produced by the allotment system, appears to me a thing not to be expected. The possession of land, we are sometimes told, renders the la- bourer provident. Property in land does so ; or what is equivalent to pro- perty, occupation on fixed terms and on a permanent tenure. But mere hiring from year to year was never found to have any such effect. Did possession of land render the Irishman provident? Testimonies, it is true, abound, and I do not seek to discredit them, of the beneficial change pro- duced in the conduct and condition of labourers, by receiving allotments. Such an effect is to be expected while 224 those who hold them are a small num- ber ; a privileged class, having a status above the common level, which they are unwilling to lose. They are also, no doubt, almost always, originally a select class, composed* of the most favourable specimens of the labouring people : which, however, is attended with the inconvenience, that the per- sons to whom the system facilitates marrying and having children, are pre- cisely those who would otherwise be the most likely to practise prudential restraint. As affecting the general condition of the labouring class, the scheme, as it seems to me, must be either nugatory or mischievous. If only a few labourers have allotments, they are naturally those who could do best without them, and no good is done to the class : while, if the system were general, and every or almost every labourer had an allotment, I believe the effect would be much the same as when every or almost every labourer had an allowance in aid of wages. I think there can be no doubt that if, at the end of the last century, the Allotment instead of the Allowance system had been generally adopted in England, it would equally have broken down the practical restraints on population which at that time did really exist ; popula- tion would have started forward ex- actly as in fact it did ; and in twenty years, wages plus the allotment would nave been, as wages plus the allow- ance actually were, no more than equal to the former wages without any allot- ment. The only difference in favour of alletments would have been, that they make the people grow their own poor-rates. I am at the same time quite ready to allow, that in some circumstances, the possession of land at a fair rent, even without ownership, by the gene- rality of labourers for hire, operates as a cause not of low, but of high wages. This, however, is when their land ren- ders them, to the extent of actual necessaries, independent of the market for labour. There is the greatest diffe- rence between the position of people who live by wages, with land as an extra resource, and of people who can. BOOK H. CHAPTER XII. 4. in case of necessity, subsist entirely on their land, and only work for hire to add to their comforts. Wages are likely to be high where none are com- pelled by necessity to sell their labour. " People who have at home some kind of property to apply their labour to, will not sell their labour for wages that do not afford them a better diet than potatoes and maize, although in saving for themselves, they may live very much on potatoes and maize. We are often surprised in travelling on the Continent, to hear of a rate of day's wages very high, considering the abundance and cheapness of food. It is want of the necessity or inclina- tion to take work, that makes day- labour scarce, and, considering the price of provisions, dear, in many parts of the Continent, where property in land is widely diffused among the people."* There are parts of the Con- tinent where, even . of the inhabitants of the towns, scarcely one seems to be exclusively dependent on his ostensible employment ; and nothing else can ex- plain the high price they put on their services, and the carelessness they evince as to whether they are em- ployed at all. But the effect would be far different if their land or other resources gave them only a fraction of a subsistence, leaving them under an undiminished necessity of selling their labour for wages in an overstocked market. Their land would then merely enable them to exist on smaller wages, and to carry their multiplication so much the further before reaching the point below which they either could not. or would not, descend. To the view I have taken of the effect of allotments, I see no argument which can be opposed, but that em- ployed by Mr. Thornton, f with whom on this subject I am at issue. His defence of allotments is grounded on the general doctrine, that it is only the very poor who multiply without regard to consequences, and that if the con- dition of the existing generation could be greatly improved, which he thinks * Laing's Notes of a Traveller, p. 4oG. t See Thornton on viii REMEDIES FOB LOW WAGES. 225 might be done by the allotment system, j their successors would grow up with an increased standard of requirements, and would not have families until they could keep them in as much comfort as that in which they had been brought up themselves. I agree in as much of this argument as goes to prove that a sudden and very great improvement in the condition of the poor, has always, through its effect on their habits of life, a chance of bectming permanent. What happened at the time of the French Revolution is an example. But I cannot think that the addition of a quarter or even half an acre t every labourer's cttage, and that too at a rack rent, wtuld (after the fall of wages which wuld be necessary to absorb the already existing mass f pauper labour) make s great a difference in the comforts of the family fr a gene- ration to cme, as to raise up frm childhood a labouring pfpulation with a really higher permanent standard f requirements and habits. S small a portion of land could nly be made a permanent benefit, by holding out en- couragement t acquire by industry and saving, the means f buying it out- light : a permission which, if exten- sively made use tf, would be a kind of education in forethought and frugality to the entire class, the effects of which might not cease with the occasion. The benefit would however arise, not from what was given them, but from what they were stimulated to acquire. No remedies for low wages have the smallest chance of being efficacious, which do not operate on and through the minds and habits of the people. While these are unaffected, any con- trivance, even if successful, for tempo- rarily improving the condition of the very poor, would but let slip the reins by which population was previously curbed ; and could only, therefore, con- tinue to produce its effect, if, by the whip and spur of taxation, capital were compelled to follow at an equally accelerated pace. But this process could not possibly continue for long together, and whenever it stopped, it would leave the country with an in- creased number of the poorest class, and a diminished proportion of all ex- cept the poorest, or, if it continued long enough, with none at all. For "to this complexion must come at last" all social arrangements, which remove the natural checks to popula- tion without substituting any others. CHAPTER XIII. THE REMEDIES FOR LOW WAGES FURTIIEB CONSIDERED. 1. Br what means, then, is po- orly to be contended against? How the evil of low wages to be reme- '.ed? If the expedients usually scommended for the purpose are not dapted to it, can no other? be thought ?? Is the problem incapable of solu- on? Can political economy do othing, but only object to everything, and demonstrate that nothing can be done? If this were so, political economy might have a needful, but would have a melancholy, and a thankless task. If the bulk "of the human race are P.E. always to remain as at present, staves id toil in which they have no interest, and therefore feel no interest drudg- ing from early morning till late at night for bare necessaries, and with all the intellectual and moral deficiencies which that implies without resources either in mind or feelings untaught, for they cannot be better taught than fed ; selfish, for all their thoughts aro required for themselves ; without inte- rests or sentiments as citizens and. members of society, and with a of injustice rankling in their minus, equally for what they have not, and BOOK II. CHAPTER XIII. I. for what others have ; I know not what there is which should make a person with any capacity of reason, concern himself about the destinies of the human race. There would be no wisdom for any one but in extracting from life, with Epicurean indifference, as much personal satisfaction to him- self and those with whom he sympa- thizes, as it can yield without injury to any one, and letting the unmeaning bustle of so-called civilized existence roll by unheeded. But there is no ground for such a view of human affairs. Poverty, like most social evils, exists because men follow their brute instincts .without due consideration. But society is possible, precisely be- cause man is not necessarily a brute. Civilization in every one of its aspects is a struggle against the animal in- stincts. Over some even of the strongest of them, it has shown itself capable of acquiring abundant control. It has artificialized large portions of mankind to such an extent, that of many of their most natural inclinations they have scarcely a vestige or a remem- brance left. If it has not brought the instinct of population under as much restraint as is .needful, we must remember that it has never seriously tried. What efforts it has made, have mostly been in the contrary direction. Eeligion, morality, and statesmanship have vied with one another in incite- ments to marriage, and to the multi- plication of the species, so it be but in wedlock. Religion has not even yet discontinued its encouragements. The Roman Catholic clergy (of any other clergy it is unnecessary to speak, since 20 other have any considerable influ- ence over the poorer classes) every- where think it their duty to promote marriage, in order to prevent fornica- tion. There is still in many minds a strong religious prejudice against the true doctrine. The rich, provided the consequences do not touch themselves, think it impugns the wisdom of Provi- dence to suppose that misery can result from the operation of a natural pro- pensity : the poor think that " God never sends mouths but he sends meat." Ko one would guess from the language of either, that man had any voice or choice in the matter. So complete is the confusion of ideas on the whole subject : owing in a great degree to the mysteiy in which it is shrouded by a spurious delicacy, which prefers that right and wrong should be mismea- sured and confounded on one of the subjects most momentous to human welfare, rather than that the subject should be freely spoken of and dis- cussed. People are little aware of the cost to mankind of this scrupulosity of speech. The diseases of society can, no more than corporal maladies, be prevented or cured without being spoken about in plain language. All experience shows that the mass of mankind never judge of moral ques- tions for themselves, never see any- thing to be right or wrong until they have been frequently told it ; and who tells them that they have any duties in the matter in question, while they keep within matrimonial limits ? Who meets with the smallest condemnation, or rather, who does not meet with sym- pathy and benevolence, for any amount of evil which he may have brought upon himself and those dependent on him, by this species of incontinence ? While a man who is intemperate in drink, is discountenanced and despised by all who profess to be moral people, it is one of the chief grounds mado use of in appeals to the benevolent, that the applicant has a large family and is unable to maintain them.' 5 '"" One cannot wonder that silence on this great department of human duty should produce unconsciousness of moral obligations, when it produces oblivion of physical facts. That it is possible to delay marriage, and to live in ab- stinence while unmarried, most people are willing to allow : but when persona are once married, the idea, in thi.s country, never seems to enter any one's mind that having or not having a family, or the number of which it shall * Little improvement can be expected in morality until the producing large families is regarded with the same feelings as drunken- ness or any other physical excess. But while the aristocracy and clergy are foremost to set the example of this kind of incontinence, what can be expected from the poor ? REMEDIES FOR LOW WAGES. 227 Consist, is amenable to their own control. One would imagine that children were rained down upon married people, direct from heaven, without their being art or part in the matter ; that it was really, as the common phrases have it, God's will, and not their own, which decided the numbers of their offspring. Let us see what is a Continental philo- sopher's opinion on this point ; a man among the most benevolent of his time, and the happiness of whose married life has been celebrated. " When dangerous prejudices," says Sismondi,* " have not become accre- dited, when a morality contrary to our true duties towards others,and especially towards those to whom we have given life, is not inculcated in the name of the most sacred authority ; no prudent man contracts matrimony before he is in a condition which gives him an assured means of living, and no married man has a greater number of children than he can properly bring up. The head of a family thinks, with reason, that his children may be contented with the condition in which he himself ha,s lived ; and his desire will be that the rising generation should represent exactly the departing one : that one son and one daughter arrived at the marriageable age should replace his own father and mother ; that the children of his children should in their turn replace himself and his wife ; that his daughter should find in another family the precise equivalent of the lot which will be given in his own family to the daughter of another, and that the income which sufficed for the parents will suffice for the children." In a country increasing in wealth, some increase of numbers would be admissible, but that is a question of detail, not of principle. " Whenever this family has been formed, justice and humanity require that he should im- pose on himself the same restraint which is submitted to by the unmarried. When we consider how small, in every country, is the number of natural children, we must admit lhat this re- straint is on the whole sufficiently effec- * New Principles of Political Economy, book vii., ch. 5. tual. In a country where population has no room to increase, or in v.lip 'u its progress must be so slow as to bo hardly perceptible, when there are no places vacant for new establishments, a father who has eight children must expect, either that six of them will die in childhood, or that three men and three women among his cotemporaries, and in the next generation three of his sous and three of his daughters, will remain unmarried on his account." 2. Those who think it hopeless that the labouring classes should be induced to practise a sufficient degree of prudence in regard to the increase of their families, because they have hitherto stopt short of that point, show an inability to estimate the ordinary principles of human action. Nothing more would probably be necessary to secure that result, than an opinion generally diffused that it was desir- able. As a moral principle, such an opinion has never yet existed in any country : it is curious that it does not so exist in countries in which, from the spontaneous operation of individual forethought, population is, compara- tively speaking, efficiently repressed. What is practised as prudence, is still not recognised as duty ; the talkers and writers are mostly on the other side, even in France, where a senti- mental horror of Malthus is almost as rife as in this country. Many causes may be assigned, besides the modern date of the doctrine, for its not Swing yet gained possession of the general mind. Its truth has, in some respects, been its detriment. One may be per- mitted to doubt whether, except among the poor themselves (for whose pro judices on this subject there is no diffi- culty in accounting) there has ever yet been, in any class of society, a sincere and earnest desire that wages should be high. There has been plenty of desire to keep down the poor-rate : but, that done, people have oeen very willing that the working classes should be ill off. Nearly all who are not labourers themselves, are employers of labour, and are not sorry to get tlio commodity cheap. It is a Ih'-l, that 228 BOOK II. CHAPTER XIIL 2. even Boards of Guardians, who are sup- posed to be official apostles of anti- population doctrines, will seldom hear patiently of anything which they are pleased to designate as Malthusia'nisru. Boards of Guardians in rural districts, principally consist of farmers, and farmers, it is well known, in general dislike even allotments, as making the labourers " too independent." From the gentry, who are in less immediate contact and collision of interest with the labourers, better things might be expected, and the gentry of England are usually charitable. But charitable people hays human infirmities, and would, very often, be secretly not a little dissatisfied if no one needed their charity : it is from them one oftenest hears the base doctrine, that God has decreed there shall always be poor. When one adds to this, that nearly every person who has had in him any active spring of exertion for a social object, has had some favourite reform to effect, which he thought the admis- sion of this great principle would throw into the shade ; has had corn laws to repeal, or taxation to reduce, or small notes to issue, or the charter to carry, or the church to revive or abolish, or the aristocracy to pull down , and looked upon every one as an enemy who thought anything important except his object ; it is scarcely wonderful that since the population doctrine was first promulgated, nine-tenths of the talk has always been against it, and the remaining tenth only audible at intervals ; and that it has not yet penetrated far among those who might be expected to be the least willing re- cipients of it, the labourers themselves. But let us try to imagine what Trould happen if the idea became general among "the labouring class, that the competition of too great numbers was the principal cause of their poverty; PO that every labourer looked (with Si^mondi) upon every other who had more than the number of children which the circumstances of society allowed to each, as doing him a wrong as filling up the place which he was entitled to share. Any one \dio supposes that this state of opinion would not have a great effect on con- duct, must be profoundly ignorant of human nature ; can never have con- sidered how large a portion of the motives which induce the generality of men to take care even of their own interests, is derived from regard for opinion from the expectation of being disliked or despised for not doing it. In the particular case in question, it is not too much to say that over-indul- gence is as much caused by the sti- mulus of opinion as by the mere animal propensity ; since opinion universally, and especially among the most un- educated classes, has connected ideas of spirit and power with the strength of the instinct, and of inferiority with its moderation or absence ; a perver- sion of sentiment caused by its being the means, and the stamp, of a do- minion exercised over other human beings. The effect would be great of merely removing this factitious stimulus ; and when once opinion shall have turned itself into an adverse direction, a reA T olution will soon take place in this department of human conduct. We are often told that the most thorough perception of the depen- dence of wages on population will not influence the conduct of a labouring man, because it is not the children he himself can have that will produce any effect in generally depressing the labour market. True : and it is also true, that one soldier's running away will not lose the battle ; accordingly it I is not that consideration which keeps ! each soldier in his rank : it is the dis- grace which naturally and inevitably attends on conduct by any one indi- vidual, which it' pursued by a majority, ybody can see would be fatal. Men are seldom found to brave the general opinion of their class, unless supported either by some principle higher than regard for opinion, or by some strong body of opinion elsewhere. It must be borne in mind also, that the opinion here in question, as soon as it attained any prevalence, would have powerful auxiliaries in the great ma- jority of women. It is seldom by the choice of the wife that families are too numerous ; on her devolves (along EE5IEDIES FOR LOW WAGES. 229 with all tho physical suffering and at least a full share of the privations) the whole of the intolerable domestic drud- gery resulting from the excess. To be relieved from it would be hailed as a blessing by multitudes of women who now never venture to urge such a claim, but who would urge it, if sup- ported by the moral feelings of the community. Among the barbarisms which law and morals have not yet ceased to sanction, the most disgusting surely is, that any human being should be permitted to consider himself as having a right to the person of another. If the opinion were once generally established among the labouring class that their welfare required a due regu- lation of the numbers of families, the respectable and well-conducted of the body would conform to the prescrip- tion, and only those would exempt themselves from it, who were in the habit of making light of social obliga- tions generally ; and there would be then an evident justification for con- verting the moral obligation against bringing children into the world who are a burthen te the community, jnto a legal one; just as in many other cases of the progress of opinion, the law ends by enforcing against recal- citrant minorities, obligations which to be useful must be general, and which, from a sense of their utility, a large majority have voluntarily consented to take upon themselves. There would be no need, however, of legal sanctions, if women were admitted, as on all other grounds they have the clearest title to be, to the same rights of citizenship with men. Let them cease to be confined by custom to one phy- sical function as their means of living and their source of influence, and they would have for the first time an equal voice with men in what concerns that function : and of all the improvements in reserve for mankind which it is now possible to foresee, none might be expected to be so fertile as this in almost every kind of moral and social benefit. It remains to consider what chance there is that opinions and feelings, grounded on the(iaw of the dependence of wages on population, ' will arise among the labouring classes; and lv what means such opinions and f can be called forth. Before c< ing the grounds of hope on this subject, a hope which many persons, no doubt, will be ready, without consideration, to pronounce chimerical, I will remark, that unless a satisfactory answer can be made to the.se two questions, the industrial system prevailing in this country, and regarded by many writers as the ne plus ultra of civilization- the dependence of the whole labouring class of the community on the wages of hired labour is irrevocably con- demned. The question we are con- sidering is, whether, of this state of things, over-population and a degraded condition of the labouring class aro the inevitable consequence. If a prudent regulation of population be not reconcilable with the system of hired labour, the system is a nuisance, and the grand object of economical statesmanship should be (by whatever arrangements of property, and altera- tions in the modes of applyingindustry), to bring the labouring people under the influence of stronger and more obvious inducements to this kind of prudence, than the relation of workmen and employers can afford. But there exists no such incom- patibility. The causes of poverty are not so obvious at first sight to a popu- lation of hired labourers, as they aro to one of proprietors, or as they would be to a socialist community. They are, however, in no way mysterious. The dependence of wages on the num- ber of the competitors for employment, is so far from hard of comprehension, or unintelligible to the labouring classes, that by great bodies of them it is already recognised and habitually acted on. It is familiar to all Trades Unions ; every successful combination to keep up wages, owes its success to contri- vances for restricting the number of the competitors ; all skilled trades are anxious to keep down their own num- bers, and many impose, or endeavour to impose, as a condition upon em- ployers, that they shall not take more than a prescribed number of appren- 230 BOOK H. CHAPTER XIII. 3. tices. There is, of course, a great difference between limiting their num- bers by excluding other people, and doing the same thing by a restraint imposed on themselves : but the one as much as the other shows a clear perception of the relation between their numbers and their remuneration. The principle is understood in its ap- plication to any one employment, but not to the general mass of employment. For this there are several reasons : first, the operation of causes is more easily and distinctly seen in the more circumscribed field: secondly, skilled nrtizans are a more intelligent class than ordinary manual labourers ; and the habit of concert, and of passing in review their general condition as a trade, keeps up a better understanding of their collective interests : thirdly and lastly, they are the most provident, because they are the best off, and have the most to preserve. What, how- ever, is clearly perceived and admitted in particular instances, it cannot be hopeless to see understood and acknow- ledged as a general truth. Its recog- nition, at least in theory, seems a thing which must necessarily and immediately come to pass, when the minds of the labouringclasses become capable of taking un^feAmal view of their own aggregat^K^ion. Of this the great major^^Hrhem have until now been incapa^B^ither from, the uncultivated state of their intelli- gence, or from poverty, which leaving them neither the fear of worse, nor the smallest hope of better, makes them careless of the consequences of their actions, and without thought for the future. 3. F_pj._the^urrjose therefore^of altering the habits of the labouring people, there is need of a twofold action, fHrf-ptp.fi simultaneously upon their in- telligence and their poverty. An effec- tive national education of the children of the labouring class, is the first thing needful: and, coincidently with this, a system of measures which shall (as the Kevolution did in France) ex- _ -verty for one whole genei\. This is not the place for discussing, even in the most general manner, either the principles or the machinery of national education. But it is to be hoped that opinion on the subject is advancing, and that an education of mere words would not now be deemed sufficient, slow as our progress is to- wards providing anything better even for the classes to whom society pro- fesses to give the very best education it can devise. Without entering into disputable points, it may be asserted without scruple, that the aim of all in- tellectual training for the mass of the people, should be to cultivate common sense ; to qualify them for forming a sound practical judgment of the cir- cumstances by which they are sur- rounded. Whatever, in the intellectual department, can be superadded to this, is chiefly ornamental ; while this is the indispensable groundwork on which education must rest. Let this object be acknowledged and kept in view as the thing to be first aimed at, and there will be little difficulty in de- ciding either what to teach, or in what manner to teach it. An education directed to diffuse good sense among the people, with such knowledge as would qualify them to judge of the tendencies of their actions, would be certain, even without any 'direct inculcation, to raise up a public opinion by which intemperance and improvidence of every kind would be held discreditable, and the improvi- dence which overstocks the labour market would be severely condemned, as an offence against the common weal. But though the sufficiency of such a state of opinion, supposing it formed, to keep the increase of popu- lation within proper limits, cannot, I think, be doubted ; yet, for the forma- tion of the opinion, it would not do to trust to education alone. Education is not compatible with extreme poverty. It is impossible effectually to teach an indigent population. And it is diffi- cult to make those feel the value of comfort who have never enjoyed it, or those appreciate the wretchedness of I a precarious subsistence, who have i been made reckless by always living REMEDIES FOR LOW WAGES. 231 from hand to mouth. Individuals often struggle upwards into a condition of ease ; but the utmost that can be ex- pected from a whole people is to main- tain themselves in it ; and improvement in the habits and requirements of the mass of unskilled day-labourers will be difficult and tardy, unless means can be contrived of raising the entire body to a state of tolerable comfort, and maintaining them in it until a new generation grows up. Towards effecting this object there are two resources available, without wrong to any one, without any of the liabilities of mischief attendant on voluntary or legal charity, and not only without weakening, but on the contrary strengthening, every incen- tive to industry, and every motive to forethought. 4. The first is, a great national measure of colonization. I mean, a grant of public money, sufficient to remove at once, and establish in the colonies, a considerable fraction of the youthful agricultural population. By giving the preference, as Mr. Wake- iield proposes, to young couples, or when these cannot be obtained, to families with children nearly grown up, the expenditure would be made to go the farthest possible towards accom- plishing the end, while the colonies would be supplied with the greatest amount of what is there in deficiency and here in superfluity, present and prospective labour. It has been shown by others, and the grounds of the opi- nion will be exhibited in a subsequent part of the present work, that coloni- zation on an adequate scale might be so conducted as to cost the country nothing, or nothing that would not be certainly repaid ; and that the funds required, even by way of advance, would not be drawn from the capital employed in maintaining labour, but from that surplus which cannot find employment at such profit as consti- tutes an adequate remuneration for the abstinence of the possessor, and which is therefore sent abroad for in- vestment, or wasted at home in reck- less speculations; That portion of the income ^ of the country which is habi- tually ineffective for any purpose of benefit to the labouring class, would bear any draught which it could be necessary to make on it for the amount of emigration which is here in view. ' The second resource would be, to devote all common land, hereafter brought into cultivation, to raising a class of small proprietors. It has long enough been the practice to take these lands from public use, for the mere purpose of adding to the domains of the rich. It is time that what is left of them should be retained as an estate sacred to the benefit of the poor. The machinery for administering it already exists, having been created by the General Inclosure Act. What I would propose (though, I confess, with small hope of its being soon adopted) is, that in all future cases in which common land is permitted to be enclosed, such portion should first be sold or assigned as is sufficient to compensate the owners of manorial or common rights, and that the remainder should be divided into sections of five acres or thereabouts, to be conferred in abso- lute property on individuals of the labouring class who would reclaim and bring them ijitc^ultivation by their own labour.^B|^ preference should be given tc^Bjj^Mftbourers, and there are many of t^^Hcis had saved enough to maintain tmm until their first crop was got in, or whose character was such as to induce some responsible person to advance to them the requisite amount on their personal security. The tools, the manure, and in some cases the subsistence also, might be supplied by the parish, or by the state ; interest for the advance, at the rate yielded by the public funds, being laid on as a perpetual quit-rent, with power to the peasant to redeem it at any time for a moderate number of years pur- chase. These little landed estates might, if it were thought necessary, be made indivisible by law ; though, if the plan worked in the manner designed, I should not apprehend any objection- able degree of subdivision. In case of intestacy, and in default of amicable arrangement among the heirs, they 232 BOOK II. CHAPTER XIH. 4. might be bought by government at their value, and regranted to some other labourer who could give security for the price. The desire to possess one of these small properties would probably become, as on the Continent, an inducement to prudence and eco- nomy pervading the whole labouring population ; and that great desideratum among a people of hired labourers would be provided, an intermediate class between them and their em- ployers ; affording them the double advantage, of an object for their hopes, and, as there would be good reason to anticipate, an example for their imi- tation. It would, however, be of little avail that either or both of these measures of relief should be adopted, unless on such a scale, as would enable the whole body of hired labourers remain- ing on the soil to obtain not merely employment, but a large addition to the present wages such an addition as would enable them to live and bring up their children in a degree of com- fort and independence to which they have hitherto been strangers. When the object is to raise the permanent condition of a people, small means do not merely produce small effects, they produce no effect at all. Unless com- fort can be made as hr." >....: whole generation asiBKence is now, nothing is accomplished; and feeble half-measures do but fritter away re- sources, far better reserved until the improvement of public opinion and of education shall raise up politicians who will not think that merely because a scheme promises much, the part of statesmanship is to have nothing to do with it. I have left the preceding paragraphs as they were written, since they remain true in principle, though it is no longer urgent to apply their specific recommendations to the present state of this country. The extraordinary cheapening of the means of transport, which is one of the great scientific achievements of the age, and the know- ledge which nearly all classes of the people have now acquired, or are in the way of acquiring, of the condition of the labour market in remote parts of the world, have opened up a spon- taneous emigration from these islands to the newfcountries beyond the ocean, which does not tend to diminish, but to increase ; and which, without any national measure of systematic colo- nization, may prove sufficient to effect a material rise of wages in Great Britain, as it has already done in Ireland, and to maintain that rise unimpaired for one or more generations. Emigration, instead of an occasional vent, is becoming a steady outlet for superfluous numbers ; and this new fact in modern history, together with the flush of prosperity occasioned by free trade, have granted to this over- crowded country a temporary breathing time, capable of being employed in accomplishing those moral and intel- lectual improvements in all classes of the people, the very poorest included, which would render improbable a*ny relapse into the overpeopled state. Whether this golden opportunity will be properly used, depends on the wisdom of our councils ; and whatever depends on that, is always in a high degree precarious. The grounds of hope are, that there has been no time in our history when mental progress has depended so little on governments, and so much on the general disposition of the people ; none in which the spirit of improvement has extended to so many branches of human affairs at once, nor in which all kinds of sugges- tions tending to the public good, in every department, from the humblest physical to the highest moral or intel- lectual, were heard with so little pre- judice, and had so good a chance of becoming known and being fairly con sidered. DIFFERENCES OF WAGES. 233 CHAPTER XIV. OP THE DIFFERENCES OP WAGES IN DIFFERENT EMPLOYMENTS, 1. IK treating of wages, we have hitherto confined ourselves to the. causes which operate on them gene- rally, and en masse ; the laws which govern the remuneration of ordinary or average labour: without reference to the existence of different kinds of work which are habitually paid at different rates, depending in some de- gree on different laws. We will now take into consideration these diffe- rences, and examine in what manner they affect or are affected by the con- clusions already established. A well-known and very popular chapter of Adam Smith* contains the best exposition"ycY given of this por- tion of the subject. I cannot indeed think his treatment so complete and exhaustive as it has sometimes been . considered; but as far as it goes, his analysis is tolerably successful. The differences, lie says, arise partly from the policy of Europe, which no- where leaves things at perfect liberty, and'partly "from certain circumstances in the employments themselves, which either really, or at least in the imagi- nations of men, make up for a small pecuniary gain in some, and counter- balance a great one in others." These circumstances he considers to be :^ " First, the agreeableness or disagfee- ableness of the employments them- selves ; \_ secondly, the easiness and cheapness, or the difficulty and expense of learning them ;-' thirdly, the con- stancy or inconstancy of employment in them ; fourthly, the small or great trust which must be reposed in those who exercise, them ; and fifthly, the probability or improbability of success in them." Several of these points he has very copiously illustrated : though his exam- ples are sometimes drawn from a state of facts now no longer existing. " The wages of labour vary with the ease or * Wealth of Nations, bcok i. ch. 10. hardship, the cleanliness or dirtiness, the honouvableness or dishonourable- ness of the employment. Thus, in most places, take the year round, a journeyman tailor earns less than a, journeyman weaver. His work in much easier." Things have muclv altered, as to a weaver's remuneration, since Adam Smith's time; and the artizan whose work was more difficult than that of a tailor, can never, I think, have been the common weaver. "A journeyman weaver earns less than a journeyman smith. His work is not always easier, but it is much cleanlier." A more probable explana- tion ife, that it requires less bodily strength. "A journeyman black- smith, though an artificer, seldom earns so much in twelve hours as a collier, who is only a labourer, does in eight. His work is not quite so dirty, is less dangerous, and is carried on in day- light, and above ground. Horx)ur makes a great part of the reward of all honourable professions. In point of pecuniary gain, all things consi- dered," their recompense is, in his opi- nion, below the average. "Disgrace has the contrary effect. The trade of a butcher is a brutal and an odious business ; but it is in most places more profitable than the greater part of common trades. The most detestable of all employments, that of public exe- cutioner, is, in proportion to the quan- tity of work done, better paid than any common trade whatever.' 1 One of the causes which make hand-loom weavers cling to their occu- pation in spite of the scanty remunera- tion which it now yields, is said to bo a peculiar attractiveness, arising from the freedom of action which it allows to the woikman. "He can play or idle," says a recent authority,* "^as feeling or inclination lead him; riso * Mr. Muggeridge's Report to the Hand- loom Weavers Inquiry Commission. 234 BOOK II. CHAPTER XIV. 1. early or late, apply himself assiduously or carelessly, as lie pleases, and work up at any time, by increased exertion, hours previously sacrificed to indul- gence or recreation. There is scarcely another condition of any portion of our working population thus free from external control. The factory opera- tive is not only mulcted of his wages for absence, but, if of frequent occur- rence, discharged altogether from his employment. The bricklayer, the car- penter, the painter, the joiner, the stonemason, the outdoor labourer, have each their appointed daily hours of labour, a disregard of which would lead to the same result." Accordingly, " the weaver will stand by his loom while it will enable him to exist, how- ever miserably ; and many, induced temporarily to quit it, have returned to it again, when work was to be had." "Employment is much more con- stant," continues Adam Smith, "in some trades than in others. In the greater part of manufactures, a jour- neyman may be pretty sure of employ- ment almost every day in the year that he is able to work" (the interrup- tions of business arising from over- stocked markets, or from a suspension of demand, or from a commercial crisis, must be excepted). "A mason or bricklayer, on the contrary, can work neither in hard frost nor in foul weather, and his employment at all other times depends upon the occasional calls of his customers. He is liable, in conse- quence, to be frequently without any. What he earns, therefore, while he is employed, must not only maintain him while he is idle, but make him some compensation for those anxious and desponding moments which the thought of so precarious a situation must some- times occasion. When the computed earnings of the greater part of manu- facturers, accordingly, are nearly upon a level with the day wages of common labourers, those of masons and brick- layers are generally from one-half more to double those wages. No species of skilled labour, however, seems more easy to learn than that of masons and bricklayers. The high wages of those workmen, therefore, are not so much the recompense of their skill, as the compensation for the inconstancy of their employ- ment. " When the inconstancy of the employment is combined with the hardship, disagreeablcness, and dirti- ness of the work, it sometimes raises the wages of the most common labour above those of the most skilful artificers. A collier working by the piece is supposed, at Newcastle, to earn com- monly about double, and in many parts of Scotland about three times, the wages of common labour. His high wages arise altogether from the hardship, disagreeableness, and dirti- ness of his work. His employment may, upon most occasions, be as con- stant as he pleases. The coal-heavers in London exercise a trade which in hardship, dirtiness, and disagreeable- ness, almost equals that of colliers; and from the unavoidable irregularity in the arrivals of coalships, the employ- ment of the greater part of them is necessarily very inconstant. If col- liers, therefore, commonly earn double and triple the wages of common labour, it ought not to seem unreasonable that coal-heavers should sometimes earn four or five times those wages. In the inquiry made into their condition a few years ago, it was found that at the rate at which they were then paid, they could earn about four times the wages of common labour in London. How extravagant soever these earn- ings may appear, if they were more than sufficient to compensate all the disagreeable circumstances of the business, there would soon be so great a number of competitors as, in a trade which has no exclusive privilege, would quickly reduce them to a lower rate.'' These inequalities of remuneration, which are supposed to compensate for the disagreeable circumstances of par- ticular employments, would, under cer- tain conditions, be natural conse- quences of perfectly free competition : and as between employments of about the same grade, and filled by nearly the same description of people, they are, no doubt, for the most part, DIFFEEENCES OF WAGES. 235 realized in practice. But it is alto- gether a false view of the state of facts, to present this as the relation which generally exists between agree- able and disagreeable employments. The really exhausting and the really repulsive labours, instead of being better paid than others, are almost in- variably paid the worst of all, because performed by those who have no choice. It would be otherwise in a favourable state of the general labour market. If the labourers in the aggregate, instead of exceeding, fell short of the amount of employment, work which was gene- rally disliked would not be undertaken, except for more than ordinary wages. But when the supply of labour so far exceeds the demand that to find em- ployment at all is an uncertainty, and to be offered it on any terms a favour, the case is totally the reverse. Desi- rable labourers, those whom every one is" anxious to have, can still exercise a choice. The undesirable must take what they can get. The more revolt- ing the occupation, the more certain it is to receive the minimum of remunera- tion, because it devolves on the most helpless and degraded, on those who from squalid poverty, or from want of skill and education, are rejected from all other employments. Partly from this cause, and partly from the natural and artificial monopolies which will be spoken of presently, the inequalities of wages are generally in an opposite direction to the equitable principle of compensation erroneously represented by Adam Smith as the general law of the remuneration of labour. The hard- ships and the earnings, instead of being directly proportional, as in any just arrangements of society they would be, are generally in an inverse ratio to one another. One of the points best illustrated by Adam Smith, is the influence exercised on the remuneration of an employment by the uncertainty of success in it. If the chances are great of total failure, the reward in case of success must be sufficient to make up, in the general estimation, for those adverse chances. But, owing to another principle of human nature, if the reward comes in the shape of a few great prizes, it usually attracts competitors in such numbers, that the average remunera- tion may be reduced not only to zero, but even to a negative quantity. The success of lotteries proves that this is possible : since the aggregate body of adventurers in lotteries necessarily lose, otherwise the undertakers could not gain. The case of certain pro- fessions is considered by Adam Smith to be similar. " The probability that any particular person shall ever be qualified for the employment to which he is educated, is very different in different occupations. In the greater part of mechanic trades, success is almost certain, but very uncertain in the liberal professions. Put your son apprentice to a shoemaker, there is little doubt of his learning to mak a pair of shoes ; but send him tc study the law, it is at least twenty to one if ever he makes such proficiency as will enable him to live by the busi- ness. In a perfectly fair lottery, those who draw the prizes ought to gain all that is lost by those who draw the blanks. In a profession where twenty fail for one that succeeds, that one ought to gain all that should have been gained by the unsuccessful twenty. The counsellor-at-law, who, perhaps, at near forty years of age, begins to make something by his profession, ought to receive the retribution, not only of his own so tedious and expensive educa- tion, but of that of more than twenty others who are never likely to make anything by it. How extravagant soever the fees of counsellors-at-law may sometimes appear, their real retri- bution is never equal to this. Com- pute in any particular place what is likely to be annually gained, and what is likely to be annually spent, by all the different workmen in any common trade, such as that of shoemakers or weavers, and you will find that tlio former sum will generally exceed the latter. But make the same computr- tion with regard to all the coin and students of law, in all the ; inns of court, and you will find that their annual gains bear but a small proportion to their annual expense, 236 even though you rate the former as high, and the latter as low, as can well be done." Whether this is true in our own day, when the gains of the few are incom- parably greater than in the time of Adam Smith, but also the unsuccessful aspirants much more numerous, those who have the appropriate information must decide. It does not, however, seem to be sufficiently considered by Adam Smith, that the prizes which he speaks of comprise not the fees of counsel only, but the places of emolu- ment and honour to which their pro- fession gives access, together with the coveted distinction of a conspicuous position in the public eye. Even where there are no great prizes, the mere love of excitement is sometimes enough to cause an adven- turous employment to be overstocked. This is apparent " in the readiness of the common people to enlist as soldiers, or to go to sea. . . . The dangers and hair-breadth escapes of a life of adven- tures, instead of disheartening young people, seem frequently to recommend a trade to them. A tender mother, among the inferior ranks of people, is often afraid to send her son to school at a sea-port town, lest the sight of the ships and the conversation and adven- tures of the sailors should entice him to go to sea. The distant prospect of hazards, from which we can hope to extricate ourselves by courage and address, is not disagreeable to us, and does not raise the wages of labour in any employment. It is otherwise with those in which courage and address can be of no avail. In trades which are known to be very unwhole- some, the wages of labour are always remarkably high. Unwholesomeness is a species of disagreeableness, and its effects upon the wages of labour are to be ranked under that general head." BOOK II. CHAPTER XIV. 2. 2. The preceding are cases in which inequality of remuneration is necessary to produce equality of attrac- tiveness, and are examples of the equalizing effect of free competition. The following are cases of real in- equality, and arise from a different principle. "The wages of labour vary according to the small or great trust which must be reposed in the workmen. The wages of goldsmiths and jewellers are everywhere superior to those of many other workmen, not only of equal, but of much superior ingenuity ; on account of the precious materials with which they are intrusted. We trust our health to the physician, our fortune and sometimes our life and reputation to the lawyer and attorney. Such confidence could not safely be reposed in people of a very mean or low condition. Their reward must be such, therefore, as may give them that rank in society which so important a trust requires." The superiority of reward is not here the consequence of competition, but of its absence; not a compensation for disadvantages inherent in the em- ployment, but an extra advantage ; a kind of monopoly price, the effect not of a legal, but of what has been termed a natural monopoly. If all labourers were trustworthy it would not be necessary to give extra pay to working goldsmiths on account of the trust. The degree of integrity required being supposed to be uncommon, those who can make it appear that they possess it are able to take advantage of the igher pay in Thi class of considerations which Adam Smith, and most other political econo- mists, have taken inio far too little account, and from inattention to which, he has given a most imperfect exposi- tion of the wide difference between the remuneration of common labour and that of skilled employments. Some employments require a much longer time to learn, and a much more expensive course of instruction than others ; and to this extent there is, as explained by Adam Smith, an inherent reason for their being more highly remunerated. If an artizan must work several years at learning his trade before he can earn anything, and seve- ral years more before becoming suffi- ciently skilful for its finer operations, he must have a prospect of at last ntag peculiarity, and obtain high proportion to its rarity. This opens DIFFEEENCES OF WAGES. 237 earning enough to pay the wages of all this past labour, with compensation for the delay of payment, and an indemnity for tho expenses of his education. His wages, consequently, must yield, over and ahove the ordi- nary amount, an annuity sufficient to repay these sums, with the common rate of profit, within the number of years lie can expect to live and be in working condition. This, which is necessary to place the skilled employ- ments, all circumstances tiien to- gether, on the same level of advantage with the unskilled, is the smallest difference which can exist for any length of time between the two remu- nerations, since otherwise no one would learn the skilled employments. And this amount of difference is all which Adam Smith's principles account for. When the disparity is greater, he seems to think that it must be ex- plained by apprentice laws, and the rules of corporations, which restrict admission into many^ of the skilled employments. Eut, independently of these or any other artificial monopolies, there is a natural monopoly in favour C 4 f skilled labourers against the un- skilled, which makes the difference of reward exceed, sometimes in a manifold proportion, what is sufficient merely to equalize their advantages. If un- skilled labourers had it in their, power to compete with skilled, by merely taking the trouble of learning the trade, the difference of wages might not exceed what would compensate them for that trouble, at the ordinary rate at which labour is remunerated. But the fact that a course of instruction is required, of even a low degree of cost- liness, or that the labourer must be maintained for a considerable time from other sources, suffices everywhere to exclude the great body of the labour- ing people from the possibility of any such competition. Until lately, all employments which required even the humble education of reading and writing, could be recruited only from a select class, the majority having had no opportunity of acquiring those attainments. All such employments, accordingly, were immensely overpaid, measured by the ordinary remune- ration of labour. Since reading and writing have been brought within the reach of a multitude, the monopoly- price of the lower grade of educated employments has greatly fallen, the competition for them having increased in an almost incredible degree. There is still, however, a much greater dis- parity than can be accounted for on the principle of competition. A clerk from whom nothing is required but the mechanical labour of copying, gains more than an equivalent for his mere exertion if he receives the wages of a bricklayer's labourer. His work is not a tenth part as hard, it is quite as easy to learn, and his condition is less pre- carious, a clerk's place being generally a place for life. The higher rate of his remuneration, therefore, must be partly ascribed to monopoly, the small degree of education required being not even yet so generally diffused as to call forth the natural number of com- petitors ; and partly to the remaining influence of an ancient custom, which requires that clerks should maintain the dress and appearance of a more highly paid class. In some manual employments, requiring a nicety of hand which can only be acquired by long practice, it is difficult to obtain at any cost workmen in sufficient num- bers, who are capable of the most delicate kind of work ; and the wages paid to them are only limited by the price which purchasers are willing to give for the commodity they produce. This is the case with some working watchmakers, and with the makers of some astronomical and optical instru- ments. If workmen competent to such employments were ten times as nume- rous as they are, there would be pur- chasers for all which they could make, not indeed at the present prices, but at those lower prices which would be tho natural consequence of lower waorps. Similar considerations apply i; greater degree to employments \\hi. !i it is attempted to confine to persons of a certain social rank, such as what are called the liberal professions ; into which a person of what is considered too low a class of society, is not easily 238 admitted, and if admitted, does not easily succeed. So complete, indeed, has hitherto been the separation, so strongly marked the line of demarcation, between the different grades of labourers, as to be almost equivalent to an hereditary dis- tinction of caste ; each employment being chiefly recruited from the chil- dren of those already employed in it, or in employments of the same rank with it in social estimation, or from the children of persons who, if origi- nally of a lower rank, have succeeded in raising themselves by their exertions. The liberal professions are mostly sup- plied by the sons of either the profes- sional, or the idle classes: the more highly skilled manual employments are filled up from the sons of skilled arti- zans, or the class of tradesmen who rank with them : the lower classes of skilled employments are in a similar case; and unskilled labourers, with occasional exceptions, remain from father to son in their pristine condition. Consequently the wages of each class have hitherto been regulated by the increase of its own population, rather than of the general population of the country. If the professions are over- stocked, it is because the class of so- ciety from which they have always mainly been supplied, has greatly in- creased in number, and because most of that class have numerous families, and bring up some at least of their sons to professions. If the wages of artizans remain so much higher than those of common labourers, it is because arti- zans are a more prudent class, and do not marry so early or so inconsiderately. The changes, however, now so rapidly taking place in usages and ideas, are undermining all these distinctions ; the habits or disabilities which chained people to their hereditary condition are fast wearing away, and every class is exposed to increased and increasing competition from at least the class im- mediately below it. The general re- laxation of conventional barriers, and the increased facilities of education which already are, and will be in a much greater degree, brought within the reach of all, terd to produce, among BOOK H. CHAPTER XIV. 3. many excellent effects, one which is the reverse ; they tend to bring down the wages of skilled labour. The in- equality of remuneration between the skilled and the unskilled is, without doubt, very much greater than is justi- fiable; but it is desirable that this should be corrected by raising the un- skilled, not by lowering the skilled. If, however, the other changes taking place in society are not accompanied by a strengthening of the checks to population on the part of labourers generally, there will be a tendency to bring the lower grades of skilled la- bourers under the influence of a rate of increase regulated by a lower standard of living than their own, and thus to de- teriorate their condition without raising that of the general mass ; the stimulus given to the multiplication of the lowest class being sufficient to fill up without difficulty the additional space gained by them from those immediately above. 3. A modifying circumstance still remains to be noticed, which interferes to some extent with the operation of the principles thus far brought to view. "\Vhile it is true, as a general rule, that the earnings of skilled labour, and es- pecially of any labour which requires school education, are at a monopoly rate, from the impossibility, to the mass of the people, of obtaining that educa- tion ; it is also true that the policy of nations, or the bounty of individuals, formerly did much to counteract the effect of this limitation of competition, by offering eleemosynary instruction to a much larger class of persons than could have obtained the same advan- tages by paying their price. Adam Smith has pointed out the operation of this cause in keeping down the re- muneration of scholarly or bookish oc- cupations generally, and in particular of clergymen, literary men, and school- masters, or other teachers of youth. I cannot better set forth this part of the subject than in his words. "It has been considered as of so much importance that a proper number of young people should be educated for certain professions, that sometimes the public, and sometimes the piety of DIFFERENCES OF WAGES. private founders, have established many pensions, scholarships, exhibi- tions, bursaries, &c. for this purpose, which draw many more people into those trades than could otherwise pre- tend to follow them. In all Christian countries, I believe, the education of the greater part of churchmen is paid for in this manner. Very few of them are edu- cated altogether at their own expense. The long, tedious, and expensive edu- cation, therefore, of those who are, will not always procure them a suitable re- ward, the church being crowded with peo- ple who, in order to get employment, are willing to accept of a much smaller re- compense than what such an education would otherwise have entitled them to ; and in this manner the competition of the poor takes away the reward of the rich. It would be in'decent, no doubt, to compare either a curate or a chap- lain with a journeyman in any common trade. The pay of a curate or a chap- lain, however, may very properly be considered as of the same nature with the wages of a journeyman. They are, all three, paid for their work ac- cording to the contract which they may happen to make with their respective superiors. Till after the middle of the fourteenth century, five marks, con- taining as much silver as ten pounds of our present money, was in England the usual pay of a curate or a stipen- diary parish priest, as we find it regu- lated by the decrees of several different national councils. At the same period fourpence a day, containing the same quantity of silver as a shilling of our present money, was declared to be the pay of a master-mason, and threepence a day, equal to ninepence of our present money, that of a journeyman mason.* The wages of both these labourers, therefore, supposing them to have been constantly employed, \vere much supe- rior to those of the curate. The wages of the master-mason, supposing him to have bsen without employment one- third of the year, would have fully equalled them. By the 12th of Queen Anne, c. 12, it is declared 'That whereas for want of sufficient mainte- * " See the Statute of Labourers, 25 Edw. III." 239 nance and encouragement to curates, the cures have in several places been meanly supplied, the bishop is there- fore empowered to appoint by writing under his hand and seal a sufficient certain stipend or allowance, not ex- ceeding fifty, and not less than twenty pounds a year.' Forty pounds a year is reckoned at present very good pay for a curate, and notwithstanding this act of parliament, there are many cura- cies under twenty pounds a year. This last sum does not exceed what is fre- quently earned by common labourers in many country parishes. Whenever the law has attempted to regulate the wages of workmen, it has always been rather to lower them than to raise them. But the law has upon many occasions attempted to raise the wages of curates, and for the dignity of the Church, to oblige the rectors of parishes to give them more than the wretched maintenance which they themselves might be willing to accept of. And in both cases the law seems to have been equally ineffectual, and has never been either able to raise the wages of curates or to sink those of labourers to the degree that was intended, be- cause it has never been able to hinder either the one from being willing to accept of less than the legal allowance, on account of the indigence of their situation and the multitude of their competitors ; or the other from re- ceiving more, on account of the con- trary competition of those who expected to derive either profit or pleasure from employing them." " In professions in which there are no benefices, such as law (?) and physic, if an equal proportion of people were educated at the public expense, the competition would soon be so great as to sink very much their pecuniary reward. It might then not be worth any man's while to educate his son to either of those professions at his own expense. They would be entirely abandoned to such as had been edu- cated by those public charities ; whose numbers and necessities would oblige them in general to content them- selves with a very miserable recom- pense. 240 "That unprosperous race of men, commonly called men of letters, are pretty much in the situation vrhich lawyers and physicians probably -would be in upon the foregoing supposition. In every part of Europe, the greater part of them have been educated for the church, but have been hindered by different reasons from entering into holy orders. They have generally, therefore, been educated at the public expense, and their numbers are every- where so great as to reduce the price of their labour to a very paltry recom- pense. t " Before the invention of the art of printing, the only employment by which a mau of letters could make anything by his talents, was that of a public or private teacher, or by com- municating to other people the curious and useful knowledge which he had acquired himself: and this is still surely a more honourable, a more use- ful, and in general even a more pro- fitable employment than that other of writing for a bookseller, to which the art of printing has given occasion. The time and study, the genius, know- ledge, and application requisite to f[ualify an eminent teacher of the sciences, are at least equal to what is necessary for the greatest practitioners in law and physic. But the usual re- gard of the eminent teacher bears no proportion to that of the lawyer or physician ; because the trade of the one is crowded with indigent people who have been brought up to it at the public expense, whereas those of the other two are encumbered with very few who have not been educated at their own. The usual recompense, however, of public and private teachers, small as it may appear, would un- doubtedly be less than it is, if the competition of those yet more indigent men of letters who write for brea-1 was ret t^ken cut of the market. Before the invention of the art of printing, a scholar and a beggar seem to have been terms very nearly synonymous. The different governors of the univer- sities before that time appear to have often granted licenses to their scholars to beg." BOOK H. CHAPTER XIV. 4. 4. The demand for literary la- bour has so greatly increased since Adam Smith wrote, while the provi- sions for eleemosynary education have nowhere been much added to, and in the countries which have undergone revolutions have been much dimi- nished, that little effect in keeping down the recompense of literary labour can now be ascribed to the influence of those institutions. But an effect nearly equivalent is now produced by a cause somewhat similar the competition of persons who, by analogy with other arts, may be called amateurs. Lite- rary occupation is one of those pursuits in which success may be attained by persons the greater part of whose time is taken up by other employments ; and the education necessary for it, is the common education of all cultivated persons. The inducements to it, inde- pendently of money, in the present state of "the. world," to all who have either vanity to gratify, or personal or public objects to promote, are strong. These motives now attract into this career a great and increasing number of persons who do not need its pecu- niary fruits, and who would equally re- sort to it if it afforded no remuneration at all. In our own country (to cite known examples), the most influential, and on the whole most eminent philo- sophical writer of recent times (Ben- tham), the greatest political economist (Eicardo), the most ephemerally cele- brated, and the really greatest poets (Byron and SheUey), and the most suc- cessful writer of prose fiction (Scott), were none ef them authors by profes- sion ; and only two of the five, Scott and Byron, could have supported them- selves by the works which they wrote. Nearly all the high departments of authorship are, to a great extent, simi- larly filled. In consequence, although the highest pecuniary prizes of suc- cessful authorship aro incomparably greater than at air- on any rational calculation of the chances, in the existing competition, scarcely any writer can hope to gain a living by books, and to do so by maga- zines and reviews becomes daily more* difficult. It is only the more trouble- DIFFERENCES OF WAGES. 211 some and disagreeable kinds of literary labour, and those which confer no per- sonal celebrity, such as most of those connected with newspapers, or with the smaller periodicals, on which an edu- cated person can now rely for subsist- ence. Of these, the remuneration is, on the whole, decidedly high ; because, though exposed to the competition of what used to be called " poor scholars" (persons who have received a learned education from some public or private charity), they are exempt frofn that of amateurs, those who have other means of support being seldom candidates for ,euch employments. Whether these considerations are not connected with something radically amiss in the idea of authorship as a profession, and whe- ther any social arrangement under which the teachers of mankind consist of persons giving out doctrines for bread, is suited to be, or can possibly be, a permanent thing would be a subject well worthy of the 'attention of thinkers. The clerical, like the literary profes- sion, is frequently adopted by persons of independent means, cither from reli- gious zeal, or for the sake of the honour or usefulness which may belong to it, or for a chance of the high prizes which it holds out ; and it is now principally for this reason that the salaries of curates are so low; those salaries, though considerably raised by the in- iluepce of public opinion, being still generally insufficient as the sole means of support for one who has to maintain the externals expected from a clergy man of the established church. When an occupation is carried on chiefly by persons who derive the main portion of their subsistence from other sources, its remuneration may be lower almost to any extent, than the wages of equally severe labour in other em- ployments. The principal example of the kind is domestic manufactures. When spinning and knitting were car- ried on in every cottage, by families dei'iving their principal support from agriculture, the price at which their produce was sold (which constituted the remuneration of the labour) was often so low, that there would have been required great perfection of ma- chinery to undersell it. The amount of the remuneration in such depends chiefly upon whether the quan- tity of the commodity, produced by this description of labour, suffices to supply the whole of the demand. If it does not, and there is consequently a neces- sity for some labourers who devote themselves entirely to the employment, the price of the article must be suili- cient to pay those labourers at the ordinary rate, and to reward therefore very handsomely the domestic pro- ducers. But if the demand is so limited that the domestic manufacture can do more than satisfy it, the price is natu- rally kept down to the lowest rate at which peasant families think it worth while to continue the production. It is, no doubt, because the Swiss artizans do not depend for the whole of their subsistence upon their looms, that Zu- rich is able to maintain a competition in the European market with English capital, and English fuel and ma- chinery.* Thus far, as to the remu- neration of the subsidiary employment ; but the effect to the labourers of hav- ing this additional resource, is almost certain to be (unless peculiar counter- acting causes intervene) a propor- tional diminution of the wages of their main occupation. The habits of the people (as has already been so often remarked) everywhere require some particular scale of living, and no more, the condition without which they will not bring up a family. Whether the income which maintains them in this condition comes from one source or from two, makes no difference : if there is a second source of income, they require less from the first ; and multi- ply (at least this has always hitherto been the case) to a point which leaves them no more from both employments, * Four-fifths of the manufacturers of the Canton of Zurich are small farmers, gene- rally proprietors of their farms. Tl.- i manufacture occupies either wholly or par- tially 23,000 people, nearly a tenth part of thu population; and they consume u greater quantity of cotton per inhabitant than either France or England. See the Stall- : count of Zurich, formerly cite-'-!, pp. Iu3, lUa, B 242 than they would probably have had from either if it had been their sole occupation. For the same reason it is found that, //.btains by far the largest share. In the occupations in which employers take full advantage of competition, the low wages of women as compared with the ordinary earn- ings of men, are a proof that the em- ployments are overstocked: that al- though so much smaller a number of women, than of men, support them- selves by wages, the occupations which DIFFERENCES OF WAGES. 243 law and usage make accessible to them are comparatively so few, that the field of their employment is still more over- crowded. It must be observed, that as matters now stand, a sufficient degree of overcrowding may depress the wages of women to a much lower minimum than those of men. The wages, at least of single women, must be equal to their support ; but need not be more than equal to it ; the minimum, in their case, is the pittance absolutely requi- .site for the sustenance of one human being. Now the lowest point to which the most superabundant competition can permanently depress the wages of ft man, is always somewhat more than this. Where the wife of a labouring man does not by general custom con- tribute to his earnings, the man's wages must be at least sufficient to support himself, a wife, and a number of chil- dren adequate to keep up the popula- tion, since if it were less, the population would not be kept up. And even if the wife earns something, their joint wages must be sufficient to support, not only themselves, but (at least for some years) their children also. The ne plus ultra of low wages, therefore, (except during some transitory crisis, or in some decaying employment,) can hardly occur in any occupation which the person employed has to live by, except the occupations of women. 6. Thus far, we have, through this discussion, proceeded on the sup- position that competition is free, so far as regards human interference ; being limited only by natural causes, or by the unintended effect of general social circumstances. But law or custom may interfere to limit competition. If apprentice laws, or the regulations of corporate bodies, make the access to a particular employment slow, costly, or difficult, the wages of that employment may be kept much above their natural proportion to the wages of common labour. They might be so kept without any assignable limit, were it not that wages which exceed the usual rate require corresponding prices, and that there is a limit to the price at which even a restricted num- ber of producers can dispose of all they produce. In most civilized countries, the restrictions of this kind which once existed have been either abo- lished or very much relaxed, and will, no doubt, soon disappear entirely. In some trades, however, and to some ex- tent, the combinations of workmen produce a similar effect. Those com- binations always fail to uphold wages at an artificial rate, unless they also limit the number of competitors. But they do occasionally succeed in accom- plishing this. In several trades the workmen have been able to make it almost impracticable for strangers to ob- tain admission either as journeymen or as apprentices, except in limited num- bers, and under such restrictions as they choose to impose. It was given in evidence to the Hand-loom Weavers Commission, that this is one of the hardships which aggravate the grievous condition of that depressed class. Their own employment is overstocked and almost ruined ; but there are many other trades which it would not be dif- ficult for them to learn : to this, how- ever, the combinations of workmen in those other trades are said to interpose an obstacle hitherto insurmountable. Notwithstanding, however, the crueJ manner in which the exclusive prin- ciple of these combinations operates in a case of this peculiar nature, the question, whether they are on the whole more useful or mischievous, re- quires to be decided on an enlarged consideration of consequences, among which such a fact as this is not one of the most important items. Putting aside the atrocities sometimes com- mitted by workmen in the way of per- sonal outrage or intimidation, which cannot be too rigidly repressed; if the present state of the general habits of the people were to remain for ever un- improved, these partial combinations, in so far as they do succeed in keeping up the wages of any trade by limiting its numbers, might be looked upon as simply intrenching round a particular spot against the inroads of over-popu- lation, and making the wages of the class depend upon their own rate of increase, instead of depending on tlm tti 2-14 BOOK II. CHAPTER XIV. 7. of a more reckless and improvident class than themselves. What at first sight seems the injustice of excluding the more numerous body from sharing the gains of a comparatively few, dis- appears when we consider that by being admitted, they would not be made better off, for more than a short time ; the only permanent effect which their admission would produce, would be to lower the others to their own level. To what extent the force of this consideration is annulled when a tendency commences towards dimi- nished over-crowding in the labouring classes generally, and what grounds of a different nature there may be for re- garding the existence of trade combi- nations as rather to be desired than .deprecated, will be considered in a subsequent chapter of this work, with the subject of Combination Laws. 7. To conclude this subject, I must repeat an observation already made, that there are kinds of labour of which the wages are fixed by custom, and not by competition. Such are the fees or charges of professional persons : of physicians, surgeons, barristers, and even attorneys. These, as a general rule, do not vary, and though competi- tion operates upon those classes as much as upon any others, it is by di- viding the business, not, in general, by diminishing the rate at which it is paid. The cause of this, perhaps, has been the prevalence of an opinion that such persons are more trustworthy if paid highly in proportion to the work they perform ; insomuch that if a lawyer or a physician offered his services at less than the ordinary rate, instead of gaining more practice, he would pro- bably lose that which he already had. For analogous reasons it is usual to pay greatly beyond the market price of their labour, all persons in whom the employer wishes to place peculiar trust, or from whom he requires something besides their mere services. For ex- ample, most persons who can afford it, pay to their domestic servants higher wages than would purchase in thft market the labour of persons fully as competent to the work required. They do this, not merely from ostentation, but also from more reasonable motives ; either because they desire that those they employ should serve them cheer- fully, and be anxious to remain in their service ; or because they do not like to drive a hard bargain with people whom they are in constant intercourse with ; or because they dislike to hare near their persons, and continually in their sight, people with the appearance and habits which are the usual accompani- ments of a mean remuneration. Simi- lar feelings operate in the minds of persons in business, with respect to their clerks and other employes. Li- berality, generosity, and the credit of the employer, are motives which, to whatever extent they operate, preclude taking the utmost advantage of compe- tition : and doubtless such motives might, and even now do, operate on employers of labour in all the great departments of industry ; and most de- sirable is it that they should. But they can never raise the average wages of labour beyond the ratio of population to capital. By giving more to each person employed, they limit the power of giving employment to numbers ; and however excellent their moral effect, they do little good economically, unless the pauperism of those who are shut out, leads indirectly to a readjustment by means of an increased restraint on population. PROFITS. CHAPTER XV. OF PROFITS. 1. HAVING treated of the la- bourer's share of the produce, we next proceed to the share of the capitalist ; the profits of capital or stock ; the gains of the person who advances the ex- penses of production who, from funds in his possession, pays the wages of the labourers, or supports them during the work ; who supplies the requisite buildings, materials, and tools or ma- chinery; and to whom, by the usual terms of the contract, the produce be- longs, to be disposed of at his pleasure. After indemnifying him for his outlay, there commonly remains a surplus, which is his profit ; the net income from his capital: the amount which he can afford to expend in necessaries or pleasures, or from which by further saving he can add to his wealth. As the wages of the labourer are the remuneration of labour, so the profits of the capitalist are properly, according to Mr. Senior's well-chosen expression, the rgmnnRratijiti-Q-alaatinBiicfl. They are what he gains by forbearing to consume his capital for his own uses, and allowing it to be consumed by productive labourers for their uses. For this forbearance he requires a recompense. Very often in personal enjoyment he would be a gainer by squandering his capital, the capital amounting to more than the sum of the profits which it will yield during the years he can expect to live. But while he retains it undiminished, he has al- ways the power of consuming it if he wishes or needs ; he can bestow it upon others at his death ; and in the mean- time he derives from it an income, which he can without impoverishment apply to the satisfaction of his own wants or inclinations. Of the gains, however, which the possession of a capital enables a person to make, a part only is properly an equivalent for the use of the capital itself; namely, as much as a solvent person would be willing to pay for the loan of it. This, which -as everybody kaews is called interest, is all that a person is enabled to get by merely ab- staining from the immediate consump- tion of his capital, and allowing it to be used for productive purposes by others. The remuneration which is obtained in any country for mere ab- stinence, is measured by the current rate of interest on the best security; such security as precludes any appre- ciable chance of losing the principal. What a person expects to gain, who superintends the employment of his- own capital, is always more, and gene- rally much more, than this. The rate of profit greatly exceeds the rate of in- terest. The surplus is partly compensa- tionjboisjc. By lending his capital, on unexceptionable security, he runs little or no risk. But if he embarks in busi- ness on his own account, he always exposes his capital to some, and in many cases to very great, danger of partial or total loss. For this danger he must be compensated, otherwise he will not incur it. He must likewise be remunerated for the devotion of his time and labour. The control of the operations of industry usually belongs to the person who supplies the whole or the greatest part of the funds by which they are carried on, and who, according to the ordinary arrangement, is either alone interested, or is the per- son most interested (at least directly), in the result. To exercise this control with efficiency, if the concern is largo and complicated, requires great assi- duity, and often, no ordinary skill. Thia assiduity and skill must be remune- rated. The gross profits from capital, the gains returned to those who supply tho funds for production, must suffice for these three purposes. They must afford a sufficient equivalent tor absti- nence. indemnity for risk, aud remu- 246 BOOK II. CHAPTER XV. 2. : for the labour and skill re- ':.tendence. These (Efferent compensations may be either paid to the same, or to different per- sons. The capital, or some part of it, may be borrowed : may belong to some one who does not undertake the risks or the trouble of business. In that case, the lender, or owner, is the pei- ron who practises the abstinence ; and is remunerated for it by the interest paid to him, while the difference be- tween the interest and the gross profit remunerates the exertions and risks of the undertaker.* Sometimes, again, the capital, or a part of it, is supplied by what is called a sleeping partner ; who shares the risks of the employ- ment, but not the trouble, and who, in consideration of those risks, receives not a mere interest, but a stipulated share of the gross profits. Sometimes the capital is supplied and the risk incurred by one person, and the busi- ness carried on exclusively in his name, while the trouble of management is made over to another, who is engaged lor that purpose at a fixed salary. Management, however, by hired ser- vants, who have no interest in the result but that of preserving their salaries, is proverbially inefficient, un- less they act under the inspecting eye, if not the controlling hand, of the per- son chiefly interested : and prudence almost always recommends giving to a manager not thus controlled, a re- muneration partly dependent on the profits : which virtually reduces the case to that of a sleeping partner. Or finally, the same person may own the capital, and conduct the business; adding, if he will and can, to the man- agement of his own capital, that of as much more as the owners may be will- him with. But under may be described respectively as inte- rest, insurance, and wages of superin- tendence. 2. The lowest rate of profit which can permanently exist, is that which is barely adequate, at the given place and time, to afford an equivalent for the abstinence, risk, and exertion im- plied in the employment of capital. From the gross profit, has first to be deducted as much as will form a fund sufficient on the average to cover all losses incident to the employment. Xext, it must afford such an equivalent to the owner of the capital for forbear- ing to consume it, as is then and there a sufficient motive to him to per- sist in his abstinence. How much will be required to form this equiva- lent, depends on the comparative value placed, in the given society, upon the present and the future : (in the words , formerly used) on the strength of the effective desire of accumulation. Fur- ther, after covering all losses, and re- munerating the owner for forbearing to consume, there must be something left to recompense the labour and skill of the person who devotes his time to the business. This recompense too must be sufficient to enable at least the owners of the larger capitals to receive for their trouble, or to pay to some manager for his, what to them or him will be a sufficient inducement for un- dergoing it. If the surplus is no more than this, none but large masses of capital will be employed productively ; and if it did not even amount to this, capital would be withdrawn from pro- duction, and unproductively consumed, until, by an indirect consequence of its diminished amount, to be, explained hereafter, the rate of profit was raised. Such, then, is the minimum of ing to trust mm witn. mt unaer j liny and all of these arrangements, the I profits : but that minimum is exceed- farne three things require their remu- j ingly variable, and at some times and aeration, and must obtain it from the j places extremely low ; on account of gross profit : jibsn'nence, risk, exertion, the great variableness of two out of And the three parts inTo which profit j its three elements. That the rate of may be considered as resolving itself, ! necessary remuneration for abstinence, * It is to be regretted that this word, in ! or in other words the effective desire this sense, is not lamiliar to an English ear. j O f accumulation, differs widely in dif- Freiich political economists enjoy a great I f . ^p^ n ' ni ., n ^A i;.,o+;> French political economists enjoy a great advantage in being able to speak currently tiles pnjits de I' entrepreneur. ferent states of society and civilization, has been seen in a former chapter. PROFITS. 247 There is a still Nvider difference in the element which consists in compensa- tion for risk. I am not now speaking of the differences in point of risk be- tween different employments of capital in the same society, but of the very different degrees of security of property in different states of society. Where, as in many of the governments of Asia, property is in perpetual danger of spoliation from a tyrannical govern- ment, or from its rapacious and ill- controlled officers ; where to possess or to he suspected of possessing wealth, is to be a mark not only for plunder, but perhaps for personal ill-treatment to extort the disclosure and surrender of hidden valuables ; or where, as in the European middle ages, the weakness of the government, even when not it- self inclined to oppress, leaves its sub- jects exposed without protection or redress to active spoliation, or auda- cious withholding of just rights, by any powerful individual ; the rate of profit which persons of average dispositions will require, to make them forego the immediate enjoyment of what they happen to possess, for the purpose of exposing it and themselves to these perils, must be something very con- siderable. And these contingencies affect those who live on the mere inte- rest of their capital, in common with those who personally engage in pro- duction. In a generally secure state of society, the risks which may be attendant on the nature of particular employments seldom fall on the person who lends his capital, if he lends on good security ; but in a state of society like that of many parts of Asia, no security (except perhaps the actual pledge of gold or jewels) is good: and the mere possession of a hoard, when known or suspected, exposes it and the possessor to risks, for which scarcely any profit he could expect to obtain would be an equivalent ; so that there would be still less accumulation than there is, if a state of insecurity did not also multiply the occasions on which the possession of a treasure may be the means of saving life, or averting serious calamities. Those who lend, under these wretched governments, do it at the utmost peril of never being paid. In most of the native states ot India, the lowest terms on which any ono will lend money, even to the govern ment, are such, that if the interest ia paid only for a few years, and tho principal not at all, the lender is toler- ably well indemnified. If the accumu- lation of principal and compound inte- rest is ultimately compromised at a few shillings in the pound, he has generally made an advantageous bar- gain. 3. The remuneration of capital in different employments, much more than the remuneration of labour, varies ac- cording to the circumstances which render one employment more attrac- tive, or more repulsive, than another. The profits, for example, of retail trade, in proportion to the capital em- ployed, exceed those of wholesale dealers or manufacturers, for this rea- son among others, that there is less consideration attached to the employ- ment. vThe greatest, however, of theso differences, is that caused by difference of risk. \ The profits of a gunpowder manufacturer must be considerably greater than the average, to make up for the peculiar risks to which he and his property are constantly exposed. When, however, as in the case of marine adventure, the peculiar risks are capable of being, and commonly are, commuted for a fixed payment, the premium of insurance takes its regular place among the charges of production ; and the compensation which the owner of the ship or cargo receives for that payment, does not ap- pear in the estimate of his profits, but is included in the replacement of his capital. The portion, too, of the gross profit, which forms the remuneration for the labour and skill of the dealer or pro- ducer, is very different in dilit'ivnt <'_m- ployments. This is the explanation always given of the extraordinary rate of apothecaries' profit ; the greatest part, as Adam Smith observes, Iji-iii^ frequently no more than the reasonaUfl wages of professional attc-iulai: which, until a late iiitcnuitm of tli-j BOOK II. CHAPTER XV. 4. 248 law, the apothecary could not demand any re numeration, except in the prices of his drugs. Some occupations require a considerable amount of scientific or technical education, and can only he carried on by persons who combine with that education a considerable capital. Such is the business of an engineer, both in the original sense of the term, a machine-maker, and in its popular or derivative sense, an undertaker of public works. These are always the most profitable employments. There are cases, again, in which a consider- able amount of labour and skill is re- quired to conduct a business necessarily of limited extent. In such cases a higher than common rate of profit is necessary to yield only the common rate of remuneration. "In, a small sea- port town," says Adam Smith, " a little grocer will make forty or fifty per cent upon a stock of a single hundred pounds, while a considerable wholesale merchant in the same place will scarce make eight or ten per cent upon a stock of ten "thousand. The trade of the grocer may be necessary for the con- veniency of the inhabitants, and the narrowness of the market may not admit 'the employment of a larger capital in the business. The man, however, must not only live by his trade, but live by it suitably to the qualifications which it requires. Besides possessing a little capital, he must be able to read, write, and ac- count, and must be a tolerable judge, too, of perhaps fifty or sixty different sorts of goods, their prices, qualities, and the markets where they are to be had cheapest. Thirty or forty pounds a year cannot be considered as too great a recompense for the labour of a person so accomplished. Deduct this from the seemingly great profits of his capital, and little more will remain, perhaps, than the ordinary profits of stock. The greater part of the apparent profit is, in this case, too, real wages." All the natural monopolies (meaning thereby those which are created by circumstances, and not by law) which produce or aggravate the disparities in the remuneration of different kinds of labour, operate similarly between dif- ferent employments of capital. If a business can only be advantageously carried on by a large capital, this in most countries limits so narrowly the class of persons who can enter into the employment, that they are enabled to keep their rate of profit above the general level. A trade may also, from the nature of the case, be confined to so few hands, that profits may admit of being kept up by a combination among the dealers. It is well known that even among so numerous a body as the London booksellers, this sort of combination long continued to exist. I have already mentioned the case of the gas and water companies. 4. After due allowance is made for these various causes of inequality, namely, differences in the risk__or agreeableness of different employments, and natural or artificial monopolies; the rate of profit on capital in all em- ployments tends to an equality. Such is the proposition usually laid down by political economists, and under proper explanations it is true. That portion of profit which is properly interest, and which forms the real remuneration for abstinence, is strictly the same, at the same time and whatever be the employment, e rate of interest on equally good I security, does r.ot vary according to | the destination of the principal, though it does vary from time to time very much, according to the circumstances of the market. (There is no employ- ment in which, in the present state of industry, competition is so active and incessant as in the lending and borrow- ing of money^ All persons in business are occasionally, and most of them constantly, borrowers: while all persons not in business, who possess monied property, are lenders. Between these two great bodies, there is a numerous, keen, and intelligent class of middle- men, composed of bankers, stockbrokers, discount brokers, and others, alive to the slightest breath of probable gain. The smallest circumstance, or the most transient impression on the public mind, which tends to an increase or diminution of the demand for loans , & PKOFITS. either at the time or prospectively, operates immediately on the rate of interest : and circumstances in the general state of trade, really tending to cause this difference of demand, are continually occurring, sometimes to such an extent, that the rate of inte- rest on the best mercantile hills has heen known to vary in little more than a year (even without the occurrence of the great derangement called a com- mercial crisis) from four or less, to eight or nine per cent. But, at the same time and place, the rate of interest is the same, to all who can give equally good security. The market rate of interest is at all times a known and definite thing. 249 __ which, though (as will presently be seen) it does not vary much from employ- ment to empie7ment, varies very greatly from individual to individual, and can scarcely he in any two cases the same. It depends on the knowledge, talents, economy, and 'energy of the capitalist himself, or of the agents whom he em- ploys ; on the accidents of personal con- nexion ; and even on chance. Hardly any two dealers in the same trade, even if their commodities are equally good and equally cheap, carry on their business at the same expense, or turn over their capital in the same time. That equal capitals give equal profits, as a general maxim of trade, would be as false as that equal age or size gives equal bodily strength, or that equal reading or experience gives equal knowledge. The effect depends as much upon twenty other things, as upon the single cause specified. But though profits thus vary, the parity, on the whole, of different modes of employing capital (in the absence of any natural or artificial monopoly) is, in a certain, and a very important sense, maintained. On an average (whatever may be the occasional fluctuations) the various employments of capital are on such a footing, as to hold out, not equal profits, but equal expectations of profit, to persons of average abilities and advantages. By equal, I mean after making compensa- tion for any inferiority in the agree- ableneas or safety of an employment. If the case were not so ; if there evidently, and to common experience, more favourable chances of pecuniary success in one business than in others, more persons would engage their capi- tal in the business, or would bring up their sons to it; which in fact always happens when a business, like that of an engineer at present, or like any newly established and prosperous manu- facture, is seen to be a growing and thriving one. If, on the contrary, a business is not considered thriving ; if the chances of profit in it are thought to be inferior to those in other employ- ments ; capital gradually leaves it, or at least new capital is not attracted to it ; and by this change in the distribu- tion of capital between the less profit- able and the more profitable employ-/ ments, a sort oJLhalance is rosiored.f The expectations of profit, tta^efere, in different employments, cannot long con- tinue very different: they tend to a common average, though they are generally oscillating from one side to the other side of the medium. This equalizing process, commonly described as the transfer of capital from one employment to another, is not necessarily the onerous, slow, and almost impracticable operation which it is very often represented to be. In the first place, it does not always im- ply the actual removal of capital already embarked in an employment. In a rapidly progressive state of capital, the adjustment often takes place by means of the new accumulations of each year, which direct themselves in prefer- ence towards the more thriving trades. Even when a real transfer of capital is necessary, it is by no means implied that any of those who are engaged in the unprofitable employment, relinquish business and break up their establish- ments. The numerous and multifarious channels of credit, through which, iu commercial nations, unemployed capital diffuses itself over the field of employ- ment, flowing over in greater abund- ance to the lower levels, are the means by which the equalization is accom- plish^. The process moists in A limitation by one class of dealers or 250 BOOK II. CHAPTER XV. 4. producer's, and an extension by the other, of that portion of their business which is carried on with borrowed capital. There is scarcely any dealer or producer on a considerable scale, who confines his business to what can be carried on by his own funds. When trade is good, he not only uses to the utmost his own capital, but employs, in addition, much of the credit which that capital obtains for him. When, either from over-supply or from some slackening in the demand for his com- modity, he finds that it sells more slowly or obtains a lower price, he con- tracts his operations, and does not apply to bankers or other money dealers for a renewal of their advances to the same extent as before. A busi- ness which is increasing holds out, on the contrary, a prospect of profitable employment for a larger amount of this floating capital than previously, and those engaged in it become applicants to the money dealers for larger ad- vances, which, from their improving circumstances, they have no difficulty in litaining. A different distribution of floating capital between two em- ployments has as much effect in re- storing their profits to an equilibrium, as if the owners of an equal amount of capital were to abandon the one trade and carry their capital into the other. This easy, and as it were spontaneous, method of accommodating production to demand, is quite sufficient to correct any inequalities arising from the fluc- tuations of trade, or other causes of ordinary occurrence. In the case of w altogether declining trade, in which i . is necessary that the production should be, not occasionally varied, but greatly and permanently diminished, or perhaps stopped altogether, the pro- cess of extricating the capital is, no doubt, tardy and difficult, and almost always attended with considerable loss ; much of the capital fixed in ma- chinery, buildings, permanent works, &c. being either not applicable to any other purpose, or only applicable after expensive alterations ; and time being seldom given for effecting the. change in the mode in which it would be effected with least loss, namely, by not replacing the fixed capital as it wears out. There is besides, in totally changing the destination of a capital, so great a sacrifice of established con- nexion, and of acquired skill and ex- perience, that people are always very slow in resolving upon it, and hardly ever do so until long after a change of fortune has become hopeless. These, however, are distinctly exceptional cases, and even in these the equaliza- tion is at last effected. It may also happen that the return to equilibrium is considerably protracted, when, before one inequality has been corrected, another cause of inequality arises ; whioh is said to have been continually the case during a long series of years, with the production of cotton in the Southern States of North America; the commodity having been upheld at what was virtually a monopoly price, because the increase of demand, from successive improvements in the manu- facture, went on with a rapidity S6 much beyond expectation, that for many years the supply never completely vertk it. Jut it is nt ften that a succession of disturbing causes, all acting in the same direction, are known to follow one another with hardly any interval. Where there is no monopoly, the profits of a trade are likely to range sometimes above and sometimes below the general level, but tending always to return to it ; like the oscillations of the pendulum. In general, then, although profits are very different to different individuals, and to the same individual in different years, there cannot be much diversity at the same time and place in the average profits of different employ- ments, (other than the standing differ- ences necessary to compensate for difference of attractiveness), except for short periods, or when some great per- manent revulsion has overtaken a par- ticular trade. If any popular impres- sion exists that some trades are more profitable than others, independently of monopoly, or of such rare accidents as have been noticed in regard to the cotton trade, the impression is in all probability fallacious, since if it were shared by those who have greatest PROFITS. 251 means of knowledge and motives to accurate examination, there would take place such, an influx of capital as would soon lower the profits to the common level. It is true that, to persons with the same amount of original means, there is more chance of making a large fortune in some employments than in others. But it would be found that in those same employments bankruptcies also are more frequent, and that the chance of greater success is balanced by a greater probability of complete failure. Very often it is more than balanced : for, as was remarked in another case, the chance of great prizes operates with a greater degree of strength than arithmetic will warrant, in attracting competitors ; and I doubt not that the average gains, in a trade in which large fortunes may be made, are lower than in those in which gains are slow, though comparatively sure, and in w r hich nothing is to be ulti- mately hoped for beyond a competency. The timber trade of Canadu, is one ex- ample of an employment of capital, partaking so much of the nature of a lottery, as' to make it an accredited opinion that, taking the adventurers in the aggregate, there is more money lost "B]TEhe~ trade than gained by it; in other words, that the average rate of profit is less than nothing. In such points as this, much depends on the characters of nations, according as they partake more or less of the adventur- ous, or, as it is called when the inten- tion is to blame it, the gambling spirit. This spirit is much stronger in the United States than in Great Britain ; and in Great Britain than in any country of the Continent. In some Continental countries the tendency is so jnuch the reverse, that safe and quiet employments probably yield a less average profit to the capital engaged in them, than those which offer greater gains at the price of greater hazards. It must not however be forgotten, that even in the countries of most active competition, custom also has a considerable share in determining the profits of trade. There is sometimes an idea afloat as to what the profit of an employment should be, which though not adhered to by all the dealers, nor perhaps rigidly by any, still ex- certain influence over their operations. There has been in England a kind of notion, how widely prevailing 1 know not, that fifty per cent is a proper and suitable rate of profit in retail trans- actions: understand, not fifty per cent on the whole capital, but an advance: of fifty per cent on the wholesale prices ; from which have to be defrayed bad debts, shop rent, the pay of clerks, shopmen, and agents of all descrip- tions, in short all the expenses of the retail business. . If this custom were universal, and strictly adhered to, com- petition indeed would still operate, but the consumer would not derive any benefit from it, at least as to price ; the way in which it would diminish the ad- vantages of those engaged in retail trade, would be by a greater subdivision of the business. In some parts of the Continent the standard is as high as a hundred per cent. The increase of competition however, in England at least, is rapidly tending to break down customs of this description. In the majority of trades, (at least in the great emporia of trade,) there are numerous dealers whose motto is "small gains and frequent" a great business at low prices, rather than high prices and few transactions ; and by turning over their capital more rapidly, and adding to it by borrowed capital when needed, the dealers often obtain individually higher profits ; though they necessarily lower the profits of those among their competitors, who do not adopt tho same principle. Nevertheless, com- petition, as remarked* in a previous chapter, has, as yet, but a limited dominion over retail prices; and con- sequently the share of the whole pro- duce of land and labour which is ab- sorbed in the remuneration of mere distributors, continues exorbitant ; and there is no function in the economy of society which supports a number of persons so disproportionate to the amount of work to be performed. 5. The preceding remarks havo, I hope, sufficiently elucidated what i-j * Vide supra, book ii. ch. iv. $ 3. BOOK H. CHAPTER XV. 6. meant by the common phrase, " the ordinary rate of profit ;'' and the sense in which, and the limitations under which, this ordinary rate has a real existence. It now remains to con- sider, what causes determine its amount. To popular apprehension it seems as if the profits of business depended upon prices. A producer or dealer seems to obtain his profits by selling his com- modity for more than it cost him. Profit altogether, people are apt to think, is a consequence of purchase and Bale. It is only (they suppose) because there are purchasers for a commodity, that the producer of it is able to make tnny profit. Demand customers a market for the commodity, are the cause of the gains of capitalists. It is 'by the sale of their goods, that they replace their capital, and add to its amount. This, however, is looking only at the outside surface of the economical ma- chinery of society. In no case, we find, is the mere money which passes from one person to another, the fundamental matter in any economical phenomenon. If we look more narrowly into the operations of the producer, we shall perceive that the money he obtains for his commodity is not the cause of his having a profit, but only the mode in which his profit is paid to him. Cine cause of profit is, that labour produces more than is required for its support.} The reason why agricultural capital yields a profit, is because human beings can grew more food, than is necessary to feed them while it is being grown, including the time oc- cupied in constructing the tools, and making all other needful preparations ; from which it is a consequence, that if a capitalist undertakes to feed the la- bourers on condition of receiving the produce, he has some of it remaining for himself after replacing his advances. .To vary the form of the theorem : the treason why capital yields a profit, is /because food, clothing, materials and / tools, last longer than the time which was required to produce them ; BO that if a capitalist supplies a party of la- bcurers with these dition of receiving all they produce j they will, in addition to reproducing! their own necessaries and instruments, I have a portion of their time remaining, to work for the capitalist. We thus see that profit arises, not from the in- cident of exchange, but from the pro- ductive power of labour ; and the gene'-~~ ral~pron"toTthe i country is always what the productive power of labour makes it, whether any exchange takes place or not. If there were no division of employments, there would be no buy- ing or selling, but there would still be profit. If the labourers of the country collectively produce twenty per cent more than their wages, profits will be twenty per cent, whatever prices may o'r may not be. The accidents of price may for a time make one set of producers get more than twenty per cent, and another less, the one commo- dity being rated above its natural value in relation to other commodities, and the other below, until prices have again adjusted themselves ; but there will always be just twenty per cent divided among them all. I proceed, in expansion of the consi- derations thus briefly indicated, to ex- hibit more minutely the mode in which the rate of profit is determined. 3. I assume, throughout, the state of things, which, where the la- bourers and capitalists are separate classes, prevails, with few exceptions, universally ; namely, that the capitalist advances the whole expenses, including the entire remuneration of the labourer. That he should do so, is not a matter of inherent necessity; the labourer might wait until the production is complete, for all that part of his wages which exceeds mere necessaries ; and even for the whole, if he has funds in hand, sufficient for his temporary sup- port. But in the latter case, the la- bourer is to that extent really a capi- talist, investing capital in the concern, by supplying a portion of the funds neces- sary for carrying, it on ; and even in the former case he may be looked upon in the same light, since, contributing his labour at less than the market price, he may be regarded as lending the dif- PROFITS. 253 ference to his employer, and receiving it back with interest (on whatever principle computed) from the proceeds of the enterprise. - The capitalist, then, may be assumed to make all the advances, and receive all the produce. His profit consists of the excess of the produce above the advances ; his rate of profit is the ratio which that excess bears to the amount advanced. But what do the advances .consist of? It is, for the present, necessary to suppose, that the capitalist does not pay any rent ; has not to purchase the use of any appropriated natural agent. This indeed is scarcely ever the exact truth. The agricultural capitalist, except when he is the owner of the Boil he cultivates, always, or almost always, pays rent : and even in manu- facturer, (not to mention ground-rent,) the materials of the manufacture have generally paid rent, in some stage of their production. The nature of rent however, we have not yet taken into consideration ; and it will hereafter appear, that 110 practical error, on the question we are now examining, is produced by disregarding it. If, then, leaving rent out of the question, we inquire in what it is that the advances of the capitalists, for pur- poses of production, consists, we shall find that they consist of wages of labour. A large portion of the expenditure of every capitalist consists in the direct payment, of wages. What does not consist of this, is composed of materials and implements, including buildings. But materials and implements are pro- duced by labour ; and as our supposed capitalist is not meant to represent a single employment, but to be a type of the productive industry of the whole country, we may suppose that he makes his own tools, and raises his own materials. He does this by means of previous advances, which, again, consist wholly of wages. If we sup- pose him to buy the materials and tools instead of producing them, the case is not altered : he then repays to a previous producer the wages which that previous producer has paid. It is true, he repays it TO nim with a profit ; and if he had produced the things himself, he himself must have had that profit, on this part of his outlay, as well as on every other part. The fact, however, remains, that in the whole process of production, beginning with the materials and tools, and ending with the finished product, all the ad- vances have consisted of nothing but wages ; except that certain of the capi- talists concerned have, for the sake of general convenience, had their share of profit paid to them before the opera- tion was completed. Whatever, of the ultimate product, is not profit, is re- payment of wages. 7. It thus appears that the two elements on which, and which alone, the gains of the capitalists depend, are, first, the magnitude of the produce, in Other words thft prnrhipJiv^j^yAr^af labour; and secondly, the proportion of tfiat produce obtained by the labourers themselves ; the ratio, which the remu- neration of the labourers bears to the amount they produce. These two things form the data for determining the gross amount divided as profit among all the capitalists of the country ; but the rate of profit, the percentage on the capital, depends only on the second of the two elements, the labourer's pro- portional share, and not on the amount to be shared. If the produce of labour were doubled, and the labourers ob- tained the same proportional share as before, that is, if their remuneration was also doubled, the capitalists, it is true, would gain twice as much; but as they would also have had to ad- vance twice as much, the rate of their profit would be only the same as be- fore. We thus arrive at the conclusion of x Eicardo and others, that the rate of j profits depends on wages; rising as 1 wages fall, and falling as wages rise. 1 In adopting, however, this doctrine, t I must insist upon making a most ne- cessary alteration in its wording. In- stead of saying that profits depend on wages, let us say (what Kicardo really, meant) that they depend on the cost of labour. 254 BOOK II. CHAPTER XV. 7. Wages, and the cost of labour ; what labour brings in to the labourer, and what it costs to the capitalist ; are ideas quite distinct, and which it is of the utmost importance to keep so. For this purpose it is essential not to desig- nate them, as is almost always done, by the same name. Wages, in public dis- cussions, both oral and printed, being looked upon from the point of view of the payers, much oftener than from that of the receivers, nothing is more com- mon than to say that wages are high or low, meaning only that the cost of labour is high or low. The reverse of this would be oftener the truth : the cost of labour is frequently at its highest where wages are lowest. This may arise from two causes. In the first place, the labour, though cheap, may be inefficient. In no European country are wages so low as they are (or at least were) in Ireland ; the remunera- tion of an agricultural labourer in the west of Ireland not being more than half the wages of even the lowest-paid Englishman, the Dorsetshire labourer. But if, from inferior skill and industry, two days' labour of an Irishman accom- plished no more work than an English labourer performed in one, the Irish- man's labour cost as much as the Englishman's, though it brought in so much less to himself. The capitalist's profit is determined by the former of these two things, not by the latter. That a difference to this extent really existed in the efficiency of the labour, is proved not only by abundant testi- mony, but by the fact, that notwith- standing the lowness of wages, profits of capital are not understood to have been higher in Ireland than in Eng- land. The other cause which renders wages, and the cost of labour, no real criteria of one another, is the varying costliness of the articles which the labourer con- sumes. If these are cheap, wages, in the sense which is of importance to the labourer, may be high, and yet the cost of labour may be low ; if dear, the la- bourer may be wretchedly off, though his labour may cost much to the capi- talist. This last is the condition of a country over-peopled in relation to its land; in which, food being dear, the poorness of the labourer's real reward does not prevent labour from costing- much to the purchaser, and low wages and low profits co-exist. The opposite case is exemplified in the United States of America. The labourer there enjoys a greater abundance of comforts than in any other country of the world, ex- cept some of the newest colonies ; but, owing to the cheap price at which these comforts can be obtained (com- bined with the great efficiency of the labour,) the cost of labour is at least not higher, nor the rate of profit lower, than in Europe. The cost of labour, then, is, in the language of mathematics, a function of three variables : the efficiency of la- bour ; the wages of labour (meaning thereby the real reward of the labourer) ; and the greater or less cost at which the articles composing that real reward can be produced or procured. It is plain that the cost of labour to the capitalist must be influenced by each of these three circumstances, and by no others. These, therefore, are also the circumstances which determine the rate of profit ; and it cannot be in any way affected except through one or other of them. If labour generally became more efficient, without being more highly re- warded ; if, without its becoming less efficient, its remuneration fell, no in- crease taking place in the cost of the articles composing that remuneration ; or if those articles became less costly, without the labourer's obtaining more of them ; in any one of these three cases, profits would rise. If, on the contrary, labour became less efficient (as it might do from diminished bodily vigour in the people, destruction of fixed capital, or deteriorated education) ; or if the labourer obtained a higher remu- neration, without any increased cheap- ness in the things composing it ; or if, without his obtaining more, that which he did obtain became more costly ; pro- fits, in all these cases,"' would suffer a diminution. And there is no other combination of circumstances, in wBich the general rate of profit of a country, in ah 1 employments indifferently, can either fall or rise. KENT. The evidence of these propositions can only be stated generally, though, it is hoped, conclusively, in this stage of our subject. It will come out in greater fulness and force when, having taken into consideration the theory of Value and Price, we shall be enabled to exhibit the law of profits in the con- crete in the complex entanglement of circumstances in which it actually works. This can only be done in the ensuing Book. One topic still remains to be discussed in the present one, so far as it admits of being treated inde- pendently of considerations of Value ; the subject of Rent ; to which we now proceed. CHAPTER XVI. OP KENT. % 1. THE requisites of production being labour, capital, and natural agents ; the only person, besides the labourer and the capitalist, whose consent is necessary to production, and who can claim a share of the produce as the price of that consent, is the person who, by the arrangements of society, pos- sesses exclusive power over some na- tural agent. The land is the principal of the natural agents which are capable of being appropriated, and the consi- deration paid for its use is called rent. Landed proprietors are the only class, of any numbers or importance, who have a claim to a share in the distribution of the produce, through their ownership of something, which neither they nor any one else have produced. If there be any other cases of a similar nature, they will be easily understood, when the nature and laws of rent are com- prehended. It is at once evident, that rent is the effect of a monopoly ; though the mono- poly is a natural one, which, may be regulated, which may even be held as a trust for the community generally, but which cannot be prevented from existing. The reason why landowners are able to require rent for their land, is that it is a commodity which many want, and which no one can obtain but from them. If all the land of the f country belonged to one person, he could fix the rent at his pleasure. The whole people would be dependent on bis will for the necessaries of life, and he might make what conditions he chose. This is the actual state of things in those Oriental kingdoms in which the land is considered the property of the state. Rent is then confounded with taxation, and the despot may exact the utmost which the unfortunate cul- tivators have to give. Indeed, the ex- clusive possessor of the land of a country could not well be other than despot of it. The effect would be much the same if the land belonged to so few people that they could, and did, act together as one man, and fix the rent by agree- ment among themselves. This case, however, is nowhere known to exist : and the only remaining supposition is that of free competition ; the land- owners being supposed to be, as in fact they are, too numerous to combine. 2. A thing which is limited in quantity, even though its possessors do not act in concert, is still a monopo- lized article. But even when monopo- lized, a thing which is the gift of nature, and requires no labour or out- lay as the condition of its existence, will, if there be competition among the holders of it, command a price, only if it exists in less quantity than the de- mand. If the whole land of a country were required for cultivation, all of it might yield a rent. But in no country of any extent do the wants of tho population require that all the land, which is capable of cultivation, should be cultivated. Tho food and other 256 BOOK II. CHARTER XVI. 2. agricultural produce which the people need, and which they are willing and able to pay for at a price which re- munerates the grower, may always be obtained without cultivating all the laud ; sometimes without cultivating more than a small part of it ; the lands most easily cultivated being pre- ferred in a very early stage of society, the more fertile, or those in the more convenient situations, in a more ad- vanced state. There is always, there- fore, some land which cannot, in exist- ing circumstances, pay any rent ; and no land ever pays rent, unless, in point of fertility or situation, it belongs lo those superior kinds which exist in less quantity than the demand which cannot be made to yield all the pro- duce required for the community, un- less on terms still less advantageous than the resort to less favoured soils. There is land, such as the deserts of Arabia, which will yield nothing to any amount of labour ; and there is land, like soriie of our hard sandy heaths, which would produce something, but, in the present state of the soil, not enough to defray the expenses of production. Such lands, unless by some application of chemistry to agriculture still remain- ing to be invented, cannot be cultivated for profit, unless some one actually creates a soil, by spreading new in- gredients over the surface, or mixing them with the existing materials. If ingredients fitted for this purpose exist in the subsoil, or close at hand, the improvement even of the most unpromis- ing spots may answer as a speculation : but it' those ingredients are costly, and must be brought from a distance, it will seldom answer to do this for the sake of profit, though the " magic of property " will sometimes effect it. Land which cannot possibly yield a profit, is sometimes cultivated at a loss, the cultivators having their wants partially supplied from other sources ; as in the case of paupers, and some monasteries or charitable institutions, among which may be reckoned the Poor Colonies of Belgium. The worst land which can be cultivated as a means of subsistence, is that which will just replace the seed, and the food of the labourers employed on it together with what Dr." ( calls their secondaries ; that is, tbo labourers required for supplying them with tools, and with the remaining necessaries of life. "Whether any given land is capable of doing more than this, is not a question of political economy, but of physical fact. The supposition leaves nothing for profits, nor anything for the labourers except necessaries : the land, therefore, can only be cultivated by the labourers themselves, or else at a pecuniary loss : and a fortiori, cannot in any contingency afford a rent. The worst land which can be cultivated as an investment for capital, is that which, after replacing the seed, not only feeds the agricultural labourers^ anjTniirwcogaanea, but affordsthem) the current rate of wages, whiclTmay/ extend to much more tl;:.: saries; and leaves for those wi. advanced the wages of these t\vo classes' of labourers, a surplus equal to the profit they could have expected fr./in any other employment of their capital. Whether any given land can do more than this, is not merely a physical question, but depends partly on the market value of agricultural produce. What the land can do for the labourers and for the capitalist, beyond feeding all whom it directly or indirectly em- ploys, of course depends upon what the remainder of the produce can be sold for. The higher the market value of produce, the lower are the soils to which cultivation can descend, con- sistently with affording to the capital employed, the ordinary rate of profit. As, however, differences of fertility slide into one another by insensible gradations ; and differences of accessi- bility, that is, of distance from markets, do the same ; and since there is land so barren that it could not pay for its cultivation at any price ; it is evident that, whatever the price may be, there must in any extensive region be some I land which at that price will just pay 1 the wages of the cultivators, and yield to the capital employed the ordinary profit, and no more. Until, therefore, the price rises higher, or until some improvement raises that particular EENT. land to a higher place in the scale of fertility, it cannot pay any rent. It is ' evident, however, that the community needs the produce of this quality of land : since if the lands more fertile or better situated than it, could have sufficed to supply the wants of society, the price would not .have risen so high as to render its cultivation profitable. This land, therefore, will be cultivated ; and we may lay it down as a principle, that so long as any of the land of a country which is fit for cultivation, and not withheld from it by legal or other factitious obstacles, is not cultivated, the worst land in actual cultivation (in point of fertility and situation together) pays no rent. 3. If, then, of the land in culti- vation, the part which yields least re- turn to the labour and capital employed on it gives only the ordinary profit of capital, without leaving anything for rent ; a standard is afforded for esti- mating the amount of rent which will be yielded by all other land. \ Any land yields just as much more than the ordinary profits of stock, as it yields -more than what is returned by the worst land in cultivation. The surplus is .what the farmer can afford to pay as rent to the landlord ; and since, if he did not so pay it, he would receive more than the ordinary rate of profit, the competition of other capitalists, that competition which equalizes the profits of different capi- tals, will enable the landlord to appro- priate it. ^The rent, therefore, which any land will yield, is the excess of its produce, beyond what would be re- turned to the same capital if employed on the worst land in cultivation^ This is not, and never was pretended to be, the limit of metayer rents, or of cottier rents; but it is the limit of farmers' rents. No land rented to a capitalist farmer will permanently yield more than this ; and when it yields less, it is because the landlord foregoes a part of what, if he chose, he could obtain. This is the theory of rent, first pro- * pounded at the end of the last century by Dr. Anderson, and which, neglected at the -time, was almost simultaneously P.E. 257 twenty years later, bv rediscovered, Sir Edward West, "Mr. Malthas,' ami Mr. Kicardo. It is one of the cardinal doctrines of political economy; and until it was understood, no consistent explanation could be given of many of the more complicated industrial pheno mena. The evidence of its truth will be manifested with a great increase of clearness, when we come to trace tha laws of the phenomena of Value and Price. Until that is done, it is not possible to free the doctrine from every difficulty which may present itself, nor perhaps to convey, to those previously unacquainted with the subject, more than a general apprehension of the reasoning by which the theorem is arrived at. Some, however, of the ob- jections commonly made to it, admit of a complete answer even in the pre- sent stage of our inquiries. "It has been denied that there can be any land in cultivation which pays no rent ; because landlords (it is con- tended) would not allow their land to be occupied without payment. Those who lay any stress on this as an objec- tion, must think that land of the quality which can but just pay for its cultivation, lies together in large masses, detached from any land of better quality. If an estate consisted wholly of this land, or of this and still worse, it is likely enough that the owner "would not give the use of it for nothing ; he would probably (if a rich man) prefer keeping it for other pur- poses, as for exercise, or ornament, or perhaps as a game preserve. No farmer could afford to offer him any- thing for it, for purposes of culture , though something would probably be obtained for the use of its natural pas- ture, or other spontaneous produce. Even such land, however, would not necessarily remain uncultivated. It might be farmed by the proprietor ; no unfrequent case even in England. Por- tions of it might be granted as tem- porary allotments to labouring families, either from philanthropic motives, or to save the poor-rate; or occupation might be allowed to squatters, free of rent, in the hope that their labour might give it value at some future 8 258 BOOK II. CHAPTER XVI. 4. period. Both these cases are of quite ordinary occurrence. So that even if an estate -were wholly composed of the worst land capable of profitable cultivation, it would not necessarily lie uncultivated because it could pay no rent. Inferior land, however, does not usually occupy, without interruption, many square miles of ground ; it is dispersed here and there, with patches of better land intermixed, and the same person who rents the better land, obtains along with it the inferior soils which alter- nate with it. He pays a rent, nomi- nally lor the whole farm, but calculated on the produce of those parts alone ' (however small a portion of the whole) which are capable of returning more than the common rate of profit. It is thus scientifically true, that the re- maining parts pay no rent. 4. Let us, however, suppose that there were a validity in this objection, which can by no means be conceded to it ; that \vhen the demand of the com- munity had forced up food to such a price as would remunerate the expense of producing it from a certain quality of soil, it happened nevertheless that all the soil of that quality was with- held from cultivation, by the obstinacy of the owners in demanding a rent for it, not nominal, nor tiifling, but suffi- ciently onerous to be a material item in the calculations of a farmer. What would then happen ? Merely that the increase of produce, which the wants of society required, would for the time be obtained wholly (as it always is par- tially), not by an extension of cultiva- tion, but by an increased application of labour and capital to land already cultivated. Xow we have already seen that this increased application of capital, other things being unaltered, is -always at- tended with a smaller proportional re- turn. We are not to suppose some new tgricultural invention made precisely At this juncture ; nor a sudden exten- sion of agricultural skill and knowledge, bringing into more general practice, just then, inventions already in partial use. We are to suppose no change, except a demand for more corn, and a consequent rise of its price. The rise of price enables measures to be taken for increasing the produce, which could not have been taken with profit at the previous price. The farmer uses more expensive manures; or manures land which he formerly left to nature ; or procures lime or marl from a distance, as a dressing for the soil ; or pulverizes or weeds it more thoroughly; or drains, irrigates, or subsoils portions of it, which at former prices would not have paid the cost of the operation ; and so forth. These things, or some of them, are done, when, more food being wanted, cultivation has no means of expanding itself upon new lands. And. when the impulse is given to extract an increased amount of produce from the soil, the farmer or improver will only consider whether the outlay he makes for the purpose will be returned to him with the ordinary profit, and not whether any surplus will remain for rent. Even, y therefore, if it were the fact, that there is never any land taken into cultivation, for which rent, and that too of an amount worth taking into considera- tion, was not paid ; it would be true, nevertheless, that there is always some agricultural capital which pays 'no* rent, because it returns nothing beyond the ordinary rate of profit : this capital being the portion of capital last applied that to which the last addition to the produce was due ; or (to express the es- sentials of the case in one phrase), that which is applied in the least favourable circumstances. But the same amount of demand, and the same price, which enable this least productive portion of capital barely to replace itself with the ordinary profit, enable every other por- tion to yield a surplus proportioned to the advantage it possesses. And this surplus it is, which competition enables the landlord to appropriate. The rent of all land is measured by the excess of the return to the whole capital em- ployed on it, above what is necessary to replace the capital with the ordinary rate of profit, or in other words, abovft what the same capital would yield if itm were all employed in as disadvan*' tageous circumstances as the least pro- ductive portion of it : whether that least KENT. 259 productive portion of capital is rendered so by being employed on the worst soil, or by being expended in extorting more produce from land which already yielded as much as it could be made to part with on easier terms. It is not pretended that the facts of any concrete case conform with abso- lute precision to this or any other sci- entific principle. We must never forget that the truths of political economy are truths only in the rough. They have the certainty, but not the pre- cision of exact science. It is not for example, strictly true that a farmer will cultivate no land, and apply no capital, which returns less than the or- dinary profit. He will expect the ordi- nary profit on the bulk of his capital. But when he has cast in his lot with his farm, and bartered his skill and exertions, pnce for all, against what the farm will yield to him, he will pro- bably be willing to expend capital on it (for an immediate return) in any man ner which will afford him a surplus profit, however small, beyond the value of the risk, and the interest which he must pay for the capital if borrowed, or can get for it elsewhere if it is his own. But a new farmer, entering on the land, would make his calculations differently, and would not commence unless he could expect the full rate of ordinary profit on all the capital which he in- tended embarking in the enterprise. Again, prices may range higher or lower during the currency of a lease, than was expected when the contract was made, and the land, therefore, may be over or under-rented: and even when the lease expires, the landlord may be unwilling to grant a necessary diminution of rent, and the farmer, rather than relinquish his occupation, or seek a farm elsewhere when all are occupied, may consent to go on paying too high a rent. Irregularities like these we must always expect ; it is im- possible in political economy to obtain general theorems embracing the com- plications of circumstances which may affect the result in an individual case. When, too, the farmer class, having but little capital, cultivate for subsis- tence rather than for profit, and do not think of quitting their farm while they are able to live by it, their rents ap- proximate to the character of cottier rents, and may be forced up by compe- tition (if the number of competitors exceeds the number of farms) beyond the amount which will leave to the farmer the ordinary rate of profit. The laws which we are enabled to lay down respecting rents, profits, wages, prices, are only true in so far as the persons concerned are free from the influence of any other motives than those arising from the general circumstances of the case, and are guided, as to those, by the ordinary mercantile estimate of profit and loss. Applying this twofold supposition to the case of farmers and landlords, it will be true that the far- mer requires the ordinary rate of profit on the whole of his capital ; that what- ever it returns to him beyond this he is obliged to pay to the landlord, but will not consent to pay more ; that there is a portion of capital applied to agricul- ture in such circumstances of produc- tiveness as to yield only the ordinary profits ; and that the difference between the produce of this, and of any other capital of similar amount, is the mea- sure of the tribute which that other capital can and will pay, under the name of rent, to the landlord. This constitutes a law of rent, as near the truth as such a law can possibly be : though of course modified or disturbed in individual cases, by pending con- tracts, individual miscalculations, the influence of habit, and even the parti- cular feelings and dispositions of the persons concerned. 5. A remark is often made, which must not here be omitted, though, I think, more importance has been at- tached to it than it merits. Under the name of rent, many payments are com- 1 monly included, which are not a remu ; neration for the original powers of the land itself, but for capital expended on it. The additional rent which land yields in consequence of this outlay of capital, should, in the opinion of some writers, be regarded as profit, not rent. But before this can be admitted, a dis- tinction must be made. The annual S 9 260 BOOK II. CHAPTEK XVI. 5. payment by a tenant almost always includes a consideration for the use of the buildings on the farm; not only barns, stables, and other outhouses, but a house to live in, not to speak of fences and the like. The landlord will ask, and the tenant give, for these, whatever is considered sufficient to yield the ordinary profit, or rather (risk and trouble being here out of the question) the ordinary interest, on the value of the buildings ; that is, not on what it has cost to erect them, but on what it would now cost to erect others as good: the tenant being bound, in addition, to leave them in as good re- pair as he found them, for otherwise a much larger payment than simple in- terest would of course be required from him. These buildings are as distinct a thing from the farm, as the stock or the timber on it ; and what is paid for them can no more be called rent of land, than a payment for cattle would be, if it were the custom that the landlord should stock the farm for the tenant. The buildings, like the cattle, are not land, but capital, regu- larly consumed and reproduced ; and all payments made in consideration for them are properly interest. But with regard to capital actually sunk in improvements, and not requir- ing periodical renewal, but spent once for all in giving the land a permanent increase of productiveness, it appears to me that the return made to such capital loses altogether the character of profits, and is governed by the prin- ciples of rent. It is true that a land- lord will not expend capital in improv- ing his estate, unless he expects from the improvement an increase of income, surpassing the interest of his outlay. Prospectively, this increase of income may be regarded as profit ; but when the expense has been incurred, and the improvement made, the rent of the improved land is governed by the same rules as that of the unimproved. Equally fertile land commands an equal rent, whether its fertility is natural or acquired ; and I cannot think that the incomes of those who own the Bedford Level or the Lincolnshire wolds, ought to be called profit and not rent, because those lands would have been worth next to nothing unless capital had been expended on them. The owners are not capitalists, but landlords ; they have parted with their capital ; it is consumed, destroyed ; and neither is, nor is to be, returned to them, like the capital of a farmer or manufacturer, from what it produces. In lieu of it they now have land, of a certain rich- ness, which yields the same rent, and by the operation of the same causes, as if it had possessed from the begin- ning the degree of fertility which has been artificially given to it. Some writers, in particular Mr. H. C. Carey, take away, still more com- pletely than I have attempted to do, the distinction between these two sources of rent, by rejecting one of them altogether, and considering all rent as the effect of capital expended. In proof of this, Mr. Carey contends that the whole pecuniary value of all the land in any country, in England for instance, or in the United States, does not amount to any thing approach- ing to the sum which has been laid out, or which it would even now be necessary to lay out, in order to bring the country to its present condition from a state of primaeval forest. This startling statement has been seized on by M. jBastiat and others, as a means of making out a stronger case than could otherwise be made in defence of property in land. Mr. Carey's proposi- tion, in its most obvious meaning, is equivalent to saying, that if there were suddenly added to the lands of England an unreclaimed territory of equal natural fertility, it would not be worth the while of the inhabitants of England to reclaim it : because the profits of the operation would not be equal to the ordinary interest on the capital expended. To which assertion if any answer could be supposed to ba required, it would suffice to remark, that land not of equal but of greatly inferior quality to that previously cul* tivated, is continually reclaimed in England, at an expense which the subsequently accruing rent is sufficient to replace completely in a small number of years. The doctrine, moreover, is totally opposed to economical opinions. No one main- tains more strenuously than Mr. Carey the undoubted truth, that as society advances in population, wealth, and combination of labour, land constantly rises in value and price. This, how- ever, could not possibly be true if the present value of land were less than the expense of clearing it and making it fit for cultivation ; for it must have been worth this immediately after it was cleared, and according to Mr. Carey it has been rising in value ever since. When, however, Mr. Carey as- serts that the whole land of any country is not now worth the capital which has been expended on it, he does not mean that each particular estate is worth less than what has been laid out in improving it, and that, to the proprietors, the improvement of the land has been, on the final result, amis- calculation. He means, not that the land of Great Britain would not now sell for what has been laid out upon it, but that it would not sell for that amount, plus the expense of making all the roads, canals, and railways. This is probably true, but is no more to the purpose, and no more important in political economy, than if the state- ment had been that it would not sell for the sums laid out upon it plus the national debt, or plus the cost of the French Kevolutionary war, or any other expense incurred for a real or imaginary public advantage. The roads, railways, and canals, were not constructed to give value to land : on the contrary, their natural effect was to lower its value, by rendering other and rival lands accessible : and the landholders of the southern counties actually petitioned Parliament against the turnpike roads on this very ac- count. The tendency of improved com- munications is to lower existing rents, by trenching on the monopoly of the land nearest to the places where large numbers of consumers are assembled. Roads and canals are not intended to raise the value of the land which already supplies the markets, but (among other purposes) to cheapen the supply, by letting in the produce of RENT. 261 Mr. Carey's own j other and more distant lands: and the more effectually this purpose is at- tained, the lower rent will be. If we could imagine that the railways and canals of the United States, instead of only cheapening communication, did their business so effectually as to annihilate cost of carriage altogether, and enable the produce of Michigan to reach the market of New York as quickly and as cheaply as the produce of Long Island the whole value of all the land of the United States (except such as lies convenient for building) would be annihilated ; or rather, the best would only sell for the expense of clearing, and the govern- ment tax of a dollar and a quarter per acre ; sincte land in Michigan, equal to the best in the United States, may be had in unlimited abundance by thai amount of outlay. But it is strange that Mr. Carey should think this fact inconsistent with the Eicardo theory of rent. Admitting all that he as- serts, it is still true that as long as there is land which yields no rent, the land which does yield rent, does so in consequence of some advantage which it enjoys, in fertility or vicinity to markets, over the other ; and the measure of its advantage is also the measure of its rent. And the causejjf. its yielding rent, is that it possesses a natural monopoly ; the quantity of land, as favourably circumstanced as itself, not being sufficient to supply the market. These propositions con- stitute the theory of rent, laid down by Ricardo ; and if they are true, I cannot see that it signifies much whether the rent which the land yields at the present time, is greater or less than the interest of the capital which has been laid out to raise its value, together with the interest of the capital which has been laid out to lower its value. Mr. Carey's objection, however, has somewhat more of ingenuity than the arguments commonly met with against the theory of rent : a theorem which may be called the pans asinorum of political economy, for there are, I am inclined to think, few persons who have refused their assent to it except 262 BOOK H. CHAPTER XVI. 6. from not having thoroughly under- stood it. The loose and inaccurate way in which it is often apprehended by those who affect to refute it, is very remarkable. Many, for instance, have imputed absurdity to Mr. Eicardo's theory, because it is absurd to say that the cultivation of inferior land is the cause of rent on the superior. Mr. Eicardo does not say that it is the cul- tivation of inferior land, but the neces- sity of cultivating it, from the insuffi- ciency of the superior land to feed a growing population : between which and the proposition imputed to him there is no less a difference than that between demand and supply. Others again allege as an objection against Eicardo, that if all land were of equal fertility, it might still yield a rent. But Eicardo says precisely the same. He says that if all lands were equally fertile, those which are nearer to their market than others, and are there- fore less burthened with cost of car- riage, would yield a rent equivalent to the advantage ; and that the land yielding no rent would then be, not the least fertile, but the least advan- tageously situated, which the wants of the community required to be brought into cultivation. It is also distinctly a portion of Eicardo' s doctrine, that even apart from differences of situation, the land of a country supposed to be of uniform fertility would, all of it, on a certain supposition, pay rent7 nSmely, if the demand of the community re- quired that it should all be cultivated, and cultivated beyond the point at which a further application of capital begins to be attended with a smaller proportional return. It would be im- possible to show that, except by for- cible exaction, the whole land of & country can yield a rent on any other supposition. 