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 Other Works by the same Author. 
 
 FOURTH EDITION. 8vo. 14s. 
 
 CIVILIZATION AND PROGRESS. 
 
 Revised and Enlarged and with Neio Preface. 
 
 The Spectator ssiys : The book of a very able man. The testimony 
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 HISTORY OF INTELLECTUAL DEVELOPMENT ON 
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 excrescence. He has also a genius for exposition, concealing all that 
 is ponderous, and brightening his pages as well as aiding his reader 
 by felicitous illustration. His work is one of the most considerable 
 additions recently made to philosophical literature, and is so devoid 
 of technicalities that it should find a public beyond the schools. . .
 
 There is no part of his work which is not fruitful. Tbe develop- 
 ment of the idea of God among the Jews has never been more lucidly 
 or succinctly presented even by a specialist. The Messianic idea, its 
 growth and culmination in Jesus, will be better understood from the 
 few pages in which Mr. Crozier hides an immense amount of 
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 The Spectator says: In the desert of onilluminating political 
 treatises Mr. Crozier'a work stands out as something clear, fresh, and 
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 His proposals are invariably wise and suggestive His 
 
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 in recommending his book as the wisest and freshest of recent guides 
 to political philosophy. Certain rules of practical statesmanship 
 deduced from his survey of history seem to us worthy of the most 
 serious consideration. 
 
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 only because the work of one who is not only enlightened but 
 
 singularly open-minded and impartial He rarely writes 
 
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 lucid, the result of strenuous thooght and courage. Government 
 and Society and the many intricate problems and questions arising 
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 the " History of Intellectual Development " one of the great works, 
 the abiding landmarks of the age. 
 
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 The Pilot says : The whole book ia the work of a most acute 
 
 observer His account of the great blots in American life, 
 
 the spoils system, municipal corruption, and lobbying, is the sanest 
 and best proportioned we have ever read, and explains with real 
 
 lucidity how and why the nation aquiesces in them We 
 
 are sure that any politician who reads this book will be helped by it 
 to a more statesmanlike view of the problems with which he has to 
 deal. 
 
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 eminently comprehensive and individual, at once broad and subtle to 
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 their kind ever written. 
 
 The Aberdeen Daily Journal says : No one will rise from a careful 
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 rubbed thin to the vanishing point. 
 
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 present day Dr. Crozier takes a wide outlook over human affairs, 
 watches general tendencies with keen insight, and draws suggestive 
 conclusions in language logical, lucid, picturesque, and powerful. . . . 
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 temper, and carrying rare reasoning and scholarship with an easy 
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 MY INNER LIFE, 
 
 BEING A 
 
 CHAPTER IN PERSONAL EVOLUTION AND AUTOBIOGRAPHY. 
 
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 the ruck of clieap fugitive reminiscences and recollections . . is 
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 one of the most versatile and original thinkers of the day, and there 
 is nothing which he is disposed to say, which is not, at least, interest- 
 ing and suggestive. This work is no exception to the rule. . . . 
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 a few telling sentences in which a simile helps ug to understand what 
 the thinker in question was really trying to arrive at. 
 
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 whole autobiography will be found delicate humour and unconscious 
 irony. Rarely have we seen so candid a disclosure of the inner life of 
 any one, or so pleasing and unaffected a study of an enquiring mind. 
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 hood now and again reminds one of Tom and Hucklebury's exploits 
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 two or three books is in itself a liberal education. 
 
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 in his literary work that entitles him to rank among the few stylists 
 of our own tiine .... "The visit to Carlyle " will be found, 
 perhaps, the best " interview,' in substance, manner, and form, ever 
 written, and it is not the least interesting chapter of this fascinating 
 book. 
 
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 THE WHEEL OF WEALTH.
 
 THE WHEEL OF WEALTH: 
 
 A RECOXSTEFOTION of THE SCIENCE AND AliT 
 
 POLITICAL ECONOMY 
 
 ON THE LINES OF 
 
 MODERN EVOLUTION 
 
 JOHN BEATTIE CUOZIRIt. 
 
 Author of ^ 
 ' Histoiji (if IiitcUecfiKil Dcvelo/imeiit,^ 
 ' Civ/Uzafioii and Proqrtss,' 
 ^ J\Jil I II III r Life,' etc. 
 
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 ]()5. VICTOlilA STltEET, LONDON, S.W.
 
 To 
 
 Mv Old and Deaij Fiuem) 
 ION PEIIDICAKIS, 
 
 to whose wide mnge of general culture, 
 penetrating insight, and sympathetic 
 encouragement. I have all along heen 
 deeply indebted for suggestions and 
 criticism, 
 
 i dedicatb] 
 
 This Volume.
 
 PREFACE. 
 
 b 
 
 T N the ordinary way tliis volume would not have required 
 a preface, as the title-page speaks for itself, but a word 
 or two is due to the reader in explanation of its disconnection 
 from the series to which it naturally belongs. Originally I 
 had intended to issue the whole of my works under the general 
 title of the ' History of Intellectual Development,' but I have 
 been warned by my literary advisers that in doing so I should 
 seriously prejudice their reception by the public, inasmuch as the 
 common title given to each volume in succession was calculated 
 to give the im[)ression that no one volume could be read with 
 full appreciation and understanding without a knowledge of 
 those which had preceded it ; and besides, that the subject& 
 with which I had dealt in Vol. III. being almost entirely 
 problems of Politics and Society could not properly be said 
 to fall under the designation of a History of Intellectual 
 Development. 
 
 Now, when I projected this series, over a quarter of a 
 century ago, what I proposed to myself was, to treat the 
 subject-matter of each volume as a ' specialism,' and to keep 
 each quite independent of every other, except in so far as all 
 alike would be written from the new standpoint, which under 
 the title of ' A New Organon ' I had explained at length in 
 my first volume, ' Civilization and Progress,' and which was 
 to be the keynote as it were of the whole. I have therefore 
 decided to issue this volume simply as an independent treatise 
 on Political Economy, although I wish it to be understood 
 that it comes in its natural place in the series as originally 
 projected. The point, however, on which I desire to con- 
 centrate the reader's attention, and which will explain, besides, 
 why I have included in a book on Political Economy an 
 introductory chaptei" on ' the dangers of Specialism,' is the
 
 vni. PREFACE. 
 
 question of whether tlio 'general thinker' or what in the old 
 (lays was called the ' philosopher,' is to be superseded by the 
 'specialist,' or not. From the time of Conite, Guizot, Carlyle, 
 and Emerson, down to that of Buckle, Kenan, and Taino, 
 this 'general thinker' has been gradually falling into disrepute 
 in literary and academic circles, until with the deaths of Lecky, 
 Sir Leslie Stephen, and Herbert Spencer, we may say tint, 
 except perhaps in the French Academy he has become practically 
 extinct ; being elbowed out by the Novelists, the Magazuic- 
 writers, the Preachers, and the Press on the one hand, and by 
 the Academicals and ' Specialists ' on the other ; on the ground, 
 as the latter would say, that being a kind of SJack-of -all-trades' 
 he is master of none. I well remember the impression made 
 on mv mind many years ago, when Dr. Hutchinson Stirling in 
 his book on Hegel, talked of Goethe as a mere feather-weight 
 philosopher as it were, compared with Hegel. I afterwards 
 discovered that it was because Goethe was not an ' ontologist ' 
 — that is to say, one who thoroughly understands the mystciy 
 of the Universe and can cover it with a formula — that he was 
 denied substantive rank as a philosopher. Goethe, it a[)pear«d, 
 had not attempted to shew you how the ' One ' and the ' Many 
 could exist together under one hat. and yet be both ' One' ami 
 ' Manv ' as Hegel had atteini)ted to do, — altluMigh Hegel, no 
 more than any other poor mortal, succeeded in doing it, as I 
 shall some day attempt to show. And it was because the 
 academical ' ontologists,' claiming the sole right to the title ot 
 ' philosophers,' thought that they had caught Herbert Spencer 
 napping, when in a few chapters of liis Introductory volume 
 on ' First Princi[)les,' Ik; too made an attempt to solve the 
 ultimate Problem of Existence, that they have been so stinted 
 in their appreciation of his work — and that, too, although 
 otherwise he had enriched every side and aspect of Thought 
 which he touched, and had even helped to fountl several new 
 Sciences. He, like the rest, had not l)een able, it seems, to 
 jump the gulf between the ' One ' and the ' Many,' without
 
 PREFACE. IX. 
 
 falling Into the water — a feat believed to have been accomplished 
 only by Hegel — and tliat was enough ! Indeed one of them, 
 and a man of broad general culture too, asked me once in 
 surprise whether I really thought Herbert Spencer was a 
 ' philosopher ' I 15ut, curiously enough, one of the latest 
 exponents of Hegel finds that the ' One ' is only a more 
 intimate kind of relation among the ' Many ' after all ! Now 
 as I am firmly of opinion that the ' general thinker ' (the 
 Academicals notwithstanding) has still as necessary a function 
 to discharge as ever in the [)rogress of knowledge, I would 
 venture to suggest that the subject of Political Economy 
 would make as good a tilting-field on which in a limited way to 
 decide the issue between the general thinker and the specialist 
 as any other. The number of readers interested in the problem 
 of Political Economy, since the revival of the Free Trade and 
 Protection controversy in England, is now very large; the jury 
 of instructed readers outside of the Academical ranks, who are 
 intimately acquainted with the doctrines of the Orthodox 
 School, is sufficient in numbers, in ability, in independence 
 of thought, and in fairness of judgment, both to hear and to 
 judge the cause ; and the issue in this case is both clear and 
 simple, and may be put as follows : — On the one hand, my 
 contention is, that no scientific specialism dealing with human 
 affairs, and in which human beings — and not mere physical 
 forces — are the chief actors, can be anything but practically 
 false in its deductions and conclusions, until it is overhauled 
 and reconstructed from the standpoint of Civilization in 
 general, which embraces them all alike; — as in an Army where 
 the Generals of division must work under the co-ordination 
 and supervision, from a wider point of view, of the 
 Commander-in-Chief. The Academicals and the specialists 
 on the other hand, deny the competence of any general 
 thinker as such for this supervisory and co-ordinating function, 
 and claim that they themselves as ' specialists ' are the final 
 court of appeal, each in his own line of work ; not only in the 
 
 Al
 
 X. PREFACE. 
 
 Mathematical, Physical, and Biological Sciences, where the 
 ' general orders ' under which they march have already been 
 given them by men like Bacon, Newton, and Darwin, but in 
 the Human Sciences as well, such as Psychology, Philosophy, 
 Religion, History, Ethics, Political Economy, etc., Avhere up 
 to the present — in so far as any general principles common to 
 them all are concerned, — all is chaos. If then we take l^olitical 
 Economy, which is a recognised ' Specialism,' as a test-case, 
 we find that the Academical Economists claim that in all its 
 general principles, its laws, and its deductions, — if not in all 
 its special details, — it is practically a complete and perfected 
 Science. In this volume, on the contrary, I shall attempt to 
 show that having had the Science in their own hands for a 
 century or more, literally not one of their fundamental 
 propositions or deductions is true, and that most of their 
 practical conclusions are false ; and in order that the matter 
 may not be left hanging in the vague, I have made a first 
 rough attempt at a reconstruction of their Science, on other 
 principles and other methods, — all of which principles I have 
 drawn simply from the standpoint of the ' general thinker ' who 
 has to keep his finger on the pulse, as it were, of the Human 
 Sciences in their combination and correlation, if he is to see 
 into the true inner workings of any one of them. 
 
 In this attempt I am glad to acknowledge my indebtedness 
 to the works of a number of economists outside the ranks of 
 the orthodox and academical schools ; notably to those of Mr. 
 Gunton, Mr. J. M. Robertson, Mr. Hobson, Mr. Mallock, and 
 the essayists of the Fabian Society ; from each of whom I 
 have received principles and points of suggestion which I have 
 utilised in the course of my own work, and have referred to at 
 their appropriate places in this volume. 
 
 But a word or two perhaps is necessary in reference to my 
 attitude on the burning question of Free Trade and Protection. 
 My sincere conviction which has been entirely unbiassed by 
 all considerations of party, and Avhich rests simply on such
 
 PREFACE. XI. 
 
 arguments as those with which I have supported it, is that in 
 
 the present stage of Civilization, where nations have separate 
 
 political existences which it is their dearest wish to maintain, 
 
 Protection, varying in degree and incidence according to the 
 
 circumstances of each nation, is more conducive not only to the 
 
 the economic welfare of the world as a whole, but to its orderly 
 
 progress as well, than a universal Free Trade ; although should 
 
 that millennial time ever arrive when all the nations would 
 
 form themselves into a single political unity, no one would be a 
 
 stronger advocate of a universal Free Trade than myself ; and 
 
 that too for reasons which I have given in the course of this 
 
 work. And hence it is that I have devoted so large a section 
 
 of the volume to the discussion of the problem of Free Trade 
 
 and Protection, both in its theoretical and its practical bearings, 
 
 as well as having given so much space to the history and 
 
 evolution of their respective doctrines. At the same time 
 
 I fear that in both the extent and the rigour with which I 
 
 would apply the principle of Protection when necessary, I shall 
 
 have out-run the sympathy even of the hardiest and most 
 
 thorough-goino- of Protectionists : so deterrent an effect has 
 
 the high authority and prestige, the long reign and influence 
 
 of the orthodox Political Economy, had on the minds of men, 
 
 even when in their individual judgments they have not been 
 
 altogether convinced of the truth of its doctrines. Indeed, 
 
 of all the great nations of the world to-day, there is none which 
 
 would be prepared to go so far as the studies and reflections 
 
 embodied in this work have led me, — with the single exception 
 
 of Japan, whose rulers on independent grounds have already 
 
 made preparations for carrying the doctrine to the full length 
 
 which is here advocated. And her success or failure in this 
 
 venture, which must soon be made apparent to all the world, 
 
 will itself afford a useful object-lesson, whether as supporting or 
 
 nullifying the speculative basis for her action as here set forth. 
 
 London, 
 
 Sept. '21th, 1900. 
 
 a2
 
 TABLE OF CONTEN^TS. 
 
 PART I.-RECONSTRUCTION. 
 
 CHAPTER I. 
 
 General Intropuctory. On the Dangers of Specialism. 
 
 The Carnegie Institute — Three classes of Specialisms — Differences in 
 their methods, and reasons for the validity of the first two classes 
 and for the futihty of the third — German Specialisms — Must have a 
 Science of Civilization to work under . . . 3-23 
 
 CHAPTER II. 
 
 The Orthodox Political Econo.my. 
 
 Neither a Pure nor an Applied Science — Reasons— Games of Political 
 Economy like Gaines of Cards — The Suppressed Factors . 24-29 
 
 CHAPTER III. 
 
 The Pl'rk Science ok Political Ecoxomv. 
 
 Necessary as a foundation for the Applied Science — The four essential 
 factoi's, what are they? — The Symbol of the Wheel, and the symbol 
 of the Stick, respectively — Points of identity between Wheel of 
 Wealth and a Mechanical Wheel — The Laws of the two identical 
 
 30-35 
 CHAPTER IV. 
 
 The Applied Science of Political Economy. 
 
 Difference between Wheel of Wealth and Mechanical Wheel, and its 
 bearings on the Applied Science of Political Economy — Con- 
 sumption and Production— Consumption the motor power and 
 controlling factor — The Powers of Nature as free gifts versus 
 Saving — Savings come out of a Wheel of Production and 
 Consumption— Reasons — The Paradox of Saving. . 36-49 
 
 CHAPTER V. 
 
 On Fixed Capital as Savings. 
 
 Permanent elements essential for Savings — The Currency and Credit of 
 a nation based on Fixed Capital, not on Consumable Goods — Other- 
 wise the same thing Avould be counted twice over — Working- 
 Population as a National Wealth Asset . . . 60-65
 
 xiv. TABLE OF CONTENTS. 
 
 CHAPTER VI. 
 
 A Nation's Assets. 
 
 What is the criterion ? — The Working Population in Orthodox 
 Economy — Producers and Consumers the same people — Confusion 
 of Politics vJ^ith Political Economy — Summary and Complications 
 
 56-64 
 
 CHAPTER VII. 
 
 Ox Money. 
 
 Under what category Money is to be placed — When Gold and Silver 
 form part of Fixed Capital — They are amphibious — Money as 
 Measure of Value — Why not class it under Consixmable Goods ? — 
 Merely an adjunct of Wealth — Necessary in a traimtional state of 
 Society — Summary ..... 65-72 
 
 CHAPTER VHl. 
 
 The Mechanism of Credit. 
 
 Difficulties of a Pure (yold Currency — Rise of Paper Credits — How these 
 stimulate the Circulation of Commodities — Illegitimate Credits — 
 Function of Dealers on the Exchanges, Bankers, etc. — Illegitimate 
 Dealers on the Wheel — Causes of Crises — Speculations on Future 
 Enterprises — Swollen Credits — Their collapse — Paper Credit.s 
 based on Fixed Capital — Cosmopolitical and National Standpoint 
 
 7o-tt7 
 
 CHAPTER IX. 
 
 Civilization and ihe Pakadox ok Savinc;. 
 
 Savings in a World State — Wealth greatest where Consumption largest 
 and Savings least — In present day Saving is a Sociological Necessity — 
 Do Savings increase the aggregate Wealth of the World ? — Paradox 
 of Saving — Economists' Law not a true Law — Factor of Con- 
 sumption suppressed — Produce, Consume, and Save! — Summary 
 
 88-97 
 
 CHAPTER X. 
 
 Some Concrete Instances. 
 
 Orthodox Economists on Wages — Carlyle's ' Past and Present ' — How- 
 could England be rich while the People starved ? — Economists rule 
 out Foreign Market — National Wheel attached to other nations' 
 Wheels — England's Monopoly — Its effects — Southern States of 
 America before the War — Foreign Credits — Doctrine of Wheel 
 supported — Orthodox Economists compared to Perpetual -Motion 
 Schemers ..... ^ . 98-106
 
 TABLE OF CONTENTS. XV. 
 
 CHAPTER XI. 
 
 The Wheel of Wealth as a Whole. 
 
 All the Factors must keep pace together — All Classes benefit or suffer 
 together— Why Orthodox Economists think not — Causes which 
 produce National Wealth or Adversity — Extraneous Influences — 
 Some Consumers not on the Wheel — Excess of Population — 
 Importance of Symbol to a Deductive Science — Successive Systems 
 of Orthodox Economy divided into three Stages . 107-1 Ifi 
 
 PART II.-FREE TRADE AND PROTECTION. 
 
 CHAPTER I. 
 
 General Considerations on Eighteenth Centiry Thought. 
 
 Sciences founded in Adam Smith's time, no authority to-day — Evolution 
 has discredited old Systems — Modern Industry not born then — 
 England's Wealth then due to ^lonopoly — Nature only helped Man 
 in Agriculture — All reversed now — Adam Smith's and Present Time 
 compared — Their Points of View — Fallacy of Physiocrats — Orthodox 
 Economy, a development of it — Pedigree of Modern Economy — 
 Smith's Physiocratic Frame-work . . . 117-128 
 
 CHAPTER II. 
 
 The Mercantile Systesi. 
 
 What the Nations have at heart — How Mercantile System was adapted 
 to this — ' Sinews of War ' — Only Gold and Silver of use — How 
 collect them ? — Various Plans tried — ' Staple Towns ' — Free Trade 
 
 in Gold — Special encouragement of Exports as against Imj^orts A 
 
 State Policy at first — Rise of Banks — Imports restricted as Trarle 
 
 Policy — Colonies — Protection everywhere except in Eno-land 
 
 Cause of this — How the .speculative doctrine of Free Trade arose 
 
 ^ in England ...... 129-140 
 
 CHAPTER III. 
 
 The Physiocrats. 
 
 ' Mercantile ' Policy in France till the Revolution — How Physiocratic 
 System arose — Agriculture versus Manufactures — Why Nature was 
 supposed to help Man in Agriculture only — Scheme of Free Imports 
 
 — Manufacturers ' unproductive ' — Single Tax on Land Adam 
 
 Smith on Physiocratic System — Summary , . 141-149
 
 XVI. TABLE OF CONTENTS. 
 
 CHAPTER IV. 
 
 Adam Smith. 
 
 Traces of Mercantile System — His Defence of Navigation Acts — 
 His Infractions of Doctrine of Free Trade — His Modifications 
 of Physiocratic System — On Taxation — His differences from 
 Physiocrat negative — Both Systems founded on Symbol of Stick — 
 On the Colonial Trade — His Hierarchy of Wealth -producing 
 Employments — Monopoly of the Colonial Trade — Industry then 
 and now compared to a Worm and a Mammal respectively — His 
 three Illusions — His one Disiugenuousness . . 150-182 
 
 CHAPTER V. 
 
 Adam Smith versus the Moderx Free Trader. 
 
 Modern Free Traders hold his Principle of Free Trade while renouncing 
 his arguments — Reasons for Economists rejecting his arguments — 
 Present importance of Manufactures — His Hierarchy false — He 
 would be a Free Trader to-day — Effect of easy Transport — Loss of 
 Home Trade — Results of Parting %\dth Instruments of Production 
 
 183-205 
 
 CHAPTER VI. 
 Free Trade and Protection. 
 
 Diagnostic Points as to Nation's Suitability for Free Trade or Protection — 
 General Principle and General Rules of Treatment — Instruments of 
 Production must not be parted with, any more than they must be 
 taxed — Free Traders ignore Instruments of Production—' Take care 
 of your Exports, and your Imports will take care of themselves ! ' — 
 Nothing matters to them so long as gross amount of Exports and 
 Imports is kept up — Shipping Trade and Protection . 206-232 
 
 CHAPTER VII. 
 
 Free Trade and Instruments of Production. 
 
 Is Loss of an Instrument of Production compensated by Cheapness of 
 Products? — Complementary and Competitive Exchange — Confusion 
 of Politics with Economics — Political Importance of (Question of 
 Free Trade or Protection — ' Latter Day Pamphlets ' — Treatment 
 of Men of Genius — Producers and Consumers are one — Never 
 sacrifice Instrument of Production to the Foreigner . 233-256 
 
 CHAPTER VIII. 
 
 Free Trade and Scientific Method. 
 
 'lo find reason why Free Traders think Exports unimportant — ^Their 
 ' Common Reservoir ' — Confusion of Instruments of Production 
 Avith dead Products — Esoteric Doctrine of Professors —Its Cruditv 
 
 267-273
 
 TABLE OF CONTENTS. XVll. 
 
 CHAPTER IX. 
 
 Free Trade and Perpetual Motion — 
 On Gold and Banks. 
 
 Mr. Sidney Webb on Foreign Exchanges — Mr. Pigoii on the Function of 
 Gold— Effect of its Passage to and fro when one Nation is superior to 
 another all round — Gold as medium of Exchange — as Commodity — 
 In Banks — It does not determine Prices as between One Nation 
 and Another — Speculations and Prices — What really determines 
 Prices — Confusion of Cau.tes of Low Prices . . 274-294 
 
 CHAPTER X. 
 
 Free Trade and Perpetual Motion — 
 
 (Continued), 
 
 The Foreign Exchanges. 
 
 Effect of Passage of Gold when the Advantage of one Nation over 
 another is greater in certain Commodities than in other — Assixmption 
 that Nations trade as Units — -Why do Orthodox Economists think 
 Trade between particular Nations will go on for ever ? — Comple- 
 mentary and Competitive Products — Effect on Trade of the ' Turn 
 of the Exchanges ' — Only effective when Nations are nearly Equal 
 
 295-308 
 
 CHAPTER XI. 
 
 Free Trade and Morality. 
 
 Moral aspects of the Problem — The Game that is being played by 
 Independent Nations — Effect of taking the Cosmopolitical Stand- 
 point — Mr. Hobson's avowal of this Standpoint — why he is a Free 
 Trader and I a Protectionist .... 309-olG 
 
 CHAPTER XII. 
 
 Free Trade versus Protection — 
 Politics and Civilization. 
 
 Wliy each nation must protect its Instruments of Production — 
 Individuality the Method of Nature — Protection yields greater 
 Aggregate of Wealth than Free Trade — Principle of • Nationality ' — 
 Imperial Conquests and Civilization — Complementary products 
 always beneficial — Effect of Free Trade, if Universal — Experiment 
 tried on Continent — National Markets and World iMarket — Why 
 Protection is the best Policy — Its Evolution — Where Free Trade 
 should end and Protection begin — German Government's Protection 
 of Shipping Trade — Protection for Workmen — (leneral Rules as to 
 fitness of Nations for Free Trade or Protection — Political Con- 
 siderations must be subordinated to Economic — No more Laissez- 
 faire — Dangers of Combination .... ol7-342
 
 XVlil. TABLE OF CONTENTS. 
 
 PART III.-CRITICAL AND HISTORICAL. 
 
 CHAPTER I. 
 
 John Stuart Mill. 
 
 His 'Fundamental' Doctrines all half-truths — His pronouncement on 
 'Consumers' — On Capital — His Neglect of Consumption— On 
 Demand for Labour — On Rent — On Profits — Cause of his 
 Contradictions — On Distribution — His impossible Combinations — 
 His Confusion of Politics with Economy — His Want of Penetration 
 — How Laws of Rent and of Population depend on Circumstances — 
 On ' Freedom of Contract ' — Combinations of Capitals — Half- 
 Truths of orthodox Political Economy . . . :^)43-362 
 
 CHAPTER IL 
 
 On the Tendency to Inequalitv. 
 
 How Rent, Profits, and Wages tend to Inequality — Why Economists 
 believe that Profits tend to Equality — Apparent equality of Interest 
 in Joint Stock Company — ' Splitting the Difference ' — Result of 
 looking at Product instead of at Instruments of Production — 
 Capital represented as Savings — Mill's fear of Profits tending to a 
 minimum — Rise of Trusts — Artificial Equality of Wages — Effect of 
 Incidence of Power — Workmen divorced from Instruments of 
 Production — Effects of Tendency to Equality — Conclusion for 
 Statesmen ...... 863-384 
 
 CHAPTER III. 
 The Academical Economists— Jevons, B(iiiM-BAWERK, Marshall — 
 
 On Value. 
 
 Academic Economists— Their Errors — And Neglects — Three Special 
 Illusions — Jevons on Value — His Old Coins — ' Utility ' — His 
 Confusion as to Particular Values — Bohm-Bawerk on Value — 
 Marshall's Compromise — Hobson on Value — Two Methods of 
 approaching the Problem — Value put on the Wheel — Advantages — 
 What determines Value — Unsuitability of Psychological Method 
 
 385-415 
 
 CHAPTER IV. 
 
 The Academical Economists. 
 (Continued). 
 On Interest. 
 
 Jevons' Fallacy on Capital — Whence the ' Surplus ' comes — Fallacy of 
 Jevons on Interest— Bohm-Bawerk on Interest — Interest put on 
 the Wheel — What determines General Rate of Interest — Monopoly 
 and Interest — Summary ..... 410-437
 
 TABLE OF CONTENTS. XIX.. 
 
 CHAPTER V. 
 
 The Academical Economists. 
 (Contiuued). 
 
 On Rent and the Statical Fallacy. 
 
 AValker's False Assumptions — Falsity of Method of Academic Economists 
 — Walker on Value — His absurd Conditions — Marshall's Conditions 
 — i'hey ignore the Dynamical Factors — ' Law of Substitution ' — 
 Does Rent enter into Price ? — Why Economists separated Rent 
 from Capital and Labour — ' Marginal ' Fallacy — Professor Clark on 
 ' Distribution of Wealth ' — There /*■ No Law of Distribution 
 
 438-46B 
 
 CHAPTER VI. 
 
 The Academical Economists. 
 (Continued.) 
 
 Gram-aiau and Mathematics. 
 
 Results of Statical Method — No ' Law' can emerge — Mere Jnventories — 
 Professor Marshall as an Instance — No " Marginal Labourer " 
 employed — Marshall's two factors — Importation of ' Mathematics ' 
 into the Subject — How they operate — Insurance Rates — Fallacy of 
 the mathematical method .... 464-474 
 
 CHAPTER VIL 
 
 The Outside Economists. 
 
 Comte's controversy with .Mill— Carlyle and the 'Dismal Science' — 
 His purely Moral Standpoint — His Doctrines have proved true — 
 Change of Standpoint within two Generations — Ruskin compared 
 with Carlyle — Carlyle's Method — Ruskin's Chess-board — His argu- 
 ments — What he did for Economy — Utopias of Rousseau, Ruskin, 
 and Mr. Wells — Karl Marx's System — Labourers and Inventors — 
 Why are the Labourers ' exploited ' V — Justice, What is it V — Uses 
 of Great Capitalists— Henry George — His Contribution to the 
 Science — Mr. Mallock on Capitalists — Mr. Bernard Shaw — 
 Mr. J. M. Robertson and Mill — Mr. Gunton's ' Standard of Living' 
 — Mr. Hobson's principles .... 475-512
 
 PART I. 
 
 RECONSTRUCTION. 
 
 I
 
 CHAP TEE I. 
 
 GENERAL INTRODUCTORY. 
 ON THE DANGERS OF SPECIALISM. 
 
 T N the present volume I propose to make the attempt to 
 reconstruct the science and art of Political Economy on a 
 new foundation, namely on the basis of Modern Evolution — 
 a reconstruction which will involve a new principle and method, 
 a new image or symbol to express and sum up in a shorthand 
 way, as a mathematical formula might do, the mode of action 
 and interplay of the several factors, a new division and arrange- 
 ment of these factors, with arguments and illustrations 
 corresponding to them, and a new line of treatment generally ; 
 in a word I am to endeavour if possible to supplant the old and 
 crude Ptolemaic Economy of the orthodox systems by what I 
 believe to be a more scientific, harmonious, and developed 
 Copernican one. But as the orthodox Economy, although the 
 despair of the public who for a long time have lost all interest 
 in it as being quite useless for all practical purposes, is never- 
 theless believed by its professors to be a closed and sealed 
 body of scientific doctrine ; and as its latest schools would 
 seem to encourage and lend countenance to this belief by 
 industriously striving to correct the mistaken notions of the 
 earlier Economists rather than to make any attempt at re- 
 constituting its principles and methods on a fresh basis : and 
 as, further, it is unusual for a science in the orderly quiet
 
 4 GENERAL INTRODl CTORY, 
 
 course of its development to find itself thus suddenly confronted 
 
 by any change in its ordinary working theory and principles ; 
 
 I feel it incumbent on me at the outset, and in justice to the 
 
 reader, to state definitely the reasons which have impelled me 
 
 to this attempt at a total reversal of its method, principles, 
 
 and practical policy. These reasons may for all practical 
 
 purposes be reduced to two. The first is that the science of 
 
 Political Economy has not kept in line with the other sciences 
 
 in reconstituting itself on the lines of Modern Evolution ; the 
 
 second is that it has narrowed itself to an illegitimate academic 
 
 specialism. As for the first of these reasons, namely that the 
 
 science is not founded on Evolution, its justification can only 
 
 appear in the body of this work at those points where the 
 
 absence of that principle will especially make itself felt ; but 
 
 the second reason calls for some word of explanation here, for 
 
 it will, I apprehend, seem strange to many to be told that 
 
 objection can be taken to a science on the ground that it is 
 
 cultivated as a pure specialism. For if there is one word more 
 
 potent than another with which to conjure if one wishes to 
 
 secure the interest of the public in any undertaking at the 
 
 present time, it is this magic word, specialism ; and to announce 
 
 at the outset that it is the work of a ' specialist ' is always 
 
 sufficient to insure it a respectful hearing. Specialism, in fact, 
 
 is the order of the day in all lines of work whatever, and is 
 
 demanded by the public as a hall-mark from all those who lay 
 
 claim to have done any effective work in any province of 
 
 thought or action. The Carnegie Institute at Washington, for 
 
 example, which has recently been established for the liberal 
 
 endowment of all studies that can in any way minister to the 
 
 advancement of human knowledge, expressly rules out in the 
 
 published preamble of its policy, the work of all but specialists, 
 
 in a sentence of condemnation which serving as it does as a 
 
 warning to all and sundry that none but specialists ' need 
 
 apply,' might well in its emphatic brevity be inscribed as a 
 
 legend over its portals; — "No investigator working single-
 
 ON THE DANGERS OF SrECIALISM. 
 
 handed can at present approach the largest problems in the 
 broadest way thoroughly and systematically," — a sentence which 
 would have ignominiously excluded and disinherited all the 
 great original spirits of all ages and nations — Plato, Aristotle, 
 Newton, Descartes, Bacon, Goethe, Rousseau, Comte, Herbert 
 Spencer, and Darwin, in thought and speculation; musicians 
 like Beethoven and Wao-ner ; the g-reat innovators in Art like 
 Turner, the pre-Raphaelites, and Whistler ; religious reformers 
 like Buddha, Jesus, and Mahomet ; warriors and statesmen 
 like Cffisar, Alexander, and Napoleon ; and would have 
 delivered the world over to a race of critics, commentators, 
 grammarians, pedants, professors, schoolmasters, and the body 
 of miscellaneous specialists generally ; all of whom, be it 
 observed, would be found, if searched, to have the image and 
 superscription of one or other of these great ones, or of others 
 like them, concealed in their bosoms as objects of their 
 adoration and homage. For it cannot be too often repeated 
 that the intellectual progress of the world always proceeds 
 from the realm of new general ideas surrounding and envisaging 
 the special operations going on in different parts of the field ; 
 as the progress of a fighting army on the march does from the 
 general plan of campaign of the Commander ; never from the 
 narrower developments, extensions, corrections, or applications 
 of such ideas, however important or necessary, which can 
 operate only within the ranks or interstices of these special 
 operations themselves ; as is proved by the fact that in the 
 retrospect it is only the solitary single peaks that are visible 
 along the centuries, never the vast nuiltitude of spcciahst 
 workers who must have argued, refuted, supplemented, adapted, 
 modified, or commented on them, and most of whom have long 
 since been swallowed up in the night. And who were these 
 great men, we may ask, but the men who of all others worked 
 ' single-handed,' hatching their great schemes in the recesses 
 of their own souls, and not like navvies, private soldiers, or the 
 coral-reef builders, in batches, battalions, or swarms?
 
 6 GENEllAL INTRODUCTORY. 
 
 Now as I am neither a specialist nor the professor of a 
 specialism, it is evident that unless I can succeed in breaking the 
 back of this superstition on the subject of specialisms on the 
 threshold, this book in which I am to attempt to reconstruct a 
 specialism, and that, too, one of the purest and narrowest, 
 would indeed be an impertinence, and might as well never 
 have been published or written ; for the backwash of prejudice 
 and distrust with which the majority of my readers would 
 approach it, would of itself be sufficient to rob such new 
 l>ositions as I may seek to establisli of any influence or authority 
 they might otherwise happen to possess. In saying this I am 
 speaking not without knowledge of the operation of this 
 prejudice ; one of the finest exponents of this very science of 
 Political Economy, and one, too, who has done most to correct 
 the errors and extend the boundaries of the orthodox system 
 from a wider circle of thought, having not so long since been 
 solemnly warned by a distinguished academic representative of 
 the orthodox school, that there was no chance of his ever 
 getting a chair in any of our universities so long as he 
 continued to hold his present views. Indeed this whole 
 question of the nature and value of the different specialisms is 
 of such vital importance for the future of knowledge, that its 
 ventilation here, once and for all, becomes almost a necessity 
 before I can proceed to the demonstrations which are to follow. 
 Not that all specialisms are to be deprecated as hindrances 
 rather than furtherances of knowledge ; on the contrary, as 
 we shall see, two out <tf tiieir three great divisions are entirely 
 fruitful. It is only the third division that is retrograde and 
 unproductive, but unfortunately the different branches of 
 which it is composed, dealing as they do immediately with 
 hiDiuin concerns, the truth of their conclusions is of the utmost 
 practical importance to the world. And it is with the 
 cultivators of this class of specialisms that I propose to break a 
 a lance before starting on the proper subject-matter of this 
 book.
 
 ON THE DANGERS OF SPECIALISM. 7 
 
 Without further preliminary, then, we may say that, broadly 
 speaking, these three classes of specialisms are firstly, those 
 that are co- extensive with the range of the purely Physical 
 Sciences ; secondly those belonging to the Biological Sciences, 
 and the Science of Medicine ; and thirdly those dealing with 
 the sciences proper to Human Life itself, and which make up 
 the History of Civilization, such as Religion, Government, 
 Philosophy, Psychology, Ethics, History, and Political 
 Economy, in their various subdivisions and ramifications. 
 
 Now of the first of these, the Physical Sciences, we may say 
 that their special peculiarity is this, that when their results are 
 verified by the consensus of scientific observers from whom 
 they receive their hall-mark, they can be applied now and here 
 with entire assui*ance, and can be handed over to the public, 
 and accepted by it in full confidence that it will not be 
 deceived. Such are those connected with astronomy, physics, 
 chemistry, light, heat, electricity, and, in its way, geology, 
 with their thousand-fold applications to the arts, comforts, and 
 conveniences of life. Now the main reason for this is, that 
 they each and all work under the sovereignty of some ultimate 
 univeral truth or law which encompasses them like a dome, 
 and which they illustrate and enforce ; under some fixed star 
 that presides over them as at once their guide and their 
 destiny ; some overlord to whom, like vassals, they return to 
 dedicate their spoils. Astronomy, for example, works under 
 the sovereignty of universal gravitation ; physics, optics, light, 
 heat, and electricity, under the laws of the conservation of 
 energy, of polarity, and of the transmission of force ; chemistry, 
 under the atomic and now the radio-active theory ; geology, 
 under the empirical combination of these, as seen in the agency 
 of fire, water, frost, gas, and wind, in the phenomena of 
 upheaval, pressure, denudation, and crystallisation ; and all 
 alike under the supreme immutability of natural law. The 
 reason, again, why these specialisms are always available for 
 use is, that dealing as they do with inorganic matter, they are
 
 » GENERAL INTRODUCTOIIY. 
 
 subject to mathematical tests and quantitative measurements, 
 and so can be turned as a searchlight, not only on the present, 
 but on the past or future of any object to which they can be 
 applied ; differing in this, as we shall presently see, from the 
 purely historical specialisms, which, unless they illustrate some 
 great general law of civilisation, or help in establishing the 
 connecting links of a process of evolution needed to make good 
 such a law, are as impotent for guidance in the present or the 
 future as the vanished years with which they are interred, and 
 when pursued for themselves alone, are as great a pedantry 
 and waste of time and human labour as the resurrection of the 
 bones of the dead. 
 
 The reason, again, why these Physical Sciences are not only 
 so fruitful but so progressive is, that although they move across 
 the field in parallel furrows, each more or less independent of 
 the rest, they are all pervaded by the same spirit, and being 
 within easy earshot of each other, can call on one another for 
 help in their difficulties ; the chemist calling in the assistance 
 of the physicist ; the geologist exchanging notes with the 
 astronomer ; and the electrician with both ; and all alike with 
 the mathematician, who is ready at a pinch to come to the 
 relief of each indifferently. 
 
 And the reason finally why specialism in these physical 
 sciences is so necessary is, that it is on the invisible things of 
 the world that the natures of the visible, tangible masses with 
 which we have to deal depend ; and unless in this age of the 
 division of labour, bodies of men were set apart, equipped with 
 microscopes, test-tubes, batteries, retorts, and other instru- 
 ments of precision, to isolate and measure these invisible atoms, 
 germs, ether-waves, electrons, and what not, on which the 
 hidden nature of this opaque and all too solid world depends, 
 the material progress of civilisation would come to an end. 
 
 Now it is inq)ortant to observe in passing that this rich 
 harvest of fruit is primarily due to the genius of Bacon, who 
 was himself not a specialist. In his day, scientific specialists
 
 ON THE DANGERS OF SPECIALISM. 9 
 
 were still in the inaiii alchemists, astrologers, or magicians, 
 who could no more see a scientific relation in its simple truth 
 and nakedness, and except through such a multicoloured play 
 of phantasms as has never been known in the world before or 
 since — the influence of stars, mystic numbers, figures, and 
 symbols, of cycles and ej)icycles, of scholastic theology, final 
 causes, and especially the syllogism of Aristotle — than the 
 courtiers in Hans Andersen's tale could see the real nakedness 
 of the emperor, owing to the illusory clothes wiiich their 
 imaginations had woven for liini. It was Bacon who transfixed 
 -and chased away these phantoms of the night, as the morning 
 sun its vapours, and by sweeping the garrets of the mind of 
 all this mediaeval rubbish, and separating definitely the 
 kingdom of Science from that of Theology and Metaphysics, 
 released science once for all from its chains. It is part of the 
 foppery of too many of the younger generation of physical 
 scientists to dismiss the work of Bacon with a wave of the 
 hand, on the ground that from the beginning of time men who 
 wanted to find out anything must have proceeded by the 
 Baconian method of observation, experiment, and induction. 
 Quite true ; but by this method only so far., be it observed, as 
 it was directed by some ghostly demonistic will or theologico- 
 metaphysical preconception as its guiding spirit. And there 
 is no reason why, but for Bacon, the mere scientific specialist, 
 as such, should not have o-one on working under the dominion 
 of these and other the like illusions to this hour. For although 
 the work done by scientific specialists as a body is of the 
 utmost im])ortance to mankind, there is no reason for thinking 
 that the individual specialists themselves, any more than the 
 pyramid builders, are possessed of an order of mind that would 
 safeguard them from the general illusions current in their time. 
 On the contrary, given patience, minuteness, accuracy, and 
 fidelity (and making exception of the great constructive minds 
 in each dej)artment, who map out new provinces, and point to 
 the methods and processes by which their problems are to be
 
 10 GENERAL IiNTRODUCTORY. 
 
 approached and solved), in the minute specialist of the German 
 type, the narrower and more pin-})ointed the mind of the 
 observer, the better is he fitted to sift and disintegrate the 
 material placed before him. In an atmosphere of minute 
 specialism like this, indeed, the spacious intellect of Bacon, 
 knowing all measures, would have suffocated, as it did among 
 the waste subtleties and tlie attenuated logic-chopping of the 
 schoolmen. To imagine, therefore, that he who cleared the 
 intellectual heaven for men, and freed scientific specialism 
 from the overarching dome of illusions under which it was 
 working ; that he who like another Moses, as Macaulay has 
 said, pointed the way to the Promised Land, which he, himself, 
 was not to enter, and to the discovery of those far-reaching- 
 generalisations under which it now marches so triumphantly ; 
 to imagine, I say, that the great Bacon, who was not only the 
 supreme legislator, but the supreme guide and inspirer of all 
 this, is to be challenged on to the public stage to give proof 
 and exhibition of himself, as if he were a mere swordsman, 
 and that, too, by his own rank and file, is as if Buonaparte 
 after his fall should have been cliallenged to a personal 
 encounter by tlie privates of his bodyguard whom he had 
 himself led to victory, and is to lose all sense of proportion and 
 even of decency. 
 
 We now come to our second class of specialisms, namely, 
 those that deal with Organic Nature — plants, animals, and 
 men — and which are at present organised under the different 
 departments of Biology and of Medicine. Of them, too, we 
 may say that they are all good and fruitful throughout, and 
 that they can hardly be too minutely subdivided for purposes 
 of research. For like the physical sciences, they also work 
 under the inspiration and sovereignty of great over-arching 
 laws — the general Law of Evolution, to wit, with its more 
 specialised form of ' natural selection,' and the laws of the 
 human body as a whole. Into this general menstruum all 
 the specialist workers are baptisetl and indoctrinated before
 
 ON THE DANGERS OF SPECIALISM, 11 
 
 they set out, and by means of it each specialty is kept in touch 
 witli all the rest, so that any new discovery in one department 
 is quickly passed on until it becomes equally diffused among- 
 them all ; and with this result, that more solid work is now 
 done in a decade than was done in a century, before Bacon 
 released all these specialisms alike from the fetters of 
 theological, metaphysical, and scholastic tyranny. But they 
 difler from the physical sciences in this, that dealing as they 
 do with living things (and no living thing is as yet completely 
 explained by any single genei-al law or combination of laws), 
 their results cannot be handed over to the public as absolute 
 truths for its guidance, in the same way as the results of the 
 physical sciences can. The most that can be said is, that they 
 are the most reliable yet known. For it is to be observed that 
 although evolution is an absolutely true fact of all life, the 
 particular law of evolution, under which the P)iological Sciences 
 are now working, namely the law of Natural Selection, is not, 
 in my judgment, the final and entire truth. I have read most 
 of the works Avritten on the subject during the last thirty 
 years, have ransacked the Natural History Museum at South 
 Kensington, and inspected its record of missing links, have 
 attended year after year the Swiney and other lectures bearing 
 on the subject, by the most eminent of the specialists ; and yet 
 whenever I go to the Zoological Gardens, 1 come away with 
 the feeling that, except in certain broad generalities which 
 have become the common-places of Biology, I am really as far 
 from understanding the secret inner cause or causes that have 
 given this vast miscellany of creatures their characteristic 
 peculiarities, forms, and modes of life, as before. As a young 
 man I was, like the rest, inunensely attracted by the doctrine 
 of Natural Selection, and with the high reverence for my old 
 masters, Darwin and Spencer, which was their just due, I 
 strove for years to see all things through it, and to paint the 
 world with its colours. But the paint would not stick ; for 
 everywhere the recalcitrant facts, like the thorns of a prickly
 
 12 GENERAL INTROUUCTOK V. 
 
 hedge, Avould persist in sticking through, and would not take 
 the paint I The same thing happened in a greater or less 
 degree to the specialists themselves. Huxley, the farther he 
 went, the farther he departed from his early belief in Natural 
 Selection as the prime factor in the evolution of species, and 
 the more he became inclined to releo;ate it to a secondary 
 place : although with his usual honesty and sterling intellectual 
 integrity, not knowing what the really efficient cause of the 
 varieties was, he wisely gave no opinion. And in spite of the 
 efforts of Weismann and his followers to revivify and strengthen 
 Darwin's doctrine by their distinction between 'germ-plasm' 
 and ' body-plasm,' important and necessary as it is, Romanes, 
 and other later observers, the more they came to grapple at 
 close quarters with the facts in their special lines of work, the 
 more they became dissatisfied with the doctrine, until at last 
 they fell away altogether : attributing the facts of variation 
 mainly to " prepotency " and other internal physiological 
 factors, as the agencies which kept the great organic lines of 
 species true to their type by snuffing out through ultimate 
 sterility and decadence all variations that fell outside the limits 
 of permissible oscillation. But beyond marking out some of 
 the characteristics of these hidden internal causes, they could 
 give no further explanation of them than that so it stood in 
 the will of Providence or Fate. And now Avith the gaps in 
 the geologic record on which Darwin himself relied for the full 
 demonstration of his theory, largely filled in, the most eminent 
 palaeontologists and geologists, working on the vast accumu- 
 lation of new facts that have come to light since his time, and 
 tired of the ineffectual effort to plaster a single formula on the 
 infinite variety of Nature and life, have degraded the theory of 
 Natural Selection to a secondary and subordinate position ; 
 retaining it rather as a cause of the elimination of the old and 
 unfit, than as a creative cause of the new. Fully developed 
 insects have been found as far back almost as the existence of 
 di-y land itself ; scorpions of as high a ty[)e as those of to-day,
 
 ON THE DANGERS OF SPECIALISM. 13 
 
 and all the present divisions of fishes, as far back as the Upper 
 Silurian ; gasteropods in strata where molluscan life was only 
 just beginning; whales in the Miocene; and so on; and, in 
 fact, all attempts to explain the origin of fish, amphibians, 
 reptiles, birds, marsupials, and the higher mammalia by the 
 theory of Natural Selection alone, and without the co-operation 
 of some unseen initiative internal agency, are now gradually 
 being admitted to have been failures. 
 
 But the triumphs and limitations of this, our second class of 
 specialisms, namely those which deal with living things, will 
 be best seen, perhaps, in Medicine, which, like Biology, has 
 been so rich in fruit during the last generation. The reason 
 why the specialisms into which it is divided have been so 
 fruitful in results is, that owing to the high preliminary train- 
 ing in the general Science of Medicine which each specialist 
 has received, and to the fact that each, by means of the medical 
 journals and the constant stream of new text books, is kept 
 closely in touch with all the advances made in that general 
 science, medical specialism has always worked under the guiding 
 influence and direction of the Science of Medicine as a lohole. 
 And, although that Science is still far from perfect, its advance 
 to a greater and greater perfection proceeds, by means largely 
 of these specialisms, steadily and unweariedly ; the knowledge 
 gained through the minute investigation of special organs and 
 functions returning to enrich the general science which deals 
 with the relations of them all, while that in turn stimulates and 
 directs anew the current of inquiry to ever fresh jjroblems in 
 the out-lying field. When I came to London to collect 
 material for my philosophical work, whole regions of what are 
 now the common-places of Medicine were mere blanks on the 
 map. All the finer forms of paralysis and other diseases of 
 the brain and spinal cord, with their symptoms and signs ; the 
 part played in the causation of the specific fevers, as well as in 
 other inflammations, by germs ; the entire range of antiseptic 
 surgery, which has reduced the death-roll in certain operations
 
 14 GENERAL INTKODVCTORY. 
 
 from ninety-five to five per cent. ; all this was then a terra 
 incognita, and it has all been the result of specialism. And 
 although successful treatment still lags far behind (for who can 
 restore an organ destroyed by dissipation or disease, any more 
 than he can restore an amputated limb ?). it may truly be said 
 that the diagnosis of all the organic diseases which tend to 
 shorten life has been brought in the hands of the great masters 
 of the profession almost to a working certainty. And yet it is 
 strange how little this is recognised by the general public, 
 whether educated or uneducated. The reason, I think, lies in 
 the difficulty often experienced in treating successfully those 
 purely functional disorders, which, depending, as they often do, 
 on under or over stimulation of the different parts of the 
 nervous system, too frequently lie beyond the reach either of 
 diet, regimen, or drugs. And, moreover, where the profession 
 fails, the charlatan, the hypnotist, the faith-healer, and the 
 Christian Scientist often succeed, by the one method common 
 to tlieir respective callings, namely by taking advantage of 
 that mysterious power that can be exerted by the mind over 
 the body, and which in some of its most effective forms 
 honourable medical men cannot, or dare not, employ ; whether 
 it be the solemn pose of the quack, the testimonial advertise- 
 ments of the patent-pill man, the suggestion of the hypnotist, 
 or the simple logic of the Christian Scientist who, if you will 
 only grant him that God is good, and that the world was 
 created by God, will prove to you that there can be no evil or 
 pain except in your own imagination, and treat you accordingly. 
 And yet if the medical man were to tell his patient this, he 
 would be incontinently shown the door ! But the intellectuals 
 are quite as bad as the commonalty in their disparagement of 
 the knowledge of the profession, and none are more easily 
 taken in by some cheap piece of logic-chopping founded on 
 such analogies of the grossly mechanical kind as seem to mirror 
 or parallel their sensations ; those suggestions for treatment in 
 particular being peculiarly acceptable which proceed as if some
 
 ON TH?: DANGERS OF SPECIALISM. 15 
 
 part of the patient's inside were being dried up as by fire, or 
 were turning over like a wheel, or opening and shutting like a 
 door, or being grasped as in a vice, or extending its roots like 
 a tree, and especially if the irregular practitioner has " seen 
 through it with an eye glance, when all those buno^lino- fools of 
 doctors have failed ! " When I first met Carlyle, he described 
 to me in detail the symptoms of his dyspepsia, and roundly 
 asserted that the physicians who attended him, and who at 
 that time were at the top of the profession in London, did not 
 really understand anything about his case. He then proceeded 
 to give me his own opinion, from which, to my amazement, it 
 was evident that he w^as fio-urino; his stomach as some old tea- 
 kettle, which was so thickly encrusted with fur, that it only 
 wanted something to scrape or dissolve this away, for nil to be 
 well with him as^aiu ! It is said that at the rate at which Chris- 
 tian Science is spreading in America among all classes, it will 
 have over-run half the religious world before the century is out. 
 That is bad enough, but it would seem that the prospect before 
 the medical profession is still worse. A distinguished friend 
 of mine, who is usually regarded as very level-headed, thinks 
 so cheaply of its knowledge, that he undertook to prove to me 
 not long ago, that in less than a generation there would not be 
 a regular practitioner left, as they would all be di'iven out and 
 superseded by the efficacy of his own panacea — Swedish 
 massage ! Now this curious disparagement of the knoniledge 
 of the profession, and at a time, too, when, as I have said, 
 there is not a really diseased structure anywhere in the body 
 but can have the finger laid on it almost unerringly by one or 
 other of the great masters of the profession, is not only to be 
 found here and there among the intellectual and cultured 
 classes, but seems to be the prevalent, the orthodox belief 
 amonof them. This is the more regrettable, inasmuch as at 
 the present time, owing to the breakdown of all the old 
 religious beliefs on the one hand, and the suspicion that there 
 is more in the world than mere Scientific Materialism on the
 
 16 GENERAL INTRODUCTORY. 
 
 Other, it has led to the revival of the cult of the magician, the 
 astrologer, and the diviner, as in the days of the Roman 
 Empire before the triumph of Christianity ; with the result 
 that flights of impostors are flocking from all the winds to the 
 great metropolitan centres of the world, scenting their prey. 
 And the remedy is, what ? To bring them to a rigid test in 
 the hospitals, with the Press looking on to report the results to 
 all the world. If this were done I for one should have no 
 doubts whatever as to the issue. 
 
 And now we may pass to the third and most important class 
 of specialisms, those, namely, Avhich deal with Human Life 
 itself, and which make up the History of Civilisation, including 
 as its great divisions, History proper, Religion, Government, 
 Philosophy, Psychology, Political Economy, and Sociology. 
 Of these we have to report that as at present constituted much 
 of the results of their researches, in the condition in which 
 they are delivered over to the public for its instruction and 
 guidance in life, is as futile, misleading, or false as those of the 
 Physical Sciences are fruitful, reliable, and true. And the 
 reason of this is, that they have not as yet found, like the 
 Physical Sciences and the specialisms connected with the 
 Science of Medicine, any general Science of Civilisation under 
 which to work, and by which their labours are to be co- 
 ordinated and reduced to harmony. For as the work of 
 Civilisation has been the result of the combined action of all the 
 important factors we have mentioned at each and every stage 
 of the world's history, it is evident, is it not, that you can no 
 more get a broad general truth which you can hand over to the 
 public for its guidance from any one or all of these specialisms 
 taken separately, until they have been co-ordinated and knit 
 together by a general Science of Civilisation, than you can get 
 a general truth of the body from its organs taken separately, 
 until their general action and reaction on each other have first 
 been determined by the general Science of Medicine. Indeed, 
 until this has been done, the more History, Theology,
 
 ON THE DANGERS OF SPECIALISM. 17 
 
 Philosophy, Politics, Political J^conomy, and Sociology are 
 kept apart, and cultivated as independent specialisms, and the 
 more subdivided they are, the more futile and unprofitable 
 they become ; the more developed and elaborated, the more 
 false are their conclusions ; the farther they go, the more do 
 they lose their way ; the more important they are, the more 
 dangerous is it to accept their results as oiu' guides in action 
 and life. It is true that until enough material had been duo* 
 out to construct a general Science of Civilisation, their labours 
 were entirely beneficial, because absolutely necessary ; as the 
 planets and stars had to be observed and classified before the 
 C/opernican Astronomy and gravitation could be established. 
 But to go on merely collecting and arranging material after 
 enough has been collected with which to construct a Science of 
 Civilisation, without attempting to do so ; or to ignore such a 
 science when it is once established, is as great a waste and 
 futility as to continue cataloguing tlie stars without reference 
 to gravitation, or to go on counting the numbers and marking 
 the positions of old milestones, after the roads have been closed 
 and the entire landsca[)e changed. And this is precisely the 
 condition under which these specialisms are working at the 
 present time. And the reason of it is to be found in those 
 historical antecedents which have made each hate or despise 
 the rest, as if they were neighbouring tribes worshipping- 
 hostile gods. Between them they have, for that matter, 
 excavated enough material to found a Science of Civilisation 
 as true as gravitation, and as solid in its principles as the 
 theory of the tides ; but each is still inclined to rule out of its 
 j)urview the results of the others as impediments, negations, 
 delusions, or downright perversions of the truth ; except, 
 perhaps, in the case of the theologians and politicians, who 
 having to deal with practical affairs demanding ui'gency, have 
 been forced to co-operate, and, under that necessity which 
 makes strange bedfellows, to lie down unwillingly together ! 
 Instead of each calling on its neighbour for help in its 
 
 c
 
 18 GENERAL INTRODUCTORY. 
 
 difficulties, as the Physical Sciences do, each digs on patiently 
 in its own particular trench, jealously exclusive of the rest, and 
 receiving their proffered help with a curse rather than a 
 blessing. The Theologians repudiate the conclusions of the 
 Physical Scientists ; the Metaphysicians of the Psychologists ; 
 and the Sociologists of both. The Statesmen, thinking they 
 can see how the world goes, merely by looking at it through 
 the key-hole of To-day, throw overboard the Historians and 
 the Philosophers indifferently as pedants or dreamers, only to 
 be hooked themselves later on by the cheap bait of some 
 Rousseau, with his I'topian dream of abstract equality, or by 
 the Laissez-faire doctrine of the Political Economists, as if the 
 world were born but yesterday ; wliile the Economists them- 
 selves, ignoring alike Morality, History, and Sociology, 
 continue to hug all the more closely their pasteboard 
 " economic man." The consequence is that these specialisms, 
 instead of advancing like an army on the march under the 
 supreme direction of a general Science of Civilisation to co- 
 ordinate and harmonise them, go each its own way, indifferent 
 to the rest, breeding in and in on themselves the farther they 
 go, until in the end, like bacteria, they choke themselves in 
 their own excess ; or when all hope of producing anything 
 human or practically useful is resigned, turn scavengers pure 
 and simple, and like white ants, live on the debris of the dead 
 or dying superstitions which it is their function to remove. 
 I^iittle groups of them will be found, especially in Germany, 
 squatting themselves down here or there on some small patch 
 of history, say of ten years' duration, it matters little where 
 or when, and will dig and delve you it until not a scrap of fact 
 is left unexhausted ; anatomising it as if it were a dead body, 
 but with little conception of the general trend of the great 
 forces, political, economical, and social, that played through it 
 from the outside, and which gave these dead facts all the 
 meaning and importance they had when alive. Now on this 
 point 1 may claim to speak with some authority, for as it has
 
 ON THE DANGERS OF SPECIALISM. 19 
 
 been my life's task to try and work out for myself some such 
 general scheme of Civilisation as I have indicated, I have had 
 to make myself acquainted not only with the principles of each 
 of these specialisms, but with all details of importance as well. 
 And I can truly say that I have been condemned to read 
 dozens of books on the History of Philosophy, of Early 
 Christianity, and of the Middle Ages, and at least some scores 
 on General History and Political Economy, besides innumer- 
 able special monographs, and (Avith the exception of the works 
 of the few leading authorities on these subjects), without 
 coming on any single new principle, and on hardly a new and 
 important fact. So great is the waste and futility of these 
 specialisms when not controlled and directed by some general 
 Science of Civilisation as a whole ! 
 
 It is true that there had long been in existence a number of 
 schemes of Civilisation, and these, too, the products of some 
 of the greatest constructive minds of the century — Hegel, 
 Guizot, Comte, Buckle, and Herbert Spencer. But they all 
 suffered inevitably from defects which rendered them imperfect 
 or nugatory. To begin with, they were all premature ; the 
 last of them having been written nearly half a century ago 
 when the specialists of the different dej)artments had not yet 
 excavated sufficient raw material of fact on which these great 
 thinkers could successfully operate. Then again, they either, 
 like Guizot and Buckle, covered only a limited portion of the 
 field ; or like Hegel and Spencer made Civilisation depend on 
 laws so general and abstract that they were better fitted to 
 explain the evolution of solar systems than to serve as guides 
 to the specialisms dealing with the complex civilisation of man. 
 And worse still, they almost all fell into the error of the 
 specialists themselves, of investing one or other factor with 
 'positive importance and efficiency, and degrading the rest to 
 the rank of mere appendages, or even downright obstructions 
 and negations — Hegel making the philosophical factor all, 
 Comte (in his later works) the religious one. Buckle the
 
 20 genp:iial introductory. 
 
 scientific, and Herbert Spencer the purely physical one of the 
 conservation of energy ; to whom may be added Carlyle, with 
 his apotheosis of the personally heroic and of brute force ; the 
 best and most fruitful of all these systems being still, in spite 
 of much gratuitous neo-lect, the great work of Comte. Now 
 to all these men, owing to their breadth, penetration, and 
 originality, I was deej)ly indebted ; but as the real problem^ 
 namely that of determining the part played by all the factors 
 as they roll down the centuries together, and of binding them 
 into a living unity, was still imperfectly solved, I was myself 
 impelled, poorly equipped as 1 was, to attempt it ; and some 
 account of the difficulties I met with in this attempt will give 
 the reader a better idea of just how these specialisms stand, 
 than a volume of abstract dissertation. My first serious 
 concern was to find some organon, method, or standpoint of 
 interpretation, which should be coextensive with the full 
 breadth of these different specialisms, and with the field of 
 Civilisation to be surveyed (and which, to keep within 
 manageable limits, I was obliged to confine to the ages of 
 written history), and then by means of this, to work out those 
 general laws which should bind each and all of the factors intO' 
 a unity with one another and with the whole. This done, I 
 then had to a^jply them in detail to the matter of the historical 
 specialisms as at present existing ; and here I found that 
 although the facts and details had been carefully collected, sifted, 
 and arranged in orderly sequence, they still contained crude and 
 imperfectly assimilated matter which prevented them from being- 
 dove-tailed with other specialisms in a single harmonious chain 
 of evolution and development. I had accordingly to draw on 
 each of the various specialisms to x-emedy the limitations and 
 defects of the others. In the evolution of Greek Philosophy, 
 for example, it was necessary, in order to make it consistent 
 and harmonious, to show the influence of a new principle of 
 causation introduced at a certain point from Persian and 
 Hindoo sources. To brins out the inner significance of
 
 ON THE DANGERS OF SPECIALISM. 21 
 
 Hindooism and Buddhism, again, it was necessary to use Greek 
 Philosophy and Christianity as foils ; while to reconstruct the 
 life of Jesus on the fewest and simplest motives, and to separate 
 the truth from the fiction in the Gospel narratives, as well as 
 to get a consistent conception of the Kingdom of God, it was 
 necessary to fall back on the anterior evolution of Judaism, 
 rather than on the later evolution of Christianity itself in which 
 the historians of Early Christianity had entangled themselves. 
 To explain the formation of the New Testament Canon, and 
 the reasons for the selection of its separate books (in my 
 judgment the true touchstone of our understanding of Early 
 Christianity), it was necessary to draw even more freely 
 on Greek Philosophy, Syrian Philosophy, and .ludaism, than 
 on the Higher Criticism itself, important as it is : and so on. 
 After the Reformation, when the unity of the Church was 
 broken up. Historical Specialism in its modern sense first 
 made its appearance, and entered on those triumphs in one 
 field after another, which are its abiding glory. In its 
 accumulation of thoroughly sifted liistorical material of all 
 kinds, and its orderly arrangement and distribution, it showed 
 its most useful and beneficent side, but unfortunately this 
 material, so necessary for severe scholarship, instead of having 
 been first put through the crucible to remove its dross, and 
 handed over to a general Science of Civilisation to be over- 
 hauled, co-ordinated, and reconstituted, has been delivered 
 over to the public for consumption, by each specialism, raw 
 from its own particular mine ; with results the more false and 
 misleading, the more important they are to society and the 
 State. And it will not be until these specialisms have found 
 soxTie general scheme of Ci\ ilisation as a whole under which to 
 work, that they will become, like the Physical Sciences, 
 Biology, and Medicine, fruitful and useful again. It is true, 
 of course, that most of the leading specialists know something 
 of the results of the others in their immediate neighbourhood, 
 but except among the broader minds, this is little more than a
 
 22 GENERAL INTRODUCTORY. 
 
 mere penumbra of light, like that of the glow-worm in the 
 (jrass, extending little farther than their immediate affiliations 
 and surroundings, and not a full complement of illunnnants, 
 deliberately lighting up the whole field. But I will go further, 
 and will venture to say this : — that there is no general 
 conclusion which is important to the pul)lic at large, and which 
 is the product of any one of these specialisms dealing with 
 history, the human mind or human life, but is liable to have 
 its flank turned, and itself shown to be a practical falsity, by 
 considerations drawn from this Science of Civilisation as a 
 whole. .And further, as I have already said, it will not be 
 until these specialisms have found some such general scheme 
 under which to work, that they either can or will become fruit- 
 ful again. Any Government or private philanthropist therefore 
 who is contemplating the founding of new Universities for 
 " original research " in these historical specialisms, may well 
 pause and consider : for with the prestige that now attaches to 
 all specialisms in the public mind, owing to their triumph in 
 the Physical Sciences, these Universities, if established, would 
 deliver the public over to the despotism of a race of dreamers, 
 theorists, and impracticals, compared with Avhom the isolated 
 Rousseaus of the past would show as but single locusts to an 
 invading swarm ; and the multiplied isolated excavations which 
 they would everywhere throw up along the landscape of 
 knowledge, would, like those coffins of the dead which cumber 
 the Chinese fields, prove permanent obstacles to all true 
 progress. Even as it is, the proposal to add a new academic 
 chair on any large and important subject of human interest, 
 is felt as a nightmare by men of broad general culture 
 and insight everywhere, and adds a new teiTor to the 
 literary life. When Walter Pater, for example, seeking to 
 make a speciality of literary style by divorcing it from the 
 thought it enshrines, could solemnly announce that the great 
 Plato, who with Aristotle continued to rule the minds of 
 men. Pagan and Christian, for two thousand years, did so
 
 ON THE DANGERS OF SPECIALISM. 23 
 
 by his style, mainly or alone, surely this note of warning is 
 not premature. 
 
 To sum up, then, we may say that the public may trust 
 implicitly the results of specialism throughout the whole 
 domain of the Physical Sciences, because they work under 
 great general laws, like those of gravitation and the conser- 
 vation and transmission of force, which are of universal 
 validity ; that they may trust provisionally the results of 
 specialism in the Biological and Medical sciences, as the best 
 that can be had under existing conditions and at the present 
 stage, inasmuch as they also work under broad general con- 
 ceptions, like Natural Selection and the Science of Medicine, 
 which, although not the final truth, contain the greatest amount 
 of truth yet known ; but that in the specialisms connected 
 with History, Religion, Philosophy, Psychology, Politics, 
 Political Economy, Morals, and Sociology, the public can place 
 no real confidence whatever, until their results are everywhere 
 overhauled and co-ordinated, and these specialisms themselves 
 compelled to woi*k under some generally accepted scheme 
 of Civilisation as a whole.
 
 CHAPTER II. 
 
 THE ORTHODOX POLITICAL ECONOMY. 
 
 TN the present and following volumes accordingly, I am to 
 make an attempt to reconstruct these distinctively human 
 specialisms, in so f:u* at least as their leading principles are 
 concerned, from the point of view of Civilisation as a whole, 
 or General Sociology, as outlined in the preceding volumes of 
 this series, and propose to devote the present one to the 
 S])ecialism of Political Economy. I have chosen this course 
 not only because the subject matter of Political Economy 
 follows naturally out of the discussions on General Politics of 
 the preceding volume, but because as it will involve more 
 reconstruction than any other of the distinctively human 
 specialisms — even the dismantling of the existing science down 
 to its foundation — it will illustrate and enforce better perhaps 
 than any other object lesson could have done, the necessity 
 there is for a general science of Civilisation or Sociology, 
 which shall bear authority and dominion over all lesser 
 specialisms included within it, and which shall give point and 
 direction to their special researches — a General Sociology not 
 rigid, final, and immutable, but loose, flexible, and modifiable 
 in turn by these specialisms ; much in the same way as the 
 general plan of organic evolution originally propounded by 
 Darwin is being gi-adually modified by his successors in 
 accordance with the new knowledge that is being constantly
 
 THE ORTHODOX POLITICAL ECONOMY. 25 
 
 tlirown up by the Biological Sciences with which organic 
 evolution is concerned. Should we in this way succeed in 
 reconstructino; the science of Political Economy by the help of 
 principles drawn from the studies of Civilisation and Sociology 
 embodied in former volumes, we can then advance with a more 
 lively assurance and expectation of success to those other 
 human specialisms which, like Religion and Morals, althougli 
 demanding reconstruction from the same point of view, are 
 nevertheless, owing to the passions and prejudices which they 
 arouse, still more or less difficidt of access to new and unfamiliar 
 methods of investigation and thought. 
 
 As regards the form and distribution of the subject matter 
 of this volume, I had originally intended to have followed the 
 course pursued in the preceding volume, and to have divided 
 it into two separate parts, the first critical, the second 
 reconstructive, the one aiming at getting rid of the old 
 economy, the other at substituting a new system in its place. 
 But owing to causes which will appear as we proceed, I found 
 it impossible entirely to separate the critical from the 
 constructive portions of the l>ook ; and the consequence is that 
 instead of a straightforward evolution, as of links in a 
 continuous chain, the argument will be found to proceed in a 
 circuitous course like a spiral, returning into itself, as it were, 
 at each stage of its progress, prior to a fresh advance ; the 
 critical and constructive parts more or less alternating through- 
 out. Beginning then with the critical portions I shall 
 •endea^'Our in a general way to establish the following positions : 
 1st, — That up to the present time the orthodox Political 
 Economy of the Schools is neither a pure science nor an 
 applied science ; not a pure science because it has 
 excluded altogether from its purview elements essential 
 to the problem of the pure science ; not an applied 
 science, because it has embodied in its teachings elements 
 which do not properly belong to it, and which are so 
 local, temporary, or capricious, that they cannot be made
 
 26 THE ORTHODOX POLITICAL ECONOMY. 
 
 the subject matter of any single scientific specialism at 
 all, unless indeed it be the all-comprehensive one of 
 Sociology. 
 2nd, — That having cut the siubject matter of Political 
 Economy out of the living tissue of Civilisation, with 
 the view of making a specialism of it, instead of putting 
 it back again, to have the life blood of that civilisation 
 stream through it before deducing its laws and principles,, 
 the orthodox economy has deduced these laws and 
 principles from the particular material only which it has 
 marked out for itself as the subject matter of its 
 specialism ; and so its conclusions when applied to the 
 phenomena of industry, which everywhere lie enmeshed 
 in a web of legal and social powers interpenetrating^ 
 them at every point and from all sides, are not only 
 misleading in this or that particular, but practically 
 misleading in all. 
 But before we can get fully under way in this demonstration, 
 it is necessary that the different aspects of our problem should 
 be given their proper focus and perspective, in order to avoid 
 that confusion and overlapping of boundaries which has 
 wrought so much mischief in the existing; economv. And the 
 first observation I would make is, that Political Economy 
 under analysis ought to disclose as distinguishable features 
 first, a pure Science, secondly, an Art, or apj)lied Science, and 
 thirdly, a Polity ; the pure Science being the inner core of 
 doctrine, as it were, while the Art and the Polity form the 
 general material, political, and social framework in which it is 
 embodied, and in and through which it has to work. But as a 
 matter of fact, up to the present time, although the orthodox 
 systems contain a science of a kind, it is neither a pure science 
 nor a true science, inasmuch as it leaves out, as I have said,, 
 certain factors essential to the pure science ; and the conse- 
 quence of this, again, is that these systems cannot have an 
 applied science which will be foiuid at once true and applicable
 
 THE ORTHODOX POLITICAL ECONOMY. 27 
 
 to all stages of industry alike. In this they resemble that 
 system of Astronomy which made a flat earth the centre of 
 the world, with the sun rising and setting, and the planets and 
 stars revolving around it, and which although it answered all 
 the practical purposes of the everyday life of human beings 
 quite as well perhaps as the true system, produced nothing but 
 falsity the moment it was attempted to draw from it deductions 
 as to other aspects of the world. And so with the existing 
 Political Economy. It has never professed that its principles, 
 which had they been parts of a true science, whether pure or 
 applied, would have explained and illumined all industrial 
 regimes alike, were applicable to regimes founded like slavery 
 or serfdom on status, or like the guild or metayer system on 
 fixed or customary wages and rent, or like Socialism where 
 the land and instruments of production are to be owned by 
 the State, but only to the present stage of Modern Capitalism, 
 with its division of industrial society into landlords, capitalists, 
 and labourers, respectively. And it was to the limited body of 
 doctrine bound up with this regime that the orthodox economy 
 attempted to give the semblance of a pure science, by postula- 
 ting it as made up of a world of ' economic men ' energizing 
 freely in a perfectly fluid medium of laissez-faire, free com- 
 petition, and free contract. 
 
 But it was a semblance only ; for, as we shall presently see, 
 some of the essential factors being entirely left out of the 
 problem, the presence of the rest only served to lend a false air 
 of security to conclusions based on maimed and incomplete 
 premises. The truth is there does not exist as yet in the 
 orthodox Schools any pure science of Political Economy at 
 all ; there are at best only descriptions of a number of games 
 of political economy, as it were, in which, as in games at cards, 
 the different factors liave different values according to the 
 particular phase of industry on which the game is being played ; 
 land, labour, and capital having one scale of value in a regime 
 of slavery or serfdom, another in the guild or metayer system,
 
 28 THE ORTHODOX POLITICAL ECONOMY. 
 
 a third in modern Industrialism, a fourth in Socialism, and so 
 on. And bound up with these, again, are various policies, as 
 of Free Trade or Protection, of stimulating the population or 
 repressing it, of entailing the land or of freeing it, of enlarging 
 the size of holdings or restricting them, of lengthening the 
 working day or shortening it, and the like. 
 
 And yet, pervading all these, there must be somewhere a 
 pure science of Political Economy, if we could l)ut dig it or 
 distil it out, a science which even if it contained as few 
 principles as could be written on your thumb nail, would 
 nevertheless dispose of all the complexities and contradictions 
 of the subject ; in the same way as the law of gravitation does 
 of the irregular movements of the heavenly bodies, or as the 
 mathematico-physical laws of strains and pressure determine 
 the solidity and safety of bridges and other engineering 
 constructions in which they are involved. And the test by 
 which we should know that we had found this pure science of 
 Political Economy would be, that it would explain and interpret 
 not merely the particular stage of Modern Capitalism, but 
 every other stage in the development of Industry as well, 
 whether past or future ; that it would aiford us a touchstone 
 by which we could clearly separate in any complex piece of 
 industrial policy those effects that are purely economic in 
 character from those that are due to extraneous powers and 
 forces, whether political, legal, or social ; and that instead of 
 running counter to the methods and expedients of practical 
 business men everywhere, it would be found to be everywhere 
 in harmony with them. But as I have stated that the 
 orthodox Economists, owing to their neglect or suppression 
 of certain factors essential to the problem, have neither 
 definitively formulated nor implicitly embodied this inner core 
 of pure science in their teachings, it would seem incumbent on 
 me to open the series of demonstrations in this volume by a 
 direct attempt to supply this desideratum, as the necessary 
 basis and [)reliminary of all that is to follow : and this course,
 
 THE ORTHODOX POLITICAL ECONOMY. 29 
 
 accordingly, I propose to pursue. But before doing so, 1 feel 
 I ought to apologise for the somewhat dogmatic confidence 
 with which I have disparaged the results achieved by the 
 orthodox Political Economy, in the face of its unbroken 
 tradition and evolution, and of the illustrious names that have 
 contributed to it, and in so many ways adorned it. And yet 
 when I reflect that of all the accredited specialisms it is the 
 only one which having entered on its career with the highest 
 hopes and credentials, even to the point of having reversed or 
 modified the legislation of the foremost nations in the world, 
 is now, in the main principles at least of its teaching, con- 
 temptuously rejected by the thoughtful general public as a 
 species of perpetual-motion scheming, useless or Utopian, I feel 
 that no other course is open to me. My excuse for this 
 temerity will, I trust, be found in my making the course of the 
 demonstration so clear and connected, that any flaws or fallacies 
 either in the whole or in the parts will be at once apparent ; 
 and so no ultimate injustice will be done either to the orthodox 
 Economy itself, or to the many distinguished men who have 
 been and still are identified with its teachings.
 
 CHAP TEE III 
 
 THE PURE SCIENCE OF POLITICAL ECONOMY. 
 
 '"P^HE aim of a pure science of Political Economy, as distinct 
 from the mixed form of it which is the subject-matter 
 of the existing orthodox treatises, is to find such a formula, 
 symbol, or abstract expression for the movements involved in 
 the process of industry as shall form a solid foundation for the 
 applied science of the same ; a foundation on which the applied 
 science can build itself up as a reliable working scheme for 
 increasing the wealth of the nation and of the world. For 
 although this abstract symbol, and the abstract corollaries that 
 immediately flow from it are, as we shall now see, both simple 
 in themselves and few in number, nevertheless without them, 
 as without the law of gravitation in astronomy, there could be 
 no reliable pathways or finger posts that would enable us to 
 find our way through the perplexing mazes and the wheel- 
 within-wheel complications of industrial phenomena. Without 
 further preliminary then I shall now proceed to exhibit the 
 character of this central abstract symbol, and of the way in 
 which its separate aspects integrate themselves into a unity ; 
 leaving to succeeding chapters both the differentiated aspects 
 of it, and their application as a critical organon to the 
 successive doctrines of the orthodox schools, as they come 
 singly or in groups under review. 
 
 To begin with, then, we may say that the essential factors
 
 THE PURE SCIENCE OF POLITICAL ECONOMY. 31 
 
 involved in the phenomena of wealth, and for the relationship 
 between which some abstract symbol or formula must be found, 
 may all be reduced to four, namely, Production, Consumption, 
 the powers of Nature, and the powers of Man. And the first 
 point we would notice is that the relationship between the first 
 two factors is always the same, namely of production passino- 
 into consumption, consumption nofain into production, that in 
 turn into consumption again, and so on continuously and Avith- 
 out break or pause, like a revolving wheel. And this 
 continuous circular movement, we must further figure to 
 ourselves as taking place in a medium thick with powers of 
 Nature of all kinds and on all hands — wind, water, soil, steam, 
 electricity, and the like — which it is the function of our fourth 
 factor, the powers of Man, to yoke and harness to his service 
 in the process of keeping the circular double-sided wheel of 
 production and consumption a-going. If this be true, it would 
 next appear evident that the processes of industry are 
 processes of wealth re-production, and not merely processes of 
 produclion as separate isolated acts, inasmuch as after every act 
 of production an act of consumption must follow before 
 production can start forward again ; in the same way as the 
 parts of a running wheel that are in the air must come round 
 in turn to the ground, before there can be any further 
 progression. And as the movement as a whole is a continuous 
 progression along the highway of time, this double-sided act 
 of the production and consumption of wealth differs from the 
 one-sided act of production alone, with which the orthodox 
 economists have concerned themselves, as the progression of 
 a carriage wheel differs from that of a cripple hopping along 
 on one leg. I am aware of course that it makes no difference 
 how the ground is covered in the process of wealth production 
 so long as it is covered ; in the same way as it makes no 
 difference in the sequences of day and night, whether the earth 
 goes round the sun or the sun round the earth. The difference 
 only appears when we proceed to make logical deductions from
 
 32 THK PURE SCIENCE OF POLITICAL ECONOMY. 
 
 the symbols with which we start, as, for example, when the 
 orthodox economists starting out with their central pre- 
 suppositions of the ' economic man,' laissez-faire, absolute 
 freedom of contract, and free competition, proceed to deduce 
 from them the fundamental laws of their science — ' funda- 
 mental propositions ' concerning capital, profit, rent, labour, 
 population, foreign trade, and the like. And then it is found 
 that instead of deducing these laws of the increase or decrease 
 of wealth from the symbol of a revolving wheel of production 
 and consumption, they have deduced them from the symbol of 
 a rod or stick of production alone, broken up into isolated 
 pieces of varying lengths, and joined end to end from day to 
 day, week to week, or year to year, as the case may be, to 
 form not a continuous unbroken line of wealth production but 
 a chopped and divided one — a procedure which, as we shall 
 see, parallels at every point the procedure of tliose Greek 
 philosophers who with Zeno insisted on regarding a line as 
 made up of separate points lying side by side, and which 
 involved them in all the fallacies of the flying arrow, of 
 Achilles and the tortoise, and the other paradoxes familiar to 
 the students of Greek philosophy. But of this more anon. 
 What we have to make sure of here is that our symbol of the 
 revolvino- wheel has not merely points of analogy with the true 
 symbol on which a pure science of political economy is to be 
 based, but is in every particular identical with it ; so that the 
 laws and ' fundamental propositions ' mathematically deducible 
 from the nature of a revolving wheel maybe transferred bodily 
 to the phenomena of wealth production in all its aspects, and 
 will be found to be mathematically true of them as well. 
 
 The first point of identity then which we would note 
 between a mechanical wheel and the wheel of wealth is, that 
 iust as the two separate halves or aspects of a wheel are so 
 rio-idly bound together that the one side cannot be slowed or 
 accelerated without slowing or accelerating the other, so too it 
 is with the movement of wealth reproduction, where any brake
 
 THE PURE SCIENCE OF POLITICAL ECONOMY. 33 
 
 put on the side of consumption is immediately transmitted to 
 the side of production. For who will go on producing unless 
 someone somewhere goes on consuming, and consuming precisely 
 to the extent of the production? If what is produced were 
 not consumed it would go bad and tv.rn mouldy or sour, like 
 food and drink ; or rot or become worm or moth-eaten like 
 clothing and furniture ; or fall into ruin and decay, like 
 buildings and dwelling houses. On the other hand, were the 
 things produced such as defied time, like the pyramids ; or 
 lasted a long time relatively, like well-built roads and bridges ; 
 or improved by time, like spirits and wines ; or could be stored 
 for a time before being used, like corn, or timber, or other raw 
 productions of the soil ; or are not to be estimated in terms of 
 time at all, like works of art and genius ; they must one and all 
 be consumed, in the economic sense of the term, else on the 
 ensuing revolutions of the wheel they will cease to be produced. 
 On the other hand, again, when the consumption side of the 
 wheel is stimulated for any reason, as from good harvests, easv 
 credit, high wages, or business prosperity generally, the pro- 
 duction side of the wheel is quickened to keep pace with it ; 
 so that everywhere production must keep time and pace with 
 consumption, and consumption with production, as one side or 
 aspect of a wheel keeps time and pace with the other. Had 
 what is being consumed not been produced by human agency 
 at all, but descended from the clouds like manna, and in 
 unlimited quantity like air or water, it would of itself fall oflf the 
 wheel of wealth, and form no part of the pure science of 
 Political Economy. On the other hand, were it intercepted, 
 ' cornered,' and monopolised, either by individuals or classes, 
 so that it commanded a price, and to that extent slowed the 
 movement of the wheel on the side of consumption, it would 
 be a subject for politics and legislation to deal with, but would 
 form no part of the pure science of Political Economy. 
 
 Again should the obstruction appear in the medium of the 
 powers of Nature and of Man, in and through which this 
 
 D
 
 34 THE PURE SCIENCE OF POLITICAL ECONOMY. 
 
 double-sided process of production and consumption functions, 
 as for example when a particular kind of requisite human skill 
 is not for the moment available, or when the world is waiting 
 for some invention that shall yoke the powers of Nature to the 
 aid of Man for the producticm of an article for which the 
 market is practically unlimited, as for the cottons and woollens 
 of Eno'land before the invention of the steam-encfine, the 
 spinning-jenny, the power-loom and the rest ; in all such cases 
 the obstruction caused by the deficiency of skill, or involved in 
 the use of hand-labour instead of machinery, will act as a 
 brake on the a-hoh wheel, and will slow it in proportion to the 
 degree or amount of that obstruction, precisely in the same 
 way as a deficiency of motor power at any point where it is 
 wanted, will slow at every point the movements of a mechanical 
 Avheel. The wheel of wealth, again, will also be sloAved by all 
 difficulties of transport at whatever points arising, as a carriage 
 is by the roughness of the roads over which it runs. 
 
 The second point of identity between the wheel of wealth 
 and a mechanical wheel is, that just as the distance covered by 
 a running wheel in a given time is in proportion to the speed 
 of its revolutions, so in the wheel of wealth-reproduction, the 
 increase of wealth is also in proportion to the speed of its 
 revolutions in a given time, or, in other words, to the quickness 
 of the ' turnover,' as it is called : the number and rapidity of 
 the sales of goods over the retail counters of the world deter- 
 mining the number and rapidity of the looms that are at work 
 in producing them, of the soils that are cultivated, of the mines 
 that are opened, of the ships that are launched, and of the 
 railways and bridges that are built. 
 