6. After this view of the nature and causes of rent, let us turn back to the subject of profits, and bring up for reconsideration one of the propositions laid down in the last chapter. We there stated, that the advances of the capitalist, or in other words, the ex- penses of production, consist solely in wages of labour ; that whatever por- tion of the outlay is not wages, is pre- vious profit, and whatever is not pre- vious profit, is wages. Kent, however, being an element which it is impossible to resolve into either profit or wages, we were obliged, for the moment, to assume that the capitalist is not re- quired to pay rent to give an equiva- lent for the use of an appropriated natural agent : and I undertook to show in the proper place, that this is an allowable supposition, and that rent does not really form any part of the ex- penses of production, or of the advances of the capitalist. The grounds on which this assertion was made are now appa- rent. It is true that all tenant far- mers, and many other classes of pro- ducers, pay rent. But we have now seen, that whoever cultivates land, paying a rent for it, gets in return for his rent an instrument of superior power to other instruments of the same kind for which no rent is paid. The superiority of the instrument is in exact proportion to the rent paid for it. If a few persons had steam- engines of superior power to all others in existence, but limited by physical laws to a number short of the demand, the rent which a manufacturer would be willing to pay for one of these steam-engines could not be looked upon as an addition to his outlay, because by the use of it he would save in his other expenses the equivalent of wnat it cost him : without it he could net do the same quantity of work, unless at an additional expense equal to the rent. The same thing is true of land. The real expenses of pro- duction ai'e those incurred on the worst land, or by the capital employed in the least favourable circumstances. This land or capital pays, as we have seen, no rent: but the expenses to which it is subject, cause all other land or agricultural capital to be subjected to an equivalent expense in the form of rent. Whoever does pay rent, gets back its full value in extra advantages, and the rent which he pays does not place him in a worse position than, but only in the ?ame position as, his fellow-producer who pays no rent, RENT. 203 but whose instrument is one of inferior efficiency. We have now completed the exposi- tion of the laws which regulate the distribution of the produce of land, labour, and capital, as far as it is possible to discuss those laws indepen- dently of the instrumentality by which in a civilized society the-distribution is effected ; the machinery of Exchange and Price. The more complete eluci- dation and final confirmation of the laws which we have laid down, and the deduction of their most important con- sequences, must be preceded by an ex- planation of the nature and working of that machinery a subject so extensive and complicated as to require a sepa rate Book. BOOK III. EXCHANGE. CHAPTER L OF VALUE. 1. THE subject on whick we are now about to enter fills so important and conspicuous a position in political economy, that in the apprehension of some thinkers its boundaries confound themselves with those of the science itself. One eminent writer has pro- posed as a name for Political Economy, " Catallactics," or the science of ex- changes : by others it has been called the Science of Values. If these deno- minations had appeared to me logically correct, I must have placed the discus- sion of the elementary laws of value at the commencement of our enquiry, instead of postponing it to the Third Pail; and the possibility of so long deferring it is alone a sufficient proof that this view of the nature of Political Economy is too confined. It is true that in the preceding Books we have not escaped the necessity of anticipat- ing some small portion of the theory of Value, especially as to the value of labour and of land. It is nevertheless evident, that of the two great depart- ments of Political Economy, the pro- duction of wealth anower_of purchasing; the command which its possession gives over purchaseable commodities in general. 3. But here a fresh demand for explanation presents itself. What is meant by command over commodities in general ? The same thing exchanges for a great quantity of some conuuo- dities, and for a very small quantity of others. A suit of clothes exchanges for a great quantity of bread, and for a very small quantity^ of precious stones. The value of a thing in exchange for some commodities may be rising, for 266 BOOK III. CHAPTER I. 4. others falling. A coat may exchange for less bread this year than last, if the harvest has been bad, but for more glass or iron, if a tax has been taken off those commodities, or an improve- ment made in their manufacture. Has the value of the coat, under these cir- cumstances, fallen or risen? It is im- possible to say : all that can be said is, that it has fallen in relation to one thing, and risen in respect to another. But there is another case, in which no one would have any hesitation in paying what sort of change had taken place in the value of the coat : namely, if the cause in which the disturbance of exchange values originated, was something directly affecting the coat itself, and not the bread, or the glass. Suppose, for example, that an inven- tion had been made in machinery, by which broadcloth could be woven at half the former cost. The effect of this would be to lower the value of a coat, and if lowered by this cause, it would be lowered not in relation to bread only or to glass only, but to all purchaseable things, except such as happened to be affected at the very time by a similar depressing cause. We should therefore say, that there iad been a fall in the exchange value or general purchasing power of a coat. The idea of general ex- change value originates in the fact, that there really are causes which tend to alter the value of a thing in exchange for things generally, that is, for all things which are not them- selves acted upon by causes of similar tendency. _ In considering exchange value scien- tifically, it is expedient to abstract from it all causes except those which originate in the very commodity under consideration. Those which originate in the commodities with which we compare it, affect its value in relation to those commodities ; but those which originate in itself, affect its value in relation to all commodities. In order the more completely to^confine our attention to these last, it is convenient to assume that all commodities but the one in question remain invariable in their relative values. When we are considering the causes which raise or lower the value of corn, we suppose that woollens, silks, cutlery, sugar, timber, &c., while varying in their power of purchasing corn, remain constant in the proportions in which they exchange for one another. On this assumption, any one of them may be taken as a representative of all the rest : since in whatever manner com varies in value with respect to any one commodity, it varies in the same manner and degree with respect to every other ; and the upward or down- ward movement of its value estimated in some one thing, is all that needs be considered. Its money value, there- fore, or price, will represent as well as anything else its general exchange value, or purchasing power ; and from an obvious convenience, will often be employed by us in that representative characters with the proviso that money itself do*iiot vary in its general pur- chasing power, but that the prices o-" all things, other than that which we happen to be considering, remain un- altered. 4. The distinction between Value and Price, as we have now defined them, is so obvious, as scarcely to seem in need of any illustration. But in political economy the greatest errors arise from overlooking the most obvious truths. Simple as this distinction is, it has consequences with which a reader unacquainted with the subject would do well to begin early by making him- self thoroughly familiar. The follow- ing is one of the principal. There is "such a tiling ,as a general rise of, s may rise in rce. ut there cannot be. a general-" rise of values. It is a contradiction in termsT" A~~~can only rise in' value by exchanging for a greater quantity of B and C ; in which case these must exchange for a smaller quantity of A. All tilings cannot rise relatively to one another. If one-half of the commodities in the market rise in exchange value, the very terms imply a fall of the other half: and reciprocally, the fall implies a rise. Things which are exchanged for one another can no VALUE. 267 more all fall, or all rise, than a dozen runners can each outrun all the rest, or a hundred trees all overtop one another. Simple as this truth is, we shall presently see that it is lost sight of in some of the most accredited doctrines both of theorists and of what are called practical men. And as a first specimen, we may instance the great importance attached in the ima- gination of most people to a rise or fall of general prices. Because when the price of any one commodity rises, the circumstance usually indicates a rise of its value, people have an indistinct feeling when all prices rise, as if all things simultaneously had risen in value, and all the possessors had be- come enriched. That the money prices of all things should rise or fall, pro- vided they all rise or fall equally, is, in itself, and apart from existing con- tracts, of no consequence. It affects nobody's wages, profits, or rent. Every one gets more money in the one case and less in the other ; but of all that is to be bought with money they get neither more nor less than before. It makes no other difference than that of using more or fewer counters to reckon by. The only thing which in this case is really altered in value, is money ; and the only persons who either gain or lose are the holders of money, or those who have to receive or to pay fixed sums of it./ There is a difference to annuitants and to creditors the one way, and to those who are burthened with annuities, or with debts, the con- trary way. There is a disturbance, in short, of fixed money contracts ; and this is an evil, whether it takes place in the debtor's favour or in the cre- ditor's. But as to future transactions there is no difference to any one. Let it therefore be remembered (and occa- sions will often rise of calling it to mind) that a general rise or a general fall of values is a contradiction; and that a general rise or a general fall of prices is merely tantamount to an alteration in the value of money, and is a matter of complete indifference, save in so far as it affects existing contracts for receiving and paying fixed pecuniary amounts, and (it must be added) as it affects the interests of the producers of money. 5. Before commencing the inquiry into the laws of value and price, I have one further observation to make. I must give warning, once for all, that the. cases I contemplate are those in wlitull values and prices are determine ti bv competition along I n so f ar on iy as they are thus determined, can they be reduced to any assignable law. The buyers must be supposed as studious to buy cheap, as the sellers to sell dear. The values and prices, therefore, to which our conclusions apply, are mer- cantile values and prices ; such prices as are quoted in price-currents ; prices in the wholesale markets, in which buying as well as selling is a matter of business ; in which the buyers take pains to know, and generally do know, the lowest price at which an article of a given quality can be obtained ; and in which, therefore, the axiom is true, that there cannot be for the same article, of the same quality, two prices in the same market. Our propositions will be true in a much more qualified sense, of retail prices ; the prices paid in shops for articles of personal con- sumption. For such things there often are not merely two, but many prices, in different shops, or even in the same shop ; habit and accident having as much to do in the matter as general causes. Purchases for private use, even by people in business, are not a4ways made on business principles : the feelings which come into play in the operation of getting, and in that of spending their income, are often ex- tremely different. Either from indo- lence, or carelessness, or because people think it fine to pay and ask no ques- tions, three-fourths of those who can afford it give much higher prices than necessary for the things they consume ; while the poor often do the same from ignorance and defect of judgment, want of time for searching and making inquiry, and not unfrequently from coercion, open or disguised. For these reasons, retail prices do not follow with all the regularity which might be ex- pected, the action of the causes which 2G3 BOOK HI. CHAPTER II. 1. determine wholesale prices. The in- fluence of those causes is ultimately felt in the retail markets, and is the real source of such variations in retail prices as are of a general and per- manent character. But there is no regular or exact correspondence. Shoes of equally good quality are sold in different shops at prices which differ considerably ; and the price of leather may fall without; causing the richer class of huyers to pay less for shoes. Nevertheless, shoes do sometimes fall in price ; and when they do, the cause is always some such general circum- stance as the cheapening of leather : and when leather is cheapened, even if no difference shows itself in shops | frequented by rich people, the artisan ! and the labourer generally get their I shoes cheaper, and there is a visible diminution in the contract prices at which shoes are delivered for the supply of a workhouse or of a regiment. In all reasoning about prices, the pro- viso must be understood, " supposing all parties to take care of their own interest." Inattention to these distinc- tions has led to improper applications of the abstract principles of political economy, and still oftener to an undue discrediting of those principles, through their being compared with a different sort of facts from those which they contemplate, or which can fairly be expected to accord with them. CHAPTER H. OP DEMAND AND SUPPLY, IN THEIR RELATION TO VALUE. 1 . THAT a thing may have any value in exchange. two_conditions are necessary. It must be of some use ; that is (as already~explaineciy it must conduce to sonj& purpose, satisfy some desire. No~^ne will pay a ^riCe, or part with anything which serves some of his purposes, to obtain a thing which Berves none of them. But, secondly, the thing must not only have some utility, there must also Se some diffi- culty^ in its attainment^ ^Any article whatever," say's Mr. De Quincey,* " to obtain that artificial sort of value which is meant by exchange value, must begin by offering itself as a means to some desirable purpose ; and secondly, even though possessing incontestably this preliminary advantage, it will never ascend to an exchange value in cases where it can be obtained gra- tuitously and without effort ; of which last terms both are necessary as limi- tations. For often it will happen that eome desirable object may be obtained gratuitously ; stoop, and you gather it at your feet ; but still, because the con- tinued iteration of this stooping exacts * Logic of Political Economy, p. 13. a laborious effort, very soon it is found, that to gather for yourself virtually is not gratuitous. In the vast forests of the Canadas, at intervals, wild straw- berries may be gratuitously gathered by shiploads : yet such is the exhaus- tion of a stooping posture, and of a labour so monotonous, that everybody is soon glad to resign the service into mercenary hands." As v^as pointed out in the last chap- ter, the utility of_a_thing in the esti- mation of a purchaser's Hi e extreme limit of^its^excEange value : Tiiglier the^valueTcaimbt ascend ; peculiar cir- cumstances are required to raise it so high. This topic is happily illustrated by Mr. De Quincey. " Walk into almost any possible shop, buy the first article you see : what will determine its price? In the ninety-nine cases out of a hundred, simply the element D difficulty of attainment. The other element U, or intrinsic utility, will be perfectly inoperative. Let the thing (measured by its uses) be, for your purposes, worth ten guineas, so that you would rather give ten guineas than lose it ; yet, if the difficulty of DEMAND AND SUPPLY. producing it be only worth one guinea, one guinea is the price which it will bear. But still not the less, though U is inoperative, can U be supposed absent ? By no possibility ; for, if it had been absent, assui-edly you would not have bought the article even at the lowest price. U acts upon you, . though it does not act upon the price/ On the other hand, in the hundredth case, we will suppose the circumstances reversed ; you are on Lake Superior in a steam-boat, making your way to an unsettled region 800 miles a-head of civilization, and consciously with no chance at all of purchasing any luxury whatsoever, little luxury or big luxury, lor the space of ten years to come. One fellow passenger, whom you will part with before sunset, has a powerful musical snuff-box ; knowing by experi- ence the power of such a toy over your own feelings, the magic with which at times it lulls your agitations of mind, you are vehemently desirous to pur- chase it. In the hour of leaving Lon- don you had forgot to do so ; here is a final chance. But the owner, aware of your situation not less than yourself, is determined to operate by a strain pushed to the very uttermost upon U, upon the intrinsic worth of the article in your individual estimate for your individual purposes. He will not hear of D as any controlling power or mitigating agency in the case ; and finally, although at six guineas a-piece in London or Paris you might have loaded a waggon with such boxes, you pay sixty rather than lose it when the last knell of the clock has sounded, . which summons you to buy now or to forfeit for ever. Here, as before, only one element is operative : before it was D, now it is U. But after all, D was not absent, though inoperative. The inertness of D allowed U to put forth its total effect. The practical com- pression of D being withdrawn, U springs up like water in a pump when released from the pressure of air. Yet still that D was present to your thoughts, though the price was other- wise regulated, is evident; both be- cause U and Dmust coexist in order to found any case of exchange value what- 269 ever, and because undeniably you take into very particular consideration this D, the extreme difficulty of attainment (which here is the greatest possible, viz. an impossibility) before you con- sent to have the price racked up to U. The special D has vanished : but it is replaced in your thoughts by an un- limited D. Undoubtedly you have submitted to U in extremity as the regulating force of the price ; but it was under a sense of D's latent pre- sence. Yet D is so far from exerting any positive force, that the retirement of D from all agency whatever on the price this it is which creates as it were a perfect vacuum, and through that vacuum U rushes up to its highest and ultimate gradation." Th& case, in which the value is wholly regulated by the necessities or desires of the purchaser, is the case of strict and absolute monopoly; in which, the article desired being only obtainable from one person, he can exact any equivalent, short of the point at which no purchaser could be found. But it is not a necessary consequence, even of complete mono- poly, that the value should be forced up to this ultimate limit : as will be seen when we have considered the law of value in so far as depending on the other element, difficulty of attainment. 2. The difficulty of attainment which determines value, is not always the same kind of difficulty. It some- times consists- in^an a^b^iutejjjita- tion of the supply. There arethings of which it is physically impossible to increase the quantity beyond certain narrow limits. Such are those wines \ which can be grown only in peculiar circumstances of soil, climate, and exposure. Such also are ancient sculptures ; pictures by old masters ; rare books or coins, or other articles of antiquarian curiosity. Among such may also be reckoned houses and building-ground, in a town of definita extent (such as Venice, or any fortified town where fortifications are necessary to security); the most desirable sites in any town whatever; houses and parks peculiarly favoured by natural 270 BOOK III. CHAPTER H. 3. beauty, in places where that advantage is uncommon. Potentially, all land whatever is a commodity of this class ; and might be practically so, in coun- tries fully occupied and cultivated. But there is another category, (em- bracing the majority of all things that are bought and sold,) in which the obstacle to attainment consists only in the labour and expense requisite to IHe~ commodity ^ W ithout a certain labour and Expense it cannot be had : but when any one is willing to incur these, there needs be no limit to the multiplication of the product. If there were labourers enough and machinery enough, cottons, woollens, or linens might be produced by thou- sands of yards for every single yard now manufactured. There would be a point, no doubt, where further increase would be stopped by the incapacity of the earth to afford more of the ma- terial. But there is no need, for any purpose of political economy, to con- template a time when this ideal limit could become a practical one. There is a third case, intermediate between the two preceding, and rather more complex, which I shall at present merely indicate, but the importance of which in political economy is extremely great. There are commodities -which can be multiplied to an indefinite ex- tent bv_labour and expenditure, but not by*~a^ fixed amount of labour and expenditure. Only a limited quantity , can be produced at a given cost ; if more is wanted, it must be produced at greater cost. To this class, as has I been often repeated, agricultural pro- [duce belongs; and generally all the ructe~"~produfce of the earth ; and this xuliarity is a source of very import- it consequences ; one of which is the :essity of a limit to population ; and another, the payment of rent. 3. These being the three classes, in one or other of which all things that are bought and sold must take their place, we shall consider them in their order. And first, of things abso- lutely limited in quantity, such as ancient sculptures or pictures. Of such things it is commonly said, that their value depends upon their scarcity : but the expression is not " sufficiently definite to .serve our pur- pose. Others say, with somewhat greater precision, that the value de- pends on the demand and the supplv. But even this statement requires much explanation, to make it a clear expo- nent of the relation between the value of a thing, and the causes of which that value is an effect. The suppjy of a commodity is an intelligible expression : it means the quantity offered for sale ; the quantity that is to be had. at a given time ancl place, by those who wish to purchase it. But what is meant by the de- mand? Not the mere desire for the commodity. A beggar may desire a diamond ; but his desire, however great, will have no influence on the price. Writers have therefore given a more limited sense to demand, and have defined it, the wish to^pp.-- combined with the powerof PUr- chasing. To distinguish JemanoT in tliis technical sense, from the demand which is synonymous with desire, they call the former effectual demand.* After this explanation, it is usually supposed that there remains no further difficulty, and that the value depends! upon the ratio between the effectual/ demand, as thus defined, and the These phrases, however, fail to satisfy any one who requires clear ideas, and a perfectly precise expres- sion of them. Some confusion must always attach to a phrase so inappro- priate as that of a ratio between two things not of the same denomination. What ratio can there be between a quantity and a desire, or even a desire combined with a power? A ratio between demand and supply is only intelligible if by demand we mean the quantity demanded, and if the * Adam Smith, who introduced the ex- pression " effectual demand," employed It to denote the demand of those who are willing and able to give for the commodity what he calls its natural price, that is, the price which will enable it to be permanently pro- duced and brought to market. See his chapter on Natural and Market Price (book i. ch. 7.) DEMAND AND SUPPLY. ratio intended is that between -the quantity demanded and the quantity suj>pliec But again," the quantity demanded is not a fixed quantity, even at the same time and place ; it varies according to the value : if the thing is cheap, there is usually a demand for more, of it than when it is dear. The demand, therefore, partly depends on the value. But it was before laid down that the value depends on the demand. From this contradiction how shall we extricate ourselves? How solve the paradox, of two things, each depending upon the other ? Though the solution of these diffi- culties is obvious enough, the diffi- culties themselves are not fanciful ; and 271 I bring them forward thus prominently, because I am certain that they ob- scurely haunt every inquirer into the subject who has not openly faced and distinctly realized them. Undoubt- edly the true solution must have been frequently given, though I cannot call to mind any one who had given it before myself, except the eminently clear thinker and skilful expositor, J. B. Say. I should have imagined, however, that it must be familiar to all political economists, if the writings of several did not give evidence of some want of clearness on the point, and if the instance of Mr. De Quincey did not prove that the complete non- recognition and implied denial of it are compatible with great intellectual in- genuity, and close intimacy with the subject matter. i the quar I inf thai 4. Meaning, by the word demand, intity demanded, and remember- ing that this is not a fixed quantity, but in general varies according to the value, let us suppose that the demand at some particular time exceeds the supply, that is, there are persons ready to buy, at the market value, a greater quantity than is offered for sale. Com- petition takes place on the side of the buyers, and the value rises : but how much ? In the ratio (some may sup- pose) of the deficiency : if the demand exceeds the supply by one-third, the value rises one-t'hird. By no means : for when the value has risen cap-third, the demand may still exceed the sup- ply; there may, even at that hi- value, be a greater quantity wanted than is to be had ; and the competi- tion of buyers may still continue. If the article is a necessary of life, which, rather than resign, people are willing to pay for at any price, a deficiency of one-third may raise the price to double, triple, or quadruple.* Or, on the con- trary, the competition may cease before the value has risen in even the pro- portion of the deficiency. A rise, short of one- third, may place the article beyond the means, or beyond the in- clinations, of purchasers to the full amount. At what point, then, will I the rise be arrested? Ai the point, whatever ..it be, which equalizes the demand and the supply : at the price which cuts off the extra thi rd from the demand, or brings forward additional sellers sufficient to supply it. When, in either of these ways, or by a com- bination of both, the demand becomes equal and no more than equal to the supply, the rise of value will stop. The converse case is equally simple. Instead of a demand beyond the sup- ply, let us suppose a supply exceeding the demand. The competition will now be on the side of the sellers : the extra quantity can only find a market by calling forth an additional demand equal to itself. This is accomplished by means of cheapness ; the value falls, and brings the article within the reach of more numerous customers, or induces those who were already con- sumers to make increased purchases. The fall of value required to re-estab- lish equality, is different in different cases. The kinds of things in which it is commonly greatest are at the two extremities of the scale ; absolute * " The price of corn in this country has risen from 100 to 200 per cent and upwards, when the utmost computed deficiency of the crops has not been more than between one- sixth and one-third below an average, and when that deficiency has been relieved by foreign supplies. If there should t e a defi- ciency of the crops amounting to one-third, . without any surplus from a former year, and without any chance of relief by importation, the price might rise five, six, or even ten- fold." Tooke's History of Prices vol. i. pp. 135. 272 BOOK III. necessaries, or those peculiar luxuries, the taste for \vhich is confined to a small class. In the case of food, as those who have already enough do not require more on account of its cheap- ness, hut rather expend in other things what they save in food, the increased consumption occasioned hy cheapness, carries off, as experience shows, only a small part of the extra supply caused by an abundant harvest ;* and the fall is practically arrested only when the farmers withdraw their corn, and hold it back in hopes of a higher price ; or by the operations of speculators who buy corn when it is cheap, and store it up to be brought out when more urgently wanted. Whether the demand and supply -are equalized by an increased demand, the result of cheapness, or by withdrawing a part of the supply, equalized they are in either case. Thus we see that the idea of a ratio, as between demand and supply, is out of place, and has no concern in the matter : the proper mathematical ana- logy is that of an equation. Demand and supply, the quantity demanded andTtEeT CHAPTER U. 5. the theory of this exceptional case In the first place, it will be found to be of great assistance in rendering the more common case intelligible. And in the next place, the principle of the exception stretches wider, and embraces more cases, than might at first be sup- posed. 5. There are but few commodities which are naturally and necessarily limited in supply. But any commodity whatever may be artificially so. Any commodity may be the subject of a monopoly: like tea, in this country, up to 1834; tobacco in France, opium eTpUtntity equal. If unequal aF any moment, competition equalizes them, and the manner in which this is done is by an adjustment of the value. If the de- mand increases, the. value rises ; if the demand diminishes, the value falls : again, if the supply falls off, the value in British India, at present. The price of a monopolized commodity is com- monly supposed to be arbitrary; de- pending on the will of the monopolist, and limited only (as in Mr. De Quincey's case of the musical box in the wilds of America) by the buyer's extreme esti- mate of its worth to himself. This is in one sense true, but forms no excep- tion, nevertheless, to the dependence of the value on supply and demand. The monopolist can fix the value as high as he pleases, short of what the consumer either could not or would not pay ; but he can only do so by limiting the supply. The Dutch East India Com- pany obtained a monopoly price for the produce of the Spice Islands, but to do so they were obliged, in good seasons, to destroy a portion of the rises ; and falls, if the supply is in- I crop. Had they persisted in selling creased. The rise or the fall continues I all that they produced, they must have until the demand and supply are again forced a market by reducing the price, equal to one another : and" the value which a commodity will bring in any market, is no other than the value which, in that market, gives a demand just sufficient to carry off the existing or expected supply. This, then, is the Law of Value, with respect to all commodities not susceptible of being multiplied at plpa- sure. Such commodities, no doubt, are exceptions. There is another law for that much larger class of things, which admit of indefinite multiplica- tion. But it is not the less necessary to conceive distinctly and grasp firmly * See Tooke, and the Report of the Agri- cultural Committee of 1521. so low, perhaps, that they would have received for the larger quantity a less total return than for the smaller : at least they showed that such was their opinion by destroying the surplus. Even on Lake Superior, Mr. De Quincey's huckster could not have sold his box for sixty guineas, if he had possessed two musical boxes and de- sired to sell them both. Supposing the cost price of each to be six guineas, he would have taken seventy for the two in preference to sixty for one ; that is, although his monopoly was the closest possible, he would have sold the boxes at thirty-five guineas each, notwithstanding that sixty was not beyond the buyer's estimate of the article for his purposes. Monopoly value, therefore, does not depend on any peculiar principle, but is a mere variety of the ordinary case of demand and supply,. Again, though there are few commo- dities which are at all times and for ever unsusceptible of increase of supply,* any commodity whatever may be tem- porarily so; and with some commo- dities this is habitually the case. Agricultural produce, for example, cannot be increased in quantity before the next harvest ; the quantity of corn already existing in the world, is all that can be had for sometimes a year to come. During that interval, corn is practically assimilated to things of which the quantity cannot be in- creased. In the case of most commo- dities, it requires a certain time to in- crease their quantity ; and if the demand increases, then until a corre- sponding supply can be brought for- ward, that is, until the supply can accommodate itself to the demand, the value will so rise as to accommodate the demand to the supply. There is another case, the exact converse of this. There are some articles of which the supply may be indefinitely increased, but cannot be rapidly diminished. There are things so durable that the quantity in exist-' ence is at all times very great in comparison with the annual produce. Gold, and the more durable metals, are things of this sort ; and also houses. The supply of such things might be at once diminished by de- stroying them ; but to do this could only be the interest of the possessor if he had a monopoly of the article, and could repay himself for the destruction of a part by the increased value of the DEMAND AND SUPPLY. 2 ?3 remainder. The value, therefore, of such things may continue for a long time so low, either from excess of supply or falling off in the demand, as to put a complete stop to further pro- duction : the diminution of supply by wearing out being so slow a process, that a long time is requisite, even under a total suspension of production, to restore the original value. During that interval the value will be regu- lated solely by supply and demand, and will rise very gradually as the existing stock wears out, until there is again a rem unerating value, and pro- duction resumes its course. Finally, there are commodities of which, though capable of being in- creased or diminished to a great, and even an unlimited extent, the value never depends upon anything but de- mand and supply. This is the case, in particular, with the commodity Labour: of the value of which we have treated copiously in the preceding Book : and there are many cases be- sides, in which we shall find it neces- sary to call in this principle to solve difficult questions of exchange value. This will be particularly exemplified when we treat of International Values ; that is, of the terms of interchange between things produced in different countries, or, to speak more generally in distant places. But into these questions we cannot enter until we shall have examined the case of com- modities which can be increased in quantity indefinitely and at pleasure ; and shall have determined Jag what law, other than that of DemaJgHfcnd Supply, the permanent or average values of such commodities are regu- lated. This we shall do in the next chapter. 274 BOOK in. CHAPTER HI. 1. CHAPTER HI. OP COST OP PRODUCTION, IN ITS RELATION TO VALUE. 1. WHEN the production of a commodity is the effect of lahour and expenditure, whether the commodity is susceptible of unlimited multiplica- tion or not, there is a minimum value which is the essential condition of its being permanently produced. The value at any particular time is the result of supply and demand ; and is always that which is necessary to create a market for the existing supply. But unless that value is sufficient to repay the Cost of Production, and to afi'ord, besides, the ordinary expecta- tion of profit, the commodity will not continue to be produced. Capitalists will not go on permanently producing at a loss. They will not even go on producing at a profit less than they can live upon. Persons whose capital is already embarked, and cannot be easily extricated, will persevere for a con- siderable time without profit, and have been known to persevere even at a loss, in hope of better times. But they will not do so indefinitely, or when there is nothing to indicate that times are likely to improve. Jso new capital will be invested in an employ- ment, unless there be an expectation not only of some profit, but of a profit as great (regard being had to the de- gree of eligibility of the employment in other respects) as can be hoped for in any other occupation at that time and place. When such profit is evi- dently not to be had, if people do not actually withdraw their capital, they at least abstain from replacing it when consumed. The cost of production, together with the ordinary profit, may, therefore be called the necessary price or value, of all things made by labour and capital. Nobody willingly pro- duces in the prospect of loss. Who- ever does so, does it under a miscalcu- lation, which he corrects as fast as he is able. When a commodity is not only made by labour and capital, but can be made by them in indefinite quantity, this Necessary Value, the minimum with which the producers will be content, is also, if competition is free and active, the maximum which they can expect. If the value of a commodity is such that it repays the cost of production not only with the customary, but with a higher rate of profit, capital rushes to share in this extra gain, and by in- creasing the supply of the article,^ reduces its value. This is not a mere/ supposition or surmise, but a fact familiar to those conversant with com- mercial operations. Whenever a new line of business presents itself, offering a hope of unusual profits, and when- ever any established trade or manu- facture is believed to be yielding a greater profit than customary, there is sure to be in a short time so large a production or importation of the com- modity, as not only destroys the extra profit, but generally goes beyond the mark, and sinks the value as much too low as it had before been raised too high ; until the over-supply is corrected by a total or partial suspension of fur- ther production. As already inti- mated,* these variations in the quantity produced do not presuppose or require that any person should change his employment. Those whose business is thriving, increase their pro- duce by availing themselves more largely of their credit, while those who are not making the ordinary profit, restrict their operations, and (in manu- facturing phrase) work short time. In this mode is surely and speedily effected the equalization, not of profits perhaps, but of the expectations of profit, ju different occupations. As a general rule, then, things tend to exchange for one another at such values as will enable each producer to be re- paid the cost of production with thg * Supra, p. 249, COST OF PRODUCTION. ary profit ; in other words, such as will give to all producers the same rate of profit on their outlay. But in order that the profit may be equal where the outlay, that is, the cost of production, is equal, things must on the average exchange for one another in the ratio of their cost of production ; things of which the cost of production is the same, must be of the same value. For only thus will an equal outlay yield an equal return. If a farmer with a capital equal to 1000 quarters of corn, can produce 1200 quarters, yielding him a profit of 20 per cent ; whatever else can be produced in the game time by a capital of 1000 quar- ters, must be worth, that is, must ex- change for, 1200 quarters, otherwise the producer would gain either more or less than 20 per cent. Adam Smith and Ricardo have called that value of a thing which is proportional to its cost of production, its Natural Value (or its Natural Price). They meant by this, the point about which the value oscillates, and to which it always tends to return ; the centre value, towards which, as Adam Smith expresses it, the market value of a thing is constantly gravitating ; and any deviation from which is but a temporary irregularity, which, the moment it exists, sets forces in motion tending to correct it. On an average of years sufficient to enable the oscil- lations on one side of the central line to be compensated by those on the other, the market value agrees with the natural value ; but it very seldom coincides exactly with it at any par- (ticular time. The sea everywhere tends to a level ; but it never is at an exact level ; its surface is always ruf- fled by waves, and often agitated by Btorms. It is enough that no point, at least in the open sea, is permanently higher than another. Each place is alternately elevated and depressed ; but the ocean preserves its level. 2. The latent influence by which the values of things are made to con- form in the long run to the cost of production, is the variation that would otherwise take place in the supply oi 275 the commodity. The supply would be ncreased if the thing continued to sell above the ratio of its cost of produc- tion, and would be diminished if it fell below that ratio. But we must not therefore suppose it to be necessary that the supply should actually be either diminished or increased. Sup- pose that the cost of production of a thing is cheapened by some mecha- nical invention, or increased by a tax. The value of a tfcing would in a little time, if not immediately, fall in the one case, and rise in the other ; and it would do so, because if it did not, the supply would in the one case be in- creased, until the price fell, in the other diminished, until it rose. For this reason, and from the erroneous notion that value depends on the proportion between the demand and the supply, many persons suppose that this pro- portion must be altered whenever there is any change in the value of the com- modity ; that the value cannot fall through a diminution of the cost of production, unless the supply is perma- nently increased ; nor rise, unless the supply is permanently diminished. But this is not the fact : there is no need that there should be any actual altera- tion of supply ; and when there is, the alteration, if permanent, is not the cause but the consequence of the altera- tion in value. If, indeed, the supply could not be increased, no diminution in the cost of production would lower the value : but there is by no means any necessity that it should. The mere possibility often suffices ; the dealers are aware of what would hap- pen, and their mutual competition makes them anticipate the result by lowering the price. Whether there will be a greater permanent supply of the commodity, after its production has been cheapened, depends on quite another question, namely, on whether a greater quantity is wanted at the reduced value. Most commonly a greater quantity is wanted, but not necessarily. "A man," says Mr. De Quincey,* "buys an article of in- stant applicability to his own purposes the more readily and the more largely * Logic qf Political Economy, pp. 2301, 276 as it happens to be cheaper. Silk handkerchiefs having fallen to half- price, he will buy, perhaps, in three- fold quantity ; but he does not buy more steam-engines because the price is lowered. His demand for steam- engines is almost always predetermined by the circumstances of his situation. So far as he considers the cost at all, it is much more the cost of working this engine than the cost upon its purchase. But there are many articles lor which the marlJet is absolutely and merely limited by a pre-existing system, to which those articles are attached as subordinate parts or mem- bers. How could we force the dials or faces of timepieces by artificial cheap- ness to sell more plentifully than the inner works or movements of such timepieces ? Could the sale of wine-vaults be r iucreased without in- creasing the sale of wine? Or the tools of shipwrights find an enlarged market whilst shipbuilding was sta- BOOK in. CHAPTER III. 2. tionary Offer to a town of 3000 inhabitants a stock of hearses, no cheapness will tempt that town into buying more than one. Offer a stock of yachts, the chief cost lies in manning, victualling, repairing ; no diminution upon the mere price to a purchaser r , . f . will tempt into the market any man | other things contracts itself to the whose habits and propensities had not already disposed him to such a pur- chase. So of professional costume for bishops, lawyers, students at Oxford.'' Nobody doubts, however, that the price Would the supply be diminished? Only if the increase of value diminished the demand. Whether this effect fol- lowed, would soon appear, and if it did, the value would recede somewhat, from excess of supply, until the pro- duction was reduced, and would then rise again. There are many articles for which it requires a very consider- able rise of price, materially to reduce the demand ; in particular, articles of necessity, such as the habitual food ' of the people ; in England, wheaten bread : of which there is probably almost as much consumed, at the pre- sent cost price, as there would be with the present population at a price con- siderably lower. Yet it is especially in such things that dearness or high price is popularly confounded with scarcity. Food may be dear from scarcity, as after a bad harvest ; but the deamess (for example) which is the effect of taxation, or of corn laws, has nothing whatever to do with insuf- ficient supply: such causes do not much diminish the quantity of food in a country : it is other things rather than food that are diminished in quan- tity by them, since, those who pay more for food not having so much to expend otherwise, the production of and value of all these things would be eventually lowered by any diminution of their cost of production; and lowered through the apprehension entertained of new competitors, and an increased supply : though the great hazard to which a new competitor would expose himself, in an article not susceptible of any considerable ex- tension of its market, would enable the established dealers to maintain their original prices much longer than they could do in an article offering more encouragement to competition. Again, reverse the case, and sup- pose the cost of production increased, as for example by laying a tax on the commodity. The value would rise ; aud that, probably, immediately. limits of a smaller demand. It is, therefore, strictly correct to say, that the value of things which can be increased in quantity at plea- sure, does not depend (except acci- dentally, and during the time necessary for production to adjust itself,) upon demand and supply ; on the contrary J (demand and supply depend upon it.\ There is a demand for a certain quan- tity of the commodity at its natural or. cost value, and to that the supply iu the long run endeavours to conform. When at any time it fails of so con- forming, it is either from niiscalcuUv- tion, or from a change in some of the- elements of the problem : either in the natural value, that is, in the cost of production ; or in the demand, from an alteration in public taste or in the number or wealth of the consumers. These causes of disturbance are very liable to occur, and when any one of them does occur, the market value of ULTIMATE ANALYSIS OF COST OF PRODUCTION. 277 the article ceases to agree with the natural value. The real law of de- olds good in 3 equation petwei tL alPcases : if th value 1 different from thft natural be necessary to make the demand eqTial to The ^supply. the_jmrket_value will jeviate from the naturaT"vanie ; but bmy for a time ; for the permanent tendency of supply is to conform itself to the demand which is found by expe- rience to exist for the commodity when seuing at its natural value. If the supply is either more or less than this, it is so accidentally, and affords either more or less than the ordinary rate of profit ; which, under free and active competition, cannot long continue to be the case. To recapitulate : demand and supply govj5rn_thevaJuj^ cannoTlje - cept that even for them, when" produced by industry, there is a minimum value, determined by the cost of production, But in all things which admit of inde- finite multiplication, demand and supply only determine the perturbations _pf value, during a" period which cannot exceed the length of Time necessary for r aTterTng the supply. While thus rutfmg~the oscillations of value, they themselves obey a superior force, which makes value gravitate_ toward^ Cost^ of ProducJipnT'aTi^rwnich wouldTsettle' it and keep it there, if fresh disturbing influences were not continually arising to make it again deviate. To pursue the same strain of metaphor, demand and supply always rush to an equili- brium, but the condition of stable equilibrium is when things exchange for each other according to their cost of production, or, in the expression we have used, when things are at their Natural Value. CHAPTER IV. ULTIMATE ANALYSIS OP COST OF PRODUCTION. 1, THE component elements of Cost of Production have been set forth in the First Part of this enquiry.* The principal of them, and so much the principal as to be nearly the sole, we found to be Labour. What the production of a thing costs to its pro- ducer, or its series of producers, is the labour expended in producing it. If we consider as the pi-oducer the capi- talist who makes the advances, the word Labour may be replaced by the word Wages : what the produce costs to him, is the wages which he has had to pay. At the first glance indeed this seems to be only a part of his out- lay, sinco he has not only paid wages to labourers, but has likewise provided them with tools, materials, and per- haps buildings. These'tools, materials, and buildings, however, were produced by labour and capital ; and their value, like that of the article to the produc- tion of which they are subservient, * Supra, pp. 19, 20. depends on cost of production, which again is resolvable into labour. The cost of production of broadcloth does not wholly consist in the wages of weavers ; which alone are directly paid by the cloth manufacturer. It consists also of the Avages of spinners and woolcombers, and it may be added, of shepherds, all of which the clothier has paid for in the price of yarn. It consists too of the wages of builders and brickmakers, which he has reim- bursed in the contract price of erecting his factory. It partly consists of the wages of machine-makers, iron-founders, and miners. And to these must be added the wages of the carriers who transported any of the means and appliances of the production to the place where they were to be used, and the product itself to the place where it is to be sold. The value of commodities, there- fore, depends principally (we shall pre- sently see whether it depends solely) 278 BOOK HI. CHAPTER IV. 2. ^titj of labour required for their production ; including in tlie idea of production, that of conveyance to the market. " In estimating," says Ricardo,* " the exchangeable value of stockings, for example, we shall find that their value, comparatively vrith other things, depends on the total quantity of labour necessary to manu- facture them and bring them to market. First, there is the labour necessary to cultivate the land on which the raw cotton is grown ; secondly, the labour of conveying the cotton to the country where the stock- ings are to be manufactured, which includes a portion of the labour be- stowed in building the ship in which *t is conveyed, and which is charged in the freight of the goods ; thirdly, the labour of the spinner and weaver; fourthly, a portion of the labour of the engineer, smith, and carpenter, who erected the buildings and machinery by the help of which they are made ; fifthly, the labour of the retail dealer, and of many others, whom it is un- necessary further to particularize. The aggregate sum of these various kinds of labour, determines the quantity of other things for which these stockings will exchange, while the same con- sideration of the various quantities of labour which have been bestowed on those other things, will equally govern the portion of them which will be given for the stockings. " To convince ourselves that this is the real foundation of exchangeable value, let us suppose any improvement to be made in the means of abridging labour in any one of the various pro- cesses through which the raw cotton must pass before the manufactured stockings come to the market to be exchanged for other things ; and ob- serve the effects which will follow. If fewer men were required to cultivate the raw cotton, or if fewer sailors were employed in navigating, or shipwrights in constructing, the ship in which it was conveyed to us ; if fewer hands were employed in raising the buildings and machinery, or if these, when raised, * Principles of Political Economy and Taxation, ch.i. sect. 3. were rendered more efficient ; the stockings would inevitably fall in value, and command less of other things. They would fall, because a less quan- tity of labour was necessary to their production, and would therefore ex- change for a smaller quantity of those things in which no such abridgment of labour had been made. "Economy in the nse of labour never fails To re 1 1: c eTTie jreTa 1 1 vc- value of a commodity, whether the saving be in the labour necessary to tl;> facture of the commodity itself, or in that necessary to the formation of the capital, by the aid of which it is pro- duce-. 1 . In either case the price of stockings would fall, whether there were fewer men employed as bleachers, spinners, and weavers, persons imme- diately necessary to their manufacture ; or as sailors, carriers, engineers, and smiths, persons more indirectly con- cerned. In the one case, the -whole saving of labour would fall on the stockings, because that portion of labour was wholly confined to the stockings ; in the other, a portion only would fall on the stockings, the re- mainder being applied to all those other commodities, to the production of which the buildings, machinery, and carriage, were subservient." 2. It will have been observed that Eicardo expresses himself as if the quantity of labour which it costs to produce a commodity and bring it to market, were the only thing on whiclr its value depended. But since the cost of production to the capitalist is not labour but wages, and since wages may be either greater or less, the quan- tity of labour being the same ; it would seem that the value of the product cannot be determined solely by the quantity of labour, but by the quantity together with the remuneration ; and that values must partly depend on wages. In order to decide this point, it must be considered, that value is a relative term ; that the value of a commodity is not a name for an inherent and sub- stantive quality of the thing itself^ but means the quantity of other things ULTIMATE ANALYSIS OF COST OF PRODUCTION. 279 which can be obtained in exchange for it. The value of one thing, must always be understood relatively to some other thing, or to things in general. Isowthe relation of one thing to another cannot be altered by any cause which affecte them both alike. A rise or fall of jrcncral wages is a fact which affects aTl coiiimoctities in the same manner, and therefore affords no reason why they "should exchange for each other in one rather than in another propor- tion. To suppose that high wages make high values, is to suppose that there can be such a thing as general high values. But this is a contradic- tion in terms : the high value o&some things is synonymous with the low value of others. The mistake arises from not attending to values, but only to prices. Though there is no such thing as a general rise of values, there is such a thing as a general rise of prices. As soon as we form distinctly the idea of values, we see that high or low wages can have nothing to do with them : but that high wages make high prices, is a popular and wide-spread opinion. The whole amount of error involved in this proposition can only be seen ' thoroughly when we come to the theory of money; at present we need only say that if it be true, there can be no such thing as a real rise of wages ; for if wages could not rise without a proportional rise of the price of everything, they could not, for any substantial purpose, rise at all. This surely is a sufficient reductio ad ab- surdum, and shows the amazing folly of the propositions which may and do become, and long remain, accredited doctrines of popular political economy. It must be remembered, too, that general high prices, even supposing them to exist, can be of no use to a producer or dealer, considered as such ; for if they increase his money returns, they increase in the same degree all his expenses. There is no mode in which capitalists can compensate them- selves for a high cost of labour, through any action on values or prices. It cannot be prevented from taking its effect in ' low profits. If the labourers veally get more, that is, get the pro- duce of more labour, a smaller per- centage must remain for profit. From this Law of Distribution, resting as it does on a law of arithmetic, there is no escape. The mechanism of Exchange and Price may hide it from us, but is quite powerlesa to alter it. 3. Although, however, general wages, whether high or low, do not affect values, yet if \yages^ are higher in one employment than another, or it" they rise or "fall permanently in one employment without doing so in others, these inequalities do really operate upon values. The causes which make wages vary from v one employment to Another, have been considered in a former chapter. When the wages of an employment permanently exceed the average rate, the value of the thing produced will, in the same degree, exceed the standard determined by mere quantity of labour. Things, for example, which are made by skilled labour, exchange for the produce of a much greater quantity of unskilled labour ; for no reason but because the labour is more highly paid. If, through the extension of education, the labourers competent to skilled employments were so increased in number as to diminish the difference between their wages and those of common labour, all things produced by labour of the superior kind would fall in value, compared with things produced by common labour, and these might be said therefore to rise in value. We have before re- marked that the difficulty of passing from one class of employments to a class greatly superior, has hitherto caused the wages of all those classes of labourers who are separated from one another by any very marked barrier, to depend more than might be sup- posed upon the increase of the popu- lation of each class, considered sepa- rately; and that the inequalities in the remuneration of labour are much greater than could exist if the com- petition of the labouring people gene- rally, could be brought practically to bear on each particular employment. It follows from this, that \vages in different employments do not rise or 280 fall simultaneously, but are, for short and sometimes even for long periods, nearly independent of one another. All such disparities evidently alter the relative cost of production of different commodities, and will therefore be completely represented in their natural or average value. It thus appears that the maxim laid down by some of the best political economists, that wages do not enter into value, is expressed with greater latitude than the truth warrants, or than accords with their own meaning, ^'ages do enter into value. The tentative vages of the labour necessary fcr producing different commodities, affect their value just as much as the relative quantities of labour. It is . the absolute wages paid have no T, effect upon values ; but neither has the absolute quantity of labour. If that were to vary simultaneously and equally in all commodities, values would not be affected. If, for in- stance, the general efficiency of all labour were increased, so that all things without exception could be pro- duced in the same quantity as before with a smaller amount of labour, no trace of this general diminution of cost of production would show itself in the values of commodities. Any change which might take place in them would only represent the unequal degrees in which the improvement affected dif- ferent things ; and would consist in cheapening those in which the saving of labour had been the greatest, while those in which there had been some, but a less saving of labour, would ac- tually rise in value. In strictness, therefore, wages of labour have as much to do with value as quantity of labour : and neither Eicardo nor any one else has denied the fact. In con- sidering, nowever, the causes of varia- tions in value, quantity of labour is the thing of chief importance ; for when that varies, it is generally in one or a few commodities at a time, but the variations of wages (except passing fluctuations) are usually ge- neral, and have no considerable effect on value. BOOK HI. CHAPTER IV. 4. as an element in cost of production. But in our analysis, in the First Book, of the requisites of production, we found that there is another necessary element in it besides labour. There is also capital ; and this being the result of abstinence, the produce, or its value, must be sufficient to remunerate, not only all the labour required, but the abstinence of all the persons by whom the remuneration of the different classes of labourers was advanced. The return Jbr abstinence^isProfit. A~nd profit, we have^also~~ieen7i8'not ' exclusively the surplus remaining to the capitalist after he has been com- pensated for his outlay, but forms, in most cases, no unimportant part of the outlay itself. The flax-spinner, part of whose expenses consists of the purchase of flax and of machinery, has had to pay, in their price, not only the wages of the labour by which the flax was grown and the machinery made, bnt the profits of the grower, the flax- dresser, the miner, the iron-founder, and the machine-maker. All these profits, together with those of the spin- ner himself, were again advanced by the weaver, in the price of his material, linen yarn : and along with them the profits of a fresh set of machine-makers, and of the miners and iron-workers who supplied them with their metallic material. All these advances form part of the cost of production of linen. Profits, therefore, as w r ell as wages, enter into the cost of production which determines the value of the produce. Value, however, being purely re- lative, cannot depend upon absolute profits, no more than upon absolute wages, but upon relative profits only. High general profits cannot, any more than high general wages, be a cause of high values, because high general values are an absurdity and a contradiction. In so far as profits enter into the cost' of production of all things, they cannot affect the value of any. It is only by entering in a greater degree into the cost of production of some things than of others, that they can have any influence on value. For example, we have seen that ULTIMATE ANALYSIS OF COST OF PKODUCTION. 281 there are causes which necessitate a permanently higher rate of profit in certain employments than in others. There must he a compensation for superior risk, trouble, and disagreeable- ness. This can only be obtained by selling the commodity at a value above that which is due to the quantity of labour necessary for its production. If gunpowder exchanged for other things in no higher ratio than that of the labour required from first to last for producing it, no one would set up a powder-mill. Butchers are certainly a more prosperous class than bakers, and do not seem to he exposed to greater risks, since it is not remarked that they are oftener bankrupts. They seem, therefore, to obtain higher pro- fits, which can only arise from the more limited competition caused by the unpleasantness, and to a certain degree, the impopularity of their trade. But this higher profit implies that they sell their commodity at a higher value than that due to their labour and out- lay. All inequalities of profit which are necessary and permanent, are re- presented in the relative values of the commodities. 5. Profits, however, may enter more largely into the conditions of production of one commodity than of another, even though there be no dif- ference in the rate of profit between the two employments. The one com- modity may be called upon to yield profit during a longer period of time than the other. The example by which this case is usually illustrated is that of wine. Suppose a quantity of wine, a Lid a quantity of cloth, made by equal amounts of labour, and that labour paid at the same rate. The cloth does not improve by keeping; the wine does. Suppose that, to attain the desired quality, the wine requires to be kept five years. The producer or dealer will not keep it, unless at the end of five years he can sell it for as much more than the cloth, as amounts to five years profit, accumu- lated at compound interest. The wine and the cloth were made by the same original outlay. Here then is a case in which. the natural values, relatively to one another, of two commodities, do not conform to their cost of production alone, but to their cost of production plus something else. Unless, indeed, for the sake of generality in the. ex- pression, we include the profit which the wine-merchant foregoes during tho five years, in the cost of production of the wine : looking upon it as a kind of additional outlay, over and above his other advances, for which outlay he must be indemnified at last. All commodities made by machinery are assimilated, at least approximately, to the wine in the preceding example. In comparison with things made wholly by immediate labour, profits enter more largely into their cost of production. Suppose two commodities, A and B, each requiring a year for its production, by means of a capita] which we will on this occasion denote by money, and suppose to be 1000Z. A is made wholly by immediate labour, the whole IQQQl. being expended di- rectly in wages. B is made by means of labour which costs 500Z. and a ma- chine which costs 500Z., and the ma- chine is worn out by one year's use. The two commodities will be exactly of the same value ; which, if computed in money, and if profits are 2U per cent, per annum, will be 1200Z. But of this 1200Z., in the case of A, only 200Z., or one-sixth, is profit: while in the case of B there is not only the 200Z., but as much of 500Z. (the price of the machine) as consisted of the profits of the machine-maker; which, if we suppose the machine also to have taken a year for its production, is again one-sixth. So that in the case of A only one-sixth of the entire return is profit, whilst in B the element of profit comprises not only a sixth of the whole, but an additional sixth of a large part. The greater the proportion of the whole capital which consists of ma- chinery, or buildings, or material, or anything else which must be provided before the immediate labour can com- mence, the more largely will^ profits enter into the cost of production. It is equally true, though not so obvious 282 at first sight, that greater, durability in the portion of caprtaTwhTch consists of machinery or buildings, has precisely the same effect as a greater amount of it. As we just supposed one ex- treme case, of a machine entirely worn out by a year's use, let us now suppose the opposite and still more extreme case, of a machine which lasts for ever, and requires no repairs. In this case, wliich is as well suited for the purpose of illustration as if it were a possible one, it will be unnecessary that the manufacturer should ever be repaid the 500Z. which he gave for the ma- chine, since he has always the machine itself, worth 500Z.; but he must be paid, as before, a profit on it. The commodity B, therefore, which in the case previously supposed was sold for 1200Z., of which sum WOOL were to replace the capital and 200Z. were profit, can now be sold for 700Z., being 5001. to replace wages, and 2001. profit on the entire capital. Profit, there- fore, enters into the value of B in the ratio of 200Z. out of 700Z., being two- sevenths of the whole, or 28f per cent, while in the case of A, as before, it enters only in the ratio of one-sixth, or 16 per cent. The case is of course purely ideal, since no machinery or other fixed capital lasts for ever ; but the more durable it is, the nearer it approaches to this ideal case, and the more largely does profit enter into the return. If, for instance, a machine worth 500Z. loses one fifth of its value by each year's use, 1001. must be added to the return to make up this loss, and the price of the commodity will be 800Z. Profit therefore will enter into it in the ratio of 200Z. to 800Z., or one- fourth, which is still a much higher proportion than one-sixth, or 200Z. in 1200Z., as in case A. From the unequal proportion in which, in different employments, profits enter into the advances of the capi- talist, and therefore into the returns required "by him, two consequences follow in regard to value. One is, that commodities do not exchange in the ratio simply of the quantities of lain ail- required to produce them ; not even if we allow for the unequal rates at which BOOK III. CHAPTER IV. 5. different kinds of labour are perma- nently remunerated. We have already illustrated this by the example of wine : we shall now further exemplify it by the case of commodities made by ma- chinery. Suppose, as before, an article A, made by a thousand pounds' worth of immediate labour. But instead of B, made by 500Z. worth of immediate labour and a machine worth 500Z., let us suppose C, made by 500Z. worth of immediate labour with the aid of a machine which has been produced by another 500Z. worth of immediate la- bour : the machine requiring a year for making, and worn out by a year's use ; profits being as before 20 per cent. A and C are made by equal quantities of labour, paid at the same rate : A costs 1000Z. worth of direct labour; C, only 500Z. worth, which however is made up to 1000Z. by the labour expended in the construction of the machine. If labour, or its remuneration, were the sole ingredient of cost of production, these two things would exchange for one another. But will they do so? Certainly not. The machine having been made in a year by an outlay of 500Z., and profits being 20 per cent, the natural price of the machine is 600Z.: making an additional 100Z. which mnst be advanced, over and above his other expenses, by the manufacturer of C, and repaid to him with a profit of 20 per cent. While, therefore, the commodity A is sold for 1200Z., C cannot be permanently sold for less than 1320Z. A second consequence is, that every , rise or fall of general profits will hav>- an effect on values. Not indeed By raising or lowering them generally, (which, as we have so often said, is a contradiction and an impossibility) : but by altering the proportion in which the values of things are affected by ^ the unequal lengths of time for which profit is due. When two things, though made by equal labour, are of unequal value because the one is called upon to yield profit for a greater num- ber of years or months than the other ; this difference of value will be greater when profits are greater, and less when they are less. The wine which has to ULTIMATE ANALYSIS OF COST OF PRODUCTION. 283 yield five years profit more than the cloth, will surpass it in value much more if profits are 40 per cent, than if they are only 20. The commodities A and C, which, though made by equal quan- tities of labour, were sold for 1200Z. and 1320?., a difference of 10 per cent, would, if profits had been only half as much, have been sold for 1100Z. and 11551., a difference of only 5 per cent. It follows from this, that even a general rise of wages, when it involves a real increase in the cost of labour, does in some degree influence values. It does not affect them in the. manner vulgarly supnpsed, by raising them universally. flSut an increase in the cost of labour, lowers profits; and therefore lowers in natural . value the things into which, profits enter in a greater proportion than the average, and raises those into which they enter] in a less proportion than the average^ All commodities in the production oi which machinery bears a large part, especially if the machinery is very durable, are lowered in their relative value when profits fall ; or, what is equivalent, other things are raised in value relatively to them. This truth is sometimes expressed in a phrase- ology more plausible than sound, by saying that a rise of wages raises the value of things made by labour, in comparison with those made by ma- chinery. But things made by ma- chinery, just as much as any other things, are made by labour, namely the labour which made the machinery itself: the only difference being th&t profits enter somewhat more largely into the production of things for which machinery is used, though the prin- cipal item of the outlay is still labour. It is better, therefore, to associate the effect w r ith fall of profits than with rise of wages ; especially as this last ex- pression is extremely ambiguous, sug- gesting the idea of an increase of the labourer's real remuneration, rather than of what is alone to the purpose here, namely, the cost of labour to its em jloyer. 6. Besides the natural and ne- cessary elements in cost of production labour and profits there are others which are artificial and casual, as for instance a tax. The tax on malt is as much a part of the cost of produc- tion of that article, as the wages of the labourers. The expenses which the law imposes, as well as those which the nature of things imposes, must be reimbursed with the ordinary profit from the value of the produce, or the things will not continue to be produced. But the influence of taxation on value is subject to the same conditions as the influence of wages and of profits. It is not general taxation, but differ- ential taxation, that produces the effect. If all productions were taxed so as to take an equal percentage from all profits, relative values would be in no way disturbed. If only a few com- modities were taxed, their value would rise : and if only a few were left un- taxed, their value would fall. If half were taxed and the remainder untaxed, the first half would rise and the last would fall relatively to each other. This would be necessary in order to equalize the expectation of profit in all employments, without which the taxed employments would ultimately, if not immediately, be abandoned. But general taxation, when equally imposed, and not disturbing the re- lations of different productions to one another, cannot produce any effect on values. We have thus far supposed that all the means and appliances which enter into the cost of production of com- modities, are things whose own value depends on their cost of production. Some of them, however, may belong to the class of things which cannot be increased ad libitum in quantity, and which therefore, if the demand goes beyond a certain amount, command a scarcity value. The materials of many of the ornamental articles manufac- tured in Italy are the substances called rosso, giallo, arid verde antico, which, whether truly or falsely I know not, are asserted to be solely derived from the destruction of ancient columns and other ornamental structures : the quarries from which the stone was originally cut being exhausted, or their BOOK HI. CHAPTER IV. 6. 284 locality forgotten.* A material of such a nature, if in much demand, must be at a scarcity value ; and this value enters into the cost of prcduc- tion, and, consequently, into the value, of the finished article. The time seems to be approaching when the more valuable fare will come tinder the influence of a scarcity value of the material. Hitherto the diminishing mirnber of the animals which produce them, in the wildernesses of Siberia and on the coasts of the Esquimaux Sea, has operated on the value only through the greater labour which has become necessary for securing any given quan- tity of the article ; since, without doubt, by employing labour enough, it might still be obtained in much greater abundance for some time longer. But the case in which scarcity value chiefly operates in adding to cost of production, is the case of natural agents. These, when unappropriated, and to be had for the taking, do not enter into cost of product icn, save to the extent of the labour which maybe necessary to fit them for use. Even when appropriated, they do not (as we have already seen) bear a value from the mere fact of the appropriation, but only from scarcity, that is, from limi- tation of supply. But it is equally certain that they often do bear a scar- city value. Suppose a iall r f water, in a place where there are mere mills wanted than there is water-power to supply them ; the use of the fall of water will have a scarcity value, suffi- cient either to bring the demand d<,wn ti . the supply, or to pay for the creation of an artificial power, by steam or otherwise, equal in efficiency to the water-power. * Some of these quarries, I believe, have been rediscovered, and are again worked. A natural agent being a possession in perpetuity, and being only service- able by the products resulting from its continued employment, the ordinary mode of deriving benefit from its ownership is by an annual equivalent, paid by the person who uses it, from the proceeds of its use. This equiva- lent always might be, and generally is, termed rent. The question therefore, respecting the influence which the ap- propriation of natural agents produces on values, is often stated in this form : Does Eent enter into Cost of Produc- tion ? and the answer of the best poli- tical economists is in the negative. The temptation is strong to the adop- tion of these sweeping expressions, even by those who are aware of the restrictions with which they must be taken ; for there is no denying that they stamp a general principle more firmly on the mind, than if it were hedged round in theory with all its practical limitations. But they also puzzle and mislead, and create an im- pression unfavourable to political eco- nomy, as if it disregarded the evidence of facts. No one can deny that rent sometimes enters into cest of produc- tion. If I buy or rent a piece of ground, and build a cloth manufactory on it, the ground-rent forms legitimately a part of my expenses of production, which must be repaid by the product. And since all factories are built on ground, and most of them in places where ground is peculiarly valuable, the rent paid for it must, on the ave- rage, be compensated in the values of all things made in factories. In what sense it is true that rent does not enter into the cost of production or affect the value of agricultural produce, will be shown in the succeeding chapter. RENT IN ITS RELATION TO VALUE. 285 CHAPTER V. OP RENT, IN ITS RELATION TO VALUE. 1. WE Lave investigated the laws which determine the value of two classes of commodities : the small class which, being limited to a definite quantity, have their value entirely de- termined hy demand and supply, save that their cost of production (if they have any) constitutes a minimum below which they cannot permanently fall ; and the large class, which can be mul- tiplied ad libitum by labour and capital, and of which the cost of production fixes the maximum as well as the minimum at which they can perma- nently exchange. But there is still a third kind of commodities to be con- sidered : those which have, not one, but several costs of production ; which can always be increased in quantity by labour and capital, but not by the same amount of labour and capital ; of which so much may be produced at a given cost, but a further quantity not without a greater cost. These com- modities form an intermediate class, partaking of the character of both the others. The principal of them is agri- cultural produce. We have already made abundant reference to the funda- mental truth, that in agriculture, the state of the art being given, doubling the labour does not double the produce ; that if an.increa,sed quantity of produce is required, the julditiqnal obtainer^'at a greatexcostthJi the first! Where" a hundred quarters of cofrTare all that is at present required from the lands of a given village, if the growth of population made it ne- cessary to raise a hundred more, either by breaking up worse land now uncul- tivated, or by a more elaborate cultiva- tion of the land already under the plough, the additional hundred, or some part of them at least, might cost double or treble as much per quarter as the former supply. If the first hundred quarters were all raised at the same expense (only the best land being cultivated) : and if that expense would be remunerated with the ordinary profit by a price of 206-. the quarter ; the natural price of wheat, so long as no more than that quantity was required, would be 20s. ; and it could only rise above, or fall below that price, from vicissitudes of seasons, or other casual variations in supply. But if the population of the district advanced, a time would arrive when more than a hundred quarters would be necessary to feed it. \Ve must suppose that there is no access to any foreign supply. By the hypo- thesis, no more than a hundred quarters can be produced in the district, unless by either bringing worse land into cul- tivatioiT, or altering the system of culture to a more expensive one. Neither of these things will be done without a rise in price. This rise o' price will gradually be brought about by the increasing demand. So long as the price has risen, but not risen enough to repay with the ordinary profit the cost of producing an addi- tional quantity, the increased value of the limited supply partakes of the nature of a scarcity value. Suppose that it will not answer to cultivate the second best land, or land of the second degree of remoteness, for a less return than 25s. the quarter ; and that this price is also necessary to remunerate the expensive operations by which an increased produce might be raised from land of the first quality. If so, the price will rise, through the increased demand, until it reaches 25s. Thai- will now be the natural price ; being the price without which the quantity, for which society has a demand at that price, will not be produced. At that price, however, society can go on for some time longer; could go on perhaps for ever, if population did not increase. The price, having attained that point, will not again permanently 286 recede (though it may fall temporarily from accidental abundance) ; nor will it advance further, so long as society can obtain the supply it requires with- out a second increase of the cost of production. I have made use of Price in this reasoning, as a convenient symbol of Value, from the greater familiarity of the idea ; and I shall continue to do so as far as may appear to be necessary. In the case supposed, different por- tions of the supply of com have dif- ferent costs of production. Though the 20, or 50, or 150 quarters addi- tional have been produced at a cost proportional to 25s., the original hun- dred quarters per annum are still pro- duced at a cost only proportional to 20s. This is self-evident, if the original and the additional supply are produced on different qualities of land. It is equally true it' they are produced on the same land. Suppose that land of the best quality, -which produced 100 quarters at 20s., has been made to produce 150 by an expensive process, which it -would not answer to under- take without a price of 25s. The cost which requires 25s. is incurred for the sake of 50 quarters alone : the first hundred might have continued for ever to be produced at the original cost, and with the benefit, on that quantity, of the whole rise of price caused by the increased demand : no one, there- fore, will incur the additional expense for the sake of the additional fifty, unless they alone will pay for the whole of it. The fifty, therefore, will be produced at their natural price, proportioned to the cost of their pro- duction : while the other hundred will now bring in 5s. a quarter more than their natural price than the price corre spending to, and sufficing to re- munerate, their lower cost of pro- duction. If the production of any, even the smallest, portion of the supply, re- quires as a necessary condition a certain price, that price will be ob- tained for all the rest. We are not able to buy one loaf cheaper than another because the corn from which it was made, being grown on a richer BOOK HI. CHAPTER V. 2. soil, has cost less to the grower. The value, therefore, of_an article (meaning its natural, which isTheTame with its average value) is determined by the cost of that portion of the ^supply fhich is produced ^aiuLJbrought to is J3TOJ ^t the greatest expense. This is the ]^aw ofYalue of the third of the three classes into which all com- modities are divided. 2. If the portion of produce raised in the most unfavourable circumstances, obtains a value proportioned to its cost of production ; all the portions raised in more favourable circumstances, sell- ing as they must do at the same value, obtain a value more than proportioned to their cost of production. Their value is not, correctly speaking, a scarcity value, for it is determined by the cir- cumstances of the production of the commodity, and not by the degree of dearness necessary for keeping down the demand to the level of a limited supply. The owners, however, of those portions of the produce enjoy a pri- vilege ; they obtain a value which yields them more than the ordinary profit. If this advantage depends upon any special exemption, such as being free from a tax, or upon any personal advantages, physical or mental, or any peculiar process only known to themselves, or upon the possession of a greater capital than other people, or upon various other things which might be enumerated, they retain it to themselves as an extra gain, over and above the general profits of capital, of the nature, in some sort, of a monopoly profit. But when, as in the case which we are more particularly con- sidering, the advantage depends on the possession of a natural agent of peculiar quality, as, for instance, of more fertile land than that which determines the general value of the commodity; and when this natural agent is not owned by themselves ; the person who does own it, is able to exact from them, in the form of rent, the whole extra gain derived from its use. We are thus brought by another road to the Law of Rent, investigated in the concluding chapter of the Second RENT IN ITS RELATION TO VALUE. 287 Book. Rent, we again di fiergncejetween the unequal returns to different parts of the capital em- ployecTon the noil. ~\v hatever surplus any fortiori 6T agricultural capital produces, beyond what is produced by the same amount of capital on the worst soil, or under the most expensive mode of cultivation, which the existing demands of society compel a recourse to ; that surplus will naturally be paid as rent from that capital, to the owner of the land on which it is employed. It was long thought by political economists, among the rest even by Adam Smith, that the produce of land is always at a monopoly value, because (they said) in addition to the ordinary rate of profit, it always yields some- thing further for rent. This we now see to be erroneous. A thing cannot be at a monopoly value, when its supply can be increased to an indefinite ex- tent if W T C are only willing to incur the cost. If no more corn than the exist- ing quantity is grown, it is because the value has not risen high enough to remunerate any one for growing it. Any land (not reserved for other uses, or for pleasure) which at the existing price, and by the existing processes, will yield the ordinary profit, is tole- rably certain, unless some artificial hindrance intervenes, to be cultivated, although nothing may be left for rent. As long as there is any land fit for cultivation, which at the existing price cannot be profitably cultivated at all, there must be some land a little better, which will yield the ordinary profit, but allow nothing for rent: and that land, if within the boundary of a farm, will be cultivated by the farmer ; if not so, probably by the proprietor, or by some other person on sufferance. Some such land at least, under culti- vation, there can scarcely fail to be. Rent, therefore, forms no part of the cost of production which determines the value of agricultural produce. Circumstances no doubt may be con- ceived in which it might do so, and very largely too. We can imagine a country so fully peopled, and with all its cultivable soil so completely occu- pied, that to produce any additional quantity would require more labour than the produce would feed : and if we suppose this to be the condition of the whole world, or of a country de- barred from foreign supply, then, if population continued increasing, both the land and its produce would really rise to a monopoly or scarcity price. But this state of things never can have really existed anywhere, unless pos- sibly in some small island cut off from the rest of the world ; nor is there any danger whatever that it should exist. It certainly exists in no known region at present. Monopoly, we have seen, can take effect on value, only through limitation of supply. In all countries of any extent there is more cultivable land than is yet cultivated : and while there is any such surplus, it is the same thing, so far as that quality of land is concerned, as if there were an indefinite quantity. What is prac- tically limited in supply is only the better qualities ; and even for those, so much rent cannot be demanded as would bring in the competition of the lands not yet in cultivation ; the rent of a piece of land must be somewhat less than the whole excess of its pro- ductiveness over that of the best land which it is not yet profitable to cul- tivate ; that is, it must be about equal to the excess above the worst land which it is profitable to cultivate. The land or the capital most unfavourably circumstanced among those actually employed, pays no rent ; and that land or capital determines the cost of pro- duction which regulates the value of the whole produce. Thus rent is, as we have already seen, no cause of value, but the price of the privilege which the inequality of the returns to different portions of agricultural produce confers on all except the least favoured portion. Rent, in short, merely equalizes the profits of different farming capitals, by enabling the landlord to appropriate all extra gains occasioned by supe- riority of natural advantages. If all , landlords were unanimously to forego their rent, they would but transfer it to the farmers, without benefiting tho consumer ; for the existing price of corn would still be an indispcnsablo 288 BOOK HI. condition of the production of part of the existing supply, and if a part obtained that price the whole would obtain it. Kent, therefore, unless artificially increased by restrictive laws, is no burthen on the consumer ; it does not raise the price of corn, and is no otherwise a detriment to the public, than inasmuch as if the state had retained it, or imposed an equivalent in the shape of a land-tax, it would then have been a fund applicable to general instead of private advantage. 3. Agricultural productions are not the only commodities which have several different costs of production at once, and which, in consequence of that difference, and in proportion to it, afford a rent. Mines are also an in- stance. Almost all kinds of raw material extracted from the interior of the earth metals, coals, precious stones, &c., are obtained from mines differing con- siderably in fertility, that is, yielding very different quantities of the product to the same quantity of labour and capital. This being the case, it is an obvious question, why are not the most fertile mines so worked as to supply the whole market ? No such question can arise as to land ; it being self- evident, that the most fertile lands could not possibly be made to supply the whole demand of a fully-peopled country ; and even of what they do yield, a part is extorted from them by a labour and outlay as great as that required to grow the same amount on worse land. But it is not so with mines ; at least, not universally. There are, perhaps, cases in which it is im- possible to extract from a particular vein, in a given time, more than a certain quantity of ore, because there is only a limited surface of the vein exposed, on which more than a certain number of labourers cannot be simul- taneously employed. But this is not true of all mines. In collieries, for example, some other cause of limita- tion must be sought for. In some instances the owners limit the quan- tity raised, in order not too rapidly to exhaust the mine : in others there are said to be combinations of owners, to CHAPTER V. 3. keep up a monopoly price by limiting the production. Whatever be the causes, it is a fact that mines of dif- ferent degrees of richness are in opera- tion, and since the value of the pro- duce must be proportional to the cost of production at the worst mine (fer- tility and situation taken together), it is nvre than proportional to that of the oest. All mines superior in pro- duce to the worst actually worked, will yield, therefore, a rent equal to the excess. They may yield more; and the worst mine may itself yield a rent. Mines being comparatively few, their qualities do not graduate gently into one another, as the qualities of land do ; and the demand may be such as to keep the value of the produce con- siderably above the cost of production at the worst mine now worked, with- out being sufficient to bring into opera- tion a still worse. During the interval, the produce is really at a scarcity value. Fisheries are another example. Fish- eries in the open sea are not appro- priated, but fisheries in lakes or rivers almost always are so, and likewise oyster-beds or other particular fishing grounds on coasts. We may take salmon fisheries as an example of the whole class. Some rivers are far more productive in salmon than others. Kone, however, without being ex- hausted, can supply more than a very limited demand. The demand of a country like England can only be sup- plied by taking salmon from many different rivers of unequal productive- ness, and the value must be sufficient to repay the cost of obtaining the fish from the least productive of these. All others, therefore, will if appropriated afford a rent equal to the value of their superiority. Much higher than this it cannot be, if there are salmon rivers accessible which from distance or in- ferior productiveness have not yet con- tributed to supply the market. If there are not, the value, doubtless, may rise to a scarcity rate, and the worst fisheries in use may then yield a con- siderable rent. Both in the case of mines and of fisheries, the natural order of events is RENT IN ITS EELATION TO VALPE. 239 liable to be interrupted by the opening of a new mine, or a new fishery, of superior quality to some of those already in use. The first effect of such an incident is an increase of the supply ; which of course lowers the value to call forth an increased demand. This reduced value may be no longer suf- ficient to remunerate the worst of the existing mines or fisheries, and these may consequently be abandoned. If the superior mines or fisheries, with the addition of the one newly opened, produce as much of the commodity as is required at the lower value corre- sponding to their lower cost of produc- tion, the fall of value will be permanent, and there will be a corresponding fall in the rents of those mines or fisheries which are not abandoned. In this case, when things have permanently adjusted themselves, (the result will be, that the scale of qualities which supply the market will have been cut short at the lower end, while a new insertion will have been made in the scale at some point higher up ; and the worst mine or fishery in use the one which regulates the rents of the superior qualities and the value of the com- modity will be a mine or fishery of better quality than that by which they were previously regulated. Land is used for other purposes than agriculture, especially for resi- dence ; and when so used, yields a rent, determined by principles similar to those already laid down. The ground rent of a building, and the rent of a garden or park attached to it, will not be less than the rent which the same land would afford in agriculture : but may be greater than this to an indefinite amount : the surplus being either in consideration of beauty or of convenience, the convenience often consisting in superior facilities for pecuniary gain. Sites of remarkable beauty are generally limited in supply, and therefore, if in great demand, are at a scarcity value. Sites superior only in convenience, are governed as to their value by the ordinary principles of rent. The ground rent of a house in a small village is but little higher than the reu.t of a similar patch of ground in the open fields : but that of a shop in Chcapside will exceed these, by the whole amount at which people estimate the superior facilities of money- making in the more crowded place. The rents of wharfage, dock and harbour room, water-power, and many other privileges, may be analysed on similar principles. 4. Cases of extra profit analogous to a-ent, are^more frequent in the trans- actions of industry than is sometimes supposed. Take the case, for example, of a patent, or exclusive privilege for the use of a process by which cost of production is lessened. If the value oi the product continues to be regulated by _ what it costs to those who are obliged to persist in the old process, the patentee will make an extra profit equal to the advantage which his pro- cess possesses over theirs. This extra profit is essentially similar to rent, and sometimes even assumes the form of it ; the patentee allowing to other pro- ducers the use of his privilege, in con- sideration of an annual payment. So long as he, and those whom he asso- ciates in the privilege, do not produce enough to supply the whole market, so long the original cost of production, being the necessary condition of pro- ducing a part, will regulate the value of the whole ; and the patentee will be enabled to keep up his rent to a full equivalent for the advantage which his process gives him. In the com- mencement indeed he will probably forego a part of this advantage for the sake of underselling others : the in- creased supply which he brings for- ward will lower the value, and make the trade a bad one for those who do not share in the privilege : many of whom therefore will gradually retire, or restrict their operations, or enter into arrangements with the patentee. As his supply increases theirs wifi diminish, the value meanwhile con- tinuing slightly depressed. But if h<* stops short in his operations before the market is wholly supplied by the new process, things will again adjust them- selves to what was the natural value before the invention was made, and U BOOK III. CHAPTER VI. 1. 290 the benefit of the improvement will accrue solely to the patentee. The extra gains which any producer or dealer obtains through superior ta- lents for business, or superior business \ arrangements, are very much of a similar kind. If all his competitors i had the same advantages, and used i them, the benefit would be transferred ; to their customers, through the dimi- nished value of the article : he only j .retains it for himself because he is able to bring his commodity to market ' At a lower cost, while its value is deter- j mined by a higher. All advantages, j in fact, which one competitor has over another, whether natural or acquired, whether personal or the result of social arrangements, bring the commodity, so far, into the Third Class, and assimilate ! the possessor of the advantage to a ! receiver of rent. AVages and profits represent the universal elements in production, while rent may be taken to represent the differential and pecu- j liar : any difference in favour of certain ' producers, or in favour of production in certain circumstances, being the source of a gain, which, though not called I rent unless paid periodically by one person to another, is governed by laws entirely the same with it. The price paid for a differential advantage in producing a commodity, cannot enter into the general cost of production of the commodity. A commodity may, no doubt, in some contingencies, yield a rent even under the most disadvantageous cir- cumstances of its production ; but only when it is, for the time, in the condi- tion of those commodities which are absolutely limited in supply, and is therefore selling at a scarcity value ; which never is, nor has been, nor can be, a permanent condition of any of the great rent-yielding commodities : un- less through their approaching exhaus- tion, if they are mineral products (coal, for example), or through an increase of population, continuing after a further increase of production becomes im- possible ; a contingency, which the almost inevitable progress of human culture and improvement in the long interval which has first to elapse, for- bids us to consider as probable. CHAPTER VI. SUMMARY OF THE THEORY OP VALUE. 1. WE have now attained a favour- able point for looking back, and taking a simultaneous view of the space which we have traversed since the commence- ment of the present Book. The following are the principles of the theory of Value, so far as we have yet ascertained them. I. Value is a relative term. The valu^ of a thing means the Quantity of some other thing, or of tVnnors jn trpnpraJ jvhifb Jt e-gpj^ngps for. The values o? all flings can never, there- j fore, rise or fall simultaneously. There ! is no such thing as a general rise or a general fall of values. Every rise of va- lue supposes a fall, and every fall a rise. IL The temporary or market value of a thing depends on the demand and supply; rising as the demand . and falling as the supply rises. The i demand, however, varies with the value, being generally greater when the thing is cheap than when it is ! dear; and the value always adjusts ' itself in such a manner, that the demand is equal to the supply. - in. Besides their temporary value, things have also a permanent, or as it may be called, a Natural Value, to which 'the market value, after e very- variation, always tends to return ; and the oscillations compensate for one another, so that, on the average, com- modities exchange at about their natural value. SUMMARY OF THE '"' IV. The natural value of some things is a scarcity value : but most things naturally exchange for one another in the ratio of their cost of production, or at what may beEermed their Cost Value. V. The things which are naturally and permanently at a scarcity value, f are those of which the supply cannot ^ be increased *at all, or not sufficiently to satisfy the whole of the demand which would exist for them at their cost value. VI. A monopoly value means a scarcity value. Monopoly cannot give a value to anything, except through a limitation of the supply. VII. Every commodity of which the supply can be indefinitely increased by labour and capital, exchanges for other things proportionally to the cost neces- sary for producing and bringing to market the most costly portion of the supply required. The natural value is synonymous with the Cost Value, and C the cost value of a thing, means the cost " value of the most costly portion of it. VIII. Cost of Production consists of several elements, some of which are constant and universal, others occa- sional. The universal elements of cost of production are, the wages of the labour, and the profits of the capital. The occasional elements are, taxes, and any extra cost occasioned by a scarcity value of some of the requisites. IX. Eent is not an element in the cost of production of the commodity which yields it : except in the cases, (rather conceivable thin actually exist- ing) in which it results from, and repre- sents, a scarcity value. But when land capable of yielding rent in agri- culture is applied to some other pur- pose, the rent which it would have yielded is an element in the cost of pro- duction of the commodity which it is employed to produce. X. Omitting the occasional elements; things which admit of indefinite in- crease, naturally and permanently ex- change for each other according to the comparative amount of wages which must be paid for producing them, and the comparative amount of profits which must be obtained by the capi- talists who pay those wages. THEOKY OF VALUE. 291 XI. The comparative amount of wages does not depend on what wages are in themselves. High wages do not make high values, nor low wages low values. The comparative amount of wages depends partly on the com- parative quantities of labour required, and partly on_ the comparative rates of its remuneration. XII. So, the comparative rate of profits does not depend on what profits are in themselves ; nor do high or low profits make high or low values.. It depends partly on the comparative lengths of time during which the capital is employed, and partly on the com- parative ratf. of profits in different ere. ployments. XJII. If two things are made by the same quantity of labour, and that labour paid at the same rate, and if the wages of the labourer have to be advanced for the same space of time, and the nature of the employment does not require that there be a permanent difference in their rate of profit ; then, whether wages and profits be high or low, and whether the quantity of labour expended be much or little, these two things will, on the average, exchange for one another. XIV. If one of the two things com- mands, on the average, a greater value than the other, the cause must be that it requires for its production either a greater quantity of labour, or a kind of labour permanently paid at a highef rate ; or that the capital, or part or the capital, which supports that labour, must be advanced for a longer period ; or lastly, that the production is attended with some circumstance which requires to be compensated by a permanently higher rate of profit. XV. Of these elements, the quantity of labour required for the production is the most important : the effect^of the others is smaller, though none are insignificant. XVI. The lower profits are, the less important become the minor elements of cost of production, and the less do commodities deviate from a value pro- portioned to the quantity and quality of the labour required for their pro- duction. US BOOK m. CHAPTEK YL 2. 292 XVII. But every fall of profits lowers. in some degree, the cost value of things made with much or durable machinery, and raises that of things made by hand; and every rise of profits does the reverse. 2. Such is the general theory of Exchange Value. It_is jiecessarv,, however, to rem a rk that this theory contemplates a ""system of production ' carried- on. by capitalists for profit, and not by labourers for subsistence. In proportion as we admit this last supposition and in most countries we must admit it, at least in re- spect of agricultural produce, to a very great extent such of the pre- ceding theorems as relate to the de- pendence of value on cost of produc- tion will require modification. Those theorems are all grounded on the sup- position, that the producer's object and aim is to derive a profit from his capital. This granted, it follows that he must sell his commodity at the price which will afford the ordi- nary rate of profit, that is to say, it must exchange for other commodities at its cost value. But the peasant proprietor, the metayer, and the peasant-farmer or allotment-holder the labourer, under whatever name, pro- ducing on his own account is^gsfilrffig, not an investment for his little capital, but an advantageous employment for his time and labour. His disburse- ments, beyond his own maintenance and that of his iamily, are so small, that nearly the whole proceeds of the sale of the produce are wages of labour. "When he and his family have been fed from the produce of thejarm (and perhaps clothed~wrth materials grown thereon, and manufactured in the family) he may, in respect of the sup- plementary remuneration derived from the sale of the surplus produce, be compared to those labourers who, de- :heir subsistence from an in- dependent source, can afford to sell their labour at any price -which is to their minds -worth" the exertion. A peasant, who supports himself and his familv with one portion of his produce, will often sell the remainder very much below what would be its cost j^ilue to the capitalist. There is, however, even in this case, a minimum, or inferior limit, of value. The produce which he carries to market, must bring in to him the value of all necessaries which he is compelled to purchase ; and it must enable ham to pay his rent. Kent, under peasant cultivation, is not governed by the principles set forth in the chapters immediately preceding, but is either determined by custom, as in the case of metayers, or, if fixed by competition, depends on the ratio of population to land. Eent, therefore, in this case, is an element of cost of production. The peasant must work until he has cleared his rent and the price of all purchased necessaries. After this, he will go on working only if he can sell the produce for such a price as will overcome his lab aversion to ' The what t change jnst n .{Jus produc h as this surplus is not a fixed q either -grer' degree minimum value for th it does not any i; tor a definite quantity of the state of il;i: be said. on cost of entire on the of su chODS'. the non-agr non-pt class class ] that T: energ- buvers few, food r~H*5Gfl, and the cheap. mate to it. either that, as in Ireland until lately, the peasant class i buyers few, or the and the town o MONEY. 293 opulent, as in Belgium, the north of Italy, and parts of Germany. The price of the produce will adjust itself to th.esf ' is of any OBY;, v,yyrici make no difference, except that of having to reckon pounds, shil- lings, and pence, in higher numbers. It would be an increase of values only as estimated in money, a thing only wanted to buy other things with ; and would not enable any one to buy more of them than before. Prices would have risen in a certain ratio, and the value of money would have fallen in the same ratio. It is to be remarked that this ratio would be precisely that in which the quantity of money had been increased. If the whole money in circulation was doubled, prices would be doubled. If it was only increased one-fourth, prices would rise one-fourth. There would be one-fourth more money, all of which would be used to purchase goods of some description. When there had been time for the increased supply of money to reach all markets, or (accord- ing to the conventional metaphor) to permeate all the channels of circulation, all prices would have risen one-fourth. But the general rise of price is inde- pendent of this diffusing and equaliz- ing process. Even if some prices were raised more, and others less, the ave- rage rise would be one-fourth. This is a necessary consequence of the fact, that a fourth more money would have been given for only the same quantity of goods. General prices, therefore, would in any case be a fourth higher. The very same effect would be pro- duced on prices if we suppose the goods diminished, instead of the money in- creased : and the contrary effect if the goods were increased, or the money diminished. If there were less money in the hands of the community, and the same amount of goods to he sold, less money altogether would be given for them, and they would be sold at lower prices ; lower, too, in the precise ratio in which the money was diminished. So that the, value of money, other things being the same, varies .inversely as its quantity ; every increase of quan- tity lowering the value, and every 300 diminution raising it, in a ratio exactly equivalent. This, it must be observed, is a pr- find it to be true of conn rally, that every diminution of supply raised the value exactly in proportion to the deficiency, or that every increase lowered it in the precise ratio of the excess. ^ Some things are usually affected in a greater ratio than that of the excess or deficiency, others usually in a less : because, in ordinary cases of demand, the desire, being for the thing itself, may be stronger or weaker ; and the amount of what people" are willing to expend on it, being in any case a limited quantity, may be affected in very unequal degrees by difficulty or facility of attainment. But in the case of money, which is desired as the means of universal purchase, the de- mand consists of everything which people have to sell ; and the only limit to what they are willing to give, is the limit set by their having nothing more to offer. The whole of the goods being in any case exchanged for the whole of the money which comes into the market to be laid out, they will sell for less or more of it, exactly according as less or more is brought. 3. From what precedes, it might for a moment be supposed, that all the goods on sale in a country at any one time, are exchanged for all the money existing and in circulation at that same time : or, in other words, that there is always in circulation in a country, a quantity of money equal in value to the whole of the goods then and there on sale. But this would be a complete misapprehension. The money laid out is equal in value to the goods it pur- chases ; but the quantity of money laid out is not the same thing with the quantity in circulation. As the money passes from hand to hand, the same piece of money is laid out many times, before all the things on sale at one time are purchased and finally removed from the market : and each pound or dollar must be counted for as many pounds or dollars, as the number of times it changes hands in order % to BOOK IH. CHAPTEE VIII. 3. effect this object. The greater part of the goods must also be counted more than once, not only because most things pass through the hands of several sets of manu-. r 'ank notes are, in ordinary course, first issued to producers or dealers, to be em- ployed as capital ; and though the stock of commodities in the country is no greater than before, yet as a greater share of that stock now comes by purchase into the hands of producers and dealers, to that extent what would have been unproductively con- sumed is applied to production, and there is a real increase ofcapital. The effect ceases, and a counter-process takes ] lr.ce, when the additional credit is stopped a. -J the notes called in. or less of capital, but who from their occupations, or for want of the ne- cessary skill and knowledge, cannot personally superintend its employment, would derive no benefit from it : their funds would either lie idle, or would be, perhaps, wasted and annihilated in unskilful attempts to make them yield a profit. All this capital is now lent at interest, and made available for production. Capital thus circum- stanced forms a large portion of the productive resources of any commercial country ; and is naturally attracted to those producers or traders who, being in the greatest business, have the means of employing it to most advan- tage ; because such are both the most desirous to obtain it, and able to give the best security. Although, therefore, the productive funds of the country are not increased by credit, they are called into a more complete state of produc- tive activity. As the confidence on which credit is grounded extends itself, means are developed by which even the smallest portions of capital, the sums which each person keeps by him to meet contingencies, are made avail- able for productive uses. The principal instruments for this purpose are banks of deposit. Where these do not exist, a prudent person must keep a sufficient sum unemployed in his own possession, to meet every demand which he has even a slight reason for thinking him- self liable to. "When the practice, however, has grown up of keeping this reserve not in his own custody but with a banker, many small sums, pre- viously lying idle, become aggregated in the banker's hands ; and the banker, being taught by experience what pro- portion of the amount is likely to be wanted in a given time, and knowing that if one depositor happens to require more than the average, another will require less, is able to lend the re- mainder, that is, the far greater part, to producers and dealers : thereby adding the amount, not indeed to the capital in existence, but to that in em- ployment, and making a corresponding addition to the aggregate production of the community. AVhile credit is thus indispensable CREDIT AS A SUBSTITUTE FOR MONEY. 311 for rendering the whole capital of the country productive, it is also a means by which the industrial talent of the country is turned to better account for purposes of production. Many a person who lias either no capital of his own, or very little, but who has qualifica- tions for business which are known and appreciated by some possessors of ca- pital, is enabled to obtain either ad- vances in money, or more frequently goods on credit, by which his indus- trial capacities are made instrumental to the increase of the public wealth ; and this benefit will be reaped far more largely, whenever, through better laws and better education, the community shall have made such progress in in- tegrity, that personal character can be accepted as a sufficient guarantee not only against dishonestly appropriating, but against dishonestly risking, what belongs to another. Such are, in the most general point of view, the uses of credit to the productive resources of the world. But these considerations only apply to the credit given to the industrious classes to producers and dealers. Credit given by dealers to unproduc- fve consumers is never an addition, bit always a detriment, to the sources oi public wealth. It makes over in tenporary use, not the capital of the unproductive classes to the productive, butthat of the productive to the un- prc-uctive. If A, a dealer, supplies gooes to B, a landowner or annuitant, to be paid for at the end of five years, as rmch of the capital of A as is equal to tb value of these goods, remains for fire years unproductive. During euch i period, if payment had been made it once, the sum might have been several times expended and replaced, and goids to the amount might have been se'eral times produced, consumed, and reproduced : consequently B's withholung 100Z. for five years, even if he pays it last, has cost to the labour- ing clasps of the community during that pericl an absolute loss of probably several tines that amount. A, indi- vidually, i compensated, by putting a higher prie upon his goods, which is ultimatelypaid by B : but there in no compensation made to the labouring classes, the chief sufferers by every diversion of capital, whether perma- nently or temporarily, to unproductive uses. The country has had 100Z. less of capital during those five years, B having taken that amount from A's capital, and spent it unproductively, in anticipation of his own means, and having only after five years set apart a sum from his income and converted it into capital for the purpose of indem- nifying A. 3. Thus far of the general func- tion of Credit in production. It is not a productive power in itself, though, without it, the productive powers al- ready existing could not be brought into complete employment. But a more intricate portion of the theory of Credit is its influence on prices; the chief cause of most of the mercantile phenomena which perplex observers. In a state of commerce in which much credit is habitually given, general prices at any moment depend much more upon the state of credit than upon the quantity of money. For credit, though it is not productive power, is purchasing power ; and a person who, having credit, avails himself of it in the purchase of goods, creates just as much demand for the goods, and tends quite as much to raise their price, as if he made an equal amount* of pur. chases with ready money. The credit which we are now called upon to consider, as a distinct pur- chasing power, independent of money, is of course not credit in its simplest form, that of money lent by one person to another, and paid directly into his hands ; for when the borrower expends this in purchases, he makes the pur- chases with money, not credit, and ex- erts no purchasing power over and above that conferred by the money. The forms of credit which create pur- chasing power, are those in which no money passes at the time, and very often none passes at all, the transac- tions being included with a mass of other transactions in an account, and nothing paid but a balance. This takes place in a variety of ways, 312 which we shall proceed to examine, beginning, as is our custom, with the siinplest. ".f'irst : Suppose A and B to be two dealers, who have transactions with each other both as buyers and as sellers. A buys from B on credit. B does the like with respect to A. At the end of the year, the sum of A's debts to B is set against the sum of B's debts to A, and it is ascertained to which fide a balance is due. This balance, which may be less than the amount of many of the transactions singly, and is necessarily less than the sum of the transactions, is all that is paid in money: and perhaps even this is not paid, but carried over in an account current to the next year. A single payment of a hundred pounds may in this manner suffice to liquidate a long series of transactions, some of them to the value of thousands. But secondly : The debts of A to B ir ay be paid without the intervention of money, even though there be no reciprocal debts of B to A. A may satisfy B by making over to him a debt due to himself from a third person, C. This is conveniently done by means of a written instrument, called a bill of exchange, which is, in fact, a transfer- able order by a creditor upon his debtor, and when accepted by the debtor, that is, authenticated by his signature, be- comes an acknowledgment of debt. 4. Bills of exchange were first in- troduced to save the expense and risk of transporting the precious metals from place to place. " Let it be sup- posed," says Mr. Henry Thornton,* " that there are in London ten manufac- turers who Fell their article to ten shop- keepers in York, by whom it is retailed ; and that there are in York ten manu- facturers of another commodity, who sell it to ten shopkeepers in London. There \vould be no occasion for the ten shopkeepers in London to send yearly * Enquiry into the Nature and Effects of the Paper Credit of Great Britain, p. 24. This work, published in 18fi2, is even now the clearest exposition that I am acquainted with, in the En'_'li:-h language, of the modes in which credit is given and taken in a mer- cantile community. BOOK HI. CHAPTER XI. 4. to York guineas for the payment of the York manufacturers, and for the ten York shopkeepers to send yearly as many guineas to London. It would only be necessary for the York manu- facturers to receive from each of the shopkeepers at their own door the money in question, giving in return letters which should acknowledge the receipt of it ; and which should also direct the money, lying ready in the hands of their debtors in London, to be paid to the London manufacturers, so as to cancel the debt in London in the same manner as that at York. The expense and the risk of all transmission of money would thus be saved. Letters ordering the transfer of the debt are termed, in the language of the present day, bills of exchange. They are bills by which the. debt of one person is ex- changed for the debt of another ; and the debt, perhaps, which is due in one place, for the debt due in another." Bills of exchange having been found convenient as means of paying debts at distant places without the expense of transporting the precious metals, theii use was afterwards greatly extendet from another motive. It is usual ii every trade to give a certain length )f credit for goods bought : three montls, six months, a year, even two yen's, according to the convenience or cust>m of the particular trade. A dealer vho has sold goods, for which he is t- Re- paid in six months, but who desir;^ 10 receive payment sooner, draws .' bill on his debtor payable in six months, and gets the bill discounted by a linker or other money-lender, that is, transfers the bill to him, receiving the anount, minus interest for the time it h.s still to run. It has become one of tie chief functions of bills of exchange o serve as a means by which a debt die from one person can thus be made rvailable for obtaining credit from anotter. The convenience of the expedient has led to the frequent creation of blls of ex- change not grounded on anydebt pre- viously due to the drawer of he bill by the person on whom it is dra-n. These are called accommodation oills ; and sometimes, with a tinge of dsapproba- tion, fictitious bills. Their lature is so CEEDIT AS A SUBSTITUTE FOR MONEY. 31! clearly stated, and with such judicious remarks, by the author whom I have just quoted, that I shall transcribe the entire passage.* "A, being in want of 100L, requests B to accept a note or bill drawn at two months, which B, therefore, on the face of it, is bound to pay ; it is understood, however, that A will take care either to discharge the bill himself, or to furnish B with the means of paying it. A obtains ready money for the bill on the joint credit of the two parties A ful- fils his promise of paying it when due, and thus concludes the transaction. This service rendered by B to A is, however, not unlikely to be requited, at a more or less distant period, by a similar acceptance of a bill on A, drawn and discounted for B's convenience. " Let us now compare such a bill with a real bill. Let us consider in what points they differ or seem to differ ; and in what they agree. " They agree, inasmuch as each is a discountable article ; each has also been created for the purpose of being dis- counted ; and each is, perhaps, dis- counted in fact. Each, therefore, serves equally to supply means of speculation to the merchant. So far, moreover, as bills and notes constitute what is called the circulating medium, or paper cur- rency of the country, and prevent the use of guineas, the fictitious and the real bill are upon an equality; and if the price of commodities be raised in proportion to the quantity of paper currency, the one contributes to that rise exactly in the same manner as the other. " Before we come to the points in which they differ, let us advert to one point in which they are commonly sup- posed to be unlike ; but in which they cannot be said always or necessarily to differ. "Real notes (it is sometimes said) represent actual property. There are actual goods in existence, which are the counterpart to every real note. Notes which are not drawn in consequence of a sale of goods, are a species of false wealth, by which a nation is deceived. * Pp, 29-33. These supply only an imaginary capital ; the others indicate one that is real. " In answer to this statement it may be observed, first, that the notes given in consequence of a real sale of goods cannot be considered as on that account certainly representing any actual pro- perty. Suppose that A sells 100Z. worth of goods to B at six months credit, and takes a bill at six months for it ; and that B, within a month after, sells the same goods, at a like credit, to C, taking a like bill ; and again, that C, after another month, sells them to D, taking a like bill, and so on. There may then, at the end of six months, be six bills of 100Z. each, existing at the same time; and every one of these may possibly have been discounted. Of all these bills, then, only one represents any actual property. " In order to justify the supposition that a real bill (as it is called) repre- sents actual property, there ought to be some power in the bill-holder to prevent the property which the bill represents, from being turned to other purposes than that of paying the bill in question. No such power exists ; neither the man who holds the real bill, nor the man who discounts it, has any property in the specific goods for which it was given : he as much trusts to the general ability to pay of the giver of the bill, as the holder of any fictitious bill does. The fictitious bill may, in many cases, be a bill given by a person having a large and known capital, a part of which the fictitious bill may be said in that case to represent. The supposition that real bills represent property, and that fictitious bills do not, seems, there- fore, to be one by which more than justice is done to one of these species of bills, and something less than justice to the other. " We come next to some points in which they differ. " First, the fictitious note, or note of accommodation, is liable to the ob- jection that it professes to be what it is not. This objection, however, lies only against those fictitious bills which are passed as real. In many cases, it is sufficiently obvious what they are. Secondly, the fictitious bill is, in gene BOOK HI. CHAPTER XL 5. 314 ral, less likely to be punctually paid than the real one. There is a general presumption, that the dealer in fictitious bills is a man who is a more adven- turous speculator than he who carefully abstains from them. It follows, thirdly, that fictitious bills, besides being less safe, are less subject to limitation as to their quantity. The extent of a man's actual sales forms some limit to the amount of his real notes; and as it is highly desirable in commerce that credit should be dealt out to all per- sons in eome sort of regular and due proportion, the measure of a man's actual sales, certified by the appear- ance of his bills drawn in virtue of those sales, is some rule in the case, though a very imperfect one in many respects. " A fictitious bill, or bill of accom- modation, is evidently, in substance, the same as any common promissory note ; and even better in this respect, that there is but one security to the pro- missory note, whereas in the case of the bill of accommodation there are two. So much jealousy subsists lest traders should push their means of raising money too far, that paper, the same in its general nature with that which is given, being the only paper which can be given, by men out of business, is deemed somewhat discre- ditable when coming from a merchant. And because sucb paper, when in the merchant's hand, necessarily imitates the paper which passes on the occasion of a sale of goods, the epithet fictitious has been cast upon it ; an epithet which has seemed to countenance the confused and mistaken notion, that there is something altogether false and delusive in the nature of a certain part Doth of the paper and of the apparent wealth of the country." A bill of exchange, when merely discounted, and kept in the portfolio of the discounter until it falls due, does not perform the functions or supply the place of money, but is itself bought and sold for money. It is no more currency than the public funds, or any other securities. But when a bill drawn upon one person is paid to another (or even to the same person) in discharge of a debt or a pecuniary claim, it does something for which, if the bill did not exist, money would be required: it performs the functions of currency. This is a use to which bills of exchange are often applied. "They not only," continues Mr. Thornton,* " spare the use of ready money ; they also occupy its place in many cases. Let us imagine a farmer in the country to dis- charge a debt of 101. to his neighbour- ing grocer, by giving bim a bill for that sum, drawn on his corn fact or in London for grain sold in the metro- polis ; and the grocer to transmit the bill, he having previously indorsed it, to a neighbouring sugar-baker, in dis- charge of a like debt; and the sugar- baker to send it, when again indorsed, to a West India merchant in an out- port, and the West India merchant to deliver it to his country banker, who also indorses it, and sends it into further circulation. The bill in this case will have effected five payments, exactly as if it were a Wl. note payable to bearer on demand. A multitude of bills pass between trader and trader in the country, in the manner which has been described ; and they evidently form, in the strictest sense, a part of the circu- lating medium of the kingdom." Many bills, both domestic and foreign, are at last presented for pay- ment quite covered with indorsements, each of which represents either a fresh discounting, or a pecuniary transaction in which the bill has performed the functions of money. Within the pre- sent generation, the circulating medium of Lancashire for sums above five pounds, was almost entirely composed of such bills. 5. A third form in which credit is employed as a substitute for cur rency, is that of promissory notes. A bill drawn upon any one and accepted by him, and a note of hand by him promising to pay the same sum, are, as tar as he is concerned, exactly equiva- lent, except that the former commonly bears interest and the latter generally does not ; and that the former is com- monly payable onlv after a certain P. 40. CEEDIT AS A SUBSTITUTE FOR MONEY. 315 lapse of time, and the latter payable at sight. But it is chiefly in the latter form that it has become, in commercial countries, an express occupation to issue such substitutes for money. Dealers in money (as lenders by pro- fession are improperly called) desire, like other dealers, to stretch their operations beyond what can be carried on by their own means : they wish to lend, not their capital merely, but their credit, and not only such portion of their credit as consists of funds actually deposited with them, but their power of obtaining credit from the public generally, so far as they think they can safely employ it. This is done in a very convenient manner by lending their own promissory notes payable to bearer on demand : the borrower being willing to accept these as so much money, because the credit of the lender makes other people willingly receive them on the same footing, in purchases or other payments. These notes, there- fore, perform all the functions of cur- rency, and render an equi valent amount of money which was previously in cir- culation, unnecessary. As, however, being payable on demand, they may be at any time returned on the issuer, and money demanded for them, he must, on pain of bankruptcy, keep by him as much money as will enable him to meet any claims of that sort which can be expected to occur within the time necessary for providing him- self with more : and prudence also re- quires that he should not attempt to issue notes beyond the amount which experience shows can remain in circu- lation without being presented for payment. The convenience of this mode of (as it were) coining credit, having once been discovered, governments have availed themselves of the same expe- dient, and have issued their own pro- missory notes in payment of their expenses ; a resource the more useful, because it is the only mode in which they are able to borrow money without paying interest, their promises to pay on demand being, iii trie estimation of the holders, equivalent to money in hand. The practical differences be- tween such government notes and the issues of private bankers, and the further diversities of which this class of substitutes for money are suscepti- ble, will be considered presently. 6. A fourth mode of making credit answer the purposes of money, by which, when earned far enough, money, may be very completely super- seded, consists in making payments by cheques. The custom of keeping the spare cash reserved for immediate use or against contingent demands, in the hands of a banker, and making all payments, except small ones, by orders on bankers, is in this country spreading to a continually larger por- tion of the public. If the person making the payment, and the person receiving it, keep their money with the same banker, the payment takes place without any intervention of money, by the mere transfer of its amount in the banker's books from the credit of the payer to that of the re- ceiver. If all persons in London kept their cash at the same banker's, and made all their payments by means of cheques, no money would be required or used for any transactions beginning and terminating in London. This ideal limit is almost attained in fact, so far as regards transactions between dealers. It is chiefly in the retail transactions between dealers and consumers, and in the payment of wages, that money or bank notes now pass, and then only when the amounts are small. In London, even shopkeepers of any amount of capital or extent of business have generally an account with a banker ; which, besides the safety and convenience of the practice, is to their advantage in another respect, by giving them an understood claim to have their bills discounted in cases when they could not otherwise expect it. As for the merchants and larger dealers, they habitually make all payments in the course of their business by cheques. They do not, however, all deal with the same banker, and when A gives a cheque to B, B usually pays it not into the same but into some other bank. But the convenience of busi- 816 ness has given birth to an arrangement which makes all the banking houses of the City of London, for certain pur- poses, virtually one establishment. A banker does not send the cheques which are paid into his banking house, to the banks on which they are drawn, and demand money for them. There is a building called the Clearing house, to which every City banker sends, each afternoon, all the cheques on other bankers which he has received during the day, and they are there exchanged for the cheques on him which have come into the hands of other bankers, the balances only being paid in money ; or even these not in money, but in cheques on the Bank of England. By this contrivance, all the business trans- actions of the City of London during that day, amounting often to millions of pounds, and a vast amount besides of country transactions, represented by bills -which country bankers have BOOK HI. CHAPTER XII. 1. drawn upon their London correspnn dents, are liquidated by payments not exceeding on the average 200,000?.* By means of the various instruments of credit which have now been ex- plained, the immense business of a country like Great Britain is trans- acted with an amount of the precious metals surprisingly small ; many times smaller, in proportion to the pecuniary value of the commodities bought and sold, than is found necessary in France, or any other country in which, the habit and the disposition to give credit not being so generally diffused, these "economizing expedients," as they have been called, are not practised to the same extent. What becomes of the money thus superseded in its func- tions, and by what process it is made to disappear from circulation, are questions the discussion of which must be for a short time postponed. CHAPTER XII. INFLUENCE OF CREDIT ON PRICES. 1. HAYTNG now formed a general idea of the modes in which credit is made available as a substitute for money, we have to consider in what manner the use of these substitutes affects the value of money, or, what is equivalent, the prices of commodities. It is hardly necessary to say that the permanent value of money the natural and average prices of commodities are not in question here. These are determined by the cost of producing or of obtaining the precious metals. An ounce of gold or silver will in the long run exchange for as much of every other commodity, as can be produced or imported at the same cost with I itself. And an order, or note of hand, j or bill payable at sight, for an ounce of j gold, while the credit of the giver is unimpaired, is worth neither more nor less than the gold itself. It is not, however, with ultimate or average, but with immediate and tem- porary prices, that we are now con- cerned. These, as we have seen, may deviate very widely from the standard of cost of production. Among other causes of fluctuation, one we have found to be, the quantity of money in circulation. Other things being the same, an increase of the money in cir- culation raises prices, a diminution lowers them. If more money is thrown into circulation than the quantity which can circulate at a value con- * According to Mr. Tooke (Enquiry into the Currency Principle, p. 27) the adjustments at the clearing house "in the year 1839 amounted to 951,401,600^., making an ave- rage amount of payments of upwards of 3,000,OOOJ. of bills of exchange and cheques daily effected through the medium of little more than 200,0007. of bank notes'." At pre- sent a very much greater amount of trans- actions is daily liquidated, without bank notes at all, cheques on the Bank of England, supplying their place. INFLUENCE OF CKEDIT ON PEICES. 317 Form able to its cost of production, the value of money, so long as the excess lasts, will remain below the standard of cost of production, and general prices will be sustained above the natural rate. But we have now found that there are other things, such as bank notes, bills of exchange, and cheques, which circulate as money, and perform all functions of it: and the question arises, Do these various substitutes operate on prices in the same manner as money itself? Does an increase in the quantity of transferable paper tend to raise prices, in the same manner and degree as an increase in the quantity of money ? There has been no small amount of discussion on this point among writers on currency, with- out any result so conclusive as to have yet obtained general assent. I apprehend that bank notes, bills, or cheques, as such, do not act on prices at all. What does act on prices is Credit, in whatever shape given, and whether it gives rise to any trans- ferable instruments capable of passing into circulation, or not. I proceed to explain and substantiate this opinion. 2. Money acts upon prices in no other way than by being tendered in exchange for commodities. The de- mand which influences the prices of commodities consists of the money offered for them. But the money offered, is not the same thing with the money possessed. It is sometimes less, sometimes very much more. In the long run indeed, the money which people lay out will be neither more nor less than the money which they have to lay out : but this is far from being the case at any given time. Sometimes they ko.ep money by them for fear oi an emergency,'or in expectation of a more advantageous opportunity for expending it. Jn that case the money is said not to be in circulation: in plainer language, it is not offered, nor about to be offered, for commodities Money not in circulation has no effect on prices. The converse, however, is a much commoner case ; people make purchases with money not in their possession. An article, for instance, which is paid for by a cheque on a Danker, is bought with money which not only is not in the payer's posses- sion, but generally not even in the junker's, having been lent by him (all out the usual reserve) to other persons. We just now made the imaginary sup- position that all persons dealt with a bank, and all with the same bank, payments being universally made by cheques. In this ideal case, there would be no money anywhere except in the hands of the Danker ; who might then safely part with all of it, by sell- ing it as bullion, or lending it, to be sent out of the country in exchange for goods or foreign securities. But though there would then be no money in possession, or ultimately perhaps even in existence, money would be offered, and commodities bought with it, just as at present. People would continue to reckon their incomes and their capitals in money, and to make their usual purchases with orders for the receipt of a thing which would have literally ceased to exist. There would be in all this nothing to com- plain of, so long as the money, in dis- appearing, left an equivalent value in other things, applicable when required to the reimbursement of those to whom the money originally belonged. In the case however of payment by cheques, the purchases are at any rate made, though not with money in the buyer's possession, yet with money to which he has a right. But he may make purchases with money which he only expects to have, or even only pretends to expect. He may obtain goods in return for his acceptances payable at a future time ; or on his note of hand; or on a simple book credit, that is, on a mere promise to pay. All these purchases have exactly the same effect on price, as if they were made with ready money. The amount of purchasing power which a person can exercise is composed of all the money in his possession or due to him, and of all his credit. For exer- cising the whole of this power he finds a sufficient motive only under peculiar 318 BOOK HI. CHAPTER XII. 3. circumstances ; but he always pos- sesses it ; and the portion of it which he at any time does exercise, is the measure of the effect which he produces on price. Suppose that, in the expectation that some commodity will rise in price, he determines, not only to invest in it all his ready money, but to take up on credit, from the producers or importers, as much of it as their opinion of his resources will enable him to obtain. Every one must see that by thus acting he produces a greater effect on price, than if he limited his purchases to the money he has actually in hand. He creates a demand for the article to the full amount of his money and credit taken together, and raises the price proportionally to both. And this effect is produced, though none of the written instruments called substitutes for cur- rency may be called into existence; though the transaction may give rise to no bill of exchange, nor to the issue of a single bank note. The buyer, instead of taking a mere book credit, might have given a bill for the amount ; or might have paid for the goods with bank notes borrowed for that purpose from a banker, thus making the pur- chase not on his own credit with the seller, but on the banker's credit with the seller, and his own with the banker. Had he done so, he would have pro- duced as great an effect on price as by a simple purchase to the same amount on a book credit, but no greater effect. The credit itself, not the form and mode in which it is given, is the operating cause. 3. The inclination of the mercan- tile public to increase their demand for commodities by making use of all or much of their credit as a purchasing power, depends on their expectation of profit. When there is a general im- pression that the price of some com- modity is likely to rise, from an extra demand, a short crop, obstructions to importation, or any other cause, there is a disposition among dealers to in- crease their stocks, in order to profit by the expected rise. This disposition tends in itself to produce the effect which it looks forward to, a rise of price: and if the rise is considerable and progressive, other speculators are attracted, who, so long as the price has not begun to fall, are willing to believe that it will continue rising. These, by further purchases, produce a further advance : and thus a rise of price for which there were originally some ra- tional grounds, is often heightened by merely speculative purchases, until it greatly exceeds what the original grounds will justify. After a time this begins to be perceived ; the price ceases to rise, and the holders, think- ing it time to realize their gains, are anxious to sell. Then the price begins to decline : the holders rush into the market to avoid a still greater loss, and, few being willing to buy in a falling market, the price falls much more suddenly than it rose. Those who have bought at a higher price than reasonable calculation justified, and who have been overtaken by the revulsion before they had realized, are losers in proportion to the greatness of the fall, and to the quantity of the commodity which they hold, or have bound themselves to pay for. Now all these effects might take place in a community to which credit was unknown : the prices of some com- modities might rise from speculation, to an extravagant height, and then fall rapidly back. But if there were no such thing as credit, this could hardly happen with respect to com- modities generally. If all purchases were made with ready money, the payment of increased prices for some articles would draw an unusual pro- portion of the money of the community into the markets for those articles, and must therefore draw it away from some other class of commodities, and thus lower their prices. The vacuum might, it is true, be partly filled up by increased rapidity of circulation; and in this manner the money of the community is virtually increased in a time of spe- culative activity, because people keep little of it by them, but hasten to lay it out in some tempting adventure as soon as possible after they receive it. This resource, however, is limited : on INFLUENCE OF CEEDIT ON PRICES. 319 the whole, people cannot, while the quantity of money remains the same, lay out much more of it in some things, without laying out less in others. But what they cannot do hy ready money, they can do by an extension of credit. When people go into the market and purchase with money which they hope to receive hereafter, they are drawing upon an unlimited, not a limited fund. Speculation, thus supported, may be going on in any number of commodi- ties, without disturbing the regular course of business in others. It might even be going on in all commodities at once. We could imagine that in an epidemic fit of the passion of gambling, all dealers, instead of giving only their Accustomed orders to the manufac- turers or growers of their commodity, commenced buying up all of it which they could procure, as far as their capital and credit would go. All prices would rise enormously, even if there were no increase of money, and no paper credit, but a mere extension of purchases on book credits. After a time those who had bought would wish to sell, and prices would collapse. This is the ideal extreme case of what is called a commercial crisis. There is said to be a commercial crisis, when a great number of merchants and traders at once, either have, or appre- hend that they shall have, a difficulty in meeting their engagements. The most usual cause of this general em- barrassment, is the recoil of prices after they have been raised by a spirit of speculation, intense in degree, and extending to many commodities. Some accident, which excites expectations of rising prices, such as the opening of a new foreign market, or simultaneous indications of a short supply of several great articles of commerce, sets specu- lation at work in several leading de- partments at once. The prices rise, and the holders realize, or appear to have the power of realizing, great gains. In certain states of the public mind, such examples of rapid increase of fortune call forth numerous imita- tors, and speculation not only goes much beyond what is justified by the original grounds for expecting rise of price, but extends itself to articles in which there never was any such ground : these, however, rise like the rest as soon as speculation sets in. At periods of this kind, a great extension of credit takes place. Not only do all whom the contagion reaches, employ their credit much more freely than usual ; but they really have more credit, be- cause they seem to be making unusual gains, and because a generally reckless and adventurous feeling prevails, which disposes people to give as well as take credit more largely than at other times, and give it to persons not entitled to it. In this manner, in the celebrated speculative year 1825, and at various other periods during the present cen- tury, the prices of many of the principal articles of commerce rose greatly, with- out any fall in others, so that general prices might, without incorrectness, be said to have risen. When, after such a rise, the reaction comes, and prices begin to fall, though at first perhaps only through the desire of the holders to realize, speculative purchases cease : but were this all, prices would only fall to the level from which they rose, or to that which is justified by the state of the consumption and of the supply. They fall, however, much lower; for as, when prices were rising, and every- body apparently making a fortune, it was easy to obtain almost any amount of credit, so now, when everybody seems to be losing, and many fail en- tirely, it is with difficulty that firms of known solidity can obtain even the credit to which they are accustomed, and which it is the greatest inconve- nience to them to be without ; because all dealers have engagements to fulfil, and nobody feeling sure that the por- tion of his means which he has en- trusted to others will be available in time, no one likes to part with ready money, or to postpone his claim to it. To these rational considerations there is superaddecl, in extreme cases, a panic as unreasoning as the previous over-confidence ; money is borrowed for short periods at almost any rate of in- terest, and sales of goods for immediate payment are made at almost any sacri- fice. Thus general prices, during a com- 320 BOOK 111. CHAPTER XH 4. mercial revulsion, fall as much below I made with their own spare cash, or with the usual level, as during the previous | money raised for the occasion. On the period of speculation they have risen | first supposition, they were made hy above it : the fall, as well as the rise, withdrawing deposits from bankers, originating not in anything affecting and thus cutting off a part of tho money, but in the state of credit; an unusually extended employment of credit during the earlier period, fol- streams which fed the loan market; on the second supposition, they were made by actual drai'ts on the loan lowed by a great diminution, never | market, either by the sale of securities, amounting however to an entire cessa- j tion of it, in the later. It is not, however, universally true that the contraction of credit, charac- teristic of a commercial crisis, must have been preceded by an extraordinary and irrational extension of it. There are other causes ; and one of the most recent crises, that of 1847, is an in stance, having been preceded by no particular extension of credit, and by no speculations ; except tbose in rail- way shares, which, though in many cases extravagant enough, yet being carried on mostly with that portion of means which the speculators could afford to lose, were not calculated to produce the wide-spread ruin which arises from vicissitudes of price in the commodi- ties in which men habitually deal, and in which the bulk of their capital is invested. The crisis of 1847 belonged to another class of mercantile pheno- mena. There occasionally happens a concurrence of circumstances tending to withdraw from the loan market a considerable portion of the capital which usually supplies it. These cir- cumstances, in the present case, were great foreign payments, (occasioned by a high price of cotton and an unpre- cedented importation of food,) together with the continual demands on the cir- culating capital of the country by rail- way calls and the loan transactions of railway companies, for the purpose of being converted into fixed capital and made unavailable for future lending. These various demands fell princi- pally, as such demands always do, on the loan market. A great, though not the greatest part of the imported food, was actually paid for by the proceeds of a government loan. The extra pay- ment s which purchasers of corn and cotton, and railway shareholders, found themselves obliged to make, were either or by taking up money at interest. This combination of a fresh demand for loans, with a curtailment of the capital disposable for them, raised the rate of interest, and made it impossible to borrow except on the very best se- curity. Some firms, therefore, which, by an improvident and unmercantile mode of conducting business had al- lowed their capital to become eithei temporarily or permanently unavail- able, became unable to command that perpetual renewal of credit which had previously enabled them to struggle on. These firms stopped payment: their failure involved more or less deeply many other firms which had trusted them; and, as usual in such cases, the general distrust, commonly called a panic, began to set in, and might have produced a destruction of credit equal to that of 1825, had not circumstances which may almost be called accidental, givea to a very simple measure of tin government (the suspension of the Bank Charter Act of 1844) a fortunate power of allaying panic, to which, when con- sidered in itself, it had no sort of claim.* 4. The general operation of credit upon prices being such as we have described, it is evident thai; if any par- ticular mode or form of credit is cal- culated to have a greater operation on prices than others, it can only be by giving greater facility, or greater en- couragement, to the multiplication of * The commercial difficulties, not how- ever amounting to a commercial crisis, of 186i, had essentially the same origin. Heavy payments for cotton imported at high prices, and large investments in banking and other joint-stock projects, combined with the loan operations of foreign governments, made such large drafts upon the loa > market as to raise the rate of discount on mercantile bills as high as nine per cent. INFLUENCE OF CKEDIT ON PKICES. 321 credit transactions generally. If bank notes, for instance, or bills, have a greater effect on prices than book credits, it is not by any difference in the transactions themselves, which are essentially the same, whether taking place in the one way or in the other : it must he that there are likely to be more of them. If credit is likely to be more extensively used as a pur- chasing power when bank notes or bills are the instruments used, than when the credit is given by mere entries in an account, to that extent and no more there is ground for as- cribing to the former a greater power over the markets than belongs to the latter. Now it appears that there is some such distinction. As far as respects the particular transaction, it makes no difference in the effect on price whether A buys goods of B on simple credit, or gives a bill for them, or pays for them with bank notes lent to him by a banker C. The difference is in a subsequent stage. If A has bought the goods on a book credit, there is no obvious or convenient mode by which B can make A's debt to him a means of extending his own credit. "Whatever credit he has, will be due to the general opinion entertained of his solvency : he cannot specifically pledge A's debt to a third person, as a security for money lent or goods bought. But if A has given him a bill for the amount, he can get this discounted, which is the same thing as boiTowing money on the joint credit of A and himself: or he may pay away the bill in exchange for goods, which is obtaining goods on the same joint credit. ID either case, here is a second credit transaction, grounded on the first, and which would not have taken place if the first had been transacted without the intervention of a bill. Nor need the transactions end here. The bill may be again discounted, or again paid away for goods, several times be- fore it is itself presented for payment. Nor would it be correct to say 'that these successive holders, if they had not had the bill, might have attained their purpose by purchasing goods on their own credit with the dealers. They may not all of them be persona of credit, or they may already have stretched their credit as far as it will go. And at all events, cither money or goods are more readily obtained on the credit of two persons than of one. Nobody will pretend that it is as easy a thing for a merchant to borrow a thousand pounds on his own credit, as to get a bill discounted to the same amount, when the drawee is of known solvency. If we now suppose that A, instead of giving a bill, obtains a loan of bank notes from a banker C, and with them pays B for his goods, we shall find the difference to be still greater. B is now independent even of a discounter : A's bill would have been taken in payment only by those who were acquainted with his reputation for solvency, but a banker is a person who has credit with the public generally, and whose notes are taken in payment by every one, at least in his own neighbourhood : inso- much that, by a custom which has grown into law, payment in bank notes is a complete acquittance to the payer, whereas if he has paid by a bill, he still remains liable to the debt, if the person on whom the bill is drawn fails to pay it when due. B therefore can expend the whole of the bank notes without at all involving his own credit : and whatever power he had before of obtaining goods on book credit, remains to him unimpaired, in addition to the purchasing power he derives from the possession of the notes. The same re- mark applies to every person in suc- cession, into whose hands the notes may come. It is only A, the first holder, (who used his credit to obtain the notes as a loan from the issuer,) who can possibly find the credit he possesses in other quarters abated by it ; and even in his case that result is not probable ; for though, in reason, and if all his circumstances were known, every draft already made upon his credit ought to diminish by so much his power of obtaining more, yet in practice the reverse more frequently happens, and his having been trusted by one person is supposed to be evi- dence that he may saiely be trusted by others alac . 322 BOOK HI. CHAPTER XII. 5. It appears, therefore, that bank notes are a more powerful instrumeiit for raising prices than bills, and bills than book credit. It does not, indeed, follow that credit will be more used because it can be. "\Yhen the state of trade holds out no particular tempta- tion to make large purchases on credit, dealers will use only a small portion of the credit-power, and it will depend only on convenience whether the portion which they use will be taken in one form or in another. It is not until the circumstances of the markets, and the state of the mercantile mind, render many persons desirous of stretching their credit to an unusual extent, that the distinctive properties of the dif- ferent forms of credit display them- selves. Credit already stretched to the utmost in the form of book debts, would be susceptible of a great addi- tional extension by means of bills, and of a still greater by means of bank notes. The first, because each dealer, in addition to his own credit, would be enabled to create a further purchasing Sower out of the credit which he had imself given to others : the second, because the banker's credit with the public at large, coined into notes, as bullion is coined into pieces of money to make it portable and divisible, is so much purchasing power superadded, in the hands of every successive holder, to that which he may derive from his own credit. To state the matter other- wise ; one single exertion of the credit- power in the form of book credit, is only the foundation of a single pur- chase: but if a bill is drawn, that same portion of credit may serve for as many purchases as the number of times the bill changes hands : while every bank note issued, renders the credit ^of the banker a purchasing power to that amount in the hands of all the successive holders, without im- Dairing any power they may possess of effecting purchases on their own credit. Credit, in short, has exactly the same purchasing power with money ; and as .Money tells upon prices not simply in proportion to its amount, but to its amount multiplied by the number of times it changes hands, so also credit; and credit transferable from hand to hand is in that proportion more potent than credit which only performs one purchase. 5. All this purchasing power, how- ever, is operative upon prices, only according to the proportion of it which is used : and the effect, therefore, is only felt in a state of circumstances calculated to lead to an unusually ex- tended use of credit. In such a state of circumstances, that is, in speculative times, it cannot, I think, be denied, that prices are likely to rise higher if the speculative purchases are made with bank notes, than when they are made w r ith bills, and when made by bills than when made by book credits. This, however, is of far less practical importance than might at first be imagined ; because, in point of fact, speculative purchases are not in the great majority of cases, made either with bank notes or with bills, but are made almost exclusively on book credits. "Applications to the Bank for extended discount." says the highest authority on such subjects,* (and the same thing must be true of applications to other banks) " occur rarely if ever in the origin or progress of extensive speculations in commodities. These are entered into, for the most part if not entirely, in the first instance, on credit for the length of term usual in the several trades; thus entailing on the parties no immediate necessity for bor- rowing so much as may be wanted for the purpose beyond their own available capital. This applies particularly to speculative purchases of commodities on the spot, with a view to re^le. But these generally form the smaller pro- portion of engagements on credit. By far the largest of those entered into on the prospect of a rise of prices, are such as have in view importations from abroad. The same remark, too, is ap- plicable to the export of commodities, when a large proportion is on the credit of the shippers or their consignees. As long as circumstances hold out the prospect of a favourable result, the * Tooke's History of Pn:es, vol. ir. pp. 12: G. INFLUENCE OF CKEDIT ON PRICES. 323 credit of the parties is generally sus- tained. If some of them wish to realize, there are others with capital and credit rerxly to replace them ; and if the events fully justiiy the grounds on which the speculative transactions were entered into (thus admitting of sales for con- sumption in time to replace the capital embarked) there is no unusual demand for borrowed capital to sustain them. It is only when by the vicissitudes of political events, or of the seasons, or other adventitious circumstances, the forthcoming supplies are found to ex- ceed the computed rate of consumption, and a fall of prices ensues, that an increased demand for capital takes place ; the market rate of interest then rises, and increased applications are made to the Bank of England for discount." So that the multiplication of bank notes and other transferable paper does not, for the most part, ac- company and facilitate the speculation ; but comes into play chiefly when the tide is turning, and difficulties begin to be felt. Of the extraordinary height to which speculative transactions can be carried upon mere book credits, without the smallest addition to what is com- monly called the currency, very few persons are at all aware. " The power of purchase," says Mr. Tooke,* "by persons having capital and credit, is much beyond anything that those who are unacquainted practically with spe- culative markets have any idea of. ... A person having the reputation of capital enough for his regular business, ind enjoying good credit in his trade, f he takes a sanguine view of the )rospect of a rise of price of the article n which he deals, and is favoured by iircumstances in the outset and pro- fess of his speculation, may effect pur- jhases to an extent perfectly enormous, compared with his capital." Mr. fooke confirms this statement by some remarkable instances, exemplifying the mmense purchasing power which may )e exercised, and rise of price which nay be produced, by credit not repre- * Inquiry into (he Currency Principle, pp. , 19 and 13o b, sented by either bank notes or bills of exchange. " Amongst the earlier speculators for an advance in the price of tea, in consequence of our dispute with China in 1839, were several retail grocers and tea-dealers. There was a general dis- position among the trade to get into stock : that is, to lay in at once a quan- tity which would meet the probable demand from their customers for seve- ral months to come. Some, however, among them, more sanguine and ad- venturous than the rest, availed them- selves of their credit, with the importers and wholesale dealers, for purchasing quantities much beyond the estimated demand in their own business. As the purchases were made in the first instance ostensibly, and perhaps really, for the legitimate purposes and within the limits of their regular business, the parties were enabled to buy without the condition of any deposit ; whereas speculators, known to be such, are required to pay 21. per chest, to cover any probable difference of price which might arise before the expiration of the prompt, which, for this article, is three months. Without, therefore, the outlay of a single farthing of actual capital or currency in any shape, they made pur- chases to a considerable extent ; and with the profit realized on the resale of a part of these purchases, they were enabled to pay the deposit on further quantities when required, as was the case when the extent of the purchases attracted attention. In this way, the speculation went on at advancing prices (100 per cent and upwards) till nearly the expiration of the prompt, and if at that time circumstances had been such as to justify the appre- hension which at one time prevailed, that all future supplies would be cut off, the prices might have still further advanced, and at any rate not have retrograded. In this case, the specu- lators might have realized, if not all the profit they had anticipated, a very handsome sum, upon which they might have been enabled to extend their business greatly, or to retire fiom ife altogether, with a reputation foi great sagacity in thus making their fortune. Y 2 324 But, instead of this favourable result, it BO happened that two or three cargoes of tea which had been transhipped were admitted, contrary to expectation, to entry on their arrival here, and it was found that further indirect ship- ments were in progress. Thus the uitiiio rvti^> 111 j-nv^icsa. -Lijuo nic; supply was increased beyond the cal- culation of the speculators : and at the same time, the consumption had been diminished by the high price. There was, consequently, a violent reaction on the market ; the speculators were unable to sell without such a sacrifice as disabled them from fulfilling their engagements, and several of them con- sequently failed. Among these, one was mentioned, who having a capital not exceeding 1200Z., which was locked up in his business, had contrived to buy 4000 chests, value above 80,OOOZ., the loss upon which was about 1 6,OOOZ. " The other example which I have to give, is that of the operation on. the corn market between 1838 and 1842. There was an instance of a person who, when he entered on his extensive spe- culations, was, as it appeared by the subsequent examination of his affairs, possessed of a capital not exceeding 5000Z., but being successful in the out- set, and favoured by circumstances in the progress of his operations, he con- trived to make purchases to such an extent, that when he stopped payment his engagements were found to amount to between 500,0002. and 600,000/. Other instances might be cited of parties without any capital at all, who, by dint of mere credit, were enabled, while the aspect of the market favoured their views, to make purchases to a very great extent. "And be it observed, that these speculations, involving enormous pur- chases on little or no capital, were carried on in 1839 and 1840, when the tnoney market was in its most con- tracted state ; or when, according to modern phraseology, there was the greatest scarcity of money." But though the great instrument of speculative purchases is book credits, it cannot be contested that in speculative periods an increase does take place in the quantity both of bills of exchange BOOK III. CHAPTER XII. 5. and of bank notes. This increase, in- deed, so far as bank notes are concerned, hardly ever takes place in the earliest stage of the speculations ; advances from bankers (as Mr. Tooke observes) not being applied for in order to pur- chase, but in order to hold on without selling, when the usual term of credit has expired, and the high price which was calculated on has not arrived. But the tea speculators mentioned by Mr. Tooke could not have carried their speculations beyond the three months which are the usual term of credit in their trade, unless they had been able to obtain advances from bankers, which, if the expectation of a rise of price had still continued, they probably could have done. Since, then, credit in the form of bank notes is a more potent instrument for raising prices than book credits, an unrestrained power of resorting to this instrument may contribute to prolong and heighten the speculative rise of prices, and hence to aggravate the sub- sequent recoil. But in what degree ? and Avhat importance ought we to ascribe to this possibility ? It may help us to form some judgment on this point, if we consider the proportion which the utmost increase of bank notes in a period of speculation, bears, I do not say to the whole mass of credit in the country, but to the bills of exchange alone. The average amount of bills in existence at any one time is supposed greatly to exceed a hundred millions sterling.* The bank note circulation of Great Britain and Ireland seldom exceeds forty millions, and the increase in speculative periods at most two or three. And even this, as we have seen, hardly ever comes into play until that advanced period of the speculation at which the tide shows signs of turning, and the dealers generally are rather thinking of the means of fulfilling their existing engagements, than meditating an extension of them : while the quan- tity of bills in existence is largely in- creased from the very commencement of the speculations. 6. It is well known that of late * The most approved estimate is that of INFLUENCE OF CREDIT ON PEICES. 325 years, an artificial limitation of the issue of bank notes has been regarded by many political economists, and by a great portion of the public, as an ex- pedient of supreme efficacy for prevent- ing, and when it cannot prevent, for moderating, the fever of speculation ; and this opinion received the recog- nition and sanction of the legislature by the Currency Act of 1844. At the point, however, which our inquiries nave reached, though we have con- ceded to bank notes a greater power over prices than is possessed by bills or book credits, we have not found reason to think that this superior efficacy has much share in producing the rise of prices which accompanies a period of speculation, nor consequently that any restraint applied to this one instru- ment, can be efficacious to the degree which is often supposed, in moderating either that rise, or the recoil which follows it. We shall be still less in- clined to think so, when we consider that there is a fourth form of credit Mr. Leatham, grounded on the official returns of bill stamps issued. The following are the results : Bills created in Great Britain Year. and Ireland, founded on re- turns of Bill Average amount in circulation at one time in Stamps issued each year. from the Stamp Office. 1832 .356, 153,409 .89,038,352 1833 383,659,585 95,914,896 1834 379,155,052 94,788,763 1835 405,403,051 101,350,762 1836 485,943,473 121,485,868 1837 455,084,445 113,771,111 1838 465,504,041 116,376,010 1839 528,493,842 132,123,460 " Mr. Leatham," says Mr. Tooke, " gives .he process by which, upon the data fur- nished by the returns of stamps, he arrives at these results ; and I am disposed to think that they are as near an approximation to the truth as the nature of the materials ad- mits of arriving at." Inquiry into the Cur- rency Principle, p. 26. Mr. Newmarch (Ap- pendix No. 39 to Report of the Committee on the Sank Acts in 1857, and History of Prices, vol. vi. p. 587) shows grounds for the opinion that the total bill circulation in 1857 was not much less than 180 millions sterling, and that it sometimes rises to 200 millions. transactions, by cheques on bankers, and transfers in a banker's books, which is exactly parallel in every respect to bank notes, giving equal facilities to an extension of credit, and capable of acting on prices quite as powerfully. In the words of Mr. Fullarton,* " there is not a single object at present at- tained through the agency of Bank of England notes, which might not be as effectually accomplished by each indi- vidual keeping an account with the bank, and transacting all his payments of five pounds and upwards by cheque." A bank, instead of lending its notes to a merchant or dealer, might open an account with him, and credit the ac- count with the sum it had agreed to advance : on an understanding that he should not draw out that sum in any other mode than by drawing cheques against it in favour of those to whom he had occasion to make payments. These cheques might possibly even pass from hand to hand like bank notes ; more commonly however the receiver would pay them into the hands of his own banker, and when he wanted the money, would draw a fresh cheque against it: and hence an ob- jector may urge that as the original cheque would very soon be presented for payment, when it must be paid either in notes or in coin, notes or coin to an equal amount must be provided as the ultimate means of liquidation. It is not so, however. The person to whom the cheque is transferred, may perhaps deal with the same banker, and the cheque may return to the very bank on which it was drawn : this is very often the case in country districts ; if so, no payment will be called for, but a simple transfer in the banker's books will settle the transaction. If the cheque is paid into a different bank, it will not be presented for payment, but liquidated by set-off against other cheques ; and in a state of circum- stances favourable to a general exten- sion of banking credits, a banker who has granted more credit, and has there- fore more cheques drawn on him, will also have more cheques on other bankers paid to him, and will only have * On the Regulation of Currencies, p. 41. 326 BOOK HI. CHAPTER XII. 7. to provide notes or cash for the pay- ment of balances ; for which purpose the ordinary reserve of prudent bankers, one-third of their liabilities, will abun- dantly suffice. Now. if he had granted the extension of credit by means of an issue of his own notes, he must equally have retained, in coin or Bank of England notes, the usual reserve: so that he can, as Mr. Fullailon says, give every facility of credit by what may be termed a cheque circulation, which he could give by a note circulation. This extension of credit by entries in a banker's books, has all that superior efficiency in acting on prices, which \ve ascribed to an extension by means of bank notes. As a bank note of 20Z., paid to any one, gives him 201. of pur- chasing-power based on credit, over and above whatever credit he had of his own, so does a cheque paid to him do the same : for, although he may make no purchase with the cheque itself, he deposits it with his banker, and can draw against it. As this act of drawing a cheque against another which has been exchanged and can- celled, can be repeated as often as a purchase with a bank note, it effects the same increase of purchasing power. The original loan, or credit, given by the banker to his customer, is po- tentially multiplied as a means of pur- chase, in the hands of the successive persons to whom portions of the credit are paid away, just as the purchasing power of a bank note is multiplied by the number of persons through whose hands it passes before it is returned to the issuer. These considerations abate very much from the importance of any effect which can be produced in allay- ing the vicissitudes of commerce, by BO superficial a contrivance as the one so much relied on of late, the restric- tion of the issue of bank notes by an artificial role. An examination of all the consequences of that restriction, and an estimate of the reasons for and against it, must be deferred until we have treated of the foreign exchanges, and the international movements of bullion. At present we are only con- cerned with the general theory of prices, of which the different influence of different kinds of credit is an essen- tial part. 7. There has been a great amount of discussion and argument on the ques- tion whether several of these forms of credit, and in particular \vhether bank notes, ought to be considered as money. The question is so purely verbal as tc be scarcely worth raising, and one would have some difficulty in compre- hending why so much importance is attached to it, if there were not some authorities who, still adhering to the doctrine of the infancy of society and of political economy, that the quantity of money, compared with that of com- modities, determines general prices, think it important to prove that bank notes and no other forms of credit are money, in order to support the infer- ence that bank notes and no other forms of credit influence prices. It is obvious, however, that prices do not depend on money, but on purchases. Money left with a banker, and not drawn against, or drawn against for other purposes than buying commodities, has no effect on prices, any more than credit which is not used. Credit which ig used to purchase commodities, affects prices in the same manner as money. IToney and credit are thus exactly on a par, in their effect on prices ; and whether we choose to class bank notes with the one or the other, is in this respect en- tirely immaterial. Since, however, this question of nomenclature has been raised, it seems desirable that it should be answered. The reason given for considering bank notes as money, is, that by law and usage they have the property, in com- mon with metallic money, of finally closing the transactions in which they are employed : while no other mode of paying one debt by transferring another has that privilege. The first remark which here suggests itself is, that on this showing, the notes at least of private banks are not money; for a creditor cannot be forced to accept them in payment of a debt. They cer- tainly close the transaction if he does accept them ; but BO, on the same sup- INFLUENCE OF CREDIT OX PEICES. 327 position, would a bale of cloth, or a pipe of wine ; which are not for that reason regarded as money. It seems to be an essential part of the idea of money, that it be legal tender. An in- convertible paper which is legal tender is universally admitted to be money ; in the French language the phrase papier-monnaie actually means incon- vertibility, convertible notes being merely billets a porteur. It is only in the case of Bank of England notes under the law of convertibility, that any diffi- culty arises ; those notes not being a legal tender from the Bank itself, though a legal tender from all other persons. Bank of England notes un- doubtedly do close transactions, so far as respects the buyer. When he has once paid in Bank of England notes, he can in no case be required to pay over again. But I confess I cannot see how the transaction can be deemed complete as regards the seller, when he will only be found to have received the price of his commodity provided the bank keeps its promise to pay. An instrument which would be deprived of all value by the insolvency of a cor- poration, cannot be money in any sense in which money is opposed to credit. It either is not money, or it is money and credit too. It may be most suitably described as coined cre- dit: The other forms of credit may be distinguished from it as credit in ingots. 8. Some high authorities have claimed for bank notes, as compared with other modes of credit, a greater distinction in respect to influence on price than we have seen reason to allow; a difference, not in degree, but in kind. They ground this distinction on the fact, that all bills and cheques, as well as all book-debts, are from the first in- tended to be, and actually are, ulti- mately liquidated either in coin or in notes. The bank notes in circulation, jointly with the coin, are therefore, according to these authorities, the basis on which all the other expedients of credit rest ; and in proportion to the basis will be the superstructure ; jnsomuch that the quantity of bank notes determines that of all the other forms of credit. If bank notes are multiplied, there will, they seem to think, be more bills, more payments by cheque, and, I presume, more book credits ; and, by regulating and limiting the issue of bank notes, they think that all other forms of credit arc, by an indirect consequence, brought under a similar limitation. I believe I have stated the opinion of these authorities correctly, though I have nowhere seen the grounds of it set forth with such distinctness as to make me feel quite certain that I understand them. It may be true, that according as there are more or fewer bank notes, there is also, in general (though not invariably), more or less of other de- scriptions of credit ; for the same state of aifairs which leads to an increase of credit in one shape, leads to an increase of it in other shapes. But I see no reason for believing that the one is the cause of the other. If indeed we begin by assuming, as I suspect is tacitly done, that prices are regulated by coin and bank notes, the proposition main- tained will certainly follow : for, accord- ing as prices are higher or lower, the same purchases will give rise to bills, cheques, and book credits of a larger or a smaller amount. But the premise in this reasoning is the very proposi- tion to be proved. Setting this assump- tion aside, I know not how the conclu- sion can be substantiated. The credit given to any one by those with whom he deals, does not depend on the quan- tity of bank notes or coin in circulation at the time, but on their opinion of his solvency : if any consideration of a more general character enters into their cal- culation, it is only in a time of pressure on the loan market, when they are not certain of being themselves able to ob- tain the credit on which they have been accustomed to rely ; and even then, what they look to is the general state of the loan market, and not (precon- ceived theory apart) the amount of bank notes. So far, as to the willing- ness to give credit. And the willing- ness of a dealer to use his credit, de- pends on his expectations of gain, that is, on his opinion of the probable future 328 BOOK m. CHAPTER XIII. 1. price of his commodity ; an opinion grounded either on the rise or fall already going on, or on his prospective judgment respecting the supply and the rate of consumption. When a dealer extends his purchases beyond his im- mediate means of payment, engaging to pay at a specified time, he does so in the expectation either that the trans- action will have terminated favourably before that time arrives, or that he shall then be in possession of sufficient funds from the proceeds of his other transactions. The fulfilment of these expectations depends upon prices, but not specially upon the amount of bank notes. He may, doubtless, also ask him- self, in case he should be disappointed in these expectations, to what quarter he can look for a temporary advance, to enable him, at the worst, to keep his engagements. But in the first place, this prospective reflection on the somewhat more or less of difficulty which he mav have in tiding over his embarrassments, seems too slender an inducement to be much of a restraint in a period supposed to be one oi' rash ad- venture, and upon persons so confident of success as to involve themselves be- yond their certain means of extrication. And further, I apprehend that their con- fidence of being helped out in the event of ill-fortune, will mainly depend on their opinion of their own individual credit, with, perhaps, some considera- tion; not of the quantity of the currency, but of the general state of the loan market. They are aware that, in case of a commercial crisis, they shall have difficulty in obtaining advances. But if they thought it likely that a com- mercial crisis would occur before they had realized, they would not speculate. If no great contraction of general cre- dit occurs, they will feel no doubt of obtaining any advances which they absolutely require, provided the state of their own affairs at the time affords in the estimation of lenders a sufficient prospect that those advances \>ill be repaid. CHAPTER XIIL OF AN INCONVERTIBLE PAPER CURRENCY. 5 1. AFTER experience had shown that pieces of paper, of no intrinsic value, by merely bearing upon them the written profession of being equiva- lent to a certain number of francs, dol- lars, or pounds, could be made to circu- late as such, and to produce all the benefit to the issuers which could have been produced by the coins which they purported to represent; governments began to think that it would be a happy device if they could appropriate to them- selves this benefit, free from the con- dition to which individuals issuing such paper substitutes for money were sub- ject, of giving, when required, for the sign, the thing signified. They deter- mined to try whether they could not emancipate themselves from this un- pleasant obligation, and make a piece of paper issued by them pass lor a pound, by merely calling it a pound, and consenting to receive it in payment of the taxes. And such is the influence of almost all established governments, | that they have generally succeeded in j attaining this object : I believe 1 might I say they have always succeeded for a j time, and the power has only been lost I to them after they had compromised it by the most flagrant abuse. In the case supposed, the functions I of money are performed by a thing which derives its power of performing j them solely from convention ; but con- j vention is quite sufficient to confer the power ; since nothing more is needful to make a person accept anything as money, and even at any arbitrary value, than the persuasion that it will be taken from him on the same terms by others. The only question is, what de- termines the value of such a currency ; since it cannot be, as in the case of gold INCONVERTIBLE PAPER CURRENCY. 329 and silver (or paper exchangeable for them at pleasure), the cost of produc- tion. We have seen, however, that even in the case of a metallic currency, the im- mediate agency in determining its value is its quantity. If the quantity, in- stead of depending on the ordinary mer- cantile motives of profit and loss, could be arbitrarily fixed by authority, the value would depend on the fiat of that authority, not on cost of production. The quantity of a paper currency not convertible into the metals at the option of the holder, can be arbitrarily fixed ; especially if the issuer is the sovereign power of the state. The value, there- fore, of such a currency, is entirely arbitrary. Suppose that, in a country of which the currency is wholly metallic, a paper currency is suddenly issued, to the amount of half the metallic circulation: not by a banking establishment, or in the form of loans, but by the govern- ment, in payment of salaries and pur- chase of commodities. The currency being suddenly increased by one-half, all prices will rise, and among the rest, the prices of all things made of gold and silver. An ounce of manu- factured gold will become more valu- able than an ounce of gold coin, by more than that customary difference which compensates for the value of the workmanship ; and it will be profitable to melt the coin for the purpose of being manufactured, until as much has been taken from the currency by the subtraction of gold, as had been added to it by the issue of paper. Then prices will relapse to what they were at first, and there will be nothing changed ex- cept that a paper currency has been substituted for half of the metallic cur- rency which existed before. Suppose, now, a second emission of paper ; the same series of effects will be renewed ; and so on, until the whole of the me- taliic money has disappeared : that is, if paper be issued of as low a denomi- nation as the lowest coin ; if not, as much will remain, as convenience re- quires for the smaller payments. The addition made to the quantity of gold and silver disposable for ornamental purposes, will somewhat reduce, for a time, the value of the article ; and as long as this is the case, even though paper has been issued to the original amount of the metallic circulation, as much coin will remain in circulation along with it, as will keep the value of the currency down to the reduced value of the metallic material ; but the value having fallen below the cost of produc- tion, a stoppage or diminution of the supply from the mines will enable the surplus to be carried off by the ordinary agents of destruction, after which, the metals and the currency will recover their natural value. We are here sup- posing, as we have supposed through- out, that the country has mines of its own, and no commercial intercourse with other countries : for, in a country having foreign trade, the coin which is rendered superfluous by an issue of paper is carried off by a much prompter method. Up to this point, the effects of a paper currency are substantially the same, whether it is convertible into specie or not. It is when the metala have been completely superseded and driven from circulation, that the diffe- rence between convertible and incon- vertible paper begins to be operative. When the gold or silver has all gone from circulation, and an equal quantity of paper has taken its place, suppose that a still further issue is superadded. The same series of phenomena recom- mences : prices rise, among the rest the prices of gold and silver articles, and it becomes an object as before to procure coin in order to convert it into bullion. There is no longer any coin in circulation ; but if the paper cur- rency is convertible, coin may still be obtained from the issuers, in exchange for notes. All additional notes, there- fore, which are attempted to be forced into circulation after the metals have been completely superseded, will return upon the issuers in exchange for coin ; and they will not be able to maintain in circulation such a quantity of con- vertible paper, as to sink its value below the metal which it represents. It is not so, however, with an inconvertible currency. To the increase of that (as BOOK III. CHAPTER XIII. 2. rermitted by law) there is no check. The issuers may add to it indefinitely, lowering its value and raising prices in proportion ; they may, in other words, depreciate the currency without limit. Such a power, in whomsoever vested, is an intolerable evil. All variations in the value of the circulating medium are mischievous : they disturb existing contracts and expectations, and the liability to such changes renders every pecuniary engagement of long date entirely precarious. The person who luys for himself, or gives to another, ;>.n annuity of 100Z., does not know whether it will be equivalent to 200Z. or to 50Z. a few years hence. Great as this evil would be if it depended only on accident, it is still greater when placed at the arbitrary disposal of an individual or a body of indi- viduals; who may have any kind or degree of interest to be served by an artificial fluctuation in fortunes ; and who have at any rate a strong interest in issuing as much as possible, each i^sue being in itself a source of profit. Not to add, that the issuers may have, and in the case of a government paper always have, a direct interest in lower- ing the value of the currency, because it is the medium in which their own debts are computed. 2. In order that the value of the currency may be secure from being altered by design, and may be as little as possible liable to fluctuation from accident, the articles least liable of all kn-wn commodities to vary in their value, the precious metals, have been made in all civilized countries the standard of value for the circulating ir.edium ; and no paper currency ought to exist of which the value cannot be made to conform to theirs. f>0i has this fundamental maxim ever been en- tirely lost sight of even by the govern- ments which have most abused the power of creating inconvertible paper. If they have not (as they generally have) professed an intention of paying in specie at some indefinite future time, they have at least, by giving to their paper issues the names of their coins, made a virtual, though generally a false, profession of intending to keep them at a value corresponding to that of the coins. This is not impracticable, even with an inconvertible paper. There is not indeed the self-acting check which convertibility brings with it. But there is a clear and unequi- vocal indication by which to judge whether the currency is depreciated, and to what extent. That indication is, the price of the precious metals. When holders of paper cannot demand coin to be converted into bullion, and when there is none left in circulation, bullion rises and falls in price like other things ; and if it is above the Mint price, if an ounce of gold, which would be coined into the equivalent of 3Z. 175. 10id. f is sold for 4Z. or 5Z. in paper, the value of the currency has sunk just that much below what the value of a metallic currency would be. If, therefore, the issue of inconvertible paper were subjected to strict rules, one rule being that whenever bullion rose above the Mint price, the issues should be contracted until the market price of bullion and the Mint price were again in accordance, such a currency would not be subject to any of the evils usually deemed inherent in an incon- vertible paper. But also such a system of currency would have no advantages sufficient to recommend it to adoption. An incon- vertible currencv, regulated by the price of bullion, would conform exactly, in all its variations, to a convertible one ; and the only advantage gained, would be that of exemption from the necessity of keeping any reserve of the precious metals ; which is not a very important consideration, especially as a government, so long as its good faith is not suspected, needs not keep so large a reserve as private issuers, being not so liable to great and sudden de- mands, since there never can be any real doubt of its solvency. Against this small advantage is to be set, in the first place, the possibility of fraudulent tampering with the price of bullion for the sake of acting on the currency ; in the manner of the fictitious sales of corn, to influence the averages, so much and so justly complained of white INCONVERTIBLE PAPER CURRENCY. the corn laws were in force. But a still stronger consideration is the im- portance of adhering to a simple prin- ciple, intelligible to the most untaught capacity. Everybody can understand convertibility; every one sees that what can be at any moment exchanged for five pounds, is worth five pounds. Regulation by the pi-ice of bullion '" a more complex idea, and does not re- commend itself through the same fa- miliar associations. There would be nothing like the same confidence, by the public generally, in an inconver- tible currency so regulated, as in a con- vertible one : and the most instructed person might reasonably doubt whether such a rule would be as likely to be in- flexibly adhered to. The grounds of the rule not being so well understood by the public, opinion would probably not enforce it with as much rigidity, and, in any circumstances of difficulty, would be likely to turn against it, while to the government itself a sus- pension of convertibility would appear a much stronger and more extreme measure, than a relaxation of what might possibly be considered a some- what artificial rule. There is therefore a great preponderance of reasons in favour of a convertible, in preference to even the best regulated inconvertible currency. The temptation to over- issue, in certain financial emergencies, is so strong, that nothing is admissible which can tend, in however slight a degree, to weaken the barriers that restrain it. 3. Although no doctrine in poli- tical economy rests on more obvious grounds than the mischief of a paper currency not maintained at the same value with a metallic, either by con- vertibility, or by some principle of limi- tation equivalent to it ; and although, accordingly, this doctrine has, though not till after the discussions of many years, been tolerably effectually drummed into the public mind; yet dissentients are still numerous, and projectors every now and then start up, with plans for curing all the econo- mical evils of society by means of an unlimited issue of inconvertible paper. 331 There is, in truth, a great charm in the idea. To be able to pay off the na- tional debt, defray the expenses ^of go- vernment without taxation, and in fine, to make the fortunes of the whole com- munity, is a brilliant prospect, when once a man is capable of believing that printing a few characters on bits of paper will do it. The philosopher's stone could not be expected to do more. As these projects, however often slain, always resuscitate, it i-i not su- perfluous to examine one or two of the fallacies by which the schemers impose upon themselves. One of the com- monest is, that a paper currency can- not be issued in excess so long as every note issued represents property, or has a foundation of actual property to rest on. These phrases, of represent- ing and resting, seldom convey any distinct or well-defined idea : when they do, their meaning is no more than this that the issuers of the paper must have property, either of their own or entrusted to them, to the value of all the notes they issue ; though for what purpose does not very clearly appear ; lor if the property cannot be claimed in exchange for the notes, it is difficult to divine in what manner its mere existence can serve to uphold their value. I presume, however, it is intended as a guarantee that the holders would be finally reimbursed, in case any untoward event should cause the whole concern to be wound up. On this theory there have been many schemes for " coining the whole land of the country into money" and the like. In so far as this notion has any con- nexion at all with reason, it seems to originate in confounding two entirely distinct evils, to which a paper cur- rency is liable. One is, the insolvency of the issuers ; which, if the paper is grounded on their credit if it makes any promise of payment in cash, either on demand or at any future time of course deprives the paper of any value which it derives from the promise. To this evil paper credit is equally liable, however moderately used ; and against it, a proviso that all issues should be " founded on property," as for instance 332 BOOK HI. CHAPTER XIII. 4. that notes should only be issued on the security of some valuable thing ex- pressly pledged for their redemption, would really be efficacious as a pre- caution. But the theory takes no ac- count of another evil, which is incident to the notes of the most solvent firm, company, or government : that of being depreciated in value from being issued in excessive quantity. The assignats, during the French Revolution, were an example of a currency grounded on tl ese principles. The assignats " re- presented ' an immense amount of highly valuable properry, namely the lauds of the crown, the church, the monasteries, and the emigrants ; amounting possibly to half the terri- tory of France. They were, in fact, orders or assignments on this mass of land. The revolutionary government had the idea of " coining" these lands into money ; but, to do them justice, they did not originally contemplate the immense multiplication of issues to which they were eventually driven by the failure of all other financial re- sources. They imagined that the as- signats would come rapidly back to the issuers in exchange for land, and that they should be able to reissue them continually until the lands were all disposed of, without having at any time more than a very moderate quan- tity in circulation. Their hope was frustrated: the land did not sell so quickly as they expected ; buyers were not inclined to invest their money in possessions which were likely to be re- sumed without compensation if the Revolution succumbed : the bits of paper which represented land, becom- ing prodigiously multiplied, could no more keep up their value than the land itself would have done if it had all been brought to market at once : and the result was that it at last re- quired an assignat of six hundred francs to pay for a pound of butter. The example of the assignats has been said not to be conclusive, because an assignat only represented land in general, but not a definite quantity of land. To have prevented their depre- ciation, the proper course, it is affirmed, would have been to have made a valua- tion of all the confiscated property at its metallic value, and to have issued assignats up to, but not beyond, that limit ; giving to the holders a right te demand any piece of land, at its re- gistered valuation, in exchange for assignats to the same amount. There can be no question about the superiority of this plan over the one actually adopted. Had this course been fol- lowed, the assignats could never have been depreciated to the inordinate de- gree they were ; for as they would have retained all their purchasing power in relation to land, however much they might have fallen in respect to other things before they had lost very much of their market value, they would pro- bably have been brought in to be ex- changed for land. It must be remem- bered, however, that their not being depreciated would presuppose that no greater number of them continued in circulation than would have circulated if they had been convertible into cash. However convenient, therefore, in a time of revolution, this currency con- vertible into land on demand might have been, as a contrivance for selling rapidly a great quantity of land with the least possible sacrifice ; it is diffi- cult to see what advantage it would have, as the permanent system of a country, over a currency convertible into coin : while it is not at all difficult to see what would be its disadvantages ; since land is far more variable in value than gold and silver ; and besides, land, to most persons, being rather an in- cumbrance than a desirable possession, except to be converted into money, people would submit to a much greater depreciation before demanding land, than they will before demanding gold or silver.* 4. Another of the fallacies from which the advocates of an inconvertible * Among the schemes of currency to which, strange to say, intelligent writers have been found to give their sanction, one is as fol- lows : that the state should receive in pledge or mortgage, any kind or amount of property, such as land, stock, &c., and should advance to the owners inconvertible paper money to the estimated value. Such a currency would rrtt even have the recommendations of the INCONVERTIBLE PAPER CURRENCY. 333 currency derive support, is the notion 1 anything than they could before. No such mistake was made during any of the periods of high prices, on the ex- perience of which this school lays so much stress. At the periods which Mr. Attwood mistook for times of prosperity, and which were simply (as all periods of high prices, under a convertible currency, must be) times of speculation, the speculators did not think they were growing rich because the high prices would last, but because they would not last, and because who- ever contrived to realize while they did last,' would find himself, after the re- coil, in possession of a greater number of pounds sterling, without their hav- ing become of less value. If, at the close of the speculation, an issue of paper had been made, sufficient to keep prices up to the point which they at- tained when at the highest, no one would have been more disappointed than the speculators ; since the gain which they thought to have reaped by realizing in time (at the expense of their competitors, who bought when they sold, and had to sell after the revul- sion) would have faded away in their hands, and instead of it they would have got nothing except a few more paper tickets to count by. Hume's version of the doctrine dif- fered in a slight degree from Mr. Attwood' s. He thought that all com- modities would not rise in price simul- taneously, and that some persons therefore would obtain a real gain, by getting more money for what they had to sell, while the things which they wished to buy might not yet have risen. And those who would reap this gain would always be (he seems to think) the first comers. It seems obvious, however, that for every person who thus gains more than usual, there is necessarily some other person who gains less. The loser, if things took place as Hume supposes, would be the seller of the commodities which are slowest to rise ; who, by the supposi- tion, parts with his goods at the old prices, to purchasers who have already benefited by the new. This seller has obtained for his commodity only the accustomed quantity of money, while that an increase of the currency quickens industry. This idea was set afloat by Hume, in his Essay on Money, and has had many devoted ad- herents since ; witness the Birmingham currency school, of whom Mr. Attwood was at one time the most conspicuous representative. Mr. Attwood main- tained that a rise of prices produced by an increase of paper currency, stimu- lates every producer to his utmost ex- ertions, and brings all the capital and labour of the country into complete employment : and that this has inva- riably happened in all periods of rising prices, when the rise was on a suffi- ciently great scale. I presume, how- ever, that the inducement which, ac- cording to Mr. Attwood, excited this unusual ardour in all persons engaged in production, must have been the ex- pectation of getting more of commo- dities generally, more real wealth, in exchange for the produce of their labour, and not merely more pieces of paper. This expectation, however, must have been, by the very terms of the supposition, disappointed, since, all prices being supposed to rise equally, no one was really better paid for his goods than before. Those who agree with Mr. Attwood could only succeed in winning people on to these unwonted exertions, by a prolongation of what would in fact be a delusion ; contriving matters so, that by a progressive rise of money prices, every producer shall always seem to be in the very act of obtaining an increased remuneration which he never, in reality, does obtain. It is unnecessary to advert to any other of the objections to this plan, than that of its total impracticability. It calculates on finding the whole world persisting for ever in the belief that more pieces of paper are more riches, and never discovering that, with all their paper, they cannot buy more of imaginary assignats supposed in the text ; since those into whose hands the notes were paid by the persons who received them, could not return them to the Government, and de- mand in exchange land or stock which was only pledged, not alienated. There would be no reflux of such assignats as these, and their depreciation would be indefinite. 334 BOOK III. CHAPTER XIII. 6. there are already some things of which that money will no longer purchase as much as before. If, therefore, he knows what is going on, he will raise his price, and then the buyer will not have the gain, which is supposed to stimulate his industry. But if, on the contrary, the seller does not know the state oif the case, and only discovers it when he finds, in laying his money out, that it does not go so far, he then ob- tains less than the ordinary remunera- tion for his labour and capital ; and if the other dealer's industry is encou- raged, it should seem that his must, from the opposite cause, be inpaired. 5. There is no way in which a general and permanent rise of prices, or in other words, depreciation of money, can benefit anybody, except at the ex- pense of somebody else. The substitu- tion of paper for metallic currency is a national gain : any further increase ef paper beyond this is but a form of robbery. An issue of notes is a manifest gain to the issuers, who, until the notes are returned for payment, obtain the use of them as if they were a real capital : and so long as the notes are no perma- nent addition to the currency, but merely supersede gold or silver to the same amount, the gain of the issuer is a loss to no one : it is obtained by saving to the community the expense of the more costly material. JMrt if there is no gold or silver to be super- seded if the notes are added to the currency, instead of being substituted for the metallic part of it all holders of currency lose, by the depreciation of its value, the exact equivalent of what the issuer gains. A tax is virtually levied on them for his benefit. It will be objected by some, that gains are also made by the producers and dealers who. by means of the increased issue, are accommodated with loans. Theirs, however, is not an additional gain, but a portion of that which is reaped by the issuer at the expense of all possessors of money. The profits arising from the contribution levied upon the public, he does not keep to himself, but divides with his customers. But besides the benefit reaped by the issuers, or by others through them at the expense of the public generally, there is another unjust gain obtained by a larger class, namely^by those who are under fixed pecuniary obligations. All such persons are freed, by a depre- ciation of the currency, from a portion of the burthen of their debts or other engagements : in other words, part of the property of their creditors is gra- tuitously transferred to them. On a superficial view it may be imagined that this is an advantage to industry ; since the productive classes are great borrowers, and generally owe larger debts to the unproductive (if we include among the latter all persons not actually in business) than the unproductive classes owe to them ; especially if the national debt be included. It is only thus that a general rise of prices can be a source of benefit to producers and dealers ; by diminishing the pressure of their fixed burthens. And this might be accounted an advantage, if integrity and good faith were of no importance to the world, and to industry and com- merce in particular. !Not many, how- ever, have been found to say that the currency ought to be depreciated on the simple ground of its being desirable to rob the national creditor and private cre- ditors of a part of what is in their bond. The schemes which have tended that way have almost always had some ap- pearance of special and circumstantial justification, such as the necessity of compensating for a prior injustice com- mitted in the contrary direction. 6. Thus in England, for many years subsequent to 1819, it was perti- naciously contended, that a large portion of the national debt, and a multitude of private debts still in existence, were contracted between 1797 and 1819, when the Bank of England was ex- empted from giving cash for its notes ; and that it is grossly unjust to bor- rowers, (that is, in the case of the na- tional debt, to all tax-payers) that they should be paying interest on the same nominal sums in a currency of full value, which were borrowed in a depre- ciated one. The depreciation, accord- INCONVERTIBLE PAPER CURRENCY. 335 ing to tlie views and objects of the par- ticular writer, was represented to have averaged thirty, fifty, or even more than fifty per cent : and the conclusion was, that either we ought to return to this depreciated currency, or to strike off from the national debt, and from mort- gages or other private debts of old stand- ing, a percentage corresponding to the estim&tAd amount of the depreciation. To this doctrine, the following was the answer usually made. Granting that, by returning to cash payments without lowering the standard, an in- justice was done to debtors, in holding them liable for the same amount of a currency enhanced in value, which, they had borrowed while it was depreciated ; it is now too late to make reparation for this injury. The debtors and cre- ditors of to-day are not the debtors and creditors of 1819: the lapse of years has entirely altered the pecuniary rela- tions of the community ; and it being impossible now to ascertain the par- ticular persons who were either bene- fited or injured, to attempt to retrace our steps would be not redressing a wrong, but superadding a second act of wide-spread injustice to the one al- ready committed. This argument is certainly conclusive on the practical question ; but it places the honest con- clusion on too narrow and too low a ground. It concedes that the measure of 1819, called Peel's Bill, by which cash payments were resumed at the original standard of 31. 17s. W^d., was really the injustice it was said to be. This is an admission wholly opposed to the truth. Parliament had no alter- native : it was absolutely bound to ad- here to the acknowledged standard ; as may be shown on three distinct grounds, two of fact, and one of principle. The reasons of fact are these. In the first place, it is not true that the debts, private or public, incurred during the Bank restriction, were contracted in a currency of lower value than that in which the interest is now paid. It is indeed true that the suspension of the obligation to pay in specie, did put it in the power of the Bank to depre- ciate the currency. It is true also that tbe. Bank really exorcised that power, though to a far less extent than is often pretended ; since the difference between the market price of gold and the Mint valuation, during the greater part of the interval, was very trifling, and when it was greatest, during the last five years of the war, did not much exceed thirty per cent. To the extent of that difference, the currency was depre- ciated, that is, its value was below that of the standard to which it pro- fessed to adhere. But the state of Europe at that time was such there was so unusual an absorption of the precious metals, by hoarding, and in the military chests of the vast armies which then desolated the Continent, that the value of the standard itself was very considerably raised : and the best authorities, among whom it is suf- ficient to name Mr. Tooke, have, a:"ter an elaborate investigation, satisfied themselves that the difference between paper and bullion was not greater than the enhancement in value of gold itself, and that the paper, though depreciated relatively to the then value of gold, did not sink below the ordinary value, at other times, either of gold or of a con- vertible paper. If this be true (and the evidences of the fact are conclu- sively stated in Mr. Tooke's iiistory of Prices) the foundation of the whole case against the fundholder and other creditors on the ground of depreciation is subverted. But, secondly, even if the currency had really been lowered in value at each period of the Bank restriction, in the same degree in which it was de- preciated in relation to its standard, we must remember that a part only of the national debt, or of other perma- nent engagements, was incurred during the Bank restriction. A large part had been contracted before 1797 ; a still larger during the early years of the restriction, when the difference be- tween paper and gold was yet small, To the holders of the former part, an injury was done, by paying the interest for twenty-two years in a depreciated currency : those of the second, suffered an injury during the years in which the interest was paid in a currency more depreciated than that in which the 336 BOOK IE. CHAPTER XIV. 1. loans were contracted. To have re- sumed cash payments at a lower standard would have been to perpe- tuate the injury to these two classes of creditors, in order to avoid giving an undue benefit to a third class, who had lent their money during the few years of greatest depreciation. As it is, there was an underpayment to one set of per- sons, and an overpayment to another. The late Mr. Mushet took the trouble to make an arithmetical comparison between the two amounts. He ascer- tained by calculation, that if an ac- count had been made out in 1819, of what the fundholders had gained and lost by the variation of the paper cur- rency from its standard, they would have been found as a body to have been losers; so that if any compensation was due on the ground of depreciation, it would not be from the fundholders collectively, but to them. Thus it is with the facts of the case. But these reasons of fact are not the strongest. There is a reason ot prin- ciple, still more powerful. Suppose that, not a part of the debt merely, but the whole, had been contracted in a depreciated currency, depreciated not only in comparison with its standard, but with its own value before and after ; and that we were now paying the interest of this debt in & currency of fifty or even a hundred per cent more valuable than that in which it was contracted. What difference would this make in the obligation of paying it, if the condition that it should be so paid was part of the original com- pact ? Now this is not only truth, but less than the truth. The compact stipulated better terms for the fund- holder than he has received. During the whole continuance of the Bank re- striction, there was a parliamentary pledge, by which the legislature was as much bound as any legislature is capable of binding itself, that cash payments should be resumed on the original footing, at farthest in six months after the conclusion of a ge- neral peace. This was therefore an actual condition of every loan ; and the terms of the loan were more favourable in consideration of it. Without some such stipulation, the Government could not have expected to borrow unless on the terms on which loans are made to the native princes of India. If it had been understood and avowed that, after borrowing the money, the standard at which it was computed might be permanently lowered, to any extent which to the "collective wis- dom" of a legislature of borrowers might seem fit who can say what rate of interest would have been a suffi- cient inducement to persons of common sense to risk their savings in such an adventure ? However much the fund- holders had gained by the resumption of cash payments, the terms of the con- tract insured their giving ample value for it. They gave value for more than they received ; since cash payments were not resumed in six months, but in as many years, after the peace. So that waving all our arguments except the last, and conceding all the facts as- serted on the other side of the question, the fundholders, instead of being unduly benefited, are the injured party ; and would have a claim to compensation, if such claims were not very properly barred by the impossibility of adjudica- tion, and by the salutary general maxim of law and policy, that questions should at some time or another come to an end. CHAPTER XIV. OP EXCESS OP SUPPLY. 1. AFTER the elementary exposi- I turn to a question in the general theory Hon of the theory of money contained of Value, which could not be satisfac- in the last few chapters, we shall re- | torily discussed until the nature and EXCESS OF SUPPLY. 337 operations of Money were in some measure understood, because the errors against which we have to contend mainly originate in a misunderstand- ing of those operations. We have seen that the value of everything gravitates towards a cer- tain medium point (which has been called the Natural Value), namely, that at which it exchanges for every other thing in the ratio of their cost of production. We have seen, too, that the actual or market value coin- cides, or nearly so, with the natural value, only on an average of years ; and is continually either rising above, or falling below it, from alterations in the demand, or casual fluctuations in the supply : but that these variations correct themselves, through the ten- dency of the supply to accommodate itself to the demand which exists for the commodity at its natural value. A general convergence thus results from the balance of opposite divergences. Dearth, or scarcity, on the one hand, and over-supply, or, in mercantile lan- guage, glut, on the other, are incident to all commodities. In the first case, the commodity affords to the producers or sellers, while the deficiency lasts, an unusually high rate of profit: in the second, the supply being in excess of that for which a demand exists, at such a value as will afford the ordinary profit, the sellers must be content with less, and must, in extreme cases, submit to a loss. Because this phenomenon of over- supply, and consequent inconvenience or loss to the producer or dealer, may exist in the case of any one commodity whatever, many per- sons, including some distinguished political economists, have thought tli at it may exist with regard to all commodities ; that there may be a general over-production of wealth; a supply of commodities in the aggre- gate, surpassing the demand; and a consequent depressed condition of all classes of producers. Against this doc- trine, of which Mr. Malthus and Dr. Chalmers in this country, and M. de Sismondi oil the Continent, were the chief apostles, I have already con- F.E. tended in the First Book ;* but it was not possible, in that stage of our in- quiry, to enter into a complete exami- nation of an error (as I conceive) essen- tially grounded on a misunderstanding of the phenomena of Value and Price. The doctrine appears to me to in- volve so much inconsistency in its very conception, that I feel considerable difficulty in giving any statement of it which shall be at once clear, and satis- factory to its supporters. They agree in maintaining that there may be, and sometimes is, an excess of productions in general beyond the demand for them; that when this happens, pur- chasers cannot be found at prices which will repay the cost of production with a profit ; that there ensues a general depression of prices or values (they are seldom accurate in discriminating be- tween the two), so that producers, the more they produce, find themselves the poorer, instead of richer : and Dr. Chalmers accordingly inculcates on capitalists the practice of a noral re- straint in reference to the pursuit of gain ; while Sismondi deprecates ma- chinery, and the various inventions which increase productive power. They both maintain that accumulation of capital may proceed too fast, not merely for the moral, but for the material in- terests of those who produce and accu- mulate ; and they enjoin the rich to guard against this evil by an ample unproductive consumption. 2. When these writers speak of the supply of commodities as out- running the demand, it is not clear which of the two elements of demand they have in view the desire to pos- sess, or the means of purchase : whether their meaning is that there are, in such cases, more consumable products in existence than the public desires to consume, or merely more than it is able to pay for. In this uncertainty, it is necessary to examine both sup- positions. First, let us suppose that the quan- tity of commodities produced is not greater than the community would bo glad to consume : is it, in that case, * Supra, pp. 41-43, 838 BOOK in. CHAPTER XIV. 3. possible that there should he a defi- ciency of demand for all commodities, for want of the means of payment? Those who think so, cannot have con- sidered what it is which constitutes the means of payment for commodities. It is, simply, commodities. Each per- son's means of paying for the produc- tions of other people consists of those which he himself possesses. All sellers are inevitably, and by the meaning of the word, buyers. Could we suddenly double the productive powers of the country, we should double the supply of commodities in every market ; but we should, by the same stroke, double the purchasing power. Everybody would bring a double demand as well as supply: everybody would be able to buy twice as much, because everv one would have twice as much to offer in exchange. It is probable, indeed, that there would now be a super- fluity of certain things. Although the community would willingly double its aggregate consumption, it may already have as much as it desires of some commodities, and it may prefer to do more than double its consumption of others, or to exercise its increased pur- chasing power on some new thing. If so, the supply will adapt itself accord- ingly, and the values of things will continue to conform to their cost of production. At any rate, it is a sheer absurdity that all things should fall in value, and that all producers should, in consequence, be insufficiently remu- nerated. If values remain the same, what becomes of prices is immaterial, since the remuneration of producers does not depend on how much money, but on how much of consumable arti- cles, they obtain for their goods. Be- sides, money is a commodity ; and if all commodities are supposed to be doubled in quantity, we must suppose money to be doubled too, and then prices would no more fall than values would. 3. A general over-supply, or ex- cess of all commodities above the de- mand, so far as demand consists in means of payment, is thus shown to be an impossibility. But it may, per- haps, be supposed that it is not the ability to purchase, but the desire to possess, that falls short, and that the general produce of industry may be greater than the community desires to consume the part, at least, of the community which has an equivalent to give. It is evident enough, that produce makes a market for produce, and that there is wealth in the country with which to purchase all the wealth in the country; but those who have the means, may not have the wants, and those who have the wants may be without the means. A portion, there- fore, of the commodities produced may be unable to find a market, from the absence of means in those who have the desire to consume, and the want of desire in those who have the means. This is much the most plausible form of the doctrine, and does not, like that which we first examined, involve a contradiction. There may easily be a greater quantity of any particular com- modity than is desired by those who have the ability to purchase, and it is abstractedly conceivable that this might be the case with all commodi- ties. The error is in not perceiving that though all who have an equivalent to give, might be fully provided with every consumable article which they desire, the fact that they go on adding to the production proves that this is not actually the case. Assume the most favourable hypothesis for the pur- pose, that of a limited community, every member of which possesses as much of necessaries and of all known luxuries as he desires : and since it is not conceivable that persons whose wants were completely satisfied would labour and economize to obtain what they did not desire, suppose that a foreigner arrives, and produces an ad- ditional quantity of something of which there was already enough. Here, it will be said, is over-production : true, I reply; over-production of that par- ticular article : the community wanted no more of that, but it wanted some, thing. The old inhabitants, indeed, wanted nothing; but did not the foreigner himself want something? ^ T hen he produced the superfluous article, was he labouring without a EXCESS OF SUPPLY. 339 motive? He has produced, but the wrong thing instead of the right. He wanted, perhaps, food, and has pro- duced watches, with which everybody was sufficiently supplied. The new comer brought with him into the country a demand for commodities, equal to all that he could produce by his industry, and it was his business to see that the supply he brought should be suitable to that demand. If he could not produce something capa- ble of exciting a new want or desire in the community, for the satisfaction of which some one would grow more food and give it to him in exchange, he had the alternative of growing food for himself; either on fresh land, if there was any unoccupied, or as a tenant, or partner, or servant, of some former occupier, willing to be partially re- lieved from labour. He has produced a thing not wanted, instead of what was wanted ; and he himself, perhaps, is not the kind of producer who is wanted; but there is no over-pro- duction ; production is not excessive, but merely ill assorted. We saw be- fore, that whoever brings additional commodities to the market, brings an additional power of purchase ; we now see that he brings also an additional desire to consume ; since if he had not that desire, he would not have troubled himself to produce. Neither of the elements of demand, therefore, can be wanting, when there is an additional supply ; though it is perfectly possible that the demand may be for one thing, and the supply may unfortunately con- sist of another. Driven to his last retreat, an oppo- nent may perhaps allege, that there are persons who produce and accu- mulate from mere habit; not because they have any object in growing richer, or desire to add in any respect to their consumption, but from vis inertice. They continue producing because the machine is ready mounted, and save and re-invest their savings because they have nothing on which they care to expend them. I grant that this is possible, and in some few instances probably happens ; but these do not in the smallest degree affect our con- clusion. For, what do these persons do with their savings? They invest them productively; that is, expend them in employing labour. In other words, having a purchasing power be- longing to them, more than they know what to do with, they make over the surplus of it for the general benefit of the labouring class. Now, will that class also not know what to do with it? Are we to suppose that they too have their wants perfectly satisfied. and go on labouring from mere habit ? Until this is the case ; until the work- ing classes have also reached the point of satiety there will be no want of demand for the produce of capital, however rapidly it may accumulate : since, if there is nothing else for it to do, it can always find employment in producing the necessaries or luxuries of the labouring class. And when they too had no further desire for necessa- ries or luxuries, they would take the benefit of any further increase of wages by diminishing their work ; so that the over-production which then for the first time would be possible in idea, could not even then take place in fact, for want of labourers. Thus, in whatever manner the question is looked at, even though we go to the extreme verge of possibility to invent a supposition favourable to it, the theory of general over-production implies an absurdity. 4. What then is it by which men who have reflected much on economical phenomena, and have even contributed to throw new light upon them by ori ginal speculations, have been led to embrace so irrational a doctrine ? I conceive them to have been deceived by a mistaken interpretation of cer- tain mercantile facts. They imagined that the possibility of a general over- supply of commodities was proved by experience. They believed that they saw this phenomenon in certain con- ditions of the markets, the true ex- planation of which is totally different. I have already described the state of the markets for commodities which accompanies what is termed a com- mercial crisis. At such times there is really an excess of aH commodities Z 2 340 BOOK HI. CHAPTER XIV. 4. above the money demand: in other words, there is an under-supply of money. From the sudden annihilation of a great mass of credit, every one dislikes to part with ready money, and many are anxious to procure it at any sacrifice. Almost everybody therefore is a seller, and there are scarcely any buyers: so that there may really be, though only while the crisis lasts, an extreme depression of general prices, from what may be indiscriminately called a glut of commodities or a dearth of money. But it is a great error to suppose, with Sismondi, that a com- mercial crisis is the effect of a general excess of production. It is simply the consequence of an excess of speculative purchases. It is not a gradual advent of low prices, but a sudden recoil from prices extravagantly high: its imme- diate cause is a contraction of credit, and the remedy is, not a diminution of supply, but the restoration of confi- dence*. It is also evident that this temporary derangement of markets is an evil only because it is temporary. The fall being solely of money prices, if prices did not rise again no dealer would lose, since the smaller price would be worth as much to him as the larger price was before. In no manner does this phenomenon answer to the description which these celebrated economists have given of the evil of over-production. That permanent de- cline in the circumstances of producers, for want of markets, which those writers contemplate, is a conception to which the nature of a commercial crisis gives no support. The other phenomenon from which the notion of a general excess of wealth and superfluity of accumulation seems to derive countenance, is one of a more permanent nature, namely, the fall of profits and interest which naturally takes place with the progress of popu- lation and production. The cause of this decline of profit is the increased cost of maintaining labour, which re- sults from an increase of population and of the demand for food, outstrip- ping the advance of agricultural im- provement. This important feature in i the economical progress of nations will | receive full consideration and discus- sion in the succeeding Book.* It is obviously a totally different thing from a want of market for commodities, though often confounded with it in the complaints of the producing and trading classes. The true interpretation of the modern or present state of industrial economy is, that there is hardly any amount of business which may not be done, if people will be content to do it on small profits ; and this, all active and intelligent persons in business perfectly well know : but even those who comply with the necessities of their time, grumble at what they comply with, and wish that there were less capital, or as they express it, less competition, in order that there might be greater profits. Low profits, how- ever, are a different thing from defi- ciency of demand ; and the production and accumulation which merely reduce profits, cannot be called excess of supply or of production. What the phenomenon really is, and its effects and necessary limits, will be seen when we treat of that express subject. I know not of any economical facts, except the two I have specified, which can have given occasion to the opinion that a general over-production of com- modities ever presented itself in actual experience. I am convinced that there is no fact in commercial affairs, which, in order to its explanation, stands in need of that chimerical supposition. The point is fundamental; any dif- ference of opinion on it involves "radi- cally different conceptions of political economy, especially in its practical aspect. On the one view, we have only to consider how a sufficient pro- duction may be combined with the best possible distribution ; but on the other there is a third thing to be considered how a market can be created for produce, or how production can be limited to the capabilities of the market. Besides; a theory so essen- tially self-contradictory cannot intrude itself without carrying confusion into the very heart of the subject, and making it impossible even to conceive with any distinctness many of the * Infra, book iv. cb. 4* MEASURE OF VALUE. 341 more complicated economical workings of society. This error has been, I con- ceive, fatal to the systems, as systems, of the three distinguished economists to whom I before referred, Malthus, Chalmers, and Sismondi ; all of whom have admirably conceived and ex- plained several of the elementary theorems of political economy, but this fatal misconception has spread itself like a veil between them and the more difficult portions of the subject, not suffering one ray of light to pene- trate. Still more is this same confused idea constantly crossing and bewilder- ing the speculations of minds inferior to theirs. It is but justice to two emi- nent names, to call attention to the fact, that the merit of having placed this most important point in its true light, belongs principally, on the Con- tinent, to the judicious J. B. Say, and in this country to Mr. Mill ; who (be- sides the conclusive exposition which he gave of the subject in his Elements of Political Economy) had set forth the correct doctrine with great force and clearness in an early pamphlet, called forth by a temporary controversy, and entitled, "Commerce Defended;" the first of his writings which attained any celebrity, and which he prized more as having been his first introduction to the friendship of David Ricardo, the most valued and most intimate friend- ship of his life. CHAPTER XV. OP A MEASURE OF VALUE. 1. THERE has been much discus- sion among political economists re- specting a Measure of Value. An importance has been attached to the subject greater than it deserved, and what has been written respecting it has contributed not a little to the re- proach of logomachy, which is brought, with much exaggeration, but not alto- gether without ground, against the speculations of political economists. It is necessary, however, to touch upon the subject, if only to show how little there is to be said on it. A Measure of Value, in the ordinary sense of the word measure, would mean, something, by comparison with which we may ascertain what is the value of any other thing. When we consider farther, that value itself is relative, and that two things are necessary to con- stitute it, independently of the third thing which is to measure it ; we may define a Measure of Value to be some- thing, by comparing with which any two other things, we may infer their value in relation to one another. In this sense, any commodity will serve as a measure of value at a given time and place ; since we can always infer the proportion in which things exchange for one another, when we know the proportion in which each ex- changes for any third thing. To serve as a convenient measure of value is one of the functions of the commodity selected as a medium of exchange. It is in that commodity that the values of all other things are habitually esti- mated. We say that one thing is worth 21., another SI. ; and it is then known without express statement, that one is worth two-thirds of the other, or that the things exchange for one an- other in the proportion of 2 to 3. Money is a complete measure of their value. But the desideratum sought by poli- tical economists is not a measure of the value of things at the same time and place, but a measure of the value of the same thing at different times and places : something by comparison with which it may be known whether any given thing is of greater or less value now than a century ago, or in this country than in America or China. And for this also, money, or any other commodity, will serve quite as well as at the same time and place, provided we can obtain the same data ; provided 342 we are able to compare with the mea- sure not one commodity only, but the two or more which are necessary to the idea of value. If wheat is now 40-5. the quarter, and a fat sheep the same, and if in the time of Henry the Second wheat was 20s., and a sheep 10s., we know that a quarter of wheat was then worth two sheep, and is now only worth one, and that the value therefore of a sheep, estimated in wheat, is twice as great as it was then ; quite indepen- dently of the value of money at the two periods, either in relation to those two articles (in respect to both of which we suppose it to have fallen), or to other commodities, in respect to which we need not make any supposition. What seems to be desired, however, by writers on the subject, is some means of ascertaining the value of a commodity by merely comparing it with the mea- sure, without referring it specially to any other given commodity. They would wish to be able, from the mere fact that wheat is now 40s. the quarter, and was formerly 20s., to decide whe- ther wheat has varied in its value, and in what degree, without selecting a second commodity, such as a sheep, to compare it with ; because they are de- sirous of knowing, not how much wheat has varied in value relatively to sheep, but how much it has varied relatively to things in general. The first obstacle arises from the necessary indefiniteness of the idea of general exchange value value in rela- tion not to some one commodity, but to commodities at large. Even if we knew exactly how much a quarter of wlif-at would have purchased at the earlier period, of every marketable article considered separately, and that it will now purchase more of some things and less of others, we should often find it impossible to say whether it had risen or fallen in relation to things in general. How much more impossible when we only know how it has varied in relation to the measure. To enable the money price of a thing at two different periods to measure the quantity of things in general which it will exchange for, the same sum of n:cney n;v.st correspond at both periods BOOK HI. CHAPTER XV. 2. to the same quantity of things general, that is, money must always have the same exchange value, the same general purchasing power. Now, not only is this not true of money, or of any other commodity, but we cannot even suppose any state of circumstances in which it would be true. 2. A measure of exchange value, therefore, being impossible, writers. have formed a notion of something, under the name of a measure of value, which would be more properly termed a measure of cost of production. They have imagined a commodity invariably produced by the same quantity of labour : to which supposition it is necessary to add, that the fixed capital employed in the production must bear always the same proportion to the wages of the immediate labour, and must be always of the same durability: in short, the same capital must be ad- vanced for the same length of time, so that the element of value which con- sists of profits, as well as that which consists of wages, may be unchange- able. We should then have a com- modity always produced under one and the same combination of all the cir- cumstances which affect permanent value. Such a commodity would be by no means constant in its exchange value ; for (even without reckoning the temporary fluctuations arising from supply and demand) its exchange value would be altered by every change in the circumstances of production of the things against which it was ex- changed. But if there existed such a commodity, we should derive this ad- vantage from it, that whenever any other thing varied permanently in re- lation to it, we should know that the cause of variation was not in it, but in the other thing. It would thus be fitted to serve as a measure, not indeed of the value of other things, but of their cost of production. If a com- modity acquired a greater permanent purchasing power in relation to the invariable commodity, its cost of pro- duction must have become greater; and in the contrary case, less. This measure of cost, is what political MEASUKE OF VALUE. 343 economists have generally meant by a measure of value. But a measure of cost, though per- fectly conceivable, can no more exist in fact, than a measure of exchange value. There is no commodity which is invariable in its cost of production. Gold and silver are the least variable, but even these are liable to changes in their cost of production, from the ex- haustion of old sources of supply, the discovery of new, and improvements in the mode of working. If we attempt to ascertain the changes in the cost of production of any commodity from the changes in its money price, the conclu- sion will require to be corrected by the best allowance we can make for the intermediate changes in the cost of the production of money itself. Adam Smith fancied that there were two commodities peculiarly fitted to serve as a measure of value : corn, and labour. Of corn, he said that although its value fluctuates much from year to year, it does not vary greatly from cen- tury to century. This we now know to be an error : corn tends to rise in cost of production with every increase of population, and to fall with every improvement in agriculture, either in the country itself, or in any foreign country from which it draws a portion of its supplies. The supposed con- stancy of the cost of the production of corn depends on the maintenance of a complete equipoise between these an- tagonizing forces, an equipoise which, if ever realized, can only be accidental. With respect to labour as a measure of value, the language of Adam Smith is not uniform. He sometimes speaks of it as a good measure only for short periods, saying that the value of la- bour (or wages) does not vary much from year to year, though it does from generation to generation. On other occasions he speaks as if labour were intrinsically the most proper measure of value, on the ground that one day's ordinary muscular exertion of one man, may be looked upon as always, to him, the same amount of effort or sacrifice. />ut this proposition, whether in itself admissible or not, discards the idea of exchange value altogether, substituting a totally different idea, more analogous to value in use. If a day's labour will purchase in America twice as much of ordinary consumable articles as in Eng- land, it seems a vain subtlety to insist on saying that labour is of the same value in both countries, and that it is the value of the other things which is different. Labour, in this case, may be correctly said to be twice as valuable, both in the market and to the labourer himself, in America as in England. If the object were to obtain an approximate measure by which to esti- mate value in use, perhaps nothing better could be chosen than one day's subsistence of an average man, reckoned in the ordinary food consumed by the class of unskilled labourers. If in any country a pound of maize flour will sup- port a labouring man for a day, a thing might be deemed more or less valuable in proportion to the number of pounds of maize flour it exchanged for. If one thing, either by itself or by what it would purchase, could maintain a labouring man for a day, and another could maintain him for a week, there would be some reason in saying that the one was worth, for ordinary human uses, seven times as much as the other. But this would not measure the worth of the thing to its possessor for his own purposes, which might be greater to any amount, though it could not be less, than the worth of the food which the thing would purchase. The idea of a Measure of Value must not be confounded with the idea of the regulator, or determining principle, of value. When it is said by Kicardo and others, that the value of a thing is regulated by quantity of labour, they do not mean the quantity of labour for which the thing will exchange, but the quantity required for .producing it. This, they mean to affirm, determines its value ; causes it be of the value it is, and of no other. But when Adam Smith and Malthus say that labour is a measure of value, they do not mean the labour by which the thing was or can be made, but the quantity of labour which it will exchange for, or purchase } in other words, the value of the thing, estimated in labour. And they do not 344 BOOK 111. CHARTER XVI. 1. mean that this regulates the general from time to time and from place to exchange value of the thing, or has any effect in determining ..hat that value shall be, but only ascertains what it is, and whether and how much it varies place. To confound these two ideas, would be much the same thing as to overlook the distinction between the thermometer and the fire. CHAPTER XVI. OF SOME PECULIAR CASES OF VALUE. 1. THE general laws of value, in all the more important cases of the interchange of commodities in che same country, have now been investigated. We examined, first, the case of monopoly, in which the value is determined by either a natural or an artificial limitation of quantity, that is, by demand and supply : secondly, the case of free competition, when the article can be produced in indefinite quantity at the same cost ; in which case the permanent value is determined by the cost of production, and only the fluctuations by supply and demand : thirdly, a mixed case, that of the articles which can be produced in indefinite quantity, but not at the same cost ; in which case the permanent value is determined by the greatest cost which it is necessary to incur in order to obtain the required supply. And lastly, we have found that money itself is a commodity of the third class ; that its value, in a state of freedom, is governed by the same laws as the values of other commodities of its class : and that prices, therefore, follow the same laws as values. From this it appears that demand and supply govern the fluctuations of values and prices in all cases, and the permanent values and prices of all things of which the supply is determined by any agency other than that of free competition : but that, under the regime of competition, things are, on the average, exchanged for each other at such values, and sold at such prices, as afford equal expectation of advantage to all classes of producers ; which can only be when things ex- change for one another in the ratio of their cost of production. It is now, however, necessary to take notice of certain cases, to which, from their peculiar nature, this law of ex- change value is inapplicable. It sometimes happens that two diffe- rent commodities have what may be termed a joint cost of production. They are both products of the same operation, or set of operations, and the outlay is incurred for the sake of both together, not part for one and part for the other. The same outlay would have to be in- curred for either of the two, if the other were not wanted or used at all. There are not a few instances of commodities thus associated in their production. For example, coke and coal-gas are both produced from the same material, and by the same operation. In a more partial sense, mutton and wool are an example : beef, hides, and tallow: calves and dairy produce : chickens and eggs. Cost of production can have nothing to do with deciding the value of the asso- ciated commodities relatively to each other. It only decides their joint value. The gas and the coke together have to repay the expenses of their production, with the ordinary profit. To do this, a given quantity of gas, together with the coke which is the residuum of its i manufacture, must exchange for other I things in the ratio of their joint cost of production. But how much of the re- muneration of the producer shall be derived from the coke, and how much from the gas, remains to be decided. Cost of production does not determine their prices, but the sum of their prices. A principle is wanting to apportion SOME PECULIAR CASES OF VALUE. 345 the expenses of production between the two. Since cost of production here fails us we must revert to a law of value ante rior to cost of production, and more fundamental, the law of demand anc supply. The law is, that the demanc for a commodity varies with its value and that the value adjusts itself so that the demand shall be equal to the supply This supplies the principle of reparti tion which we are in quest of. Suppose that a ^*?ain quantity o gas is produced and sold at a certain price, and that the residuum of coke is offered at a price which, together with that of the gas, repays the expenses with the ordinary rate of profit. Sup pose, too, that at the price put upon the gas and coke respectively, the whole o the gas finds an easy market, withoui either surplus or deficiency, but that purchasers cannot be found for all the coke corresponding to it. The coke will be offered at a lower price in order to force a market. But this lower price together with the price of gas, will not be remunerating : the manufacture, as a whole, will not pay its expenses with the ordinary profit, and will not, on these terms, continue to be carried on. The gas, therefore, must be sold at a higher price, to make up for the defi- ciency on the coke. The demand con- sequently contracting, the production will be somewhat reduced ; and prices will become stationary when, by the joint effect of the rise of gas and the fall of coke, so much less of the first is sold, and BO much more of the second, that there is now a market for all the coke which results from the existing extent of the gas manufacture. Or suppose the reverse case ; that more coke is wanted at the present prices than can be supplied by the operations required by the existing de- mand for gas. Coke, being now in de- ficiency, will rise in price. The whole operation will yield more than the usual rate of profit, and additional capi- tal will be attracted to the manufacture. The unsatisfied demand for coke will be supplied ; but this cannot be done without increasing the supply of gas too ; andaa the existing demand was fully supplied already, an increased quantity can only find a market by lowering the price. The result will be that the two together will yield the return re- quired by their joint cost of production, but that more of this return than before will be furnished by the coke, and less -by the gas. Equilibrium will be attained when the demand for each article fits so well with the demand for the other, that the quantity required of each is exactly as much as is gene- rated in producing the quantity re- quired of the other. If there is any- surplus or deficiency on either side ; if there is a demand for coke, and not a demand for all the gas pi'oduced along with it, or vice versa; the values and prices of the two things will so readjust themselves that both shall find a market. When, therefore, two or more com- modities have a joint cost of production, their natural values relatively to each other are those which will create a demand for each, in the ratio of the quantities in which they are sent forth by the productive process. This theorem is not in itself of any great importance : but the illustration it affords of the law of demand, and of the mode in which, when cost of pro- duction fails to be applicable, the other principle steps in to supply the vacancy, is worthy of particular attention, as we shall find in the next chapter but one that something very similar takes place in cases of much greater moment. 2. Another case of value which merits attention, is that of the different kinds of agricultural produce. This is rather a more complex question than the last, and requires that attention should be paid to a greater number of influencing circumstances. The case would present nothing pe- culiar, if different agricultural products were either grown indiscriminately and with equal advantage on the same soils, or wholly on different soils. The difficulty arises from two things : first, that most soils are fitter for one kind of produce than another, without being absolutely unfit for any ; and secondly, the rotation of crops. 346 BOOK HI. CHAPTER XVI. 2. For ^implicity, we will confine our supposition to two kinds of agricultural produce : for instance, wheat and oats, if all soils were equally adapted for .vheat and for oats, both would be grown indiscriminately on all soils, and their relative cost of production, being the same everywhere, would govern their relative value. If the same labour which grows three quarters of wheat on any given soil, would always grow on that soil five quarters of oats, the three and the five quarters would be of the same value. If, again, wheat and oats could not be grown on the same .soil at all, the value of each would be determined by its peculiar cost of pro- duction on the least favourable of the soils adapted for it which the existing demand required a recourse to. The fact, however, is that both wheat and oats can be grown on almost any soil tvhich is capable of producing either : but some soils, such as the stiff clays, are better adapted for wheat, while others (the light sandy soils) are more suitable for oats. There might be some j soils which would yield, to the same | quantity of labour, only four quarters of oats to three of wheat; others perhaps less than three of wheat to five quarters of oats. Among these diversities, what determines the relative value of the two things ? It is evident that each grain will be cultivated in preference, on the soils which are better adapted for it than for the other; and if the demand is supplied from these alone, the values of the two grains will have no reference to one another. But when the demand for both is such as to require that each should be grown not only on the soils peculiarly fitted for it, but on the medium soils which, without being spe- cifically adapted to either, are about equally suited for both, the cost of production on those medium soils will determine the relative value of the two grains ; while the rent of the soils specifically adapted to each, will be regulated by their productive power, considered with reference to that one alone to which they are peculiarly applicable. Thus far the question pre- sents no difficulty, to any one to whom the general principles of value are familiar. It may happen, however, that the demand for one of the two, as for example wheat, may so outstrip the demand for the other, as not only to occupy the soils specially ;-nted for wheat, but to engross entirely those equally suitable to both, and even en- croach upon those which are better adapted to oats. To create an induce- ment for this unequal apportionment of the cultivation, wheat must be rela- tively dearer, and oats cheaper, than according to the cost of their production on the medium land. Their relative value must be in proportion to the cost on that quality of land, whatever it may be, on which the comparative de- mand for the two grains requires that both of them should be grown. If, from the state of the demand, the two culti- vations meet on land more favourable to one than to the other, that one will be cheaper and the other dearer, in relation to each other and to things in general, than if the proportional de- mand were as we at first supposed. Here, then, we obtain a fresh illus- tration, in a somewhat different manner, of the operation of demand, not as an occasional disturber of value, but as a permanent regulator of it, conjoined with, or supplementary to, cost of production. The case of rotation of crops does not require separate analysis, being a case of joint cost of production, like that of gas and coke. If it were the practice to grow white and green crops on all lands in alternate years, the one being necessary as much for the sake of the other as for its own sake ; the farmer would derive his remuneration for two years' expenses from one white and one green crop, and the prices of the two would so adjust themselves as to create a demand which would carry off an equal breadth of white and of green crops. There would be little difficulty in finding other anomalous cases of value, which it might be a useful exercise to resolve : but it is neither desirable nor possible, in a work like the present, to enter more into details than is neces- INTERNATIONAL TRADE. 347 feary for the elucidation of principles. I now therefore proceed to the only part of the general theory of exchange which has not yet been touched upon, that of International Exchanges, or to speak more generally, exchanges be- tween distant places. CHAPTER XVH. OF INTERNATIONAL TRADE. 1. THE causes which occasion a commodity to be brought from a dis- tance, instead of being produced, as convenience would seem to dictate, as near as possible to the market where it is to be sold for consumption, are usually conceived in a rather superficial manner. Some things it is physically impossible to produce, except in par- ticular circumstances of heat, soil, water, or atmosphere. But there are many things which, though they could be produced at home without difficulty and in any quantity, are yet imported from a distance. The explanation which would be popularly given of this would be, that it is cheaper to import than to produce them : and this is the true reason. BuFthis reason itself requires that a reason be given for il^, OTtwo things produced in the same place, if one is cheaper than the other,/ the reason is that it can be produced with less labour and capital, or, in a |_wprd, at less cost. Is this also the* reason as between things produced in different places ? Are things never imported but from places where they can be produced with less labour (or less of the other element of cost, time) than in the place to which they are brought? Does the law, that perma- nent value is proportioned to cost of production, hold good between com- modities produced in distant places, as it does between those produced in ad- jacent places ? \\ r e shall find that it does not. A thing may sometimes be sold cheapest, by being produced in some other place than that at which it can be produced with the smallest amount of labour and abstinence. England might import corn from Poland and pay for it in cloth, even though England had a decided advantage over Poland in the produc- tion of both the one and the other. England might send cottons to Por- tugal in exchange for wine, although Portugal might be able to produce cottons with a less amount of labour and capital than England could. This could not happen between ad- jacent places. If the north bank of the Thames possessed an advantage over the south bank in the production of shoes, no shoes would be produced on the south side ; the shoemakers would remove themselves and their capitals to the north bank, or would have esta- blished themselves there originally; for, being competitors in the same market with those on the north side, they could not compensate themselves for their disadvantage at the expense of the consumer : the amount of it would fall entirely on their profits ; and they would not long content them- selves with a smaller profit, when, by simply crossing a river, they could increase it. But between distant places, and especially between differ- ent countries, profits may continue dif- ferent : because persons do not usually remove themselves or their capitals to a distant place without a very strong motive. If capital removed to remote parts of the world as readily, and for as small an inducement, as it moves to another quarter of the same town ; if people would transport their manufac- tories to America or China whenever they could save a small percentage in their expenses by it ; profits would be alike (or equivalent) all over the world, and all things would be produced in 348 BOOR III. CHAPTER XVII. 2. the places where the same labour and capital would produce them in greatest quantity and of best quality. A ten- dency may, even now, be observed towards such a state of things ; capital is becoming more and more cosmopoli- tan ; there is so much greater similarity of manners and institutions than for- merly, and somuch less alienation of feel- ing, among the more civilized countries, that both population and capital now move from one of those countries to another on much less temptation than heretofore. But there are still extra- ordinary differences, both of wages and of profits, between different parts of the world. It needs but a small motive to transplant capital, or even persons, from Warwickshire to Yorkshire : but a much greater to make them remove to India, the colonies, or Ireland. To France, Germany, or Switzerland, ca- pital moves perhaps almost as readily as to the colonies ; the differences of lan- guage and goveniment being scarcely so great a hindrance as climate and distance. To countries still barbarous, or, like Russia or Turkey, only be- ginning to be civilized, capital will not migrate, unless under the inducement of a very great extra profit. Between all distant places therefore in some degree, but especially between different countries (whether under the same supreme government or not), there may exist great inequalities in the return to labour and capital, with- out causing them to move from one place to the other in such quantity as to level those inequalities. The capital belonging to a country will, to a great extent, remain in the country, even if there be no mode of employing it in which it would not be more productive elsewhere. Yet even a country thus cir- cumstanced might, and probably would, carry on trade with other countries. It would export articles of some sort, even to places which could make them with less labour than itself; because those countries, supposing them to have an advantage over it in all productions, would have a greater advantage in some things than in others, and would find it their interest to import the articles in which their advantage was smallest, that they might employ more of their labour and capital on those in which it was greatest. 2. As I have said elsewhere* after Ricardo (the thinker who has done most towards clearingup this subject), t " it is not a difference in the absolute cost of production, which determines the interchange, but a difference in the comparative cost. It may be to our advantage to procure iron from Sweden in exchange for cottons, even although the mines of England as well as her manufactories should be more produc- tive than those of Sweden ; for if we have an advantage of one-half in cot- tons, and only an advantage of a quarter in iron, and could sell our cottons to Sweden at the pries which Sweden must pay for them if she pro- duced them herself, we should obtain our iron with an advantage of one-half, as well as our cottons. We may often, by trading with foreigners, obtain their commodities at a smaller expense of labour and capital than they cost to the foreigners themselves. The bargain is still advantageous to the foreigner, because the commodity which he re- ceives in exchange, though it has cost us less, would have cost him more." To illustrate the cases in which in- terchange of commodities will not, and those in which it will, take place be- tween two countries, Mr. Mill, in his Elements of Political Economy,! makes the supposition, that Poland has an advantage over England in the produc- tion both of cloth and of corn. He first supposes the advantage to be of equal amount in both commodities : the cloth and the corn, each of which required 100 days labour in Poland, requiring * Essays on some Unsettled Questions of Political Economy, Essay I. t I at one time believed Mr. Ricardo to have been the sole author of the doctrine now universally received by political econo- mists, on the nature and measure of the be- nefit which a country derives from foreign trade. But Colonel Torrens, by the repub- lication of one of his early writings, The Economists Refuted, has established at least a joint claim with Mr. Ricardo to the origi- nation of the doctrine, and an exclusive one to its earliest publication. % Third ed. p. 120. INTERNATIONAL TRADE. 349 each 150 days labour in England. "It would follow that the cloth of 150 days labour in England, if sent to Poland, would be equal to the cloth of 100 days labour in Poland ; if exchanged for corn, therefore, it would exchange for the corn of only 100 days labour. But the corn of 100 days labour in Poland, was supposed to be the same quantity with that of 150 days labour in England. With 150 days labour in cloth, there- fore, England would only get as much corn in Poland as she could raise with 150 days labour at home; and she would, in importing it, have the cost of carriage besides. In these circum- stances no exchange would take place.' 1 In this case the comparative costs of the two articles in England and in Poland were supposed to be the same, though the absolute costs were differ- ent ; on which supposition we see that there would be no labour saved to either country by confining its industry to one of the two productions, and im- porting the other. It is otherwise when the comparative, and not merely the absolute costs of the two articles are different in the two countries. "If," continues the same author, " while the cloth produced with 100 days labour in Poland was pro- duced with 150 days labour in England, the corn which was produced in Poland with 100 days labour could not be pro- duced in England with less than 200 days labour ; an adequate motive to ex- fchange would immediately arise. With a quantity of cloth which England pro- duced with 150 days labour, she would be able to purchase '-as much corn in Poland as was there produced with 1 00 days labour; but the quantity which was there produced with 100 days labour, would be as great as the quan- tity produced in England with 200 days labour." By importing corn, therefore, from Poland, and paying for it with cloth, England would obtain for 150 days labour what would otherwise cost her 200 ; being a saving of 50 days labour on each repetition of the trans- action : and not merely a saving to England, but a saving absolutely; for it is not obtained at the expense of Poland, who, with corn that costs her 100 days labour, has purchased cloth which, if produced at home, would have cost her the same. Poland, therefore, on this supposition, loses nothing ; but also she derives no advantage from the trade, the imported cloth costing her as much as if it were made at home. To enable Poland to gain anything by the interchange, something must be abated from the gain of England : the corn pro- duced in Poland by 100 days labour, must be able to purchase from England more cloth than Poland could produce by that amount of labour ; more there- fore than England could produce by 150 days labour, England thus obtain- ing the corn which would have cost her 200 days, at a cost exceeding 150, though short of 200. England there- fore no longer gains the whole of the labour which is saved to the two jointly by trading with one another. 3. From this exposition we per- ceive in what consists the benefit of international exchange, or in other words, foreign commerce. Setting aside its enabling countries to obtain com- modities which they could not them- selves produce at all; its advantage consists in a more efficient employ- ment of the productive forces of the world. If two countries which trade together attempted, as far as was phy- sically possible, to produce for them- selves what they now import from one another, the labour and capital of the two countries would not be so pro- ductive, the two together would not obtain from their industry so great a quantity of commodities, as when each employs itself in producing, both for itself and for the other, the things in which its labour is relatively most efficient. The addition thus made to the produce of the two combined, con- stitutes the advantage of the trade. It is possible that one of the two countries may be altogether inferior to the other in productive capacities, and that its labour and capital could be employed to greatest advantage by being removed bodily to the other. The labour and capital which have been sunk in rendering Holland habit- able, would have produced a much BOOK m. CHAPTER XYI1. 4. greater return if transported to Ame- rica or Ireland. The produce of the whole world would be greater, or the labour less, than it is, if everything were produced where there is the greatest absolute facility for its pro- duction. But nations do not, at least in modern times, emigrate en masse; and while the labour and capital of a country remain in the co^ptry, they are most beneficially employed in pro- ducing for foreign markets as well as for its own, the things in which it lies under the least disadvantage, if there be none in which it possesses an ad- vantage. 4. Before proceeding further, let us contrast this view of the benefits of international commerce with other theories which have prevailed, and which to a certain extent still prevail, on the same subject. According to the doctrine now stated, the only direct advantage of foreign commerce consists in the imports. A country obtains things which it either could not have produced at all, or which it must have produced at a greater ex- pense of capital and labour than the cost of the thifogs which it exports to pay for them. It thus obtains a more ample supply of the commodities it wants, for the same labour and capital ; or the same supply, for less labour and capital, leaving the surplus disposable to produce other things. The vulgar theory disregards this benefit, and deems the advantage of commerce to reside in the exports : as if not what a country obtains, but what it parts with, by its foreign trade, was supposed to itute the gain to it. An extended market for its produce an abundant consumption for its goods a vent for its surplus are the phrases by which it has been customary to designate the uses and recommendations ofcommerce with foreign countries. This notion is intelligible, when we consider that the authors and leaders of opinion on mer- cantile questions have always hitherto been the selling class. It is in truth a surviving relic of the Mercantile Theory, according to which, money being the only wealth, selling, or in other words, exchanging goods for money, was (to countries without mines of their own) the only way of growing rich and importation of goods, that is to say, parting with money, was so much" subtracted from the benefit. The notion that money alone is wealth, has been long defunct, but i/ has left many of its progeny behind it ; and even its destroyer, Adam Smith, retained some opinions which it is im- possible to trace to any other origin. , Adam Smith's theory of the benefit of < foreign trade, was that it afforded anjujt- let for the surplus produce^oTa^ country, an6T~errafcled apportion of the capital of the'cTTtinlry to replace itself with a profit. These expressions suggest ideas inconsistent with a clear conception of the phenomena. The expression, sur- plus produce, seems to imply that a country is under some kind of neces- sity of producing the corn or cloth which it exports ; so that the portion which it does not itself consume, if not wanted and consumed elsewhere, would either be produced in sheer waste, or if it were not produced, the corresponding portion of capital would remain idle, and the mass of productions in the country would be diminished by so much. Either of these suppositiomj would be entirely erroneous. TM country produces an exportable article in excess of its own wants, from no in- herent necessity, bnt as the cheapest/ mode ^of supplying itself with othejj jijings. If prevented from exporting-ttfis surplus, it would cease to produce it, and would no longer import anything, being unable to give an equivalent ; but the labour and capital which had been employed in producing with a view to exportation, would find employment in producing those desirable objects which were previously brought from abroad : or, if some of them could not be pro- duced, in producing substitutes for them. These articles would of course be produced at a greater cost than that of the things with which they had pre- viously been purchased from foreign ries. But the value and price of the < 1 rise in proportion; and the capital would just as much b* INTERNATIONAL TRADE. 351 replaced, with the ordinary profit, from the returns, as it was when employed jn producing for the foreign market. The only losers (after the temporary inconvenience of the change) would be the consumers of the heretofore im- ported articles ; who would he obliged either to do without them, consuming in lieu of them something which they did not like as well, or to pay a higher price for them than before. There is much misconception in the common notion of what commerce does for a country. When commerce is spoken of as a source of national wealth, the imagination fixes itself upon the large fortunes acquired by merchants, rather than upon the saving of price to consumers. But the gains of merchants, when they enjoy no ex- clusive privilege, are no greater than the profits obtained by the employment of capital in the country itself. If it be said that the capital now employed in foreign trade could not find employ- ment in supplying the home market, I might reply, that this is the fallacy of general over-production, discussed in a former chapter : but the thing is in this particular case too evident, to require an appeal to any general theory. We not only see that the capital of the merchant w.ould find employment, but we see what employment. There would be employment created, equal to that which would be taken away. Exporta- tion ceasing, importation to an equal value would cease also, and all that part of the income of the country which had been expended in imported commodities, would be ready to expend itself on the same things produced at home, or on others instead of them. Commerce is virtually a mode of cheap- eningjDrociuction ; and in all such cases the Coii^urn^J 1 Is the person ultimately benefited; the dealer, in the end, is sure to get his profit, whether the buyer obtains much or little for his money. This is said without prejudice to the effect (already touched upon, and to be hereafter fully discussed) which the cheapening of commodities may have in raising profits; in the case when the commodity cheapened, being one of those consumed by labourers, enters into the cost of labour, by which the rate of profits is determined. 5. Such, then, is the direct eco- nomical advantage of foreign trade. But there are, besides, indirect effects, which must be counted as benefits of a high order. One is, the tendency of every extension of the market to im-! prove the processes of production. A country which produces for a larger market than its own, can introduce a more extended division of labour, can make greater use of machinery, and is more likely to make inventions and improvements in the processes of pro- duction. Whatever causes a greater quantity of. anything to be produced in the same place, tends to the general increase of the productive powers of the world.* There is another con- sideration, principally applicable to an early stage of industrial advancement. A people may be in a quiescent, in- dolent, uncultivated state, with all their tastes either fully satisfied or entirely undeveloped, and they may fail to put forth the whole of their pro- ductive energies for want of any suffi- cient object of desire. The opening of a foreign trade, by mailing them ac- quainted with new objects, or tempting them by the easier acquisition of things which they had not previously thought attainable, sometimes works a sort of industrial re volution in a country whose resources were previously undeveloped for want of ^energy and ambition in the people : inducing those who were satisfied with scanty comforts and little work, to work harder for the gratifica- tion of their new tastes, and even to save, and accumulate capital, for the still more complete satisfaction of those tastes at a future time. But the economical advantages of commerce are surpassed in importance by those of its effects, which are in- tellectual and moral.- It is hardly pos- sible to overrate the value, in the pre- sent low state of human improvement, of placing human beings in contact with persons dissimilar to themselves, and with modes of thought and actiou * Vide supra, book i. ch, ix. I. 352 imlike those with which they are fami- liar. Commerce is now, what war once was, the principal source of this con- tact. Commercial adventurers from more advanced countries have gene- rally been the first civilizers of bar- barians. And commerce is the purpose of the far greater part of the communi- cation which takes place between civi- lized nations. Such communication has always been, and is peculiarly in the present age, one of the primary sources of progress. To human beings, who, as hitherto educated, can scarcely cultivate even a good quality without running it into a fault, it is indispen- sable to be perpetually comparing their own notions and customs with the expe- rience and example of persons in dif- ferent circumstances from themselves : and there is no nation which does not need to borrow from others, not merely particular arts or practices, but essen- BOOK III. CHAPTER XVIII. 1. tial points of character in which its own type is inferior. Finally, com- merce first taught nations to see with good-will the wealth and prosperity of one another. Before, the patriot, un- less sufficiently advanced in culture to feel the world his country, wished all countries weak, poor, and ill-governed, but his own: he now sees in their wealth and progress a direct source of wealth and progress to his own country. It is commerce which is rapidly ren- dering war obsolete, by strengthening and multiplying the personal interests which are in natural opposition to it. And it may be said without exaggera- tion, that the great extent and rapid increase of international trade, in being the principal guarantee of the peace of the world, is the great permanent se- curity for the uninterrupted progress of the ideas, the institutions, and the cha- racter of the human race. CHAPTER XVIII. OF INTERNATIONAL VALUES. 1. THE,. values of commodities produced at the "same- -place, or in places sufficiently adjacent for capital to move freely between them let us say, for simplicity, of commodities produced in the same country depend (temporary fluctuations apart) "ugOn their cost of production. But the value of a commodity brought from a distant place, especially from a foreign country, Joes not depend on its cost of produc- tion in the place from whence it comes. On what, then, does it depend? The value of a thing in any place, depends on the cost of its acquisition in that place ; which in the case of an imported ' article, means the cost of production of the thing which is exported to pay for it, Since all trade is in reality barter, money being a mere instrument for exchanging things against one another, we will, for simplicity, begin by sup- posing the international trade to be in form, what it always is in reality, an actual trucking of one commodity against another. As far as we have hitherto proceeded, we have found all the laws of interchange to be essen- tially the same, whether money is used or not; money never governing, but always obeying, those general laws. If, then, England imports wine from Spain, giving for every pipe of wine a bale of cloth, the exchange value of a pipe of wine in England will not depend upon what the produc- tion of the wine may have cost in Spain, but upon what the production of the cloth has cost in England. Though the wine may have cost in Spain the equivalent of only ten days labour, yet, if the cloth costs in England twenty days labour, the wine, when brought to England, will ex- change for the produce of twenty days English labour, plus the cost of car- riage ; including the usual profit on the INTERNATIONAL VALUES. 353 importer's capital during the time it is locked up, and withheld from other employment. I The value, then, in any country, of /a foreign commodity, depends on the /quantity of home produce which must I be given to the foreign country in ex- (change for it. In other words, the ^values of foreign commodities depend on the terms of international exchange. What, then, do these depend upon? What" is it, which, in the case sup- posed, causes a pipe of wine from Spain to be exchanged with England for exactly that quantity of cloth? We have seen that it is not their cost of production. If the cloth and the wine were both made in Spain, they would exchange at their cost of production in Spain; if they were both made in England,. they would exchange at their cost of production in England : but all the cloth being made in England, and all the wine in Spain, they are in cir- cumstances to which we have already determined that the law of cost of pro- duction is not applicable. We must accordingly, as we have done before in a similar embarrassment, fall back upon an antecedent law, that of supply and demand: and in this we shall again find the solution of our difficulty. I have discussed this question in a separate Essay, already once referred to ; and a quotation of part of the exposition then given, will be the best introduction to my present view of the subject. I must give notice that we are now in the region of the most complicated questions which political economy affords ; that the subject is one which cannot possibly be made elementary ; and that a more continu- ous effort of attention than has yet been required, will be necessary to follow the series of deductions. The thread, however, which we are about to take in hand, is in itself very simple and manageable ; the only difficulty is in following it through the windings and entanglements of complex interna- tional transactions. 