 From all of which it would appear that the symbol of a 
 revolving wheel is the natural symbol of the reproduction of 
 wealth, and that the laws of the increase or deci'ease of wealth, 
 as well as the immediate deductions therefrom, must be identical 
 with, and so be transferable from the mathematics of a 
 mechanical wheel to the wheel of wealth and the science of
 
 THE PURE SCIENCE OF POLITICAL ECONOMY. 35 
 
 Political Economy. But It must not be forgotten that It Is 
 only with the jmre science of Political Economy that we are 
 here dealing, and that It Is only In this pure science that the 
 identity of the laws of a mechanical wheel and of the wheel of 
 wealth holds good. For It Is only in pure sciences, like the 
 mathematical, that the symbols, the conditions, and the pre- 
 suppositions are all assumed to be Ideal to start with. In the 
 case of the mechanical wheel, we assume that Its sides or 
 aspects are equal and evenly balanced, that it moves without 
 friction in a homogeneous medium, and that the powers that 
 act on it are unlimited, and available to any extent on demand. 
 And so, too, with the wheel of wealth ; we assume that 
 consumption and production are equal and opposite and self- 
 balancing ; that all the factors are unlimited, elastic, and free, 
 so that when one is increased for any reason the rest may be 
 relied on to keep pace with it ; production to keep pace with 
 consumption, through the powers of Nature and of human skill 
 being always present and ready to be drawn on by discovery, 
 invention, organization, machinery, and the rest ; consumption 
 to keep pace with production, by such distribution of wealth 
 and purchasing power as shall permit of it ; so that all alike, 
 production, consumption, powers of Nature, powers of Man, 
 organization, Invention, machinery, and transport, shall keep 
 time and step together.
 
 CHAPTEE IV. 
 
 THE APPLIED SCIENCE OF POLITICAL 
 ECONOMY. 
 
 T)UT there is one essential difference between the laws of 
 -"^ movement of a running wheel and the laws involved in 
 the production and reproduction of wealth, and before we can 
 satisfy ourselves that this symbol of a wheel can be transferred 
 in its entirety to the wheel of wealth, we must investigate the 
 meaning and implications of this point of difference. It 
 consists, in a word, in this, that whereas the wheel of wealth is 
 alive, as it were, and self-moving, animated and kept a-going, 
 as it is, by living human beings, a mechanical wheel on the 
 contrary, gets its motion from outside itself. Not that this 
 will make any difference to the pure Science, or to the laws of 
 the respective wheels as such, just as it makes no difference to 
 a locomotive engine whether its motor power comes from the 
 steam inside its own boiler, or from a push administered from 
 without, provided always that the amount of power applied is 
 the same; for its wheels, following their own laws of move- 
 ment, will run precisely as far before stopping and no farther, 
 in the one case as in the other. It is only when we come to 
 the Applied Science of Political Economy, that is to say, to 
 where the pure Science has to be applied to actual economic 
 wheels unequally balanced at this point or that, that the 
 distinction becomes of vital importance ; as for example when
 
 THE APPLIED SCIENCE OF POLITICAL ECONOxMY. 37 
 
 it has to be applied to nations some of whom have large pro- 
 dnctive capacity, as fertile soil, human skill, energy, and 
 inventive capacity, but have no transport facilities for carrying 
 their products either to their own markets or to those of 
 foreign nations, as in America before steam-power and railway 
 communication opened up the West ; or again where the 
 Home Market is restricted, as in the slave States of the South 
 before the cotton mills of Lancashire afforded an outlet ; or 
 where there is much acquired human skill of various kinds 
 but neither Science, nor organising initiative nor machine 
 production, as in India and the East ; or where there is a 
 sufficiency of productive powers, but no effective power of 
 consumption to create a demand for the produce, owing to the 
 mass of the people not being allowed to reap the fruits of their 
 labour, as in the slave cultivation of the Koman Empire, or 
 indeed in all agricultural countries where the peasants are 
 ■exploited by despotism or unfavourable legislation, as in France 
 before the Revolution, in peoples under Turkish rule every- 
 where, and in Ireland before the passage of the Land Acts, 
 and so on. In all these cases the national wheels are lop-sided, 
 as it were, economically obstructed, maimed and im[)erfect ; 
 and it is because we must look to the applied science of 
 Political Economy for remedies, that it is of prime importance 
 to determine at the very outset, where or in what aspect of the 
 self-moving wheel of wealth the motor power resides. For 
 just as in the case of a paralyzed limb in the human body, if 
 we are to apply our remedies with discretion and success, we 
 must first of all ascertain whether the obstruction is in the 
 limb itself or in the motor centres of the brain — otherwise, as 
 is so often the case in the practice of quacks, we should find 
 massage or electricity being vigorously applied to the limb, 
 Avhen the seat of the mischief is a blood-clot in the brain 
 substance — so, too, is it with the applied science of Political 
 Economy, where the first question we must answer is ; — In 
 which of the four fundamental and distinsfuishable factors of
 
 38 THE APPLIED SCIENCE OF POLITICAL ECONOMY. 
 
 wealth production (all of which are in their several Avays 
 essential elements in the process) does the motor power 
 specially reside ? Is it in Production, or in Consumption, in 
 the powers of Nature, or the powers of Man I 
 
 Now the orthodox school of Economists from the days of 
 Adam Smith down to our own time has, owing to historical 
 causes of which we shall see the significance in later chapters, 
 always fixed the motor power from which wealth accumulation' 
 proceeds in the act of Production itself ; and accordingly their 
 one prescription for any falling off of trade or slowing of the 
 wheels of industry, has always been, to go on producing more 
 and yet more, leaving the consumption to take care of itself ; 
 on the ground, as Mill has it, that there will always be found 
 in the world people enough and with desires enough to 
 consume all that can by any possibility or likelihood be 
 produced. Indeed had this not been the central core of their 
 teaching, the orthodox Economists could not have ignored in 
 their more recent works, as they have done, the assaults made 
 on this very position by economists like Mr. Gunton, Mr. J. 
 M. Robertson, and Mr. Hobson ; any of whose arguments, it 
 may be remarked in passing, ought, if there is any virtue in 
 human reason, to have given the coup de grace to this absurdity 
 at any time during the last two decades. It is quite true that 
 you can let Consumption take care of itself, if people can get 
 for nothing what they have the capacity and wish to consume, 
 or if you can always feel sure that they have the wherewithal 
 to pay for it. But that is precisely the point. Do the 
 orthodox Economists imao^ine that the world could be counted 
 on to carry off all the enormous and cxev increasing yearly 
 output of products, if they had to do it on the wages of Russian 
 serfs, of Turkish, or Irish, or Hindoo peasants, of distressed 
 needlewomen, or of the sweated tailors of the East-end of 
 London ? And if not, why have they ruled out from the 
 original data of their Science this enormous and all important 
 factor of Consumption, with the wide disparity of degrees in
 
 THE APPLIED SCIENCE OF POLITICAL ECONOMY. 39 
 
 which it can be indulged accordino- to the wao-es and incomes 
 of men ? as if, indeed, Consumption always attended and 
 followed close on the heels of Production as its lackey. They 
 might as well rule out from the human organism the stomach 
 and other organs of consumption, retaining only the brain, the 
 arms, and the hands, and then assume that these latter, the 
 organs of production, will still go on working, without the 
 former, the organs of consumption. The truth is that if 
 Production and Consumption kee\) pace with each other, as 
 indeed they do, and must do, in the coittinuonx movements of a 
 wheel of wealth reproduction, it is not because consumption 
 can be relied on to keep pace with production, but that the 
 production adapts itself to the consumption — quite a different 
 matter and one which if neglected would land us in all the 
 practical impossibilities involved in working with ' the cart 
 before the horse ' ! The question is not what capacity or desire 
 men have for consuming in the abstract, but to what extent 
 their wages and incomes will permit of it in actual fact and in 
 the concrete. And if we were right in contending a few pages 
 back that it is the number of sales over the retail counters of 
 the world that determines the number of factories, mills, and 
 workshops that are kept running, of lands and mines that are 
 opened, of railways and bridges that are built, etc., that alone 
 ought to have been enough to settle once and for all where the 
 motor power in the wheel of wealth resides ; and further, if 
 these retail ti'ansactious differ in every nation from year to 
 year and generation to generation, that again ought to prove 
 conclusively how fatal it must be for any system of Political 
 Economy to deduce its laws and fundamental tloctrines from a 
 set of primary data in which this all important constituent 
 factor. Consumption, is entirely ruled out. It is only another 
 variant on the old and hackneyed illustration of the play of 
 Hamlet with the part of Hamlet himself left out. For not 
 only is Consumption the soul and animating princi])le that 
 urges forward all the other factors engaged in the production
 
 40 THE APPLIED SCIENCE OF POLITICAL ECONOMY. 
 
 and reprocUiction of wealth, but it is the controlling factor as 
 well, the factor that sets the pace to all the rest ; just as in the 
 animal body it is the persistency and urgency of the appetite 
 which determine the efforts that will be made to satisfy it. 
 That it is the controlling and limitino- factor is seen also in the 
 fact that it can, like the power of the Tribunes of the People 
 in the old Roman Commonwealth, veto and arrest the motions 
 and actions of all the other powers concerned ; for if, as we 
 have already seen, things :ire not consumed, or likely to be 
 consumed, the}' will cease to be reproduced ; and it is for the 
 solution of the problem of wealth reprodnctiou and increase, it 
 nuist be remembeied, that an applied science of Political 
 Economy is wanted, and not for mere production as such, left, 
 as it is by the orthodox economists, like a foundling, to such 
 casual chances of consumption as may be available to carry it 
 off. 
 
 The first principle then which has to be added to the pure 
 science of Political Economy to turn it into an Applied Science 
 is, that both the motor and the controlling factor in the wheel 
 of wealth have their seat in that one side or aspect of it which 
 we have distinguished as Consumption ; or, in other words, it 
 is to the relative largeness of the share of wealth produced 
 which falls to the great masses of the population in their 
 capacitv as consumers that we must look if we are to })ut the 
 greatest possible pressure on all tlie available powers of Nature 
 engaged in production — on wind, water, steam, electricity, etc. — 
 as well as on the powers of Man, his invention, organization, 
 division of labour, and what not. And the reason that this 
 pressure is so effective not only in reproducing what is being 
 continually consumed, but in adding so greatly to the amount 
 of that reproduction, is, that all these powers of Nature, and of 
 human invention and organization, are ready and waiting (if 
 we will only reach out our hands to them and grasp them), to 
 add their immense economic powers to the limited physical 
 powers of Man. If, for example, the effective demand for
 
 THE APPLIED SCIENCE OF POLITICAL ECONOMY. 41 
 
 ■consumption is so great anyvvliere that the spade and the hoe, 
 the wheelbarrow, the horse and cart, and the spinning wheel, 
 nre not able to keep pace with it, men's inventions are at once 
 stimulated to seek for devices which shall secure more effective 
 aids ; and presently some one comes along who puts a little 
 water into a boiler and converts it into steam, or invents an 
 electric engine, or a steam plough, or a power loom, or a 
 locomotive and railway train, when lo I he will find that these 
 will reproduce for him in a given time a thousand times the 
 •quantity of economic wealth (after all the hibour spent in 
 making them is deducted) that was possible before. But the 
 point I wish to emphasise especially here is that unless the 
 market for consumption is large enough to carry off this excess 
 of wealth production, tliese machines will either not be invented, 
 or if invented will not be used. No one, for example, would 
 either seek to invent or to use, say a steam mowing-machine if 
 it were merely for the purpose of cutting the grass on the 
 lawn in front of his house, when a scythe or ordinary hand 
 mower would do practically all that was wanted, and at less cost. 
 This then is the first principle or law of our Applied Science of 
 Political Economy, namely that it is to the extent of the market 
 for Com^umption that we must primarily look for the increased 
 reproduction of wealth. 
 
 And now in what respect, it may be asked, does this doctrine 
 differ from that of the orthodox Economists'? In this, that 
 whereas our doctrine ascribes the increase of wealth to a positive 
 power of productiveness residing in those powers of Nature 
 Avhich are so superior to our own, and which the demand for 
 consumption calls forth as gratuitous gifts to Man, powers 
 whereby from a single seed a hundred may be made to grow, 
 or from ;i new machine a thousand articles of wealth may be 
 turned out with the same time and labour as one before ; the 
 orthodox Economists on the other hand ascribe this increase to 
 a negative element, namely to the amount that can be saved out 
 of former wealth-production, owing to the wage earners costing
 
 42 THE APPLIED SCIENCE OF POLITICAL ECONOMY. 
 
 less to feed and clothe them than before — before, that is ta 
 say, these inventions had cheapened their articles of living. 
 Mill, in particular, made himself almost merry over the idea 
 that the extent of the market for consumption could in any 
 way increase the wealth from which either an increase of 
 profits or of wages could be drawn. He says definitively that 
 ' to popular apprehension it seems that demand, customers, a 
 market for the commodity, are the cause of the gain of 
 capitalists.' But he hastens to add that this is an error and that, 
 on the contrary, ' the cause of profit is that labour produces 
 more than is required for its support.' In other words, to 
 revert to our original symbol, the cause of the increase of 
 wealth, according to Mill, is to be found in the fact that of a 
 given rod or stick of wealth alreadtj in existence a less relative 
 amount has to be cut off to feed the wage-earners and labourers 
 than before, whether your unit of time be a week, a month, 
 or a year; and so, a larger quantity of available wealth can be 
 carried forward and added to the produce of the succeeding 
 week, month or year. But the truth is that far from labour 
 producing more than is required for its support, Man, of all 
 animals, without the aid of those powers of Nature which he 
 commands through his invention and tool-using capacity — 
 as of slings, bows and arrows, fish-hooks, boats, weapons 
 of defence, and so on — would be the quickest to starve and 
 be devoured. So far then from the increase of wealth being 
 due to the fact that ' labour produces more than is required 
 for its support,' it is due on the contrary to the fact that Man, 
 when stimulated by the pressure put on him by his desire for 
 consumption, can by appropriate iuA^entions call to his aid the 
 powers of Nature as a free gift. Now seeing that in actual 
 fact it is owing to these free gifts of the powers of Nature 
 that labour, as Mill says, produces more than is required for 
 its support, it may seem captious and hypercritical to dwell on 
 this difference ; and so indeed it would, if we looked merely 
 at the actual result ; in the same way as it is immaterial
 
 THE APPLIED SCIEXCE OF POLITICAL ECONOMY. 43 
 
 whether we regard ten as the result of fifteen minus five or of 
 five plus five. But it makes all the difi'erence in the logical 
 deductions that are to be drawn from these respective symbols. 
 It makes all the difference whether the increase of wealth is 
 due to a continuous positive addition of production and con- 
 sumption, growing like a snowball as it rolls, and throwing 
 off like a new machine double the quantity of product of an 
 old one in a ofiven time : or whether it is due to a neo;ative 
 addition of production minus consumption, from which as from 
 a miser's hoard the more that can be saved in one year the 
 more will be added to the wealth of the next. It is the 
 diflfei'ence between putting your talents out to use for a 
 continuous increase, and putting them in a napkin and trying 
 by saving to make them last as long as possible. In the one 
 case the laws of Political Economy will be deduced from the 
 dynamics of a wheel of production and consumption, where the 
 amount of wealth thrown off" by it will depend on the number 
 of its revolutions in a given time ; in the other case these laws 
 will be deduced from the statics of a stick which adds to its 
 length each year by the amount it can save from the preceding 
 year, but where the fatal element is involved that the additions 
 become less and less as time goes on, inasmuch as the more 
 that is saved one year, the less will be required to be produced 
 the next, and so, too, in the next and next ; while if it is 
 still produced but not consumed, it will moulder and decay 
 and be relegated to the dustbin of wasted human eff'ort. And 
 the result of it all will be, that your rod of wealth which was 
 going; to be like the tree which the child saw no reason should 
 not Sfo on o-rowinff and afrowino; till it went out of sio-ht into 
 the sky, or like the conjuror's rod which divides and divides 
 until the pieces laid end to end seem to stretch out to infinity, 
 will on the contrary be found to be like those roads in Western 
 America described by Emerson, which opening out in wide 
 expanses and magnificent unending vistas were discovered 
 when tracked far enough to ' end in a squirrel track and to
 
 44 THE APPLIED SCIENCE OF POLITICAL ECONOMY. 
 
 run up a tree ! ' Now, that I am not misrepresenting Mill, 
 whom I have taken as the typical Orthodox Economist for my 
 purpose here, may be seen from definite pronouncements of his 
 in other passages, as where, for example, he says that ' it is not 
 the mere opening of a market for a country's production that 
 tends to raise the rate of profits ; ' or again, that even where 
 this opening of markets ' makes room for more capital at the 
 same profit, it is by enabling the necessaries of life or the 
 habitual articles of the labourers' consumption to be obtained 
 at a smaller cost/ Here then you have the difference between 
 us in a nutshell. Mill's conception is evidently that of a rod 
 or stick of wealth, whose increase will depend on as little as 
 possible being cut ofi' its end for consumption at each remove; 
 and not on the movements of a continuously running wheel, 
 where the increase will depend on the number of its revolutions 
 in a given time ; that is to say, on the amount of saving in 
 proportion to tlie possibilities of production, not on the amount 
 of coiisnrnptioii in i)roportion to the possibilities of production 
 — a toto c(jelo difference in the very fundamentals from which 
 all the laws and principles of Political Economy are to be 
 deduced ; and in reference to which I will only say in passing, 
 that should the Orthodox Economy prove to be the true 
 system after all, it will be the only instance in recorded 
 thought of a true Science being able to sustain itself on a 
 negation as a foundation. 
 
 If then the first principle of our Applied Science is that 
 Consumption and the extent of its market is not only the 
 self-moving but the controlling factor in the wheel of 
 wealth-reproduction and increase, and if our second principle is 
 that this increase is drawn from the surplus aid gratuitously 
 rendered by the powers of Nature when yoked to the wheel of 
 wealth by appropriate discoveries and inventions, and not from 
 the mere physical labour of man ; we may now advance to our 
 third principle which is, that the very savings which play so 
 important a part in the first j)rincipl('s of the Political
 
 THR APPLIED .SCIENCE OF POLITICAL ECONOMY. 45 
 
 Economists, could not possibly come out of mere Production 
 alone, as they contend, but must come out of a wheel of 
 Production and Consumption combined. But as this will open 
 up some important collateral principles which are necessary to 
 our further advance, it will be necessary that the question 
 should be carefully and thoroughly discussed. It has indeed 
 been already thoroughly discussed, and in my judgment settled, 
 by Mr. Hobson in his various economic works, but as these 
 works have been more or less ignored by the orthodox 
 Economists, I must make another attempt to raise the question 
 in my own way and from my own point of view. 
 
 The problem, then, which we have to discuss is: — Whence 
 come the savings from which the increase of wealth of one man 
 relatively to another, or of one nation relatively to another is 
 built up ? Do they come from mere Production as such, as, 
 for example, from so much corn or wine, or meat or coal or iron 
 or clothing, or what not, produced it matters not how, and 
 left to take care of themselves afterwards as best they may, 
 but from which a certain portion, the least possible, is set 
 aside for immediate consumption ; or do they in actual fact 
 come from a double-sided process in which the amount of 
 actual consumption is as definite and important a factor as the 
 mere production ; a constituent element, in short, necessary to 
 the Science, and which cannot be dropped, suppressed, or 
 otherwise shoved aside, without entailing endless fallacies in 
 every deduction drawn '? Or, to keep to our original symbols, 
 do savino;s come out of some orio-inal stick or stock of wealth- 
 products, from which more or less has been lopped off for 
 individual consumption, the remainder being carried forward 
 as savings increasing from year to year accordingly ; or do 
 these savings come, like the sparks thrown off' a grindstone 
 from a continuously revolving double-sided wheel of production 
 and consumption, where what is produced must be consumed 
 (not saved) before the savings can emerge? Now, although 
 to the man in the street it is certain that there can be no-
 
 4<5 THE APPLIED SCIENCE OF POLITICAL ECONOxMY. 
 
 savings without consumption, to the Orthodox Economists it 
 is equally certain (and they lose no opportunity of proclaiming 
 it) that they come out of Production as such alone. 
 
 To begin with, then, we may say that the mere statement 
 that there can be no saving from commodities that have been 
 merely produced, ought of itself to be a self-evident proposition. 
 For if these commodities could all be gathered into a heap, and 
 you had to save as much of them as possible, either they would 
 moulder and decay if they were articles of daily consumption, 
 or if they would keep a while, like corn or wool or cotton not 
 yet converted into articles of immediate consumption, the 
 more that was saved of them and the longer you tried to kee[) 
 them, the more would be your loss in storing and warehousing 
 them. Something more, then, must happen to them than 
 their mere production before any savings can be got out of 
 them. And what is this ? Clearly, that all alike, whether raw 
 materials or articles of immediate consumption, must be sold, 
 that is to say consumed (for no one would be foolish enough to 
 buy them if they did not intend to consume them) before any 
 savings, in the economic or any other sense of the term, can 
 accrue. In other words they must actually be put on the 
 wheel of wealth to be carried round its full circle to that part of 
 the wheel where they are taken off again and actually eaten, or 
 otherwise consumed and destroyed, before anyone concerned 
 can be said to have saved anything by their possession. If 
 they are merely produced, and by any caprice of their owners 
 are not put on the wheel, they remain mere ' dead stock,' that 
 not only cannot be saved, but can have no economic value 
 whatever, whether as ' value in use ' or ' value in exchange,' and 
 80 exist as human aberrations, the subjects of Psychology, but 
 have no place in a Science of Political Economy. Or, to put 
 it concretely, landowner, farmer, mine-owner, manufacturer, 
 wholesale merchant and retailer, must all alik(5 wait until their 
 products are taken off the wheel by being sold, consumed, and 
 as such destroyed, before any one of them can save anything
 
 THE APPLIED SCIENCE OF POLITICAL ECONOMY. 47 
 
 out of wluit they have produced. For if their products are 
 not sold, far from saving anything by this series of transactions, 
 each and every one of these various producers will lose all. 
 It is true that one or more of them may have received ready 
 cash or bills for their products before their goods were sold by 
 the retailer, and so have made themselves safe, but if the 
 retailer in turn does not sell them, and so they are not con- 
 sumed and destroyed, the result will be what t This namely, 
 that neither farmer, mine-owner, manufacturer, nor wholesale 
 dealer will get another order from the retailer. They will 
 have had their cake and eaten it, and now their turn will have 
 come. For the goods they have produced in anticipation of a 
 renewal of orders, and which are waiting to be put on the 
 wheel, will never get there, but will lie on their hands till they 
 moulder and decay. The mere fact that they have been 
 producers will not help them, and as for getting savings out of 
 these products — not savings but dead loss all round will and 
 must issue. Now I have selected this single file of economic 
 producers merely as illustration of my argument, but all we 
 have to do to make it correspond with the full complexity of 
 the economic world is to multiply and expand them until every 
 variety of manufacturer, middleman, and retailer is embraced 
 in our purview ; and then to put all these producers with their 
 commodities and services on the wheel of wealth together ; 
 not in serial order, but coming and going together as it were, 
 like the generations of human life, where births and deaths 
 alike occur at all hours, and yet the great moving mass of 
 humanity itself keeps on its steady course unbroken. But our 
 single file illustration will have sufficed to show that savings 
 can only come out of products after they are sold or consumed ; 
 in other words, only out of a continuous wheel of production 
 caid consumption, and not out of a rod or stick of mere pro- 
 duction alone. And this brings us flush on a paradox which 
 the Orthodox Economists have shirked through not daring to 
 grasp their nettle firmly enough — the paradox namely that
 
 48 THE APPLIED SCIENCE OF POLITICAL EC0N03IY. 
 
 products must die and be destroyed economically before 
 anythiDg can be saved out of them, like that old paradox of 
 the seed of corn which if it abideth alone has no increase, but 
 if it fall into the earth and die, bringeth forth much fruit. 
 Now I admit that at first sight it seems strange that a product 
 must first die and lie extinguished before savings can come 
 out of it, and I am not surprised that the Orthodox Economists 
 should strain at it, but first or last they will be obliged to 
 swallow it, and to so enlarge their economic categories as to 
 embrace it, if the laws and principles of their Science are ever 
 to correspond with reality. For in what, we ask, do these 
 savings which play so important a role in the orthodox 
 Economy consist ? They are not part of the products them- 
 selves, for these, I repeat, will not keep ; they must come, 
 therefore, out of something that will retain its economic value 
 unimpaired into the future. What, then, is this something? 
 It can only be that thing, however imperfect, which all nations 
 have agreed to accept and honour as their standard in all 
 business transactions, namely gold and silver, or their equiva- 
 lents in credit obligations which are upheld by all the force of 
 law and public opinion, and which are always and at any 
 moment translatable into gold or silver, more or less discounted 
 of course accoi-ding to the strength of governments to enforce 
 them if they are transactions between individuals, or the good 
 faith of these governments in meeting and redeeming them if 
 they are between nations. As nothing, then, but gold or its 
 credit equivalents can be saved and, other things being equal, 
 be transmitted unimpaired into the unknown ftiture (Avith one 
 exception which we shall see presently) the Orthodox 
 Economists, even when their logic was running away with 
 them in an opposite direction, ought, I venture to say, to have 
 seen what is a commonplace with every business man, namely 
 that all economic products as such must be convertible into 
 gold or its equivalents, in other words must be sold and 
 consumed, before savings can accrue. And so we come around
 
 THE APPLIED 8C1EXCE OF POLITICAL ECONOMY. 49 
 
 again to our startino; point, that it is only from a continuously 
 I'evolving wheel of production and consumption that saving, as 
 an economic idea or fact, is possible, and not from a rod of 
 mere products alone. 1 am of course aware of the difficulties 
 raised by the orthodox Economists against accepting gold or 
 silver as the final standard of value in business transactions, on 
 the ground that these, too, vary in their value relatively to 
 other things from time to time, according to the amount of the 
 precious metals thrown on the market by the discovery of new 
 mines, or from other causes. But this, in my judgment, is a 
 mere pedantry. They might as well object to Homer or 
 Shakespeare being the standards and touchstones by which to 
 estimate the grades of literary excellence, because the one 
 sometimes nods and the other is not always up to his highwater 
 mark; or object to the legs as the organs of human locomotion 
 because they vary in their efficiency according to the state of 
 the other organs of the body. Tiie truth is that gold is the 
 best standard at present available, and as the world of men 
 have agreed to accept it as ultimate, and to take chances, in 
 their bargains, of its possible future fluctuations of value, the 
 fact of these fluctuations no more impairs the truth of our 
 principle, that all savings whatever must come out of it and be 
 convertible into terms of it, than if its value always remained 
 as fixed and steadfast as the pole. And if savings can be only 
 made in it or its convertible equivalents, it follows that they 
 come not out of production alone, which is only half the 
 process, but out of production and sale, in other words, out of 
 the double-sided wheel of production and consumption.
 
 CHAPTER V. 
 
 ON FIXED CAPITAL AS SAVINGS. 
 
 A ND now for the exception which I have made to the 
 general truth that it is only out of gold or its convertible 
 credit equivalents that savings can arise. The reader will 
 already have guessed w^here we are to look for it from what 
 has already been said. It was our contention, it may be 
 remembered, that savings did not arise, as Mill thought, 
 because labour could produce more than w^as necessary for its 
 support, but that they arose out of the free gifts which the 
 powers of Nature confer on Man over and above the cost of 
 the labour spent on the soils, machines, or processes in wdiieh 
 these powers reside. If this be so, then it must follow that 
 all forms of ' fixed capital,' whether of a positive or negative 
 kind — all soils, mines, machines, factories, railways, canals, 
 roads, bridges, ships, tramways, warehouses, etc., may justly 
 take their place with gold or its credit equivalents as forms of 
 wealth out of which savings can arise, inasmuch as without 
 them less consumable wealth would be produced. Like gold 
 and credits, they too, have a relative permanence when wear 
 and tear is provided for, and can always be depended upon to 
 confer both on their owners and on the nation a free gift of 
 wealth over and above the labour spent on producing and 
 maintaining them. They are like national banks in which a 
 nation may always invest its savings, and can always be
 
 ON FIXED CAPITAL AS SAVINGS. 5L 
 
 depended upon to reproduce themselves with interest ; and 
 
 against them credits may be drawn just in the same way 
 
 (although always discounted more or less of course) as against 
 
 gold or silver themselves. Now it is necessary to observe at 
 
 this point that the savings either of a man or a nation 
 
 constitute in general no part of the wealth of the world, in the 
 
 sense in which wealth is identified with that which is desired 
 
 and enjoyed for itself alone. Gold and silver cannot be eaten ; 
 
 bank notes and credit bills can neither be eaten nor worn, nor 
 
 can they afford either warmth, protection, or shelter ; neither 
 
 can the soil or mines or fruit trees ; and less than all can the 
 
 powers of Nature embodied in fixed capital, as in machinery, 
 
 railways, canals, bridges, roads, merchant ships, etc. It is 
 
 trne tliat gold and silver may be worn as ornaments, and, what 
 
 is still dearer to the human mind, may be used as objects 
 
 conferring rank or distinction on their possessors, but when so 
 
 used they can only be counted in the category of savings 
 
 because it so happens that they can at any moment be melted 
 
 down and converted into currency. As for precious stones, 
 
 again, used for purposes either of distinction or ornament, they 
 
 too, as is seen in the wealth of Eastern potentates, are a 
 
 medium in which savings can accrne, but only so long as there 
 
 is no sudden revolution either in fashion or public taste in 
 
 these matters, as in that event they would lose that element of 
 
 relative permanency which is so essential as a bank for savings, 
 
 and might be reduced at a stroke to the worthlessness of the 
 
 pebbles on the beach. But my point here is, broadly speaking, 
 
 that national savino-s do not exist in the form of consumable 
 
 wealth, but only of such things as have the element of 
 
 calculable permanency in them : for what is consumable is in 
 
 its essence impermanent, and exists for the very purpose of 
 
 being destroyed. And now we have to observe that gold and 
 
 silver, bank notes and paper credits of all kinds, although 
 
 materia] substances, are in their nature and essence ideal and 
 
 mental rather than material, and, like mathematical symbols,
 
 52 ox FIXED CAPITAL AS SAVINGS. 
 
 get all their value from their conventional . acceptance as 
 standards ; and they get their conventional acceptance, in 
 turn, from their use in facilitating the movements of the wheel 
 of consumable commodities, alike in production, transmission, 
 exchange and consumption. In an ideal condition of industrial 
 society, therefore, where fraud was unknown and a man's word 
 was as good as his bond, they could be replaced by a purely 
 mathematical system of numbers, but not till then. As for the 
 ' fixed capital ' — soils, machinery, mines, railways, ships, etc., — 
 on the other hand, all these are purely material in nature, and 
 although they are placed on the wheel of wealth, and circulate 
 around it. it is properly only those portions of them that are 
 subject to w^ear and tear that can be classed with the con- 
 sumable commodities which are continually being produced, 
 consumed, and reproduced, on the wheel itself. The permanent 
 element in them is always the same, namely the powers of 
 Nature which they imprison and which when called upon 
 at any time they will liberate in response to the call ; as the 
 locomotive, for example, will always respond to and redeem its 
 obligations in full, as it were, and in definite calculable quan- 
 tities according to the amount of water and coal supplied. 
 ^hese permanent ^owQvs of Nature imprisoned in fixed capital 
 then, are to be figured not so much as actually on the wheel of 
 wealth production and consumption, as circulating around with 
 it, as it were, and gratuitously giving their economic services 
 at the points where they are most wanted ; in the same way as 
 the electricity in a dynamo, although supplying all the 
 economic power to the wheels of a factory or a motor car, may 
 be said to exist outside of them rather than as parts of them ; 
 they belong rather to the medium in which the wheel of wealth 
 revolves and functions, and from which it draws all its 
 strength, than to the wheel itself which without them would 
 be cold and dead. In fact, these powers of Nature embodied 
 in the ' fixed capital ' of a nation are themselves the consumable 
 products of the nation which circulate on the wheel ; only they
 
 ON FIXED CAPITAL AS SAVINGS. 53 
 
 have been tiroisforined in the process. The bread is trans- 
 formed wheat, the wheat is transformed soil, but the soil is 
 fixed capital, and the fixed capital is a power of Nature ; the 
 cloth is transformed sheep, the sheep transformed grass, the 
 grass is transformed soil, but the soil is fixed capital, and the 
 fixed capital a power of Nature. The transportation of goods 
 from one point to another, which is an essential ])art of their 
 production, is transformed motor-power, which in turn is 
 transformed steam and coal, but both locomotive and coal are 
 fixed capital and powers of Nature ; and so on with evervthing 
 which is produced and consumed in the endless combinations 
 in which they are served np. If therefore all the consumable 
 goods that are produced, circulated, and consumed on the 
 wheel of wealth are but transformed ' fixed capital ' and 
 powers of Nature, it follows that the gold and silver 
 circulating medium of a nation and the great mass of paper 
 credit obligations issued against tliem, and which are ideal 
 symbols, counters, and representatives of the wealth of a 
 nation, must be based either on the continuous stream of 
 consumable wealth, or on the total of the ' fixed capital ' of the 
 nation, but not on both. They cannot be adjusted to the 
 consumable goods, for these are temporary and evanescent and 
 as difficult to catch as fish in water, and when caught are ;is 
 difficult to hold, for they will go bad on your hands. The 
 currency and credits of a nation^ then, a.< ilUtinct from tliOKe of 
 an individual, can only be based on its ' fixed capital ' in all its 
 varying forms. To base them on fixed capital and consumable 
 goods together, would be to base them on the same thing- 
 counted twice over ; as much so, indeed, as if an individual 
 trader, say a baker, were to ask for credit first on the fiour he 
 had bought, and then on tlie bread into which he had trans- 
 formed it ; or a butcher, on the cattle, and then on the meat 
 and hides into which they had been cut up. He might get it 
 on one or the other, but not on both. It is true that each of 
 a series of producers, all handling in turn the same product,
 
 54 ON FIXED CAPITAL A8 SAVINGS. 
 
 but in different stao-es of its development — farmer, manu- 
 facturer, wholesale dealer, transporter, and retailer — can draw 
 credit advances against it, but the nation as a loJiole can only 
 issue a credit against that part of it which has a relative 
 permanence, namely the fixed capital involved in its production 
 at its several stages, as otherwise the same thing would be 
 counted as a national asset as often as it changed hands. The 
 reason that each of the series of producers can obtain credit on 
 the same thing slightly modified and added to by fresh fixed 
 capital at each stage, is because each credit as it is issued 
 extinguishes the one that went before (if all the producers in 
 the chain are solvent), until we come at last to the retailer ; 
 so that in fact there is only one credit against the commodity 
 after all ; as the candle which has lit up the rooms of a house 
 one after another and has its light extinguished in each room 
 as it passes to the next, counts only as one candle. When at 
 last the consumer buys the commodity from the retailer and 
 pays for it, that credit too is extinguished ; and so far no 
 obstruction having occurred at any point in the wheel of 
 wealth, there is nothing to slow its pace. But should the 
 commodity lie on the retailer's hands unsold, or be sold but 
 not paid for and so remain a bud debt, this obstruction to the 
 retailer's business is propagated backwards along the whole 
 series of producers engaged on the commodity, and restricting 
 the sales, is at once transmitted at each stage to the fixed 
 capital and powers of Nature emjjloyed at that stage, slowing 
 the machines, preventing the full employment of labour, and 
 so, by getting as a free gift less of the powers of Nature 
 embodied in them, slows to that extent the whole wdieel of 
 wealth of the nation, and lessens the credits that can be raised 
 on it as a working machine whose wealth- jH'oducing capacity 
 is proportioned to the speed of its revolutions per unit of time. 
 The 'fixed capital' of a nation, then, is the only permanent 
 tangible reality on which that nation //' standing alone by itself 
 in the world, could lay its hands as an asset against which gold
 
 ON FIXED CAPITAL AS SAVINGS. 55 
 
 and silver and credit notes, its ideal representatives, could be 
 advanced with security. It is the permanent reality fi'om 
 which issues the moving mass of consumable goods continually 
 reproduced on the wheel of wealth — goods which are no sooner 
 produced than they are carried around to the point where they 
 are consumed and devoured, and so, as national assets, are 
 continually cancelled and extinguished in the process. In 
 other words, the credit notes, bank notes, etc., must rest on a 
 basis of gold and silver, but the gold and silver themselves 
 must rest ultimately, and keep time, measure, and proportion 
 with the fixed capital of the nation as embodied in its soils 
 and mines, its machines, its railways and ships, its warehouses 
 and dw^elling houses, bridges and what not — always including 
 of course the loorking population. If not, the excess of credits 
 will shi'ivel into waste paper, the machinery of production for 
 the time being will stop, the powers of Nature can no longer 
 lend their gratuitous aid, and if the collapse of credit is total, 
 the wheel of wealth will come to a stop.
 
 CHAPTEK VL 
 
 A NATION'S ASSETS. 
 
 TT is necessary at this point in our deuionstration to pause 
 for a moment to see if we can find some criterion for 
 determining, in a short-liand kind of way, at wliat point in the 
 scale of Production the fixed capital of a nation, which 
 embodies the powers of Nature from which alone savings are 
 made, ends, and where the merely consumable goods circulating 
 on the wheel, and which form no part of the wealth of the 
 nation as such, inasmuch as they are already implicitly con- 
 tained in this fixed capital, begin : as the solution will enable 
 us to put our finger with more definiteness on the cardinal 
 principle of the philosophy of savings which, constituting as 
 they do the increase of wealth of a nation, must be the main 
 object of the Applied Science of Political Economy. And 
 this criterion I think we shall find in two elements equally- 
 essential ; — the one the element of relative peniuinence, in the 
 sense that the economic product will retain its economic value 
 long enough for the world-market to found practically reliable 
 predictions on it, and so be able to economically manipulate it, 
 and realise credits on it : the other, that it will be able over 
 the whole period covered by that relative permanency to 
 liberate definite amounts of the wealth-producing powers of 
 Nature when called upon : provided always that calculable 
 provision can be made for the expenses of wear and tear. Rut 
 before proceeding to this, we must first consider hf»w it stands
 
 A nation's assets. 57 
 
 with an individual trader, as distinct from the nafion (is a ivltole. 
 Now in the ordinary bankrupt assets of an individual farmer, 
 manufacturer, wholesale dealer, merchant, or retailer, you can 
 not only realise on his money, his credits, and his fixed capital, 
 but also in the case of the wholesale dealer or retailer on his 
 consumable goods, down even to his moth-eaten clothing or 
 damaged fruit, provided always you limit sufficiently the period 
 of time that is to be understood by relative permanency ; for 
 I doubt not that a Covent Garden fruit merchant, or the coster- 
 monser retailino- that fruit in some side allev. could realise 
 somethino- at least in the morning on what if not sold would be 
 quite worthless by the evening. But with a nation it is 
 different, and some light perhaps will be thrown on our problem 
 of where the fixed capital of a nation ends, and where the 
 consumption that is already included in it begins, by a con- 
 sideration of the question as to what extent the land, the 
 population of a country, and its stock of cattle, etc., figure as 
 fixed capital in different stages of civilization, and to what 
 extent not. Now in pastoral ages and among nomadic tribes, 
 where the land was unenclosed and uncultivated, and the 
 peoples that roamed over it were always striking their tents 
 and moving on, leaving the land over which they were passing 
 behind them, it was only the cattle, sheep, or other live stock 
 that could form the ' fixed capital ' in which savings could be 
 made, and on which tribal credits could be drawn, as it was in 
 these alone that the economic powers of Nature on which these 
 people could draw were centred and embodied ; while the land 
 itself, which in the natural order is the fruitful woml) and 
 mother of all this live stock, was reduced to the position of a 
 mere temporary accompaniment, as it were, without value ; so 
 teaching us that it is only in those forms of fixed capital which 
 have economic as distinguished from natural permanency that 
 the savings of a nation can be made, and against which credit 
 obligations can be drawn. In tlie ages of Slavery, again, 
 where the land is in permanent cultivation, the slaves can be
 
 58 A nation's assets. 
 
 added to the land as an element of fixed capital in which 
 savings can be made, inasmuch as they too have a relative 
 permanence in the normal period of their working lives, and 
 are as transportable from one nation to another as gold and 
 silver, as was seen in ancient Greece and Rome. Herds of 
 Cattle and flocks of sheep, again, also have a relative per- 
 manency like the slaves, and are transportable like them, and 
 are therefore to be counted as fixed capital, and as a national 
 asset can be assessed either independently of the value of the 
 land, owing to their independent reproductive powers, or if 
 included in the value of the land would give it as an adjunct 
 of fixed capital a higher value, precisely in the same way as if 
 these lands had been improved by drainage, outhouses, fences, 
 and manures. In the Middle Ages, again, when the land had 
 become the permanent home of men, and not as in the pastoral 
 ages their temporary resting place, the labouring population 
 who were bound to the soil as serfs, could be counted as part 
 of the fixed capital of the nation to which they belonged with 
 the live stock, either separately as having an independent 
 relative permanency, or lumped with it and giving it an 
 additional value as a national asset. 
 
 And now we have specially to ask, how does it stand with 
 the free Working Population of Modern Times with whom we 
 are here mainly concerned ^ Are they to be regarded as 
 an independent species of ' fixed capital ' that has to be counted 
 separately in any inventory of a nation's wealth, or are they 
 already implicitly included in it like its corn and wine and 
 consumable goods generally. The question is important, 
 inasnuich as in the theory of the Orthodox Economists the 
 working population figures merely as an appendage of capital, 
 and as already counted in it, quite as much so indeed as if 
 they were consumable goods. For it will be remembered that 
 it is one of the " fundamental propositions ' of the Orthodox 
 Economy that the working population is fed and kept and paid 
 out of capital. It is true that it is out of ' cii'culating capital *
 
 A nation's assets. 59 
 
 that they are represented as being paid for their services, in 
 the form of the food, clothing, etc., which their wages buy. 
 But as these, although called ' circulating capital,' are already 
 as we have seen included in the fixed capital of the nation, 
 none of them can be counted again as a separate asset, any 
 more than the baker's bread can be counted as well as his flour, 
 or the weaver's cloth as well as his yarn. It follows therefore 
 that the Orthodox Economists are logically bound to deny 
 that the Working Population are an addition to the fixed 
 capital of the nation, but on the contrary are bound to affirm 
 that they are a deduction from it, inasmuch as they are paid 
 out of a part of it which is specially set aside for their keep ; 
 that part of the stick, in fact, which has to be lopped off before 
 the rest of it can be fairly set down as an addition to the 
 nation's wealth. Now if 1 am right in this, nothing can better 
 illustrate the bankruptcy of the Orthodox Economy, or its 
 essential hollowness from roof to foundation. Let us consider 
 it, therefore, a little more closely. It is true, of course, that 
 the working population being at the present day free to come 
 and go as they please, the life of each one of them taken 
 separately, and the chances of his finding continuous work 
 during his ordinary working years, is much too risky an asset 
 to base any but the most limited time-credits upon ; but on the 
 other hand when taken in the mans and generalised collectively 
 as ' woi'king population,' the risks and chances of each so 
 balance and neutralise one another as to give them as a mass 
 the relative pernianence of a solid body ; and not only will 
 insurance companies advance large credits against their 
 generalised incomes, but their productive economic capacity as 
 a whole will be found to be so enormous as to form one of the 
 greatest of national assets, containing in itself as it does the 
 double requisites of a relative permanence, and of being able to 
 liberate economic powers of Nature, — those powers namely 
 which for scientific convenience we have placed under the 
 separate category of powers of Man.
 
 60 A nation's assets. 
 
 But if it still be questioned whether they are an addition to 
 the fixed capital of a nation, all hesitation on this point will be 
 removed by simply considering what a collapse there would be 
 in all Government Securities if by any chance say one half of 
 the skilled working population were swept away at a stroke by 
 a pestilence or other national calamity. And with this proviso 
 that the working population of a country must be added to its 
 other fixed capital as a national asset, and not deducted from 
 it as an expense only, as is done by the Orthodox Economists, 
 we will leave the matter for the present until we clear up 
 another aspect of it which is essential to the final conclusion 
 towards which we are working. In doing this we shall be 
 enabled as well to add another distinction to those already laid 
 down in our Applied Science of Political Economy ; and this 
 will fall most appropriately, perhaps, into its place here. 
 
 This distinction is that not only do Production and Con- 
 sumption involve the same aggregate of commodities drawn 
 from a definite aggregate amount of fixed capital, and variously 
 transformed by that fixed capital at diflTerent stages of the 
 wheel as they circulate around it, but the producers and 
 the consumers are, when economically and not politically 
 considered, the same people, and not distinct and separate 
 divisions of the population. Now the orthodox Economists in 
 many of the most important corollaries which they have drawn 
 from their original stock of first principles, proceed palpably 
 on the idea that the Producers and the Consumers of a nation 
 form two separate and distinct economic divisions of their subject 
 matter ; the capitalists in general being identified with the 
 Producers, and the mass of the working population below 
 the line of the rich and luxurious, with the Consumers. 
 But the absurdity of this view that Producers and C-onsumers 
 are two distinct sets of people, economically considered, only 
 requires to be clearly stated to be seen. For, if we consider 
 it, each man who takes his place on the wheel of wealth in the 
 morning (and if he does not do so he is either a pensioner, a
 
 A nation's assets. ()! 
 
 pauper, an invalid, an incapable, or a Government taxing 
 accent, and so is not on the economic wheel at all) must become 
 a consumer before the evening ; so that if we allow the wheel 
 to come round full circle, in order to bring all products to 
 their full completion as consumable goods, not only will it be 
 found that the producers of the morning are the same persons, 
 and not different, as the consumers in the evenino-, but that 
 their products are the same products which are consumed in 
 the evening ; the tailor and shoemaker consuming the baker's 
 products, and the baker the shoemaker's and tailor's, and all 
 alike producing and consuming each other's, whether they are 
 engaged in farming, in manufacturing, in wholesale dealings 
 transporting, or retailing. 
 
 Now what is the reason for this obstinate persistence of the 
 Orthodox Economists in perpetuating the delusion of the 
 Producers and Consumers being two different sets of people I 
 It is because they have mixed up Practical Politics, which is 
 subject to no law but expediency or force, with Political 
 Economy. Because for j)urposes of taxation, or as a lever for 
 obtaining for the workmen or the capitalists, as the case may 
 be, a larger share in the products of industry, they have been 
 in the habit of dividing the population roughly into a class of 
 consumers, the working class and the poor, and a class of 
 producers, the capitalists, the manufacturers, the middlemen, 
 and the rich generally ; because of this, I say, they have slid 
 unconsciously into the belief that as this division can be made 
 for political purposes, it can also form a natural division in the 
 subject-matter of Political Economy. But this is a prime 
 fallacy, a confounding of Politics and the distribution of 
 political power with the special Science of Political Economy 
 as such and its laws ; and any argument based on it as an 
 integral part of the Science of Political Economy must lead to 
 endless error in theory as well as to endless mischief, as we 
 shall presently see, in pi'actice. It does not follow, for 
 example, that because you can put a tax on a commodity or
 
 62 A nation's assets. 
 
 person — on landlords, or tenants, on capitalists or labourers, on 
 luxuries or necessities, on drink, newspapers, credit notes, 
 armorial bearings, dogs, matches, or what not — that these may- 
 all be regarded, as one might be inclined to think, as separate 
 items of the nation's income. It is true that they all represent 
 the incomes of individuals^ but so far from being all alike 
 elements in the nation's income, it is more than probable, as we 
 have seen from our discussion in a preceding chapter, that one 
 half are already included in the other half, and that the real 
 income and savings of the nation are being taxed over and 
 over again ; quite as much so, indeed, as if you added to the 
 list, taxes also on red-haired people or on dark, on those over 
 six feet high and those under, on the very old or the very 
 young. For taxation as such belongs to the domain of Politics 
 and of Political Power, and is as capricious and unpredicable 
 as the weather or the seasons, and has in consequence no more 
 to do with Political Economy as a Science than highway 
 robbery has to do with legitimate business. It concerns 
 Political Economy only when the question is asked as to what 
 effect this or that tax will have in accelerating or slowing the 
 wheel of wealth ; in the same way as oil or sand only touch the 
 science of Mechanics when it is asked what effect they will 
 respectively have on the movements of a machine when inserted 
 between its wheels. In saying this, I am not holding a brief 
 for Political Economy as an academic specialism ; on the 
 contrary it is one of the main objects of this work, as will 
 appear in future chapters, to enforce the doctrine that when 
 you come to action you can no more cut Political Economy 
 as an academic specialism out of the living tissue of Civiliza- 
 tion as a whole, or general Sociology, than you can Psychology, 
 Politics, Ethics, or Morality. 
 
 Summing up so far, then, we may say that while the individuals 
 that make up a nation can accumulate savings and increase 
 their wealth out of any and every economic commodity, whether 
 it be o-old, or credit notes, or fixed capital, or consumable
 
 A nation's assets. 63 
 
 goods, or slaves, or cattle, old clothes, damaged fruit, refuse, 
 and even excreta ; and while taxes may be raised on all these 
 and on every quality, condition, and class of person as well ; 
 the savings of a nation as a lohole, if it stood alone by itself in 
 the world, and therefore, of the -world itself conceived as a single 
 tvhole, could only come out of, firstly, those forms of fixed 
 capital which, when wear and tear are provided for, possess 
 the economic attributes of permanency, and of emitting 
 economic powers as free gifts over and above the human labour 
 spent on them ; and secondly, out of the entire labour and 
 skill of the Working Population engaged in production, as 
 embodying that subdivision of these powers of Nature which 
 we have placed under the category of powers of Man. But 
 with this proviso, that all consumers shall be regarded as 
 producers as well ; for all who are not such, are a tax on the 
 national savings, and like the sick, the aged, and the incapable, 
 are the subject-matter of Politics and Legislation and are not 
 properly speaking on the wheel of wealth at all, as subject- 
 matter for the Science of Political Economy. On the other 
 hand we have seen that the other half of the wheel which deals 
 with Consumption, and comprises the entire aggregate of 
 consumable goods which are continually issuing from this fixed 
 capital of a nation and its population of workers, is already 
 implicitly contained in the fixed capital, the inventor's genius, 
 and the workmen's skill, being but transformations of these 
 into consumable forms ; and so cannot as a national asset (on 
 our present assumption that a nation stands alone in the world) 
 be counted twice over. But as no nation really does stand 
 alone in the world, but only exists side by side loith other nations 
 with whom it is in trade relations, we now find ourselves 
 confronted with a series of fresh complications more involved 
 than ever, and which will require a fresh series of chapters to 
 elucidate them and to draw them out into separate skeins, 
 before the process of generalising the whole and reconstructing 
 it in terms of our symbol, the wheel of wealth, can begin. To
 
 64 A nation's assets. 
 
 these fresh aspects of our subject, then, we have now to address 
 ourselves. But we cannot do so with effect until we have 
 settled the question as to how gold and silvei', credits, bank 
 notes, etc., relate themselves to our wheel of wealth, and where 
 they are to find their proper place on it or around it ; as well 
 as the more important question of whether in a nation standing 
 by itself (or the world as a single whole) they are to be added 
 to the nation's (or the world's) assets, or are already included 
 in its fixed capital and its working population.
 
 CHAPTEE VII, 
 
 ON MONEY. 
 
 1 F only the orthodox Political Economy could be got rid of 
 altogether, and could be laid on the shelf once and for all, 
 like the theory and practice of perpetual motion scheming 
 which, as we shall see later, it so much resembles, but which 
 the Physicists and Mechanicians have fortunately no longer to 
 consider before they can set to work, the reconstruction of the 
 Science of Political Economy would be a comparatively simple 
 affair, and would not give us much trouble. But as this 
 unfortunately is not so, and as the old Economy still lives and 
 flourishes in academic liaunts, perpetuating itself there from 
 generation to generation, and by its subtle interfusion of 
 Politics and political Power at every point, infecting the mind 
 of each ueneration in turn with its fallacies and illusions, like 
 old Theology, so that they neither really believe in it, nor yet 
 dare altogether repudiate it, it is necessary for us to chase 
 these fallacies from point to point until we run them separately 
 to earth, in spite of the tax which we must put on the readers 
 patience in the j)rocess. Now one of the major illusions of 
 this kind, which has been fraught with the most disastrous 
 and far-reaching consequences, as we shall presently see, is 
 that the Economists have constructed their Science which 
 professes to be true for the world as a whole, or for a nation as 
 a whole, from the practices which regulate and determine the 
 increase of wealth of individuals. But before we can grapple 
 
 F
 
 66 ox MONEY. 
 
 with this fallacy successfully, as we hope to do in a later 
 chapter, it is necessary to clear the ground for it as far as 
 possible. And as Ave are still engaged in considering what 
 the laws of the Applied Science are for a nation standing alone 
 in the world, and especially in trying to determine what things 
 in a nation so situated are to be regarded as part of its fixed 
 capital from which its savings, and so its increase of wealth 
 are drawn, and what are to be classed under the category of 
 consumable goods already implicitly included in that fixed 
 capital, it is necessary to consider more closely than we have 
 vet done a question still remaining over, namely as to where 
 ])recisely and under what category are to be placed such 
 instruments of exchange as gold and silver, bank notes, credit 
 notes, etc.; and to what extent in a nation standing by itself 
 they are to be regarded as an addition to the Avealth of that 
 nation. The point is a more or less complicated one, and each 
 aspect of it will require to be threaded out separately. 
 
 Now gold and silver in themselves, when regarded like other 
 metals for their use in the arts, or when sought after as 
 ornaments for the person, are of course simply commodities 
 like other consumable goods circling around the wheel of 
 wealth, and are already implicitly counted in the fixed capital ; 
 and their value follows the ordinary laws of value in general. 
 But it is different Avhen we regard them as part of the currency 
 and recognised medium of exchange of a country. In this 
 capacity their position is a somewhat ambiguous one, like the 
 position of the amphibians in the animal kingdom, which 
 belong neither altogether to the water nor to the land; they are 
 neither altogether on the wheel of wealth nor altogether off it ; 
 they neither altogether follow the general laws of the wheel nor 
 are they altogether exempt from their influence ; they are 
 neither altogether fixed capital nor altogether consumable goods 
 implicitly contained in that capital. In a sense they have to 
 be counted as capital, inasmuch as without them the consum- 
 able ffoods on the wheel would no more get circulated than if
 
 ON MONEY. B7 
 
 there were no railways, bridges, or canals, but only the ordinary 
 facilities of the wandering and circuitous turnpike roads. But 
 railroads, bridges, and canals are parts of the fixed capital of a 
 country, and are, by their saving of time (and so accelei'ating 
 the speed of the revolutions of the wheel), a definite asset and 
 addition to the wealth of a country. In that sense, then, gold 
 and silver as circulating medium may be said to be quite as 
 much as the railways and canals a part of the fixed capital of a 
 country. But they are not fixed capital in the sense that the 
 more yon increase them the more wealth will you liberate, and 
 the more you decrease them the Jess wealth will you produce to 
 be consumed and enjoyed. On the contrary if you increased 
 them Old of proportion to the rest of the fixed capital, they 
 would only lose their value. On the other hand, if you had 
 no gold or silver currency at all, but still retained your other 
 forms of fixed capital, although owing to the obstruction to the 
 circulation of commodities the wheel as a whole would slow 
 and wealth decrease, still you could manage to get on some- 
 how, better or worse, with some form of barter, whereas you 
 would starve on a mountain of gold as quickly as on a granite 
 Alpine peak. 
 
 But money has another function still more important than 
 its function as a means of circulation and transport, like that 
 of a railway or canal. It is the statidard or measin'e of value as 
 well, of all other commodities whatever, whether fixed capital 
 or consumable goods, and without it nothing but chaos and 
 waste of wealth through waste of time would ensue. Things 
 would rot before they got apportioned, and would lie helpless 
 in a iiCap, as a corn crop would, for example, if you had to 
 count its separate grains on your fingers, instead of in definite 
 weights or measures of capacity by the rules of arithmetic, 
 before it could get distributed ; or as the bricks of a house 
 would if you had no standard of measurement to mark out 
 where and in what relation to each other they were to be 
 placed in building operations.
 
 6<S ON MONEY. 
 
 But would it not be better If we classed money under the 
 category of consumable goods, If we cannot get It strictly to 
 fall under that of fixed capital ? Yes, and No. On the one 
 hand it resembles consumable goods inasmuch as, unlike fixed 
 capital, It is actually on the wheel of wealth, and circulates 
 around it ; and passes from hand to haml like other consumable 
 goods. Like consumable goods, too, If Its circulation is 
 impeded from any cause, as panic for example, it will slow the 
 movement of the whole wheel by preventing the full utilisation 
 of the fixed capital, and, in consequence, of the free economic 
 gifts of the powers of Nature which that fixed capital can, 
 according to its capacity, liberate at all times when called upon. 
 But on the other hand, again, while consumable goods in the 
 aggregate cannot be Increased too much. Inasmuch as they 
 constitute the very wealth itself which is the end and aim of 
 all production ; money, in a nation standing alone by itfielj\ if 
 increased beyond a certain amount would not only not Increase 
 wealth, as we have seen, but if produced in any great excess 
 would rather, by the extra labour involved In Its production 
 and circulation, diminish It. It dlfi"ers, again, from consumable 
 woods Inasmuch as althouoh both circulate from hand to hand 
 on the wheel, the consumable goods as such exist to be con- 
 sumed and destroyed, whilst the money as such must not be 
 destroyed or it will have failed In Its object which is to lose as 
 little of Its weight as possible by consumption or wear and 
 tear ; Indeed It Is owing to their relative fixity, immutability, 
 and permanence, that gold and silver have been chosen for the 
 double purpose of a means of exchange and a standard of value. 
 And above all, while the other consumable goods constitute 
 the real wealth of Individuals, money which can neither be 
 eaten nor worn, nor otherwise made use of for either the 
 sustenance, the preservation, or the comforts of life. Is not real 
 wealth at all. 
 
 And so with all these diflferences from, and resemblances to, 
 both fixed capital and consumable goods, the question still
 
 ON MONEY. 69 
 
 recurs as to where definitely we are to place it. Being neither 
 altogether outside the wheel, like the fixed capital, nor yet 
 altogether on it and circulating around it like consumable 
 goods (for its function as a standard of wealth places it as 
 much outside the circulating wealtli itself as a yard measure is 
 outside the thing to be measured), I am afraid we shall have 
 to put it in a separate compartment of its own. It is to be 
 regarded rather as a necessary adjunct of the fixed capital of a 
 nation than as any true addition to it : or if it is an addition, 
 it is of a negative character rather than a positive, like the rail- 
 roads and waterways which do not increase wealth by their 
 purely productive powers, but only by their negative services in 
 the saving of time necessary to get the goods into the hands 
 of the consumers. But as money actually and in fact does 
 quicken the movements of the wheel, this fact of its being a 
 negative instead of a positive element in wealth production 
 might be dismissed as a mere pedantry, were it not that it 
 cannot be increased beyond a certain amount, without having 
 a negative or even contrary effect. And thus it is to be 
 regarded in its essential nature rather as a necessary adjunct of 
 wealth than as wealth itself, as the pebbles in the stomach of 
 a fowl are a necessary adjunct to the digestion of its food, but 
 not part of the food itself. 
 
 Strictly speaking, money, like the order of tlie amphibians 
 in biology to which we have compared it, belongs as much to 
 the province of Sociology as it does to that of Political 
 Economy, and may be said to enter into the domain of wealth 
 production from loithout as a beneficent accessory to smooth 
 the running of its wheel, much as a piece of beneficent 
 legislation might do, rather than to be an elemental essential 
 of wealth itself. And the reason, I think, is this, that in the 
 evolution both of Society and of Economics, the place and 
 function of money would seem to be a provisional and 
 transitional one, lying as it does between the age of barter, 
 when it was not used, and the millennial state when it will be
 
 70 ON MONEY. 
 
 superseded and no longer wanted. In the earliest times, it is 
 probable that the distribution of the ordinary necessaries of 
 life was a matter of fixed custom or tribal arrangement, and 
 was performed without the aid of any form of money at all, 
 while what was afterwards to become money — shells, furs, 
 curious stones, or what not — were ornaments of the person 
 rather, conferring dignity, honour, and distinction, much as 
 ribbons, orders, insignia, and titles do now ; and only used as 
 money for the settlement of inter-tribal obligations ; and so 
 belonged as much to the sphere of Politics and Sociology as to 
 that of Political Economy. In the millennial society of the 
 future, on the other hand, it is probable that there will be 
 some more equitable standard for the distribution of honours 
 and rewards of all kinds, material as well as moral, political, 
 and social, than the amount of mere money or bank credits 
 Avhich men, or classes of men, have managed either like robbers 
 to seize, like misers to hoard, or like exploiters to cunningly 
 divert to themselves through political and legislative power 
 or the mingled operations of religion and fear. But in the 
 j)resent transitional stage of human development and evolution, 
 Money in a negative way is as real and necessary an element 
 in the production and increase of wealth as railways, roads, and 
 waterways. In a negative way, I have said, inasmuch as its 
 function, being still as nmch political and social as economical, 
 is rather to regulate the distribution of wealth between 
 individual and individual, than to create it ; resembling io this 
 the function of courts of law, which do not create the social 
 and moral values of individuals, but regulate and redistribute 
 them when these individuals fail to play the social game fairly. 
 Indeed w-ithout money, wealth and its distinctions would 
 become an endless bone of contention between the individual 
 members of a Political State, and would be at the mercy of 
 the most unjust, the most brutal, and the most disorderly 
 elements of the population ; much of the wealth of a society 
 would decay or become useless while men were squabbling and
 
 ON MONEY. 71 
 
 fighting for its possession ; and not only would the wealth of 
 the nation decline in consequence, but its sense of justice^ its 
 code of morality, and its social standards and ideals as well ; 
 all of them the most delicate and highly cultivated flowers 
 which civilization has reared from the wild stock of the brute 
 aboriginal world, and which require the most assiduous care 
 and attention if they are not to revert to their wild state again. 
 Summing up, then, we may say that it a nation stood alone 
 by itself, or, which is the same thing, if the world is to be 
 regarded as a single economic whole, gold and silver money 
 are not to be counted in the national assets from which savings 
 can be made and wealth increased, in the same sense in which 
 the soil and mines, inventions and processes, and the industrial 
 skill of the population can be counted ; inasmuch as although 
 they have our first prerequisite of all savings, namely relative 
 permanency, they are wanting in our second, namely those 
 powers of Nature which, as free gifts to man over and above 
 the labour involved in the machinery of all kinds necessary to 
 capture them and yoke them to his service, are the source of 
 all increase of wealth. For all practical purposes, therefore, 
 we may regard them as implicitly included with consumable 
 goods in the fixed capital of the nation, as a kind of natural 
 lubricant, as it were, secreted by that fixed capital for the 
 oiling of its machinery, but in quantities strictly limited to the 
 purpose ; like the natural oil which the water-fowls secrete to 
 facilitate their movements through the water. In our next 
 chapter we shall see that the same holds true, but to an even 
 greater extent, of credits of all kinds — bank notes, bills of 
 exchange, cheques, notes of hand, etc., — always premising that 
 we are dealing either with a single nation isolated, or with the 
 world as a single economic whole. In the normal case of a 
 nation existing side bi/ side with other nations, and in trade 
 relations with them, the gold and silver which are the 
 immediate desire of all hearts as the standard and measure of 
 economic wealth the world over, and not merely its circulating
 
 72 ON :m()xey. 
 
 mediurti, must be added to the fixed capital and the working 
 population as part of the nation's assets, inasmuch as it can 
 draw to that amount on the wealth of other nations at all 
 times, and convert that wealth into an addition to its own 
 either in the form of fixed capital or consumable goods at its 
 discretion. And the same is true of all credits held against 
 other nations and redeemable in silver or gold. In our next 
 chapter we shall consider the function and mechanism of 
 credits in detail.
 
 CHAPTEE Yin. 
 
 THE MECHANISM OF CREDIT. 
 
 ^TT'b^ may begin this chapter by reniarking- that if all the 
 world were absolutely honest, and each man in it could 
 foresee with accuracy the quantity of economic wealth that 
 would issue from the industrial enterprise in which he was 
 engaged, it is probable that mere paper currency and credit 
 acknowledgments would not only partially as at present, but 
 entirely supersede the necessity of gold or si her as a medium 
 of exchange, and that some purely numerical unit, as Mr. 
 Kitson has suggested, would replace both of these metals as a 
 standard and measure of value for all commodities whatever. 
 But as, unfortunately, at this stage of civilization neither the 
 requisite amount of honesty nor yet of economic penetration 
 and foresight is forthcoming, these paper transactions must 
 still continue to rest on some material tangible commodity, 
 like gold or silver, in which they are redeemable, as linal 
 security for men's economic hopes and fears, and as guarantee 
 at once for the intelligence with which the enterprises have 
 been undertaken and for the good faith on which liabilities 
 have been contracted. If this be so, it would seem to follow 
 that however many of these paper credits were issued and set 
 flying in the economic sky as a uiedium of e.vchauge for the 
 consumable oroods that are in continual circulation from hand 
 to hand around the wheel, all would go well, provided always
 
 74 THE MECHANISM OF CREDIT. 
 
 that like paper kites they were each attached to the earth, as 
 it were, by some controlling string, and bore a definite relation 
 primarily to the gold but ultimately to the fixed capital in 
 actual operation turning out the products on the expectation 
 of which the credits were issued. Now were there nothing 
 but gold in the nation as the medium of exchange, nothing 
 could go wrong, for the aggregate amount of the gold would, 
 by the tariff of values or prices of commodities, coerce the 
 aggregate of fixed capital into keeping step and balance with 
 it ; inasmuch as being the standard of value as well as the 
 medium of exchange all other things must be measured in 
 terms of it, and not it in terms of them. The only difficulty 
 of a pure gold currency would appear when the consumable 
 goods which issue from the fixed capital, have to be circulated 
 from hand to hand among the millions of separate individuals 
 that make up the nation, and when coins have to be found to 
 effect the tens of millions of exchanges which make up the 
 process. For then it would be found that unless you could 
 divide up your gold into quantities and denominations sa 
 minute that they could be used for purchase or sale in the 
 smallest retail transactions, the wheel of circulation would be 
 obstructed on the side of consumption. And as we have 
 already seen that an obstruction to any one side or aspect of 
 the wheel must slow the whole wheel, the consequence would 
 be that with a lessened ' turn over ' in the retail shops, pro- 
 duction itself would be lessened also, and the wealth of the 
 nation as a whole would decline. To meet this difficulty, 
 accordingly, silver and the baser metals, down even to the 
 copper farthing, with their amounts strictly limited as legal 
 tender, and all of them bearing a fixed and unalterable relation 
 to gold, answer admirably in all the ordinary daily transactions 
 of life. But as the business transactions of a nation become 
 increasingly complex, subdivided, and minute, and the saving 
 of time in the handling of this multiplicity and complexity 
 becomes of increasing importance, no money coins or combina-
 
 THE MECHANIS^M OF CREDIT. 75 
 
 tion of coins can be rapidly enough got together to cope with 
 them, or can be sufficiently flexible and expansible to meet 
 emergencies of which time is the very essence. Something 
 more readily accessible, flexible, and manipulable than metallic 
 coin is necessary to negotiate transactions when all commodities 
 are on the loom of time at once, and when their quick-change 
 transformations admit of no delay. Chances, anticipations, 
 forecasts, and time calculations must therefore be made and 
 taken on all hands, and by all the parties concerned, if the 
 wheel of wealth is to speed its revolutions, and the wealth of 
 the nation to be increased. To meet this new economic want, 
 accordingly, some other symbol must be found for the transfer 
 of wealth, something which has neither to be dug out of the 
 mines, like gold or silver, before business transactions can 
 begin, nor to be gathered in driblets from those who happen to 
 have it in immediate possession. An effective expedient for 
 peoples who could write and had convenient materials at hand 
 to write on, as well as safe places of deposit for these writings 
 when executed, was found in ' promises to pay ' scribbled on 
 pieces of paper and enforced by all the power of the State. 
 And accordingly, in the modern industrial world from the 
 time that commodities issue from the storehouses of fixed 
 capital in the soil, mines, factories, and workshops in which the 
 economic powers of Nature reside, and are placed on the 
 wheel, they are attended at each change of ownership on their 
 way around it by flights of these paper credits of all kinds — 
 bank notes, bills of exchange, cheques, notes of hand, etc., — 
 corresponding to the transmutations and changes of ownership 
 of the material commodities which they represent. In their 
 aggregate, and when seen from a sufficient distance where 
 their details are lost, they form a kind of fluid elastic medium 
 surrounding the grosser material commodities on the wheel, as 
 the air surrounds the earth, and move around this wheel 
 as much more easily and freely as do the birds in the air than 
 the beasts over the earth.
 
 76 ' THE MECHANISM OF CREDIT. 
 
 Now the first effect of this disphicement of gold and silver 
 by paper credits is that the rapidity with which these pass 
 from hand to hand sets up a corresponding rapidity in the 
 circulation of the material commodities themselves to which 
 they correspond, and against which they are drawn, inasmuch 
 as without them, these commodities would come to a stand-still 
 at each point in their course, like carriages on a railway siding, 
 until the gold which wns necessary to book them through and 
 pass them on was forthcoming. And so by the stimulus given 
 to the circulation of every commodity on the wheel, the 
 revolutions of the wheel as a whole in a given unit of time 
 are accelerated, and the wealth of the nation as a whole 
 projjortionately increased . 
 
 With the above preliminaries we are now brought to the 
 very nodus of the problem which we are to discuss in this 
 chapter, namely as to the law or principle which is to guide us 
 in fixing the point to which these paper credits may be 
 multiplied and extended with positive advjintage, and beyond 
 which a further extension of them can only work mischief or 
 end in financial crisis and disaster. 
 
 The first point we have to notice is that every commodity 
 that is put on the wheel of wealth can have a credit note 
 drawn against it at the start, and an extra one, and for a 
 greater amount, if it forms a link in a process of manufacture, 
 like flour from wheat, every time it changes hands, until it is 
 finally taken off the wheel at the retailer's, and consumed by 
 his customer. And further, that so long as the consumer pays 
 the retailer for the goods he has bought, it matters not how 
 many of these credit notes are contracted and accumulated by 
 these goods on their way ; for the retailer will then be able to 
 pay the merchant, the merchant the manufacturer, and the 
 manufacturer the farmer or mine owner ; and the whole 
 accumulated credits which have been hung around one and the 
 same commodity like a hive of swarming bees around their 
 queen, will be detached and extinguished one by one in turn
 
 THE MECHANISM OF CREDIT. 77 
 
 until none are left. So far this is what is called leglthnate 
 business ; and the only effect of having- added these paper 
 credits to the metallic currency and used them alongside of it 
 as an addition to the circulating medium of the country will 
 be one of pure gain, for they will have brought commodities all 
 the more quickly from the fields, the factories, the workshops, 
 or the mines where they were produced, to the point where 
 they were wanted for consumption, and so by the saving of 
 time involved, will have accelerated the movement of the 
 wheel and increased the nation's wealth ; these lightly blown 
 and unsubstantial gossamer-like credits which in themselves 
 are of no more intrinsic value than that of the ink and the 
 paper on which they were written, having through their 
 industrial and economic effects in speeding the circulation of 
 commodities, a value as substantial as the material ships, rail- 
 roads and waterways themselves ; the only difference being 
 that while the credits, like ordinary railway tickets, are good 
 only for the different stages of the /)aW^c^</ar journey for which 
 they are issued, the railroads and ships having the relative 
 permanency of fixed capital are good for all the stages of all the 
 journeys of all the commodities that pass over them. But if on 
 the other hand we assume, for the nonce, that the consumers 
 of a nation do not pay the retailers, the retailers in turn will 
 not be able to pay the merchants, the merchants the manu- 
 facturers, nor the manufacturers the farmers or mine owners, 
 and the consequence will be that the wheel of wealth will have 
 to start on its next revolution with the added load of 
 unredeemed and unextinguished paper credits clinging like 
 dead weights around the fresh supply of commodities newly 
 issued from the soil, the workshops, and the looms ; the credits 
 which before were like the engine attached to the train of 
 goods to help them along, being now like an added load of 
 empty carriages obstructing its running. It is of course true 
 that as the consumers in general, as we have seen, are the same 
 persons as the producers, there is no reason in the ordinary
 
 78 THE MPXHAMSM OF CREDIT. 
 
 course of things why they should not be able to pay their 
 retailers, inasmuch as being all at work by the hypothesis, they 
 are all in receipt of the money wages and other incomes to do 
 it with ; and besides, the law of contract is always at their side 
 like a policeman to compel them to do it if necessary. But if 
 from some widespread and unexpected industrial calamity 
 whether personal or national, great masses of them were unable 
 to do so, still the impetus given to the speed of the wheel 
 by the paper credits when in due and normal quantity will 
 have o^iven it such an increase of momentum as will enable it 
 like a railway train at full speed to carry a greater freightage 
 and excess of these credits, and to a greater distance beyond 
 the point of difficulty and obstruction, than if it had been 
 moving more sluggishly ; and will, unless the calamity be too 
 long continued, make comparatively little appreciable difference 
 in the speed of the wheel. The old batch of unredeemed 
 credits will, so long as the fixed capital is still kept running, be 
 spread thinly and evenly over a number of revolutions instead 
 of being heaped up around one, and so will be gradually 
 redeemed and extinguished Avithout any violent perturbation 
 or crisis in trade. But this of itself, it is to be observed, 
 would not be sufficient to protect a nation for long from serious 
 economic disturbances and joltings, even in the ordinary course 
 of legitimate credit business, Avere it not for a special mechanism 
 which exists to ensure the smooth and easy working of the 
 wheel ; and to this we must now give a word of passing notice 
 before we can proceed to other aspects of the credit problem. 
 
 On the centre or axle of the wheel of wealth, from which 
 every side and aspect of it can be surveyed, stand two groups 
 of dealers, the one with their eyes fixed on the material 
 commodities circling around it, and the other on the fluid 
 atmosphere of jyaper credits which attend these commodities 
 and surround them, as we have seen, as a more rarefied medium 
 of motor industrial power. The first group is composed of 
 the dealers on the Corn Exchange, the Coal Exchange, the
 
 THE MECHANISM OF CREDIT. 79 
 
 Iron and Steel Exchange, the Cotton Excliano-e, and the rest ; 
 and their function is to ascertain as accurately as possible the 
 amounts of the special commodities in which they deal which 
 are being thrown on the productive side of the wheel from the 
 reservoirs and laboi'atories of fixed capital — the cornfields, the 
 mines, the mills, factories, and workshops — and what amounts 
 of these are being taken off on the other side of the wheel by 
 the consumers as these commodities are successively trans- 
 formed on their wav round into the actual food, clothino-, and 
 other articles of necessity or luxury on which the population 
 lives. 
 
 The other group of dealers on the axle comprises the great 
 financiers, bankers, bill-brokers, and stock-exchange specu- 
 lators, who keep their eyes on the one hand on the issues of 
 paper credits of all kinds, and on the other, on their periods 
 and modes of payment, and the extent to which they are being 
 redeemed and extinguished. And the two groups are so inter- 
 connected that nothing of importance can occur in the one but 
 is quickly communicated to the other. Now when the dealers 
 in the real commodities ascertain that consumption is likely to 
 fall off from any cause whatever — whether political, social, or 
 economic — they know well, what the orthodox economists 
 ignore, that the productive side of the wheel must slow down 
 to adapt to it. On the other hand should the consumption of 
 commodities give signs of increasing, they know that the corn- 
 fields, the mines, and the workshops will be stimulated to the 
 utmost to keep up with this prospective increase in consump- 
 tion. But they do not wait for the producers to find all this 
 out for themselves. On the contrary they do it for them by 
 the tariff of market prices which they chalk on the blackboards 
 of their several Exchanges, and hoist in advance like storm or 
 fair weather signals, whereby all the producers concerned in 
 working the fixed capital of the nation may know when to 
 extend their operations and when to contract them, when to 
 take more corn or cotton land into cultivation, when to open
 
 80 THE MKCHANISM OF CREDIT. 
 
 new mines or to increase the output from old ones, or to build 
 new machinery, warehouses, or railways, and when on the other 
 hand to leave them as they are, to contract them, or to let the 
 least productive and profitable of them fall altogether out of 
 use. In this way the dealers on the Corn, Cotton, and other 
 Exchanges for commodities perform (although for private gain) 
 a public function similar to that of the governor valve of an 
 engine ; they steady the revolutions of the AVheel of Wealth 
 through their tariff of market prices, by adjusting the 
 productive side of the wheel to the consumption side ; and so 
 prevent the waste or destruction of wealth which would result 
 if more were produced than could or would be consumed, or 
 the inconvenience and expense that would ensue if less were 
 being produced than was required. 
 
 Now with this delicate and sensitive mechanism for the 
 accurate adaptation of Production to Consumption, it is not 
 likely that in the course of ordinary business any great crisis 
 can occur when there are no revolutionary inventions or 
 discoveries looming on the horizon, and when no new and 
 colossal industrial speculative enterprises whose future is 
 uncertain are being suddenly flung on the world. But it so 
 happens that among the group of bankers, financiers, and other 
 credit dealers whose legitimate public function, (although 
 pursued as we have said for private gain), is to steady the 
 movement of the wheel, are a number of dealers, company 
 promoters, stock exchange speculators, and others, who deal in 
 and issue paper credits on the faith of industrial enterprises 
 not yet begun, and the outcome and results of which lie still 
 ' on the knees of the gods ' in the distant or unknown future. 
 Now these men, although, like all the dealers in paper credits, 
 nominally the lackeys and dependents of the real producers 
 who make the wealth of a nation, succeed in only too many 
 instances in becoming their masters, by taking advantage of 
 their own economic position to usurp new and dangerous 
 functions — like those eunuchs at the courts of the Koman
 
 THE MECHANISM OF CREDIT. 81 
 
 Emperors who by tlieir flatteries drew on their imperial 
 masters to new designs, beneficent or otherwise, when the 
 actual necessities of the world they controlled would otherwise 
 not have stirred them in their imperial seats. 
 
 By highly coloured prospectuses and other commercial 
 cajoleries, these dealers seduce not only the legitimate credit 
 dealers and the legitimate dealers on the Exchanges tor real 
 commodities, but landowners, mine owners, manufacturers, and 
 the other classes engaged in production, into industrial enter- 
 prises whose issues in many, if not most, cases cannot by any 
 possibility be foreseen by any individual or class of men 
 whatever. 
 
 Now it is only in connection with these paper credits based 
 on ftitnre and unknown contingencies, that any opening for 
 ofreat financial crises and disasters can arise, — and this for two 
 reasons. In the first place, in ordinary credit as in ordinary 
 cash transactions, the actual goods nmst be delivered before the 
 paper credit obligations are contracted ; but in credits based 
 on undertakings not yet begun, and where the commodities 
 which it is ho])ed they will produce have as yet no existence — 
 as for example in joint stock enterprises formed for the opening 
 up of new mines, reclaiming new lands, building railways for 
 the opening up of new countries, or manufacturing new and 
 as yet untried classes of goods ; — in all these cases, on the 
 contrary, the credits must be advanced before the goods are 
 delivered ; and as these credits are converted into money, either 
 before the works are undertaken or during the course of their 
 construction, and so cannot be redeemed until these works are 
 finished and the commodities on the strength of which the 
 credits were drawn are actually produced, the consequence is 
 that for the time being they are a pure addition to the already 
 existing swarm of credits circling around the wheel. And as 
 result, one of three things must happen. Either the enterprise 
 proves successful and justifies by the commodities it produces, 
 or the services it renders, the expectations formed of it ; in 
 
 G
 
 82 THE MECHANISM OF CREDIT. 
 
 this case all will be well, the recei[)ts will be used to redeem 
 and extinguish the credits, and the pi'omoters will deserve well 
 of their country by their foresight and enterprise in opening 
 up new and hitherto unutilized sources of wealth. Or, on the 
 other hand, the money which should have been spent in 
 opening up the mines, in reclaiming the land, or in paying for 
 the maclu'ncry and labour, is diverted to other purposes, is 
 fraudulently wasted in the personal expenditure of the pro- 
 moters, or sunk in experiments from which, as from a dry well, 
 nothing issues ; in this case the credits remain unredeemed, 
 and instead of facilitating (as legitimate credits which are 
 based on actually existing commodities do) the production and 
 consumption of the wealth of a nation, they hang like added 
 millstones around its neck. Or, as a third possibility, the 
 undertaking is completed, the goods turned out in quantity 
 and quality corresponding to the promises held out in the 
 prospectus, but the consuming public from some sudden 
 revulsion of feeling, or caprice of taste or fashion, will not 
 have them at any price, or only at a price insufficient to pay 
 the expenses of the undertaking ; in this case the result will 
 be the same as in the former, the credits either wholly or in 
 part will remain unredeemed, and instead of helping on the 
 circulation of the rest of the commodities on the wheel will 
 obstruct and clog its movement. 
 
 But the main reason why financial crises of national 
 majjnitude can onlv occur in connection with credits issued on 
 the faith of new enterprises not yet begun or completed, is 
 that there is no scientific function or mechanism as yet 
 existing for their control, such as is performed by the great 
 dealers and financiers on the axle who are responsible for the 
 [)unctual delivery both in amount and quality of the 
 commodities actually on the wheel, — always barring, of course, 
 accidents and disasters which are in the hands of fate and are 
 not subject to human control. And the consequence is that 
 all these new industrial ventures, the realization of whose
 
 THE A[ECIIANTSM OF CREDIT. 83 
 
 promise lies in the future, are in the absence of any central 
 organized mechanism to control them, liable to surround them- 
 selves with paper credits swollen in amount and bulk, by the 
 wind and rumour of what they are going to do, from the 
 dimension of paper bags to that of balloons. And should the 
 enterprise prove to be a ' wild-cat ' scheme or South Sea 
 bubble, and especially if a number of such have been let loose 
 on the public at about the same time, it only requires some big 
 banking house or great commercial firm heavily loaded with 
 these paper liabilities to collapse, owing to its failure to meet 
 its engagements, for all the innumerable minor bubbles 
 attached to the mammoth one to collapse also. And so great 
 is the interconnection of the credit system with its continuous 
 electric chain or belt suri-ounding the ring of commodities on 
 the wheel, that once started, the collapse of the bubble credits 
 will paralyse the sound ones as well ; and both in turn will 
 paralyse for the time being the fixed capital engaged in 
 production, and stop the running of the wheel. Indeed should 
 the financial crisis extend so far that even the Bank of 
 England should be compelled to suspend payment, not a mill 
 or a factory from John o' Groats to Land's End but would 
 come to a standstill as if a bolt had struck it. Pra^ternatural 
 suspicion would have taken the place of excess of confidence, 
 no man could trust to his neighbour's solvency, and the 
 bankers and financiers on the axle, who had abdicated their 
 functions and retired to their tents when the speculative 
 mania was at its height, now that the crash had come would 
 emerge again to take up their normal position at the helm ; 
 but unfortunately only to aggravate the calamity instead of 
 helping to mitigate it. For now that the paper credits had 
 burst and collapsed, there would be nothing left as a medium of 
 exchange but the gold and silver, which in amount is at any 
 time but a small fraction of the existing paper credits. This 
 being the property of the financiers themselves, they would 
 not part with it on any but the most ruinous terms, on penalty
 
 84 THE MECHANISM OF CREDIT. 
 
 of being themselves swept into the genera] whirlpool of 
 bankruptcy. And so by locking up the gold in their vaults 
 at the very time when it is most wanted to liquidate the sound 
 find legitimate credits which all this time have been circulating^ 
 with the illegitimate, like the wheat with the tares : — ^unless the 
 Government came to the rescue by pledging its own credit in 
 which everyone has confidence, for the ordinary commercial 
 paper credits in which for the time being no one dares trust, 
 the stagnation in the Avealth production of the nation would 
 continue until it worked wholesale ruin all around. For the 
 production of wealth being dependent on the fixed capital, the 
 closing down of any large part of that capital for a week or a 
 month, would, Avith the millions of families depending on it, 
 be a very serious calamity. Fortunately there is one form of 
 fixed capital Avhose operations can never be altogether 
 suspended by the caprice or folly of men, and that is the soil 
 itself, which will go on producing its fruit in season whatever 
 befall ; indeed but for this, a collapse in financial credits would 
 not only bring irretrievable ruin to many homes, but actual 
 starvation as well. And the injustice of it all is, that many 
 if not most of the firms involved in these disasters were, but 
 for their sudden inability to meet their engagements, sound 
 industrial and commercial concerns. They have fallen not 
 from any fault of their own, but because they Avere linked to a 
 system of credits OA^er Avhich, Avhen they are contracted on the 
 faith of future speculative production, there is and can be no 
 organized mechanism of control. Summing up then we may 
 say ; — First, that paper credits AAdien they keep time and step in 
 due subordination and relation to the ao-o-reofate of commodities 
 that are being continuously produced and consumed in their 
 passage round the Avheel, accelerate the speed of that Avheel, 
 and so assist the increase of Avealth of the community ; and 
 thus the laAVS of their action are in harmony with all the other 
 laws of Avealth, inasmuch as they are related not to production 
 alone nor yet to consumption alone, but to a continuous process
 
 THE MEGHAN I.SM OF CREDIT. 85 
 
 of production and consumption. Secondly, the effect of these 
 paper credits in increasing the wealth of a nation is not due to 
 any positive economic powers they possess — for they cannot 
 themselves be converted into food or drink, houses or clothing — - 
 but is due rather to the negative power they have, in virtue of 
 their flexibility and fluidity, of opening up a more free and 
 unimpeded passage for the circulation of these commodities 
 than could be accomplished by the less easily manipulable 
 mechanism of gold and silver alone. Thirdly, that when these 
 paper credits, whether from a deficient production or from a 
 deficient consumption, have been issued in excess of their due 
 proportion to the commodities actaallij in circulation on the 
 M'heel, they clog its movement instead of accelerating it, 
 slowing it gradually when no actual crisis occurs, but bringing 
 it for the time being to a sudden stop in times of great 
 financial crashes. And fourthly, that in a nation standing- 
 alone by itself (or in the world as a whole), these paper credits 
 are for scientific purposes (and for the same reasons for which 
 we excluded gold and silver currency), not to be counted as 
 part of a nation's wealth ; inasmuch as being the ideal repre- 
 sentatives of its fixed capital, invention, and industrial skill, 
 they are already implicitly contained in that wealth ; otherwise 
 the same thing would be counted twice over. 
 