2. "When the trade is esta- blished between the two countries, the two commodities will exchange for F.E. each other at the same rate of intferJ change in both countries bating the' cost of carriage, of which, for the pre- sent, it will be more convenient to omit the consideration. Supposing, there- fore, for the sake of argument, that the carriage of the commodities from one country to the other could be effected without labour and without cost, no sooner would the trade be opened than the value of the two commodities, esti- mated in each other, would come to a level in both countries. " Suppose that 10 yards of broad- cloth cost in England as much labour as 15 yards of linen, and in Germany as much as 20," In^ common with most of my predecessors, I find it ad- visable, in these intricate investiga- tions, to give distinctness and fixity to the conception by numerical examples. These examples' must sometimes, as in the present case, be purely suppositi- tious. I should have preferred real ones ; but all that is essential is, that the numbers should be such as admit of being easily followed through the subsequent combinations into which they enter. This supposition then being made, it would be the interest of England to import linen from Germany, and of Germany to import cloth from England, " When each country produced both commodities for itself, 10 yards of cloth, exchanged for 15 yards of linen in England, and for 20 in Germany. They will now exchange for the same number of yards of linen in both. For what number? If for 15 yards, England will be just as she was, and Germany will gain all. If for 20 yards, Germany will be as before, and England will derive the whole of the benefit. If for any number intermediate between 15 and 20, the advantage will .be shared between the two countries. If, for example, 10 yards of cloth exchange for 18 of linen, England will gain an advantage of 3 yards on every 15, Germany will save 2 out of every 20; The problem is, what are the causes which determine the proportion in which the cloth of England and tho linen of Germany will exchange fof each other. AA 354 BOOK IH. CHAPTER XVIII. 2. " As exchange value, in this case as in every other, is proverbially fluctu- ating, it does not matter what we suppose it to be when we begin: we shall soon see whether there be any fixed point about which it oscillates, which it has a tendency always to approach to, and to remain at. Let us suppose, then, that by the effect of what Adam Smith calls the higgling of the market, 10 yards of cloth, in both countries, exchange for 17 yards of linen. " The demand for a commodity, that is, the quantity of it which can find a purchaser, varies, as we have before remarked, according to the price. In Germany the price of 10 yards of cloth is now 17 yards of linen, or whatever quantity, of money is equivalent in Germany to 17 yards of linen* Xpw, that being the price, there" is some particular number of yards of cloth, which will be in demand, or will find purchasers, at that price; There is some given quantity of cloth, more than which could not be disposed of at that price ; less than which, at that price, would, not fully satisfy the demand. Let us suppose this quantity to be 1000 times 10 yards. " Let us now turn our attention to England. There, the price of 1 7 yards of linen is 10 yards of cloth, or what- ever quantity of money is equivalent in England to 10 yards of cloth. There is some particular number of yards of linen which, at that price, will exactly satisfy the de- mand, and no more. Let us suppose that this number is 1000 times 17 yards. " As 17 yards of linen are to 10 yards of cloth, so are 1000 times 17 yards to 1000 times 10 yards. At the existing exchange value, the linen which Eng- land requires will exactly pay for the quantity of cloth which, on the same terms of interchange, Germany re- quires. The demand on each side ig precisely sufficient to carry off the supply on the other. The conditions required by the principle of demand and supply are fulfilled, and the two commodities will continue to be inter- changed, as we supposed them to be, in the ratio of 17 yards of linen for 10 yards of cloth .^ " But our suppositions might have been different. Suppose that, at the assumed rate of interchange, England had been disposed to consume no greater quantity of linen than 800 times 17 yards : it is evident that, at the rate supposed, this would not have sufficed to pay for the 1000 times 10 yards of cloth which we have supposed Germany to require at the assumed value. Germany would be able to procure no more than 800 times 10 yards at that price. To procure tho remaining 200, which she would have no means of doing but by bidding higher for them, she would offer more than 17 yards of linen in exchange for 10 yards of cloth : let us suppose her to offer 18. At this price, perhaps, England would be inclined to purchase a greater quantity of linen. She would consume, possibly, at that price, 900 times 18 yards. On the other hand, cloth having risen in price, the demand of Germany for it would probably have diminished. If, instead of 1000 times 10 yards, she is now contented with 900 times 10 yards, these will exactly pay for the' 900 times 18 ya"rds of linen which England is willing to take at the altered price : the demand on each side will again exactly suffice to take off the corresponding supply ; and 1 yards for 18 will be the rate at which, in both countries, cloth will exchange for linen. " The converse of all this would have happened, if, instead of 800 times 17 yards, we had supposed that England, at the rate of 10 for 17, would have taken 1200 times 17 yards of linen. In this case, it is England whose demand is not fully supplied; it is England who, by bidding for more linen, will alter the rate of interchange to her own disadvantage ; and 10 yards of cloth will fall, in both countries, below the value of 17 yards of linen. By this fall of cloth, or what is the same thing, this rise of linen, the demand of Ger- many for cloth will increase, and the demand of England for linen will diminish, till the rate of interchange has so adjusted itself that the clotU INTEENATIONAL VALUES. 355 i and the linen will exactly pay for one another; and when once this point is attained, values will remain without further alteration. / " It may be considered, therefore, as I established, that when two countries 1 trade together in two commodities, the exchange value of these commodities relatively to each^ other will adjust itself to the inclinations and circum- stances of the consumers on both sides, in such manner that the quantities ; required by each country, of the articles "' which it imports from its neighbour, \_ shall be exactly sufficient to pay for one another.^ As the inclinations and circumstances of consumers cannot be reduced to any rule, so neither can the proportions in which the two commo- dities will be interchanged. We know that the limits within which the varia- tion is confined, are the ratio between their costs of production in the one country, and the ratio between their costs of production in the other. Ten yards of cloth cannot exchange for more than 20 yards of linen, nor for less than 15. But they may exchange for any intermediate number. The ratios, therefore, in which the advan- tage of the trade may be divided be- tween the two nations, are various. The circumstances on which the pro- portionate share of each country more remotely depends, admit only of a very general indication. " It is even possible to conceive an extreme case, in which the whole of ' the advantage resulting from the inter- change would be reaped by one party, the other country gaining nothing at all. There is no absurdity in the hypothesis that, of some given com- modity, a certain quantity is all that is wanted at any price ; and that, when that quantity is obtained, no fall in the exchange value would induce other consumers to come forward, or those who are already supplied, to take more. Let us suppose that this is the case in Germany with cloth. Before her trade with England commenced, when 10 yards of cloth cost her as much labour us 20 yards of linen, she nevertheless consumed as much cloth as she wanted imder any circvijnstancefy and, if she could obtain it at the rate of 10 yards of cloth for 15 of linen, she would not consume more. Let this fixed quantity be 1000 times 10 yards. At the rate, however, of 10 for 20, England would want more linen than would be equi- valent to this quantity of cloth, fcho would, consequently, offer a higher value for linen ; or, what is the same thing, she would offer her cloth at a cheaper rate. But, as by no lowering of the value could she prevail on Ger- many to take a greater quantity of cloth, there would be no limit to the rise of linen or fall of cloth, until the demand of England for linen was re- duced by the rise of its value, to the quantity which 1000 times 10 yards of cloth would purchase. It might be, that to produce this diminution of the demand a less fall would not suffice than that which would make 10 yards of cloth exchange for 15 of linen. Germany would then gain the whole of the advantage, and England would be exactly as she was before the trade commenced. It would be for the in- terest, however, of Germany herself to keep her linen a little belyvv the value at which it could be produced in Eng- land, in order to keep herself from being supplanted by the home pro- ducer. England, therefore, would always benefit in some degree by the existence of the trade, though it might be a very trifling one." In this statement, I conceive, is con- tained the first elementary principle of International Values. 1 have, as is indispensable in such abstract and hy- pothetical cases, supposed the circum- stances to be much less complex than they really are : in the first place by suppressing the cost of carriage: next, by supposing that there are only two countries trading together ; and lastly, that they trade only in two commodi- ties. To render the exposition of the principle complete, it is necessary to restore the various circumstances, thus temporarily left out to simplify the argument. Those who are accustomed to any kind of scientific investigation will probably see, without formal proof, that the introduction of these circum- stances camaot al^er the theory of tha' AA2 356 BOOK III. CHAPTER XV1IL 4. . subject. Trade among any number of countries, and in any number of com- modities, must take place on the same essential principles as trade between two countries and in two commodities. Introducing a greater number of agents precisely similar, cannot change the law of their action, no more than putting additional weights into the two scales of a balance alters the law of gravitation. It alters nothing but the numerical results. For more com- plete satisfaction, however, we will enter into the complex cases with the same particularity with which we have stated the simpler one. 3. First, let us introduce the ele- ment of cost of carriage. The chief difference will then be, that the cloth and the linen will no longer exchange for each other at precisely the same rate in both countries. Linen, having to be carried to England, will be dearer there by its cost of carriage ; and cloth will be dearer in Germany by the cost of carrying it from England. Linen, estimated in cloth, will be dearer in England than in Germany, by the cost of carriage of both articles . and so will cloth in Germany, estimated in linen. Suppose that the cost of carriage of each is equivalent to one yard of linen ; and suppose that, if they could have been carried without cost, the terms of interchange would have been 10 yards of cluth for 17 of linen. It may seem at first that each country will pay its own cost of carriage ; that is, the car- riage of the article it imports ; that in Germany 10 yards of cloth will ex- change for 18 of linen, namely, the original 17, and 1 to cover the cost of carriage of the cloth ; while in Eng- land, 10 yards of cloth will only pur- chase 16 of linen, 1 yard being de- ducted for the cost of carriage of the linen. This, however, cannot be af- firmed with certainty ; it will only be true, if the linen which the English consumers would take at the price of 10 for 16, exactly pays for the cloth which the German consumers would take at 10 for 18. The values, what- ever they are, must establish this equi- librium. " No absolute rule, therefore, can be laid down for the division of the cost, no more than for the division of the advantage : and it does not follow that in whatever ratio the one is di- vided, the other will be divided in the same. It is impossible to say, if the cost of carriage could be annihilated, whether the producing or the importing country would be most benefited. This would depend on the play of interna- tional demand. Cost of carriage has one effect more. But for it, every commodity would (if trade be supposed free) be either regu- larly imported or regularly exported. A country would make nothing for itself which it did not also make for other countries. But in consequence of cost of carriage there are many things, especially bulky articles, which every, or almost every country pro- duces within itself. After exporting the things in which it can employ itself most advantageously, and importing those in which it is under the greatest disadvantage, there are many lying between, of which the relative cost of production in that and in other countries differs so little, that the cost of carriage would absorb more than the whole saving in cost of production which would be obtained by importing one and exporting another. This is the case with numerous commodities of common consumption ; including the coarser qualities of many art' food and manufacture, of which the finer kinds are the subject of extensive international traffic. '" 4. Let us now introduce a greater number of commodities than the two we have hitherto supposed. Let cloth and linen, however, be still the articles of which the comparative cost of pro- duction in England and in Germany differs the most ; so that if they were confined to two commodities, these would be the two which it would be most their interest to exchange. We will now again omit cost of carriage, which, having been shown not to affect the essentials of the question, does but embarrass unnecessarily the statement of it. Let us suppose, then, that the demand of England for linen is either INTERNATIONAL VALUES. 357 so much greater than that of Germany for cloth, or so much more extensible by cheapness, that if England had no com- modity but cloth which Germany would take, the demand of England would force up the terms of interchange to 10 yards of cloth for only 16 of linen, so that England would gain only the dif- ference between 15 and 16, Germany the difference between 16 and 20. But let us now suppose that England has also another commodity, say iron, which is in demand in Germany, and that the quantity of iron which is of equal value in England with 10 yards of cloth, (let us call this quantity a hundred weight) will, if produced in Germany, cost as much labour as 18 yards of linen, so that if offered by Eng- land for 17, it will undersell the Ger- man producer. In these circumstances, linen will not be forced up to the rate of 16 yards for 10 of cloth, but will stop, suppose at 17 ; for although at that rate of interchange, Germany will not take enough cloth to pay for all the linen required by England, she will take iron for the remainder, and it is the same thing to England whether she gives a hundred weight of iron or 10 yards of cloth, both being made at the same cost. If we now superadd coals or cottons on the side of England, and wine, or corn, or timber, on the side of Germany, it will make no difference in the principle. The exports of each country must exactly pay for the im- ports ; meaning now the aggregate ex- ports and irrtpdrts, not those of par- ticular commodities taken singly. The produce of fifty days English labour, whether in cloth, coals, iron, or any other exports, will exchange for the produce of forty, or fifty, or sixty days German labour, in linen, wine, corn, or timber, according to the international demand. There is some proportion at which the demand of the two countries for each other's products will exactly correspond ; so that the things supplied by England to Germany will be completely paid for, and no more, by those supplied by Ger- many to England. This accordingly will be the ratio in which the pro- duce of English and the produce of German labour will exchange for one another. If, therefore, it be asked what country draws to itself the greatest share of the advantage of any trade it carries on, the answer is, the country for whose productions there is in other countries the greatest demand, and a demand the most susceptible of increase from additional cheapness. In so far as the productions of any country possess tin's property, the country obtains all foreign commodities at less cost. It gets its im- ports cheaper, the greater the intensity of the demand in foreign countries for its exports. It also gets its imports cheaper, the less the extent and in tensity of its own demand for them. The market is cheapest to those whose demand is small. A country which desires few foreign productions, and only a limited quantity of them, whila its own commodities are in great re- quest intforeign countries, will obtain its limited imports at extremely small cost, that is, in exchange for the pro- duce of a very small quantity of its labour and capital. Lastly, having introduced more than the original two commodities into the hypothesis, let us also introduce more than the original two countries. After the demand of England for the linen of Germany has raised the rate of inter- change to 10 yards of cloth for 16 of linen, suppose a trade opened between England and some other country which also exports linen. And let us suppose that if England had no trade but with this third country, the play of interna- tional demand would enable her to ob- tain from it, for 10 yards of cloth or its equivalent, 17 yards of linen. She evidently would not go on buying linen from Germany at the former rate : Ger- many would be undersold, and must consent to give 17 yards, like the other country. In this case, the circum- stances of production and of demand in the third country are supposed to be in themselves more advantageous to Eng- land than the circumstances of Ger- many ; but this supposition is not ne- cessary : we might suppose that if the trade with German y did not exist, Eng- land would be obliged to give to the 358 BOOK m. CHAPTER XVIII. 5. other country the same advantageous terms which she gives to Germany; 10 yards of cloth for 1 6, or even less than "6, of linen. Even so, the opening of the third country makes a great difference m favour of England. There is now a double market for English exports, while the demand of England for linen is only what it was before. This necessarily obtains for England more advantageous terms of interchange. The two countries, requiring much more of her produce than was required by either alone, must, in order to ob- tain it, force an increased demand for their exports, by offering them at a lower value. It deserves notice, that this effect in favour of England from the opening of another market for her exports, will equally be produced even though the country from which the demand comes should have nothing to sell which Eng- land is willing to take. Suppose that the third country, though requiring cloth or iron from England, produces no linen, nor any other article which is in demand there. She however pro- duces exportable articles, or she would have no means of paying for imports : her exports, though not suitable to the English consumer, can find a market somewhere. As we are only supposing three countries, we must assume her to find this market in Germany, and to pay for what she imports from England by orders on her German customers. Germany, therefore, besides having to pay for her own imports, now owes a debt to England on account of the third country, and the means for both purposes must be derived from her ex- portable produce. She must therefore tender that produce to England on terms sufficiently favourable to force a demand equivalent to this double debt. Everything will take place precisely as if the third country had bought Ger- man produce with her own goods, and offered that produce to England in ex- change for hers. There is an increased demand for English goods, for which German goods have to furnish the pay- ment ; and this can only be done by forcing an increased demand for them in England, that is, by lowering their , value. Thus an increase of demand for a country's exports in any foreign I country, enables her to obtain more 1 cheaply even those imports which she : procures from other quarters. And conversely, an increase of her own de- mand for any foreign commodity com- pels her, cceteris parilus, to pay dearer for all foreign commodities. The law which we have now illus- trated, may be appropriately named, the Equation of International Demand. It may be concisely stated as follows. The rodjinfi of a nnunir eynhanes. fjnr" j the produce__of^pther countries, at such vjjlues .as anTreq uired in order ihatlh her 'exports may LgxactlyJ)a; '"' " p lie This forme whoiej) flier imports.' of International Values is but an ex- tension of the more general law of Value, which we called the Equation of and Demand.^^We have seen that the value of a commodity always | so adjusts itself as to bring the demand I to the exact level of the supply. But f all trade, either between nations or individuals, is an interchange of com- modities, in which the things that they respectively have to sell, constitute also their means of purchase : the supply brought by the one constitutes his de- mand for what is brought by the other. So that supply and demand are but another expression for reciprocal de- mand : and to say that value will adjust itself so as to equalize demand with supply, is in fact to say that it will ad- just itself so as to equalize the demand on one side with the demand on the other. 5. To trace the consequences 6TN this law of International Values througjiy their wide ramifications, would occupy more space than can be here devoted to such a purpose. But there is ono of its applications which I will notice, as being in itself not unimportant, as bearing on the question which will occupy us in the next chapter, and especially as conducing to the more full and clear understanding of the law itself. We have seen that the value at which a country purchases a foreign commo * Supra, book iii. ch. ii. 4. INTERNATIONAL VALUES. 359 dity, does not conform to the cost of production in the country from which the commodity comes. Suppose now a change in that cost of production ; an improvement, for example, in the pro- cess of manufacture. Will the benefit of the improvement be fully participated in by other countries? Will the com- modity be sold as much cheaper to foreigners, as it is produced cheaper at hfcme ? This question, and the consi- derations which must be entered into in order to resolve it, are well adapted to try the worth of the theory. Let us first suppose, that the im- provement is of a nature to create a new branch of export : to make foreigners resort to the country for a commodity which they had previously produced at home. On this supposition, the foreign demand for the productions of the country is increased ; which necessarily alters the international values to its advantage, and to the disadvantage of foreign countries, who, therefore, though they participate in the benefit of the new product, must purchase that benefit by paying for all the other productions of the country at a dearer rate than be- fore. How much dearer, will depend on the degree necessary for re-establish- ing, under these new conditions, the Equation of International Demand. These consequences follow in a very obvious manner from the law of inter- national values, and I shall not occupy space in illustrating them, but shall pass to the more frequent case, of an improvement which does not create a new article of export, but lowers the cost of production of something which the country already exported. It being advantageous, in discussions of this complicated nature, to employ definite numerical amounts, we shall return to our original example. Ten yards of cloth, if produced in Germany, would require the same amount of abour and capital as twenty yards of linen ; but, by the play of international demand, they can be obtained from England for seventeen. Suppose now, that by a mechanical improvement made in Germany, and not capable of being transferred to England, the same quantity of labour and capital which produced twenty yards of linen, is enabled to produce thirty. Linen falls one-third in value in the German mar- ket, as compared with other commodi- ties produced in Germany. Will it also fall one-third as compared with English cloth, thus giving to England, in common with Germany, the full benefit of the improvement ? Or (ought we not rather to say), since the cost to England of obtaining linen was not regulated by the cost to Germany of producing it, and since England, accordingly, did not get the entire benefit even of the twenty yards which Germany could have given for ten yards of cloth, but only obtained seven- teen why should she now obtain more, merely because this theoretical limit is removed ten degrees further off? It is evident that in the outset, the improvement will lower the value of linen in Germany, in relation to all other commodities in the German mar- ket, including, among the rest, even the imported commodity, cloth. If 10 yards of cloth previously exchanged for 1.7 yards of linen, they will now ex- change for half as much more, or 25 yards. But whether they will continue to do so, will depend on the effect which this increased cheapness of linen pro- duces on the international demand. The demand for linen in England could scarcely fail to be increased. But it might be increased either in proportion to the cheapness, or in a greater pro- portion than the cheapness, or in a less proportion. If the demand was increased in the same proportion with the cheapness, England would take as many times 25 g yards of linen, as the number of times 17 yards which she took previously. She would expend in linen exactly as much of cloth, or of the equivalents of cloth, as much in short of the collective income of her people, as she did before. Germany, on her part, would probably require, at that rate of interchange, the same quantity of cloth as before, be- cause it would in reality cost her ex actly as much ; 25| yards of linen being now of the same value in her market, as 17 yards were before. In this case, therefore, 10 yards of cloth for 25 of 860 BOOK in. CHAPTER XVIH. 6. Jinrn is the rate of interchange which under these new conditions would re- store the equation of international de- mand ; and England would obtain linen one-third cheaper than before, being the same advantage as was obtained by Germany. It might happen, however, that this great cheapening of linen would in- crease the demand for it in England in a greater ratio than the increase of cheapness ; and that if she before wanted 1000 times 17 yards, she would now require more than 1000 times 25f yards to satisfy her demand. If so, the equation of international demand cannot establish itself at that rate of interchange ; to pay for the linen Eng- land must offer cloth on more advan- tageous terms : say, for example, 10 yards for 21 of linen ; so that England will not have the full benefit of the improvement in the production of linen, while Germany, in addition to that benefit, will also pay less for cloth. But again, it is possible that England might not desire to increase her con- sumption of linen in even so great a proportion as that of the increased cheapness ; she might not desire so great a quantity as 1000 times 25^ yards : and in that case Germany must force a demand, by offering more than 25^ yards of linen for 10 of cloth; linen will be cheapened in England in a still greater degree than in Germany; while Germany will obtain cloth on more unfavourable terms, and at a higher exchange value than before. After what has already been said, it is not necessary to particularize the manner in which these results might be modified by introducing into the hypothesis other countries and other commodities. There is a further cir- cumstance by which they may also be modified. In the case supposed, the consumers of Germany have had a part of their incomes set at liberty by the increased cheapness of linen, which they may indeed expend in increasing their consumption of that article, but which they may, likewise, expend in other articles, and among others, in cloth or other imported commodities. This would be an additional element in the international demand, and would modify more or less the terms of inter- change. Of the three possible varieties in the influence of cheapness on demand, which is the more probable that the demand would be increased more than the cheapness, as much as the cheap- ness, or less than the cheapness? This depends on the nature of the particular commodity, and on the tastes of pur- chasers. When the commodity is ono in general request, and the fall of its. price brings it within the reach of a much larger class of incomes than be- fore, the demand is often increased in a greater ratio than the fall of price, and a larger sum of money is on the whole expended in the article. Such was the case with coffee, when its price was lowered by successive reductions of taxation ; and such would probably be the case with sugar, wine, and a large class of commodities which, though not necessaries, are largely con- sumed, and in which many consumers indulge when the articles are cheap and economize when they are dear. But it more frequently happens that when a commodity falls in price, less money is spent in it than before : a greater quantity is consumed, but not so great a value. The consumer who saves money by the cheapness of the article, will be likely to^expend part of the saving in increasing his consump- tion of other things : and unless the low price attracts a large class of new purchasers who were either not consu- mers of the article at all, or only in small quantity and occasionally, a less aggregate sum will be expended on it. Speaking generally, therefore, the third of our three cases is the most probable : and an improvement in an exportable article is likely to be as beneficial (if not more beneficial) to foreign countries, as to the country where the article is produced. | ' 6. Thus far had the theory of in- ternational values been carried in the first and second editions of this work. But intelligent criticisms (chiefly those of my friend Mr. "VYiLiam Thornton) and subsequent further investigation, INTERNATIONAL VALUES. 361 have shewn that the doctrine stated in the preceding pages, though correct as far as it goes, is not yet the complete theory of the subject matter. ' It has been shown that the exports and imports between the two countries (or, if we suppose more than two, be- tween each country and the world) must in the aggregate pay for each other, and must therefore be exchanged for one another at such values as will be compatible with the equation of in- ternational demand. That this, how- ever, does not furnish the complete law of the phenomenon, appears from the following consideration : that several different rates of international value may all equally fulfil the conditions of this law. The supposition was, that England could produce 10 yards of cloth with the same labour as 15 of linen, and Germany with the same labour as 20 of linen ; that a trade was opened be- tween the two countries ; that England thenceforth confined her production to cloth, and Germany to linen ; and, that if 10 yards of cloth should thenceforth exchange for 17 of linen, England and Germany would exactly supply each other's demand : that, for instance, if England wanted at that price 17,000 yards of linen, Germany would want exactly the 10,000 yards of cloth, which, at that price, England would be required to give for the linen. Under these suppositions it appeared, that 10 cloth for 17 linen, would be, in point of fact, the international values. But it is quite possible that some other rate, such as 10 cloth for 18 linen, might also fulfil the conditions of the equation of international demand. Sup- pose that at this last rate, England would want more linen than at the rate of 10 for 17, but not in the ratio of the cheapness ; that she would not want the 18,000 which she could now buy with 10,000 yards of cloth, but would be content with 17,500, for which she would pay (at the new rate of 10 for 18) 9722 yards of cloth. Germany, again, having to pay dearer for cloth than when it could be bought at 10 for 17, would probably reduce her con- sumption to an amount below 10,000 yards, perhaps to the very same num- ber, 9722. Under these conditions the Equation of International Demand would still exist. Thus, the rate of 10 for 17, and that of 10 for 18, would equally satisfy the Equation of De- mand : and many other rates of inter- change might satisfy it in like manner. It is conceivable that the conditions might be equally satisfied by every nu- merical rate which could be supposed. There is still, therefore, a portion of indeterminateness in the rate at which the international values would adjust themselves, showing that the whole of the influencing circumstances can- not yet have been taken into the account. 7. It will be found that to supply this deficiency, we must take into con- sideration not only, as we have already done, the quantities demanded in each country, of the imported commodities ; but also the extent of the means of supplying that demand, which are set at liberty in each country by the change in the direction of its industry. To illustrate this point it will be necessary to choose more convenient numbers than those which we have hitherto employed. Let it be supposed that in England 100 yards of cloth, previously to the trade, exchanged for 100 of linen, but that in Germany 100 of cloth exchanged for 200 of linen. When the trade was opened, England would supply cloth to Germany, Ger- many linen to England, at an exchange value which would depend partly on the element already discussed, viz. the comparative degree in which, in the two countries, increased cheapness operates in increasing the demand ; and partly on some other element not yet taken into account. In order to isolate this unknown element, it will be necessary to make some definite and invariable supposition in regard to the known element. Let us therefore as- sume, that the influence of cheapness on demand conforms to some simple law, common to both countries and to both commodities. As the simplest and most convenient, let us suppose that in both countries any given in- 362 crease of cheapness produces an ex actly proportional increase of con sump tion : or, in other words, that the value expended in the commodity, the cost incurred for the sake of obtaining it is always the same, whether that cosl affords a greater or a smaller quantity /rf the commodity. Let us now suppose that England previously to the trade, required a million of yards of linen, which were worth, at the English cost of produc- tion, a million yards of cloth. By turning all the labour and capital with which that linen was produced, to the production of cloth, she would produce for exportation a million yards of cloth. Suppose that this is the ex- act quantity which Germany is accus- tomed to consume. England can dis- pose of all this cloth in Germany at the German price ; she must consent indeed to take a little less until she has driven the German producer from the market, but as soon as this is effected, she can sell her million of cloth for two millions of linen ; being the quantity that the German clothiers are enabled to make, by transferring their whole labour and capital from cloth to linen. Thus England would gain the whole benefit of the trade, and Germany nothing. This would be perfectly con- sistent with the equation of interna- tional demand : since Etgland (ac- cording to the hypothesis in the pre- ceding paragraph) now requires two millions of linen (being able to get them at the same cost at which she previously obtained only one), while the prices in Germany not being altered, Germany requires as before exactly a million of cloth, and can ob- tain it by employing the labour and capital set at liberty from the pro- duction of cloth, in producing the tv.-o millions of linen required by England, '1 hus far, we have supposed that the additional cloth which England could make, by transferring to cloth the whole of the capital previously em- ployed in making linen, was exactly sufficient to supply the whole of Ger- many's existing demand. But suppose next that it is more than sufficient. BOOK HI. CHAPTER XVHL 7. Suppose that while England could make with her liberated capital a million yards of cloth for exportation, the cloth which Germany had hereto- fore required was 800,000 yards only, equivalent at the German cost of pro- duction to 1,600,000 yards of linen. England therefore could not dispose of a whole million of cloth in Germany at the German prices. Yet she wants, whether cheap or dear (by our suppo- sition), as much linen as can be bought for a million of cloth : and since this can only be obtained from Germany, or by the more expensive process of production at home, the holders of the million of cloth will be forced by each other's competition to offer it to Ger- many on any terms (short of the English cost of production) which will induce Germany to take the whole. What terms these would be, the sup- position we have made enables us exactly to define. The 800,000 yards of cloth which Germany consumed, cost her the equivalent of 1,600,000 linen, and that invariable cost is what she is willing to expend in cloth, whether the quantity it obtains for her be more or less. England, there- fore, to induce Germany to take a mil- lion of cloth, must offer it for 1,600,000 of linen. The international values will thus be 100 cloth for 160 linen, intermediate between the ratio of the costs of production ' in England and that of the costs of production in Germany : and the two countries will divide the benefit of the trade, England gaining in the aggregate 600,000 yards of linen, and Germany being richer by 200,000 additional yards of loth. Let ns now stretch the last supposi- tion still farther, and suppose that the loth previously consumed by Germany was not only less than the million yards which England is enabled to furnish by discontinuing her production of linen, but less in the full proportion of England's advantage in the produc- tion, that is, that Germany only re- quired half a million. In this case, v ceasing altogether to produce cloth, ermany can add a million, but a million only, to her production of linen, INTERNATIONAL VALUES. 363 and this million being the equivalent of what the half million previously cost her, is all that she can be induced by any degree of cheapness to expend in cloth. England will be forced by her own competition to give a whole million of cloth for this million of linen, just as she was forced in the preceding case to give it for 1,600,000. But England could have produced at the same cost a million yards of linen for herself. England therefore derives, in this case, no advantage from the inter- national trade. Germany gains the whole ; obtaining a million of cloth instead of half a million, at what the half million previously cost her. Ger- many, in short, is, in this third case, exactly in the same situation as Eng- land was in the first case ; which may easily be verified by reversing the figures. As the general result of the three cases, it maybe laid down as a theorem, that under the supposition we have made of a demand exactly in propor- tion to the cheapness, the law of international value will be as fol- lows : The whole of the cloth which Eng- land can make with the capital pre- viously devoted to linen, will exchange for the whole of the linen which Ger- many can make with the capital pre- viously devoted to cloth. Or, stiil more generally, The whole of the commodities which the two countries can respectively make for exportation, with the labour and capital thrown out of employment by (importation, will exchange against one an other. This law, and the three different possibilities arising from it in respect to the division of the advantage, may be conveniently generalized by means of algebraical symbols, as follows : Let the quantity of cloth which England can make with the labour and capital withdrawn from the production of linen, be = n. Let the cloth previously required by Germany (at the German cost of production) be = m. Then n of cloth will always ex- change for exactly 2m of linen. Consequently if n = m, the whole advantage will be on the bide of luig- land. If n 2m, the whole advantage will be on the side of Germany. If n be gi eater than m, but less than 2m, the two countries will share the advantage ; En gland getting 2m of linen where she before got only n; Germany getting n of cloth where she before got only m. It is almost superfluous to observe that the figure 2 stands where it does, only because it is the figure which ex- presses the advantage of Germany over England in linen as estimated in cloth, and (what is the same thing) of Eng- land over Germany in cloth as esti- mated in linen. If we had supposed that in Germany, before the trade, 100 of cloth exchanged for 1000 instead of .200 of linen, then n (after the trade commenced) would have exchanged for 1 Om instead of 2m. If instead of 1000 or 200 we had supposed only 150, n O would have exchanged for only m. If (in fine) the cost value of cloth (as estimated in linen) in Germany, ex- ceeds the cost value similarly estimated in England, in the ratio of p to q, then will n, after the opening of the trade, exchange for -m.* <1 8. We have now arrived at what seems a law of International Values, of great simplicity and generality. But we have done so by setting out from * It may be asked, why we have supposed the number n to have as its extreme limits, m and 2m (or TO)? why may not n be loss q than m, or greater than 2m ; and if so, what will be the result ? This we shall now examine, and when we do so it will appear that n is always, practi- cally speaking, confined within these limits. Suppose for example that n is less than m; or, reverting to our former figures, that the million yards of cloth, which England can make, will not satisfy the whole of G ermany's pre-existing demand; that demand being (let us suppose) for 1,200,000 yards. It would then, at first sight, appear that England would supply Germany with cloth up to the extent of a million ; that Germany would continue to supply herself with the remain- ing 200,000 by home production; that this 364 BOOK in. CHAPTER XYHI. 8. purely arbitrary hypothesis respecting the relation between demand and cheapness. We have assumed their relation to be fixed, though it is essen- tially variable. We have supposed that every increase of cheapness pro- duces an exactly proportional extension of demand ; in other words, that the same invariable value is laid out in a commodity whether it be cheap or dear ; and the law which we have investi- gated holds good only on this hypo- thesis, or some other practically equi- valent to it. Let us now, therefore, combine the two variable elements of the question, the variations of each of which we have considered sepa- rately. Let us suppose the relation between demand and cheapness to vary, and to become such as would prevent the rule of interchange laid down in the last theorem from satis- fying the conditions of the Equation of International Demand. Let it be supposed, for instance, that the demand portion of the supply would regulate the price of the whole ; that England therefore would be able permanently to sell her million of cloth at the German cost of production (viz. for two millions of linen) and would gain the wi.ole advantage of the trade, Germany being no better off than before. That such, however, would not be the practical result, will soon be evident. The residuary demand of Germany for 200,000 yards of cloth furnishes a resource to Eng- land for purposes of foreign trade of which it is still her interest to avail herself; and though she has no more labour and capital which she can withdraw from linen for the production of this extra quantity of cloth, there must be some other commodities in which Germany has a relative advantage over her (though perhaps not so gi-eat as in linen) : these she will now import, instead of producing, and the labour and capital for- merly en ployed in producing them will be transferred to cloth, until the required amount is made up. If this transfer just makes up the 200,000 and no more, this aug- mented n will now be equal to m ; England will sell the whole 1,200,000 at the German values; and will still gain the whole advan- tage of the trade. But if the transfer makes up more than the 200,000, England will have more cloth than 1,200,000 yards to offer; n will become greater than m, and England must part with enough of the advantage to induce Germany to take the surplus. Thus, the case which seemed at first sight to be beyond the limits, is translormed practically into a case either coinciding with one of the limits, or between them. And so with every other case which can be supposed. of England for linen is exactly propor- tional to the cheapness, but that of Germany for cloth, not proportional. To revert to the second of our three cases, the case in which England by discontinuing the production of linen could produce for exportation a million yards of cloth, and Germany by ceas- ing to produce cloth could produce an additional 1,600,000 yards of linen. If the one of these quantities exactly exchanged for the other, the demand of England would on our present sup- position be exactly satisfied, for she requires all the linen which can be got for a million yardp of cloth : but Ger- many perhaps, though she required 800,000 cloth at a cost equivalent to 1,600,000 linen, yet when she can get a million of cloth at the same cost, may not require the whole million ; or may require more than a million. First, let her not require so much ; but only : as much as she can now buy for 1,500,000 linen. England will utill 'offer a million for these 1,500,000; but even this may not induce Germany to take so much as a million ; and if England continues to expend exactly the same aggregate cost on linen whatever be the price, she will have to submit to take for her million of cloth any quantity of linen (not less than a million) which may be requisite to in- duce Germany to take a million of cloth. Suppose this to be 1,400,000 yards. England has now reaped from the trade a gain not of 600,000 but only of 400,000 yards ; while Germany, besides having obtained an. extra 200,000 yards of cloth, has obtained it with only seven-eighths of the labour and capital which she previously ex- pended in supplying herself with cloth, and may expend the remainder in in- creasing her own consumption of linen, or of any other commodity. Suppose on the contrary that Ger- many, at the rate of a million cloth for 1,600,000 linen, requires more than a million yards of cloth. England having only a million which she can give without trenching upon the quan- tity she previously reserved for herself, Germany must bid for the extra cloth at a higher rate than 160 for 100, INTERNATIONAL VALUES. 365 nntfl she reaches a rate (say 170 for 100) which will either bring down her own demand for cloth to the limit of a million, or else tempt England to pai't with some of the cloth she previously consumed at home. Let us next suppose that the pro- portionality of demand to cheapness, instead of holding good in one country but not in the other, does not hold good in either country, and that the deviation is of the same kind in both; that, for instance, neither of the two increases its demand in a degree equi- valent to the increase of cheapness. On this supposition, at the rate of one million cloth for 1,600,000 linen, Eng- land will not want so much as 1,600,000 linen, nor Germany so much as a million cloth : and if they fall short of that amount in exactly the same degree ; if England only wants linen to the amount of nine-tenths of 1,600,000 (1,440,000), and Germany only nine hundred thousand of cloth, the interchange will continue to take place at the same r^te. And so if England wants a tenth more than 1,600,000, and Germany a tenth more than a million. This coincidence (which, it is to he observed, supposes demand to extend cheapness in a cor- responding, but not in an equal de- gree*) evidently could not exist unless by mere accident : and in any other case, the equation of international de- mand would require a different adjust- ment of international values. The only general law, then, which can be laid down, is this. The values at which a country exchanges its pro- duce with foreign countries depend on two things : first, on the amount and extensibility of their demand for its commodities, compared with its de- mand for theirs ; and secondly, on the capital which it has to spare, from the production of domestic commodities * The increase of demand from 800,000 to 900,000, and that from a million to 1,440,000, are neither equal in themselves, nor bear an equal proportion to the increase of cheapness. Germany's demand for cloth has increased one-eighth, while the cheapness is increased one-fourth. England's demand for linen is increased 44 per cent, while the cheapness is incr jased 60 per cent. for its own consumption. The more the foreign demand for its commodities exceeds its demand for foreign commo- dities, and the less capital it can spare to produce for foreign markets, com- pared with what foreigners spare to produce for its markets, the more fa- vourable to it will be the terms of interchange: that is, the more it will obtain of foreign commodities in return for a given quantity of its own. But these two influencing circum- stances are in reality reducible to one : for the capital which a country has to spare from the production of domestic commodities for its own use, is in pro- portion to its own demand for foreign commodities : whatever proportion of its collective income it expends in pur- chases from abroad, that same propor- tion of its capital is left without a home market for its productions. The new element, therefore, which for the sake of scientific correctness we have intro- duced into the theory of international values, does not seem to make any very material difference in the practical result. It still appears, that the coun- tries which carry on their foreign trade on the most advantageous terms, are those whose commodities are most in demand by foreign countries, and which have themselves the least demand for foreign commodities. From which, among other consequences, it follows, that the richest countries, cceteris pari- bus, gain the least by a given amount of foreign commerce : since, having a greater demand for commodities gene- rally, they are likely to have a greater demand for foreign commodities, and thus modify the terms of interchange to their own disadvantage. Their ag- gregate gains by foreign trade, doubt- less, are generally greater than those of poorer countries, since they carry on a greater amount of such trade, and gain the benefit of cheapness on a larger consumption : but their gain ig less on each individual article con- sumed. 9. We now pass to another essen- tial part of the theory of the subject. There are two senses in which a com> BOOK III. CHAPTER XVIII. 9. 36S try obtains commodities cheaper by foreign trade ; in the sense of Value, and in the sense of Cost. It gets them cheaper in the first sense, by their falling in value relatively to other things : the same quantity of them exchanging, in the country, for a smaller quantity than before of the other produce of the country. To re- vert to our original figures ; in England, all consumers of linen obtained, after the trade was opened, 17 or some greater number of yards for the same quantity of all other things for which they before obtained only 15. The degree of cheapness, in this sense of the term, depends on the laws of Inter- national Demand, so copiously illus- trated in the preceding sections. But in the other sense, that of Cost, a country gets a commodity cheaper, when it obtains a greater quantity of the commodity with the same expen- diture of labour and capital. In this sense of the term, cheapness in a great measure depends upon a cause of a different nature : a country gets its im- ports cheaper, in proportion to the gene- ral productiveness of its domestic in- dustry ; to the general efficiency of its labour. The labour of one country may be, as a whole, much more effi- cient than that of another : all or most of the commodities capable of being produced in both, may be produced in one at less absolute cost than in the other; which, as we have seen, will not necessarily prevent the two coun- tries from exchanging commodities. The things which the more favoured country will import from others, are of course those in which it is least superior; but by importing them it acquires, even in those commodities, the same advantage which it possesses in the articles it gives in exchange for them. Thus the countries which ob- tain their own productions at least cost, also get their imports at least cost. This will be made still more obvious if we suppose two competing countries. England sends cloth to Germany, and gives 10 yards of it for 17 yards of linen, or tor something else which in is the equivalent of those 1 7 yards. Another country, as for ex- ample France, does the same. The one giving 10 yards of cloth for a certain quantity of German commodities, so must the other : if, therefore, in Eng- land, these 10 yards are produced by only half as much labour as that by which they are produced in France, the linen or other commodities of Ger- many will cost to England only half the amount of labour which they will cost to France. England would thus obtain her imports at less cost than France, in the ratio of the greater effi- ciency of her labour in the production of cloth : which might be taken, in the case supposed, as an approximate estimate of the efficiency of her labour generally; since France, as well as England, by selecting cloth as her article of export, would have shown that with her also it was the commo- dity in which labour was relatively the most efficient. It follows, therefore!' that every country gets its imports al less cost, in proportion to the genera^ efficiency of its labour. This proposition was first clearly seen and expounded by Mr. Senior,* but only as applicable to the importa- tion of the precious metals. I think it important to point out that the proposi- tion holds equally true of all other im- ported commodities ; and further, that it is only a portion of the truth. For, in the case supposed, the cost to Eng- land of the linen which she pays for with ten yards of cloth, does not depend solely upon the cost to herself of ten yards of cloth, but partly also upon how many yards of linen she obtains in exchange for them. What her im- ports cost to her is a function of two variables ; the quantity of her own commodities which she gives for them, and the cost of those commodities. Of these, the last alone depends on the efficiency of her labour: the first de- pends on the law of international values ; that is, on the intensity and extensibility of the foreign demand for her commodities, compared with her demand for foreign commodities. In the case just now suppose cl, of * Three Lectures on the Cost of Obtaining Money, MONEY AS AN IMPORTED COMMODITY-. 367 a competition between England and France, the state of international values affected both competitors alike, since they were supposed to trade with the same country, and to export and import the same commodities. The difference, therefore, in what their im- ports cost them, depended solely on the other cause, the unequal efficiency of their labour. They gave the same quantities ; the difference could only be in the cost of production. But if England traded to Germany with cloth, and France with iron, the comparative demand in Germany for those two com- modities would bear a share in deter- mining the comparative cost, in labour and capital, with which England and France would obtain German products. If iron were more in demand in Ger- many than cloth, France would recover, through that channel, part of her dis- advantage ; if less, her disadvantage would be increased. The efficiency, therefore, of a country's labour, is not the only thing which determines even the cost at which that country obtains imported commodities while it has no share whatever in determining either their exchange value, or, as we shall presently see, their price. CHAPTER XIX. OB 1 MONEY, CONSIDERED AS AN IMPORTED COMMODITY. 1. THE degree of progress which we have now made in the theory of Foreign Trade, puts it in our power to supply what was previously deficient in our view of the theory of Money; and this, when completed, will in its turn enable us to conclude the subject of Foreign Trade. Money, or the material of which it is composed, is, in Great Britain, and in most other countries, a foreign com- modity. Its value and distribution must therefore be regulated, not by the law of value which obtains in ad- jacent places, but by that which is ap- plicable to imported commodities the law of International Values. In the discussion into which we are now about to enter, I shall use the terras Money and the Precious Metals indiscriminately. This may be done without leading to any error ; it having been shown that the value of money, when it consists of the precious metals, or of a paper currency convertible into them on demand, is entirely governed by the value of the metals themselves : from which it never permanently differs, except bjr the expense of coinage when this is paid by the individual and not by the State, Money is brought into a country in two different ways. It is imported (chiefly in the form of bullion) like any other merchandize, as being an advan- tageous article of commerce. It is also imported in its other character of a medium of exchange, to pay some debt due to the country, either for goods ex- ported or on any other account. There are other ways in which it may be in- ti-oduced casually; these are the two in which it is received in the ordinary course of business, and which deter- mine its value. The existence of these two distinct modes in which money flows into a country, while other com- modities are habitually introduced only in the first of these modes, occasions somewhat more of complexity and ob- scurity than exists in. the case of other commodities, and for this reason only is any special and minute exposition necessary. 2. In so far as the precious metals are imported in the ordinary way of commerce, their value must depend on the same causes, and conform to the same laws, as the value of any other foreign production. It is in this mode chiefly that gold a,nd sijyer diffuse the?n 368 selves from the mining countries into all other parts of the commercial world. They are the staple commodities of those countries, or at least are among their great articles of regular export ; and are shipped on speculation, in the same manner as other exportable com- modities. The quantity, therefore, which a country (say England) will give of its own produce, for a certain quantity of bullion, will depend, if we suppose only two countries and two commodities, upon the demand in Eng- land for bullion, compared with the demand in the mining country (which we will call Brazil) for what England has to give. They must exchange in such proportions as will leave no un- satisfied demand on either side, to aHer values by its competition. The bullion required by England must exactly pay for the cottons or other English com- modities required by Brazil. If, how- ever, we substitute for this simplicity the degree of complication which really exists, the equation of international demand must be established not be- tween the bullion wanted in England and the cottons or broadcloth wanted in Brazil, but between the whole of the imports of England and the whole of her exports. The demand in foreign countiies for English products, must be brought into equilibrium with the demand in England for the products of foreign countries ; and all foreign commodities, bullion among the rest, must be exchanged against English products in such proportions, as will, by the effect they produce on the de- establish this equilibrium, lere is nothing in the peculiar nature or uses of the precious metals, which should make them an exception to the general principles of demand. So far as they are wanted for purposes " luxury or the arts, the demand in- creases with the cheapness, in the same irregular way as the demand for her ; the exchange becomes unfavour- I able, and the difference has to be paid \ in_money. This is in appearance IT very distinct operation from the former. Let us see if it differs in its essence, or only in its mechanism. Let the country which has the balance to pay be England, and the country which receives it, France. By this transmission of the precious metals, the quantity of the currency is dimi- nished in England, and increased in France. This I am at liberty to as- sume. As we shall see hereafter, it would be a very erroneous assumption if made in regard to all payments of international balances. A balance which has only to be paid once, such as the payment made for an extra importation of corn in a season of dearth, may be paid from hoards, or from the reserves of bankers, without acting on the cir- culation. But we are now supposing that there is an excess of imports over exports, arising from the fact that the equation of international demand is not _ established : that there is at the ordinary prices a permanent demand in England for more French goods than the English goods required in France at the ordinary prices will pay for. When this is the case, if a change were not made in the prices, there would be perpetually renewed balance to be paid in money. The imports require to be permanently diminished, or the exports to be increased ; which can only be accomplished through prices ; and hence, even if the balances are at first paid from hoards, or by the ex- portation of bullion, they will reach the circulation at last, for until they do-nothing can stop the drain. - Y~"vVhen, therefore, the state of prices s such that the equation of inter- national demand cannot establish it- self, the country requiring more im- ports than can be paid for by the exports ; it is a sign that the country las more of the precious metals or their substitutes, in circulation, than can permanently circulate, and must necessarily part with some of them Before the balance can be restored* s Tire-currency is accordingly contracted : prices fall, and among the rest, the prices of exportable articles ; for which, accordingly, there arises, in foreign countries, a greater demand: while mported commodities have possibly isen in price, from the influx of money nto foreign countries, and at all events lave not participated in the general fall. But until the increased cheapness of English goods induces foreign coun- tries to take a greater pecuniary value, ir until the increased dearness (positive r comparative) of foreign goods makes England take a less pecuniary value, he exports of England will be no learer to paying for the imports than >efore, and the stream of the precious metals which had begun to flow out of England, will still flow on. This ef- lux will continue, until the fall of prices n England brings within reach of he foreign market some commodity vhich England did not previously send 376 BOOK III. CHAPTER XXI. 2. thither; or until the reduced price of the things which she did send, has forced a demand abroad for a sufficient quantity to pay for the imports, aided, perhaps, by a reduction of the English demand for foreign goods, through their enhanced price, either positive or comparative. Xow this is the very process which took place on our original supposition of barter. Not only, therefore, does the trade between nations tend to the same equilibrium between exports and imports, whether monev is employed or not, but the means by which this equilibrium is established are essen- tially the same. The country whose exports are not sufficient to pay for her imports, offers them on cheaper terms, until she succeeds in forcing the necessary demand : in other words, the Equation of International under Demand, well 2. It thus appears that the law of international values, and, consequently, the division of the advantages of trade among the nations which cany it on, are the same on the supposition of money, as they would be in 'a state of barter. In international, as in ordinary domestic interchanges, money is to commerce only what oil' < i^^*Tpa- chinery, or railways to locomotion, a contrivance to diminish friction. In order sti'l further to test these con- clusions, let us proceed to re-examine, on the supposition of money, a question which we have already investigated on hypothesis of barter, namely, to what extent the benefit of an improve-\ ment in the production of an exportable J article, is participated in by the COUJK toies impoi-ting it. The improvement may either consist in the cheapening of some article which was already a staple production of the money system as under a barter system, is the law of j country, or in the establishment of intei-national trade. Every country some new branch of industry, or of some process rendering an article ex- portable which had not till then been exported at all. It will be convenient exports and imports the very same things, and in the very same quantitv, under the one system as under the other. In a barter system, the trade gravitates to the point at which the sum of the imports exactly exchanges for the sum of the exports : in a money system, it gravitates to the point at which the sum of the imports and the eum of the exports exchange for the same quantity of money. And since things which are equal to the same thing are equal to one another, the exports and imports which are equal in money price, would, if money were not used, precisely exchange for one another.* * The subjoined extract from the separate Essay previously referred to, will give some assistance in following the course of the phe- nomena. It is adapted to the imaginary case used for illustration throughout that Essay, the case of a trade between England and Germany in cloth and linen. " We may at first make whatever supposi- tion we will with respect to the value of money. Let us suppose, therefore, that be- fore the opening of the trade, the price of jloth is the same in both countries, namely, six shillings per yard. As 10 yards of cloth were supposed to exchange in England for 15 yards of linen, in Germany for 20, we must suppose that linen is sold in England at four shillings per yard, in Germany at three. to begin with the case of a new export, as being somewhat the simpler of the two. I The first effect is that the article I 'falls in price, and a demand arises for I it abroad. This new exportation dis-/ turbs the balance, turns the exchanges, money flows into the country (which we shall suppose to be England), and continues to flow until prices rise. This higher range of prices will somewhat check the demand in foreign countries for the new article of export ; and will diminish the demand which existed abroad for the other things which Cost of carriage and importer's profit are left, as before, out of consideration. " In this state of prices, cloth, it is evident, cannot yet be exported from England into Germany: but linen can be imported from Germany into England. It will be so : and, in the first instance, the linen will be paid for in money. " The efflux of money from England, and its influx into Germany, will raise money prices in the latter country, and lower them in the former, Linen will rise in Germany above three shillings per yard, and cloth above six shillings. Linen in Eagland, being imported from Germany, will (since cost of carriage is nt>t reckoned) sink to the same price as in that country, while cloth will fall DISTRIBUTION OF THE PKECIOUS METALS. 37? England was in the habit of exporting. The exports will thus be diminished ; while at the same time the English public, having more money, will have a greater power of purchasing foreign commodities. If they make use of this below six shillings. As soon as the priqe of cloth is lower in England than in Germany, it will begin to be exported, and the price of cloth in Germany will fall to what it is in England. As long as the cloth exported does not suffice to pay for the linen imported, money will continue to flow from England into Germany, and prices generally will con- tinue to fall in England and rise in Ger- many. By the fall, however, of cloth in England, cloth will fall in Germany also, and the demand for it will increase. By the rise of linen in Germany, linen must rise in England also, and the demand for it will diminish. As cloth fell in price and linen rose, there would be some particular price of both articles, at'which the cloth ex- ported and the linen imported would exactly pay for each other. At this point prices would remain, because money would then cease to move out of England into Germany. What this point might be, would entirely depend upon the circumstances and inclina- tions of the purchasers on both sides. If the fall of cloth did not much increase the demand for it in Germany, and the rise of linen did not diminish very rapidly the de- mand for it in England, much money must pass before the equilibrium is restored ; cloth would fall very much, and linen would rise, until England, perhaps, had to pay nearly as much for it as when she produced it for her- self. But if, on the contrary, the fall of cloth caused a very rapid increase of the de- mand for it in Germany, and the rise of linen in Germany reduced very rapidly the de- mand in England from what it was under the influence of the first cheapness produced by the opening of the trade; the cloth would very soon suffice to pay for the linen, little money would pass between the two countries, and England would derive a large portion of the benefit of the trade. We have thus ar- rived at precisely the same conclusion, in sup- posing the employment of money, which we found to hold under the supposition of barter. " In what shape the benefit accrues to the two nations from the trade is clear enough. Germany, before the commencement of the trade, paid six shillings per yard for broad- cloth : she now obtains it at a lower price. This, however, is not the whole of her ad- vantage. As the money-prices of all her other commodities have risen, the money- incomes of all her producers have increased. This is no advantage to them in buying from each ether, because the price of what they buy has risen in the same ratio with their means of paying for it : but it is an advan- tage to them in buying anything which has not risen, and, still more, anything which has fallen. They, therefore, benefit as con- sumers of cloth, not merely to the extent to increased power of purchase, there will be an increase of imports ; and by this, and the check to exportation, the equilibrium of imports and exports will be restored. The result to foreign countries will be, that they have to which cloth has fallen, but also to the extent to which other prices have risen. Suppose that this is one-tenth. The same proportion of their money-incomes as before, will suffice to supply their other wants; and the re- mainder, being increased one-tenth in amount, will enable them to purchase one- tenth more cloth than before, even though cloth had not fallen : but it has fallen ; so that they are doubly gainers. They purchase the same quantity with less money, and have more to expend upon their other wants. "In England, on the contrary, general money-prices have fallen. Linen, however, has fallen more than the rest, having been lowered in price by importation from a country where it was cheaper ; whereas the others have fallen only fro'm the consequent efflux of money. Notwithstanding, there- fore, the general fall of money-prices, the English producers will be exactly as they were in all .other respects, while they will gain as purchasers of linen. " The greater the efflux of money required to restore the equilibrium, the greater will be the gain of Germany, both by the fall of cloth and by the rise of her general prices. The less the efflux of money requisite, the greater will be the gain of England ; because the price of linen will continue lower, and her general prices will not be reduced so much. It must not, however, be imagined that high money-prices are a good, and low money-prices an evil, in themselves. But the higher the general money-prices in any country, the greater will be that country's means of purchasing those commodities, which, being imported from abroad, are in- dependent of the causes which keep prices high at home." In practice, the cloth and the linen would not, as here supposed, be at the same price in England and in Germany : each would be dearer in money-price in the country which imported than in that which produced it, by the amount of the cost of carriage, together with the ordinary profit on the importer's capital for the average length of time which elapsed before the commodity could be dis- posed of. But it does not follow that each country pays the cost of carriage of the com- modity it imports ; for the addition of this item to the price may operate as a greater check to demand on one side than on the other; and the equation of international demand, and consequent equilibrium of pay- ments, may not be maintained. Money would then flow out of one country into the other, until, in the manner already illus- trated, the equilibrium was restored : and, when this was effected, one country would be paying more than its own cost of carriage* and the other less. 578 BOOK HI. CHAPTER XXI. 2. pay dearer than before for their other imports, and ol tain the new commodity cheaper than before, but not so much rheaper as England herself does. I say this, being well aware that the article would be actually at the very same price (cost of carriage excepted) in England and in other countries. The cheapness, however, of the article is not measured solely by the money- price, but by that price compared with the money incomes of the consumers. The price is the same to the English and to the foreign consumers ; but the former pay that price from money in- comes which have been increased by the new distribution of the precious metals : while the latter have had their money incomes probably diminished by the same cause. The trade, thereiore, has not imparted to the foreign COTP" sumer the whole, but only a portion, of the benefit which the English con- sumer has derived from the improve- ment ; while England has also benefited in the prices of foreign commodities. 'Thus, then, any industrial improve- ment which leads to the opening of a new branch of export trade, benefits a country not only by the cheapness of the article in which the improvement has taken place, but by a general cheapening of all imported products. Let us now change the hypothesis, N and suppose that the improvement, instead of creating a new export from England, cheapens an existing one. When we examined this case on the supposition of barter, it appeared to us that the foreign consumers might either obtain the same benefit from the improvement as England herself, or a less benefit, or even a greater benefit, according to the degree in which the consumption of the cheapened article 13 calculated to extend itseli as the article diminishes in price. The same con- clusions will be found true on the sup- position of money. Let the commodity in which there is an improvement, be cloth. The first effect of the improvement is that its price falls, and there is an increased de- mand for it in the foreign market. But this demand is of uncertain amount. Suppose the foreign consumers to in- crease their purchases in the exact ratio of the cheapness, or in other words, to lay out in cloth the same sum of money as before ; the same aggregate payment as before will b3 due from foreign countries to England ; the equilibrium of exports and imports will remain undisturbed, and foreigners will obtain the full advantage of the increased cheapness of oloth. But it the foreign demand for cloth is of such a character as to increase in a greater ratio than the cheapness, a larger sum than formerly will be due to England for cloth, and when paid will raise English prices, the price of cloth ir- cluded; this rise, however, will affect only the foreign purchaser, English incomes being raised in a corresponding proportion ; and the foreign consumer will thus derive a less advantage than England from the improvement. If, on the contrary, the cheapening of cloth does not extend the foreign demand for it in a proportional degree, a less sum of debts than before will be due to England for cloth, while there will be the usual sum of debts due from Eng- land to foreign countries ; the balance of trade will turn against England, money will be exported, prices (that of cloth included) will fall, and cloth will eventually be cheapened to the foreign purchaser in a still greater ratio than the improvement has cheapened it to England. These are the very conclu- sions which we deduced on the hypo- thesis of barter. The result of the preceding discussion cannot be better summed up than in the words of Eicardo.* " Gold and silver having been chosen for the gene- ral medium of circulation, they are, by the competition of commerce, dis- tributed in such proportions amongst the different countries of the world as to accommodate themselves to the natural traffic which would take place if no such metals existed, and the trade between countries were purely a trade of barter." Of this principle, so fertile in consequences, previous to which the theory of foreign trade was an unintel- ligible chaos, Mr. Ricardo, though he * Principles of Political Economy and Taxa- tion, 3rd ed. p. 143. DISTRIBUTION OF THE PRECIOUS METALS. 379 did not pursue it into its ramifications, was the real originator. No writer who preceded him appears to have had a glimpse of it : and few are those who even since his time have had an ade- quate conception of its scientific value. 3. [t is now necessary to inquire, in what manner this law of the distri- bution of the precious metals by means of the exchanges, affects the exchange value of money itself; and how it tallies with the law by which we fo-und that the value of money is regulated when imported as a mere article of merchandize. For there is here a semblance of contradiction, which has, I think, contributed more than any- thing else to make some distinguished political economists resist the evidence of the preceding doctrines. Money, they justly think, is no exception to the general laws of value ; it is a com- modity like any other, and its average or natural value, must depend ontne cost of .producing, or at least of obtain- ing it. That its distribution through the world therefore, and its different value in different places, should be liable to be altered, not by causes affecting itself, but by a hundred causes unconnected with it ; by every- thing which affects the trade in other commodities, so as to derange the equilibrium of exports and imports ; appears to these thinkers a doctrine altogether inadmissible. But the supposed anomaly exists only in semblance. The causes which bring money into or carry it out of a country through the exchanges, to re- store the equilibrium of trade, and which thereby raise its value in some countries and lower it in others, are the very same causes on which the local value of money would depend, if it were never imported except as a merchandize, and never except directly from the mines. AVhen the value of money in a country is permanently lowered by an influx of it through the balance of trade, the cause, if it is not diminished cost of production, must be one of those causes which compel a new adjustment, more favourable to the country, of the equation of inter- national demand : namely, either jin increased demand abroad for her com- modities, or a diminished demand^on tier par! 'for those of foreign countries. Wow an increased foreign demand tor the commodities of a country, or a diminished demand in the country for imported commodities, are the very causes which, on the general principles of trade, enable a country to purchase all imports, and consequently the pre- cious metals, at a lower value. There is therefore no contradiction, but the most perfect accordance, in the results of the two different modes in which the precious metals may be obtained. .When money flows from' country 16*^ /country in consequence of changes in the international demand for commodi- ties, and by so doing alters its own local value, it merely realizes, by a more rapid process, the effect which would otherwise take place more slowly, by an alteration in the relative breadth of the streams by which the precious metals flow into different re- gions of the earth from the mining countries. As therefore we before saw that the use of money as a medium of exchange does not in the least alter the law on which the values of other things, either in the same country or internationally, depend, so neither does it alter the law of the value of the precious metal itself: and there is in the whole doctrine of international values as now laid down, a unity and harmony which is a strong collateral presumption of truth. 4. Before closing this discussion, it is fitting to point out in what manner and degree the preceding con- clusions are affected by the existence of international payments not originat- ing in commerce, and for which no equivalent in either money or com- modities is expected or received ; such as a tribute, or remittances of rent to absentee landlords or of interest to foreign creditors, or a government ex- penditure abroad, such as England incurs in the management of some of her colonial dependencies. To begin with the case of barter. The supposed annual remittances being BOOK m. CHAPTER XXII. 1. made in commodities, and being ex- ports for which there is to be no return, it is no longer requisite that the im- ports and exports should pay for one another : on the contrary, there must be an annual excess of exports over imports, equal to the value of the re- mittance. If, before the country be- came liable to the annual payment, foreign commerce was in its natural etate of equilibrium, it will now be necessary for the purpose of effecting the remittance, that foreign countries should be induced to take a greater quantity of exports than before : which can only be done by offering those ex- ports on cheaper terms, or in other words, by paying dearer for foreign commodities. The international values will so adjust themselves that either by greater exports, or smaller imports, or both, the requisite excess on the side of exports will be brought about ; and this excess will become the permanent state. The result is, that a country which makes regular payments to foreign countries, besides losing what it pays, loses also something more, by the less advantageous terms on which it is forced to exchange its productions for foreign commodities. The same results follow on the sup- position of money. Commerce being supposed to be in a state of equilibrium when the obligatory remittances begin, the first remittance is necessarily made in money. This lowers prices in the remitting country, and raises them in the receiving. The natural effect is that more commodities are exported than before, and fewer imported, and that, on the score of commerce alone, a balance of money will be constantly due from the receiving to the paying country. When the debt thus annually due to the tributary country becomes equal to the annual tribute or other regular payment due from it, no further transmission of money takes place ; the equilibrium of exports and imports will no longer exist, but that of pay- ments will; the exchange will be at par, the two debts will be set off against one another, and the tribute or remittance will be virtually paid in goods. The result to the interests of the two countries will be as already pointed out- the paying country will give a higher price for all that it buys from the receiving country, while the latter, besides receiving the tribute, obtains the exportable produce of the tributary country at a lower price. CHAPTER XXIL INFLUENCE OP THE CURRENCY ON THE EXCHANGES AND ON FOREIGN TRADE, 1. IN our inquiry into the laws of international trade* we commenced with the principles which determine international exchanges and inter- national values on the hypothesis of barter. We next showed that the in- troduction of money as a medium of exchange, makes no difference in the laws of exchanges and of values be- tween country and country, no more than between individual and indi- vidual : since the precious metals, under the influence of those same laws, distribute themselves in such propor- tions among the different countries of the world, as to allow the very same exchanges to go on, and at the same values, as would be the case under a system of barter. We lastly considered how the value of money itself is affected, by those alterations in the state of trade which arise from altera- tions either in the demand and supply of commodities or in their cost of pro- duction. It remains to consider the alterations in the state of trade which originate not in commodities but in money. INFLUENCE OF CURRENCY ON FOREIGN TRADE. 381 Gold and silver may vary like other things, though they are not so likely to vary as other things, in their cost of production. The demand for them in foreign countries may also vary. It may increase, by augmented employ- ment of the metals for purposes of art and ornament, or because the increase of production and of transactions has created a greater amount of business to be done by the circulating medium. It may diminish, for the opposite reasons ; or from the extension of the economizing expedients by which the use of metallic money is partially dis- pensed with. These changes act upon the trade between other countries and the mining countries, and upon the value of the precious metals, according to the general laws of the value of im- ported commodities : which have been set forth in the previous chapters with sufficient fulness. What I propose to examine in the present chapter, is not those circum- stances affecting money, which alter the permanent conditions of its value ; but the effects produced on interna- tional trade by casual or temporary variations in the value of money, which have no connexion with any causes affecting its permanent value. This is a subject of importance, on account of its bearing upon the. prac- tical problem which has excited so much discussion for sixty years past, the regulation of the currency. 2. Let us suppose in any country a circulating medium purely metallic, and a sudden casual increase made to it ; for example, by bringing into cir- culation hoards of treasure, which had been concealed in a previous period of foreign invasion or internal disorder. The natural effect would be a rise of prices. This would check exports, and encourage imports ; the imports would exceed the exports, the exchanges would become unfavourable, and the newly-acquired stock of money would diffuse itself over all countries with which the supposed country carried on trade, and from them, progressively, through all parts of the commercial world. The money which thus over- flowed would spread itself to an equal depth over all commercial countries. For it would go on flowing until the exports and imports again balanced one another : and this (as no change is supposed in the permanent circum- stances of international demand) could only be, when the money had diffused itself so equally that prices had risen in the same ratio in all countries, so that the alteration of price would be for all practical purposes ineffective, and the exports and imports, though at a higher money valuation, would be exactly the same as they were ori- ginally. This diminished value of money throughout the world, (at least if the diminution was considerable) would cause a suspension, or at least a diminution, of the annual supply from the mines : since the metal would no longer command a value equivalent to its highest cost of pro- duction. The annual waste would, therefore, not be fully made up, and the usual causes of destruction would gradually reduce the aggregate quan- tity of the precious metals to its former amount ; after which their pro- duction would recommence on its former scale. The discovery of the treasure would thus produce only tem- porary effects ; namely, a brief dis- turbance of international trade until the treasure had disseminated itself through the world, and then a tem- porary depression in the value of the metal, below that which corresponds to the cost of producing or of obtain- ing it ; which depression would gra- dually be corrected, by a temporarily diminished production in the producing countries, and importation in the im- porting countries. The same effects which would thus arise from the discovery of a treasure, accompany the process by which bank notes, or any of the other substitutes for money, take the place of the pre- cious metals. Suppose that England possessed a currency wholly metallic, of twenty millions sterling, and that suddenly twenty millions of banknotes were sent into circulation. If these were issued by bankers, they would be em- ployed in loans, or in the purchase of 382 BOOK ITL CHAPTER XXII. 2. twenty millions were absorbed ;* after which absoi-ption, the currencies of all countries would be, in quantity and in value, nearly at their original level. I say nearly, for in strict accuracy there would be a slight difference. A somewhat smaller annual supply of the precious metals would now be re- quired, there being in the world twenty millions less of metallic money under- going waste. The equilibrium of pay- ments, consequently, between the mining countries and the rest of the world, would thenceforth require that the mining countries should either export rather more of something else, or import rather less of foreicrn com modities ; which implies a somewhat lower range of prices than pr in the mining countries, and a some- what higher in all others ; a scantier currency" in the former, and rather fuller currencies in the latter. This effect, which would be too trifling to require notice except for the illustra- tion of a principle, is the only perma- nent change which would be produced on international trade, or on the value or quantity of the currency of any country. Effects of another kind, however, will have been produced. Twenty millions which formerly existed in the unproductive form of metallic money, have been converted into what is, or is capable of becoming, productive capital. This gain is at first made by England at the expense of other countries, who have teken her super- fluity of this costly and unproductive article off her hands, giving for it an equivalent value in other commodities. By degrees the loss is made up to those countries by diminished influx from the mines, and finally the world has gained a virtual addition of twenty millions to its productive resources. Adam Smith's illustration, though so well known, deserves for its extreme securities, and worild therefore create a sadden fall in the rate of interest, which would probably send a great part of the twenty millions of gold out of the country as capital, to seek a higher rate of interest elsewhere, be- fore there had been time for any action on prices. But we will suppose that the notes are not issued by bankers, or money-lenders of any kind, but by manufacturers, in the payment of wages and purchase of materials, or by the government in its ordinary expenses, so that the whole amount would be rapidly carried into the markets for commodities. The following would be the natural order of consequences. All prices would rise greatly. Exportation would almost cease ; importation would be prodi- giously stimulated. A great balance of payments would become due ; the exchanges would turn against England, to the full extent of the cost of ex- porting money ; and the surplus coin would pour itself rapidly forth, over the various countries of the world, in the order of their proximity, geogra- phically and commercially, to England. The efflux would continue until, the currencies of all countries had come to a level ; by which I do not mean, until money became of the same value everywhere, but until the differences were only those which existed before, and which corresponded to permanent differences in the cost of obtaining it. "When the rise of prices had extended itself in an equal degree to all coun- tries, exports and imports would every- where revert to what they were at first, would balance one another, and the exchanges would return to par. If such a sum of money as twenty millions, when spread over the whole surface of the commercial world, were sufficient to raise the general level in a perceptible degree, the effect would be of no long duration. No alteration having occurred in the general condi- tions under which the metals were procured, either in the world at large or in any part of it, the reduced value would no longer be remunerating, and the supply from the mines would cer.se partially or wholly, until the * I am here supposing a state of thing in which gold and silver mining are a per- manent branch of industry, carried on under known conditions ; and not the present state of uncertainty, in which gold-gathering is a game of chance, prosecuted (for the presentl in the spirit of an adventure, mt in that of a regular industrial jru: INFLUENCE OF CURRENCY ON FOREIGN TRADE. 3S3 aptness to be once more repeated. He compares the substitution of paper in the room of the precious metals, to the construction of a highway through the air, hy which the ground now occupied hy roads would become avail- able for agriculture. As in that case a portion of the soil, so in this a part of the accumulated wealth of the country, would be relieved from a function in which it was only em- ployed in rendering other soils and capitals productive, and would itself become applicable to production ; the office it previously fulfilled being equally well discharged by a medium which costs nothing. The value saved to the community by thus dispensing with metallic money, is a clear gain to those who provide the substitute. They have the use of twenty millions of circulating medium which have cost them only the expense of an engraver's plate. If they employ this accession to their fortunes as productive capital, the pro- duce of the country is increased and the community benefited, as much as by any other capital of equal amount. Whether it is so employed or not, de- pends, in some degree, upon the mode of issuing it. If issued by the govern- ment, and employed in paying off debt, it would probably become productive capital. The government, however, may prefer employing this extraor- dinary resource in its ordinary ex- penses ; may squander it uselessly, or make it a mere temporary substitute for taxation to an equivalent amount ; in which last case the amount is saved by the taxpayers at large, who either add it to their capital or spend it as income. When paper currency is sup- plied, as in our own country, by bankers and banking companies, the r, mount is almost wholly turned into productive capital : for the issuers, being at all times liable to be called upon to refund the value, are under the strongest inducements not to squander it, and the only cases in which it is not forthcoming are cases of fraud or mismanagement. A banker's profession being that of a money-lender, his issue of notes is a simple extension of his ordinary occu- pation. He lends the amount to farmers, manufacturers, or dealers, who employ it in their several businesses. So employed, it yields, like any o.ther capital, wages of labour and profits of stock. The profit is shared between the banker, who receives interest, and a succession of borrowers, mostly for short periods, who after paying the interest, gain a profit in addition, or a convenience equivalent to profit. The capital itself in the long run becomes entirely wages, and when replaced by the sale of the produce, becomes wages again ; thus affording a perpetual fund, of the value of twenty millions, for the maintenance of productive labour, and increasing the annual produce of the country by all that can be produced through the means of a capital of that value. To this gain must be added a further saving to the country, of the annual supply of the precious metals necessary for repairing the wear and tear, and other waste, of a metallic currency. The substitution, therefore, of paper for the precious metals, should always be carried as far as is consistent with safety ; no greater amount of metallic currency being retained, than is ne- cessary to maintain, both in tact and in public belief, the convertibility of the paper. A country with the extensive commercial relations of England, is liable to be suddenly called upon for large foreign payments, sometimes in loans, or other investments of capital abroad, sometimes as the pr,ice of some unusual importation of goods, the most frequent case being that of large im- portations of food consequent on a bad harvest. To meet such demands it is necessary that there should be, either in circulation or in the coffers of the banks, coin or bullion to a very consi- derable amount, and that this, when drawn out by any emergency, should be allowed to return after the emer- gency is past. But since gold wanted for exportation is almost invariably drawn from the reserves of the banks, and is never likely to be taken directly from the circulation while the banks remain solvent, the only advautagf 384 which can be obtained from retaining partially a metallic currency for daily purposes is, that the banks may oc casionally replenish their reserves from it. 3. When metallic money had been entirely superseded and expelled from circulation, by the substitution of an equal amount of bank notes, any at- tempt to keep a still further quantity of paper in circulation must, if the notes are convertible, be a complete failure. The new issue would again set in motion the same train of conse- quences by which the gold coin had already been expelled. The metals would, as before, be required for ex- portation, and would be for that pur- pose demanded from the banks, to the full extent of the superfluous notes ; which thus could not possibly be re- tained in circulation. If, indeed, the notes were inconvertible, there would be no such obstacle to the increase of their quantity. An inconvertible paper acts in the same way as a con- vertible, while there remains any coin for it to supersede : the difference begins to manifest itself when all the coin is driven from circulation (except what may be retained for the con- venience of small change), and the issues still go on increasing. When the paper begins to exceed in quantity the metallic currency which it super- seded, prices of course rise ; things which were worth 51. in metallic money, become worth 61. in inconver- tible paper, or more as the case may be. But this rise of price will not, as in the cases before examined, stimulate import, and discourage export. The imports and exports are determined by the metallic prices of things, not by the paper prices : and it is only when the paper is exchangeable at pleasure for the metals, that paper prices and metallic prices must correspond. Let us suppose that England is the country which has the depreciated paper. Suppose that some English production could be bought, while the currency was still metallic, for 51. , and sold in France for 51. 10s., the differ- ence covering the expense and risk, BOOK HI. CHAPTER XXII. 3. and affording a profit to the merchant. On account of the depreciation, this commodity will now cost in England 61., and cannot be sold in France for more than 51. 10s., and yet it will be exported as before. Why? Because the 51. 10s. which the exporter can get for it in France, is not depreciated paper, but gold or silver : and since in England bullion has risen, in the same proportion with other things if the merchant brings the gold or silver to England, he can sell his 51. 10s. for 61. 12s , and obtain as before 10 per cent for profit and expenses. It thus appears, that a depreciation of the currency does not affect the foreign trade of the country : this is carried on precisely as if the currency maintained its value. But though the trade is not affected, the exchanges are.^ When the imports and exports are in equilibrium, the exchange, in a metallic currency, would be at par ; a bill on France for the equivalent of five sovereigns, would be worth five sovereigns. But five sovereigns, or the quantity of gold contained in them, having come to be worth in England 61., it follows that a bill on France for 51., will be worth 61. When, therefore, the real exchange is at par, there will be a nominal exchange against the country, of as much per cent as the amount of the depreciation. If the currency is depreciated 10, 15, or 20 per cent, then in whatever way the real exchange, arising from the varia- tions of international debts and credits, may vary, the quoted exchange will always differ 10, 15, or 20 per cent from it. However high this nominal premium may be, it has no tendency to send gold out of the country, for "the purpose of drawing a bill against it and profiting by the premium; be- cause the gold so sent must be pro- cured, not from the banks and at par, as in the case of a convertible cur- rency, but in the market, at an ad- ce of price equal to the premium, [n such cases, instead of saying that :he exchange is unfavourable, it would je a more correct representation to say- that the par has altered, since there is now required a larger quantity of KATE OP English currency to be equivalent to the same quantity of foreign. The exchanges, however, continue to be computed according to the metallic par. The quoted exchanges, therefore, when there is a depreciated currency, are compounded of two elements or factors ; the real exchange, which follows the variations of international payments, and the nominal exchange, which varies with the depreciation of the cur- rency, but which, while there is any depreciation at all, must always be un- favourable. Since the amount of de- preciation is exactly measured by the degree in which the market price of bullion exceeds the Mint valuation, we have a sure criterion to determine what portion of the quoted exchange, being referable to depreciation, may be struck off as nominal ; the result so corrected expressing the real exchange. The same disturbance of the ex- changes and of international trade, which is produced by an increased issue of convertible bank notes, is in like manner produced by those exten- sions of credit, which, as was so fully shown in a preceding chapter, have the same effect on prices as an increase of the currency. Whenever circumstances have given such an impulse to the spirit of speculation as to occasion a great increase of purchases on credit, money prices rise, just as much as they would have risen if each person who so buys on credit had bought with money. All the effects, therefore, must be simi- lar. As a consequence of high prices, INTEREST. 385 exportation is checked and importation stimulated ; though in fact the increase of importation seldom waits for the rise of prices which is the consequence of speculation, inasmuch as some of the great articles of import are usually among the things in which speculative overtrading first shows itself. There is, therefore, in such periods, usually a great excess of imports over exports ; and when the time comes at which these must be paid for, the exchanges become unfavourable, and gold flows out of the country. In what precise manner this efflux of gold takes effect on prices, depends on circumstances of which we shall presently speak more fully; but that its effect is to make them recoil downwards, is certain and evident. The recoil, once begun, gene- rally becomes a total rout, and the unusual extension of credit is rapidly exchanged for an unusual contraction of it. Accordingly, when credit has been imprudently stretched, and the speculative spirit carried to excess, the turn of the exchanges, and consequent pressure on the banks to obtain gold for exportation, are generally the proximate cause of the catastrophe. 13ut these phenomena, though a con- spicuous accompaniment, arc no essen- tial part, of the collapse of credit called a commercial crisis ; which, as we formerly showed,* might happen to as great an extent, and is quite as likely to happen, in a country, if any such there were, altogether destitute of foreign trade. CHAPTER XXIII. OF THE RATE OF INTEREST. 1. THE present seems the most proper place for discussing the circum- stances which determine the rate of interest. The interest of loans, being really a question of exchange value, falls naturally into the present division of our subject : and the two topics of Currency and Loans, though in them- selves distinct, arc so intimately blended in the phenomena of what ia called the money market, that it is in> * Supra, pp, 318 9. c c 386 BOOK in. CHAPTER XXttl. 2. possible to understand the one without j fore, on good security, which alone wo the other, and in many minds the two j have here to consider (for interest in subjects are mixed up in the most in- | which considerations of risk bear a part extricable confusion. J may swell to any amount) is seldom, In the preceding Book* we defined I in the great centres of money transac- the relation in which interest stands to J tions, precisely the same for two days profit. We found that the sross profit of capital might be distinguished into three parts, which are respectively the remuneration for risk] for trouble, and for the capital itself, and may be termed insurance, wages of superin- tendence, and interest. After making compensation for risk, that is, after covering the average losses to which capital is exposed either by the general circumstances of society or by the hazards of the particular employment, there remains a surplus, which partly goes to repay the owner of the capital for his abstinence, and partly the em- ployer of it for his time and trouble. How much goes to the one and how much to the other, is shown by the amount of the remuneration which, when the two functions are separated, the owner of capital can obtain from the employer for its use. This is evi- dently a question of demand and supply. Nor have demand and supply any different meaning or effect in this case from what they have in all others. The rate of interest will be such as to equalize the demand for loans with the supply of them. It will be such, that exactly as much as some people are desirous to borrow at that rate, others shall be willing to lend. If there is more offered than demanded, interest will fall ; if more is demanded than offered, it will rise ; and in both cases, to the point at which the equation of supply and demand is re-established. Both the demand and supply of loans fluctuate more incessantly than any other demand or supply whatso- ever. The fluctuations in other things depend on a limited number of influ- encing circumstances; but the desire to borrow, and the willingness to lend, are more or less influenced by every circumstance which affects the state or prospects of industry or Commerce, either generally or in any of their branches. The rate of interest, there- * Supra, book ii. ch. xv. 1. together ; as is shown by the never- ceasing variations in the quoted prices of the funds and other negotiable secu- rities. Nevertheless, there must be, as in other cases of value, some rate which (in the language of Adam Smith and Eicardo) may be called the natural rate ; some rate about which the mar- ket rate oscillates, and to which it always tends to return. This rate partly depends on the amount of accu- mulation going on in the hands of persons who cannot themselves attend to the employment of their savings, and partly on the comparative taste existing in the community for the active pursuits of industry, or for the leisure, ease, and independence of an annuitant. 2. To exclude casual fluctuations, we will suppose commerce to be in a quiescent condition, no employment being unusually prosperous, and none particularly distressed. In these cir- cumstances, the more thriving pro- ducers and traders have their capital fully employed, and many are able to transact business to a considerably greater extent than they have capital lor. These are naturally borrowers : and the amount which they desire to borrow, and can give security for, con- stitutes the demand for loans on ac- count of productive employment. To these must be added the loans required by Government, and by landowners, or other unproductive consumers who have good security to give. This constitutes the mass of loans for which there is an habitual demand. Now it is conceivable that there might exist, in the hands of persona disinclined or disqualified for engaging personally in business, a mass of capi- tal equal to, and even exceeding, this demand. In that case there would be an habitual excess of competition on the part of lenders, and the rate of in- terest would bear a low proportion to BATE OF INTEREST. 387 the rate of profit. Interest would be forced down to the point which would either tempt borrowers to take a greater amount of loans than they had a reasonable expectation of being able to employ in their business, or would so discourage a portion of the lenders, as to make them either forbear to accu- mulate, or endeavour to increase their income by engaging in business on their own account, and incurring the risks, if not the labours, of industrial employment. On the other hand, the capital owned by persons who prefer lending it at interest, or whose avocations prevent them from personally superintending its employment, may be short of the habitual demand for loans. It may be in great part absorbed by the invest- ments afforded by the public debt and by mortgages, and the remainder may not be sufficient to supply the wants of commerce. If so, the rate of interest will be raised so high as in some way to re-establish the equilibrium. When there is only a small difference between interest and profit, many borrowers may no longer be willing to increase their responsibilities and involve their credit for so small a remuneration : or some who would otherwise have en- gaged in business, may prefer leisure, and become lenders instead of bor- rowers : or others, under the induce- ment of high interest and easy in- vestment for their capital, may re- tire from business earlier, and with smaller fortunes, than they otherwise would have done. Or, lastly, there is another process by which, in England and other commercial countries, a large portion of the requisite supply of loans is obtained. Instead of its being afforded by persons not in busi- ness, the affording it may itself become a business. A portion of the capital employed in trade may be supplied by a class of professional money lenders. These money lenders, however, must have more than a mere interest ; they must have the ordinary rate of profit on their capital, risk and all other circumstances being allowed for. But it can never answer to any one who for the purposes of his busi- ness, to pay a full profit for capital from which he wjll only derive a full profit : and money-lending, as an em- ployment, for the regular supply of trade, cannot, therefore, be carried on except by persons who, in addition to their own capital, can lend their credit, or, in other words, the capital of other people : that is, bankers, and persons (such as bill-brokers) who are virtually bankers, since they receive money in deposit. A bank which lends its notes lends capital which it borrows from the community, and for which it pays no interest. A bank of deposit lends capital which it collects from the com- munity in small parcels ; sometimes without paying any interest, as is the case with the London private bankers ; and if, like the Scotch, the joint stock, and most of the country banks, it does pay interest, it still pays much less than it receives ; for the depositors, who in any other way could mostly obtain for such small balances no interest worth taking any trouble for, are glad to receive even a little. Having this subsidiary resource, bankers are enabled to obtain, by lending at interest, the ordinary rate of profit on their own capital. In any other manner, money-lending could not be carried on as a regular mode of business, except upon terms on which none would consent to borrow but persons either counting on extraor- dinary profits, or in urgent need : un- productive consumers who have ex- ceeded their means, or merchants in fear of bankruptcy. The disposable capital deposited in banks; that re- presented by bank notes ; the capital of bankers themselves, and that which their credit, in any way in which they use it, enables them to dispose of, these, together with the funds belong- ing to those who, either from necessity or preference, live upon the interest of their property, constitute the general loan fund of the country: and the amount of this aggregate fund, when set against the habitual demands of producers and dealers, and those of the Government and of unproductive consumers, determines the permanent or average rate of interest; which CO 2 388 BOOK HI. must always be such as to adjust these twoamounts to one another.* But while the whole of this mass of lent CHAPTER XXIII. 3. dinately, because, while inert is a most pressing need on the part of many persons to borrow, there is capital takes effect upon the permanent general disinclination to lend. This rate of interest, the fluctuations de- ' pend almost entirely upon the portion which is in the hands of bankers ; for disinclination, when at its extreme point, is called a panic. It occurs when a succession of unexpected fai- it is that portion almost exclusively, lures has created in the mercantile, which, being lent for short times only, j and sometimes also in the non-mer- is continually in the market seeking : cantile public, a general distrust in an investment. The capital of those each other's solvency; disposing every who live on the interest of their own one not only to refuse fresh credit, fortunes, has generally sought and i except on very onerous terms, but to found some fixed investment, such as \ call in, if possible, all credit which he the public funds, mortgages, or the i has already given. Deposits are with- drawn from banks ; notes are re- turned on the issuers in exchange for specie ; bankers raise their rate of discount, and withhold their customary 3. Fluctuations in the rate of ! advances ; merchants refuse to renew interest arise from variations either in mercantile bills. At such times the demand for loans, or in the supply, i most calamitous consequences were The supply is liable to variation, " bonds 'of public companies, which in- vestment, except under peculiar temp- tations or necessities, is not changed. though less so than the demand. The willingness to lend is greater than usual at the commencement of a period of speculation, and much less than usual during the revulsion which formerly experienced from the attempt of the law to prevent more than a certain limited rate of interest from being given or taken. Persons who could not borrow at five per cent, had to pay, not six or seven, but ten or follows. In speculative times, mone)-- ] fifteen per cent, to compensate the lenders as well as other people are in- i lender for risking the penalties of the clined to extend their business by stretching their credit; they lend more than usual (just as other classes of dealers and producers employ more than usual) of capital which does not belong to them. Accordingly, these are the times when the rate of interest is low; though for this too (as we shall hereafter see) there are other causes. During the revulsion, on the contrary, interest always rises inor- * I do not include in the general loan fund of the country the capitals, large as they sometimes are, which are habitually em- ployed in speculatively buying and selling the public funds and other securities. It is true that all who buy securities add, for the time, to the general amount of money on loan, and lower, to that extent, the rate of interest. But as the persons I speak of buy only to sell again at a higher price, they are alternately in the position of lenders and of borrowers : their operations raise the rate of interest at one time, exactly as much as they lower it at another. Like all persons who buy and sell 011 speculation, their function is to equalize, not to raise or lower, the value of the com- modity. When they speculate prudently, they temper the fluctuations of price ; when imprudently, they often aggravate them. law : or had to sell securities or goods for ready money at a still greater sacrifice. In the intervals between commercial crises, there is usually a tendency in the rate of interest to a progressive decline, from the gradual process of, accumulation ; which process, in the great commercial countries, is suffi- ciently rapid to account for the almost periodical recurrence of these fits of speculation ; since, when a few years have elapsed without a crisis, and no new and tempting channel for in- vestment has been opened in the meantime, there is always found to have occurred in those few years so large an increase of capital seeking investment, as to have lowered con- siderably the rate of interest, whether indicated by the prices of securities or by the rate of discount on bills ; and this diminution of interest tempts the possessors to incur hazards in hopes of a more considerable return. The rate of interest is, at times, BATE OF INTEREST. 389 affected more or less permanently by circumstances, though not of frequent, yet of occasional occurrence, which tend to alter the proportion between the class of interest-receiving and that of profit-receiving capitalists. Two causes of this description, operating in contrary ways, have manifested them- selves of late years, and are now pro- ducing considerable effects in England. i One is, the gold discoveries. The masses of the precious metals which are constantly arriving from the gold countries, are, it may safely be said, wholly added to the funds that supply the loan market. So great an addi- tional capital, not divided between the two classes of capitalists, but aggre- gated bodily to the capital of the interest-receiving class, disturbs the pre-existing ratio between the two, and tends to depress interest, relatively to profit. Another circumstance of still more recent date, but tending to the contrary effect, is the legalization of joint-stock associations with limited liability. The shareholders in these associations, row so rapidly multiply- ing, are drawn almost exclusively from the lending class ; from those who either left their disposable funds in deposit, to be lent out by bankers, or invested them in public or private secu- rities, and received the interest. To the extent of their shares in any of these companies (with the single ex- ception of banking companies) they have become traders on their own. capital ; they have ceased to be lenders, and have even, in most cases, passed over to the class of borrowers. Their subscriptions have been abstracted from the funds which feed the loan market, and they themselves have be- come competitors for a share of the remainder of those funds : of all which, the natural effect is a rise of interest. And it would not be surprising if, for a considerable time to come, the ordi- nary rate of interest in England should bear a higher proportion to the common rate of mercantile profit, than it has borne at any time since the influx of new gold set in.* * To the cause of augmentation in the rate of interest, mentioned in the text, must be The demand for loans varies mnch more largely than the supply, and em- braces longer cycles of years in its aberrations. A time of war, for ex- ample, is a period of unusual drafts on the loan market. The Government, at such times, generally incurs new loans, and as these usually succeed each other rapidly as long as the war lasts, the general rate of interest is kept higher in war than in peace, without reference to the rate of profit, and productive industry is stinted of its usual supplies. During part of the last French war, the Government could not borrow under six per cent, and of course all other borrowed had to pay at least as much. Nor does the influence of these loans altogether cease when the Government ceases to contract others ; for those already contracted continue to afford an investment for a greatly increased amount of the disposable capital of the country, which if the national debt were paid off, would be added to the mass of capital seeking investment, and (independently of temporary disturb- ance) could not but, to some extent, permanently lower the rate of interest. The same effect on interest which is produced by Government loans for war expenditure, is produced by the sudden opening of any new and generally attractive mode of permanent invest- ment. The only instance of the kind in recent history on a scale comparable to that of the war loans, is the absorp- tion of capital in the construction of railways. This capital must have been principally drawn from the deposits in banks, or from savings which would have gone into deposit, and which were added another, forcibly insisted on by the author of an able article in the Edinburgh Review for January 1865; the increased and increasing willingness to send capital abroad for investment. Owing to the vastly aug- mented facilities of access to foreign coun- tries, and the abundant information inces- santly received from them, foreign invest- ments have ceased to inspire the terror that belongs to the unknown ; capital flows, with- out misgiving, to any place which affords an expectation of high profit; and the loan market of the whole commercial world is becoming rapidly one. The rate of interest, therefore, in the part of the world out of which capital most freely flows, cannot any longer remain so much inferior to the rate elsewhere, as it has hitherto been. 390 BOOK HI. CHAPTER XXI11. 4. destined to be ultimately employed in buying securities from persons who would have employed the purchase money in discounts or other loans at interest : in either case, it was a draft on the general loan fund. It is, in fact, evident, that unless savings were made expressly to be employed in rail- way adventure, the amount thus em- ployed must have been derived either from tne actual capital of persons in business, or from capital which would have been lent to persons in business. In the first case, the subtraction, by crippling their means, obliges them to be larger borrowers ; in the second, it leaves less for them to borrow *in either case it equally tends to raise the rate of interest. 4. 1 have, thus far, considered loans, and the rate of interest, as a matter which concerns capital in gene- ral, in direct opposition to the popular notion, according to which it only con- cerns money. In loans, as in all other money transactions, I have regarded the money which passes, only as the medium, and commodities as the thing really transferred the real subject of the transaction. And this is, in the main, correct : because the purpose for which, in the ordinary course of affairs, money is borrowed, is to acquire a pur- chasing power over commodities. In an industrious and commercial country, the ulterior intention commonly is, to employ the commodities as capital : but even in the case of loans for un- productive consumption, as those of spendthrifts, or of the Government, the amount borrowed is taken from a pre- vious accumulation, which would other- wise have been lent to carry on produc- tive industry ; it is, therefore, so much subtracted from what may correctly be called the amount of loanable capital. There is, however, a not unfrequent case, in which the purpose, of the bor- rower is different from what I have here supposed. He may borrow money, neither to employ it as capital nor to gpend it unproductively, but to pay a previous debt. In this case, what he wants is not purchasing power, but legal tender, or something which a creditor will accept as equivalent to it. His need is specifically for money, not for commodities or capital. It is the demand arising from this cause, which produces almost all the great and sud- den variations of the rate of interest. Such a demand forms one of the ear- liest features of a commercial crisis. At such a period, many persons in business who have contracted engage- ments, have been prevented by a change of circumstances from obtaining in time the means on which they calculated for fulfilling them. These means they must obtain at any sacrifice, or submit to bankruptcy; and what they must have is money. Other capital, how- ever much of it they may possess, can- not answer the purpose unless money can first be obtained for it; while, on the contrary, without any increase of the capital of the country, a mere in- crease of circulating instruments of credit, (be they of as little worth for any other purpose as the box of one pound notes discovered in the vaults of the Bank of England during the panic of 1825) will effectually serve their turn, if only they are allowed to make use of it. An increased issue of notes, in the form of loans, is all that is re- quired to satisfy the demand, and put an end to the accompanying panic. But although, in this case, it is not capital, or purchasing power, that the borrower needs, but money as money, it is not only money that is transferred to him. The money carries its pur- chasing power with it wherever it goes ; and money thrown into the loan market really does, through its purchasing power, turn over, an increased portion of the capital of the country into the direction of loans. Though money alon* was wanted, capital passes ; and it may still be said with truth that it is by an addition to loanable capital that the rise of the rate of interest is met and corrected. Independently of this, however, there is a real relation, which it is indispensable to recognise, between loans and money. Loanable capital is all of it in the, form of money. Capital destined directly for produc- tion exists in many forms ; but capital KATE OF INTEREST. 391 destined for lending exists normally in that form alone. Owing to this circumstance, we should naturally ex- pect that among the causes which aifect more or less the rate of interest, would be found not only causes which act through capital, but some causes which act, directly at least, only through money. The rate of interest bears no neces- sary relation to the quantity or value of the money in circulation. The perma- nent amount of the circulating medium, whether great or small, affects only prices; not the rate of interest. A depreciation of the currency, when it has become an accomplished fact, affects the rate of interest in no man- ner whatever. It diminishes indeed the power of money to buy commodi- ties, but not the power of money to buy money. If a hundred pounds will buy a perpetual annuity of four pounds a year, a depreciation which makes the hundred pounds worth only half as much as before, has precisely the same effect on the four pounds, and cannot therefore alter the relation between the two. The greater or smaller number of counters which must be used to express a given amount of real wealth, makes no dif- ference in the position or interests of lenders or borrowers, and therefore makes no difference in the demand and supply of loans. There is the same amount of real capital lent and borrowed ; and if the capital in the hands of lenders is represented by a greater number of pounds sterling, the same greater number of pounds ster- ling will, in consequence of the rise of prices, be now required for the pur- poses to which the borrowers intend to apply them. But though the greater or less quantity of money makes in itself no difference in the rate of interest, a change from a less quantity to a greater, or from a greater to a less, may and does make a difference in it. Suppose money to be in process of depreciation, by means of an incon- vertible currency, issued by a govern- ment in payment of ' its expenses. This fact will in no way diminish the demand for real capital on loan ; but it will diminish the real capital loan- able, because, this existing only in the form of money, the increase of quan- tity depreciates it. Estimated in, capital, the amount offered is less, while the amount required is the same as before. Estimated in currency, the amount offered is only the same as before, while the amount required, owing to the rise of prices, is greater. Either way, the rate of interest must rise. So that in this case increase of currency really affects the rate of inte- rest, but 'in the contrary way to that which is generally supposed ; by rais- ing, not by lowering it. The reverse will happen as the effect of calling in, or diminishing in quantity, a depreciated currency. The money in the hands of lenders, in common with all other money, will be enhanced in value, that is, there will be a greater amount of real capital seeking borrowers; while the real capital wanted by borrowers will be only the same as before, and the money amount less : the rate of inte- rest, therefore, will tend to fall. We thus see that depreciation, merely as such, while in process of taking place, tends to raise the rate of interest: and the expectation of fur- ther depreciation adds to this effect ; because lenders who expect that their interest will be paid, and the principal perhaps redeemed, in a less valuable currency than they lent, of course re- quire a ^ rate of interest sufficient to cover this contingent loss. But this effect is more than counter- acted by a contrary one, when the additional money is thrown into circu- lation not by purchases but by loans. In England, and in most other com- mercial countries, the paper currency in common use, being a currency pro- vided by bankers, is all issued in the way of loans, except the part employed in the purchase ' of gold and silver. The same operation, therefore, which adds to the currency also adds to the loans : the whole increase of currency in the first instance swells the loan market. Considered as an addition to loans it tends to lower interest, more 392 than in its character of depreciation it tends to raise it ; for the former effect depends on the ratio which the new money bears to the money lent, while the latter depends on its ratio to all the money in circulation. An in- crease, iherelbre, of currency issued hy banks, tends, while the process con- tinues, to bring down or to keep down the rate of interest. A similar effect is produced by the increase of money arising from the gold discoveries; almost the whole of which, as already noticed, is, when brought to Europe, added to the deposits in banks, and consequently to the amount of loans ; and when drawn out and invested in securities, liberates an equivalent amount of other loanable capital. The newly-arrived gold can only get itself invested, in any given state of busi- ness : by lowering the rate of interest ; and as long as the influx continues, it cannot fail to keep interest lower than, all other circumstances being supposed the same, would otherwise have been the case. As the introduction of additional gold and silver which goes into the loan market; tends to keep down the rate of interest, so any considerable abstraction of them from the country invariably raises it ; even when occur- ring in the course of trade, as in pay- ing for the extra importations caused by a bad harvest, or for the high-priced cotton which" is, just now, imported from so many parts of the world. The money required for these payments is taken in the first instance from the deposits in the hands of bankers, and to that extent starves the fund that supplies the loan market. 'The rate of interest, then, depends, essentially and permanently, on the comparative amount of real capital offered and demanded in the way of loan; but is subject to temporary* dis- turbances of various sorts, from in- crease and diminution of the circu- lating medium ; which derangements are somewhat intricate, and some- times in direct opposition to first ap- pearances. *A11 these distinctions are veiled over and confounded, by the unfortunate misapplication of language BOOK HI. CHAPTER XXIII. 4. which designates the rate of interest by a phrase ("the value of money") which properly expresses the purchas- ing power of the circulating medium. The public, even mercantile, habitu- ally fancies that ease in the money market, that is, facility of borrowing at low interest, is proportional to the quantity of money in circulation. Not" only, therefore, are bank notes sup- posed to produce effects as currency, which they only produce as loans, but attention- is habitually diverted from effects similar in kind and much greater in degree, when produced by an action on loairs which does not happen to be accompanied by any action on the currency. For example, in considering the effect produced by the proceedings of banks in encouraging the excesses of speculation, ,ran immense effect is usually attributed to their issues of notes, but until of late hardly any attention was paid to the management of their deposits; though nothing is more certain than that their impru- dent extensions of credit take place more frequently by means of their deposits than of their issues. " There is no doubt," says Mr. Tooke,* "that banks, whether private or joint stocl^ may, if imprudently conducted, minister to an undue extension of credit for the purpose of speculations, whether in commodities, or in over-trading in ex- ports or imports, or in building or mining operations, and that they have so ministered not unfrequently, and in some cases to an extent ruinous to themselves, and without ultimate benefit to the parties to whose views their resources were made subser- vient." But, "supposing all the de- posits received by a banker to be in coin, is he not, just as much as the issuing banker, exposed to the impor- tunity of customers, whom it may be impolitic to refuse, for loans or dis- counts, or to be tempted by a high interest ? and may he not be induced to encroach so much upon his deposits as to leave him, under not improbable circumstances, unable to meet the de- mands of his depositors ? In what * Inquiry into the Currency Principle, ch. xiVt BATE OF INTEREST. 893 respect, indeed, would the case of a banker in a perfectly metallic circula- tion, differ from that of a London banker at the present day ? He is not a creator of money, he cannot avail himself of his privilege as an issuer in aid of his other business, and yet there have been lamentable instances of Lon- don bankers issuing money in excess." In the discussions, too, which have been for so many years carried on re- specting the operations of the Bank of England, and the effects produced by those operations on the state of credit, though for nearly half a century there never has been a commercial crisis which the Bank has not been strenu- ously accused either of producing or of aggravating, it has been almost uni- versally assumed that the influence of its acts was felt only through the amount of its notes in circulation, and that if it could be prevented from ex- ercising any discretion as to that one feature in its posi tion, it would no longer have any power liable to abuse. This at least is an error which, after the experience of the year 1847, we may hope has been committed for the last time. During that year the hands of the Bank were absolutely tied, in its character of a bank of issue ; but through its operations as a bank of de- posit it exercised as great an influence, or apparent influence, on the rate of interest and the state of credit, as at any former period ; it was exposed to as vehement accusations of abusing that influence ; and a crisis occurred, such as few that preceded it had equalled, and none perhaps surpassed, in intensity. 5. Before quitting the general subject of this chapter, I will make the obvious remark, that the rate of in- terest determines the value and price of all those saleable articles which are desired and bought, not for themselves, but for the income which they are ca- rt pable of 'yielding. The public funds, shares in joint-stock companies, and all I descriptions of securities, are at a high price in proportion as the rate of in- \ terest is low. They are sold at the ' price which will give the market rate of interest on the purchase money, with allowance for all differences in the risk incurred, or in any circumstance of convenience. Exchequer bills, for ex- ample, usually sell at a higher price than consols, proportionally to the in- terest which they yield ; because, though the security is the same, yet the former being annually paid off at par unless renewed by the holder, the purchaser (unless obliged to sell in a moment of general emergency), is in no danger of losing anything by the re-sale, except the premium he may have paid. The price of land, mines, and all other fixed sources of income, depends in like manner on the rate of interest. Land usually sells at a higher price, in proportion to the income afforded by it, than the public funds, not only because it is thought, even in this country, to be somewhat more secure, but because ideas of power and dignity are asso- ciated with its possession. But these differences are constant, or nearly so ; and in the variations of price, land follows, cceteris paribus, the permanent (though of course not the daily) varia- tions of the rate of interest. When in- terest is low, land will naturally be dear ; when interest is high, land will be cheap. The last long war presented a striking exception to this rule, since the price of land as well as the rate of interest was then remarkably high. For this, however, there was a special cause. The continuance of a very high average price of corn for many years, had raised the rent of land even more than in proportion to the rise of in- terest ; and fall of the selling price of fixed incomes. Had it not been for this accident, chiefly dependent on the seasons, land must have sustained a& great a depreciation in value as the public funds : which it probably would do, were a similar war to break out hereafter; to the signal disappoint- ment of those landlords and farmers who, generalizing from the casual cir- cumstances of a remarkable period, so long persuaded themselves that a state of war was peculiarly advantageous, and a state of peace disadvantageous, to what they chose to call the interests of agriculture, 394 BOOK IH. CHAPTER XXIV, l. CHAPTER XXIV. OF THE BEQULATIOS OP A CONVERTIBLE PAPER CURRENCY. 1 . THE frequent recurrence during the last half century of the painful series of phenomena called a commer- cial crisis, has directed much of the at- tention both of economists and of prac- tical politicians to the contriving of expedients for averting, or at the least, mitigating its evils. And the habit which grew up during the era of the Bank restriction, of ascribing all al- ternations of high and low prices to the issues of banks, has caused inquirers in general to fix their hopes of success in moderating those vicissitudes, upon schemes for the regulation of bank notes. A scheme of this nature, after having obtained the sanction of high authorities, so far established itself in the public mind, as to be, with general approbation, converted into a law, at the renewal of the Charter of the Bank of England in 1844: and the regula- tion is still in force, though with a great abatement of its popularity, and with its prestige impaired by two temporary suspensions, on the responsibility of the executive, the earlier of the two little more than three years after its enact- ment. It is proper that the merits of this plan for the regulation of a con- vertible bank note currency should be here considered. Before touching upon the practical provisions of Sir Robert Peel's Act of 1844, I shall briefly state the nature, and examine the grounds, of the theory on which it is founded. It is believed by many, that banks of issue universally, or the Bank of England in particular, have a power of throwing their notes into circulation, and thereby raising prices, arbitrarily ; that this power is only limited by the degree of moderation with which they think fit to exercise it ; that when they increase their issues beyond the usual amount, the rise of prices, thus pro- duced, generates a spirit of speculation in commodities, which carries prices atill higher, and ultimately causes a reaction and recoil, amounting in ex- treme cases to a commercial crisis; and that every such crisis which has occurred in this country within mer- cantile memory, has been either ori- ginally produced by this cause, or greatly aggravated by it. To this ex- treme length the currency theory has not been carried by the eminent poli- tical economists who have given to a more moderate form of the same theory the sanction of their names. But I have not overstated the extravagance of the popular version ; which is a re- markable instance to what lengths a favourite theory will hurry, not the closet students whose competency in such questions is often treated with so much contempt, but men of the world and of business, who pique themselves on the practical knowledge which they have at least had ample opportunities of acquiring. Not only has this fixed idea of the currency as the prime agent in the fluctuations of price, made them shut their eyes to the multitude of cir- cumstances which, by influencing the expectation of supply, are the true causes of almost all speculations and of almost all fluctuations of price ; but in order to bring about the chronological agreement required by their theory, between the variations of bank issues and those of prices, they have played such fantastic tricks with facts and dates as would be thought incredible, if an eminent practical authority had not taken the trouble of meeting them, on the ground of mere history, with an elaborate exposure. I refer, as all conversant with the subject must be aware, to Mr. Tooke's His- tory of Prices. The result of Mr. Tooke's investigations was thus stated by himself, in his examination before the Commons Committee on the Bank Charter question in 1832 ; and the evi- dences of it stand recorded in his book : " In point of fact, and histori- REGULATION cally, as far as my researches have gone, in every signal instance of a rise or fall of prices, the rise or fall has preceded, and therefore could not be the effect of, an enlargement or contrac- tion of the bank circulation." The extravagance of the currency theorists, in attributing almost every rise or fall of prices to an enlargement or contraction of the issues of bank notes, has raised up, by reaction, a theory the extreme opposite of the former, of which, in scientific discus- sion, the most prominent representa- tives are Mr. Tooke and Mr. Fullarton. This counter-theory denies to bank notes, so long as their convertibility is maintained, any power whatever of raising prices, and to banks any power of increasing their circulation, except as a consequence of, and in proportion to, an increase of the business to be done. This last statement is supported by the unanimous assurances of all the country bankers who have been ex- amined before successive Parliamentary Committees on the subject. They all bear testimony that (in the words of Mr. Fullarton*) " the amount of their issues is exclusively regulated by the extent of local dealings and expendi- ture in their respective districts, fluc- tuating with the fluctuations^ produc- tion and price, and that they neither can increase their issues beyond the limits which the range of such dealings and expenditure prescribes, without the certainty of having their notes im- mediately returned to them, nor dimi- nish them, but at an almost equal certainty of the vacancy being filled up from some other source." From these premises it is argued by Mr. Tooke and Mr. Fullarton, that bank issues, since they cannot be increased in amount unless there be an increased demand, cannot possibly raise prices ; cannot encourage speculation, nor oc- casion a commercial crisis ; and that the attempt to guard against that evil by an artificial management of the issue of notes, is of no effect for the intended purpose, and liable to produce other consequences extremely calami- tous. * Regulation of Currencies, p. 85, OF CURRENCY. 