 But there is a still further point requiring some comment. 
 I have said that these paper credits must keep time, measure, 
 and proportion with the aggregate of commodities in continuous 
 process of production and consumption. But production and 
 consumption are but the two sides or aspects of one and the 
 same thing ; the commodities |)roduced on the one side being 
 the same as those consumed on the other. Is there then no 
 one thing which will sum up both, and so simplify our con- 
 ception of precisely what it is that the aggregate of paper 
 credits must be adapted to '. To this we can answer that the 
 continuous actual ' turnover ' of the retailers of a nation would 
 furnish such a criterion, inasmuch as this turnover is the
 
 SQ THE MECHANISM OF CREDIT. 
 
 meeting point where production and consumption coalesce into 
 a definite unity ; — not a single turnover, be it observed, but 
 such a continuous average turnover from year to year as that, 
 for example, on which the Chancellor of the Exchequer relies 
 when framing his budget. 
 
 But as the paper credits which give rise to financial crises 
 are not usually contracted on retailers' goods, but rather on the 
 large productive enterprises from which these goods are expected 
 to issue, and from which in the case of sound and legitimate 
 concerns they do issue: and farther, as these credits cannot be 
 based both on the fixed capital and on the consumable goods, 
 inasmuch as the former implicitly includes the latter ; it would 
 practically be more convenient to base them on the fixed 
 capital of the country in actual running ; (the fact of the 
 running being itself the proof and guarantee that the goods 
 turned out are really being consumed) ; for if they were not 
 consumed, the Avheel, as we have seen, would slow and the 
 fixed capital would either run on short time, or a portion of it 
 be thrown out of working altogether, according to the extent 
 of the deficiency in consumption. And so the conclusion we 
 are brought to is this, that while the paper credits of individuals 
 may be based on anything or everything in their possession, 
 whether it be consumable goods or fixed capital ; the credits of 
 a nation standing alone by itself, or of the world as a single 
 economic entity or whole, can be issued with safety only on 
 the aggregate of its working fixed capital. 
 
 But as no nation exists alone by itself, but stands side by 
 side in trade relations with other nations, we are introduced to 
 a fresh set of complications ; and as they are complications 
 which affect the solution of each and every problem of the 
 Applied Science of Political Economy, they must be resolved 
 before that Applied Science can make any pretension to 
 completeness. But before ending this chapter, I may remark 
 in passing that the reason I have confined my investigations so 
 far to the laws resJiulatins the increase or decrease of wealth of
 
 THE MECHANISM OF CREDIT. 87 
 
 a .single nation standing alone by itself, is because these laws 
 being the laws of a single economic entity or whole, — whatever 
 its size may be, — can be transferred without alteration to the 
 world as a whole. If therefore the Science of Political 
 Economy were what the Orthodox Political Economists 
 profess their science to be, namely a cosmopoliticcd one, as true 
 for the world as an economic whole as for any and every nation 
 in it, we should need to go no further, for we should already 
 have enunciated the main first principles of the reconstructed 
 Science with which we are anxious to replace the orthodox 
 Science. But for the satisfaction of those who contend 
 that an Applied Science of Political Economy, if it is to be 
 practical, should take a national standpoint, and should be true 
 of a particular nation standing in trade relations Avith other 
 nations, — a quite proper contention inasmuch as no single 
 nation can control the economic policy of another, — it is 
 necessary that we should enquire as to what modifications, if 
 any, are to be made in the laws regulating the increase of 
 wealth of a nation by itself, or of the world as a ivhole, if they 
 are to hold good of a nation standing in trade relations with 
 other nations; — and to these we shall presently direct the 
 reader's attention.
 
 CHAPTER IX, 
 
 CIVILIZATION AND THE PARADOX OF SAVING. 
 
 n N the opening chapter of this vokime, the main reason I 
 gave for my proposed attempt to reconstruct the Science 
 of Political Economy on the lines of Evohition and Sociology 
 was that none of the sciences dealing with the actions of 
 human beings could, if these sciences were to be appealed to 
 for practical guidance in life, be cut out from the living tissue 
 of civilization and erected into separate and independent 
 specialisms on their own account, without constant refei'ence to 
 the existing condition of that civilization, — its social structure, 
 politics, legislation, etc., — inasmuch as these outside influences 
 while interpenetrating and profoundly modifying the laws of 
 the special science at every point, are nevertheless so far as 
 the special science itself is concerned, accidental, capricious, 
 casual, or incalculable : and so can neither be embodied among 
 the laws of tlie Science, nor yet left out of them, without 
 destroying all its weight and authority for the purposes of life. 
 And I went on to say further that nowhere would this be more 
 clearly seen than in the existing specialism known as the 
 orthodox Political Economy. So far as we have gone, however, 
 it has not seemed necessary to allude further to this aspect of our 
 subject ; and indeed it will not be until we come to the laws of 
 the distribution of wealth, that the havoc made by the irruption 
 into them of the rude hand of Political, Social, or Legislative
 
 CIVILIZATION AND THE PARADOX OF SAVING. 89 
 
 Power iis such, will be fully find couclusively demonstrated. 
 But at the point we have now reached it is necessary to touch, 
 if only for a moment, on the influence of general Civilization 
 in affecting the problems of the Orthodox Economy, and 
 particularly in giving rise to that paradox of Savings which by 
 its doublings and shiftings is likely to give us much unnecessary 
 trouble in hunting it down. But in order to get a sufficient 
 perspective for the general remarks I have to make, 1 would 
 ask the reader to imagine for the nonce that we had reached 
 that millennial stage of civilization when all the world shall be 
 but as one nation, with all its races like brothers, between 
 whom all wars, jealousies, and aggrandisements have long- 
 ceased, where there is enough and to spare of consumable 
 wealth for all, and where the amount of a man's worldly 
 possessions over those of his neighbour brings him no more 
 honour than, say, the possession of a larger or smaller appetite 
 for food. In a word I would ask him to imagine that the 
 Socialist's dream of an Utopia or ideal World-State had at last 
 been realized or rendered possible. Now in such a World- 
 State the amount of wealth produced will be the greatest 
 possible, inasmuch as the consumption of wealth, which the 
 hypothesis of a millennium involves, will be the greatest possible 
 also; and that in turn will have stimulated the inventive 
 powers of Man to their highest pcjint in the introduction of the 
 best machinery and the best devices for the organization 
 and division of labc^ir which Science and Art can supply. 
 In such a World-State, the savings of individuals — which as 
 we have seen can exist only in the form of things having a 
 relative permanency, such as fixed capital, gold, or credit notes 
 redeemable in gold — will be the least possible, and will consist 
 almost entirely of those forms of fixed capital from which the 
 greatest amount of wealth proceeds. Gold or silver as a 
 provision for the future will not be required, nor will the 
 credits based on them ; for where the material wealth that is 
 continually being reproduced in sufficient quantities for the
 
 90 CIVILIZATION AND THE PARADOX OF SAVING. 
 
 benefit of all, is continually being redistributed among all,, 
 there will be no point in saving gold or credits, inasmuch a& 
 there will be no rainy day, economically speaking, against which 
 individuals must provide beforehand; while as for nations 
 hoarding up gold and silver either for the purpose of 
 aggrandising themselves at the expense of other nations, or of 
 defendino- themselves against the ao'o-randisements of these other 
 nations in turn, there will be no such nations in existence ; for 
 by our hypothesis they will all have been absorbed in and 
 become ])arts of a single World-State. Practically the only 
 savings beyond those that are being continually embodied 
 in fixed capital will be of such consumable products as 
 corn for example, which can be stored for a time as a 
 provision against the dearths incidental to the seasons, and 
 will act like a compensating balance merely, to steady the 
 movements of the wheel from year to year. All else 
 will be consumed as it is produced. In other words, to put 
 the matter economically, the amount of wealth produced, 
 consumed, and continually reproduced by mankind will be 
 greatest where the consumption of individuals is the greatest 
 (compatible of course with the capabilities of its existing fixed 
 capital), and where their personal savings are the least ; thus 
 mirroring and corresponding to our ideal or pure science of 
 the wheel, where as we have seen the greatest amount of 
 wealth is produced and reproduced when the amount of con- 
 sumption is the greatest possible. Carrying, then, with us 
 this law, namely that the wealth of the world will be the 
 greatest possible Avhen the state of civilization and the 
 industrial arts admit of the greatest possible amount of 
 consumption, and when in consequence the amount of saving 
 for future contingencies is the least possible ; and contrasting 
 it in our minds with the opposite doctrine of the orthodox 
 Economists, founded on their symbol of the rod or stick, 
 namely that the wealth of the world will be the greatest when 
 the amount of consumption is the least, — and in consequence
 
 CIVILIZATION AND THE PARADOX OF SAVING. 91 
 
 the savings carried forward the greatest possible ; — let us now 
 consider how the matter stands in the stage of civilization 
 reached at the present day. Here all the conditions are 
 reversed, and Saving as a safeo:uard ao;ainst future continoencies 
 is an absolute necessity both of individuals and of nations. 
 Instead of our economic unit beino- the world as a sino-le 
 political and economic whole — as in the millennial or ideal stage 
 of civilization — we have now not only a number of nations 
 existing in more or less antagonism to each other, but each 
 nation and each individual in each nation having- to face his 
 or its economic future alone, and stand or fall by his or its 
 own economic exertions. Saving, accordingly, is not only an 
 economic but a sociological necessity both of individual and 
 national prudence and self defence ; — a necessity for the 
 individual, as a provision for his old age and for his family, 
 or for worldly ambition, social advancement, or the love of 
 power ; a necessity for the classes in a nation, as a means 
 of keeping their position and authority in the State, or of 
 attaining to a share of the o-ood thino-s in the w^orld at 
 present denied them ; and a necessity for the nation as a 
 whole as a means of preserving its independence, resisting the 
 aggressions of other nations, or aggressing on them in turn. 
 And accordingly the question which now arises is as to what 
 effect this sociological necessity of Saving, which under existing 
 conditions is a necessity of self-preservation, has on the 
 economic situation. Do these saving-s increase the ao-oreo^ate 
 economic wealth of the world (as distinct from that of any 
 particular nation) or not t The orthodox Economists will of 
 course reply at once, certainly they do ; for has it not been 
 the very core and essence of their teaching for the last hundred 
 years, that the way in which the wealth of the world is to be 
 increased is by producing as much as it can, and consuming as 
 little, and so saving as much of it as is possible? Is not the 
 increase of capital the increase of wealth, according to them, 
 and is it not one of the fundamental principles of their science
 
 92 CIVILIZATION AND THE PARADOX OF SAVING. 
 
 that this increase of capital is the result of saving, — and there- 
 fore the more of it the better 1 This is unmistakeably the 
 orthodox teachino-, but I will venture to affirm that the precise 
 opposite is the truth, and that saving, however necessary and 
 beneficent from a sociological or political point of view, is from 
 an economic one a pure derogation and loss ; and that far from 
 increasing the wealth production of the world, it decreases it ; 
 and decreases it moreover precisely in proportion to the extent 
 to which the saving is carried. And the reason for this must 
 now be obvious from what we have already said. For the first 
 effect of this saving on the part of individuals and of nations 
 is to make each national wheel run more slowly than it other- 
 wise would do. For as the savings of nations against each 
 otlier can consist only of gold or credit notes redeemable In 
 ffold ; and as the essence of these credit savino;s is that thev 
 are a postponed consumption, or, in other words, the refraining 
 from consuming to-day as much as you otherwise would do, in 
 order that you may consume at some future time ; and further 
 as the floating aggregate of these credits, Individual and 
 national, are a perpetual postponement of much of what 
 otherwise would be consumed, enjoyed, and reproduced, each 
 day and every day ; — it follows that the fixed capital of each and 
 every nation will. In order to adapt Itself to the diminished 
 consumption which the continuous saving involves, throw its 
 products on to the wheel In less quantities ; and so the 
 wealth of the world Instead of being increased by the saving, 
 as the orthodox Economists contend, will be decreased. 
 So much so, Indeed, that should all the woi'ld In a fit of 
 political or Individual panic turn misers to-morrow, in the 
 Interests of themselves, their families, or the nations to which 
 they belong, no more wealth, it is evident, would be produced 
 and reproduced than these nations of misers would consent to 
 consume ; In the same way as If all the world in an access of 
 religious mania or fanaticism were to turn hermits, the 
 cultivation of the land would fall Into decay, manufactures,
 
 CIVILIZATION AND THE PARADOX OF SAVING. UH 
 
 except of the barest necessities, would cease, and the world 
 would live, like the Buddhist monks, on a little rice or bread 
 and herbs. And the consequence would be, that while the 
 wheel of religion might go as merrily round as the rotatory 
 calabash of the Thibetans, the wheel of wealth would slow 
 down almost to the stopping point ; and the Orthodox 
 Economy which with its doctrine of universal saving was to 
 have increased the wealth of the world and to have worked out 
 its economic salvation, would have palpably undone itself, and 
 in tiie eyes of gods and men have metaphorically cut its own 
 throat ; quite as much so, indeed, as if on a cry of fire arising 
 in a theatre all the occupants were to make a rush for the 
 doors at once, and so all alike be crushed and strangled by that 
 very anxiety of each to save himself which at the first blush 
 would seem to be the only means of their common salvation. 
 Now this is the paradox of Saving on which the orthodox 
 Economists have impaled themselves ; for if the aim of an 
 Applied Science of Political Economy is to show us how to 
 increase the stock of material wealth which is continually being 
 produced, consumed, enjoyed, and reproduced, and not how to 
 reduce it to the barest minimum on which human beings will 
 consent to exist ; — it is evident, is it not, that there must be 
 something wrong somewhere with their Gospel of Saving which 
 when carried out consistently over the world as a whole, would 
 end in the destruction and non-production of material wealth 
 rather than its conservation and increase. For the doctrines of 
 the orthodox Political Economy with their corollaries, are 
 nothing if not cosinopolitical ; and would be renounced even by 
 their own professors were they not believed to hold good for 
 the world as a whole. The truth is, that the fallacy and 
 paradox in whose toils the orthodox Economists have entangled 
 themselves, is the same in essence as that into which the 
 celibates of old fell when they imagined that because their 
 doctrine was right and proper for themselves in the midst of a 
 world of gross sensualists outside their doors, it must hold also
 
 94 CIVILIZATION AXD THE PARADOX OF SAVING. 
 
 for the whole world ; whereas, of course, had it been carried 
 out inflexibly and universally (and that was what their 
 propaganda aimed at), it would have ended by unpeopling the 
 world altogether ! And this is precisely the error into which 
 the orthodox economists have fallen. They had observed that 
 an individual increased his wealth by producing as much as he 
 could and saving as much of the proceeds as possible, either 
 in the money he received from his customers or in their credits 
 redeemable in money ; they had observed, too, that nations 
 became rich by producing as much as they could, and, in their 
 trade with foreign nations, saving as much of the proceeds as 
 possible in the shape of gold or foreign bills redeemable in 
 gold; and they jumped to the conclusion that as a nation was 
 only the sum total of its individuals, and the world at large the 
 sum total of its nations, that therefore the same laAv held for 
 the world as a whole as for the separate nations and individuals 
 that composed it. And imagining that in this they had struck 
 on a large and safe generalization, they proceeded to formulate 
 it in their well-known doctrine that ' to produce as much as 
 possible and save as much as possible ' of what was produced, 
 was the universal law of the Applied Science of Political 
 Economy, — true alike of the individual, of the nation, and of 
 the world as a sino-Ie economic whole. And so indeed it would 
 have been had it been a true law ; for the very essence of a 
 scientific law is that it shall hold true universally, whatever be 
 the size, range, or scope of the class of facts that properly fall 
 under it, — whether, as in the present case, it be an individual, a 
 nation, a number of related nations, or the world as a single 
 whole. But if we examine it, we shall find that it was not a 
 true law ; — not even of the way in which an individual increases 
 his wealth. Nor is this to be wondered at, for in the original 
 constitution of their science they had illegitimately suppressed, 
 as we have seen, one entire factor in the phenomena which the 
 laws of wealth have to explain, — namely the factor of Consump- 
 tion. What we have now to do, therefore, is to reintroduce
 
 CIVILIZATION AND TME PARADOX OF SAVING. 95 
 
 this element of consumption, and see if by its aid we can 
 discover what that true law is, which shall apply equally to an 
 individual, a nation among other nations, or the world as a 
 whole. 
 
 In the first place, then, when we say that an individual man 
 increases his wealth by producing as much as he can, and 
 saving as much as he can, it would seem that the formula for 
 the increase of wealth for the individual, at any rate, were 
 quite simple, — namely to ' produce and save.' And so, indeed, 
 it is as a mere shorthand statement for practical purposes, 
 and so long as we do not use it as a scientific law from which 
 logical deductions are to be di-awn. But it will be observed 
 that in this shorthand formula, the orthodox Economists have 
 quietly dropped and suppressed as if it did not exist, the 
 most important part of the transaction, — namely the .^ale of 
 the product. So that the formula, when we want to use it 
 as part of a Science, and not merely as a compendious working 
 formula for everyday life, will have to be amended. Instead 
 of ' produce and save,' it will now have to run ' produce, 
 sell, and save;' or in other words (for the sale involves 
 that someone intends to consume) ' produce, consume, and 
 save.' But this as we have seen is the true law for the 
 increase of wealth of the world as a whole ; the only diflerence 
 being that while in the case of the individual, the consumption 
 has to be done by other people, in the case of the world as a 
 single whole the consumption is done by the same people as 
 those who produce. Now it is the same with a particular 
 nation in trade relations with other nations. For although the 
 shorthand formula here again is ' produce and save,' the 
 scientific law is, * produce, consume, and save ; ' the suppressed 
 factor of consumption, which is as essential to the saving as 
 the production itself, being done by the other nations. So 
 that whether the saving, or increase of wealth, be that of an 
 individual, a nation among other nations, or the world as a 
 whole, in all cases alike it follows one and the same law, which
 
 9G CIVILIZATION AND THK PARADOX OF SAVING. 
 
 is ' produce, consume, and save,' and so is in harmony with our 
 original symbol of the Wheel of Wealth, where production turns 
 around into consumption, and the saving or increase comes out 
 of the revolutions and alternations of both ; and not, as with 
 the orthodox Economists witli their symbol of a Stick, where 
 the increase of wealth of an individual, a nation, or a world, is 
 figured as resulting from producing as much as possible, cutting 
 as little as possible off its end, as it were, for consumption, 
 and then carrying the rest forward as the saving ; thereby 
 not only confirming them in their delusion that their short- 
 hand formula of ' produce and save ' is a true scientific law, 
 and that they may therefore suppress the factor of consumption 
 with impunity, but running them as well, — when their doctrine 
 is pushed to its logical consequences, — into the absurdity that 
 if all the world were to consume as little and save as much 
 as possible, and so fulfil to the letter the apostolic injunction 
 of the orthodox Economists, we should have not a world of 
 civilized men with lands cultivated to the highest point, 
 machinery and the division of labour taking the place of hand 
 labour, and the greatest possible amount of wealth produced, 
 consumed, enjoyed and reproduced ; but instead, land lying 
 uncultivated, machinery non-existent, and the world a world 
 as of Red Indians or misers living on roots and herbs, and 
 crouchino; to warm themselves over the few sticks with which 
 they made themselves a fire ! 
 
 Summing up this chapter, then, we may say that had the 
 Orthodox Economists not been deceived by appearances into 
 suppressing one of the essential elements of their Science, but 
 had admitted frankly that in all cases whatever an increase of 
 wealth can only come out of a continuous process of production 
 and consumption, there would have been no paradox to perplex 
 the student's mind ; but by taking a short cut, and suppressing 
 the middle factor of consumption, tiiey have tried to make an 
 essentially three-legged table stand on two legs alone, — with the 
 i-esult that when left to itself, it upsets and brings down with it
 
 CIVILIZATION AND THE PARADOX OF SAVING. 97 
 
 all the secondary laws, corollaries, and ' fundamental propo- 
 sitions ' which they have first deduced from it and then piled 
 upon it ! In thus labouring a point which to the practical 
 business man has only to be stated to be accepted almost as a 
 platitude, my justification must lie in the fact that it is to this 
 suppression of the essential factor (»f Consumption that all 
 those fallacies of the orthodox Economy are due which have 
 made it as a professed science not only false in one point but, 
 as we shall see more and more as we proceed, false in all. But 
 before 1 can leave with safety and confidence the paradox 
 which this suppressed factor involves, — in the form of the 
 abstract discussion we have just given, — it will be necessary to 
 exhibit its workings in the concrete, as seen in the way in 
 which savings are made and wealth increased in the actual 
 intercourse of nations in trade relations with each other. And 
 to this we will proceed in our next chapter.
 
 CHAPTE.E X 
 
 SOME CONCRETE INSTANCES. 
 
 TTTHEN Carlyle wrote his 'Past and Present 'and his 
 ' Latter Day Pamphlets ' about the middle of the last 
 century, the Orthodox Economists had already succeeded in 
 persuading the Politicians, much to their relief, that the low 
 wages, poverty, and periodical destitution of the working 
 classes were an economic necessity, a piece of pure fate, as 
 inexorable as death ; and that the cause of it all was that wages 
 being paid out of capital, and capital being fixed in amount, 
 the share of it that could fall to the working man was a simple 
 matter of arithmetic. You divided the amount of capital by 
 the number of working men whom it had to feed, as a mother 
 divides a loaf among her children ; and just as the size of the 
 loaf and the number of the children measure the size of the 
 slice that falls to each, whereby if some received a bigger slice 
 the rest would have to content themselves with a smaller, so 
 was it with the wages of the working men. If some by their 
 superior skill or the influence of their trades-unions received 
 more wages, others they said would have to be content with 
 less ; and neither gods nor men, political agitators, parliament, 
 nor philanthropists could alter it. It was their old doctrine of 
 the stick, with a piece cut off the end in the shape of money 
 and food for the payment of the workmen ; and if the workmen 
 insisted on demanding more than this, let them look to it, for
 
 SOME CONCRETE INSTANCES. 99 
 
 less would be carried forward as savings, and the wealth of the 
 nation would in consequence decline. And the worst of it 
 was that although the workmen were inclined to kick their foot 
 through this piece of cheap and easy economic arithmetic, 
 the great mass of intelligent people, — statesmen, economists, 
 publicists, stump orators and all, — secretly believed in it, and 
 did not see how it could be gainsaid. But Carlyle, in order to 
 give point to his gibes both at the politicians and economists, 
 wanted to know why it was that at that very time when the 
 wealth of the country had been for a long series of years 
 increasing ' by leaps and bounds,' and the warehouses and 
 workshops of the North of England and the Midlands had 
 been supplying the whole world with their woollens, their 
 calicoes, their cutlery, their engines, their iron and coal and 
 what not, — why it was that in a temporary glut of these com- 
 modities the great masses of the people over large areas, and 
 especially in the streets and alleys of these very manufacturing 
 towns, were on the verge of starvation ; their bare backs 
 showing through their ragged cotton shirts, in front of the 
 warehouses where cotton shirts lay piled in stacks to the ceiling 
 unsold, because they had not the wherewithal to pay for them. 
 The question, it is evident, is one which concerns the dis- 
 tribution of wealth rather than its production; and as the 
 answer to it is as much an affair of Politics as it is of Political 
 Economy, I shall postpone its discussion until it reappears in 
 its proper place later on in this volume. What we have to 
 consider specially here is a somewhat different question, and 
 concerns rather my own position than that of either the 
 Politicians or the Orthodox Economists. The question put by 
 Carlyle was mainly a political one, and in effect was ; — How 
 could so many people be starving and shirtless when the wealth 
 of the country was so great ? Ours is a purely economic one, 
 and is ; — How, if our doctrine be true that [)roduction must 
 always keep time and pace with consumption, could wealth 
 have so accumulated as to make the nation a supremely rich
 
 100 ■ SOME CONCRETE INSTANCES. 
 
 nation when the consumers of that nation, even when in full 
 work, could not from the lowness of their wages carry off more 
 than a fraction of the consumable wealth that was continuously 
 being produced and reproduced ? How, in a word, could home 
 production have outrun so far home consumption, if by our 
 hypothesis production must be limited by consumption ? 
 
 Now the answer to this is so simple that it seems almost 
 incredible that anyone could have missed it. It was simply 
 due, as every business man knows, to the enormous extent of 
 the foreign market for English goods, over' and above that of 
 the home market. But the Orthodox Economists had 
 expressly ruled out the extent of the market for consumption 
 as a factor having any influence on the increase of the wealth 
 of a nation, — as we saw from the quotations from John Stuart 
 Mill on this head in a previous chapter, — while everywhere 
 Adam Smith makes the ,same assumption. And the reason 
 they ruled it out was, that as the production of wealth was 
 limited by capital, and the wages for its consumption were 
 paid out of capital, whatever was taken out of capital to supply 
 the consumption of a foreign market, must necessarily be with- 
 drawn from the capital engaged in supplying the home market ; 
 so that no extension of the foreign market could by any 
 possibility increase the wealth of the nation as a whole — a 
 prime fallacy draAvn from the original datum of their Science 
 of a fixed and rigid rod of capital from which if more were cut 
 off for one purpose so much the less would be available for 
 another. But if our symbol of the Wheel is the true datum for 
 the solution of each and every problem of political economy, 
 the mechanism by which the vast extension of the foreign 
 market so enormously increased the wealth of England in the 
 early years of the last century, in spite of the limited home 
 consumption necessitated by the low wages of the great masses 
 of the people, is quite simple. It consisted, in a word, in 
 attachino^ the national wheel of wealth to a number of lesser 
 wheels representing the oilier nations of the world, by means
 
 SOME CONCRETE INSTANCES. 101 
 
 of belts thrown across them as it were (as we see in the 
 machinery of a factory), so that the consumption sides of these 
 wheels formed what was practically one mammoth wheel, with 
 England occupying the productive side for the time being, and 
 all the rest of the nations taken together its consumption side. 
 In this way the stimulus given to the productive side of the 
 English wheel by this enormous demand for foreign consump- 
 tion was so great as to tax it to the utmost to keep pace with 
 it. Indeed the reason that England was able to whip up her 
 productive capacity to the point necessary to keep pace with 
 this world-wide demand for consumption, was that she had 
 practically a monopoly of all the materials necessary to the 
 production of the commodities which the other nations so 
 much desired — the coal and iron, the machinery, etc., as well 
 as the transport and shipping — in all of which the economic 
 powers of Nature were imprisoned and packed in quantities 
 enormous in proportion to the labour expended on liberating 
 them and calling them forth. The industrial output of the 
 other nations, on the contrary, consisted mainly of purely 
 natural productions which owing to their abundance and the 
 absence of transport were to be had almost for the asking, 
 when exchancjed with Eno-lish manufactured o-oods. And 
 accordingly, just as the spices of the East in the Middle Ages, 
 which were so abundant and cheap in their own homes, were 
 yet so highly prized and so valuable in Europe that they made 
 the fortunes of Venice, Genoa, Florence, and the other Italian 
 Republics who traded in them, so it was in the case of the 
 English traders, who holding as they did a virtual monopoly of 
 the manufactured o^oods which the foreio;n nations both of 
 Europe and the East most desired, were, like men with loaded 
 dice in their hands, able to get the advantage of the foreigners 
 in every transaction ; getting in fact the labour of scores or 
 hundreds of foreign labourers and Orientals for one of their 
 own: so that precious cargoes of ivory, furs, spices, sugar, 
 wine, dried fruits, tobacco, and what not, could be had in
 
 102 SOME CONCRETE INSTANCES. 
 
 many places for a few trinkets, rags of calico, or strings of 
 glass beads. And the consequence was that the Avealth of 
 England rolled itself up like a snowball, her wheel of wealth 
 not only enlarging its circumference, but increasing the speed 
 of its revolutions in a given time. And a further consequence 
 was that as the monopoly of English products was in the hands 
 of a comparatively few rich manufacturers, merchants, and 
 shippers, while the foreign producers were for the most part a 
 miscellaneous swarm of poverty-stricken hand-to-mouth work- 
 men and agriculturists, the wealth of England could go on 
 piling itself up, while they barely did more than mark time. 
 And the reason of this, again, was that while the handful of 
 English monopolists w^ith their profits accruing in great lump 
 sums, could turn them into more and ever more fixed capital 
 and productive works at home or productive loans abroad, and 
 so could add immensely to the economic powers of Nature 
 they held in their hands from which wealth and profits were 
 to be drawn ; the swarms of foreign consumers on the other 
 hand, — isolated, dispersed, and incapable of combination or 
 organization, — were restricted in their productive capacity to 
 scratching the soil v\ath wooden ploughs, hunting elephants for 
 their ivory, or wild animals for their furs, or planting their little 
 fields with vines, tobacco, or sugar cane : and so were disposed 
 to turn the advantage they derived from the exchange into the 
 mere unproductive consumption of trinkets or ornaments for 
 their persons; — or if they managed to save anything out of it 
 in gold or silver, it would only be to hide it away against the 
 evil day of dearth or extortion, or lend it to their Governments 
 to be shot awav in war. For althousch, as the orthodox 
 Economists are so fond of asserting, the personal benefits of 
 every exchange are mutual, else they would not take place, 
 they are not, it is to be observed, equally projitahh to both 
 side?, or conducive to an equal increase of wealth— as anyone 
 having dealings with a moneylender can testify ! Indeed, as 
 we shall see later, the mere concentration of a given amount of
 
 SOME CONCRETE INSTANCES. 103 
 
 capital in a single hand gives it an advantage in every exchange 
 over an equal amount of capital dispersed among many hands, 
 as a cannon ball has more efficiency than any number of 
 dispersed rifle bullets of the same aggregate weight. And 
 hence it was that England grew richer and richer as a nation 
 in her trade relations with other nations, in spite of the fact 
 that the great masses of her own people ^vere so poor that they 
 could not of themselves have taken off her hands more than a 
 fraction of what she produced. And so our symbol of the Wheel 
 with its necessary corollary, — namely that in its continuous 
 running the productive side cannot outrun the consumption 
 side, — is justified; only in this case of England, the consumption 
 was kept up more by other nations than by her own. It was 
 the same with Ancient Rome, where the nobles and knights 
 grew richer and richer, both from their usurious banking and 
 from their gradual acquisition of more and more of the mines, 
 the vineyards, and the corn-fields of the conquered countries, 
 even although the great masses of the Roman citizens them- 
 selves were so poor, that in spite of the free distribution of corn, 
 they consumed little more per head than the gangs of slaves 
 and freedmen who worked these mines, vineyards and corn- 
 fields for their masters. The explanation is that consumption 
 was mainly done by the rest of the world who were not Roman 
 citizens, but whose private property was legally protected 
 although they themselves were politically enslaved. 
 
 But an even more pregnant instance was that of the Southern 
 States of America before the Civil War. For there you had 
 an entire section of a country which had grown rich on the 
 basis of a slave population whose only consumption was of as 
 much cheap cotton as would cover their backs, and as nuicli 
 maize and molasses as would keep them in health — a land 
 which had it continued self-enclosed and out of trade relations 
 with the rest of the woi-ld, would have remained little more 
 industrially advanced to-day than it was when the Red Indian 
 roamed over it. For if all the production that was necessary
 
 104 SOME CONCRETE INSTANCES. 
 
 was such US was sufficient to supply the shives and the ' mean 
 whites ' of which the population was composed, where was the 
 increase of wealth to come from I Great fields of cotton, 
 tobacco, sugar, and rice, would not l^ne been made to arise 
 out of the swamps and the wilderness for them ; and as for the 
 planters themselves, a few cultivated fields here and there 
 would have more than supplied all that they and their families 
 could consume ; while a few scattered villas of imposinsi' 
 appearance and adorned with articles of ostentation or luxury 
 would have as easily sufficed to keep up their authority and 
 social prestige among their white and black dependents, as a 
 few extra feathers, skins, oi- layers of war paint did those of 
 the Indian chiefs. The consequence would have been that the 
 country would have remained much in the condition of England 
 in the Middle Ages before her shipping trade and the great 
 mechanical inventions of the Eighteenth Century had opened 
 up to her the markets of the world. But from the time that 
 the Southern planters found that they could connect the 
 productive side of their wheel with the consumption side of 
 the cotton wheels of Lancashire, as well as with the sugar, 
 rice, and tobacco consumers of the rest of the world (thus 
 making by means of the belts thrown across between 
 them one gigantic wheel of production and consumption), 
 then it was that through this world-market for consumption 
 suddenly thrown open, a Southern Confederacy arose, so 
 wealthy and powerful, that it was enabled to sustain the 
 bui-dens of a war which would have taxed the resources of even 
 a first-class European Power ; proving to us again that it is the 
 e.vtent of the market for consuniptlofi that is the source of the 
 increase of wealth, whether of an individual among other 
 individuals or a nation among other nations ; and that this 
 increase comes not out of Production alone, as the orthodox 
 Economists teach (as this is only half the process), but out of a 
 continuous wheel of Production and Consumption ; the savings 
 consisting not only in the addition to the fixed capital embodied
 
 SOME CONCRETE INSTANCES. 105 
 
 in improved soils, machinery, ships, railways, and means of 
 transport generally, — which as we have seen would be the only 
 form of savino; for a nation if it stood alone by itself, — but 
 including; also the gold, and credits redeemable in gold, which 
 when held against other nations are a distinct addition to its 
 wealth, inasmuch as they can be converted at pleasure eitiier 
 into additional fixed caj)ital or additional consumable goods, or 
 both, as pleasure, convenience, or economic necessity dictates ; 
 precisely as in the case of an individual who saves and increases 
 his wealth when in business relations with other individuals. 
 And this in turn explains how it is that a nation may increase 
 its wealth by 'leaps and bounds' either when most of its 
 population are in dire poverty or even in a state of slavery ; 
 and so could not by any ])ossibility carry off b}' their own 
 consumption more than a small part of what is continuously 
 being produced. For just as a man may live like a miser and 
 yet increase his wealth by the credits which he holds against 
 other men, so a nation may keep the great masses of its 
 population on the wages of slavery and yet increase its wealth 
 by the credits which it holds against other nations, — as we have 
 just seen in Ancient Rome, the Southern States of America, 
 and England in the early years of the last century. And thus 
 we see that the history of States, instead of contradicting, 
 supports our doctrine of the wheel, namely, that consumption 
 must always regulate the pace of the production which in turn 
 must keep time and balance with it ; the only difference 
 between the economic conditions we have cited and those 
 existing in the most progressive States at the present day, 
 being, that whereas then the foreign commodities in which the 
 gold and credit savings were paid found their way mainly into 
 the hands of the few, at the j)resent day they are more equally 
 diffused among the many — nothing more. 
 
 But as for the orthodox Economists, the fallacy in suppress- 
 ing the element of Consumption and in representing savings 
 and the increase of wealth as coming out of Production alone,
 
 106 SOME CONCRETE INSTANCES. 
 
 can only be compared, as we have seen, with the fallacy of the 
 generations of men who were imbued with the belief in 
 perpetual motion, — to which indeed it is an exact parallel. For 
 both have dropped an essential element from the premises on 
 which their conclusions were based ; the perpetual motion 
 schemers that of friction, the orthodox Economists that of 
 consumption. The former said in effect ; — if we can only 
 transmit our original force undiminished through a series of 
 accurately and cunningly adjusted wheels and pulleys to the 
 point from which it started, the motion so begun and trans- 
 mitted must go on for ever, — not knowing that it cannot be so 
 transmitted without losing some of its power through friction ; 
 the latter said, if we will only produce and go on producing 
 at the same time that we save and go on saving, we shall 
 increase our wealth accordingly, — forgetting that you cannot 
 save anything until your product is sold or consumed by 
 someone, as otherwise you would be producing for the amuse- 
 ment of seeing your products decompose and go bad on your 
 hands ! The former drew their conclusions from half the 
 factors involved in their wheels, — namely from the transmission 
 without the friction ; the latter from half the mechanism 
 involved in theirs, — the production without the consumption. 
 
 And this brings us to the last of the principles of our 
 Applied Science of Political Economy which it is necessary to 
 enunciate before we can proceed to bring them to bear in their 
 combination, and as a single organic unity, on the practical 
 problem of Free Trade and Protection, as well as on the 
 criticisms of the various schools of the orthodox Economy 
 which we shall have to pass under review, and which will be 
 found in a later part of this volume.
 
 CHAPTEE XI 
 
 THE WHEEL OF WEALTH AS A WHOLE. 
 
 I N our chapter on the Pure Science of Political Economy 
 we found, it may be remembered, that the increase of 
 wealth in general was to be measured by the number of 
 revolutions of the wheel in a given time ; and that to this end 
 not one factor only but all the factors — Production, Con- 
 sumption, the powers of Nature, and the powers of Man — must 
 conspire and keep time and step together. And now we have 
 to see that the same holds good with our Applied Science, 
 where the nations in trade relations with each other have 
 wheels of every variety and degree of disproportion or 
 distortion ; some being naturally rich on the productive side, 
 but starved and shrivelled on the consumption side, or vice 
 versa ; others fruitful in human invention, but poor in the 
 productive capacity of their lands or mines ; others again 
 worked to the limits of their productive capacity by wise 
 political regulations ; while others are ruined by intrusive 
 politics clogging the wheel at this or that point of its course, 
 and so on. But of all these national wheels alike, what we 
 have to observe is that although Consumption is the conti-oUing 
 factor, and the extent of the market, in consequence, the 
 central fact regulating the pace of the other factors and of 
 the wheel as a vvliole ; still, for the greatest possible increase 
 of wealth production, all the other constituent factors which
 
 108 THE WHEKL OF WEALTH AS A WHOLE. 
 
 we have enumerated must keep up to concert pitch, as it were — 
 the powers of Nature, powers of Man, invention, organization, 
 technical skill, division of labour, etc., — in the same way as if 
 the will {x.nd brain power are to be most effective in the ordinary 
 work of life the bodily powers as well must co-operate in the 
 degree to which they are required. And from this it follows 
 that however unevenly balanced a particular national wheel 
 may be, nevertheless if the wheel is running more quickly, and 
 wealth is being increased in consequence, all classes of the 
 community must benefit, however disproportionately, whether 
 it be landlords, capitalists, or wage-earners ; while if the wheel 
 is running more slowly and the general wealth is decreasing, 
 all classes alike must suffer ; thus confirming the uniform 
 experience of the world in all ages, namely that in what are 
 called 'good times' all the sides and factors of industrial 
 activity, and all the classes or persons engaged, tend to flourish 
 together, whereas in ' bad times ' all alike tend to be depressed 
 together. Now 1 am anxious to lay special emphasis on this 
 point inasmuch as it is entirely opposed to the doctrine of the 
 Orthodox Economy, one of whose cardinal principles, — deduced 
 from its symbol of the rigid stick, — is that if any one of the 
 economic classes into which a nation is divided gets more 
 wealth, the others must get less ; that profits, for example, can 
 only rise if wages fall, or rent rise if wages and profits fall, or 
 fall if they rise, and vice versa, and so on ; — a quite necessary 
 deduction, I admit, from the point of view of those who figui-e 
 wealth as a given length of rod divided into several parts, but 
 not so from the point of view which I am in this volume 
 seeking to establish, namely that of a continuously running 
 wheel, where it seems almost to be labouring a platitude to 
 affirm that according to the speed of the running all its parts 
 alike can and indeed must increase or decrease together. For 
 if the increase of wealth depends on the amount of production 
 and consumption in a given time, and this production and 
 consumption are owned and enjoyed by individuals, it follows
 
 THE WHEEL OF WEALTH AS A WHOLE. 109 
 
 that the increase of wealth is measured by the rapidity with 
 which it passes through the hands of these individuals, — the 
 quickness of the ' turnover ' in the case of the producers, and 
 the quickness with which it comes and goes through the hands 
 of those consuming it ; and further as every man on the wheel 
 is, as we have seen, at once a producer and a consumer, — a 
 producer when at work and a consumer in his leisure hours, — 
 it follows that when the speed of the wheel is increased all 
 classes alike will enjoy more wealth, and when it is decreased 
 all alike Avill enjoy less ; or in other words, that the rents of 
 landlords, the 'p'i'ofits of capitalists, and the loages of icorkmen 
 must all rise or fall together ; and not, as the orthodox 
 Economists have it, that if one or more of them rise the rest 
 must fall, and vice versa. I am of course speaking of the laws 
 of distribution of Political Economy as such, whether of the 
 pure or the applied science ; but as in actual life the result is 
 often in glaring contradiction to these laws, it is necessary that 
 I should now trace these contradictions back to their source, 
 if I am to make these laws, and especially the law above 
 enunciated, fully satisfactory to my readers as the true and 
 natui'al final laws of Political Economy. 
 
 But first let us enumerate some of the causes which are 
 universally admitted to produce national economic prosperity 
 or adversity, and which, at whatever point they begin ta 
 operate, are speedily carried around and propagated to every 
 other part of the wheel. AVealth, for example, is lessened for 
 all classes when the production side of the wheel is obstructed 
 and slowed by bad harvests ; or by the destruction of fixed 
 capital — as of machinery by fire, or railways or bridges by war 
 or floods ; or of credits by rash speculations or the over- 
 production of unsaleable commodities ; or by the destruction 
 of a part of the working population by war or pestilence ; and 
 so on. It is lessened also for all classes if the obstruction first 
 shows itself on the side of Consumption ; as, for example, by 
 the heavy taxation of consumable goods ; by the extortion of
 
 110 THE WHEEL OF WEALTH AS A WHOLE. 
 
 the fruits of labour by rapacious despots or pashas, as in 
 Turkey and in Oriental countries generally ; by inadequate 
 wacjes, as in reo^imes of slaverv or serfdom, or their all-round 
 reduction ; or by disproportionate saving over large areas of 
 population, induced by religious fanaticism, panic, the fear of 
 change, or the want of provision for the future ; or again by 
 close monopolies pressing to the utmost their illegitimate 
 economic power over wages and prices, and the like. In all 
 these cases, at whatever point the mischief may happen to 
 arise, it is quickly propagated all around the wheel until it 
 involves every class in the community. It is the same when 
 the general wealth is being increased. It may take its rise on 
 the side of Production ; as, for example, by new inventions, as 
 the introduction of steam power and electricity ; or by new 
 chemical processes of far reaching commercial value : by the 
 influx of capital into new countries for the opening up of 
 railways, canals, mines, fertile lands, or works of irrigation; 
 by the discovery of new gold mines ; or by the better adminis- 
 tration of justice and the enforcing of severe laws against 
 commercial dishonesty, etc. Or, again, the increase of wealth 
 may take its rise on the side of Consumption ; in the high rate 
 of wages, for example, of the great masses of the population 
 (provided always they are not out of proportion to the skill of 
 the workers and the powers of fixed capital to keep pace with 
 them) : or of better harvests among small peasant proprietors ; 
 or of cheaper food supplies owing to greater transport facilities 
 at home, or free importations from abroad, and the like ; the 
 only difference in the propagation of wealth through all classes 
 at a time when wealth is increasing and when it is diminishing, 
 being as we saw in a former chapter, that whereas when it is 
 diminishing, it matters not whether the immediate cause is 
 located on the production or consumption side of the wheel ; 
 when it is increasing, on the contrary, if the immediate cause 
 lies in some fresh impetus having been given to the productive 
 side, it will have no eftect, or only a temporary one, unless
 
 THE WHEEL OF WEALTH AS A WHOLE. Ill 
 
 provision is made for the increased production being carried off 
 by a corresponding consumption, — if not at home, then abroad. 
 For Consumption, as we have seen, is the controlling factor, 
 the brake on the wheel of wealth, inasmuch as wealth if 
 produced will not continue to be reproduced unless there is a 
 corresponding increase in the wages or incomes by which alone 
 it can be consumed. 
 
 Now the above instances and examples are the veriest 
 commonplaces of the industrial world and of business men 
 everywhere, but as no symbol has been found by which to 
 unify them, they have remained merely as isolated experiences 
 without any law or princi])le to bind them together and give 
 them a scientific unity and harmony. And although I venture 
 to think that our symbol of the wheel does this for the 
 business world, I am aware that for the students of Political 
 Economy this inner unity and harmony is apt to be obscured 
 by the false importation into the subject of material which 
 properly belongs to the domain of Politics, and which we must 
 carefully separate out if we are to avoid the appearance of 
 contradiction to existing facts which this intrusion of foreign 
 matter lends to our doctrine. Indeed ail this extraneous 
 material must be ruthlessly weeded out if we are ever to get 
 either a Pure or an Applied Science of Political Economy as 
 a sub-department of the Avider Science of Civilization or 
 Sociology. In later chapters I shall discuss these aspects of 
 our subject in detail in my criticism of the authors with whose 
 names they are more closely identified, but for the present I 
 shall restrict myself to meeting a few general objections with 
 the object of giving the reader some indication of the sort of 
 thing I have in my mind. 
 
 Now, the first objection that would naturally occur to our 
 doctrine that when wealth is being increased all classes alike 
 tend to benefit by it economically, and when it is declining 
 all alike tend to be the poorer, is one bearing on slavery and 
 serfdom. For how, it will be asked, can it be true that the
 
 112 THE WHEEL OF WEALTH AS A WHOLE. 
 
 wealth of all classes of the population rises or falls together, 
 when the slave or serf neither received more food, clothing, 
 nor produce, Avhen his master was increasing his wealth nor 
 less when he was losing it ? This question, it must be obvious 
 I think, on reflection, does not strictly belong to the Science 
 of Political Economy at all. It is for kings and statesmen to 
 answer the question, why, by brute force or legislation they 
 thus drove a wedge into the economic wheel at those stages 
 of civilization in which slavery and serfdom prevailed ? 
 Political Economy as such can take account only of the effects of 
 these outside obstructions on the movements of its wheel ; it 
 has nothing whatever to do with the obstructions themselves 
 as causes, any more indeed than the law of gravitation has to 
 do with a house which so securely supports a stone on its roof 
 that it refuses to let it fall to the ground. But how about 
 the workman of the present day, it will be asked, who fulfils 
 all the conditions of economic freedom in his bargain Avith his 
 employer for wages % Why do his wages not keep time and 
 step with the profits of his employer, rising as they rise and 
 falling as they fall ? Or why, again, do they bear a different 
 proportion to the earnings of the employers in one country 
 and another? The answer is still the same ; it is due to the 
 intrusion of extraneous influences which have nothing to do 
 with the Science of Political Economy — whether they be 
 political, legislative, or psychological influences, as, for example, 
 the laws against combinations of workmen ; or because wages 
 move along the sluggish lines of evolution and custom which 
 dominate the minds of both workmen and employers alike, and 
 cause the movements of the wheel on one side to be wanting 
 in ease and fluidity compared with those on the other. The 
 remedy lies only in counter legislation, or in the workmen 
 themselves laying to heart that golden sentence of Emerson, 
 that it is ' the imbecility of the masses that invites the 
 impudence of power.' 
 
 Another objection to our doctrine may take the form of the
 
 THR WHEEL O?^ AVEAI.TH AS A WHOLE. 113 
 
 query : — How if each con^^umer on the wheel is not necessarily 
 a producer as well, but if on the contrary great numbers of the 
 }>opulation are consumers only, not producers; — do their 
 incomes rise and fall with the rest of the community ? And 
 if not, why not ? The answer again is simple ; these men, 
 however excellent in other respects, are economically speaking 
 not on the existing wheel of wealth at all ; they may, or indeed 
 must, have been once, or their fathers before them, but for the 
 present they rather stand around it like tax-collectors taking 
 tribute from it ; and whether they get more or less from it than 
 is their due, or whether what they get shall keep step with 
 the general increase or decrease of wealth, is a matter for the 
 legislator, not for the political economist. It is the same too 
 with the question of Population when it has been allowed to 
 exceed the numbers that can be effectively employed in 
 productive labour where the fixed capital of a country is 
 working at its highest possible speed, and is being taxed to 
 its utmost resources. For here again numbers of people are 
 virtually consumers only, and (when work has to be found for 
 them) not full and effective producers ; and so far are a pure 
 tax on the economic powers of the country, — the subject of 
 Politics and Legislation, but not of Political Economy, They 
 are no more the subject matter of Political Economy, indeed, 
 than a man's personal or household expenses are a part of his 
 proper bvisiness or profession. 
 
 The above instances I have noted in passing merely to show 
 that the attempt to get a Science of Political Economy out of 
 a conglomerate mass of Politics and Political Economy (as the 
 Orthodox Economists have tried to do) where the Politics 
 depend on the caprices of mere Power as such, — political, social, 
 or industrial, — while the Political Economy is a question of 
 scientific Law, is an impossibility. 
 
 Leaving our demonsti*ation, therefore, where it stands for 
 the present, namely that the sole natural law of the distri- 
 bution of wealth in a pure science of Political Economy is that 
 
 I
 
 114 THE WHEEL OF WEALTH AS A WHOLE. 
 
 the wealth of all classes tends to rise and fall together ; and con- 
 trasting it with the opposite doctrine of the Orthodox 
 Economists, namely that as the one rises the others must fall, 
 I would again lay emphasis on the difference that is made in 
 the truth or falsehood of every proposition of a deductive 
 science according to the character of the original symbol or 
 formula from which it starts ; whether for instance, as in the 
 present case, it is from the symbol of a continuously running 
 wheel, or, as the Orthodox Economists have it, from a series 
 of rods laid end to end from which fractional parts have to be 
 cut off before the remainder can be added in turn to the next 
 and succeeding rods. And this will explain why it was that 
 in a preceding chapter I laid so much stress on the distinction 
 between a science founded on a number of factors each of 
 which had a positive function, and one founded on factors one 
 or other of which was suppressed, or had assigned to it a 
 negative function only. And the present is a case in point. 
 For although in itself it would seem to make no difference in 
 the result whether you choose to regard the increase of wealth 
 of a nation as due to the co-operation of two positive factors, 
 production and consumption, or to the balance left over from 
 a positive and negative one, production minus consumption ; any 
 more than it does if vou res^ard the number ten as resulting 
 from five [)lus five, or from fifteen minus five ; yet it makes 
 all the difference the moment you try to get it into a concrete 
 mathematical symbol or formula from which logical deductions 
 are to be drawn. In the first case, when wealth is being 
 increased, it will have mounted up like a snowball or rolled 
 itself up like a parti-coloured stair carpet, where each layer 
 added to its circumference will be made up of all parts alike ; 
 while if wealth is decreasino; it will melt or unroll itself ao^ain 
 with a loss in which all its sides or aspects will participate. 
 But in the second case, on the contrary, where some part has 
 to be cut off and deducted each time, before the balance can be 
 added on to the next, you cannot get a steady increase ; for
 
 THE WHEEL OF WEALTH AS A WHOLE. 115 
 
 with the consumption neutralizing a part of the production, 
 the wages a part of the ])rofits, and the profits a part of the 
 wages, the less that is cut off each time necessitates that the 
 less will have to be produced next time to make up for it ; and 
 our aggregate of wealth, which started out with decent pro- 
 portions, will in our efforts to increase it by saving, become 
 less and less, tapering at each remove, until it ends in a point ; 
 so that if all the world turned misers, the wealth of to-day, a? 
 we have seen, would in ten years, say, have reduced itself for 
 each individual to a piece of prairie land, a potato patch, a 
 wigwam, and a bear's skin ! 
 
 In the present and foregoing chapters we have set down as 
 many perhaps of the principal laws of Political Economy both 
 as a pure and as an applied Science, as it is expedient to set 
 down at this stage of our journey, with no further development 
 of the positions raised than is necessary to avoid confusion and 
 bewilderment ; leaving their further explication and develop- 
 ment to the succeeding chapters in which we shall have to 
 apply them critically to the successive systems of the Orthodox 
 Economy which we are to pass under review. These systems 
 I propose to divide for the sake of convenience into three ; the 
 stage represented by Adam Smith and his predecessors, the 
 Mercantilists and the Physiocrats ; the stage dominated by the 
 works of Ricardo and Mill ; and the recent and present 
 transitional stages in which the Orthodox Economy, like 
 Orthodox Theology after the Reformation, is seen splitting 
 itself up into a number of subordinate schools, characterised 
 by contradiction and uncertainty, but without any essential 
 change in their critical method or principles. This last stage 
 is represented by such names as those of Jevons, Marshall, 
 Bohm-Bawerk, Clark, and otiier distinguished exponents 
 belonging to the Austrian and American schools. Of the 
 thinkers outside the Academic ranks who have been most 
 influential in breaking down the authority and prestige of the 
 Orthodox Economy, the names of Comte, Karl Marx, Henry
 
 116 THE ^VHEEL OF WEALTH AS A WHOLE. 
 
 George, Ruskin, Carlyle, Gunton, .1, M. Robertson, and Mr. 
 Hobson, most readily occur to one. But of all these, the only 
 ones who coming to their subject from the inside., as it were, as 
 economic specialists, have reached practically the same general 
 conclusions on many, if not all. of the aspects of our subject, as 
 I have from the outside, — from the standpoint of Civilization in 
 general and Sociology, — are Mr. Gunton, and especially Mr. 
 Hobson ; all of which will appear as we pass these writers 
 successively under review. 
 
 END OF BOOK I.
 
 PART II. 
 
 FREE TRADE AND 
 PROTECTION.
 
 CHAPTEE I. 
 
 GENERAL CONSIDERATIONS ON EIGHTEENTH 
 CENTURY THOUGHT. 
 
 'J N opening this section of our subject the first general 
 position which I desire to establish is this, that it would 
 have been almost a miracle for any man living in the time of 
 Adam Smith to lay even the groundwork of a science dealing 
 either with political, social, religious, or moral problems which 
 should have a permanent and final valitlity and authority for 
 men living at the present day ; and above all a Science of 
 Political Economy. In the first place the great conception of 
 Evolution with its dynamic point of view had not yet, except 
 perhaps in the mind of Goethe and a few French Sociological 
 Thinkers, even dawned on the intellectual world, much less 
 had any attempt been made to reconstruct the distinctly 
 human sciences of Religion, Ethics, Politics, or Economics, on 
 the lines of its fundamental principle. And the consequence 
 is that no system of thought having its origin and development 
 in the Eighteenth or first half of the Nineteenth Century 
 (always barring of course the Mathematical and Physical 
 Sciences, for reasons which we have given in our first chapter), 
 but has become hopelessly antiquated and superannuated for 
 readers of the present age ; and tlie antiquity which was once 
 the consecration of all human thoufrht and institutions has now 
 become their tomb. Except therefore as marking the stages
 
 120 GENERAL CONSIDERATIONS 
 
 through which the intellectual development of mankind has 
 passed on its way, these old systems in themselves serve only 
 to choke up libraries, to waste time, and to cumber the ground. 
 Indeed there is no need for us to refute them, they have done 
 that for us themselves ; each system swallowing up the one that 
 went before it like a succession of perpetual motion schemers, 
 and with net result, as in the case of the fabled Kilkenny cats, 
 — zero, or tails only I For where now are the political 
 doctrines of ' natural rights,' the ' state of Nature,' of abstract 
 'liberty and equality,' which gave rise to as many new con- 
 stitutions and forms of government in the Nineteenth Century 
 as tliose they overturned at the time of the French Revolution, 
 and which so permeated the minds of men in the days of 
 Adam Smith i They are one and all more or less discredited, 
 and are being gradually superseded by the doctrine of Evolu- 
 tion and the Science of Sociology which are now gathering 
 Politics as well as the other Sciences into their ample folds. 
 Held in their decadence by Herbert Spencer alone among 
 thinkers of the first rank, and being in their essence dia- 
 metrically opposed to his own doctrine of Evolution, he went 
 to his grave in despair because his adhesion to this Utopia of 
 ' natural rights " which had been the creed of philosophical 
 radicalism in his youth, had ruined his influence in the domain 
 of those social, moral, and political sciences which lay nearest 
 his heart, and which were regarded by himself as the crown of 
 his labours. Where, again, is the natural theology of Paley 
 and his successors, or the systems of Theism, Atheism, and 
 Materialism to which Voltaire and the Encyclopedists in their 
 various ways gave their imi)rimatur ? Or the individualist 
 Psychology of that time, which culminated in the individualist 
 Ethics of Bentham and the Mills that followed on it ^ Gone 
 too, and swallowed up in the same maelstrom of Evolution. It 
 is the same, too, with the systems of Metaphysics and Ontology 
 of Kant and Hegel, profound and suggestive in many ways as 
 they are, but which are at last passing away even in those
 
 ON EIGHTEENTH CENTURY THOUGHT. 121 
 
 academic haunts where they lingered so long, and for whose 
 scholastic dialectics they were so well adapted; retreating 
 before the rising tide of a philosophy founded on the new way 
 of looking at things through the eyes of the Evolution 
 Psychology. For in spite of all the labour they expended in 
 trying to solve the Problem of Existence in the ultimate form 
 into which they had cast it, — namely as to how a bridge could 
 be built which would get them logically across from ' the 
 Many " to ' the One,' — even they, were not able to span the gulf 
 by the elaborate cantilevers which they threw across from the 
 opposite banks (for they would never quite meet in the centre), 
 any more than Herbert Spencer could by his more naive and 
 unsophisticated subway of an Unknown Cause. 
 
 And now we have to see that to this death and oblivion of 
 all distinctly Eighteenth Century thought no exception can be 
 made in the case of Political Economy. For when Adam 
 Smith wrote his ' Wealth of Nations ' the type of Modern 
 Industry to which every Applied Science of Political Economv 
 must now be adapted — if it is to be of any use in Politics and 
 Legislation— had not even been born, but was only just giving 
 herald of its advent on the horizon. None of the great 
 inventions had yet appeared, or if they had, they had scarcely 
 yet been applied to manufactures. Hand looms, hand lathes, 
 primitive furnaces, were still the order of the day and were 
 typical of manufacturing industry generally ; and it was only 
 when a particular product happened to require several distinct 
 operations, and the labour could be organised by bringing the 
 workmen all closely together under one roof, and keeping each 
 to a particular task where practice would make perfect — by 
 the division of labour, in short, — that the amount of the product 
 would exceed very much the mere physical power and skill of 
 the labourer by himself ; unlike the present day wherc^ the 
 powers of Nature embodied in machinery will add gratuitously 
 a thousand units of product for every unit added by the 
 workman. The wealth of England, accordingly, in those days
 
 122 GENERAL CONSIDERATIONS 
 
 was clue rather to her carrying trade and to the extent of her 
 foreign markets, than to her home trade or the actual surplus 
 of her manufactures. It was rather to the monopoli/ of these 
 manufactures than to their actual amount, that the wealth 
 which was poured into the lap of England was due ; in the 
 same way as the monopoly of a few mines, of Potosi and 
 elsewhere, made the wealth of Spain in the Sixteenth Century, 
 and the monopoly of silk manufactures and wines made that 
 of France. In other words, the wealth of nations in the 
 Eighteenth Century was due — so far as manufacturers were 
 concerned — to virtual monopoly rather than to the actual amount 
 of powers of Nature which they had succeeded in enlisting in 
 their service. The only source of wealth in which the powers 
 of Nature could be said to lend and spend themselves freely 
 over and above the mere physical labour and skill of man, was 
 Agriculture. But as this natural increase, due to the free gifts 
 of Nature, went to the landlords in rent, all the rest of the 
 community, — barring the merchants who skimmed off the profits 
 accruing from the monopoly of manufactures and the foreign 
 trade, — were barely able to replace by their labour more real 
 wealth (in the sense of ' value in use ' as distinct from ' value 
 in exchange ') than was the result of their own physical 
 exertions ; inasmuch as each of their hand looms and other 
 crude machinery, instead of turning out per man as much in a 
 day as would serve a thousand families, as is the case with the 
 machinery of the present day, turned out comparatively little 
 more than would minister to the necessities of the man himself 
 and his family who used it. The consequence was, that as 
 Ao;riculture was the main source of the natural increase of 
 wealth over and above that of ordinary human labour, and as 
 this wealth went entirely into the hands of the landlords, and 
 as further the means of transport from foreign countries were 
 at once both slow and imperfect, what the nations had most to 
 fear was a series of bad harvests at home or abroad, but 
 especially both together. For in this unfortunate conjunction,.
 
 ON EIGHTEENTH CENTURY THOUGHT. 123 
 
 the great masses of the people, as in India at the present clay, 
 were brought within sight of actual starvation. Now at the 
 present time all this is reversed. Instead of the powers of 
 Nature lending themselves only or mainly to the assistance of 
 man in Agriculture, they lend themselves a thousand times 
 more to his assistance in Manufactiu'es ; instead of the corn 
 crops of the world being his chief source of anxiety, they are 
 now, owing to facilities of transport, his least ; instead of the 
 savings in which the increase of national wealth consists 
 coming mainly from Agriculture and Monopoly, they now 
 come from the normal output of manufacturing industries; and 
 finally instead of the product consisting of raw materials of 
 food and clothing which can be stored and housed, and which 
 will keep for a while, — as corn, cattle, wine, timber, etc., — it 
 consists now even more of manufactured goods which will not 
 keep, and if not at once used and consumed will speedily begin 
 to decay. But more important than all for the Science of 
 Political Economy is the fact that in the time of Adam Sm.ith 
 and before the age of machine industry, the increase of wealth 
 M^as of an intermittent character, being emitted in a series of 
 spurts as it were. The corn, for example, which took six 
 months from the planting of the seed to the harvest, had to 
 supply the population for the next six months ; the cattle and 
 sheep also Avere only intermittently produced, having their 
 seasons of reproduction and increase ; and all this was, 
 superficially at least, totally unlike the increase of wealth at 
 the present time, where corn and cattle from all j)arts of the 
 round world between us and the antipodes, come pouring in on 
 us at all times and seasons, and are consumed and disposed of 
 as quickly at one point of the circumference of the world as 
 they are produced at another. And the same is still more true 
 of the manufactured articles of food and clothing and other 
 goods that will not keep, and which are consumed as fast as 
 they are produced, and produced as fast as they are consumed. 
 But wliat has all this to do, the reader will ask, with the
 
 124 GENERAL CONSIDERATIONS 
 
 Science of Political Economy'? This namely, that anyone 
 contemplating the construction of a system of Political 
 Economy having for its end the increase of wealth, would if 
 he took things merely at their face value and impression, have 
 proceeded on an entirely different basis at that time from what 
 he would at the present day. The amount of saving which 
 represented the increase of wealth he would figure to himself 
 as coming out of depnite separate quantities of products, the 
 I'esult of definite separate harvests ; and in the case of shee[) 
 and cattle, of definite separate years or seasons ; and so the 
 whole process of wealth production would take shape in his 
 mind as so many rods of varying lengths laid end to end from 
 year to year, each rod representing a year's produce ; and the 
 less that was consumed of these rods each year, the greater 
 amount there would be to carry forward to the next and the 
 succeeding years. And the conclusion of the whole matter for 
 him would be, that whatever laws he discovered for his 
 projected Science would have to be deduced from facts which 
 could be summed up in the formula of " jjroduce as much as 
 you can, and consume as little as possible." On the other 
 hand anyone coming fresh to the subject to-day, and taking a 
 survey of the way in which wealth was being increased, would 
 be struck by the general fact that it was being thrown oft' 
 from a continuous tvheel of j^roduntion and consumption, that is to 
 say, of things that were constantly being produced, sold, and 
 consumed , and that the amount of the increase of wealth 
 depended on the rapidity of the ' turnover,' that is to say, on 
 the rapidity with which the products were produced, sold, con- 
 sumed, and reproduced. Or to put it in a word, anyone 
 coming to the subject at the time of Adam Smith would have 
 said that the object to be aimed at in an Applied Science of 
 Political Economy was — how to produce as much as possible, 
 and refrain from consuming it as long as possible ; whereas at 
 the present day the object is — how to produce and consume as 
 much and as quickly as possible.
 
 ON EIGHTEENTH CENTURY THOUGHT. 125 
 
 Now although it was quite natural that Adam Smith, like 
 all ])ersons living before the age of Machine Industry, should 
 think that the saving by which the increase of wealth is effected 
 must be drawn directly out of Production, instead of out of the 
 double process of Production and Consumption, he need not 
 necessarily have done so : for the most casual reflection would 
 have taught him that even the saving of an individual can 
 come only after the product has been sold, and so consumed — 
 although that consumption is done by some other person. Had 
 he not rested content, therefore, with a mere surface impression 
 but had felt it necessary to probe the process of wealth 
 production and increase more deeply, he would have escaped 
 the fallacy into which he fell, and which has been perpetuated 
 through the long line of his successors to the present day. 
 But it so happened that just at that time a new system of 
 Political Economy appeared in France, having for its object 
 the reversal of all the old principles on which the wealth of 
 nations had hitherto been based : — principles which were then, 
 owing to the changed conditions of the Industrial world, 
 everywhere falling into disrepute. This was the system of the 
 Physiocrats, as they were called, which was introduced by 
 Quesnay, a French physician of the time of Louis XV. ; and 
 it numbered among its adherents, Turgot, Morellet, the elder 
 Mirabeau, and many of the most distinguished men of the 
 time. Now Adam Smith, who with Hume had kept himself 
 all along closely in touch with F'rench thought, was so, 
 completely swept off his feet by the plausibility of this new 
 system of Political Economy, that he gave himself no time to 
 dig more deeply down to the absurdities which it concealed, 
 but, as we shall see, practically swallowed it in all its essentials. 
 Now, were I to affirm that the orthodox Political Economy of 
 the present day is but a developed form of this old system of 
 the Physiocrats, I should be met with a stare of mingled 
 amazement and incredulity ; for by the orthodox Economist 
 this system is regarded as being as dead as that of the
 
 12H GENERAL CONSIDERATIONS 
 
 Mercantilists which it superseded. And yet I should be quite 
 right in uiy contention ; for the difference in essential principle 
 between Adam Smith and these Physiocrats, — as we shall see, in 
 spite of the elaborate affectation of disagreement with which 
 he drew up his objections to their system in detail in a series of 
 four or five propositions, — is infinitesimal. So deeply, indeed, 
 was his ' Wealth of Nations ' permeated through and through 
 with the principles of the Physiocrats, that he distinctly 
 declares that their system " with all its imperfections is 
 perhaps the nearest approximation to the truth that has yet 
 been published upon the subject of Political Economy." 
 
 But if this be true, how, the reader will ask, do 1 account 
 for the fact that Modern Political Economy traces its pedigree 
 back to Adam Smith, instead of to this discredited, superseded, 
 and now quite forgotten system of the Physiocrats ? The 
 answer is simple. Adam Smith like the thoughtful, careful, 
 and laborious student and observer he was, devoted years of 
 his life to going about among the landlords, capitalists, govern- 
 ment officials, bankers, and men of business generally with 
 whom he had acquaintance, or to whom from his position later 
 as Commissioner of Trade he had easy access, and ascertaining 
 from them personally, or from the statistics with which they 
 supplied him, all kinds of existing business relations between 
 landlord and tenant, capitalist and workman, all sorts of details 
 of banking and retailing, of the profits of stock and the wages 
 of labour in different employments, as well as the causes of 
 their differentiations, and so on. And these he proceeded to 
 generalise much in the same way as the thoughtful special 
 correspondent of a newspaper in the present day might do when 
 sent out by his chief to report on the methods and results of 
 the different specialists in their several departments, — whether 
 of trade, of manufacture, of agriculture, of science, or of art, — 
 for the benefit of the general public who having practical 
 experience of their own particular walk in life only, are anxious 
 to get some general idea of what, whv. and how other men are
 
 ON EIGHTEENTH CENTURY THOUGHT. 127 
 
 doing in theirs. And these general principles and methods, 
 supplemented by carefully thought-out reflections on currency, 
 taxation, governmental regulations, tariflfs, colonial management, 
 and the like, Adam Smith, when he came to write his book, 
 proceeded to set in the general framework of principles directly 
 drawn, as we shall presently see, from the system of Political 
 Economy of the Physiocrats, with which they seemed in his 
 mind of all systems best to harmonise. 13ut the reason they 
 seemed to harmonise so well was, that the facts and the theories 
 were at bottom the two complementary aspects of the same 
 thing, — namely of the general condition of industry before the 
 age of machine production. The theory of the Physiocrats, 
 in a word, was but a superficial generalisation of the facts, 
 while the facts lent a superficial gloss to the generalisations of 
 the theory. The theory and the facts fitted each other much 
 in the same way as the rules of grammar or of music in a 
 particular age or stage, reflect the practices of the accredited 
 writers and musicians of that age or stage of development of 
 these arts ; but the result was neither a Pure Science nor an 
 Applied Science of Political Economy wdiich would hold true 
 for any and every stage of industrial development, and under 
 all political or social conditions, but only for industry at a 
 particular stage. 
 
 And the consequence of all this for Adam Smith and the 
 future of Political Economy was this, — that his successors 
 struck by the range and accuracy of his knowledge of difl"erent 
 businesses and industrial employments, and the superficial 
 harmony which obtained between his theory and the facts of 
 which it was but the summary and shorthand expression, 
 embraced them both as parts of a single harmonious whole, 
 and transferred the encomiums, which justly pertained to his 
 admirable digest of industrial facts, to his theory as well ; not 
 pex'ceiving that the theory in which the facts were encased 
 I'eally belonged to the Physiocrats. And with this further 
 result, that when industry had entered its full-fledged stage of
 
 128 GENERAL CONSIDERATIONS ON XVIII. CENTURY THOUGHT. 
 
 machine production, and the increase of the wealth of the 
 nation proceeded, as we have seen, on a different and even 
 antagonistic principle, his successors, now that his name had 
 become a classic, clung to his abstract theory, which was really 
 in its essence that of the Physiocrats, developed and expanded 
 it, and stamped it with the hall-mark of academic orthodoxy, at 
 the very time that they were re])udiating the abstract system 
 of the Physiocrats in its raw t«tate, as crude, antiquated, and 
 obsolete. So that it is really this system of the Physiocrats, 
 disguised by the superficial modifications which we shall 
 presently see Adam Smith made in it, which dominates the 
 Political Economy of the orthodox schools to this hour. But 
 as it would be unfair to the illustrious memory of Adam Smith 
 to leave this imputation undemonstrated, I ])ropose to pause 
 here for a moment to consider in detail what their theory was, 
 to point out the minor matters in which Adam Smith differed 
 from them, and to connect their theory with that of the 
 ' Mercantilists,' as they were called, who preceded them ; and 
 so by linking up their doctrines both with those which preceded 
 and those which followed them, to make the evolution of the 
 science more complete. By this means I hope still further 
 to exhibit the impossibility of those who believe in the doctrine 
 of Evolution ever going back to the Eighteenth Century 
 for any body of distinctly human doctrine whatever, — and not 
 less so for Political Economy than for any other subdivision of 
 the Science of Civilization or Sociology. For the doctrines 
 both of the Physiocrats and of Adam Smith being but the 
 superficial reflex, as of a signet ring, of the industi'ial conditions 
 of the particular time in which they lived, and these conditions, 
 as we have seen, having almost entii-ely passed away, the 
 doctrines which correspond to them ought long since to have 
 passed away also. Why they did not do so, we shall see in 
 detail as we proceed.
 
 CHAPTER II. 
 
 THE MERCANTILE SYSTEM. 
 
 ^I^HE doctrines of the Physiocrats which, as we shall 
 presently see, Adam Smith adoj)ted almost in tlieir 
 entirety, cannot be given their proper place in the evolution 
 of our subject without some passing reference to the doctrines 
 of the Mercantilists who preceded them, and out of antagonism 
 to whose doctrines the theories of the Physiocrats sprang with 
 that one-sided enero;v and zigzag of reaction bv means of which 
 alone before the days of Evolution, like the tacking of sailing- 
 vessels before the days of steam, all truth seemed fated to 
 advance. Now of this Mercantile System it may be said in 
 general that up to the time of Adam Smith, although falling 
 more and more into decay in the extremer form at least, — owing 
 to the fact that the industrial conditions in which it took its 
 rise had largely passed away, — it still remained not only the 
 theory but the practice of most European States. And as it 
 will serve to illustrate one or two of the main principles which 
 it is the object of this volume to enforce, I may perhaps be 
 permitted to dwell on it here for a moment. These principles 
 are, first, the impossibility of divorcing in practice the laws of 
 Political Economy whether Pure or Applied from the largei' 
 considerations of Politics. Civilization and Sociology ; secondly, 
 that the theories of the Mercantile System were not only the 
 germ from which Political Economy has hitherto developed, 
 
 K
 
 130 THE MERCANTILE SYSTEM. 
 
 but that they must be the guidiug principle of its evohition 
 so long as nations exist as separate entities struggling to 
 maintain each its own individuality in the midst of other 
 States. 
 
 I am of course aware that no system has been the theme of 
 more gibes amongr the orthodox Economists who have followed 
 in the footsteps of Adam Smith than that of the Mercantilists, 
 which they have everywhere held up to ridicule as being not 
 only from an economic but from a political point of view the 
 most puerile and exploded of superstitions. It will be my aim 
 in this chapter to reverse if possible, or at least to modify, this 
 all too lightly entertained conviction. 
 
 To begin with, then, I would point out that until the 
 millennium of peace and goodwill has arrived for mankind, each 
 nation while co-operating with other nations as far as possible 
 in the general work of civilization must have as its primary 
 object to hold its own in the struggle for existence, to protect 
 itself against the aggrandizements of other nations, as well as 
 to increase among them its own authority, dominion, or prestige. 
 If this be so, it is obvious that no nation can pursue a number 
 of ends with equal indifference, as a man of means and leisure 
 can in private life, but must ari-ange its affairs, like a thrifty 
 housewife, in a scale or hierarchy of values, from the all 
 important down through the various degrees of the less impor- 
 tant to the comparatively or absolutely indifferent ; and further, 
 that the means employed, whether in curtailing the freedom of 
 individuals or in relaxing it, must be chosen entirely with a 
 view to their relative adaptability to these ends. At the 
 present day no liberty for example can be permitted to 
 individuals to desert to the enemy in time of war, or to hand 
 over their arms or ships to them either for a pecuniary or any 
 otiier consideration whatever ; nor could it at any age of the 
 world. On the other hand anyone has perfect liberty to-day 
 to sell or buy any of the ordinary articles of commerce as he 
 sees fit, with no one to sav him nav ; or to move in and out
 
 THE :\[EKCANTILE SYSTEM. 131 
 
 among his neighbours iu the street as he pleases, provided 
 always he does not interfere with the equal liberty of others. 
 But this was not always so ; people could not move in and out 
 among each other in the street as they pleased or where they 
 pleased, but had to observe priority and degree of rank and 
 position in order to minimise the danger of constant breaches 
 of the peace. Nor could they buy and sell what they pleased, 
 where they pleased, or how they pleased ; the amount of liberty 
 in this respect permitted them, whether much, little, or none 
 at all, depending strictly on the extent to which that liberty 
 would advance or retard the end to which the trading was the 
 means. 
 
 Now in no system of Political Economy, I will venture to 
 say, have the principles of the Science been better adapted to 
 the end the nations had in view at the time than in the system 
 of the Mercantilists. But in order that we may get the facts 
 in the right focus for perceiving their general bearings, it is 
 necessary to ask at the outset ; — firstly, what was the end the 
 nations had at heart when they all with one accord adopted 
 the Mercantile System ; and secondly, to what extent did the 
 special economic expedients they employed enable them to 
 realise that end — when compared, that is to say, with any other 
 possible economic means or expedients, past, present, or 
 prospective i 
 
 The first question presents no difficulty, for the supreme end 
 of States then and now was national independence, solidarity, 
 security, and prosperity, both in peace and war. As for the 
 means employed, these would naturally follow out of the 
 necessities imposed by the end, and were and still are, first, a 
 sufficiency of armed men and stout hearts ready to respond 
 when called upon; secondly, kings or other executive 
 authorities to watch over and direct them ; and lastly, the 
 sinews of war to back them. Now these three factors are of 
 supreme and equal importance, but it is in the sinews of war 
 that the necessities of Politics come in contact with the
 
 13:2 THE MERCANTILE SYSTEM. 
 
 Political Economy of the Mercantilists, and are seen exercising 
 their control over the evolution and development of the 
 methods, the principles, and the expedients of that system, 
 precisely as these necessities of Politics prescribe the system 
 of laws which mark out the duties, the responsibilities, the 
 liberties, the restraints, and the relations of men in their 
 internal civil affairs ; the difficulties which attended the 
 levying and collecting of the sinews of war prescribing the 
 relative amount of restraint or freedom of trade. What; then, 
 were these difficulties f In the first place, nothing but the 
 actual gold or silver coin was of any value in meeting the 
 necessities of the State either for defence, aggression, or 
 internal administration ; and the difficulty consisted in laying 
 hands on it when it was wanted. It could not be raised at a 
 moment's notice as at the present time, by the issue of 
 securities, exchequer bills, or what not, on the credit of the 
 State, to be taken up by its own subjects or by foreigners. 
 For at the time when the Mercantile System took its rise, 
 neither credit nor security was anywhere to be found. To 
 begin with, there was not, in the Northern nations at least, 
 even the rudimentary beginnings of that organized system of 
 banking and credits which to-day is spread like a web over all 
 the nations, linking the commercial, industrial, and financial 
 world together ; and if there had been, there was no security 
 that any of these credits would ever be i-edeemed. Indeed 
 there was neither in the political, the religious, the social, nor 
 the material conditions of the time the least assurance any- 
 where to be found that a single coin would pass from the hand 
 that held it to the hand that might hold the credit against it. 
 On the contrary if left to themselves all these conditions 
 seemed as by a kind of fatal unanimity to conspire together 
 that it should twt pass. To begin with, there was no way of 
 knowing the financial or industrial assets of either governments 
 or individuals, for the aftairs of each in the darkness of these 
 semi-barbarous times were as vao;ue and uncertain as the
 
 THE MERCANTILE SYSTEM. 133 
 
 movements of ships on midnight seas. There were neither 
 financial storm signals to warn creditors of unseen dangers, 
 nor fine weather ones to tempt them to put out to sea. There 
 was neither security for movable goods against the rapacity of 
 man, nor for the crops and harvests against the uncertainty of 
 the seasons. With the nations always at war with each other, 
 there was no code of international law, and certainly none for 
 the payment of national debts, which if they could not be 
 collected at the sword's point were repudiated. Debt collection 
 of any kind in fact as a function of the central government 
 was either unknown or was a fiction. Even the king's writ 
 would not run farther than his own domain, or to the borders 
 of the estate of his nearest rebellious baron. 
 
 Nor could the Church afford any security or help to the 
 creditor. For although she took good care by means of 
 interdicts and excommunications to collect her own debts from 
 unwilling kings, she turned her back on all bargains for interest 
 on money given or i-eceived by individuals, as forbidden by 
 the Canon Law ; and only passively acquiesced in or winked 
 at those loans to industrial concerns where profits could be 
 plausibly represented as returns from a common enterprise. 
 Nor was the transport either of money or goods any more 
 secure than their possession or exchange. The seas were 
 infested with pirates, and on land the feudal barons from their 
 castles everywhere swooj)ed down on the passing trader. The 
 consequence of all this was that money or other valuable 
 movables in small bulk had to find for themselves holes in the 
 ground or up the chimneys ; and if they were tempted to venture 
 out on sound legitimate commercial enterprise, it had to be 
 done with as much stealth, circumspection, and concealment, as 
 if it were a midnight robbery that was on foot. And the 
 consequence of this again was that in all foreign trade and in 
 most domestic, except between neighbours in the same village 
 or municipality, the rule of the commercial road was, what it still 
 is among retail tradesmen who do not know their customers; —
 
 134 THE MERCANTILE SYSTE51. 
 
 ' Money down, or no deal.' And further, as sinews of" war 
 always available and easily accessible were as pressing a 
 necessity of kings then as now, and as the actual coin or 
 bullion, if it were to be got together at all, had to be collected 
 from their own subjects, it was indispensable that these subjects 
 in turn should have it in actual tangible possession. And it 
 was in the manoeuvring to secure this that the Mercantile 
 System took its rise. 
 
 The first plan devised by the Government for this end was 
 to see that in every bargain between a native and a foreign 
 trader more bullion was left in the country by the foreigner 
 than was taken out of it by him. And as these bargains with 
 foreigners Avere only to be made at certain specified places or 
 markets, officers of the king were always present to see that 
 the balance in gold on each transaction was on the side of their 
 own countryman. Indeed it went so far that the foreigner 
 was obliged to take up his lodgings at the house of one or 
 other of these officials in order to make sure that the money he 
 received for his goods should be spent, before he left, in the 
 purchase of English goods in turn. As for the English exports, 
 which at that time consisted mainly of wool, hides, lead, and 
 tin, and on which duties had to be paid, certain towns only on 
 the Continent were permitted to receive them. These were 
 called ' staple towns,' and the corporation of English traders 
 established at these towns and charged with the duty of 
 collecting these dues, had to satisfy themselves that the price 
 of the commodities (or enough of it at least to pay the dues) 
 was received from the foreigner in money. As for gold and 
 silver themselves, their export was either altogether forbidden 
 or was subject to heavy duties. By these different devices 
 the Government was reasonably assured of being able to put 
 its hand on the money required as it was wanted ; and it is 
 evident that in no other way but by this restriction of the full 
 freedom of the individual to ti-ade as he pleased could the 
 supreme end of the State, its independence and self subsistence,
 
 THE MERCANTILE SYSTE."\r. 185 
 
 in those unquiet times have been secured. But difficulties 
 arose almost from the very outset. For owing to the small 
 bulk of gold, the ease of its concealment, and the high duties 
 which had to be paid on its exportation, the smuggling carried 
 on in it was so oreat that the Government lost almost as much 
 by leakao-e in one way as they gained by their regulations in 
 another. And this was not all. For the other nations, driven 
 to it by the same political necessity, were also more anxious to 
 obtain gold and to kee\) it in their own hands tlian to part 
 with it to each other. For trading merchants, therefore, gold 
 in hand to be expended on purchases abroad had an immense 
 advantage in every bargain, but the duties on taking it out of 
 the country were so great that the facilities for foreign trade 
 were being everywhere seriously curtailed. At last the 
 complaints of the merchants became so loud and sustained that 
 governments everywhere were obliged to think of other means 
 for keeping in the country the gold that was so necessary to 
 them. They began by trying what a modified form of free 
 trade in gold would do, and permitted at first the exportation 
 of foreign coin and bullion free of duty; Holland going so far 
 even as to allow the free export of national coin as well. But 
 the result was what might have been foreseen. The coins like 
 shy and untamed creatures when allowed to escape, disappeared 
 as by magic from the landscape, and taking refuge in holes in 
 the ground could not be recaptured ; accumulating there in 
 hoards, and disappearing as completely from circulation as they 
 do in the East to-day. The Governments accordingly baulked 
 in their efforts to get the gold they wanted either by standing 
 beside each party to a bargain and collecting it by force, or by 
 letting it pass freely in and out of the country to find its 
 level as it would, were now obliged to try another device, 
 which marked the first stage of evolution of the ^Mercantile 
 System. For in the meantime these Governments were every 
 day becoming more settled and centralised, and were extend- 
 ing the strong arm of authority over larger and larger groups
 
 136 THE MEIJCANTILE SYSTEM. 
 
 of their recalcitrant .subjects ; their industrial and financial 
 assets were more secure, calculable, and regular, and their 
 international good faith more assured. They were prepared, 
 accordingly, for a larger scheme of national housekeeping. 
 Instead of keeping their eye on individual transactions to make 
 sure that the balance of each bargain was in their favour, they 
 now made an effort to secure that the total balance of all the 
 trade, export and i))iport, between them and foreigners should 
 be in their favour ; in other words, it had now become an 
 international connnercial struggle, in which nation was to be 
 pitted against nation, and no longer individual against individual. 
 Now it is evident that in the absence of a system of inter- 
 national banking and exchange in which balances only are paid 
 in gold, a balance in gold in a nation's favour could only be 
 secured by its keeping its eye on the imports, and reducing them 
 as much as possible, as otherwise the country might on the 
 occurrence of bad harvests or other deficiency of the necessaries 
 of life be emptied of its coin altogether. And accordingly, as 
 the only way in which you could be sure of your gold and at 
 the same time get all the imports needed in times of dearth, 
 was by taking care that the exports as a whole should always 
 be greater than the imports, the policy of governments was 
 naturally to artificially encourage these exports at all hazards 
 and by every species of device — by drawbacks and bounties on 
 exportation which gave privileges to certain favoured trades, 
 and especially by commercial treaties which gave privileges to 
 those countries from whom we had hitherto imported little but 
 of whose products we were in future to take more, in return 
 for their allowino; us to send them still more of our own to 
 balance and overtop them. In this way by securing that the 
 exports should always exceed the imports, the nation was sure 
 at any point of time of having a balance of gold in its favour. 
 