395 2. As much of this doctrine as rests upon testimony, and not upon in- ference, appears tome incontrovertible^ I give complete credence to the asser- tion of the country bankers, very clearly and correctly condensed into a small compass in the sentence just quoted from Mr. Fullai'ton. I am convinced that they cannot possibly increase their issue of notes in any other circum- stances than those which are there stated. I believe, also, that the theory, grounded by Mr. Fullarton upon this fact, contains a large portion of truth, and is far nearer to being the expres- sion of the whole truth than any form whatever of the currency theory. There are two states of the markets : one which may be termed the quiescent state, the other the expectant, or speculative state. The first is that in which there is nothing tending to en- gender in any considerable portion of the mercantile public a desire to extend their operations. The producers pro- duce and the dealers purchase only their usual stocks, having no expecta- tion of a more than usually rapid vent for them. Each person transacts his ordinary amount of business and no more, or increases it only in corre- spondence with the increase of his capital or connexion, or with the gra- dual growth of the demand for his commodity, occasioned by the public prosperity. Not meditating any un- usual extension of their own operations, producers and dealers do not need more than the usual accommodation from bankers and other money lenders ; and as it is only by extending their loans that bankers increase their issues, none but a momentary augmentation of issues is in these circumstances possible. If at a certain time of the year a portion of the public have larger payments to make than at other times, or if an individual, under some peculiar exigency, requires an extra advance, they may apply for more bank notes, and obtain them ; but the notes will nc more remain in circulation, than the extra quantity of Bank of England notes which are issued once in every three months in payment of the divi- dends. The person to whom, after 396 BOOK ill. CHAPTER XXIV. 2. being borrowed, the notes are paid away, has no extra payments to make, and no peculiar exigency, and he keeps them by him unused, or sends them into deposit, or repays with them a previous advance made to him by some banker : in any case he does not buy commodities with them, since by the supposition there is nothing to induce him to lay in a larger stock of com- modities than before. Even if we suppose, as we may do, that bankers create an artificial increase of the de- mand for loans, by offering them below the market rate of interest, the notes they issue will not remain in circula- tion; for when the borrower, having completed the transaction for which he availed himself of them, has paid them away, the creditor or dealer who re- ceives them, having no demand for the immediate use of an extra quantity of notes, sends them intc deposit. In this case, therefore, there can be no addition, at the discretion of bankers, to the general circulating medium: any increase of their issues either comes back to them, or remains idle in the hands of the public, and no rise takes place in prices. But there is another state of the markets, strikingly contrasted with the preceding, and to this state it is not so obvious that the theory of Mr. Tooke and Mr. Fullarton is applicable ; namely, when an impression prevails, whether well founded or groundless, that the supply of one or more great articles of commerce is likely to fall short of the ordinary consumption. In such circumstances all persons con- nected with those commodities desire to extend their operations. The pro- ducers or importers desire to produce or import a larger quantity, speculators desire to lay in a stock in order to profit by the expected rise of price, and holders of the commodity desire additional advances to enable them to continue holding. All these classes are disposed to make a more than ordinary use of their credit, and to this desire it is not denied that bankers very often unduly administer. Effects of the same kind may be produced by anything which, exciting more than usual hopes of profit, gives increased briskness to business : for example, a sudden foreign demand for commodities on a large scale, or the expectation of it ; such as occurred on the opening of Spanish America to English trade, and has occurred on various occasions in the trade with the United States. Such occurrences produce a tendency to a rise of price in exportable articles, and generate speculations, sometimes of a reasonable, and (as long as a large proportion of men in business prefer excitement to safety) frequently of an irrational or immoderate character. In such cases there is a desire in the mercantile classes, or in some portion of them, to employ their credit, in a more than usual degree, as a power of purchasing. This is a state of business which, when pushed to an extreme length, brings on the revulsion called a commercial crisis : and it is a known fact that such periods of speculation hardly ever pass off without having been attended, during some part of their progress, by a considerable in- crease of bank notes. To this, however, it is replied by Mr. Tooke and Mr. Fullartou, that the increase of the circulation always fol- lows, instead of preceding, the rise of prices, and is not its cause, but its effect. Tnat in the first place, the speculative purchases by which prices are raised, are not effected by bank notes but by cheques, or still more commonly on a simple book credit : and secondly, even if they were made with bank notes borrowed for that express purpose from bankers, the notes, after being used for that purpo.se, would, if not wanted for current transactions, be returned into deposit by the persons receiving them. In this 1 fully concur, and I regard it as proved, both scienii- fically and historically, that during the ascending period of speculation, and as long as it is confined to transactions between dealers, the issues of bank notes are seldom materially increased, nor contribute anything to the specula- tive rise of prices. It seems to me, however, that this can no longer be affirmed when speculation has pro- ceeded so far as to reach the producers.. REGULATION OF CURRENCY. 397 Speculative orders given by merchants to manufacturers induce them to extend their operations, and to become appli- cants to bankers for increased advances, which, if made in notes, are not paid away to persons who return them into deposit, but are partially expended in paying wages, and pass into the va- rious channels of retail trade, where they become directly effective in producing a further rise of prices. I cannot but think that this employment of bank notes must have been powerfully opera- tive on prices at the time when notes of one and two pounds value were per- mitted by law. Admitting, however, that the prohibition of notes below five pounds has now rendered this part of their operation comparatively insignifi- cant, by greatly limiting their applica- bility to the payment of wages, there is another form of their instrumentality which comes into play in the later stages of speculation, and which forms the principal argument of the more moderate supporters of the currency theory. Though advances by bankers are seldom demanded for the purpose of buying on speculation, they are largely demanded by unsuccessful speculators for the purpose of holding on; and the competition of these specu- lators for a share of the loanable capital, makes even those who have not specu- lated, more dependent than before on bankers for the advances they require. Between the ascending period of specu- lation and the revulsion, there is an interval, extending to weeks and some- times months, of struggling against a fall. The tide having shown signs of turning, the speculative holders are unwilling to sell in a falling market, and in the meantime they require funds to enable them to fulfil even. their ordi- nary engagements. It is this stage that is ordinarily marked by a con- siderable increase in the amount of the bank note circulation. That such an increase does usually take place, is denied by no one. And I think it must be admitted that this increase tends to prolong the duration of the specula- tions ; that it enables the speculative prices to be kept up for some time after they would otherwise have collapsed ; and therefore prolongs? and increases the drain of the precious metals for exportation, which is a leading feature of this stage in the progress of a com- mercial crisis : the continuance of which drain at last endangering the power of the banks to fulfil their en- gagement of paying their notes on demand, they are compelled to contract their credit more suddenly and severely than would have been necessary if they had been prevented from propping up speculation by increased advances, after the time when the recoil had become inevitable. 3. To prevent this retardation of the recoil, and ultimate aggravation of its severity, is the object of the scheme for regulating the currency, of which Lord Overstone, Mr. Norman, and Colonel Torrens, were the first pro- mulgators, and which has, in a slightly modified form, been enacted into law.* * I think myself justified in affirming that the mitigation of commercial revulsions is the real, and only serious, purpose of the Act of KS44. I am quite aware that its sup- porters insist (especially since 1847) on its supreme efficacy in " maintaining the con- vertibility of the Bank note." But I must be excused for not attaching 1 any serious im- portance to this one among its alleged merits. The convertibility of the Bank note was maintained, and would have continued to be maintained, at whatever cost, under the old system. As was well said by Lord Over- stone in his Evidence, the Bank can always, by a sufficiently violent action on credit, save itself at the expense of the mercantile public. That the Act of 1844 mitigates the violence of that process, is a sufficient claim to prefer in its behalf. Besides, if we sup- pose such a degree of mismanagement on the part of the Bank, as, were it not for the Act, would endanger the continuance of con- vertibility, the same (or a less) degree of mismanagement, practised under the Act, would suffice to produce a suspension of payments by the Banking Department ; an event which the compulsory separation of the two departments brings much nearer to possibility than it was before, and which, involving as it would the probable stoppage of every private banking establishment in London, and perhaps also the non-payment of the dividends to the national creditor, would be a far greater immediate calamity than a brief interruption of the converti- bility of the note ; insomuch that, to enable the Bank to resume payment of its (!ci> -its, no Government would hesitate a moment to suspend payment of the notes, if suspension of the Act of 1844 proved insufficient. BOOK III. CHAPTER XXIV. 3. According to the scheme in its origi- nal purity, the issue of promissory notes for circulation was to be confined to one body. In the form adopted by Parliament, all existing issuers were permitted to retain this privilege, but none were to be thereafter admitted to it, even in the place of those who might discontinue their issues: and, for all except the Bank of England, a maxi- mum of issues was prescribed, on a scale intentionally low. To the Bank of England no maximum was fixed for the aggregate amount of its notes, but only for the portion issued on securi- ties, or in other words, on loan. These were never to exceed a certain limit, fixed in the first instance at fourteen millions.* All issues beyond that amount must be in exchange for bul- lion; of which the Bank is bound to purchase, at a trifle below the Mint valuation, any quantity which is offered to it, giving its notes in exchange. In regard, therefore, to any issue of notes beyond the limit of fourteen millions, the Bank is purely passive, having no function but the compulsory one of giving its notes for gold at 31. 17s. 9d., and gold for its notes at 3Z. 17s. 10^., whenever and by whomsoever it is called upon to do so. The object for which this mechanism is intended is, that the bank note cur- rency may vary in its amount at the exact times, and in the exact degree, in which a purely metallic currency would vary. And the precious metals being the commodity that has hitherto approached nearest to that invariability in all the circumstances influencing value, which fits a commodity for being adopted as a medium of exchange, it seems to be thought that the excel- lence of the Act of 1844 is fully made out, if under its operation the issues conform in all their variations of quan- * A conditional increase of this maximum is permitted, but only when by arrangement with any country bank the issues of that bank are discontinued, and Bank of England notes substituted; and even then the in- crease is limited to two-thirds of the amount of the country notes to be thereby superseded. Under this provision, the amount of notes which the Bank of England is now at liberty to issue against securities, is rather under fourteen and a half millions. tity, and therefore, as is inferred, of value, to the variations which would take place in a currency wholly me- tallic. Now, all reasonable opponents of the Act, in common with its sup- porters, acknowledge as an essential requisite of any substitute for the precious metals, that it should con- form exactly in its permanent value to a metallic standard. And they say, that so long as it is convertible into specie on demand, it does and must so conform. But when the value of a metallic or of any other currency is spoken of, there are two points to be considered ; the permanent or average value, and the fluctuations. It is to the permanent value of a metallic currency, that the value of a pa^er currency ought to conform. But there is no obvious reason why it should be required to conform to the fluctuations too. The only object of its conform- ing at all, is steadiness of value ; and with respect to fluctuations the sole thing desirable is that they should be the smallest possible. Now the fluctu- ations in the value of the currency are determined, not by its quantity, whether it consist of gold or of paper, but by the expansions and contractions of credit. To discover, therefore, what currency will conform the most nearly to the permanent value of the precious metals, we must find under what cur- rency the variations in credit are least frequent and least extreme. Now, whether this object is best attained by a metallic currency (and therefore by a paper currency exactly conform^ ing in quantity to it) is precisely the question to be decided. If it should prove that a paper currency which follows all the fluctuations in quantity of a metallic, leads to more violent re- vulsions of credit than one which is not held to this rigid conformity, it will follow that the currency which agrees most exactly in quantity with a metallic currency is not that which adheres closest to its value ; that is to say, its permanent value, with which alone agreement is desirable. Whether this is really the case or not we will now inquire. And first, REGULATION OF CURRENCY. 309 let us consider whether the Act effects the practical object chiefly relied on in its defence by the more sober of its advocates, that of arres^ng specula- tive extensions of credit at an earlier period, with a less drain of gold, and consequently by a milder and more gradual process. I think it must be admitted that to a certain degree it is successful in this object. I am aware of what may be urged, and reasonably urged, in opposition to this opinion. It may be said, that when the time arrives at which the banks are pressed for increased ad- vances to enable speculators to fulfil their engagements, a limitation of the issue of notes will not prevent the banks, if otherwise willing, from mak- ing these advances ; that they have still their deposits as a source from which loans may be made beyond the point which is consistent with pru- dence as bankers ; and that even if they refused to do so, the only effect would be, that the deposits themselves would be drawn out to supply the wants of the depositors ; which would be just as much an addition to the bank notes and coin in the hands of the public, as if the notes themselves were increased. This is true, and is a sufficient answer to those who think that the advances of banks to prop up failing speculations are objectionable chiefly as an increase of the currency. But the mode in which they are really objectionable, is as an extension of credit. If, instead of increasing their discounts, the banks allow their de- posits to be drawn out, there is the same increase of currency (for a short time at least) but there is not an in- crease of loans, at the time when there ought to be a diminution. If they do increase their discounts, not by means of notes, but at the expense of the deposits alone, their deposits (properly so called) are definite and exhaustible, while notes may be increased to any amount, or, after being returned, may be reissued without limit. It is true that a bank, if willing to add inde- finitely to its liabilities, has the power of making its nominal deposits as un- limited a fund as its issues could be ; it has only to make its advances in a book credit, which is creating de- posits out of its own liabilities, the money for which it has made itself responsible becoming a deposit in its hands to be drawn against by cheques ; and the cheques, when drawn, may be liquidated (either at the same bank or at the clearing house) without the aid of notes, by a mere transfer of credit from one account to another. I apprehend it is chiefly in this way that undue extensions of credit, in periods of speculation, are commonly made. But the banks are not likely to persist in this course when the tide begins to turn. It is not when their deposits have already begun to flow out, that they are likely to create deposit accounts which represent, instead of funds placed in their hands, fresh liabilities of their own. But experience proves that extension of credit in the form of notes goes on long after the recoil from over-speculation has commenced. When this mode of resisting the revulsion is made impos- sible, and deposits and book credits are left as the only source from which undue advances can be made, the rate of interest is not so often, or so long, prevented from rising, after the diffi- culties consequent on excess of specu- lation begin to be felt. On the con- trary, the necessity which the banks feel of diminishing their advances to maintain their solvency, when they find their deposits flowing out, and cannot supply the vacant place by their own notes, accelerates the rise of the rate of interest. Speculative holders are therefore obliged to sul> mit earlier to that loss by resale, which could not have been prevented from coming on them at last: the recoil of prices and collapse of general credit take place sooner. To appreciate the effect which this acceleration of the crisis has in miti- gating its intensity, let us advert more particularly to the nature and effects of that leading feature in tlH period just preceding the collapse, the drain of gold. A rise of prices pro- duced by a speculative extension of credit, even when bank notes have not 400 BOOK in. CHAPTER XXIV. 4. been the instrument, is not the less effectual (if it lasts long enough) in turning the exchanges : and when the exchanges have turned from this cause, they can only be turned back, and the drain of gold stopped, either by a fall of prices or by a rise of the rate of interest. A fall of prices will stop it by removing the cause which produced it, and by rendering goods a more ad- vantageous remittance than gold, even for paying debts already due. A rise of the rate of interest, and consequent fall of the prices of securities, will accomplish the purpose still more ra- pidly, by inducing foreigners, instead of taking away the gold which is due to them, to leave it for investment within the country, and even send gold into the country to take ad- vantage of the increased rate of in- terest. Of this last mode of stopping a drain of gold, the year 1847 afforded signal examples. But until one of these two things takes place until either prices fall, or the rate of interest rises nothing can possibly arrest, or even moderate, the efflux of gold. Now, neither will prices fall nor interest rise, so long as the un- duly expanded credit is upheld by the continued advances of bankers. It is well known that when a drain of gold has set in, even if bank notes have not increased in quantity, it is upon them that the contraction first falls, the gold wanted for exportation being always obtained from the Bank of England in exchange for its notes. But under the system which pre- ceded 1844, the Bank of England, being subjected, in common with other banks, to the importunities for fresh advances which are character- istic of such a time, could, and often did, immediately re-issue the notes which had been returned to it in exchange for bullion. It is a great error, certainly, to suppose that the mischief of this re-is blishments have not been banks of issue), have shown only too clearly that, south of the Tweed at least, the joint- stock principle applied to banking is not the adequate safeguard it was so confidently supposed to be : and it is difficult now to resist the conviction, that if plurality of issuers is allowed to exist, some kind of special security in favour of the holders of notes should bo exacted as an imperative condition. CHAPTER XXV. OP THE COMPETITION OF DIFFERENT COUNTRIES IN THE SAME MARKET. 1. IN the phraseology of the Mercantile System, the language and doctrines of which are stiil the basis of what may be called the political eco- nomy of the selling classes, as distin- guished from the buyers or consumers, there is no word of more frequent recurrence or more perilous import than the word underselling. To un- dersell other countries not to be undersold by other countries were spoken of, and are still very often spoken of, almost as if they were the sole purposes for which production and commodities exist. The feelings of rival tradesmen, prevailing among nations, overruled for centuries all sense of the general community of ad- vantage which commercial countries derive from the prosperity of one an- other : and that commercial spirit which is now one of the strongest ob- stacles to wars, was during a certain period of European history their prin- cipal cause. Even in the more enlightened view now attainable of the nature and con- sequences of international commerce, some, though a comparatively small, space must still be made for the fact of commercial rivality. Nations may, like individual dealers, be competitors, with opposite interests, in the markets of some commodities, while in others they arc in the more fortunate relation >f reciprocal customers. The benefit of commerce does not consist, as it was once thought to do, in the commodities sold; but, since the commodities sold are the means of obtaining those which are bought, a nation would be cut off from the real advantage of commerce, the imports, if it could not induce other nations to take any of its commodities in exchange ; and in proportion as the competition of other countries compels it to offer its commodities on cheaper terms, on pain of not selling them at all, the imports which it obtains by its foreign trade are procured at greater cost. These points have been adequately, though incidentally, illustrated in some of the preceding chapters. But the great space which the topic has filled, and continues to fill, in economical speculations, and in the practical anxieties both of politicians and of dealers and manufacturers, makes it desirable, before quitting the subject of international exchange, to subjoin a few observations on the things which do, and on those which do not, enable countries to undersell one another. One country can only undersJLan- "" n+Ti rage quality as the larger surface, the price would fall one-tenth, because the same produce would be obtained with a tenth less labour. But since the portion of land abandoned will be the least fertile portion, the price of pro- duce will thenceforth be regulated by a better quality of land than In addition, therefore, to the original diminution of one-tenth in the cost of production, there will be a further diminution, corresponding with the re- cession of the " mara^n" of agriculture to land of greater fertility. There will thus be a twofold fall of price. INFLUENCE OF PROGRESS Let us now examine the effect of the improvements, thus suddenly made, on the division of the produce ; and in the first place, on rent. By the former of the two kinds of improvement, rent would be diminished. By the second, it would he diminished still more. Suppose that the demand for food requires the cultivation of three quali- ties of land, yielding-, on an equal sur- face, and at an equal expense, 100, 80, and GO hushels of wheat. The price of wheat will, on the average, be just sufficient to enable the third quality to be cultivated with the ordinary profit. The first quality therefore will yield forty and the second twenty bushels of extra profit, constituting the rent of the landlord. And first, let an im- provement be made, which, without enabling more corn to be grown, en- ables the same corn to be grown with one-fourth less labour. The price of wheat will fall one-fourth, and 80 bushels will be sold for the price for which GO were sold before. But the produce of the land which produces 60 bushels is still required, and the ex- penses being as much reduced as the price, that land can still be cultivated with the ordinary profit. The first and second qualities will therefore continue to yield a surplus of 40 and 20 bushels, and corn rent will remain the same as before. But corn having fallen in price one-fourth, the .same corn rent is equi- valent to a fourth less of money and of all other commodities. So far, there- fore, as the landlord expends his in- come in manufactured or foreign pro- ducts, he is one-fourth worse off than before. His income as landlord is re- duced to three-quarters of its amount : it is only as a consumer of corn that he is as well off. If the improvement is of ills other kind, rent will fall in a still greater ratio. Suppose that the amount of produce which the market requires, can be grown not only with a fourth less labour, but on a fourth less land. If all the land already in cultivation continued to be cultivated, it would yield a produce much larger than necessary. Land, equivalent to a fourth cf the produce, must now be aban- ON RENTS, PROFITS, ETC. 435 doned; and as the third quality yielded exactly one-fourth, (being 60 out of 240,) that quality will go out of culti- vation. The 240 bushels can now be grown on land of the first and second qualities only; being, on the first, 100 bushels plus one-third, or 133g bushels; on the second, 80 bushels plus one- third, or 106 bushels ;' together, 240. The second quality of land, instead of the third, is now the lowest, and regu- lates the price. Instead of 60, it is sufficient if 106| bushels repay the capital with the ordinary profit. The price of wheat will consequently fall, not in the ratio of 60 to 80, as in the other case, but in the ratio of 60 to 106. Even this gives an insufficient idea of the degree in which rent will be affected. The whole produce of the second quality of land will now be re- quired to repay the expenses of produc- tion. That land, being the worst in cultivation, will pay no rent. And the first quality will only yield the diffe- rence between 133^ bushels and 106|, being 26| bushels instead of 40. The landlords collectively will have lost 33^ out of 60 bushels in com rent alone, while the value and price of what is left will have been diminished in the ratio of 60 to 106. It thus appears, that the interest of the landlord is decidedly hostile to the sudden and general introduction of agricultural improvements. This as- sertion has been called a paradox, and made a ground for accusing its first promulgator, Eicardo, of great intellec- tual perverseness, to say nothing worse. I cannot discern in what the paradox consists ; and the obliquity of vision seems to me to be on the side of his assailants. The opinion is only made to appear absurd by stating it unfairly. If the assertion were that a landlord is injured by the improvement of his estate, it would certainly be indefen- sible ; but what is asserted is, that he is injured by the improvement of the estates of other people, although his own is included. Nobody doubts that he would gain greatly by the improve- ment if he could keep it to himself, and unite the two benefits, of an increased produce from his land, and a price as FF 2 BOOK IV. CHAPTER III. 4. high as before. But if the increase of produce took place simultaneously on all lands, the price would not be as bigli as before ; and there is nothing un- reasonable in supposing that the land- lords would be, not benefited, but in- jured. It is admitted that whatever permanently reduces the price of pro- duce diminishes rent : and it is quite in accordance with common notions to suppose that if, by the increased pro- ductiveness of land, less land were re- quired for cultivation, its value, like tha-t of other articles for which the demand had diminished, would fall. I am quite willing to admit that rents have not really been lowered by the progress of agricultural improve- ment ; but why ? Because improve- ment has never in reality been sudden, but always slow ; at no time much outstripping, and often falling far short of, the growth of capital and popula- tion, which tends as much to raise rent, as the other to lower it, and which is enabled, as we shall presently see, to raise it much higher by means of the additional margin afforded by improve- ments in agriculture. First, however, we must examine in what manner the sudden cheapening of agricultural pro- duce would affect profits and wages. In the beginning, money wages would probably remain the same as before, and the labourers would have the full benefit of the cheapness. They would be enabled to increase their consumption either of food or of other articles, and would receive the same cost, and a greater quantity. So far, profits would be unaffected. But the permanent remuneration of the labourers essentially depends on what we have called their habitual stan- dard ; the extent of the require- ments which, as a class, they in- sist on satisfying before they choose to have children. If their tastes and requirements receive a durable impress from the sudden improvement in their condition, the benefit to the class will be permanent. But the same cause which enables them to purchase greater comforts and indulgences with the same wages, would enable them to purchase the same amount of comforts and in- dulgences with lower wages ; and a greater population may now exist, without reducing the labourers below the condition to which they are accus- tomed. Hitherto, this and no other has been the use which the kbourers have commonly made of any increase of their means of living ; they have treated it simply as convertible into food for a greater number of children. It is probable, therefore, that popula- tion would be stimulated, and that after the lapse of a generation the real wages of labour would be no higher than before the improvement : the re- duction being partly brought about by a fall of money wages, and partly through the price of food, the cost of which, from the demand occasioned by the increase of population, would be increased. To the extent to which money wages fell, profits would rise ; the capitalist obtaining a greater quantity of equally efficient labour by the same outlay of capital. We thus see that a diminution of the cost of living, whether arising from agricultu- ral improvements or from the importa- tion of foreign produce, if the habits and requirements of the labourers are not raised, usually lowers money wages and rent, and raises the general rate of profit. "What is true of improvements which cheapen the production of food, is true also of the substitution of a cheaper for a more costly variety of it. The same land yields to the same labour a much greater quantity of human nutriment in the form of maize or potatoes, than in the form of wheat. If the labourers were to give up bread, and feed only on those cheaper products, taking as their compensation not a greater quan- tity of other consumable commodities, but earlier marriages and larger fami- lies, the cost of labour would be much diminished, and if labour continued equally efficient, profits would rise ; while rent would be much lowered, since food for the whole population could be raised on half or a third part of the land now sown with corn. At the same time, it being evident that land too barren to be cultivated for wheat might be made in case of neces- INFLUENCE OF PROGRESS sity to yield potatoes sufficient to sup- port the little labour necessary for producing them, cultivation might ulti- mately descend lower, and rent even- tually rise higher, on a potato or maize system, than on a corn system ; be- cause the land would be capable of feeding a much larger population before reaching the limit of its powers. If the improvement, which we sup- pose to take place, is not in the pro- duction of food, but of some manufac- tured article consumed by the labouring class, the effect on wages and profits will at first be the same ; but the effect on rent very different. It will not be lowered ; it will even, if the ul- timate effect of the improvement is an increase of population, be raised : in which last case profits will be lowered. The reasons are too evident to require statement. 5. We have considered, on the one hand, the manner in which the distribution of the produce into rent, profits, and wages, is affected by the ordinary increase of population and capital, and on the other, how it is affected by improvements in produc- tion, and more especially in agricul- ture. We have found that the former cause lowers profits, and raises rent and the cost of labour : while the ten- dency of agricultural improvements is to diminish rent ; and all improve- ments which cheapen any article of the labourer's, consumption, tend to diminish the cost of labour, and to raise profits. The tendency of each cause in its separate state being thus ascertained, it is easy to determine the tendency of the actual course of things, in which the two movements are going .on simultaneously, capital and popu- lation increasing with tolerable stea- diness, while improvements in agri- culture are made from time to time, and the knowledge and practice of improved methods become diffused gradually through the community. The habits and requirements of the labouring classes being given (which determine their real wages,) rent, profits, and money wages at any given time, are the result of the composition ON RENTS, PROFITS, ETC. 437 of these rival forces. If during any period agricultural improvement ad- vances faster than population, rent and money wages during that period will tend downward, and profits upward. If population advances more rapidly than agricultural improvement, either the labourers will submit to a reduc- tion in the quantity or quality of their food, or if not, rent and money wages will progressively rise, and profits will fall. Agricultural skill and knowledge are of slow growth, and still slower diffu- sion. Inventions and discoveries, too, occur only occasionally, while the in- crease of population and capital are continuous agencies. It therefore seldom happens that improvement, even during a short time, has so much the start of population and capital as actually to lower rent, or raise the rate of profits. There are many countries in which the growth of population and capital are not rapid, but in these agricultural improvement is less active still. Population almo.st everywhere treads close on the heels of agricultural improvement, and effaces its effects as fast as they are produced. The reason why agricultural im- provement seldom lowers rent, is that it seldom cheapens food, but only pre- vents it from growing dearer ; and seldom, if ever, throws land out of cultivation, but only enables worse and worse land to be taken in for the sup- ply of an increasing demand. What is sometimes called the natural state of a country which is but half cul- tivated, namely, that the land is highly productive, and food obtained in great abundance by little labour, is only true of unoccupied countries colo- nized by a civilized people. In the United States the worst land in cul- tivation is of a high quality (except sometimes in the immediate vicinity of markets or means of conveyance, where a bad quality is compensated by a good situation) ; and even if no further improvements were made in agriculture or locomotion, cultivation would have many steps yet to descend, before the increase of population and capital w r ould be brought to a stand; 438 BOOK IV. but in Europe five hundred years ago, though so thinly peopled in compa- rison to the present population, it is probahle that the worst land under the plough was, from the rude state of agriculture, quite as unproductive as the worst land now cultivated ; and that cultivation had approached as near to the ultimate limit of profitable tillage, in those times as in the pre- sent. What the agricultural improve- ments since made have really done is, by increasing the capacity of produc- tion of land in general, to enable til- CIIArTER HI. 5 this ultimate effect becomes the imme- diate effect. Suppose cultivation to have reached, or almost reached, the utmost limit permitted by the state of the industrial arts, and' rent, there- fore, to have attained nearly the high- est point to which it can be carried by the progress of population and capital, with the existing amount of skill and knowledge. If a great agricultural improvement were suddenly intro- duced, it might throw back rent for a considerable space, leaving- it to regain its lost ground by the progress lage to extend downwards to a much j of population and capital, and eifter- worse natural quality of land than the j wards to go on further. But, taking worst which at that time would have 1 place, as such improvement always admitted of cultivation by a capitalist ; does, very gradually, it causes no re- for profit ; thus rendering a much j trograde movement of either rent or greater increase of capital and popu- j cultivation ; it merely enables the one lation possible, and removing always a little and a little further off, the barrier which restrains them ; popu- lation meanwhile always pressing so hard against the barrier, that there is never any visible margin left for it to seize, every inch of ground made vacant for it by improvement being at once filled u Agricultural improvement may thus be considered to be not so much a cotmterforce conflicting with increase of population, as a partial relaxation of the bonds which confine that in- crease. The effects produced on the division of the produce by an increase of pro- duction, under the joint influence of increase of population and capital and improvements of agriculture, are very different from those deduced from the hypothetical cases previously discussed. In particular, the effect on rent is most materially different. We re- marked that while a great agricul- tural improvement, made suddenly and universally, would in the first instance inevitably lower rent such improve- ments enable rent, in the progress of society, to rise gradually to a much higher limit than it could otherwise attain, since they enable a much lower quality of land to be ultimately cultivated. But in the case we are now supposing, which nearly cor- responds to the usual course of things, to go on rising, and the other exi ing, long after they must otherwise^ have stopped. It would do this even without the necessity of resorting to a worse quality of land ; simply by enabling the lands already in cultiva- tion to yield a greater produce, with no increase of the proportional cost. If by improvements of agriculture all the lands in cultivation could be made, even with double labour and capital, to yield a double produce, (supposing that in the meantime population in- creased so as to require this double quantity) all rents would be doubled. To illustrate the point, let us revert to the numerical example in a former page. Three qualities of land yield respectively 100, 80, and 60 bushels to the same outlay on the same extent of surface. If No. 1 could be made to yield 200, No. 2, 160, and No. 3, 120 bushels, at only double the expense and therefore without any increase pt the cost of production, and if the popu- lation, having doubled, required all this increased quantity, the rent of No. 1 would be 80 bushels instead of 40, and of No. 2, 40 instead of 20, while the price and value per bushel would be the same as before : so that com rent and money rent would both be doubled. I need not point out the difference between this result, and what we have shown would take place -if there were an improvement TENDENCY OF PROFITS TO A MINIMUM. 439 in production without the accompa- niment of -an increased demand for food. / . Agricultural improvement, then, is always ultimately, and in the manner in winch it generally takes place also immediately, beneficial to the landlord. We may add, that when it takes place in that manner, it is beneficial to no one else. When the demand for pro- duce fully keeps pace with the in- creased capacity of production, food is not cheapened ; the labourers are not, even temporarily, benefited ; the cost of labour is not diminished, nor profits raised. There is a greater aggregate production, a greater produce divided among the labourers, and a larger gross profit ; but the wages being shared among a larger population, and the Erofit spread over a larger capital, no ibourer is better oif, nor does any capitalist derive from the same amount of capital a larger income. The result of this long investigation may be summed up as follows. The economical progress of a society con- stituted of landlords, capitalists, and labourers, tends to the progressive en- richment of the landlord class ; while the cost of the labourer's subsistence tends on the whole to increase, and profits to fall. Agricultural improve- ments are a counteracting force to the two last effects ; but the first, though a case is conceivable in which it would be temporarily checked, is ultimately in a high degree promoted by those improvements ; and the increase of population tends to transfer all the benefits derived from agricultural im- provement to the landlords alone. What other consequences, in addition, to these, or in modification of them, arise from the industrial progress of a society "thus constituted, I shall en- deavour to show in the succeeding chaptei. CHAPTER IV. OP THE TENDENCY OF PROFITS TO A MINIMUM. 1. THE tendency of profits to fall as society advances, which has been brought to notice in the preceding chapter, was early recognised by writers on industry and commerce ; but the laws which govern profits not being then understood, the phenome- non was ascribed to a wrong cause. Adam Smith considered profits to be determined by what he called the competition of capital ; and concluded that when capitaPTncreased, this com- petition must likewise increase, and profits must fall. It is not quite cer- tain what sort of competition Adam Smith had here in view. His words in the chapter on Profits of Stock* are, " When the stocks of many rich merchants are turned into the same trade, their mutual competition natu- rally tends to lower its profits; and * WeaUh oj &ationg, book i. ch. 9. when there is a like increase of stock in all the different trades carried on in the same society, the same competition must produce the same effect in them all." This ^ passage would lead us to infer that, in Adam Smith's opinion, the manner in which the competition of capital lowers profits is by lowering prices ; that being usually the mode in which an increased investment of capital in any particular trade, lowers the profits of that trade. But if this was his meaning, he overlooked the circumstance, that the fall of price, which if confined to one commodity really does lower the profits of the producer, ceases to have that effect as soon as it extends to all commodities ; because, when all things have fallen, nothing has really fallen, except nomi- nally ; and even computed in money, the expenses of every producer have 440 BOOK IV. CHAPTER IV. 2. diminished as much as his returns. I production of the precious metals; as Unless indeed labour be the one com- for example, all spun niodity which has not fallen in money for example, all spun and fabrics. Other things again, instead price, when all other things have : if j of falling, have risen in price, be- what has really taken place is a rise of wa the Jjie profits of capital. There is anotner thing which escaped the notice of Adam Smith ; that the supposed uni- versal fall of prices, through increased competition of capitals, is a thing which cannot take place. Prices are not determined bv the competition of cause their cost of production, com- of wages ; and it is that, and not 1 pared with that of gold and silver, has fall ofprices, which hjis lowered | increased. Among these are all kinds of food, comparison being made with a much earlier period of history. The doctrine, therefore, that competition of capital lowers profits by lowering prices, is incorrect in fact, as well as unsound in principle. But it is not certain that the sellers only, but also by that of the buyers ; by demand as well as supply. The demand which affects money prices consists of all the money in the hands of the community des- tined to be laid out in commodities ; and as long as the proportion of this to the commodities is not diminished, there is no fall of general prices. Now, howsoever capital may increase, and give rise to an increased produc- tion of commodities, a full share of the capital will be drawn to the business of producing or importing money, and the quantity of money will be aug- mented in an equal ratio with the quantity of commodities. For if this were not the case, and if money, there- fore, were, as the theory supposes, perpetually acquiring increased pur- chasing power, those who produced or imported it would obtain constantly increasing profits ; and this could not happen without attracting labour and capital to that occupation from other employments. If a general fall of prices, and increased value of money, were really to occur, it could only be as a consequence of increased cost of production, from the gradual exhaus- tion of the mines. !lt is not tenable, therefore, in theory, that the increase of capital produces, or tends to produce, a general decline of money prices. Neither is it true, that any general decline of prices, as capital increased, has manifested itself in fact. The only things ob- served to fall in price with the progress of society, are those in which there have been improvements in production, greater than have taken place in the Adam Smith really held that doctrine ; for his language on the subject is wavering and unsteady, denoting the absence of a definite and well-digested opinion. Occasionally he seems to think that the mode in which the competition of capital lowers profits, is by raising wages. And when speaking of the rate of profit in new colonies, he seems on the very verge of grasping the com- plete theory of the subject. " As the colony increases, the profits of stock gradually diminish. When the most fertile and best situated lands have been all occupied, less profit can be made by the cultivation of what is in- ferior both in soil and situation." Had Adam Smith meditated longer on the subject, and systematized his view of it by harmonizing with each other the various glimpses which he caught of it from different points, he would have perceived that this last is the true cause of the fall of profits usually consequent npon increase ot capital. 2. Mr. Wakefield, in his Com- mentary on Adam Smith, and his im- portant writings on Colonization, takes a much clearer view of the subject. and arrives, through a substantially correct series of deductions, at practi- cal conclusions which appear to mo just and important ; but he is not equally happy in incorporating his valuable speculations with the results of previous thought, and reconciling them with other truths. Some of the theories of Dr. Chalmers, in his chapter " On the Increase and Limits of Capi- tal," and the two chapters which follow TENDENCY OF PROFITS TO A MINIMUM. 441 it, coincide in their tendency and spirit with those of Mr. Wakefield ; but Dr. Chalmers' ideas, though de- livered, as is his custom, with a most attractive semblance of clearness, are really on this subject much more con- fused than even those of Adam Smith, and more decidedly infected with the often refuteji-Htftion that the compe- tition o capital lowers general prices ; the subject of Money apparently not having been included among the parts of Political Economy which this acute and vigorous writer had carefully studied. Mr. Wakefield's explanation of the fall of profits is briefly this. Production is limited not solely by the quantity of capital and of labour, but also by the extent of the "field of employment." The field of employment for capital is twofold ; the land of the country, and the capacity of foreign markets to take its manufactured commodities. On a limited extent of land, only a limited quantity of capital can find employment at a profit. As the quantity of capital \approaches this limit, profit falls ; when . ihe limit is attained, profit is annihi- lated ; and can only be restored through 1\ /an extension of the field of employment, u (either by the acquisition of fertile land, y jor by opening new markets in foreign |countries, from which food and ma- jterials can be purchased with the products of domestic capital. These propositions are in my opinion sub- stantially true ; and, even to the phra- seology in which they are expressed, considered as adapted to popular and practical rather than scientific uses, I have nothing to object. The error which seems to me imputable to Mr. Wake- field is that of supposing his doctrines to be in contradiction to the principles of the best school of preceding political economists, instead of being, as they really are, corollaries from those prin- ciples ; though corollaries which, per- haps, would not always have been admitted by those political economists themselves. The most scientific treatment of the Bubject which 1 have met with, is in an essay on the effects of Machinery, pub- lished in the Westminster lieview for UNIV January 1826, by Mr. William Ellis ;* which was doubtless unknown to Mr, Wakefield, but which had preceded him, though by a different path, in several of his leading conclusions. This essay excited little notice, partly from being published anonymously in a pe- riodical, and partly because it waa much in advance of the state of political economy at the time. In Mr. Ellis' s view of the subject, the questions and difficulties raised by Mr. Wakefield's speculations and by those of Dr. Chalmers, find a solution consistent with the principles of political economy laid down in the present treatise. 3. There is at every time and place some particular rate r>f_profit, which is the lowest that willinduce the people of thatjxjiuntry and time to accumulate-- savnigs^and to employ those savings productively. This minimum rate of profit varies according to circum- stances. It depends on two elements. One is, the strength of the effective desire _of accumulation ; the compara- tive estimate made by the people of that place and era, of future interests when weighed against present. This element chiefly affects the inclination to save. The other element, which affects not so much the willingness to save as the disposition to employ savings pro- ductively, is the degree of security of c apital engagecLjin. .. linclu str i al~ openv- tion$. A state of general insecurity, no doubt affects also the disposition to save. A hoard may be a source of ad- ditional danger to its reputed possessor. But as it may also be a powerful means of averting dangers, the effects in this respect may perhaps be looked upon as balanced. But in employing any funds which a person may possess as capital on his own account, or in lending it to others to be so employed, there is always some additional risk, over and above that incurred by keeping it idle in his own custody. This extra risk is great in proportion as the general state * Now so much better known through his apostolic exertions, by pen, purse, and per- son, for the improvement of popular educa- tion, and especially for the introduction into it of the elements of practical Political Economy. BOOK IV. CHAPTER IV. 3. 442 of society is insecure : it may be equi- valent to twenty, thirty, or fifty per cent, or to no more than one or two ; | something, however, it must always l be : and for this, the expectation of j profit muet be sufficient to compensate. There would be adequate motives | for a certain amount of saving, even j if capital yielded no profit. There would be an inducement to lay by in good times a provision for bad; to reserve something for sickness and infirmity, or as a means of leisure and independence in the latter part of life, or a help to children in the outset of it. Savings, however, which have only these ends in view, have not much tendency to increase the amount of ca- pital permanently in existence. These motives only prompt persons to save at one period of life what they purpose to consume at another, or what will be consumed by their children before they can completely provide for themselves. The savings by which an addition is made to the national capital, usually emanate from the desire of persons to improve what is termed their condition in life, or to make a provision for chil- dren or others, independent of their exertions. Now, to the strength of these inclinations it makes a very material difference how much of the desired ob- ject can be eS'ected by a given amount and duration of self-denial; which again depends on the rate of profit. And there is in every country some rate of profit, below which persons in general will not find sufficient motive to save for the mere purpose of growing richer, or of leaving others better off than themselves. Any ^accumulation, therefore, by which the general capital is increased, requires as its necessary condition a certain rate of prpjit : a rate which an average per- son will deem to be an equivalent for abstinence, with the addition of a suni- cient insurance against risk. There are always some persons in whom the effective desire of accumulation is above the average, and to whom less than this rate of profit is a sufficient inducement to save ; but these merely step into the place of others whose taste for expense . and indulgence is beyond the average, and who. instead of saving, perhaps even dissipate what they have re- ceived. I have already observed that this minimum rate of profit, less than which is not consistent with the further in- crease of capital, is lower in some states of society than in others ; and I may add, that the kind of social progress characteristic of our present civiliza- tion, tends to diminish it. In the first place, one of the acknowledged effects of that progress is an increase of gene- ral security. Destruction by wars, and spoliation by private or public violence, are less and less to be apprehended; and the improvements which may be looked for in education and in the ad- ministration of justice, or, in their default, increased regard for opinion, afford a growing protection against fraud and reckless mismanagement. The risks attending the investment of savings in productive employment, re- quire therefore a smaller rate of profit to compensate for them than was re- quired a century ago, and will here- after require less than at present. In the second place, it is also one of the consequences of civilization that man- kind become less the slaves of the moment, and more habituated to carry their desires and purposes forward into a distant future. This increase of pro- vidence is a natural result of the in- creased assurance with which futurity can be looked forward to; and is, be- sides, favoured by most of the influ- ences which an industrial life exercises over the passions and inclinations of human nature. In proportion as life has fewer vicissitudes, as habits become more fixed, and great prizes are less and less to be hoped for by any other means than long perseverance, man- kind become more willing to sacrifice present indulgence for future objects. This increased capacity of forethought and self-control may assuredly find other things to exercise itself upon than increase of riches, and some con- siderations connected with this topic will shortly be touched upon. The present kind of social progress, how- ever, decidedly tends, though not per- haps to increase the desire of accumu- lation, yet to weaken the obstacles to TENDENCY OF PROFITS TO A MINIMUM. 443 it, and to diminish the amount of profit which people absolutely require as an inducement to save and accumulate. For these two reasons, diminution of risk and increase of providence, a profit or interest of three or four per cent is as sufficient a motive to the increase of capital in England at the present day, as thirty or forty per cent in the Bur- mese Empire, or in England at the time of King John. In Holland during the last century a return of two per cent, on government security, was con- sistent with an undiminished, if not with an increasing capital. But though the minimum rate of profit is thus liable to vary, and though to specify exactly what it is would at any given time be impossible, such a minimum always exists ; and whether it be high or low, when once it is reached, no further in- crease of capital can for the present take place. The country has then attained what is known to political economists under the name of the sta- tionary state. If 4. We now arrive at the funda- mental proposition which this chapter is intended to inculcate. When a coun- try has long possessed a large produc- tion, and a large net income to make savings from, and when, therefore, the means have long existed of making a great annual addition to capital ; (the country 'not having, like America, a large reserve of fertile land still un- used ;) it is one of the characteristics of such a country, that the _rate of profit is habitually within, as it were, a hand's breadth of the minimum, and the country therefore on the very verge of the stationary state. By this I do not mean that this state is likely, in any of the great countries of Europe, to be soon actually reached, or that capital does not still yield a profit con- siderably greater than what is barely sufficient to induce the people of those countries to save and accumulate. My meaning is, that it would require but a short time to reduce profits to the minimum, if capital continued to in- crease at its present rate, and no cir- cumstances having a tendency to raise the rate of profit occurred in the mean- time. The expansion of capital would soon reach its ultimate boundary, if the boundary itself did not continually open and leave more space. In England, the ordinary rate of interest on government securities, in which the risk is next to nothing, may be estimated at a little more than three per cent: in all other investments, therefore, the interest or profit calcu- lated upon (exclusively of what is pro- perly a remuneration for talent or ex- ertion) must be as much more than this amount, as is equivalent to the degree of risk to which the capital is thought to be exposed. Let us suppose that in England even so small a net profit as one per cent, exclusive of in- surance against risk, would constitute a sufficient inducement to save, but that less than this would not be a suffi- cient inducement. I now say, that the mere continuance of the present annual increase of capital, if no circumstance occurred to counteract its effect, would suffice in a small number of years to reduce the rate of net profit to one per cent. To fulfil the cations of the hypo- thesis, we must suppose an entire ces- sation of the exportation of capital for foreign investment. No more capital sent abroad for railways, or loans ; no more emigrants taking capital with them, to the colonies, or to other coun- tries; no fresh advances made, or credits given, by bankers or merchants to their foreign correspondents. We must also assume that there are no fresh loans for unproductive expe,ndi- ture by the government, or on mort- gage, or otherwise ; and none of the waste of capital which now takes place by the failure of undertakings, which people are tempted to engage in by the hope of a better income than can be obtained in safe paths at the present habitually low rate of profit. We must suppose the entire savings of the com- munity to be annually invested in really productive employment within the country itself; and no new channels opened by industrial inventions, or by a more extensive substitution of the best known processes for inferior ones. Few persons would hesitate to say BOOK IV. CHAPTER IV. 5. 444 that there would be great difficulty in finding remunerative employment every year for so much new capital, and most would conclude that there would be what used to be termed a general glut ; that commodities would be produced, and remain unsold, or be sold only at a loss. But the full examination which we have already given to this question,* has shown that this is not the mode in which the inconvenience would be ex- perienced. The difficulty would not consist in any want of a market. If the new capital were dulv shared among many varieties of employment, it would raise up a demand for its ewn produce, and there would be no cause \vhy any part of that produce should remain longer on hand than formerly. What would really be, not merely diffi- cult, but impossible, would be to em- ploy this capital without submitting to a rapid reduction of the rate of profit. As capital increased, population either would also increase, or it would not. If it did not, wages would rise, and a greater capital would be distri- buted in wages among the same num- ber of labourers. There being no more labour than before, and no improve- ments to render the labour more effi- cient, there would not be any increase of the produce ; and as the capital, liowever largely increased, would only obtain the same gross return, the whole savings of each year would be exactly \ so much subtracted from the profits of the next and of every following year. It is hardly necessary to say that in such circumstances profits would very soon fall to the point at which further increase of capital would cease. An augmentation of capital, much more rapid than that of population, must soon reach its extreme limit, unless accompanied by increased efficiency of labour (through inventions and disco- veries, or improved mental and physical education), or unless some of the idle people, or of the unproductive labourers, became productive. If population did increase with the increase of capital, and in proportion to it, the fall of profits would still be in- evitable. Increased population implies * Book iii. ch. 14. increased demand for agricultural j:ro- duce. In the absence of industrial im- provements, this demand can only be supplied at an increased cost of produc- tion, either by cultivating worse land, or by a more elaborate and costly cul- tivation of the land already under til- lage. The cost of the labourer's sub- sistence is therefore increased ; and unless the labourer submits to a deteri- oration of his condition, profits must fall. In an old country like England, if, in addition to supposing all improvement in domestic agriculture suspended, \ve suppose that there is no increased pro- duction in foreign countries for the English market, the fall of profits would be very rapid. If both these avenues to an increased supply of food were closed, and population continued to in- crease, as it is said to do, at the rate of a thousand a day, all waste land which admits of cultivation in the existing state of knowledge would soon be culti- vated, and the cost of production and price of food would be so increased, that if the labourers received the in- creased money wages necessary to com- pensate for their increased expenses, profits would very soon reach the mini- mum. The fall of profits would be re- tarded if money wages did not rise, or rose in a less degree ; but the margin which can be gained by a deterioration of the labourers' condition is a very nar- row one : in general they cannot bear much reduction ; when they can, they have also a higher standard of neces- sary requirements, and will not. On the whole, therefore, we may assume that in such a country as England, if the present annual amount of savings were to continue, without any of the counteracting circumstances which now keep in check the natural influence of those savings in reducing profit, the rate of profit would speedily attain the minimum, and all further accumula- tion of capital would for the present 5. What, then, are these counter- acting circumstances, which, in the existing state of things, maintain a tolerably equal struggle against the downward tendency of profits, and pre- TENDENCY OF PROFITS TO A MINIMUM. 445 veflit the great annual savings which take place in this country, from de- pressing the rate of profit much nearer to that lowest point to which it is always tending, and which, left to itself, it would so promptly attain ? The re- sisting agencies are of several kinds. First among them, we may notice one which is so simple and so conspi- cuous, that some political economists, especially M. de Sismondi and Dr. Chalmers, have attended to it almost to the exclusion of all others. This is, the waste of capital in periods of over- trading and rash speculation, and in the commercial revulsions by which such times are always followed. It is true that a great part of what is lost at such periods is not destroyed, but merely transferred, like a gambler's losses, to more successful speculators. But even of these mere transfers, a large portion is always to foreigners, by the hasty purchase of unusual quantities of foreign goods at advanced prices. And much also is absolutely wasted. Mines are opened, railways or bridges made, and many other works of uncertain profit commenced, and in these enterprises much capital is sunk which yields either no return, or none adequate to the outlay. Factories are built and machinery erected beyond what the market requires, or can keep in employment. Even if they are kept in employment, the capital is no less sunk ; it has been converted from cir- culating into fixed capital, and has ceased to have any influence on wages or profits. Besides this, there is ji great unproductive consumption of ca- pital, during the stagnation which fol- lows a period of general over-trading. Establishments are shut up, or kept working without any profit, hands are discharged, and numbers of persons in all ranks, being deprived of their in- come, and thrown for support on their savings, find themselves, after the crisis has passed away, in a condition of more or less impoverishment. Such are the effects of a commercial revul- sion: and that such revulsions are al- most periodical, is a consequence of the very tendency of profits which we are considering, By the time a few yearc have passed over without a crisis, so much additional capital has been ac- cumulated, that it is no longer possible to invest it at the accustomed profit : all public securities rise to a high price, the rate of interest on the best mer- cantile security falls very low, and the complaint is general among persons in business that no money is to be made. Does not this demonstrate how speedily profit would be at the minimum, and the stationary condition of capital would be attained, if these accumula- tions went on without any counteract- ing principle ? But the diminished scale of all safe gains, inclines persons to give a ready ear to any projects which hold out, though at the risk of loss, the hope of a higher rate of profit ; and speculations ensue, which, with the subsequent revulsions, de- stroy, or transfer to foreigners, a con- siderable amount of capital, produce a temporary rise of interest and profit, make room for fresh accumulations, and the same round is recommenced. This, doubtless, is one considerable cause which arrests profits in their descent to the minimum, by sweeping away from time to time a part of the accumulated mass by which they are forced down. But this is not, as might be inferred from the language of some writers, the principal cause. If it were, the capital of the country would not increase ; but in England it does increase greatly and rapidly. This is shown by the increasing productiveness of almost all taxes, by the continual growth of all the signs of national wealth, and by the rapid increase of population, while the condition of the labourers is certainly not declining, but on the whole improving. These things prove that each commercial revulsion, however disastrous, is very far from de- stroying all the capital which has been added to the accumulations of the country since the last revulsion pre- ceding it, and that, invariably, room is either found or made for the profitable employment of a perpetually increasing capital, consistently with not forcing down profits to a lower rate. 6. This brings us to the second of 446 BOOK IV. CHAPTER IV. 7. the counter-agencies, name] y._iinnjove- ments in production. These"evidently Have the TcflVct of extending what Mr. "\Yakefield terms the field of employ- ment, that is, they enable a greater amount of capital to be accumulated and employed without depressing the rate of profit : provided always that they do not raise, to a proportional extent, the habits and requirements of the la- bourer. If the labouring class gain the full advantage of the increased cheapness, in other words, if money wages do not fall, profits are not raised, nor their fall retarded. But if the labourers people up to the improve- ment in their condition, and so relapse to their previous state, profits will rise. All inventions which cheapen any of the things consumed by the labourers, unless their requirements are raised in an equivalent degree, in time lower money wages : and by doing so, enable a greater capital to be accumulated and employed, before profits fall back to what they were previously. Improvements which only affect things consumed exclusively by the richer classes, do not operate precisely in the same manner. The cheapening of lace or velvet has no effect in dimi- nishing the cost of labour ; and no mode can be pointed out in which it can raise the rate of profit, so as to make room for a larger capital before the minimum is attained. It, however, produces an effect which is virtually equivalent ; it lowers, or tends to lower, the minimum itself. In the first place, increased cheapness of articles of consumption promotes the inclina- tion to save, by affording to all con- sumers a surplus which they may lay by, consistently with their accustomed manner of living; and unless they were previously suffering actual hard- ships, it will require little self-denial to save some part at least of this sur- plus. In the next place, whatever enables people to live equally well on a smaller income, inclines them to lay by capital for a lower rate of profit. If people can live on an independence of 5001. a year in the same manner as they formerly could on one of 1000Z., some persons will be induced to save in hopes of the one, who would havo been deterred by the more remote prospect of the other. All improve- ments, therefore, in the production of almost any commodity, tend in some degree to widen the interval which has to be passed before arriving at the stationary state : but this effect belongs in a much greater degree to the im- provements which affect the articles consumed by the labourer, since the:-.o conduce to it in t\vo ways ; they induce people to accumulate for a lower profit, and they also raise the rate of profit itself. 7. Equivalent in effect to improve- ments in production, is the acquisition of any new power of obtaining cheap commodities from foreign countries. If necessaries are cheapened, whether they are so by improvements at home or importation from abroad, is exactly the same thing to wages and profits. Unless the labourer obtains, and by an improvement of his habitual standard, keeps, the whole benefit, the cost of labour is lowered, and the rate of profit raised. As long as food can continue to be imported for an increasing popu- lation without any diminution of cheap- ness, so long the declension of profits through the increase of population and capital is arrested, and accumulation may go on without making the rate of profit draw nearer to the minimum. And on this ground it is believed by some, that the repeal of the corn laws Las opened to this country a long era of rapid increase of capital wiili an undiminished rate of profit. Before inquiring whether this expec- tation is reasonable, one remark must be made, which is much at variance with commonly received notions. Fo- reign trade does not necessarily increase the field of employment for capital. It is not the mere opening of a market for a country's productions, that tends to raise the rate of profits. If nothing were obtained in exchange for those productions but the luxuries of the rich, . the expenses of no capitalist would be diminished ; profits would not be at all raised, nor room made for the accumu- lation of more capital without sub- TENDENCY OF PEOF1TS TO A MINIMUM. 447 mitting to a reduction of profits : and if the attainment of the stationary state were at all retarded, it would only be because the diminished cost at which a, certain degree of luxury could be enjoyed, might induce people, in that prospect, to make fresh savings for a lower profit than they formerly were willing to do. When foreign trade makes room for more capital at the same profit, it is by enabling the necessaries of life, or the habitual ar- ticles of the labourer's consumption, to be obtained at smaller cost. It may do this in two ways ; by the importa- tion either of those commodities them- selves, or of the means and appliances for producing them. Cheap iron has, in a certain measure, the same effect on profits and the cost of labour as cheap corn, because cheap iron makes cheap tools for agriculture and cheap machinery for clothing. But a foreign trade which neither directly, nor by any indirect consequence, increases the cheapness of anything consumed by the labourers, does not, any more than an invention or discovery in the like case, tend to raise profits or retard their fall ; it merely substitutes the production of goods for foreign markets, in the room of the home production of luxuries, leaving the employment for capital neither greater nor less than before. It is true, that there is scarcely any export trade which, in a country that already imports necessaries or ma- terials, comes within these conditions : for every increase of exports enables the country to obtain all its imports on cheaper terms than before. A country which, as is now the case with England, admits food of all kinds, and all necessaries and the materials of necessaries, to be freely imported from all parts of the world, no longer depends on the fertility of her own soil to keep up her rate of profits, but on the soil of the whole world. It remains to consider how far this resource can be counted upon for making head during a very long period against the tendency of profits to decline as capital increases. It must^of course, be supposed that with the increase of capital, popula- tion also increases ; for if it did not, the consequent rise of wages would bring down profits, in spite of any cheapness of food. Suppose then that the population of Great Britain goes on increasing at its present rate, and demands every year a supply of imported food considerably beyond that of the year preceding. This annual increase in the food demanded from the export- ing countries, can only be obtained either by great improvements in their agriculture, or by the application of a great additional capital to the growth of food. The former is likely to be a very slow process, from the rudeness and ignorance of the agricultural classes in the food-exporting countries of Europe, while the British colonies and the United States are already in possession of most of the improvements yet made, so far as suitable to their circumstances. There remains as a resource, the ex- tension of cultivation. And on this it is to be remarked, that the capital by which any such extension can take place, is mostly still to be created. In Poland, Kussia, Hungary, Spain, the increase of capital is extremely slow. In America it is rapid, but not more rapid than the population. The prin- cipal fund at present available for sup- plying this country with a yearly in- creasing importation of food, is that portion of the annual savings of America which has heretofore been applied to increasing the manufacturing establishments of the United States, and which free trade in corn may pos- sibly divert from that purpose to grow- ing food for our market. This limited source of supply, unless great improve- ments take place in agriculture, cannot be expected to keep pace with the growing demand of so rapidly increas- ing a population as that of Great Bri- tain ; and if our population and capital continue to increase with their present rapidity, the only mode in which food can continue to be supplied cheaply to the one, is by sending the other abroad to produce it. 8. This brings us to the last of the counter-forces which check the down- ward tendency of profits in a country 443 BOOK IV. CHAPTER V. 1. whose capital increases faster than that of its neighbours, and whose pro- fits are therefore nearer to the mi- nimum. This is, the perpetual over- flow of capital into colonies or foreign countries, to seek higher profits than can be obtained at home. I believe this to have been for many years one of the principal causes by which the decline of profits in England has been arrested. It has a twofold operation. In the first place, it does what a fire, or an inundation, or a commercial crisis would have done : it carries off a part of the increase of capital from which the reduction of profits proceeds. Se- condly, the capital so carried off is not lost, but is chiefly employed either in founding colonies, which become large exporters of cheap agricultural produce, or in extending and perhaps improv- ing the agriculture of older commu- nities. It is to the emigration of En- glish capital, that we have chiefly to look for keeping up a supply of cheap food and cheap materials of clothing, proportional to the increase of our population : thus enabling an increas- ing capital to find employment in the country, without reduction of profit, in producing manufactured articles with which to pay for this supply of raw produce. Thus, the exportation of capital is an agent of great efficacy in extending the field of employment for that which remains: and it may be said truly that, up to a certain point, the more capital we send away, the more we shall possess and be able to retain at home. In countries which are further ad- vanced in industry and population, and have therefore a 'lower rate of profit, than others, there is always, long before the actual minimum is reached, a practical minimum, viz. when profits have fallen so much below what they are elsewhere, that, were they to fall lower, all further accumulations would go abroad. In the present state of the industry of the world, when there is occasion, in any rich and improving country, to take the minimum of profits at all into consideration for practical purposes, it is only this practical mi- nimum that needs be considered. As long as there are old countries where capital increases very rapidly, and new countries where profit is still high, profits in the old countries will not sink to the rate which would put a stop to accumulation ; the fall is stopped at the point which sends capital abroad. It is only, however, by improvements in production, and even in the production of things consumed by labourers, that the capital of a country like England is prevented from speedily reaching that degree of lowness of profit, which would cause all further savings to be sent to find employment in the colonies^ or in foreign countries. CHAPTER V. CONSEQUENCES OF THE TENDENCY OF PROFITS TO A MINIMUJf. 1 . THE theory of the effect of ac- cumulation on profits, laid down in the preceding chapter, materially alters many of the poetical conclusions which might otherwise be supposed to follow from the general principles of Political Economy, and which were, indeed, long admitted as true by the highest autho- rities on the subject. It must greatly abate, or rather, al- together destroy, in countries where profits are low, the immense impor- tance which used to be attached by political economists to the effects which an event or a measure of government might have in adding to or subtracting from the capital of the country. We have now seen that the lowness of pro- fits is a proof that the spirit of accu- mulation is so active, and that the increase of capital has proceeded at so rapid a rate, as to outstrip the two TENDENCY OF PROFITS TO A MINIMUM. 449 counter-agencies, improvements in pro- duction, and increased supply of cheap necessaries from abroad : and that un- less a considerable portion of the annual increase of capital were either periodi- cally destroyed, or exported for foreign investment, the country would speedily attain the point at which further accu- mulation would cease, or at least spon- taneously slacken, so as no longer to overpass the march of invention in the arts which produce the necessaries of life. In such a state of things as this, a sudden addition to the capital of the country, unaccompanied by any increase of productive power, would be but of transitory duration ; since, by depress- ing profits and interest, it would either diminish by a corresponding amount the savings which would be made from income in the year or two following, or it would cause an equivalent amount to be sent abroad, or to be wasted in rash speculations. Neither, on the other hand, would a sudden abstraction of capital, unless of inordinate amount, have any real effect in impoverishing the country. After a few months or years, there would exist in the coun- try just as much capital as if none had been taken away. The abstraction, by raising profits and interest, would give a fresh stimulus to the accumulative principle, which would speedily fill up the vacuum. Probably, indeed, the only effect that would ensue, would be that for some time afterwards less capi- tal would be exported, and less thrown away in hazardous speculation. In the first place, then, this view of things greatly weakens, in a wealthy and industrious country, the force of the economical argument against the expenditure of public money^for really valuable, even though industriously un- productive, purposes. If for any great object of justice or philanthropic policy, such as the industrial regeneration of Ireland, or a comprehensive measure of colonization or of public education, it were proposed to raise a large sum by way of loan, politicians need not demur to the abstraction of so much capital, as tending to dry up the per- manent sources of the country's wealth, and diminish the fund which supplies P.E. the .subsistence of the labouring popu- lation. The utmost expense which could be requisite for any of these pur- poses, would not in all probability de~ prive one labourer of employment, or diminish the next year's production by one ell of cloth or one bushel of grain. In poor countries, the capital of the country requires the legislator's sedu- lous care; he is bound *to be most cautious of encroaching upon it, and should favour to the utmost its accu- mulation at home, and its introduction from abroad. But in rich, populous, and highly cultivated countries, it is not capital which is the deficient ele- ment, but fertile land ; and what the legislator should desire and promote, is not a greater aggregate saving, but a greater return to savings, either by im- proved cultivation, or by access to the produce of more fertile lands in other parts of the globe. In such countries, the government may take any moderate portion of the capital of the country and expend it as revenue, without affecting the national wealth : the whole being either drawn from that portion of the annual savings which would otherwise be sent abroad, or being sub' tracted from the unproductive expendi- ture of individuals for the next year or two, since every million spent makes room for another million to bo saved before reaching the overflowing point. When the object in view is worth the sacrifice of such an amount of the ex- penditure that furnishes the daily en- joyments of the people, the only well- grounded economical objection against taking the necessary funds directly from capital, consists of the inconve- niences attending the process of rais- ing a revenue by taxation, to pay the interest of a debt. The same considerations enable us to throw aside as unworthy of regard, one of the common arguments against emigration as a means of relief for the labouring class. Emigration, it is said, can do no good to the labourers, if, in order to defray the cost, as much must be taken away from the capital of the country as from its population. That anything like this proportion could re- quire to be abstracted from capital for G G 450 - the purpose even of the most extensive colonization, few, I should think, would now assert : but even on that untenable supposition, it is an error to suppose that no benefit would be conferred on the labouring class. If one-tenth of the labouring people of England were transferred to the colonies, and along with them one-tenth of the circulating capital of the country, either wages, or profits, or both, would be greatly bene- fited, by the diminished pressure of capital and population upon the ferti- lity of the land. There would be a reduced demand for food : the inferior arable lands would be thrown out of cultivation, and would become pasture ; the superior would be cultivated less highly, but with a greater proportional return , food would be lowered in price, and though money wages would not rise, every labourer would be consider- ably improved in circumstances ; an improvement which, if no increased stimulus to population and fall of wages ensued, would be permanent ; while if there did, profits would rise, and accu- mulation start forward so as to repair the loss of capital. The landlords alone would sustain some loss of income ; and even they, only if colonization went to the length of actually diminishing capi- tal and population, but not if it merely carried off the annual increase. 2. From the same principles we are now able to arrive at a final con- clusion respecting the effects which machinery, and generally the sinking of capital for a productive purpose, pro- duce upon the immediate and ultimate interests of the labouring class. The characteristic property of this class of industrial improvements is the conver- sion of circulating capital into fixed : and it was shown in the First Book,* that in a country where capital accu- mulates slowly, the introduction of ma- chinery, permanent improvements of land, and the like, might be, for the time, extremely injurious ; since the capital so employed might be directly taken from the wages fund, the subsistence of the people and the employment for 'abour curtailed, and the gross annual * Supra, p. 59. ' BOOK IV. CHAPTER V. 2. produce of the country actually dimi- nished. But in a country of great annual savings and low profits, no such effects need be apprehended. Since even the emigration of capital, or its unproductive expenditure, or its abso- lute waste, do not in such a country, if confined within any moderate bounds, at all diminish the aggregate amount of the wages fund still less can the mere conversion of a like sum into fixed capital, which continues to be produc- tive, have that effect. It merely draws off at one orifice what was already flow- ing out at another; or if not, the greater vacant space left in the reservoir does but cause a greater quantity to flow in. Accordingly, in spite of the mischievous derangements of the money-market which have been occasioned by the sinking of great sums in railways, I was never able to agree with those who apprehended mischief, from this source, to the productive resources of the coun- try. Xot on the absurd ground (which to any one acquainted with the ele- ments of the subject needs no confuta- tion) that railway expenditure is a mere transfer of capital from hand to hand, by which nothing is lost or destroyed. This is true of what is spent in the pur- chase of the land ; a portion too of what is paid to parliamentary agents, coun- sel, engineers, and surveyors, is paved by those who receive it, and becomes capital again : but what is laid out in the bond fide construction of the rail- way itself, is lost and gone ; when once expended, it is incapable of ever being paid in wages or applied to the main- tenance of labourers again ; as a matter of account, the result is that so much food and clothing and tools have been consumed, and the country has got a railway instead. But what I would urge is, that sums so applied are mostly a mere appropriation of the annual overflowing which would otherwise have gone abroad, or been thrown away un- profitably, leaving neither a rail way nor any other tangible result. The railway gambling of 1844 and 1845 probably saved the country from a depression of profits and interest, and a rise of all public and private securities, which would have engendered still wilder spe- TENDENCY OF PROFITS TO A MINIMUM. c illations, and when the effects camo afterwards to be complicated by the scarcity of food, would have ended in a still more formidable crisis than was experienced in the years immediately following. In the poorer countries of Europe, the rage for railway construc- tion might have had worse consequences than in England, were it not that in those countries such enterprises are in a great measure carried on by foreign capital. The railway operations of the various nations of the world may be looked upon as a sort of competition for the overflowing capital of the coun- tries where profit is low and capital abundant, as England and Holland. The English railway speculations are a struggle to keep our annual increase of capital at home ; tho.se of foreign countries are an effort to obtain it.* It already appears from these con- siderations, that the conversion of cir- culating capital into fixed, whether by railways, or manufactories, or ships, or machinery, or canals, or mines, or works of drainage and irrigation, is not likely, in any rich country, to diminish the gross produce or the amount of employ- ment for labour. How much then is the case strengthened, when we consider that these transformations of capital are of the nature of improvements in produc- tion, which, instead of ultimately dimi- nishing circulating capital, are the ne- cessary conditions of its increase ; since they alone enable a country to possess a constantly augmenting capital, with- out reducing profits to the rate which would cause accumulation to stop. There is hardly any increase of fixed capital which does not enable the country to contain eventually a larger circulating capital, than it otherwise could possess and employ within its * It is hardly needful to point out how fully the remarks in the text have been veri- fied by subsequent facts. The capital of the country, far from having been in any degree impaired by the large amount sunk in rail- way construction, was soon again over- flowing, 451 own limits; for there is hardly any creation of fixed capital which, when it proves successful, does not cheapen the articles on which wages are habi- tually expended. All capital sunk in the permanent improvement of land lessens the cost of food and materials ; almost all improvements in machinery cheapen the labourer's clothing or lodging, or the tools with which these are made ; improvements in locomotion, such as railways, cheapen to the con- sumer all things which are brought from a distance. All these improve- ments make the labourers better off with the same money wages, better off if they do not increase their rate of multiplication. But if they do, and wages consequently fall, at least profits rise, and, while accumulation receives an immediate stimulus, room is made for a greater amount of capital before a sufficient motive arises for sending it abroad. Even the improvements which do not cheapen the things consumed by the labourer, and which, therefore, do not raise profits nor retain capital in the country, nevertheless, as we have seen, by lowering the minimum of profit for which people will ultimately consent to save, leave an ampler margin than previously for eventual accumulation, before arriving at the stationary state. We may conclude, then, that im- provements in production, and emigra- tion of capital to the more fertile soils and uri worked mines of the uninhabited or thinly peopled parts of the globe, do not, as appears to a superficial view, diminish the gross produce and the demand for labour at home, but, on the contrary, are what we have chief! v to depend ou for increasing both, and are even the necessary conditions of any great or prolonged augmentation of either. Nor is it any exaggeration to say, that within certain, and not very narrow, limits, the more capital a country like England expends in these two ways, the more she will have left. 452 BOOK IV CHAPTER VI. g 1. CHAPTER VL OF THE STATIONARY STATE. 1. THE preceding chapters com- prise the general theory of the econo- mical progress of society, in the sense in which those terms are commonly understood ; the progress of capital, of population, and of the productive arts. But in contemplating any progressive movement, not in its nature unlimited, ' the mind is not satisfied with merely tracing the laws of the movement ; it cannot hut ask the further question, to what goal? Towards what ultimate point is society tending ~by its indus- trial progress? "When the progress ceases, in what condition are we to expect that it will leave mankind ? It must always have been seen, more or less distinctly, hy political econo- mists, that the increase of wealth is not boundless : that at the end of what they term the progressive state lies the stationary state, that all progress in wealth is hut a postponement of this, and that each step in advance is an approach to it. We have now been led to recognise that this ultimate goal is at all times near enough to be fully in view; that we are always on the verge of it, and that if we have not reached it long ago, it is because the goal itself flies before us. The richest and most prosperous countries would very soon attain the stationary state, if no further improvements were made in the productive arts, and if there were a suspension of th<: overflow of capital from those countries into the uncultivated or ill-cultivated regions of the earth. This impossibility of ultimately avoiding the stationary state this irresistible necessity that the stream of human industry should finally spread itself out into an apparently stagnant sea must have been, to the political economists of the last two generations, an unpleasing and dis- couraging prospect ; for the tone and tendency of their speculations goes completely to identify all that is econo- mically desirable with the progressive state, and with that alone. "With Mr. M'Culloch, for example, prosperity does not mean a large production and a good distribution of wealth, but a rapid in- crease of it ; his test of prosperity is high profits; and as the tendency of that very increase of wealth, which he calls prosperity, is towards low profits, economical progress, according to him, must tend to the extinction of pros- perity. Adam Smith always assumes that the condition of the mass of the people, though it may not be positively distressed, must be pinched and stinted in a stationary condition of wealth, and can only be satisfactory in a progressive -state. 'The doctrine that, to however distant a time incessant struggling may put offour doom, the progress of society must "end in shallows and in miseries," i'ar from being, as many people still believe, a wicked invention of Mr. Mal- thus, was either expressly or tacitly affirmed by his most distinguished pre- decessors, and can only be successfully combated on his principles. Before at- tention had been directed to the prin- ciple of population as the active force in determining the remuneration of labour, the increase of mankind was virtually treated as a constant quan- tity: it was, at all events, assumed that in the natural and normal state of human affairs population must con- stantly increase, from which it followed that a constant increase of the means of support was essential to the physical comfort of the mass of mankind. The j publication of Mr. Malthus' Essay is the era from which better views of this subject must be dated; and notwith- standing the acknowledged errors of his first edition, few writers have done more than himself, in the subsequent editions, to promote these juster and more hopeful anticipations. Even in a progressive state of capital, THE STATIONARY STATE. 453 in old countries, a conscientious or pru- dential restraint on population is indis- pensable, to prevent the increase of; numbers from outstripping the in|| crease of capital, and the condition of the classes who are at the bottom of society from being deteriorated, Where there is not, in the people, or in some very large proportion of them, a resolute resistance to this deteriora- tion a determination to preserve an es- tablished standard of comfort the con- dition of the poorest class sinks, even in a progressive state, to the lowest point which they will consent to en- dure. The same determination would be equally effectual to keep up their condition in the stationary state, and would be quite as likely to exist. In- deed, even now, the countries in which the greatest prudence is manifested in the regulating of population, are often those in which capital increases least rapidly. Where there is an indefinite prospect of employment for increased numbers, there is apt to appear less necessity for prudential restraint. If it . were evident that a new hand could not obtain employment but by displacing,' or succeeding to, one already employed, the combined influences of prudence and public opinion might in some measure be relied on for restricting the coming generation within the numbers neces- sary for replacing the present. 2. I cannot, therefore, regard the stationary state of capital and wealth with the unaffected aversion so gene- rally manifested towards it by political economists of the old school. 1 am in- clined to believe that it would be, on the whole, a very considerable improve- ment on our present condition. I con- fess I am not charmed with the ideal of life held out by those who think that the normal state of human beings is that of struggling to get on ; that the trampling, crushing, elbowing, and treading on each other's heels, which form the existing type of social life, are the most desirable lot of human kind, or anything but the disagreeable symptoms of one of the phases of in- dustrial progress. It may be a neces- sary stage in the progress of civiliza- tion, and those European nations which have hitherto been so fortunate as tc be preserved from it, may have it yet to undergo It is an incident of growth not a mark of decline, for it is not ne- cessarily destructive of the higher as- pirations and the heroic virtues ; as America, in her great civil war, is proving to the world, both by her con- duct as a people and by numerous splendid individual examples, and as England, it is to be hoped, would also prove on an equally trying and exciting occasion. But it is not a kind of social perfection which philanthropists to come will feel any very eager desire to assist in realizing. Most fitting, in- deed, is it, that while riches are power, and to grow as rich as possible the universal object of ambition, the path to its attainment should be open to all, without favour or partiality. But the best state for human nature is that in which, while no one is poor, no one desires to be richer, nor has any reason to fear being thrust back, by the efforts of others to push themselves forward. That the energies of mankind should be kept in employment by the struggle for riches, as they were formerly by the struggle of war, until the better minds succeed in educating the others into better things, is undoubtedly more desirable than that they should rust and stagnate. While minds are coarse they require coarse stimuli, and let them have them. In the meantime, those who do not accept the present very early stage of human improve- ment as its ultimate type, may be excused for being comparatively indif- ferent to the kind of economical pro- gress which excites the congratulations of ordinary politicians; the mere in- crease of production and accumulation. For the safety of national independence it is essential that a country should not fall much behind its neighbours in these things. But in themselves they are of little importance, so long as either the increase of population or anything else prevents the mass of the people from reaping any part of the benefit of them. I know not why it should be matter of congratulation that persons who are already richer than any one needs to 454 BOOK IV. CHAPTER VI. 2. be, should have douUed their means of consuming things which give little or no pleasure except as representative of wealth ; or that numbers of individuals should pass over, every year, from the middle classes into a richer class, or from the class of the occupied rich to that of the unoccupied. It is only in the backward countries of the world that increased production is still an im- portant object : in those most advanced, what is economically needed is a better ribution, of which one indispensable means is a stricter restraint on popula- tion. Levelling institutions, either of ^*a just or of an unjust kind, cannot alone accomplish it; they may lower the heights of society, but they cannot, of themselves, permanently raise the depths. On the other hand, we may suppose this better distribution of property at- tained, by the joint effect of the pru- dence and frugality of individuals, and of a system of legislation favouring equality of fortunes, so far as is con- sistent with the just claim of the indi- vidual to the fruits, whether great or small, of his or her own industry. We may suppose, for instance, (according; to the suggestion thrown out in a former chapter,*) a limitation of the sum which; r.jiy one person may acquire by gift or, inheritance, to the amount sufficient to ( ; constitute a moderate independence.^ Under this twofold influence, society would exhibit these leading features: a well-paid and affluent body of la- bourers ; no enormous fortunes, except what were earned and accumulated during a single lifetime; but a much larger body of persons than at present, not only exempt from the coarser toils, but with sufficient leisure, both physical j and mental, from mechanical details, to cultivate freely the graces of life, and afford examples of them to the classes less favourably circumstanced for their growth. Ibis condition of society, so greatly preferable to the present, is not only perfectly compatible with the stationary state, but, it would seem, more naturally allied with that state than with any other. There is room in the world, no doubt, * Snoi-a. u. 131>. and even in old countries, for a great increase of population, supposing the arts of life to go on improving, and capital to increase. But even if innocu- ous, I confess I see very little reason for desiring it. The density of popula- tion necessary to enable mankind to obtain, in the greatest degree, all the advantages both of co-operation and of social intercourse, has, in all the most populous countries, been attained. A population may be too crowded, though all be amply supplied with food and raiment. It is not good for man to bell kept perforce at all times in the pre-1' sence of his species. A world from which solitude is extirpated, is a very poor ideal. Solitude, in the sense of being often alone, is essential to any depth of meditation or of character ; and soli- tude in the presence of natural beauty and grandeur, is the cradle of thoughts and aspirations which are not only good for the individual, but which society could ill do without. Nor is there much satisfaction in contemplating the world with nothing left to the spontaneous activity of nature ; with every rood of land brought into cultivation, which is capable of growing food for human beings ; every fiowery waste or natural pasture ploughed up, all quadrupeds or birds which are not domesticated for man's use exterminated as his rivals for food, every hedgerow or superfluous tree rooted out, and scarcely a place left where a wild shrub or flower could grow without being eradicated as a weed in the name of improved agricul- ture. If the earth must iose tha' great portion cf its pleasantness which it owes to things that the unlimited in- crease of wealth and population would extirpate from it, for the mere purpose of enabling it to support a larger, but not a better or a happier population. I sincerely hope, for the t-ake of posterity, that they will be content to be sta- tionary, long before necessity compels them to it. *** It is scarcely necessary to remarklj that a stationary condition of c;r. and population implies no stationary*, state of human improvement. There" would be as much scope as ever for all kinds of mental culture, and moral and PROBABLE FUTURE OF THE LABOURING CLASSES. 455 social progress ; as much room for im- proving the Art of Living, and much more likelihood of its being improved, when minds ceased to be engrossed by the art of getting on. Even the indus- trial arts might be as earnestly and as successfully cultivated, with this sole difference, that instead of serving no purpose but the increase of wealth, in- dustrial improvements would produce their legitimate effect, that of abridging labour. Hitherto it is questionable if all the mechanical inventions yet made have lightened the day's toil of any human 'being. They have enabled a greater population to live the same life of drudgery and imprisonment, and an increased number of manufacturers and : others to make fortunes. They ham ! increased the comforts of the middle I classes. But they have not yet begun to effect those great changes in human destiny, which it is in their nature and in their futurity to accomplish. Only when, in addition to just institutions, the increase of mankind shall be under the deliberate guidance of judicious fore- sight, can the conquests made from the powers of nature by the intellect and energy of scientific discoverers, become | the common property of the species, I and the means of improving and ele- < vating the universal lot. CHAPTER VII. OK THE PROBABLE FUTUKIT? OP THE LABOURING- CLASSES. 1. THE observations in the pre- ceding chapter had for their principal object to deprecate a false ideal of human society. Their applicability to the practical purposes of present times, consists in moderating the inordinate importance attached to the mere in- crease of production, and fixing atten- tion upon improved distribution, and a large remuneration of labour, as the two desiderata. Whether the aggre- gate produce increases absolutely or not, is a thing in which, after a certain amount has been obtained, neither the legislator nor the philanthropist need feel any strong interest : but, that it should increase relatively to the num- ber of those who share in it, is of the utmost possible importance ; and this, (whether $*} wealth of mankind be* stationary, or increasing at the most rapid rate ever known in an old co uritry, ) must depend on the opinions and habits of the most numerous class, the class of manual labourers. When I speak, either in this place or elsewhere, of^Jftfi labouring classes." or of labourers as a " class," I use those phrases in compliance with custom, and as descriptive of an existing, but by no means a necessary or permanent state of social relations. 1 do not re- cognise as either just or salutary, a state of society in which there is any " class" which is not labouring ; any human beings, exempt from bearing their share of the necessary labours of human life, except those unable to labour, or who have fairly earned rest by previous toil. So long, however, as the great social evil exisisof_a__npn- laboimngclass/^^DTirers also consfi- tute~"aTclass, and may ^besppKSn of/* ~ racter. "^Considered in its moral and social aspect, the state of the labouring people has latterly been a subject of much more speculation and discussion than formerly ; and the opinion, that it is not now what it ought to be, has be- come very general. The suggestions which have been promulgated, and the controversies which have been excited,. on detached points rather than on the foundations of the subject, have put in evidence the existence of two conflict- ing theories, respecting the social posi- tion desirable for manual labourers. The one may be called the theory of 456 nee and protection, the other that of self-dependence. Accc rding to the former theory, the lot of the poor, in all things which affect them collectively, should be re- gulated/or them, not by them. They should not le required or encouraged to think for themselves, or give to their own reflection or forecast an influential voice in the determination of their des- tiny. It is supposed to be the duty of the higher classes to think for them, and to take the responsibility of their lot, as the commander and officers of an army take that oi the soldiers com- posing it. This function, it is con- tended, the higher classes should pre- pare themselves to perform conscien- tiously, and their whole demeanour should impress the poor with a reliance on it, in order that, while yielding pas- sive and active obedience to the rules prescribed for them, they may resign themselves in all other respects to a trustful insouciance, and repose under the shadow of their protectors. The relation between rich and poor, accord- ing to this theory, (a theory also ap- plied to the relation between men and women) should be only partly authori- tative : it should be amiable, moral, and sentimental : affectionate tutelage on the one side, respectful and grateful deference on the other. The rich should be in loco par entis to the poor, guiding and restraining them like children. Of spontaneous action on their part there should be no need. They should be called on for nothing but* to do their day's work, and to be moral and reli- gious. Their morality and religion should be provided ibr them by their superiors, who should see them pro- perly taught it, and should do all that is necessary to ensure their being, in return for labour and attachment, pro- perly fed, clothed, housed, spiritually edified, and innocently amused. This is the ideal of the future, in the minds of those whose dissatisfaction with the Present assumes the form of affection and regret towards the Past Like other ideals, it exercises an un- conscious influence on the opinions and sentiments of numbers who never consciously guide themselves by any COOK IV. CHAPTER VII. 1. ideal. It has also this in common with other ideals, that it has never been his- torically realized. It makes its appeal to our imaginative sympathies in the character of a restoration of the good times of our forefathers. But no times | can be pointed out in which the higher classes of this or any other country per- formed a part even distantly resembling the one assigned to them in this theory. It is an idealization, grounded on the conduct and character of here and there an individual. All privileged and powerful classes, as such, have used their power in the interest of their own selfishness, and have indulged their seif-importance in despising, and not in lovingly caring ibr, those who were, in their estimation, degraded, by being under the necessity of working for their benefit. I do not affirm that what has always been must always be, or that human improvement has no tendency to correct the intensely selfish feelings engendered by power ; but though the evil may be lessened, it cannot be eradi- cated, until the power itself is with- drawn. This, at least, seems to me un- deniable, that long before the superior classes could be sufficiently improved to govern in the tutelary manner sup- posed, the inferior classes would be too much improved to be so governed. I am quite sensible of ah 1 that is se- ductive in the picture of society which this theory presents. Though the facts of it have no prototype in the past, the feelings have. In them lieg all that there is of reality in the conception. As the idea is essentially repulsive of a society only held together by the re- lations and feelings arising out of pe- cuniary interests, so there is something naturally attractive in a form of society abounding in strong personal attach- ments and disinterested self-devotion. Of such feelings it must be admitted that the relation of protector and pro- tected has hitherto been the richest source. The strongest attachments of human beings in general, are towards the things or the persons that stand between them and some dreaded evil. Hence, in an age of lawless violence and insecurity, and general hardness and roughness of manners, in whisb W*v PROBABLE FUTURE OF THE LABOURING CLASSES. 457 life is beset with dangers and sufferings at every step, to those who have neither a commanding position of their own, nor a claim on the protection of some one who has a generous giving of pro- tection, and a grateful receiving of it, are the strongest ties which connect human beings ; the feelings arising from that relation are their warmest feel- ings ; all the enthusiasm and tender- ness of the most sensitive natures gather round it ; loyalty on the one part and chivalry on the other are principles ex- alted into passions. 1 do not desire to depreciate these qualities. The error lies in not perceiving, that these virtues and sentiments, like the clanship and the hospitality of the wandering Arab, belong emphatically to a rude and im- perfect state of the social union, and that the feelings between protector and protected, whether between kings and subjects, rich and poor, or men and women, can no longer have this beauti- ful and endearing character, where there are no longer any serious dangers from which to protect. What is there in the present state of society to make it natural that human beings,ofordinary strength and cqurage, should glow with the warmest gratitude and devotion in return for protection? The laws pro- tect them ; wherever the laws do not criminally fail in their duty. To be under the power of some one, instead of being as formerly the sole condition of safety, is now, speaking generally, the only situation which exposes to grievous wrong. The so-called protec- tors are now the only persons against whom, in any ordinary circumstances, protection is needed. The brutality and tyranny with which every police report is filled, are those of husbands to wives, of parents to children. That the law does not prevent these atroci- ties, that it is only now making a first timid attempt to repress and punish them, is no matter of necessity, but the deep disgrace of those by whom the laws are made and administered. No man or woman who either possesses or is able to earn an independent liveli- hood, requires any other protection than tnat which the law could and ought to give. This being the case, it argues great ignorance of human na- ture to continue taking for granted that relations founded on protection must always subsist, and not to see that the assumption of the part of pro- tector, and of the power which belongs to it, without any of the necessities which justify it, must engender feelings opposite to loyalty. Of the working men, at least in the more advanced countries of Europe, it may be pronounced certain, that the patriarchal or paternal system of go- vernment is one to which they will not again be subject. Tbat question was decided, when they were taught to read, and allowed access to newspapers and political tracts ; when dissenting preachers were suffered to go among them, and appeal to their faculties and feelings in opposition to the creeds professed and countenanced by their superiors; when they were brought together in numbers, to work socially under the same roof; when railways enabled them to shift from place to place, and change their patrons and employers as easily as their coats; when they were encouraged to seek a share in the government, by means of the electoral franchise. The working classes have taken their interests into their own hands, and are perpetually showing that they think the interests of their employers not identical with their own, but opposite to them. Some among the higher classes flatter them- selves that these tendencies may be counteracted by moral and religious education ; but they have let the time go by for giving an education which can serve their purpose. The principles of the Reformation have reached as low down in society as reading and writing, and the poor will not much longer accept morals and religion of other people's prescribing. I speak more particularly of this country, espe- cially the town population, and tho districts of the most scientific agricul- ture or the highest wages, Scotland and the north of England. Among the more inert and less modernized agricultural population of the southern counties, it might be possible for tho gentry to retain, for some time longer, 45$ something of the ancient deference and submission of the poor, by bribing them with high wages and constant employment; by ensuring them sup- port, and never requiring them to do anything which they do not like. But these are two conditions which never have been combined, and never can be, for long together. A guarantee of subsistence can only be practically kept up, when work is enforced, and superfluous multiplication restrained, by at least a moral compulsion. It is then, that the would-be revivers of old times which they do not understand, would feel practically in how hopeless a task they were engaged. The whole fabric of patriarchal or seignorial in- fluence, attempted to be raised on the foundation of caressing the poor, would be shattered against the necessity of enforcing a stringent Poor-law. 2. It is on a far other basis that the well-being and well-doing of the labouring people must henceforth rest. The poor have come out of leading- strings, and cannot any longer be governed or treated like children. To their own qualities must now be com- mended the care of their destiny. Modern nations will have to learn the lesson, that the well-being of a people must exist by means of the justice and self-government, the SiKatoavvr] and ffwQpoGvvTj, of the individual citizens. The theory of dependence attempts to dispense with the necessity of these qualities in the dependent classes. But now, when even in position they are becoming less and less dependent, and their minds less and less acquiescent in the degree of dependence which re- mains, the virtues of independence are those which they stand in need of. Whatever advice, exhortation, or guid- ance is held out to the labouring classes, must henceforth be tendered to them as equals, and accepted by them with their eyes open. The prospect of the future depends on the degree in which they can be made rational beings. There is no reason to believe that prospect other than hopeful. The progress indeed has hitherto been, and still' is, slow. But there is a sponta- BOOK IV. CHAPTER VII. 2. neous education going on in the minds of the multitude, which may l:c ercntiy accelerated and improved by artificia 1 aids. The instruction obtained from newspapers and political tracts may not be the most solid kind of instruc- tion, but it is an immense improvement upon none at all. What it does for a people, has been admirably exemplified during the cotton crisis, in the case of the Lancashire spinners and weavers ; who have acted with the consistent good sense and forbearance so justly applauded, simply because, being readers of newspapers, they understood the causes of the calamity which had befallen them, and knew that it was in no way imputable either to their em- ployers or "to the Government. It is not certain tljat their conduct would have been as rational and exemplary, if the distress had preceded the salu tary measure of fiscal emancipation which gave existence to the penny press. The institutions for lectures and discussion, the collective delibe- rations on questions of common inte- rest, the trades unions, the political agitation, all serve to awaken public spirit, to diffuse variety of ideas among the mass, and to excite thought and reflection in the more intelligent. Although the too early attainment of political franchises by the least edu- cated class might retard, instead of promoting, their improvement, there can be little doubt that it has been greatly stimulated by the attempt to acquire them. In the meantime, the working classes are now part of the public ; in all discussions on matters cf general interest they, or a portion of them, are now partakers ; all who use the press as an instrument may, if it so happens, have them for an audience. ; the avenues of instruction through which the middle classes acquire such ideas as they have, are accessible to, at least, the operatives in the towns. With these resources, it cannot be . doubted that they will increase in in- telligence, even by their own unaided efforts; while there is reason to hope that great improvements both in th9 centimes." t Article by M. Cherbuliez on "Opera- H H 2 468 BOOK IV. CHAPTER VII. 6. The same admirable qualities by ..ilich the associations were carried through their early struggles, main- tained them in their increasing pros- perity. Their rules of discipline, in- stead of being more lax, are stricter than those of ordinary workshops ; but tive Associations," in the Journal leg Econo- mic' en for November 1860. I subjoin, from M. Villiaume and M. Cher- liuliez, detailed particulars of other emi- nently successful experiments by associated workpeople. "We will first cite," says M. Cherbuliez, "as having attained its object and arrived at a definitive result, the Association Remquet, of the Rue Garanciere, at Paris, whose founder, in 1848, was a foreman in M. Re- nouard's printing establishment. That firm being under the necessity of winding up, he proposed to his fellow-workmen to join with him in continuing thecnterprise on their own account, asking a subvention from the go- vernment to cover the purchase-money of the business and the first expenses. Fifteen of them accepted the proposal, and formed an association, whose statutes fixed the wages for every kind of work, and provided for the gradual formation of a working capital by a deduction of 25 per cent from all wages and salaries, on which deduction no dividend or interest was to be allowed during the ten years that the association was intended to last. Remquet asked and obtained for him- self the entire direction of the enterprise, at a very moderate fixed salary. At the wind- ing up, the entire profits were to be divided among all the members, proportionally to their share in the capital, that is, to the work they had done. A subvention of 80,000 francs was granted by the State, not without great difficulty, and on very onerous conditions. In spite of these conditions, and of the un- favourable circumstances resulting from the political situation of the country, the asso- ciation prospered so well, that on the w hid- ing up, after repaying the advance made by the State, it was in possession of a clear ca- pital of 155,000 francs [6200/.], the division of which gave on the average between ten and eleven francs to each partner; 7000 being the smallest and 18,000 the largest share. " The Fraternal Association of Working Tinmen and Lampmakers had been founded in March 1S4S by 500 operatives, comprising nearly the whole body of the trade. This first attempt, inspired by unpractical ideas, not having survived the fatal days of June, a ' new association was formed of more modest proportions. Originally composed of forty members, it commenced business in 1849 with ' a capital composed of the subscriptions of its members, without asking for a subvention. After various vicissitude?, which reduced the number of partners to three, then brought it back to fourteen, then a<_ r ain sunk it to three, it ended by keeping together forty-six mem- bers, who quietly remodelled their statutes : n tV points which experience had shown being rules self-imposed, for the mani- fest good of the community, and not for the convenience of an employer regarded as having an opposite interest, they are far more scrupulously obeyed, and the voluntary obedience carries with it a sense of personal worth and to be faulty, and their number having been raised by successive steps to 100, they pos- sessed, in 1S58, a joint property of 50,000 francs, and were in a condition to divide an- nually 20,000 francs. " The Association of Operative Jewellers, the oldest of all, had been founded in 1831 bv eight workmen, with a capital of 200 francs [8L] derived from their united savings. A subvention of 24,009 francs enabled them in 1849 greatly to extend their operations, which in 1858 had already attained the value of 140,000 francs, and gave to each partner an annual dividend equal to double his wages." The following are from M. Villiaume": " After the insurrection of June 1848, work was suspended in the Faubourg St. Antoine, which, as we know, is principally occupied by furniture-makers. Some operative arm- chair makers made an appeal to those who might be willing to combine with them. Out of six or seven hundred composing the trade, four hundred gave in their names. But ca- pital being wanting:, nine of the most zealous began the association with all that they pos- sessed ; being a value of 369 francs in tools, and 135 francs 20 centimes in money. " Their good taste, honesty and punctuality having increased their business, they soon numbered 103 members. They received from the State an advance of 25,000 francs, reim- bursable in 14 years by way of annuity, with interest at 3| per cent. " In 1857 the number of partners is 65, the auxiliaries average 100. All the partners vote at the election of a council of eight mem- bers, and a manager whose name represents the firm. The distribution and superinten- dence of all the works is entrusted to foremen chosen by the manager and council. There is a foreman to every 20 or 25 workmen. " The payment is by the piece, at rates de- termined in general assembly. The earnings vary from 3 to 7 francs a day, according to zeal and ability. The average is 50 francs [2/.] a fortnight, and no one gains much less than 40 trancs per fortnight, while many earn 80. Some of the carvers and moulders make as much as 100 trancs, being 200 francs [8/.1 a month. Each binds himself to work 120 hours per fortnight, equal to ten per day. By the regulations, every hour short of the number subjects the delinquent to a penalty of 10 centimes [one penny] per hour up to thirty hours, and 15 centimes [l|a 7 .] bevond The object of this rule was to abolish Saint Monday, and it succeeded in its effort. For the last two years the conduct of the mem- bers has been so good, that fines have fallen into disuse. "Though the partners started with only 359 francs, the value of the plant (Kue de PEOBABLE FUTURE OF THE LABOURING CLASSES. 46$ or less. Almost all have abandoned tins system, and after allowing to every one a fixed minimum, sufficient for sub- sistence, they apportion all further re- muneration according to the work done : most of them even dividing the profits at the end of the year, in the dignity. With wonderful rapidity the associated workpeople have learnt to correct those of the ideas they set out with, which are in opposition to the teaching of reason and experience. Almost all the associations, at first, ex- cluded piece-work, and gave equal wages whether the work done was more same proportion as the earnings.* Chavonne, Cour St. Joseph, Faubourg St. Antoine) already in 1851 amounted to 5713 francs, and the assets of the association, debts due to them included, to 24,000 francs. Since then the association has become still more nourishing, having resisted all the at- tempts made to impede its progress. It does the largest business, and is the most con- sidered, of all the houses in Paris in the trade. Its business amounts to400,000 francs a year." Its inventory in December 1855 showed, ac- cording to M. Villiaume, a balance of 100,398 francs 90 centimes in favour of the associa- tion, but it possessed, he says, in reality, 123,000 francs. But the most important association of all is that of the Masons. " The Association of Masons was founded August 10th, 1848. Its address is Rue St. Yictor, 155. Its number of members is 85, and its auxiliaries from three to four hundred. There are two managers, one for the building department, the otherfor the pecuniary administration : these are re- garded as the ablest master-masons in Paris, and are content with a moderate salary. This association has lately constructed three or four of the most remarkable mansions in the metropolis. Though it does its work more economically than ordinary cpntractors,y et as it has to give long credits, it is called upon for considerable advances : it prospers, however, as is proved by the dividend of 56 per cent which has been paid this year on its capital, including in the payment those who have as- sociated themselves in its operations. It con- sists of workmen who bring only their labour, of others who bring their labour and a capital of some sort, and of a third class who do not work, but contribute capital only. "The masons, in the evening, carry on mutual instruction. They, as well as the arm-chair makers, give medical attendance at the expense of the association,and an allow- ance to its sick members. They extend their protection over every member in every action of his life. The arm-chair makers will soon each possess a capital of two or three thou- sand francs, with which to portion their daughters or commence a reserve for future years. Of the masons, some have already 4000 francs, which are left in the common stock. " Before they were associated, these work- men were poorly clad in jackets and blouses ; order ; and the association reimburses itself by fortnightly stoppages, making him save as it were in spite of himself. Some workmen who are not in debt to the concern, sign orders payable to themselves at five months date, to resist the temptation of needless ex- pense. They are put under stoppages of 10 francs per fortnight, and thus at the end of five months they have saved the amount." The following table, taken by M.Cherbuliez from a work by Professor Huber (one of the most ardent and high-principled apostles of this kind of co-operation) shows the rapidly progressive growth in prosperity of the Masons' Association up to 1858 : Amount of Profits Year. Business done. realized. francs. francs. 1852 45,530 .. 1,000 1853 297,208 .. 7,000 1854 344,240 .. 20,000 1855 614,694 .. 46,000 1856 998,240 .. 80,000 1857 1,330,000 .. 100,000 1858 1,231,461 .. 130,000 " Of this last dividend," says M. Cherbuliez, "30,000 francs were taken for the reservo fund, and the remaining 100,000, divided among the shareholders, gave to each from 500 to 1500 francs, besides their wages C T salaries, and their share in the fixed capital of the concern." Of the management of the associations generally, M. Villiaume" says, " I have been able to satisfy myself personally of the ability of the managers and councils of the opera- tive associations. The managers are far su- perior in intelligence, in zeal, and even in politeness, to most of the private masters in their respective trades. And among the as- sociated workmen, the fatal habit of intem- perance is gradually disappearing, along with the coarseness and rudeness which are the consequence of the too imperfect education of the class." * Even the association founded by M. Louis Blanc, that of the tailors of CHchy, after eighteen months trial of this system, adopted piece-work. One of the reasons given by them for abandoning the original system is well worth extracting. "Besides the vices I have mentioned, the tailors com- plained that it caused incessant disputes and because, for want of forethought,and still more quarrels, through the interest which each had from want of work, they had never 60 francs beforehand to buy an overcoat. Most of them are now as well dressed as shopkeepers, and sometimes more tastefully. For the work- man, having always a credit with the associa- tion, can get whatever he wants by signing an in making his neighbours work. Their mu- tual watchfulness degenerated into a real slavery ; nobody had the free control of his time and his actions. These dissensions have disappeared since piece-work was intro- duced." Feugueray, p. 88. One of the most 470 It is the declared principle of most of these associations, that they do not exist for the mere private benefit of the individual members, but for the pro- motion of the co-opera five cause. AVith every extension, therefore, of their busi- ness, they take in additional members, not (when they remain faithful to their original plan) to receive wages from them as hired labourers, but to enter at once into the full benefits of the asso- ciation, without being required to bring anything in, except their labour: the only condition imposed is that of re- ceiving during a few years a smaller share in the annual division of profits, as some equivalent for the sacrifices of the founders, "\Yhen members quit the association, which they are always at liberty to do, they carry none of the capital with them : it remains an indi- visible property, of which the members for the time being have the use, but not the arbitrary disposal : by the sti- pulations of most of the contracts, even if the association breaks up, the capital cannot be divided, but must be devoted entire to some work of beneficence or of public utility. A fixed, and gene- rally a considerable, proportion of the annual profits, is not shared among the members, but added to the capital of the association, or devoted to the re- payment of advances previously made to it : another portion is set aside to provide for the sick and disabled, and another, to form a fund for extending the practice of association, or aiding other associations in their need. The managers are paid, like other mem- bers, for the time which is occupied in discreditable indications of a low moral con- dition given of late by part of the English working classes, is the opposition to piece- work. When the payment per piece is not sufficiently high, that is a just ground of ob- jection. "But dislike to piece-work in itself, except under mistaken notions, must be dis- like to justice and fairness ; a desire to cheat, by not giving work in proportion to pay. Piece-work is the perfection of contract; and contract, in all work, and in the most minute detail the principle of so much pay for so much service, carried out to the utmost extremity is the system, of all others, in the present state of society and degree of civiliza- tion, most favourable to the worker; though most unfavourable to the non-worker who wishes to be paid for being idle. BOOK IV. CHAPTER VII. G. management, usually at the rate of the highest paid labour : but the rule is adhered to, that the exercise of power shall never be an occasion for profit. Of the ability of the associations to compete successfully with individual capitalists, even at an early period of their existence, M. Feugueray* said, " The associations which have been founded in the last two years" (M. Feugueray wrote in 1851) "had many obstacles to overcome ; the majority of them were almost entirely without capital : all were treading in a path previously unexplored ; they ran the risks which always threaten innovators and beginners. Nevertheless, in many of the trades in which they have been established, they are already formidable competitors of the old houses, and are even complained of on that account by a part of the bourgeoisie. This is not only true of the cooks, the lemonade sellers, and hairdressers, trades the nature of which enables the associa- tions to rely on democratic custom, but also in other trades where they have not the same advantages. One has only to consult the makers of chairs, of arm-chairs, of files, and one will learn from them if the most important esta- blishments in their respective trades are not those of the associated workmen." The vitality of these associations must indeed be great, to have enabled about twenty of them to survive not only the anti-socialist reaction, which for the time discredited all attempts to enable workpeople to be their own employers not only the tracosserics of the police, and the hostile policy of the government since the usurpation but in addition to these obstacles, all the difficulties arising from the trying condition of financial and commercial affairs from 1854 to 1858. Of the pros- perity attained by some of them even while passing through this difficult period, I have given examples which must be conclusive to all minds as to the brilliant future reserved for the principle of co-operation.f * Pp. 37-8. t In the last year or two, the co-operative movement among the French working classes has taken a fresh start. An interest- PEOBABLE FUTURE OF THE LABOURING CLASSES. 4?1 It is not in France alone that these associations have commenced a career of prosperity. To say nothing at present of Germany, Piedmont, or Switzerland (where the Consumers' Union of Zurich is one of the most prosperous co-opera- tive associations in Europe), England can produce cases of success, rivalling even those which I have cited from France. Under the impulse commenced by Mr. Owen, and more recently pro- pagated by the writings and personal efiorts of a band of friends, chiefly clergymen and barristers, to whose noble exertions too much praise can scarcely be given, the good seed was widely sown ; the necessary alterations in the English law of partnership were obtained from Parliament, on the bene- volent and public-spirited initiative of Mr. Slaney; many industrial associa- tions, and a still greater number of co-operative stores for retail purchases, were founded. Among these are already many instances of remarkable pros- perity, the most signal of which are the Leeds Flour Mill, and the Rochdale Society ot Equitable Pioneers. Of this last association, the most successful of all, the history has been written in a very interesting manner by Mr. Holy- oake;* and the notoriety which by ing account of the Provision Association of Grenoble has been given in a pamphlet by M. Casimir Perier; and in the Times of November 24, 1864, we read the following passage : " While a certain number of ope- ratives stand out for more wages or fewer hours of labour, others, who have also seceded, have associated for the purpose of carrying on their respective trades on their own account, and have collected funds for the purchase of instruments of labour. They have founded a society Societe Generale d'Approvisionnement et de Consommation. It numbers between 300 and 400 members, who have already opened a "co-operative store" at Passy, which is now within the limits of Paris. They calculate that by May next fifteen new self-supporting associations of the same kind will be ready to commence operations ; so that the number will be, lor Paris alone, from 50 to 60. * Self-Help by the People History of Co- operation in Rochdale, An instructive ac- count of this and other co-operative associa- tions has also been written in the Companion to the Almanack, for 1862, by Mr. John Plummer, of Kettering; himself one of the most inspiring examples of mental cultiva- tion and high principle in a self-instructed working man. this and other means has been given to facts so encouraging, is causing a rapid extension of associations with similar objects in Lancashire, York- shire, London, and elsewhere. The original capital of the Rochdale Society consisted of 281., brought to- gether by the unassisted economy of about forty labourers, through the slow process of a subscription of twopence (afterwards raised to threepence) per week. With this sum they established in 1844 a small shop, or store, for the supply of a few common articles for the consumption of their own fami- lies. As their carefulness and honesty brought them an increase of customers and of subscribers, they extended their operations to a greater number of arti- cles of consumption, and in a few years were able to make a large investment in shares of a Co-operative Corn Mill. Mr. Holyoake thus relates the stages of their progress up to 1857. " The Equitable Pioneers' Society is divided into seven departments : Gro- cery,Drapery, Butchering, Shoemaking, Clogging, Tailoring, "Wholesale. " A separate account is kept of each business, and a general account is given each quarter, showing the position of the whole. " The grocery business was com- menced, as we have related, in De- cember 1844, with only four articles to sell. It now includes whatever a gro- cer's shop should include. " The drapery business was started in 1847, with an humble array of at- tractions. In 1 854 it was erected into a separate department. "A year earlier, 1846, the Store began to sell butcher's meat, buying eighty or one hundred pounds of a tradesman in the town. After a while, the sales were discontinued until 1850, when the Society had a warehouse of its own. Mr. John Moorhouse, who has now two assistants, buys and kills for the Society three oxen, eight sheep, sundry porkers and calves, which are on the average converted into 130. of cash per week. " Shoemaking commenced in 1852. Three men and an apprentice make, and a stock is kept on sale. BOOK IV. CHAPTEK VII. 6. 472 " Clogging and tailoring commenced also in this year. " The wholesale department com- menced in 1852, and marks an im- portant development of the Pioneers' proceedings. This department has been created for supplying any members re- quiring large quantities, and with a view to supply the co-operative stores of Lancashire and Yorkshire, whose small capitals do not enable them to buy in the best markets, nor command the services of what is otherwise indis- pensable to every store a good buyer, who knows the markets and his busi- ness, who knows what, how, and where to buy. The wholesale department guarantees purity, quality, fair prices, standard weight and measure, but all on the never-failing principle, cash pay- ment." In consequence of the number of members who now reside at a distance, and the difficulty of serving the great increase of customers, " Branch Stores have been opened. In 1856, the first Branch was opened, in the Oldham Eoad, about a mile from the centre of Rochdale. In 1857 the Castle ton Branch, and another in the "\Vhitworth Eoad, were established, and a fourth Branch in Pinfold." The warehouse, of which the original Store was a single apartment, was taken on lease by the Society, very much out of repair, in 1849. " Every part has undergone neat refitting and modest decoration, and now wears the air of a thoroughly respectable place of business. One room is now hand- somely fitted up as a newsroom. Another is neatly fitted up as a library Their newsroom is as well supplied as that of a London club." It is now " free to members, and supported from the Education Fund," a fund con- sisting of 2| per cent of all the profits divided, which is set apart for educa- tional purposes. " The Library con- tains 2200 volumes of the best, and among them, many of the most ex- pensive books published. The Library is free. From 1850 to 1855, a school for young persons was conducted at a charge of twopence per month. Since 1855, a room has been granted by the Board for the use of from twenty to thirty persons, from the ages of four- teen to forty, for mutual instruction on Sundays and Tuesdays. . . . " The corn-mill was of course rented, and stood at Small Bridge, some dis- tance from the town one mile and a half. The Society have since built in the town an entirely new mill for them- selves. The engine and the machinery are of the most substantial and im- proved kind. The capital invested in the corn-mill is 8450Z., of which 3731 1. 15s. 2r7. is subscribed by the Equitable Pioneers' Society. The coru- hqu !lill mill employs eleven men." At a later period they extended their operations to the staple manufacture itself. From the success of the Pioneers' Society grew not only the co-operative corn-mill, but a co-operative associa- tion for cotton and woolen manufac- turing. " The capital in this depart- ment is 4000Z., of which sum 2042Z. has been subscribed by the Equitable Pioneers' Society. This Manufacturing Society has ninety-six power-looms at work, and employs twenty-six men, seven women, four boys, and five girls in all forty-two persons " " In 1853 the Store purchased for 7451. a warehouse (freehold) on the opposite side of the street, where they keep and retail their stores of flour, butcher's meat, potatoes, and kindred articles. Their committee-rooms and offices are fitted up in the same build- ing. They rent other houses adjoining for calico and hosiery and shoe stores. In their wilderness of rooms, the visitor stumbles upon shoemakers and tailors, at work under healthv conditions, and in perfect peace of mind as to the re- sult on Saturday night. Their ware- houses are everywhere as bountifully stocked as Noah's Ark, and cheerful customers literally crowd Toad Lane at night, swarming like bees to every counter. The industrial districts of England have not such another sight as the Eochdale Co-operative Store on Saturday night.* Since the disgraceful * " But it is not," adds Mr. Holyoake, "the brilliancy of commercial activity in which either writer or reader will take the deepest interest; it is in the new and im- PKOBABLE FUTUEE OF THE LABOURING CLASSES. 473 1860 from the Almanack published by the Society, shows the pecuniary result of its operations from the commence- ment. failure of the Eochdale Savings Bank in 1849, the Society's Store has become the virtual Savings Bank of the place. The following table, completed to Year. No. of members. Amount of capital. Amount of cash sales in store (annual). i Amount of profit (annual). s. d. s. d. s. d. 1844 28 28 1845 74 181 12 5 710 6 5 32 17 6 1846 86 252 7 n 1,146 17 7 80 16 34 1847 110 286 5 34 1,924 13 10 72 2 10 1848 140 397 2,276 6 5 117 16 10| 1849 390 1,193 19 1 6,611 18 561 3 9 1850 600 2,299 10 5 13,179 17 889 12 5 1851 630 2,785 1 17,638 4 990 19 84 1852 680 3,471 6 16,352 5 1,206 15 2-4 1853 720 5,848 3 11 22,760 1,674 18 Hi 1854 900 7,172 15 7 33,364 1,763 11 2| 1855 1400 11,032 12 10J 44,902 12 3,106 8 44 1856 1600 12,920 13 H 63,197 10 3,921 13 H 1857 1850 15,142 1 2" 79,788 5,470 6 8| 1858 1950 18,160 4 71,689 6,284 17 44 1859 2703 27,060 14 2 104,012 10,739 18 6 1860* 3450 37,710 9 152,063 . 15,906 9 11 proved spirit animating this intercourse of trade. Buyer. and seller meet as friends; there is no overreaching on one side, and no suspicion on the other These crowds of humble working men, who never knew before when they put good food in their mouths, whose every dinner was adulterated, whose shoes let in the water a month too soon, whose waistcoats shone with devil's dust, and whose wives wore calico that would not wash, now buy in the markets like mil- lionnaires, and as far as pureness of food goes, live like lords." Far better, probably, in that particular ; for assuredly lords are not the customers least cheated, in the pie- sent race of dishonest competition. " They are weaving their own stuffs, making their own shoes, sewing their own garments, and grinding their own corn. They buy the purest sugar and the best tea, and grind their own coffee. They slaughter their own cattle, and the finest beasts of the land waddle down the streets of Kochdale for the consumption of flannel- weavers and cobblers. (Last year the Society advertised for a Provision Agent to make purchases in Ireland, and to devote his whole time to that duty.) When did competition give poor men these advantages ? And will any man say that the moral cha- racter of these people is not improved under these influences ? The teetotallers of Eoch- dale acknowledge that the Store has made more sober men since it commenced than all their efforts have been able to make in the came time. Husbands who never knew what it was to be out of debt, and poor wives who during forty years never had sixpence uncon- demned in their pockets, now possess little stores of money sufficient to build them cot- tages, and to go every week into their own market with money jingling in their pockets ; and in that market there is no distrust and no deception ; there is no adulteration, and no second prices. The whole atmosphere is honest. Those who serve neither hurry, finesse, nor flatter. They have no interest in chicanery. They have but one duty to per- form that of giving fair measure, full weight, and a pure article. In other parts of the town, where competition is the prin- ciple of trade, all the preaching in Koch- dale cannot produce moral effects like these. " As the Store has made no debts, it has incurred no losses; and during thirteen years' transactions, and receipts amounting to 303.852Z., it has had no law-suits. The Arbitrators of the Societies, during all their years of office, have never had a case to decide, and are discontented that nobody quarrels." * The latest report to which I have access is that for the quarter ending Sept. 20, 1864, of which I take the following abstract from the November number of that valuable pe- riodical the Co-operator, conducted by Mr. Henry Pitman, one of the most active and judicious apostles of the Co-operative cause. " The number of members is 4580, being an increase of 132 for the three months t 474 BOOK IY. I need not enter into similar parti- culars respecting the Corn-Mill Society, and will merely state that in 1860 its capital is set down, on the same autho- rity, at 26,6182. 