 Now the first point to be noted is, that this was not a trade 
 policy as such, not a protective policy in our sense of the term, 
 but was pureh' a State policy, a policy for securing the revenue
 
 THE MERCANTILE SYSTEM. 137 
 
 necessary for carrying on the work of government, and to 
 insure the independence and stability of the nation, — its defence 
 against its enemies whether from within or from without. And 
 the proof of this is to be found in the fact that the restriction 
 of imports (or their overbahxnce by exports) inchuled all imports 
 whatever, provided they came from countries where tlie bahince 
 of trade was against us ; and was not confined to goods of the 
 same character as those made at home and with which they 
 might come into competition, as in modern systems of Protection. 
 But as tlie centuries advanced and Governments became 
 settled; as the baron robbers and pirates were put down, and 
 transport was made safe and easy ; as private debts were 
 secured by the law courts, and the assets of nations in general 
 could be estimated with a sufficient approximation to accuracy ; 
 it became at last {)0ssible to establish private and international 
 systems of banking and exchange on a basis both of individual 
 and national credit and good faith ; systems in which balance-'< 
 in private and public ledgert^ took the place of actual gold and 
 silver in niakino- the exchanije of wealth possible. The conse- 
 quence was that governments could now obtain all the gold 
 they wanted for national purposes at practically a moment's 
 notice by means of loans based on their national credits and 
 assets. It would have been madness therefore to have gone on 
 restricting all foreign imports as such, now that the fear of not 
 having enough gold in the Treasury when it was most urgently 
 needed for self preservation or defence had passed away. If 
 then we find that this policy of restricting imports was still 
 continued, it is evident that it must have been for some other 
 reason than the mere necessities of the State. And so, indeed, 
 it was. The imports continued to be restricted, but it was 
 now mainly for purely trade considerations. It was not now a 
 question of the (xovernment getting what it wanted in spite of 
 having to interfere with the legitimate interests of trade, but 
 was distinctly a policy of protecting and encouraging native 
 industry in the interests of trade itself, and under the belief that
 
 138 THE MERCANTILE SYSTEM. 
 
 national wealth was more likely to be increased by this 
 particular system of commercial policy than by any other. 
 And the proof of this is, that the restriction of imports was 
 not now one embracing all imports alike as formerly, but was 
 confined as far as possible to the import of those commodities 
 only which competed in the home market icitli native productions ; 
 and especially, as was natural, to those that competed with the 
 interests of the ruling classes of the time, — the landlords, the 
 shippers, the merchants, and the larger manufacturers. But 
 once the governments and the nations were at one in their 
 whole-hearted policy of making the increase of trade itself 
 their main object in their trade regulations, they were able, 
 now that the home mai'ket was sufficiently protected by the 
 restriction on certain classes of imports, to push more vigorously 
 than ever the policy of extending their foreign markets by means 
 of exports. The system of drawbacks and bounties, as well as 
 of treaties of commerce with favoured nation clauses, was 
 continued and enlarged ; and to these was added a new device 
 for the extension of markets abroad, which combined the 
 maximum of certainty and safety with the minimum of sacrifice. 
 This was the establishment of Colonies in new countries, and 
 the exploiting of their natural resources for the benefit of the 
 mother country by the creation of strict monopolies in her 
 favour, both in the home export trade and in as much of the 
 import trade as was thought desirable or profitable. 
 
 Now this policy of extending the foreign markets by the 
 above and other devices, while protecting the home markets 
 by duties on imports likely to compete with their own pro- 
 ductions, marks the final stage in the evolution of the old 
 Mercantile System which was in vogue everywhere up to the 
 time of Adam Smith. But as it has persisted ever since, with 
 only temporary interruptions in all the great countries of the 
 world with the exception of England ; and as the industrial 
 success of England in her opposite regime of Free Trade has 
 up to the present, with certain reservations, been so unquestion-
 
 THE MERCANTILE SYSTE.M. 131» 
 
 able, it would seem as if this were the proper place for the full 
 discussion of a problem and a situation which combined at 
 present one of the most curious anomalies in the commercial 
 policy of nations. But this is impossible at our present stage, 
 inasmuch as the problem is complicated by the intrusion into 
 its domain of the orthodox system of Political Economy as a 
 scientific specialism ; and I must therefore postpone its full 
 discussion until the different stages in the evolution of the 
 orthodox Economy have been passed under review and all the 
 pi'actical factors bearing on the solution of the problem have 
 come into line. If we could only represent the Free Trade 
 of England as the next stage in the normal evolution and 
 development of Protection, there would of course be no 
 anomaly to resolve ; but as the two systems are speculatively 
 in point blank opposition to each other, this would seem to be 
 an impossibility. And yet not necessarily so ; any more than 
 the apparent paradox that if a man were to walk far enough 
 due East, he would, without altering his line of route, finally 
 find himself due West of the point whence he started ; or that 
 if a man who is clothed will only continue to undress himself, 
 garment after garment, he will at last find himself naked. 
 This would explain the policy of Free Trade if it could be 
 shewn as well that at the period in question England had 
 succeeded in making herself supj^eme over the rest of the loorld 
 in some one or more great world-wide industries. For the 
 eft'ect of this would be, that she Avould neither require to 
 stimulate her exports by drawbacks, bounties, or treaties of 
 commerce, inasmuch as by the hypothesis she is already 
 supreme and can undersell the foreigner without theiv aid : nor 
 would she require to put duties on her imports, for by the 
 same hypothesis the imports which would compete with hers 
 are undersold already, while those that would not so compete 
 would be imported free anyway. And so Free Trade would 
 be seen to be really the next stage in the evolution of Pro- 
 tection, when that system as a practical policy had to be
 
 140 THE MERCANTILE SYSTEM. 
 
 adapted to an unique and unprecedented stage of industrial 
 development, although speculatively and theoretically it was 
 in direct antagonism to it ; resembling in this those fishes 
 which, like the shark, turn on their backs the better to secure 
 their food, while theoretically reversing all the ordinary 
 methods for the performance of that function. 
 
 Now, that England had in actual fact obtained the industrial 
 supremacy assumed in our hypothesis will be seen later on ; 
 in tiie meanwhile we have to remark that the speculative 
 doctrine of Free Trade, together with the orthodox Economy 
 which formed its setting, actually took its rise not from the 
 condition of industry in England, but from the abstract 
 speculations of a handful of thinkers in P^ ranee, and that it has 
 been evolved purely along the lines of these speculations down 
 through Adam Smitli and his successors to the present day. 
 It was adopted by Adam Smith, as foreshadowed in his 
 Glasgow lectures, not only on its own speculative merits, but 
 because it suited the industrial condition of England at the 
 time : Ijut it afterwards continued to run its course in- 
 dependently of, though parallel to, the evolution of her Free 
 Trade policy. It was indeed a concomitant rather than a 
 cause ; and although it supported, strengthened, and intensified 
 the movement in favour of Free Trade through every stage, 
 still in its own development as a doctrine it proceeded on 
 abstract grounds entirely, and quite independently of the 
 practical policy. And the consequence was that while the 
 doctrine began as the intellectual support of a policy peculiarly 
 adapted to the practical requirements of a particular nation, 
 it ended, like a doctrine of Theology, in being elevated into an 
 infallible dogma which was held to be true for all nations at 
 all times. All this will be seen in detail as we proceed ; I have 
 alluded to it here mainly for the purpose of introducing the 
 reader to the theories of the Physiocrats who were not only 
 the real founders of the speculative doctrine of Free Trade 
 but of the orthodox svstem of Political Economv as well.
 
 CHAPTER HI. 
 
 THE PHYSIOCRATS. 
 
 "I^ROM the time of Colbert the Government of P^nvnce had 
 strictly conformed to the universal maxims of the 
 Mercantile System then in vogue, — namely of encouraging- 
 Manufactures at the expense of Agriculture. The main object 
 w^as as usual to secure easily accessible sources of wealth to be 
 tapped for the benefit of the State; whether the revenue thus 
 accruing was expended for the all important object of national 
 administration and defence, or was largely blown away in the 
 luxuries and dissipations of the Court, need not concern us 
 here. It is certain that Colbert himself genuinely believed, 
 like the rest of the world, that more national wealth would 
 accrue from the working up of the raw materials of the soil 
 into special classes of highly finished manufactures for con- 
 sumption at home and abroad, than from the cultivation of 
 the soil itself. But he also saw that more revenue was to be 
 squeezed out of them as well, and that taxes c(ndd be more 
 easily raised from the industrials of the towns than from the 
 landlords or peasants of the countiy. For these industrials 
 having for centuries been protected in their rii>-hts and urivileo-es 
 by the king himself against the extortions of the surrounding- 
 nobility, — and especially in this matter of taxation, — were all 
 the more amenable when he wished to squeeze them himself. 
 AVhatever, therefore, contributed to their material prosperity
 
 142 THE PHYSIOCRATS, 
 
 could be easily made to contribute to his revenue, and to fall 
 automatically into his coffers. But it was different with the 
 inhabitants of the country. The nobility, both lay and 
 ecclesiastic, were exempt from taxes on their property, and 
 even when a capitation tax of more than customarj^ amount 
 happened to be placed on their shoulders, all the machinery of 
 Court intrigue was brought to bear, by means of special 
 exemptions and under-valuations, to have it shifted on to the 
 other classes of the community, whether it were the peasants 
 or the industrial workers of the towns. The seigneurs, it is 
 evident, were still far too powerful and their hereditary privileges 
 and exemptions from taxation too assured, to make the agri- 
 culture of the country districts an easy hunting ground for 
 hungry officials bent on replenishing the king's treasury ; while 
 as for the peasants themselves, they had from time immemorial 
 been specially reserved by peculiar and exceptional privileges 
 for the extortions of the landlords, and so were not available 
 for further exploitation by the king. If fresh taxes, therefore, 
 were to be raised, and gold to be had on emergency, it was at 
 the gates of the towns with their factories and workshops that 
 the tax collectors must encamp to secure an ever present source 
 of revenue on which at any moment they could lay their hands, 
 and from whose productive yield they could skim the cream on 
 every passing wave of local or national prosperity. But if the 
 milch cow was to give an increased yield, it must be fed and 
 otherwise looked after; and accordingly the government of 
 Colbert bent all its energies to the encouragement of manu- 
 factures, and to the extension of their markets abroad. New kinds 
 of manufactured goods were subsidized, and exports of the old 
 ones were stimulated by bounties, by treaties of commerce, by 
 the restriction of competing imports, and by all the other 
 devices of the old mercantile system. But the exportation of 
 corn, on the other hand, was absolutely forbidden, ostensibly 
 on the ground that by keeping it in the country the workmen 
 of the towns would be able to live at less expense, and their
 
 THE PHVSIOCKATS. 14o 
 
 manufactures becoming cheaper in consequence, there would be 
 a greater demand for them in foreign markets. Besides, the 
 great Provinces of France were still in many respects like 
 separate nations, and in none more than this, that corn could 
 not be imported from one into the other except under the 
 severest restrictions. The consequence was that while the 
 harvests were plentiful in one province, famine might be 
 raging in a neighbouring one, without the corn being able to 
 pass the frontier between them ; and while the landlords of each 
 alternately benefited and suffered by this capricious deficiency 
 and excess, the general distress became so great that the 
 prohibition of the export of corn was after the time of Colbert 
 more and more relaxed. Special treaties of commerce with 
 neighbouring nations took the place of general prohibitions, 
 and were attended with varying success, — except in the trade 
 relations with England which were uniformly at a deadlock. 
 P'or as manufactures formed the natural industrial strength of 
 England, while wine and silk constituted that of France, and 
 as France was determined to push her manufactures at all 
 costs in competition with those of England, the consequence 
 was that the two nations were in a chronic state of commercial 
 war during the whole of the eighteenth century. But in spite 
 of all difficulties, and through innumerable changes of detail, 
 France remained staunch to the Mercantile policy of promoting 
 the export of her manufactures at the expense of her 
 agriculture, down to the time of the Revolution. 
 
 In the generation before that outbreak, however, a school of 
 Economic Thinkers had arisen in France whose practical aim 
 was to reverse not only the principles of taxation then 
 prevailing, but the principles of that Mercantile system which 
 for so many ages had everywhere given to manufactures a 
 position of priority over agriculture in the industrial policy of 
 States. This was the school of the Physiocrats to which we 
 have already referred, and which numbered as we have said 
 such men as Turo;ot, Morellet, and the elder Mirabeau among
 
 144 THE PHYSIOCRATS. 
 
 its most devoted and enthusiastic disciples. But as the 
 Government of France had long been a strongly centralized 
 despotism, there was no possibility, as in England, of inaugu- 
 rating and carrying through these or any other political or 
 industrial reforms by means of legislative measures forced on 
 it bv the representatives of the people themselves. The only 
 way of effecting them was by bringing cultivated opinion to 
 bear on the upper and middle ranks of society through the 
 medium of books, — as was so strikingly exemplified at that very 
 time by the far reaching influence of Rousseau, Voltaire, and 
 the Encyclopaedists, not only on politics and religion but on 
 almost every subject of human speculation. The proposed 
 reforms of the Physiocrats accordingly, were ushered into the 
 world under the form of an abstract intellectual system, which 
 it was hoped would give to the movement at once its inspira- 
 tion, its initiative, and its point of departure. This system 
 undertook to demonstrate that Agriculture, which had hitherto 
 been slighted, was not only an important but the one supremely 
 important industrial occupation, while manufactures, which 
 had hitherto been the main concern of Governments, were 
 not only inferior to it, but were the most unproductive and 
 even menial of services. But to get the fulcrum necessary for 
 this proposed reversal and upheaval of opinion, the system 
 needed some large central principle as a core fi'om which its 
 deductions were to be drawn ; and this the Physiocrats found 
 in the doctrine afterwards accepted by Adam Smith and made 
 the basis of his ' Wealth of Nations,' — the doctrine namely that 
 in Agriculture alone do the potvei's of Nature come to tlie assiMance 
 of man, and not in Manufacturei^. The doctrine doubtless 
 sounds strange to us moderns accustomed to see a little water 
 heated in a boiler and made to run an engine do the work 
 of thousands of men ; but it must be borne in mind that 
 neither this nor any other of the great discoveries and in- 
 ventions which have made the greater part of the wealth of the 
 modern world, had then, or for years after the time of Adam
 
 THK PHYSIOCRATS. 145 
 
 Smith, appeared on the industrial horizon. As, liowever, the 
 doctrine furnishes us witli tlie key to tlie distinction between 
 the Mercantilists on the one hand and the Physiocrats and 
 Adam Smitli on the other ; and, what is more important, as its 
 secret influence, as we shall see, like that of a fateful star has 
 presided over the progress and development of the orthodox 
 Political F^conomy from its birth to the present hour ; it is 
 necessary for use to see first of all how the Physiocrats built 
 their system around it. This once clear, we shall then be able 
 to judge whether the alterations made in this system of the 
 Physiocrats by Adam Smith and his orthodox successors, are 
 sufficient to neutralize the effects of founding a highly complex 
 system of Political Economy on a basis so palpably absurd as 
 this dictum of Adam Smith that 'in Agi-iculture, Nature 
 labours along with man, but that in Manufactures, Nature does 
 nothino- and man does all.' 
 
 The first point then which we have to note is, that the 
 reason the Physiocrats thought that it was only in Agriculture 
 that Nature came to the assistance of ]\lan, and not in 
 Manufactures, was because in Agriculture there was always a 
 surplus which went to the landlord in rent after the farmer's 
 profit and expenses had been paid, whereas in Manufactures 
 there was no surplus beyond what was necessar\' to ))ay the 
 profits on capital and the wages of labour. For although, said 
 they, a piece of lace for a pair of fine ruffles, for example, 
 could be made from flax costing a penny, and yet sold 
 for as much as £30, still there was no sur|)lus ; for it would 
 take two years to make it, and during that time the food and 
 clothing of the maker would cost the £30. And fi-om this 
 they argued that manufacturers and artisans and labourers in 
 general were only a kind of ' out-of-door menials ' whose work 
 practically only paid for their keep. But as, like in-door 
 menials, sporting dogs, and carriage horses, all these classes 
 had to be ]\.e\)t out of the raw produce of the soil, they went 
 on to argue, as their second point, that if you wanted the 
 
 L
 
 146 THE PHYSIOCRATS. 
 
 surplus of raw produce, whicli constituted the real wealth of 
 the nation, to increase, you would have to do either one or 
 other of two things : — you would cither have to devise means 
 by which the miscellaneous general population of manufacturers, 
 artisans, and labourers could be fed at less expense, or else 
 devise means by which the surplus of raw products which fell 
 naturally to the landlords after keeping these unproductive 
 menials, should be increased. And it was the special boast 
 of the Physiocrats that they had shown how to do both 
 by a single device, and at a single stroke. For all you 
 had to do, said they, was to completely reverse the pre- 
 vailing policy of the Mercantilists, and to throw open your 
 country fully and freely to foi'eign trade by abolishing all 
 tariffs, duties, and restrictions whatever, external or internal, 
 and you would find that the double result would at once follow. 
 For by freely permitting the entry of foreign goods which 
 could undersell their own, not only would the manufacturers, 
 the workmen, and the labouring population generally get their 
 clothing and household appurtenances at cheaper prices, but 
 what was more important, the landlords and farmers would get 
 theirs cheaper also. This would increase the landlords' surplus 
 — the all important point with the Physiocrats inasmuch as 
 l)y their hypothesis its increase could alone increase the wealth 
 of the nation — and by so doing would give the landlords more 
 money to expend in improving the cultivation of the soil, 
 which in its turn would yield a still larger surplus, and this in 
 turn again would either keep the same number of manufacturers 
 and workers in greater comfort, or Avould permit of larger 
 families and a larger population ; and so either way would add 
 to the wealth, prosperity, and power of the State. By this 
 scheme, its authors pointed out, all would be for the best all 
 round, and it would be to everybody's interest to support and 
 perpetuate it. But were the Government, on the contrary, 
 still to continue in its Mercantile policy, and load foreign 
 manufactures with import duties, the expenses of living for all
 
 THE PHYSIOCRATS. 147 
 
 classes, including the landlords, would be so increased, that the 
 surplus left over in the hands of the landlords which was the 
 real wages fund out of which all the other classes (except the 
 farmers) were kept, would be so lessened that not only the 
 general population but the nation as a whole would suffer. 
 The only persons who would gain by the import duties, they 
 contended, would be the manufacturing capitalists whose profits 
 would be increased at the expense of those of the farmers and 
 landlords, on the ground that of a given amount of caj)ital 
 invested, the one could not get more without the others 
 getting less. But as it was one of their cardinal docti'ines that 
 the manufacturers were an 'unproductive' class, inasmuch as 
 what they produced was only sufficient for their keep and 
 added nothing to the wealth of the country, while the landlords 
 and farmers were the only ' productive ' classes, inasmuch as in 
 their occupations alone did Nature come to the assistance of 
 man by yielding a surplus as her free gift, the result of loading 
 foreign manufactures with import duties would be economically 
 bad for all classes — for the working population, as well as for 
 the nation as a whole. 
 
 And now we have to ask how the Physiocrats pro[)osed to 
 raise the revenue necessary for the defence and administration 
 of the State, if all duties whatever, external and internal, were 
 to be abolished ? Nothing could be simpler, said they ; all 
 you have to do is to put a single tax on land values alone, and 
 the thing will be done, not only without the people feeling it, 
 but without the landlords suffering from it ! For what is paid 
 in taxes by the landlord is first deducted from the whole 
 amount of produce, and the balance is sold at higher prices. 
 In this way the tax is quietly shifted on to the shoulders of 
 the people, and the landowners are untouched by it. But, on 
 the other hand, so equally diffused will the burden be over the 
 whole population, that not only will the taxes be secured with 
 a minimum of friction and injustice to individuals by this 
 mode of levying them, but like all indirect taxes which operate
 
 148 THE PHYSIOCKATS. 
 
 through prices, ahiiost without people knowing it. If it should 
 happen that the landlords were not able to shift the tax from 
 their own shoulders, the scheme of the Physiocrats would be 
 frustrated, for the landlords would then be prevented from 
 improving the soil, on the surplus ])roduce of which, by the 
 hypothesis, not only the subsistence of the people but the 
 wealth of the nation depended. 
 
 Such in barest skeleton and outline, and in its logical 
 concatenation, was tlie system of the Physiocrats, which 
 through its adoption (in its main features at least) by Adam 
 Smith was destined to play so important a part in the policical 
 economy of the world. But as I shall have to deal with the 
 modifications made in this system by him in my next chapter, 
 I shall say no more in reference to it here than that it is 
 precisely the sort of proposition we can imagine a despot, as 
 for example the Czar of Russia, making to the vast population 
 of manufacturers, artisans, and laboiu'ers, who are under his 
 sway, in words to this effect ; — that if they would only live as 
 sparingly as they could^ buy as cheaply as they could, and so 
 permit him and his landlords to accumulate as great a surplus 
 as possible, it would really be for their own and their country's 
 good. For would not the surplus which would accumulate as 
 the result of it in the imperial treasury and in the granaries of 
 the landlords be used to keep them and their families better 
 fed and clothed and housed, better em]jloyed and better paid, 
 than before ? That is to say. if they would only consent to 
 empty as much of the water from their buckets as they could 
 into his and his landlords', these in turn would have all the 
 more left over to pour back into theirs ! They would have 
 lived in the mean time somehow, and all that they had stinted 
 themselves of, and more, would come back to them later on as 
 at once a solid bonus and a delightful surprise ! 
 
 The truth is, the whole argument is a piece of pure logical 
 hocus-pocus, and it is little wonder th;it the system itself 
 should have lono- faded from the thouo;hts of men. And vet it
 
 THE PHYSIOCRATS. 149 
 
 must not be forgotten that Adam Smith deliberately says of 
 it ; " This system with all its imperfections is perhaps the 
 nearest approximation to the truth that has yet been published 
 upon the subject of Political Economy, and is upon that 
 account well worth the consideration of every man who wishes 
 to examine with attention the princi[)les of that very important 
 Science." And indeed, as we shall now see, Adam Smith 
 Embraced the system as a whole with but the most superficial 
 modifications in detail. 
 
 To sum up the history of this strange system in a word, 
 then, we may say, firstly that it was through it, and by a single 
 stroke of the pen as it were, that the great twin doctrines of 
 laiasez-falre and of Freedom of Trade, which have played so 
 great a part in the political economy of the nineteenth century 
 were born into the world ; and secondly, that both these 
 doctrines alike are the necessary logical corollaries from the, to 
 us, amazing first principle, that ' in Agriculture alone does 
 Nature lend her aid to the labour of man, whereas in Manu- 
 factures, Nature does nothing but man does all.'
 
 CHAPTER IV 
 
 ADAM SMITH. 
 
 ^r^HE important and commanding- position occupied by Adam 
 Smith not only in the history of Political Economy in 
 general but in the evolution of the Orthodox Economy in 
 particular, makes the question of the sequence and order in 
 which his views are to be presented to the reader one of more 
 than usual importance. In this historical section my aim is to 
 unite as far as possible into a single presentation the opinions 
 of the respective authors whom we are to pass under review, 
 the evolution of these opinions, and the extent to which they 
 have been interpenetrated and modified by the political, legal, 
 and social forces proper to the civilization of the time. And 
 as Adam Smith, besides being the first authoritative exponent 
 of what was afterwards to become the orthodox political 
 economy of the Schools, was also the last exponent of what 
 may be called a natural system of political economy, like that 
 of the Mercantilists, where State policy formed an even more 
 important element in its structure than purely economic 
 considerations, it would seem more than likely that traces of 
 the system would be found in the evolution of his doctrine, 
 mixed up and lying side by side with the more purely 
 speculative views which he derived from the Physiocrats. 
 These elements I have thought it well to tabulate and set aside 
 at the outset, in order to concentrate on those parts of his
 
 ADA.M SMITH. 1.51 
 
 system from which the succeeding stages of the evohition of 
 the orthodox economy took their rise and point of departure. 
 
 The keynote of those portions of his work in which traces 
 of the old Mercantile system are apparent is to be found in the 
 remark which he appends to his defence of the Navigation 
 Act, that ' the defence of a country is of more importance than 
 its opulence,' going on to add impressively that this Act ' is 
 perhaps the wisest of all the commercial regulations of 
 Eno-land.' But as he has just been arguing that the Act was 
 not favourable to the increase of national wealth as such, 
 inasmuch as by it we had to buy foreign goods dearer and sell 
 our own goods cheaper than would have been the case with 
 perfect freedom in the shipping trade, it is evident that we 
 have here a pure piece of old Mercantilism and Protection 
 welded into his system of Free Trade, like a fragment of older 
 rock into a geological conglomerate. 
 
 Another reversion to the Mercantile system is to be seen in 
 his support of the principle of granting temporary monopolies 
 to joint-stock companies for the purpose of opening up and 
 establishing new avenues for trade with remote or semi- 
 barbarous peoples. This procedure, which was also one of 
 pure Protection and entirely oj)posed to his doctrine of Free 
 Trade, was justified by him on the ground that the general 
 ])ublic would afterwards reap the benefit of what without 
 such assistance would not be undertaken at all by private 
 individuals, owing to the pecuniary risks which attended it. 
 Now this is precisely the ground that is taken at the present 
 day by young and vigorous nationalities in protecting those 
 'infant industries' for which they are natiu'ally adapted, but 
 which without such protection are too weak to stand alone ; 
 and is a piece of pure Protection. He also advocated the 
 subsidizing by the State of institutions and public works for 
 facilitating commerce, which it would not repay either private 
 individuals or groups of individuals to undertake — still another 
 infraction of his own doctrine of Free Trade,
 
 152 ADAM SMITH. 
 
 Now these intrusions of fragments of the okl Mercantile 
 theory into his own body of economic doctrine were, in spite 
 of their logical contradiction to it, deliberately defended by 
 Adam Smith on the ground that they were necessary to the 
 full and adequate performance of the functions of a State when 
 placed in an environment where many things that had been 
 absolute necessities in the older system could not as yet 
 altogether be dispensed with in the new. They were not 
 defended because they were economically true, or as being 
 calculated to add to the wealth of the country even at the time 
 of which he is writing ; on the contrary they lessen, he 
 contended, the wealth of the country, and if it were a question 
 onh' of the national wealth he would have abolished them there 
 and then. But as national defence is with him of more 
 importance than national opulence, he defends them purely on 
 grounds of State necessity or expediency ; much in the same 
 way as he defended the exj)ort dut}- on wool, not on economic 
 grounds but as a proper object of taxation for raising the 
 necessary revenue of the State. From all of which it is 
 evident that Adam Smith, although he thought that he had 
 reduced Political Economy to u science, still felt strongly, 
 what so many of his orthodox successors have ignored, that it 
 could not be detached as a free scientific specialism and let 
 loose on the world to work out its principles to their logical 
 issues, divorced from the larger and higher interests of Politics, 
 ^lorality, and Civilization. 
 
 With these preliminaries we are now in a position to advance 
 to the main object of this chapter, — namely the consideration 
 as to the nature of the modifications made by Adam Smith in 
 the system of the Physiocrats, to Avhose principles he had in 
 general terms given his adhesion ; and especially to determine 
 whether these modifications so far altered the organic structure 
 of that system as to justify 'The Wealth of Nations,' not only 
 in having supplanted it, but also in having become, in its main 
 structural lines at least, the basis of the Avhole future develop-
 
 AOAM S-AIITII. 153 
 
 ment of the orthodox Political Economy down to the present 
 time. 
 
 Now the central doctrine of the Physiocrats, it Avill be 
 remembered, Avas that the only source of the increase of wealth 
 of a nation lay in its agriculture, inasmuch as in ' Agriculture 
 alone did Nature come to the assistance of Man, whereas in 
 Manufactures, Nature did nothing but Man did all.' From this 
 central principle they drew the conclusion that the economic 
 classes in a nation could be divided into two, the 'productive' 
 and the ' unproductive ' ; the landloi-ds and farmers alone being- 
 productive, the manufacturers, merchants, artisans and labourers 
 unproductive, inasmuch as like menial servants they cost as 
 much for their kee}) as they produce. Adam Smith, on the 
 contrary, from the same premises drew the modified conclusion 
 that (/// classes alike were ' productive ' and capable of adtling 
 to tiie wealth of a nation, although in different degrees ; the 
 landlords and farmers together adding the most, inasnuieh ;is 
 they had Nature to help them ; the manufacturers, merchants, 
 artisans, and labourers adding less, inasmuch as they had to do 
 all by their own devices without the assistance of Nature. 
 And in defence of this position he adduced five different 
 considerations. The first was that the manufacturers, artisans, 
 and labourers, did not ' eat their heads off,' like the menial 
 servants, inasmuch as at the worst they at least replaced in 
 their various ways by their Inlxmr the wealth they consmned ; 
 this labour ending in the i)roduction of some vendible 
 commodity, and not in mere services. The second was, that 
 by the principle of the ' division of labour,' a nundjcr of men 
 working under one I'oof, as it were, on the different parts or 
 stages of a complex process, — as in pin-making for instance, — - 
 could by the saving of time and increase of skill involved in 
 doing one thing repeatedly, produce morfi in a given time than 
 if each worked independently and had to do all the (liferent 
 operations by himself ; and that, therefore, if a man working 
 by himself could earn liis living, he could do more than that.
 
 154 ADAM SMITH. 
 
 and so add something to the wealth of the nation, by Avorking- 
 in combination and co-operation with his fellows. But if the 
 Physiocrats should object that this extra product went to 
 the manufacturer, and so only replaced the ordinary profit 
 incidental to the capital he had sunk in his business, Adam 
 Smith has a third consideration in reserve with which to 
 confront them, and this is that not only manufacturers, but 
 artisans and labourers could always save something, if they were 
 careful, out of the profits and wages they received ; and 
 so in this way could add to the wealth of the country ; — the 
 manufacturers, I presume, by reducing their expenses and 
 unnecessary luxuries, the artisans and labourers by saving a 
 little each Aveek to put into an old stocking or into the bank.. 
 Adam Smith's fourth consideration was, that as division of 
 labour was more applicable to manufactm'es than to farmings 
 more exchangeable wealth would be produced in a given time 
 in manufactures than in farming. If the farmers therefore-, he 
 argued, were to be put among the productive classes, much, 
 more must this be the case with the manufacturers. For 
 although Nature came to the assistance of Man only in 
 agriculture, it was to the landlord and not to the farmer that 
 she came ; inasmuch as the farmer only got the ordinary rate 
 of profit on his capital invested, while all the excess of 
 production due to the powers of Nature inherent in the soil, 
 went to the landlord in an increase of rent. If then the 
 Physiocrats, as they were logically bound to do, would let corn 
 come into a country free, — in the same way as at that very time 
 they had succeeded in France in getting its export made free, — 
 they would find themselves confronted with the fifth and last 
 consideration of Adam Smith : and that is, that as a larger 
 quantity of actual wealth, in the shape of corn, cattle, etc.,. 
 could be got from the sale of a small quantity of manufactured 
 goods abroad, than its own lands in the actual state of cultivation, 
 could supply, it follows that manufacturers and their artisans 
 are not only ' productive ' classes, but that thi'ough this export 
 
 i 
 
 I
 
 ADAM SMITH. 155 
 
 of theii' productions, more wealth can be added to a nation 
 than woidd otherwise be possible. 
 
 From these differences between the Physiocrats and Adam 
 Smith in reference to the sources of wealth, follow corres- 
 ponding differences in their schemes of taxation. The 
 Physiocrats believing that land was the sole source of wealth, 
 were logically bound to base all their taxation on it ; and 
 accordingly they made a single tax on land values their one 
 source of revenue. Adam Smith on the contrary believins: 
 that all classes could and did contribute to the wealth of a 
 nation, either by division of labour, saving, or foreign trade, 
 was logically and in justice bound to make them all bear their 
 fair share in taxation, and not to throw all the taxes on the land. 
 And accordingly he has given us those excellent chapters on 
 the distribution, the mode of payment, and the incidence of 
 taxation, which have remained a permanent contribution to the 
 literature of the subject. 
 
 Now the above constitute practically the main differences 
 between the system of the Physiocrats and that of Adam Smith. 
 And on running them over it becomes apparent that they are 
 differences rather of detail than of essential principle. And 
 indeed this is precisely what we should expect from Adam Smith's 
 own express admission, that the system of the Physiocrats in 
 spite of its discrepancies and imperfections was the nearest 
 approximation to the truth that had as yet been published on 
 the subject of Political Economy. The difference is as the 
 difference between the fit and the cut of a coat ; and is one 
 rather of degree, proportion, and symmetry, — as of breadth of 
 shoulders, and length of waist, or a piece inserted here or cut 
 oft' there, — than of structure or organic type. 
 
 The differences are all negative ; differences of more or less : 
 more or less production, more or less saving, or none at all. 
 With the Physiocrats, for example, it would not disturb the 
 financial status either of the landlords and farmers or of the 
 State, if the manufacturers, merchants, and artisans all went
 
 156 
 
 ADAM SMITH. 
 
 and hanged themselves; for then the former could save more, 
 precisely as if they sold their cai'riage horses, or dismissed 
 their liveried servants ; and the State would be the richer in 
 consequence. With Adam Smith, these manufacturers, 
 merchants, and artisans are less absolutely valueless, because 
 he has proved that they can and do save somethhig out of their 
 earnings, and so increase the wealth of the country. 
 
 But not only are the differences of principle between them 
 purely negative ; the systems themselves are both alike built 
 on negations. In the system of the Physiocrats, the landlords 
 and farmers alone are ' productive,' the rest of the population 
 are altogether barren and ' unproductive ' — mere negations. 
 But the system of Adam Smith is equally built on a negation, 
 as we should know beforehand from his confidently expressed 
 dictum, that " Parsimony and not Industry is the immediate 
 cause of the increase of capital " — of a nation as of an 
 individual. The central principle common to both, namely 
 that it is only in Agriculture and not in Manufactures that tlie 
 powers of Nature come to the assistance of man, is the direct 
 negation of the part played by those powers of Nature, like 
 steam and electricity, which since his time have not merely 
 modified, but transformed and recreated the modern industrial 
 world from a new centre of gravity and a new organizing 
 principle. This doctrine, again, is negative, inasmuch as it 
 leads them both logically to the conclusion that the classes 
 that have not been able to capture and appropriate these 
 powers of Nature, but have to do everything by their own 
 unaided exertion, must be dependent on those who have ; and 
 must be either partially or altogther kept by them, in the 
 sense in which horses and dogs are kept by their masters. 
 With the Physiocrats, they are absolutely kept by the landlords, 
 after the farmers have first taken out their share of the 
 product ; with Adam Smith, they are only jHivtialU/ so ; the 
 manufactui'ers keening themselves out of their own savings, 
 and then out of the balance of these savino-s still left over,
 
 ADA.M SMITH. ir>7 
 
 keeping the avtisiins and labourers ; ])recisely as in the Modern 
 Orthodox Economy, which has developed in a straight line 
 from the Physiocrats and Adam Smith. In both systems, 
 again, Consumption as a necessary factor is quite ruled out or 
 ignored, as indeed it must bo when the bulk of the consuming- 
 classes are represented as either wholly or partially kept by the 
 producing classes. 
 
 With the Physiocrats, as we have said, it would almost have 
 been a providential dis[)ens:ition if the labourers had gone and 
 hanged themselves, and so not decreased the wealth either of 
 the nation or the landlords by their consumption ; with Adam 
 Smith, they were tolernted and even encouraged, so long as 
 they were able to save something, however little, over and 
 above what they consumed. It never seems to have occurred 
 to either of them that if products were not consumed by 
 somebody, the powers of Nature would not be brought into 
 play to yield a surplus to lie either on the landlords' or the 
 manufacturers' hands, after they had had all they required for 
 themselves. It is always assumed that there will be consumers 
 someiv/iere (usually 'in foreign parts'), much as men always 
 assume that there is a heaven for them somewhere; though 
 why consumers as such should be welcomed auyivJiere. when in 
 the same breath they are told that the leifs they consume, or 
 the more they save, the better it will be for the wealth of the 
 world, nowhere appears. The truth is. both these systems are 
 founded on the old symbol of the rod or stick on which we 
 have already dilated at so great length in the earlier part of 
 this volume, and to which nothing more than bare reference 
 need be made when used in future arguments ; — the doctrine 
 namely which proceeds by breaking up what is actually a 
 continuous movement into a series of definite time units, in each 
 of which a definite amount of wealth or caj)ital is postulated 
 as functioning ; the more wealth that is saved during one unit, 
 the more capital that is appropriated for one undertaking, the 
 less being left for another. That Adam Smith's system is
 
 158 ADAM SMITH. 
 
 based throughout on this symbol, — instead of on the entirely 
 different one of a continuously revolving wheel, whereby the 
 more wealth that is being consumed (within the limits imposed 
 by the state of the agricultural and mechanical arts of the time) 
 the more will be reproduced, the more capital that is set aside 
 for one undertaking (provided only that the undertaking is 
 reproductive) the moi*e, and not the less, wealth will be set 
 free for all other investments of capital ; — that the system of 
 Adam Smith, I say, is built throughout on the symbol of the 
 stick, is nowhere more clearly seen than in his chapters on the 
 Colonial Trade, where all the separate doctrines in his book, 
 brought up as contingents, are massed and concentrated on the 
 one object of annihilating the arguments used by his opponents 
 in support of the monopoly of that trade which England then 
 enjoyed, of destroying that monopoly, and of throwing open 
 the trade to the whole world ; — and this, be it observed, not 
 because it Avould increase the wealth of the world in general 
 by liberating its industrial currents, or the wealth of the 
 Colonies in particular by giving them more and better markets 
 for their goods, (both defensible propositions), but distinctly 
 and avowedly for the sole reason that the abolition of the 
 monopoly would increase the wealth of England herself. Now 
 it we find Adam Smith tripping here, if we find him basing his 
 arguments on the stick, and supporting them by mixing up 
 temporary Politics and half truths of Political Economy in a 
 confused conglomerate, while announcing his conclusions and 
 deductions as laws of Political Economy alone ; if we find him 
 confusing the laws of wealth of the world as a single whole 
 with the laws of wealth of a particular nation standing in trade 
 relations xoith other nations ; then all his arguments and con- 
 ■clusions must fall to the ground, and with them the ' Wealth 
 of Nations ' itself, on which is built the whole of the modern 
 Political Economy. Nor need we fear much diflficulty in 
 €xtricatino; and unravelling his fallacies from out of the wide 
 ranofe of his discussions, for his belief in the symbol of a stick
 
 ADAM SMITH. 159 
 
 a8 the true symbol for all deiluctions as to the laws of the 
 increase of wealth is so transparent and sincere, and his 
 assumption of it so open and undisguised in every argument he 
 uses; his assumption, too, that the acquisition of wealth by im 
 individual or a nation in trade relations with other individuals 
 or nations is identical with the acquisition of wealth by the 
 world as a whole, (or a nation regarded as a single isolated 
 unit), is so assured and unquestioning; that if we are right in 
 our previous demonstrations that these general presuppositions 
 of his are wrong, nothing more than a slight re-arrangement 
 of the order of the positions he takes up on this question of 
 the Colonial trade will be necessary to exhibit their inherent 
 weakness and insufficiency. 
 
 Starting with the doctrine of the Physiocrats that in 
 Agriculture Nature gives her gratuitous assistance to man, but 
 that in Manufactures luan has to do everything by his own 
 unaided powers, Adam Smith begins by arranging the 
 industrial assets of nations in a hierarchy according to the 
 amount of their wealth-producing capacities. At the top of 
 the scale stands the land, which having the powers of Nature 
 to assist it, yields tlie greatest amount of wealth in a given 
 time in proportion to the labour expended on it : next below 
 it comes the manufacturing industrt/, which, although it receives 
 no assistance from the powers of Nature, takes a second' place 
 because it keeps and employs a greater amount of productive 
 labour than any other, and has a quicker ' turnover ' of its 
 capital; then comes the wholesale home trade, which although 
 it employs less labour and has a slower turnover than manu- 
 factures, has the advantage over a foreign trade both in the 
 quickness of its turnover and in the fact that it employs two 
 home capitals and yields two home profits, whereas one of the 
 profits of the foreign trade goes to the foreigner ; and lastly, 
 of all the foreign trades the roundabout carrying trade is the 
 least wealth-producing of all, inasmuch as it em])loys the 
 fewest labourers, gives up more of its profits to the foreigners
 
 160 ADAM SMITH. 
 
 Avhose produce it carries, and takes the longest time for the 
 profits of its own capital to come home. His law, accordingly, 
 for the most remunerative employment of capital in a country 
 that is increasing its wealth is quite simple. It is to invest as 
 much of it in land as the land Avill absorb, then when it has 
 increased so much as to begin to overflow, to invest the over- 
 flow in manufactures ; when it has increased still more, and 
 outrun the capability of manufactures to take it up, to invest 
 the excess in the home wholesale trade ; then, any still further 
 excess, in the direct foreign trade ; and if any still remains 
 uninvested, to put it into the roundabout carrying trade ; 
 precisely as a man invests as much of his capital as he can in 
 the safest and most profitable securities, then when these can 
 absorb no more of it he puts the balance in the next less 
 profitable, and so on until it is all invested. This is when the 
 capital is sufficient and more than sufficient for all these 
 different investments. But now suppose that the capital of a 
 country is insufficient for more than a few of them : then, says 
 Adam Smith in effect, it would be as foolish for a nation to 
 invest its savings in manufactures while profitable fai'ming 
 was still available, or in the wholesale trade when manufactures 
 could still absorb more, or in foreign trade when there was an 
 opening in home trade, or in the Colonial trade when any or 
 all of these others were insufficiently capitalised, as it would 
 be for a man to pass over a safe investment of ten per cent, for 
 one of five, or over one of five for one of four, and so on. Now 
 at the time of which Adam Smith was writing, England, he 
 declared, had not sufficient capital, great as it was, to do full 
 justice to all these diff'erent investments ; and her conduct, 
 therefore, in creating such a monopoly of the Colonial trade 
 as to draw nearly the whole of the available capital of the 
 country from the land and from the home manufactures and 
 the direct foreiorn trade into it, was economicallv most 
 reprehensible, inasmuch as it directly lessened the otherwise 
 possible increase of wealth of the country. He frankly
 
 ADAM SMITH. IHl 
 
 admitted that the proHts from this Coh)nial trade, owing to 
 the monopoly, were greater than could be made at that time 
 from an equal amount of caj)ital invested in any other emplo} - 
 ment either at home or abroad. And he further admitted that 
 the profits of all other employments were not less, as might be 
 imagined, but greater than they otherwise would have been, 
 owing to the lessening competition to which they were subject 
 as capital was more and more withdrawn from them into the 
 Colonial trade, and the consequent diminution of output and 
 the scarcity rise of price which the bleeding them of their 
 capital had caused. 
 
 Now I have dwelt on this hierarchy of wealth-producing 
 employments in the system of Adam Smith, because it is on it 
 that he mainly relies for the solution of the most important 
 problem with which as a Free Trader he is confronted ; — the 
 problem, namely, as to how, if the monopoly of the Colonial 
 trade was to be abolished, as he recommended, and men were 
 left free to trade as they pleased, you could be sure that they 
 would select just such employments for the investment of their 
 capital as would be best for the wealth of the nation as a 
 whole. And tliis is how he solves it. He says that the self- 
 interest of the individual traders will naturally prompt them to 
 do so. For would not everybody, he asks, if he had the 
 chance, invest his capital in land rather than in manufactures. 
 inasmuch as the former not only pays the ordinary profits of 
 capital but a rent to the landlord besides, whereas the latter 
 yields the ordinary rate of profit only? Would he not also 
 naturally invest it in manufactui'es in preference to the trade 
 of a wholesale merchant, inasmuch as in the former he not onlv 
 has the advantage of a greater return of wealth, owing to his 
 application of the principle of the division of labour, but he 
 has a much quicker turn-over in his sales, owing to the time 
 occupied in transport of goods in the latter case? In the same 
 way would he not prefer an order from one of his own countrv- 
 men to one from a foreigner, both on account of the distance 
 
 M
 
 162 ADAM SMITH. 
 
 and the slowness of return of his capital, and the greater risks 
 in dealing with a foreigner? And finally would he not naturally 
 prefer a regular foreign trade near home to a risky adventurous 
 one in the Colonies or the East, where the capital required for 
 filling up the cargoes for those distant voyages is great, the 
 markets uncertain, credits insecure, and the final returns for 
 the capital invested a matter of years rather than of Aveeks or 
 months only '. In this way, says Adam Smith, the natural 
 instincts of the individual business man actinor throuo-h his 
 own self-interest will of themselves keep his business invest- 
 ments in harmonv with that natural hierarchy and gradation 
 of wealth-producing employments which he has laid down. 
 And his conclusion is, that if trade, both foreign and domestic, 
 were absolutely free, each individual could be safely left to 
 invest his capital as he thought best, without any chance of its 
 endangering, or being out of harmony with, the best possible 
 economic interests of the nation as a lohole. But if it is pointed 
 out to him that the rush of all available capitals into the Colonial 
 trade, which was the least naturally wealth-producing in his 
 hierarchy, would seem to negative this supposed natural 
 harmony between the self-interest of the individual and the 
 best economic interests of the nation, his answer again is ready 
 and is emphatic : — the rush of capitd into the Colonial trade 
 was due entirely to the legal monopoly which it enjoyed, and 
 which, with the false lure of high profits to a particular class, 
 had like a bedizened courtezan seduced the individual capitalists 
 of the nation from the true economic interests of the nation as 
 a whole. And having disposed of this objection, Adam Smith 
 proceeds to point out that the hierarchy of wealth-producing 
 employments which he has laid down, and which if followed 
 will be for the best economic interests both of individuals and 
 of the nation to which they belong, will also be the best order 
 to follow for each and every other nation, and for the ivorld as a 
 irhole. In other words, if all barriers to trade between the 
 nations were to be thrown down, the investment of capital in
 
 ada;\i smith. 1H3 
 
 each would follow the .saiiie order as in every other; and that 
 order would be the one he has laid down, namely, first to 
 invest all your available capital in the land until it overflows, 
 then in manufactures until they also overflow, then in home 
 trade, next again in direct foreign trade, and last of all in the 
 distant Colonial trade and the Shipping trade to the Far 
 East. So that for the world as a whole, as well as for each 
 nation, and each individual in each nation, the best economic 
 interests will be subserved by all doing the same things 
 in the same order : by always postponing a foreign trade 
 and a shipping trade to a home trade, whatever may be 
 the special resources or geographical position of the particular 
 nation fitting it for foreign trade, and however free that foreign 
 trade may be of risk, or however enormous may be its profits 
 owing to the monopoly which it may enjoy ; whether that 
 monopoly comes from conquest, or by law of the mother 
 country, or by the quality and character of the goods which it 
 can supply, and which are most in demand abroad. 
 
 Such then is the skeleton of organic principles which Adam 
 Smith has enforced and illustrated with much insistence and 
 reiteration in his classical chapters on the Colonial Trade in 
 the ' Wealth of Nations ' ; and the impression which his argu- 
 ments leave on the mind is that he is dealing with some low 
 indeterminate form of industrial organism, which beai's much 
 the same relation to the highly organized, differentiated, and 
 centralized industrial development of to-day, as the organization 
 of a worm, say, bears to that of one of the higher mammalia. 
 Indeed if we compare it, for the nonce, to a tape-worm, and 
 the present day industry to one of the ordinary mammals, the 
 analogy Avill not only be sufficiently exact, but will serve also as 
 a kind of concrete image by which to hold together the various 
 fallacies and illusions by which his argument is pervaded, as 
 well as the opposing arguments with which we are to confront 
 it. The head of the tape-worm, which reproduces from itself 
 the whole worm when anything happens to sever the body from
 
 1()4 ADAM SMITH. 
 
 it, may fitly represent the land, as tlie most important agent 
 not only in the production of wealth, but in its reproduction, 
 should the manufactures and home or foreign trade from any 
 cause suffer disaster ; the segments of the worm in immediate 
 proximity to the head may represent manufactures and the 
 home trade, as being the nearest to the head in point of 
 distance, and therefore of industrial vitality and productivity ; 
 while the remaining segments farther and farther from the 
 head may represent the foreign trade carried further and 
 further afield ; the nearer segments representing the trade 
 with France and the Baltic, the next with the Mediterranean, 
 and the rest with the more and more distant ports of the 
 American Colonies in the West, and the still remoter colonies 
 and countries of the East. The relative distance, again, of the 
 segments of the worm from the invigorating head, and the 
 greater and greater depletion of its strength which any undue 
 multiplication of the tail segments may be supposed to produce, 
 are paralleled in Adam Smith by the progressively decreasing 
 returns to capital and labour in long distance investments, and 
 the greater and greater withdrawal of capital from the land, 
 manufactures, and the home trade, during the years that elapse 
 before the returns from these distant investments come in 
 again ; while the fact that a creature is of such low segmentary 
 organization that the increased vitality of one part, far from 
 increasing the vitality of the rest, will rather draw nutriment 
 away from it, like an abnormally elongated tail, is paralleled in 
 Adam Smith by the doctrine that the capital of a country is a 
 rigid definite quantity divided into separate segments and 
 distributed among diiferent employments and occupations, and 
 that all investments of it in any one or more of these employ- 
 ments, however reproductive, (especially if out of their due 
 order, and at the tail end) must necessarily draw it away from 
 the rest — a capital fallacy as we shall presently see. And if 
 we extend our analogy of the worm from the separate employ- 
 ments of a sinofle nation to the world as a whole, — with each
 
 ADAM SMITH. 165 
 
 nation as a separate relatively independent segment, each 
 segment in structure and composition the duplicate or facsimile 
 of all the rest, and with only the merest formal bond of 
 connection between them, — this will also sufficiently represent 
 Adam Smith's conception of the economics of the world as a 
 whole, where the welfare of each nation is best subserved by its 
 investing its capital in the same order of employments as every 
 other, and in the hierarchy which he has presented, and where 
 each looks to land, manufactures, and its home trade as its first 
 concern, while the foreign or colonial trade, — as the bond of 
 commerce between the separate nations,— comes last and lowest 
 in order of im[)ortance, and nuist be postponed, in consequence, 
 as a field of investment, until all the home trades have been 
 filled to overfiowing. 
 
 How unlike all this is to any image that can possibly be 
 foi'med of Industry as it exists at the present day. either in 
 its organizatioi), its processes, or its development, whether in 
 a single nation or in the circle of nations trading with each 
 other and making up the industrial world as a whole! Instead 
 of being constructed on the type of the lowly organized worm, 
 its true analogy is to be found only in the vertebrate kingdom, 
 where there is neither priority of function nor gradation in the 
 order of importance of one organ over the rest, — as of heart over 
 lungs, lungs over stomach, stomach over organs of locomotion ; 
 nor yet [)riority in order of time of the advent of one organ 
 over another, for all must develop pari pax.^ii before any 
 increase in growth can take place ; nor yet a constitution of 
 parts or organs all duplicates of one another and each with a 
 semi-independence of its own, like the segments of the worm ; 
 but all on the contrary are bound together in the closest net- 
 work of relationship and organization, each being different 
 from every other in its structure and function, and all so 
 sympathetically responsive to each others' condition that 
 nothing can affect any one of them, however insignificant or 
 remote from the centre, whether for evil or good, but is
 
 1 6Q ada:\[ smith. 
 
 reflected back on all the rest, to their detriment or welfare as 
 the case may be. 
 
 Now this analogy of present day industry to the organiza- 
 tion, processes, and development of a vertebrate animal, will be 
 found to hold good in every particular, both in reference to 
 the industry of a single nation, and to the industries and inter- 
 trade of the aggregate of nations making up the economic 
 world as a whole. And the advantages which I have proposed 
 to myself by way of exposition in thus pursuing these analogies 
 are two ;— firstly, that they serve as picture frames by which to 
 bring out more clearly the three cardinal illusions which 
 pervade the system of Adam Smith : and secondly, that if they 
 are sufficiently exact for our purpose, they will give us a priori 
 assurance, at least, that however much modern Free Traders 
 may agree with Adam Smith in support of the principle of 
 P^ree Trade, the detailed arguments by which he and they 
 respectively support it, must, if they are logically consistent, 
 mutually destroy each other. 
 
 Xow these three illusions are — 
 
 First, that Nature lends her gratuitous aid to man in 
 Agriculture oidy, but not in Manufactures. 
 
 Second, that the capital of a country distributed among its 
 various employments is, like a rigid rod of definite length, 
 fixed in amount ; and that its separate divisions or segments 
 operating independently, draw capital away from each other, 
 instead of the pi'ofits of each reinforcing the capitals of all 
 the rest as additional contributions to a common fund. 
 
 Third, that the economic procedure which would best 
 advantage the xcorld as a single economic ichole. would also 
 necessarily best advantage each nation when in trade relations 
 icith other nations. 
 
 Now that these are all illusions will be seen if we apply our 
 analogy of a vertebrate animal to the organization, processes, 
 and development of industry at the present day. To begin 
 then with each nation as a separate unit : — the first point we
 
 ADAM SMITH. 1()7 
 
 would note is that there is no absolute supremacy of Agriculture 
 as an investment over all other investments of capital, — over 
 manufactures, for example, or the shi])ping and foreign trades 
 — on the ground which Adam Smith claims for it, that it is 
 only in Agriculture that man gets the assistance of the powers 
 of Nature ; for at the present day the gratuitous assistance 
 given to man in Manufactures, Transport, and Shipping, by the 
 powers of steam, electricity, etc., is a hundred to one for each 
 unit of time and unit of cost incurred, compai-ed with that 
 given to man in Agricnltui-e, even at its present advanced stage 
 of cultivation and productiveness. Nor is there any definite 
 order or hierarchy oi precedence in which the different employ- 
 ments of ca[)ital ought to follow one another if they are to 
 yield the greatest amount of wealth either to individuals or 
 nations, as Adam Smith contends, but on the contrary 
 agriculture, manuffvctiu'cs, and transport facilities must form 
 an organized group and all be present together before wealth can 
 begin to accumulate at all. And therefore to put all a\ailable 
 capital into the laud until it can absorb no more, before you 
 allow it to overflow into some kind of manufactures to make 
 the product available for human use, would be to have that 
 product rot on your hands, as corn would do without some 
 kind of mill to grind it or utensil to cook it; and if at the same 
 time there were no facilities for transport either — no roads or 
 bridges or boats or canals to carry the corn from the points at 
 which it was produced to the points where it was wanted for 
 human needs, — what would the capital sunk in the land and 
 manufactures avail i For just as in the vertebrate animal 
 body there is no definite order or precedence of functions, but 
 the vital resources of the Avhole are always (;oncentrated on the 
 parts that are most in need of helj) through injury or disease — 
 in casting off germs that impair nutrition, or poisons that 
 impede digestion, or in repairing broken bones tliat destroy 
 locomotion — so, that particular investment of capital will be 
 best for the individual or the nation, which at the given time
 
 168 AT) AM SMITH. 
 
 or place supplies a gap In the production of articles or imple- 
 ments needed for the full efficiency of the rest, or which 
 removes some obstruction to their harmonious co-operation, — 
 whether it be primarily a matter of agriculture or manufactures, 
 of transport or the demands of foreign trade, matters not. 
 And if so, why then should foreign or Colonial trade be 
 necessarily postponed to the home trade, as Adam Smith 
 demands, on the mere ground that, like the tail of the tape- 
 worm, it occupies the lowest place in a fancied hierarchy based 
 on its relative distance from the head? The soil of Attica, for 
 example, was barren ; but did Athens wait until her last square 
 yard of territory was cultivated to its extreme limit l)ef<)re she 
 took advantage of her geographical position to make herself 
 the centre and emporium of the foreign trade with the 
 Archipelago, with her colonies in Asia Minor, and with the 
 Eastern Mediterranean generally ? Again Venice, Florence, 
 Genoa, and the other great cities of Italy in the Middle Ages 
 had no territory to speak of ; but did they therefore wait to go 
 throucfh the different stages of Adam Smith's formula in the 
 cultivation of their land, or even in the development of their 
 manufactures, before they dared venture on the foreign trade 
 with the rest of Europe and the East which made their fortunes i 
 (^r again, did Spain and Portugal wait till they had exhausted 
 their available capital in agriculture and manufactures before 
 they could bring themselves to set sail for America to exploit 
 their newly discovered silver mines'? And the same questions 
 may be asked of Holland and England. 
 
 With regard to the second illusion which I have mentioned, 
 we have to ask ; — is the capital of a country so fixed and rigid a 
 thing, as Adam Smith contends, that when any part of it is 
 invested in one or more employments, however profitable, it 
 must be roithdrawn from all the rest? Is the distance from 
 home and the slowness of returns of foreign or Colonial trade 
 so great a detriment, that the home trades niay starve in the 
 meantime? Or are the risks of these trades so great, that not
 
 ADAM SMITH. 1*)9 
 
 •even the legal monopoly they enjoyed, and the enormous 
 profits which they admittedly brought home, could abate that 
 detriment "? To bring it to the test of fact, we have only to 
 ask ;— did any one or other or all of the nations and States we 
 have just mentioned find that their distant voyages to the East 
 and West, the length of time they lay out of their capital, and 
 the risks involved in their adventurous journeyings to and fro, 
 added more to their wealth than if they had waited until all 
 their capital could be invested in agriculture and manufactures 
 at home, or did they not ? To imagine that they did not, as 
 Adam Smith insists, is to be under the s:ime illusion as if one 
 were to sup[)ose that the heart of a \ertebrate animal, which 
 ipumps blood to the stomach, is n<jt enriched by the products 
 which the work of that stomach returns to the heart, but is 
 impoverished by it; that it is further impoverished by the 
 blood which it pumps into the lungs and which returns to it 
 with Its life-bearing oxygen ; and that it is still further 
 impoverished by the blood which it sends to the tissues and 
 limbs which o;ive to the creature the strength and locomotive 
 power on which not only the heart but all the other organs of 
 the body depend for the supply of food which nourishes them. 
 To imagine this is to imagine that Industry is so lowly 
 organized a thing that its capital when divided into segments 
 can be stretched out so far that however reproductive and 
 life-giving the segments may be, they will become like a 
 useless endless tail which depletes the entire organism by the 
 amount of nourishment it draws to itself; or like the sections 
 of an over elongated bridge without sup})orts, which will fall 
 by their own weight. It is the old symbol of the stick cr()|)ping 
 up like a bed-rock through the superincumbent strata with 
 which Adam Smith has overlaid it, and as we shall see presently, 
 is one of the most pervading of the illusions and dangers with 
 which his system is charged. 
 
 But carrying these analogies, and the implications we have 
 drawn from them, lightly in our minds for the present as mere
 
 170 ADAM SMITH, 
 
 analogies, we have now to see that they will be converted into 
 substantial arguments if we discuss in detail the third illusion 
 1 have mentioned, which also pervades his whole work ; the 
 illusion, namely, that what is best economically for a nation 
 standiyig hi/ itself is best also for a nation trading with other 
 /lations^ and that what is best for nations trading ivith other 
 nations is best for the world conceived as a single iinity or whole. 
 But before entering on the criticisms proper to this section, I 
 desire in passing, — with the object of giving definiteness and 
 focus to our point of view, — to recall the reader's attention to 
 tlie fact insisted on in an earlier part of this volume, that the 
 .«nbject-matter of the applied Science or Art of Political 
 Economy is not what will best advantage the economic interests 
 of a nation standing by itself, nor yet again of the world 
 conceived as a single political and economic unity (for the 
 millennium has not yet come), but what is best for nations in 
 trade relations with other nations such as exist at present, and 
 are likely still to remain for some ages. If, therefore, we can 
 show that Adam Smith's principles wlien applied to a particular 
 nation must be entirely reversed Avhen applied to a nation in 
 trade relations with other nations, Ave shall have gone far in 
 weakening the main supports of his system ; but if we can 
 also show that while the modern Free Tradei'S agree with him 
 in his principle of Free Trade, they repudiate every argument 
 by which he supports it (as, indeed, they must if our analogy 
 of the worm and the vertebrate animal have any validity) ; and 
 if at the same time we can prove that he in turn would repudiate 
 every argument of theirs, then we shall have gone a long Avay 
 in discrediting his system as a whole. To this task therefore 
 I shall now address myself, and shall take up his positions 
 one by one. 
 
 To take first the question of the order or hierarchy of 
 wealth-producing employments. Now there can be little 
 doubt that if each nation were regarded abstractly as a 
 separate isolated economic unity, there would be an ideal
 
 ADAM SMITH. 1 7 L 
 
 hierarchy of wealth-producing- employments proper to that 
 nation ; and that when this were once ascertained, the invest- 
 ment of the capital and labour of individuals in them in that 
 order would be for the best economic interests of the nation as 
 a whole. But far from that order being stereotyped for each 
 nation, as Adam Smith would have us believe, it must be as 
 different for each nation as is the geographical situation of that 
 nation, its natural resources, or the genius and environment 
 of its inhabitantSo In one nation, the fertility and special 
 characteristics of its soil would claim first consideration in the 
 hierarchy, — whether as corn-growing, fruit-growing, wine or 
 tobacco-growing, sugar-growing, or what not ; in another, its 
 mineral wealth or the special character of these minerals, as 
 gold, silver, iron, or copper; in another its geographical 
 position as a trading centre among the other nations, its 
 facilities for transport, its access to the sea, and the like ; in 
 another the particular form of artistic or mechanical skill 
 peculiar to the race of men who inhabit it ; and so on. But 
 although as abstract potentialities, nations would be right, — at 
 any rate in the beginning of their careers and when they were 
 feeling their way as it were, — in following the order of these 
 special excellences in the investment of their ca})ital, still, 
 when once all tariff biu'riers had been thrown down and the 
 free interchano;e of commodities between nations was o-iven 
 full play, there would be no more guai'antee that by following 
 this absolute or ideal order they would accumulate the greatest 
 amount of wealth, than in the parallel case of individuals. 
 For the question would now be, not so much of any abstract 
 hierarchy or order of excellence proper to a nation itself, as of 
 the order of its relative superiorities when drawn into the 
 whirl of competition with other nations ; not of what it most 
 prizes itself, but of what is most in demand by others ; not of 
 separate single excellences, but of combinations or special 
 peculiarities which make them acceptable over a wider field ; 
 not, in a word, of ' values in use,' but of ' values in exchange.'
 
 172 ADAM SMITFL 
 
 It is precisely the same as in the case of the individual, whose 
 pecuniary success in life will depend not on the ahsolute 
 superiority of one over another of his various qualities — whether 
 of intellect or heart, of courage, of tenacity, of physical 
 prowess, or what not, — but on those combinations or peculiarities 
 which find the greatest favour among his fellow-men. In the 
 natural order, the strength of a man's bent may lie in the 
 higher domain of intellect proper, — as of poet, philosopher, 
 scientist, artist, or musician, — but he may find it moi*e to his 
 pecuniary advantage when he has to compete with a better 
 man than himself in any of these lines of work, to mingle his 
 proper superiority with strains of a lower nature, like gold with 
 the baser metals, to give it a wider currency or working 
 efficiency ; and so may do ' pot-boilers ' instead of master- 
 pieces, or turn society novelist, popular preacher, peri[)atetic 
 lecturer, music hall entertainer, or even fall back on still lower 
 planes and become a jockey, clown, professional sculler, foot- 
 baller, or cricketer. It is the same in commerce and industry. 
 Land, manufactures, and the wholesale trade may stand higher 
 in rank than other employments, owing to the greater amount 
 of the ' values in use ' which they supply, but so far as any 
 individual is concerned, he may make his fortune as easily out 
 of stock-exchange speculations as out of land : out of gambling 
 as out of manual labour: out of drugs or drinks as out of food ; 
 out of a good voice as out of a good estate. It is precisely the 
 same with an individual nation standing in trade relations with 
 other nations. For it may gather to itself more wealth from 
 its diamond fields than from its corn lands, from the flavours of 
 its wines or tobaccos than from its coal or iron, from its carry- 
 ing trade than from its manufactures, from its supply of 
 luxuries for the few than of necessities for the many. All will 
 now depend, not on the absolute superiority of the commodities 
 in which it deals judged by the standard of their ' values in 
 use,' — as would be the case if the nation stood alone by itself, — 
 but on the relative sui)eriority of these commodities to those
 
 ADAM SMITH. 173 
 
 of the same class in other nations, as measured by the extent of 
 the market they can make for themselves there, owing to the 
 cheapness of the cost with which they can be produced and 
 delivered ; in other words, on their ' values in exchange ' — an 
 entirely different category of economic science. 
 
 Or take again the case of gold. If a nation stood alone by 
 itself and had nothing to depend on but its gold mines, gold 
 would take its place at the loivesf point in the hierarchy of 
 wealth-producing assets ; for it could neither support life like 
 corn, nor give warmth and comfort like the [)roduce of manu- 
 factures, nor transport like horses and carriages, nor be made 
 into useful implements or utensils, like ii*on or tin, and if it 
 were produced beyond a certain amount would have little more 
 value than the stones in the street. And so too in the world 
 as a whole conceived as a single political and economic unit ; 
 for as a medium of exchange the use-value of gold would be of 
 little account. But observe how different is the position it 
 occupies in a nation standing in trade relations with other 
 nations. For now, gold will take its place at the top of the 
 hierarchy of wealth assets, however much of it (or its credit 
 equivalents redeemable in it) may be accumulated, or by what 
 employments, services, or business functions soever it may 
 have been acquired ; all of which as well as the agriculture, 
 manufactures, home trade and shipping, on which Adam Smith 
 laid so much stress, must now take their places below it, their 
 order in the hierarchy being now a matter of indifference ; for 
 each and all of them will have much, little, or no value at all, 
 precisely according to the amount of this gold or its credit 
 equivalents which they can command. In a word, gold will 
 have now become a ' measure of value,' and no longer remain 
 in the economic category of a ' medium of exchange.' 
 
 The same fallacy in identifying the economic interests of 
 nations standing economically alone and independent, with 
 those same nations when in trade relations with other nations, 
 is seen in the importance which Adam Smith attaches to the
 
 174 ADAM SMITH. 
 
 nuiuber of urtisans and labourers required In different employ- 
 ments, as giving investments in these employments their 
 relative position in his scale or hierarchy. For although this 
 consideration may be of the utmost importance for national 
 defence, for the civilization and culture that come from the 
 close association of aggregates of men (as seen in towns versus 
 the country districts), as well as for the varied life essential 
 to human beings in civilized States ; on the other hand, for 
 the accumulation of wealth by a nation freely trading with 
 other nations, it is a matter of the smallest importance. Half 
 a dozen men on a desert island who were sure of picking up a 
 Kohinoor diamond every year, might command and continue to 
 command as much of the wealth of the world of every species 
 and variety, as many a small State supporting a working 
 population of peasant proprietors as thick on the ground as 
 moving ant-hills, and sweltering their lives away from morning 
 to night in the sun. 
 
 And so again with the economic principle of Monopoly, 
 ao-ainst which Adam Smith has directed all his batteries in his 
 chapters on the Colonial trade. It will be remembered that 
 he liad no objection to that trade in itself, if only it had been 
 thrown open freely to all the world ; what he objected to was 
 the monopoly which England had gained in it. And the 
 reason he objected to this monopoly was, that it seduced 
 individuals to invest their capital in it out of the proper order 
 of that hierarchy of wealth-producing investments which he 
 had laid down, thus withdrawing capital, as by a kind of hot- 
 house forcing, from the still greater wealth-producing employ- 
 ments of Agriculture, Manufactures, and the Home trade, and 
 thereby lessening the possible wealth-producing capacity of the 
 mother country as a whole. But here again he was confusing 
 the effects of a monopoly conferred on one trade as against 
 another in the same country, with the monopoly of one country 
 against another in trade relations with it, — a fatal oversight. 
 It is admitted, for example, that the patents of monopoly
 
 ADAM SMITH. 175 
 
 conferred by the Tudor and Stuart sovereigns on their 
 favourites or parasites were a pure detriment to the nation, 
 inasmuch as, unlike patents for new or improved processes and 
 mechanical inventions, these monopolies neither tapped new 
 powers of Nature nor increased the capabilities of old ones, and 
 so added nothing- either to the immediate or permanent wealth- 
 producing assets of the country. But a monopoly obtained by 
 one nation over the [)roductions of another, whether natural or 
 artificial, whether at the bottom or at the top of the economic 
 hierarchy, is quite a different matter, and is the greatest of all 
 the wealth-producing assets which any nation can acquire. It 
 matters not how or by what means it is acquired ; — whether 
 frankly by the sword, as by Rome over her conquered 
 provinces ; or by the despotism of a mother country over her 
 Colonies, as that enjoyed in the time of Adam Smith by 
 Holland, Spain, Portugal, and England ; whether by the fact 
 of geographical situation, as of Venice and the other Italian 
 Republics before the discovery of the Cape route to the East ; 
 or purely by unequalled facilities for production, which in 
 certain classes of commodities can beat all rivals out of the 
 field, as in the case of the silks and wines and artistic skill of 
 France, or the cotton, woollen, and cutlery manufactures of 
 England ; or again by giant combinations of capital in the 
 hands of a few men in a particular nation, which by 
 strategetical dispositions are able to quash the op])Osition of 
 the dispersed and smaller capitals of other nations, — as in some 
 of the combinations preparing in America at the present time, 
 and so on. For monopolies of this kind, of one country over 
 another, are as great a national asset as is the domination of 
 one country over the resources of another through conquest 
 in war; the only difterence being, that whereas in the latter 
 case the tax is taken directly as tribute, in the former it is 
 taken by a monopoly of trade. Neither is at all likely to be 
 achieved without ' prayer and much fasting,' and without being 
 worked up to by the blood or sweat of many lives, continued,
 
 17() ADAM SMITH. 
 
 perhaps, through many generations ; but once gained it is a 
 Avealth-producing asset not lightly to be thrown away. For 
 although the world is slowly outgrowing the lust for territorial 
 conquests in its zeal for a more concentrated racial or 
 geographical independence, this lust for trade monopolies of 
 one nation over another burns more fiercely than ever, and is 
 the ideal goal and ambition of the business men of every nation 
 the world over. And the reason is obvious. For a monopoly 
 by its very nature has precisely the same effect on the fortunes 
 of the individual or nation that has managed to secure it, as if 
 that individual or nation had beaten its rivals out of the field 
 by fair competition on even terms, inasmuch as, like the bank of 
 Monte Carlo which by its zero has the advantage over all the 
 players in every spin, a smaller amount of labour expended in 
 production by the monopolizing individual or nation will 
 always, by the pressure that can be brought to bear, exchange 
 for a larger amount of the labour of those with whom they are 
 trading. All this, of course, Adam Smith saw quite well, and 
 the reason he denounced the Colonial trade was not so much 
 because it was a monopoly, but because, as we have said, being a 
 monopoly it drew cajiital aivay from the still greater wealth- 
 producing employments of Agriculture, Manufactures, and the 
 Home trade. 
 
 Now that Adam Smith should have imagined that the 
 Colonial trade (protected against risk by its monopoly, and 
 bringing home the enormous profits which as he frankly admits 
 it did) could have withdrawn capital from anything, can only 
 be explained when we fix our eyes on the second great illusion 
 with which he was imbued, — that old and fundamental illusion 
 of the orthodox Economists which they have nurtured and 
 cherished to this hour, — the illusion, namely, that wealth in 
 general is a fixed and statical rather than a dynamical and 
 flowing thing, and that capital (the part of wealth set aside 
 for production) is like a rigid rod of definite length or amount, 
 divided and distributed among a number of employments, and
 
 ADAM SMITH. 177 
 
 each part functioning- in definitely divided periods of time; so 
 that the wliole shows like a long-extended straight line, made 
 np of separate items of wealth and capital, passing before the 
 observer as the separate pictnres in a panorama, bnt with no 
 logical provision for their return ; instead of being, as it reall}' 
 is, a circular movement, whereby as goods pass out of the front 
 yard and doors of the factories and warehouses of the world, 
 the return profits from their sale keep the stocks in the back- 
 yards constantly replenished and increased. And in accordance 
 with this illusion we find Adam Smith figuring the Colonial 
 trade as a succession of ships passing in the night one by one 
 into the outer darkness of the Colonies, on voyages of two. 
 three, or five years duration, but witli their return journeys 
 and the wealth they brought with them either suppre.'^sed in his 
 argument, or left vague and without logical recognition. P^or 
 out of a divided and extended straight line, it is impossible to 
 get a circular return movement ; — and for this an entire recon- 
 struction of the very basis of our science is necessarv. And 
 hence Adam Smith, after starting out his ships laden with a 
 definite amount of capital, — which on his divided stick doctrine 
 he represents as having been withdrawn from other more 
 ])roductive occupations, like agriculture, manufactures, and the 
 home trade ; — and finding that they do not return at the end of 
 the year, asks the reader to note the circumstance ; and when 
 at the end of the second year they have still not returned, he 
 begins to regard the situation as grave ; until before the end 
 of the four or five years period is up, he can no longer restrain 
 himself, but demands whether there can now be any doubt that 
 agriculture and the home trade are being bled to depletion ; — so 
 depleted, indeed, he thinks, that with their high famine prices 
 they can no longer compete in the neutral markets of the 
 world. Now all this is a most obvious delusion. Had he seen 
 that all economic operations whatever are flowing and con- 
 tinuous, and not rigid, fixed, and disconnected ; and that they 
 conform in their nature to dynamical and not statical laws, — 
 
 N
 
 178 ADAM SMITH. 
 
 to the Ui\vt<, in short, of a continuously running wheel, — he 
 would have remembered without prompting that ships imiat be 
 returning laden from the Colonies as fast as thej were setting 
 out : and further that o\\ ing to the monopoly of the trade by 
 the mother country, for every pound of capital embarked in 
 the departing ships, two pounds worth, say, were being 
 brought home xhiniltdueoiidij by the returning ones. And as 
 this excess of wealth brought into the country over what is ffoinff 
 out of it can be turned into money, and as money is capital, 
 and can be invested if necessary in that very Agriculture or 
 Manufactures whose starved condition he is deploring, how or 
 why, we ask, should or indeed could capital by any amount of 
 it being invested in the foreign or Colonial trade, be wlfhdrairn 
 from the home trade, or from any trade or business whatever? 
 When Adam Smith wrote, the Colonial trade had already been 
 fully established for some generations, and if, as he declares, 
 men were no longer putting their capital into agriculture and 
 the home trade, or into the Baltic and the ]\Iediterranean 
 trades as formerly, the reason, among other things, was because 
 they were not going to [)ut it into a ten per cent, trade when 
 an equally safe twenty per cent, one stood openly inviting 
 them ; l)Ut certainly not, as he thinks, l)ecause of any scarcity 
 of capital. For how can capital become scarcer in a country 
 where any investment is bringing into it more than it carries 
 away, and especially when it is reproducing itself with more, 
 not less, than the usual rate of profit in every unit of time ? 
 How, indeed, could Adam Smith so persuade himself, unless in 
 the backoround of his mind he had been in the habit of 
 figuring wealth-production as if it were a definite length of rod 
 from which if any part is cut off for investment in one employ- 
 ment, it must necessarily be so far withdrawn from every other? 
 How, indeed, 1 repeat, unless he also figured Time itself as, 
 like capital, split up into rigid definite divisions, on one or other 
 of which he planted himself so firmly that If the world drew 
 its money out of the bank for investment in the morning, and
 
 Ai)A:\r SMITH. 179 
 
 its returns had not come in by the evening, he could weep over 
 it, as if the capital of the country had been forever lost to 
 industry? And I cannot too strongly insist that if this fallacy, 
 begun by Adam Smith, and propagated through the line of his 
 orthodox successors to the present day, continue to be applied 
 in economic reasoning, it vv^ill end (as we shall see increasingly 
 illustrated in the writers whom we have still to pass under 
 review) by economists taking up a position identical with that 
 of those over subtle Greek philosophers, who if Achilles did 
 not overtake the tortoise at once, were prepared to prove to 
 you that he could not overtake it to all eternity ! 
 
 Now Adam Smith seems himself to have felt dimly 
 conscious that there was something in this theory not quite 
 convincing ; and in his efforts to put it right, he was betrayed 
 into the single instance of disingenuousness which I can recall 
 in his works. I should not have referred to it, but for the 
 tendency it has to mislead the reader on a question so 
 important as the one we are now considering. It makes its 
 appearance when he has to face the fact that however long his 
 Colonial ships may be away, they must return home at last 
 bringing their enormous profits with them ; for then his readers 
 will want to know what will become of this great accession to 
 the wealth of the country. Re-invested in still more ships for 
 the Colonial trade is his first answer ; for the capital, he thinks, 
 which this trade is capable of absorbing and withdrawing from 
 agriculture and the home trade is almost unlimited. But as a 
 time must eventually come when the trade can absorb no more, 
 and the question still presses as to what will be done with all 
 this return wealth which must then pile itself up in the mother 
 country ; — if he is asked what living reason he has to oflfer why 
 it should not be reinvested in the land and home trade as well 
 as in the near foreign trade, he executes an insidious flank 
 movement which gives evidence rather of his dialectic skill 
 than of that high-minded candour and truth-loving philosophic 
 character for which he is so justly revered. For he asks his
 
 ISO ADAM SMITH. 
 
 readers to come with liini to Cadiz and Usbon, and see for 
 themselves what the Spanish and Portuguese merchants there 
 are doing with the enormous wealth which theii- ships are 
 bringing home from the monopoly of their American gold and 
 silver mines. Are they re-investing it, he asks, in the land and 
 manufactures of their respective countries— which so badly need 
 it ? Not at all ; on the contrary, he says, you have only to 
 open your eyes to see that they are spending it in idle luxury 
 and ostentation, — in trains of dependents and unproductive 
 labourers, — and so in corrupting the minds of the people by 
 setting them an example which they are only too ready to 
 follow, — especially, he thinks, when merchants set the fashion 
 of extravagance and waste, rather than of parsimony. And 
 then, dropping the subject with a shrug, he leaves the reader 
 with the impression that this is how the wealth that is pouring 
 in on the EnoHsh merchants eng-aoed in the (Colonial trade 
 will, — as that of the nonveaiu; riches everywhere, — be spent also. 
 But where is the disingenuousness in this, the reader will ask ? 
 To see it, we have only to let Adam Smith tell us himself what 
 would become of the still greater wealth which he contends 
 would accrue to the country as a whole if it followed his own 
 advice, — v^'hich was to cancel the monojjoly of the Colonial trade 
 whose high profits had seduced the nation from its true path, 
 and to throw it open to all the world : for then you would see 
 that capital would follow that natural order and hierarchy 
 which as we have seen he had laid down, and which wovdd be 
 the most remunerative alike foi" the individual, for the nation, 
 and for the world as a whole. But if, for the nonce, we agree 
 with him in this, and then ask him in turn into whose lap the 
 main part of this great increase of national wealth (vastly 
 greater indeed in his opinion than from the monopoly of the 
 Colonial trade) will fall, he has himself frankly told us — into 
 that of the landlords ! Not into the pockets of the farmers, 
 be it remembered, for under an}' circumstances, he admits, 
 they will get no more than the current rate of profits for their
 
 ADAM SMITH. 181 
 
 investments, for whatever is over will be skiunnccl off like 
 cream, and go to the landlords as rent ; not into those of the 
 manufacturers or wholesalers, who will also get only the 
 ordinaiy rate of profits ; and least of all into those of the 
 foreign traders and Colonial merchants, who not only have to 
 share the profits of the trade with the foreigner, but have, on 
 account of the distance and expense, to remain out of their 
 capital for the greatest length of time. Into the pockets of 
 the landlords, then, according to Adam Smith will go that 
 greater increase of wealth which will accrue to the nation by 
 following the natural order of employments which he has laid 
 down, — instead of the inverted order which begins at the tail- 
 end with the hot-house growth of the Colonial trade, stimulated 
 into undue activity by a monopoly, to the starvation of the 
 more productive occupations of agriculture and the home 
 trades lying above them in his scale. And now, if remember- 
 ing the Cadiz and Lisbon merchants, we ask him in turn ; — in 
 what productive employments the landlords were investing 
 their present wealth, or were likely to invest it if it poured in 
 on them in still greater streams, his preconceptions and 
 perhaps his prejudices get the better of his judgment, and he 
 replies extenuatingly that some of it at least is invested in the 
 cultivation of their lands. l>ut as he does not deny that even 
 the Cadiz and Lisbon merchants kept up the equipment of 
 their trading ships,— we want to know, in order to make the 
 comparison fair, what the landlords are supposed to do with 
 the bulk of their incomes, which, with their corn laws as 
 feeders, formed in his day the main part of the wealth of the 
 nation ? Did they invest in land a tithe of it compared with 
 what the steady-going British traders and manufacturers 
 invested in every occupation in which they were engaged { 
 On the contrary, unless all history is a fable, the landlords, of 
 all people ! and especially the landlords of the eighteenth 
 century, were the most ' chartered libertines,' and spent their 
 rent-rolls, — as indeed, for that matter, they were expected to do,
 
 182 ADAM SMITH. 
 
 — ill every form of idleness, luxury, and ostentaticni, and in the 
 support of the tribes of menials and other unproductive 
 labourers proper to the good old feudal times. And Adam 
 Smith knew it, and knew besides that it was not the merchants 
 who corrupted the masses of the people by their extravagance, 
 but that it was the landlords who, beginning by corrupting the 
 merchants, set an example which as it propagated itself down- 
 wards to the lower ranks of the people, ended by corrupting 
 all alike. And this is why I have accused him in this particu- 
 lar instance of moral disingenuousness, and of straining at a 
 onat in playing off the idleness, luxury, and ostentation of the 
 Spanish and Portuguese merchants, in order to eke out his 
 aro-ument against the Colonial trade : while to support his own 
 views, he swallowed a ten times greater idleness, luxury and 
 ostentation, in the case of English landlordism, without a hint 
 of disapproval or a Avord of comment to veil his inconsistency ; — 
 u disingenuousness unworthy of his role as a philosopher. 
 
 I
 
 CHAPTER V. 
 
 ADAM SMITH versus THE MODERN FREE 
 TRADER. 
 
 A ND tills leads us to the last and most important of the 
 principles of Adam Smith with which we have to deal, — 
 and that is the pi'inci[)le of Free Trade itself. Now, the first 
 thing we have to note is, strange as it may seem, that when 
 compared with the Free Traders of the present day, not only 
 was Adam Smith in point of fact very questionably a Free 
 Trader at all, but every one of the arguments by which he 
 defended the principle of Free Trade, would as I have said be 
 rejected by them ; while on the other hand, not only would all 
 the actual })resent day results of Free Trade have been 
 anathema to him, but he would have repudiated all the argu- 
 ments by which they defend them. So that we have this 
 curious anomaly to deal with, that while earlier generations of 
 Economists and Statesmen accepted the principle of Free 
 Trade from Adam Smith by reason of the arguments by which 
 he supported it, the present generation of Free Traders still 
 hold fast to the principle, while renouncing one by one the 
 arguments which gave it all its power I And perhaps the 
 quickest and most effective way to prove this to the reader 
 will be to imagine Adam Smith reappearing in our own time, 
 and confronted with the modern Free Traders who are his 
 avowed disciples; — time having been given him to look around
 
 184 ADAM SMITH ver><i(s THE MODERN FREE TRADER. 
 
 and see in what the fnll fledged doctrine of Free Trade, carried 
 by England to its extreme limits since his day, has eventuated. 
 The first thing he would notice would be that the land, — which 
 with him as we have seen was the very ' apple of his eye,' the 
 chief soui'ce of wealth, and the crown of his hierarchy of 
 wealth-producing employments, — was going more and more out 
 of cultivation ; that in the course of twenty or thirty years the 
 landlords' rents had fallen a fourth, the farmers' capital a half, 
 and that the population working on the land was now only 
 half of what it was fifty years ago ; — and all, by unanimous 
 consent, as the result of the application of the purest principles 
 of Free Trade. And further he would notice that the foreign, 
 the shipping, and the colonial trades, — the monopoly of which 
 he denounced in his own time because they drew capital away 
 from agriculture and the home trade, — were the greatest asset 
 in the wealth of England. And if we should ask him what he 
 thought of all this, can there be any doubt that from his own 
 principles and doctrines carefully considered and developed as 
 parts of a united and harmonious scheme, he would feel obliged 
 to disown and condemn it ? For was not this very result 
 precisely what the monopoly of the Colonial trade which he 
 condemned, was bringing to pass ? And if Free Trade were to 
 lead to the same result, would he not feel obliged to condemn 
 it"? For it was not the monopoly as sncJi that he condemned, 
 as being an infraction of Free Trade ; he condenmed the 
 monopoly because it led to the universal stimulation of a 
 less productive occupation, to the disadvantage of a more 
 profitable one, — of Foreign Trade, ciz. to agriculture and the 
 home trade ; and as he thought that there was only a de/i)iite 
 amount of capital in the country to divide among the different 
 occupations, the more that was invested in occupations deriving 
 no assistance from the Powers of Nature, the less would be 
 left for Agriculture, the only one of them in which such 
 assistance was freely given. It was all a delusion as we have 
 seen ; for the Colonial trade, owing to the monopoly, was actually
 
 ADAM SMITH Versus THE MODERX FREE TRADER. 185 
 
 bringing home enormous profits which could at any moment 
 have been invested in Agriculture — or any other languishing- 
 trade, — had it been a desirable investment. But the spectacle 
 of the enormous increase of the wealth of England through her 
 foreign and Colonial trade, even when her As^riculture was 
 decaying, would have struck the mind of Adam Smith with a 
 kind of despair, and he would have been put at once on the 
 horns of a dilemma. He would either have had to admit that 
 the arguments by which he supported the pi-indple of Free 
 Trade rested on :i rotten foundation, or if he still stuck by his 
 arguments, — which all hung, it will be remembered, from the 
 doctrine of the Physiocrats, that in Agriculture alone Nature 
 lent her assistance, but not in any other employment, — he 
 would be obliged to admit that a principle which in its actual 
 working out had so upset all his calculations and predictions, 
 nmst itself be a delusion. So far Adam Smith, — if he came to 
 life again. 
 
 But now let us see in turn what the modern academic Free 
 Traders have to say to the special argimients by which Adam 
 Smith supports his principle of Free Trade. We can answer 
 at once : — they reject every one of them, not only all his positive 
 major arguments but all tlie minor negative ones by which in 
 his weak-kneedness, as they h)ve to think it, he sought to 
 limit and modify it. They reject the latter, because Political 
 Economy having divorced itself since his time from the higher 
 considerations of political and social ends, and become a narrow 
 specialism, they can find no place for them in their science. 
 On this ground they reject, for example, his defence of the 
 Navigation Acts ; — those Acts which by taking advantage of 
 England's supremacy in manufactures, put so great a pressure 
 on all the nations wliich were obliged to buy their manu- 
 factured goods from England, that the Mercantile ^larine of 
 Holland was finally driven from the field ; — Acts whicli as a 
 protective policy Adam Smith defended on the purely political 
 ground that the defence of a country was more important than
 
 186 ADAM SMITH versUS THE MODERN FREE TRADER. 
 
 its opulence. They reject also, as being an infraction of their 
 abstract ideal, his doctrine of the protection of ' infant 
 industries,' — a measure which Mill also grudgingly allowed as 
 a temporary expedient whereby the superior natural resources 
 of young countries should have time given them to make good 
 their footing in the world. They reject also, and on the same 
 ground, Adam Smith's support of government subsidies to 
 railways, canals, etc., which have a future in them for the benefit 
 of the nation, but the risks attending which are often so great 
 as not to justify ]irivate individuals in sinking their capital in 
 them. They reject also, as savouring of Protection, all those 
 ' drawbacks ' which were common in his time, and which he 
 would still allow in the shipping trade for the purpose of 
 opening up new markets in those distant countries not already 
 covered by the Colonial monopoly. And finally, — owing to the 
 hiissez-faire doctrine with which the Free Trade doctrine is 
 bound up, — they reject, in principle at least, all emoluments, 
 subsidies, or helps whatever to anything and everything how- 
 ever noble in itself, or for the ultimate greatness of the country, 
 which cannot either by pinvafe enterpnse or by vohmtary 
 contributions collect sufficient funds to sustain itself — whether 
 it be for scientific research, for the furtherance of the best 
 trade processes or methods, for the detection of adulterations 
 operating to the detriment of great masses of the people, for 
 the advancement of the higher ranges of knowledge, or for any 
 ])urely national interest that cannot be voluntarily carried on 
 the shoulders of individuals. All these, however, are mei'ely 
 negative attitudes, which being mingled as they are with 
 political considerations, the present Free Traders may regard as 
 l)ro])erly falling outside the bare bones of their meagre economic 
 specialism. 
 
 But Adam Smith's jyositive arguments in defence of Free 
 Trade on its purely economic side, they reject in foto as well. 
 And this is just what we should have known must be the case. 
 For between the time of Adam Smith and the era of full-blown
 
 ADAM SMITH versus THE MODERN FREE TRADER. 187 
 
 Free Trade on which England has entered since tlie repeal of 
 the Corn Laws, the entire organization of the industry of the 
 world had been so revolutionized by mechanical invention, 
 facilities of transport, railway communication, the development 
 of international credit, and what not, that if we may figure it as 
 having a separate life of its own, like an animal, it can no longer 
 be regarded as of the same species ; it has now no longer, as I 
 have said, the simple organization of a worm, but rather that of 
 the higher vertebrates. For if we consider it, in the time of 
 Adam Smith, each nation was practically a self-contained unit, 
 and the transport between them being by long sea voyages, 
 nothing but the most durable commodities, of the smallest 
 bulk, or of the most special excellence, could get a foothold for 
 successful competition with the home trades of other countries 
 in the same line of goods. Gold, of course, could find a market 
 everywhei'e, so could French silks or wines, so too English 
 manufactured goods, American cotton, sugar, or tobacco, by 
 reason either of their vmusual cheapness, — as was the case Avith 
 English goods, — or of their limitation to particulai" countries 
 only. 
 
 Adam Smith, then, it will be remembered denied that the 
 Agriculture of England could ever seriously suffer from foreign 
 competition, even if the Corn Laws of his time had been 
 abolished ; and this he did, first, on the ground that the cost of 
 growing corn was practically al)0ut the same in all countries, 
 and secondly, because of the great diflficulty and cost of trans- 
 port, — a diflficulty and a cost which were, of course, increased 
 in proportion to the distance of the competing countries from 
 each other: while as for cattle, owing to the expense of feeding 
 them on the wa}', competition except in the case of the most 
 rare and valuable breeds was almost nil. Agriculture, then, 
 which in his opinion was the greatest of all wealth-producing 
 assets for each nation, could never, he thought, be seriously 
 endangered by foreign competition even under a universal 
 regime of pure Free Trade ; and as the manufactures of his
 
 188 ADAM SMITH vefSll.s THE MODERN FREE TRADER. 
 
 time were mainly ' cottage industries,' the products of hand- 
 loom and other primitive machinery (for the steam engine was 
 not yet invented) and were intended mainly for home con- 
 sum[)tion, — except in certain favoured instances like English 
 cutlery, French silks, etc., — ^they could, he fully believed, have 
 nothing to fear from Free Trade. And as in these highly 
 specialised manufactures themselves, each the product of a 
 different country, nobody had ever denied that being comple- 
 iiientdri/ and not competitive products, the freest possible 
 exchange, unhampered by tariff biirriers, would be best 
 economically for both parties to the trade, it followed that 
 with the wines and silks of France exchanging freely for the 
 cutlery of England, the spices of the East for the manufactures 
 of the West, the fruits of the South for the corn of the North, 
 Free Trade would, economically speaking, be from every point 
 of view of the utmost benefit to all nations, without seriously 
 endangering through competition the special wealth-producing 
 powers and instruments of production of any, — and could there- 
 fore be entered upon by all alike at once and without fear. Now, 
 if we ask what the modern Free Traders would say to these 
 arguments of Adam Smith in favour of Free Trade, can there 
 be any doubt that however fully they agree with him in the 
 principle of Free Trade they would feel obliged to reject each 
 and every one of them ^ They would simply laugh at his 
 doctrine that Agriculture is a more productive source of wealth 
 to nations than Manufactures or the Foreign Trade ; for in the 
 present day, owing to steam, electricity, and mechanical 
 invention, one nation will have ten times the powers of Nature 
 locked up in its minerals that it has in its agricultural land : 
 another in its ships ; another in its manufactures, and so on ; 
 and as for England, the increase from her land is not, and could 
 not be, under the hiohest and most intensive cultivation, a tithe 
 of what it is from her manufactures, her minerals, and her 
 shipping trade. If this be not so, why should the modern 
 Free Trader as vio-orouslv defend the decav of her agriculture
 
 ADAM SiMITH fffsiis THK MOOKKN FKEK TI{A1>F:I;. 1 S*> 
 
 in favour of her manufacturet!, as Adam Smith, from hi^ 
 arg'uments, wouhl have condemned it ? In fact, for any 
 particular nation having trade relations with other nations, 
 mere agricultural land as such may be left out of consideration, 
 except in those few instances where it still continues to be the 
 main wealth-producing asset. They would laugh, too, at his 
 doctrine that difficulty and cost of transport — the barriers 
 on which he relies for making nations safe from foreign 
 competition under Free Trade, — were to-day any serious or 
 effective barriers at all ; for they too are being more and more 
 annihilated by railways, electricity, and steam navigation. 
 They Avouid reject also his doctrine that those classes of 
 manufactui'ed goods which from the smallness of their bulk 
 and consequent cheapness of transport could compete with 
 each other, were so specialised in different nations that they 
 were the subjects of complementary instead of competitive ex- 
 change ; for in the present day most of the half-manufactured 
 and fully manufactured articles which are the subjects of 
 international exchange are common to half-a-dozen of the 
 richest and most enterprising nations of the world, and are 
 therefore wholly or mainly competitive ; otherwise why should 
 these nations fence themselves about with protective tariffs as 
 defences against each other's goods? And again, just as the 
 modern Free Traders reject Adam Smith's doctrine of the 
 supremacy of Agriculture over all other wealth-producing 
 instruments, whether of home or foreign trade, so they reject 
 his doctrine that a home trade has a supremacy over a foreign 
 trade ; and especially his fictitious distinctions of the relative 
 importance of the different branches of the home trade ; as, 
 for example, his doctrine that next to agriculture in the 
 hierarchy of wealth productiveness stands manufactures, on 
 the ground that they employ more productive labour, and have 
 a quicker turnover than the wholesale home trade : and that the 
 wholesale home trade in turn is more productive than anv 
 foreign trade whatever (even if you had a monopoly of the
 
 190 ADAM S3IITH rersKs the modern free trader. 
 
 latter as against the world) on the ground that it gives 
 employment to two home capitals instead of one home and 
 one foreign one : that it has a quicker turnover of capital than 
 the more distant foreign ones ; a greater number of home 
 employers ; and that it is attended with less risk. All these 
 arguments they would brush aside as, in the present day, mere 
 irrelevancies, and would take their stand on the broacl fact 
 that where trade is free, and business men are left to their 
 own devices, they can always be trusted to place their orders 
 and negotiate their sales at the best points for their own 
 advantage : and that it matters not, so long as they see their 
 way to a profit, whether they invest in home trade or foreign, 
 in agriculture or in manufactures ; whether their business 
 employs many workmen or a few ; whether it employs two 
 home capitals or only one ; whether the trade is a distant or a 
 near one ; whether it is absolutely free from risk or the risks 
 have to be covered by a higher price ; whether they have to 
 lay out of the returns to their capital for a greater length of 
 time, a month, or a year, or in some businesses, as in the 
 laying down spirits or wine, for five or for twenty years. 
 Otherwise how could they stand calndy by, and see Adam 
 Smith's doctrines put to open shame in the market place, and 
 not only encourage manufactures as against the agriculture of 
 their own country, but foreign manufactures (for the sake of 
 cheapness of product) at the expense of the home ones which 
 by competition they have driven from the field '? For, observe, 
 that Adam Smith would only permit capital to be invested in 
 foreign trade when it had overflowed, as it were, from the 
 home trades in a natural way, and not until the land, 
 manufactures, and home trades had absorbed all the capital 
 that could be put into them. Indeed, as we have seen, his 
 main denunciation of the Colonial trade of his time (even when 
 it was protected by the monopoly which England had over it) 
 was because of its drawing capital away ^mnaturally (by reason 
 of the monopoly) from a more ])roductive source of wealth to a
 
 ADAM SMITH ^vr.^v^s THE MODERX FREE TRADER. 191 
 
 le8,s one. And it was because he believed, and thought he 
 had demonstrated, tliat Free Trade would prevent all this, that 
 he advocated it. Had he lived to-day and seen that with Free 
 Trade in its full fruition and bloom, and with no monopoly or 
 tariff to interfere with it, the Foreion Trade has in actual fact 
 drawn a large part of the capital of the country into it and into 
 the shipping trade, and away from many of the home manu- 
 factures, — and especially from agriculture, — ^is it possible that 
 he could have approved of it ? From all of which, can it be 
 doubted that Adam Smith was a Protectionist in his heart, 
 and that he was a Free Trader only because he thought and 
 believed that Free Trade was the best instrument or policy for 
 bringing about the ends he had in view ; and that had he lived 
 now, and seen each of these favourite doctrines of his in turn 
 belied, and indeed completely reversed, by the actual facts, he 
 would have been as eager to put up tariff" fences for their 
 protection as in his own day he was to abolish them? The 
 two principles on which all his political economy turned — 
 namely the supremacy of agriculture and the barrier offered 
 by distance and difficulty of transport — having been completely 
 reversed and almost annihilated since his time, what logical 
 alternative could he have but to discard either his arguments, 
 or his policy, or both ? If not his arguments, then logically he 
 must renounce his principle of Free Trade and become a 
 Pi*otectionist ; if not his principle and policy, then he must 
 renounce his arguments, each one of which in turn, as we have 
 seen, the modern Free Trader repudiates. And lastly, after 
 thus rejecting all the special arguments by which Adam Smith 
 defended his principle of Free Trade, the modern Free Traders 
 reject his political remedy as well, — his proposal, namely, to 
 abolish the monopoly which the mother country held over the 
 Colonial trade which with him was the source of all the 
 mischief (much more so, indeed, than the Corn Laws), and to 
 throw open the trade to all the world; — not for the benefit of 
 the Colonies, be it remembered, but for the benefit of the
 
 192 ADAM SMITH versux THE MODKllN FREE TRADER. 
 
 mother country ; — to make the Colonies contribute to the 
 Imperial revenue the amount spent on their defence ; and to 
 allow them to send representatives to the British Parliament. 
 
 And this brings us to the most interesting and important 
 point in the whole discussion, namely as to how or why it is 
 that with Adam Smith and the modern Free Traders thus 
 openly repudiacing each others' arguments, they should still 
 agree in defending the principle of Free Trade ? For as result 
 we have, as we have seen, this curious spectacle and anomaly, 
 that while the earlier economists and statesmen accepted the 
 principle of Free Trade from Adam Smith by reason of the 
 arguments with which he supported it, the present generation 
 of Free Traders still hold on to his principle after repudiating 
 in turn each and every one of his arguments I Now the 
 answer to this is quite simple, and leads us at once to the 
 deepest and most central of all the illusions which underlie the 
 principle and doctrines of Free Trade. And it is this ; — -that 
 whatever policy is best adapted to increase the wealth of the 
 world as a single ecouomlc w/iole, is also necessarily the best 
 adapted to increase the wealth of each particular natioii in it ; 
 and that in consequence, if all the tariff barriers between 
 nations were thrown down, the increase of wealth that would 
 accrue, would, like liquid manure poured out at any part of a 
 level field divided into sections but without fences between 
 tliem, spread itself out evenly over all, to the particular benefit 
 of each part or division as well as to the general welfare of the 
 whole. In this, Adam Smith and the modern Free Traders are 
 at one, and it is this which keeps them united on the principle 
 of Free Trade, although mutually annihilating one another in 
 every argument by which they respectively support it. 
 Fortunately, to get at the truth or falsehood of this theory we 
 have a concrete instance ready at hand, which has only to be 
 presented to settle the matter without confusing the reader 
 with pages of abstract argument. For all we have to do is to 
 let the United States of America represent, for the nonce, the
 
 ADA3I S3IITH vei'XHS THE MODERN FREE TRADER. 193 
 
 world as a single economic whole, and its several States 
 (between all of which absolute Free Trade exists) represent 
 the separate nations of which the world is composed ; and then 
 see what has ha[)pened and is happening there to-day so far as 
 the fortunes of its several States are concerned. Does the 
 economic prosperity of each of these different States keep pace 
 in point of fact with the economic prosperity of the Union as 
 a whole ; and does each get its proportionate share of the 
 wealth that is being heaped up in all '. Certainly not ; on the 
 contrary, wealth, capital and population alike migrate in great 
 masses from State to State, either driven out by the competi- 
 tion of other States, or attracted by the superior opportunities 
 for accumulating wealth opened up by them. Agriculture, for 
 example, has almost entirely disappeared from some of the 
 Eastern sea-board States, and moved on to the West, taking 
 its country population with it ; farms are not so much sold as 
 abandoned, the old homesteads have fallen into ruin and decay 
 or are used as summer resorts for invalids, while the land itself 
 has returned to its original prairie state again. Then, too, 
 whole batches of mills and factories in one State are ex- 
 tinguished in a decade by the competition of another, as if a 
 destroying angel had passed over them : and now that the 
 great industries of the country are organized and concentrated 
 in great Trusts, the fortunes of particular States no longer 
 have to wait until they are annihilated by the direct impact of 
 competition, but whole industries are liable to l)e dislimned at 
 a moment by a nod from the central controlling power of the 
 Trust — furnace-fires blown out here to be re-lit on a larger 
 scale there, mills closed down in this State, as no longer so 
 ])rofitable as their concentration and enlargement in that — 
 while the population which they support, having received their 
 marching orders, have to roll up their tents, disperse, and steal 
 away, like nomads in the night. And the reason is obvious. 
 Facilities of tninsport having at last caught up with the powers 
 of Production, the separate States of tlie Union no longer 
 
 o
 
 194 ADAM SMITH verSi(>' THE MODERN FREE TRADER. 
 
 exist US semi-isoluteJ economic units, as in the days of Adam 
 Smith, but each is in free communication with all the rest, as 
 the organs of an animal's body are through its blood and 
 nervous system ; so that the products of each and every State, 
 floated everywhere on this equal stream of circulation, can join 
 issue at each and every point of the vast territory, whether for 
 attack or co-operation : and the twin poles on which the 
 economic fortunes of nations turn, namely competitive and 
 complementary exchange, can operate unimpeded at each and 
 every point with all their force. And the consequence is, that 
 just as in the conflict of talents in an open arena and on even 
 terms, and where there are no exclusions, the best man wins ; 
 so the geographical situations that are either richest in wealth- 
 producing raw material, — whether of soil or of mines, — or which 
 offer the best strategetical points for manufacturing, concen- 
 trating, or distributing it, resume their natural economic 
 superiority over all those factitious advantages which bulk 
 themselves out so bravely when from absence of transport or 
 from inter-State barriers they are kept from a hand-to-hand 
 grapple for supremacy. And hence, as we see, although the 
 wealth of America as a whole is increased by the freedom of 
 trade which exists between its component States, this wealth, 
 far from diffusing itself evenly, like our liquid manure, over 
 the whole field, — as the Free Traders imagine, — heaps itself up, 
 on the contrary, in great piles and masses at certain 
 geographical points, — New York, Chicago, Pittsburg, St. Louis, 
 and the rest ; the consequence being not only that the 
 particular States in which these and other cities are situated 
 are the richest in the Union, but that the others, especially in 
 the remoter and less favoured regions, have had their industries 
 so drained away, that they are relatively poorer than they were 
 before. It is precisely the same as when a railway is being 
 carried through a new territory ; — the towns and villages on its 
 route draw capital and po})ulation away from the surrounding 
 districts, until when in its course it reaches some still more
 
 ADAM S3IITH versus THE MODERN FREE TRADER. H).") 
 
 favoured point for business, it concentrates there in turn all 
 available capital and ])opulation, leaving the rest behind it as 
 poor, if not poorer, than before. It was the same when the 
 iron and coal works of the South of Eno-land, and the nianu- 
 factures of the Eastern and Western Counties took wing, and 
 migrated to the Midlands and the North, to the sites of richer 
 natural productions, or to more accessible centres of trans})ort 
 and trade, — and so made the fortunes of Leeds, Manchester, 
 Birmingham, Sheffield, Middlesbrough, and the rest ; and 
 while enriching the counties in which these cities and towns 
 are situated, left those from which they had migrated, bereft 
 of capital and population, to their meadows and sheep walks as 
 before. 
 
 Now, the same relationship holds between the economic 
 interests of the world as a whole and those of any particular 
 nation in it. There is no way to insure that the two will be 
 identical, and that what is best for the world as a whole will 
 be best for each particular nation ; and the more free and 
 unrestrained the trade between nations becomes, the more 
 difficult will this be to effect, until with absolute and universal 
 free trade there is neither security nor guarantee for it at all. 
 It can neither be done, as Adam Smith so confidently and 
 naively enjoins, by each nation following the particular order 
 and hierarchy of investments which he lavs down, besfinnino- 
 with Agriculture at the top ; nor can it be done, as the modern 
 Free Trader enjoins, by allowing each nation to invest its 
 capital as it pleases, — whether in agriculture, manufactures, the 
 home or foreign trade, matters not, — on the ground that each 
 may be trusted to know its own interest best, and that where 
 trade is everywhere free, what is best for all the nations 
 collectively will necessarily be the best for each individually. 
 And the reason, again, is obvious. For exchange to be 
 beneficial to each of the parties to a bargain, and therefore 
 fruitful and beneficent all round, it is essential that the products 
 exchanged in each case should, like the sexes, be complementary
 
 196 ADAM SMITH versuS THE 3IODERN FREE TRADER. 
 
 to each other and of different kinds, — as corn for wine, wine for 
 manufactures, manufactures for tobacco, or spices, or furs, or 
 what not ; wliereas, on the contrary^ when products of the 
 same kind are allowed by Free Trade to meet and confront 
 each other in the same mai'ket, like rival gladiators iii the same 
 arena, they neutralize and extinguish each other by their 
 competition, until only those which are supreme, each in its 
 own kind, are left victors on the field. These in turn pair with 
 each other, as it were, as complementary exchanges, like the 
 finest types of manliness on the one hand, and beauty on the 
 other, among the partnei's in a ball-room, and so secure the 
 cream ; while the less favoured on either side have to content 
 themselves with the smaller markets, the hole-and-corner 
 businesses, and like defeated stags and withered does, betake 
 themselves to the leavings on the outskirts of the industrial 
 field. Or to sum it up ; — the reason that absolute Free Trade 
 if made universal would be best for the world as a single 
 economic whole is that it would offer the fewest barriers to 
 those complementary exchanges of different products in which 
 the very essence and raison d'etre of all fruitful exchange 
 consists ; and especially because being co-extensive with the 
 whole world, every quality, form, degree, grade, or variety of 
 natural product or manufactured article which can be grown or 
 produced in any nook and corner of it, — with its infinite varieties 
 of soil, its profusion of animal and vegetable life, the special 
 talents, natural or acquired, peculiar to its races and peoples, — 
 can, when set afloat on the stream of circulation, find a larger 
 market for itself with the whole world open to it, than it 
 possibly could if by tariff barriers its market was confined to its 
 own particular national territory alone ; in the same way as in 
 the human body, where it is seen that of all the varied food 
 products that are eaten, none is so poor and useless but when 
 thrown into the circulatory blood stream it will always find 
 some part of the organism to take it up and utilise it, even if 
 it w^ere only used for the growth of the hairs or nails ; whereas
 
 ADAM SMITH verf<l(s THE MODERN FREE TRADER. 1H7 
 
 if forced to confine itself to this or that particnhir organ by 
 reason of barriers in the general circulation, much of the food 
 that was apportioned to any particular organ could not be 
 utilised by it, and so most of what was eaten would be wasted 
 and thrown out as valueless excreta. In the same way, if all 
 the pioducts of a particular nation were obliged to find for 
 themselves a market in that nation, owing to tariff barriers 
 preventing them from finding their natural market elsewhere, 
 they would either be wasted, and cease to be produced at all, 
 and so a diminution of the possible wealth-production of the 
 world would result ; or if produced, would exchange for less 
 of the products of other nations, owing to the cost incurred in 
 surmounting the barriers raised against them. In a word, 
 then, universal Free Trade, by permitting each and every kind 
 of natural, artificial, or manufactured product, to find most 
 easily a natural home and market for itself somewhere in the 
 wide world, would give to all products alike a greater market 
 than would otherwise be possible, and so would permit of 
 everything everywhere being produced at less cost. On the 
 other hand. Protection, by raising tariff barriei's between 
 nations, has precisely the same effect as if the natural pro- 
 ductions of a country had to be carried at some part of their 
 course over hills or mountains on pack-saddles, instead of 
 sailing or running smoothly along in ships or by rail ; and so 
 by raising the cost in human labour of all ]iroducts alike, would 
 reduce the aggregate possible wealth of the world as a whole. 
 From all of which it is clear that a universal Free Trade, under 
 ideal conditions for its exercise, would most greatly increase 
 the wealth of the world as a single economic unity or whole. 
 
 But now let us turn to the other side of the shield, and see 
 what the effect of a universal Free Trade would be on any 
 particular nation, — when that nation is resolved at all costs to 
 maintain its political unity, dignity, and independence, and to 
 increase by every means in its power the wealth and material 
 prosperity which is necessary to su[)port it. We shall find
 
 198 ADAM SMITH versUS THE MODERN FREE TRADER. 
 
 that it will be the same as its operation on any given division 
 of a particular nation — as we saw in the case of the United 
 States of America ; and that the same freedom of trade which 
 brings to your door from all parts of the world the precise 
 products which your means or your tastes will permit you to 
 enjoy, at the smallest possible cost, will bring also with it, and 
 with equal facility, the goods of your foreign rivals in the 
 same line of business as your own ; and that unless your nation 
 from its geographical position or its natural productivity and 
 skill, can maintain a supremacy over all its rivals, it may lose 
 as much by Free Trade on the side of Production, through 
 foreign competition, as it will gain by it on the side of 
 Consumption through the cheapness of those complementary 
 products which it does not itself produce. And when once 
 the world of nations is able to successfully conquer your 
 industries in your own homes, — one nation in this product and 
 another in that, and another in yet another, — there is no more 
 guarantee in commerce than in war that your nation may not 
 in a decade be degraded from the rank of a first to that of a 
 third-rate industrial power. And the more complete is the 
 freedom of trade between all nations, and the more perfect the 
 ramifications of transport-service everywhere, the more rapidly 
 will wealth, capital, and population be driven from one 
 geographical area to another, — according to convenience of 
 situation, natural resources, or the relative power of the 
 combatants to supply at the cheapest cost those products for 
 which there is the most world-wide demand. In a universal 
 regime of Free Trade there is no w^ay of keeping the wealth, 
 capital, or population, fixed and steady on any given area of 
 soil, and in any particular nation, or of preventing them moving 
 away to more favoured regions or nations ; the economic 
 destinies of all, on the contrary, being as fated as if ' written 
 on the iron leaf.' And the whole industrial history of the 
 w^orld gives it proof. For from the moment that the route 
 around the Cape was discovered, and the ships of all nations
 
 ADAM 83IITH cersu.^ THE 310DERN FREE TRADER. 199 
 
 were equally allowed to ^ail It, the fate of Venice and the 
 other Italian Republics of the Middle Ages was sealed ; and 
 although their decline might linger, their end was inevitable. 
 Again, from the moment that the corn of Western America, 
 Russia, and the Argentine, was from better transport facilities 
 brousht to our doors. EnoHsh aoriculture, under the regime of 
 Free Trade, received its death blow ; and had Adam Smith 
 been alive, it must have destroyed his belief in that system of 
 Free Trade which, as we have seen, following the Physiocrats 
 of France, he founded originally on the supremacy of 
 Agriculture as a wealth-producing asset for all nations alike, — 
 and founded on that supremacy alone. And we may go farther 
 and say, that when the time is at length ripe for the giant 
 Trusts of the world, concentrated in fewer and fewer hands, to 
 make a concerted attack on our manufactures, whether by 
 ' dumping ' and other devices, or by the legitimate underselling 
 which production on a gigantic scale will make possible, — as it 
 has already made it possible for them to extinguish their trade 
 rivals in their own countries ; — and when they are aided and 
 abetted in this by the cotton ' corners,' the Metal and Food 
 Produce corners of the world (and for this a dozen or two of 
 the greatest multi-millionaires have only to lay their heads 
 together to shake the markets of the world to their centres), 
 what defence would the Free Trade of any nation make which 
 could avail against them ? Indeed, had Adam Smith lived 
 to-day, still believing, as he did, that Agriculture was practically 
 safe from attack by foreign rivals under a regime of Free 
 Trade, — on the ground, as we have seen, that as corn and cattle 
 could be practically produced and reared at about the same 
 cost in every agricultural country, the expense of transport 
 made their successful competition a practical impossibility 
 except in times of scarcity or famine, — what would he have 
 said when he found that not only these great staples of 
 Agriculture, — its corn and cattle, — were undersold in the home 
 market, but that even the hundDle breakfast egg, the most
 
 200 ADAM SMITH versus THE MODERN FREE TRADER. 
 
 uncertain and perishable of all commodities, could be brought 
 from nearly every European country to the markets of his owu 
 country, and through the cumulative effects of some petty 
 differences in cost of transport, could so over-ride all considera- 
 tions of time, distance, and productiveness (his three sheet 
 anchors of defence) as to drive out the home egg as effectually 
 as the brown rat has driven out the black one ? Would he 
 not then have known and realized for the first time, that when 
 once the transport between nations is so jjcrfected that time 
 and distance have become practically annihilated in the bill of 
 costs, Free Trade brings to the door of every home not only 
 the peaceful foreign trader who will supply you at the cheapest 
 rate with the conunodities ^-ou wish to possess but which you 
 do not yourself produce, but will luring also to your door by the 
 same boat the foreign conunercial traveller with his battle-axe 
 and his mailed fist, who, unless you are the stronger, will proceed 
 to batter down the walls of your factories and workshops, and 
 cut off the wages that support your hearths and homes ? And 
 it will be done so naively, so unsuspectingly, and so cunningly, 
 that your throat will have been 'cut with an oiled feather' before 
 you are aware of it. For the stune foreign trader whom you 
 welcome to your door as a friend, bringing blessings with him 
 in the shape of cheapness, will when his cowl is thrown back, be 
 seen to be an enemy in disguise ; and the illusion which makes 
 the trick so successful is. that each foreign trader is a friend to 
 you, but an enemy to your next door neighbour, while your 
 neighbour's friend in turn is an enemy to you ; — the foreign shoe 
 manufacturer not selling his shoes to the shoemaker, but to the 
 tailor, and vice versa ; — with the result that all the successful 
 foreigners are at once enemies and friends ; enemies, as rivals 
 who will kill you by their competition, friends, in so far as they 
 will give you what you want at the least expense. In other 
 words, for the sake of cheapness you will be found to have 
 embraced not a friend, but a rival who has come to take away 
 your means of living. And so, just as the sejmrate individuals
 
 ADAM SMITH re7\siit< THE IMODERN FREE TRADER. 201 
 
 who make up the crowd in a theatre will, on a cry of fire, by 
 the common impulse to escape, each at the least risk and 
 expense to himself, ruin all alike by all being blocked in the 
 o-angways and exits ; or as in a crowded public ])lace they may 
 be trampled to death by the simple expedient of throwing a 
 number of cheap coins among them ; so the individuals that 
 make up a nation, by their anxiety to secure for themselves as 
 consumers everything that comes to their door, indifferent as 
 to whether it comes from home or abroad, so long only as they 
 can get it at a trifle less cost, can under a regime of Free Trade 
 endanger, paralyze, or bring to an absolute standstill the mills, 
 the factories, and the workshops of the nation as a whole : as 
 much so, indeed, as if they had sold themselves to the enemy 
 in war. Under Protection, on the contrary, the home trade at 
 least can always be preserved up to the full extent of the 
 country's resources, natural and acquired ; and need not, unless 
 you 'iO will it, be floated away on this heartless, fated, and in 
 the end — by the dislocation and instability it involves in 
 families and homes — inhuman stream. 
 
 And this brings us to the very coi-e of our subject, namely 
 as to whether there is any criterion whicli will enable us 
 to determine whether under Free Trade a nation is more 
 advantaged in its character as consumer, by the foreigner in 
 \\ his character of friendly dispenser of cheap goods, than it is 
 
 injured by him in its character as producer, when he comes as 
 a rival to take away its land, factories, workshops, and tools, 
 by closing them down or throwing them out of cultivation and 
 use; in othei' words, whether there is any principle which will 
 enable us to determine beforehand whether the balance is likely 
 to be on the side of the nation or not 1 Adam Smith, as we 
 know, decided that the balance would be sure to be on the side 
 of the nation — because of what ( Because we could always 
 be sure under Free Trade of keeping in our hands the greatest 
 ■of all the instruments of production, namely the land ; and the 
 reason he thought the agriculture of the country was safe 
 
 \\
 
 202 ADAM SMITH versm THE :S[ODERN FREE TRxVDER. 
 
 against tlic attacks of foreign rivals was, as we have seen, 
 because of distance and cost of transport. As for manu- 
 factures, they too he thought were safe under Free Trade 
 against the attacks of the foreigner for the same reason ; 
 except, perhaps, the silk industry which could not hold its 
 own, he admitted, without protection, against that of France. 
 But then, what did it matter? If beaten in one manufacture 
 we could alwayi<, he said, transfer our capital to another in which 
 no danger was to be feared ; the consumer, at any rate, would 
 gain what the particular producer lost, and so on the whole 
 the balance would be in our favour. But how stands the case 
 to-day "? The land as an instrument of production has been 
 lost to us through the successful invasion of our agriculture by 
 the foreigner ; and so long as the competition lasts, the powers 
 of Natui'e locked up in the soil, — with the land going out of 
 culture at the rate it has been doing for the last decade or two, 
 — will be lost as a national asset. And if the time should ever 
 come when England can no longer maintain her supremacy in 
 a free market in manufactures either, the powers of Nature 
 locked up in them, — which since the days of steam, are a free 
 gift of ten times the economic value, as a wealth-producing 
 asset, of those in agriculture, — would be lost to us also. And 
 the consequence would be that while the free trade lasted you 
 would have the spectacle on the one side, of a nation with its 
 hands tied behind its back, as it were, through having parted 
 with the tools with which it works — its soil, its mills, its 
 factories, and its workshops, — and standing there a helpless 
 mass of mere consumers ' eating their heads off; ' while on the 
 other, your foreign rivals, having captured your tools, (the 
 instruments of production, through which alone wealth can be 
 increased), will stand over you like masters over their helpless 
 slaves, or the great Trusts over the small business men whom 
 they are about to crush, and by the shadow of their sword of 
 competition suspended over you, will prevent you from pro- 
 ducing until you consent to do so on their own terms : — and 
 
 I
 
 ADAM SMITH versUS THE MODERN FREE TRADER. 203 
 
 these are, tliat you shall give up your instruments of 
 production unconditionally to them, as you would your swords 
 in war. And so, for the time being, and while your Free 
 Trade lasts, having parted with your instruments of production 
 to the foreigner, you have become a nation of consumers only — 
 mere dead receptacles, pensioners and parasites, — and although, 
 like barnacles, you may once have had the free use of your 
 powers and faculties, you have now become mere sacs, the 
 appendages of foreign nations. And with result, what ? This, 
 namely, that your foreign competitors, having got hold of all 
 the trump cards in the pack, now have you at their mercy, and 
 can squeeze you in every business deal, wriggle as you may. 
 But trade, it will be objected, does not immediately cease 
 between nations when one of these nations has virtually been 
 vanquished in its supremacy by foreign competition. Quite 
 true, and we may go further and say that it never really ceases 
 at all. What happens is that the nation having lost the use of 
 its instruments of production, will continue paralyzed so long 
 as the Free Trade last, in the same way as in matters of credit 
 it would, if the Bank of England were to suspend payment; 
 and the great centres of trade, wealth, and population, will be 
 shifted to those nations whose superior natural resources, 
 instruments, and powers of Production were the causes of its 
 original defeat. Nor would this matter so much, did the 
 nations of the world form a political unity, like the separate 
 States of the American Union ; but so long as each nation 
 wishes to maintain its political integrity and the dignity and 
 consideration which wealth and economic power give it, it is 
 another question. For what will happen when once a nation 
 is virtually defeated by foreign competitors, and while Free 
 Trade continues, will be, that having lost its sword when it 
 lost the use of its instruments of production, it will still have 
 to live and be fed and clothed somehow, and on the products 
 too of those very instruments of which it has been deprived ; 
 only now it will have to draw on its past savings, foreign
 
 204 ADAM SMITH versllS THE MODERN FREE TRADER. 
 
 securities, and other collaterals, to pay its way. But although 
 ships with their cargoes will still come and go from its ports 
 and harbours as before, bearing their imports and exports with 
 them, still, like the to-and-fro movements of the piston of a 
 locomotive which go on for some time after the last shovel of 
 the coals which stoke it has been thrown in, this trade between 
 a nation and its successful rivals, although it may go on for 
 some time with apparently undiminished speed, must become 
 less and less, slower and slower, as one after another of its 
 savings and foreign securities are handed over, until in its 
 larger operations it ceases altogether. And then is seen the 
 spectacle, so strange and paradoxical to the Free Trader, with 
 liis dream that what is best for the wealth of the world as a 
 single political and economic unity and whole, is necessarily 
 best also for each of its nations as parts, and which is the 
 veriest commonplace of History ; — the spectacle, namely, of a 
 nation as completely, if not as suddenly, ruined by Free Trade, 
 while all the time the wealth of the xoorld as a whole is increas- 
 ing by that trade, as would be the Transvaal of to-day if its 
 gold and diamond mines were exhausted ; the spectacle, in 
 short, of wealth, capital, agriculture, manufactures, and 
 population, silently stealing away from one nation and area of 
 the globe to another, while all the time the wealth, capital, 
 agriculture, manufactures, and ])opulation of the world as a 
 whole were as steadily and silently increasing. 
 
 Such is the modux operandi of the economic rise and fall of 
 nations, or the separate divisions of single nations, under a 
 reffime of Free Trade. I have imao-ined an extreme case for 
 the purpose of bringing out more sharply the central operative 
 factors on which the issue turns ; to make it fit the case of any 
 actual nation, the relative strengths of the different factors 
 will have to be considered and allowed for at different stages 
 of its development, — whether at the period of its supremacy or 
 of the successive stajjes of its rise or decline. With these 
 well in hand, we shall then be in a position to consider, in
 
 ADAM SMITH versUS THE :\rODERN FREE TRADER. 205 
 
 the language of the physicians, the questions affecting its 
 diagnosis, prognosis, and treatment ; with this proviso always 
 understood, namely that in nations, — so long as they exist as 
 distinct political and social units, — considerations of self- 
 preservation, national honour, dignity, and self-respect, must 
 always, as in individuals, take precedence over purely economic 
 ends alone ; or, as Adam Smith has it, in his political support 
 of the Navigation Acts, — 'defence is more important to nations 
 than opulence.'
 
 CHAPTEE VI 
 
 FREE TRADE AND PROTECTION. 
 
 X^OR the diagnosis, then, of the economic condition of any 
 -*- particular nation, the following are the points that must 
 be elicited. 
 
 1. To what extent have the powers of Nature, gratuitously 
 given to man, in any one or more of the great industries 
 — whether of Agriculture, Mines, Manufactures, Shipping, or 
 what not, — been transferred to the foreigner through stress of 
 competition ? 
 
 2. To what extent has the loss in one department been 
 compensated by the supremacy which the nation still retains 
 in the others ? 
 
 3. To what extent do these latter still enjoy a supremacy in 
 the world -market in spite of competition; and what proportion 
 of them can only keep their supremacy either in the home 
 market or in some of the more outlying and less industrially 
 developed regions? 
 
 4. Is the existing supremacy, whether at home or abroad, 
 one in the production of luxuries for the few, — as wine, tobacco, 
 fruit, and precious stones, — depending on special peculiarities 
 of soil or climate which are inherent and inalienable, and so not 
 transferable to other nations ; or is it a supremacy in the 
 production of necessities of universal demand, — as food, clothing, 
 and household materials and utensils, — whicli can be produced
 
 FREE TRADE AND PROTECTION. 207 
 
 in many different countries, but where the prizes will go to tlie 
 nation that can deliver them at leas^t cost, whether from natural 
 fertility, easy accessibility, facilities of transport, the skill and 
 invention of the organizers and workers, or, as is most usual, 
 from that particular combination of all these qualities which is 
 best adapted to the purpose ? 
 
 o. Given that the supremacy depends on a happy com- 
 bination of the materials and qualities best adapted to the 
 production of articles of necessity in world-wide demand, — as in 
 the case of England, of coal, manufactured cotton, wool, iron 
 and steel, machinery, etc., — does the combination which gives 
 the supremacy rest, A\'hen analyzed, on a supremacy in the 
 home supply of raw materials, — on home coal and iron, home 
 cotton, home wool, etc., — or is it the superior organization and 
 skill, hereditary or acquired, of the masters and workmen which 
 have turned the scale in the balance of supremacy ? For if the 
 raw material, either wholly or in part, has to be imported from 
 other lands, as in the case of cotton in England ; or if the 
 supremacy rests on the special products of the East and West, 
 such as those by which Venice and Spain and Holland rose to 
 supremacy ; or if the home supply, although fairly rich, can be 
 confronted by a competitor with still richer natural resources ; 
 then, like a pyramid on its apex, the supremacy is unstable 
 and in time must topple; for in a regime of absolute Free 
 Trade, a rich natural resource is as useless when confronted in 
 the same market by a richer, as if it did not exist at all ; 
 provided always the question is not one of definite grades of 
 the same general article which have select and definite classes 
 of customers ; — with this exception, it may be laid down in 
 general terms, that no manufacturino- skill can avail a nation in 
 the long run if the raw material on which it operates has to be 
 imported from abroad, and especially when once the nations in 
 possession of this material have reached the stage of all-round 
 industrial development when they can work it up for themselves. 
 For manufacturing skill, invention, organization, etc., where
 
 20S FREE TRADE AND PROTECTION. 
 
 the stakes are great enough and the end justifies it, can be 
 transferred in batches from one country to another at any time, 
 if the wages or salaries are made sufficiently tempting. 
 
 H. And this leads to the further question as to whether the 
 nation under discussion is a young nation industrially immature 
 and undeveloped, but with the richest natural resources in its 
 soil and mines, with the best natural facilities for transport in 
 its geographical situation, with an absence of natural barriers, 
 and with an abundance of natural water-ways communicating 
 within its own territory with the sea — and so demanding some 
 form of protection during its youth or immaturity ; or whether, 
 on the other hand, it is an old nation, industrially speaking, 
 fighting on great but declining natural resources ; and 
 especially whether it is handicapped and hampered by political, 
 religious, and social institutions unfavourable to a purely in- 
 dustrial supremacy, but which from age, and national tradition 
 have become fixed, immovable, and irreversible. In a word, 
 whether it is a nation or people like America and the Colonies 
 with the richest natural resources of all kinds still partially 
 or, — in the case of the greater Colonies, — almost entirely, 
 undeveloped, and with their citizens still unhampered by any 
 untoward conditions, political, religious, or social, possessed of 
 the greatest natural abilities for industrial employments, and 
 with the most eager desire for industrial supremacy ; or 
 whether, like Turkey and other Eastern countries, the richest 
 natural resources are prevented from bearing fruit by political 
 tyranny and extortion. Or, turning to the religious side; — 
 whether it is hampered, as in Mahommedan nations, by a creed 
 which pi-actically proscribes scientific knowledge, either pure 
 or in its application to the industrial arts ; or on the social side, 
 again, like Spain, who stands immovably on the dreams of her 
 past dignity and greatness, on her feudal pride, and contempt 
 for the modern industrial spirit ; or like England, who while 
 enjoying an unrivalled industrial supremacy sustained on the 
 twin pillars of commerce and war, still by her peculiar, and (for
 
 FKEE TRADE AND PROTECTION. 209 
 
 a great nation) unexampled disregard of knowledge as such, 
 and by the want of honour accorded to scientific pursuits of 
 all kinds and in every department, as well as by her equally 
 peculiar devotion to certain kinds of occupation and sport, 
 keeps herself industrially old and rigid and slow, and so by 
 the restraints imposed on the industrial equipment of the 
 most energetic spirits in their prime, handicaps herself in 
 competition with her younger rivals ; — thus teaching us that 
 Political Economy can never be divorced as a mere specialism 
 from the larger outlooks of Civilization in general. 
 
 7. And lastly, we have to ask to what extent the protective 
 tariffs imposed by nations as defences against each other, are 
 calculated to forward or handicap ultimately any jiarticular 
 nation which, like England, stands fast by Free Trade, and 
 keeps her banner flying in her contest with her rivals for the 
 neutral markets of the world 1 
 
 The above questions having elicited the main facts in the 
 history of the particular case for which the Statesman is called 
 on to prescribe, we have now to consider the still more 
 important problem of the general principle with which we are 
 to approach the subject, and the general rules for its treatment. 
 As for our method of approach, then, we must discard the 
 principle of the old physicians of fifty years ago, who with 
 their bleeding and calomel went on the idea that what was 
 good in a general way for all, must be, in the same general way, 
 to the advantage of each in particular; and on the contrary 
 consider it as proved and established that what is best economic- 
 ally for the world conceived as a single economic unity or 
 whole, is not necessarily the best for each particular nation in 
 it. And we must further insist that the problem of Political 
 Economy is not how the wealth of the world as a whole is to 
 be best increased, but how the wealth of a particular nation in 
 trade relations with other politically independent nations, is to 
 be best increased — quite a diflPerent problem. And if these 
 premises are granted (and unless they are, indeed, the problem
 
 1210 FREE TRADE AND TKOTECTION. 
 
 is solved, and the economic Statesman, like the quack doctor 
 with his sint^le pill or prescription, has only to go blindly and 
 unflinchingly straight ahead with his Free Trade), it follows 
 that the business concerns of nations must be handled precisely 
 like the business concerns of individual traders in competition 
 with others in the same nation. And if this, too, be granted, 
 we may pcrha[)S be allowed to summarise a few of the main 
 principles of treatment as follows : — 
 
 1. Always to keep in your own hands as a nation all the 
 instrwnents of production you possibly can, as each of these, be 
 it remembered, whether it be a piece of land or a steam engine, 
 gives its immense wealth-producing services as a free gift over 
 and above the expense of cultiv^ating it, making it, or keeping 
 it in repair ; and never to let considerations of mere cheapness 
 seduce you from this fixed rule, except in the case of those 
 complementary products, as we have called them, which your 
 own country has neither the climate, the soil, the natural 
 resources, nor the skill, for producing with any measure of 
 success ; otherwise, like a red Indian who should sell his only 
 rifle to his enemy for a bottle of rum, or like a foolish workman 
 who for the sake of a slightly cheaper dinner each day should 
 be induced to part with his tools one by one until they were 
 all gone, you would find to your chagrin that you had sold 
 your birthright for a mess of pottage. And in laying down 
 this important principle I am not without precedent, for Adam 
 Smith himself, as we may remember, when he preached Free 
 Trade for all nations, did so avowedly on the ground that (in 
 his time) it could be done not only with impunit} but with 
 advantage to all concerned, and without sacrificing a single one 
 of the great instruments of production, whether of the land or 
 of manufactures,— -excepting only the silk manufactures. 
 
 -I. Never to forget that in order to work these powers of 
 Nature — imprisoned in the soil, in machinery, and chemical 
 processes — to their fullest capacity and at the lowest cost, the 
 extent of the viarket you can command for them is the one
 
 FREE TRADE AM) PROTECTION. 211 
 
 ffupreniely important consideration. And to g'et this market, 
 it is necessary that you should so mass, concentrate, and 
 combine all these instruments of production by every political 
 or economic device in your power, as, — like Napoleon in war. or 
 the great combinations and Trusts of the present day, — to be 
 able to bring a greater economic force (in the shape of cheap- 
 ness) to bear on each point of attack, than your rivals can 
 command ; and so, on the political principle of ' divide et 
 impera,' defeat them one after another in detail. And indeed 
 until the nations insist that their ethics of trade shall be on a 
 level with their religious ethics, this is both necessary and 
 inevitable ; for to imagine that any individual trader is likely 
 to offer himself up as a sacrifice to this (at best) ethically low 
 ideal of mere money-getting, and for reward get kicked into 
 the gutter of poverty for his pains, while the nation itself, 
 which alone can and ought to remedy it, goes smiling by, is 
 and ought to be a dream, 
 
 3. But as those more complex products of manufactures 
 which are likely to win for themselves in open competition a 
 world-market, are often made up of many auxiliary and 
 subordinate processes or parts, whose materials, — raw or half 
 manufactured, — have to be drawn from collateral subordinate 
 trades, and often from distant countries, it is necessary that as 
 many of these trades as can be acquired by a nation should when 
 once acquired be held as tenaciously as territories conquered 
 in war, and not be lightly bartered away for mere cheapness, — 
 whether through foreign 'dumping' on its shores or otherwise, — 
 but only under the sternest necessity ; so that if the nation is 
 forced to let one or other of them go for the sake of mere 
 cheajyness, to let it be done frankly as a sacrifice, — and not, 
 as the Free Traders so often regard it, as an occasion for 
 jubilation. 
 
 4. In all cases where the extent of a nation's market 
 abroad is blocked by hostile tariffs, the principle of a quid pro 
 quo should be rigorously applied by means of ' commercial
 
 212 FltEE TRADE AND PROTECTION. 
 
 treaties ' special to each one ; the world of foreign nations 
 being pitted against each other like rival bidders in an auction 
 room, so that when for any reason an industrial instrument, 
 whether of soil or manufactures, has to be parted with, it may 
 be knocked down to the highest bidder. In a word, now that 
 we see that the Free Trade doctrine— that what is economically 
 best for the world as a whole is necessarily in the long run the 
 best for each particular nation, — is a fatal delusion and confusion 
 of thought, we have no better general prescription to offer to 
 nations who have trade relations with other nations than to 
 follow the most accepted and best accredited maxims and 
 methods of individuals in their business relations with one 
 another. In doing so a nation will be, I believe, as nearly 
 right as the nature of things will at present permit it to be. 
 
 "). But should the reader still have any doubt of the 
 supreme importance of our trade maxim of never parting with 
 an instrument of production, — whether of land, mine, or 
 manufacture, — to the foreigner, for the sake of mere cheapness 
 to the home consumer, except under compulsion ; and that 
 when forced to do so, it should be some subordinate instrument 
 of limited or local efficiency, for which something not only as 
 good or better, but also as permanent^ has been received in 
 return ; while the supreme instruments of production of a 
 country must not be parted with at any price ; — if the reader 
 still doubts this, I may venture to present him with a fresh 
 argument founded on and following from one of the most 
 cherished maxims of the Free Traders themselves, — a maxim 
 which guides the practice and inspires the teaching of all 
 statesmen, economists, and publicists alike, whether they be 
 Free Traders or Protectionists, It is a maxim of Taxation, 
 when that taxation is levied not for purposes of Protection, 
 but for the ordinary and necessary revenue of the State, and 
 it is this : — Never to lay a tax where there is any chance of 
 its falling directly or ultimately on an instrument of Produc- 
 tion, or on capital that is invested, or likely to be invested, in
 
 FREE TRADE AND PROTECTION. 213 
 
 such instruments, — whether on land, mines, machinery, tools or 
 horses and carts, buildings, fruit trees, or what not, when used 
 for productive purposes ; for it was that and that alone which 
 owino- to the short-sio-hted ii'reed and extortion of their 
 despotic rulers brought the countries under Turkish and 
 Oriental rule, — many of them so rich in natural resources, — to 
 the poverty in which they are sunk at the present day. Great 
 men's heads might have been periodically cut off like tulip tops 
 by the score, and yet the country might flourish exceedingly ; 
 but by striking at the instruments of production themselves 
 through taxation, you strike at the very heart of a nation's 
 economic prosperity. It was this that precipitated the down- 
 fall of the Roman Empire in the West. The Emperors in 
 their greed absolved the large landowners, who were mostly 
 senators, from taxation, and laid it on the small proprietors, — 
 the twenty or thirty acre men, — who everywhere surrounded 
 the towns and villages in Italy, Gaul, and Spain ; making 
 them responsible not only for their own share, but for that of 
 all the defaulters as Avell. And the consequence was that as 
 the list of defaulters increased, these taxes became at last so 
 formidable, that in spite of all efforts of the Government to 
 prevent it, the small landowners threw up their lands 
 altogether, and entered the ranks of the coloiii and slaves. 
 And the same principle is found also to work in the political 
 sphere. When the French revolutionaries determined to break 
 the power of the Feudal Nobility, they took from the great 
 landlords at a stroke their leo;al titles to the soil, and dividino; 
 it up into small holdings, transferred the ownership to the 
 millions of [)etty proprietors whose successors own it to-day. 
 The expedient was a success ; and the power of Feudalism 
 was once and for ever broken in France. But Cromwell, 
 who was as much resolved to break the power of Royalty 
 in England as the revolutionaries were to break the 
 power of the Feudal Nobility in France, proceeded by a 
 different method,— and failed. Instead of dividing the lands of
 
 214 FREK TRADE AND PROTECTION, 
 
 the feudal nobility who supported Charles, among his own 
 republican adherents, he imagined he could get the same result 
 by taxing the landlords, and quartering his soldiers on them. 
 Now had he broken up the lands instead, as in France, and 
 sold them to the small farmers among his own adherents, he 
 would have taken away from the landlords their instruments of 
 production, and would have attained his end of entirely breaking 
 their power; but being permitted to keep the title-deeds .of 
 their estates, no amount of taxation, however long continued, 
 could avail to lower their power; for taxes fell only on their 
 rent-rolls, and as these were spent for the most part unpro- 
 ductively in luxurious consumption if not in more obnoxious 
 forms of extravagance or dissipation, not only did the real 
 wealth of the country remain practically untouched, — inasmuch 
 as the farmei's had sufficient capital to till the land, and so this 
 natural asset was left as an instrument of production unimpaired 
 — but even if the landlords had been personally starved in the 
 meantime, their political influence over their tenants, so long 
 as the relation of landloi'd and tenant lasted, would have 
 continued ; and their heirs, on any fresh shuffle of the political 
 cards, could enter into their heritage again with undiminished 
 confidence and hope. The truth is, that Cromwell by leaving 
 the landlords in possession of their instruments of production 
 had, like Macbeth, scotched his snake but not killed it, and its 
 brood remained ; and after his death, as we know, a new wave 
 of sentiment, backed by the substance of power which he had 
 really left to the landlords, brought back the old regime of 
 Koyalty, Feudalism, and landlord domination, as before. Now 
 Cromwell ought to have seen this, and foreseen its issue, but it 
 so happened that his own following included almost as many 
 landlords as that of the Royalists. For it must not be forgotten 
 that in those days Puritanism had split the Nobility, as well as 
 the Church, into two hostile sections; and it was only during 
 and after the reign of Charles 11. that the Nobility closed their 
 ranks again, and ranged themselves almost to a man on the
 
 FREE TRADE AND PROTECTION. 215 
 
 side of Church and Kino-, — leaving Piiritanisni and Dissent 
 practically to the mass of the people, in whose keeping it has 
 remained to the present day. It is probable, therefore, that 
 even had he seen the futility of taxing the incomes of the 
 landlords while leaving the land itself, — the chief national 
 instrument of production, — intact in their hands, he would 
 have felt himself impotent to proceed further; and as he was 
 neither a leveller, like one wing of his followers, nor could 
 afford to alienate the landlords who formed the other wing, he 
 left the issue, as he was wont to do, to that Providence in 
 whose hands all causes alike were over-ruled for higher ends. 
 Now, I have introduced this matter here merely as a historical 
 illustration of how immensely the fortunes of a nation are 
 affected politically as well as economically by the question of 
 whether you do or do not tax its instruments of production. 
 And hence, as we have said, the experience of the world has 
 made it a maxim with statesmen and economists, — whether they 
 be Free Traders or Protectionists, — -never to lay a tax on an 
 instrument of production except as a last necessity of State, 
 but always to lay it on articles of consumption, — luxuries as 
 first choice, but when these prove insufficient, then on necessities, 
 — and further that when a tax has to be laid on lnco)m>f<, to let 
 it be laid on that part of them alone which in the ordinary way 
 of life would be spent on luxuries or unproductive consumption 
 generally, and not, if possible, on any part of them which in 
 the usual course of business is likely to be used in extending 
 or enlarging those instruments of production, — whether soil, 
 mines, machinery, or chemical processes, — which are either 
 waiting for capital to open up and develop them, or which will 
 yield an increase great in proportion to the amount of capital 
 that may be still further invested in them. Or, to sum it u[) ; 
 — the laying of a tax on an instrument of production not only 
 cuts at the roots of the material prosperity of a nation, but 
 indirectly makes it all the more easy for the foreign industrial 
 rivals to invade it by th'eir competition ; to lay it on articles of
 
 216 FREE TRADE AND PROTECTION. 
 
 consuni[)tioii, on the contrary, is a comparatively unimportant 
 matter, not only for the permanent wealth of the nation as a 
 whole, but also in the interests of the genuine working classes 
 who co-operate with capital in working these instruments of 
 production. It can only be detrimental to the interests of the 
 idle or incompetent classes of the community, whether of the 
 drawing room or of the slums ; for strictly s[)eaking, these are 
 not on the wheel of wealth at all, but have fallen off it, as it 
 were, and lie around its base as a pure tax on its products, 
 having to be kept either as pensioners or paupers from its 
 superfluity or bounty. But the ultimate reason which lies 
 behind all particular arguments is, that a nation's instruments 
 of production are its permanent possession, while the mere 
 amount of its consumption is but a passing necessity; precisely 
 in the same way as a man's brains and hands are during his 
 working manhood his permanent possession, while the particular 
 emotions and alternations of mood which pass across his mind 
 from day to day, — although they are the ver\- stuff of which 
 his life is made, — are shed like falling leaves, which can be 
 reproduced, whilst the tree abides. And so too with the more 
 or less of food he requires from day to day, which can be 
 reproduced so long as the strength of his arm and hand lasts ; 
 but with these instruments of production paralyzed, — how then 
 will a man help himself at all? How feed his powers of con- 
 sumption with cuiy kind of food, — unless he consents to accept 
 it as an act of commiseration or charity ? 
 
 And now, if I may venture to draw these lines of argument 
 and illustration to a point, I think we shall be fully justified in 
 saying; — that killing a nation's instruments of production by 
 competition and underselling in a free and open market, has 
 precisely the same effect, as far as its influence on the national 
 wealth is concerned, as killing them by taxation ; the only 
 difference being in the time it takes to do it in each case 
 respectively ; — taxing these instruments having usually the 
 more immediate and direct effect, as well as being the more
 
 FREK TRADE AND PROTECTION. 217 
 
 hopeless and demoralising : while killing them by foreign 
 •competition is usually more slow and circuitous in its operation, 
 owing to tlie number of collateral shifts and expedients to 
 which in its efforts to escape, a free people accustomed to act 
 on its own initiative can turn in its extremity before it 
 succumbs. And further, we may say that the Free Trader's 
 extreme solicitude not to kill an instrument of })roduction by 
 taxation, reduces to a self-stultification, contradiction, and 
 absurdity, his extreme readiness and even eagerness to kill any 
 •one of them as quickly as he can (for the sake too of the most 
 trifling difference in cheapness in what the nation consumes) 
 by calling aloud on all the world freely to enter in and do it if 
 possible by any kind of competition, legitimate or illegitimate — 
 whether by the trick of ' dumping,' of ' cornering,' or of concen- 
 trating the attack on individual traders until you ruin each in 
 turn by under-selling them, — all of which methods the Free 
 Trader by his principles is equally prepared to allow. And 
 why, or for what? For a series of abstract propositions and 
 so-called laws of Political Economy, not one of which, as we 
 have seen, has the slightest validity. For they are not, be it 
 observed, like, say, tlie law of gravitation, which envisages in 
 a single formula and rounds in by a single generalisation a range 
 ■of concrete facts to all of which it gives that absolute scientific 
 predicability on which men can walk with certainty, but are of 
 that order to which, as we have seen, the abstractions of 
 the perpetual-motion schemer and the Achilles-and-tortoise 
 logician belong. Now in saying this, I am neither attempting 
 to be satirical nor merely metaphorical; but, as we shall presently 
 see, am simply giving expression to a literal scientific fact. 
 We have already seen it illustrated in the views of Adam Smith 
 •on the Colonial trade of his time ; and the modern Free Traders, 
 although transported into an entirely different atmosphere and 
 environment from that of Adam Smith, still carry with them 
 to the solution of the problems of to-day the same abstractions 
 and illusions. And nowhere is this better seen than in their
 
 218 FREE TRADE AND PROTECTIOX. 
 
 two fjreat lines of argument, the one bearing on the relations 
 between exports and imports ; the other, on the functions of 
 gold, and the mechanism of the Foreign Exchanges, in the trade 
 between nations. It is not so much their formal logic that is at 
 fault — on tlie contrary all their positions hang together by a kind 
 of natural affiliation — it is rather to what they leave out of their 
 calculations that their errors are due ; just as the fallacies of 
 the perpetual motion schemer lay not in his formal logic, but in 
 leaving out of his calculation the element of friction. Indeed, 
 in all the arguments which the Free Traders advance in support 
 of their doctrine, both in what they ignore and on what they 
 lay stress, it is always the same element that is left out ; 
 and hence, as we shall now see, their illusions are not merely 
 analogous to those of the perpetual-motion schemer, but, when 
 regard is had to the different nature of their subject-matter, 
 practically iflentical with them. But to see this clearly, it is 
 necessary first of all to separate the different varieties of 
 argument employed, before we can generalise them as modes 
 of some single error common to them all. 
 
 Now as the subject-matter of the problem of Free Trade or 
 Protection concerns entirely the exports and imports of nations 
 in trade relations loith one another, the first thing we have to 
 notice is, that the Free Traders always ignore the various 
 motor p)oioers which keep this inter-trade a-going, and fix their 
 eyes exclusively on the mere to- and- fro of the interplay itself ; 
 — as if in looking at a locomotive in motion, they should keep 
 their eyes fixed on the to-and-fro movements of the piston, 
 without considering whether the coal with which it is stoked 
 is running low or not ; or as if a man looking at a clock should 
 watch only the backward and forward movement of the 
 pendulum, without thinking of whether it would soon require 
 winding up or not. In other words, the I^'ee Traders always 
 ignore the relative strengths of the instruments of production 
 of the particular trading nations whose out-flow and in-flow of 
 exports and imports they are called upon to consider, and
 
 FREE TRADE AND PROTECTIOX. 219 
 
 concentrate their attention only on the interplay of their gross 
 products ; and if they find on calculation that these exports 
 and imports combined keep up to the average in their gross 
 amount, or even go on increasing, then, like the man who 
 keeps his eye on the piston, and forgets about the coal, or the 
 perpetual-motion schemer who finds after a few inspections 
 that his machine is still going about as usual, they generalise 
 their impressions, and announce as a dogma that this inter-trade 
 must o-o on — for ever I Now that I am not doing the Free 
 Traders any injustice in accusing them of this initial and fatal 
 absurdity, will be seen in every one of the considerations 
 which I am now about to place before the reader. 
 
 To begin with, it is seen in every turn of the arguments 
 they use in their most familiar conversation, and In none more 
 than in that unfortunate phrase of Sir Robert Peel's which 
 they pass over to you quite unsuspiciously, as if it were indeed 
 a genuine coin they were offering you, — instead of being one of 
 the rankest and most unblushing of counterfeits ; — ' Take care 
 of your imports, and your exports will take care of themselves.' 
 Indeed had I no other argument at my back, I should be 
 prepared to stake the whole future of Free Trade or Protection 
 as a principle of commerce on the implications of this single 
 phrase ; for in it, as in the primal sin of Adam, all the other 
 fallacies of the pi-esentation of the Free Traders in their 
 multiplex forms and ever deepening absurdities, down to the 
 perpetual motion scheme itself which is involved in their 
 academic argument on the Foreign Exchanges, are virtually 
 contained. By what hocus-pocus in being passed from hand 
 to hand so unblushino; a counterfeit could ever have obtained 
 currency in a great nation, unless indeed, like the ' Emperor's 
 clothes' in the fairy tale, it were by hypnotic suggestion alone, 
 passes all comprehension. For consider it ; — Here are the 
 oceans of the world covered with ships of merchandise passing 
 and repassing each other everywhere, but instead of going 
 equally to all lands and continents indifferently, they are seen
 
 2'2() FREE TRADE AXD PROTECTION. 
 
 concentrating themselves both in number and character, and in 
 a graduated hierarchy, which varies little from year to year 
 but markedly from decade to decade, in certain favoured 
 regions — chiefly around the ports of England ; in lesser number 
 ai'ound the ports of the Continental nations, the Colonies, and 
 the countries of the East ; fewer still around Norway and 
 Denmark : still fewer around the harbours of Spain and 
 Portugal, Italy, Asia Minor, and the North of Africa (all of 
 them, be it remembered, once so crowtled) : until we reach 
 Labrador, Greenland, Patagonia, and other regions which, 
 although lying little further afield than some of the most 
 crowded, are yet passed by with only an occasional visit to 
 their shores, or with none at all. And when we ask what is 
 the cause of these strange preferences and aversions by which 
 one shore is crowded with suitors, another accorded only a 
 nodding or friendly acquaintance, and others shunned and 
 avoided altogether, the natural answer is, because the first, 
 England, is rich in natural resources, — in mines, cornfields, 
 manufactures, transport facilities, railways, canals, horses and 
 waggons, shipping, etc., and in skilled workmen and labourers — 
 which under the general term instruments of production, ov^^ed 
 capital, constitute as we have seen her abiding income and 
 source of wealth ; and it is the sale of the products of these 
 instruments to foreign nations, or in other words the sale of 
 her exports, that is the cause both of the number of ships that 
 are continually leaving her shores carrying them to the places Wk 
 
 at which they have to be delivered, and of the ships that are 
 bringing back goods from these foreign countries in payment 
 of them. And further, it is because the instruments of pro- 
 duction of the other nations I have mentioned, — or that part of 
 them which is devoted to foreign commerce, — are of less and 
 less value compared with those of England, that the imports 
 which come to them are less and less in amount than those 
 that come to England ; until with countries like Labrador or 
 Greenland there are few or none at all. In other words, it is the
 
 FREE TRADE AND PROTECTION. 221 
 
 e.rports of a count ri/ that ore the cmise of its imports at any and 
 every point of time ^ and not the impoi-ts that are the cause of the 
 exports ; or to put it differently, the industrial strength of a 
 nation depends on its exports, not on its imports ; and when 
 you have to handle it practically, it must always be approached 
 from the side of its exports, never from the side of its imports ; 
 in the same vvav as the strength of Shakespeare's brain was 
 the cause of whatever remuneration came to him from the sale 
 of his dramas, and not the remuneration the cause of tiie 
 strength of his brain ; or again, as it is the strength of the stag 
 that is the cause of the herd going over to him, in a body, not 
 the herd ooino- over to him that is the cause of his strength. 
 One is ashamed to have to labour so palpable a truism, and it 
 is largely owing to the persistency with which the Free 
 Traders not so much argue as assume the opposite, but 
 especially, as we shall see, to the indifference as to which is 
 cause and which is eflt'ect which they habitually betray (as if it 
 did not matter either way), that we are obliged to ask the 
 reader to consider this matter once and for all at the very out- 
 set of our argument. If, then, we are right in our contention 
 that the industrial powers of a nation — its instruments of 
 production, or fixed capital of all kinds — are not only the 
 sole cause of the wealth which that nation can permanently 
 command, but the only asset over which it can have any 
 control, precisely as in the case of a private estate ; and 
 if we are further right in identifying these instruments of 
 production of the nation in question with its exports ; what 
 shall we say of this economic maxim of Sir Robert Peel's, 
 poured over us with so much sacramental unction from every 
 Free Trade platform, of '' taking care of your imports and your 
 exports will take care of themselves," when you can neither take 
 care of that which does not belong to you, nor leave the only 
 things over which you have any control, — namely your exports, 
 — to take care of themselves ; what can we say of this broken 
 reed of economic scripture, but that it is an excellent specimen
 
 222 FKEE TRADE AND PKOTECTION. 
 
 of the kind of thing which passed current for political wisdom 
 fifty years ago, and which, with ' the big and little loaf,' is 
 still as magical as ever for driving the political sheep into the 
 fold ? But worse remains. For the Free Traders having; fallen 
 headlong into this primary intellectual error in industrial 
 diagnosis, viz., of keeping their finger only on the to-and-fro 
 movement of the pulse of exports and imports and the mere 
 surface play of their external symptoms, instead of definitely 
 ascertaining the state of the organ which is the cause of these 
 symptoms, — the nation's instruments of production as seen in 
 the character, quality, and strength of the exports, — there is 
 no intellectual atrocity to w^iich by this they are not com- 
 mitted ; until going farther and farther they end, as we shall 
 see, in the actual perpetual motion of these exports and 
 imports^ and the perpetuity of the wealth of the nation, — ic/iat- 
 ever befalls them ! The inner train of logic by wiiich this is 
 brought about will be seen presently, but in the mean time I 
 appeal to the reader, and even to the Free Traders themselves, 
 to say whether there is any proposition whatever in regard 
 either to the amount, kind, quality, or source, of a nation's 
 exports which they do not regard with indiflference, provided 
 you will grant them assent to two propositions only, — first, that 
 the exports and imports must always balance each other, on 
 the ground that whatever is sold or bought must be paid for, 
 and secondly, that all is well if the exports and imports 
 combined keep up to their average, — a truism, so far as the -past 
 and the present of a nation's industry are concerned, but 
 clearly beside the point of the discussion, which, as the basis 
 of a practical policy, must concern itself entirely with the 
 future, excepting in so far as the signs or symptoms existing in 
 the present and past which bear on that future are concerned. 
 But by cutting off the question of exports and imports from 
 its roots in their central cause, — namely, the instruments of 
 production of the nation as represented in its exports alone, — 
 and concentrating attention on the mere interplay of exports 
 
 u
 
 FREE TRADE AND PROTECTION. 223 
 
 and imports combined, us represented by their gross sum-total 
 ill the pi'esent, the Free Traders have not only thrown over- 
 board all regard for, or attempt at, a true theory of Free Trade 
 or Protection, but have shut themselves out from all possibility 
 as practical politicians of a true diagnosis of any particular 
 case, as well. For by their own act they have put themselves 
 in precisely the position of the quack doctor who finding on 
 enquiry that his patient looks about as well as usual, sleeps 
 and eats as well, and is not conscious of any deterioration in 
 physical vigour, will pronounce with confidence that there is 
 nothing seriously the matter, even when the skilled physician 
 hiis already detected definite signs, say, of consumption, 
 cancer, or fatty degeneration ; or of the insurance agent, who 
 going by his client's general appearance should take all risks 
 without a medical examination ; and are as rightly to be 
 condemned in consequence as would be the shipping company 
 which should send a vessel on a distant voyage, freighted with 
 merchandise and human lives, without regard to the amount of 
 coal in its hold, and in extenuation of subsequent disaster 
 should put up the frivolous plea that at any rate when it 
 started out, the to-and-fro movements of the piston of its engine 
 balanced each other, and the number and strength of the 
 backward and forward strokes were up to the average ! In 
 other words, having on the strength of Sir Robert Peel's 
 foolish phrase deliberately shut out from their purview all 
 consideration of, or regard for, the real cause of the jDrosperous 
 or declining trade of a nation, and pinned their faith instead 
 to a chain of sjjeculative abstractions compared with which, as 
 we shall see, the mechanical abstractions of the old perpetual- 
 motion schemers were (considering the knowledge of the time) 
 but a pardonable infirmity, the Free Traders have not only 
 thrown away their compass and rudder, but indiflferent alike 
 to the pole star above them, to the supply of coal for their 
 voyage, and the quantity and quality of the cargo of their 
 ship, drift about on the open sea on the mere chance that the
 
 224 FREE TRADE AND PROTECTION. 
 
 known periodicity of the tides, or the backward and forward 
 swing of the waves, will keep them off the rocks. 
 
 Now, that I am doing the Free Traders no injustice in 
 charging them with these absurdities, — and especially with their 
 indifference to all (jther considerations whatever except the 
 equality of the exports and imports of a country, and the gross 
 sum total of the two combined, — will be seen by a simple 
 enumeration of their opinions, with but a minimum of comment. 
 And if we take England as our best object-lesson for the 
 exhibition of the wide range of considerations to which the 
 Free Traders are absolutely indifferent, — for it is mainly 
 around the question of Free Trade or Protection for England 
 that many of the most distinctive arguments bearing on the 
 general principle of Free Trade cluster and focus themselves, 
 — we shall find : 
 
 1. That it does not matter to them what industries may be 
 injured, or altogether ruined and displaced under a Free Trade 
 regime, inasmuch as there will always he found others to replace 
 theui. Now this curious doctrine which seems so strange and 
 unnatural to the ordinary understanding, together with the 
 academic doctrine with which it is backed u[), and which seems 
 equally strange and unnatural, — the doctrine, namely, that it is 
 quite impossible for all the trades of a country to be ruined, 
 whatever befalls, — and especially the obstinate persistency 
 with which these doctrines are held in spite of all protest, I 
 shall endeavour to explain later on; but as my explanation will 
 consist in showing that they ai'e only aspects of the perpetual- 
 motion delusion which I shall attempt to show is involved in 
 all the fundamental doctrines of Free Trade, 1 shall defer it 
 for the moment to concentrate attention on the fact of the 
 indifference itself, which the Free Traders have never denied, 
 and which is one of their most frequent and favourable devices 
 for avoiding criticism when they are being keenly and hotly 
 pursued. 
 
 It is a matter of indifference to them, for example, whether
 
 FREE TRADE AND PROTECTION. 225 
 
 the trades that have been hit by foi-eign competition are the 
 great staple trades of the country which are rooted in the rich 
 natural resources of the island — its soil, its mines of coal and 
 iron, its shipping and transport facilities and the hereditary 
 skill of its workers — or whether they are the most local, casual, 
 accidental, undistinguished, or recent. It matters not whether 
 they are the trades which originally made the fortunes of the 
 nation owing to the world-wide demand for the articles they 
 supplied, — and the loss of which, one would naturally suppose, 
 would spell ruin ; — or whether they are trades that are mere 
 parasites and aliens without roots of their own in the soil, but 
 which still manage somehow to find for themselves a market, 
 owing rather to the insignificance which enables them to 
 insinuate themselves into the weak spots in the industrial 
 armoury of other nations, than to any natural robustness of 
 their own, — trades which unless protected by the existence of 
 great indigenous industries on whose scraps and leavings they 
 feed, would soon become extinct ; resembling in this those 
 cruisers which so long as they are protected by the big guns of 
 their own ironclads, can by their speed in darting about here 
 and there between the big ships of the enemy, do marvellous 
 execution at a pinch, but which without such protection are of 
 little value. Such trades, for example, are those which, like 
 the making of clothes, — whether by ' sweating ' or otherwise, — 
 live and depend on a flourishing condition of the great textile 
 industries ; arms and ammunition, tools and machinery, 
 telegraph wires, etc., which live on the great metal trades ; 
 jams and confectioner}^, living on sugars grown abroad, and at 
 the mercy of foreign regulations ; carriages, and railway outfits, 
 books and book-binding, depending on the general increase of 
 wealth and of population caused by the great industries, and 
 still largely maintained by them; — and all alike, great and small, 
 depending in turn for their cheap delivery abroad on the 
 shipping industry as the centre and crown of the whole. It 
 matters not a jot, I say, to the Free Trader whether the great 

 
 22(> FREE TRADE AXD TKOTECTION. 
 
 industi'ies have been attacked bv foreign competition, and are 
 being slowly crippled or ruined, so long as they can be replaced 
 by these parasites; and if not by these, then by other new and 
 unknown ones ; — for not only is it, as I have said, their 
 obstinate conviction that there are alicayK other trades every- 
 where to which they can turn to replace those that are lost, 
 but it is their still more complacent belief that however many 
 of them have gone, whether great or small, those that remain 
 will somehow make 2;ood (tf/ that is lost : — and strang^est of all 
 (now that we know that the separate foreign nations who are 
 attacking our trade form a ring surrounding our harbours, 
 each not only fully equipped in all our great industries, but 
 making a speciality of some one or other of them), that it is 
 scientifically impossible that more than a few of them could 
 be ruined by any individual superiority whatever of foreign 
 trades over corresponding trades of our own, inasmuch as by 
 the self-adjusting principle of perpetual motion which I will 
 pi'esently explain, the more of them that have run down, and 
 the further each has run down, the more rapidly will the wheels 
 of those that remain revolve : so that, like the Sibylline Books, 
 the more that are lost, the more precious do those that remain 
 become ! Nor docs it matter to the Free Trader by what 
 method of attack our great trades are being supplanted or 
 crippled ; — whether it be by great combinations of capital 
 making a dead set at us with their cannon balls, we replying 
 without defences and in the open plain by mere individual 
 competition and dispersed riHe bullets : whether we are injured 
 by legitimate or illegitimate competition ; whether by the 
 ' dumping ' pi-actised by all the great foreign ' Trusts ' or the 
 legitimate cheapness of certain foreign products ; whether by 
 the ' cornering' of the raw material of the Cotton trade, which, 
 hitherto a failure, may succeed in the end; or by a superiority 
 in natural resources, as in the Iron and Steel trades of America; 
 or by the greater scientific knowledge applied to Industry, as 
 in chemical processes and scientific instruments, which gives 
 

 
 FREE TRADE AND PROTECTION. 227 
 
 Germany her advantage: or by the finer artistic skill which, as a 
 heritage of her people, gives France her universal supremacy in 
 silks and muslins ; and so on. Nor does it matter to the Free 
 Trader what qualities and degrees of technical skill, requiring 
 generations of workmen to bring to efficiency, are being 
 displaced by foreign competition ; — whether it is driven from 
 engineering to bricklaying or navvying ; from art to house 
 or sign-painting ; from architecture to stone-dyking or road- 
 making; from banking to pawnbroking ; from medicine to 
 patent-pill manufacturing; from scientific chemical combina- 
 tions to mixing mortar or whitewashing; from ship-building to 
 ship unloading ; from high class cotton or woollen goods to the 
 stitching together of low-class ones in sweaters' dens ; — nothing 
 of all this gives the Free Trader the least concern, provided he 
 can prove to you from the Board of Trade returns that the 
 exports, — whatever may be the character or quality of the items 
 of which they are composed, — have up to the j^resent kept up to 
 their average level in money value (and all the better, of 
 course, if they are increasing in amount), and especially if the 
 gross amount of imports and exports combined shows no signs 
 of abating. 
 
 Nor, again, does it matter to them what proportion of the 
 trade lost by foreign competition is made up of raw materials, 
 what of half-manufactured goods, and what of finished articles, 
 respectively ; — whether it is the raw material and half finished 
 manufactures which iiave been sacrificed — as coal, iron ore, 
 corn, pig-iron, steel rails, tin-plates, hides, leather, yarns, or 
 what not, all or most of which we can produce ourselves with- 
 out much disparity in cost — so long as the manufacture of the 
 finished products is left to us ; or whether it is the finished 
 products that are being sacrificed, so long as we still retain our 
 raw materials and half manufactured goods as the basis of our 
 export trade. Nothing of all this matters to them ; and that, 
 too, in spite of the fact that if you once,— for the sake of mere 
 cheapness in manufacturing the finished ])roduct, — permit your
 
 228 FREE TRADE AXD PROTECTION. 
 
 raw material and half finished goods to be permanently supplied 
 to you from a far off base in the countries of your industrial 
 competitors, it will only require a little time for them to lay 
 their hands on your finished products and annex them also, — 
 when once they have suflScient collateral support to be able to 
 put forth their full strength, — and so leave you like an army 
 which has its permanent base in an enemy's country. The 
 loss of the finished product, on the other hand, — however much 
 of raw materials and half manufactured goods you may still 
 retain in your own hands as the basis of your export trade, — is 
 the loss of that which alone enters the homes of men, and on 
 which its trade-mark (as is seen in the preference by our 
 Colonies for distinctively English goods as such) confers that 
 potent wealth- producing asset, which under the generic title of 
 ' good will ' endows it practically with all the prerogatives of a 
 monopoly. 
 
 So that the result of it all is this ; — that on the one hand, 
 no mere picking up of scraps of raw or half-manufactured 
 materials here and there around the world, can ultimately in 
 the face of foreign competition compensate for the weakness in 
 the organic self-sufficingness of any great industry as a whole, 
 when once the bulk of its great subsidiary processes and 
 dej)endencies are no longer rooted in its own soil and mines 
 and in the hereditary skill and knowledge of its workers ; 
 while when once these raw materials and half finished products 
 have been slowly and silently stolen away by the foreigner, 
 and the finished product itself is finally cut from its roots in 
 its own soil, the whole great trade must wither like a tree, 
 — finished product, subsidiary and auxiliary processes and all, — 
 until only its old stump is left standing to mark where it once 
 had been. But nothing of this ever touches the Free Trader, 
 who continues to reiterate with irritating persistency that it 
 does not matter, it is all right ; for the cheapness of the picked 
 up scraps of raw materials and half-manufactured goods, by 
 cheapening the finished product, enables us, he contends, to 
 
 I
 
 FRKE TRADE AND PROTECTION. 229 
 
 slip our goods magically in between the meshes of the tariff 
 walls which keep out all but ourselves, — as well as giving us full 
 entrance to the neutral unprotected markets (now alas ! quickly 
 waning in number) Avhich are still open to us. And besides, we 
 can always turn to something else. But when you press him 
 hard to say precisely what it is to which we can turn, or have 
 already turned, he will point quite naively and complacently to 
 some of our old friends, — -the haberdashery trade, the apparel 
 and slop trade, the cheap East End clothing trade, the whisky 
 trade, the glass and bottle trade, jam, pickles, confectionery, 
 and what not, — parasites all, which never could have made the 
 fortune of England, and in her extremity cannot prevent her 
 from losing it again ; or, more triumphantly, to our coal trade, 
 and even unblushingly to our export of Welsh steam coal and 
 china clay, which instead of being kept for our own use, and 
 their sale to foreign nations restricted, by meims of an export 
 duty or otherwise, as jealously as if it were diamonds that 
 were being dealt in rather than coal or clay, are through the 
 break-neck haste of rival owners to get all they can out of 
 them, practically given away to the foreigner, with no other 
 result than to strengthen him in his competition with ourselves 
 both in commerce and in war. How different is all this to the 
 management of a private estate ! And yet, I will challenge 
 the Free Traders to produce any living reason which will 
 support them in their practice of managing the resources of a 
 nation on a different principle from that on which they would 
 those of a private estate. As we have seen, they would submit 
 to maceration rather than put a tax on any instrument of 
 production, or piece of fixed capital ; and yet it is no exaggera- 
 tion to say that they will toss to the foreigner these very 
 instruments of production, and these choicest pieces of fixed 
 capital, with as light a heart as they would throw the stump ends 
 ■of their cigars to street boys. We shall see the cause of this 
 presently ; but in the meantime they carry themselves with the 
 <easv indifference of men who feel that thev have reason on their
 
 230 FREE TRADE AND PROTECTION. 
 
 side, and when pressed they point triumphantly to the Shipping- 
 trade as the high water-mark of the success of Free Trade itself. 
 
 Now as it was the Shipping Trade of England that originally 
 made her fortunes, not only industrially but politically, I have 
 no desire to minimise its significance as a weapon in the 
 armoury of Free Trade. For I came to my views on Pro- 
 tection, if I may venture to refer to myself in this connection, 
 purely as the results of my economic studies, conducted 
 impartially and free from any tinge of either personal, political, 
 or party bias ; and where my reasons for the faith that is in me 
 end, there does all claim of mine to have even an opinion on 
 the subject end. Indeed all my predilections are in favour of 
 Free Trade ; I accepted it without question as the economic 
 gospel of my youth : I see its economic superiority to Pro- 
 tection for the %vo)dd as a luhole when once the separate nations, 
 like the separate States of the American Union, shall have 
 become a single jnilitica/ unity ; and 1 deprecate the very 
 thought of the corruption, the shamelessness, the intriguing, 
 and the low tone of political morality which the return to 
 Protection must inevitably engender in public life ; — especially 
 in all countries where parliamentary government by Party is 
 supreme, and where the votes which put in and turn out 
 ministries, will no longer be given for political favours only (a& 
 they have been in England during its Free Trade regime), but 
 will have to depend on economic favours as well — always more 
 degrading personally to the recipient, as well as more damaging 
 in their effects on the purity of public men. And hence I feel 
 that this of the Shipping Trade claims a remark or two to itself. 
 