14s. Qd., and the profit for that single year at 10,164Z. 12. 5d. For the manufacturing establishment I have no certified information later than that of Mr. Holyoake, who states the capital of the concern, in 1857, to be 5500Z. But a letter in the Rochdale Observer of May 26, 1860, editorially announced as by a person of good in- formation, says that the capital had at that time reached 50,OOOZ. : and the same letter gives highly satisfactory statements respecting other similar associations : the Rossendale Industrial Company, capital 40,OOOZ. ; the Wals- den Co-operative Company, capital 8000*. )Z. ; the Bacup and Wardle Com- mercial Company, with a capital of 40,OCOZ., "of which more than one- third is borrowed at 5 per cent, and this circumstance, during the last two years of unexampled commercial pros- perity, has caused the rate of dividend to shareholders to rise to an almost fabulous height." It is not necessary to enter into any details respecting the subsequent his- tory of English Co-operation ; the less so, as it is now one of the recognised elements in the progressive movement of the age. and as such, has latterly been the "subject of elaborate articles in most of our leading periodicals, the most recent, and one of the best of which, was in the Edinburgh Review the capital or assets of the society is 59,536?. 10*. Id., or more th;m last quarter by 3657?.. 13*. 7f Co-operation from month to month is regularly chronicled in the " Co-opera- tor." I must not, however, omit to mention the last great step in advance, in reference to the Co-operative Stores ; the formation, in the North of England (and another is in course of formation in London) of a Wholesale Society, to dispense with the services of the whole- sale merchant as well as of the retail dealer, and extend to the Societies the advantage which each society gives to its own members, by an agency for co-operative purchases of foreign as well as domestic commodities direct from the producers. It is hardly possible to take any but a hopeful view of the prospects of man- kind, when in the two leading countries of the world, the obscure depths of society contain simple working men whose integrity, good sense, self-com- mand, and honourable confidence in one another, have enabled them to carry these noble experiments to the triumphant issue which the facts recorded in the preceding pages attest. From the progressive advance of the co-operative movement, a great in- crease may be looked for even in the aggregate productiveness of industry. The sources of the increase are two- fold. In the first place, the class of mere distributors, who are not pro- ducers but auxiliaries of production, and whose inordinate numbers, far more than the gains of capitalists, are the cause why so great a portion of the wealth produced does not reach the producers will be reduced to more modest dimensions. Distributors differ from producers in this, that when pro- ducers increase, even though in any given department of industry they may be too numerous, they actually produce v limiting the distributors to 1&3tt5SSiSi3tK> * ber really required for maibg such purchasers." I the commodities accessible to the con- pu ber leaves a dividend to members on their chases of 2s. 4rf. in the pound. Non-members have received 261?. ISs. 4d., at Is. 8d. in the pound on their purchases, leaving 8d. in the PROBABLE FUTURE OF THE LABOURING CLASSES. 475 Burners which is the direct effect of the co-operative system a vast number of hands will be set free for production, and the capital which feeds and the gains which remunerate them will he applied to feed and remunerate pro- ducers. This great economy of the world's resources would be realized, even if co-operation stopped at as- sociations for purchase and con- sumption, without extending to pro- duction. The other mode in which co-opera- tion tends, still more efficaciously, to increase the productiveness of labour, consists in the vast stimulus given to productive energies, by placing the labourers, as a mass, in a relation to their work which would make it their principle and their interest at present it is neither to do the utmost instead of the least possible in exchange for their remuneration. It is scarcely possible to rate too highly this material benefit, which yet is as nothing com- pared with the moral revolution in society that would accompany it : the healing of the standing feud between capital and labour; the transformation of human life, from a conflict of classes struggling for opposite interests, to a friendly rivalry in the pursuit of a good common to all ; the elevation of the dignity of labour, a new sense of security and independence in the labouring class, and the conversion of each human being's daily occu- pation into a school of the social sympathies and the practical intelli- gence. Such is the noble ideal which the promoters of Co-operation should have before them. But to attain, in any degree, these objects, it is indispensable that all, and not some only, of those who do the work, should be identified in interest with the prosperity of the undertaking. Associations which, when they have been successful, re- nounce the essential principle of the system, and become joint-stock com- panies of a limited number of share- holders, who differ from those of other companies only in being working men ; associations which employ hired la- bourers without any interest iu the profits (and I grieve to say that the Manufacturing Society even of Roch- dale has thus degenerated), are, no doubt, exercising a lawful right in honestly employing the existing system of society to improve their position as individuals : but it is not from them that anything needs be expected to- wards replacing that system by a better. Neither will such societies, in the long run, succeed in keeping their ground against individual competition, individual management by the one person principally interested, has great advantages over every description of collective management : co-operation has but one thing to oppose to those advantages the common interest of all the workers in the work. When indi- vidual capitalists, as they will cer- tainly do, add this to their other points of advantage ; when, even if only to increase their gains, they take up the practice which these co-operative socie- ties have dropped, and connect the pecuniary interest of every person in their emplovment with the most effi- cient and most economical manage- ment of the concern ; they are likely to gain an easy victory over societies which retain the defects, while they cannot possess the full advantages, of the old system. Under the most favourable supposi- tion it will be desirable, and perhaps for a considerable length of time, that individual capitalists associating their workpeople in the profits, should co- exist with even those co-operative societies which are faithful to the co- operative principle. Unity of authority makes many things possible, which could not, or would not, be undertaken, subject to the chance of divided coun- cils, or changes in the management. A private capitalist, exempt from the control of a body, if he is a person of capacity, is considerably more likely than almost any association to run judicious risks, and originate costly improvements. Co-operative societies may be depended on for adopting im- provements after they have been tested by success : but individuals are more likely to commence things previously untried. Even in ordinary business, 476 BOOK IV. CHAPTEE VII. 7. the competition of capable persons who j in the event of failure are to have all : the loss, and in case of success the greater part of the gain, will be very useful in keeping the managers of co- operative societies up to the due pitch of activity and vigilance. When, however, co-operative societies shall have sufficiently multiplied, it is not probable that any but the least valuable workpeople will any longer consent to work all their lives for wages merely: and both private capitalists and associations will gradually find it necessary to make the entire" body of labourers participants in profits. Even- tually, and in perhaps a less remote future than may be supposed, we may, through the co-operative principle, see our way to a change in society, which would combine the freedom and inde- pendence of the individual, with the moral, intellectual, and economical advantages of aggregate production ; and which, without violence or spolia- tion, or even any sudden disturbance of existing habits and expectations, would realize, at least in the industrial department, the best aspirations of the democratic spirit, by putting an end to the division of society into the indus- trious and the idle, and effacing all social distinctions but those fairly earned by personal services and exer- tions. Associations like those which we have described, by 'the very process of their success, are a course of educa- tion in those moral and active qualities by which alone success can be either deserved or attained. As associations multiplied, they would tend more and more to absorb all workpeople, except those who have too little understanding, or too little virtue, to be capable of learning to act on any other system than that of narrow selfishness. As this change proceeded, owners of capi- tal would gradually find it to their advantage, instead of maintaining the struggle of the old system with work- people of only the worst description, to lend their capital to the associations ; to do this at a diminishing rate of in- terest, and at last, perhaps, even to exchange their capital for terminable annuities. In this or some such mode, the existing accumulations of capital might honestly, and by a kind of spon- taneous process, become in the end the joint property of all who participate in their productive employment : a trans- formation which, thus effected, (and assuming of course that both sexes participate equally in the rights and in the government of the association)* would be the nearest approach to social justice, and the most beneficial order- ing of industrial affairs for the universal good, which it is possible at present to foresee. 7. I agree, then, with the So- cialist writers in their conception of the form which industrial operations tend to assume in the advjtirce of im- provement ; and I entirely share their opinion that the time is ripe for com mencing this transformation, and that it should by all just and effectual means be aided and encouraged. But while I agree and sympathize with Socialists in this practical portion of their aims,. I utterly dissent from the most conspi- cuous and vehement part of their teaching, their declamations against competition. With moral conceptions ] in many respects far ahead of the ex- isting arrangements of society, they have in general very confused and erroneous notions of its actual working ; and one of their greatest errors, as I conceive, is to charge upon competition all the economical evils which at present exist. They forget that wher- ever competition is not, monopoly is; * In this respect also the Eochdale Society has given an example of reason and justice, worthy of the good sense and good feeling manifested in their general proceedings. " The Rochdale Store," says Mr. Holyoake, " renders incidental but valuable aid towards realizing the civil independence of women. Women may be members of this Store, and vote in its proceedings. Single and married women join. Many married women become members because their husbands will not take the trouble, and others join in it in self- defence, to prevent the husband from spend- ing their money in drink. The husband can* not withdraw the savings at the Store stand- ing in the wife's name, unless she signs the order. Of course, as the law still stand?, the husband could by legal process get possession of the money. But a process takes time, and the husband gets sober and thinks better of it before the law can move." PROBABLE FUTURE OF THE LABOURING CLASSES. 477 and that monopoly, in all its forms, is the taxation of the industrious for the support of indolence, if not of plunder. They forget, too, that with the excep- tion' of competition among labourers, all other competition is I'or the benefit of the labourers, by cheapening the articles they consume ; that competi- tion even in the labour market is a source not of low but of high wages, wherever the competition for labour exceeds the competition of labour, as in America, in the colonies, and in the skilled trades; and never could be a cause of low wages, save by the over- stocking of the labour market through the too great numbers of the labourers' families ; while, if the supply of la- bourers is excessive, not even Socialism can prevent their remuneration from being low. Besides, if association were universal, there would be no competi- tion between labourer and labourer ; and that between association and asso- ciation would ha for the benefit of the consumers, that is, of the associa- tions ; of the industrious classes gene- rally. I do not pretend that there are no inconveniences in competition, or that the moral objections urged against it by Socialist writers, as a source of state of existence which they consider tolerable, and the danger to be appre- hended is that they will thenceforth stagnate ; will not exert themselves to improve, and by letting their faculties rust, will lose even the energy required to preserve them from deterioration. Competition may not be the best con- ceivable stimulus, but it is at present a necessary one, and no one can foresee the time when it will not be indispen- sable to progress. Even confining our- selves to the industrial department, in which, more than in any other, the majority may be supposed to be com- petent judges of improvements ; it would be difficult to induce the general assembly of an association to submit to the trouble and inconvenience of alter- ing their habits by adopting some new and promising invention, unless their knowledge of the existence of rival associations made them apprehend that what they would not consent to do, others would, and that they would be left behind in the race. Instead of looking upon competition as the baneful and anti-social principle which it is held to be by the generality of Socialists, I conceive that, even in the present state of society and in- dustry, every restriction of it is an evil, jealousy and hostility amons: those l and every extension of it, even if for engaged in the same occupation, altogether groundless. But if compe- tition has its evils, it prevents greater evils. As M. Feugueray well says,* "The deepest root of the evils and ini- quities which fill the industrial world, is not competition, but the subjection of labour to capital, and the enormous share which the possessors of the in- struments of industry are able to take from the produce If competi- tion has great power for evil, it is no less fertile of good, especially in what regards the development of the indi- vidual faculties, arid the success of innovations." It is the common error of Socialists to overlook the natural in- dolence of mankind ; their tendency to be passive, to be the slaves of habit, to persist indefinitely in a course once chosen. Let them once attain any * P. 90. tlio time injuriously affecting some class of labourers, is always an ultimate good. To be protected against com- petition is to be protected in idleness, in mental dulness; to be saved the necessity of being as active and as in- telligent as other people ; and if it is also to be protected against being un- derbid for employment by a less highly paid class of labourers, this is only where old custom or local and partial monopoly has placed some particular class of artisans in a privileged position as compared with the rest; and the time has come when the interest of universal improvement is no longer promoted by prolonging the privileges of a few. If the slopsellers and others of their class have lowered the wages of tailors, and some other artisans, by making them an affair of competition instead of custom, so much the better in the end. What is now required in BOOK IV. CHATTER VII. 7. 478 not to bolster up old customs, whereby limited classes of labouring people ob- tain partial gains which interest them in keeping up the present organization of society, but to introduce new general practices beneficial to all ; and there is reason to rejoice at whatever makes the privileged classes of skilled artisans feel, that they have the same interests, and depend for their remuneration on the same general causes, and must re- sort for the improvement of their con- dition to the same remedies, as the less fortunately circumstanced and compa- ratively helpless multitude. BOOK V. ON THE INFLUENCE OF GOVEBNMENT, CHAPTER L OP THE FUNCTIONS OP GOVERNMENT IN GENERAL. 1. ONE of the most disputed questions both in political science and in practical statesmanship at this par- ticular period, relates to the proper limits oi the functions and agency of governments. At other times it has been a subject of controversy how go- vernments should he constituted, and according to what principles and rules they should exercise their authority ; but it is now almost equally a question, to what departments of human affairs that authority should extend. And when the tide sets so strongly towards changes in government and legislation, as a means of improving the condition of mankind, this discussion is more likely to increase than to diminish in interest. On the one hand, impatient reformers, thinking it easier and shorter to get possession of the government than of the intellects and dispositions of the public, are under a constant temptation to stretch the province of government beyond due bounds : while, on the other, mankind have been so much accustomed by their rulers to in- terference for purposes other than the public good, or under an erroneous con- ception of what that good requires, and so many rash proposals are made by sincere lovers of improvement, for attempting, by compulsory regulation, the attainment of objects which can only be effectually or only usefully compassed by opinion and discussion, that there has grown up a spirit of re- sistance in limine to the interference of government, merely as such, and a disposition to restrict its sphere of action within the narrowest bounds. From differences in the historical de- velopment of different nations, not necessary to be here dwelt upon, the former excess, that of exaggerating the province of government, prevails most, both in .theory and in practice, among the Continental nations, while in England the contrary spirit has hitherto been predominant. The general principles of the ques- tion, in so far as it is a question of principle, I shall make an attempt to determine in a later chapter of this Book : after first considering the effects produced by the conduct of government in the exercise of the functions univer- sally acknowledged to belong to it. For this purpose, there must be a specification of the functions which are either inseparable from the idea of a government, or are exercised habitually and without objection by all govern- ments ; as distinguished from those respecting which it has been considered questionable whether governments should exercise them or not. The former may be termed the necesuary, the latter the optional, functions ot % government. By the term optional it is not meant to imply, that it can ever be a matter of indiflcrence, or of arbi- trary choice, whether the government should or should not take upon itself the functions in question ; but only that the expediency of its exercising them does not amount to necessity, and is a subject on which diversity of opinion does or may exist. 480 BOOK V. CHAPTER! 2. 2. In attempting to enumerate the necessary functions of' government, we find them to be considerably more multifarious than most people are at fh>t aware of, and not capable of being circumscribed by those very definite lines of demarcation, which, in the in- considerateness of popular discussion, it is often attempted to draw round them. We sometimes, for example, hear it said that governments ought to confine themselves to affording protec- tion against force and fraud : that, these two things apart, people should be free agents, able to take care of themselves, and that so long as a person practises no violence or deception, to the injury of others in person or pro- perty, legislatures and governments are in no way called on to concern themselves about him. But why should people be protected by their govern- ment, that is, by their own collective Strength, against violence and fraud, and not against other evils, except that the expediency is more obvious ? If nothing, but what people cannot pos- sibly do for themselves, can befit to be done for them by government, people might be required to protect them- selves by their skill and courage even against force, or to beg or buy protec- tion against it, as they actually do where the government is not capable of protecting them : and against fraud every one has the protection of his own wits. But without further anticipating the discussion of principles, it is suffi- cient on the present occasion to con- sider facts. Under which of these heads, the re- pression of force or of fraud, are we to place the operation, for example, of the laws of inheritance ? Some such laws must exist in all societies. It may be said, perhaps, that m this matter go- vernment has merely to give effect to the disposition which an individual, makes of his own property by will/ This, however, is at least extremely disputable ; there is probably no coun- try by whose laws the power of testa- mentary disposition is perfectly abso- lute. And suppose the very common case of there being no will : does not the law, that is, the government, decide on principles, of general expediency, who shall takeHhe succession? and in case the successor^ is in any manner incompetent, does it not appoint per- sons, frequently officers of its own, to collect the property and apply it to his benefit? There are many other cases in which the government undertakes the administration of property, because the public interest, cr perhaps only that of the particular persons con- cerned, is thought to require it. This is often done in cases of litigated pro perty ; and in cases of judicially de- clared insolvency. It has never'been contended that in doing these things, a government exceeds its province. Nor is the function of the law in de- ; fining property itself, so simple a thing as may be supposed. It may be ima- gined, perhaps, that the law' has only to declare and protect the right of every one to what he has himself pro- duced, or acquired by the voluntary consent, fairly obtained, of those who produced it. But is there nothing re- cognised as property except what has been produced ? Is there not the earth itself, its forests and waters, and all other natural riches, above and below the surface? These are the inheri- tance of the human race, and there .must be regulations for the common enjoyment of it. What rights, and under what conditions, a person shall be allowed to exercise over any portion of this common inheritance, cannot be left undecided. No function of govern- ment is less optional than the regula- tion of these things, or more com- pletely involved in the idea of civilized society. Again, the legitimacy is conceded of repressing violence, or treachery ; but under which of these heads are we to place the obligation imposed on people to perform their contracts ? Non-per- formance does not necessarily imply fraud ; the person who entered into the contract may have sincerely intended to fulfil it : and the term fraud, which can scarcely admit of being extended " even to the case of voluntary breach of contract when no deception was prac- tised, is certainly not applicable when the omission to perform is a case of FUNCTIONS OF GOVERNMENT IN GENERAL. 481 negligence. Is it no part of the duty,- of governments to enforce contracts* Here the doctrine of non-interference would no doubt be stretched a little, and it would be said, that enforcing contracts is not regulating the affairs of individuals at the pleasure of govern- ment, but giving effect to their own expressed desire. Let us acquiesce in this enlargement of the restrictive theory, and take it for what it is worth. But governments do not limit their concern with contracts to a simple en- forcement. They take upon themselves to determine what contracts are fit to be enforced. It is not enough that one person, not being either cheated or compelled, makes a promise to another. There are promises by which it is not for the public good that persons should have the power of binding themselves. To say nothing of engagements to do something contrary to law, there are engagements which the law refuses to enforce, for reasons connected with the interest of the promiser, or with the general policy of the state. A contract by which a person sells himself to an- other as a slave, would be declared void by the tribunals of this and of most other European countries. There are few nations whose laws enforce a contract for what is looked upon as prostitution, or any matrimonial en- gagement of which the conditions vary in any respect from those which the law has thought fit to prescribe. But when once it is admitted that there are any engagements which for reasons of expediency the law ought not to en- force, the same question is necessarily opened with respect to all engage- ments. Whether, for example, the law should enforce a contract to labour, when the wages are too low, or the hours of work too severe : whether it should enforce a contract by which a person binds himself to remain, for more than a very limited period, in the v service of a given individual : whether a contract of marriage, entered into for life, should continue to be enforced against the deliberate will of the per- sons, or of either of the persons, who entered into it. Every question which can possibly arise as to the policy of P.E. contracts, and of the relations which they establish among human beings, is a question for the legislator ; and one which he cannot escape from con- sidering, and in some way or other deciding. Again, the prevention and suppres- sion of force and fraud afford appro- priate employment for soldiers, police- men, and criminal judges ; but there are also civil tribunals. The punish- ment of wrong is one business of an administration of justice, but the de- cision of disputes is another. Innu- merable disputes arise between per- sons, without mala fides on either side, through misconception of their legal rights, or from not being agreed about the facts, on the proof of which those rights are legally dependent. Is it not for the general interest that the State should appoint persons to clear up these uncertainties and terminate these disputes ? It cannot be said to be a case of absolute necessity. People might appoint an arbitrator, and en- gage to submit to his decision; and they do so where there are no courts of justice, or where the courts are not trusted, or where their delays and expenses, or the irrationality of their rules of evidence, deter people from resorting to them. Still, it is uni- versally thought right that the State should establish civil tribunals ; and if their defects often drive people to have recourse to substitutes, even then the power held in reserve of carrying the case before a legally constituted court, gives to the substitutes their principal efficacy. Not only does the State undertake to decide dispute^ it takes precautions beforehand that disputes may not arise. The laws of most countries lay down rules for detetniming many things, not because it is of much consequence in what way they are determined, but in order that they may be determined somehow, and there may be no ques- tion on the subject. The law pre- scribes forms of words for many kinds of contract, in order that no dispute or misunderstanding may arise about their meaning : it makes provision that if a dispute does arise, evidence II 482 BOOK V. CHAPTER I. 3. shall be procurable for deciding it, by requiring that the document be at- tested by witnesses and executed with certain formalities. The law preserves authentic evidence of facts to which legal consequences are at- tached, by keeping a registry of such facts ; as of births, deaths, and mar- riages, of wills and contracts, and of judicial proceedings. -In doing these things, it has never been alleged that government oversteps the proper limits of its functions. Again, however wide a scope we may allow to the doctrine that indi- viduals are the proper guardians of their own interests, and that govern- ment owes nothing to them but to save them from being interfered with by other people, the doctrine can never be applicable to any persons but those who are capable of acting in their own behalf. The individual may be an infant, or a lunatic, or fallen into imbecility. The law surely must Icfok after the interests of such personsy It does not necessarily do this through officers of its own. It often devolves the trust upon some relative or connexion. But in doing so is its duty ended? Can it make over the interests of one person to the control of another, and be excused from super- vision, or from holding the person thus trusted, responsible for the dis- charge of the trust ? There is a multitude of cases in which governments, with general ap- probation, assume powers and execute functions for which no reason can be assigned except the simple one, that they conduce to general convenience. We may take as an example, the function (which is a monopoly too) of coining money. This is assumed for no more recondite purpose than that j if saving to individuals the trouble, ! delay, and expense of weighing and assaying. Ko one, however, even of those most jealous of state interfer- ence, has objected to this as an im- proper exercise of the powers of government. /Prescribing a set of standard weights and measures is another instance. |/Paving, lighting, and cleansing the streets and tho- roughfares, is another ; whether done by the general government, or, as is more usual, and generally nioie ad yisable, by a municipal authority. 'Making or improving harbours, build- ing lighthouses, making surveys in order to have accurate maps and charts, raising dykes to keep the sea out, and embankments to keep rivers in, are cases in point. Examples might be indefinitely mul- tiplied without intruding on any dis- puted ground. But enough has been said to show that the admitted func- tions of government embrace a much wider fieU than can easily be included within the ring-fence of any restrictive definition, and that it is hardly pos- sible to find any ground of justification common to them all, except the com- prehensive one of general expediency ; nor to limit the interference of govern- ment by any universal rule, save the simple and vague one that it should never be admitted but when the case of expediency is strong. 3. Some observations, however, may be usefully bestowed on the nature of the considerations on which the question of government interference is most likely to turn, and on the mode of estimating the comparative magnitude of the expediencies in- volved. This will form the last of the three parts into which our discus- sion of the principles and effects of government interference may con- veniently be divided. The following will be our division of the subject. We shall first consider the econo- mical effects arising from the mannei in which governments perform their necessary and acknowledged func- tions. AVe shall then pass to certain go- vernmental interferences of what I have termed the optional kind (i.e. overstepping the boundaries of the universally acknowledged functions) which have heretofore taken place, and in some cases still take place, under the influence of false general theories. It will lastly remain to inquire whether, independently of any false GENERAL PRINCIPLES OF TAXATION. 483 theory, and consistently with a correct view of the laws which regulate human affairs, there be any cases of the optional class in which governmental interference is really advisable, and what are those cases. The first of these divisions is of an extremely miscellaneous character : since the necessary functions of go- vernment, and those which are so manifestly expedient that they have never or very rarely been objected to, are, as already pointed out, too various to be brought under any very simple classification. Those, how- ever, which are of principal import- ance, which alone it is necessary here to consider, may be reduced to the following general heads. First, the means adopted by govern- ments to raise the revenue which is the condition of their existence. Secondly, the nature of the laws which they prescribe on the two great subjects of Property and Con- tracts. Thirdly, the excellences or defects of the system of means by which they enforce generally the execution of their laws, namely, their judicature and police. We commence with the first head, that is, with the theory of Taxa- tion. CHAPTER II. ON THE GENERAL PRINCIPLES OF TAXATION. 1. THE qualities desirable, eco- nomically speaking, in a system of taxation, have been embodied by Adam Smith in four maxims or prin- ciples, which, having been generally concurred in by subsequent writers, may be said to have become classical, and this chapter cannot be better com- menced than by quoting them.* " 1. The subjects of every state ought to contribute to the support of the government, as nearly as possible in proportion to their respective abili- ties : that is, in proportion to the re- venue which they respectively enjoy under the protection of the state. In the observation or neglect of this maxim consists what is called the equality or inequality of taxation. "2. The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of pay- ment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person. Where it is otherwise, every person subject to the tax is put more or less in the power of * Wealth of Nations, feooH v. cli ii. the taxgatherer, who can either aggra- vate the tax upon any obnoxious con- tributor, or extort by the terror of such aggravation, some present or perqui- site to himself. The uncertainty of taxation encourages the insolence and favours the corruption of an order of men who are naturally unpopular, even when they are neither insolent nor corrupt. The certainty of what each individual ought to pay is, in taxation, a matter of so great impor- tance, that a very considerable degree of inequality, it appears, I believe, from the experience of all nations, is not near so great an evil, as a very small degree of uncertainty. " 3. Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it. A tax upon the rent of land or of houses, payable at the same term at which such rents are usually paid, is levied at a time when it is most likely to be convenient for the contributor to pay ; or \\hen he is most likely to have wherewithal to pay. Taxes upon such consumable goods as are articles of luxury, are all II 2 484 BOOK V. CHAPTER II. 2. finally paid by the consumer, and generally in a manner that is very convenient to him. He pays them by little and little, as he has occasion to buy the goods. As he is at liberty, too, either to buy or not to buy, as he pleases, it must be his own fault if he ever suffers any considerable incon- venience from such taxes. " 4. Every tax ought to be so con- trived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state. A tax may either take out or keep out of the pockets of the people a great deal more than it brings into the public treasury, in the four follow- ing ways. First, the levying of it may require a great number of officers, whose salaries may eat up the greater part of the produce of the tax, and whose perquisites may impose another additional tax upon the people." Se- condly, it may divert a portion of the labour and capital of the community from a more to a less productive em- ployment. " Thirdly, by the forfeitures and other penalties which those un- fortunate individuals incur who at- tempt unsuccessfully to evade the tax, it may frequently ruin them, and there- by put an end to the benefit which the community might have derived from the employment of their capitals. An injudicious tax offers a great tempta- tion to smuggling. Fourthly, by sub- jecting the people to the frequent visits and the odious examination of the tax- gatherers, it may expose them to much unnecessary trouble, vexation, and op- pression :" to which may be added, that the restrictive regulations to which trades and manufactures are often subjected to prevent evasion of a tax, are not only in themselves trouble- some and expensive, but often oppose insuperable obstacles to making im- provements in the processes. The last three of these four maxims require little other explanation or illus- tration than is contained in the pas- sage itself. How far any given tax conforms to, or conflicts with them, is a matter to be considered in the dis- cussion of particular taxes, But the first of the four points, equality of tax- ation, requires to be more fully exa- mined, being a thing often imperfectly understood, and on which many false notions have become to a certain de- gree accredited, through the absence of any definite principles of judgment in the popular mind. 2. For what reason ought equality to be the rule in matters of taxation ? For the reason, that it ought to be so in all affairs of government. As a government ought to make no dis- tinction of persons or classes in the strength of their claims on it, what- ever sacrifices it requires from them should be made to bear as nearly as possible with the same pressure upon all ; which, it must be observed, is the mode by which least sacrifice is occa- sioned on the whole. If any one bears less than his fair share of the burthen, some other person must suffer more than his share, and the alleviation to the one is not, on the average, so great a good to him, as the increased pressure upon the other is an evil. Equality of taxation, therefore, as a maxim of politics, means equality of sacrifice. It means apportioning the contribution of each person towards the expenses of government, so that he shall feel neither more nor less inconvenience from his share of the payment than every other person ex- periences from his. This standard, like other standards of perfection, can- not be completely realized; but the first object in every practical discus- sion should be to know what perfection is. There are persons, however, who are not content with the general principles of justice as a basis to ground a rule of finance upon, but must have something, as they think, more specifically appro- priate to the subject. ^"hat best pleases them is, to regard the taxes paid by each member of the community as an equivalent for value received, in the shape of service to himself; and they prefer to rest the justice of making each contribute in proportion to his means, upon the ground, that he who has twice as much property to be pro- GENERAL PRINCIPLES OF TAXATION. 485 tectecl, receives, on an accurate calcu- lation, twice as much protection, and ought, on the principles of bargain and sale, to pay twice as much for it. Since, however, the assumption that government exists solely for the pro- tection of property, is not one to be de- liberately adhered to ; some consistent adherents of the quid pro quo principle go on to observe, that protection being required for person as well as property, and everybody's person receiving the same amount of protection, a poll-tax of a fixed sum per head is a proper equivalent for this part of the benefits of government, while the remaining part, protection to property, should be paid for in proportion to property. There is in this adjustment a false air of nice adaptation,- very acceptable to some minds. But in the first place, it is not admissible that the protection of persons and that of property are the sole purposes of government. The ends of government are as comprehen- sive as those of the social union. They consist of all the good, and all the im- munity from evil, which the existence of government can be made either directly or indirectly to bestow. In the second place, the practice of setting definite values on things essentially indefinite, and making them a ground of practical conclusions, is peculiarly feiiile in false views of social questions. It cannot be admitted, that to be pro- tected in the ownership of ten times as much property, is to be ten times as much protected. Neither can it be truly said that the protection of 1000Z. a year costs the State ten times as much as that of WQl. a year, rather than twice as much, or exactly as much. The same judges, soldiers, sailors, who protect the one protect the other ; and the larger income does not necessarily, though it may sometimes, require even more policemen. Whether the labour and expense of the protec- tion, or the feelings of the protected person, or any other definite thing be made the standard, there is no such proportion as the one supposed, nor any other definable proportion. If we wanted to estimate the degrees of benefit which different persons derive from the protection of government, we should have to consider who would suffer most if that protection were withdrawn : to which question if any answer could be made, it must be, that those would suffer most who were weakest in mind or body, either by nature or by position. Indeed, such persons would almost infallibly be slaves. If there were any justice, therefore, in the theory of justice now under consideration, those who are least capable of helping or defending themselves, being those to whom the protection of government is the most indispensable, ought to pay the greatest share of its price : the reverse of the true idea of distributive justice, which consists not in imitating but in re- dressing the inequalities and wrongs of nature. Government must be regarded" as so pre-eminently a concern of all, that to determine who are most interested in it is of no real importance. If a person or class of persons receive so small a share of the benefit as makes it neces- sary to raise the question, there is something else than taxation which is amiss, and the thing to be done is to remedy the defect, instead of recognis- ing it and making it a ground for de- manding less taxes. As, in a case of voluntary subscription for a purpose in which all are interested, all are thought to have done their part fairly when each has contributed according to his means, that is, has made an equal sacrifice for the common object ; in like manner should this be the prin- ciple of compulsory contributions : and it is superfluous to look for a more in- genious or recondite ground to rest the principle upon. 3. Setting ont, then, from the maxim that equal sacrifices ought to be demanded from all, we have next to inquire whether this is in fact done, by making each contribute the same per- centage on his pecuniary means. Many persons maintain the negative, saying that a tenth part taken from a small income is a heavier burthen than the same fraction deducted from one much larger: and on this is grounded the 486 BOOK V. CHAPTER II. very popular scheme of what is called a graduated property-tax, viz. an in- come tax in which the percentage rises with the amount of the income. On the best consideration I am able to give to this question, it appears to me that the portion of truth which the doctrine contains, arises principally from the difference between a tax which can be saved from luxuries, and one which trenches, in ever so small a de- gree, upon the necessaries of life. To take a thousand a year from the pos- sessor of ten thousand, would not de- prive him of anything really conducive either to the support or to the comfort of existence ; and if such icould be the effect of taking five pounds from one whose income is fifty, the sacrifice re- quired from the last is not only greater than, but entirely incommensurable with, that imposed upon the first. The mode of adjusting these inequalities of pressure which seems to he the most equitable, is that recommended by Bentham, of leaving a certain mini- mum of income, sufficient to provide the necessaries of life, untaxed. Sup- pose 501. a year to be sufficient to pro- vide the number of persons ordinarily supported from a single income, with the requisites of life and health, and with protection against habitual bodily suffering, but not with any indulgence. This then should be made the mini- mum, and incomes exceeding it should pay taxes not upon their whole amount, but upon the surplus. If the tax be 3. to making it smallei This arrange- ment* however would constitute a reason, in addition to others which might be stated, for maintaining taxes on articles of luxury consumed by the poor. The immunity extended to the income required for necessaries, should depend on its being actually expended for that purpose ; and the poor who, not having more than enough for neces- saries, divert any part of it to indul- gences, should like other people con- tribute their quota out of those in- dulgences to the expenses of the state. The exemption in favour of the smaller incomes should not, I think, be stretched further than to the amount of income needful for life, health, and immunity from bodily pain. If 501. a year is sufficient (which may be doubted) for these purposes, an income of 1001. a year would, as it seems to me, obtain all the relief it is entitled to, compared with one of WOOL, by being taxed only on 501. of its amount. It may be said, indeed, that to take WOL from 1000Z. (even giving b.ack five pounds) is a heavier impost than 10001. taken from 10,0002. (giving back the same five pounds). But this doctrine seems to me too disputable altogether, and even if true at all, not true to a sufficient extent, to be made the foundation of any rule of taxation. Whether the person with 10,OOOZ. a year cares less for 1000?. than the j person with only 1000Z. a year cares ten per cent, an income of 601. should j for WOL, and if so, how much less, be considered as a net income of Wl., does not appeartome capable of being and charged with \l. a year, while an j decided with the degree of certainty on income of 10001. should be charged as one of 9501. Each would then pay a fixed proportion, not of his whole means, but of his superfluities.* An income not exceeding 501. should not be taxed at all, either directly or by taxes on necessaries ; for as by suppo- sition this is the smallest income which labour ought to be able to command, the government ought not to be a party * This principle of assessment has been partially adopted by Mr. Gladstone at the last renewal of the income tax. From 100?., at which the tax begins, up to 200., the income only pays tax on the excess above 604 which a legislator or a financier ought to act. Some indeed contend that the rule of proportional taxation bears harder upon the moderate than upon the large incomes, because the same proportional payment has more tendency in the former case than in the latter, to re- duce the payer to a lower grade of social rank. The fact appears to me more than questionable. But even ad- mitting it, I object to its being con- sidered incumbent on government to shape its course by such considerations, or to recognise the notion that social GENERAL PRINCIPLES OF TAXATION. 487 importance is or can be determined by amount of expenditure. Government ought to set an example of rating all things at their true value, and riches, therefore, at the worth, for comfort or pleasure, of the things which they will buy : and ought not to sanction the vulgarity of prizing them for the pitiful vanity of being known to possess them, or the paltry shame of being suspected to be without them, the presiding mo- tives of three-fourths of the expenditure of the middle classes. The sacrifices of real comfort or indulgence which government requires, it is bound to apportion among all persons with as much equality as possible ; but their sacrifices of the imaginary dignity de- pendent on expense, it may spare itself the trouble of estimating. Both in England and on the Conti- nent a graduated property-tax has been advocated, on the avowed ground that the state should use the instru- ment of taxation as a means of miti- gating the inequalities of wealth. I am as desirous as any one, that means should be taken to diminish those in- equalities, but not so as to relieve the prodigal at the expense of the prudent. To tax the larger incomes at a higher percentage than the smaller, is to lay a tax on industry and economy ; to impose a penalty on people for having worked harder and saved more than their neighbours. It is not the for- tunes which are earned, but those which are unearned, that it is for the public good to place under limitation. A just and wise legislation would ab- stain from holding out motives for dissipating rather than saving the earnings of honest exertion: Its im- partiality between competitors would consist in endeavouring that they should all start fair, and not in hang- ing a weight upon the swift to dimi- nish the distance between them and the slow. Many, indeed, fail with greater efforts than those with which others succeed, not from difference of merits, but difference of opportunities ; but if all were done which it would be in the power of a good government to do, by instruction and by legislation, to diminish this inequality of oppor- tunities, the differences of fortune aris- ing from people's own earnings could not justly give umbrage. With re- spect to the large fortunes acquired by gift or inheritance, the power of be- queathing is one of those privileges of property which are fit subjects for regulation on grounds of general ex- pediency ; and I have already sug- gested,* as a possible mode of re- straining the accumulation of large fortunes in the hands of those who have not earned them by exertion, a limitation of the amount which any one person should be permitted to acquire by gift, bequest, or inheritance. Apart from this, and from the proposal of Bentham (also discussed in a former chapter) that collateral inheritance in case of intestacy should cease, and the property escheat to the state, I con- ceive that inheritances and legacies, exceeding a certain amount, are highly proper subjects for taxation : and that the revenue from them should be as great as it can be made without giving rise to evasions, by donation during life or concealment of property, such as it would be impossible adequately to check. The principle of graduation (as it is called,) that is, of levying a larger percentage on a larger sum, though its application to general taxa- tion would be in my opinion objection- able, seems to me both just and ex- pedient as applied to legacy and in- heritance duties. The objection to a graduated pro- perty-tax applies in an aggravated degree to the proposition of an exclu- sive tax on what is called "realized property," that is, property not form- ing^ a part of any capital engaged in business, or rather in business under the superintendence of the owner : as land, the public funds, money lent on mortgage, and shares (I presume) in joint-stock companies. Except the proposal of applying a sponge to the national debt, no such palpable viola- tion of common honesty has found sufficient support in this country, during the present generation, to be regarded as within the domain of dis- cussion. It has not the palliation of Supra, book ii. ch. ii. 488 a graduated property-tax, that of lay- ing the burthen on those best able to bear it ; for " realized property" in- cludes the far larger portion of the provision made for those who are un- able to work, and consists, in great part, of extremely small fractions. I can hardly conceive a more shameless pretension than that the major part of the property of the country, that of merchants, manufacturers, farmers, and shopkeepers, should be exempted from its share of taxation ; that these classes should only begin to pay their propor- tion after retiring from business, and if they never retire should be excused from it altogether. But even this does not give an adequate idea of the in- justice of the proposition. The burthen thus exclusively thrown on the owners of the smaller portion of the wealth of the community, would not even be a burthen on that class of persons in perpetual succession, but would fall exclusively on those who happened to compose it when the tax was laid on. As land and those particular securities would thenceforth yield a smaller net income, relatively to the general inte- rest of capital and to the profits of trade ; the balance would rectify itself by a permanent depreciation of those kinds of property. Future buyers would acquire land and securities at a reduction of price, equivalent to the peculiar tax, which tax they would, therefore, escape from paying ; while the original possessors would remain burthened with it even after parting with the property, since they would have sold their land or securities at a loss of .value equivalent to the fee- simple of the tax. Its imposition would thus be tantamount to the con- fiscation for public uses of a percentage of their property, equal to the percent- age laid on their income by the tax. That such a proposition should find any favour, is a striking instance of the want of conscience in matters of taxation, resulting from the absence of any fixed principles in the public mind, and of any indication of a sense of justice on the subject in the general conduct of governments. Should the scheme evei" enlist a large party in its BOOK V. CHAPTER II. 4. support, the fact would indicate a laxity of pecuniary integrity in national af- fairs, scarcely inferior to American repudiation. 4. Whether the profits of trade may not rightfully be taxed at a lower rate than incomes derived from inte- rest or rent, is part of the more com- prehensive question, so often mooted OTI the occasion of the present income- tax, whether life incomes should be subjected to the same rate of taxation as perpetual incomes : whether sala- ries, for example, or annuities, or the gains of professions, should pay the same percentage as the income from inheritable property. The existing tax treats all kinds of incomes exactly alike, taking its seven- pence (now sixpence) in the pound, as well from the person whose income dies with him, as from the landholder, stockholder, or mortgagee, w r ho can transmit his fortune undiminished to his descendants. This is a visible in- justice : yet it does not arithmetically violate the rule that taxation ought to be in proportion to means. Wlaen it is said that a temporary income ought to be taxed less than a permanent one, the reply is irresistible, that it is taxed less ; for the income which lasts only ten years pays the tax only ten years, while that which lasts for ever pays for ever. On this point some financial reformers are guilty of a great fallacy. They contend that incomes ought to be assessed to the income-tax not in proportion to their annual amount, but to their capitalized value : that, for example, if the value of a perpetual annuity of 1001. is 3000Z., and a life annuity of the same amount being worth only half the number of years' purchase could only be sold for \ 50(j., the perpetual income should pay twice as much per cent income-tax as the terminable income ; if the one pays 10Z. a year, the other should pay only 51. But in this argument there is the obvious oversight, that it values the incomes by one standard and the payments by another ; it capitali/es the incomes, but forgets to capitalize the payments. An annuity worth GENERAL PRINCIPLES OF TAXATION. 489 3000Z. ought, it is alleged, to be taxed twice as highly as one which is only worth 1500?., and no assertion can be more unquestionable ; but it is for- gotten that the income worth 3000?. pays to the supposed income-tax 10?. a year in perpetuity, which is equiva- lent, by supposition, to 300?., while the terminable income pays the same 10?. only during the life of its owner, which on the same calculation is a value of 150?., and could actually be bought for that sum. Already, therefore, the in- come which is only half as valuable, pays only half as much to the tax ; and if 'in addition to this its annual quota were reduced from 10?. to 51., it would pay, not half, but a fourth part only of the payment demanded from the per- petual income. To make it just that the one income should pay only half as much per annum as the other, it would be necessary that it should pay that half for the same period, that is, in perpetuity. The rule of payment which this school of financial reformers contend for, would be very proper if the tax were only to be levied once, to meet some national emergency. On the principle of requiring from all payers an equal sacrifice, every person who had anything belonging to him, re- versioners included, would be called on for a payment proportioned to the present value of his property. I wonder it does not occur to the re- formers in question, that precisely be- cause this principle of assessment would be just in the case of a pay- ment made once for all, it cannot possibly be just for a permanent tax. When each pays only once, one person pays no oftenerthan another; and the proportion which would be just in that case, cannot also be just if one" person has to make the payment only once, and the other several times. This, however, is the type of the case which actually occurs. The permanent in- comes pay the tax as much oftener than the temporary ones, as a per- petuity .exceeds the certain or un- certain length of time which forms the duration of the income for life or years. All attempts to establish a claim in favour of terminable incomes on nu- merical grounds to make out, in short, that a proportional tax is not a proportional tax are manifestly ab- surd. The claim does not rest on grounds of arithmetic, but of human wants and feelings. It is not because the temporary annuitant has smaller means, but because he has greater necessities, that he ought to be as- sessed at a lower rate. In spite of the nominal equality of income, A, an annuitant of 1000?. a year, cannot so well afford to pay 100?. out of it, as B who derives the same annual sum from heritable property ; A having usually a demand on his income which B 'has not, namely, to provide by saving for children or others; to which, in the case of salaries or professional gains, must generally be added a provision for his own later years ; while B may expend his whole income without injury to his old age, and still have it all to bestow on others after his death. If A, in order to meet these exigencies, must lay by 300?. of his income, to take 100?. from him as mcomd-tax is to take 100?. from 700?., since it must be retrenched from that part only of his means which he can afford to spend on his own consumption. Were he to throw it rateably on what he spends and on what he saves, abating 701. from his consumption and 30?. from his annual saving, then indeed his immediate sacrifice would be propor- tionally the same as B's: but then his children or his old age would be worse provided for in consequence of the tax. The capital sum which would be accumulated for them would be one-tenth less, and on the reduced income afforded by this reduced ca- pital, they would be a second time charged with income-tax; while B's heirs would only be charged once. The principle, therefore, of equality of taxation, interpreted in its only just sense, equality of sacrifice, re- quires that a person who has no means of providing for old age, or for those in whom he is interested, except by saving from income, should have the 490 BOOK V. CHAPTER II. 4. tax remitted on all that part of his income which is really and bond fide applied to that purpose. If, indeed, reliance could be placed on the conscience of the contributors, or sufficient security taken for the cor- rectness of their statements by colla- teral precautions, the proper mode of assessing an income-tax would be to tax only the part of income devoted to expenditure, exempting that which is saved. For when saved and invested (and all savings, speaking generally, are invested) it thenceforth pays in- come-tax on the interest or profit which it brings, notwithstanding that it has already been taxed on the prin- cipal. Unless, therefore, savings are exempted from income-tax, the con- tributors are twice taxed on what they save, and only once on what they spend. A person who spends all he receives, pays Id. in the pound, or say three per cent, to the tax, and no more : but if he saves part of the year's income and buys stock, then in addition to the three per cent which he has paid on the principal, and which diminishes the interest in the same ratio, he pays three per cent annually on the interest itself, which is equivalent to an immediate pay- ment of a second three per cent on the principal. So that while unpro- ductive expenditure pays only three per cent, savings pay six per cent ; or more correctly, three per cent on the whole, and another three per cent on the remaining ninety-seven. The dif- ference thus created to the disad- vantage of prudence and economy, is not only impolitic but unjust. To tax the sum invested, and afterwards tax also the proceeds of the investment, is to tax the same portion of the con- tributor's means twice over. The principal and the interest cannot both together form part of his re- sources ; they are the same portion twice counted : if he has the interest, it is because he abstains from using the principal ; if he spends the prin- cipal, he does not receive the in- terest. Yet because he can do either of the two, he is taxed as if he could do both j and could have the benefit of the saving and that of the spending, concurrently with one an- other. It has been urged as an objection to exempting savings from taxation, that the law ought not to disturb, by arti- ficial interference, the natural com- petition between the motives for saving and those for spending. But we have seen that the law disturbs this natural competition when it taxes savings, not when it spares them ; for as the savings pay at any rate tho full tax as soon as they are invested, their exemption from payment in the earlier stage is necessary to prevent them from paying twice, while money spent in unproductive consumption pays only once. It has been further objected, that since the rich have the greatest means of saving, any privilege given to savings is an advantage be- stowed on the rich at the expense of the poor. I answer, that it is bestowed on them only in proportion as they abdicate tho personal use of their riches ; in ^/roportion as they divert their income from the supply of their own wants, to a productive invest- ment, through which, instead of being consumed by themselves, it is distributed in wages amono: the poor. If this be favouring the rich, I should like to have it pointed out, what mode of assessing taxation can deserve the name of favouring the poor. No income-tax is really just, from which savings are not exempted ; and no income-tax ought to be voted with- out that provision, if the form of the return?, and the nature of the evidence required, could be so arranged as to prevent the exemption from being taken fraudulent advantage of, by saving 'with one hand and getting into debt with the other, or by spend- ing in the following year what had been passed tax-free as saving in the year preceding. If this difficulty could be surmounted, the difficulties and complexities arising from the com- parative claims of temporary and per- manent incomes, would disappear ; for since temporary incomes have no .just claim to lighter taxation than per- GENERAL PRINCIPLES OF TAXATION. 49i marient incomes, except in so far as their possessors are more called npon to save, the exemption of what they do save would fully satisfy the claim. But if no plan can be devised for the exemption of actual savings, sufficiently free from liability to fraud, it is neces- sary, as the next thing in point of justice, to take into account in assess- ing the tax, what the different classes of contributors ought to save. Arid there would probably be no other mode of doing this than the rough expedient of two different rates of assessment. There would be great difficulty in taking into account dif- ferences of duration between one ter- minable income and another ; and in the most frequent case, that of incomes dependent on life, differences of age and health would constitute such extreme diversity as it would be impossible to take proper cognizance of. It would probably be necessary to be content with one uniform rate for all incomes of inheritance, and another uniform rate for all those which necessarily terminate with the life of the indi- vidual. In fixing the proportion be- tween the two rates, there must inevitably be something arbitrary ; perhaps a deduction of one-fourth in favour of life-incomes would be as little objectionable as any which could be made, it being thus assumed that one- fourth of a life-income is, on the average of all ages and states of health, a suitable proportion to be laid by as a provision for successors and for old age.* * Mr. Hubbard, the first person who, as a practical legislator, has attempted the recti- fication of the income tax on principles of unimpeachable justice, and whose well-con- ceived plan wants little of being as near an approximation to a just assessment as it is likely that means could be found of carrying into practical effect, proposes a deduction not of a fourth but of a third, in favour of industrial and professional incomes. He fixes on this ratio, on the ground that, indepen- dently of all consideration as to what the industrial and professional classes ought to save, the attainable evidence goes to prove that a third of their incomes is what on an average they do save, over and above the proportion saved by other classes. " The savings" (Mr. Hubbard observes) "effected out of incomes derived from invested pro- perty are estimated at one- tenth. The Of the net profits of persons in business, a part, as before observed, may be considered as interest on capital, and of a perpetual character, and the remaining part as remune- ration for the skill and labour of superintendence. The surplus beyond interest depends on the life of the in- savings effected out of industrial incomes are estimated at four-tenths. The amounts which would be assessed under these two classes being nearly equal, the adjustment is simplified by striking off one-tent^ on either side, and then reducing by three-tenths, or one-third, the assessable amount of indus- trial incomes." Proposed Report (p. xiv. of the Report and Evidence of the Committee of 1861 .) In such an estimate there must be a large element of conjecture ; but in so far as it can be substantiated, it affords a valid ground for the practical conclusion which Mr. Hubbard founds on it. Several writers on the subject, including Mr. Mill in his Elements of Political Economy, and Mr. M'Culloch in his work on Taxation, have contended that as much should be deducted as would be sufficient to insure the possessor's life for a sum which would give to his successors -for ever an in- come equal to what he reserves for himself; since this is what the possessor of heritable property can do without saving at all : in other words, that temporary incomes should be converted into perpetual incomes of equal present value, and taxed as such. If the owners of life-incomes actually did save this large proportion of their income, or even a still larger, I would gladly grant them an exemption from taxation on the whole amount, since, if practical means could be found of doing it, I would exempt savings altogether. But I cannot admit that they have a claim to exemption on the general assumption of their being obliged to save this amount. Owners of life-incomes are not bound to forego the enjoyment of them for the sake of leaving to a perpetual line of successors an independent provision equal to their own temporary one; and no one ever dreams of doing so. Least of all is it to be required or expected from those whose incomes are the fruits of personal exertion, that they should leave to their posterity for ever, without any necessity for exertion, the same incomes which they allow to them- selves. All they are bound to do, even for their children, is to place them in circum- stances in which they will have favourable chances of earning their own living. To give, however, either to children or to others, by bequest, being a legitimate inclination, which these persons cannot indulge without laying by a part of their income, while the owners of heritable property can ; this real inequality in cases where the incomes them- selves are equal, should be considered, to a reasonable degree, in the adjustment of taxa- tion, so as to require from both, as nearly as practicable, an equal sacrifice. 492 BOOK V. CHAPTER II. 5. dividual, and even on his continuance in business, and is entitled to the full amount of exemption allowed to terminable incomes. It has also, I conceive, a just claim to a further amount of exemption in consideration of its precariousness. An income which some not unusual vicissitude may reduce to nothing, or even convert into a loss, is not the same thing to the feelings of the possessor as a perma- nent income of 1000Z. a year, even though on an average of years it may yield WOOL a year. If life-incomes were assessed at three-fourths of their amount, the profits of business, after deducting interest on capital, should not only be assessed at three-fourths, but should pay, on tbat assessment, a lower rate. Or perhaps the claims of justice in this respect might be suffi- ciently met by allowing the deduction of a fourth on the entire income, interest included. These are the chief cases, of ordi- nary occurrence, in which any difficulty arises in interpreting the maxim of equality of taxation. The proper sense to be put upon it, as we have seen in the preceding example, is, that people should be taxed, not in proportion to what tbey have, but to what they can afford to spend. It is no objection to this principle that we cannot apply it consistently to all cases. A person with a life-income and precarious health, or who has many persons de- pending on his exertions, must, if he than if neither of them were allowed any abatement at all. 5. Before leaving the subject of Equality of Taxation, I must remark that there are cases in which exceptions may be made to it, consistently with that equal justice which is the ground- work of the rule. Suppose that there is a kind of income which constantly tends to increase, without any exer- tion or sacrifice on the part of the owners : those owners constituting a class in the community, whom the natural course of things progressively enriches, consistently with complete passiveness on their own part. In such a case it would be no violation of the principles on which private property is grounded, if the state should appro- priate this increase of wealth, or part of it, as it arises. This would not properly be taking anything from any body ; it would merely be applying an accession of wealth, created by circum- stances, to the benefit of society, in- stead of allowing it to become an un- earned appendage to the riches of a particular class. Now this is actually the case with rent. The ordinary progress of a society which increases in wealth, is at all times tending to augment the incomes of landlords; to give them both a greater amount and a greater proportion of the wealth of the com- munity, independently of any trouble or outlav incurred by themselves. wishes to provide for them after his I They grow richer, as it were in their ,1 4.1, l . : 3i -i ii 1 _i :j_i i _! death, be more rigidly economical than one who has a life-income of equal amount, with a strong constitution, and few claims upon him : and if it be conceded that taxation cannot accom- modate itself to these distinctions, it is argued that there is no use in at- tending to any distinctions, where the absolute amount of income is the same. But the difficulty of doing perfect justice, is no reason against doing as sleep, without working, risking, or economizing. \Yhat claim have they, on the general principle of social justice, to this accession of riches? In what would they have been wronged if society had, from the beginning, reserved the right of taxing the spon- taneous increase of rent, to the highest amount required by financial exigen- cies ? I admit that it would be unjust to come upon each individual estate, much as we can. Though it may be i and lay hold of the increase which a hardship to an annuitant whose life ! might be found to have taken place in is only worth five years purchase, to be ; its rental; because there would be no allowed no greater abatement than is i means of distinguishing in individual granted to one whose life is worth twenty, it is better for him even so, cases, between an increase owing solely to the general circumstances of GENERAL PRINCIPLES OF TAXATION. 493 society, and one which was the effect of skill and expenditure on the part of the proprietor. The only admissible mode of proceeding would be by a general measure. The first step should be a valuation of all the laud in the country. The present value of all land should be exempt from the tax ; but after an interval had elapsed, during which society had increased in population and capital, a rough estimate might be made of the spon- taneous increase which had accrued to rent since the valuation was made. Of this the average price of produce would be some criterion : if that had 'risen, it would be certain that rent had increased, and (as already shown) even in a greater ratio than the rise of price. On this and other data, an approximate estimate might be made, how much value had been added to the land of the country by natural causes ; and in laying on a general land-tax, which for fear of miscalcu- lation should be considerably within the amount thus indicated, there would be an assurance of not touching any increase of income which might be the result of capital expended or in- dustry exerted by the proprietor. But though there could be no ques- tion as to the justice of taxing the in- crease of rent, if society had avowedly reserved the right, has not society waved that right by not exercising it? In England, for example, have not all who bought land for the last, century or more, given value not only for the existing income, but for the prospects of increase, under an implied assurance of being only taxed in the same pro- portion with other incomes? This objection, in so far as valid, has a dif- ferent degree of validity in different countries ; depending on the degree of desuetude into which society has al- lowed a right to fall, which, as no one can doubt, it once fully possessed. In most countries of Europe, the right to take by taxation, as exigency might require, an indefinite portion of the rent of land, has never been allowed to slumber. In several parts of the Con- tinent the land-tax forms a large pro- portion of the public revenues, and has always been confessedly liable to be raised or lowered without reference to other taxes. In these countries no one can pretend to have become the owner of land on the faith of never being called upon to pay an increased land- tax. In England the land-tax has not varied since the early part of the last century. The last act of the legisla- ture in relation to its amount, was to diminish it: and though the subse- quent increase in the rental of the country has been immense, not only from agriculture, but from the growth of towns and the increase of buildings, the ascendancy of landholders in the _islature has prevented any tax from being imposed, as it so justly might, upon the very large portion of this in- crease which was unearned, and, as it were, accidental. For the expectations thus raised, it appears to me that an amply sufficient allowance is made, if the whole increase of income which has accrued during this long period from a mere natural law, without exertion or sacrifice, is held sacred from any pe- culiar taxation. From the present date, or any subsequent time at which the legislature may think fit to assert the principle, I see no objection to declaring that the future increment of rent should be liable to special taxa- tion ; in doing which all injustice to the landlords would be obviated, if the present market-price of their land were secured to them; since that includes the present value of all future expecta- tions. With reference to such a tax, perhaps a safer criterion than either a rise of rents or a rise of the price of corn, would be a general rise in the price of land. It would be easy to keep the tax within the amount which would reduce the market-value of land below the original valuation: and up to that point, whatever the amount of the tax might be, no injustice would be done to the proprietors. 6. But whatever may be thought of the legitimacy of making the State a sharer in all future increase of rent from natural causes, the existing land- tax (which in this country unfortu- nately is very small) ought not to be i94 BOOK V. CHAPTER II. 7. regarded as a tax, but as a rent-charge in favour of the public ; a portion of the rent, reserved from the beginning by the State, which has never belonged to or formed part of the income of the landlords, and should not therefore be counted to them as part of their taxa- tion, so as to exempt them from their fair share of every other tax. As well might the tithe be regarded as a tax on the landlords : as well, in Bengal, where the State, though entitled to the whole rent of the land, gave away one-tenth of it to individuals, retaining the other nine-tenths, might those nine-tenths be considered as an un- equal and unjust tax on the grantees of the tenth. That a person owns part of the rent, does not make the rest of it his just right, injuriously withheld from him. The landlords originally held their estates subject to feudal burthens, for which the present land-tax is an exceedingly small equi- valent, and for their relief from which they should have been required to pay a much higher price. All who have bought landf since the tax existed have bought it subject to the tax. There is not the smallest pretence for looking upon it as a payment exacted from the existing race of landlords. These observations are applicable to j a land-tax, only in so far as it is a pe- j culiar tax, and not when it is merely a j mode of levying from the landlords the equivalent of what is taken from other classes. In France, for example, there j are peculiar taxes on other kinds of j property and income (the mobilier and the patente], and supposing the land- I tax to be not more than equivalent to j these, there would be no ground for I contending that the state had reserved | to itself a rent-charge on the land. But wherever and in so far as income ' derived from land is prescriptively subject to a deduction for public pur- poses, beyond the rate of taxation levied on other incomes, the surplus is not properly taxation, but a share of the property in the soil, reserved by the state. In this country there are no peculiar taxes on other classes, corre- sponding to, or intended to countervail, the land-tax. The whole of it, there- fore, is not taxation but a rent-charge^ and is as if the state had retained, not a portion of the rent, but a portion of the land. It is no more a burthen on the landlord, than the share of one joint tenant is a burthen on the other. The landlords are entitled to no com- pensation for it, nor have they any claim to its being allowed for, as pail of their taxes. Its continuance on the existing footing is no infringement of the principle of Equal Taxation.* \Ye shall hereafter consider, in treat- ing of Indirect Taxation, how far, and with what modifications, the rule of equality is applicable to that depart- ment. 7. In addition to the preceding rules, another general rule of taxation is sometimes laid down, namelv, that it should fall on income, and not on capital. That taxation should not en- croach upon the amount of the national capital, is indeed of the greatest im- portance ; but this encroachment, when it occurs, is not so much a consequence of any particular mode of taxation, as of its excessive amount. Over-taxation, carried to a sufficient extent, is quite capable of ruining the most industrious community, especially when it is in any degree arbitrary, so that the payer is never certain how much or how little he shall be allowed to keep ; or when it is so laid on as to render industry and economy a bad calculation. But if these errors be avoided, and the amount of taxation be not greater than it is at present even in the most heavily taxed country of Europe, there is no danger lest it should deprive the country of a portion of its capital. To provide that taxation shall fall entirely on income, and not at all on capital, is beyond the power of any * The same remarks obviously apply to those local taxes, of the peculiar pressure of which on landed property so much has been said by the remnant of the Protectionists. As much of these burthens as is of old stand- ing, ought to be regarded as a prescriptive deduction or reservation, for public purposes, of a portion of the rent. And any recent additions have either been incurred for the benefit of the owners of landed properly, of occasioned by their fault : in neither "case giving them any just ground of complaint. DIRECT system of fiscal arrangements. There is no tax which is not partly paid from what would otherwise have bai saved ; no tax, the amount of which, if remit- ted, would he wholly employed in in- creased expenditure, and no part what- ever laid by as an addition to capital. All taxes, tlaerefore, are in some sense partly paid out of capital ; and in a poor country it is impossible to impose any tax which will not impede the in- crease of the national wealth. But in a country where capital abounds, and the spirit of accumulation is strong, this effect of taxation is scarcely felt. Capital having reached the stage in which, were it not for a perpetual suc- cession of improvements in production, any further increase would soon be stopped and having so strong a tendency even to outrun those improve- ments, that profits are only kept above the minimum by emigration of capital, or by a periodical sweep called a com- mercial crisis ; to take from capital by taxation what emigration would re- move, or a commercial crisis destroy, is only to do what either of those causes would have done, namely, to make a clear space for further saving. I cannot, therefore, attach any im- portance, in a wealthy country, to the objection made against taxes on lega- cies and inheritances, that they are taxes on capital. It is perfectly true that they are so. As Eicardo observes, if 100Z. are taken from any one in a tax on houses or on wine, he will pro- bably save it, or a part of it, by living in a cheaper house, consuming less wine, or retrenching from some other of his expenses : but if the same sum be taken from him because he has re- TAXES. 495 ceived a legacy of 1000Z., he considers the legacy as only 900Z., and feels no more inducement than at any other time (probably feels rather less in- ducement) to economize in his expendi- ture. The tax, therefore, is wholly paid out of capital : and there are countries in which this would be a serious objec- tion. But in the first place, the ar- gument cannot apply to any country which has a national debt, and devotes any portion of revenue to paying it off; since the produce of the tax, thus applied, still remains capital, and is merely transferred from the tax-payer to the fundholder. But the objection is never applicable in a country which increases rapidly in wealth. The amount which would be derived, even from a very high legacy duty, in each year, is but a small fraction of the annual increase of capital in such a country ; and its abstraction would but make room for saving to an equivalent amount : while the effect of not taking it, is to prevent that amount of saving, or cause the savings when made, to be sent abroad for in vestment. A country which, like England, accumulates capi- tal not only for itself, but for half the world, may be said to defray the whole of its public expenses from its over- flowings ; and its wealth is probably at this moment as great as if it had no taxes at all. What its taxes really do is, to subtract from its means, not of production but of enjoyment ; since whatever any one pays in taxes, he could, if it were not taken for that purpose, employ in indulging his ease, or in gratifying some want or taste which at present remains unsatisfied. CHAPTER III. OP DIRECT TAXES. 1. TAXES are either direct or in- direct. A direct tax is one which is deraandcdnrom the yry p^ who, it is intended or desired, should pay it. Indirect taxes are those which are demanded from one person in the ex- pectation and intention that he shall indemnify himself at the expense of 496 BOOK V. CHAPTER HI. 2, 3. another : such as the excise or customs, which indeed it really is, to the tenant, The producer or importer of a com- modity is called upon to pay a tax on it, not with the intention to levy a peculiar contribution upon him, hut to tax through him the consumers of the com- modity, from whom it is supposed that he will recover the amount hy means of an advance in price. Direct taxes are either on income, or on expenditure. Most taxes on ex- penditure are indirect, but some are direct, being imposed, not on the pro- ducer or seller of an article, but imme- diately on the consumer. A house-tax, for example, is a direct tax on expendi- ture, if levied, as it usually is. on the occupier of the house. If levied on the builder or owner, it would be an in- direct tax A window-tax is a direct tax on expenditure ; so are the taxes on horses and carnages, and the rest of what are called the assessed taxes. The sources of income are rent, profits, and wages. This includes every sort of income, except gift or plunder. Taxes may be laid on any one of the three kinds of income, or an uniform tax on all of them. We will consider these in their order. 2. A tax on rent falls wholly on the landlord. There are no means bv which he can shift the burthen upon any one else. It does not affect the value or price of agricultural produce, for this is determined by the cost of production in the most unfavourable circumstances, and in those circum- stances, as we have so often demon- strated, no rent is paid. A tax on rent, therefore, has no effect, other than its obvious one. It merely takes so much from the landlord, and transfers it to the state. This, however, is, in strict exact- ness, only true of the rent which is the result either of natural causes, or of im- provements made by tenants. When the landlord makes improvements which increase the productive power of his land, he is remunerated for them by an extra payment from the tenant ; and this payment, which to the land- lord is properly a profit on capital, is blended and confounded with rent ; and in respect of the economical laws which determine its amount. A tax on rent, if extending to this portion of it, would discourage landlords from making improvements : but it does not follow that it would raise the price of agricultural produce. The same im- provements might be made with the tenant's capital, or even with the land- lord's if lent by him to the tenant ; pro- vided he is willing to give the tenant so long a lease as will enable him to indemnify himself before it expires. But whatever hinders improvements from being made in the manner in which people prefer to make them, will often prevent them from being made at all : and on this account a tax on rent would be inexpedient, unless some means could be devised of excluding from its operation that portion of the nominal rent which may be regarded as landlord's profit. This argument, however, is not needed for the con- demnation of such a tax. A peculiar tax on the income of any class, not balanced by taxes on other classes, is a violation of justice, and amounts to a partial confiscation. I have already shown grounds for excepting from thia censure a tax which, sparing existing rents, should content itself with appro- priating a portion of any future increase arising from the mere action of natural causes. But even this could not be justly done, without offering as an al- ternative the market price of the land. In the case of a tax on rent which is not peculiar, but accompanied by an equivalent tax on other incomes, the objection grounded on its reaching the profit arising from improvements is less applicable : since, profits being taxed as well as rent, the profit which assumes the form of rent is liable to its share in common with other profits ; but since profits altogether ought, for reasons formerly stated, to be taxed somewhat lower than rent properly so called, the objection is only diminished, not removed. 3. A tax on profits, like a tax on rent, must, at least in its immediate operation, fall wholly on the payer. DIRECT All profits being alike affected, no relief can be obtained by a change of employment. If a tax were laid on the profits of any one brancb of productive employment, the tax would be virtually an increase of the cost of production, and the value and price of the article would rise accordingly ; by which the tax would be thrown upon the con- sumers of the commodity, and would not affect profits. But a general and equal tax on all profits would not affect general prices, and would fall, at least in the first instance, on capitalists alone. There is, however, an ulterior effect, which, in a rich and prosperous country, requires to be taken into account. When the capital accumulated is so great, and the rate of annual accumu- lation so rapid, that the country is only kept from attaining the stationary state by the emigration of capital, or by continual improvements in produc- tion ; any circumstance which virtually lowers the rate of profit, cannot be without a decided influence on these phenomena. It may operate in differ- ent ways. The curtailment of profit, and the consequent increased difficulty in making a fortune or obtaining a sub- sistence by the employment of capital, may act as a stimulus to inventions, and to the use of them when made. If improvements in production are much accelerated, and if these improvements cheapen, directly or indirectly, any of the things habitually consumed by the labourer, profits may rise, and rise sufficiently to make up for all that is taken from them by the tax. In that case the tax will have been realized without loss to any one, the produce of the country being increased by an equal, or what would in that case be a far greater amount. The tax, however, must even in this case be considered as paid from profits, because the receivers of profits are those who would be bene- fited if it were taken off. But though the artificial abstraction of a portion of profits would have a real tendency to accelerate improve- ments in production, no considerable improvements might actually result, or only of such a kind as not to raise P.E. TAXES. 497 general profits at all, or not to raise them so much as the tax had dimi- nished them. If so, the rate of profit would be brought closer to that practi- cal minimum, to which it is constantly approaching : and this diminished re- turn to capital would either give a de- cided check to further accumulation, or would cause a greater proportion than before of the annual increase to be sen* abroad, or wasted in unprofitable spe culations. At its first imposition the tax falls wholly on profits : but the amount of increase of capital, which the tax prevents, would, if it had been allowed to continue, have tended to re- duce profits to the same level ; and at every period of ten or twenty years there will be found less difference be- tween profits as they are, and profits as they would in that case have been : until at last there is no difference, and the tax is thrown either upon the la- bourer or upon the landlord. The real effect of a tax on profits is to make the country possess at any given period, a smaller capital and a smaller aggregate production, and to make the stationary state be attained earlier, and with a smaller sum of national wealth. It is possible that a tax on profits might even diminish the existing capital of the country. If the rate of profit is already at the practical minimum, that is, at the point at which all that portion of the annual increment which would tend to reduce profits is carried off either by exportation or by specula- tion ; then if a tax is imposed which reduces profits still lower, the same causes which previously carried off the increase would probably carry off a portion of the existing capital. A tax on proF-ts is thus, in a state of capital and accumulation like that in England, extremely detrimental to the national wealth. And this effect is not con- fined to the case of a peculiar, and therefore intrinsically unjust, tax on profits. The mere fact that profits have to bear their share of a heavy general taxation, tends, in the same manner as a peculiar tax, to drive capital abroad, to stimulate imprudent speculations by diminishing safe gains, to discourage further accumulation, K. K 498 BOOK V. CHAPTER III. 4. and to accelerate the attainment of the stationary state. This is thought to have been the principal cause of the decline of Holland, or rather of her having ceased to make progress. Even in countries which do not accu- mulate so last as to be always within a short interval of the stationary state, it seems impossible that, if capital is accumulating at all, its accumulation should not be in some degree retarded by the abstraction of a portion of its profit ; and unless the effect in stimu- lating improvements be a full counter- balance, it is inevitable that a part of the burthen will be thrown off the capital- ist, upon the labourer or the landlord. One or other of these is always the loser by a diminished rate of accumu- lation. If population continues to in- crease as before, the labourer suffers : if not, cultivation is checked in its ad- vance, and the landlords lose the acces- sion of rent which would have accrued to them. The only countries in which a tax on profits seems likely to be per- manently a burthen on capitalists ex- clusively, are those in which capital is stationary, because there is no new accumulation. In such countries the tax might not prevent the whole capi- tal from being kept up through habit, or from unwillingness to submit to im- poverishment, and so the capitalist men in a degree ver} r far beyond that which is due to the expense, trouble, and loss of time required in qualifying for the employment. Any tax levied on these gains, which still leaves them above (or not below) their just propor- tion, falls on those who pay it ; they have no means of relieving themselves at the expense of any other class. The same thing is true of ordinary wages, in cases like that of the United States, or of a new colony, where, capital in- creasing as rapidly as population can increase, wages are kept up by the in- crease of capital, and not by the ad- herence of the labourers to a fixed stan- dard of comforts. In such a case, some deterioration of their condition, whether by a tax or otherwise, might possibly take place without checking the in- crease of population. The tax would in that case fall on the labourers them- selves, and would reduce them prema- turely to that lower state to which, on the same supposition with regard to their habits, they would in any case have been reduced ultimately, by the inevitable diminution in the rate of in- crease of capital, through the occupa- tion of all the fertile land. Some will object that, even in this case, a tax on wages cannot be detri- mental to the labourers, since the money raised by it, being expended in might continue to bear the whole of | the country, comes back to the labourers the tax. It is seen from these consi- j again through the demand for labour, derations that the effects of a tax on j The fallacy, however, of this doctrine profits are much more complex, more various, and in some points more un- certain, than writers on the subject have commonly supposed. 4. "We now turn to Taxes on AVages. The incidence of these is very different, according as. the wages taxed are those of ordinary unskilled labour, has been so completely exhibited in the First Book,* that I need do little more than refer to that exposition. It was there shown that funds expended un- productively have no tendency to raise or keep up wages, unless when ex- pended in the direct purchase of labour. If the government took a tax of a shilling a week from every labourer, or are the remuneration of such skilled j and laid it all out in hiring labourers or privileged employments, whether j for military service, public works, or 1 *"" j 11 ,*1 j__l_ tt T1 *i 11 1 1 j_ ' " P _ manual or intellectual, as are taken out of the sphere of competition by a natural or conferred monopoly. I have already remarked, that in the pres; nt low state of popular education. ail the higher grades of mental or edu- the like, it would, no doubt, indemnify the labourers as a class for all that the tax took from them. That would really be " spending the money among the people." But if it expended the whole in buying goods, or in adding to cated labour are at a monopoly price ; | the salaries of employes who bought exceeding the wages of common work- j Supra, pp, 49-55. DIKECT TAXES. 499 goods with it, this would not increase the demand for labour, or tend to raise wages. Without, however, reverting to general principles, we may rely on an obvious reductio ad absurdum. If to take money from the labourers and spend it in commodities is giving it back to the labourers, then, to take money from other classes, and spend it in the same manner, must be giving it to the labourers ; consequently, the more a government takes in taxes, the greater will be the demand for labour, and the more opulent the condition of the labourers. A proposition the ab- surdity of which no one can fail to see. In the condition of most communi- ties, wages are regulated by the habi- tual standard of living to which the labourers adhere, and on less than which they will not multiply. Where there exists such a standard, a tax on wages will indeed for a time be borne by the labourers themselves ; but unless this temporary depression has the effect of lowering the standard itself, the increase of population will receive a check, which will raise wages, and restore the labourers to their previous condition. On whom, in this case, will the tax fall ? According to Adam Smith, on the community generally, in their character of consumers ; since the rise of wages, he thought, would raise general prices. We have seen, however, that general prices depend on other causes, and are never raised by any circumstance which affects all kinds of productive employment in the same manner and degree. A rise of wages occasioned by a tax, must, like any other increase of the cosf. of labour, be defrayed from profits. To attempt to tax day-labourers, in an old country, is mei'ely to impose an extra tax upon all employers of common labour ; unless the tax has the much worse effect of permanently lowering the standard of comfortable subsistence in the minds of the poorest class. We find in the preceding considera tions an additional argument for the opinion already expressed, that direct taxation should stop short of the class of incomes which do not exceed what is necessary for healthful existence. These very small incomes are mostly derived from manual labour ; and, as we now see, any tax imposed on these, either permanently degrades the habits of the labouring class, or falls on pro- its, and burthens capitalists with an indirect tax, in addition to their shaix of the direct taxes ; which is doubly objectionable, both as a violation of the fundamental rule of equality, and for the reasons which, as already shown, render a peculiar tax on profits detri- mental to the public wealth, and con- sequently to the means which society possesses of paying any taxes whatever. j 5. We now pass, from taxes on the separate kinds of income,, to a tax attempted to be assessed fairly upon all kinds ; in other words, an Income Tax. The discussion of the conditions necessary for making this tax consis- tent with justice, has been anticipated in the last chapter. We shall suppose, therefore, that these conditions are com- plied with. They are, first, that in- comes below a certain amount should be altogether untaxed. This minimum should not be higher than the amount which suffices for the necessaries of the existing population. The exemption from the present income-tax, of all in- comes under 100Z. a year, and the lower percentage levied on those between 100Z. and 150Z., are only defensible on the ground that almost all the indirect taxes press more heavily on incomes between 50Z. and 150Z. than on any others whatever. The second condi- tion is, that incomes above the limit fa'hould be taxed only in proportion to the surplus by which they exceed the limit. Thirdly, that all sums saved from income and invested, should be exempt from the tax : or if this be found impracticable, that life incomes and incomes from business and profes- sions should be less heavily taxed than inheritable incomes, in a degree as nearly as possible equivalent to the in- creased need of economy arising from their terminable character : allowance being also made, in the case of variable incomes, for their precaviousness. An income-tax, fairly assessed on these principles, would be, in point cl K K 2 500 BOOK V. CHAPTER III. 5. justice, the least exceptionable of all taxes. The objection to it, in the pre- sent low state of public morality, is the impossibility of ascertaining the real incomes of the contributors. The sup- posed hardship of compelling people to disclose the amount of their incomes, ought not, in my opinion, to count for much. One of the social evils of this country is the practice, amounting to a custom, of maintaining, or attempting to maintain, the appearance to the world of a larger income than is pos- sessed ; and it would be far better for the interests of those who yield to this weakness, if the extent of their means were universally and exactly known, and the temptation removed to expend- ing more than they can afford, or stint- ing real wants in order to make a false show externally. At the same time, the reason of the case, even on this p int, is not so exclusively on one side of the argument as is sometimes sup- posed. So long as the vulgar of any country are in the debased state of mind which this national habit presup- poses so long as their respect (if such a word can be applied to it) is pro- portioned to what they suppose to be each person's pecuniary means it may be doubted whether anything which would remove all uncertainty as to that point, would not considerably increase the presumption and arrogance of the vulgar rich, and their insolence towards those above them in mind and charac- ter, but below them in fortune. Notwithstanding, too, what is called the inquisitorial nature of the tax, no amount of inquisitorial power which would be tolerated by a people the most disposed to submit to it, could enable the revenue officers to assess the tax from actual knowledge of the circumstances of contributors. Rents, salaries, annuities, and all fixed in- comes, can be exactly ascertained. But the variable gains of professions, and still more the profits of business, which the person interested cannot always himself exactly ascertain, can still less be estimated with any ap- proach to fairness by a tax-collector. The main reliance must be placed, and always has been placed, on the re- turns made by the person himself. No production of accounts is of much avail, except against the more flagrant cases of falsehood ; and even against these the check is very imperfect, for if fraud is intended, false accounts can generally be framed which it will baffle any means of inquiry possessed by the revenue officers to detect : the easy re- source of omitting entries on the credit side being often sufficient without the aid of fictitious debts or disbursements. The tax, therefore, on whatever prin- ciples of equality it may be imposed, is in practice unequal in one of the worst ways, falling heaviest on the most conscientious. The unscrupulous succeed in evading a great proportion of what they should pay ; even persons of integrity in their ordinary transac- tions are tempted to palter with their consciences, at least to the extent of deciding in their own favour all points on which the smallest doubt or dis- cussion could arise : while the strictly veracious may be made to pay more than the state intended, by the powers of arbitrary assessment necessarily in- trusted to the Commissioners as the last defence against the tax-payer's power of concealment. It is to be feared, therefore, that the fairness which belongs to the principle of an income-tax, cannot be made* to attach to it in practice : and that this tax, while apparently the most just of all modes ot raising a revenue, is in effect more unjust than many others which are primd facie more objection- able. This consideration would lead us to concur in the opinion which, until of late, has usually prevailed' that direct taxes on income should be re- served as an extraordinary resource for great national emergencies, in which the necessity of a large additional re- venue overrules all objections. The difficulties of a iair income-tax have elicited a proposition for a direct tax of so much per cent, not on income but on expenditure ; the aggregate amount of each person's expenditure being ascertained, as the amount of income now is, from statements fur- nished bv the contributors themselves. The author of this suggestion, Mr. DIRECT Revans, in a clever pamphlet on the subject,* contends that the returns which persons would furnish of their expenditure would be more trustworthy than those which they now make of their income, inasmuch as expenditure is in its own nature more public than income, and false representations of it more easily detected. He cannot, I think, have sufficiently considered, how few of the items in the annual expen- diture of most families can be judged of with any approximation to correct- ness from the external signs. The only security would still be the veracity of individuals, and there is no reason for supposing that their statements would be more trustworthy on the subject of their expenses than on that of their re- venues ; especially as, the expenditure of most persons being composed of many more items than their income, there would be more scope for conceal- ment and suppression in the detail of expenses than even of receipts. The taxes on expenditure at present in force, either in this or in other coun- tries, fall only en particular kinds of expenditure, and differ no otherwise from taxes on commodities than in being paid directly by the person who consumes or uses the article, instead of being advanced by the producer or Bellcr, and reimbursed in the price. The taxes on horses and carriages, on dogs, on servants, are of this nature. They evidently fall on the persons from whom they are levied those who use the commodity taxed. A tax of a simi- lar description, and more important, is a house-tax : which must be considered at somewhat greater length. 6. The rent of a house consists of two parts, the ground-rent, and what Adam Smith calls the building-rent. The first is determined by the ordinary principles of rent. It is the remunera- tion given for the use of the portion of land occupied by the house and its ap- purtenances; and varies from a mere equivalent for the rent which the ground * A Percentage Tax on Domestic Expendi- ture to supply the whole of the Public Revenue. By John Kevans. Published by Eatchard, in 1847. TAXES. 50 would afford in agriculture, to the mono- poly rents paid for advantageous situa tions in populous thoroughfares. The rent of the house itself, as distinguished from the ground, is the equivalent given for the labour and capital expended on the building. The fact of its being re- ceived in quarterly or half-yearly pay- ments, makes no difference in the prin- ciples by which it is regulated. It comprises the ordinary profit on the builder's capital, and an annuity, suffi- cient at the current rate of interest, after paying for all repairs chargeable on the proprietor, to replace the original capital by the time the house is worn out, or by the expiration of the usual term of a building lease. A tax of so much per cent on the gross rent, falls on both those portions alike. The more highly a house is rented, the more it pays to the tax, whether the quality of the situation or that of the house itself is the cause. The incidence, however, of these two portions of the tax must be considered separately. As much of it as is a tax on build- ing-rent, must ultimately fall on the consumer, in other words the occupier. For as the profits of building are al- ready not above the ordinary rate, they would, if the tax fell on the owner and not on the occupier, become lower than the profits of untaxed employments, and houses would not be built. It is probable however that for some time after the tax was first imposed, a great part of it would fall, not on the renter, but on the owner of the house. A large proportion of the consumers either could not afford, or would not choose, to pay their former rent with the tax in ad- dition, but would content themselves with a lower scale of accommodation. Houses therefore would be for a time in excess of the demand. The conse- quence of such excess, in the case of most other articles, would be an al- most immediate diminution of the sup- ply: but so durable a commodity aa houses does not rapidly diminish in amount. New buildings indeed, of the class for which the demand had de- creased, would cease to be erected, ex- cept for special reasons; but in the BOOK V. CHAPTER III. 6. meantime the temporary superfluity would lower rents, and the consumers would obtain, perhaps, nearly the same accommodation as formerly, for the same aggregate payment, rent and tax together. By degrees, however, as the existing houses wore out, or as increase of population demanded a greater supply, rents would again rise ; until it became profitable to recom- mence building, which would not be until the tax was wholly transferred to the occupier. In the end, therefore, the occupier bears that portion of a tax on rent, which falls on the payment made for the house itself, exclusively of the ground it stands on. The case is partly different with the portion which is a tax on ground-rent. As taxes on rent, properly so called, fall on the landlord, a tax on ground- rent, one would suppose, must fall on the ground-landlord, at least after the expiration of the building lease. It will not however fall wholly on the landlord, unless with the tax on ground- rent there is combined an equivalent tax on agricultural rent. The lowest rent of land let for building is very little above the rent which the same ground would yield in agriculture : since it is reasonable to suppose that land, unless in case of exceptional cir- cumstances, is let or sold for building as soon as it is decidedly worth more for that purpose than for cultivation. If, therefore, a tax were laid on ground- rents without being also laid on agri- cultural rents, it would, unless of trifling amount, reduce the return from the lowest ground-rents below the ordinary return from land, and would check fur- ther building quite as effectually as if it were a tax on building-rents, until either the increased demand of a grow- ing population, or a diminution of sup- ply by the ordinary causes of destruc- tion, had raised the rent by a full equivalent for the tax. But whatever raises the lowest ground-rents, raises all others, since each exceeds the lowest by the market value of its peculiar advantages. If, therefore, the tax on ground-rents were a fixed sum per square foot, the more valuable situations paying no more than those least in request, this fixed payment would ultimately fall on the occupier. Suppose the lowest ground-rent to be 10Z. per acre, and the highest 1000Z., a tax of 1Z. per acre on ground-rents would ultimately raise the former to 11Z., and the latter consequently to 1001Z., since the difference of value between the two situations would' be exactly what it was before : the annual pound, therefore, would be paid by the occupier. But a tax on ground-rent is supposed to be a portion of a house-tax, which is not a fixed payment, but a percentage on the rent. The cheapest site, therefore, being supposed as before to pay 1Z., the dearest would pay 100Z., of which only the 1Z. could be thrown upon the occupier, since the rent would still be only raised to 1001Z. Conse- quently, 99Z. of the 100Z. levied from the expensive site, would fall on the ground-landlord. A house-tax thus re- quires to be considered in a double aspect, as a tax on all occupiers of houses, and a tax on ground-rents. In the vast majority of houses, the ground-rent forms but a small propor- tion of the annual payment made for the house, and nearly all the tax falls on the occupier. It is only in ex- ceptional cases, like that of the fa- vourite situations in large towns, that the predominant element in the rent of the house is the ground-rent ; and among the very few kinds of income which are fit subjects for peculiar taxa- tion, these ground-rents hold the prin- cipal place, being the most gigantic example extant of enormous accessions of riches acquired rapidly, and in many cases unexpectedly, by a few families, from the mere accident of their pos- sessing certain tracts of land, without their having themselves aided in the acquisition by the smallest exertion, outlay, or risk. So far therefore as a house-tax falls on the ground-landlord, it is liable to no valid objection. In so far as it falls on the occupier, if justly proportioned to the value of the house, it is one of the fairest and most unobjectionable of all taxes. No part of a person's expenditure is a better criterion of his means, or bears, on the whole, more nearly the same DIRECT TAXES. proportion to them. A house-tax is a nearer approach to a fair income-tax, than a direct assessment on income can easily be ; having the great ad- 503 vantage, that it makes spontaneously all the allowances which it is so diffi- cult to make, and so impracticable to make exactly, in assessing an income- tax : for if what a person pays in house- rent is a test of anything, it is a test not of what he possesses, but of what he thinks he can afford to spend. The equality of this tax can only be seri- ously questioned on two grounds. The first is, that a miser may escape it. This objection applies to all taxes on expenditure : nothing but a direct tax on income can reach a miser. But as misers do not now hoard their treasure, but invest it in productive employments, it not only adds to the national wealth, and consequently to the general means of paying taxes, but the payment claim- able from itself is only transferred from the principal sum to the income after- wards derived from it, which pays taxes as soon as it comes to be expended. The second objection is that a person may require a larger and more ex- pensive house, not from having greater means, but from having a larger family. Of this, however, he is not entitled to complain ; since having a large family is at a person's own choice : and, so far as concerns the public interest, is a thing rather to be discouraged than promoted.* * Another common objection is that large and expensive accommodation is often re- quired, not as a residence, but for business. But it is an admitted principle that buildings or portions of buildings occupied exclusively for business, such as shops, warehouses, or manufactories, ought to be 'exempted from house-tax. The plea that persons in busi- ness may be compelled to live in situations, such as the great thoroughfares of London, where house-rent is at a monopoly rate, seems to me unworthy of regard : since no one does so but because the extra profit which he expects to derive from the situation, is more than an equivalent to him for the extra cost. But in any case, the bulk of the tax on this extra rent will not fall on him, but on the ground-landlord. It has been also objected that house-rent in the rural districts is much lower than in towns, and lower in some towns and in some rural districts than in others : so that a tax proportioned to it would have a correspond- ing inequality of pressure. To this, however, A large portion of the taxation of this country is raised by a house-tax. The parochial taxation of the towns entirely, and of the rural districts par- tially, consists of an assessment on house-rent. The window-tax, which was also a house-tax, hut of a bad kind, operating as a tax on li.u'ht, and a cause of deformity in building, was exchanged in 1851 for a house-tax pro- perly so called, but on a much lower scale than that which existed pre- viously to 1834. It is to be lamented that the new tax retains the unjust principle on which the old house-tax was assessed, and which contributed quite as much as the selfishness of the middle classes to produce the outcry against the tax. The public were justly scandalized on learning that re- sidences like Chatsworth or Belvoir were only rated on an imaginary rent of perhaps 200Z. a year, under the pre- text that owing to the great expense of keeping them up, they could not be let for more. Probably, indeed, they could not be let even f r that, and if the argument were a fair one, they ought not to have been taxed at all. But a house-tax is not intended as a tax on incomes derived from houses, but on expenditure incurred for them. The thing which it is wished to ascer- tain is what a house costs to the person who lives in it, not what it would bring in if let to some one else. When the occupier is not the owner, and does not hold on a repairing lease, the rent he pays is the measure of what the house costs him : but when he is the owner, some other measure must be sought. A valuation should be made of the house, not at what it would sell for, but at what would be the cost of rebuilding it, and this valuation might it may be answered, that in places where house-rent is low, persons of the same amount of income usually live in larger and better houses, and thus expend in house- rent more nearly the same proportion of their incomes than might at first sight appear. Or if not, the probability will be, that many of them live in those places pre- cisely because they are too poor to live else- where, and have therefore the strongest claim to be taxed lightly. In some cases, it is precisely because the people are poor, that house-rent remains low. 504 BOOK V. CHAPTEE IV. 1. be periodically corrected by an allow- ance for what it had lost in value by time, or gained by repairs and improve- ments. The amount of the amended valuation would form a principal sum, the interest of which, at the current price of the public funds, would form the annual value at which the building should be assessed to the tax. As incomes below a certain amount ought to be exempt from income-tax, BO ought houses below a certain value, from house-tax, on the universal prin- ciple of sparing from all taxation the absolute necessaries of healthful exist- ence. In order that the occupiers of lodgings, as well as of houses, might benefit, as injustice they ought, by this exemption, it might be optional with the owners to have every portion of a house which is occupied by a separate tenant, valued and assessed separately, as is now usually the case with cham- bers. CHAPTER IV. OF TAXES ON COMMODITIES. 1. BY taxes on commodities are commonly meant, those which are le- vied either on the producers, or on the carriers or dealers who intervene be- tween them and the final purchasers for consumption. Taxes imposed di- rectly on the consumers of particular commodities, such as a house-tax, or the tax in this country on horses and carriages, might be called taxes on commodities, but are not ; the phrase being, by custom, confined to indirect taxes those which are advanced by one person, to be, as is expected and intended, reimbursed by another. Taxes on commodities are either on production within the country, or on importation into it, or on conveyance or sale within it ; and are classed re- spectively as excise, customs, or tolls and transit duties. To whichever class they belong, and at whatever stage in the progress of the community they may be imposed, they are equivalent to an increase of the cost of production ; using that term in its most enlarged sense, which includes the cost of trans- port and distribution, or, in common phrase, of bringing the commodity to market. When the cost of production is in- creased artificially by a tax, the effect is the same as when it is increased by natural causes. If only one or a few commodities are affected their value and price rise, so as to compensate the producer or dealer for the peculiar bur- then ; but if there were a tax on all commodities, exactly proportioned to their value, no such compensation would be obtained : there would neither be a general rise of values, which is an absurdity, nor of prices, which de- pend on causes entirely different. There would, however, as Mr. M'Cul- loch has pointed out, be a disturbance of values, some falling, others rising, owing to a circumstance, the effect of which on values and prices we for- merly discussed ; the different durabi- lity of the capital employed in different occupations. The gross produce of industry consists of two parts ; one portion serving to replace the capital consumed, while the other portion is profit. Now equal capitals in two branches of production must have equal expectations of profit ; but if a greater portion of the one than of the other is fixed capital, or, if that fixed capital is more durable, there will be a less con- sumption of capital in the year, and less will be required to replace it, so that the profit, if absolutely the same, will form a greater proportion of the annual returns. To derive from a ca- pital of WOOL a profit of IOOL, the one producer may have to sell produce to the value of 1100/., the other only to the value of 5001. If on these two TAXES ON COMMODITIES. 505 branches of industry a tax be imposed of five per cent ad valorem, tho last will be charged only with 25L, the first with 551. ; leaving to the one 751. profit, to the other only 451. To equalize, therefore, their expectation of profit, the one commodity must rise in price, or the other must fall, or both : commodities made chiefly by immediate labour must rise in value, as compared with those which are chiefly made by machinery. It is unnecessary to prose- cute this branch of the inquiry any further. 2. A tax on any one commodity, whether laid on its production, its im- portation, its carriage from place to place, or its sale, and whether the tax be a fixed sum of money for a given quantity of the commodity, or an ad valorem duty, will, as a general rule, raise the value and price of the com- modity by at least the amount of the tax. There are few cases in which it does not raise them by more than that amount. In the first place, there are few taxes on production on account of which it is not found or deemed neces- sary to impose restrictive regulations on the manufacturers or dealers, in order to check evasions of the tax. These regulations are always sources of trouble and annoyance, and gene- rally of expense, for all of which, being peculiar disadvantages, the producers or dealers must have compensation in the price of their commodity. These restrictions also frequently interfere with the processes of manufacture, re- quiring the producer to carry on his operations in the way most convenient to the revenue, though not the cheapest, or most efficient for purposes of produc- tion. Any regulations whatever, en- forced by law, make it difficult for the producer to adopt new and improved processes. Further, the necessity of advancing the tax obliges producers and dealers to carry on their business with larger capitals than would other- wise be necessary, on the whole of which they must receive the ordinary rate of profit, though a part only is em- ployed in defraying the real expenses of production or importation. The price of the article must be such as to afford a profit on more than its natural value, instead of a profit on only its natural value. A part of the capital of the country, in short, is not employed in production, but in advances to the state, repaid in the price of goods ; and tho consumers must give an indemnity to the sellers, equal to the profit which they could have made on the same capital if really employed in produc- tion.* Neither ought it to be forgotten, that whatever renders a larger capital necessary in any trade or business, limits the competition in that business, and by giving something like a mono- poly to a few dealers, may enable them either to keep up the price beyond what would afford the ordinary rate of profit, or to obtain the ordinary rate of profit with a less degree of exertion for im- roving and cheapening their commo- ity. In these several modes, taxes on commodities often cost to the consumer, through the increased price of the ar- ticle, much more than they bring into the treasury of the state. There is still another consideration. The higher price necessitated by the tax, almost always checks the demand for the com- modity ; and since there are many im- provements in production which, to make them practicable, require a cer- tain extent of demand, such improve- ments are obstructed, and many of them prevented altogether. It is a well- known fact, that the branches of pro- duction in which fewest improvements are made, are those with which the revenue officer interferes; and that nothing, in general, gives a greater impulse to improvements in the pro- duction of a commodity, than taking off a tax which narrowed the market for it. * It is true, this does not constitute, as it at first sight appears to do, a case of taking more out of the pockets of the people than the state receives ; since if the state needs the advance, and gets it in this manner, it can dispense with an equivalent amount of borrowing in stock or exchequer bills. But it is more economical that the necessities of the state should be supplied from the dis- posable capital in the hands of the lending class, than by an artificial addition to the expenses of one or several classes of pro- ducers or dealers. 506 3. Such are tlie effects of taxes on commodities, considered generally ; but as there are some commodities (those composing the necessaries of the labourer) of which the values have an influence on the distribution of wealth among different classes of the commu- nity, it is requisite to trace the effects ot' taxes on those particular articles somewhat farther. If a tax be laid, cay on corn, and the price rises in pro- portion to the tax, the rise of price may operate in two ways. First : it may lower the condition of the labouring classes ; temporarily indeed it can scarcely fail to do so. If it diminishes their consumption of the produce of the earth, or makes them resort to a food which the soil produces more abun- dantly, and therefore more cheaply, it to that extent contributes to throw back agriculture upon more fertile lands or less costly processes, and to lower the value and price of corn ; which therefore ultimately settles at a price, increased not by the whole amount of the tax, but by only a part of its amount. Secondly, however, it may happen that the dearness of the taxed food does not lower the habitual stan- dard of the labourer's requirements, but that wages, on the contrary, through an action on population, rise, in a shorter or longer period, so as to compensate the labourers for their por- tion of the tax; the compensation being of course at the expense of profits. Taxes on necessaries must thus have one of two effects. Either , they lower the condition of the labour- J ing classes ; or they exact from the owners of capital, in addition to the amount due to the state on their own necessaries, the amount due on those consumed by the labourers. In the last case, the tax on necessaries, like a tax on wages, is equivalent to a pecu- liar tax on profits ; which is, like all BOOK V. CHAPTER IV. 3. other partial taxation, unjust, and is specially prejudicial to the increase of the national wealth. It remains to speak of the effect on rent. Assuming (what is usually the fact) that the consumption of food is not diminished, the same cultivation as before will be necessary to supply the wants of the community; the margin of cultivation, to use Dr. Chalmers' expression, remains where it was ; and the same land or capital which, as the least productive, already regulated the value and price of the whole produce, will continue to regulate them. The effect which a tax on agricultural pro- duce will have on rent, depends on its affecting or not affecting the difference between the return to this least pro- ductive land or capital, and the returns to other lands and capitals. Now this depends on the manner in which the tax is imposed. If it is an ad valorem tax, or what is the same thing, a fixed proportion of the produce, such as tithe for example, it evidently lowers corn- rents. For it takes more corn from the better lands than from the worse ; and" exactly in the degree in which they are better; land of twice the productive- ness paying twice as much to the tithe Whatever takes more from the greatei of two quantities than from the less, diminishes the difference between them. The imposition of a tithe on corn would take a tithe also from corn- rent : for if we reduce a series of numbers by a tenth each, the differences between them are reduced one-tenth. For example, let there be five quali- ties of land, which severally yield, on the same extent of ground and with the same expenditure, 100, 90, 80, 70, and 60 bushels of wheat ; the last of these being the lowest quality which the demand for food renders it m.-i-es- sary to cultivate. The rent of these lands will be as follows : The land producing 100 bushels will yield a rent of 10060, or 40 busheb. That producing 90 90 60, or 30 80 8060, or 20 70 70-60, or 10 GO no rent. Now let a tithe be imposed, which I land 10, 9, 8, 7, and 6 bushels re- takes from these five pieces of | spectively, the fifth quality still TAXES ON COMMODITIES. 507 being the one which regulates the I after payment of tithe, no more than pi ice, but returning to 'the farmer, | 54 bushels: The land producing ICO bushels reduced to 90, will yield a rent of 90 54, or 36 bushels. That producing 90 81 ,, 81 54, or 27 80 72 72 54, or 18 70 63 63-54, or 9 and that producing 60 bushels, reduced to 54, will yield, as before, no rent. So that the rent of the first quality of land has lost four bushels ; of the second, three ; of the third, two ; and of the fourth, one : that is, each has lost exactly one-tenth. A tax, there- fore, of a fixed proportion of the pro- duce, lowers, in the same proportion, corn-rent. But it is only corn-rent that is lowered, and not rent estimated in money, or in any other commodity. For, in the same proportion as corn- rent is reduced in quantity, the corn composing it is raised in value. Under the tithe, 54 bushels will be worth in the market what 60 were before ; and nine-tenths will in all cases sell for as much as the whole ten-tenths previ- ously sold for. The landlords will therefore be compensated in value and price for what they lose in quantity; and will suffer only so far as they con- sume their rent in kind, or, after re- ceiving it in money, expend it in agricultural produce : that is, they only suffer as consumers of agricultural produce, and in common with all the other consumers. Considered as land- lords, they have the same income as before ; the tithe, therefore, falls on the consumer, and not on the landlord. The same effect would be produced on rent, if the tax, instead of being a fixed proportion of the produce, were a fixed sum per quarter or per bushel. A tax which takes a shilling for every bushel, takes more shillings from one field than from another, just in propor- tion as it produces more bushels ; and operates exactly like tithe, except that tithe is not only the same proportion on all lands, but is also the same pro- portion at all times, while a fixed sum of money per bushel will amount to a greater or less proportion, according as corn is cheap or dear. There are other modes of taxing agriculture, which would affect rent differently. A tax proportioned to the rent would fall wholly on the rent, and would not at all raise the price of corn, which is regulated by the portion of the produce that pays no rent. A fixed tax of so much per cultivated acre, without distinction of value, would have effects directly the reverse. Taking no more from the best qualities of land than from the worst, it would leave the differences the same as before, and con- sequently the same corn-rents, and the landlords would profit to the full extent of the rise of price. To put the thing in another manner ; the price must rise sufficiently to enable the worst land to pay the tax : thus enabling all lands which produce more than the worst, to pay not only the tax, but also an in- creased rent to the landlords. These f however, are not so much taxes on the produce of land, as taxes on the land itself. Taxes on the produce, properly so called, whether fixed or ad valorem^ do not affect rent, but fall on the con- sumer: profits, however, generally bearing either the whole or the greatest part of the portion which is levied on the consumption of the labouring classes. . 4. The preceding is, I appre- hend, a correct statement of the man- ner in which taxes on agricultural produce operate when first laid on. When, however, they are of old stand- ing, their effect may be different, as was first pointed out, I believe, by Mr. Senior. It is, as we have seen, an almost infallible consequence of any reduction of profits, to retard the rate of accumulation. Now the effect of accumulation, when attended by its usual accompaniment, an increase of population, is to increase the value and price of food, to raise rent, and to lower profits : that is, to do precisely wh.it is done by a tax on agricultural 508 produce, except that tins does not raise rent. The tax, therefore, merely anti- cipates the rise of price, and fall of profits, which would have taken place ultimately through the mere progress of accumulation ; while it at the same time prevents, or at least retards, that progress. If the rate of profit was such, previous to the imposition of a tithe, that the effect of the tithe reduces it to the practical minimum, the tithe will put a stop to all further accumu- lation, or cause it to take place out of the country ; and the only effect which the tithe will then have had on the consumer, is to make him pay earlier the price which he would have had to pay somewhat later part of which, indeed, in the gradual progress of wealth and population, he would have almost immediately begun to pay. After a lapse of time which would have admitted of a rise of one-tenth through the natural progress of wealth, the con- sumer will be paying no more than he would have paid if the tithe had never existed; he will have ceased to pay any portion of it, and the person who will really pay it is the landlord, whom it deprives of the increase of rent which would by that time have accrued to him. At every successive point in this interval of time, less of the burthen will rest on the consumer, and more of it on the landlord : and in the ultimate re- sult, the minimum of profits will be reached with a smaller capital and population, and a lower rental, than if the course of things had not been dis- turbed by the imposition of the tax. If, on the other hand, the tithe or other tax on agricultural produce does not reduce profits to the minimum, but to something above the minimum, accu- mulation will not be stopped, but only slackened : and if population also in- creases, the twofold increase will con- tinue to produce its effects a rise of the price of corn, and an increase of rent. These consequences, however, will not take place with the same rapidity as if the higher rate of profit had continued. At the end of twenty years the country will have a srnalle'r population and capital, than, but for the tax, it would by that time have BOOK V. CHAPTER IV. 4. ; had ; the landlords will have a smaller j rent ; and the price of corn, having increased less rapidly than it would otherwise have done, will not be so much as a tenth higher than what, if there had been no tax, it would by that time have become. A part of the tax, therefore, will already have ceased to fall on the consumer, and devolved upon the landlord ; and the proportion will become greater and greater by lapse of time. Mr. Senior illustrates this view of the subject by likening the effects of tithes, or other taxes on agricultural produce, to those of natural sterility of soil. If the land of a country without access to foreign supplies, were sud- denly smitten with a permanent dete- rioration of quality, to an extent which would make a tenth more labour neces- sary to raise the existing produce, the price of corn would undoubtedly rise one-tenth. But it cannot hence be inferred that if the soil of the country had from the beginning been one-tenth worse than it is, corn would at present have been one-tenth dearer than we find it. It is far more probable, that the smaller return to labour and capital, ever since the first settlement of the country, would have caused in each successive generation a less rapid in- crease than has taken place : that the country would now have contained less capital, and maintained a smaller popu- lation, so that notwithstanding the in- feriority of the soil, the price of corn would not have been higher, nor profits lower, than at present; rent alone would certainly have been lower. We may suppose two islands, which, being alike in extent, in natural fertility, and industrial advancement, have up to a certain time been equal in population and capital, and have had equal rentals, and the same price of corn. Let u& imagine a tithe imposed in one of these islands, but not in the other. There will be immediately a difference in the price of com, and therefore probably in profits. While profits are not tending downwards in either country, that is, while improvements in the production of necessaries fully keep pace with the increase of population, this difference TAXES ON COMMODITIES. 509 of prices and profits between the islands may continue. But if, in the untithed island, capital increases, and popula- tion along with it, more than enough to counterbalance any improvements which take place, the price of corn will gradually rise, profits will fall, and rent will increase ; while in the tithed island capital and population will either not increase (beyond what is balanced by the improvements), or if they do, will increase in a less degree ; so that rent and the price of corn will either not rise at all, or rise more slowly. Rent, there- fore, will soon be higher in the untithed, than in the tithed island, and profits not so much higher, nor corn so much cheaper, as they were on the first im- position of the tithe. These effects will be progressive. At the end of every ten years there will be a greater difference between the rentals and be- tween the aggregate wealth and popu- lation of the two islands, and a less difference in profits and in the price of corn. At what point will these last dif- ferences entirely cease, and the tem- porary effect of taxes on. agricultural produce, in raising the price, have en- tirely given place to the ultimate effect, that of limiting the total produce of the country ? Though the untithed island is always verging towards the point at which the price of food would overtake that in the tithed island, its progress towards that point naturally slackens as it draws nearer to attaining it; since the difference between the two islands in the rapidity of accumu- lation, depending upon the difference in the rates of profit in proportion as these approximate, the movement which draws them closer together, abates of its force. The one may not actually^ overtake the other, until both islands reach the minimum of profits: up to that point, the tithed island may con- tinue more or less ahead of the untithed island in the price of corn: considerably ahead if it is far from the minimum, and is therefore accumulating rapidly ; very little ahead if it is near the mini- mum, and accumulating slowly. But whatever is true of the tithed and untithed islands, in our hypotheti- cal case, is true of any country having a tithe, compared with the same country if it had never had a tithe. In England the great emigration of capital, and the almost periodical oc- currence of commercial crises through the speculations occasioned by the habitually low rate of profit, are indi- cations that profit has attained the practical, though not the ultimate minimum, and that all the savings which take place (beyond what im- provements, tending to the cheapening of necessaries, make room for) are either sent abroad for investment, or periodically swept away. There can therefore, I think, be little doubt that if England had never had a tithe, or any tax on agricultural produce, the price of corn would have been by this time as high, and the rate of profits as low, as at present. Independently of the more rapid accumulation which would have taken place if profits had not been prematurely lowered by these imposts ; the mere saving of a part of the capital which has been wasted in unsuccessful speculations, and the keeping at home a part of that which has been sent abroad, would have been quite sufficient to produce the effect. I think, therefore, with Mr. Senior, that the tithe, even before its commutation, had ceased to be a cause of high prices^-"' or low profits, and had become a mere deduction from rent ; its other effects being, that it caused the country to have no greater capital, no larger pro- duction, and no more numerous popu- lation than if it had been one-tenth less fertile than it is ; or let us rather say one-twentieth, ("considering how great a portion of the land of Great Britain was tithe-free). But though tithes and other taxes on agricultural produce, when of long standing, either do not raise the price of food and lower profits at all, or if at all, not in proportion to the tax ; yet the abrogation of such taxes, when they exist, does not the less diminish price, and, in general, raise the rate of profit. The abolition of a tithe takes one-tenth from the cost of production, and consequently from the price, ot' all agricultural produce ; and unless it 510 permanently raises the labourer's re- quirements, it lowers the cost of labour, and raises profits. Rent, estimated in money or in commodities, generally remains as before; estimated in agri- cultural produce, it is raised. The country adds as much by the repeal of a tithe*, to the margin which intervenes between it and the stationary state, as is cut off from that margin by a tithe when first imposed. Accumulation is greatly accelerated ; and if population also increases, the price of corn imme- diately begins to recover itself, and rent to rise ; thus gradually trans- ferring the benefit of the remission, from the consumer to the landlord. The effects which thus result from abolishing tithe, result equally from what has been done by the arrange- ments under the Commutation Act for converting it into a rent-charge. AVhen the tax, instead of being levied on the whole produce of the soil, is levied, only from the portions which pay rent, and does not touch any fresh extension of cultivation, the tax no longer forms any part of the cost of production of the portion of the produce which regu- lates the price of all the rest. The land or capital which pays no rent, can now send its produce to market one- tenth cheaper. The commutation of tithe ouerht therefore to have produced a considerable fall in the average price of corn. If it had not come so gradu- ally into operation, and if the price oi corn had not during the same period been under the influence of several other causes of change, the effect would probably have been markedly conspicu- ous. As it is, there can be no doubt that this circumstance has had its share in the fall which has taken place in the cost of production and in the price of home-grown produce ; though the effects of the great agricultural improvements which have been simul- taneously advancing, and of the free admission of agricultural produce from foreign countries, have masked those of the other cause. This fall of price would not in itself have any tendency injurious to the landlord, since corn- rents are increased in the same ratio in which the price of corn is diminished. BOOK V. CHAPTER IV. 5. But neither does it in any way tend to increase his income. The rent- charge, therefore, which is substituted for tithe, is a dead loss to him at the expiration of existing leases : and the commuta- tion of tithe was not a mere alteration in the mode in which the landlord bore an existing burthen, but the imposition of a new one ; relief being afforded to the consumer at the expense of the landlord, who, however, begins imme- diately to receive progressive indemni- fication at the consumer's expense, by the impulse given to accumulation and population. 