 The Shipping Trade, as I have said, made the fortunes of 
 England originally, but it was rather the immediate than the 
 ultimate cause, — the pioneer that engineered the way, rather 
 than the solid phalanx that backed it up. In other words, 
 althouoh it was the means of introducing the manufactures of 
 England to the world, it had afterwards to wait on the fortunes 
 of these manufactures, and so must in the end participate in
 
 FKEE TRADE AND PR(3TECTION. 231 
 
 their decline and fall as it did in their rise and supremacy. In 
 thus rising to supremacy by her shipping- trade, England so 
 far resembled Venice and Holland. They, however, had neither 
 a sufficient extent of territory, nor sufficient natural resources 
 at their back, either in mines or manufactures, to give their 
 shipping a base of its own on which it could always support 
 itself in extremity ; and the consequence was that the discovery 
 of the Cape route, — as her own statesmen foresaw from the 
 beginning, — speedily effected the ruin of Venice ; while the 
 manufactures of England, grounded in her soil and rich natural 
 resources, more gradually wrought that of Holland. Had 
 Holland, however, been equal in natural and manufacturing 
 resources to England, instead of England being able to drive 
 her from the seas, by her Navigation Acts primarily and 
 chiefly, she would in all probability have been able to do 
 little more to this hour than share with her the shipping trade 
 of the world. But on the other hand, no richness in soil, 
 mines, or manufactures, could in those days give to any nation a 
 world-supremacy, unless they in turn were backed up by those 
 facilities of transport, which a sea-})o\ver ready alike to fight 
 and to trade could alone supply. Besides, before the days of 
 railways, how could manufactures except of the rudest kind 
 and with the most restricted home market, exist, much less 
 develop and expand, in any country, however great its 
 undeveloped natural resources might be, unless they could have 
 access to the sea by rivers and canals ; and especially when the 
 sea itself and the countries of the world which it washed, were 
 barred to them, not only by the superior hostile fleet of England, 
 — always ready to attack the ships of other nations, — but by the 
 rigid Navigation Acts which practically forbade the products 
 of all other countries being brought to England, their best 
 customer, — inasmuch as it was she alone who at that time could 
 supply them with the manufactures they wanted— except in her 
 own ships'? No, much as the shipping trade of England has 
 flourished under Free Trade, from the time that her manu-
 
 232 FREE TRADE AND PROTECTION. 
 
 factures had reached their world-wide supremacy, it must not 
 be foro;otten that it was by Protection, — by the Navigation 
 Acts, — that all her resources, her shipping trade, her manu- 
 factures, her soil and mines, — were for the first time welded 
 into a compact industrial fighting machine and instrument of 
 war, each part supporting and playing into the hands of every 
 other, and all alike animated by the consuming desire not for 
 any merely miscellaneous cosmopolitan benefit, but for the 
 greatness and acrorrandizement of Ensfland, — and Enorland alone. 
 But to imagine that the fortunes of the shipping trade of 
 England will not also attend and follow the fortunes of the 
 g^'eat industries which gave both to her and it their power, 
 when once these have passed their meridian and are declining 
 ffraduallv to their settino', like those of Venice and Holland 
 before tliem,is to enterlain the dreams of those Spaniards who, 
 still clino-ino^ to the memories of their lost "I'eatness, mav be 
 seen bowiny; to each other in dignified solemnity and with 
 perfect Castilian grace, as if each peasant of them were still a 
 hidalgo bending in lofty condescension to receive the homage 
 of a subject world, while their torn and weather-beaten cloaks 
 flap and whistle in the wind. In a word, the shipping trade 
 of England was cradled in Protection, and was only allowed 
 to enjoy ])erfect freedom when her manufactures had already 
 attained to a world supremacy. Should these manufactures 
 decline and lose their primacy, the shipping trade will again 
 have to be protected like all others, or consent to step down 
 from its imperial position. And yet, in spite of the importance 
 of this shipping industry to Free Trnde at the present time, 
 it is not long since the Free Traders saw a large slice of it 
 detached bodily by an American syndicate, almost without a 
 wince ; on the ground, as usual, that if it had to go, thei'e was 
 always sometlnng else to which we coidd turn to make up for 
 its loss; — the only concern which the transfer of the ships gave 
 them, being due not to their loss economically, but only 
 politically, and as a matter of defence in the event of war. 
 
 i
 
 CHAPTEE YII, 
 
 FREE TRADE AND INSTRUMENTS OF 
 PRODUCTION. 
 
 T F the Free Traders give themselves so little concern in 
 face of the clanger of the greatest of all our trades, — the 
 Shipping trade, — passing to the foreigner, on the ground that 
 we can always turn to something else, it is surely time to 
 consider seriously what the cost of losing a great industry 
 really amounts to, — quite apart from the question which we 
 have just been considering as to the number and character of 
 the trades on which it is still possible to fall back, after the 
 whole or the greater number of the great industries having 
 their roots in the natural resources of a country, have been 
 driven from the field. Or to put it differently, and to reduce 
 the problem to its simplest terms ; — How does the balance of 
 profit and loss stand, in the loss, on the one hand, through 
 competition, of an instrinnent of production, — say, a |)iece of 
 land, a mill, a factory, or a bag of workman's tools, — and the 
 gain on the other hand to the consumer, in the cheajnie-'^s of the 
 2)roduct which the success of the competing foreign rival 
 involves ? Now, if we can only clear the ground of com- 
 plications at the start, by separating out clearly the various 
 extraneous elements, political or other, in the problem, — which 
 only serve to obscure it while having really nothing to do with 
 it, — so that we have only the purely economical aspects to deal
 
 234 FREE TRADE AND INSTRUMENTS OF PRODUCTION. 
 
 with, we can solve it without difficulty, dip into it where we 
 will. And the first proviso on which we must insist before we 
 start, is the distinction which I have already made between 
 competitive and complementary products : for it is to the failure 
 to make this simple distinction, that perhaps most of the 
 difficulties and contradictions of the problem of Free Trade 
 and Protection are due. For in the very essence of all 
 industrial exchange, the idea is involved that the products 
 exchanged shall be complementary, and not competitive. No 
 shoemaker as such exchanges his products with another shoe- 
 maker, but with the tailor, or baker, or butcher ; and all such 
 exchange is at once peaceful and beneficent, blessing him who 
 gives and him who receives ; and so far is a distinct addition to 
 the wealth of an individual, a nation, or a world. And when 
 we take the infinite varieties, denominations, qualities, kinds, 
 and subdivisions of every great general industry which the 
 division of labour throughout the world as a whole has thrown 
 into the stream of circulation, there is scarcely a product in 
 any one great trade that will not be found complonentary to 
 some other in the same trade. The exchange between these 
 will also be found to be peaceful, beneficent, a blessing to each 
 party to it, and a distinct addition to the sum of utilities in 
 which real wealth consists, — as the exchange of corn for 
 manufactures, or manufactures for wine. A shoemaker, for 
 example, Avho makes only ordinary shoes, in exchanging a pair 
 of them with another shoemaker for a pair of patent leather 
 shoes of which the latter makes a specialty, is effecting a 
 complementary exchange in quite as true a sense as if he were 
 exchanging them for bread from a baker. And that is why, 
 as I have said, were the world a single political unity, Free 
 Trade everywhere would, by fiooding every part with the 
 products of every other, give a greater market to each and all 
 than would otherwise be possible ; and as the exchanges would 
 all l)e complementary,— inasmuch as each would buy just those 
 thinffs and gradations and varieties of things Avhich he did not
 
 FREE TRADE AND INSTRUMENTS OF PRODUCTION. 235 
 
 himself produce, — a greater amount of exchanges, and a greater 
 satisfaction from them at the least possible cost (owing to the 
 absence of tariff barriers), as well as a greater number and 
 variety of instruments of })roduction, would result ; and these 
 are precisely what constitute wealth, Not that this would 
 involve either the absence of competition, or the equal 
 distribution of wealth over all areas alike, as when water is 
 poured over a level field ; on the contrary, as we have seen, 
 the greatest wealth would heap itself up in the geographical 
 areas most favoured by nature for the production of large 
 classes of products of the same general kind, and be withdrawn 
 partly or altogether from those areas that were relatively less 
 naturally productive in all kinds, as well as from those that 
 were relatively almost barren. When once sufficient time had 
 elapsed to enable the comj)etitive industries to test their 
 relative strengths, they would weed one another out, — as animals 
 of the same kind do in Nature, — and after this process of 
 exclusion had been satisfactorily consummated, and, as in the 
 conflicts of rival stags, the stronger only were left, the 
 exchanges between each part and every other would be 
 complementary, and in every way beneficent. But, observe, 
 that being all part of the same political unity, this process of 
 the weeding out by competition of each industry or division and 
 specialisation of industry by others of the same division or 
 kind, is part of the game which is being played, and is accepted 
 by all ; and when the population of any area is dispersed, 
 owing to its industries being carried on at a loss, it always has 
 the satisfaction of knowing that the loss is still the gain of its 
 own nation, and that, unlike the Jews in history, its population 
 can find for itself everywhere a home ; precisely as when in any 
 particular nation, as in England for example, the great manu- 
 facturing and textile trades migrate from one part of the 
 country to another. But that is not the game which is played 
 by one nation jt»oZiV/ca//y independent, with other nations equally 
 so ; and the game not being the same, neither are its rules.
 
 236 FREE TRADE AM) IXSTHUMENTS OF PRODUCTION. 
 
 For now the economic as well as the political problem is, — how 
 the particular nation is to draw to itself (by any means not 
 outside the international code) as much wealth as possible from 
 other nations, how, in a word, to aggrandize itself at the 
 other nation's expense — quite a different question. It is the 
 difference between a game like football or cricket where, what- 
 ever rank the different members of the team may hold in 
 relation to each other, they all, after preliminary competitive 
 trials of strength to test their efficiency, act in concert as one 
 man, and so are all complementary to each other ; and a game 
 like gladiatorial shows, boxing, billiards, etc., where the 
 competitors weed each other out down to the last man, and 
 where each when beaten in the single combat, — unless he can 
 reinstate himself by new methods or additional training, — is 
 henceforward, so far as the sporting world is concerned, in 
 position, dignity, and general estimation, defunct. 
 
 Our next proviso is, that the political elements of the problem 
 shall be kept separate from the purely economic, until, that is to 
 say, the economic have been settled ; — such elements, for 
 example, as what to do with any part of the population that 
 has been thrown out of work by trade dislocations : what to 
 do with the industrial incapables of all kinds from whatever 
 cause arising, personal or economic ; how to effect a more 
 equitable distribution of the products of labour by legislation, 
 as by a minimum wage, the taxation of ' unearned increments,' 
 or what not ; how far to sacrifice part of the possible national 
 income for the purpose of providing food and necessaries at 
 the cheapest possible rate for the poorest classes of consumers — 
 the congested slum-dwellers, the moral and physical wrecks, 
 the profligates, and the ' ne'er-do-weels,' — as well as for the 
 Genuine unemploved ; how to arrano-e for the defence of the 
 country in considering the question of population ; and so on. 
 All these belong to the domain of Politics, and although in 
 every State which forms a political unity or nation they must 
 at every time and always take precedence over purely economic
 
 FFJEE TRADE AND INSTRUMENTS OF PRODUCTION. 237 
 
 considerations, they must never be mixed and confounded with 
 them under a common category, and labelled as ' economic 
 principles ' ; for until the political and economic constituents 
 are clearly separated out in thought, and their respective effects 
 on national well-being distinguished, no solution of any great 
 problem involving both political and economic elements is 
 possible. And nowhere can a better instance of this be seen 
 than in that afforded by this very problem of Free Trade versus 
 Protection, as conducted in the ordinary course of newspaper 
 and magazine discussion, where chips and snippets of politics 
 and economics combined are served out to the reader from day 
 to day with but little attempt to separate them from one 
 aiiuther. And indeed, we may venture to predict that until 
 editors of newspapers and magazines will consent to give more 
 ample space to the full scienti/jc discussion of all the cardinal 
 positions in turn on which the solution hinges than they 
 have hitherto thought it necessary to do ; and having first 
 convinced themselves, will keep their readers to these cardinal 
 issues until they are convinced also ; — although the public, as 
 members of one or the other political party, will continue to 
 record their votes, still the subject will be tossed about to 
 and fro like a carcase on the top of the waves, and no one 
 will ever be convinced, in the proper sense of that term ; — 
 in the sense, that is to say, in which men are convinced, for 
 example, that the earth goes round the sun, and not the 
 opposite, first, by the scientific demonstrations of the 
 mathematicians and astronomers, then by the acceptance of 
 this demonstration at each step by the intelligent minority 
 competent to follow it, and lastly, the acceptance in turn of 
 this consensus by the vast body of the uninstructed who know 
 nothing about it either way, and to whose natural impressions 
 it would be a stumbling block. Indeed it was by this process 
 that the belief in Free Trade was originally established ; but 
 now that the conditions of Industry on which Adam Smith 
 quite naturally based his conclusions have been so completely
 
 2':}S FREE TRADE xVlSTD INSTRUMENTS OF PRODUCTION. 
 
 reversed that none of his arguments apply, — so much so, 
 indeed, that, as we have seen, they are rejected one and all by 
 the modern Free Trader himself, — the same process of conviction 
 must be gone through again, if the nation is to be as firm in its 
 belief, one way or the other, as it was for fifty years in its belief 
 in Free Trade. Nothing has served to impress this more on 
 my mind than the receipt while writing this chapter of a long 
 and elaborate document on Free Trade by the accepted 
 Parliamentary candidate for this constituency. It was an 
 out-and-out defence of Free Trade from beginning to end, and 
 dealt exhaustively with all the usual aspects of the subject as 
 they appear in the newspaper and platform discussions. I read 
 it over carefully, and was surprised to find that when I had 
 finished it, there was scarcely anything in the facts, statistics, 
 turns of the argument, or even in the fonnal deductions drawn 
 from them, to which I was seriously inclined to object, — except 
 indeed the conclusion itself I And vet here am I eno;ao;ed in 
 writing an elaborate vindication of the principle of Protection 
 both on political and economic grounds ! Now what is the 
 explanation of this apparently illogical attitude of mine.' 
 Simply this, that the writer had cunningly all along mixed his 
 Politics with his Economics in such a manner, that as in a 
 mixture of brandy and mineral water, he was constantly 
 attributing the efi'ects of the brandy to the mineral water, and 
 of the mineral water to the brandy, without knowing it ; and 
 to the equal confounding of both ! And so, like a skilful 
 circus rider, passing lightly from one foot to the other, now on 
 to the political horse, now on to the economic one, while 
 professing, and indeed believing, all the time that it was the 
 pure principles of Economics alone that he was expounding, he 
 swept triumphantly around, taking all the hurdles and paper 
 hoops in turn with ease, and after each of them pausing to 
 challenge the homage of his opponent and the world in general 
 on his skill, until he reached the end of his course; but teaching 
 me, for one, that no great and complex subject, any more than
 
 FREE TRADE AND INSTRUMENTS OF PRODUCTION. 239 
 
 a sleight-of-hand exhibition, can ever be other than a tissue of 
 fallacies, until each of its elements and their respective effects 
 have been accurately separated out and analyzed to the bottom, 
 — and in none is this more necessary than in this problem of 
 Protection or Free Trade. 
 
 Carrying then with us the following provisos ; — first, that 
 the political elements of the problem must be separated from 
 purely economic' ones ; secondly, that the game that is being 
 played is not how to enrich the world in general, but how to 
 enrich your own particular nation, even if at the expense of 
 other nations; and thirdly, that complementary products are to 
 be distinguished from competitive ones ; — carrying with us all 
 these, we shall find that the special aspect of the problem 
 which we are here considering, — namely as to how the profit- 
 and-loss account of a nation stands between losing an instru- 
 ment of production on the one hand, and getting its product 
 cheapened to the consumer on the other, — can be solved with 
 comparative ease. It matters not what the area of industry 
 which we take for examination may be, what the range or 
 variety of trades included, or what the number of nations 
 concerned ; — for the economic principle involved, holds alike for 
 the largest as for the smallest, for the most complex as for the 
 most simple, for the many as for the few, for the world of 
 separate nations as for a single nation, — provided always we 
 keep strictly to the unit we have marked out and delimited for 
 discussion. We can take a single workman and his tools as 
 against other workmen and theirs ; a single village with its 
 surrounding country as against other villages and their 
 surrounding country ; a whole division of a country with its 
 different towns engaged in different industries, as against 
 other divisions of the same country ; or finally, the country as 
 a single political unit with all its industries, as against all other 
 countries and theirs ; — and we shall find the solution work out 
 the same in all. 
 
 Take, first, an individual isolated workman with his bag of
 
 240 FREE TRADE AND INSTRUMENTS OF PRODUCTION. 
 
 tools. Up to the time of his parting with them, what had he? 
 He had the certainty of a livelihood at a standard of living 
 keeping him in working efficiency, plus the certainty of a 
 continuance of that livelihood durino: all his normal working: 
 life ; his times of out-of-work not entering the problem, 
 inasmuch as they belong to the domain of political arrangement, 
 and when due to slovenly laws, laissez-faire, or to the go-as- 
 you-please and take-your-chances species of political incom- 
 petency, are no more to be charged against the purely economic 
 principle, than the jamming of a crowd in the exits of a theatre 
 for want of supervision is to be charged to the construction of 
 the building itself when it has once been admitted that this is 
 up to the normal and accepted standard. But if it be urged 
 that a shoemaker cannot live on the boots he has made, we 
 reply that what all trade exists for is precisely this comple- 
 mentary exchange of something you have, for something 
 different which you have not, but which you want or need ; and 
 that it is thus a mutual benefit to both the parties concerned. 
 So far, then, all is well with our workman. But now suppose 
 he parts with his instruments of production, — his hammer and 
 his awls, — for the sake of a cheaper boot than he can make for 
 himself, how then does he stand i Instead of making a living 
 for himself in the present, plus a living in the future during the 
 remainder of his working years, two courses are open to him •,—^ 
 he can either wear his cheaper pair of boots until they are 
 worn out, and during the process, fast, starve outright, or live 
 on chai'ity ; or he can spend the difference in price between 
 his own boots and the cheaper ones for which he sold his tools, 
 for a more expensive dinner of chicken and wine than the 
 ordinary meat and ale on which he has been accustomed to live, 
 and afterwards and for the rest of his working life starve or 
 live on charity as before. Clearly our shoemaker has made 
 a bad bargain in parting with those tools ! But the balance of 
 profit and loss between losing an instrument of production and 
 getting its product cheaper for the consumer, will be the same
 
 FREE TRADE AND IXSTRUMENTS OF PRODUCTION. 241 
 
 if we take an isolated village of working industrials, — with its 
 shoemaker, its blacksmith, its baker, and its surrounding fields, — 
 as our unit of comparison, as against other villages with theirs ; 
 as it is a mere reduplication differing in numbers only, and will 
 require no further comment. But if we still further widen the 
 area and complexity of our unit, and take a manufacturing 
 town with a variety of large capitalised industries, and the 
 surrounding country, as our standard of comparison, as against 
 other manufacturing towns with the same industries, the result 
 will be the same. But in this case, unlike the individual 
 workman who lost his instriunents of production — his bag of 
 tools — by directly selling them for the sake of cheaper products 
 than he himself could make, the great capitalist manufacturers 
 of the towns lose their instruments of production — their mills 
 and factories and workshops — not by selling them outright 
 like the workman, but owing to their products being undersold 
 by their respective rivals in other towns ; their mills in conse- 
 quence being closed down, and their workmen thrown out of 
 employment. Here, again, the profit-and-Ioss account stands 
 as follows ; — before the invasion from the other manufacturing 
 towns, we have the workmen maintained for the present in 
 their accustomed style of living plus its future continuance 
 during their normal working lives ; and the capitalists living 
 on the current profits from their manufactures, plus the future 
 continuance of these profits during their life-time. But after 
 the invasion has been successfully consummated, and the mills 
 have had to close down, we have not only the livings of the 
 capitalists cut off for the present, but for the futui-e (except in 
 so far as like pensioners they can live on their savings), and 
 when these savings are exhausted, starvation or charity. And 
 as for the workmen, with the mills and workshops closed, they 
 have neither a living for the present nor for the future, — and so 
 they too pass on to starvation or charity. And now, if we 
 still further enlarge the area, number, complexity, and mobility 
 of our industrial unit of comparison, and take, say, the South 
 
 R
 
 242 FREE TRADE AND INSTRUMENTS OF PRODUCTION, 
 
 and East of England, — -foiMnerly the sent of lier manufactures, — 
 as ajjainst the Midhmds and the North which through their 
 rich natural resources in coal and iron drew away the manu- 
 factures of the South and East to themselves, — again the 
 result is the same. Before tiie commercial conquest of the 
 South by the North, you had agriculture p/?^s the manufactures, 
 which, with the transport facilities of the Thames, made the 
 fortunes of London, and kept her permanently in her primacy 
 as the metropolitan centre of the kingdom ; after that conquest, 
 the South and East of England went back to agriculture and 
 sheepwalks again; while the Midlands and the North, had 
 they been able to carry the metropolis with them before the 
 popvdation became so vast that for political reasons it could not 
 be removed, would by this time have centred both the wealth 
 and the population of the country within their own borders, 
 and left the South and East as poor as the Ireland of to-day. 
 
 And now we come at last to the unit of comparison which 
 brings the problem of Free T^:ade and Protection up for 
 judgment on the purely economic question of the balance of 
 profit and loss involved in Great Britain, as a single economic 
 whole, losing on the one hand her great instruments of pro- 
 duction one by one to the foreigner by trade competition, and 
 the gain to her consumers on the other, by the greater 
 cheapness of the corresponding products. In the face of what 
 we have seen can we have any doubt of the result ? Is not 
 the fact that no statesman, be he Free Trader or Protectionist, 
 can, as we have seen, be induced to put a direct tax on any 
 instrument of production whatever, — neither on factories, nor 
 mills, nor workshops, nor vineyards, nor horses and carts, nor 
 any other form of fixed capital, — nor yet a poll tax on the 
 workman ; and moreover will think twice before he puts a 
 direct tax on incomes, for fear lest it should hit parts of them 
 that are being used to increase or replace instruments of 
 production ; while on the other hand, when taxes are necessary 
 for revenue, he will ruthlessly sacrifice the mere cheapness to 
 
 i
 
 FREE TKADK AND INSTRUMENTS OF PRODUCTION. 243 
 
 the consumer of any ordinary product wherever he can hiy 
 his hands on it — whether it be the old woman's tea, the work- 
 ing man's tobacco, or the consumptive expenditure of the 
 capitalists on horses and carriages, and wines, fine houses, etc. ; 
 — and if he stays his devastating hand at sight of the ' big and 
 little loaf ' of bread, it is because of the portentous political 
 importance attached to it, but never on merely economic 
 grounds ; — if all this be so, is it not of itself not only an 
 argument but a proof of how the balance of profit-and-loss 
 stands between losing an instrument of production on the one 
 hand, and gaining a mere cheapness to the consumer of its 
 product on the other ? And is it not further a proof that men 
 and statesmen really know where that balance lies, although by 
 mixing up politics and economics together under the common 
 category and denomination of ' economic principles,' they have 
 benumbed their natural and instinctive penetration, and 
 deadened it in the roar and hub-bub of political and party 
 clamour ? 
 
 For on the one hand, it is evident that before the foreign 
 invasion, which by our hypothesis has lost us our instruments 
 of production for the sake of cheapness to the consumer, — the 
 assets of the nation were work and subsistence both for the 
 present and for the future of the working population, plxis 
 profits and a living for the present and for the future of the 
 ■capitalists who own these instruments of production ; while on 
 the other hand, after the invasion has carried off these 
 instruments to foreign lands, there can be neither work nor a 
 living either for the present or the future, for either the 
 capitalists or the working men. And with result what ? — 
 emigration, the workhouse, starvation, and the political loss to 
 the country of its independence, dignity, and power among the 
 nations as well. Now, when I say that all men and statesmen 
 whether Free Traders or Protectionists instinctively know the 
 economic difference between destroying an instrument of 
 production for the sake of the cheapness of its products, and
 
 244 FREE TRADE AND INSTRUMENTS OF PRODUCTION. 
 
 retaininof it at all hazards (as is seen in their anxietv not to 
 tax it), I would expressly exclude all those who have allowed 
 the oreneral abstractions of the academic doctrine of Free 
 Trade in which they have been brought up, t£> override their 
 natural intuitions. And the reason of this, I think, is largely 
 the fact that in the background of their minds is always the 
 idea that there are certain things which m any event can be 
 counted on, somehow or other, always to put everything right. 
 First, that there is always some other industry requiring 
 different instruments of production to which a nation can turn 
 when the old ones are lost : secondly, that many minor 
 instruments of production are but subsidiary means, — mere raw 
 material, as it were,: — for the really great instruments of 
 production concerned in the manufacture of the finished 
 article, and so ought logically to be placed, like foreign cotton, 
 under the economic category of raw material, rather than 
 under that of genuine instruments of production : and thirdly, 
 that whatever befalls, they can always fall back on that 
 comforting doctrine of the orthodox economists that there is 
 always a common resei^oir of economic wealth and power in the 
 world, which if you will only keep your gates and sluices open 
 by Free Trade, will by its to-and-fro movement of exports and 
 imports, keep this wealth going on for ever, evenly and 
 impartially distributing its benefits over all nations alike. 
 Now this last doctrine of the common reservoir, to which I 
 have already so often referred, is so serious a delusion, so real 
 a piece of old perpetual-motion scheming which has come 
 floating down like an iceberg to our time when all else has 
 melted, that I shall have to devote a whole chapter to it ; but 
 a word or two on the first two may fitly find a jilace at this 
 point in our discussion. 
 
 As for the first, that there is always some other industry to 
 which a nation can turn when one after another of its existing 
 industries has been lost through the stress of foreign com- 
 petition ; — if we begin with the single isolated workman and 
 
 I
 
 FREE TRADE AND INSTRUMENTS OF PRODUCTION. 245 
 
 his bag of tools, is it impertinent to ask the Free Traders, to 
 what other occupation he can turn when he has sold them, 
 unless indeed it be to searching for berries, snails, or herbs, on 
 which to live ? For he is now in the position of the Indian 
 who has sold his rifle or fishing-prong to a rival tribe for some 
 beads or a more dainty morsel of food. Or to what trade can 
 either the shoemaker, the blacksmith, the wheelwright, the 
 butcher, or the baker confined to an isolated village retire, 
 when these trades have in turn been destroyed by competition 
 from a neighbouring village i Or in what capitalist industry 
 could the South of England, for example, find a refuge, if it 
 were destroyed by the competition of the Midlands and the 
 North ? What would be left to them, but to crowd into the 
 towns to swell the ranks of the unemployed, and still further 
 congest the docks, the soup-kitchens, the workhouses and the 
 slums ? In urging these considerations, I have been careful 
 to keep the purely economic aspect of the question separate 
 from the political, and by confining the discussion to definite 
 economic issues as units of comparison, have endeavoured to 
 show that the economic absurdity of permanently losing au 
 instrument of production for the sake of cheapness, is as great, 
 — however large may be the area taken as our standard of 
 comparison, — as in the simple and palpable instance of a work- 
 man parting with his tools. And if I now extend the same 
 economic law or principle to the nation as a whole in its relation 
 to other outside nations, I am proceeding, I submit, on the 
 lines of a strictly scientific induction. For no economist has 
 ever asserted that as a matter of pure economics there is any 
 difference to be made between the laws which determine the 
 trade relations of one nation with another nation, and the laws 
 which determine the trade relations of one village with another 
 village, one town with another town, or one division of a 
 country with another division of the same country. It is only 
 politically that there is any difference. Whether one part or 
 division of a country gains or loses in reference to another part
 
 246 TREE TRADE AND INSTRUMENTS OF PRODUCTION. 
 
 — whether that part be a town, a county, or a group of counties, 
 — makes no difference economically, inasmuch as they are all 
 parts of one and the same nation. But when one nation beats 
 another nation economically, it makes all the difference 
 politically to the loser, as it will soon discover if it has to raise 
 the sinews of war to resist an act of unprovoked aggression or 
 injustice on the part of the foreign, and now superior, economic 
 power. And that is why the true solution of the purely 
 economic problem of Free Trade versus Protection is of so 
 much political importance ; — it is because ' the defence of a 
 nation is more important than its opulence,' and because 
 (until the millennium comes) the independence, dignity, and 
 power of a nation depend on its wealth, as the only means for the 
 realization of that independence, dignity, and power. And it 
 is for the same reason that it is so important not to mix politics 
 and economics tos-ether in a conglomerate mass, to the confusion 
 of both, but to first make clear our economic bearings, in order 
 that we may afterwards adapt them in this way or that to the 
 higher considerations of national or international policy ; in the 
 same way as you first make sure of the mechanical laws which 
 insure the stability of a house or a bridge, before you arrange 
 the details of its architectural structure or the nature and 
 conditions of the people or the traffic that are to live in it, or 
 pass over it. That nation Avhich can attain to dominion and 
 authority over other nations, — whether by the sword as in 
 earlier ages, or by wealth as at the present time, — can impose 
 on these nations its civilization, its code of morality, and its 
 political ideals also, as the history of the world has given proof; 
 and, therefore, we say again, look primarily to your economic 
 stability, and then your higher and nobler political ideals will 
 be able to take care of themselves ; whereas, if you begin 
 by postponing your economic interests to your politics by 
 sacrificing your instruments of production for the sake of mere 
 cheapness, — and that, too, not in the interests of the genuine 
 working man, but of the most hopeless of the incapables in the
 
 FREE TRADE AND INSTRUMENTS OF PRODUCTION. 247 
 
 plums of o-reat cities, — you will speedily end in finding- the 
 whole population — genuine working men, capitalists, and all — 
 demoralised and thrown on your hands to feed and provide for. 
 It is a political madness as great as it would be for an army, in 
 the midst of a complex strategetical engagement, to turn round 
 in the face of the enemy and attend to its wounded /zrx^, while 
 allowing its general and organizing officers of division to be cap- 
 tured; and at bottom is part of that organized hypocrisy against 
 which Carlyle so inveighed in the chapter on ' Model Prisons ' 
 in his ' Latter Day Pamphlets,' and which in its attempt to 
 mix up Chi'istianity and politics in a ' patent treacle,' ended in 
 building up for its criminals, dwellings with corridors mag- 
 nificent and spacious as those of duke's mansions, along which 
 the 'heavy ox-faced villains' paced in ease and leisure; while 
 outside the prison walls, the industrious little shoe-maker in 
 the rear of his wife's shop ' with its crossed pipes and herrings 
 in the window ' was strngglinor hard to make ends meet, — ^with 
 no provision, help, or outlook before him but the workhouse ; 
 as deadly and in the end as poisonous a mixture of politics, 
 economics, and philanthropy combined, as that which exhausts 
 the organized ingenuities of Church and State in contriving 
 how specially to provide for the drunkard, the loafer, and the 
 tramp, while but languidly and intermittently making efforts 
 to help the genuine working man back to his work without 
 degradation to himself. On the other hand, as for the really 
 great men and guiding spirits of a nation in their various 
 departments of thought, under this confused mixture of 
 politics, economics, and philanthropy, it is strongly held by 
 the editors of journals of great influence and authority that not 
 only may the State allow them to exist in a condition of semi- 
 starvation, but that the public may quite conscientiously dismiss 
 their interests from their minds, — provided they can only be 
 kept nicely balanced on that narrow edge overlooking actual 
 starvation which is known as 'genteel poverty,' — inasmuch as 
 that is the condition, so these journalists contend, in which
 
 248 FREE TPwVDE AND INSTRUMENTS OF PRODUCTION. 
 
 men of genius will always be found to yield their finest fruit, 
 and in which the public will get the best and largest amount of 
 work out of them at the least cost ; and in this doctrine, which 
 they are anxious to see carried out, they justify themselves by 
 the physiological analogies of the over-fed fowl which will 
 not lay, and the half starved peasants who when the State is 
 threatened with a future deficiency of population for war, can 
 always be depended on to yield thelai'gest progeny. Instances 
 of the effects of this doctrine are so frequent in the lives of great 
 inventors, artists, musicians, literary men, and philosophers, 
 that they are always cropping up in the newspapers, and often 
 at the very time when philanthropists are racking their brains 
 to know what they can do to help the derelicts, incapables and 
 street-corner loafers, while obstinately refusing to put out a 
 finger to help the genuine working man. On the other hand, 
 it is equally held by these writers, that politicians, soldiers, 
 lawyers, business men, and the like, (whom, as a solace and 
 flattering sop to the disinherited on the ' genteel poverty ' line, 
 they affect to regard as inferior, grosser, and much tougher- 
 fibred mortals !) must be fattened like queen bees and milch 
 cows, with wealth and luxury ; and befeathered with titles and 
 the trappings of personal dignity and power : else, say these 
 writers, they will strike work altogether, and the public will 
 suffer ; and therefore provision of ample salaries, dignities, and 
 rewards for these, must be made by the State its first con- 
 sideration and concern. One such editor, I remember, who 
 consistently preached this doctrine — ^of genteel poverty and 
 personal renunciation in money matters for great men — in 
 his journal for many years, and never lost an opportunity of 
 punctuating it as often as the occasion arose, (he was greatly 
 distressed, I recollect, when Tennyson, a mere literary man, 
 was raised to the peerage for literary distinction alone) ; 
 and although he left a large fortune from the profits of 
 the journal which he edited and partly owned, he still 
 continued to preach the doctrine until his death. And
 
 FREE TRADE AND INSTRUMENTS OF PRODUCTION. 249 
 
 1 do not question that had he been living to-day, he would 
 have seen without compunction the disgraceful spectacle, as I 
 write, of musicians of high contemporary note reduced, by the 
 piracy of their copyrights, some degrees nearer to the abject 
 starvation line than the particular blend of genteel poverty 
 which he personally preferred ; — and that, not more because of 
 the cheapness of the pirated music to the consumer, than as a 
 pledge of the future good work that could be squeezed and 
 wrung out of the poverty of its producers. But this is a 
 digression. The upshot of it all is, that as each person is in 
 turn a producer and consumer, — a producer of his own work and 
 a consumer of the work of some other man, — this mania whereby 
 all men (or the State) are asked to sacrifice everything to 
 cheapness to the consumer, means that each man must be 
 prepared to sacrifice his own particular instrument of 
 production, like our workman his bag of tools, — and with 
 result, ruin. The fallacy lies in the habit of regarding all 
 ■people in a way as consumers, while having in mind mainly the 
 great body of the poorer classes with whom one whole side of 
 politics, namely the economic eleemosynary side, is chiefly and 
 indeed rightly concerned; and of identifying the producers 
 with the capitalist class only ; whereas the producers include 
 not only the capitalist class, and their great instruments of 
 production, but the entire mass of workers who are necessary 
 to keep these instruments of production working up to their 
 normal level of efficiency. In other words, if we except the 
 pensioners and the paupers, — none of whom can properly be 
 said to be engaged on the wheel of wealth at all, — we shall find, 
 as we have already seen, that the producers and the consumers 
 are one and the same people ; and that men never could have 
 fallen into the fallacy of thinking otherwise, were it not that 
 they have confounded this economic division of society in 
 which all are alike producers and consumers, with the quite 
 •different division of society for ])urposes of taxation, — where 
 the producers are identified with the capitalists, and the
 
 250 FREE TRADE AND INSTRUMENTS OF PRODUCTION. 
 
 consumers with the great body of wage earners, as a necessary 
 preliminary to the distributing of the taxes fairly and evenly 
 among the different classes in a nation ; — a question of Politics, 
 in a word, not of Economics. But I will go farther and 
 venture to affirm, that there could be no controverted problem 
 of the relative advantages of Free Trade and Protection to 
 discuss, if once the reader would only keep firmly fixed in his 
 mind the fact that economically speaking every producer is also 
 a consumer, every consumer also a producer ; for then no one 
 would dream of endangering by foreign competition any 
 instrument of j)roduction necessary to the great body of 
 producers, for the purpose merely of making the product 
 cheaper to the same great body as consumers ; — any more than 
 they can be brought, on any consideration whatever, to put a 
 tax on any instrument of production as such. This simple 
 consideration alone would be sufficient of itself to solve the 
 whole problem of Free Trade and Protection, — so far, that is to 
 say, as its purely economic aspect is concerned. For, as we 
 have seen, the balance of economic profit-and-loss between 
 losing an instrument of production (whether by taxing it to 
 death or by driving it out by foreign competition), and getting 
 its product cheaper for the consumer, falls always on the one 
 side, whatever unit you take to test it on, — whether it be an 
 individual workman with his bag of tools, a village, a town, a 
 division of a country, or the country as a whole as against 
 other nations. So that it becomes an axiom of trade policy, 
 never to lose an instrument of production for the sake merely 
 of a greater cheapness in its product. 
 
 Now, the first objection that is likely to rise to the lips of 
 the Free Trader is this ; — Do you mean to say that you would 
 not sacrifice all the private bags of tools of all the workmen 
 in the kingdom, if necessary, for the sake of the cheapened 
 products of the -mperior instruments of production in the 
 shape of machinery whicli in so many forms have I'eplaced 
 them, simply because these products come from abroad? Or 
 
 I
 
 FREE TRADE AND INSTRUMENTS OF PRODUCTION. 251 
 
 all the capitalists with inferior kinds of machinery, for the 
 cheaper products of better machinery from abroad ? Would 
 you not have the shoemakers sacrifice their last hammer and 
 awl, the carpenters their last plane and chisel and saw, for 
 the cheaper but equally good products of planing, and 
 stitching, and cutting, machines ; the seamstresses their last 
 needles for the cheaper and equally good products of the 
 sewing machine ; the manufacturer his mills, and factories, 
 machinery, workshops, and skilled workmen, for the cheaper 
 but equally good products of superior machinery, better 
 organized workshops and more highly skilled workmen ; or 
 the farmer his last acre, for the cheaper corn of richer lands? 
 This is the very nodus of the whole problem of Free Trade 
 or Protection for a nation, and my reply is definite and 
 unhesitating. To put it briefly, it is this ; — the carpenter, 
 the shoemaker, the tailor, the farmer, as well as the capitalist 
 manufacturers of every grade, quality, or description of product, 
 may, as cheerfully as they can, sacrifice their last tool, work- 
 shop, or machine, for the sake of a cheaper article of the same 
 kind to the consumer, — provided always that the competitors 
 who have brought them to this pass belong to the same nation. 
 And why ? Firstly, because it is the recognised rule of the 
 game, accepted and submitted to by all the individual members 
 of a nation in their industrial and trade relations with each 
 other ; and secondly, because however great the number of the 
 inferior instruments of production which are supplanted by 
 the superior ones may be, nothing is lost; for the superior ones, 
 however few in number, not only gather up and concentrate in 
 themselves all the powers of all the inferior ones which they 
 have displaced, but still leave something over to the good for 
 the nation itself ; — as is proved by the fact that all its consumers 
 are getting everything at a less price. And if, as is equally 
 true, every inferior instrument of production that is thrown 
 out by a superior one throws out of work a number of work- 
 men also (inasmuch as the greater part of the work done by
 
 252 FREE TRADE AND INSTRUMENTS OF PRODUCTION. 
 
 the superior instruments of production is done by impersonal 
 powers of Nature called into being by inventive genius), and so 
 leaves less to be done by mere human labour ; — that is a 
 problem which Politics has to settle by altering the rules of 
 the game which bear on these recognised contingencies, and 
 must not be mixed up with the purely economic problem with 
 which, as such, it lias nothing whatever to do. But if it be a 
 foreign nation or circle of foreign nations, on the other hand, 
 that is making the attempt to displace our instruments of 
 production by means of the cheaper products of its own, 
 then the game at once alters, and has to be played on quite a 
 different principle, and by an entirely different set of rules. 
 For now, the instruments of production which by the cheapness 
 of their products have supplanted our own, belong to foreign 
 nations ; and as the instruments of production of a nation 
 consist of its fixed capital of all kinds and the skill of the 
 workmen ; and further, as these are the only permanent wealth 
 producing assets of a nation (all their products being implicitly 
 contained in them and not to be counted twice over) ; it 
 follows that when they are transferred, as the issue of trade 
 competition^ to other nations — one to one nation, another to 
 another — first, a subordinate instrument engaged in extracting 
 raw material or producing half manufactured goods going 
 across to the foreigner, then another and another, until at last 
 the great and complex machines engaged in manufacturing 
 the finished product, with all their subordinate and co- 
 operative collaterals, are forced to close down by being 
 undersold ; — it follows, I say, that economically speaking, that 
 nation havino^ allowed its arms and leo;s to be cut off for the 
 sake, as it were, of its stomach, must as literally starve or 
 depend on foreign charity for the future, as a single Red 
 Indian hunter would have to do if he sold his rifle for a more 
 delicate morsel of venison, or, (as I have know^n drunken 
 Mohawks do in Canada), for a bottle of whisky ; or an isolated 
 workman his bacj of tools not for a better bag of tools, but for
 
 FREE TRADE AXD INSTRUMENTS OF PRODUCTION. 253 
 
 a cheaper mess of pottage. And the practical conchision of it 
 all is, (and it might be inscribed as a maxim over a nation's 
 ports in letters of gold), that in the game of commerce which is 
 being played between nation and nation ; — Never sacrifice an 
 instrument of production to a foreign nation for the sake of a 
 merely cheaper j^roduct of the same kind of instrument, but 
 better, which they possess but which you do not ; but do as 
 you do at home, and sacrifice it only to the acquirement of 
 the superior instrument of jyvoduction itself, which cheapened 
 that product — if you can get it. But can you get it? — 
 there's the rub ! For, although it is comparatively easy for 
 a distressed seamstress living in the midst of a rich and 
 Completely organized society, to manage, by extra penurious- 
 ness, hard work, or the impression which her honesty and good 
 faith have made for her, to buy a sewing machine to replace 
 the mere needles and thread (her instruments of production) 
 which were formerly all her stock in trade ; and although 
 the day labourer in the same way may buy himself a horse 
 and cart, the manufacturer a new and improved machine, 
 and the great capitalists, joint stock companies, and Trusts^ 
 all kinds of machines necessary to enable them to hold 
 their own against competition, domestic or foreign ; — all this 
 is not the difficulty. The difficulty is rather a practical 
 impossibility ; and consists in the fact that when once the 
 great industries which have made the fortunes of a country 
 and which give it its recoo-nized status amono; the nations, can 
 be successfully invaded in their own home markets, it usually 
 means that the case has passed beyond the aid of medicine or 
 surgery, that all has already been done in the way of the 
 introduction of the best inventions and machinery to stave off 
 disaster, and that the superior instruments of production which 
 have enabled the foreign nation to permanently undersell its 
 rival in its own home markets consist not of any mere machine 
 or machines that can be bought for money, but of a complex 
 of economic advantages which are not transferable from the
 
 254 FREE TKADE AND INSTRUMENTS OF PKODUCTION. 
 
 one nation to the other,— richer soils, more easily and cheaply 
 worked mines, greater hereditary skill in the working popula- 
 tion, greater natural facilities for transport in its rivers and 
 harbours, in the natural internal conformation of the country, 
 or in its geographical position in regard to sea traffic, etc. 
 It means in a word, that the defeat is likely to be a jyermanent 
 one, and that the defeated nation will never be able by any 
 known means to reinstate itself in its former position, — unless, 
 indeed, it can defeat its successful rival in war, and so get its 
 instruments of production into its own power again. So that 
 when our economic maxim, never to part with the use of an 
 instrument of production for the sake of the greater cheapness 
 of its products coming from the use of a superior instrument 
 abroad, but to part with it only for the superior instrument of 
 production itself ; — this maxim when translated from abstract 
 to practical economics is found to mean — Never part with your 
 great instruments of production at all — those namely, that are 
 grounded on your natural resources, either in your soil, your 
 mines, your hereditary skill, or your transport facilities ; but 
 when you are threatened by .nqierior natural resources of the 
 same kind on the part of other nations, put up your tariffs 
 against them, and behind their protecting walls work up your 
 own instruments to their highest point of efficiency, sparing 
 no expense to introduce the best purchasable instruments for 
 your purpose, — machines, patents, etc., — which the world has 
 to sell ; and, like the Americans, ruthlessly ' scrapping ' all 
 inferior instruments so soon as they are superseded anywhere 
 in the world by better. And this, — as we should expect from 
 any principle that grounds itself on ultimate economic realities 
 and not on abstractions, — is found to be the practice of all the 
 great nations of the world to-day who have not attained to 
 supremacy. As for those that have attained to supremacy, 
 they can freely open their ports ; for nothing competitive can 
 by the hypothesis enter, and all that enters must be 
 complementary products, and these are always a benefit ;
 
 FKEE TRADE AND IKSTEIIVIEKTS OF PRODUCTION. 2^5 
 
 indeed, as we have already said, it is only in the exchange 
 ■of complementary j)roducts that the economic benefits of 
 exchange itself consist. But should any nation, like England, 
 which was once supreme, show signs of being gradually caught 
 up to, and ultimately defeated, — now in this industry, then in 
 that, — by foreign rivals, it too must be prepared to put up its 
 tariff-walls when the time is ripe, just as all other nations have 
 done and are doing to-day. Whether and when that time is 
 ripe can never be determined by any merely abstract economic 
 dogma like Free Trade, believed to hold true of all conditions 
 whatevei", and to contain within itself some magical efficacy, 
 some reserve power, which like a deus ex jnachind, will always 
 intervene when things are going badly, to put them right 
 again ; but must depend on trade statistics accurately and 
 carefully compiled, and illumined by the keenest, most 
 penetrating, and most disinterested intelligences which the 
 nation can command. 
 
 The above discussion sums up most of what has occurred to 
 me as to the principles involved in the vast mass of statistics 
 and arguments bearing on the problem of Free Trade and 
 Protection which have flooded the newspapers and magazines 
 during the course of the Free Trade controversy, as well as of 
 the principles more carefully and elaborately set forth in the 
 works of the professional political economists of the orthodox 
 and academic schools. That my contribution is very in- 
 complete and imperfect I am only too sensible, but were I to 
 stop here most of my labour would have been in vain. For 
 with all my efforts to bale out the boat in which I have 
 embarked, I should still have left the largest hole of all 
 unstopped in the bottom ; and through it, all the old water 
 would come pouring in again. Before, therefore, I can close 
 the discussion with any assurance that I have made the 
 position I have ventured to take up water-tight, it is necessary 
 that I should make a determined effort to stop up this last 
 source of error, which, so long as it exists, must forever prevent
 
 25fi FREE TRADE AND IXSTRUMEXTS OF PRODUCTION. 
 
 this perplexed problem of Free Trade and Protection from 
 being brought to a truly scientific solution. It is a question 
 which concerns rather the serious students of Political 
 Economy of the Universities and Schools than the ordinary 
 newspaper reader ; but as the opinions of these academic 
 economists, although ignored by the crowd, have a weight and 
 authority, out of all proportion to their numbers, Avith those 
 who are called to fill positions of political responsibility, the 
 reserve arguments which they hold in their hands, but which 
 never appear in newspaper discussion, cannot be ignored. I 
 have already indicated the nature of my criticism of these 
 arguments of the academic Free Traders, by characterising- 
 them as being in principle not merely analogous to, but 
 identical with, the principle of perpetual motion in mechanics ; 
 and that is why I have said that unless this perennial source 
 and inlet of all fallacy is stopped up, the to-and-fro arguments 
 on the subject of Free Trade and Protection, chasing one 
 another among the wheels as in a perpetual motion machine, 
 may go on for ever without being settled. I propose therefore 
 to devote a chapter or two to its discussion, and to it I now 
 invite the careful attention of the reader.
 
 CHAPTEE VIII. 
 
 FREE TKADE AND SCIENTIFIC METHOD. 
 
 '^I^IIE question we have to answer, then, In this chapter is: — 
 ■*- vvhy, on a burning subject like that of Fi'ee Trade and 
 Protection, which not only divides the practice of the world 
 into two hostile camps but its theory as well, the positions on 
 which the Protectionists lay so much stress, as being of the most 
 vital importance to the solution of the problem, are regarded 
 by the professional Economists of the Free Trade school as of 
 so little consequence one way or another, that they almost 
 refuse to discuss them i The problem, — in so far as it is a 
 purely ecom)mic one, — is concerned entirely with the exports 
 and imports of a country and the relations between them ; and 
 therefore one would naturally suppose that everything connectecl 
 with these exports and imports would be of living interest and 
 importance, especially as the essence of the problem is not how 
 this or that nation has prospered up to the present under Free 
 Trade or Protection respectively, but whether, on a close 
 inspection of the exports and imports, any indications are to be 
 detected of the reversal of that prosperity in the future ; 
 precisely as the problem of the practical physician is to discover 
 by a minute examination of organs and symptoms, not how 
 healthy a man has been up to the present, but whether there 
 are within him any seeds of disease which are likely to imperil 
 his health. But the Free Traders, as we have already seen, 
 
 s 

 
 258 FRRE TRADE AND SCIENTTFIC METHOD. 
 
 have spent most of their time in demonstrating that the 
 exports and imports of a country must balance each other 
 when all the suppressed items on both sides have been set 
 down in the national ledger. Whether these exports and 
 imports take the form of goods or of gold, of foreign loans or 
 private credits, the cancelling of old debts, or fresh borrowings 
 and the creation of new ones, the rendering of services not 
 entered in the Board of Trade returns, the passage of bills 
 of exchange, or what not, they must balance each other or 
 trade would cease. But beyond this simple arithmetical 
 proposition, the only facts which the Free Traders regard as of 
 any importance in their bearing on the problem are ; — whether 
 the exports and imports combined keep up to their normal 
 average or show a reasonable increase in proportion to the 
 increase of population, and whether the Income-tax returns 
 also keep up a corresponding average or increase. And when 
 we find Free Traders, — who are as much concerned for the 
 future of their patient, the nation, as the most noisy or fussy of 
 Protectionists, — obstinately x'efusing to lay any stress on any 
 other sign or symptom than the immediate state of their 
 patient's pulse, and denying the necessity of making diligent 
 search as to whether any other sign or germ of incipient disease 
 is present which may have a bearing on his future condition, 
 we are obliged, were it only out of scientific curiosity, to ask 
 how it can be. For the orthodox system of Political Econom_y 
 which is the text book and scripture of the Free Trader, and 
 from which he has directly received his ideas, professes to be 
 in its essentials a completed science, water-tight and logic- 
 proof at all points ; and if it ignores as unimportant all that 
 the great body of Protectionists in the world regard as 
 fundamentally important, it must be, one cannot help thinking, 
 for some reason which seems sound and all sufficient. If, 
 therefore, we could only find out the reason why nothing else 
 matters in the discussion of the problem of Free Trade and 
 Protection but the present amount of exports and imports
 
 FREE TRADE AND SCIENTIFIC METHOD, 259 
 
 combined, and throw the limelight on that reason for a moment, 
 we should get one stage at least nearer the prospect of some 
 reconciliation in theory, or compromise in practice, between 
 these two opposing economic camps and creeds. In all other 
 sciences and philosophies, things are regarded as of no practical 
 importance, firstly, when they are considered insoluble and 
 beyond the reach of the merely human mind, — as for example 
 in Theology and Philosophy, the co-existence and interaction 
 of good and evil, of free will and necessity, of God and the 
 Devil, or what not ; secondly, when the science is confessedly 
 imperfect, and has not as yet fathomed the deeper arcana of its 
 ■subject-matter, and so has to suspend its judgment, — as for 
 example, in Biology the problem of the co-existence in the 
 same species of opposite sexes, or in Physics, the co-existence 
 in the same unit of matter of attractive and repulsive forces ; 
 and so on. But that Political Economy — which professes to be 
 a complete science — should in this special problem of Free 
 Trade and Protection which deals with exports and im]:)orts 
 solely, regard as of no importance and as not worth considering, 
 «uch apparently iuiportant particulars as whether it is our own 
 instruments of production, as seen in our exports, or other 
 nations' instruments of production, as seen in our imports 
 from them, that are in question ; whether these imports are 
 complementary, as of the exchange of corn for manufactured 
 goods, or competitive, as of engines against engines ; whether 
 the exports are the products of unique and inalienable resources, 
 as of gold or diamond mines, special qualities of coal or clay, 
 special artistic skill, and the like, or only of natural resources 
 either moderate in amount or of a quality common to those of 
 many other nations as well; whether they consist of highly 
 finished products, as of cotton, silk, or wool, or of raw materials 
 and half finished goods only ; whether these highly finished 
 exports, again, draw their raw materials from distant lands and 
 alien nntionalities, as in the case of cotton, or are inherent in 
 the soil and mines at home ; whether the country is equally
 
 260 FREE TRADE AND SCIENTIFIC METHOD. 
 
 richly equipped in all the collateral processes necessary to a 
 great organic industry, or only in a few processes, having to 
 depend on foreigners for the rest ; whether the exports are of 
 household articles in universal demand, as of food, clothing, 
 utensils, iron and steel for railways, machinery, buildings, etc., 
 or such as command small and scattered markets only, with 
 little room for expansion ; whether there are alternative 
 employments open to the nation in the event of the capture of 
 those on which it has hitherto been accustomed to depend, or 
 whether the ring of possible industries to which recourse may 
 be had is either practically closed, or is insignificant either in 
 number or in the range of its operations ; whether the exports 
 on which a nation is relying are gaining or losing ground in 
 those great organic industries which are rooted in the soil and 
 in the hereditary skill of its operatives, or whether the nation 
 is making up for its loss in these by a number of low class 
 industries which can be carried on equally well by other 
 nations, and which only keep their foothold by hanging on to 
 the skirts of the still great but declining ones, and so must go 
 when they go ; whether a Free Trade nation relies for its 
 permanent economic prosperity on being able to overleap the 
 tariff barriers of other nations, or only on keeping its hold over 
 neutral ones, or on being able by some 'favoured nation clause ' 
 to slip through the interstices left open by the protected ones 
 in their trade competitions with each other ; whether it 
 conquers by its own industrial strength, like a lion, or makes 
 up for its weakness by living on * dumpings,' scraps, and 
 leavings, like a jackal ; whether the nation in question keeps 
 up the volume of its imports by the number and strength of 
 its instruments of production actually engaged in business, (and 
 whose products pay for them), or, like a trader who is gradually 
 losing his business but keeps up his accustomed style of living, 
 in the hope of something ultimately turning up to repair his 
 fortunes — partly by present earnings, and partly by its past 
 savings, or, if the savings are large, partly by the compound
 
 FRKE TRADE AND SCIENTIFIC METHOD. 2H1 
 
 interest on that part of tliera which it does? not consume and 
 which is continually being reinvested — in a word, whether it 
 is living on actual industrial operations, bringing in, say, 
 twenty per cent profit, or like a part pensioner, on active 
 business and savings combined, or like a full pensioner, on a 
 three or four per cent interest only ; and so on ; — when we find, 
 I say, that the Free Traders regard all these things as matters 
 of indifFei'ence, it must give us pause, and demand our most 
 serious consideration. Or, to put it in general terms before 
 proceeding farther, we may say that when we find that in a 
 problem depending entirely on the exports and imports of a 
 country, none of the above particulars in reference to the 
 character, composition, quality, or proportions of these exports 
 and imports are considered to matter ; when we find that all 
 the things which a chartered accountant or auditor would 
 take into consideration in arriving at the economic status of 
 an individual trader, — in so far as his future solvency or 
 insolvency, the bright or gloomy prospect of his business is 
 concerned, — are regarded as of little or no importance when the 
 future economic status of a nation is concerned (even when in 
 the same breath it is admitted that the economic relations of 
 a nation when trading with other nations depend on precisely 
 the same principles as those of an individual trader doing 
 business with other traders), and strangest of all, when we find 
 that it does not matter whether you regard the imports as 
 depending on the exports, or the exports on the imports ; 
 whether you regard as of primary importance what you have 
 to sell to other people, or what they will give you for it ; when 
 we find them arguing that protection against foreigners, — who, 
 be it remembered, will only continue to supply you with 
 imports so lovg as you have exports to give for them, — is the 
 same thing as the protection which the tallow-chandlers in 
 Bastiat's classical illustration demanded against the competition 
 of the sun, which supplies the world with its light without 
 money and without price ; — when we find that nothing of all
 
 262 FREE TKADE AND SCIENTIFIC METHOD. 
 
 this matters, except only that the gross sum-total in pounds^ 
 shillings, and pence, of these exports and imports combined 
 shall keep about the average or above it ; and that even if it 
 fell below it, that would not matter either, inasmuch as the 
 deficiency would be sure to be made good by a corresponding 
 increase in the home trade, — but of which they can know 
 nothing, as there is no record kept of it in the Board of Trade 
 returns ; — when we find all this, it is evident, is it not, that we 
 have here an instance of a science which is like no other science 
 known to us ; one that does not, like medical science for 
 example, draw its diagnosis of its patient's present or future 
 state of health from a minute inspection of particulars, of signs 
 and symptoms and of the internal condition of this organ and 
 of that, but like ' Christian Science ' relies rather on some 
 hidden fountain of reserve power capable of renovating all the 
 organs alike however diseased, and in presence of which, in 
 consequence, neither the signs nor symptoms, nor yet the 
 actual state of organs and functions, healthy or diseased, need 
 give us the least concern, inasmuch as they can neither inter- 
 fere with the miracles that are being performed through them, 
 nor have they the power to helj) or hinder the result. 
 
 And now if we proceed to enquire what this fountain of 
 reserve power may be which the Free Traders believe they 
 possess, we shall get our first hint of the direction in which 
 to look for it by recalling to mind the principle which they 
 have all along put in the very fore-front of their propaganda, 
 — the principle namely, that the Free Trade which is best for 
 the world in general is also necessarily the best for each 
 particular nation in it ; — which means, being interpreted, that 
 there is a reservoir of wealth common to the world in general, 
 which if nations will only keep their gates freely open, and 
 throw down their tariff walls, will diffuse itself equally over 
 all, like a liquid manure poured out on a level field. Now if 
 this really were so, it would explain the peculiarities, the 
 absurdities and contradictions that have so often puzzled us.
 
 FREE TRADE AND SCIENTIFIC METHOD. 26o 
 
 It would explain why orthodox Political Economy, dealing as 
 it does entirely with the exports and imports of a particular 
 country, can afford to ignore all particulars in reference to 
 them except the single circumstance of whether their combined 
 amount keeps up to the normal average or not. For this is 
 just what we should expect from anything fed from a connnon 
 reservoir — like a town with its water supph' — which will flow 
 into every workshoj) and household whether they are engaged 
 in competing with each other or exchanging complementary 
 and friendly offices, in fighting or merrymaking, in producing 
 or consuming, and where no one need give himself any concern 
 in the matter except to see that the general level of water 
 supplied to the whole body of inhabitants is not decreasing. 
 
 Now this hypothesis of some hidden reservoir of economic 
 power which is so automatic in its working that by flushing 
 all exports and imports alike, it enables the Free Traders to 
 dispense with all concern about details, is also regarded by 
 them as so axiomatic that it were a slight to the intelligence of 
 their readers should they condescend to point it out ; — like the 
 proprietors of the bank of Monte Carlo who, with the steady 
 advantage of the zero in their favour, can afford to smile at 
 the ups and downs of gains or losses of the individual players 
 with their feverish anxiety over difference of colour, sequence 
 of spins, doubling of stakes, and what not, and can sail away 
 in their pleasure yachts for indefinite periods without concern, 
 as knowing well that these gains and losses of the players 
 (like the exports and imports of a nation's trade) will always 
 balance each other, while their steady reservoir of gain in the 
 zero ,(like the increasing wealth of the world in general on 
 which the Free Traders rely to add to their nation's wealth, 
 whether it comes by exports or imports matters not), will 
 always come home to them. And all this, in spite of the fact 
 that the Free Traders not only freely admit, as we have said, 
 that the trade between nations depends on precisely the 
 same laws and principles as the trade between individuals in
 
 264 FREE TRADE AND SCIENTIFIC METHOD. 
 
 the same nation, but also see that for success, the trade 
 between individuals requires an eternal vigilance as to details, 
 and that wealth is not a commodity like water or air which will 
 equally wash in and out, flooding the coffers of all alike who 
 freely bargain in it wherever it finds an opening, and rising 
 to the same level in all ; but on the contrary has the trick 
 of becoming a private property, a sacred possession, which 
 individuals will clutch to their bosoms, and hold and guard as 
 tenaciously as their OAvn bodily persons ; and further that 
 men will use it as much to draw wealth away from others by 
 trade competition, as to make fair and equal complementary 
 exchanges with them : — at any rate until the millennium comes 
 and the unification of all nations as but families of one nation, 
 sharing each with each and with all, is no longer a dream. 
 If, therefore, we bear in mind that each nation is an 
 independent political unit desirous at all hazards of 
 maintaining its own dignity, independence, and self-respect, 
 and that it can only do this by means of its own wealth 
 and not that of another : and further, that the total wealth- 
 producing power of a nation consists only of its o%cii 
 instruments of production or fixed capital, and that it can 
 draw on the wealth of the world (in its imports) onhi to the 
 value of the yield of these instruments of production (plus the 
 vield of their invested savings), and not, as the Free Traders 
 imagine, by a blank cheque to an unlimited amount, as 
 I'astiat's grotesque illustration of the f/mfuitoiis bounty of the 
 sun, which has been finally selected by them as at once the 
 most complete, picturesque, and compendious expression of 
 their doctrine, involves ; — if we consider all this, and reflect 
 further that when the instruments of production of one nation 
 engage in trade with the instruments of production of another, 
 — or, what is the same thing, the products of the one with the 
 products of the other. — it is only the conq^lementary products of 
 each that rise to the Kmnp level, as it were, on both sides of the 
 exchange fence, inasmuch as an equal value of wealth has been
 
 FREE TRADE AND SCIENTIFIC METHOD. 265 
 
 given and received on both sides : Avlierens the comjyetifive 
 products of each, — i.e., those in the same line of goods and 
 made by the same kind of instriunents, — must fight until the 
 one e.ttivguishes the other by underselling it, and by the same 
 act not only closes down the machinery engaged, but causes 
 the loss for all time of those powers of Nature which fed these 
 machines and made each of them do gratuitously the work of 
 hundreds or thousands of men ; — if we consider all this, I say, 
 and reflect that the transfer of these great instruments of 
 production to conquering rivals is precisely the same as a 
 transfer of rich and fertile ])rovinces and territories to foreign 
 nations in war, whereby the conquered nation can never again 
 'commandeer ' the world to send it imports to tiie value of the 
 wealth asset it has lost, we see how absurd it is to imagine 
 that there is a common reservoir of wealth in the world, whicli 
 if nations will only keep their sluices open and their pipes un- 
 obstructed by tariffs, will not only flush and fertilize all these 
 nations alike, but the exports and imports of each nation as 
 well ; and how true it is, on the contrary, that each nation has 
 its own ><eparate reservoir, as represented by its oum natural 
 resources and instruments of production, and that these, which 
 take shape in its foreign trade as its exportt<, can only command 
 the wealth of the world in imports to an amount equal to these 
 exports, — and to iio more. So that if you took two nations in 
 trade relations with each other, it is evident that the wealth 
 from each of their separate reservoirs would rise only to the 
 same height in each in those complementary products which 
 yield a mutual advantage in exchange, but that the competitive 
 products of each (when sufficient time was given them to test 
 their relative strengths) would go over to one or the other side 
 as the case might be, and would raise the height of wealth in 
 the one column to a corresponding extent over the height of 
 wealth in the other. And with result what ? That the one 
 vrhich had now captured the instruments of production of the 
 other and added them to its own, would immediately use its
 
 2(i6 FREE TRADE AND SCIENTIFIC METHOD. 
 
 greater power over the other to squeeze it, precisely as we see 
 the great Trusts established in the States of the American 
 Union doing to-day, viz., by forcing their goods, in which they 
 now have a monopoly, on the defeated States at prices which 
 would be monopoly prices were it not for the fear of driving 
 the public to the use of cheaper substitutes, — and which are 
 actually monopoly prices in the case, say, of the Meat Trust, 
 where substitutes are not easily found; and which, in any case, 
 are always fixed at that point above the former competitive 
 price level which will give the largest possible profit on the 
 whole amount of capital engaged ; following in this the practice 
 of boys at school, where the big boys and bullies will always 
 force an exchano-e more to their own advantage on the smaller 
 boys, than they can get out of boys of their own age and 
 strength. And the result has been, as we see, that some 
 industries, — as for example the agriculture of the Eastern 
 seaboard States, which was flourishing before facilities of 
 transport brought it into competition wnth the West, — have 
 been ruined by the inter-State Free Trade of the Union ; 
 while others, like the manufactures of some of the Eastern 
 States, have been driven from one State to another as the 
 chances and fortunes of trade-war have determined ; and with 
 this further result, that the wealth of the separate States, far 
 from increasing together and rising proportionately in the 
 wealth columns of each, (as they woukl if supplied from a 
 common reservoir), are seen to rise to portentous heights in 
 some States and to sink to mud-banks and shoals in others ; 
 just as they would if each had to depend, as I contend, on the 
 weight and height of its own reservoir supply, as represented 
 by its own instruments of production; thus proving con- 
 clusively, that the axiom of the Free Traders, that under 
 absolute Free Trade what is best for the world as a whole is 
 best also for each particular nation, area, or part of it, — as 
 expressed by the symbol of a common reservoir — is a false one ; 
 and that the true one is that each separate area has its own
 
 FREE TRADE AND SCIENTIFIC METHOD. 2H7 
 
 special reservoir in its own instruments of production, and that 
 it can no more draw on any outside source of wealth over and 
 above its own private wealth (as represented by its exports) 
 than can any individual trader. 
 
 Fortunately, in the case of the diiferent States of the 
 American Union, the victors and the vanquished, the dumpers 
 and the dumpees, the pinchers and the pinched, although they 
 may belong to different States, are all alike citizens of the same 
 great nation, with all the collateral advantages of every kind 
 which that political fact involves ; but did they belong to 
 (liferent nations, none of the advantages of inter-State free 
 trade would exist to console the losers in the industrial and 
 commercial game, or to reconcile them to having their beards 
 thus pulled, like the King in Hamlet, and ' think it jest,' 
 without putting up protective walls to defend themselves. 
 For, that one State forming part of a nation should lose or win 
 from another State forming part of the same nation, is the 
 accepted rule of the game which they started out to play, just 
 as it is with individuals ; but it is not the rule of the game 
 which independent nations start to play for industrial stakes 
 against each other, any more than it is the rule of the social 
 game to permit the same familiarities or liberties to strangers, 
 as to friends or members of your own family ; and to confuse 
 the game, as the Free Traders do, by professing to play in the 
 interests of your own nation, when you are really playing in 
 the interests of the world as a whole, is not only an intellectual 
 stultification, but is a moral obliquity as well. Now the 
 proximate source of the illusion which has led the Free Traders 
 in this connection to imagine that if all the world embraced 
 Free Trade, each nation would be able to draw on some 
 common reservoir of wealth in the world as a whole, over and 
 above the products of its own particular resources and instru- 
 ments of production, will be found to lie in their first detaching 
 and then confounding the mere dead products of industry with 
 the instruments of production from which they proceed, and in
 
 2(>8 FREE TRADE AXD SCIENTIFIC METHOD. 
 
 keeping their eye fixed on the to-and-fro movement of these 
 products, instead of on the character, stability, strength, and 
 nationality of these instruments of production alone, — an 
 illusion as great as if they imagined that the to-and-fro 
 movements of the piston of a locomotive could be detached 
 from a consideration of the coal with which it is stoked ; the 
 products of a bag of tools from the question of to whom they 
 belonof ; or the o-eneral exchano-e of wheat or esco-s in the central 
 exchange market, from the question of Avhether they were 
 produced at home or abroad. For the difference in the logical 
 conclusion that may be drawn from the facts Avhen this dis- 
 tinction is not observed, is enormous. If once you detach the 
 products from the instruments of production on which they 
 depend, they can be logically represented as all mere lifeless 
 things can, (and indeed as the exports and imports of a nation 
 are by the Free Traders), as capable of being interchanged and 
 moved backward? and forwards indefinitely, like water or sand 
 in a trough, by a slight mechanical tilting of one or the other 
 end : whereas instruments of production being, on the other 
 hand, living things as it were, (inasmuch as they embody living 
 powers of Nature wliich have their roots in definite places) 
 cannot be rocked from their foundations thus, and shifted about 
 here and there by any merely external or mechanical process 
 of tilting whatever, but when they do begin to move, do not 
 stop until they have conquered you, or you them. It is true 
 that it is by the products, — as the visible symbols and effects of 
 these instruments of production, — that nations conquer or are 
 conquered, as it was by the symbol of the cross which 
 Constantine saw in the sky that he was enabled to conquer his 
 opponent Maxentius at the Milviau bridge ; but unless we keep 
 our eye fixed on the powers and instruments of production 
 behind these symbols, and especially on whether they belong 
 to ourselves or to other nations, we may easily in the business 
 and bustle of the mart, have our industrial supremacy, under 
 Free Trade, stolen away from us piecemeal in our sleep.
 
 FEEE TRADE AND SCIENTIFIC 3IETHOD. 269 
 
 13ut enough of this for the present, and to proceed. Before 
 we can bring our demonstration of the absurdity of Free Trade 
 as an abstract economic doctrine to a close, we have still to 
 remove one more of the series of veils of illusion within which 
 we must penetrate before we come to the innermost shrine of 
 all. And accordingly I have now to show that when the 
 ordinary Free Trader of the platform and the Press gets there, 
 he will be no better rewarded for his trouble than that Roman 
 Emperor who after the siege of Jerusalem penetrated within 
 the precincts of the Holy of Holies of the Temple to the Ark 
 of the Covenant itself, only to find it empty ! Indeed he will 
 be even more disappointed and surprised, for he will find that 
 far from coming to some ultimate scientific rock-principle on 
 which hih doctrine can repose in security, he will come down 
 on one of the most discredited delusions in the whole history 
 of human thought, — the delusion of perpetual motion. 
 
 But before proceeding to demonstrate this, a word or two 
 is necessary to take our bearings. We have already seen that 
 the ultimate principle on which the ordinary Free Trader 
 reposes when he is making his confession of faith is, that Free 
 Trade, as it is best economically for the world as a whole, 
 inasmuch as it removes all barriers which obstruct the free and 
 natural interchange of commodities between nations, is also 
 necessarilij best economically for each and every nation in it. 
 But this — although accepted as an ultimate truth by the 
 traditional Free Trader who has been taught it from infancy, — 
 is by no means necessarily true, any more than is the verbal 
 inspiration of the Scripture which was generally accepted as 
 an ultimate truth until within the last few decades. Indeed 
 the academic high priests and professors of the Science of 
 Political Economy have all along felt that this doctrine 
 required some still deeper foundation on which to rest, and 
 from which it would be found to be strictly and logically 
 deducible, if it were ever to lay claim to the dignity and 
 authority of a truly scientific dogma. It may be remembered
 
 270 FREE TRADE AND SCIENTIFIC METHOD. 
 
 that Herbert Spencer was not content with the accepted laws 
 of Nature which are final for most people, inasmuch as he 
 thought them not sufficiently ultimate for the purposes of a 
 World -Philosophy, and that he was not satisfied that he had 
 put the coping-stone on his philosophical edifice until he was 
 able to deduce them also as corollaries, each implicitly con- 
 tained in, and logically deducible from, what he called the 
 ' Persistence of Force,' as the ultimate truth of all. So, too, 
 the professors of the orthodox Political Economy have justly 
 felt that the ordinary ultimate postulate of the political plat- 
 form and the Press, namely that the Free Trade which is 
 economically best for the world as a whole is necessarily best for 
 each particular nation in it, was neither solid enough nor ultimate 
 enouo-h for the purposes of a thorough going deductive Science. 
 And so the problem for them became ; — where to find in the 
 background of their science a principle which would insure 
 that the wealth of the woi'ld under a Free Trade regime would 
 be distributed proportionately over all the nations alike, and 
 which would prevent it from heaping itself up in any one of 
 them at the expense of any one of the rest, however much, or 
 by whatever means, the nation or nations whose superior 
 instruments of production were the primary cause of the 
 addition of wealth to the world, should endeavour to aggrandize 
 themselves by keeping that added wealth to themselves. Or 
 to put it differently ; — their problem was to find a natural 
 principle which would automatically prevent any one nation 
 from injuring another under a Free Trade regime, whether 
 that nation were a pure competitor, a friendly exchanger of 
 complementary products, or as is more usual, a mixture of the 
 two combined ; and, of course, was precisely the same problem 
 as how to prevent one tradesman with superior powers of 
 buying, superior situation, and superior knowledge and 
 organization of his business, from injuring another, whether 
 he \yere a rival tradesman in the same street, or a friendly 
 tradesman in a different line of business.
 
 FREE TRADE AND SCIENTIFIC iMETHOD. 271 
 
 At first sight it would seem rather a difficult problem to 
 :solve, but the academical and professorial economists of the 
 orthodox school in the end imagined that they were equal to 
 it, and so were able to announce that any hard-pressed Free 
 Trader who had gone no farther back than the general 
 principle that what was good for the world under Free Trade 
 was good for each nntion also, could always appeal to them for 
 a more recondite explanation still, (although one caviare to the 
 general), in support and justification. This esoteric doctrine, 
 like those doctrines of the Brahmins reserved for the elect of 
 their disciples, was and still remains exclusively in the hands 
 of the small knot of economic ' experts,' — University and 
 College Professors mainly, — who a few years ago when the 
 Free Trade controversy was revived, issued their celebrated 
 Manifesto ; and is contained in those chapters of their books 
 •devoted to the function of Gold and the mechanism of the 
 Foreign Exchanges in their bearings on International Trade. 
 
 The critical examination of this doctrine will afford us yet 
 another opportunity of demonstrating that the orthodox 
 Political Economy of the Schools, far from being the highly 
 developed science which its cultivation as a separate specialty 
 would seem to imply, is still, in its great organic outlines, in 
 the crude primitive stage in which it was left by Adam Smith 
 nearly one hundred and fifty years ago. For there is no 
 better evidence of crudity, either in a science or in an art, 
 than the lumping together of two different things under some 
 common generalized category or image, by the obliteration of 
 all differentiation or distinction in the parts ; as is seen in the 
 generalized Cosmogony of Genesis, for example; the generalized 
 Physiology and Psychology of the Middle Ages, with their 
 ' \ ital principle,' ' vital airs,' ' bodily humours,' etc. ; the 
 generalized Art of the Assyrians, with the four legs of their 
 animals all on one side of the body, and so on. It is the same 
 with the orthodox Political Economy where, as we have already 
 seen, exports and imports are lumped together and generalized,
 
 272 FREE TRADE AND SCIENTIFIC METHOD. 
 
 as if it made no difference whether the exports were the cause 
 of the imports or the imports of the exports; wdiere the imports 
 ao^ain are o-eneralized as if there were no difference between 
 competitive imports and complementary ones ; where the 
 economic good of the workl as a whole is generalized and 
 confounded with the good of each particular nation in it ; 
 where these nations, again, in their exchanges are represented 
 as being fed from some common generalized reservoir of wealth, 
 instead of each from its own ; where the very act of exchange 
 itself is generalized as an universal boon and blessing, instead 
 of as a mixed account of ])rofit and loss, of good and bad, — of 
 good to those who profit by it, of bad to the others who are 
 hit, and lose by it ; and where Free Trade itself is generalized 
 as being good for all nations at all times and places, instead of 
 only for those which have attained i^upremacy in their own 
 special line, at particular times and places. Indeed the main 
 burden of our criticisms of the orthodox Political Economy up 
 to this point has consisted in little else than in our making 
 good these distinctions and difierentiations which are of the 
 very essence of a developed and progressive science ; and 
 should it be our ojood fortune to be able to make further 
 distinctions of this kind throughout the rest of our work, these 
 distinctions will be found in effect to have reconstituted the 
 Science of Political Economy from its foundation, as much so, 
 indeed, as the Science of Astronomy was reconstituted when 
 the Copernican system replaced the Ptolemaic ; the affectation 
 of scientific elaboration and precision in which the academic 
 Economists indulge, — with their appeal to mathematical for- 
 mulas, the equations of economic curves, and the like ingenuities, 
 which have seemed to justify them in claiming for themselves 
 the authority of ' experts,' but all of which are built up on 
 and around these undigested crudities and generalities as their 
 foundation, — showing rather, like the elaboration of a Japanese 
 fan or an Indian card case, or the scrolls and curves on a 
 curtain or a wall paper, as mere fantastic filagree than as true 
 
 I
 
 FREE TRADE AND SCIENTIFIC METHOD. 273 
 
 science or art. And nowhere will tliis be better seen than in 
 the doctrine of the academical economists as to the function of 
 Gold and the mechanism of the Foreio;n Exchano;es, to which I 
 now wish to direct the reader's attention. 
 
 -'
 
 CHAPTER IX. 
 
 FREE TEADE AND PERPETUAL MOTION. 
 ON GOLD AND BANKS. 
 
 OOME years ago when a number of independent writers, 
 ^^ each of whom had access to one or other of the leadingr 
 Monthly Reviews, started the recent movement in the direction 
 of Protection by putting the question on a somewhat different 
 basis from formerly, — and supporting the doctrine by a more 
 detailed analysis of the quality, composition, character, and 
 proportions of the trade returns of exports and imports, — one of 
 the most distinguished of the orthodox economists was asked 
 as to what he had to say to an argument of mine published in 
 the Fortnightly Review, and which ran to this eflfect ; — that if 
 Free Trade were universal to-morrow, it would not, as both 
 Protectionists and Free Traders at that time believed, be the 
 best for each particular nation, but would only be to the 
 advantage of those nations who were supreme, each in its own 
 special line of industry ; and that the weaker nations, on the 
 contrary, far from being benefited, would be more quickly 
 wiped out than if each had enclosed itself in a ring fence, 
 protected by tariff walls ; in the same way as the weaker 
 combatants would be more quickly routed on a battle-field 
 in the open plain, than if they had to be driven out from 
 behind the moats, trenches, and battlements of walled cities. 
 The distinguished economist in question, my informant told
 
 ON GOLD AND BANKS. 27o 
 
 me, became indisjiiant, and replied contemptuously, ' All 
 nonsense ! he does not even see that the mechanism of the 
 Foreign Exchanges puts that all right.' There you have it in 
 a nutshell. Like the perpetual-motion schemer, this economist 
 •evidently sincerely believed that if once trade was opened 
 between two or more nations on a basis of absolute freedom 
 from tariff or restriction, the mechanism of the Foreign 
 Exchanges would keep that trade going on for ever unimpaired, 
 whatever befell any one or other of them. That I was not 
 wrong in my interpretation of his meaning, was made evident 
 to me a vear or so later when Mr. Chamberlain had brouoht 
 the question again into the arena of practical politics, and the 
 political world and the Press were aflame with its discussion. 
 Mr. Sidney Webb, a most thoughtful economist, and by no means 
 a doctrinaire of the type of the orthodox school, wrote, I 
 remember, a letter to one of the newspapers with the object of 
 proving this very point, of the power which the mechanism of 
 the foreign exchanges had in perpetually starting afresh the 
 trade between two nations when it began to show signs of 
 languishing. It was directly drawn from Ids own knowledge 
 and experience, he said, when as a young man he was acting 
 as correspondence clerk for a firm in the City doing business, 
 if I remember rightly, with Belgium. It appears that for 
 some time his firm had not been able to place an order in that 
 country, but were waiting, like boatmen for the tide, in the 
 full assurance that the ' turn of the exchanges ' between the 
 two countries would bring what they wanted. The order 
 ■came in due course, as was anticipated, and the experience was 
 one, he said, which, as it was regularly repeated, he had never 
 forgotten. And in short, the conclusion to which it had led 
 him was the same as that of the other economist I have 
 mentioned, — the conclusion namely, that the trade between 
 different nations, if kept free from tariff barriers, would when 
 once started go on unimpaired indefinitely. In the meantime 
 the tide of controversy in the Press and in the Reviews having
 
 27B FREE TRADE AND PERPETUAL MOTION. 
 
 begun to turn decidedly in favour of the Protectionists ; — what 
 with their elaborate analysis of statistics, and the proofs these 
 afforded of the relative decline of great Britain's supremacy 
 in many, if not all, of the great industries which had originally 
 made her fortune ; what with the shock the public received on 
 the announcement that a large slice of our shipping had been 
 detached by an American syndicate, with all the vague 
 possibilities and menaces that this suggested, as well as the 
 definite evidence it afforded of how easy it is for giant capitals 
 concentrated in a few hands to steal away piecemeal from the 
 smaller and more isolated and dispersed capitalists, by manipu- 
 lation, intimidation, or unusually advantageous terms, whole 
 blocks and instalments of that fixed capital — or instruments of 
 production — which, as we have seen, is the only permanent 
 wealth-producing asset of a nation ; — while the public was- 
 inwardly if not outwardly excited by all this, the lists were 
 entered by Mr. Pigou, one of the most thoughtful of the 
 younger generation of orthodox Economists, who fully equipped 
 with all the logic-proof armour and esoteric symbolism of the 
 older professors, started with their approval and as their 
 accredited representative, a series of articles in the ' Pilot ' in 
 defence of the abstract doctrine of Free Trade, threatened now 
 on its immediately practical as well as on its speculative side. 
 But he too, after a preliminary pass or two in which he did 
 some good scavenger work for both sides by clearing away 
 some of the grosser errors of the older school of Protectionists 
 who were habitually prejudicing their cause by harping on the 
 exe-ess of imports over exports in the statistical returns, etc.,. 
 fell back again, like the other professors, on the mechanism of 
 the Foreign Exchanges, and the function of Gold, as his 
 ultimate line of defence against the aggressive arguments of 
 the opponents of Free Trade. 
 
 But as he made his argument turn on the power of gold by 
 its passage and re-passage between countries to make the trade 
 between them go on indefinitely after once it had been started,.
 
 ON GOLD AND BANKS. 277 
 
 rather than on the power of the turn of the exchanges to 
 accomplish the same result, I propose to consider his special 
 form of the argument before proceeding to the more general 
 one. He starts out quite fairly by supposing the case of a 
 nation which has orreater natural advantaojes than another in 
 every kind of conanodity whatever, and then asks what will 
 occur when trade is opened on a Free Trade basis between 
 them. The ordinary man would naturally say that, like a row 
 of tradesmen on one side of a street who could undersell a 
 similar row on the other side, each in his own line — the baker 
 the baker, the shoemaker the shoemaker, and so on, — the 
 producers in the one nation would soon drive those of the 
 other from the field, and that trade would soon cease between 
 them. Not so, says Mr. Pigou, but on the contrary, trade 
 would go on as mei'rily between them as if they were 
 exchanging on even terms ! But how so ? asks the astonished 
 reader. By the effect on prices of the gold that is sent across 
 to pay for the goods that are being bought and sold, says Mr. 
 Pigou. For, look you ! he says, if one nation starts by being- 
 able to undersell the other nation in every commodity, the first 
 effect will be that the people of the industrially weaker nation 
 will buy everything from the stronger nation instead of from 
 their own, while the stronger nation will buy nothing from the 
 weaker. The consequence of this will be that the weaker 
 nation will have to empty its public and private treasuries of 
 all the gold it can lay its hands on to pay for the goods, and 
 that when this cargo of gold is emptied on the shores of the 
 stronger nation, it will roll over it like a stream from some 
 great and newly discovered Australian or Californian mine. 
 The prices of all things, in consequence, from a box of 
 matches, a glass of whisky, a cigar, a meal, a suit of clothing, 
 the rent of a house, up and up through every kind and variety 
 of material used or consumed by men, will rise to kee[) pace 
 with this influx of money, — where sovereigns are as plentiful 
 as shillings were before, and shillings as pence. In the mean-
 
 278 FREE TRADE AND PERPETUAL MOTION. 
 
 time in the weaker nation which has been denuded of its 
 money, — and where shillings are now as scarce as sovereigns 
 were before, — prices will have fallen so low that you can pick 
 up for a penny what you had to pay a shilling or two for 
 before. So far so good. And now what will happen nextt 
 asks Mr. Pigou in a triumphant tone. Why this, that the 
 stronger nation which has now got possession of all the gold, 
 and where prices in consequence are so high, will at the next 
 turn buy all it wants, not at home where things are at famine 
 prices, but from the other nation where they can be had almost 
 for the picking up. And then what will occur ? Simply this,, 
 that the excess of gold will all roll back again to the nation 
 whence it came, prices will fall in the one, just as they rose 
 before, and rise again in the other as they fell before. And so 
 the to-and-fro movement of gold backwards and forwards will 
 go on uninterruptedly until the two nations in spite of the 
 advantages of the one in the real cheapness with which it can 
 produce every article used by both (for that is the supposition 
 with which he started out) Avill exchange on even terms. And 
 this consummation once reached, there will be no reason why 
 trade should not then go on between them — for ever I And all 
 this through the magical property possessed by gold of 
 distributing its weight precisely at those points necessaiy to 
 keep the two sides of the trade-balance even, moving up and 
 down alternately when the heavier side threatens to pull the 
 otlier permanently down ; like a boy standing at the centre of 
 a see-saw, who by throwing his weight on one side or the 
 other can keep the two boys on the ends going up and down as 
 long as his strength holds out ; or should one boy be bigger 
 and heavier than the other, can prevent him from weighing 
 the other down and stopping the movement altogether; the 
 only difference being, that while the ability of the boy to 
 continue is limited by his strength, the movement of gold, 
 being mechanical and automatic, will go on indefinitely or for 
 ever. Were we wrong then in saying that here we have a
 
 ON GOLD AND BANKS. 279 
 
 perpetual-motion scheme as })erfect and self-acting in its way 
 as any that ever issued from the brains of the mechanical 
 perpetual-motion schemers of long ago ? And while we may 
 be quite willing to allow that it is superficially as plausible as 
 any of these old schemes, have we not reason to suspect that it 
 is likely to be as false as they were, not merely in this or that 
 particular, but in all '? This we have now to consider, and at 
 the same time to shew once again how crude and primitive is 
 the orthodox Political Economy which could have lent itself 
 to so puerile an explanation ; — and all due to its having made 
 of itself a narrow academic specialism founded, and still 
 continuing to build (in its leading organic outlines and types 
 of structure at least), on great blocks of undigested and un- 
 analysed generalities thrown off in the infancy of the science 
 by Adam Smith, in his reaction against the old Mercantile 
 System, and continued through John Stuart Mill to our own 
 time ; precisely as the numerous existing theological sects 
 started by the Reformation on the break up of the old 
 Catholic Theology of the Middle Ages, still go back to Calvin, 
 or Luther, or Hooker, or some other old fifteenth or sixteenth 
 century divine for their foundations and fundamentals, and 
 instead of throwing them one and all overboard together and 
 beginning afresh on the higher knowledge of to-day, break off 
 only a chip here and there, and one at a time — verbal inspira- 
 tion, Mosaic Cosmogony, eternal damnation, literal hell-fire, 
 and what not — but still continue refining on the remains of the 
 old blocks, with endless ingenuities of new patterns and scroll- 
 work each in its own kind, — new shades and distinctions in 
 predestination and the ' effectual calling,' new hopes for the 
 damned, adult or infant, new denominations of sinners, and the 
 like, — till we despair of ever getting any rationalised science 
 of theology at all. In other words, the difference between the 
 Orthodox Political Economy and the new science with which 
 we are seeking to replace it, lies not in the fact that the latter 
 proceeds on evolutionary lines, and the former does not ; on
 
 280 FREE TRADE AND PERPETUAL MOTIOX. 
 
 the contrary, just as in the animal kingdom there is no type of 
 creature however low or primitive, which when once launched 
 on the world will not go through a parallel course of evolution 
 to every other, tricking its different species out with infinite 
 ingenuity in every variety of form and colour, to fit them for 
 their special environment, whether it belong to the type of the 
 molluscs, the reptiles, the birds, or the mammals ; so too is it 
 with systems of thought, where there is no difference in so 
 far as their following the ordinary course of evolution is 
 concerned, but where the one evolves throughout on the basis 
 of a lower and more primitive type than the other. And 
 nowhere is the crudeness of the organic type on which the 
 orthodox Political Economy is constructed more apparent than 
 in this doctrine of the function of Gold and the part it plays 
 in raising or depressing prices in different countries, and in 
 neutralizing by its mere movement from one to the other, the 
 effects which naturally follow in any industry where one 
 individual firm or nation of firms can from natural advantages 
 permanently undersell another. Indeed one might know 
 a priori that gold as a measure of value or medium of 
 exchange, could have no more effect on the relations or 
 movements t)f the things exchanged than a shadow on the 
 substance which casts it ; and that if sent across from one 
 nation to another in any other capacity, there would be as little 
 chance of its going back again without cause, and b}' its own 
 initiative, from some magical property inherent in itself, as of 
 a sack of iron or coal. 
 