5. "We have hitherto inquired into the effects of taxes on commodities, on the assumption that they are levied impartially on every mode in which the commodity can be produced or brought to market. Another class of considera- tions is opened, if we suppose that this impartiality is not maintained, and that the tax is imposed, not on the commodity, but on some particular mode of obtaining it. Suppose that a commodity is capable of being made by two different pro- cesses ; as a manufactured commodity may be produced either by hand or by steam-power ; sugar may be made either from the sugar-cane or from beet-root, cattle fattened either on hay and green crops, or on oil cake and the refuse of breweries. It is the interest of the community, that of the two methods, producers should adopt that which produces the best article at the lowest price. This being also the in- terest of the producers, unless protected against competition, and shielded from the penalties of indolence ; the process most advantageous to the community is that which, if not interfered with by government, they ultimately find it to their advantage to adopt. Suppose however that a tax is laid on one of the processes, and no tax at all, or one of smaller amount, on the other. If the taxed process is the one which the pro- ducers would not have adopted, the measure is simply nugatory. But if the tax falls, as it is of course intended to do, upon the one which they would have adopted, it creates an artificial TAXES ON COMMODITIES. 511 motive for preferring the untaxed pro- cess, though the interior of the two. If, therefore, it has any effect at all, it causes the commodity to he produced of worse quality, or at a greater ex- pense of labour ; it causes so much of the labour of the community to be wasted, and the capital employed in supporting and remunerating that labour to be expended as uselessly, as if it were spent in hiring men to dig holes and fill them up again. This waste of labour and capital constitutes an addition to the cost of production of the commodity, which raises its value and price in a corresponding ratio, and thus the owners of the capital are in- demnified. The loss falls on the con- sumers ; though the capital of the country is also eventually diminished, by the diminution of their means of saving, and in some degree, of their inducements to save. The kind of tax, therefore, which comes under the general denomination of a discriminating duty, transgresses the rule that taxes should take as little as possible from the tax-payer beyond what they bring into the treasury of the state. A discriminating duty makes the consumer pay two distinct taxes, only one of which is paid to the government, and that frequently the less onerous of the two. If a tax were laid on sugar produced from the cane, leaving the sugar from beet-root un- taxed, then in so far as cane sugar continued to be used, the tax on it would be paid to the treasury, and might be as unobjectionable as most other taxes ; but if cane sugar, having .previously been cheaper than beet- root, sugar, was now dearer, and beet-root sugar was to any considerable amount substituted for it, and fields laid out and manufactories established in con- sequence, the government would gain no revenue from the beet-root sugar, while the consumers of it would pay a real tax. They would pay for beet-root sugar more than they had previously paid for cajie sugar, and the difference would go to indemnify producers for a portion of the labour of the country actually thrown away, in producing by the labour of (say) three hundred men, what could be obtained by the other process with the labour of two hundrc reigner, the tax being paid out of out LJ Ij BOOK V. CHAPTER IV. 6. M4 own pockets, but might even compel our own people to pay a second tax to the foreigner. Suppose, as before, that the demand of Germany for cloth falls off so much on the imposition of the duty, that she requires a smaller money value than before, but that the case is so different with linen in England, that when the price rises the demand either does not fall off at all, or so little that the money value required is greater than before. The first effect of laying on the duty is, as before, that the cloth exported will no longer pay for the linen imported. Money will therefore flow out of England into Germany. One effect is to raise the price of linen in Germany, and consequently in Eng- land. But this, by the supposition, instead of stopping the efflux of money, only makes it greater, because the higher the price, the greater the money value of the linen consumed. The ba- lance, therefore, can only be restored by the other effect, which is going on at the same time, namely, the fall of cloth in the English and consequently in the German market. Even when cloth has fallen so low that its price with the duty is only equal to what its price without the duty was at first, it is not a necessary consequence that the fall wall stop ; for the same amount of exportation as before will not now suf- fice to pay the increased money value of the imports ; and although the Ger- man consumers have now not only cloth at the old price, but likewise increased money incomes, it is not certain that they will be inclined to employ the in- crease of their incomes in increasing their purchases of cloth. The price of cloth, therefore, must perhaps fall, to restore the equilibrium, more than the whole amount of the duty ; Germany may be enabled to import cloth at a lo\\ er price when it is taxed, than when it was untaxed : and this gain she will acquire at the expense of the English consumers of linen, who, in addition, will be the real payers of the whole of what is received at their own custom- house under the name of duties on the export of cloth." It is almost unnecessary to remark that clcth and linen are here merely representatives of exports and imports in general ; and that the effect which a tax on exports might have in increas- ing the cost of imports, would affect the imports from all countries, and not peculiarly the articles which might be imported from the particular country to which the taxed exports were sent. " Such are the extremely various effects which may result to ourselves and to our customers from the imposi- tion of taxes on our exports ; and the determining circumstances are of a nature so imperfectly ascertainable, that it must be almost impossible to decide with any certainty, even after the tax has been imposed, whether we have been gainers by it or losers." In general, however, there could be little doubt that a country which imposed such taxes would succeed in making foreign countries contribute something to its revenue ; but unless the taxed article be one for which their demand is extremely urgent, they will seldom pay the whole of the amount which the tax brings in.* " In any case, whatever we gain is lost by somebody else, and there is the expense of the collection besides : if international morality, therefore, were rightly understood and acted upon, such taxes, as being con- trary to the universal weal, would not exist. 1 ' Thus far of duties on exports. We now proceed to the more ordinary case of duties on imports. " We have had an example of a tax on exports, that is, on foreigners, falling in part on ourselves. We shall therefore not be surprised if we find a tax on imports, that is, on ourselves, partly falling upon fo- reigners. ^ Instead of taxing the cloth which we export, suppose that we tax the linen which we import. The duty which we are now supposing must not be what is termed a protecting duty, * Probably the strongest known instance of a large revenue raised from foreigners by a tax on exports, is *he opium trade with China. The high price of the article under the Government monopoly (which is equiva- lent to a high export duty) has so little effect in discouraging its consumption, that it ia said to have' been occasionally sold in China for as much as its weight in silver. that is, a duty sufficiently high to induce us to produce the article at home. If it had this effect, it would destroy entirely the trade hoth in cloth and in linen, and both countries would lose the whole of the advantage which they previously gained by exchanging those commodities with one another. We suppose a duty which might dimi- nish the consumption of the article, but which would not prevent us from con- tinuing to import, as before, whatever linen we did consume. " The equilibrium of trade would be disturbed if the imposition of the tax diminished, in the slightest degree, the quantity of linen consumed. For, as the tax is levied at our own custom- house, the German exporter only re- ceives the same price as formerly, though the English consumer pays a higher one. If, therefore, there be any diminution of the quantity bought, al- though a larger sum of money may be actually laid out in the article, a smaller one will he due from England to Germany: this sum will no longer be an equivalent for the sum due from Germany to England for cloth, the ba- lance therefore must be paid in money. Prices will fall in Germany and rise in England ; linen will fall in the German market ; cloth will rise in the English. The Germans will pay a higher price for cloth, and will have smaller money incomes to buy it with ; while the Eng- lish will obtain linen cheaper, that is, its price will exceed what it previously was by less than the amount of the duty, while their means of purchasing it will be increased by the increase o: P their money incomes. " If the imposition of the tax does not diminish the demand, it will leave the trade exactly as it was before. We IAXES ON COMMODITIES. 515 bition either total or partial, almost al- ways falls in part upon the foreigners who consume our goods ; and that this is a mode in which a nation may ap- >ropriate to itself, at the expense of foreigners, a larger share than would otherwise belong to it of the ncrease in the general productive- ness of the labour and capital of the world, which results from the inter- change of commodities among na- tions." Those are, therefore, in the right who maintain that taxes on imports are partly paid by foreigners ; but they are mistaken when they say, that it is by the foreign producer. It is not on the person from whom we- buy, but on all those who buy from us, that a por- tion of our custom duties spontaneously falls. It is the foreign consumer of our exported commodities, who is obliged to pay a higher price for them because we maintain revenue duties on foreign There are but two cases in which duties on commodities can in any de- gree, or in any manner, fall on the pro- ducer. Ono is, when the article is a strict monopoly, and at a scarcity price. The price in this case being only limited by the desires of the buyer ; the sum obtained for the restricted supply being the utmost which the buyers would con- sent to give rather than go without it ; if the treasury intercepts a part of this, the price cannot be further raised to compensate for the tax, and it must be paid from the monopoly profits. A tax on rare and high priced wines will fall wholly on the growers, or rather, on the owners of the vineyards. The second case in which the producer sometimes bears a portion of the tax, is more important : the case of duties shall import as much, and export as j on the produce of land or of mines, much ; the whole of the tax will be i These might be so high as to diminish paid out of our own pockets. " But the imposition of a tax on a commodity almost always diminishes materially the demand for the produce, and compel the abandonment of some of the interior qualities of land or mines. Uie demand more or less ; and it can j Supposing this to be the effect, the con- lever, or scarcely ever, increase the demand. It may, therefore, be laid down as a principle, that a tax on im- ported commodities, when it really operates as a tax, and not as a prohi- sumers, both in the country itself and in those which dealt with it, would ob- tain the produce at smaller cost ; and a part only, instead of the whole, of the duty would fall on the purchaser. LL2 516 who would be indemnified chiefly at the expense of the landowners or mine- owners in the producing country. Duties on importation may, then, be divided " into two classes : those which have the effect of encouraging some particular branch of domestic in- dustry, and those which have not/ The former are purely mischievous, both to the country imposing them, and to those with whom it trades. They pre- vent a saving of labour and capital, which, if permitted to be made, would be divided in some proportion or other between the importing country and the countries which buy what that country docs or might export. "The other class of duties are those which do not encourage one mode of procuring an article at the expense of another, but allow interchange to take place just as if the duty did not exist, and to produce the saving of labour which constitutes the motive to inter- national, as to all other commerce. Of this kind are duties on the importation of any commodity which could not by any possibility be produced at home ; and duties not sufficiently high to counterbalance the difference of ex- pense between the production of the article at home and its importation. Of the money which is brought into the treasury of any country by taxes of this last description, a part only is paid by the people of that country ; the remainder by the foreign consumers of their goods. " ^Nevertheless, this latter kind of taxes are in principle as ineligible as the former, though not precisely on the same ground. A protecting duty can never be a cause of gain, but always and necessarily of loss, to the country imposing it, just so far as it is effica- cious to its end. A non-protecting duty, on the contrary, would in most cases be a source of gain to the country imposing it, in so far as throwing part of the weight of its taxes upon other people is a gain ; but it would be a BOOK V. CHAPTER IV. 6. means which it could seldom be ad- visable to adopt, being so easily coun- teracted by a precisely similar pro- ceeding on the other side. "If England, in the case already supposed, sought to obtain for herself more than her natural share of the advantage of the trade with Germany, by imposing a duty upon linen, Ger- many would only have to impose a duty upon cloth, sufficient to diminish the demand for that article about as much as the demand for linen had been diminished in England by the tax. Things would then be as before, and each country would pay its own tax. Unless, indeed, the sum of the two duties exceeded the entire advantage of the trade : for in that case the trade, and its advantage, would cease en- tirely. "There would be no advantage, therefore, in imposing duties of this kind, with a view to gain by them in the manner which has been pointed out. But when any part of the revenue is derived from taxes on commodities, these may often be as little objection- able as the rest. It is evident, too, that considerations of reciprocity, which are quite unessential when the matter in debate is a protecting duty, are of material importance when the repeal of duties of this other description is discussed. A country cannot be ex- pected to renounce the power of taxing foreigners, unless foreigners will in re- turn practise towards itself the same forbearance. The only mode in which a country can save itself from being a loser by the revenue duties imposed by other couutries on its commodities, is to impose corresponding revenue duties on theirs. Only it must take care that those duties be not so high as to exceed all that remains of the advantage of the trade, and put an end to importa- tion altogether, causing the article to be either produced at home, or im- ported from another and a dearer market." MISCELLANEOUS TAXES. 517 CHAPTER V. OP SOME OTHER TAXES. 1. BESIDES direct taxes on in- come, and taxes on consumption, the financial systems of most countries comprise a variety of miscellaneous imposts, not strictly included in either class. The modern European systems retain many such taxes, though in much less number and variety than those semi-barbarous governments which European influence has not yet reached. In some of these, scarcely any incident of life has escaped being made an excuse for some fiscal exac- tion ; hardly any act, not belonging to daily routine, can be performed by any one, without obtaining leave from some agent of government, which is only granted in consideration of a payment : especially when the act requires the aid or the peculiar guarantee of a public authority. In the present treatise we may confine our attention to such taxes as lately existed, or still exist, in countries usually classed as civilized. In almost all nations a considerable revenue is drawn from taxes on con- tracts. These are imposed in various forms. One expedient is that of taxing the legal instrument which serves as evidence of the contract, and which is commonly the only evidence legally admissible. In England, scarcely any contract is binding unless executed on stamped paper, which has paid a tax to government ; and until very lately, when the contract related to property the tax was proportionally much heavier on the smaller than on the larger transactions ; which is still true of some of those taxes. There are also stamp duties on the legal instruments which are evidence of the fulfilment of contracts; such as acknowledgments of receipt, and deeds of release. Taxes on contracts are not always levied by means of stamps. The duty on sales by auction, abrogated by Sir Robert Peel, was an instance in point. The taxes on transfers of landed property, in France, are another: in England these are stamp-duties. In soino countries, contracts of many kinds are not valid unless registered, and their registration is made an occasion for a tax. Of taxes on contracts, the most im- portant are those on the transfer of property; chiefly on purchases and sales. Taxes on the sale of consumable commodities are simply taxes on those commodities. If they affect only some particular commodities, they raise the prices of those commodities, and are paid by the consumer. If the attempt were made to tax all 'purchases and sales, which, however absurd, was for centuries the law of Spain, the tax, if it could be enforced, would be equiva- lent to a tax on all commodities, and would not affect prices : if levied from the sellers, it would be a tax on profits, if from the buyers, a tax on consump- tion ; and neither class could throw the burthen upon the other. If confined to some one mode of sale, as for ex- ample by auction, it discouraged re- course to that mode, and if of any material amount, prevents it from being adopted at all, unless in a case of emergency; in which case as the seller is under a necessity to sell, but the buyer under no necessity to buy, the tax falls ori the seller ; and this was the strongest of the objections to the auction duty: it almost always fell on a necessitous person, and in the crisis of his necessities. Taxes on the purchase and sale of land are, in most countries, liable to the same objection. Landed property in old countries is seldom parted with, except from reduced circumstances, or some urgent need : the seller, there- fore, must take what he can get, while the buyer, whose object is an invest- ment, makes his calculations on the interest which he can obtain for his money in other ways, and will not buy 518 BOOK V. CHAPTER V. 2. if he is charged \vith a government tax on the transaction.* It has indeed been objected, that, this argument would not apply if all modes of perma- nent investment, such as the purchase of government securities, shares in 'joint-stock companies, mortgages, and the like, were subject to the same tax. But even then, if paid by the buyer, it would be equivalent to a tax on in- terest: if sufficiently heavy to be of any importance, it would disturb the established relation between interest and profit; and the disturbance would redress itself by a rise in the rate of interest, and a fall of the price of land and of all securities. It appears to me, therefore, that the seller is the person by whom such taxes, unless under peculiar circumstances, will generally be borne. All taxes must be condemned which throw obstacles in the way of the sale of land, or other instruments of produc- tion. Such sales tend naturally to render the property more productive. The seller, whether moved by necessity or choice, is probably some one who is either without the means, or without the capacity, to make the most advan- tageous use of the property for produc- tive purposes ; while the buyer, on the other hand, is at any rate not needy, anuld be repaid, often a hundred-fold, in mere pecuniary advantage to the community generally. If so great an addition were made to the public dislike of taxation as might be the consequence of confining it to the direct form, the classes who profit by the misapplication of public money might probably succeed in saving that by which they profit, at the expense of that which would only be useful to the public. There is, however, a frequent plea in support of indirect taxation, which must be altogetherrejected, as grounded on a fallacy. We are often told that taxes on commodities are less burthen- some than other taxes, because the contributor can escape from them by ceasing to use the taxed commodity. Be certainly can, if that be his object, deprive the government of the money; but he does so by a sacrifice of his own indulgences, which (if he chose to undergo it) would equally make up to him for the same amount taken from him by direct taxation. Suppose a tax laid on wine, sufficient to add five pounds to the price of the quantity of wine which he consumes in a year. He has only (we are told) to diminish his consump- tion of wine by 51., and he escapes the burthen. True : but if the o/., instead of being laid on wine, had been taken from him by an income-tax, he could, by expending 51. less in wine, equally save the amount of the tax, so that the difference between the two cases is really illusory. If the government takes from the contributor five pounds a year, whether in one way or another, exactly that amount must be retrenched from his consumption to leave him as well off as before ; and in either way the same amount of sacrifice, neither more nor less, is imposed on him. On the other hand, it is some ad- vantage on the side of indirect taxes, that what they exact from the con- tributor is taken at a time and in a manner likely to be convenient to him. It is paid at a time when he has at any rate a payment to make ; it causes, therefore, no additional trouble, nor (unless the tax be on necessaries) any inconvenience but what is inseparable from the payment of the amount. He can also, except in the case of very perishable articles, select his own time for laying in a stock of the commodity, and consequently for payment of the tax. The producer or dealer who ad- vances these taxes, is, indeed, some- times subjected to inconvenience ; but, in the case of imported goods, this in- convenience is reduced to a minimum by what is called the Warehousing System, under which, instead of paving the duty at the time of importation, he is only required to do so when he takes out the goods for consumption, which is seldom done until he has either actually found, or has the prospect of immediately finding, a purchaser. The strongest objection, however, to raising the whole or the greater part of a large revenue by direct taxes, is the impossibility of assessing them fairly without a conscientious co-ope- ration on the part of the contributors, DIRECT AND INDIRECT TAXES COMPARED. 523 not to be hoped for in the present low state of public morality. In the case of an income-tax, we have already seen that unless it he found practicable to exempt savings altogether from the tax, the burthen cannot be apportioned with any tolerable approach to fairness upon those whose incomes are derived from business or professions ; and this is in fact admitted by most of the advocates of direct taxation, who, I am afraid, generally get over the diffi- culty by leaving those classes untaxed, and confining their projected income- tax to "realized property," in which form it certainly has the merit of being a very easy form of plunder. But enough has been said in condem- nation of this expedient. We have seen, however, that a house-tax is a form of direct taxation not liable to the same objections as an income-tax, and indeed liable to as few objections of any kind as perhaps any of our indi- rect taxes. But it would be impossible to raise, by a house-tax alone, the greatest part of the revenue of Great Britain, without producing a very ob- jectionable over-crowding of the popu- lation, through the strong motive which all persons would have to avoid the tax by restricting their house ac- commodation. Besides, even a house- tax has inequalities, and consequent injustices ; no tax is exempt from them, and it is neither just nor politic to make all the inequalities fall in the same places, by calling upon one tax to defray the whole or the chief part of the public expenditure. So much of the local taxation, in this country, being already in the form of a house- tax, it is probable that ten millions a year would be fully as much as could beneficially be levied, through this medium, for general purposes. A certain amount of revenue may, as we have seen, be obtained without injustice by a peculiar tax on rent. Besides the present land-tax, and an equivalent for the revenue now derived from stamp duties on the conveyance of land, some further taxation might, 1 have contended, at some future period be imposed, to enable the state to participate in the progressive in- crease of the incomes of landlords from natural causes. Legacies and inheri- tances, we have also seen, ought to be subjected to taxation sufficient to yield a considerable revenue. With these taxes, and a house-tax of suitable amount, we should, I think, have reached the prudent limits of direct taxation, save in a national emergency so urgent as to justify the government in disregarding the amount of in- equality and unfairness which may ultimately be found inseparable from an income-tax. The remainder of the revenue would have to be provided by taxes on consumption, and the ques- tion is, which of these are the least objectionable. 2. There are some forms of indi- rect taxation which must be peremp- torily excluded. Taxes on commodi- ties, for revenue purposes, must not operate as protecting duties, but must be levied impartially on every mode in wbich the articles can be obtained, whether produced in the country itself, or imported. An exclusion must also be put upon all taxes on tbe neces- saries of life, or on the materials or instruments employed in producing those necessaries. Such taxes are always liable to encroach on what should be left untaxed, the incomes barely sufficient for healthful exist- ence ; and on the most favourable supposition, namely, that wages rise to compensate the labourers for the tax, it operates as a peculiar tax on profits, which is at once unjust, and detrimental to national wealth.* What remain are taxes on luxuries. And these have some properties which * Some argue that the materials and in- struments of all production should be exempt from taxation ; but these, when they do not enter into the production of necessaries, seem as proper subjects of taxation as the finished article. It is chiefly with reference to foreign trade, that such taxes have been considered injurious. Internationally speak- ing, they may be looked upon us export duties, and, unless in cases in which an ex- port duty is advisable, they should be accom- panied with an equivalent drawback on ex- portation. But there is no sufficient reason against taxing the materials and instruments used in the production of anything which is itself a fit object of taxation, 524 BOOK V. CHAPTER VI. 3. strongly recommend them. In the first place, they can never, by any possibility, touch those whose whole income is expended on necessaries ; while they do reach those by whom what is required for necessaries, is ex- pended on indulgences. In the next place, they operate in some cases as an useful, and the only useful, kind of sumptuary law. I disclaim all asceti- cism, and by no means wish to see dis- couraged, either by law or opinion, anv indulgence (consistent with the means and obligations of the person using it) which is sought from a genuine incli- nation for, and enjoyment of, the thing itself; but a great portion of the ex- pense of the higher and middle classes in most countries, and the greatest in this, is not incurred for the sake of the pleasure afforded by the things on which the money is spent, but from regard to opinion, and an idea that certain expenses are expected from them, as an appendage of station ; and I cannot but think that expendi- ture of this sort is a most desirable subject of taxation. If taxation dis- courages it, some good is done, and if not, no harm ; for in so far as taxes are levied on things which are desired and possessed from motives of this description, nobody is the worse for them. When a thing is bought not for its use but for its costliness, cheap- ness is no recommendation. As Sis- mondi remarks, the consequence of cheapening articles of vanity, is not that less is expended on such things, but that the buyers substitute for the cheapened article some other which is more costly, or a more elaborate quality of the same thing ; and as the inferior quality answered the purpose of vanity equally well when it was equally expensive, a tax on the article is really paid by nobody : it is a crt-a- tion of public revenue by which nobody loses.* * "Were we to suppose that diamonds could only be procured from one particular and distant country, and pearls from another, and were the produce of the mines in the former, and of the fishery in the latter, from the operation of natural causes, to become doubly difficult to procure, the effect would merely be that in time half the quantity of 3. In order to reduce as much as possible the inconveniences, and in- crease the advantages, incident to taxes on commodities, the following are the practical rules which suggest themselves. 1st. To raise as large a revenue as conveniently may be, from those classes of luxuries which have most connexion with vanity, and least with positive enjoyment ; such as the more costly qualities of all kinds of personal equipment and ornament, 'Jndly. Whenever possible, to demand the tax, not from the producer, but directly irom the consumer, since when levied on the producer it raises the price always by more, and often by much more, than the mere amount of the tax. Most of the minor assessed diamonds and pearls would be sufficient to mark a certain opulence and rank, that it had before been necessary to employ for that purpose. The same quantity of gold, or some commodity reducible at last to labour, would be required to produce the now re- duced amount, as the former larger amount. Were the difficulty interposed by the regula- tions of legislators it could make no difference to the fitness of these articles to serve the purposes of vanity." Suppose that meanswere discovered whereby the physiological process which generates the pearl might be induced ad libitum, the result being that the amount oi labour expended in procuring each pearl, came to be only the five hundredth part of what it was before. " The ultimate effect of such a change would depend on whether the fishery was free or not. Were it free to all, as pearls could be got simply for the labour of fishing for them, a string of them might be had for a few pence. The very poorest class of society could therefore afford to decorate their per- sons with them. They would thus soon be- come extremely vulgar and unfashionable, and so at last valueless. If however we sup- pose that instead of the fishery being free, the legislator owns and has complete com- mand of the place, where alone pearls are to be procured ; as the progress of discovery advanced, he might impose a duty on them equal to the diminution of labour necessary to procure them. They would then be aa much esteemed as they were before. "What simple beauty they have would remain un- changed. The difficulty to be surmounted in order to obtain them would be different, but equally great, and they would therefore equally serve to mark the opulence of those who possessed them." The net revenue ob- tained by such a tax " would not cost the society anything. If not abused in its ap- plication, it would be a clear addition of so much to the resources of the community." Rae, New Principles of Political Economy, pp. 369-71. DIRECT AND INDIRECT TAXES COMPARED. 525 taxes in this country are recommended by both these considerations. Bnt with regard to horses and carriages, as there are many persons to whom, from health or constitution, these are not so much luxuries as necessaries, the tax paid by those who have but one riding horse, or but one carriage, especially of the cheaper descriptions, should be low; while taxation should rise very rapidly with the number of horses and carriages, and with their cost- liness. Srdly. But as the only in- direct taxes which yield a large re- venne are those which fall on articles of universal or very general consump- tion, and as it is therefore necessary to have some taxes on real luxuries, that is, on things which afford pleasure in themselves, and are valued on that account rather than for their cost; these taxes should, if possible, be so adjusted as to fall with the same pro- portional weight on small, on moderate, and on large incomes. This is not an easy matter ; since the things which are the subjects of the more produc- tive taxes, are in proportion more largely consumed by the poorer mem- bers of the community than by the rich. Tea, coffee, sugar, tobacco, fer- mented drinks, can hardly be so taxed, that the poor shall not bear more than their due share of the burthen. Some- thing might be done by making the duty on the superior qualities, which are used by the richer consumers, much higher in proportion to the value, (instead of much lower, as is almost universally the practice under the pre- sent English system); but in some cases the difficulty of at all adjusting the duty to the value, so as to prevent evasion, is said, with what truth I know not, to be insuperable ; so that it is thought necessary to levy the same fixed duty on all the qualities alike : a flagrant injustice to the poorer class of contributors, unless compensated by the existence of other taxes from which, as from the present income-tax, they are altogether exempt. 4thly. As far as is consistent with the preceding rules, taxation should 1'ather be concentrated on a few articles than diffused over many, in order that the expenses of collection may be smaller, and that as few employments as pos. sible may be burthensomely and vexa- tiously interfered with. 5thly. Among luxuries of general consumption, tax- ation should by preference attach itself to stimulants, because these, though in themselves as legitimate indulgences as any others, are more liable than most others to be used in excess, so that the check to consump- tion, naturally arising from taxation, is on the whole better applied to them than to other things. 6thly. As far as other considerations permit, taxation should be confined to imported articles, since these can be taxed with a less degree of vexatious interference, and with fewer incidental bad effects, than when a tax is levied on the field or on the workshop. Custom duties are, cceteris paribus, much less objection- able than excise : but they must be laid only on things which either can- not, or at least will not, le produced in the country itself; or else their production there must be prohibited (as in England is the case with to- bacco,) or subjected to an excise duty of equivalent amount. Tthly. No tax ought to be kept so high as to furnish a motive to its evasion, too strong to be counteracted by ordinary means of prevention: and especially no com- modity should be taxed so highly as to raise up a class of lawless characters, smugglers, illicit distillers, and the like. Of the excise and custom duties lately existing in this country, all which are intrinsically unfit to form part of a good system of taxation, have, since the last reforms by Mr. Gladstone, been got rid of. Among these are all duties on ordinary articles of food,* whether for human beings or for cattle ; those on timber, as falling on the materials of lodging, which is one of the necessaries of life ; all duties on the metals, and on imple- ments made of them ; taxes on soap, which is a necessary of cleanliness, and on tallow, the material both of that and of some other necessaries ; * Except the shilling per quarter duty on corn, ostensibly for registration, and scarcely ielt as a burthen. 526 BOOK V. CHAPTER VH. 1 1. the tax on paper, an indispensable instrument of almost all business and of most kinds of instruction. The duties which now yield nearly tbe whole of the customs and excise re- ve^iue, those on sugar, coffee, tea, wine, beer, spirits, and tobacco, are in tbemselves, where a large amount of revenue is necessary, extremely pro- per taxes ; but at present grossly un- just, from the dispropor donate weight with which they press, on the poorer classes ; and t.orne of them (those on spirits and tobacco) are so high as to cause a considerable amount of smug- gling. It is probable that most of these taxes might bear a great reduc- tion without any material loss of rerenue. In what manner the finer articles of manufacture, consumed by the rich, might most advantageously be taxed, I must leave to be decided by those who have the requisite prac- tical knowledge. The difficulty would be, to effect it without an inadmissible degree of interference with production. In countries which, like the United States, import the principal part of the finer manufactures which they consume, there is little difficulty in the matter : and even where nothing is imported but the raw material, that may be taxed, especially the qualities of it which are exclusively employed for the fabrics used by tho richer class of consumers. Thus, in England a high custom duty on raw silk would be consistent with prin- ciple ; and it might perhaps be prac- ticable to tax the finer qualities of cotton or linen yarn, whether spun in the country itself or imported. CHAPTER VII. OF A XATIOXAL DEBT. 1. THE question must now be considered, how far it is right or ex- pedient to raise money for the purposes of government, not by laying on taxes to the amount required, but by taking a portion of the capital of the country in the form of a loan, and charging the public revenue with only the interest. Nothing needs be said about providing for temporary wants by taking up money ; for instance, by an issue of exchequer bills, destined to be paid off, at furthest in a year or two, from the proceeds of the existing taxes. This is a convenient expedient, and when the government does not possess a treasure or hoard, is often a necessary one, on the occurrence of extraordinary expenses, or of a temporary failure in the ordinary sources of revenue. What we have to discuss is the propriety of contracting a national debt of a per- manent character; defraying the ex- panses of a war, or of any season of difficulty, by loans, to be redeemed I either very gradually and at a distant \ period, or not at all. This question has already been \ touched upon in the First Book.* We j remarked, that if the capital taken in j loans is abstracted from funds either ! engaged in production, or destined to i be employed in it, their diversion from ; that purpose is equivalent to taking ! the amount from the wages of the labouring classes. Borrowing, in this case, is not a substitute for raising the supplies within the year. A govern- ment which borrows does actually t;;ke the amount within the year, and that too by a tax exclusively on the labour- ing classes : than which it could have done nothing worse, if it had supplied its wants by avowed taxation ; and in that case the transaction, and its evils, would have ended with the emergency ; while by the circuitous mode adopted, the value exacted from the labourers is gained, not by the state, but by the * Supra, p. 49. A NATIONAL DEBT. employers of labour, the state remain- ing charged with the debt besides, and with its interest in perpetuity. The system of public loans, in such circum- stances, may be pronounced the very worst which, in the present state of civilization, is still included in the catalogue of financial expedients. We however remarked that there fire other circumstances in which loans are not chargeable with these per- nicious consequences : namely, first, when what is borrowed is foreign capi- tal, the overflowings of the general ac- cumulation of the world ; or, secondly, when it is capital which either would not have been saved at all unless this mode of investment had been open to it, or after being saved, would have been wasted in unproductive enter- prises, or sent to seek employment in foreign countries. When the progress of accumulation has reduced profits either to the ultimate or to the practi- cal minimum, to the rate, less than which would either put a stop to the increase of capital, or send the whole of the new accumulations abroad ; government may annually intercept these new accumulations, without trenching on the employment or wages of the labouring classes in the country itself, or perhaps in any other country. To this extent, therefore, the loan system may be carried, without being liable to the utter and peremptory con- demnation which is due to it when it overpasses this limit. What is wanted is an index to determine whether, in any given series of years, as during the last great war for example, the limit has been exceeded or not. Such an index exists, at once a cer- tain and an obvious one. Did the government, by its loan operations, augment the rate of interest? If it only opened a channel for capital which would not otherwise have been accumulated, or which, if accumulated, would not have been employed within the country ; this implies that the capital, which the government took and expended, could not have found employment at the existing rate of in- tc'.vst. So long as the loans do no uiuve than absorb this surplus, they prevent any tendency to a fall of the rate of interest, but they cannot occa- sion any rise. When they do raise the rate of interest, as they did in a most extraordinary degree during the French war, this is positive proof that the vernment is a competitor for capital ,vith the ordinary channels of produc- ive investment, and is carrying off, not merely funds which would not, but funds which would, have foui>d produc- tive employment within the country. To the fuh 1 extent, therefore, to which the loans of government, during the war, caused the rate of interest to ex- ceed what it was before, and what it has been since, those loans are charge- able with all the evils which have been described. If it be objected that in- terest only rose because profits rose, I reply that this does not weaken, but strengthens, the argument. If the government loans produced the rise of profits by the great amounfof capital which they absorbed, by what means can they have had this effect, unless bv lowering the wages of labour ? It will perhaps be said, that what kept profits high during the war was not the drafts made on the national capital by the loans, but the rapid progress of in- dustrial improvements. This, in n. great measure, was the fact ; and it no doubt alleviated the hardship to the labouring classes, and made the finan- cial system which was pursued less actively mischievous, but not less con- trary to principle. These very im- provements in industry, made room for a larger amount of capital ; and the government, by draining away a great part of the annual accumulations, did not indeed prevent that capital from existing ultimately, (for it started into existence with great rapidity after the peace,) but prevented it from existing at the time, and subtracted just so much, while the war lasted, from dis- tribution among productive labourers. If the government had abstained from taking this capital by loan, and had allowed it to reach the labourers, but had raised the supplies which it re- quired by a direct tax on the labouring classes, it would have produced (in every respect but the expense and m 528 BOOK V. CHAPTER VII. convenience of collecting the tax) the very same economical effects which it did produce, except that we should not now have had the debt. The course it actually took was therefore worse than the very worst mode which it could possibly have adopted of raising the supplies within the year : and the only excuse, or justification, which it admits of, (so far as that excuse could be truly pleaded) was hard necessity; the im- possibility of raising so enormous an annual sum by taxation, without re- sorting to taxes which from their odi- ousness, or from the facility of evasion, it would have been found impracticable to enforce. When government loans are limited to the overflowings of the national capital, or to those accumulations which would not take place at all un- less suffered to overflow, they are at least not liable to this grave condem- nation : they occasion no privation to any one at the time, except by the payment of the interest, and may even be beneficial to the labouring class during the term of their expenditure, by employing in the direct purchase of labour, as that of soldiers, sailors, &c., funds which might otherwise have quitted the country altogether. In this case therefore the question really is, what it is commonly supposed to be in all cases, namely, a choice between a great sacrifice at once, and a small one indefinitely prolonged. On this matter it seems rational to think, that | the prudence of a nation will dictate j the same conduct as the prudence of an individual ; to submit to as much of the privation immediately, as can easily be borne, and only when any further burthen would distress or cripple them too much, to provide for the re- mainder by mortgaging their future income. It is an excellent maxim to make present resources suffice for pre- sent wants ; the future will have its own wants to provide for. On the other hand, it may reasonably be taken into consideration that in a country increasing in wealth, the necessary ex- penses of government do not increase in the same ratio as capital or popula- tion ; any burthen, therefore, is always less and less felt : and since those ex- traordinary expenses of government which are fit to be incurred at all, are mostly beneficial beyond the existing generation, there is no injustice in making posterity pay a part of the price, if the inconvenience would be extreme of defraying the whole of it by the exertions and sacrifices of the generation which first incurred it. 2. When a country, wisely or unwisely, has burthened itself with a debt, is it expedient to take steps for redeeming that debt ? In principle it is impossible not to maintain the af- firmative. It is true that the payment of the interest, when the creditors are members of the same community, is no national loss, but a mere transfer. The transfer, however, being compul- sory, is a serious evil, and the raising a great extra revenue by any system of taxation necessitates so much ex- pense, vexation, disturbance of the channels of industry, and other mis- chiefs over and above the mere pay- ment of the money wanted by the government, that to get rid of the necessity of such taxation is at all times worth a considerable effort. The same amount of sacrifice which would have been worth incurring to avoid contracting the debt, it is worth while to incur, at any subsequent time, for the purpose of extinguishing it. Two modes have been contemplated of paying off a national debt : either at once by a general contribution, or gradually by a surplus revenue. The first would be incomparably the best, if it were practicable ; and it would be practicable if it could justly be done by assessment on property alone. ]f property bore the whole interest of the, debt, property might, with great advantage to itself, pay it off ; since this would be merely surrendering to a creditor the principal sum, the whole annual proceeds of which were already his by law ; and would be equivalent to what a landowner does when he sells part of his estate, to free the re- mainder from a mortgage. But pro- perty, it needs hardly be said, does not pay, and cannot justly be required A NATIONAL DEBT. 529 to pay, the whole interest of the debt. Some indeed affirm that it can, on the plea that the existing generation is only bound to pay the debts of its pre- decessors from the assets it has re- ceived from them, and not from the produce of its own industry. But has no one received anything from pre- vious generations except those who have succeeded to property? Is the whole difference between the earth as it is, with its clearings and improve- ments, its roads and canals, its towns and manufactories, and the earth as it was when the first human being set foot on it, of no benefit to any but those who are called the owners of the soil ? Is the capital accumulated by the labour and abstinence of all former generations of no advantage to any but those who have succeeded to the legal ownership of part of it? And have we not inherited a mass of ac- quired knowledge, both scientific and empirical, due to the sagacity and industry of those who preceded us, the benefits of which are the common wealth of all ? Those who are born to the ownership of property have, in addition to these common benefits, a separate inheritance, and to this differ- ence it is right that advertence should be had in regulating taxation. It be- longs to the general financial system of the country to take due account of this principle, and I have indicated, as in my opinion a proper mode of taking account of it, a considerable tax on legacies and inheritances. Let it be determined directly and openly what is due from property to the state, and from the state to property, and let the institutions of the state be regulated accordingly. Whatever is the fitting contribution from property to the ge- neral expenses of the state, in the Bame, and in no greater proportion should it contribute towards either the interest or the repayment of the national debt. This, however, if admitted, is fatal to any scheme for the extinction of the debt by a general assessment on the community. Persons of property could pay their share of the amount by a sacrifice of property, and have the P.E. same net income as before ; but if those who have no accumulations, but only incomes, were required to make up by a single payment the equivalent of the annual charge laid on them by the taxes maintained to pay the inte- rest of the debt, they could only do so by incurring a private debt equal ta their share of the public debt ; while, from the insufficiency, in most cases, of the security which they could give, the interest would amount to a much larger annual sum than their share of that now paid by the state. Besides, a collective debt defrayed by taxes, has over the same debt parcelled out among individuals, the immense ad- vantage, that it is virtually a mutual insurance among the contributors. If the fortune of a contributor diminishes, his taxes diminish ; if he is ruined, they cease altogether, and his portion of the debt is wholly transferred to the solvent members of the community. If it were laid on him as a private obligation, he would still be liable to it even when penniless. When the state possesses property, in land or otherwise, which there are not strong reasons of public utility for its retaining at its disposal, this should be employed, as far as it will go, in extinguishing debt. Any casual gain, or godsend, is naturally devoted to the same purpose. Beyond this, the only mode which is both just and feasible, of extinguishing or reducing a na- tional debt, is by means of a surplus 3. The desirableness, per se, of maintaining a surplus for this purpose does not, I think, admit of a doubt. We sometimes, indeed, hear it said that the amount, should rather be left to " fructify in the pockets of the people." This is a good argument, as far as it goes, against levying taxes unnecessarily for purposes of unpro- ductive expenditure, but not against paying off a national debt. For, what is meant by the word fructify ? If it means anything, it means productive employment ; and as an argument against taxation, we must understand it to assert, that if the amount were M M 530 BOOK V. CHAPTER TO. 3. left with the people they \vould save it, and convert it into capital. It is probable, indeed, that they would save a part, but extremely improbable that they would save the whole : while if taken by taxation, and employed in paying off debt, the whole is saved, and made productive. To the fund- holder who receives the payment it is already capital, not revenue, and he will make it "fructify," that it may continue to afford him an income. The objection, therefore, is not only groundless, but the real argument is on the other side : the amount is much more certain of fructifying if it is not " left in the pockets of the people." It is not, however, advisable in all cases to maintain a surplus revenue for the extinction of debt. The ad- vantage of paying off the national debt of Great Britain for instance, is that it would enable us to get rid of the worse half of our taxation. But of this worse half some portions must be worse than others, and to get rid of those would be a greater benefit pro- portionally than to get rid of the rest. If renouncing a surplus revenue would enable us to dispense with a tax, we ought to consider the very worst of all our taxes as precisely the one which we are keeping up for the sake of ulti- mately abolishing taxes not so had as itself. In a country advancing in wealth, whose increasing revenue gives it the power of ridding itself from time to time of the most inconvenient por- tions of its taxation, I conceive that the increase of revenue should rather be disposed of by taking off taxes, than by liquidating debt, as long as any very objectionable imposts remain. In the present state of England, there- fore, I hold it to be good policy in the government, when it has a sui-plus of an apparently permanent character, to take off taxes, provided these are rightly selected. Even when no taxes remain but such as are not unfit to form part of a permanent system, it is wise to continue the same policy by experimental reductions of those taxes, until the point is discovered at which a given amount of revenue can be raised "with the smallest pressure on the contributors. After this, such sur- plus revenue as might arise from any further increase of the produce of the taxes, should not, I conceive, be re- mitted, but applied to the redemption of debt. Eventually, it might be ex- pedient to appropriate the entire pro- duce of particular taxes to this pur- pose ; since there would be more assu- rance that the liquidation would be persisted in, if the fund destined to it were kept apart, and not blended with the general revenues of the state. The succession duties would be peculiarly suited to such a purpose, since taxes paid as they are, out of capital, would be better employed in reimbursing capital than in defraying current ex- penditure. If this separate appropria- tion were made, anv surplus afterwards arising from the increasing produce of the other taxes, and from the saving of interest on the successive portions of debt paid off, might form a ground for a remission of taxation. It has been contended that some amount of national debt is desirable, and almost indispensable, as an in- vestment for the savings of the poorer or more inexperienced part of the community. Its convenience in that respect is undeniable ; but (besides that the progress of industry is gradu- ally affording other modes of invest- ment almost as safe and untrouble- some, such as the shares or obligations of great public companies) the only real superiority of an investment in the funds consists in the national guarantee, and this could be afforded by other means than that of a public debt, involving compulsory taxation. One mode which would answer the purpose, would be a national bank of deposit and discount, with ramif! ca- tions throughout the country ; which might receive any money confid -d to it, and either fund it at a fixed rate of interest, or allow interest on a floating balance, like the joint stock banks ; the interest given being of course lower than the rate at -which indi- viduals can borrow, in proportion to the greater securitv of a government investment ; and the expenses of tho establishment being defrayed by the OEDINAKY FUNCTIONS OF GOVERNMENT. 531 difference between the interest which the bank would pay, and that which it would obtain, by lending its deposits on mercantile, landed, or other se- curity. There are no insuperable ob- jections in principle, nor, I should think, in practice, to an institution of this sort, as a means of supplying the same convenient mode of investment now afforded by the public funds. It would constitute the state a great in- surance company, to insure that part of the community who live on the interest of their property, against the risk of losing it by the bankruptcy of those to whom they might otherwise be under the necessity of confiding it. CHAPTER Vin. OF THE ORDINARY FUNCTIONS OP GOVERNMENT, CONSIDERED AS TO THEIR ECONOMICAL EFFECTS. 1. BEFORE we discuss the line of demarcation between the things with which government should, and those with which they should not, directly interfere, it is necessary to consider the economical effects, whether of a bad or of a good complexion, arising from the manner in which they acquit them- selves of the duties which devolve on them in all societies, and which no one denies to be incumbent on them. The first of these is the protection of person and property. There is no need to expatiate on the influence ex- ercised over the economical interests of society by the degree of complete- ness with which this duty of govern- ment is performed. Insecurity of person and property, is as much as to say, un- certainty of the connexion between all human exertion or sacrifice, and the attainment of the ends for the sake of which they are undergone. It means, uncertainty whether they who sow shall reap, whether they who produce shall consume, and they who spare to- day shall enjoy to-morrow. It means, not only that labour and frugality are not the road to acquisition, but that violence is. When person and pro- perty are to a certain degree insecure, all the possessions of the weak are at the mercy of the strong. No one can keep what he has produced, unless he is more capable of defending it, than who give jio part of their time and exertions to useful industry are of taking it from him. The productive classes, therefore, when the insecurity surpasses a certain point, being un- equal to their own protection against the predatory population, are obliged to place themselves individually in a state of dependence on some member of the predatory class, that it may be his interest to shield them from all de- predation except his own. In this manner, in the Middle Ages, allodial property generally became feudal, and numbers of the poorer freemen volun- tarily made themselves and their pos- terity serfs of some military lord. Nevertheless, in attaching to this great requisite, security of person and property, the importance which is justly due to it, we must not forget that even for economical purposes there are other things quite as indispensable, the presence of which will often make up for a very considerable degree of imperfection in the protective arrange- ments of government. As was ob- served in a previous chapter,* the free cities of Italy, Flanders, and the Hanseatic league, were habitually in a state of such internal turbulence, varied by such destructive external wars, that person and property enjoyed very imperfect protection ; yet during several centuries they increased rapidly in wealth and prosperity, brought many * Supra, p. 70. MM3 532 of the industrial arts to a high degree of advancement, carried on distant and dangerous voyages of exploration and commerce with extraordinary success, became an overmatch in power for the greatest feudal lords, and could defend themselves even against the sovereigns of Europe : because in the midst of turmoil and violence, the citizens of those towns enjoyed a certain rude freedom, under conditions of union and co-operation, which, taken together, made them a brave, energetic, and high-spirited people, and fostered a great amount of public spirit and patriotism. The prosperity of these and other free states in a lawless age, shows that a certain degree of in- security, in some combinations of cir- cumstances, has good as well as bad effects, by making energy and prac- tical ability the conditions of safety. Insecurity paralyzes, only when it is such in nature and in degree, that no energy, of which mankind in general are capable, affords any tolerable means of self-protection. And this is a main reason why oppression by the govern- ment, whose power is generally irre- sistible by any efforts that can be made by individuals, has so much more baneful an effect on the springs of national prosperity, than almost any degree of lawlessness and turbu- lence under free institutions. Nations have acquired some wealth, and made some progress in improvement, in states of social union so imperfect as to border on anarchy: but no coun- tries in which the people were exposed without limit tc arbitrary exactions from the officers of government, ever yet continued to have industry or wealth. A few generations of such a government never fail to extinguish both. Some of the fairest, and once the most prosperous, regions of the earth, have, under the Eoman and afterwards under the Turkish domi- nion, been reduced to a desert, solely by that cause. I say solely, because they would have recovered with the utmost rapidity, as countries always do, from the devastations of War, or any other temporary calamities. Dif- ficulties and hardships are often but BOOK V. CHAPTER VIIL 2. an incentive to exertion : what is fatal to it, is the belief that it will not be suffered to produce its fruits. 2. Simple over-taxation by go- vernment, though a great evil, is not comparable in the economical part of its mischiefs to exactions much more moderate in amount, which either subject the contributor to the arbi- trary mandate of government officers, or are so laid on as to place skill, in- dustry, and frugality at a disadvantage. The burthen of taxation in our own country is very great, yet as every one knows its limit, and is seldom made to pay more than he expects and cal- culates on, and as the modes of taxa- tion are not of such a kind as much to impair the motives to industry and economy, the sources of prosperity are little diminished by the pressure of taxation ; they may even, as some think, be increased, by the extra exer- tions made to compensate for the pres- sure of the taxes. But in the bar- barous despotisms of many countries of the East, where taxation consists in fastening upon those who have suc- ceeded in acquiring something, in order to confiscate it, unless the pos- sessor buys its release by submitting to give some large sum as a com- promise, we cannot expect to find voluntary industry, or wealth derived from any source but plunder. And even in comparatively civilized coun- tries, bad modes of raising a revenue have had effects similar in kind, though in an inferior degree. French writers before the Revolution represented the taille as a main cause of the back- ward state of agriculture, and of the wretched condition of the rural popu- lation ; not from its amount, but be- cause, being proportioned to the visible capital of the cultivator, it gave him a motive for appearing poor, which suf- ficed to turn the scale in favour of in- dolence. The arbitrary powers also of fiscal officers, of intendants and sub- delegues, were more destructive of pros- perity than a far larger amount of exactions, because they destroyed se- curity: there was a marked superiority in the condition of the districts pos- ORDINARY FUNCTIONS OF GOVERNMENT. 533 sessing Provincial States, which were exempt from this scourge. The uni- versal venality ascribed to Russian functionaries, must be an immense drag on the capabilities of economical improvement possessed so abundantly by the Russian empire ; since the emo- luments of public officers must depend on the success with which they can multiply vexations, for the purpose of being bought off by bribes. Yet mere excess of taxation, even when not aggravated by uncertainty, is, independently of its injustice, a serious economical evil. It may be carried so far as to discourage industry by insufficiency of reward. Very long before it reaches this point, it prevents or greatly checks accumulation, or causes the capital accumulated to be sent for investment to foreign coun- tries. Taxes which fall on profits, even though that kind of income may not pay more than its just share, ne- cessarily diminish the motive to any saving, except for investment in foreign countries where profits are higher. Holland, for example, seems to have long ago reached the practical mini- mum of profits : already in tfye last century her wealthy capitalists had a great part of their fortunes invested in the loans and joint-stock speculations of other countries : and this low rate of profit is ascribed to the heavy taxa- tion, which had been in some measure forced on her by the circumstances of her position and history. The taxes indeed, besides their great amount, were many of them on necessaries, a kind of tax peculiarly injurious to in- dustry and accumulation. But when the aggregate amount of taxation is very great, it is inevitable that recourse must be had for part of it to taxes of an objectionable character. And any taxes on consumption, when heavy, even if not operating on profits, have some- thing of the same effect, by driving persons of moderate means to live abroad, often taking their capital with them. Although I by no means join with those political economists who think no state of national existence desirable in which there is not a rapid increase of wealth, I cannot overlook the many disadvantages to an inde- pendent nation from being brought prematurely to a stationary state, while the neighbouring countries con- tinue advancing. 3. The subject of protection to person and property, considered as af- forded by government, ramifies widely, into a number of indirect channels. It embraces, for example, the whole suh- ject of the perfection or inefficiency of the means provided for the ascertain- ment of rights and the redress of in- juries. Person and property cannot be considered secure where the adminis- tration of justice is imperfect, cither from defect of integrity or capacity in the tribunals, or because the delay, vexation, and expense accompanying their operation impose a heavy tax on those who appeal to them, and make it preferable to submit to any en- durable amount of the evils which they are designed to remedy. In England there is no fault to be found with the administration of justice, in point of pecuniary integrity ; a result which the progress of social improvement may also be supposed to have brought about in several other nations of Europe. But legal and judicial imperfections of other kinds are abundant ; and, in England especially, are a large abate- ment from the value of the services which the government renders back to the people in return for our enormous taxation. In the first place, the in- cognoscibility (as Bentham termed it) of the law, and its extreme uncer- tainty, even to those who best know it, render a resort to the tribunals often necessary for obtaining justice, when, there being no dispute as to facts, no litigation ought to be required. In the next place, the procedure of the tri- bunals is so replete with delay, vexa- tion, and expense, that the price at which justice is at last obtained is an evil outweighing a very considerable amount of injustice ; and the wrong side, even that which the law considers such, has many chances of gaining its point, through the abandonment of litigation by the other party for want of funds, or through a compromise in 534 BOOK V. CHAPTER VIII. 3. which a sacrifice is made of just rights to terniinate the suit, or through some technical quirk, whereby a decision is obtained on some other ground than the merits. This last detestable in; : dent often happens without blame to the judge, under a system of law, of which a great part rests on no rational principles adapted to the present state of society, but was originally founded partly on a kind of whims and conceits, and partly on the principles and inci- dents of feudal tenure, (which now sur- vive only as legal fictions;) and has only been very imperfectly adapted, as cases arose, to the changes which had taken place in society. "Of all parts of the English legal system, the Court of Chancery, which has the best substan- tive law, has been incomparably the worst as to delay, vexation, and ex- pense ; and this is the only tribunal for most of the classes of cases which are in their nature the most compli- cated, such as cases of partnership, and the great range and variety of ca?es which come under the denominar tion of trust. The recent reforms in this Court have abated the mis- chief, but are still far from having removed it. Fortunately for the prosperity of England, the greater part of the mer- cantile law is comparatively modern, and was made by the tribunals, by the simple process of recognising and giving force of law to the usages which, from motives of convenience, had grown up among merchants them- selves : so that this part of the law, at least, was substantially made by those who were most interested in its good- ness: while the defects of the tribu- nals have been the less practically pernicious in reference to commer- cial transactions, because the im- portance of credit, which depends on character, renders the restraints of opinion (though, as daily experience proves, an insufficient) yet a very powerful, protection against those forms of mercantile dishonesty which are generally recognised as such. The imperfections of the law, both in its substance and in its procedure, fall heaviest upon the interests con- nected with what is technically called real property ; in the general language of European jurisprudence, immoveable property. With respect to all this portion of the wealth of the community, vhe law fails egregiously in the pro- tection which it undertakes to pro- vide. It fails, first, by the uncertainty, and the maze of technicalities, which make it impossible for any one, at however great an expense, to possess a title to land which he can positively know to be unassailable. It fails, secondly, in omitting to provide due evidence of transactions, by a proper registration of legal documents. It fails, thirdly, by creating a necessity for operose and expensive instruments and formalities (independently of fiscal burthens) on occasion of the purchase and sale, or even the lease or mortgage, of immoveable property. And, fourthly, it fails by the intolerable expense and delay of law proceedings, in almost all cases in which real property is con- cerned. There is no doubt that the greatest sufferers by the defects of the higher courts of civil law are the land- owners. Legal expenses, either those of actual litigation, or of the prepara- tion of legal instruments, form, I apprehend, no inconsiderable item in the annual expenditure of most per- sons of large landed property ; and the saleable value of their land is greatly impaired, by the difficulty of giving to the buyer complete confidence in the title ; independently of the legal ex- penses which accompany the transfer. Yet the landowners, though they have been masters of the legislation of England, to say the least, since 1G88, have never made a single move in the direction of law reform, and have been strenuous opponents of some of the improvements ot wdiich they would more particularly reap the benefit ; especially that great one of a regis- tration of contracts affecting land, which when proposed by a Commis- sion of eminent real property lawyers, and introduced into the House of Commons by Lord Campbell, was so offensive to the general body of land- lords, and was rejected by so large a majority, as to- have long discouraged ORDINARY FUNCTIONS OF GOVERNMENT. 535 any repetition of the attempt.* This irrational hostility to improvement, in a case in which their own interest would be the most benefited by it, must be ascribed to an intense timi- dity on the subject of their titles, generated by the defects of the very law which they refuse to alter ; and to a conscious ignorance, and inca- pacity of judgment, on all legal sub- jects, which makes them helplessly defer to the opinion of their profes- sional advisers, heedless of the fact that every imperfection of the law, in proportion as it is burthensome to them, brings gain to the lawyer. In so far as the defects of legal arrangements are a mere burthen on the landowner, they do not much affect the sources of production ; but the uncertainty of the title under which land is held, must often act as a great discouragement to the expen- diture of capital in its improvement ; and the expense of making transfers, operates to prevent land from coming into the hands of those who would use it to most advantage ; often amount- ing, in the case of small purchases, to more than the price of the land, and tantamount, therefore, to a prohibition of the purchase and sale of land in small portions, unless in exceptional circumstances. Such purchases, how- ever, are almost everywhere extremely desirable, there being hardly any country in which landed property is not either too much or too little sub- divided, requiring either that great estates should be broken down, or that small ones should be bought up and consolidated. To make land as easily transferable as stock, would be one of the greatest economical improve- ments which could be bestowed on a country; and has been shown, again and again, to have no insuperable difficulty attending it. Besides the excellences or defects that belong to the law and judicature of a country as a system of arrange- ments for attaining direct practical * Lord Westbury's recent Act is a ma- terial mitigation of this grievous defect in English law, and will probably lead to fur- ther improvements. ends, much also depends, even in an economical point of view, upon the moral influences of the law. Enough has been said in a former place,t on the degree in which both the indus- trial and all other combined opera- tions of mankind depend for efficiency on their being able to rely on one another for probity and fidelity to engagements ; from which we see how greatly even the economical prosperity of a country is liable to be affected, by anything in its institutions by which either integrity and trustworthiness, or the contrary qualities, are encouraged. The law every where ostensibly favours at least pecuniary honesty and the faith of contracts; but it" it affords facilities for evading those obligations, by trick and chicanery, or by the un- scrupulous use of riches in instituting unjust or resisting just litigation; if there are ways and means by which persons may attain the ends of roguery, under the apparent sanction of the law ; to that extent the law is demo- ralizing, even in regard to pecuniary integrity. And such cases are, un- fortunately, frequent under the English system. If, again, the law, by a mis- placed indulgence, protects idleness or prodigality against their natural con- sequences, or dismisses crime with inadequate penalties, the effect, both on the prudential and on the social virtues, is unfavourable. When the law, by its own dispensations and in- junctions, establishes injustice between individual and individual ; as all laws do which recognise any form of slavery ; as the laws of all countries do, though not all in the same degree, in respect to the family relations; and as the laws of many countries do, though in still more unequal degrees, as between rich and poor ; the effect on the moral sentiments of the people is still more disastrous. But these subjects intro- duce considerations so much larger and deeper than those of political economy, that I only advert to them in order not to pass wholly unnoticed things superior in importance to those of which I treat. t Supra, p. 68. 535 BOOK V. CHAPTER IX. 1. CHAPTER IX. THE SAME SUBJECT CONTINUED. 1 . HAVING spoken thus far of the effects produced by the excellences or defects of the general system of the law, I shall now touch upon those re- sulting from the special character of particular parts of it. As a selection must he made, I shall confine myself to a few leading topics. The portions of the civil law of a country which are of most importance economically (next to those which determine the status of the labourer, as slave, serf, or free), are those relating to the two subjects of Inheritance and Contract. Of the laws relating to contract, none are more important economically than' the laws of partnership, ;;nd those of insolvency. It happens that on all these three points, there is just ground for condemning some of the provisions of the English law. With regard to Inheritance, I have, in an early chapter, considered the general principles of the subject, and suggested what appear to me to be, putting all prejudices apart, the best dispositions which the law could adopt. Freedom of bequest as the general rule, but limited by two things : first, that if there are descendants, who, being unable to provide for themselves, would become burthensome to the state, the equivalent of whatever the state would accord to them should be reserved from the property for their benefit : and secondly, that no one person should be permitted to acquire by inheritance, more than the amount of a moderate independence. In case of intestacy, the whole property to escheat to the state : which should be bound to make a just, and reasonable provi- sion for descendants, that is, such a provision as the parent or ancestor ought to have made, their circum- stances, capacities, and mode of bring- ing up being considered. The laws of inheritance, however, have probably several phases of im- ] provement to go through, before ideas so far removed from present modes of thinking will be taken into serious con- sideration : and as, among the recog- nised modes of determining the suc- cession to property, some must be better and others worse, it is necessary to consider which of them deserves the preference. As an intermediate course, therefore, I would recommend the extension to all property, of the present English law of inheritance affecting personal property (freedom of bequest, and, in case of intestacy, equal division) : except that no rights should be acknowledged in collaterals, and that the property of those who have neither descendants nor ascendants, and make no will, should escheat to the state. The laws of existing nations deviate, from these maxims in two opposite ways. In England, and in most of the countries where the influence of feudality is still felt in the laws, one of the objects aimed at in respect to land and other immoveable property, is to keep it together in large masses : accordingly, in cases of intestacy, it passes, generally speaking (jbr the local custom of a few places is dif- ferent), exclusively to the eldest son. And though the rule of primogeniture is not binding on testators, who in England have nominally the power of bequeathing their property as they please, any proprietor-may so exercise this power as to deprive his successors of it, by entailing the property on one particular line of his descendants : which, besides preventing it from passing by inheritance in any other than the prescribed manner, is at- tended with the incidental conse- quence of precluding "it from being sold ; since each successive possessor, having only a life interest in the pro- perty, cannot alienate it for a longer period than his own life. In some INHERITANCE. 537 other countries, such as France, the law, on the contrary, compels division of inheritances ; not only, in case of intestacy, sharing the' property, both real and personal, equally among all the children, or (if there are no children) among all relatives in the same degree of propinquity ; but also not recognising any power of bequest, or recognising it over only a limited portion of the property, the remainder being subjected to compulsory equal division. Neither of these systems, I appre- hend, was introduced, or is perhaps maintained, in the countries where it exists, from any general considerations of justice, or any foresight of economi- cal consequences, but chiefly from poli- tical motives ; in the one case to keep up large hereditary fortunes, and a landed aristocracy ; in the other, to 'break these down, and prevent their resurrection. The first object, as an aim of national policy, I conceive to be eminently undesirable : with regard to the second, I have pointed out what seems to me a better mode of attaining it. The merit, or demerit, however, of either purpose, belongs to the general science of politics, not to the limited department of that science which is here treated of. Each of the two systems is a real and efficient instru- ment for the purpose intended by it ; but each, as it appears to me, achieves that purpose at the cost of much mis- chief. 2. There are two arguments of an economical character, which are urged in i'avour of primogeniture. One is, the stimulus applied to the industry and ambition of younger children, by leaving them to be the architects of their own fortunes. This argument was put by Dr. Johnson in a manner more forcible than complimentary to an hereditary aristocracy, when he said, by way of recommendation of primo- geniture, that it," makes but one fool in a family." It is curious that a de- fender of aristocratic institutions should be the person to assert that to inherit such a fortune as takes away any necessity for exertion, is generally fatal to activity and strength of mind : in the present state of education, how- ever, the proposition, with some allow- ance for exaggeration, may be admitted to be true. But whatever force there is in the argument, counts in favour of limiting the eldest, as well as all the other children, to a mere provision, and dispensing with even the " one fool" whom Dr. Johnson was willing to tolerate. If unearned riches are so pernicious to the character, one does not see why, in order to withhold the poison from the junior members of a family, there should be no way but to unite all their separate potions, and administer them in the largest possible dose to one selected victim. It cannot be necessary to inflict this great evil on the eldest son, for want of knowing what else to do with a large fortune. Some writers, however, look upon the effect of primogeniture in stimulat- ing industry, as depending, not so much on the poverty of the younger children, as on the contrast between that poverty and the riches of the elder ; thinking it indispensable to the activity and energy of the hive, that there should be a huge drone here and there, to im- press the working bees with a due sense of the advantages of honey. " Their inferiority in point of wealth," says Mr. M'Culloch, speaking of the younger children, " and their desire to escape from this lower station, and to attain to the same level with their elder brothers, inspires them with an energy .and vigour they could not otherwise feel. But the advantage of preserving large estates from being frittered down by a scheme of equal division, is not limited to its influence over the younger children of their owners. It raises universally the standard of competence, and gives new force to the springs which set industry in motion. The manner of living among the great land- lords is that in which every one is am- bitious of being able to indulge ; and their habits of expense, though some- times injurious to themselves, act aa powerful incentives to the ingenuity and enterprise of the other classes, who never think their fortunes sufficiently ample, unless they will enable them to 538 emulate the splenclor.r of the richest landlords; so that the custom of pri- mogeniture seems to render all classes more industrious, and to augment at the same time, the mass of wealth and the scale of enjoyment." * The portion of truth, I can hardly say contained in these observations, hut recalled by them, I apprehend to be, that a state of complete equality of fortunes would not be favourable to active exertion for the increase of wealth. Speaking of the mas- true of wealth as of most other distinc- tions of talent, knowledge, virtue that those who already have, or think they have, as much of it as their neigh- bours, will seldom exert themselves to acquire more. But it is not therefore necessary that society should provide a set of persons with large fortunes, to fulfil the social duty of standing to be looked at, with envy and admiration, by the aspiring poor. The fortunes which people have acquired for them- selves, answer the purpose quite as well, indeed much better; since a person is more powerfully stimulated by the example of somebody who has earned a fortune, than by the mere sight of somebody who possesses one ; and the former is necessarily an ex- ample of prudence and frugality as well as industry, while the latter much oftener sets an example of profuse ex- pense, wliich spreads, with pernicious effect, to the very class on whom the sight of riches is supposed to have so beneficial an influence, namely, those whose weakness of mind, and taste for ostentation, make " the splendour of the richest landlords" attract them \\ith the most potent spell. In Ame- rica there are few or no hereditary fortunes ; yet industrial energy, and the ardour of accumulation, are not supposed to be particularly backward in that part of the world. When a country has once fairly entered into the industrial career,' which is the principal occupation of the modern, as * Principles of Political Economy, ed. 1843, p. 264. There is much more to the same effect in the more recent treatise by the same author, On the Succession to Pro- perty vacant by Death. BOOK Y. CHAPTER IX. 2. war was that of the ancient and me- diaeval world, the desire of acquisitioq by industry needs no factitious stimu- lus : the advantages naturally inherent in riches, and the character they as- sume of a test by which talent anJ success in life are habitually measured, are an ample security for their being pursued with sufficient intensity and zeal. As to the deeper consideration, that the diffusion of wealth, and not its concentration, is desirable, and that the more wholesome state of society is not that in which immense fortunes are possessed by a few and coveted by ali, but that in which the greatest possible numbers possess and are con- tented with a moderate competency, which all may hope to acquire ; I refer to it in this place, only to show, how widely separated, on social questions, is the entire mode of thought of the defenders of primogeniture, from that which is partially promulgated in the present treatise. The other economical argument in favour of primogeniture, has special reference to landed property. It is contended, that the habit of dividing inheritances equally, or with an ap- proach to equality, among children, promotes the subdivision of land into portions too small to admit of being cultivated in an advantageous manner. This argument, eternally reproduced, has again and again been refuted by English and Continental writers. It proceeds on a supposition entirely at variance with that on which all the theorems of political economy are grounded. It assumes that mankind in general will habitually act in a manner opposed to their immediate and obvious pecuniary interest. For the division of the inheritance does not necessarily imply division of the land ; which may be held in common, as is not unfrequently the case in Erance and Belgium ; or may become the pro- perty of one of the coheirs, being charged with the shares of the others by way of mortgage ; or they may sell it outright, and divide the proceeds. When the division of the land would diminish its productive power, it is the direct interest of the heirs to adopt INHERITANCE. 539 some one of these arrangements. Sup- posing, however, what the argument assumes, that either from legal difficul- ties or from their own stupidity and barbarism, they would not, if left to themselves, obey the dictates of this obvious interest, but would insist upon cutting up the land bodily into equal parcels, with the effect of impoverish- ing themselves ; this would be an ob- jection to a law such as exists in France, of compulsory division, but can be no reason why testators should be discouraged from exercising the right f bequest in general conformity to the rule of equality, since it would always be in their power to provide that the division of the inheritance should take place without dividing the land itself. That the attempts of the advocates of primogeniture to make out a case by facts against the custom of equal divi- sion, are equally abortive, has been shown in a former place. In all coun- tries, or parts of countries, in which the division of inheritances is accom- panied by small holdings, it is because small foldings are the general system of the country, even on the estates of the great proprietors. Unless a strong case of social utility can be made out for primogeniture, it stands sufficiently condemned by the general principles of justice ; being a broad distinction in the treatment of one person and of another, grounded solely on an accident. There is no need, therefore, to make out any case of economical evil against primogeni- ture. Such a case, however, and a very strong one, may be made. It is a natural effect of primogeniture to make the landlords a needy class. The object of the institution, or custom, is to keep the land together in large masses, and this it commonly accom- plishes ; but the legal proprietor of a large domain is not necessarily the bond fide owner of the whole income which it yields. It is usually charged, in each generation, with provisions for the other children. It is often charged still more heavily by the imprudent expenditure of the proprietor. Great landowners are generally improvident in their expenses ; they live up to their incomes when at the highest, and if any change of circumstances diminishes their resources, some time elapses be- fore they make up their minds to re- trench. Spendthrifts in other classes are ruined, and disappear from society ; but the spendthrift landlord usually holds fast to his land, even when he has become a mere receiver of its rents for the benefit of creditors. The same desire to keep up the " splendour 1 ' of the family, which gives rise to the custom of primogeniture, indisposes the owner to sell a part in order to set free the remainder ; their apparent are therefore habitually greater than their real means, and they are under a per- petual temptation to proportion their expenditure to the former rather than to the latter. From such causes as these, in almost all countries of great landowners, the majority of landed estates are deeply mortgaged; and instead of having capital to spare for improvements, it requires all the in- creased value of land, caused by the rapid increase of the wealth and popu- lation of the country, to preserve the class from being impoverished. 3. To avert this impoverishment, recourse was had to the contrivance of entails, whereby the order of succession was irrevocably fixed, and each holder, having only a life interest, was unable to burthen his successor. The land thus passing, free from debt, into the possession of the heir, the family could not be ruined by the improvidence of its existing representative. The eco- nomical evils arising from this dispo- sition of property were partly of the same kind, partly different, but on the whole greater, than those arising from primogeniture alone. The possessor could not now ruin his successors, but he could still ruin himself: he was not at all more likely than in the former case to have the means necessary for improving the property: while, even if he had, he was still less likely to em- ploy them for that purpose, when the benefit was to accrue to a person whom the entail made independent of him, while he had probably younger chil- dren to provide for, in whose favour he 540 BOOK V. CHAPTER IX. 4. could not now charge the estate. While thus disabled from being him- self an improver, neither could he sell the estate to somebody who would ; since entail precludes alienation. In general he has even been unable to grant leases beyond the term of his own life; "for," says Blackstone, "if such leases had been valid, then, under cover of long leases, the issue might have been virtually disinherited;" and it has been necessary in Great Britain to relax, by statute, the rigour of entails, in order to allow either of long leases, or of the execution of improvements at the expense of the estate. It may be added that the heir of entail, being assured of succeeding to the family property, however undeserving of it, and being aware of this from his ear- liest years, has much more than the ordinary chances of growing up idle, dissipated, and profligate. In England the power of entail is more limited by law, than in Scotland and in most other countries where it exists. A landowner can settle his property upon any number of persons successively who are living at the time, and upon one unborn person, on whose attaining the age of twenty-one, the entail expires, and the land becomes his absolute property. An estate may in this manner be transmitted through a son, or a son and grandson, living when the deed is executed, to an unborn child of that grandson It has been maintained that this power of entail is not sufficiently extensive to do any mischief: in truth, however, it is much larger than it seems. Entails very rarely expire ; the first heir of entail, when of age, joins with the existing possessor in resettling the estate, so as to prolong the entail for a further term. Large properties therefore, are rarely free for any considerable period, from the restraints of a strict settle- ment; though the mischief is in one respect mitigated, since in the renewal of the settlement for one more genera- tion, the estate is usually charged with a provision for younger children. In an economical point of view, the best system of landed property is that in which land is most completely an object of commerce ; passing readily, from hand to hand when a buyer can be found to whom it is worth while to offer a greater sum for the land, than the value of the income drawn from it by its existing possessor. This of course is not meant of ornamental pro- perty, which is a source of expense, not profit; but only of land employed for industrial uses, and held for the sake of the income which it affords. What- ever facilitates the sale of land, tends to make it a more productive instru- ment for the community at large ; whatever prevents or restricts its sale, subtracts from its usefulness. Now, not only has entail this effect, but pri- mogeniture also. The desire to keep land together in large masses, from other motives than that of promoting : its productiveness, often prevents changes and alienations "which would increase its efficiency as an instru- ment. 4. On the other hand, a law which, like the French, restricts the power of bequest to a narrow compass, and compels the equal division of the whole or the greater part of the pro- perty among the children, seems to me, though on different grounds, also very seriously objectionable. The only reason for recognising in the children any claim at all to more than a pro- vision, sufficient to launch them in life, and enable them to find a livelihood, is grounded on the expressed or pre- sumed wish of the parent ; whose claim to dispose of what is actually his own, cannot be set aside by any pretensions of others to receive what is not theirs. To control the rightful owner's liberty of gift, by creating in the children a legal right superior to it, is to post- pone a real claim to an imaginary one. To this great and paramount objection to the law, numerous secondary ones may be added. Desirable as it is that the parent should treat the children with impartiality, and not make an eldest son or a favourite, impartial division is not always synonymous with equal division. Some of the chil- dren may, without fault of their own, be less capable than others of pro- PARTNERSHIP. 54} viding for themselves : some may, by other means than their own exertions, be already provided for: and impar- tiality may therefore require that the rule observed should not be one of equality, but of compensation. Even when equality is the object, there are sometimes better means of attaining it, than the inflexible rules by which law must necessarily proceed. If one of the coheirs, being of a quarrelsome or litigious disposition, stands upon his utmost rights, the law cannot make equitable adjustments ; it cannot ap- portion the property as seems best for the collective interest of all concerned ; if there are several parcels of land, and the heirs cannot agree about their value, the law cannot give a parcel to each, but every separate parcel must be either put up to sale or divided : if there is a residence, or a park or pleasure-ground, which would be destroyed, as sucb, by subdivision, it must be sold, perhaps at a great sa- crifice both of money and of feeling. But what the law could not do, the parent could. By means of the liberty of bequest, all these points might be determined according to reason and the general interest of the persons con- cerned ; and the spirit of the principle of equal division might be the better ob- served, because the testator was eman- cipated from its letter. Finally, it would not then be necessary, as under the compulsory system it is, that the law should interfere authoritatively in the concerns of individuals, not only on the occurrence of a death, but through- out life, in order to guard against the attempts of parents to frustrate the legal claims of their heirs, under colour of gifts and other alienations inter vivos. In conclusion; all owners of pro- perty should, I conceive, have power to dispose by will of every part of it, but not to determine the person who should succeed to it after the death of all who were living when the will was made. Under what restrictions it should be allowable to bequeath pro- perty to one person for life, with re- mainder to another person already in existence, is a question belonging to general legislation, not to political economy. Such settlements would bg no greater hindrance to alienation than any case of joint ownership, since the consent of persons actually in existence is all that would be necessary for any new arrangement respecting the pro perty. 5. From the subject of Inherit- ance I now pass to that of Contracts, and among these, to the important subject of the Laws of Partnership. How much of good or evil depends upon these laws, and how important it is that they should be the best pos- sible, is evident to all who recognise in the extension of the co-operative principle in the larger sense of the term, the great economical necessity of modern industry. The progress of the productive arts requiring that many sorts of industrial occupation should be carried on by larger and larger capitals, the productive power of industry must suffer by whatever im- pedes the formation of large capitals through the aggregation of smaller ones. Capitals of the requisite magni- tude, belonging to single owners, do not, in most countries, exist in the needful abundance, and would be still less numerous if the laws favoured the diffusion instead of the concentration of property : while it is most unde- sirable that all those improved pro- cesses, and those means of efficiency and economy in production, which de- pend on the possession of large funds, should be monopolies in the hands of a few rich individuals, through the diffi- culties experienced by persons of mo- derate or small means in associating their capital. Finally, I must repeat my conviction, that the industrial eco- nomy which divides society absolutely into two portions, the payers of wages and the receivers of them, the first counted by thousands and the last by millions, is neither fit for, nor capable of, indefinite duration : and the possi- bility of changing this system for one of combination without dependence, and unity of interest instead of organized hostility, depends altogether upon the future developments of the Partnership principle. 542 Yet there is scarcely any country whose laws do not throw great, and in most cases, intentional obstacles in the way of the formation of any numerous partnership. In England it is already a serious discouragement, that differ- ences among partners are, practically speaking, only capable of adjudication by the Court of Chancery : which is often worse than placing such questions out of the pale of all law ; since any one of the disputant parties, who is either dishonest or litigious, can involve the others at his pleasure in the ex- pense, trouble, and anxiety, which are the unavoidable accompaniments of a Chancery suit, without their having the power of freeing themselves from the infliction even by breaking up the association.* Besides this, it required, until lately, a separate act of the legis- lature before any joint-stock association could legally constitute itself, and be empowered to act as one body. By a statute passed a few years ago, this necessity is done away ; but the statute in question is described by competent authorities as a " mass of confusion," of which they say that there "never was such an infliction" on persona entering * Mr. Cecil Fane, the Commissioner of the Bankruptcy Court, in his evidence before the Committee on the Law of Partnership, says : " I remember a short time ago reading a written statement by two eminent solici- tors, who said that they had known many partnership accounts go into Chancery, but that they never knew one come out. . . . Very few of the persons who would be dis- posed to engage in partnerships of this kind" (co-operative associations of working men) " have any idea of the truth, namely, that the decision of questions arising amongst partners is really impracticable. " Do they not know that one partner may rob the other without any possibility of his obtaining redress ? The fact is so ; but whether they know it or not I cannot under- take to say." This flagrant injustice is, in Mr. Fane's opinion, wholly attributable to the defects of the tribunal. "" My opinion is, that if there is one thing more easy than another, it is the settlement of partnership questions, and for the simple reason, that everything which is done in a partnership is entered in the books; the evidence therefore is at hand; if therefore a rational mode of proceeding were once adopted, the difficulty would altogether vanish." Minutes of Evidence annexed to the Report of the Select Committee ou the aw of Partnership (1851), pp. 85-7, BOOK V. CHAPTER IX. 6. '.'p.f When a number of persons, whether few or many, freely desire to unite their funds for a com- mon undertaking, not asking any pecu- liar privilege, nor the power to dispos- sess any one of property, tho law can have no good reason for throwing clif- j ficulties in the way of the realiz;;; of the project. On compliance with a I few simple conditions of publicity, any body of persons ought to have the power of constituting themselves into a joint-stock company, or socitte en nom collectifj without asking leave either of any piiblic officer or of parlia- ment. As an association of many partners must practically be under the management of a few, every facility ought to be afforded to the body for exercising the necessary control and check over those few, whether thev be themselves members of the association, or merely its hired servants : and in this point the English system is still at a lamentable distance from the standard of perfection. 6. WTiatever facilities, however, English law might give to associations formed on the principles of ordinary partnership, there is one sort of joint- stock association which until the year 1855 it absolutely disallowed, and which could only be called into exist- ence by a special act either of the legis- lature or of the crown. I mean, asso- ciations with limited liability. Associations with limited liability are of two kinds : in one, the liability of all the partners is limited, in the other that of some of them only. The first is the Anonymous Society of the French law, which in England had until lately no other name than that of " chartered company:" meaning there- by a joint-stock company whose share- holders, by a charter from the crown or a special enactment of the legislature, stood exempted from any liability for the debts of the concern, beyond" the amount of their subscriptions. The other species of limited partnership is that known to the French law under the name ofcommandite; of this, whic ft f Btport, at supra, p, 16^ PARTNERSHIP. 543 in England is still unreci/gTUsect and illegal, I shall speak presently. If a number of persons choose to as- sociate for carrying on any operation of commerce or industry, agreeing among themselves and announcing to those with whom they deal that the members of the association do not un- dertake to be responsible beyond the amount of the subscribed capital ; is there any reason that the law should raise objections, to this proceeding, and should impose on them the unlimited responsibility which they disclaim 1 ? For whose sake ? Not for that of the partners themselves; for it is they whom the limitation of responsibility benefits and protects. It must there- fore be for the sake of third parties ; namely, those who may have transac- tions with the association, and to whom it may run in debt beyond what the subscribed capital suffices to pay. But nobody is obliged to deal with the as- sociation ; stiil less is any one obliged to give it unlimited credit. The class of persons with whom such associa- tions have dealings are in general per- fectly capable of taking care of them- selves, and there seems no reason that the law should be more careful of their interest than they will themselves be ; provided no false representation is held out, and they are aware from the first what they have to trust to. The law is warranted in requiring from all joint-stock associations with limited responsibility, not only that the amount of capital on which they profess to carry on business should either be ac- tually paid up or security given for it (if, indeed, with complete publicity, such a requirement would be neces- sary) but also that such accounts should be kept, accessible to individuals, and if needful, published to the world, as shall render it possible to ascertain at any time the existing state of the company's affairs, and to learn whether the capital which is the sole security for the engagements into which -they enter, still 'subsist unimpaired : the fidelity of such accounts being guarded by sufficient penalties. When the law has thus afforded to individuals all practicable means of knowing the cir- cumstances which ought to enter into their prudential calculations in dealing with the company, there seems no more need for interfering with indivi- dual judgment in this sort of transac- tions, than in any other part of the private business of life. The reason usually urged for such interference is, that the managers of an association with limited responsi- bility, not risking their whole fortunes in the event of loss, while in case of gain they might profit largely, are not sufficiently interested in exercising due circumspection, and are under the temptation of exposing the funds of the association to improper hazards. It is, however, well ascertained that associations with unlimited responsi- bility, if they have rich shareholders, can obtain, even when known to be reckless in their transactions, improper credit to an extent far exceeding what would be given to companies equally ill-conducted whose creditors had only the subscribed capital to rely on.* To whichever side the balance of evil in- clines, it is a consideration of more importance to the shareholders them- selves than to third parties ; since, with proper securities for publicity, the capital of an association with limited liability could not be engaged in hazards beyond those ordinarily in- cident to the business it carries on, without the fact's being known, and becoming the subject of comments by which the credit of the body would bo likely to be affected in quite as great a degree as the circumstances would justify. If, under securities for pub- licity, it were found in practice that companies, formed on the principle of unlimited responsibility, were more skilfully and more cautiously managed, companies with limited liability would be unable to maintain an equal compe- tition with them ; and would therefore rarely be formed, unless when such limitation was the only condition on which the necessary amount of capital could be raised : and in that case it would be very unreasonable to say that their formation ought to be prevented, * See the EeporJ; already freferred to pp. 145-158, 544 It may further be remarked, that although, with equality of capital, a company of limited liability offers a somewhat less security to those who deal with it, than one in which every shareholder is responsible with his whole fortune, yet even the weaker of these two securities is in some respects stronger than that which an individual capitalist can afford. In the case of an individual, there is such security as can be founded on his unlimited lia- bility, but not 'that derived from pub- licity of transactions, or from a known and large amount of paid-up capital. This topic is well treated in an able paper by M. Coquelin, published in the Revue des Deux Mondes for July 1843.* " While third parties who trade with individuals," says this writer, " scarcely ever know, except by ap- proximation, and even that most vague and uncertain, what is the amount of capital responsible for the performance of contracts made with them, those who trade with an anonymous society can obtain full information if they seek it, and perform their operations with a feeling of confidence that cannot exist in the other case. Again, nothing is easier than for an individual trader to conceal the extent of his engagements, as no one can know it certainly but himself. Even his confidential 'clerk may be ignorant of it, as the loans he finds himself compelled to make may not all be of a character to require that they be entered in his day-book. It is a secret confined to himself; one^ which transpires rarely, and always* slowly ; one which" is unveiled only when the catastrophe has occurred. On the contrary, the anonymous so- ciety neither can nor ought to borrow, without the fact becoming known to all the world directors, clerks, share- holders, and the public. Its operations partake in some respects, of the nature of those of governments. The light of day penetrates in every direction, and there can be no secrets from those who * The quotation is from a translation pub- lished by Mr. H. C. Carey, in an American periodical, Hunft Merchant" t Magazine, for May and June 1845. BOOK V. CHAPTER IX. 6. seek for information. Thus all is fixed, recorded,, known, of the capital and debts in the case of the anonymous society, while all is uncertain and un- known in the case of the individual trader. "Which of the two, we would ask the reader, presents the most favourable aspect, or the surest gua- rantee, to the view of those who trade with them ? "Again, availing himself of the obscurity in which his affairs are shrouded, and which he desires to in- qjease, the private trader is enabled, so long as his business appears pros- perous, to produce impressions in re- gard to his means far exceeding the reality, and thus to establish a credit not justified by those means. When losses occur, and he sees himself threatened with bankruptcy, the world is still ignorant of his condition, and he finds himself enabled to contract debts far beyond the possibility of payment. The fatal day arrives, and the creditors find a debt much greater than had been anticipated, while the means of payment are as much less. Even this is not all. The same ob- scurity which has served him so well thus far, when desiring to magnify his capital and increase his credit, now affords him the opportunity of placing a part of that capital beyond the reach of his creditors. It becomes dimi- nished, if not annihilated. It hides itself, and not even legal remedies, nor the activity of creditors, can brint: it forth from the dark corners in which it is placed Our readers can readily determine for themselves if practices of this kind are equally easy in the case of the anonymous society. We do not doubt that such things are possible, but we think tjiat they will agree with us that from its nature, its organization, and the necessary pub- licity that attends all its actions, the liability to such occurrences is very greatly diminished." The laws of most countries, England included, have erred in a twofold man- ner with regard to joint-stock com- panies. While they have been most unreasonably jealous of allowing such associations to exist, especially with PARTNERSHIP. limited responsibility, they have gene- rally neglected the enforcement of publicity ; the best security to the public against any danger which might arise from this description of partner- ships ; and a security quite as much required in the case of those associa- tions of the kind in question, which, by an exception from their general practice, they suffered to exist. Even in the instance of the Bank of Eng- land, which holds a monopoly from the legislature, and has had partial control over a matter of so much public inte- rest as the state of the circulating medium, it is only within these few years that any publicity has been en- forced ; and the publicity was at first of an extremely incomplete character, though now, for most practical pur- poses, probably at length sufficient. 7. The other kind of limited part- nership which demands our attention, is that in which the managing partner or partners are responsible with their whole fortunes for the engagements of the concern, but have others associated with them who contribute only definite sums, and are not liable for anything beyond, though they participate in the profits according to any rule which may be agreed on. This is called partnership in commandite: and the partners with limited liability (to whom, by the French law, all inter- ference in the management of the con- cern is interdicted) are known by the name commanditaires. Such partner- ships are not allowed by English law : in all private partnerships, whoever shares in the profits is liable for the debts, to as plenary an extent as the managing partner. For such prohibition no satisfactory defence has ever, so far as I am aware, been made. Even the insufficient reason given against limiting the re- sponsibility of shareholders in a joint- stock company, does not apply here ; there being no diminution of the motives to circumspect management, since all who take any part in the direction of the concern are liable with their whole fortunes. To third parties, again, the security is improved by the P.E. existence of commandite ; since the amount subscribed by commanditaires is all of it available to creditors, the commanditaires losing their whole in- vestment before any creditor can lose anything ; while, if instead of becoming partners to that amount, they had lent the sum at an interest equal to the profit they derived from it, they would have shared with the other creditors in the residue of the estate, diminish- ing pro rata the dividend obtained by all. While the practice of commandite thus conduces to the interest of cre- ditors, it is often highly desirable for the contracting parties themselves. The managers are enabled to obtain the aid of a much greater amount of capital than they could borrow on their own security ; and persons are induced to aid useful undertakings, by embarking limited portions of capital in them, when they would not, and often could not prudently, have risked their whole fortunes on the chances of the enterprise. It may perhaps be thought that where due facilities are afforded to joint-stock companies, commandite partnerships are not required. But there are classes of cases to which the commandite principle must always be better adapted than the joint- stock principle. " Suppose," says M. Coquelin, " an inventor seeking for a capital to carry his invention into practice. To obtain the aid of capi- talists, he must offer them a share of the anticipated benefit ; they must as- sociate themselves with him in the chances of its success. In such a case, which of the forms would he select? Not a common partnership, certainly ;" for various reasons, and especially the extreme difficulty of finding a partner with capital, willing to risk his whole fortune on the success of the inven- tion.* " Neither would he select the * " There has been a great deal of com- miseration professed," says Mr. Duncan, solicitor, "towards the poor inventor; ho has been oppressed by the high cost of patents ; but his chief oppression has been the partnership law, which prevents his getting any one to help him to develop his invention. He is a poor man, and therefore cannot give security to a creditor; no one will lend him money: the rate of interest N N 546 BOOK V. CHAPTER IX. 7. Anonymous Society," or any other form j of joint-stock company, " in -which he i might be superseded as manager. He j would stand, in such an association, on i no better footing than any other share- ! holder, and he might be lost in the crowd ; whereas, the association ex- isting, as it were, by and for him, the management would appear to belong to him as a matter of right. Cases occur in which a merchant or a manu- facturer, without being precisely an : inventor, has undeniable claims to the management of an undertaking, from , the possession of qualities peculiarly calculated to promote its success. So great, indeed," continues M. Coquelin, "is the necessity, in many cases, for the limited partnership, that it is diffi- j cult to conceive how we could dis- pense with or replace it :" and in re- ference to his own country he is pro- bahlv in the right. Where there is so great a readiness as in England, on the part of the public, to form joint-stock associations, even without the encouragement of a limitation of responsibility ; comman- dite partnership, though its prohibition is in principle quite indefensible, can- not be deemed to be, in a merely eco- offered, however high it may be, is not an attraction. But if by the alteration of the law be could allow capitalists to take an interest with him and share the profits, while the risk should be confined to the capital they embarked, there is very little doubt at all "that he would frequently get assistance from capitalists ; whereas at the present moment, with the law as it stands, he is com- pletely destroyed, and his invention is useless to him ; he struggles month after month ; he applies again and again to the capitalist without avaiU I know it practically in two or three cases of patented inventions ; espe- cially one where parties with capital were desirous of entering into an undertaking of great moment in Liverpool, but five or six different gentlemen were deterred from doing so, ail feeling the strongest objection to what each one called the cursed partnership law." Report, p. 155. Mr. !' H nc sa. vs, ' ' In the course of my pro- fessional life, as a Commissioner of the Court of Bankruptcy, I have learned that the most unfortunate man in the world is an inventor. ! Tiie difficulty which an inventor finds in getting at capital, involves him in all sorts of embarrassments, and he ultimately is for the most part a vuinc.i mm, an 1 somebody els? gets possession of his invention." ij. p. 82. nomical point of view, of the imperative necessity which M. Coquelin ascribes to it. Yet the inconveniences are not small, which arise indirectly from those provisions of the law by which every one who shares in the profits of a con- cern is subject to the full liabilities of an unlimited partnership. It is impos- sible to say how many or what useful modes of combination are rendered impracticable by this state of the law. It is sufficient for its condemnation that, unless in some way relaxed, it is inconsistent with the payment of wages in part by a percentage on profits ; in other words, the association of the operatives as virtual partners with the capitalist.* It is, above all, with reference to the improvement and elevation of the work- ing classes, that confplete freedom in the conditions of partnership is indis- pensable. Combinations such as the associations of workpeople, described in a former chapter, are the most powerful means of effecting the social emancipation of the labourers through their own moral qualities. Nor is the liberty of association important solely for its examples of success, but fully as much so for the sake of attempts which would not succeed ; but by thsir failure would give instruction more im- pressive than can be afforded by any- thing short of actual experience. Every theory of social improvement, the worth of which is capable of being brought to an experimental test, should be per- mitted, and even encouraged, to sub- mit itself to that test. From such experiments the active portion of the working classes would derive lessons which they would be slow to learn from the teaching of persons supposed to have interests and prejudices adverse to their good ; would obtain the means of correcting, at no cost to society, what- ever is now erroneous in their notions of the means of establishing their in- dependence ; and of discovering the con- ditions, moral, intellectual, and indus- * It is considered possible to effect this through the Limited Liability Act, by erecting the capitalist and his workpeople into a Limited Company: as proposed by Messrs. Briggs (supra, p. 4.65). PARTNERSHIP. 547 trial, which are indispensably necessary for effecting without injustice, or for effecting at all, the social regeneration they aspire to.* The French law of partnership is superior to the English in permitting commandite ; and superior, in having no such unmanageable instrument as the Court of Chancery, all cases arising from commercial transactions being adjudicated in a comparatively cheap and expeditious manner by a tribunal of merchants. In other respects the French system is far worse than the English. A joint-stock company with limited responsibility cannot be formed without the express authorization of the department of government called the Council of State, a body of admi- nistrators, generally entire strangers to industrial transactions, who have no interest in promoting enterprises, and are apt to think that the purpose of their institution is to restrain them ; whose consent cannot in any case be obtained without an amount of time and labour which is a very serious hindrance to the commencement of an. enterprise, while the extreme uncer- tainty of obtaining that consent at all is a great discouragement to capitalists who would be willing to subscribe. In regard to joint-stock companies with- out limitation of responsibility, which in England exist in such numbers and are formed with such facility, these associations cannot, in France, exist at all ; for, in cases of unlimited partner- ship, the French law does not permit the division of the capital into trans- ferable shares. The best existing Jaws of partner- fillip appear to be those of the New * By an act of the year 1852, called the Industrial and Provident Societies Act, for which the nation is indebted to the public- Bpirited exertions of Mr. Slaney, industrial associations of working people are admitted to the statutory privileges of Friendly So- cieties. This not only exempts them from the formalities applicable to joint-stock com- panies, but provides for the settlement of disputes among the partners without recourse to the Court of Chancery. There are still some defects in the provisions of this Act, which hamper the proceedings of the Societies in several respects ; as is pointed lea in the Almanack of the Rochdale Equit- obutPioneere ibr 18G1, England States. According to Mr. Carey, t " nowhere is association so little trammelled by regulations as in New England ; the consequence of which is, that it is carried to a greater extent there, and particularly in Massa- chusetts and Rhode Island, than in any other part of the world, In these states, the soil is covered with com- paf/nies anonymes chartered compa- nies for almost every conceivable purpose. Every town is a corporation for the management of its roads, bridges, and schools ; which are, therefore, under the direct control of those who pay for them, and are consequently well managed. Academies and churches, l_yceums and libraries, saving-fund so- cieties, and trust companies, exist in numbers proportioned to the wants of the people, and all are corporations Every district has its locaJ bank, of a size to suit its wants, the stock of which is owned by the small capitalists of the neighbourhood, and m inaged by themselves , the consequence of which is, that in no part of the world is the system of banking so perfect so little liable to vibration in the amount of loans the necessary effect of which is, that in none is the value oi property so little affected by changes in the amount or value of the cur-ency re- sulting from the movements of their own banking institutions. In the two states to which we have particularly referred, they are almost two hundred in number. Massachusetts, alone, offers to our view fifty-three insurance offices, of various forms, scattered through the state, and all incorporated. Factories aro incorporated, and arc owned in shares ; and every one thai has any part in the manag'ement ot their concerns, from the purchase of the raw material to the sale of the manufactured article, is a part owner ; while every one emplo}'ed in them has a prospect of becoming one, by the use of prudence, exertion, and economy. Charitable associations exist in largo numbers, and all are incorporated. Fishing vessels are owned in shares by those who navigate them ; and the t In a note appended to his translation of M. Coqueliu's paper. 548 BOOK V. CHAPTER IX. 8. sailors of a whaling ship depend in a great degree, if not altogether, upon the success of the voyage for their ;ompensation. Every master of a ves- sel trading in the Southern Ocean is a part owner, and the interest he pos- sesses is a strong inducement to exer- tion and economy, hy aid of which the Seople of New England are rapidly riving out the competition of other nations for the trade of that part of the world. Wherever settled, they ex- hihit the same tendency to comhination of action. In New York they are the chief owners of the lines of packet ships, which are divided into shares, owned hy the shipbuilders, the mer- chants, the master, and the mates; which last generally acquire the means of becoming themselves masters, and to this is due their great success. The system is the most perfectly democratic of any in the world. It affords to every labourer, every sailor, every ope- rative, male or female, the prospect of advancement ; and its results are pre- cisely such as we should have reason to expect. In no part of the world are talent, industry, and prudence, so cer- tain to be largely rewarded." The cases of insolvency and fraud on the part of chartered companies in America, which have caused so much loss and so much scandal in Europe, did not occur in the part of the Union to which this extract refers, but in other States, in which the right of as- sociation is much more fettered by legal restrictions, and in which, accordingly, joint-stock associations are not compa- rable in number or variety to those of New England. Mr. Carey adds, " A careful examination o.f the systems of the several states, can scarcely, we think, fail to convince the reader of the advantage resulting from permit- ting men to determine among them- selves the terms upon which they will associate, and allowing the associations that may be formed to contract with the public as to the terms upon which they will trade together, whether of the'limited or unlimited liability of the partners." This principle has been adopted as the foundation of all recent English legislation on the subject. 8. I proceed to the subject of In- solvency Laws. Good laws on this subject are im- portant, first and principally, on the score of public morals ; which are on no point more under the influence of the law, for good and evil, than in a matter belonging so pre-eminently to the province of law as the preservation of pecuniary integrity. But the sub- ject is also, in a merely economical point of view, of great importance. First, because the economical well- being of a people, and of mankind, de- pends in an especial manner upon their being able to trust each other's en- gagements. Secondly, because one of the risks, or expenses, of industrial operations is the risk or expense of what are commonly called bad debts, and every saving which can be effected in this liability is a diminution of cost of production ; by dispensing with an item of outlay which in no way con- duces to the desired end, and which must be paid for either by the con- sumer of the commodity, or from the general profits of capital, according as the burthen is peculiar or general. The laws and practice of nations on this subject have almost always been in extremes. The ancient laws of most countries were all severity to the debtor. They invested the creditor with a power of coercion, more or less tyrannical, which he might use against his insolvent debtor, either to extort the surrender of hidden property, or to obtain satisfaction of a vindictive cha- racter, which might console him for the non-payment of the debt. This arbitrary power has extended, in some countries, to making the insolvent debtor serve the creditor as his slave: n which plan there were at least some grains of common sense, since it might possibly be regarded as a scheme ^for making him work out the debt bv his "abour. In England, the coercion as- sumed the milder form of ordinary im- prisonment. The one and the other . were the barbarous expedients of a rude age, repugnant to justice as well as to humanity. Unfortunately the reform of them, like that of the crimi- nal law generally, has been taken in INSOLVENCY. 549 hand as an affair of humanity only, not of justice : and the modish humanity of the present time, which is essen- tially a thing of one idea, has in this as in other cases, gone into a violent reaction against the ancient severity, and might almost be supposed to see in the fact of having lost or squan- dered other people's property, a pecu- liar title to indulgence. Everything in the law which attached disagreeable consequences to that fact, was gradu- ally relaxed, or entirely got rid of: until the demoralizing effects of this laxity became so evident as to deter- mine, by more recent legislation, a salutary though very insufficient move- ment in the reverse direction. The indulgence of the laws to those who have made themselves unable to pay their just debts, is usually de- fended, on the plea that the sole object of the law should be, in case of insol- vency, not to coerce the person of the debtor, but to get at his property, and distribute it fairly among the creditors. Assuming that this is and ought to be the sole object, the mitigation of the law was in the first instance carried so far as to sacrifice that object. Impri- sonment at the discretion of a creditor was really a powerful engine for ex- tracting from the debtor any property which he had concealed or otherwise made away with : and it remains to be shown by experience whether, in de- priving creditors of this instrument, the law, even as last amended, has fur- nished them with a sufficient equiva- lent. But the doctrine, that the law has done all that ought to be expected from it, when it has put the creditors in possession of the property of an in- solvent, is in itself a totally inadmis- sible piece of spurious humanity. It is the business of law to prevent wrong- doing, and not simply to patch up the consequences of it when it has been committed. The law is bound to take care that insolvency shall not be a good pecuniary speculation ; that men shall not have the privilege of hazarding Other people's property without their knowledge or consent, taking the profits of the enterprise if it is successful, and if it fails, throwing the loss upon the rightful owners ; and that they shall not find it answer to make them- selves unable to pay their just debts, by spending the money of their credi- tors in personal indulgence. It is admitted that what is technically called fraudulent bankruptcy, the false pre- tence of inability to pay, is, when detected, properly subject to punish- ment. But does it follow that insol- vency is not the consequence of mis- conduct because the inability to pay may be real ? If a man has been a spendthrift, or a gambler, with property on which his creditors had a prior claim, shall he pass scot-free because the mischief is consummated and the money gone? Is there any very mate- rial difference in point of morality between this conduct, and those other kinds of dishonesty which go by the names of fraud and embezzlement ? Such cases are not a minority, but a large majority among insolvencies. The statistics of bankruptcy prove the fact. " By far the greater part of all insolvencies arise from notorious mis- conduct ; thu proceedings of the In- solvent Debtors Court and of the Bankruptcy Court will prove it. Ex- cessive and unjustifiable overtrading or most absurd speculation in com- modities, merely because the poor spe- culator ' thought they would get up,' but why he thought so he cannot tell ; speculation in hops, in tea, in silk, in corn things with which he is alto- gether unacquainted ; wild and absurd investments in foreign funds, or in joint-stocks ; these are among the most innocent causes of bankruptcy.''* The experienced and intelligent writer from whom I quote, corroborates his assertion by the testimony of several of the official assignees of the Bank- ruptcy Court. One of them says, " As far as I can collect from the books and documents furnished by the bankrupts, it seems to me that" in the whole number of cases which occurred during a given time in the court to which he was attached, " fourteen have been ruined by spe- * From a volume published in 1845, en- titled, Credit the Life of Commerce, by Mr J. H. Elliott. 550 dilations in tinners with winch they were unacquainted ; three by neglect- ing book-keeping; ten by trading beyond their capital and means, and the consequent loss and expense of accommodation-bills ; forty-nine by ex- pending more than they could rea- sonably hope their profits would be, though their business yielded a fair return ; none by any general distress, or the falling off of any particular branch of trade.' 1 Another of these officers says that, during a period of eighteen months, " fifty-two cases of bankruptcy have come under my care It is my opinion that thirty-two of these have arisen from an imprudent expenditure, and five partly from that cause, and partly from a pressure on the business in which the bankrupts were employed. Fifteen I attribute to improvident speculations, combined in many instances with an extravagant mode of life." To these citations the author adds the following statements from his per- sonal means of knowledge. ' ; 31 any insolvencies are produced by trades- men's indolence ; they keep no books, or at least imperfect ones, which they never balance ; they never take stock ; they employ servants, if their trade be extensive, whom they are too in- dolent even to supervise, and then become insolvent. It is not too much to say, that one-half of all the persons engaged in trade, even in London, never take stock at all : they go on year after year without knowing how their affairs stand, and at last, like the child at school, they find to their sur- prise, but o-io halfpenny left in their pocket. 1 \viil venture to say that not one-fourth of all the persons in the provinces, either manufacturers, trades- men, or farmers, ever take stock ; nor in fact does one-half of them ever keep account-books, deserving any other name than memorandum-books. I know sufficient of the concerns of five hundred small tradesmen in the provinces, to be enabled to say, that not one-fifth of them ever take stock, or keep even the most oixlinary ac- counts. I am prepared to say of such tradesmen, from carefully-prepared BOOK V. CHAPTER IX. 8. tables, giving every advantage where there has been any doubt as to the causes of their insolvency, that where nine happen from extravagance or dishonesty, one" at most "may be referred to misfortune alone." * Is it rational to expect among the trading classes any high sense of justice, honour, or integrity, if the law enables men who act in this manner to shuffle off the consequences of their misconduct upon those who have been so unfortunate as to trust them ; and practically proclaims that it looks upon insolvency thus produced, as a " misfortune," not an offence t It is, of course, not denied, that in- solvencies do arise from causes beyond the control of the debtor, and that, iu many more cases, his culpability is not of a high order ; and the law ought to make a distinction in favour of such cases, but not without a searching in- vestigation ; nor should the case ever be let go without having ascertained, iu the most complete manner practi- cable, not the fact of insolvency only, but the cause of it. To have been trusted with money or money's worth, and to have lost or spent it, is primd facie evidence of something wrong: "and it is not for the creditor to prove, which he cannot do in one case out of ten, that there has been criminality, but for the debtor to rebut the pre- sumption, by laying open the wlicb state of his affairs, and showing either that there has been no misconduct, or that the misconduct has been of an excusable kind. If he fail in this, ho ought never to be dismissed without a punishment proportioned to the degree of blame which seems justly imputable to him ; which punishment, however, might be shortened or mitigated in proportion as he appeared likely to exert himself in repairing the injury done. It is a common argument with those who approve a relaxed system of in- solvency laws, that credit, except in the great operations of commerce, is an evil ; and that to deprive creditors of legal redress is a judicious means of preventing credit from being given. * Pp. 50-1. INSOLVENCY 551 That which is given by retail dealers to unproductive consumers is, no doubt, to the excess to which it is car- ried, a considerable evil. This, how- ever, is only true of large, and espe- cially of long, credits ; for there is credit whenever goods are not paid for before they quit the shop, or, at least, the custody of the seller; and there would be much inconvenience in put- ting an end to this sort of credit. But a large proportion of the debts on whicli insolvency laws take effect, are those due by small tradesmen to the dealers who supply them : and on no class of debts does the demoralization occasioned by a bad state of the law, operate more perniciously. These are commercial credits, which no one wishes to see curtailed ; their existence is of great importance to the general industry of the country, and to numbers of honest, well-conducted persons of small means, to whom it would be a great injury that they should be pre- vented from obtaining the accommo- dation they need, and would not abuse, through the omission of the law to provide just remedies against dishonest or reckless borrowers. But though it were granted that retail transactions, on any footing but that of ready money payment, are an evil, and their entire suppression a fit object for legislation to aim at; a worse mode of compassing that object could scarcely be invented, than to permit those who have been trusted by others to cheat and rob them with im- punity. The law does not generally .select the vices of mankind as the ap- propriate instrument for inflicting chas- tisement on the comparatively inno- cent : when it seeks to discourage any course of action, it does so by applying inducements of its own, not by outlaw- ing- those who act in the manner it deems objectionable, and letting loose the predatory^ instincts of the worthless part of mankind to feed upon them. If a man has committed murder, the law condemns him to death ; but it does not promise impunity to anybody who may kill him for the sake of taking his purse. The offence of believing an- other's word, even rashly, is not so heinous that, for the sake of discourag- ing it, the spectacle should be brought home to every door, of triumphant ras- cality, with the law on its side, mock- ing the victims it has made. This pestilent example has been very widel}' exhibited since the relaxation of the insolvency laws. It is idle to expect that, even by absolutely depriving cre- ditors of all legal redress, the kind of credit which is considered objection- able would really be very much checked. Rogues and swindlers are still an ex- ception among mankind, and people will go on trusting each other's pro- mises. Large dealers, in abundant business, would refuse credit, as many of them already do : but in the eager competition of a great town, or the de- pendent position of a village shop- keeper, what can be expected from the tradesman to whom a single customer is of importance, the beginner, perhaps, who is striving to get into business? He will take the risk, even if it were still greater ; he is ruined if he cannot sell his goods, and he can but be ruined if he is defrauded. Nor does it avail to say, that he ought to make proper inquiries, and ascertain the character of those to whom he supplies goods on trust. In some of the most flagrant cases of profligate debtors which have come before the Bankruptcy Court, the swindler had been able to give, and had given, excellent references.* * The following extracts from the French Code of Commerce, (the translation is that of Mr. Fane,) show the great extent to which the just distinctions are made, and the proper investigations provided for, by French law. The word banqueroute, which can only be translated by bankruptcy, is, however, confined in France to culpable insolvency, which is distinguished into simple bank- ruptcy and fraudulent bankruptcy. The following are cases of simple bankruptcy : "Every insolvent who, in the investigation of his affairs, shall appear chargeable with one or more of the following oifences, shall be proceeded against as a simple bank- rupt. "If his house expenses, which he is bound to enter regularly in a day-book, appear excessive. " If he has spent considerable sums at play, or in operations of pure hazard. " If it shall appear that he has borrowed .argely, or resold merchandize at a loss, or below the current price, after it appeared by 552 BOOK V. CHAPTER X. 1. CHAPTER X. OP INTERFERENCES OP GOVERNMENT GROUNDED ON ERRONEOUS THEORIES. 1. FROM the necessary functions of government, and the effects produced on the economical interests of society by their good or ill discharge, we pro- ceed to the functions which belong to \vhat I have termed, for want of a better designation, the optional class ; those which are sometimes assumed by governments and sometimes not, and which it is not unanimously admitted that they ought to exercise. Before entering on the general prin- ciples of the question, it will be ad- visable to clear from our path all those cases, in which government interfer- ence works ill, because grounded on false views of the subject interfered with. Such cases have no connexion with any theory respecting the proper limits of interference. There are some things with which governments ought not to meddle, and other things with which they ought ; but whether right or wrong in itself, the interference must work for ill, if government, not his last account-taking that his debts ex- ceeded his assets by one-half. " If he has issued negotiable securities to three times the amount of his avail- able assets, according to his last account- taking. " The following nay also be proceeded ugainst as simple bankrupts : " He who has not declared his own insol- vency in the manner prescribed by law: " He who has not come in and surrendered within the time limited, having no legitimate excuse for his absence : " He who either produces no books at all, or produces such as have been irregularly kept, and this although the irregularities may not indicate fraud." The penalty for "simple bankruptcy" is imprisonment for a term of not less than one month, nor more than two years. The fol- lowing are cases of fraudulent bankruptcy, of which the punishment is compulsory labour (the galleys) for a term : " If he has attempted to account for his property by fictitious expenses and losses, or if he does not fully account for all his receipts : understanding the subject which it meddles with, meddles to bring^ about a result which would be mischievous. We will therefore begin by passing in review various false theories, which have from time to time formed the ground of acts of government more or "less economically injurious. Former writers on political economy have found it needful to devote much trouble and space to this department of their subject. It has now happily be- come possible, at least in our own country, greatly to abridge this purely negative part of our discussions. The false theories of political economy which have done so much mischief in times past, are entirely discredited among all who have not lagged behind the general progress of opinion ; and few of the enactments which were once grounded on those theories still help to deform the statute-book. As the prin- ciples on which their condemnation rests, have been fully set forth in other " If he has fraudulently concealed any sum of money or any debt due to him, or any merchandize or other moveables : " If he has made fraudulent sales or gifts of his property : " If he has wlloirsd fictitious debts to be proved against his estate : "If he has been entrusted with, pro- perty, either merely to keep, or with special directions as to its use, and has nevertheless appropriated it to his own use: " If he has purchased real property in a borrowed name : " If he has concealed his books. " The following may also be proceeded against in a similar way : "He who has not kept books, or whose books shall not exhibit his real situation as regards his debts and credits. " He who, having obtained a protection (tauf-conduit), shall not have duly at- tended." These various provisions relate only to commercial insolvency. The laws in regard to ordinary debts are eonsiderabjy more rigorous to the debtor. PROTECTIONISM. 553 parts of this treatise, we may here content ourselves with a few brief in- dications. Of these false theories, the most notable is the doctrine of Protection to Native Industry ; a phrase meaning the prohibition, or the discouragement by heavy duties, of such foreign com- modities as are capable of being pro- duced at home. If the theory involved in this system had been correct, the practical conclusions grounded on it would not have been unreasonable. The theory was, that to buy things produced at home was a national bene- fit, and the introduction of foreign commodities, generally a national loss. It being at the same time evident that the interest of the consumer is to buy foreign commodities in preference to domestic whenever they are either cheaper or better, the interest of the consumer appeared in this respect to be contrary to the public interest ; he was certain, if left to his own inclina- tions, to do what according -to the theory was injurious to the public. It was shown, however, in our analysis of the effects of international trade, as it had been often shown by former writers, that the importation of foreign commodities, in the common course of traffic, never takes place, ex- cept when it is, economically speaking, a national good, by causing the same amount of commodities to be obtained at a smaller cost of labour and capital to the country. To prohibit, therefore, this importation, or impose duties which prevent it, is to render the labour and capital of the country less efficient in production than they would other- wise be ; and compel a waste, of the difference between the labour and capital necessary for the home produc- tion of the commodity, and that which is required for producing the things with which it can be purchased from abroad. The amount of national loss thus occasioned is measured by the excess of the price at which the com- modity is produced, over that at which it could be imported. In the case of manufactured goods, the whole diffe- rence between the two prices is ab- sorbed in indemnifying the producers for waste of labour, or of the capital which supports that labour. Those who are supposed to be benefited, namely the makers of the protected articles, (unless they form an exclusive company, and have a monopoly against their own countrymen as well as against foreigners,) do not obtain higher profits than other people. All is sheer loss, to the country as well as to the consumer. When the protected article is a product of agriculture the waste of labour not being incurred on the whole produce, but only on what may be called the last instalment of it the extra price is only in part an indemnity for waste, the remainder being a tax paid to the landlords. The restrictive and prohibitory policy was originally grounded on what is called the Mercantile System, which representing the advantage of foreign trade to consist solely in bringing money into the country, gave artificial encouragement to exportation of goods, and discountenanced their importation. The only exceptions to the system were those required by the system itself. The materials and instruments of production were the subjects of a contrary policy, directed however to the same end ; they Avere freely im- ported, and not permitted to be ex- ported, in order that manufacturers, being more cheaply supplied with the requisites of manufacture, might be able to sell cheaper, and therefore to export more largely. For a similar reason, importation was allowed and even favoured, when confined to the productions of countries which were supposed to take from the country still more than it took from them, thus en- riching it by a favourable balance of trade. As part of the same system, colonies were founded, for the supposed advantage of compelling them to buy our commodities, or at all events not to buy those of any other country : in return for which restriction, we were generally \villing to come under an equivalent obligation with respect to the staple productions of the colonists. The consequences of the theory were pushed so far, that it Avas not unusual even to give bounties on exportation, 554 BOOK V. CHAPTER X. 1. and induce foreigners to buy from us rather than from other countries, by a cheapness which we artificially pro- duced, by paying part of the price for them out of our own taxes. This is a stretch beyond the point yet reached by any private tradesman in his com- petition for business. No shopkeeper, 1 should think, ever made a practice of bribing customers by selling goods to them at a permanent loss, making it up to himself from other funds in his possession. The principle of the Mercantile Theory is now given up even by writers and governments who still cling to the restrictive system. What- ever hold that system has over men's minds, independently of the private interests exposed to real or appre- hended loss by its abandonment, is derived from fallacies ether than the old notion of the benefits of heaping up money in the country. The most elective of these is the specious plea of employing our own countrymen and national industry, instead of feed- countries to make some corresponding relaxation of their own restrictions, or on the question whether those from whom we buy are induced by that cir- cumstance to buy more from us ; and that, if these things, or things equiva- lent to them, do not happen, the pay- ment must be made in money. Xow, in the first place, there is nothing more objectionable in a money pay- ment than in payment by any other medium, if the state of the market makes it the most advantageous re- mittance; and the money itself was first acquired, and would again be re- plenished, by the export of an equiva- lent value of our own products. But, in the next place, a very short interval Oi paying in money would so lower prices as either tc "stop a part of the importation, or raise Tip a foreign de- mand for our produce, sufficient to pay for the imports. I grant that this dis- turbance of the equation of interna- tional demand would be in some de- gree to our disadvantage, in the pur- chase of other imported articles ; and ing and supporting the industry of that a country which prohibits some foreigners. The answer to this, from foreign commodities, does, catteris the principles laid down in former chapters, is evident. Without revert- to the fundamental theorem dis- in an early part of the present ise,* respecting the nature and sources of employment for labour, it is t-;fri;nent to say, what has usually been partintg. obtain those which it does not prohibit, at a less price than it would otherwise have to pay. To ex- press the same thing in other words ; a country which destroys or prevents altogether certain branches of foreign trade, thereby annihilating a general "d by the advocates of free trade, j gain to the world, which would be it the alternative is not between em- i shared in some proportion between ying our ov,-n people and foreigners, Between employing one class and ither of our own people. The im- "1 commodity is always paid for, tly or indirectly, with the produce ar own industry : that industry iwt the same time, rendered re productive, since, with the same ir and outlay, we are enabled to i lurselves of a greater quantity he article. Those who have not considered the subject are apt to >e that our exporting an equiva- lent in our own produce, for the foreign articles we consume, depends on con- ies on the consent of foreign * Supra, pp 49-55. itself and othei countries does, in some circumstances, draw to itself, at the expense of 'foreigners, a larger share than would else belong to it of the gain arising from that portion of its foreign trade which it sulrers to subsist. But even this it can only be enabled to do, if foreigners do not maintain equivalent prohibitions or re- strictions against its commodities. In any case, the justice or expediency of destroying one of two gains, in order to engross a rather larger share of the other, does not require much discus- sion : the gain. too. which is destroyed, being, in proportion to the magnitude of the transactions, the larger of the two, since it is the one which capital, PROTECTIONISM. 553 le f 't to itself, is supposed to seek by preference. Defeated, as a general theory, the Protectionist doctrine finds support in some particular cases, from considera- tions which, when really in point, in- volve greater interests than mere sav- ing of labour ; the interests of national subsistence and of national defence. The discussions on the Corn Laws have familiarized everybody with the plea, that we ought to be independent of foreigners for the food of the people ; and the Navigation Laws were grounded, in theory and profes- sion, on the necessity of keeping up a "nursery of seamen" for the navy. On this last subject I at once admit, that the object is worth the sacrifice ; and that a country exposed to invasion by sea, if it cannot otherwise have suf- ficient ships and sailors of its own to secure the means of manning on an emergency an adequate fleet, is quite right in obtaining those means, even at an economical sacrifice in point of cheapness of transport. When the English navigation laws were enacted, the Dutch, from their maritime skill and their low rate of profit at home, were able to carry for other nations, England included, at cheaper rates than those nations could carry for themselves : which placed all other countries at a great comparative dis- advantage in obtaining experienced seamen lor their ships of war. The Navigation Laws, by which this de- ficiency was remedied, and at the same time a blow struck against the maritime power of a nation with which England was then frequently engaged in hostilities, were probably, though economically disadvantageous, politi- cally expedient. But English ships and sailors can now navigate as cheaply as those of any other country ; maintain- ing at least an equal competition with the other maritime nations even in their own trade. The ends which may once have justified Navigation Laws, require them no longer, and afforded no reason for maintaining this in- vidious exception to the general rule of free trade. "With regard to subsistence, the plea of the Protectionists ha:; been so often and so triumphantly met, that it re- quires little notice here. That country is the most steadily as well as the most abundantly supplied with food, which draws its supplies from the largest surface. It is ridiculous to found a general system of policv on so improbable a danger as that o; being at war with all the nations of the world at once ; or to suppose that, even if infei'ior at sea, a whole country could be blockaded like a town, or that the growers of food in other countries would not be as anxious not to lose an advantageous market, as we should be not to be deprived of their corn. On the subject, however, of subsistence, there is one point which deserves more especial consideration. In cases of actual or apprehended scarcity, many countries of Europe are accustomed to stop the exportation, of food. Is this, or not, sound policy ? There can bo no doubt that in the present state ot international morality, a p.ople can- not, any more than an individual, be blamed for not starving itseif to feed others. But if the greatest amount of good to mankind on the whole, were the end aimed at in the maxims ol international conduct, such collective churlishness would certainly be con- demned by them. [Suppose that in ordinary circumstances the trade in food were perfectly free, so that the price in one country could not habitu- ally exceed that in any other by more than the cost of carriage, together with a moderate proiit to the importer. A general scarcity ensues, affecting all countries, but in unequal degrees. If the price rose in one country more than in others, it would be a proof that in that country the scarcity was se- verest, and that by permitting food to go freely thither from any other conn try, it would be spared from a less urgent necessity to relieve a greater. When the interests, therefore, of all countries are considered, tree exporta- tion is desirable. To the exporting country considered separately, it may, at least on the particular occasion, be an inconvenience : but taking into ac- count that the country which is now 556 the giver, will in some future season be the receiver, and the one that is benefited by the freedom, I cannot but think that even to the apprehension of food-rioters it might be made apparent, that in such cases they should do to others what they would wish done to themselves. In countries in which the system of Protection is declining, but not v'it wholly given up, such as the United States, a doctrine has come into notice which is a sort of compromise between free trade and restriction, namely, that protection for protection's sake is im- proper, but that there is nothing ob- jectionable in having as much protec- tion as may incidentally result from a tariff framed solely for revenue. Even in England, regret is sometimes ex- pressed that a "moderate fixed duty" was not preserved on corn, on account of the revenue it would yield. Inde- pendently, however, of the general impolicy of taxes on the necessaries of life, this doctrine overlooks the fact, that revenue is received onlv on the BOOK V. CHAPTER X. 1. acquired skill and experience. A country which has this skill and ex- perience yet to acquire, may in other respects be better adapted to the pro- duction than those which were earlier in the field: and besides, it is a just remark of Mr. Rae, that nothing has a greater tendency to promote improve- ments in any branch of production, than its trial under a new set of conditions. But it cannot be expected that indi- viduals should, at their own risk, or rather to their certain loss, introduce a new manufacture, and bear the burthen of carrying it on until the producers have been educated up to the level of those with whom the pro- cesses are traditional. A protecting duty, continued for a reasonable time, will sometimes be the least inconve- nient mode in which the nation can tax itself for the support of such an experiment. But the protection should be confined to cases in which there is good ground of assurance that the in- dustry which it fosters will after a time be able to dispense with it ; nor quantity imported, but that the tax is j should the domestic producers ever be paid on the entire quantity consumed. : To make the public pay much that the treasury may receive a little, is not an eligible mode of obtaining a revenue. In the case of manufactured articles the doctrine involves a palpable incon- sistency. The object of the duty as a means of revenue, is inconsistent with its affording, even incidentally, any protection. It can only operate as protection in so far as it prevents im- portation ; and to whatever degree it prevents importation, it affords no revenue. The only case in which, on mere principles "of political economy, pro- tecting duties can be defensible, is allowed to expect that it will be con- tinued to them beyond the time neces- sary for a fair trial of what- they are capable of accomplishing. The only writer of any reputation as a political economist, who now adheres to the Protectionist doctrine, Mr. H. C. Carey, rests its defence, in an economic point of view, principally on two reasons. One is, the great saving in cost of carriage, consequent on pro- ducing commodities at or very near to the place where they are to be con- sumed. The whole of the cost of car- riage, both on the commodities im- ported and on those exported in ex- change for them, he regards as a when they are imposed temporarily j direct burthen on the producers, and 'especially in a young and rising na- ! not, as is obviously the truth, on the On whomsoever it falls, tion) in hopes of naturalizing a foreign industry, in itself perfectly suitable to the circumstances of the country. The superiority of one country over another in a branch of production, often arises only from having begun it sooner. There may be no inherent advantage on one part, or disadvantage on the other, but only a present superiority of consumers. Un whomsoever it it is, without doubt, a burthen on tho industry of the world. But it is ob- vious (and that Mr. Carey does not see it, is one of in^ many surprising things in his book) that the burthen is only borne for a more than equi- valent advantage. If the commodity is bought in a foreign country with PROTECTIONISM. 557 domestic produce in spite of the double cost of carriage, the fact proves that, heavy as that cost may be, the saving in cost of production outweighs it, and the collective labour of the country is on the whole better remunerated than if the article were produced at home. Cost of carriage is a natural protecting duty, which free trade has no power to abrogate : and unless America gained more by obtaining her manu- factures through the medium of her corn and cotton, than she loses in cost of carriage, the capital employed in producing corn and cotton in annually increased quantities for the foreign market, would turn to manufactures instead. The natural advantage at- tending a mode of industry in which there is less cost of carriage to pay, can at most be only a justification for a temporary and merely tentative pro- tection. The expenses of production being always greatest at first, it may happen that the home production, though really the most advantageous, may not become so until after a certain duration of pecuniary loss, which it is not to be expected that private specu- lators should incur in order that their successors may be benefited by their ruin. I have therefore conceded that in a new country, a temporary pro- tecting duty may sometimes be econo- mically defensible ; on condition, how- ever, that it be strictly limited in point of time, and provision be made that during the latter part of its existence it be on a gradually de- creasing scale. Such temporary pro- tection is of the same nature as a patent, and should be governed by similar conditions. The remaining argument of Mr. Carey in support of the economic benefits of Protectionism, applies only to countries whose exports consist of agricultural produce. He argues, that by a trade of this description they actually send away their soil ; the dis- tant consumers not giving back to the land of the country, as home consumers would do, the fertilizing elements which they abstract from it. This argument deserves attention, on ac- count of the physical truth on which it is founded ; a truth which has only lately come to be understood, but which is henceforth destined to be a permanent element in the thoughts of statesmen, as it must always have been in the destinies of nations. To the question of Protectionism, how- ever, it is irrelevant. That the im- mense growth of raw produce in Ame- rica to be consumed in Europe, is pro-* gressively exhausting the soil of the Eastern, and even of the older Western States, and that both are already fai less productive than formerly, is cre- dible in itself, even if no one bore wit- ness to it. But what I have already said respecting cost of carriage, is true also of the cost of manuring. Free trade does not compel America to ex- port corn ; she would cease to do so, if it ceased to be to her advantage. As, then, she would not persist in export- ing raw produce and importing manu- factures, any longer than the labour she saved by doing so, exceeded what the carnage cost her ; so, when it be- came necessary for her to replace in the soil the elements of fertility which she had sent away, if the saving in cost of production were more than equivalent to the cost of carnage and of manure together, manure would be imported, and if not, the export of corn would cease. It is evident that one of these two things would already have taken place, if there had not been near at hand a constant succession of new soils, not yet _ exhausted of their fer- tility, the cultivation of which enables her, whether judiciously or not, to postpone the question of manure. As soon as it no longer answers better to break up new soils than to manure the old, America will either become a regular importer of manure, or will without protecting duties grow corn for herself only, and manufacturing for herself, will make her manure, as Mr. Carey desires, at home.* * To this Mr. Carey would reply (indeed, he has already so replied in advance), that of all commodities, manure is the least sus- ceptible of being conveyed to a distance. This is true of sewage, and of stable manure, but not true of the ingredients to which those manures owe their efficiency. These, on the contrary, are chiefly substances containing 558 For these obvious reasons, I hold Mr. Carey's economic arguments for Protectionism to be totally invalid. The economic, however, is far from being the strongest point of his case. Ame- rican Protectionists often reason ex- tremely ill, but it is an injustice to them to suppose that their Protec- tionist creed rests upon nothing su- perior to an economic blunder: many of them have been led to it much more by consideration for the higher inte- rests of humanity, than by purely eco- nomic reasons. They, and Mr. Carey at their head, deem it a necessary condition of human improvement that towns should abound ; that men should combine their labour, by means of in- terchange, with near neighbours with people of pursuits, capacities, and mental cultivation different from their own, sufficiently close at hand for mu- tual sharpening of wits and enlarging of ideas rather than with people on the opposite side of the globe. They believe that a nation all engaged in the same, or nearly the same, pursuit a nation all agricultural cannot at- tain a high state of civilization and culture. And for this there is a great foundation of reason. If the difficulty can be overcome, the United States, with their free institutions, their uni- versal schooling, and their omnipresent press, are the people to do it ; but whether this is^possible or not, is still a problem. So far, however, as it is an object to check the excessive dis- persion of the population, Mr. Wake- field has pointed out a better way : to irreat fertilizing power in small bulk ; sub- stances of which the human body requires but a small quantity, and hence peculiarly suscep- tible of being imported ; the mineral alkalies and the phosphates. The question, indeed, mainly concerns the phosphates ; for of the alkalies, soda is procurable everywhere, while potass, being one of the constituents of granite and the other feldspathic rocks, exists in many subsoils, by whose progressive decomposition it is renewed ; a large quan- tity also being brought don in the deposits of rivers. As for the phosphates, they, in the very convenient form of pulverised bones, are a regular article of commerce, largely im- ported into England, as they are sure to be into any country where the conditions of industry make it worth while to pay the price. BOOK V. CHAPTER X. 2. modify the existing method of dis- posing of the unoccupied lands, by raising their price ; instead of lower- ing it, or giving away the land gratui- tously, as is largely done since the passing of the Homestead Act. To cut the knot in Mr. Carey's fashion, hy Protectionism, it would he necessary that Ohio and Michigan should he protected against Massachusetts as well as against England : for the manufactories of New England, no more than those of the old country, accomplish his desideratum of bring- ing a manufacturing population to the doors of the Western farmer. Boston and New York do not supply the want of local towns to the Western Prairies, any better than Manchester ; and it is as difficult to get back the manure from the one place as from the other. There is only one part of the Pro- tectionist scheme which requires any further notice : its policy towards colo- nies, and foreign dependencies ; that of compelling them to trade exclusively with the dominant country. A country which thus secures to itself an extra foreign demand for its commodities, undoubtedly gives itself some advan- tage in the distribution of the general gains of the commercial world. Since, however, it causes the industry and capital of the colony to be diverted from channels, which are proved to be the most productive, inasmuch as they are those into which industry and ca- pital spontaneously tend to flow ; there is a loss, on the whole, to the produc- tive powers of the world, and the mother country does not gain so much as she makes the colony lose. If, therefore, the mother country refuses to acknowledge any reciprocity of obli- gation, she imposes a tribute on the colony in an indirect mode, greatly more oppressive and injurious than the direct. But if, with a more equitable spirit, she submits herself to corre- sponding restrictions for the benefit of the colony, the result of the whole transaction is the ridiculous one, that ' each party loses much, in order that the other may gain a little. 2. Next to the system of Protec- USURY LAWS. 559 tion, among mischievous iutevierences with the spontaneous course of indus- trial transactions, may be noticed cer- tain interferences with contracts. One instance is that of the Usury Laws. These originated in a religious preju- dice against receiving interest on money, derived from that fruitful source of mischief in modern Europe, the at- tempted adaptation to Christianity of doctrines and precepts drawn from the Jewish law. In Mahomedan nations the receiving of interest is formally in- terdicted, and rigidly abstained from ; and Sismondi has noticed, as one among the causes of the industrial in- feriority of the Catholic, compared with the Protestant parts of Europe, that the Catholic church in the Middle Ages gave its sanction to the same pre- judice ; which subsists, impaired but not destroyed, wherever that religion is acknowledged. Where law or con- scientious scruples prevent lending at interest, the capital which belongs to persons not in business is lost to pro- ductive purposes, or can be applied to them only in peculiar circumstances of personal ^connexion, or by a subterfuge. Industry is thus limited to the capital of the undertakers, and to what they can borrow from persons not bound by the same laws or religion as them- selves. In Mussulman countries the bankers and money dealers are either Hindoos, Armenians, or Jews. In more improved countries, legisla- tion no longer discountenances the re- ceipt of an equivalent for money lent ; but it has everywhere interfered with the free agency of the lender and bor- rower, by fixing a legal limit to the rate of interest, and making the re- ceipt of more than the appointed maxi- mum a penal offence. This restriction, though approved by Adam Smith, has been condemned by all enlightened persons since the triumphant onslaught made upon it by Bentham in his " Letters on Usury," which may still be referred to as the best extant writing on the subject. Legislators may enact and maintain Usury Laws from one of two motives: ideas of public policy, or concern for the interest of the parties in the con- tract ; in this case, of one party on! y, the borrower. As a matter of policy, the notion may possibly be, that it is for the general good that interest should be low. It is however a mis- apprehension of the causes which in- fluence commercial transactions, to sup- pose that the rate of interest is really made lower by law, than it would be made by the spontaneous play of supply and demand. If the competition of borrowers, left unrestrained, would raise the rate of interest to six per cent, this proves that at five there would be a greater demand for loans, than there is capital in the market to supply. If the law in these circum- stances permits no interest beyond five per cent, there will be some lenders, who not choosing to disobey the law, and not being in a condition to employ their capital otherwise, will content themselves with the legal rate : but others, finding that in a season of press- ing demand, more may be made of their capital by other means than they are permitted to make by lending it, will not lend it at all ; and the loan- able capital, already too small for the demand, will be still further dimi- nished. Of the disappointed candi- dates there will be many at such periods, who must have their neces- sities supplied at any price, and these will readily find a third section ot lenders, who will not be averse to join in a violation of the law, either by cir- cuitous transactions partaking of the nature of fraud, or by relying on the honour of the borrower. The extra expense of the roundabout mode of pro- ceeding, and an equivalent for the risk of non-payment and of legal penalties, must be paid by the borrower, over and above the extra interest which would have been required of him by the general state of the market. The laws which were intended to lower the price paid by him for pecuniary accom- modation, end thus in greatly increasing it. These laws have also a directly demoralizing tendency. Knowing the difficulty of detecting an illegal pecu- niary transaction between two persons, in which no third person is involved, so long as it is the interest of both to keep 560 the secret, legislators have adopted the expedient of tempting the borrower to become the informer, by making the annulment of the debt a part of the penalty for the offence : thus rewarding men for obtaining the property of others by false promises, and then not only refusing payment, but invoking legal penalties on those who have helped them in their need. The moral sense of mankind very rightly in- famizes those who resist an otherwise just claim on the ground of usury, and tolerates such a plea only when re- sorted to as the best legal defence available against an attempt really considered as partaking of fraud or extortion. But this very severity of public opinion renders the enforce- ment of the laws so difficult, and the infliction of the penalties so rare, that when it does occur it merely victimizes an individual, and has no effect on general practice. In so far as the motive of the re- srr'ction may be supposed to be, not pilblic policy, but regard for the in- terest of the borrower, it would be diffi- cult to point out any case in which such tenderness on the legislator's part is more misplaced. A person of sane mind, and of the age at which persons are legally competent to conduct their own concerns, must be presumed to be a sufficient guardian of his pecuniary interests. If he may sell an estate, or grant a release, or assign away all his property, without control from the law, it seems very unnecessary that the only bargain which he cannot make without its intermeddling, should be a loan of money. The law seems to presume that the money-lender, dealing with necessitous persons, can take ad- vantage of their necessities, and exact conditions limited only by his own plea- sure. It might be so if there were only one money-lender within reach. But when there is the whole monied capital of a wealthy community to re- sort to, no borrower is placed under any disadvantage in the market merely by the urgency of his need. If he can- not borrow at the interest paid by other people, it must be because he cannot give such good security : and , BOOK V. CHAPTER X. 2. competition will limit the extra de- mand to a fair equivalent for the ri-k of his proving insolvent. Though the law intends favour to the borrower, it is to him above all that injustice is, in this case, done by it. What can be more unjust than that a person who cannot give perfectly good security, should be prevented from borrowing of persons who are willing to lend money to him, by their not being permitted to receive the rate of interest which would be a just equivalent for their risk ? Through the mistaken kindness of the law, he must either go without the money which is perhaps necessary to save him from much greater losses, or be driven to expedients of a far more ruinous description, which the law either has not found it possible, or has not happened, to interdict. Adam Smith rather hastily ex- pressed the opinion, that only two kinds of persons, " prodigals and pro- jectors," could require to borrow money at more than the market rate of in- terest. He should have included all persons who are in any pecuniary diffi- culties, however temporary .their ne- cessities may be. It may happen to any person in business, to be disap- pointed of the resources on which he had calculated for meeting some en- gagement, the non-fulfilment of which on a fixed day would be bankruptcy. In periods of commercial difficulty, this is the condition of many prosperous mercantile firms, who become compe- titors for the small amount of dispos- able capital which, in a time of general distrust, the owners are willing to part with. Unrler the English usurv laws, now happily abolished, the limitations imposed by those laws were felt as a most serious aggravation of every com- mercial crisis. Merchants who could have obtained the aid they required at an interest of seven or eight per cent for short periods, were obliged to give 20 or 30 per cent, or to resort to forced sales of goods at a still greater loss. . Experience having obtruded these evils on the notice of Parliament, the sort of compromise took place, of which English legislation affords so many in- stances, and which helps to make our REGULATION OF THE PRICE OF FOOD. 561 laws and policy the mass of incon- sistency that they are. The law was reformed as a person reforms a tight shoe, who cuts a hole in it where it pinches hardest, and continues to wear it. Retaining the erroneous principle as a general rule, Parliament allowed an exception in the case in which the practical mischief was most flagrant. Jt left the usury laws unrepealed, but exempted hills of exchange, of not more than three months' date, from their operation. Some years afterwards the laws were repealed in regard to all other contracts, hut left in force as to all those which relate to land. Not a particle of reason could he given for making this extraordinary distinction ; hut the " agricultural mind'' was of opinion that the interest on mort- gages, though it hardly ever came up to the permitted point, would come up to a still higher point ; and the usury laws were maintained that the land- lords might, as they thought, be en- abled to borrow below the market rate, as the corn-laws were kept up that the same class might be able to sell corn above the market rate. The modesty of the pretension was quite worthy of the intelligence which could think that the end aimed at was in any way for- warded by the means used. With regard to the " prodigals and projectors" spoken of by Adam Smith ; no law can prevent a prodigal from ruining himself, unless it lays him or his property under actual restraint, according to the unjustifiable practice of the Roman Law and some of the Continental systems founded on it. The only effect of usury laws upon a prodigal, is to make his ruin rather more expeditious, by driving him to a disreputable class of money-dealers, and rendering the conditions more onerous by the extra risk created by the law. As for projectors, a term, in its unfavourable sense, rather unfairly applied to every person who has a project; such laws may put a veto upon the prosecution of the most pro- mising enterprise, when planned, as it generally is, by a person who does not possess capital adequate to its success- ful completion. Many of the greatest P.E. improvements were at first looked shyly on by capitalists, and had to wai long before they found one sufficient!;? adventurous to be the first in a ne\* path : many years elapsed before Ste- phen son could convince even the en- terprising mercantile public of Liver- pool and Manchester, of the advantage of substituting railways for turnpike* roads ; and plans on which great labour and large suras have been expended with little visible result, (the epoch in their progress when predictions of failure are most rife,) may be indefi- nitely suspended, or altogether dropped, and the outlay all lost, if, when the original funds are exhausted, the la\v will not allow more to be raised on the terms on which people are willing to expose it to the chances of an enter- prise not yet secure of success. 3. Loans are not the only kind of contract, of which governments have thought themselves qualified to regu- late the conditions better than the persons interested. There is scarcely any commodity which they have not, at some place or time, endeavoured to make either dearer or cheaper than it would fee if left to itself. The most plausible case for artificially cheapen- ing a commodity, is that of food. The desirableness of the object is in this- case undeniable. But since the ave- rage price of food, like that of other things, conforms to the cost of produc- tion with the addition of the usual profit ; if this price is not expected by the farmer, he will, unless compelled by law, produce no more than he re- quires for his own consumption : and the law therefore, if absolutely deter- mined to have food cheaper, must sub- stitute, for the ordinary motives to cultivation, a system of penalties. If it shrinks from doing this, it has no resource but that of taxing the whole nation, to give a bounty or premium to the grower or importer of corn, thus giving everybody cheap bread at the expense of all : in reality a largess to those who do not pay taxes, at the ex- pense of those who do ; one of the forms of a practice essentially bad, that of converting the working classes into 562 BOOK V. CHAPTER X. 4 tin working classes by making them a present of subsistence. It is not however so much the gene- ral or average price of food, as its occasional high price in times of emer- gency, which governments have studied to reduce. In some cases, as for ex- ample the famous "maximum" of the revolutionary government of 1793, the compulsory regulation was an attempt by the ruling powers to counteract the necessary consequences of their own acts; to scatter an indefinite abun- dance of the circulating medium with one hand, and keep clown prices with the other; a thing manifestly impos- sible under any regime except one of unmitigated terror. In case of actual scarcity, governments are often urged, as they were in the Irish emergency of 1847, to take measures of some sort for moderating the price of food. But the price of a thing cannot be raised by deficiency of supply, beyond what is sufficient to make a corresponding reduction of the consumption ; and if a government prevents this reduction from being brought about by a rise of price, there remains no mode of effect- ing it unless by taking possession of all the food, and serving it out in rations, as in a besieged town. In a real scarcity, nothing can afford gene- ral relief, except a determination by the richer classes to diminish their own consumption. If they buy and consume their usual quantity of food, and con- tent themselves with giving money, they do no good. The price is forced up until the poorest competitors have no longer the means of competing, and the privation of f(*)d is thrown exclu- sively upon the indigent, the other classes being only affected pecuniarily. "When the supply is insufficient, some- tody must consume less, and if every rich person is determined not to be that somebody, all they do by subsidizing their poorer competitors is to force up the price so much the higher, with no effect but to enrich the corn-dealers, the very reverse of what is desired by those who recommend such measures. All that governments can do in these emergencies, is to counsel a general tnodoratiun in consumption, and to in- terdict such kinds of it as are not of primary importance. Direct measures at the cost of the state, to procure food from a distance, are expedient when from peculiar reasons the thing is not likely to be done by private speculation. In any other case they are a great error. Private speculators will not, in such cases, venture to compete with the government ; and though a govern- ment can do more than any one mer- chant, it cannot do nearly so much as all merchants. 4. Governments, however, arc oftener chargeable with having at- tempted, too successfully, to make things dear, than with having aimed by wrong means at making their cheap. The usual instrument for pro- ducing artificial dearness is monopoly. To confer a monopoly upon a producer or dealer, or upon a set of producers or dealers not too numerous to combine, is to give them the power of levying any amount of taxation on the public, for their individual benefit, which will not make the public forego the use of the commodity. When the sharers in the monopoly are so numerous and so widely scattered that they are pre- vented from combining, the evil is considerably less : but even then the competition is not so active among a limited, as among an unlimited num- ber. Those who feel assured of a fair average proportion in the general business, are seldom eager to get a larger share, by foregoing a portion of their profits. A limitation of competi- tion, however partial, may have mis- chievous effects quite disproportioned to the apparent cause. The mere ex- clusion of foreigners, from a branch of industry open to the free competition of every native, has been known, even in England, to render that branch a conspicuous exception to the general industrial energy of the country. The silk manufacture of England remained far behind that of other countries of Europe, so long as the foreign fabrics were prohibited. In addition to tha tax levied for the profit, real or imagi- nary, of the monopolists, the consumer thus 'j>ays an additional tax for their MONOPOLIES. COMBINATION LAV/S. 5G3 laziness and incapacity. When re- lieved from the immediate stimulus of competition, producers and dealers grow indifferent to the dictates of their ultimate pecuniary interest ; preferring to the most hopeful prospects, the pre- sent ease of adhering to routine. A person who is already thriving, seldom puts himself out of his way to com- mence even a lucrative improvement, unless urged by the additional motive t/f fear lest some rival should supplant him by getting possession of it before him. The condemnation of monopolies ought not to extend to patents, by which the originator of an improved process is allowed to enjoy, for a limited period, the exclusive privilege of using his own improvement. This is not making the commodity dear for his benefit, but merely postponing a part of the increased cheapness which the public owe to the inventor, in order to compensate and reward him for the service. That he ought to be both compensated and rewarded for it, will not be denied, and also that if all were at once allowed to avail themselves of his ingenuity, without having shared the labours or the expenses which he had to incur in bringing his idea into a practical shape, either such expenses and labours would be undergone by nobody, except very opulent and very public-spirited persons, or the state must put a value on the service ren- dered by an inventor, and make him a pecuniary grant. This has been done in some instances, and may be done without inconvenience in cases of very conspicuous public benefit ; but in general an exclusive privilege, of tem- porary duration, is preferable ; because it leaves nothing to any one's dis- cretion ; because the reward conferred by it depends upon the invention's being found useful, and the greater the usefulness the greater the reward ; and because it is paid by the very persons to whom the service is rendered, the consumers of the commodity. So de- cisive, indeed, are those considerations, that if the system of patents wore abandoned for that of rewards by the Utate, the best shape which these could assume would be that of a small tem- porary tax, imposed for the inventor's benefit, on all persons making use of the invention. To this, however, or to any other svstem which would vest in the state the power or'deciding whether an inventor should derive any pecu- niary advantage from the public benefit which he confers, the objections are evidently stronger and more funda- mental than the strongest which can possibly be urged against patents. It is generally admitted that the present Patent Laws need much improvement ; but in this case, as well as in the closely analogous one of Copyright, it would be a gross immorality in the law to set everybody free to use a person's work without his consent and without giving him an equivalent. I have seen with real alarm several recent attempts, in quarters carrying some authority, to impugn the principle of patents altogether ; attempts which, if practically successful, would enthrone free stealing under the prostituted name of free trade, and make the men of brains, still more than at present, the needy retainers and dependents of the men of money-bags. 5. I pass to another kind of go- vernment interference, in which the end and the means are alike odious, but which existed in England until not so much as a generation ago, and in France up to the year 1864. I mean the laws against combinations of workmen to raise wages ; laws en- acted and maintained for the declared purpose of keeping wages low, as the famous Statute of Labourers was passed by a legislature of employers, to pre- vent the labouring class, when its numbers had been thinned by a pesti- lence, from taking advantage of the diminished competition to obtain higher wages. Such laws exhibit the infernal spirit of the slave master, when to re- tain the working classes in avowed slavery has ceased to be practicable. If it were possible for the working classes, by combining among them- selves, to raise or keep up the general rate of wages, it needs hardly be said that this would be A thing not to be ;> 2 564 punished, but to be welcomed and re- joiced at. Unfortunately the effect is quite beyond attainment by such means. The multitudes who compose the working class are too numerous and too widely scattered to combine at all, much more to combine effectuallv. If they could do so, they might doubt- less succeed in diminishing the hours of labour, and obtaining the same wages for less work. But if thev aimed at obtaining actually higher wages than the rate fixed by demand and supply the rate which distributes the whole circulating capital of the country among the entire working po- pulation this could only be accom- pli>hed by keeping a part of their number permanently out of employ- ment. As support from public charity would of course be refused to those who could get work and would not accept it, they would be thrown for support upon the trades union of which they were members ; and the work- people collectively would be no better off than before, having to support the same numbers out of the same aggre- gate wages. In this way, however, the class would have its attention for- cibly drawn to the fact of a superfluity of numbers, and to the necessity, if they would have high wages, of pro- portioning the supply of labour to the dcnitincL Combinations to keep up wages are sometimes successful, in trades where the workpeople are few in num- ber, and collected in a small number of local centres. It is questionable if com- binations ever had the smallest effect on the permanent remuneration of spin- ners or weavers ; but the journeymen type-founders, by a close combination, are able, it is said, to keep up a rate of wages much beyond that which is usual in employments of equal hardness and skill ; and even the tailors, a much more numerous class, are understood to have had, to some extent, a similar success. A rise of wages, thus confined to par- ticular employments, is not (like a rise of general wages) defrayed from profrs, but raises the value and price of the particular article, and falls on the con- sumer; the capitalist who produces the BOOK V. CHAPTER X. 5. commodity being only injured in so far as the high price tends to narrow the market ; and not even then, unless it does so in a greater ratio than that of the rise of price : for though, at higher wages, he employs, with a given cai >'tal, fewer workpeople, and obtains less of the commodity, yet, if he can sell the whole of this diminished quantity at the higher price, his profits are as great as before. This partial rise of wages, if not gained at the expense of the remainder of the working class, ought not to be regarded as an evil. The consumer, indeed, must pay for it ; but cheapness of goods is desirable only when the cause of it is that their production costs little labour, and not when occa- sioned by that labour's being ill remu- nerated. It may appear, indeed, at first sight, that the high wages of the type-founders (for example) are ob- tained at the general cost of the labour- ing class. This high remuneration either causes fewer persons to find em- Eloyment in the trade, or, if not, must :ad to the investment of more capital in it, at the expense of other trades : in the first case, it throws an additional number of labourers on the general market; in the second, it withdraws from that market a portion of the de- mand : effects, both of which are inju- rious to the working classes. Such, indeed, would really be the result of a successful combination in a particular trade or trades, for some time after its formation ; but when it is a permanent thing, the principles so often insisted upon in this treatise, show that it can have no such effect. The habitual earnings of the working classes at large can be affected by nothing but the habitual requirements of the labouring people : these indeed may be altered, but while they remain the same, wageg never fall permanently below the stan- dard of these requirements, and do not long remain above that standard. If there had been no combinations in par- ticular trades, and the wages of those trades had never been kept above the common level, there is no reason to suppose that the common level would have been at all higher than it now is. COMBINATION LAWS. 565 There would merely have been a greater number of people altogether, and ;i smaller number of exceptions to the ordinary low rate of wages. If, therefore, no improvement were to be hoped for in the general circum- stances of the working classes, the suc- cess of a portion of them, however small, in keeping their wages by combination above the market rate, would be wholly a matter of satisfaction. But when the elevation of the character and con- dition of the entire body has at last become a thing not beyond the reach of rational effort, it is time that the better paid classes of skilled artisans should seek their own advantage in common with, and not by the exclusion of, their fellow labourers. While they continue to fix their hopes on hedging themselves in against competition, and protecting their own wages by shutting out others from access to their employ- ment, nothing better can be expected from them than that total absence of any large and generous aims, that al- most open disregard of all other objects than high wages and little work for their own small body, which were so deplorably evident in the proceedings and manifestoes of the Amalgamated Society of Engineers during their quar- rel with their employers. Success, even if attainable, in raising up a protected class of working people, would now be a hindrance, instead of a help, to the emancipation of the working classes at large. But though combinations to keep up wages are seldom effectual, and when effectual, are, for the reasons which I have assigned, seldom desirable, the right of making the attempt is one which cannot be refused to any portion of the working population without great injustice, or without the probability of fatally misleading them respecting the circumstances which determine their condition. So long as combinations to raise wages were prohibited by law, the law appeared to the operatives to be the real cause of the low wages which there was no denying that it had done its best to produce. Experi- ence of strikes has been the best teacher of the labouring classes on the subject of the relation between wages and the demand and supply of labour : and it is most important that this course of instruction should not be disturbed. It is a great error to condemn, per se and absolutely, either trades unions or the collective action of strikes. I grant that a strike is wrong whenever it is foolish, and it is foolish whenever it attempts to raise wages above that market rate which is rendered possible by the demand and supply. But de- mand and supply are hot physical agencies, which thrust a given amount of wages into a labourer's hand without the participation of his own will and actions. The market rate is not fixed for him by some self-acting instrument, but is the result of bargaining between human beings of what Adam Smith calls "the higgling of the market;" and those who do not " higgle" will long continue to pay, even over a coun- ter, more than the market price for their purchases. Still more might poor labourers who have to do with rich employers, remain long without the amount of wages which the demand for their labour would justify, unless, in vernacular phrase, they stood out for it : and how can they stand out for terms without organized concert? What chance would any labourer have, who struck singly for an advance of wages ? How could he even know whether the state of the market admitted of a rise, except by consultation with his fellows, naturally leading to concerted action? I do not hesitate to say that associa- tions of labourers, of a nature similar to trades unions, far from being a hin- drance to a free market for labour, are the necessary instrumentality of that free market ; the indispensable means of enabling the sellers of labour to take due care of their own interests under a system of competition. There is an ulterior consideration of much importance, to which attention was for the first time drawn by Professor Faw- cett, in an article in the Westminster Review. Experience has at length enabled the more intelligent trades to take a tolerably correct measure of the circumstances on which the success of a strike for an advance of wages de- penus. The workmen are no as well informed as the master, of the state of the market for his commodi- ties ; they can calculate his gains and his expenses, they know when his trade is or is not prosperous, and only when it is, are they ever again likely to strike for higher wages ; which wages their known readiness to strike makes their employers for the most part willing, in that case ; to concede. The tendency, therefore, of this state of things is to make a rise of wages, in any particular trade, usually consequent upon a rise of proiits, which, as Mr. Fawcett ob- serves, is a commencement of that regular participation of the labourers in the profits derived from their labour, every tendency to which, for the rea- sons stated in a previous chapter,* it is so important to encourage, since to it we havs chiefly to look for any radi- cal improvement in the social and eco- nomical relations between labour and capital. Strikes, therefore, and the trade societies which render strikes possible, are for these various reasons not a mischievous, but on the contrary, a valuable part of the existing ma- chinery of society. It is, however, an indispensable con- dition of tolerating combinations, that they should be voluntary. Ko severity, necessary to the purpose, is too great to he employed against attempts to compel workmen to join a union, or take part in a strike, by threats or violence. Mere moral compulsion, by the expression of opinion, the law ought not to interfere with ; it belongs to more enlightened opinion to restrain it, by rectifying the moral sentiments of the people. Other questions arise \7hcn the combination, being voluntary, proposes to itself objects really con- trary to the public good. High wages and short hours are generally good ob- jects, or, at all events, may be so: but 'in many trades unions, it is among the rules that there shall be no task work, or no difference of pay between the most expert workmen and the most un- rkiiful, or that no member of the union shall earn more than a certain sum per l:, in oiver that there may be more * Supra, book v. chap. vii. COOK V. CHAPTER X. 6. employment ibr the rest ; and the abo- lition of piece work, under more or less of modification, held a conspicuous place among the demands of the Amal- gamated Society. These are combina- tions to effect objects which are perni- cious. Their success, even when only partial, is a public mischief ; and were it complete, would be equal in magni- tude to almost any of the evils aris- ing from bad economical legislation. Hardly anything worse can be said of the worst laws on the subject of in- dustry and its remuneration, consistent with the personal freedom of the la- bourer, than that they place the ener- getic and the idle, the skilful and the incompetent, on a level : and this, in so far as it is in itself possible, it is the direct tendency of the regulations of these maons to do. It does not, however, follow as a consequence that the law would be warranted in making the formation of such associations il- legal and punishable. Independently of all considerations of constitutional liberty, the best interests of the hu- man race imperatively require that all economical experiments, voluntarily undertaken, should have the fullest license, and that force and fraud should be the only means of attempting to benefit themselves, which, are inter- dicted to the less fortunate classes of the community .f 6. Among the mocles of undue exercise of the power of government, on which I have commented in this t Whoever desires to understand the ques- tion of Trade Combinations as seen from the point of view of the working people, should make himself acquainted with a pamphlet published in I860, under the title " Trades Unions and Strikes, their Philosophy and Intention, by T. J. Dunning, Secretary to the London Consolidated Society of Book- binders." There are many opinions in this able tract in which I only partially, and some in which I do not at all, coincide. But there are also many sound arguments, and an in- structive exposure of the common fallacies of opponents. Readers of other clasps will see with surprise, not only how great a por- tion of truth the Unions have on their side, but how much less flagrant and condemnable even their errors appear, when seea under the aspect in which it is only natural tna the working classes should themselves regard them. LIMITS OF THE PROVINCE OF GOVERNMENT. 567 chapter, I have included only such as rest on theories which have still more or less of footing in the most en- lightened countries. I have not spoken of some which have done still greater mischief in times not long past, but which are now generally given up, at least in theory, though enough of them fctiJl remains in practice to make it im- possible as yet to class them among exploded errors. The notion, for example, that a go- vernment should choose opinions tor the people, and should not suffer any doctrines in politics, morals, law, or religion, but such as it approves, to be printed or publicly professed, may be sai 1 to be altogether abandoned as a general thesis. It is now well under- stood that a regime of this sort is fatal to all prosperity, even of an econo- mical kind : that the human mind, when prevented either by fear of the lav,- or by fear of opinion from exer- cising its faculties freely on the most important subjects, acquires a general torpidity and imbecility, by which, when they reach a certain point, it is disqualified from making any consi- derable advances even in the common affairs oflife, and which, when greater siill, make it gradually lose even its previous attainments. There cannot be a more decisive example than Spain and Portugal, for two centuries after the Reformation. The decline of those countries in national greatness, and even in material civilization, while al- most all the other nations of Europe were uninterruptedly advancing, has .been ascribed to various causes, but there is one which lies at the founda- tion of them all : the Holy Inquisi- tion, and the system of mental slavery of which it is the symbol. Yet although these truths are very widely recognised, and freedom both of opinion and of discussion is admitted as an axiom in all free countries, this apparent liberality and tolerance has acquired so little of the authority of a principle, that it is always ready to give way to the dread or horror in- spired by some particular sort of opinions. Within the last ten or fifteen years several individuals have suffered imprisonment, for the public profession, sometimes in a very tem- perate manner, of disbelief in religion ; and it is probable that both the public and the government, at the first panic which arises on the subject of Chartism or Communism, wiil fly to similar means for checking the propagation of democratic or anti-property doctrines. In this country, however, the effective restraints on mental freedom proceed much less from the law or the govern- ment, than from the intolerant temper of the national mind ; arising no longer from even as respectable a source as bigotry or fanaticism, but rather from the general habit, both in opinion and conduct, of making adherence to cus- tom the rule of life, and enforcing it, by social penalties, against ai* persons who, without a party to back them, assert their individual independence. CHAPTER XI. GROUNDS AND LIMITS OP THE LAISSER-FA1RE OB NON-INTERFERENCE PRINCIPLE. 1. WE have now reached the last part of our undertaking ; the discus- sion, so far as suited to this treatise (that is, so far as it is a question of principle, not detail) of the limits of the province of government ; the ques- tion, to what objects governmental intervention in the affairs of society may or should extend, over and above those which necessarily appertain to it. No subject has been more keenly contested in the present age : the con- 568 test, however, has chiefly taken place round certain select points, with only flying excursions into the rest of the field. Those indeed who have dis- cussed any particular question of go* vernment interference, such as state education (spiritual or secular), regu- lation of hours of labour, a public pro- vision for the poor, &c., have often dealt largely in general arguments, far outstretching the special application made of them, and have shown a suffi- ciently strong bias either in favour of letting things alone, or in favour of meddling ; but have seldom declared, or apparently decided in their own minds, how far they would carry either principle. The supporters of inter- ference have been content with assert- ing a general right and duty on the part of government to intervene, wher- ever its intervention would be useful : and when those who have been called the laisser-faire school have attempted any definite limitation of the province of government, they have usually re- stricted it to the protection of person and property against force and fraud a definition to which neither they nor any one else can deliberately adhere, since it excludes, as has been shown in a preceding chapter,* some of the most indispensable, and unanimously recognised, of the duties of govern- ment. Without professing entirely to sup- ply this deficiency of a general theory, on a question which does not, as I conceive, admit of any universal solu- tion, I shall attempt to afford some little aid towards the resolution of this class of questions as they arise, by examining, in the most general point of view in which the subject can be considered, what are the advantages, and what the evils or inconveniences, of government interference. We must set out by distinguishing between two kinds of intervention by the government, which, though they may relate to the same subject, differ widely in their nature and effects, and require, for their justification, motives of a very different degree of urgency. The intervention, -may extend to con- Supra, book T. ch. i. BOOK V. CHAPTER XI. 2. trolling the free agency of individuals Government may interdict all persona from doing certain things ; or from doing them without its authorization ; or may prescribe to them certain things to be done, or a certain manner of doing things which it is left optional with them to do or to abstain from. This is the authoritative interference of government. There is another kind of intervention which is not authori- tative : when a government, instead of issuing a command and enforcing it by penalties, adopts the course so seldom resorted to by governments, and of which such important use might be madepchatof giving advice, and promulgating information ; or when, leaving ~TndivTdTla1s free- to use their own means of pursuing any object of general interest, the government, not meddling with them, but not trusting the object solely to their care, esta- blishes, side by side with their ar- rangements, an agency of its own for a like purpose. Thus, it is one thing to maintain a Church Establishment, and another to refuse toleration to other religions, or to persons processing- no religion. It is one thing to provide schools or colleges, and another to re- quire that no person shall act as an instructor of youth without a govern- ment license. There might be a na- tional bank, or a government manu- factory, without any monopoly against private banks and manufactories. There might be a post office, without penalties against the conveyance of let- ters by other means. There may be a corps of government engineers for civil purposes, while the profession of a civil engineer is free to be adopted by every one. There may be public hospitals, without any restriction upon private medical or surgical practice. - 2. It is evident, even at first sight, that the authoritative form of government intervention has a much more limited sphere of legitimate ac- tion than the other. It requires a much stronger necessity to justify it in any case ; while there are large departments of human life from which it must be unreservedly and imperi- LIMITS OF THE PROVINCE OF GOVERNMENT. 569 onsly excluded. Whatever theory we adopt respecting the foundation of the social union, and under whatever po- litical institutions we live, there is a circle around every individual human being, which no government, be it that of one, of a few, or of the many, ought to be permitted to overstep : there is a part of the life of every person who has come to years of discretion, within which the individuality of that person ought to reign uncontrolled either by any other individual or by the public collectively. That there is, or ought to be, some space in human existence thus entrenched around, and sacred from authoritative intrusion, no one who professes the smallest regard to human freedom or dignity will call in question : the point to be determined is, where the limit should be placed ; how large a province of human life this reserved territory should include. I apprehend that it ought to include all that part whicirconcerns only the life, whether inward or outward, of the individual, and" Hoes not affect the interests of others, of affects them only through theTHoral influence of example. With respect to the domain of the inward consciousness, the thoughts and feel- ings, and as much of external conduct as is personal only, involving no con- sequences, none at least of a painful or injurious kind, to other people ; I hold that it is allowable in all, and in the more thoughtful and cultivated often a duty, to assert and promulgate, with all the force they are capable of, their opinion of what is good or bad, admi- rable or contemptible, but not to com- pel others to conform to that opinion ; whether the force used is that of extra- legal coercion, or exerts itself by means of the law. Even in those portions of conduct which do affect the interest of others, the onus of making out a case always lies on the defenders of legal prohi- bitions. It is not a merely constructive or presumptive injury to others, which will justify the interference of law with individual freedom. To be prevented from doing what one is inclined to, or from acting according to one's own judgment of what is desirable, is not only always irksome, but always tends, pw tanto, to starve the development of some portion of the bodily or mental faculties, either sensitive or active ; and unless the conscience of the indi- vidual goes freely with the legal re- straint, it partakes, either in a great or in a small degree, of the degrada- tion of slavery. Scarcely any degree of utility, short of absolute necessity, will justify a prohibitory regulation, unless it can also be made to recom- mend itself to the general conscience ; unless persons of ordinary good inten- tions either believe already, or can be induced to believe, that the thing pro- hibited is a thing which they ought not to wish to do. It is otherwise with governmental interferences which do not restrain in- dividual free agency. When a govern- ment provides means for fulfilling a certain end, leaving individuals free to avail themselves of different means if in their opinion preferable, there is no infringement of liberty, no irksome or degrading restraint. One of the prin- cipal objections to government inter- ference is then absent. There is, how- ever, in almost all forms of government agency, one thing which is compulsory ; the provision of the pecuniary means. These are derived from taxation ; or, if existing in the form of an endow- ment derived from public property, they are still the cause of as much compulsory taxation as the sale or the annual proceeds of the property would enable to be dispensed with.* And the objection necessarily attaching to compulsory contributions, is almost al- ways greatly aggravated by the ex- pensive precautions and onerous re- strictions, which are indispensable to prevent evasion of a compulsory tax. * The only cases in which government agency involves nothing of a compulsory nature, are the rare cases in which, without any artificial monopoly, it pays its own ex- penses. A bridge built with public money, on which tolls are collected, sufficient to pay not only all current expenses, but the inte- rest of the original outlay, is one case in point. The government railways in Belgium and Germany are another example. The Post Office, if its monopoly were abolished, and it still paid its expenses, would be another. 570 BOOK V. CHAPTEE XI. 3, 4. Cv 3. A second general objection to government agencv, is that every in- crease of the functions devolving on the government is an increase of its power, both in the form of authority, and still more, in the indirect form of influence. The importance of this con- sideration, in respect to political free- dom, has in general been quite suffi- ciently recognised, at least in Eng- land ; but many, in latter times, have been prone to think that limitation of the powers of the government is only essential when the government itself is badly constituted; when it does not represent the people, but is the organ of a class, or coalition of classes : and that a government of sufficiently popu- lar constitution might be trusted with any amount of power over the nation, since its power would be only that of the nation over itself. This might be true, if the nation, in such cases, did not practically mean a mere majority of the nation, and if minorities were only capable of oppressing, but not of being oppressed. Experience, however, proves that the depositaries of power who are mere delegates of the people, that is of a majority, are quite as ready (when they think they can count on popular support) as any organs of oligarchy, to assume arbitrary power, and encroach unduly on the liberty of private life. The public collectively is abundantly ready to impose, not only its generally narrow views of its inte- rests, but its abstract opinions, and even its tastes, as laws binding upon individuals. And the present civiliza- tion tends so strongly to make the power of persons acting in masses the only substantial power in society, that there never was more necessity for surrounding individual independence of thought, speech, and conduct, with the most powerful defences, in order to maintain that originality of mind and individuality of character, which are the only source of any real progress, and of most of the qualities which make the human race much superior to any herd of animals Hence it is 110 less important in a democratic than in any other government, that all ten- dency on the part of public authorities to stretch their interference, and as- sume a power of any sort which can easily be dispensed with, should be re- garded with unremitting jealousy. Perhaps this is even more important in a democracy than in any other form of political society; because, whero public opinion is sovereign, an indi- vidual who is oppressed by the sove- reign does not, as in most other states of things, find a rival power to which he can appeal for relief, or, at all events, for sympathy. 4. A third general objection to government agency, rests on the prin- ciple of the division of labour. Every additional function undertaken by the government, is a fresh occupation im- posed upon a body already overcharged with duties. A natural consequence is that most things are ill done ; much not done at all, because the govern- ment is not able to do it without delays which are fatal to its purpose ; that the more troublesome, and less showy, of the functions undertaken, are postponed or neglected, and an ex- cuse is always ready for the neglect ; while the heads of the adminisi ration have their minds so fully taken up with official details, in however perfunctory a manner superintended, that they have no time or thought to spare for the great interests of the state, and the preparation of enlarged measures of social improvement. But these inconveniences, though real"-rt4- --serious, result much more from the bad organization of govern- ments, than from the extent and va- riety of the duties undertaken by them. Government is not a name for some one functionary, or definite number of functionaries : there may be almost any amount of division of labour within the administrative body itself. The evil in question is felt in great magni- tude under some of the governments of the Continent, where six or eight men, living at the capital and known by the name of ministers, demand that the whole public business of the country shall pass, or be supposed to pass, under their individual eye. But the inconvenience would be reduced to a LIMITS OF THE PROVINCE OF GOVERNMENT. 571 very manageable compass, in a country in which there was a proper distri- bution of functions between the central and local officers of government, and in which the central body was divided into a sufficient number of departments. "When Parliament thought it expedient to confer on the government an in- specting and partially controlling au- thority over railways, it did not add railways to the department of tfie Home Minister, but created a Railway Board. When it determined to have a central superintending authority for pauper administration, it established the Poor Law Commission. There are few countries in which a greater num- ber of functions are discharged by pub- lic officers, than in some states of the American. Union, particularly the New England States : but the division of labour in public business is extreme ; most of these officers being not even amenable to any common superior, but performing their duties freely, under the double check of election by their townsmen, and civil as well as criminal responsibility to the tribunals. It is, no doubt, indispensable to good, government that the chiefs of the ad- ministration, whether permanent or temporary, should extend a command- ing, though general, view over the aggregate of all the interests confided, in any degree, to the responsibility of the central power. But with a skilful internal organization of the adminis- trative machine, leaving to subordi- nates, and as far as possible to local subordinates, not only the execution, but to a great degree the control, of details ; holding them accountable for the results of their ac's rather than for the acts themselves, except where these come within the cognizance of the tri- bunals ; taking the most efiectnal secu- rities for honest and capable appoint- ments ; opening a broad path to promotion from the inferior degrees of the administrative scale to the supe- rior ; leaving, at each step, to the func- tionary, a wider range in the origina- tion of measures, so that, in the highest grj'.de of all, deliberation might bo con- cenlratcd on the great collective inte- rests of the country in each depart- ment; if all this were done, the government would not probably be overburthened by any business, in other respects fit to be undertaken by it; though the^ ovcrburthening would re- main as a serious addition to the in- conveniences incurred by its under- taking any which was unfit. 5. But though a better organiza- tion of governments would greatly diminish the force of the objection to the mere multiplication of their duties, it would still remain true that in all the more advanced communities, the great majority of things are worse done by the intervention of government, than the individuals most interested in the matter would do them, or cause them to be clone, if left to themselves. The grounds of this truth are expressed with tolerable exactness in the popular dictum, that people understand their own business and their own interests better, and care for them more, than the government does, or can be ex- pected to do. This maxim holds true throughout the greatest part of the business of life, and wherever it is true we ought to condemn every kind of government intervention that conflicts with it. The inferiority of government agency, for example, in any of the common operations of industry or com- merce, is proved by the fact, that it is hardly ever able to maintain itself in equal competition with individual agency, where the individuals possess the requisite degree of industrial enter- prise, and can command the necessary assemblage of means. All the facili- ties which a government enjoys of access to information ; all the means which it possesses of remunerating, and therefore of commanding, the best available talent in the market are not an equivalent for the one great disadvantage of an inferior interest in the result. it must be remembered, besides, that even if a government were supe- rior in intelligence and knowledge to any single individual in the nation, it must be inferior to all the individuals of the nation taken together. It can neither possess in itself, nor enlist in 572 its service, more than a portion of the acquirements and capacities which the country contains, applicable to any given purpose. There must be many persons equally qualified for the work with those whom the government em- ploys, even if it selects its instruments with no reference to any consideration but their fitness. Now these are the very persons into whose hands, in the cases of most common occurrence, a system of individual agency naturally tends to throw the work, because they are capable of doing it better or on cheaper terms than any other persons. So far as this is the case, it is evident that government, by excluding or even by superseding individual agency, either substitutes a less qualified in- strumentality for one better qualified, or at anv rate substitutes its own mode of accomplishing the work, for all the variety of modes which would be tried by a number of equally qualified per sons aiming at the same end ; a com- petition by many degrees more pro- pitious to the progress of improvement, than any uniformity of system. 6. I have reserved for the last place one of the strongest of the reasons against the extension of go- vernment agency. Even if the govern- ment could comprehend within itself, in each department, all the most emi- nent intellectual capacity and active talent of the nation, it would not be the less desirable that the conduct of a large portion of the affairs of society should be left in the bands of the persons immediately interested in them. The business of life is an essential part of the practical education of a people ; without which, book and school in- struction, though most necessary and salutary, does not suffice to qualify them for conduct, and for the adapta- tion of means to ends. Instruction is only one of the desiderata of mental improvement ; another, almost as in- dispensable, is a vigorous exercise of the active energies ; labour, contriv- ance, judgment, self-control : and the natural stimulus to these is the diffi- culties of life. This doctrine is not to be confounded with the complacent BOOK V. CHAPTEK XI. 6. optimism, which represents the evils Of life as desirable things, because they call forth qualities adnptcd to combat with evils. It is only because the dif- ficulties exist, that the qualities which combat with them are of any value. As practical beings it is our business to free human life from as many as possible of its difficulties, and not to keep up a stock of them as hunters preserve game, for the exercise of pur- suing it. But since the need of active talent and practical judgment in the affairs of life can only be diminished, and not, even on the most favourable supposition, done away with, it is im- portant that those endowments should be cultivated not merely in a select few, but in all, and that the cultivation should be more varied and complete than most persons are able to find in the narrow sphere of their merely indi- vidual interests. A people among whom there is no habit of spontaneous action for a collective interest who look habitually to their government to command or prompt them in all matters of joint concern who expect to have everything done for them, except what can be made an affair of mere habit and routine have their faculties only half developed ; their education is de- fective in one of its most important branches. Not only is the cultivation of the active faculties by exercise, diffused through the whole community, in itself one of the most valuable of national possessions : it is rendered, not less, but more, necessary, when a high le- gree of that indispensable culture ie systematically kept up in the chiefs and functionaries of the state. There cannot be a combination of circum- stances more dangerous to human wel- fare, than that in which intelligence and talent are maintained at a high standard within a governing corpora- tion, but starved and discouraged out- side the pale. Such a system, more completely than any other, embodies the idea of despotism, by arming with intellectual superiority as an additional weapon, those who have already the legal power. It approaches as nearly as the organic difference between LIMITS OF THE PROVINCE OF GOVERNMENT. 573 human beings and other animals ad- mits, to the government of sheep hy their shepherd, without anything like so strong an interest as the shepherd has in the thriving condition of the flock. The only security against poli- tical slavery, is the check maintained over governors, hy the diffusion of in- telligence, activity, and public spirit among the governed. Experience proves the extreme difficulty of per- manently keeping up a sufficiently high standard of those qualities ; a difficulty which increases, as the advance of civilization and security removes one after another of the hardships, embar- rassments, and dangers against which individuals had formerly no resource but in their own strength, skill, and courage. It is therefore of supreme importance that all classes of the com- munity, down to the lowest, should have much to do for themselves ; that as great a demand should be made upon their intelligence and virtue as it is in any respect equal to; that the government should not only leave as far as possible to their own faculties the conduct of whatever concerns themselves alone, but should suffer them, or rather encourage them, to manage as many as possible of their joint concerns by voluntary co-opera- tion : since this discussion and manage- ment of collective interests is the great school of that public spirit, and the great source of that intelligence of public affairs, which are always re- garded as the distinctive character of the public of free countries. A democratic constitution, not sup- ported by democratic institutions in de- tail, but confined to the central govern- ment, not only is not political freedom, but often creates a spirit precisely the reverse, carrying down to the lowest grade in society the desire and ambi- tion of political domination. In some countries the desire of the people is for not being tyrannized over, but in others it is merely for an equal chance to everybody of tyrannizing. Unhap- pily this last state of the desires is fully as natural to mankind as the former, and in many of the conditions even of civilized humanity, is far more largely exemplified. In proportion as the people are accustomed to manage their affairs by their own active inter- vention, instead of leaving them to the government, their desires will turn to repelling tyranny, rather than to tyran- nizing : while in proportion as all real initiative and direction resides in the government, and individuals habitually feel and act as under its perpetual tutelage, popular institutions develope in them not the desire of freedom, but an unmeasured appetite for place and power ; diverting the intelligence and activity of the country from its prin- cipal business, to a wretched competi- tion for the selfish prizes and the petty vanities of office. 7. The preceding are the prin- cipal reasons, of a general character, in favour of restricting to the narrowest compass the intervention of a public authority in the business of the com- munity : and few will dispute the more than sufficiency of these reasons, to throw, in every instance, the burthen of making out a strong case, not on those who resist, but on those who recom- mend, government interference. Let- ting alone, in short, should be the general practice : every departure from it, unless required by some great good, is a certain evil. The degree in which the maxim, even in the cases to which it is most manifestly applicable, has heretofore been infringed by governments, future ages will probably have difficulty in crediting. Some idea may be formed of it from the description by M. Dunoyer* of the restraints imposed on the operations of manufacture under the old government of France, by the meddling and regulating spirit of legis- lation. " The State exercised over manufac- turing industry the most unlimited and arbitrary jurisdiction. It disposed without scruple of the resources of manufacturers : it decided who should be allowed to work, what things it should be permitted to make, vrhat ma- terials should be employed, what pro- * On the Liberty of Labour, vol. ii. pp. 353-4. 571 BOOK V. CHAPTER XI. 7. cesses followed, what forms should be given to productions. It was not enough to do -well, to do better ; it was necessary to do according to the rules. Everybody knows the regulation of 1670 which prescribed to seize and nail to the pillory, with the names of the makers, goods not conformable to the rules, and which, on a second repe- tition of the offence, directed that the Manufacturers themselves should be Attached also. Not the taste of the consumers, but the commands of the law must be attended to. Legions of inspectors, commissioners, controllers, jurymen, guardians, were charged with its execution. Machines were broken, products were burned when not con- formable to the rules : improvements were punished; inventors were fined. There were different sets of rules for goods destined for home consumption and for those intended for exportation. An artizan could neither choose the place in which to establish himself, nor work at all seasons, nor work for all customers. There exists a decree of March 30, 1700, which limits to eighteen towns the number of places where stockings might be woven. A decree of June 18, 1723, enjoins the manufacturers at Rouen to suspend their works from the 1st of July to the ] 5th of September, in order to fa- cilitate the harvest. Louis XIV., when he intended to construct the colonnade of the Louvre, forbade all private per- sons to employ workmen without his permission, under a penalty of 10,000 livres, and forbade workmen to work for private persons, on pain for the first offence, of imprisonment, and for the second, of the galleys." That these and similar regulations were not a dead letter, and that the officious and vexatious meddling was prolonged down to the French Revo- lution, we have the testimony of Roland, the Girondist minister.* " i have seen,'' says he, "eighty, ninety, a hundred pieces of cotton or woollen stuff cut up, and completely destroyed. I have witnessed similar scenes every we.k for a number of years. I have * I quote at second hand, from Mr. Carey's i Euay on the Bate of Waget t pp, 195-6. seen manufactured goods confiscated ; heavy fines laid on the manufacturers ; some pieces of fabric were burnt in public places, and at the hours of market : others were fixed to the pil- L-.ry, with the name of the manufac- turer inscribed upon them, and he him- self was threatened with the pillory, in case of a second offence. All this was done under my eyes, at Rouen, in con- formity with existing regulations, or ministerial orders. What crime de- served so cruel a punishment ? Some defects in the materials employed, or in the texture of the fabric, or even in some of the threads of the warp. "I have frequently seen manufac- turers visited by a band of satellites who put all in confusion in their esta- blishments, spread terror in their fami- lies, cut the stuffs from the frames, tore off the warp from the looms, and car- ried them away as proofs of infringe- ment ; the manufacturers were sum- moned, tried, and condemned : their goods confiscated ; copies of their judg- ment of confiscation posted up in every public place; fortune, reputation, creel it, all was lost and destroyed. And for what offence ? Because they had made of worsted, a kind of cloth called shag, such as the English used to manufac- ture, and even sell in France, while the French regulations stated that that kind of cloth should be made with mo- hair. I have seen other manufacturers treated in the same way, because they had made camlets of a particular width, used in England and Germany, for which there was a great demand from Spain, Portugal, and other coun- tries, and from several parts of France, while the French regulations prescribed other widths for camlets." The time is gone by, when such ap- plications as these of the principle of "paternal government'' would be at- tempted, in even the least enlightened country of the European common- wealth of nations. In such cases as those cited, all the general objections to government interference are valid, and several of them in nearly their highest degree. But we must no\v turn to the second part of our task, and direct our attention to cases, in LIMITS OF THE PEOVINCE OF GOVERNMENT. 575 which some of those general objections are altogether absent, while those which can never be got rid of entirely, are overruled by counter- considerations of still greater importance. We have observed that, as a general rule, the business of life is better per- brmod when those who have an imme- diate interest in it are left to take their >wn course, uncontrolled either by the mandate of the law or by the meddling )f any public functionary. The per- sons, or some of the persons, who do he work, are likely to be better judges than the government, of the means of attaining the particular end at which hey aim. Were we to suppose, what not very probable, that the govern- nent has possessed itself of the best knowledge which had been acquired up o a given time by the persons most bkilled in the occupation ; even then, individual agents have so much stronger and more direct an interest in ;he result, that the means are lav more ikely to be improved and perfected if eft to their uncontrolled choice, ikit f the workman is generally the best selector of means, can it be affirmed with the same universality, that the consumer, or person served, is the most competent judge of the end ? Is the myer always qualified to judge of the jommodity ? If not, the presumption n favour of the competition of the market does not apply to the case ; and if the commodity be one, in the quality of which society has much at stake, the balance of advantages may be in favour of some mode and degree of intervention, by the authorized re- : presentatives of the collective interest of the slate. 3 8. Now, the proposition that the consumer is a competent judge of the commodity, can be admitted only with numerous abatements and exceptions, lie is gonorally the best judge (though even this is not true universally] of the material objects produced for his i;se. These are destined to supply some physical want, or gratify some taste or inclination, respecting which wants or inclination.s there is no appeal from the person who feels them ; or they are the means and appliances of some occupa- tion, for the use of the persons engaged in it, who may be presumed to be judges of the things required in their own habitual emplovment. But there are other things of the worth ofwKTch the demand of the market is by no means a test: things of which the utility does not consist in ministering to inclinations, nor in serving the daily uses of life, and the want of which is least felt where the need is greatest. Tins is peculiarly true of those things which are chiefly useful as tending U raise the character of human beings. The uncultivated cannot be competent judges of cultivation. Those who most need to be made wiser and better, usually desire it least, and if they de- sired it, would be incapable of finding the way to it by their own lights. It will continually happen, on the volun- tary system, that, the end not being desired, the means will not be provided at all, or that, the persons requiring improvement having an imperfect or altogether erroneous conception of what they want, the supply called forth by the demand of the market will be any- thing but what is really required. Now any well-intentioned and tolerablv civilized government may think wiin- out presumption that it does or ought to possess a degree of cultivation above the average of the community which it rules, and that it should therefore be capable of offering better education arid better instruction to the people, than the greater number of them would spontaneously demand. Education, therefore, is one of those things which it is admissible in principle that a government should provide for the people. The case is one to which the reasons of the non-interference prin- ciple do not necessarily or universally extend.* * In opposition to these opinions, a writer, with whom on many points I si^ro?, but whose hostility to government interven- tion seems to me too indiscriminate and unqualified, M. Dunoyer, observes, that instruction, however Rood i" itself, can only be useful to the public in so far as they are willing to receive it, and that the best proof that the instruction i:3 suitable to their wants, is its success as a pecuniary enter- prise. This argument seems uo more con 576 BOOK V. With, regard to elementary educa- tion, the exception to ordinary rules may, I conceive, justifiably be carried still further. There are certain primary elements and means of knowledge, which it is in the highest degree de- sirable that all human beings born into the community should acquire during childhood. If their parents, or those on whom they depend, have the power of obtaining for them this instruction, and fail to do it, they commit a double breach of duty : towards the children themselves, and towards the members of the community generally, who are all liable to suffer seriously from the consequences of ignorance and want of education in their fellow-citizens. It is therefore an allowable exercise of the powers of government, to impose on parents the legal obligation of giving elementary instruction to children. This elusive respecting instruction for the mind, than it would be respecting medicine for the body. No medicine will do the patient any good if he cannot be induced to take it ; but we are not bound to admit as a- corollary from this, that the patient will select the right medicine without assistance. Is it not probable that a recommendation, from any quarter which he respects, may induce him to accept a better medicine than he would spontaneously have chosen ? This is, in respect to education, the very point in de- bate. Without doubt, instruction which is so far in advance of the people that they cannot be induced to avail themselves of it, is to them of no more worth than if it did not exist. But between what they spontane- ously choose, and what they will refuse to accept when offered, there is a breadth of interval proportioned to their deference for the recommender. Besides, a thing of which the public are bad judges, may require to be shown to them and pressed on'their attention for a long time, and to prore its advantages by long experience, before they learn to Appreciate it, yet they may learn at last ; which they might never have done, if the thing had not been thus obtruded upon them in act, but only recommended in theory. Now, a pecuniary speculation cannot wait years, or perhaps generations, for success ; It must succeed rapidly, or not at alL Another consideratien which M. Dunoyer seems to have overlooked, is, that institutions and modes of tuition which never could be made sufficiently popular to repay, with a profit, the expenses incurred on them, may be in- valuable to the many by giving the highest quality of education to the few, and keeping tip theperpetual succession of superiorminds, by whom knowledge is advanced, and the community urged forward in civilization. CHAPTER XI. 8. however cannot fairly be done, without taking measures to ensure that such instruction shall be always accessible to them, either gratuitously or at a trifling expense. It may indeed be objected that the education of children is one of those expenses which parents, even of the labouring clas^, ought to defray ; that it is desirable that they should feel it incumbent on them to provide by their own means for the fulfilment of their duties, and that by giving education at the cost of others, just as much as by giving subsistence, the standard of necessary wages is proportionally low- ered, and the springs of exertion and self-restraint in so much relaxed. This argument could, at best, be only valid if the question were that of substi- tuting a public provision for what indi- viduals would otherwise do for them- selves ; if all parents in the labouring class recognised and practised the duty of giving instruction to their children at their own expense. But inasmuch as parents do not practise this duty, and do not include education among those necessary expenses which their wages must provide for, therefore the general rate of wages is not high enough to bear those expenses, and they must be borne from some other source. And this is not one of the cases in which the tender of help perpetuates the state of things which renders help necessary. Instruction, when it is really such, does not enervate, but strengthens as well as enlarges the active faculties : in whatever manner acquired, its effect on the mind is favourable to the spirit of independence : and when, unless had gratuitously, it would not be had at all, help in this form has the opposite ten- dency to that which in so many other cases makes it objectionable ; it is help towards doing without help. In England, and most European countries, elementary instruction can- not be paid for, at its full cost, from the common wages of unskilled labour, and would not if it could. The alternative therefore is not between government and private speculation, but between a government provision and voluntary charity : between interference by go- LIMITS OF THE PROVINCE OF GOVERNMENT. 577 vern merit, and interference by associa- tions of individuals, subscribing; their own money for the purpose, like the two great School Societies. It is, of course, not desirable that anything should be done by funds derived from compulsory taxation, which is already sufficiently well done by individual liberality. How far this is the case with school instruction, is, in each par- ticular instance, a question of fact. The education provided in this country on the voluntary principle has of late been so much discussed, that it is need- less in this place to criticise it minutely, and I shall merely express my convic- tion, that even in quantity it is, and is likely to remain, altogether insufficient, while in quality, though with some slight tendency to improvement, it is never good except by some rare acci- dent, and generally so bad as to be little more than nominal. I hold it therefore the duty of the government to supply the defect by giving pecu- niary support to elementary schools, such as to render them accessible to all the children of the poor, either freely, or for a payment too inconsiderable to be sensibly felt. One thing must be strenuously in- sisted on; that the government must claim no monopoly for its education, either in the lower or in the higher branches ; must exert neither autho- rity nor influence to induce the people to resort to its teachers in preference to others, and must confer no peculiar advantages on those who have been instructed by them. Though the go- vernment teachers will probably be superior to the average of private in- structors, they will not embody all the knowledge and sagacity to be found in all instructors taken together, and it is desirable to leave open as many roads as possible to the desired end. It is not endurable that a government should, either in law or in fact, have a complete control over the education of the people. To possess such a control, and actually exert it, is to be despotic. A govern- ment which can mould the opinions and sentiments of the people from their youth upwards, can do with them what- ever it pleases. Though a government, P.E. therefore, may, and in many cases ought to, establish schools and col leges, it miist neither compel nor bribe any person to come to them ; nor ought the power of individuals to set up rival establishments, to depend in any degree upon its authorization. It would be justified in requiring from all the peopla that they shall possess instruction in certain things, but not in prescribing to them how or from whom they shall obtain it. 9. In the matter of education, the intervention of government is justi- fiable, because the case is not one in which the interest and judgment of the consumer are a sufficient security for the goodness of the commodity. Let us now consider another class of cases, where there is no person in the situa- tion of a consumer, and where the in- terest and judgment to be relied on are those of the agent himself ; as in the conduct of any business in which he is exclusively interested, or in en- tering into any contract or engage- ment by which he himself is to be bound. The ground of the practical principle of non-interference must here be, that most persons take a juster and more intelligent view of their own interest, and of the means of promoting it, than can either be prescribed to them by a general enactment of the legislature, or pointed out in the particular case by a public functionary. The maxim is un- questionably sound as a general rule : but there is no difficulty in perceiving some very large and conspicuous ex- ceptions to it. These may be classed under several heads. First : The individual who is pre- sumed to be the best judge of his own interests may be incapable of judging or acting for himself; may be a lunatic, an idiot, an infant: or though not wholly incapable, may be of immature years and judgment. In this case the foundation of the non-interference prin- ciple breaks down entirely. The per- son most interested is not the best judge of the matter, nor a competent judge at all. Insane persons are every- where regarded as proper objects of the P P 578 BOOK V. CHAPTER XI. 9. care of the state.* In the case of children and young persons, it is com- mon to say, that though they cannot judge for themselves, they have their parents or other relatives to judge for j province of political economy ; it them. Put this removes the question right that children, and young persons into a different category; making it no "* ~~* - longer a question -whether the govern- of children, the law is warranted, if it is able, in compelling to be done or for- borne, and is generally bound to do so. To take an example irom the peculiar not yet arrived at maturity, s:iouH be protected, so far as th : eye and hand ment should interfere with individuals of the state can reach, from being in the direction of their own conduct i over-worked. Labouring for t and interests, but whether it should leave absolutely in their power the conduct and interests of somebody else. Parental power is as susceptible of abuse as any other power, and is, as a matter of fact, constantly abused. If laws do not succeed in preventing parents from brutally ill-treating, and even from murdering their children, far less ought it to be presumed that the hours in the day, or on worl: their strength, should not be permitted to tliciu, for if permitted it may always be compelled. Freedom of contract, in the case of children, is but another word for freedom of coercion. Educa- tion also, the best which circumstances admit of their receiving, is not a thing which parents or relatives, from indif- ference, jealousy, or avarice, should interests of children will never be sa- | have it in their power to withhold. o-i- i 11 m'L . i i . crificed, in more commonplace and less revolting ways, to the selfishness or the ignorance of their parents. Whatever it can be clearly seen that parents ought to do or forbear for the interest * The practice of the English law with The reasons for legal intervention in favour of children, apply not less strongly to the case of those uufortu- i nate slaves and victims of the most brutal part of mankind, the lower animals. It is by the grossest misun- ^ ect to insane persons, especially on the derstanding of the principles of liberty, all-important point of the ascertainment of that the infliction of exemplary punish- insanity, most urgently demands reform. ment OQ mffianism practised towards these defenceless creatures, has been treated as a meddling by government with things beyond its province ; an interference with domestic life. The domestic life of domestic tyrants is At present no persons, whose property is worth coveting, and whose nearest relations are unscrupulous, or on bad terms with them, are secure against a commission of .hmacy. At the instance of the persons who irould profit by their being declared insane, UL jury may be impanelled and an investiga- tion held at the expense of the property, in which all their personal peculiarities, with all the additions made by the lying gossip of low servants, are poured into the credulous ears of twelve petty shopkeepers, ignorant of all wavs of life except those of their own class, and regarding every trait of individuality in character or taste as eccentricity, and all eccentricity as either insanity or wickedness. If this sapient tribunal gives the desired ver- dict, the property is handed over to perhaps the last persons whom the rightful owner would have desired or suffered to possess it. Some recent instances of this kind of inves- tigation have been a scandal to the adminis- tration of justice. Whatever other changes in this branch of law may be made, two at least arc imperative : first, that, as in other legal proceedings, the expenses should not bo borne by the person on trial, but by tho promoters of the inquiry, subject to recovery of costs in case of success : and secondly, that the property of a person declared insane, should in no case be made over to heirs while the proprietor is alive, but should be managed by a public officer until his death or recovery. imperative on the law to interfere with; and it is to be regretted that metaphysical scruples respecting the nature and source of the authority of government, should induce many warm supporters of law.s against cruelty to animals, to seek for a justification of such laws in the incidental conse- quences of the indulgence of ferocious habits, to the interests of human beings, rather than in the intrinsic merits of the case itself. What it would be the duty of a human being, possessed of the requisite physical strength, to prevent by force if at- tempted in his presence, it cannot be less incumbent on society generally to repress. The existing laws of England on the subject are chiefly defective in the trifling, often almost nominal, LIMITS OF THE PROVINCE OF GOVERNMENT. maximum, to which the penalty even in the worst cases is limited. Among those members of the com- iminity whose freedom of contract ought to be controlled by the legisla- ture for their own protection, on ac- count (it is said) of their dependent position, it is frequently proposed to include women : and in the existing Factory Act, their labour, in common with that of young persons, has been placed under peculiar restrictions. 15 nt the classing together, for this and other purposes, of women and children, appears to me both indefensible in principle and mischievous in practice. Children below a certain age cannot judge or act for themselves ; up to a considerably greater age they are in- evitably more or less disqualified for doing so ; but women are as capable as men of appreciating and managing their own concerns, and the only hin- drance to their doing so arises from the injustice of their present social position. So long as the law makes everything which the wife acquires, the property of the husband, while by com- peiiing her to live with him it forces ner to submit to almost any amount of moral and even physical tyranny which he may choose to inflict, there is some ground for regarding every act done by her as done under coercion : but it is the great error of reformers and philanthropists in our time, to nibble at the consequences of unjust power instead of redressing the injus- tice itself. If women had as absolute a control as men have, over their own persons and their own patrimony or acquisitions, there would be no plea for limiting their hours of labouring for themselves, in order thatthey might have time to labour for the husband, in what is called, by the advocates of re- striction, his home. Women employed in factories are the only women in the labouring rank of life whose position is not that of slaves and drudges ; pre- cisely because they cannot easily be compelled to work and earn wages in factories against their will. For im- proving the condition of women, it should, on the contrary, be an object to give them the readiest access to inde- pendent industrial employment, instead of closing, either entirely or partially, that which is already open to them. 10. A second exception to tho doctrine that individuals are the best judges of their own interest, is when an individual attempts to decide irre- vocably now, what will be best for his interest at some future and distant time. The presumption in favour of individual judgment is only legitimate, where the judgment is grounded on actual, and especially on present, per- sonal experience ; not where it is formed antecedently to experience, and not suffered to be reversed even after experience has condemned it. When persons have bound themselves by a contract, not simply to do some one thing, but to continue doing some- thing for ever or for a prolonged period, without any power of revoking the en- gagement, the presumption which their perseverance in that course of conduct would otherwise raise in favour of its being advantageous to them, does not; exist ; and any such presumption which can be grounded on their having voluntarily entered into the contract, perhaps at an early age, and without any real knowledge of what they un- dertook, is commonly next to null. The practical maxim of leaving contracts free, is not applicable without great limitations in case of engagements in perpetuity ; and the law should be ex- tremely jealous of such engagements ; should refuse its sanction to them, when the obligations they impose are such as the contracting party cannot be a competent judge of; if it ever does sanction them, it should take every possible security for their being con- tracted with foresight and deliberation ; and in compensation for not permit- ting the parties themselves to revoke their engagement, should grant them a release from it, on a sufficient case being made out before an impartial authority. These considerations are eminently applicable to marriage, the most important of all cases of engage- ment for life. 11. The third exception which I PP 2 580 BOOK V. CHAPTER XI. shall notice, to the doctrine that go- vernment cannot manage the affairs of individuals as well as the individuals themselves, has reference to the great class of cases in which the individuals can only manage the concern by dele- gated agency, and in which the so- called private management is, in point of fact, hardly hetter entitled to be called management by the persons in- terested, than adnimistration by a public officer. Whatever, if left to spontaneous agency, can only be done by joint-stock associations, will often be as well, and sometimes better done, as far as the actual work is concerned, by the state. Government manage- ment is, indeed, proverbially jobbing, careless, and ineffective, but so like- wise has generally been joint-stock management. The directors of a joint-stock company, it is true, are always shareholders ; but also the members of a government are invari- ably taxpayers; and in the case of directors, no more than in that of go- vernments, is their proportional share of the benefits of good management, equal to the interest they may possibly have in mismanagement, even without reckoning the interest of their ease. It may be objected that the share- holders, in their collective character, exercise a certain control over the directors, and have almost always full power to remove them from office. Practically, however, the difficulty of exercising this power is found to be so great, that it is hardly ever exercised except in cases of such flagrantly un- skilful, or, at least, unsuccessful ma- nagement, as would generally produce the ejection from office of managers appointed by the government. Against the very ineffectual security afforded by meetings of shareholders, and by their individual inspection and en- quiries, may be placed the greater publicity and more active discus- sion and comment, to be expected in free countries with regard to affairs in which the general govern- The defects, there- well or better done by public officers. ese reasons have been already 11. than those of management by joint- stock. The true reasons in favour of leaving to voluntary associations all such things as they are competent to perform, would exist in equal strength if it were certain that the work itself would be as These pointed out : the mischief of overload- ing the chief functionaries of govern- ment with demands on their attention, and diverting them from duties which they alone can discharge, to objects which can be sufficiently well attained without them ; the danger of unneces- sarily swelling the direct power and indirect influence of government, and multiplying occasions of collision be- tween its agents and private citizens ; and the inexpediency of concentrating in a dominant bureaucracy, all the skill and experience in the manage- ment of large interests, and all the power of organized action, existing in the community; a practice which keeps the citizens in a relation to the govern- ment like that of children to their guardians, and is a main cause of the inferior capacity for political life which has hitherto characterized the over- governed countries of the Continent, ment takes part. fore, of government management, do _ _____ e not seem to be necessarily much capacity very largely diffused among women greater, if necessarily greater at all, of high station and cultivation in Europe. whether with or without the forms of representative government.* But although, for these reasons, most things which are likely to be even tolerably done by voluntary associa- tions, should, generally speaking, be * A parallel case may be found in the distaste for politics, and. absence of public spirit, by which women, as a class, are cha- racterized in the present state of society, and which is often felt and complained of by political reformers, without, in general, making them willing to recognise, or de- sirous to remove, its cause. It obviously arises from their being taught, both by institutions and by the whole of their educa- tion, to regard themselves as entirely apart from politics. "Wherever they have been politicians, they have shown as great interest in the subject, and as great aptitude for it, according to the spirit of their time, as the men with whom they were cotemporaries : in that period of history (for example) in which Isabella of Castile and Elizabeth of England were, not rare exceptions, but " brilliant examples of a spirit and LIMITS OF THE PKOVINCE OF GOVERNMENT. 5S1 loft to them; it does not follow that the manner in which those associations perform their work should be entirely uncontrolled by the government. There are many cases in which the agency, of whatever nature, by which a service is performed, is certain, from the nature of the case, to be virtually single ; in which a practical monopoly, with all the power it confers of taxing the com- munity, cannot be prevented from ex- isting. I have already more than once adverted to the case of the gas and \vatcrcompanies, among whi"h, though perfect freedom is allowed to competi- tion, none really takes plnce, and prac- tically they are found to be even more irresponsible, and unapproachable by individual complaints, than the govern- ment. There are the expenses without the advantages of plurality of agency ; and the charge made for services which cannot be dispensed with, is, in substance, quite as much compulsory taxation as if imposed by law : there arc few householders who make any distinction between their "water rate" and their other local taxes. In the case of these particular services, the reasons preponderate in favour of their being performed, like the paving and cleansing of the streets, not certainly by the general government of the state, but by the municipal authorities of the town, and the expense defrayed, as even now it in fact is, by a local rate. But in the many analogous cases which it is best to resign to voluntary agency, the community needs some other security for the fit performance of the sendee than the interest of the managers ; and it is the part of govern- ment, either to subject the business to reasonable conditions for the general advantage, or to retain such power over it, that the profits of the mono- poly may at least be obtained for the public. This applies to the case of a road, a canal, or a railway. These are always, in a great degree, prac- tical monopolies ; and a government which concedes such monopoly un- reservedly to a private company, does much the same thing as if 'it allowed an individual or an association to levy any tax they chose, for their own benefit, on all the malt produced in the country, or on all the cotton imported into it To make the con- cession for a limited time is generally justifiable, on the principle which jus- , tifies patents for inventions : but the state should either reserve to itself a reversionary property in such public works, or should retain, ?nd freely ex- ercise, the right of fixing a maximum of fares and charges, and, from time to time, varying that maximum. It is perhaps necessary to remark, that the state may be the proprietor of canals or railways without itself working them ; and that they will almost always be better worked by means of a company, renting the railway or canal for a limited period from the state. 12. To a fourth case of exception I must request particular attention, it being one to which, as it appears to me, the attention of political economists has not yet been sufficiently drawn. There are matters in which the inter- ference of law is required, not to over- rule the judgment of individuals re- specting their own interest, but to give effect to that judgment ;^ they being unable to give effect to it except by concert, which concert again cannot be effectual unless it receives validity and sanction from the law. For illustra- tion, and without prejudging the par- ticular point, I may advert to the question of diminishing the hours of labour. Let us suppose, what is at least supposable, whether it be the fact or not that a general reduction of the hours of factory labour, say from ten to nine, would be for the advantage of the work-people : that they would receive as high wages, or nearly as high, for nine hours labour as they receive for ten. If this would be the result, and if the operatives generally ore con- vinced that it would, the limitation, some may say, will be adopted spon- taneously. I answer, that it will not be adopted unless the body of opera- tives bind themselves to one another to abide by it. A workman who re- fused to work more than nine hours while there were others who worked ten, would either not be employed at 532 BOOK V. CHAPTER XL 12. all, or if employed, must submit to lose one-tenth of his wages. However con- vinced, therefore, he may he that it is the interest of the class to work short time, it is contrary to his own interest to set the example, unless he is well assured that all or racst others will follow it. But suppose a general agree- ment of the whole class : might not this te effectual without the sanction of law? Not unless enforced by opinion with a rigour practically equal to that of law. For however beneficial the observance of the regulation might- be to the class collectively, the imme- diate interest of every individual would lie in violating it : and the more nume- rous those were who adhered to the rule, the more would individuals gain by de- parting from it. If nearly ail restricted themselves to nine hours, those who chose to work for ten would gain all the advantage of the restriction, to- gether with the profit of infringing it ; they would get ten hours wages for nine hours work, and an hour's wages besides. I grant that if a large majo- rity adhered to the nine hours, there would be no harm done : the benefit would be, in the main, secured to the class, while those individuals who pre- ferred to work harder and earn more, would have an opportunity of doing so. This certainly would be 'the state of things to be wished for ; and assuming that a reduction of hours without any diminution of wages could take place without expelling the commodity from some of its markets which is in every particular instance a question of fact, not of principle the manner in which it would Ic most desirable that this effect should be brought about, would be by a quiet change in the general custom of the trade ; short hours be- coming, by spontaneous choice, the general practice, but those who chose to deviate irom it having the fullest liberty to do EO. Probably, however, so many would prefer the ten hours work on the improved terms, that the limitation could not be maintained as a general practice: what some did from choice, others would soon be obliged to do from necessity, and those who had chosen long hours for the sake of increased wages, would be forced in the end to work Ion _ for no greater wages than befo. suming then that it really would be the interest of each to work only nine hours if he could be assured that all : s would do the same, there might be no means of their attaining this object but by converting their supposed mutual agreement into an engagement under penalty, by consenting to have it enforced by law. I am not express- ing any opinion in favour of such an enactment, which has never been de- manded, and which I certainly should not, in present circumstances, recom- mend : but it serves to exemplify the manner in which classes of persons may need the assistance of law, to give effect to their deliberate collective opinion of their own interest, by afford- in.':: to every individual a guarantee thr.t his competitors will pursue the same course, without which he cannot safely adopt it himself. Another exemplification of the same principle is afforded by what is known as the "Wakefield system of coloniza- tion. This system is grounded on the important principle, that the degree of productiveness of land and labour de- pends on their being in a due propor- tion to one another; that if a few persons in a newly -settled country at- tempt to occupy and appropriate a large district, or if each labourer be- comes too soon an occupier and culti- vator of land, there is a loss of produc- tive power, and a great retardation of the progress of the colony in and civilization : that nevertheless the instinct (as it may almost be called) of appropriation, and the fee-lings asso- ciated in old countries with landed proprietorship, induce almost every emigrant to take possession of as much, land as he has the means of acquiring, and every labourer to become at once a proprietor, cultivating his own land with no other aid than that of his family. BT this propensity to the im- mediate possession of land could be in some degree restrained, and each labourer induced to work a certain number of years on hire before he became a landed proprietor, a per- LIMITS OF THE PROVINCE OF GOVERNMENT. 583 petual stock of hired labourers could be maintained, available for roads, canals, works of irrigation, &c., and for the establishment and carrying on of the different branches of town in- dustry ; whereby the labourer, when he did at last become a landed proprietor, would find his land much more valu- able, through access to markets, and facility of obtaining hired labour. Mr. Wakeficld therefore proposed to check the premature occupation of land, and dispersion of the people, by putting upon all unappropriated lands a rather high price, the proceeds of which were to be expended in conveying emigrant labourers from the mother country. This salutary provision, however, has been objected to, in the name and on the authority of what was represented as the great principle of political eco- nomy, that individuals are the best judges of their own interest. It was said, that when things are left to them- selves, land is appropriated and occu- pied by the spontaneous choice of individuals, in the quantities and at the times most advantageous to each person, and therefore to the community generally; and that to interpose arti- ficial obstacles to their obtaining land, is to prevent them from adopting the course which in their own judgment is most beneficial to them, from a self- conceited notion of the legislator, that he knows what is most for their inte- rest, better than they do themselves. Now this is a complete misunderstand- ing, either of the system itself, or of the principle with which it is alleged to conflict. The oversight is similar to that which we have just seen exem- plified on the subject of hours of labour. However beneficial it might be to the colony in the aggregate, and to each individual composing i-t, that no one should occupy more land than he can properly cultivate, nor become a pro- prietor until there are other labourers ready to take his place in working for hire ; it can never be the interest of an individual to exercise this forbearance, unless he is assured that others will do so too. Surrounded by settlers who have each their thousand acres, how is be benefited by restricting himself to fifty? or what does a labourer gain by deferring the acquisition altogether for a few years, if all other labourers rush to convert their first earnings into estates in the wilderness, several miles apart from one another ? If they, by seizing on land, prevent the formation of a class of labourers for wages, he will not, by postponing the time of his becoming a proprietor, be enabled to employ the land with any greater ad- vantage when he does obtain it; to what end therefore should he place himself in what will appear to him and others a position of inferiority, by re- maining a hired labourer when all around him are proprietors ? It is the interest of each ?o do what is good for all, but only if others will do likewise. The principle that each is the best judge of his own interest, understood as these objectors understand it, would prove that governments ought not to fulfil auy of their acknowledged duties ought; not, in fact, to exist at all. It is greatly the interest of the commu- nity, collectively and individually, not, to rob or defraud one another : but there is not the loss necessity for laws to punish robbery and fraud ; because, though it is the interest of each that nobody should rob or cheat, it is not any one's interest to refrain from rob- bing and cheating others when all others are permitted to rob and cheat him. Penal laws exist at all, chiefly for this reason, because even an unanimous opinion that a certain line of conduct is for the general interest, does not always make it people's indi- vidual interest to adhere to that line of conduct. 13. Fifthly; the argument against government interference grounded on j the maxim that individuals are the '; best judges of their own interest, can- not apply to the very large class of \ cases, in which those acts of individuals with which the government claims to interfere, are not done by those indi- victuals for their own interest, but for j the interest of other people. This in- cludes, among other things, the impor- tant and much agitated subject of public charity. Though individuals BOOK V. CHAPTER XI. 13. should, in general, be left to do for themselves whatever it can reasonably be expected that they should be capable of doing, yet when they are at any rate not to be left to themselves, but to be helped by other people, the question arises whether it is better that they should receive this help exclusively from individuals, and therefore uncer- tainly and casually, or by systematic arrangements, in which society acts through its organ, the state. This brings us to the subject of Poor Laws ; a subject which would be of very minor importance if the habits of aii classes of the people were temperate and prudent, and the diffusion of pro- perty satisfactory ; but of the greatest moment in a state of things so much the reverse of this, in both points, as that which the British islands present. Apart from any metaphysical con- siderations respecting the foundation of morals or of the social union, it will be admitted to be right that human beings should help one another; and the more so, in proportion to the urgency of the need : and none needs help so urgently as one who is starving. The claim to help, therefore, created by destitution, is one of the strongest which can exist ; and there is primd facie the amplest reason for making the relief of so extreme an exigency as certain to those who require it, as by any arrangements of society it can be made. On the other hand, in all cases of helping, there are two sets of conse- quences to be considered; the con- sequences of the assistance itself, and the consequences of relying on the assistance. The former are generally beneficial, but the latter, for the most part, injurious ; so much so, in many cases, as greatly to outweigh the value of the benefit. And this is never more likely to happen than in the very cases where the need of help is the most intense. There are few things for which it is more mischievous that people should rely on the habitual aid of others, than for the means of sub- sistence, :*nd unhappily there isno lesson j which they more easily learn. The problem to be solved is therefore one ! of peculiar nicety as well as impor- tance ; how to give the greatest amount of needful help, with the smallest eii- eouragement to undue reliance on it. Energy and self-dependence are, how- ever, liable to be impaired by the ab- sence of help, as well as by its excess. It is even more fatal to exertion to have no hope of succeeding by it, than to be assured of succeeding without it. When the condition of any one is so disastrous that his energies are para- lyzed by discouragement, assistance is a tonic, not a sedative : it braces in- stead of deadening the active faculties: always provided that the assistance is not such as to dispense with self-help, by substituting itself for the person's own labour, skill, and prudence, but is limited to affording him a better hope of attaining success by those legiti- ; mate means. This accordingly is a test to which all plans of philanthropy and benevolence should be brought, whether intended for the benefit of in- dividuals or of classes, and whether conducted on the voluntary or on the government principle. In so far as the subject admits of any general doctrine or maxim, it would appear to be this that if assistance is given in such a manner that the con- dition of the person helped is as de- sirable as that of the person who succeeds in doing the same thing without help, the assistance, if capable of being previously calculated on, is mischievous : but if, while available to everybody, it leaves to every one a strong motive to do without it if he can, it is then for the most part bene- ficial. This principle, applied to a system of public charity, is that of the Poor Law of 1834. If the condition of a person receiving relief is made as eligible as that of the labourer who supports himself by his own exertions, the system strikes at the root of all individual industry and self-govern- ment ; and, if fully acted up to, would require as its supplement an organized system of compulsion, for governing and setting to work like cattle, those who had been removed from the in- fluence of the motives that act on human beings. But i;', consistently LIMITS OF THE PROVINCE OF GOVERNMENT. 585 with guaranteeing all persons against absolute want, the condition of those who are supported by legal charity can be kept considerably less desirable than the condition of those who find support for themselves, none but beneficial con- sequences can arise from a law which renders it impossible for any person, except by his own choice, to die from insufficiency of food. That in England at least this supposition can be realized, is proved by the experience of a long period preceding the close of the last century, as well as by that of many highly pauperized districts in more recent times, which have been dispau- perizcd by adopting strict rules of poor- law administration, to the great and permanent benefit of the whole la- bouring class. There is probably no country in which, by varying the means suitably to the character of the people, a legal provision for the destitute might not be made compatible with the obser- vance of the conditions necessary to its being innocuous. Subject to these conditions, I con- ceive it to be highly desirable, that the certainty of subsistence should be held out by law to the destitute able- bodied, rather than that their relief should depend on voluntary charity. In the first place, charity almost always does too much or too little : it lavishes its bounty in one place, and leaves people to starve in another. Secondly, since the state must neces- sarily provide subsistence for the cri- minal poor while undergoing punish- ment, not to do the same for the poor who have not offended is to give a premium on crime. And lastly, if the poor are left to individual charity, a vast amount of mendicity is inevitable. What the state may and should aban- don to private charity, is the task of distinguishing between one case of real necessity and another. Private charity can give more to the more de- serving. The state must act by general rules. Jt cannot undertake to discrimi- nate between the deserving and the undeserving indigent. It owes no more than subsistence to the first, and can give no less to the last. What is said about the injustice of a law which has no better treatment for the merely unfortunate poor than for the ill-con- ducted, is founded on a misconception of the province of law and public au- thority. The dispensers of public re- lief have no business to be inquisitors. Guardians and overseers are not fit to be trusted to give or withhold other people's money according to their ver- dict on the morality of the person so- liciting it ; and it would show much ignorance of the ways of mankind to suppose that such persons, even in the almost impossible case of their being qualified, will take the trouble of ascer- taining and sifting the past conduct of a person in distress, so as to form a rational judgment on it. Private cha- rity can make these distinctions ; and in bestowing its own money, is en- titled to do so according to its own judgment. It should understand that this is its peculiar and appropriate province, and that it is commendable or the contrary, as it exercises the function with more or less discern- ment. But the administrators of a public fund ought not to be required to do more for anybody, than that minimum which is due even to the worst. If they are, the indulgence very speedily becomes the rule, and refusal the more or less capricious or tyrannical exception. 14. Another class of cases which fall within the same general principle as the case of public charity, are those in which the acts done by individuals, though intended solely for their own benefit, involve consequences extend- ing indefinitely beyond them, to inte- rests of the nation or of posterity, ibr which society in its collective capacity is alone able, and alone bound, to pro- vide. One of these cases is that of Colonization. If it is desirable, as no one will deny it to be, that the plant- ing of colonies should be conducted, not with an exclusive view to the pri- vate interests of the first founders, but with a deliberate regard to the perma- nent welfare of the nations afterwards to arise from these small beginnings ; such regard can only be secured by placing the enterprise, from its com- BOOK V. CHAPTER XI. 14. 586 menceiiient, under regulations con- structed with the foresight and en- larged views of philosophical leds- lators ; and the government alone has power either to frame such regulations, or to enforce their observance. The question of government inter- vention in the -work of Colonization involves the future and permanent in- terests of civilization itself, and far outstretches the comparatively narrow limits of purely economical considera- tions. But even with a view to those considerations alone, the removal of population from the overcrowded to the unoccupied parts of the earth's sur- face is one of those works of eminent social usefulness, which most require, and which at the same time lest re- pay, the intervention of government. To appreciate the benefits of colo- nization, it should be considered in its relation, not to a single country, but to ihe collective economical : of the human race. The question is in general treated too exclusively as one of distribution ; of relieving one labour- market and supplying another. It is this, but it is also a question of pro- duction, and of the most efficient em- ployment of the productive resources of the world. Much has been said of the good economy of importing com- modities from the place where they can be bought cheapest ; while the good economy of producing them where they can be produced cheapest, is comparatively little thought of. If to carry consumable goods from the places where they are superabundant to those where they are scarce, is a good pecuniary speculation, is it not an equally good speculation to do the same thing with regard to labour and instruments? The exportation of la- bourers and capital from old to new countries, from a place where their productive power is less, to a place where it is greater, increases by so much the aggregate produce of the labour and capital of the world. It adds to the joint wealth of the old and the new country, what amounts in a short period to many times the mere cost of eficctiug the transport. There needs be no hesitation in affirming j that Colonization, in the present state of the world, is the best affair of busi- ness, in which the capital of an old and wealthy countiy can engage. It is equally obvious, however, that Colonization on a great scale can be undertaken, as an affair of business, only by the government, or by some combination of individuals in complete understanding with the government; except under such very peculiar cir- cumstances as those which succeeded the Irish famine. Emigration on the voluntary principle rarely has any material influence in lightening the pressure of population in the old conn- try, though as far as it goes it is doubt- less a benefit to the colony. Those labouring persons who voluntarily emi- grate are seldom the very poor ; they are small fanners with some little capital, or labourers who have saved something, and who, in removing only their own labour from the crowded labour-market, withdraw from the capital of the country a fund which maintained and employed more la- bourers than themselves. Besides, this portion of the community is so limited in number, that it might be removed entirely, without making any sensible impression upon the numbers of the population, or even upon the annual increase. Any considerable emigration of labour is only practicable, when its cost is defrayed, or at least advanced, by others than the emigrants them- selves. Who then is to advance it ? Naturally, it may be said, the capital- ists of the colony, who require the labour, and who intend to employ it. But to this there is the obstacle, that a capitalist, after going to the expense of carrving out labourers, has no se- curity that he shall be the person to derive any benefit from them. If all the capitalists of the colony were to combine, and bear the expense by sub- scription, they would still have no se- curity that the labourers, when there, would continue to work for them. After working for a short time and earning a few pounds, they always, unless pre- vented by the government, squat on unoccupied land, find work only for themselves. The experiment has been LIMITS OF THE PROVINCE OF GOVERNMENT. 587 repeatedly tried whether it was pos- sible to enforce contracts for labour, or the repayment of the passage-money of emigrants to those who advanced it, and the trouble and expense have al- ways exceeded the advantage. The only other resource is the voluntary contributions of parishes or individuals, to rid themselves of surplus labourers who are already, or who are likely to become, locally chargeable on the poor- rate. Were this speculation to become general, it might produce a. sulfieient amount of emigration to clear off the existing unemployed population, but not to raise the wages of the em- ployed : and the same thing w r ould re- quire to be done over again in less than another generation. One of the principal reasons why Colonization should be a national un- dertaking, is that in this manner alone, save in highly exceptional cases, can emigration be self-supporting. The exportation of capital and labour to a new country being, as before observed, one of the best of all affairs of business, it is absurd that it should not, like other affairs of business, repay its own expenses. Of the great addition which it makes to the produce of the world, there can be no reason why a sufficient portion should not be intercepted, and employed in reimbursing the outlay incurred in effecting it._ For reasons already given, no individual, or body of individuals, can reimburse them- selves for the expense ; the govern- ment, however, can. It can take from the annual increase of wealth, caused by the emigration, the fraction which suffices to repay with interest what the emigration has cost. The expenses of emigration to a colony ought to be borne by the colony; and this, in general, 'is only possible when they are borne by the colonial government. Of the modes in which a fund for the support of colonization can be raised in the colony, none is comparable in ad- vantage to that which was first sug- gested, and has since been so ably and perseveringly advocated, by Mr. Wake- Held: thf. plan of putting a price on all unoccupied land, aud devoting the pro- ceeds to emigration. The unfounded and pedantic objections to this plan have been answered in a former part of this chapter : we have now to speak of its advantages. First, it avoids the difficulties and discontents incident to raising a large annual amount by taxa- tion ; a thing which it is almost useless to attempt with a scattered population of settlers in the wilderness, who, as experience proves, can seldom be com- pelled to pay direct taxes, except at a cost exceeding their amount ; while in an infant community indirect taxation soon reaches its limit. The sale of lands is thus by far the easiest mode of raising the requisite funds. But it has other and still greater recommenda- tions. It is a beneficial check upon the tendency of a population of co- lonists to adopt the tastes and inclina- tions of savage life, and to disperse so widely as to lose all the advantages of commerce, of markets, of separation of employments, and combination of la- bour. By making it necessary for those who emigrate at the expense of the fund, to earn a considerable sum before they can become landed pro- prietors, it keeps up a perpetual suc- cession of labourers for hire, who in every country are a most important auxiliary even to peasant proprietors : and by diminishing the eagerness of agricultural speculators to add to their domain, it keeps the settlers within reach of each other for purposes of co- operation, arranges a numerous body of them within easy distance of each centre of foreign commerce and non- agricultural industry, and ensures the formation arid rapid growth of towns and town products. This concentra- tion, compared with the dispersion which uniformly occurs when unoccu- pied land can be had for nothing, greatly accelerates the attainment of prosperity, and enlarges tho fund v.-hich may be drawn upon for further emigra- tion. Before the adoption of the Wake- field system, the early years of all new colonies were full of hardship and diffi- culty : the last colony founded on the old principle, the Swan River settle- ment, being one of the most charac- teristic instances. In all subsequent colonization, the Wakcfieid principle 588 BOOK V. has been acted upon, though imper- foctly, a part only of the proceeds of the sale of land being devoted to emi- gration : yet wherever it has been in- troduced at all, as in South Australia, Victoria, and New Zealand, the re- straint put upon the dispersion of the settlers, and the influx of capital caused by the assurance of being able to obtain hired labour, has, in spite of many difficulties and much mismanagement, produced a suddenness and rapidity of prosperity more like fable than reality.* The self-supporting system of co- lonization, once established, would in- crease in efficiency every year; its effect would tend to increase in geo- metrical progression: for since every able-bodied emigrant, until the country is fully peopled, adds in a very short time to its wealth, over and above his own consumption, as much as would defray the expense of bringing out another emigrant, it follows that the greater the number already sent, the greater number might continue to be sent, each emigrant laying the founda- tion of a succession of other emigrants at short intervals without fresh ex- pense, until the colony is filled up. It would therefore be worth while, to the mother country, to accelerate the early stages of this progression, by loans to the colonies for the purpose of emigra- tion, repayable from the fund formed by the sales of land. In thus ad- vancing the means of accomplishing a large immediate emigration, it would be investing that amount of capital in the mode, of all others, most beneficial to the colony ; and the labour and ravings of these cmi