 To begin with, then, we deny that any passage of gold, as 
 such, can, in its function as a medium of exchange for the 
 payment of trade balances, have any permanent effect on the 
 relative prices of any commodity whatever, in any two countries 
 engaged in trade with each other. It may be true that if all 
 the inhabitants of a countrj' suddenly discovered that an island 
 had risen from the sea which could supply them with everiithing 
 cheaper than they could get it at home, they would go on
 
 ON GOLD AND BANKS. 281 
 
 buying these products and paying for them in gold until there 
 was neither coin left in the country nor an industry left at 
 work, except those of porters, restaurant proprietors, and 
 retailers, etc., to distribute the good things they had got so 
 cheaply ; but to imagine that they could continue to sit there 
 and enjoy this life of cheap lotus-land delights after their last 
 coin had gone, in the belief that those coins would all come 
 rolling back to them again while they slept, and so enable 
 them to repeat the delightful experience indefinitely, would be 
 indeed to postulate a rare simplicity in that shrewd, highly 
 developed product of civilization, the modern commercial mind. 
 It is more reasoni\ble to believe that like children who should 
 come across a cage of lions for the first time, and jiut their 
 hands through the bars to stroke them as if they were kittens, 
 or men determined to get to Klondike in midwinter who should 
 begin by selling their clothes to pay for the journey, their first 
 experience would be likely to be their last. But the truth of 
 the situation will be better seen if we suppose that there is no 
 gold or money at all in the world, but that all things are directly 
 exchanged by barter. Then it would be apparent that between 
 a country which produced everything cheaper than another 
 country and the less fortunate country, there would be no trade 
 at all, any more than there is at present between Europe and the 
 Arctic Circle. The inhabitants of the stronger industrial nation 
 would naturally do all their exchanges among themselves, as 
 there would be nothing to tempt them to go farther afield to 
 buy things which could only be produced at a greater cost, 
 not at a less, than at home. The weaker nation would also do 
 all its exchanges with its own people, as it could not sell 
 anything to the other nation, which already produced all things 
 cheaper than it was able to do. And the consequence would 
 be, that trade far from going on between these nations for ever, 
 would as we should know and expect, never get started at all I 
 Now the introduction of gold or money instead of barter 
 cannot possibly make any diflference. As a mere commodity
 
 282 FREE TRADE AND PERPETUAL MOTION. 
 
 for purposes of luxury or adornment, it is by our hy})othesis 
 already more cheaply produced in the stronger industrial 
 nation than in the weaker, just as iron or coal is, and so there 
 would be no point in opening up trade in it, for the same 
 reasons as those just given ; while as a mere medium of 
 exchange it can have no effect either, inasmuch as it is then, 
 like a railway ticket, only a token, and whether it be gold, or 
 silver, or copper, that is used, a large gold coin or a small one, 
 will make no difference whatever except as a matter of 
 convenience. On the other hand, if gold is wanted to hoard as 
 a provision against the future, then it becomes again a mere 
 commodity like any other, like, for example, the diamonds and 
 })recious stones in which, on account of their j)er)}iane)it value, 
 or the general belief in their permanent value, the wealth of so 
 many Eastern princes is invested ; and although gold, like a 
 world Emperor standing in the midst of the local kings owning 
 his sway, has a higher rank as a commodity than any other on 
 account of the relative stability and permanence as a wealth- 
 embodying token whicli its accepted recognition by all men 
 everywhere and at all times gives it ; still, there is no more 
 reason why, as a commodity, its purchase or sale (and its move- 
 ment in consequence from one country to another) should affect 
 the prices of other things, as of coal or iron or corn, than a 
 sale of diamonds or jewels, or of corn or iron or coal ; nor 
 why it alone of things should have the magical property of 
 automatically passing backwards and forwards between nations, 
 alternately raising the prices of all things and then depressing 
 them, like the boy on the centre of our see-saw. For its 
 movements as a commodity have not altered anything else that 
 could by any possibility raise or depress prices ; they do not 
 lessen the cost of producing anything so as to make that thing 
 cheaper in the market, — as a new and better machine or process 
 would do, — nor does the gold itself that passes find its way as 
 such into the pockets of any class of persons through the 
 legitimate competition of industry, whether of masters or men;
 
 ON GOLD AND BANKS. 283 
 
 it does not make employers give their workmen higher wages, 
 nor does it give the employers themselves higher profits, and 
 therefore it does not create the greater demand in proportion 
 to supply which is necessary before prices can rise. It does 
 not act, for example, as an unusually plentiful harvest in all 
 the great corn-producing countries does, which by making food 
 cheaper for the great masses of a population leaves them more 
 to spend on all other things, and so makes trade brisk all 
 round ; for on the hypothesis with which Mr. Pigou starts 
 out, the gold which passes to the one country from the other, 
 is not, as in the case of the harvest, due to a fresh supply of 
 gold over and above that in the countries before. Nothing 
 having been altered, therefore, in the organic relations of the 
 industries of the two countries, which would in any way alter 
 the scale of prices in either, the mere passage of gold from one 
 to the other would have no more effect on their respective 
 price lists than the movements of a fly over the skin of a 
 patient would have on the condition of the vital organs beneath. 
 For this, it would be necessary that some great new gold mine 
 or mines should be discovered which would flood the whole 
 world with their products, and so, like an unusually abundant 
 harvest, would make gold as plentiful as, say, silver is now. 
 But even then, be it observed, it would have little eflTect on 
 prices until it found its way into the pockets of the great 
 masses of men, as was the case with the orio-inal Californian 
 and Australian mines, where the men themselves picked up the 
 gold from the ground with the simple utensils used for washing- 
 it out ; and by this addition to what might be called their 
 wages, created so great a demand for every article within their 
 reach that prices rose to unprecedented heights, — first in the 
 vicinity of the mines, and then, as the gold was passed on in 
 enlarging circles, wider and ever wider, until the whole world 
 felt the effects of it. It raised prices in the same way as if 
 each man in the world were presented with an extra coin for 
 every one owing to him when his salary, or wages, or profits.
 
 284 FREE TRADE AND PERPETUAL MOTION. 
 
 fell due ; but as it would operate equally on the weaker of 
 Mr. Pigou's two nations as on the stronger, it would be as 
 broad as it was long ; and nothing would be altered in any 
 way from what it was before. And if before the inundation of 
 gold one of these nations was so superior to the other in 
 everything that there was no reason why they should trade at 
 all, so would it be after it. But from the moment that gold 
 required the use of expensive machinery to extract it from the 
 deep-lying quai'tz, it went, not into the hands of the workmen 
 (who would have raised [)rlces by the abundance of it in their 
 possession) but into the hands of the capitalists, who either 
 put it to their credit accounts at the bank, or used it as 
 additional capital for the further working of their business ; 
 but who, in either event, would no more have dreamed of 
 increasing the wages of the miners by reason of their 
 magnificent jjrofits, than the wealthy coffee j^lanters of India 
 or Ceylon would dream of increasing the wages of their coolies. 
 And, the consequence has been, as we see, that although 
 millions of fresh gold are thrown every year on the market, it 
 is questionable whether it alters prices a jot. Indeed I am 
 told on the authority of the great bankers and the officials of 
 the Mint, that the world could absorb at least one hundred 
 millions of newly mined gold every year before jn-ices would 
 be affected by it. The excess would be distributed among the 
 banks in amounts varying according to the necessities of their 
 business, or be hoarded by peasants and despots, or used up as 
 a commodity for purposes of luxury or ornament. 
 
 And now we have to see what would become of that part of 
 it deposited in banks. It would be used by the proprietors 
 of the banks primarily to strengthen their own credit by 
 adding to their reserves where these were deficient, or to add 
 to these reserves, in order to meet the legitimate demands for 
 temporary money accommodation in all progressive industrial 
 communities. But given that the bank reserves were sufficient 
 already, the mere emptying of this excess of gold into their 
 
 i
 
 ON GOLD AND BANKS. 285 
 
 vaults, or the taking of it out again, would have little more 
 eiFect on general prices, — so long, that is to say, as it did not 
 exceed the amount estimated above, — than if it were so many- 
 sacks of coal. The only effect would be that discount rates on 
 loans would be easier than usual for the time being, and until 
 the temporary excess above requirements had been passed on 
 and distributed to other nations where gold was more in 
 demand, and where it yielded more profit to the banks than its 
 retention at home would do. For banks are essentially private 
 institutions, in the same way as the Stock Exchange and the 
 business of money lending are private institutions, and to 
 imagine that because they have a temporary excess of the 
 couunodity, gold, in which they deal in their vaults, this is 
 going to alter appreciably the general price level of bread, meat, 
 coals, calico, and all other things, merely because it is the 
 medium of exchange, is as absurd as to imagine that an excess 
 of one or other of these things is going to alter appreciably 
 the general value of gold. But to imagine, as Mr. Pigou and 
 the orthodox Political Economists do, that when gold is in 
 excess in one nation owing to its industrial supremacy over 
 another in all things, (and not merely owing to the discovery 
 of new mines), it will, when getting rid of its excess of gold 
 send it back again to that other nation — which by the hypothesis 
 has now lost to its superior the business which can alone create 
 a demand for more gold, — -is the supremest absurdity of all. 
 
 But why, we may ask, should not an excess of gold in the 
 banks find its way into the hands of the general body of 
 consumers of a nation, and so raise prices all round, instead 
 of being sent abroad to other nations ? The answer is as 
 before, banks are private institutions, and it is no more the 
 way of banks in ordinary humdrum times to lend money 
 except on actually existing security, than it is of private money 
 lenders. To begin with, they do not lend money to the wage 
 earners, who form the bulk of a nation, at all, (that is the 
 function rather of the pawnbroker), and when they lend it to
 
 286 FREE TRADE AND PERPETUAL MOTION. 
 
 the wetilthler class of consumers as such, it is only on actually 
 existing securities — bonds, stocks, or what not, — which can be 
 turned into gold again when necessary at a moment's notice ; 
 but as this money lent to the consumer at the beginning of 
 the year, say, must be repaid out of his income at the end 
 of it, nothing so far has occurred which can permanently raise 
 prices by increasing the demand for commodities. On the 
 other hand, when money is lent by banks as an accommodation 
 to capitalists actually engaged in productive industrial under- 
 takings (and this is a bank's normal function), again not a 
 sovereign or bank note is lent except on quickly realizable 
 existing securities, or by discounting bills believed by the 
 bank to be drawn on actual business transactions, whether on 
 fixed capital in working operation, the current ' turnover ' of 
 merchants and retailers, or what not ; and more important still, 
 the money advanced in all cases is in ordinary times meted 
 out strictly in proportion to the business doing, or believed to 
 be doing, by the persons who receive the loan. So far then 
 nothing again has occurred, so far as the banks are concerned, 
 which will occasion a greater demand for any of the commodities 
 in which these borrowers deal (and so will tend to raise prices) 
 than the already existing demands of the public. And there- 
 fore as the banks in their advances keep pace only with the 
 genuinely industrial demands of the public, and do not 
 precede them, it follows that even were their vaults stacked 
 to the ceilinffs with ingots and coins, not a coin of it would 
 leave these vaults in the ordinary way of business, except on 
 the good faith of definitely existing business transactions, nor 
 an additional coin of it except by an addition to these trans- 
 actions. And the conclusion follows that if prices had to 
 wait to rise until the bankers took to scattering their gold and 
 bank notes abroad on purely speculative credits as a means of 
 getting rid of the excess of it in their vaults, they never would 
 rise at all. And this gives us our first definite law or principle, 
 namely that just as the population in the present day increases 
 
 I
 
 ON GOLD AND BANKS. 287 
 
 not from the miscellaneous haphazard capture of temporarily 
 appropriated females, but from the regulated entry of children 
 into life through the institution of marriage and the household ; 
 «o in the present capitalist form of industry, which can only 
 be mediated through the institution of banks, a rise or fall of 
 prices does not depend primarily on the haphazard amount 
 of gold in their vaults at all, but on the contrary, the gold in 
 use as a medium of exchange will depend on the amount of it 
 needed to eifect the exchanges arising out of an increased or 
 diminished volume of industrial operations ; and the prices of 
 commodities, in consequence, will be determined both primarily 
 and ultimately by the relation of demand to supply, and of 
 supply to demand, among tlie commodities themselves. Now 
 when this is once seen, it will be seen also that gold as a 
 medium of exchange is like food ; for just as although a certain 
 minimum of fat-producing food is necessary to the body, still 
 the amount of the fat does not therefore vary in proportion to 
 the amount of the food, but depends on the amount of it 
 utilisable by the constitutional tendency of the individual 
 organism to fatness, or leanness, or a medium condition, 
 respectively ; all excess being thrown off as surplusage and 
 useless excreta ; so too is it with gold as a medium of exchange. 
 For although a certain amount of it is a necessary and ultimate 
 element in the determination of prices, still the variation in 
 prices does not depend primarily on the amount of gold, but 
 the amount of gold used will depend on the amount of business 
 done in the supply and demand of the commodities themselves ; 
 the rise or fall of prices being the direct effect of the business 
 actually transacted, and not of the supply of gold. And hence 
 the argument on which Mr. Pigou and the orthodox economists 
 rely as their ultimate weapon in defence of Free Trade, 
 namely the agency of gold sliding from the back of one 
 nation on to that of another, and making a perpetual inclined 
 plane for itself, by tilting first one end and then the other, 
 and so, by its own weight, raising and lowering the prices
 
 288 FREE TRADE AND PERPETUAL MOTION. 
 
 of the same commodities in each nation alternately, is a 
 dream. 
 
 The above, as I have said, has reference only to ordinary 
 everyday business and trade. But before we can bring the 
 full scope of our doctrine into clearness and unity, we must 
 refer to the part played by Gold and the Banks in those great 
 inflations and contractions to wdiich trade is periodically liable, 
 and which characterise what are known as times of booming- 
 and of panic respectively. 
 
 These periods of abnormal exaltation or depression differ 
 from the normal course of trade in ordinary times in this, — that 
 whereas in ordinary times the money advanced by the banks 
 is in connection with the future extensions of those businesses 
 which have already their firm roots in the soil of the present, 
 and so have in themselves a guarantee for its security ; the 
 mimey advanced in times of inflation, on the contrary, is in 
 connection with business enterprises which are newly sprung 
 on the world, and whose future success or failure, in conse- 
 quence, is entirely a matter of speculation which only the 
 unknown future can determine. But although this introduces 
 a fresh complication into our subject matter, it will be found 
 on analysis, not to seriously invalidate the general conclusion 
 so far reached, namely that the relative prices ruling among 
 nations at any given time depend on the amount of actual 
 industrial transactions done or being done at the time between 
 them, and not on the amount of gold that is employed in 
 negotiating these transactions ; — always excepting the slight 
 turn of the Foreion Exchanges on which we will concentrate 
 in our next chapter. 
 
 I have purposely excluded such gambling speculations in 
 futures, as wheat and cotton ' coi-ners,' etc., as irrelevant to 
 our issue, inasmuch as although they may affect prices 
 profoundly, they do not concern the problem in hand, which 
 is the relation of gold to prices in bona fide industrial 
 operations ; and are therefore no more part of the subject-
 
 ON GOLD AND BANKS. 289 
 
 matter of political economy than is any other form of mere 
 gambling. It is true that in all industrial operations whatever, 
 depending on future and unknown contingencies, there must 
 always be an element of speculation if the business of the 
 world is to be done at all ; but the difference between the 
 speculations of a wheat or cotton ' corner ' on the returns of 
 a crop already existing, and the necessary speculation in, say, 
 the opening-up of a new mine, the reclamation of a piece of 
 waste land, the projection of railways or canals in new 
 countries, etc., is this, that the former is pure gambling on 
 the results of an already completed industrial operation ; the 
 other is a necessary trade risk, which must be taken on the 
 inauguration of every new, and therefore uncertain, industrial 
 enterprise. Now these new industrial enterprises in ordinary 
 times have usually to depend on the general public to finance 
 them, but in ' booming ' times when all business men are 
 buoyed up with hope and expectancy, the bankers themselves 
 become more or less infected and hypnotised ; and, carried 
 away by the tide, will often set afloat great balloons of paper 
 credit which are out of all reasonable proportion to the gold 
 reserves in their vaults. Prices will then, of course, rise more 
 or less all I'ound, just as they would if each working man were 
 given two sovereigns to spend instead of one, — but why? 
 Not because of any increase of gold reserves which would 
 justify it, but because of the actual industrial demands which 
 the credits call forth and set in motion. Caj)italists in many 
 different spheres of industry give more orders to each other 
 for all kinds of raw material, machinery, building operations, 
 etc., which in turn give employment to more men; and all 
 together, like an army which has been suddenly recruited in 
 numbers, and has to supply itself with what it wants as it goes 
 along, make so great a demand at short notice on existing 
 sources of supply that prices for the time rise all round. That 
 the rise of prices in these cases is due to the actual increase of 
 industrial demands is seen when these new industrial under-
 
 290 FKEE TRADE AND PERPETUAL MOTION. 
 
 takings — sufficient time having been given them, — fail to 
 realise the bright hopes with which they started out, and 
 cannot pay in the products they turn out for the expenses 
 incurred in developing them — in the purchase of land, the 
 ei-ecting of buildings, the stocking with machinery, the interest 
 on loans, the wages of workmen, and what not. Then 
 bankruptcies begin, credits falling due are not redeemed, 
 further credit advances are stopped, the whole or part of the 
 extra industrial army of capitalists, masters, and workmen, are 
 disbanded, and their profits, wages, and salaries, come to an 
 end ; and with them the demands for all those kinds of 
 commodities, services, and materials, which attended their 
 buoyant march on the road to fortune. Prices then doubly 
 fall ; on the one hand from suj)ply having by this time come 
 up to the increased demand, and on the other from that 
 demand having now suddenly ceased ; and so left a congested 
 supply with nothing to carry it off. But this fall of prices is 
 essentially due, it is to be observed, to the falling off in the 
 demand for actual commodities, rather than to the collapse of 
 credit, or to any ap^jreciable difference in the ordinary amount 
 of gold reserves in the coffers of the banks. For although the 
 restriction of credit attends the fall of prices and is the signal 
 for their fall, — and indeed often precipitates that fall, when a 
 little longer extension of credit might have prevented it, — it is 
 nevertheless not the true scientific cause of the fall, any more 
 than the destruction of the Bastille was the real cause of the 
 French Revolution, although in a way it heralded, precipitated, 
 generalized, and extended it. In other words, it is the failure 
 of the new enterju-ises themselves and its effects on the supply 
 and demand of actual industrial commodities, to which the fall 
 of prices is in strictness to be referred, and not to the re- 
 striction of the credits ; as is evident from the fact that until 
 panic sets in from the actual failure of the new enterprises to 
 supply the goods, or of the public to buy them when produced, 
 credit advances continue to be made by the banks. The only
 
 ON GOLD AND BANKS. 291 
 
 sense in which credits can be said to be the cause of a rise or 
 fall of price, so far as the Science of Political Economy is 
 concerned, is in their normal function as part of the legitimate 
 organized machinery of production, consumption, and exchange, 
 where they save time (the soul of wealth) by lubricating the 
 wheels of the industrial machine and preventing its jolting, 
 and thus insure that the real commodities themselves will be 
 transferred from seller to buyer with the least delay. 
 
 From all of which I think we are justified in concluding 
 that whether it be current or future business, old or new 
 industrial undertakings, it is only the actual business trans- 
 actions, — the actual purchase and sale of actual commodities — 
 following the ordinary laws of supply and demand, which are 
 the true scientific cause of the rise and fall of prices, and, 
 moreover, of the degree of that rise and fall ; and not the 
 amount of the circulating medium in use, — whether it be gold 
 or bimetallic, — or the note issues founded on it, which unless 
 they bear a well understood and recognised proportion to the 
 gold, and are kept well in hand in discounting bills, become 
 the occasion of booms and panics, and the rise and fall of 
 prices which attend them, and which are therefore only a 
 passing, gambling, bubble, the result of illegitimate hopes and 
 fears, but which can have no place in a science of political 
 economy, as such. 
 
 And thus we see — to come back to the point we started to 
 demonstrate — that from every point of view the gold of the 
 world, far from regulating the prices of commodities in 
 different nations according to the amount of it temporarily 
 carried on the back of each at any given point of time, and 
 mechanically and automatically sliding across between them 
 as on an inclined plane, raising and depressing prices at it goes, 
 and by its backward and forward movement keeping the trade 
 between any two nations, once started, going on for ever, (as 
 Mr. Pigou and the orthodox Political Economists believe), 
 when that trade would otherwise have ceased altoo-ether from
 
 292 FREE TRADE AND PERPETUAL MOTION. 
 
 the want of the motive to trade which the superiority of one 
 nation over another in everything would naturally cause ; the 
 amount of gold, I say, in any country, far from determining 
 the general price level of commodities in that country, except 
 to that strictly limited and insignificant extent caused by the 
 temporary turn of the Foreign Exchanges, is, on the contrary, 
 itself determined by the actual business transactions of the 
 country, which raise or lower the price of commodities on the 
 ordinary laws of supply and demand ; precisely as an animal 
 produces or secretes only as much wool, or oil, or fat, for itself, 
 as is required for its warmth and comfort in adaptation to the 
 environment in which it is placed, — and no more. The 
 mistake made by Mr. Pigou and the orthodox Economists 
 whose mouthpiece he is, in this matter of the defence of Free 
 Trade by means of the function of gold, is that they do not 
 see in the first place that it is the amount of gold in the world 
 in general actually functioning as a medium of exchange, that 
 fixes the common denominator of prices, as it were, in each 
 and every nation alike, — inasmuch as it is the only measure of 
 value that is uniform and recognised by all, — and so determines 
 through the medium of prices the relative industrial strengths 
 of them all ; and not, as they believe, the mere passage back- 
 ward and forward of gold between an}' two or moi'e of them 
 without reference to this general substratum of gold common 
 to them all. 
 
 In the second place, they do not see that with this common 
 denominator once fixed by the consensus of the world, and the 
 relative productive industrial capacities of the different nations 
 ranged alono- it as numerators, it follows that if once one nation 
 has, as Mr. Pigou's hypothesis assumes, an advantage over 
 another in everything, so that, for example, it capacity can be 
 represented, say, by the fraction -^-^q, and the other only by ^^^^ 
 this differential advantage of the one nation over the other 
 cannot be reversed by gods or men, except on the sole condition 
 that the inferior nation makes itself in turn by some godsend
 
 ON GOLD AND BANKS. 293 
 
 or windfall (as the discovery of a gold, or diamond, or coal mine, 
 or what not Avithin its territory), the superior of the other; so 
 that, whereas the assets formerly stood at j^f^ they will now 
 stand at, say, j^^q. But to imagine that it can all be put right 
 by passing gold or any other medium of exchange whatever 
 over the two nations, like a universal smoothing iron, to level 
 their industrial inequalities (by the supposed pressure which its 
 mere quantity exercises on the two nations through its alteration 
 of their price levels) is to confound the difference between a 
 price which is low because it is the outcome of a superior soil, 
 machine, or other instrument of production, and a price which 
 is low because the instruments of production ai-e relatively so 
 poor that when once beaten from the field, their products, like a 
 bankrupt's stock, can be picked up ' for a song.' And further, 
 to imagine that when once this nation's bankrupt stock has 
 been sold off, as doubtless it will be ' at a bargain,' the dead 
 nation itself will come up smiling again to enter the lists of 
 competitive international trade as if it were alive, is to outrage 
 all reason ; and is indeed to palm off again on the science of 
 Political Economy that perpetual-motion scheming which in 
 the science of Mechanics has long since been banished from 
 the world. 
 
 The above, then, is our rei)ly to Mr. Pigou and the orthodox 
 Political Economists as to the function of gold, and the part 
 it plays in the perpetual-motion scheme through which, and by 
 means of which, they would compel the trade between nations 
 once begun to go on forever, whatever chasm there might be 
 between their relative capacities for the production of every 
 species of wealth — a scheme which on a rigid and radical 
 analysis of all the main factors concerned, turns out, as we have 
 seen, to be as fallacious as on the face of it it is absurd, and 
 the realization of which is as hopeless as to try and keep the 
 pendulum of a clock going by merely starting it afresh after 
 its springs or weights have run down. Being an absolute 
 reversal of the position occupied by the orthodox Economy,
 
 294 FREE TRADE AND PERPETUAL MOTION. 
 
 our analysis will, I venture to hope, destroy the last and top- 
 most beam from which the defence of the doctrine oi Free 
 Trade as an absolute principle, true for all nations at all times, 
 hangs suspended; for if that beam prove unsound, this doctrine 
 falls by its own weight; and the trade between the two nations, 
 one of which by Mr. Pigou's hypothesis was superior to the 
 other industrially in everi/thing, far from going on forever, must 
 come to a dead stop after the first pass or two, or more strictly, 
 perhaps, would never get started at all. And when we have 
 analysed the mechanism of the Foreign Exchanges in our next 
 chapter, we shall see that the perpetual continuance of Trade 
 between nations — by means of Gold and the Foreign Exchanges, 
 — when once started, amounts in principle only to the perpetual 
 swing to-and-fro of the surface waves of the sea, but that the 
 deep tidal drift of trade away from one nation and onAvard to 
 another which is going on all the while unseen, depends on the 
 relative strengths of their resj^ective instruments of production, — 
 and on nothins; else.
 
 CHAPTER X. 
 
 FREE TRADE AND PERPETUAL MOTION— 
 
 (Continued). 
 
 THE FOREIGN EXCHANGES. 
 
 X)UT before we can exhibit the way in Avhich the orthodox 
 -^ academical economists utilize the mechanism of the 
 Foreign Exchanges to support the perpetual-motion scheme 
 which is so necessary for their defence of Free Trade, it is 
 expedient that we should close up the back door of escape 
 which they have left open for themselves, and which will to a 
 certain extent require a somewhat different set of considera- 
 tions from those advanced in the preceding chapter. So far 
 we have only answered their general challenge to show cause 
 why, even if one nation is the superior of another in the 
 cheapness with which it can ])roduce any and every commodity 
 of ti'ade, that trade should still not go on indefinitely by the 
 effect on prices of the mere passage of gold between them. 
 But now we have to deal not with this general doctrine, but 
 with the modified form given to it by Stuart Mill, namely as 
 to what will happen when one nation has the advantage over 
 another in the production of every connnodity, but when that 
 advantage is more marked in the case of certain classes of 
 commodities than of others. And as the solution he gave lias 
 been universally accepted by the orthodox economists since 
 his time, and has been brought out afresh by Mr. Pigou as a
 
 296 FREE TRADE AND PERPETUAL MOTION. 
 
 weiipon in the Free Tnide controversy, we must concentrate 
 attention on it for a moment before passing on to our con- 
 sideration of the mechanism of the Foreign Exchanges. Now 
 this modified statement of the doctrine may be justified on 
 the ground that it is more nearly in accordance with the actual 
 facts of the productive capabilities of different nations ; for 
 there is scarcely a nation which has not some industry or 
 industries in which it falls less far behind the industries of the 
 foreign competitor than it does in others ; or to put it more 
 definitely, although one nation may beat another in everything, 
 in some industries it may have, say, 20 per cent., in others 
 10 per cent., and in others, again, only 3, or 2, or 1 per 
 cent, margin of superiority. But this modification, I contend, 
 only complicates the problem without altering its essential 
 principle ; and has the effect only of first enmeshing the minds 
 of the economists themselves in a network of logical subtleties 
 and fallacies, and then of doing the same for their readers. 
 For the object of their demonstration, I need scarcely say, is 
 the same as we saw in the last chapter, namely to get that 
 principle of perpetual to-and-fro movement which is so 
 essential to them in the last resort when they are very hard 
 pressed in their defence of Free Trade. It is necessary, 
 therefore, to close this door of escape before we can proceed 
 further. Now the argument of the Free Traders in this 
 modified form of their doctrine is quite simple, and runs to 
 this effect ; — that where a nation is superior to another in 
 everything, but in different degrees in different commodities, 
 it will pay it better to put the bulk of its capital into those 
 concerns which give it the highest rate of profit per unit on 
 the capital and labour employed, and to leave the rest to the 
 inferior nation to produce, than it would to do all for itself, 
 inasmuch as in this way it " diverts," as Mr. Pigou says, " its 
 capital and labour from a less to a more atlvantageous occupa- 
 tion." And as before, as Mr. Pigou also avers, it is the 
 shipments of gold backwards and forwards which " serve to
 
 THE FOREIGN EXCHANGES. 297 
 
 bring price levels into conformity with this fundanientul 
 circnmstance of international exchange," and so make the 
 trade between the two nations when once started go on 
 indefinitely and without end. Now of this nothing more need 
 be said than that its very statement involves two fundamental 
 illusions which when pointed out will make all further dis- 
 cussion of it superfluous. 
 
 The first illusion is the assumption that the trade between 
 nations is transacted by these nations themselves as units or 
 wholes, instead of by particular individuals in each ; the second 
 is the old assumj)tion that the quantity of capital in each 
 nation is so fixed and inelastic that if it is to be concentrated 
 in certain highly profitable industries, it must to that extent 
 be tvithdrawn wholly or in part from the less profitable ones. 
 
 Now as regards the first assumption, it may seem a harmless 
 -truism to say that when we speak of the trade, for example, 
 between Manchester and London, we do not mean between these 
 cities themselves as entities, but between a certain indefinite 
 number of individuals — merchants, manufacturers, retailers, or 
 what not, — in Manchester, who buy or sell goods to certain 
 other individuals in London. But it is not harmless when we 
 represent International Trade as a trade between the nations 
 themselves as units, instead of being, as it is, simply a trade 
 between certain isolated individuals in each nation who are 
 never two days the same, either in their persons or in the 
 character and amounts of their purchases and sales. For by 
 the image it unconsciously leaves in the mind (and which will 
 be used as a premiss and presupposition for further abstract 
 reasoning;, we are apt unless we are wary to be led into error 
 at the very start. We shall be led to imagine that International 
 Trade is arranged by a number of men sitting like a council 
 around a green baize table, and representing the nations as 
 zoholes, and deciding, as the Free Trade argument tacitly 
 assumes, which industries shall be given over to the foreigner, 
 and which each nation shall keep to itself ; whereas the truth
 
 298 FREE TRADE AND PERPETUAL MOTION. 
 
 is that it is merely a matter of a number of independent 
 unrelated individuals, or groups of individuals, who know little 
 or nothing of what others are doing or intend to do, but who 
 sitting alone in their offices and scanning the trade lists of prices 
 in different countries as they come in, decide, one to give an 
 order to this country, another to that, one to open a manufactory 
 here, another to start a chemical process there, and another 
 again, to open up a mine at some other place, and so on, 
 wherever they see, or think they see, an opening with a fair 
 chance or a certainty of profit. Indeed it is precisely because 
 the trade between nations is a purely individual affair, where 
 each trader is left free to follow his own judgment or inclination 
 without outside pressure, that we have all that rushing into 
 and over-crowding of even the most leo;itimate businesses 
 which is so characteristic of modern trade, — the overbuilding 
 of mills and factories, machine-works, etc., together with all 
 the ups and downs of stock-exchange speculation, over 
 capitalization, gluts, crises, big fortunes, and wide-spread ruin. 
 Whereas, were the trade of a whole nation organized by that 
 nation, as a definite organic unit, under a central representative 
 body, — in the same way as a great American Trust is organized 
 over the whole field of its operations, — no such fluctuations 
 could or would be permitted to occur ; and the orthodox 
 economists being under this illusion may well believe that the 
 nation could, if it wished, retain the lion's share of its trade for 
 itself and throw the leavings to its competitor; and so keep 
 the trade between the two, once started, going on without 
 end. But if we bear in mind that international trade, like 
 the home trade between London and Manchester, is merely the 
 sum-total of a number of trading transactions effected by a 
 number of isolated unrelated individuals, we shall see that 
 there is one thing that these traders will never consent to do,, 
 and that is to let the foreigner keep any industry whatever in 
 which their own instruments of production are superior (and. 
 this Mr. Pigou's hypothesis grants to start with) ; no, not if
 
 THE FOREIGN EXCHANGES. 299 
 
 they drained the rival nation to its last farthing, and the trade 
 between them ceased altogether. .And that simply because a 
 nation trading; with another nation is not a council of men 
 sitting around a table and decidino; which industries shall be 
 pushed and which suppressed, but a number of unrelated 
 individuals merely, each of whom will try and place an order 
 wherever in the world he sees his way to doing it with a profit, 
 however small that profit may be when compared with the 
 profits of other traders in his own nation, in other lines of 
 business enterprise. 
 
 Nor will it be found,— as the hypothesis of the orthodox 
 economists assumes, — that the capital of a nation is so rigid and 
 inelastic a thing, that traders will be prevented, for the want of 
 it, from going into the less profitable lines of business as 
 against the foreign competitor, but will leave them to him on 
 the ground that so much capital has been invested in the more 
 profitable trades that there is not enough left to work the less 
 profitable ones as well. For this doctrine is a relic of the old 
 days of the 'wages fund' theory — which indeed was an offshoot 
 from it — but instead of being buried in the same grave with 
 that theory, it still remains to work havoc with all conclusions 
 of the orthodox Political Economy. For at the present day 
 no business need be starved or o-iven ovei' to the foreio-ner for 
 want of capital, provided always a profit from the investment 
 is a certainty (and this Mr. Pigou's hypothesis assumes) ; if it 
 does starve it is because it is too speculative, shady, or un- 
 certain. It will be time, then, to discuss the eftects of nations 
 trading with each other as nations, and not as individuals, 
 when Socialism shall have nationalized the instruments of 
 production in each country, but not before ; and even then, 
 I apprehend that far from the nation that is superior in every 
 department of competitive industry continuing to trade with 
 the inferior for ever, as the economists imagine, or indeed 
 leaving it anything to trade with, it will, like the Amei'ican 
 Trusts in the case of private industry, give the inferior nation
 
 300 FREE TRADE AND PERPETUAL MOTION. 
 
 a very short shrift. For it cannot be too often repeated that 
 it is only in the complementary products of different nations 
 that trade can be kept up between them, never in the 
 competitive ones, which must fight until one or other is 
 extinguished ; and the very essence of a complementary trade 
 between nations is not, as the hypothesis with which we are 
 dealing assumes, that one is superior to the other in everything, 
 but only in some things, while inferior in others ; and it is 
 the exchange of these complementary products which must 
 keep the trade between the two nations going on indefinitely 
 from age to age. But the orthodox economists by lumping 
 these two opposite things, — complementary and competitive 
 products, — together, as if they were one and the same, have 
 again exhibited that want of analysis and differentiation which 
 characterizes the infancy of a science, rather than the maturity 
 to which the academical economists, in speaking of themselves 
 as ' a committee of experts,' lay claim. ' He shall be a god to 
 me,' says Plato, ' who can accurately discriminate and define.' 
 And if we ask the reason why the orthodox economists have 
 failed in this analysis, we shall find it in the fact that they 
 have yoked their destiny, as I have shown, to a book, 
 professedly scientific, written over a hundred years ago ; and, 
 like Mussulmen expositors of the Koran, have continued to 
 refine on that book ever since in endless subtleties, instead of 
 throwinof the whole of this old caro-o overboard and beginning 
 anew. For now that Evolution is the watchword of all thought 
 whatever, the age of a scientific author in any branch, except 
 perhaps in Theology or Metaphysics, no longer carries with it 
 the hall-mark of authority, but is I'ather a presumption of his 
 incompleteness and crudity. 
 
 I have not, of course, forgotten that with Mr. Pigou and the 
 orthodox economists, the agency by which, in their perpetual- 
 motion scheme, the trade of two countries, once started, will 
 be kept going on indefinitely, is the passage backwards and 
 forwards of gold aftecting the prices of those commodities in 
 
 II
 
 THE FOREIGN EXCHANGES. 301 
 
 which the one nation has a small advantage over the other; but 
 as this brings us back to the effect of the passage of gold in 
 general on prices discussed in the last chaper, my reply is 
 practically the same as that given in that chapter. For if once 
 you allow Mr. Pigou and the orthodox economists to thrust 
 the relative differences in capacity of the inst^-uments of pro- 
 duction, of two nations into the background, and to ignore the 
 difference between the cheapness caused by the possession of a 
 superior instrument of production, and that which comes from 
 defeat, and from the selling of ' remainders ' like a bankrupt's 
 stock, they destroy the living soul of the whole problem ; and 
 it is then easy for them to represent the backward and forward 
 passage of gold between nations — by a little tilting of the 
 exchanges at each end alternately, as of dead water in a trough, 
 — as sufficient to keep the currents of trade moving backwards 
 and forwards between them for ever. But to imagine that any 
 conclusion drawn by thus emasculating the problem of its vital 
 elements can possibly have any value, is as absurd as to imagine 
 that the two rows of trees on opposite sides of a street will still 
 continue to wave their green tops ficross to each other when 
 the roots of one row have been poisoned, or their bark has been 
 rino;ed : or to imaoine that the business of the Stock Exchans^e 
 could continue indefinitely by the mere nods exchanged by its 
 ' bulls ' and ' bears ' with each other across the floor, whether 
 the brokers who exchanged them, or their clients, were men of 
 substance with assets to meet their liabilities, or not. But the 
 strange thing is, why the orthodox economists should have a 
 tendency to believe that because trade is free between any two 
 nations picked out haphazard, there should necessarily be any 
 trade between them at all ; or if so, why when once started it 
 must necessai'ily go on for ever, especially when one is already 
 superior to the other in the production of any and every 
 commodity ; and most strange of all, why this perpetual motion 
 should be accomplished by means of the passage of gold 
 between them — a mere medium of exchange in this connection,
 
 302 FREE TRADE AND PERPETUAL MOTION. 
 
 a symbol and shadow only, as much so, indeed, as bank notes or 
 credits — and not of the vital factors of international trade, 
 which are real commodities, real instruments of production, 
 and the real relations which they establish between each other. 
 Do they imagine that if a country were snowed under long 
 enough, until its manufactures and other instruments of pro- 
 duction were practically ruined and it had become another 
 Greenland, or if its soil were turned into a sand bed, like 
 another Sahara, that its trade could still be kept going by the 
 effect on relative prices of the passing of gold backwards and 
 forwards between it and other nations, just as if nothing had 
 happened to its instruments of production ? When I ventured 
 to assert in an article in the Fortnightly Review on the Free 
 Trade controversy, that if England were to lose her supremacy 
 in manufactures and the shipping trade to-morrow, there was 
 no reason why, if she still persisted in keeping her ports freely 
 open to her trade conquerors, she should not return in a little 
 while to her sheepwalks again as in the Middle Ages, Mr. 
 Pigou, with his perpetual-motion scheme in the background of 
 his mind, scouted the idea as inconceivable under any circum- 
 stances. The passage of gold and the mechanism of the 
 Foreign Exchanges would, according to him and Mr. Sydney 
 Webb, have the same effect on trade as the gold on the ' wappened 
 widow' in Shakespeare's 'Timon of Athens,' and would 'embalm 
 and spice it to the April day again!' If it did, I conceive that 
 the revivified trade would be rather a passage of goods for the 
 relief of distress, sent out as a charity, than a bona-fide 
 commercial enterprise. But why, I ask, this anxiety of the 
 Free Traders to prove that if once Free Trade is established 
 among all the nations of the world, it will irrigate them all 
 alike, whatever may befall i Obviously it is to support that 
 axiom of the common reservoir of wealth in the world, on which 
 the whole Free Trade theory hangs suspended, and which if no 
 flood gates in the shape of hostile tariffs are erected anywhere, 
 must, according to this theory, water all nations alike. And
 
 THE FOREIGN EXCHANGES. 303 
 
 jet if they will keep in mind the distinction I hsive drawn 
 between competitive and complementary products, it will, I 
 think, be apparent that while the trade between nations in 
 •complementary products, — as of the corn of one country for the 
 manufactures of another, its fruits or wines for coal or tobacco 
 or what not, — may go on indefinitely, there is no more reason 
 that a trade in competitive products (and especially when it is 
 admitted that one nation is superior to another in everything) 
 should go on indefinitely, or indeed go on at all, than that 
 there should be a continuous interchange of amenities between 
 rival stags, — in the way of sharing the herd between them, as 
 the economists propose to do with the trade of rival nations, — 
 when once the one has defeated the other in a pitched battle. 
 
 And with this we may now pass on to the consideration of 
 the mechanism of the Foreign Exchanges, on which, along 
 with the passage of gold, the orthodox economists alternately 
 rely in defence of their primal illusion that if the trade 
 between nations were free, it would not only be for the benefit 
 of the world as a whole, but of each and every nation in it. 
 For this mechanism of the foreign exchanges is believed by 
 them to have the same magical efficacy which they attach to 
 the backward and forward passage of gold between nations, 
 and acts in the same way on prices ; namely, by throwing the 
 weight alternately from one nation to another, like our boy on 
 the middle of the see-saw, keeping the prices at each end going 
 up and down alternately, and so the trade going on between 
 them indefinitely or for ever. 
 
 Now the mechanism of the Foreign Exchanges is a simple 
 enough matter in principle, although rather complicated when 
 you have to describe it ; but as all this has been done admir- 
 ably and exhaustively by Mill, Goschen, and the other leadino- 
 economists, I shall refer the reader to these writers for the 
 details of the process, and concentrate only on the practical 
 conclusions which they have founded on it. The essence of 
 the process may be briefly and roughly put as follows ; — If the
 
 304 FREE TRADE AND PERPETUAL MOTION. 
 
 traders, say in England, send a greater quantity of goods, as 
 measured in gold, to Belgium, than the Belgian traders are 
 sendins: to Eno-land, the balance due in gold on the ao-o^reg-ate 
 of the transactions, when like bank cheques they are written 
 off against each other, must be in favour of England. But as 
 the Belo-ian traders who owe this balance will find it more 
 
 CI 
 
 troublesome and costly to ship the gold to England than to 
 send a draft or bill of exchange for it, they are willing to pay 
 a trifle more for the goods they buy, to anyone who will take 
 the risk and trouble of sendino- the o-old, and g-ive them a bill 
 of exchange instead. This function is performed for them by 
 the bill brokers, who will take all the risk, and charge the 
 traders little more for their services than the expense of 
 sending the gold itself, plus their commission. The effect of it, 
 in brief, will be this, that the Belgian traders will have to pay, 
 say, £101 for every £100 worth of goods which they buy from 
 the English traders, so long as the exchange stands at that 
 ratio, Avhile the English traders, on the contrary, will only have 
 to pay £99, say. for every £100 worth of goods they buy from 
 Belgium ; and the question we now have to answer is what 
 effect this ' turn of the exchanges,' as it is called, will have on 
 the trade between England and Belgium. Obviously, that 
 English dealers if they wish to buy an article that is valued at, 
 say, £100 both in England and in Belgium, will give their 
 order for it to the Belgian manufacturer, inasmuch as by taking 
 advantage of this turn of the exchanges they will only have to 
 pay £99 for it. But should the turn of the exchanges between 
 England and Belgium be reversed the following month, say, 
 then the Belgian dealers in turn will give their orders to the 
 English manufacturer, inasmuch as they will get the article in 
 Eng-land for £99 instead of the £100 which thev would have 
 to pay for it at home. Clearly then, in all those competitive 
 articles or products which stand at nearly the same natural level 
 of price in both countries, and where the turn of the exchanges 
 alone can crive to either the small advantaoe it has over the
 
 THE FOREIGN EXCHANGES. 305 
 
 other, a trade between the two countries might indeed go on 
 backwards and forwards for ever, as rival businesses might do 
 where one has the advantage of the incoming and the other of 
 the outgoing tide. But two other things are also equally 
 clear ; the first is, that it is only when the instruments of 
 production of the two nations, in the case of any particular 
 commodity, ai'e nearly equal in power, that the one can get this 
 differential advantage over the other through the turn of the 
 exchanges ; the second is, that this differential advantage at 
 most can never be more than the trifling difference of the bill- 
 brokers' commission, and the risk and expense of sending the 
 gold itself, over and above the expense of sending a bill of 
 exchange. This latter, the orthodox Economists and Free 
 Traders themselves admit, but they have ignored or forgotten 
 the former, and left it out of their calculation ; and hence 
 their argument has no more validity than it would have in the 
 case of a race between two horses. If the horses were so 
 nearly equal in their powers of running that a small hurdle 
 placed before one would give the victory to the other, they 
 might go on running indefinitely without the one beating the 
 other from the field. But if. on the contrary, one was so 
 superior to the other in its racing powers that it could be 
 handicapped with the hurdle, and still beat the other, the 
 racing matches between them would come to an end. It is 
 the same with International Trade. If one nation is nearly 
 equal to another in its powers of production of any given 
 commodity, the small hurdle of the foreign exchanges may 
 suffice to keep trade going on indefinitely between them in 
 that commodity, but if the one is so superior to the other that 
 it can take the hurdle and still beat the other in cheapness, 
 trade between them in that commodity must cease ; and if, 
 (as Mr. Pigou's hypothesis assumes), the one is superior to 
 the other in the production of all conmiodities, all trade 
 between them must cease, just as the trade of the world with 
 Greenland is practically non-extant; and no hocus-pocus, either 
 
 w
 
 306 FREE TRADE AND PERI'ETUAL MOTION. 
 
 of the passage of gold between one and tlie other, or of the 
 turn of the exchanges between them, raising prices in the one 
 and depressing them in the other, will avail to stave off — 
 beyond the pass or two required to test their relative strengths, 
 or to sell off the bankrupt stocks. — the inevitable end. With 
 all complementary products, on the contrary, — as distinct from 
 competitive, — it is quite different as we have seen ; for with them 
 international trade can be depended on to continue backwards 
 and forwards (as long as any of the complementary product is 
 left) for an indefinite time, — as is seen, for example, in the 
 trade in furs with the Hudson's Bay Company. And there 
 can be no doubt, I think, that it is to the fact that the orthodox 
 Economists have not separated out these complementary 
 products from the competitive ones before they started on their 
 quixotic enterprise of demonstrating to us what stupendous 
 effects on international trade the passage of gold and the turn 
 of the Foreign Exchanges w^ill have, that their fallacies on this 
 important problem are due. 
 
 From the above considerations it will, I think, now' be 
 evident that the stronghold on w^hich the orthodox economists 
 have been most accustomed to rely in their defence of Free 
 Trade, — and in proof of their doctrine that as it Avould increase 
 the wealth of the world as a whole it must necessarily benefit 
 each particular nation in it, — is the weakest of reeds on which 
 to stake the issue of a problem so momentous for any nation as 
 that of Free Trade or Protection. And yet so great is still 
 the prestige of this old stock-in-trade fallacy of the effect of 
 the passage of gold and the turn of the Foreign Exchanges in 
 keeping International Trade, when once started, going on forever, 
 (for it would be fatal to admit that trade could come to an end 
 through any one nation being vanquished by a rival nation 
 because it kept its ports open, inasmuch as that would be a 
 standing proof that what was for the benefit of the world as a 
 whole was not necessarily for the benefit of each nation in it) ; 
 — so great is the prestige of this doctrine, that it has unduly
 
 THE FOREIGN EXCHANGES. 307 
 
 biased the judgment even of Mr. Hobson — one of the most 
 wary, far-sighted, and free from iUusions, of all those who have 
 made Political Economy a specialty — in the direction of Free 
 Trade. 
 
 Having now passed under review the different arguments by 
 which Free Trade is usually supported in the works of the 
 Orthodox Economists, and the diluted echoes of them from the 
 mouths of the parliamentary politicians with which the news- 
 papers resound ; having seen that they rest primarily on the 
 doctrine that what is best economically for the world as a 
 whole is necessarily best for each particular nation ; having 
 seen, too, that this doctrine, in turn, rested on the illusion of a 
 common reservoir of wealth which if all tariff barriers were 
 removed, would, like a fertilizing stream, water all nations 
 alike, instead of each having its own private reservoir on which 
 alone it can rely, and which depends on the number and 
 strength of the instruments of production — in the shape of 
 land and other fixed capital — which it has secured for itself; 
 having seen, further, that this illusion of a common reservoir is 
 the direct result of the lumping together of the competitive 
 industries engaged in international trade, with those that are 
 complementary to each other, and then treating them as if 
 ■both were additions to the wealth of each nation, instead of 
 separating them and seeing that while competing industries are 
 warlike in character, and, like rival stags, destroy each other 
 (barring always the conqueror, who now can reign supreme), 
 •only the complementary ones are peaceful, fruitful in nature, 
 like the opposite sexes, and beneficent to all nations alike ; — 
 having seen all this, and seen further that the prosperity of 
 International Trade when once it is started is, in the opinion of 
 the Free Traders, ultimately fixed and made permanent and 
 secure by the eflfect on prices of the gold that passes and 
 repasses between nations through the mechanism of the Foreign 
 Exchanges, and that their arguments on this head are not 
 merely analagous but identical with the illusions of the
 
 '608 
 
 FREE TRADE AND PERPETUAL 3IOTION. 
 
 perpetual-motion schemer; — having seen all this, I say, and 
 that it all rests on a basis of old-world thoug^ht engendered in 
 the infancy of Modern Industry (and indeed even before its 
 infancy) by Adam Smith, and as exploded to-day in all else 
 save this of Free Trade (which, indeed, has only been kept 
 alive owing to the saving industrial supremacy among all 
 nations of one highly favoured nation through a long series of 
 years, but now admittedly narrowing on every side and aspect 
 to its close) as is the old Ptolemaic Astronomy : — we may now 
 pass to those related aspects of the problem of Free Ti-ade and 
 Protection which bring it into touch with the problems of 
 general Civilization, of Politics, of Sociology, and of Morality, 
 in which it must ultimately have its roots, but which since 
 Political Economy as a science has been narrowed down to an 
 academic specialism, have been cut away from it, and entirely 
 divorced from it. These we must now proceed to re-unite 
 with it, if the full round of the arguments bearing on this 
 problem of Free Trade and Protection, as opposite principles of 
 policy, are to be presented in their entirety before any nation 
 for its acceptance or rejection.
 
 CHAPTEE XI 
 
 FREE TRADE AND MORALITY. 
 
 TN the present chapter, and before proceeding to sum up the 
 relative bearings of Free Trade and Protection on the 
 interests of general Civilization, it is necessary to say a word 
 or two on the moral aspects of the problem, in answer to the 
 general question as to whether there is or ought to be any 
 difference between the morality that is proper to a particular 
 nation at a particular stage of economic development, and 
 occupying a definite place in the progress of civilization, and 
 the morality that is proper to man as an individual at any 
 stage of political, social, or economic development, — the ideal 
 morality, in short, which has found its classic expression in the 
 Sermon on the Mount, but which nations as political entities 
 have generally agreed is only to be practically realised in some 
 future millennial time. Now this question, far from being of 
 the nature of an interpolation, grows naturally out of the 
 discussions in the foregoing chapters, and may be more properly 
 formulated, perhaps, as follows ; — why, having already given 
 reason for believing that a universal Free Trade would be best 
 calculated to increase the wealth of the world as a tvhole when 
 once the world has become a single political unity, — however 
 much any particular nation might, owing to its inferior powers 
 of production, be distressed or even ruined by it ; — why on 
 ethical grounds, it may be asked, not support a policy of Free
 
 310 FREE TRADE AND MORALITY. 
 
 Trade, even if attended by an economic loss to one's own 
 particular nation ? My answer is simple, and it is this, that sa 
 long as the nations of the world exist as separate political units,, 
 their purely economic interests must always be subordinate to 
 their national independence and integrity ; but as the economic 
 prosperity of each of them is the main pillar and defence of 
 that integrity, it cannot be sacrificed to an economic policy 
 which might be admittedly best for the world as a single 
 political whole, without doing a real injustice to the nation 
 itself in the strictest ethical interpretation of that term. On 
 the other hand, when once the world shall have become a 
 single political unity, — where all nations alike are the friends 
 and brothers of all, — purely economic grounds need alone be 
 considered ; and the economic policy of the world can then be 
 organized on these purely economic grounds alone, without 
 injustice, fear, or afterthought. Or, to put it differently, the 
 game, if we may call it so, which is being played by a world 
 made up of definite independent political units called nations, 
 is a different one from that Avhich would be played if the 
 world were a single political whole ; and the cards in conse- 
 quence will not only have different values in the two cases, but 
 will have to be played under different moral rules, and to be 
 handled in a ditierent way. And the inference from this,, 
 again, is that there is no reason whatever why a nation should 
 not carry out a high ideal of political morality, provided always 
 that it can see its way to safeguard at the same time its 
 economic interests ; as, for example, was the case with England 
 during practically the whole of the last century, when her un- 
 rivalled industrial and mercantile supremacy made it possible 
 for her to indulge her philanthropic moral propaganda of a 
 Free Trade between all nations, — with herself leading the 
 way, — while not merely not lessening her wealth, but actually 
 increasing it. I insist on this the more strongly, because 
 having now passed under review the main considerations 
 adduced by the orthodox economists in support of Free Trade^ 
 
 A
 
 FKEE TKADE AND MORALITY. 311 
 
 and found them wanting, 1 am anxious to remove out of the 
 way as well, all false ethical preconceptions bearing on our 
 supposed duties or obligations to the world as a whole, or to 
 other nations, before entering on the final stage of my argu- 
 ment which will be to show that in the present stage of 
 civilization, and indeed until the millennium arrives and the 
 world has become a political unity, Protection under one or 
 other form is in every way, politically, economically, and 
 morally, both the right and the necessary policy for all 
 nations ; save only in the excej)tional cases where a single 
 nation or a circle of complementary nations shall have been 
 enabled by the superiority of its, or their, instruments of pro- 
 duction, — like the supreme stag of each herd, — to drive all 
 competitors in the same line from the field. I am quite willing 
 to admit, however, that there is no reason why a nation in its 
 economic policy should not take a high abstract cosmopolitical 
 ideal as its standpoint, rather than the apparently lower and 
 more selfish national one, provided always that it realises 
 precisely what it is that it is doing; for, in a sense, there is 
 nothing good or bad but thinking makes it so ; no more reason 
 why it should not do so than why it should not attempt, like 
 the early Christians, to organize the State on the principle of 
 having ever3'^thing in common ; or like the Buddhist ascetics, 
 or the Christian monks of the first centuries, of reducino- the 
 wealth of the nation to a minimum, in order the better to live 
 in a kingdom of the spirit ; or like the Chinese, of living in 
 the social and moral ideals of Confucius and the sages, to 
 the disparagement of the military virtues — even should that 
 political ideal, end, as it threatened to do (before the rise of the 
 .Japanese to supremacy in the East) in the carving up of their 
 nation into spheres of influence for the Western nations, and 
 the consequent destruction of the stability of their own proper 
 civilization. There is no reason whatever, why a nation should 
 not follow a cosmopolltical ideal rather than a national one, any 
 more than that for the sake of a universal peace, which would
 
 312 FREE TRADE AM) MORALITY. 
 
 benefit the world economically as well as morally, it should not 
 follow Tolstoi and the Quakers and disband its army, dismantle 
 its fortresses, throw away its arms, and sell its ships of war for 
 old iron. No reason whatever ; provided the ambition to see 
 your own country strong and great, fearless, independent and 
 free among the nations is nothing to you, or provided that the 
 high concrete ideal of practical justice and morality which 
 England as a nation carries with her to all the peoples over 
 whom her flaii; waves, — not onlv to the advantage of inferior and 
 less advanced nations, but as a far-shining example to the 
 whole world, — is nothing to you ; — a justice and an example, be 
 it said, which of its kind is the most perfect flower of civiliza- 
 tion yet realised, but which, were the material power and 
 economic resources on which it rests broken or destroyed, and 
 England in consequence wiped out of the high circle of 
 nations, would be as completely effaced over lai'ge tracts of 
 humanity, as the arts and sciences of Greece and Rome were 
 for centuries after the Barbarians had concpiered the Empire 
 in war. Nor, again, would it matter that a nation should study 
 the economic interests of the world as a whole as a higher 
 moral ideal than studying its own exclusively, provided that it 
 can make up its mind to seeing its capital and wealth drifting 
 away to foreign nations, as they are successively driven out of 
 one industry after another by foreign competition ; and, what 
 is morally of more concern, is prepared to see the workmen 
 engaged in these trades, who of all others have the first claim 
 on a nation's protection (inasmuch as having been deprived of 
 the instruments of production by the capitalists, they are help- 
 less to protect themselves), dismissed in batches as so much 
 dead stock, or ' scrapped ' like useless machinery, so that they 
 must either find other trades which are still alive, to absorb 
 them, or (as that is impossible owing to the highly specialized 
 and differentiated nature of all modern industries, and to the 
 technically restricted capabilities of the separate workmen) be 
 compelled to emigrate, — and if they i-efuse, be told to go into the
 
 FREE TRADE AND MORALITY. 313 
 
 workhouse or starve. But we may go farther and say, that 
 there is no reason why the leaders of a nation, and those who 
 formulate its political and economic creed, should not try and 
 realise their economic ideal of what is best for the world rather 
 than for their own nation, provided they frankly and honestly 
 avow it as their ])rinciple of policy on every platform, so that 
 the nation itself is not misled, instead of getting a national 
 sanction for their ideal under cover of its being best for the 
 •economic welfare of the nation itself ; otherwise, while playing 
 their cards according to the rules of one game, they are 
 professing to play them by the rules of another ; — they are in 
 fact really playing a cosmopolitical game, and not a national 
 one, — quite a different matter. If this course were scrupu- 
 lously adhered to, and it Avere openly announced by the Free 
 Trade leaders everywhere, that their principle and their policy 
 were for the best economic interests of the world as a whole, 
 even if they were not best for their own particular nation, can 
 the result of their appeal be doubtful ? I apprehend not ; for 
 if the history of the world and of life have taught us any- 
 thing it is this, that with however single-minded a devotion 
 individuals may fight for a cause which is to redound to the 
 greatest good of the world as a whole (with all honour and 
 credit to them be it said), no nation in its corporate capacity 
 as a nation can or will fight for any economic good, as such, 
 that is not primarily to its own advantage, however eager and 
 willing it may be to sacrifice its economic interests where its 
 religion or its national honour and integrity are concerned. 
 And hence, for a principle of Free Trade which is to have as 
 its primary end a cosmopolitical and not a national benefit, 
 frankly and openly avowed, I can anticipate in the present 
 stage of the world a following like that of Tolstoi and the 
 Quakers, but little more. I have mentioned this aspect of the 
 moral problem here, because I have not forgotten how at the 
 time of the Free Trade controversy Mr. Hobson, whose defence 
 of Fi'ee Trade was largely prompted by his sympathies with
 
 314 FREE TRADE AND MORALITY. 
 
 this cosraopolitical point of view, had both the penetration and 
 candour to admit that from a national point of view there was 
 no security whatever under a regime of Free Trade that both 
 capital and labour under the stress of foreign competition 
 should not be compelled to migrate from the soil of their own 
 home. The surprise expressed at Mr. Hobson's attitude by 
 his followers, was doubtless owing to the belief which was 
 almost universally held by Free Traders and Protectionists 
 alike before the appearance of the article in the Fortnightly in 
 which I ventured to give reasons for believing the contrary ; — 
 the belief, namely, that if Free Trade were made universal 
 to-day it would not only be best for the world as a whole but 
 for each individual nation in it. But the incident suggested 
 to me two things specially ; — firstly, the large number of 
 individuals there are in all Christian communities who, like 
 Mr. Hobson, are sincerely prepared to carry out the millennial 
 ideals involved in their doctrines in the most thorough-going 
 way, not only at their own expense but at that of their nation, 
 even in things economical purely ; and secondly, of how 
 morally important it is that when they feel so, they should 
 follow tlie example of Mr. Hobson and frankly and openly 
 avow it. I am aware, of course, that besides the cosmopolitical 
 standpoint which Mr. Hobson adopts in his defence of Free 
 Trade, he has reinforced his position from purely national 
 considerations as well ; and that his opinion is, that although 
 capital and labour would gradually and insensibly steal away 
 from a country under a regime of Free Trade, as tliey were 
 driven out of its open markets by the competition of foreign 
 nations with superior natural resources, they would do so all 
 the same, but even more promptly and inevitably, under a 
 regime of Protection, owing to the waste of national resources 
 and the consequent decline of effective economical fighting 
 power which all tariff walls and obstructions involve. Now, 
 although I am as prepared to admit this as the most extreme 
 Free Trader — indeed that is why I have contended that Free
 
 FREE TRADE AND MORALITY. 315 
 
 Trade would be best for the world as a whole if the world were 
 a single political unity, — I nevertheless deny that at the present 
 stage of the world's industrial development an absolute Free 
 Trade would yield as great an aggregate of wealth for any 
 nation as a judiciously regulated Protection, when the 
 economic advantao-es and disadvantag-es of each are balanced 
 against one another ; — and in the following chapter 1 shall 
 adduce the main considerations that have justified me in 
 upholding this view. 
 
 But for the present, having in the foregoing chapters given 
 reasons for rejecting the main contention of the orthodox 
 economists, that a universal Free Trade that is for the best for 
 the world as a whole is necessarily the best for each particular 
 nation, it is necessary that I should call attention for a moment 
 to the reasons which have driven Mr. Hobson and myself into 
 opposite camps on this problem of Free Trade and Protection, 
 in spite of our agreement on the central position ; as they are 
 important in throwing light on the profound effects on men's 
 practical conclusions of any difference in their general attitude 
 towards, or method of approach to, a speculative problem. Mr. 
 Hobson comes to this problem mainly, as I have said, from 
 the cosmopolitical point of view ; I come to it mainly from 
 the national one. He sees that Free Trade would be best 
 economically for the world as a whole, if the problem were to 
 be treated as a purely economic one ; I agree, but deny that it 
 would be best, even economically, for any nations but the few 
 supreme ones (and so long only as they are supreme) at the 
 present time, and assert, on the contrary, that it will only be 
 best economically under the political conditions proper to the 
 millennial time ; and that, — as I shall presently give reasons for 
 holding, — Protection is the best for nations, as separate individual 
 nations, at the present time not only economically but politically. 
 And these differences, again, between us depend mainly, I 
 think, on his having approached the subject primarily from the 
 statical point of view, at once of an economic specialist and a
 
 316 FREE TRADE AND MORALITY. 
 
 moral idealist, whereas I have approached it from the dynamical 
 point of view of a student of Civilization and Sociology working 
 on evolutionary lines, and from the social, moral, political, and 
 economic opportunism which is proper to this dynamic and 
 evolutionary point of view. But as in the first chapter of this 
 volume I have given reasons for believing that none of the 
 special sciences dealing with humanity, — of which Political 
 Economy is one, — can be approached with effect statically 
 and from within themselves as it were, but must be approached 
 dynamically and from the wider region of Sociology and 
 Civilization lying beyond and outside them, I am of opinion 
 that in spite of the rare powers of penetration and analysis 
 which Mr. Llobson has brought to the science of Political 
 Economy in general, and of this problem of Free Trade and 
 Protection in particular, his view on this most important of all 
 practical economic problems is erroneous. 
 
 With the above general observations on the moral importance 
 of not mixing up antagonistic standpoints in discussions of this 
 kind, but of keeping each rigidly to its own proper subject- 
 matter, it is now incumbent on me to show cause why, from 
 the standpoint of Evolution which is the one adopted in this 
 work, Protection (with the exception already mentioned) is a 
 better policy for the nations of the world in the present stage 
 of civilization, than Free Trade.
 
 CHAPTEE XII 
 
 FREE TRADE versvs PROTECTION. 
 POLITICS AND CIVILIZATION. 
 
 ^f^HE first position I am anxious to advance in this important 
 -^ controversy is this, that the millennium of a universal 
 Free Trade which is the ideal and consummation of economic 
 powers and opportunities, and in which all the nations united 
 as brothers shall co-operate in the work of each, and each in 
 that of all, will be hastened rather than retarded by each nation 
 in the meantime, and as preparatory to it, dev<iloping its own 
 resources to the utmost, precisely as if no other nation but 
 itself existed in the world. And this it can do only by pro- 
 tecting at all costs those instruments of production, — whether 
 its land, its mines, its natural products, its special manu- 
 facturing capabilities, its facilities for transport, or what not, — 
 which, as we have already seen, are its permanent economic 
 assets, its very life blood in short, and which, like Othello's 
 handkerchief, to barter, part with, or give away, 'were such 
 perdition as nothing else could match.' And the reason 
 is obvious. For the difference between thus protecting its 
 own patrimony, and throwing it open to the incursions of all 
 the world as Free Trade would do, would be economically the 
 same as between enclosing the separate fields of a farm by 
 fences, and throwing them open like a public common for 
 horses and cattle, wayfarers, holiday makers, and robbers, all
 
 ^18 FREE TRADE rerSMS PROTECTION. 
 
 alike to enter and destroy, or to pluck up by the roots what 
 had been sown or planted, before they had time to grow and 
 ripen. It would be the same as the difference between a social 
 regime of separate marriages with their children and homes, 
 where the virtues and strengths of each individual member are 
 nurtured, protected, and developed to their highest possible 
 extent, and casual temporary alliances and promiscuities where 
 the growing germs of virtue, with all the elemental passions 
 blowing through them as on a wind swept plain, are reduced 
 to a mere waste and anarchy, without any definite morality or 
 rule of life at all. In a word, the difference is as the difference 
 between the method of Nature herself, and the temporary 
 theories of man. For if there is one thing more certain than 
 another in the general ground-plan on which the world is 
 constructed, it is the determination that each race of creatvu*es, 
 as well as the different races of mankind, shall be protected in 
 its own individuality by all the exclusive agencies in the 
 defensive armoury of Nature — sexual selection, physiological 
 selection, prepotency, mental, physical, and sentimental repul- 
 sions and affinities, national and racial self-centredness, etc., — 
 whereas the mere humanitarian theoi'ies of abstract philosophers 
 would, as we have seen since the days of Rousseau and the 
 French Revolution (and with the disastrous results which are 
 now only beginning to be felt), mix you up races of men of all 
 countries, colours, and climes, — Hottentots and Indians, Chinese 
 and Europeans, Jews and Gentiles, — to let them prey on each 
 other in the bosom of every community, under the wide canopy 
 of what these humanitarians love to figure as a higher and 
 nobler ideal ; and with as much nonchalance and indifference, 
 as they would look at the mixing and seething of herbs in a 
 pot. And if we consider it, so long as the nations of the world 
 are in that stage of civilization where they are determined to 
 protect their own nationalities, as separate political units, at all 
 costs, the very thought of allowing their economic instruments 
 of production, on which alone they can rely for the protection
 
 POLITICS AND CIVILIZATION. 319 
 
 and preservation of their national integrity and individuality, 
 to be overrun, destroyed, or carried off by the invading Attilas 
 and Alarics of other nations, by throwing down their economic 
 defences and openly inviting them to come in, would, were it 
 not for the doctrinaire abstractions with which men have veiled 
 their sight, be seen at once to be a stultification and madness. 
 This policy, if made universal to-day, would not only wipe out 
 these instruments of production as effectually, — for all nations 
 except the few who should succeed in conquering the rest in 
 their own lines of work, — as if a hurricane had passed over 
 them ; but it would strangle at their birth, and before they 
 had time to grow to industrial maturity, those younger nations 
 to whose great but undeveloped natural resources we mainly 
 look for the future economic wealth of the world, as the soils 
 and mines of the older nations are one by one exhausted. 
 That this is no imaginary picture of what would happen has 
 already been practically demonstrated in the case of the other 
 nations of Europe, Asia, and America, when, during the last 
 century England was at the height of her manufacturing 
 supremacy. Each of these nations in turn tried to get a foot- 
 hold for its own infant manufactures by admitting English 
 manufactured goods free, but they were so summarily snuffed 
 out one after the other, that these nations w^ere all obliged to 
 put up their tariff walls again for their own protection, — and 
 even their very existence. 
 
 And this leads me to the second position I have to maintain, 
 which is this ; — that in the present stage of the world and 
 of Civilization, Protection is capable of yielding not only a 
 greater amount of aggregate wealth for the world as a whole, 
 but a greater amount for each individual nation, than Free 
 Trade. Now in laying down this proposition, I am only 
 bringing the science of Economics into line with Politics, 
 Ethics, and Sociology : in all of which it is generally conceded 
 that in the present stage of civilization, the existence of 
 separate nationalities (founded on those historical, racial.
 
 320 FREE TRADE versus PROTECTION. 
 
 political, religiovis, moral, and social affinities which in their 
 combination constitute that unique something which is summed 
 up in the term nationality) is more calculated to further the 
 ultimate ends of Civilization, than the unequal combinations 
 held down by force, and called empires, which have been the 
 result of mixing races too antagonistic in permanent sentiment 
 to do aught but gird at each other and show their teeth, and 
 so to debase and neutralize each other's moral currency when 
 planted together on some common area of political soil, — this 
 primal curse of civilization which even to-day, nations, from 
 pure tradition and ignorance, still indulge themselves in 
 encourao;inof, as if it were one of the rarer and more commend- 
 able forms of Christian charity ; and that too with the spectacle 
 of the American Negro problem, the Magyar, Polish, and 
 Slavonic-Austrian problem, the Irish problem, and the South 
 African Kaffir and Chinese problem before their eyes, with 
 their tales of lynchings and massacres, and refusals to do black 
 men's labour ; and in spite of the fact that they have as much 
 difficulty in extracting a grain of the very ends for which all 
 politics and civilizations exist, — namely social justice, morality, 
 peace, goodwill, humanity, and mental culture, — as in extracting 
 the grains of gold out of a mass of quartz. And yet this 
 stultification is what the politicians of all countries are engaged 
 in promoting, or at best are not actively discouraging, to this 
 very hour. Now it is the same with a Political Economy 
 which would encourage the struggles, the uncertainties, the 
 closings down of mills and workshops, etc., which a imiversal 
 Free Trade, with its open markets, would involve at the present 
 stage of the woi'ld, when separate political nationalities are all 
 engaged on the supreme object of jealously guarding their 
 independence when acquired, and of acquiring it when it has 
 not yet been attained. It is true, of course, that in the eminent 
 successful instances of world conquest by single Imperial 
 powers, — as of the Eastern nations by the Greeks, of the West 
 by the Romans, of the Indies by the English, and even in the
 
 POLITICS AND CIVILIZATION. 321 
 
 over-i'uuning of the greater part of Europe by the emissaries 
 of the French Revohition under the early Napoleonic regime, 
 — a fertilizing deposit of the higher political, social, and 
 humanitarian virtues which civilization exists to realise, was in 
 each instance left behind, — a deposit which was not altogether 
 lost even in the East until the Mahommedan conquests, and 
 which was not lost at all but on the contrary was absorbed and 
 appropriated by the Barbarian invaders of the West, while 
 even the fertilizing rains of the French Revolution, remain 
 as permanent possessions for modern Europe in spite of all the 
 reactions since Napoleonic times; — and as for the English 
 conquest of India, it has been so far productive of nothing but 
 benefit, and with a minimum of disturbance or drawback, if any, 
 for the Indian people. In saying all this I shall perhaps be felt 
 to be injuring my cause — namely, my attempt to assimilate 
 the laws of Political Economy with the course of Civilization 
 — by making the success of these invasions of the separate 
 nationalities of the world by the greater Imperial potentates, 
 not only a standing contradiction to my advocacy of a national 
 as distinct from a general or cosmopolitical standpoint, but a 
 direct incentive to the very Free Trade which I am condemning. 
 And yet if we stop to consider what it was that these successful 
 world-empires and imperial dominations really accomplished, 
 we shall find that they gave the subject nations which owned 
 their sway coniplementary rather than competitive ideas, — if I 
 may venture to use in speaking of Politics, for the purpose of 
 marking a real distinction, the same terminology which I have 
 used in Political Economy. And as we found that in economics, 
 competitive products annihilate each other and are a deduction 
 and loss, whereas complementary products are an addition and 
 gain : so in the Grasco-Roman and other imperial civilizations, 
 the only elements which proved fertilizing, progressive, and 
 permanent additions to the existing stock of civilization were 
 those which were complementary and could be assimilated by 
 affinity, not those which were competitive and which could only 
 
 X
 
 322 FREE TRADE versUS PROTECTION. 
 
 have gained a foothold by entirely breaking up the existing 
 organization of the different peoples. The Gra;co-Roman 
 civilization brought to the conquered nationalities, order, 
 even-handed justice, and peace, a greater range of abstract 
 knowledge, and a higher scientific jurisprudence, all of which 
 being complementary and easily assimilated, could and did bear 
 fruit at once. It was the same with the higher elements of 
 civilization which the English carried with them to India, and 
 with the secular science which the Japanese have accepted 
 from the Western nations. A new religion, on the other hand, 
 is a competitive idea, and will be instinctively resisted by force 
 by every nation in proportion to the strength of its purely 
 national sentiment ; for if once invited to enter in freely, it 
 will as surely, though silently and unseen, eat out a nation's 
 distinctive civilization — root, trunk, branches, stems, and 
 leaves — as a colony of white ants will a decaying tree ; — as 
 Christianity did that of the Pagan Grjeco-Roman world, 
 Mahonunedanism the Eastern Christian world, and as the 
 religion of Liberty, Fraternity and Equality of Rousseau which 
 the French Revolution carried throughout Europe, is doing 
 for the Christianized Feudalism of the Middle Age Barbarian 
 nationalities erected on the ruins of the Roman Empire. 
 
 If, therefore, the nations of Europe and the ^Yest, and of 
 Asia and the East, wish to retain intact the essential elements 
 of their nationality and civilization, let them beware of 
 permitting the free entrance and propaganda of each others' 
 religions, and especially of the dogmatic theological systems in 
 which these religions are embodied ; for although the essential 
 spirit of the highest religion is a complementary product, and 
 can be assimilated anywhere and everyvs^here with nothing but 
 benefit to general civilization, the theological formulas which 
 are bound up with it are antagonistic and competitive in their 
 essential nature, and are as poisonous to the life of other nations 
 which embrace them, as is the mixing the different peoples 
 themselves on the same areas of political soil.
 
 POLITICS AND CIVILIZATION. 323 
 
 Now, it is precisely the same with that side of civilization 
 which deals with the purely economic policy of nations, except 
 that it works its effects through material instruments of pro- 
 duction and material wealth, and not through the earlier forms 
 of brute force and conquest, or the more insidious mental and 
 spiritual forces of philosophies and religions. And therefore, 
 if a nation which desires above all things to preserve its 
 distinctive nationality in freedom, dignity, independence, 
 power, and influence among the other nations, is at the same 
 time prepared to risk all on a single hazard, no shorter cut can 
 be found to it than to stand boldly forth and proclaim to the 
 world its intention to open its ports freely to the products of 
 all nations, inviting them to do the same. If they accept, and 
 the nation in question Is i<iipreme in some one or more great 
 departments of world-industry, it will win, and if all its powers 
 are already concentrated and organized for the attack, will 
 overrun the other nations and extinguish their competing 
 industries like a conquering host ; if, on the other hand, it is 
 supreme in nothing, but mediocre in all, its circle of rivals 
 will bombard it, each from its particular vantage ground of 
 supremacy in this or that department of industry, and reduce 
 its mills, factories, vineyards, and soil, to extinction and 
 desolation, precisely as in war. But either way, a universal 
 Free Trade would bring nations to the death-grapple at once, 
 and if inaugurated to-morrow Avould so quickly alter the 
 industrial map, that many of them, prosperous and dignified 
 to-day, would within a decade or two be reduced to mere 
 geographical expressions ; and only the few nations supreme in 
 those lines of work which are complementary to each other, 
 would survive to bulk themselves out in the world's admiration 
 and esteem. On the other hand, if none of the nations are 
 willing thus to ' try a fall ' with all and sundry at close quarters 
 and at short notice, their best policy is to trust to Protection 
 to preserve and develop their own instruments of production ; 
 doing the best they can for themselves meanwhile by ' treaties
 
 324 FKEE TRADE versus PROTECTION. 
 
 of commerce ' and the like, — just as the nations in the military 
 ages used to do when uncertain of the issue of war, by mutual 
 diplomatic combinations carefully calculated to preserve what 
 they called ' the balance of power,' — until the time shall arrive, 
 if ever, when they think they can step into the arena again, 
 and contest the palm of supremacy on their own account by 
 proposing a regime of universal Free Trade. Now this is 
 precisely what the stage of civilization in which we are living 
 theoretically demands as the best existing policy for nations ; 
 and practically it is just what the nations are now doing. But 
 this policy is not so much the result of economic penetration 
 on their part, as of sharp and bitter experience. Led astray 
 by the prestige and authority of the writings of Adam Smith, 
 and by the universal consensus of the long file of succeeding 
 academic economists, they allowed the success of England 
 under her Free Trade regime to dazzle and blind their sight, 
 and determined that they, too, would see what they could da 
 by keeping their ports free. One nation after another accord- 
 ingly, undeterred by the failure of its predecessors, tried the 
 experiment in turn, but their incipient manufactures were so 
 promptly wiped out by the influx of English goods driving 
 their own out of the market, that they were fain to put up 
 their tariff barriers again at the earliest possible moment. And 
 indeed until this hour, and as I write, so great is the essential 
 supremacy of England in so many and so various departments 
 of industry, so great is her potential capacity — from her manifold 
 natural resources in so many different lines of industry, 
 ranging from the coarsest to the finest grades and qualities in 
 each kind, — that were a universal Free Trade between the 
 nations proclaimed to-morrow, many of their furnace fires 
 would be blown out, and their workshops, factories, and mills 
 would have to close down again, as they were obliged to do 
 during the last century. The nations know it, and pile up 
 their tariff barriers higher and ever higher accordingly. So 
 that the question now becomes ; — how would the account have
 
 POLITICS AND CIA'ILIZATION. 325 
 
 Stood between Free Trade and Protection to-day, so far as the 
 existing amount of wealth in the world is concerned, had the 
 nations persisted in a policy of Free Trade instead of Pro- 
 tection ? The answer, I think, cannot be doubtful. For had 
 they done so, with English industry standing over them, like 
 a conqueror with drawn sword, and ready to spring on them, 
 the immense potentialities of wealth lying latent in America, 
 Germany, France, Belgium, Russia, and the rest, all of which 
 have since reached such imposing dimensions, would have lain 
 undeveloped, and as unable as paralytics to make a move 
 towards realizing themselves in actuality. And the reason is 
 quite simple. For in a regime of Free Trade, the quotations 
 of the world-market price of any article determine and limit 
 the number of competitors in any and every nation who can 
 enter the arena to compete, as a world-championship does in 
 sport ; and not an acre of land dare be cultivated, or a mill, or 
 factory, or mine, be opened, however much potential wealth 
 may be latent in them, unless its proprietor sees his Avay to 
 enter this world-market as a producer at the current market 
 price, while this regime lasts. In protected nations, on the 
 contrary, the market, although more restricted, is, like the 
 purely national sport championships, open to a greater number 
 of competitors ; and those nations who were daunted under 
 Free Trade, can now pluck up courage and make a beginning 
 at least in opening u}> those resources and utilizing those 
 instruments of production which would otherwise have lain 
 undeveloped and unused. If the area of competition is still 
 further restricted, the competitors will still further increase in 
 numbers, and, as a consequence, still more natural resources 
 will be opened up, until you get down to the village cabbage 
 garden, which might have remained a piece of uncultivated 
 €ommon, had not the cheaper produce of a neighbouring town, 
 owing to distance and expense of carriage, been prevented from 
 competing with it in the village market. Now the fact that 
 statically, or at any given point of time in the revolution of
 
 326 FREE TRADE VerSHS PROTECTION. 
 
 the wlieel, the production is limited, restricted, and determined 
 by market price, and neither by actually existing money capital, 
 nor yet by the potentialities of wealth everywhere lying in 
 men's brains or in the soil under their feet — or in other words 
 that the production of wealth is limited by ' exchange value ^ 
 and not, as it should be, by ' utility value ' — has the most far 
 reaching consequences in practice. Of all the false and mis- 
 leadinp- doctrines of the orthodox Economists which we have 
 passed under review, there is none which is more far-reaching 
 in its effects than this, where after throwing down their 
 distinction between ' value in use ' and ' value in exchange ' 
 they have left it there, without making any attempt to relate 
 the two to each other in such a way that the one can be sub- 
 ordinated to the other for the practical end which the science 
 of Political Economy has in view. And as this end is clearly 
 the production of the greatest possible amount of wealth for 
 the Avorld as a whole and for each nation in it, or in other 
 words the greatest amount of ' use values ' ; and as we have 
 just seen that the 'use values' are restricted rather than helped 
 by the mechanism of the market, which makes price, or 
 ' exchange values,' the measure of production of Avealth ; it is 
 evident, is it not, that unless some practical policy can be 
 devised which will give to ' use value ' the control over market 
 or ' exchange value,' the production of the wealth of the world 
 will be hampered and hindered rather than increased. And 
 the only question is how is this to be done ? 
 
 Now as all instruments of production Avhicli can produce 
 more wealth than is consumed in their making or working, are 
 an addition to the ' use values ' — the real wealth — of the world ; 
 and as almost any plot of ground, even with the rudest imple- 
 ments, wnll do at least this ; and as, further, the first necessity 
 and duty of each nation is either to find work for its population 
 when they are ready and willing to work, to pay for their 
 emigration, or to maintain them out of its national resources, 
 inasmuch as it cannot frankly destroy them, as it does its.
 
 POLITICS AND CIVILIZATION. 327 
 
 horses, when there is no work for them to do ; it is evident 
 that the policy of which we are in search must be one which 
 will of itself stimulate the greatest number of men everywhere 
 to throw off their coats and set their bi'ains to work to develop 
 every natural instrument of production, — every rood of avail- 
 able soil, every mine and stream within their territory, — to its 
 utmost possible extent, so as to make a market for themselves; 
 and not wait for a world-market ])rice, which in manufactures, 
 and even in land products and mines, is always fixed, where 
 competition is keen, by the strongest competitors ; and which, 
 where trade is absolutely and universally free, stands over all 
 the world like a guard over men under arrest, paralyzing all 
 but the strongest, and reducing them to impotence. And, as 
 we have seen, such a policy is Protection ; — the protection of 
 limited areas which will set all hands in them to work to make 
 their own market prices, irrespective of the world outside, and 
 so leave no natural instrument of production anywhere alto- 
 gether unutilized ; for as the powers of Nature are always 
 there, waiting to help man if he will only utilize them, every 
 day lost is a deduction from the sum-total of possible wealth 
 in the world. 
 
 This leads us to the next position which I am concerned to 
 maintain, namely, that in the economic evolution of the world, 
 as in the political, the protection of small enclosed areas has 
 been the policy by means of which alone the nations have 
 reached their present state of development ; and consequently 
 that as the world is still in that intermediate stage between 
 the cave-men and the millennium, when the existence of 
 separate nations is a political necessity of civilization, a con- 
 tinuance of that ])olicy, and not a breach with it, must be the 
 economic policy also. Historically, little groups of people 
 over scattered areas began by protecting themselves from one 
 another in little defensive villages and towns, by economic 
 fences and tariff barriers of all kinds, in their rude way, just as 
 they protected themselves, as political units, by their bows and
 
 328 FREE TRADE ve7'SVS PROTECTION. 
 
 arrows or spears ; and it was not until they became politically 
 united into larger and larger groups, and at last into nations, 
 that their economic defences, keeping time with their political, 
 were thrown down also. And the net result of this was, that 
 each little group being obliged at each stage to work up the 
 soil and material lying under its own immediate control to 
 their highest possible point— by all the instruments of pro- 
 duction, however primitive and rude, that were open to them, — 
 when the time came for their political amalgamation into 
 larger and larger groups, it was found that, like thrifty couples 
 who, have each saved a little money for their marriage and 
 honeymoon, each had its own thoroughly cultivated and 
 developed patrimony — plot of ground, machinery, horses, 
 cattle, etc., — ready to throw into the union. And the conse- 
 quence of this, again, was, that whatever economic restrictions 
 were made necessary by the political reconstruction, the nature 
 and potentiality of every rood of ground and of every existing 
 instrument of production being already known, bits of inferior 
 land would be let fall out of cultivation here, old water-mills 
 suppressed there, here an old peat bog, there an old stone or 
 gravel quarry, at another spot an old pit of metal ore, or a 
 rude mechanical or chemical process, or what not ; and all 
 because it was now more profitable for the new political 
 amalgamation to be supplied at those salient superior points 
 within its borders where each kind of industrial operation 
 could be supplied at the least cost ; precisely as we see to-day 
 in the case of the American Trusts, where the reconstructions 
 which have given to the Trusts their general economy and 
 efficiency, as well as their most formidable industrial fighting 
 power against their foreign rivals, have only been possible 
 through each smaller concern in these great amalgamations 
 having been first in dependent I ij developed and brought to its 
 greatest point of effectiveness, by being allowed to grow up in 
 security at a time when, from the absence of railway and 
 transport facilities, the effective domination of each of them
 
 POLITICS AND CIVILIZATION. 329 
 
 from any great distance was impossible. And hence if we 
 wish to realize to the full what would have happened to the 
 economic world had its development not proceeded from small 
 protected economic groups growing ever larger, until as last all 
 alike have to stand the fire of a fierce Free Trade competition 
 throughout the whole mass, we have only to imagine what 
 would happen in America to-day, with the giant Trusts in each 
 •department of industry already in the field. It is obvious 
 that, with the exception of the cultivation of the soil, no 
 industry could take root at all. With the sword of market 
 ; price, fixed by these mammoth industries, suspended over the 
 whole Continent, only the most reckless and adventurous, 
 willing like Arctic explorers to risk all and lose all, would take 
 the field against them. I have assumed here for the nonce 
 that transport facilities are fully developed, but in actual fact 
 the absence of them is one of the greatest difficulties to be 
 ■ encountered in endeavouring to foist a universal Free Trade on 
 separate nations before the time is ripe for their ijeing taken 
 up into one great all-embracing political unity. This difficulty 
 is in itself the standing proof that the evolution of economic 
 policy must both begin and be continued by the protection of 
 separate groups and areas, starting at innumerable points, and 
 ffrowino; laro;er and lary;er outward and outward to the circum- 
 ference ; and not from some single all-dominating policy like 
 Free Ti-ade, co-extensive with the whole world, and attempting 
 to work its way inward through innumerable separated areas 
 ■down to the last village and cornfield. Free Trade, in a word, 
 is the end of the economic process of world evolution and 
 development, never its beginning or middle terra ; and perhaps 
 no better rough and ready shorthand formula can be found for 
 indicating where in any given case Free Trade is to end and 
 Protection begin, than one which would make Free Trade 
 •co-extensive or co-terminous with the boundaries of political 
 unity, but with Protection against all the world outside this 
 limit ; — all exceptions having to justify themselves before a jury
 
 330 
 
 FREE TRADE verSUS PROTECTION. 
 
 prejudiced, to begin with, in favour of Protection^ and not of 
 Free Trade. In the application of this rule, the greatest 
 standing difficulties and complications arise in the case of 
 Colonies cut off from the mother country by wide regions of 
 land or sea, whei'e the effect on the imaginations of men of the 
 soil on which they were born is so potent, that neither bond 
 nor charter, privilege of birth, nor affectionate loyalty, will 
 avail to neutralize the feeling of separate nationality which 
 this circumstance engenders. And accordingly, all Colonies 
 lying at a distance from the motherland must be regarded 
 economically as separate nationalities, and bargained with as 
 such, on the same principle of mutual give-and-take as is 
 proper in economic dealings with foreigners. But with this 
 variant, the rule will hold good throus^hout, namelv : — no Free 
 Trade beyond the bounds of political nationality, except for 
 special reasons shown, or except in the case of complementary 
 products, which, as distinct from competitive ones, should in 
 all cases where otherwise possible be admitted free. By 
 following this simple rule, the economic evolution of nations 
 will be kept in line with their political evolution, step by step 
 and from stag-e to stao;e ; the universal Free Trade of which 
 the orthodox Economists dream, being postponed to the time 
 when the world shall have become a single political entity and 
 unity; — and that, one suspects, will be somewhere in the 
 distant millennium. Meanwhile Protection must be the order 
 of the day for all nations, if their safety is to be in following 
 that law of evolution which is now admitted to be our sole 
 supreme exemplar and guide in all things ; and not less so in 
 Economics tlian in Biology, where each living thing that can 
 in any way subsist by itself is an independent unity, — whether 
 as a mere cell, or group of cells, or as an organism of many 
 different kinds of cells, — and is always equipped with organs 
 pi'otecting it against every other, organs which are never 
 dispensed with until others are ready to take their place. No' 
 bull sheds his horns in emulation of the superior effectiveness-
 
 POLITICS AND CIVILIZATION. 331 
 
 of the tiger's teeth, nor ought any nation to pull down its 
 tariff walls in emulation, or imitation, of another whose pro- 
 ductive efficiency in some great line of work permits it to 
 indulge in the luxury of Free Trade. Indeed, why those 
 political units called nations, all of them lying somewhere 
 midway between primitive man and the millennium, should 
 imagine that they can jump the element of Time and the law 
 of Evolution, and in face of each other's aggressions throw 
 away their economic defences, and clap each on its own head 
 a quaker's hat of Free Trade, without waiting to consider 
 whether the stage of evolution proper to such an ideal has 
 arrived or not, can only be explained by the influence wielded 
 by the orthodox economy over all nations in the days before 
 Evolution and Sociology had begun to make themselves felt in 
 the intellectual life of the world. So that it all comes back to 
 the proposition with which we started out, namely, that until 
 the millennial time arrives, when all the world shall have 
 become a political unity, the sum-total of the wealth of the 
 world will be greater when each nation works up its own 
 resources and instruments of production behind tariff walls, 
 than under a universal Free Trade where the competitive 
 industries of each nation would extinguish one another more 
 quickly and surely, and at a greater economic cost and waste, 
 than the complementary ones could make good ; precisely as at 
 the present time (to use our former illustration) more wealth 
 is to be got from an enclosed field, in spite of the expense of 
 the fence, than is to be got from an open common ; more 
 morality from separate families and households, than from pro- 
 miscuity ; more national welfare fronx keeping separate races 
 apart, than from mixing them indiscriminately on the same 
 area of soil. 
 
 Now the effect of this general policy of Protection universally 
 carried out in the present stage of Civilization, — but in ever 
 varying forms and degrees according to the needs and circum- 
 stances of each nation, — would be that when the millennium
 
 332 FREE TRADE lievsns PROTECTION. 
 
 adapted to a full blown Free Trade shall have arrived, and 
 economic ideals be applied as universally as will then be those 
 of the Sermon on the Mount, each nation will in the meantime 
 have worked up its own instruments of production and of 
 transport to the highest possible point of efficiency, so that 
 with the relative strengths of each sufficiently known to all, all 
 alike can be so reorganized and redistributed that, as with the 
 Trusts in America, only those nations will be selected for the 
 different kinds of production where the product can be grown 
 or manufactured at the least cost, and each, in consequence, will 
 be utilized for the greatest benefit of all. As for the way in 
 which nations can, under Protection, build up from their 
 foundation ' infant industries ' Avhich under Free Trade could 
 never have got a foothold at all, the shipping trade of Germany 
 may serve as a passing example. AVhen, after the failure of 
 Free Trade, Bismarck returned to a policy of Protection 
 for Germany, he found that the shipbuilding capabilities so 
 necessary for her all-round industrial development, were 
 severely handicapped by the cost of transporting the coal and 
 iron required, over the long distances intervening between her 
 mining centres and her shipbuilding yards on the coasts and 
 along the harbours of her great rivers. To remedy this, the 
 State first got control of the railways, and then reduced freights 
 to so low a point, that it put the German industry of shipbuilding- 
 more nearly on an equality with that of England, — so far at least 
 as the cost of transport of the raw materials from the mines 
 and manufactories to the shipbuilding yards was concerned. 
 But still it was oenerallv believed that the obstacles to the 
 development of a shipping industry were insuperable, owing to 
 the disadvantage of her narrow seaboard, the fewness of her 
 natural harbours, and the preponderating power of English 
 shipbuilding, which had gathered into its hands almost the 
 entire German shipping trade. But the German Government, 
 undeterred by diflficulties when once the end was clearly in 
 view, set to work — with that deliberation, thoroughness,
 
 POLITICS AND CIVILIZATION. 333 
 
 caution, and determination, which are so characteristic of 
 the people — to remedy this defect ; and resolved that as the 
 nation had been born without a natural limb, an artificial one 
 would have to be found to take its place. And accordingly- 
 having the conti'ol of the railways and the tariff in its own 
 hands, the Government began by admitting all the materials 
 necessary for its nascent shipbuilding free of duty, but as the 
 manufacturers still found it much more to their advantage to 
 employ English shippers than their own, the Government was 
 obliged to devise means by which the manufacturers, the 
 ship-builders, and the shipping merchants should all be forced 
 to play into each others' hands, and not into those of the 
 foreigner. And accordingly we find it giving its orders for 
 warships only to German ship-builders ; while it made its 
 subsidies to passenger liners dependent on their employing home 
 materials in the construction of their boats ; the upshot of it 
 all being, that both the shipbuilding and the shipping trades, 
 which could no more have taken root in Germany in the face 
 of the great supremacy of England in both these departments 
 than they could on some coral reef in the Southern Seas, were 
 enabled by the combined powers of Protection on the one hand, 
 and of a control of Industry by the Government sufficient to 
 bring individual recalcitrant traders into line on the other, to 
 step forth in less than a single generation from their birth, and 
 to contest the supremacy even of England herself in a large 
 section of that shipping industry which she had made peculiarly 
 her own, but which had taken her centuries to build up. And 
 the moral of it all, for all economists and all nations, is obvious,, 
 namely, firstly, to protect each its own instruments of production 
 as assiduously as it already abstains from taxing them ; and 
 secondly, that each Government should be armed with the full 
 power of doing this, and (now that the age of Industry has 
 fully come) of doing it as thoroughly and effectually as it does 
 in war. 
 
 And lastly, that so long as the present capitalist form of the
 
 334 FREE TRADE verSHS PROTECTION. 
 
 industrial regime lasts, the great body of genuine working men 
 being prevented by that regime from all access to, or control 
 over, the national instruments of production, have a right to 
 demand that these instruments shall be completely protected, 
 and not sacrificed, as Free Trade aims always at doing, to the 
 interests of the consumer as such, and especially to the lowest 
 and most unskilled members of the community, — the great 
 proletariat of industrial inelFectuals who must be dealt with as 
 subjects of political administration, but can no more be made 
 the basis of the pohtical economy of a nation, than the camp 
 followers, or even the Avounded, can be made the basis of a 
 campaign in war, however much they may have to be studied 
 or provided for as collateral considerations. For when 
 divorced from the instruments of production of a nation, the 
 mere consumer, as such, of whatever rank, or profession, or 
 employment he may be, is as we have already seen the veriest 
 sac or barnacle, 'eating his head off'; and that the State 
 should deliberately set to work to organize itself on his 
 interests (and that is what Free Trade not only essentially 
 means but openly avows) and especially when, driven to it by 
 its own logic, it would organize itself in the interests of the 
 lowest degenerates — the incapable, the drunken, the ' work 
 shys' and the slum-dwellers generally — while at the same time 
 it is content to sit still and see one instrument of production 
 after another carried off by foreign rivals without a sigh or an 
 effort made to save them, but with a ' God speed ' rather, — 
 and that too on the curious ground that there are always 
 plenty of other industries ready to spring up in their place ; — 
 all this is an attempt to make the pyramid of State stand on 
 its apex rather than on its base, and is to reverse all the 
 lessons and teachings of Nature, of History, of Civilization, 
 and of Human Life. But it may be objected that the genuine 
 working men themselves do not agree with me in this, but 
 believe, on the contrary, as is shown by their votes in support 
 of Free Trade, that their interests as producers, as well as
 
 rOLITICS AND CIVILIZATION. 335 
 
 •consumers, are better subserved by Free Trade than by 
 Protection. To which 1 can only reply, that in my judgment 
 three fourths of the considerations which have confirmed them 
 in this opinion are drawn from the orthodox Political 
 Economy, and from the economic practice and tradition of the 
 particular country in which they have been born and brought 
 up ; and that my object in writing this book is to supplant 
 this old Ptolemaic system of Political Economy by a new 
 Copernican one, and as far as possible help to neutralize the 
 weight which still attaches (in England alone of nations), to 
 the old economic traditions of Free Trade which are bound up 
 with that system. 
 
 If then, in summing up the results of this long enquiry into 
 the question of Free Trade and Protection, we were called on 
 to lay down some rough general rules to follow in deciding 
 whether Free Trade or Protection, or a mixture of the two, 
 were best adapted to meet the particular requirements of a 
 nation, we mio-ht formulate them somewhat as follows : — 
 
 1. If the nation in question is indisputably ahead of all its 
 rivals in certain great lines of competitive industry, as England, 
 for example, was fifty years ago. and to a large extent still is 
 in her manufacturing and shipping industries, it can pull down 
 its tariff walls and open its home trade freely to the incursions 
 of all the world, and still sleep securely ; for in what is 
 competitive it can by the hypothesis beat the world already, 
 and as for products that are complementary to its own, it 
 wants them in any case, and the cheaper the better, and so lets 
 them in free as well. The standing exception to this general 
 rule is that the land of a country, which is the nursery and 
 breeding ground of the nation itself, should never be permitted 
 under any circumstances to go out of cultivation, and above 
 all should never be sacrificed to a mere slight difference in the 
 price of corn to the consumer. Otherwise you get an anomaly 
 and stultification like that of the rich land of England falling- 
 out of use over great tracts and areas, — a deliberate throwing
 
 336 FREE TRADE versUS PROTECTION. 
 
 away of an instrument of production which, were it cultivated- 
 by peasant proprietors, as in France, would support innu- 
 merable families in comfort, would indefinitely increase the 
 resources and power of the nation, and keep up its sturdy 
 stock of men ; — and all sacrificed for what ? That herds, and 
 ever more herds of the lowest ineffectuals, may gravitate in 
 increasing swarms more and more to the slums of great cities, 
 there to swelter by their tens of thousands, and either to be 
 kept on the rates, or to scuffle in the gutters for the crusts of 
 bread cheapened, as if by design, to attract them there, to breed 
 and multiply like rats on the gratuitous garbage of the sewers. 
 For so great is the natural aversion of mankind to monotonous 
 and uninteresting labour, that if you but made bare subsistence 
 cheap enough, you could choke up the world with lack-alls and 
 do-nothings, like the negroes in some of the West Indian 
 islands, in the course of a single generation. 
 
 2. On the other hand, if the nation in question can be 
 beaten in its own home market in all its instruments of 
 production — by one nation in this, by another in that, by a 
 third in something else, and so on — then let it put up tariff 
 walls sufficiently high for its purpose, against them all, and 
 then settle down to make the most of its own patrimony ; 
 while letting in all complementary products for which it is 
 absolutely unsuited, free. 
 
 3. If a nation have a world-supremacy only in certain 
 departments or processes of some great line of industry, as, 
 for example, in the finished product, and if this supremacy 
 would be threatened, as in the English cotton manufactures, 
 if it had to depend on its own raw materials, then these latter 
 should be let in free. On the other hand, if the supremacy 
 were in the raw materials and not in the finished product, then 
 the nation should protect its finished products if possible until 
 it had acquired sufficient skill to manufacture them on even 
 terms with the foreign rival ; and so on, through all other 
 differences in detail between nation and nation ; the great 
 
 I
 
 POLITICS AND CIVILIZATION. 337 
 
 object being to make a nation as self-sustaining as possible, 
 and as little dependent on sources of supply outside its own 
 political jurisdiction; — always of course excepting those purely 
 complementary products which must be allowed to enter free. 
 But in all cases of diflficulty of adjustment between conflicting 
 interests, the Government should always approach the question 
 with the same bias of mind as it has in matters of taxation, 
 namely, always to protect your instruments of production 
 wherever possible, and shield them from the incursions of a 
 Free Trade that would destroy them. 
 
 4. Should the nation in question enjoy a world supremacy 
 in some unique class of product, — as France in wines, Turkey 
 and Cuba in tobacco and cigars, England in steam-coal and 
 china-clay. South Africa in diamonds, and so on ; let that 
 nation protect its product by taxing its export up to the point 
 which the foreigner will be willing to pay, so that the net 
 revenue shall not be diminished, precisely as the diamond-mine 
 owners do of their own accord in restricting their out-put of 
 diamonds. In short, treat other nations in this regard, as a 
 tribe of Red Indians in possession of rifles would all other 
 tribes who were without them, and make it as commercially 
 difficult for individuals to sell their china-clay to be used in 
 manufactures against you, or their steam-coal to be used in 
 war-ships against you, as it is to sell the enemy your ironclads 
 or ammunition in war ; and permit no individuals, in their 
 break-neck haste to be rich, to so flood the market and undersell 
 each other by competition, that their china-clay is as cheap as 
 brick-clay, — any more than diamond kings will do with their 
 diamonds, — thus sacrificing a future national asset of rare value 
 to present individual greed. In a word, administer your 
 national economics as you would your private estate, treating 
 all foreign competitive industries as enemies in disguise, all 
 complementary ones as friends bringing gifts, and making the 
 most of your resources by mana?uvring and strategy, as is the 
 way of the private capitalists of to-day, 
 
 Y
 
 338 FREE TRADE versuS PROTECTION. 
 
 5. But if, as is the case of England at present, the full 
 natural industrial supremacy of a nation is impaired at all 
 points, and robbed of its natural fruition by hostile tariff 
 barriers on the part of other nations, let that nation retaliate by 
 means of ' treaties of commerce ' made with each on the basis 
 of a general tariff, or what not, and graded according to their 
 industrial fighting strengths ; all those that are allowed to 
 enter on reduced terms having to pay a quid pro quo for 
 it ; and all being frankly treated on the Roman principle of 
 ' divide et impera.' 
 
 And lastly, all obstructions that may arise to the carrying 
 out of these general rules from the political side, ought to be 
 subordinated to economic considerations ; and not vice versa. 
 For example, the fact that as things now stand, the main 
 benefits from protecting the landed interests of the nation 
 Avould go, in the shape of increased rents, into the pockets of 
 a limited class of landlords, is quite sufiicient to prevent the 
 great body of the people from insisting that the land of this 
 country shall not be allowed to go out of cultivation. But 
 does anyone imagine that if peasant proprietors were as thick 
 on the soil of England as they are on that of France, this 
 hesitation in protecting the land would continue for a day "? 
 It is a case of the political situation ' cornering ' the economic 
 one ; and is to be remedied by coercing the landlord class into 
 permitting the land to be broken up into freeholds, graded 
 from ' three acres and a cow ' up through ten, twenty, fifty, 
 and a hundred or more acre holdings, to the larger but vastly 
 curtailed possessions of the landlords themselves, — the crown 
 and apex of the industrial and social pyramid in the country, 
 as distinct from the manufacturing interests of the towns. Or 
 again, the aversion to putting a sufficient tax on corn to 
 protect the land from going out of cultivation may be due to 
 the congested swarms of derelicts and incapables who, like the 
 Roman populace, have to be fed at the cheapest rate, or kept 
 at the public expense. In this case, the remedy is to clear the
 
 POLITICS AND CIVILIZATION. 339 
 
 slums of those who cannot afford to pay the increased price of 
 a loaf of bread, and pack them into labour colonies the while, 
 until the political and the economic situation have been 
 brought into harmony again. Or again, the great body of 
 genuine working men may refuse to submit to a tax on corn 
 sufficient to recultivate the soil of their countr}-, owing to the 
 difficulty in getting capitalists to consent to a rise of wages 
 sufficient to cover the increased price of bread. The remedy 
 for this, as in France, is a race of peasant proprietors who in 
 return for the protection of the products of their land, will 
 lend a helping hand, as a quid pro quo, to the Trades Unions 
 in their attempts to wring from the employing capitalists, 
 through legislation if necessary a minimum living wage. 
 Then again, amono; other economic obstructions which must 
 be removed by political means, there are, first, the little knots 
 of middle-men sitting in secret conclave, and neutralizing by 
 their extortions all those casual gratuities of Nature, — whether 
 in the corn-market, the fish-market, the meat-market, etc., — 
 which owing to favourable seasons and conditions would 
 naturally result in cheapened prices to the consumer ; next, 
 the giant trade combinations, trusts, ' corners ' and combines, 
 that hold up prices through monopoly, in spite of all the efforts 
 of the innumerable minnows of the trade (who can always be 
 vanquished in detail) to pull them down ; and lastly, the 
 ingenuities by which taxation is shifted from the shoulders of 
 those on whom it was intended to fall, on to those who were 
 intended to be exempt. All such anomalies, which interpose 
 to block and neutralize the economic good of the nation as a 
 whole, are to be dealt with by Legislation, and especially by 
 wider and more elastic powers of Administration adapted to 
 €ach particular case ; and not, as at present, by refusing to do 
 anything at all because no general rule, law, or principle, can 
 be found which is applicable to all alike. The remedy, in a 
 word, is to get back as quickly as possible to the methods of 
 the days before the gospel of laissez-faire came in, — a doctrine
 
 340 FREE TRADE versUS PROTECTION. 
 
 once a blessing, but now proving a curse every day that it 
 survives. For it w^as adapted to that transitory stage of 
 industry where the industrial investments of individuals were 
 so protected from each other by difficulties of transport, and 
 yet were so subject to each other's competition (when any one 
 threatened to overshadow its neighbour or to grow to excess), 
 that a simple, general, self-working rule like that of leaving 
 things to right themselves, was sufficient to do rough justice to 
 all the interests concerned, and to permit of the greatest ease 
 in industrial expansion as well. But it was not so in earlier 
 times, nor will it ever be again under the present industrial 
 regime. In the Middle Ages, the absence of transport, and of 
 easily recognized standards of judgment, made administration, 
 inspection, and the application of special laws to particular 
 cases, a necessity of industry ; made laws against the ' fore- 
 stalling ' and ' engrossing ' of corn, too, a necessity, (if 
 dangerous famines were not to be suddenly confronted), owing 
 to the varying incidence of crops and seasons; but the 
 necessity for all these special laws had largely passed away by 
 the time of Adam Smith, who was mainly instrumental in 
 focussing and consolidating the growing body of opinion in 
 favour of leaving all things alone to the play of unrestricted 
 competition. At the present day, on the other hand, Transport 
 is so thoroughly organized and so complete, that Competition 
 can never again be made the basis of any system of Political 
 Economy. Never again will businesses of any kind be able to 
 repose in security, so long as they are operated through small 
 capitals in isolated hands ; for the combinations of capital into 
 great balls administered by a few hands will wear out, override, 
 and finally extinguish all smaller isolated competitors, however 
 great in the aggregate their dispersed capital may be ; in the 
 same way as cannon balls will overcome resistances which are 
 proof against showers of rifle bullets of an equal aggregate 
 weight of metal. Combination, in a word, having as its 
 ultimate aim either limited or absolute monopoly over given
 
 POLITICS AND CIVILIZATION. 341 
 
 fields and areas of industry, from now onwards must more and 
 more become the watchword ancJ order of the day in all 
 business and industrial undertakinos ; while Competition and 
 Laissez-faire, — the pillars on which, as presuppositions, the 
 entire structure of the old orthodox political economy was 
 reared, — must more and more decrease, until they become only a 
 scramble for the leavings among the hangers-on and surplusage 
 populations of the industrial world. Legislation and detailed 
 administration, therefore, and ever more of them, must for the 
 future be the supreme concern of nations, if all this multi- 
 tudinous mass of ' unearned increment,' coming from com- 
 bination, from monopoly, from favoured situation, from the 
 growth and distribution of population, is to be utilized for the 
 greatest good of the nation as a whole. To wait for a return 
 of the industrial cycle, when at some distant future time the 
 principle of laissez-faire shall again be for the best interests of 
 social and industrial progress, as it was during the last century ; 
 to wait to put down anomalies arising in the development of 
 industry until you can get them all under some general laio of 
 treatment like this of laissez-faire, whose application would do 
 no injustice to any, would be only to give the wolves a still 
 longer lease of life, and to make the industrial world over to 
 them as a perpetual spoil. 
 
 When Competition is accepted as the supreme rule in the 
 game of industry, it works best when left alone and not 
 interfered with ; but when Combination, having monopoly as 
 its end, displaces it, then combination must be watched at 
 every point; with administrative justice standing over it to 
 lop off that superflux of wealth which has accrued to these 
 monopolies from the progress of Society itself, but which so 
 far has only served to make industrial gods of those who 
 happen to be in parchment possession of its favourite seats 
 without special merit or work of their own. Otherwise you 
 would have little knots of monster millionaires in each nation 
 cropping the world of its finest fruit, like the early Koman
 
 342 FREE TRADE versus PROTECTION. 
 
 Caesars, and flinging the husks to the groundlings, laughing 
 and jeering the while at the herds who turn themselves into 
 industrial slaves to eke out a bare subsistence for themselves, 
 or into rival gladiators to make a holiday for their masters. 
 
 But all this requires a Central Executive armed with power 
 sufficient to carry it out ; — and for that consummation, in a 
 country de^jending on parliamentary majorities made up of 
 conflicting interests, we shall have long to wait, I fear, as well 
 as for an oro-anization of Industry on laAvs at once National and 
 Protective, and free alike from the weakness of Competition 
 and of Free Trade. 
 
 END OF BOOK II.
 
 PART III. 
 
 CRITICAL AND HISTORICAL.
 
 f
 
 CHAPTEK I 
 
 JOHN STUART MILL. 
 
 T EAVING Adam Smith and the problem of Free Trade 
 -^^^ and Protection behind us, we can now, without any 
 essential interference with the historical evolution of our 
 subject, jump at once to the revered name of John Stuart 
 Mill ; passing over liicardo and the other economists of the 
 intervening half century, on the double ground that in Mill 
 we have not only the practical summing up of the separate 
 labours of his predecessors, but, for the first time, the practical 
 unfoldino- on a laro-e canvas of all the fallacies concealed in 
 germ in the original presuppositions of the Science bequeathed 
 to him and his orthodox successors by Adam Smith, and 
 retained by them in their fundamental outlines up to the 
 present time ; — as for example the symbol of the stick, instead 
 of the wheel ; the neglect, not so much of the fact of 
 Consumption, which is, of course, always implied, as of any 
 attempt to attach a scientific value to it as a factor whose 
 variations aiFect all the other factors of the problem according 
 to the laws which 1 have already laid down ; and so on. 
 
 In my first draft of this division of my subject, I entered 
 into a minute detailed criticism of the most important positions 
 in Mill's work — his ' fundamental propositions ' on capital, on 
 rent, on wages, his ' tendency of profits to a minimum,' his 
 remarks on the population question, on the effects of laissez- 
 faire, competition, etc., — but on re-reading it I found that in
 
 34fi JOHN STUART MILL. 
 
 themselves they would fill a small volume. It is from no 
 disrespect, therefore, to the great position filled by Mill in the 
 history of Political Economy, but simply owing to want of 
 space, that I am compelled in consideration of the ground 
 which still lies before me, to concentrate what I have to say 
 solely on his cardinal principles, leaving to the student as a 
 dialectical exercise the detection of the fallacies in his special 
 arguments in each instance — a quite simple matter, I may 
 remark, Avhen once the inadequacy of his leading principles has 
 been clearly set forth. When I say cardinal principles, I do 
 not mean those ultimate principles of the Science which we 
 have already discussed, but rather those smaller differentiations 
 of them by which the progressive evolution of all Science 
 proceeds. But 1 hope to afford space enough for all the detail 
 that is necessary to make good the conclusions as to Mill's 
 teaching which I wish to establish ; and with this economy of 
 space secured, I shall, I trust, then be able to discuss at 
 suflficient length the few o-reat general issues in which the 
 smaller detailed argumentations of his separate chapters 
 eventuate. In thus restricting the volume of my remarks, I 
 shall perhaps, after all, best meet the inclinations of my 
 readers, by most of whom at this time of day a detailed 
 discussion of Mill's separate chapters, in the face of the fresh 
 ground that has been occupied since his time, would probably 
 be felt to be more or less belated. 
 
 In carrying out this programme, then, I propose, to begin 
 with, to exhibit the cardinal fallacy which pervades that 
 entire section of his work dealing with his fundamental pro- 
 positions on Capital, Wages, etc., and in oi'der to escape any 
 tedious to-and-fro detailed argumentation, I am anxious to 
 find some mode of presentation whereby these fundamental 
 propositions of his will only have to be stated to be seen to 
 destroy one another without argument. And I shall assume 
 that I have succeeded, if I shall make it apparent that of each 
 of the propositions on which he bases the derivative doctrines
 
 JOHN STUART MILL. 347 
 
 of the Science, the exact ojrposite is equally true ; much in the 
 same way as a system of Astronomy would be proved to be 
 false without detailed analysis, if it could be shown, for 
 example, that basing itself pi'ofessedly on, say^ a centripetal 
 force alone, it could only fully explain by the addition of an 
 exactly opposite force, — the centrifugal, — the movement of each 
 planet in its orbit. Now this is the case with all Mill's funda- 
 mental propositions respecting Capital, Wages, Savings, etc., 
 as indeed we should know it must be if ray earlier chapters 
 re-constituting the Science on the symbol of the wheel, 
 instead of on a divided straight line, should prove to be true. 
 For, beginning by leaving out Consumption as a factor to 
 which a definite, and not merely an indeterminate, value and 
 expression must be given, he cut the wheel of wealth in two, 
 and throwing one half away, had only the other half left with 
 which to operate in the construction of the laws of his Science; 
 precisely like our perpetual-motion schemer, who while giving 
 a definite scientific value to mechanical power, gave none to 
 mechanical friction, and with equally disastrous results. And 
 accordingly we have only to tabulate his propositions, one 
 after another, to see that having left out half the wheel, he has 
 in each case left out half the truth, and so rendered his whole 
 system practically false. Let us take them in order. And as 
 key-note to all the rest, take his statement that ' the limit of 
 wealth is never deficiency of consumers, but of producers and 
 productive power.' Now I must confess that had this sen- 
 tence, taken in connection with both the economic laws and 
 the practical consequences which flow from it, been penned by 
 any other writer than John Stuart Mill, I should have had no 
 hesitation in charging him with a deliberate intention to 
 deceive his readers by a piece of intellectual sleight-of-hand, 
 as discreditable to a philosopher as it might be admirable in 
 a conjuror. For if he means by a deficiency of consumers, 
 the number of ojien mouths ready to be filled if they could 
 have what is produced as a free gift, then the remark is both
 
 348 JOHN STUART MILL. 
 
 banal and Irrelevant, inasmuch as Political Economy assumes 
 that what is consumed must be purchased and paid for, other- 
 wise it belongs to the ethics of charity, and not to the laws of 
 Political Economy. But as, on the one hand, he was not the 
 fool to make such a statement, and, on the other, was not 
 the trickster who would willingly lay a trap for his readers, 
 our only alternative is to assume that this sentence ought to 
 read as follows, ' the limit of wealth is never deficiency of 
 purchasers, but of producers and productive power ' — an 
 absurdity so transparent that it needs no refutation. And 
 yet this single sentence of iMill's has proved a veritable intel- 
 lectual fly-trap to most of his readers from his day to our 
 own ; and when once they have walked into it, innocently and 
 unsuspiciously, he has captured them as effectually, and 
 pledged them to the acceptance of each of his ' fundamental 
 propositions ' in turn, as surely, as if they had been physical 
 chains which he had wound round their necks and ankles. 
 For we have only to listen to some of the deductions drawn 
 by Mill from this sentence as prologomena and first principles 
 of his system of Political Economy, to judge of what kind of 
 future a nation is likely to be committed, whose economy is 
 built on them from basement to roof. 
 
 The first of these fundamental principles is, that ' Industry 
 is limited by Capital,' or in other words, that the amount of 
 wealth production is limited by capital. So far so good, but 
 how much truth does it contain 1 Clearly only half the truth, 
 for all we have to do is to turn it the other way round, 
 and make it read ' the increase of Capital is limited by 
 Industry,' i.e. by the amount of wealth that is produced, and 
 we have a proposition which is equally true, and the exact 
 opposite of the first ! How dangerous a half truth of this kind 
 is likely to prove when erected into a first principle on whose 
 practical deductions a nation Is prepared to stake its economic 
 future, needs no enforcing. And all because Mill split the 
 wheel of wealth in two, — into Production and Consumption, —
 
 JOHN STUART MILL. 349 
 
 and imagined that he could throw away the consumption half 
 with as much impunity as a butcher would the entrails of a 
 sheep, — and yet expect his science to be a living and not a 
 dead one! Now it is Mill's neglect of Consumption, it is to 
 be observed, that makes his statement of his first fundamental 
 principle so inadequate, inasmuch as it is only when things 
 are purchased for consumption that they will continue to be 
 produced, and further, that it is only out of their sale that the 
 capital necessary for their future production or increase can 
 arise. And the fact that two exactly antithetical propositions 
 may be equally true, but that the Avhole truth lies in the 
 combination of the two, would itself be a proof that any science 
 which is founded on the one half, after deliberately throwing 
 away the other, must be false. 
 
 As further evidence take the second principle, tliat ' capital 
 is the result of saving,' and it will be found that its opposite 
 is equally true, namely that ' capital is the result of spending ' ; 
 for if there is no one with purchasing power to buy them, 
 commodities will not be produced, and capital will neither be 
 wanted nor will it accrue. (Jr, again, take his proposition 
 that ' every addition to Capital gives to Labour either 
 additional employment or additional remuneration,' turn it 
 completely round, and it will be found to be equally true that 
 ' every addition to Wages and Labour gives to Capital either 
 additional employment or additional remuneration'; — additional 
 employment, to keep up the increased demand on it for 
 consumption which an increase of wages involves ; additional 
 remuneration, inasmuch as every additional hand employed 
 where it is needed adds something to capital over and above 
 its keep ; so that if it is tx-ue that wages are limited by capital, 
 it is equally true that capital is limited by wages. Then take 
 again his much debated proposition that ' a demand for com- 
 modities is not a demand for labour,' and again we shall find 
 that its categorical opposite is equally true, and that ' a 
 demand for commodities is a demand for labour,' but for labour
 
 350 JOHN STUART MILL. 
 
 at the second remove, as it were ; the labour, namely, that is 
 employed by the champagne grower or the velvet manufacturer, 
 to whom the demand for their respective commodities is sent. 
 As for the other implications of this proposition, they all have 
 as their object the demonstrating of the necessity of producing 
 and saving, but not of consuming and spending, for the increase 
 of the wealth of the world : and have already been refuted in 
 our earlier chapters, where we have demonstrated the co-equal 
 necessity of both ; and so need no longer detain us. 
 
 In the same way, too, the Ricardian proposition of Mill in 
 reorard to Rent, namelv that it is the extension of the ' maro-in 
 of cultivation ' that is the cause of its increase, may be turned 
 round and its exact converse will be found to be equally true, 
 namely that it is the increase of rent which extends the margin 
 of cultivation ; and this, for the simple reason that as land 
 must always be used in connection with capital and labour, and 
 as capital and labour will always give more for land the more 
 it helps them to increase their products, the consequence is 
 that they will want more land, even if it is of a poorer quality ; 
 and so it is the increase of rent which they are willing to give 
 that is the cause of the extension of the margin of cultivation, 
 and not vice versa. Again, if we take Mill's demonstration 
 that the tendency of profits in advancing industrial societies is 
 steadily towards a minimum, — say to a profit of one per cent, or 
 less, or perhaps nothing at all, — and premising that it was in the 
 same stage of industrial development as that in which he 
 himself lived that he expected this result to occur, we have 
 only in order to show its falsity as well as that of the system 
 from which it was a deduction, to bring together the two sets 
 of circumstances which he instanced as preventing or retarding 
 this tendency of profits to a minimum, when it will be apparent 
 without further argument how absurd and paradoxical his 
 whole demonstration is. On the one hand, he asserts that 
 profits will be prevented from falling to a minimum by all that 
 is economically bad, by anything that wastes capital in short, —
 
 JOHN STUART MILL. 351 
 
 as for example its being blown away in bubble companies, or 
 in war, or in commercial crises, its destruction outright by fire 
 or flood, by the absence of security of property, by corrupt 
 •courts of justice, by unsound and risky credits, by the piling 
 up of Government loans, and by a stagnant population. All 
 these, says Mill, will actually make profits rise, or at worst will 
 prevent them from falling to a minimum. This, I imagine, 
 will be news to most business men I On the other hand he 
 declares that profits will rise, or be prevented from falling, by 
 what all will admit to be essentials of a sound and progressive 
 trade, namely inventions and improvements in machinery and 
 productive processes generally, and the reduction in the cost 
 of all things produced by them in consequence, including food. 
 So that it comes to this with Mill, that whether a country is 
 turned into a desert by the destruction of its capital in war, or 
 by fire and flood, or what not, or is made so fertile by inven- 
 tions and better processes that things become as cheap as if 
 they fell like manna from heaven, will make no diff'erence to 
 profits ! Now this gives us a glimpse into the reasons that 
 have caused Mill to entangle himself in these stultifications 
 and contradictions. The first is his old fallacy that it is 
 floating capital, or money bearing interest, that is the cause of 
 profits, instead of the eflficiency of the instruments of pro- 
 duction, or fixed capital, in which this money is invested ; and 
 this is why he declares that an actually running manufactory 
 or mill has no effect either on profits or wages ! — a proposition 
 farther than which, I submit, absurdity could not go. The 
 second reason is his confounding the value of floating capital 
 or money when there is no business doing, wdth its value when 
 trade is enjoying an abounding prosperity ; much in the same 
 way as we have already seen the orthodox economists con- 
 founding the diflference between the cheapness of a bankrupt 
 stock, and the cheapness that comes from a new invention or 
 improvement in machinery, or from a new chemical process. 
 The value of money may be high, and its interest as much as
 
 352 JOHN STUART MILL. 
 
 7 or 10 per cent, because trade and credit are shaky, as was 
 the case before the great Gurney bank failure of 1866 ; on the 
 other hand it may be high when trade is prosperous and 
 expanding, inasmuch as industrial capitalists will readily give 
 7 or 10 per cent, for accommodation if they can see their way 
 to a profit of 15 or 20 per cent, for the use of it. Or again, 
 the value of money may be low because trade is so stagnant 
 that no one dare venture to use it, as was the case after the 
 Gurney failure when it sank as low as 2 per cent. ; but it may 
 also be low because business is at once so sound and so brisk 
 that the money returns from industrial investments pour into 
 the banks in greater streams than they are taken out. Now, 
 with Profits it is quite different. You cannot have a high rate 
 of profits both when capital is blown away in wars and bubble 
 companies or is destroyed by fire or flood, and when trade is 
 prosperous, credit good, new means of transport opened up, 
 and new improvements and inventions are constantly being 
 introduced ; inasmuch as in the one case the instruments of 
 production themselves are destroyed, and the powers of Nature 
 which function through them and o-ive their services o-ratui- 
 tously to man, are in abeyance ; whereas in the other case they 
 are in full swing and co-operating with him with all their 
 might. That Mill should not have seen this distinction, but 
 have kept labouring away at his belated idea that mere 
 circulating capital, that is to say floating capital not yet 
 invested in these instruments of production, was either going 
 to cause profits to fall to a minimum or to prevent them from 
 doing so ; and further that he should have declared that fixed 
 capital, that is to say these very instruments of production 
 themselves, had no influence whatever either way on profits or 
 wages, are only other instances of how thoroughly unsound 
 the orthodox economy in general, and this special system of 
 Mill's in particular, are through and thi-ough. 
 
 So far then we may say that all those laws of Political 
 Economy which hang on these fundamental propositions of
 
 JOHN STUART MILL. 3o3 
 
 Mill's, and which are got by his having cut the wheel of 
 wealth in two, and thrown one half of it away as useless, must 
 be false. And parenthetically, we may remark in passing, that 
 the very fact that these fundamental propositions can each be 
 turned into its opposite with equal truth, is itself a proof that 
 a true science of Political Economy must be constructed on 
 the symbol of a circle or wheel ; for there is no realm either 
 of mechanics, physiology, or psychology, in which antithetical 
 propositions can be asserted of a thing with equal truth (and 
 where the full truth requires the equal recognition of both) 
 but must in its dynamics follow the laws of a circle or wheel. 
 
 It is evident, then, without further analysis, that laws of 
 Production which end in such point-blank opposites as the 
 above, can at best be only half truths ; and that when used, as 
 they are by Mill, as premises for the deduction of other laws 
 of the Science, these deductions must be false also, and owing 
 to their insidiousness, must be more seductive than if the 
 premises on which they wei'e founded were altogether false. 
 
 It is i:he same with the laws of Distribution, on which he 
 specially prided himself as his main contribution to the 
 Science. Beginning by assuming that the whole product of 
 Industry is divided into Rent, Profits, and Wages, he first 
 institutes separate and independent inquiries into the laws 
 regulating the share of the product which shall fall to each 
 of these in turn, and when he has discovered them to his satis- 
 faction, he then proposes, in a separate chapter, to demonstrate 
 their truth by showing how they will behave in combination, 
 when thrown on an enlarged screen and seen in the march of 
 industry as a whole. Now if we can show that in this section 
 of his work he everywhere mixes up Politics with Economics, 
 not only in the unnatural combinations of the premises from 
 which he starts, but in the economic laws of distribution which 
 he illustrates thi'ough and by means of them as well, it will be 
 sufficient of itself to make us reject his conclusions, without 
 taxing unduly the reader's patience by a detailed analysis of 
 
 z
 
 354 JOHN STUART MILL. 
 
 each separate argument. The following are samples of the 
 nnpossible combination;^ which he posits as his premises. 
 The first is, that Population is increasing but that Capital and 
 Inventions are stationary ; the second, that Capital is increas- 
 ing but Population and Inventions stationary ; the third, that 
 Capital and Population are both increasing, while Inventions 
 are stationary ; and the fourth, that Inventions are increasing 
 but Population and Capital are stationary. Now to begin 
 with, these combinations are as impossible as if he were to 
 assiune one or other organ of a living body to be dead and 
 rigid, while the rest were pursuing their natural functions ; as 
 unnatural, as the centaurs, or mermaids, the winged bulls of 
 the Assyrians, or the eagle-headed and dog-faced gods of tlie 
 Egyptians ; as contradictory, as if he were to assume a mouth 
 the size of a crocodile's in combination with a stomach the 
 size of a minnow's, the wings of a bird with the bones of an 
 elephant, or aught else that on the face of it is fantastic, 
 irrelevant, or absurd. And it is evident, is it not, that with 
 a medley of political, social, and economic elements thrown 
 into the melting pot in the veiy premises of your Science, you 
 could bring out whatever fantastic laws of Political Economy 
 in particular you pleased, just as you coidd in reference to fish, 
 bird, mammal, or man. For how, for example, can Ave imagine 
 Population to be increasing and yet Capital and Invention 
 stationary, when the effect of an increased population is to 
 increase the capital drawn from their labour, and to stivndate 
 invention to enable it to produce things at the least cost 'i 
 How, indeed, unless you have mixed up some political law or 
 tax with the argument, which will prevent this natural result, 
 but which belongs to the art of expediencies of Politics, and 
 not to the Science of Political Economy ? Or, again, how can 
 we imagine that wdien Capital is increasing, Population and 
 Invention can be standing still, when the normal efiect of an 
 increase of Capital is an increase of products, and of products 
 an increase of population keeping pace with them, together
 
 JOHN STUART MILL. 355 
 
 with improvements and inventions as well ? Or thirdly, how 
 can we conceive of Populalion and Capital both increasing, and 
 yet Invention standing still, nnless improvements and new pro- 
 cesses are forbidden by custom or religion, or prevented by 
 tyranny or extortion, or other intrusions of outside laws or 
 powers ? Or lastly, how can inventions and improvements 
 be assumed to be progressing, and yet Capital and Population 
 to remain stationary, when the very first effect of an invention 
 is an increase of production, and of an increase of production 
 an increase of the capital which comes from it, as well as of 
 the population which naturally attends it ; unless again, the 
 increase of capital is lopped oflp by taxation, or the population 
 is kept down, as in France, by prudential motives growing- 
 out of the laws of inheritance, or, as elsewhere, by marriage 
 laws which have the same effect, — all of which are matters of 
 Politics and political expediency, the subject-matter of legis- 
 lation and not of a science of Political Econonw. The truth 
 is, you might as well expect to draw scientific conclusions on 
 the distribution of wealth from mixing up War with Economics, 
 where the distribution takes place according to the will and 
 caprice of the conqueror, as from a medley of political and 
 economic factors welded into unnatural combinations as 
 fantastic and impossible, in the strictly economic sense, as are 
 these of Mill. It would be easy, again, to show that Capital 
 might remain stationary when Population was increasing, if 
 you allowed governments to skim off all excess of income over 
 a rigidly defined amount by a tax which would ci'op all over- 
 grown incomes to a level, like a hedgerow ; or again, to show 
 that Population might remain stationary when Capital was 
 increasing, if you made a law that all excess of children born 
 yearly over the prescribed number should be put into a lethal 
 chamber. These would be purely political results from which, 
 it is evident, no laws of political economy could be deduced. 
 Now had Mill not split the wheel of wealth into two, and 
 thrown one half of it (the Consumption half) away, before
 
 35(i JOHN STUART MILL. 
 
 setting out, but had divided his subject-matter simply and 
 naturally into Production and Consumption, taking as the 
 factors of Production its natural divisions into the Powers of 
 Nature and the Pov^^ers of Man, and representing Consumption 
 as strictly co-ordinated with it, he would have seen, as we 
 have demonstrated sufficiently in our early chapters, that not 
 only must Capital, Population, and Inventions, inci'ease or 
 decrease together as the wheel increases or slackens its speed ; 
 but that Rent, Profit, and Wages, also must all rise or fall 
 together ; of which fact, indeed, as we have already said, the 
 universal experience of the world in all ages, in what is known 
 as good or bad times, practically gives us proof ; and that not 
 onl}^ is no other law of the distribution of Avealth possible in 
 a pure Science of Political Economy, but that there is no 
 other law of distribution on which a practical Art of Political 
 Economy can be based ; — all unnatural combinations like those 
 he suggests being palpably due to the action of politicians, 
 legislators, or conquerors, who like mischievous boys have for 
 their own private ends inserted obstructive pebbles at this or 
 that point between the wheels. He would have seen, in short, 
 that he was trying to found the laws of the physiology of his 
 science on casual factors in its pathology, instead of explaining 
 these facts of its pathology by the known laws of its physiology ; 
 with the result that he has not only muddled the science which 
 he was seekino; to irradiate, but has falsified its laws and 
 practical conclusions as well. 
 
 But these unnatural combinations are not the only examples 
 of the confusion into which Mill has fallen through mixing 
 Politics and Economics together, and treating them as if they 
 vv^ere the natural offspring of the pure laws of Political Economy. 
 He has also confused the subject by playing fast and loose with 
 the areas which he selects for his illustrations and examples. 
 If, for example, you take France as a self-enclosed unit cut off 
 from the rest of the world, you may show that while capital is 
 progressing, population is stationary, but if you take as your
 
 JOHN STUART MILL. 357 
 
 unit the whole of the foreign hinds through which her pro- 
 ductions circulate, you will find that this increase of capital in 
 France has made provision for a corresponding increase of 
 population abroad, through the increase of labour which it has 
 set in motion to pay for these productions. On the other hand, 
 a progTCSsive increase of population may co-exist with almost a 
 stagnation of the capital belonging to the nation, as in the 
 early days of America and the Colonies, where the increase of 
 population was largely helped by the capital which, although 
 invested there, was owned by England ; or as in the Roman 
 Empire, where the vast populations of the provinces were 
 maintained by the capital, not of these provinces, but of 
 financiers who were citizens of Rome. It is the same with 
 Invention, and improvements in the arts of production ; and 
 we can readily vmderstand how great an increase of population 
 was made possible in Japan, for example, when she adopted 
 the arts, the inventions, and the civilization of the Western 
 World, But Mill, by at one point admitting the area covered 
 by foreign commerce into his argument, and at another 
 excluding it, has falsified all the laws and deductions which he 
 has founded on this procedure. It was open to him either to 
 select a single self-enclosed area or nation as his unit of 
 investigation, or a world of nations trading with each other, 
 but it was not open to him to step from one to the other 
 and back again as it suited his argument. Had he done 
 so consciously it would have gravely impugned the high 
 impartiality which he owed to himself as a philosopher, but of 
 this no one could accuse him. It confirms, rather, Carlyle's 
 estimate of the ' saw-dustish ' nature of his intellect and his 
 want of penetration, in spite of his scrupulous intellectual 
 candour and his great logical, as distinct from his purely 
 intellectual, power. 
 
 As a further proof of this want of penetration, take the 
 third great cardinal error in his system, namely his making 
 the laws of Political Economy play between, and rest upon,
 
 358 JOHN STUART MILL. 
 
 two categories so shifting and uncertain in their incidence and 
 operation as the cloudland of Rent on the one hand, and the 
 quagmire of Population on the other. For if we consider it, 
 the laws of each of these factors will cut both ways according 
 to circumstances ; and yet what have circumstances to do with 
 the eternal laws of Political Economy '? If one man, for 
 example, owned all the land of the w^orld, he could bleed both 
 capital and labour until, as in the excited vision of Henry 
 George, he had driven them into the sea or compelled them to 
 live on little more than the roots and herbs which they could 
 pick up by the wayside. If, on the other hand, the land of 
 the world were entirely parcelled out into petty peasant 
 properties of three to five or twenty acres each, as in France, 
 giant capitals concentrated in single hands could skin them so 
 effectually of their profits and wages alike, that they, instead 
 of the capitalists, would have to turn out into the highways and 
 slums of the world, to live on what crumbs they could pick up 
 from their masters' table ; as, indeed, not only the condition of 
 the peasantry in many Continental and Oriental countries 
 under the power of the money-lenders, but even of stalwart 
 American farmers with their hundred-and-sixty acre freehold 
 farms, squeezed by the Beef and other Trusts, already gives 
 foretaste and token. So, too. Population has contradictory 
 effects according to circumstances. When each labourer or 
 wage-earner is dispersed and isolated, concentrated Capital can 
 sweat them all alike down to a 'bare subsistence' wage, as easily 
 as if they were slaves or cattle, and, indeed will always do so 
 unless the pressure of a strong public opinion forbids it. On 
 the other hand, when this vast miscellaneous population of 
 wage-earners instead of remaining isolated begins to organize 
 and roll itself up into Trades Unions, and when these, in tm-n, 
 shall have consolidated themselves into one gigantic all- 
 embracing world-trades-union, then you will have the spectacle 
 of Capital as gradually but surely squeezed of its profits as 
 Labour was before of its wages, until nothing is left it but bare
 
 JOHN STUART MILL. 359 
 
 interest: a)id in the end, if the world-population of wage- 
 earners have tenacity enough to stick together as one man, 
 nothing would be left for the capitalists but to take to the 
 highway, as the wage earners had to do before them, and to 
 merge themselves in the ranks of the ordinary working-men. 
 And accordingly we find Mill contending that if the working 
 men will, when population increases, only insist on maintaining 
 their accustomed standard of living, the capitalists will have to 
 make good the increased wage bill out of their profits ; if, on 
 the other hand, the excess of population causes the working 
 men to struggle like demons to obtain work at any wage, then, 
 says Mill, the capitalists will keep their profits, and leave wages 
 to suffer ; and so on. Now as the object of the Political 
 Economy of Mill and the orthodox Economists generally in an 
 industrial age is mainly to discover the fixed and stable laws 
 which define the relations between Capital and Labour, how 
 can they even hope to succeed when they make them depend 
 and rest on Rent on the one hand, and Population on the 
 other, each of which will lead to precisely opposite results 
 according to the way in which it is handled ? From all of 
 which it is evident, is it not, that Mill's laws of the distribution 
 of wealth, with profits rising and wages falling when population 
 behaves in one way, and the opposite when it behaves in 
 another ; with Rent squeezing Capital under one set of con- 
 ditions, and Capital squeezing Rent under a different set ; and 
 with Population squeezing or being squeezed by both according 
 to circumstances: must be as inconstant, unstable, and, in eff"ect, 
 practically false as his contradictory laws of Production. 
 
 The last of Mill's great cardinal fallacies is his splitting up 
 ' Freedom of Contract ' into two, and throwing one half of it 
 away, as we have already seen him do when he threw away 
 Consumption, under the belief that it was an unnecessary 
 factor in a Science of Political Economy. Now as ' freedom 
 of contract ' is everywhere and always the ultimate postulate 
 and presupposition which Mill and all his successors of the
 
 360 JOHN STUART MILL. 
 
 academic and orthodox schools insist on the reader accepting 
 before they ask him to follow them through the course of their 
 demonstrations, it is evident that if we find them playing fast 
 and loose here, all the dependent propositions which hang on 
 this postulate may be discarded without further remark. And 
 yet this is precisely what they all have done, and still are 
 doing. For freedom of contract, it is to be observed, always 
 carries with it a freedom to combine as well as a freedom to 
 compete, inasmuch as the economic commodities which are the 
 subject-matter of the contract are not mere dead drift-wood 
 floating helplessly hither and thither as on a tide, but are 
 always a personal pro[)erty in the hands of living men, — as much 
 so, indeed, as their hands or feet, — and when once acquired 
 will be held as tenaciously. Instead of being allowed to drift 
 idly away, they can on the contrary, when parted with or sold, 
 be either put up to competition in an open market by their 
 owner, or merged in coDiJiination with the property of other 
 owners, according to which course is likely to bring the largest 
 returns. And hence if we find, as is indubitably the case, that 
 the whole course of industry is daily tending n)ore and more 
 in all advanced countries to the formation of combinations of 
 individual capitals, and not to the competition of these capitals ; 
 that it is tending; as well to the combination of the wag^e 
 earners in Trades Unions, instead of their competition with 
 each other for work ; and if we note further that as all 
 combinations which extinguish competition become monopolies, 
 and monopolies, in turn, give rise to profits, wages, or rents, 
 respectively, which like Government taxes, have elements of 
 force, power, or caprice about them which cannot be reduced 
 to economic law, and have nothing therefore to do with the 
 pure science of Political Economy; — if we find all this, and 
 further, if we can show that the tendency of profits and wages 
 in different occupations, whether agricultural, manufacturing, 
 commercial, or what not, is not to equality, as the orthodox 
 Economy contends, but on the contrary to inequality, we shall
 
 JOHN STUART MILL, 361 
 
 see reversed the most important of all the practical conclusions 
 of the science ; — and all because the orthodox economists have 
 persisted in ignoring one half of what is implicitly involved in 
 their own premise of the freedom of contract, by retaining the 
 effects of competition, but throwing away those of combination. 
 I propose then to show on purely independent grounds that if 
 we resolve freedom of contract into its necessary implication, 
 as including combination as well as competition, we shall find 
 the tendency of all economic things, Wages and Profits included, 
 like that of all things else in this world operated by men (and 
 not the subjects merely of purely physical laws) is towards 
 Inequality, and not as the orthodox Economists contend, 
 towards Equality. If I shall succeed in doing this to the 
 reader's satisfaction, I shall at last have demonstrated what I 
 announced at the beginning, namely that tlie orthodox Political 
 Economy is everywhere made up of theoretical half-truths, and 
 therefore that its practical conclusions are not only false here 
 and there, but false altogether; and that the reason of this is 
 that it has everywhere split up its premises into two halves, 
 and thrown one half away as useless ; — has split up the wheel 
 of wealth into Production and Consumption and thrown con- 
 sumption out ; in Free Trade, has split up the population into 
 producers and consumers, and catered for the consumers alone, 
 throwing the producers overboard to shift for themselves ; has 
 split up ' freedom of contract ' into competition alone, and left 
 out combination altogether ; and further, that when it has 
 done this, it has replaced the all-essential halves which it has 
 thrown away as useless, by bringing in foreign elements of 
 purely capricious Power or Force, — such as politics, legislation, 
 custom, etc., — which have nothing to do with the Pure Science 
 of Political Economy ; and finally, that where it ought to have 
 brought in these foreign elements proper to the science of 
 Civilization as a whole, — namely, in its Applied Science, — it 
 has left them out altogether, and so has rendered all its 
 practical conclusions false and unworkable.
 
 362 JOHN STUART MILL. 
 
 But as the proof of the tendency of all things economic to 
 Inequality rather than to Equality, is so important and ultimate 
 for a true science of Political Economy, I propose to devote a 
 special chapter to it ; and hope to be able to bring forward 
 numbers of smaller fallacies common to Mill and his orthodox 
 successors, which I have not had an opportunity of touching om 
 heretofore, for the reader's consideration.
 
 CHAPTEK II. 
 
 ON THE TENDENCY TO INEQUALITY. 
 
 f F we keep to our division of the economic instruments of 
 Production into the powers of Nature and the powers 
 of Man respectively, and if we assign their products to Rent, 
 Profits, and Wages, and then consider how these products 
 tend to distribute themselves among the individual landlords, 
 capitalists, and wage-earners respectively, the most casual 
 inspection will show that they everywhere tend to inequality, 
 and not as the orthodox economists contend to equality ; as 
 indeed the unequal fortunes of individual men in every class 
 of a community where freedom of contract prevails, gives 
 proof. Rent, of course, is with them an admitted exception 
 to their general doctrine of the tendency of economic things 
 to equality ; the incomes received from land being palpably as 
 unequal as are the respective degrees of fertility of its different 
 units of soil, their distance from central markets, the facilities 
 for transport of the product, the size of holdings, their intensive 
 cultivation, and the extent to which the large holdings will 
 permit of the application of labour-saving machinery with its 
 reduction of working costs, and so on. But it is precisely the 
 same with Profits as with Rent, as will be apparent on a 
 moment's consideration. For Profits depend not on a difterent 
 but on precisely the same class of considerations, namely on 
 the difi'erence between rival manufacturers of the same class
 
 364 ON THE TENDENCY TO INEQUALITY. 
 
 of goods in respect to the relative powers of their instruments 
 of production to reduce costs ; — as, for example, on the 
 superiority of the machinery used by one manufacturer over 
 another (especially v^^hen it is protected by patents), the access 
 to central markets through the facility of transport which 
 i-elative advantages of situation give them, their proximity to 
 the sources of raw material, the differential advantages in the 
 matter of cheap motor-power, and above all the saving in costs 
 of all kinds which huge capitals concentrated in single hands 
 in favoured localities make possible — capitals which in them- 
 selves form monopolies as strongly entrenched almost as 
 natural ones. To these may be added the cumulative effects 
 of the ' goodwill ' which comes from the reputation of old- 
 established firms, of trade-marks, etc., as well as the effects 
 on the imaginations of men of advertising on the great scale, 
 and so on. Each and all of these factors, it is obvious, must 
 make steadily for inequality of profits, and must operate as 
 effectually between nation and nation as between the different 
 individuals or trades in the same nation. And the question 
 we have now to ask is ; — what are the special considerations 
 which have made the orthodox economists believe that Profits 
 tend to equality, when they so obviously if left alone tend 
 steadily and cumulatively to inequality. They are mainly, I 
 think reducible to four : — 
 
 1. The neglect of the principle of Combination, which 
 
 as we have seen is as much an element in freedom 
 of contract and laissez-faire as is the principle of 
 Competition. 
 
 2. The illusion of keeping their eye on the dead products 
 
 of industry, instead of on the instruments of pro- 
 duction from which they proceed, and on the actual 
 game which is being played by the capitalists them- 
 selves who own these instruments. 
 
 3. The neglect of what we may here call the incidence of 
 
 Power, or, in other words, of the political or other
 
 ON THE TENDENCY TO INEQUALITY. M5 
 
 forces in connection with which the wheel of wealth 
 
 functions, and which in one form or another always 
 
 make themselves felt in the distribution of wealth. 
 
 4. The old illusion of the divided stick, which is the 
 
 symbol, as we have seen, lying at the base of all 
 
 the doctrines of the orthodox schools. 
 
 To begin, then, with farmers' profits. These undoubtedly 
 
 tend to equality, but that is because the landlords stand by 
 
 with their shears readj^ to crop off all excess over the accepted 
 
 standard as rent, and so force profits to an unnatural appearance 
 
 of equality by what is in its essence as much a tax as any 
 
 income tax can be ; as indeed would be manifest at once if we 
 
 imagine the landlords' rents removed, when the profits per 
 
 unit of land occupied (which is the essence of the problem) 
 
 would be found to be as unequal as the qualities of the soil, 
 
 or the hills and dales of the landscape. 
 
 But it is the profits from manufactures and other industries 
 with which we are mainly concerned, for it is these on which 
 the landlords are supposed to keep their eye when de- 
 termining how much profit they will allow the farmers before 
 applying their shears in shaving ofi:' any excess as rent. Now 
 what the orthodox economists contend in discussino- the 
 tendency of profits to an equality in agriculture and manu- 
 factures respectively is, that were the landlords to cut down 
 the farmers' profits below this rate, capital would leave the 
 land, to be invested in manufactures. On the other hand, 
 were the landlords disposed to allow the farmers more than 
 the rate current in manufactures, capital would compete for 
 land and be driven away from manufactures until the rates in 
 both were reduced to an equality again. This is the theory, 
 and we will return to its implications later on in this chapter. 
 In the meantime if we examine the considerations which have 
 made the orthodox economists believe that the profits of 
 different manufactures naturally tend to equality, in spite 
 of the fact that the instruments of production from which
 
 366 ON THE TENDENCY TO INEQUALITY. 
 
 these profits proceed are of all degrees of inequality in power, — 
 and therefore in the scale of costs at which they can turn out 
 their products, — we shall find that they all conspire in their 
 various ways to produce an illusion of equality. The first is 
 that all articles or commodities of the same quality and kind 
 fetch an equal price in the great wholesale markets of the 
 world, whether made by hand or by machinery, whether 
 carried overland in carts or by railroads, canals, or ocean 
 steamers, whether grown on old and exhausted or on rich and 
 virgin soils. This may seem a small matter in itself and 
 scarcely worth mentioning, but taken with other impressions 
 pointing the same way it has its effect notwithstanding. The 
 second is the tendency to imagine that because the interest 
 on capital in the abstract, or in other words on floating capital, 
 or money, tends to a general level of equality in any particular 
 nation, that therefore the profits of capital in the concrete, 
 that is to say of money invested in this or that productive 
 industrial undertaking, must tend to equality also. But is it 
 not the accepted doctrine of the orthodox economy that profits 
 are made up of the ' wages of superintendence ' and of ' risks ' 
 as well as of. interest ? And if so, and if wages of superin- 
 tendence are as unequal as are the different abilities and 
 responsibilities of men in the same line of work ; and if risks 
 are as unequal as are the different undertakings in which men 
 hazard their capital; how can profits tend to equality? On 
 the contrary they must be as unequal as one field is unequal 
 to another in fertility, or one mine to another in yield on an 
 equal outlay of costs. Even the interest that has to be paid 
 on the money required to finance industrial undertakings 
 tends to inequality ; inasmuch as it varies inversely with the 
 security, whether you take individuals or nations. One man 
 can borrow as much money as he requires at 3 or 4 per cent, 
 another only at 5, another at 10, another only at 50, — as 
 those who have had the misfortune to fall into the hands of 
 moneylenders can testify. It is the same with nations, some
 
 ON THE TENDENCY TO INEQUALITY. 367 
 
 of whom cannot borrow on any terms, unless indeed, as in 
 pawnbroking, they assign some definite asset, as of customs 
 duties or what not, to be held in pledge for the loan. But if 
 money thus tends to inequality in the borrowing, it tends 
 much more to inequality in the uses to which it is put in the 
 spending. For the moment it begins to be used, whether in 
 banking or in actual industrial operations, it ceases to function 
 merely as money in general or in the abstract, (and this is the 
 only sense in which Interest may be said to tend to the equality 
 which has misled the orthodox economists), and becomes boxed 
 off, as it were, in definite amounts in the hands of different 
 individuals ; and then it always tends to inequality. The 
 difference again between, say, £100 in the hands of one man, 
 and a hundred separate pounds in the hands of a hundred 
 different men, although the aggregate amount in the two cases 
 is equal, is enormous. For the £100 concentrated can both 
 outbid and outsell the hundred pounds dispersed. It can buy 
 in the cheapest while they must buy in the dearest market, 
 and can sell in the dearest while they may have to sell in the 
 cheapest. It can take advantage of their necessities to ruin 
 each of them in detail, for it can bide its time and stand under 
 shelter until the storm and stress of immediate pecuniary 
 necessity passes, while they must go out in the storm or perish. 
 It in effect has rolled itself up into a concentrated ball, and so 
 falls under the law of Combination, while they remain isolated 
 pellets, and follow the law of Competition. Hence it can 
 make itself king, while they ai'e reduced to the position of 
 suppliants. It has entered on the road which may lead to the 
 fortunes of a Rothschild, while they linger or halt in the 
 by-paths of poverty. And yet each step, it is to be observed, 
 has been taken under the orthodox economists' most sacred 
 shibboleths, namely of ' freedom of contract ' and laissez-faire. 
 Where then is the tendency to equality % 
 
 But it is not only the tendency of undifferentiated or floatinij 
 capital to an equality of Interest in the central money markets
 
 368 ON THE TEXDEXCY TO INEQUALITY. 
 
 of the world, which has misled the economists into believing 
 that the same is true of fixed capital, that is to say, of money 
 capital when invested in machinery and buildings in definite 
 places, in definite amounts, and with definite instruments of 
 production (and which, as we have seen, varies according to 
 the aggregate relative strengths of these instruments of pro- 
 duction); they have been misled also by the apparent fact that 
 all the shareholders alike, great or small, in joint-stock under- 
 takings receive the same rate of interest, say 5 per cent., from 
 their investments ; forgetting that the oi'iginal proprietors 
 sittintr at the head of the table, after havino- turned their 
 property into a public company, still get their 20 per cent., 
 say, on the shares they have allotted to themselves, while the 
 rest who sit ' below the salt,' only get their 5 per cent, after all. 
 The nominal equality, in a word, turns out to be a real inequality, 
 and profits instead of tending to equality, as at first appeared, 
 tend really to inequality. 
 
 So far then we may sum up by saying that the orthodox 
 economists in their belief that Profits tend to equality have 
 been misled by keeping their eyes fixed on the dead product 
 rather than on the living productive jyoivers of industry; on 
 what befalls goods, commodities, and Interest, in central markets 
 where unrestricted competition has full and undivided sway, 
 rather than on the instruments of production and the living 
 human beings who own them, and who far from making haste 
 to offer them up to unrestricted competition, do all in their 
 power to nurse them to the point where they can make whole 
 or partial monopolies of them, that is to say, to the point where 
 the eflTectlve power of Combination has free play. And it is 
 precisely because when men have got a ' good thing ' — whether 
 from some natural or scarcity advantages, or from some effective 
 combination of capitals which controls the instruments of 
 production of the commodity In which they deal, — they intend 
 to keep It to themselves, that, given time enough for their full 
 evolution, the profits must end In inequality.
 
 ox THE TENDENCY TO INEQUALITY. 369 
 
 But the main reason, perhaps, why the orthodox economists 
 have persistently uphekl the doctrine of the tendency of Profits 
 to an equality is, that it is a deduction from what we have 
 ah'eady seen is the fundamental illusion on which the whole of 
 the old economy is constructed, and from which all its leading 
 propositions are derived, the illusion, namely, of representing 
 the capital of a nation as a rigid rod of definite length, whereby 
 if profits stand at the rate, say, of 25 per cent, at one end and 
 at only 5 per cent at the other, an average can be struck at 
 15 per cent, in the centre of the rod; and the different capitals 
 functioning in industry can then be represented as flowing 
 backwards and forwards between the two ends, flooding the end 
 of high profits and being withdrawn from the other, until the 
 pressure of competition by reducing prices at the one end and 
 raising them at the other, makes the profits of all alike settle 
 down to a common level of equality. 
 
 N^ow this method of ' splitting the diflference ' in things that 
 are by their very nature individual and personal, is the most 
 crude of all scientific processes, and in using it the orthodox 
 economists have at a stroke stripped off all those difl'erential 
 advantages and inequalities between one industrial undertaking 
 and another which it is the very game of business men to 
 capture, and which once captured are used as stepping-stones 
 to still further economic advantao-es — advantag-es, it is to be 
 observed, which are not pursued with the philanthropic object 
 of redistributing them again among less fortunate rivals for 
 the purpose of putting the profits of all alike on an equality, 
 but entirely with the object of keeping them for themselves. 
 To lo[) them oft', therefore, by striking an average among them, 
 is to lop off not what is accidental, but what is essential in the 
 very process of money getting; and is not only a cheap and 
 easy but a most fallacious way of making profits tend to 
 equality. And as for ca])ital flowing backwards and forwards 
 from one industry to another according to the scale of relative 
 profits, until the profits are reduced to an equality, — this is 
 
 AA
 
 370 ON THE TENDENCY TO INEQUALITY. 
 
 equally illusory. For the amount of capital in a country is 
 not, as we have so often repeated, a fixed and rigid thing, 
 which cannot leave one occupation without stripping another 
 bare, but, on the contrary, when put on the wheel of wealth, 
 becomes as elastic as a piece of rubber when consumption is 
 stimulated and the wheel is made to revolve faster ; so that all 
 businesses whatever that can show a working profit, rej^roduce 
 in the act each its own capital ; and however much of it ma}' 
 overflow into the more favoured and profitable trades, the rest 
 are not necessarily denuded, but on the contrary their capital 
 is increased. It is only when the wheel slows, and all businesses 
 are alike depressed, that the least favoured ones find difficulty 
 in keeping afloat through being denuded of their capital ; and 
 then it is not because their capital has been transferred to the 
 more prosperous trades, but more probably because it has been 
 extinguished altogether. It is only when rival traders in the 
 same line of business meet as combatants, that the one trade 
 can denude the other of its capital or extinguish it altogether 
 by taking away its customers from it ; — but in any case where is 
 the tendency to equality ? On the contrary, it is to still greater 
 inequality. 
 
 But the most paradoxical perhaps of all the reasons which 
 have persuaded the orthodox economists into the belief that 
 the profits of capital tend to equality, and one which comes, 
 too, from their fixing their eye on the products of industry 
 rather than on the instruments of production — on goods and 
 prices, rather than on the land and machinery and the men 
 that own them — is their making capital the result of saving, 
 that is to say, of a mere negation, like the talent that was 
 hidden in the napkin ; while at the same time they have made 
 it the positive and active agent in the production of wealth. 
 But to see how this paradox has operated, it is necessary to 
 retrace the historical evolution of the place occupied by capital 
 in the orthodox economy. The Physiocrats and Adam Smith, 
 it will be remembered, made Land the primary and active
 
 ON THE TENDENCY TO INEQUALITY. 371 
 
 agency in the production of wealtli, inasmuch as the earth was 
 the fruitful womb and mother of all the wealth which was 
 afterwards worked up by machinery and labour into its infinite 
 variety of forms. Capital, on the other hand, they represented 
 as coming out of what could be saved of the product from the 
 maw of immediate consumption, and turned into money. In 
 other words, C!)apital had to come, by a process of saving, out of 
 the superflux which the landlords shook off from their rents 
 for the keep of the rest of the community ; and so was a 
 dependent or hanger-on of Rent as it were, on whose leavings, 
 in short, it had to subsist or starve. But in the interval 
 between Adam Smith and John Stuart Mill, Ricardo and 
 others thought they had discovered that Rent, on the 
 contrary, was after all really the dependent and hanger-on of 
 Capital, inasmuch as it had to wait until Capital was served, 
 and then to take the leavings for itself. But while accepting 
 this position of Ricardo's, the orthodox economists since his 
 time, including Mill, have continued to cling to the idea that 
 this same Capital which had now become the generative and 
 living initiative factor in their system, was the result of saving, 
 that is to say, came out of a portion of its own dead jyrodiict, 
 instead of out of the active jxnvers of Nature embodied and 
 realized in its machinery and processes ; in the same way as the 
 Rent, which Capital supplanted in their system, had come out 
 of the powers of Nature in the soil. It was as great a 
 stultification and anomaly as if they had represented the 
 generative power of a tree as coming out of the savings made 
 from its own fruit ! And with result for their system, what ? 
 This namely, that having already fallen into the error of 
 making J^rofits tend to equality through the illusion created 
 in their minds by keeping their eyes fixed on dead products 
 instead of on the living instruments of production from vs^hich 
 they proceed ; — on the equality of the prices of commodities 
 in the central wholesale markets, on the equality of interest in 
 the central exchanges, as well as on the nominal equality of
 
 372 ON THE TENDENCY TO INEQUALITY. 
 
 profits in joint-stock concerns — they were now logically obliged 
 to assume as well that whatever part of these products was set 
 aside as savings (in other words Capital), must tend to equality 
 also ; forgetting, as we have seen, that in all these cases alike 
 the equality is got either by striking an average among a 
 number of real inequalities of prices and interest and profits, 
 or by watering them down and subdividing them into equal 
 shares, as in the case of the joint-stock companies ; forgetting, 
 that is to say, that it is only products in the abstract, and 
 interest in the abstract, that tend to equality, — not the separate 
 bits of concrete product, the separate bits of capital, which in 
 actual fact are what are bought and sold, and which, as we 
 have seen, are always inequalities ; and that it is precisely the 
 accumulation of these smaller inequalities which leads some 
 men to fortune, while others remain in poverty. But even if 
 we admit that the products of industry, — say, wheat, copper, 
 coal, etc., — tend to equality in the large central markets 
 and exchanges, it is evident that the separate instruments of 
 production themselves, — the land, the mines, the favoured 
 situations, etc., — must be as unequal in the profits they yield 
 as are the fertility and yield of the separate pieces of soil, 
 the separate mines, and the different situations from which 
 they proceed. So that although speculation in the products 
 of industry may temporarily lead one man to fortune and 
 another to poverty, while leaving the great mass of operations 
 as a whole on the same level as before, (as gambling on even 
 chances does the great bulk of the players), the possession of 
 the instruments of production from which profits proceed, form 
 permanent inequalities as great as are the relative strengths 
 of chesG instruments ; and even when the rival possessors 
 of these kill each other out by competition, the inequality 
 is only deepened, not equalized ; and when some of these 
 combine instead of competing, and succeed in extinguishing 
 the others altooether (as the i^reat Trusts in America have 
 done), the result can with no more justification be regarded
 
 ON THE TENDENCY TO INEQUALITY. 373 
 
 as a tendency of profits to equality, than the reduction of a 
 nation to a desert can be regarded as a tendency to peace, or 
 than the reduction of the nobility of France by Louis XIY. to 
 a common level of dependence on himself, was a tendency to 
 equality. And the upshot of it all is, that although the dead 
 products of industry, which are delivered over to pure com- 
 petition, will tend like all dead things to equality, inasmuch as 
 having been already plucked from their stems or set free from 
 their workshops, they have no longer any roots anywhere, but 
 will move hither and thither according as chance, or the 
 incidence of market prices determines ; the fixed capital, or 
 instruments of production themselves, on the other hand, from 
 wdiich they proceed, — like trees and animals which have their 
 roots in definite soils and environments, — not being transferable, 
 cannot be so shifted ; and their permanent yields in consequence 
 (or in other words their profits) must, until they are extinguished 
 altogether by competition, tend to inequality. The orthodox 
 economists accordingly, in making Capital the result of a mere 
 negation — Saving — while at the same time making it function 
 as the great controlling power on which both Kent and Wages 
 have to wait cap-in-hand until it is served, have not only 
 stultified the very first principles of their Science, but have 
 helped to entrench themselves the more strongly in one of 
 their greatest illusions, — the tendency of Profits to an equality. 
 Had they, on the contrary, made Capital the outcome of 
 the active powers of Nature embodied in their machines and 
 inventions, — -as the Physiocrats and Adam Smith made Pent 
 the outcome of the powers of Nature embodied in the soil, — 
 they not only would have been consistent and logical in giving 
 Capital the primacy in their system instead of Rent, but would 
 have escaped this special Illusion of the tendency of Profits to an 
 equality as well. But having already got their feet in the bog 
 through their abstract doctrines, they sank still further, and 
 were the more confirmed in their illusions, when in the time of 
 Mill they looked around them and saw that nearly all capitals
 
 374 ON THE TENDENCY TO INEQUALITY, 
 
 engaged in industry, were engaged in sucli break-neck com- 
 petition with each other, that their profits were not only being 
 reduced to an equality in the struggle, but were being quickly 
 reduced to a minimum as well. But while Mill was persuading 
 himself that the tendency to equality was the normal tendency 
 of profits, and, — believing as he did that it was an eternal law of 
 Political Economy, — was becoming nervously apprehensive lest 
 the tendency of profits to a minimum also, was likely to be 
 realized, events themselves were on the point of giving the lie to 
 all his fears, predictions, and principles. For when capitalists 
 found that the profits of diff'erent industries in the same line of 
 work, depending as they must do on unequal powers in the 
 instruments of production employed, were really unequal on 
 every pound of capital invested, it was not long before a few 
 of the larger firms in each industry took to combining instead 
 of competing, and by the immense saving in costs which 
 production on a large scale made possible, began gradually to 
 drive their weaker rivals from the field. In the very year of 
 Mill's death, the great American Oil combination had already 
 got itself firmly entrenched, — with results to the rest of the 
 American oil refiners which all the world now sees ; and yet in 
 all its operations, the American Oil Trust has infringed none 
 of the original presuppositions of the orthodox school — neither 
 its principle of freedom of contract, which involves in its 
 essence freedom to combine as well as to compete, nor yet its 
 ])rinciple of laissez-faire. But so great, indeed, has been the 
 inequality of profits which has resulted, that the most serious 
 problem of the present time is, how these portentous inequali- 
 ties resulting from the freedom of contract and laissez-faire 
 are to be controlled. And when we remember that these profits 
 are in the hands of men, — and not of dead machines, or of an 
 abstraction like mankind in general ; — and further that these 
 men intend to aggrandise themselves and to promote their own 
 interests by means of them (for that is part of the game of 
 wealth which all who go into business are playing), and far
 
 ON THE TENDENCY TO INEQUALITY. 375 
 
 from manuring the general world with them, outside the range 
 of their private charities, will grip them all the more tenaciously 
 to themselves, while leaving the public only the scraps and 
 entrails, as the lions do the jackals ; — what then are we to say 
 to a Political Economy which lets loose on the world for its 
 consolation, the doctrine that if you leave things alone and 
 give them a little time to readjust themselves, all these gigantic 
 profits will, through the entrance into the arena of new 
 competitors, tend to equality again ? 
 
 Again, if we turn to Wages, we shall find a number of 
 considerations which have illegitimately held the orthodox 
 economists fast to their doctrine that they too, like Profits and 
 Interest, tend naturally (except for special reasons and under 
 special circumstances) to equality. But on examination it will 
 be seen that Wages are the subjects of an enforced and 
 artificial equality, and if left to themselves would like all else 
 in this world which is the subject of differentiation and 
 evolution, steadily tend to inequality. To begin with, we find 
 the orthodox economists attaching an absurdly exaggerated 
 importance to Ricardo's ' iron law of wages ' as it is called, 
 whereby through the combined operation of competition and 
 the pressure of increasing population, wages are believed to be 
 steadily pressed downwards by nntural economic laws to a bare 
 subsistence level, and so far to an equality. But now that 
 Trades-Unionism has replaced this unlimited competition by 
 combinations over a large portion of the industrial field, and 
 Malthus' law of Population has turned out to be a superficial 
 ingenious Nature myth in which half of the ultimate factors 
 are left out of consideration, this pai-ticular conclusion of 
 Ricardo's has lost its logical basis and justification ; and 
 accordingly we may dismiss his doctrine without further 
 discussion, and indeed without apology, inasmuch as the actual 
 tendency of wages since his time has belied his doctrine. As 
 for the otlier considerations which have misled the orthodox 
 economists into the belief that Wages in the large tend to
 
 376 ox THE TENDENCY TO INEQUALITY. 
 
 equality, they may be mainly reduced to the effects of the 
 incidence of extraneous Power or pressure in one or other of 
 its forms, and not to any law proper to the science of Political 
 Economy as such. In the ages of Slavery, this pressure, 
 whereby the remuneration of the slaves was reduced to an 
 absolute equality, took the form of force open and undisguised; 
 in ages of Serfdom, the power was somewhat modified and 
 softened by Custom which had tlie force of law ; in the Guild- 
 system of the jNIiddle Ages, the power concealed itself in legal 
 enactments, as in a velvet glove ; but in all these stages alike, 
 the equality of wages was an enforced equality. In Modern 
 Industry, AVages whether tending to equality or to inequality, 
 have done so mainly as following on the lines of custom and 
 tradition, slowly modified in their course by evolution, and not 
 by any merely economic law ; for example, in most countries, 
 power, and its handmaid custom, still decree that the wages of 
 men and women shall be unequal for equal output in the same 
 class of work; while the scale of real wages in country districts 
 is everywhere somewhat lower than for an equal grade of work in 
 the towns. Between diflferent countries, again, the wage-levels 
 rise in a series of terraces of inequality, even when the products 
 of their respective labour in the same lines of work compete on 
 even terms in the world markets ; — the standard rate in each 
 instance following the lines of custom, tradition, and evolution, 
 but not of economic law. Wages on the Continent, for 
 example, are on a lower general level throughout than in 
 England, and in England than in America ; while in the 
 East they are much lower than in Europe and the \¥est. And 
 if we take a particular countr}-, say England, and ask why 
 wages in the same lines of work, — as of engineering, cotton- 
 spinning, weaving, bricklaying, carpentry, printing, etc., — are 
 the same for each of the individual workers in a particular 
 line, we shall find that it is due not to any strictly economic 
 law or tendency as such, but either to policy, strategy, and 
 expediency, or to the pressure of extraneous power. The
 
 ON THE TENDENCY TO INEQUALITY, 377 
 
 equality of wages to which all the different workmen in the 
 same trade are squeezed and pressed, whatever be their relative 
 efficiency, is a matter of expediency on the part both of the 
 masters and the men, but operating for different reasons. The 
 masters favour it, because by fixing the wage-rate of all the 
 workers at the level of the poorest of them, they are enabled 
 to get an unpaid-for advantage out of the superior industry 
 and efficiency of the remainder ; the workmen favour it, in 
 order to prevent that jealousy between them which, if tlie 
 wages of each were separately graded according to his ability, 
 would oppose a serious obstacle to their combination, and so 
 would make the Trades-Unionism on which alone they can 
 rely for the improvement of their condition, more difficult of 
 realization. And lastly, when all else has been allowed for, 
 the mere fact that the instruments of production are entirely 
 in the hands of the masters, and that the workmen are reduced, 
 in consequence, to the attitude of suppliants who must get 
 work for themselves on any terms or starve, is enough of itself, 
 in the absence of Trades-Unionism, to coerce the labourers to 
 an equality of impotence through the unrestricted competition 
 for work on the one hand, and the pressure of power on the 
 other. It is this divorcing of the workmen from the instru- 
 ments of production b}- which alone they can live, that makes 
 combination so easy and informal among the masters, but so 
 difficult on the part of the men, and Avhich in every pitched 
 battle must give the victory to the masters. There must 
 always be an inequality of bargaining power between masters 
 and men in every contract, until that day shall arrive when the 
 sacrifices of each master in a strike or lock-out will affect his 
 present comfort and future destiny as seriously, in its way, as 
 it does that of each of his workmen. For in all combinations 
 ■of men whatever, and for whatever purpose, there is always 
 generated a surplus of effective power over and above the sum- 
 total of that of each individual when functioning as a separate 
 unit. And as it is a universal law of Civilization that only
 
 378 ON THE TENDENCY TO INEQUALITY. 
 
 suppliants, like rival lovers for the same hand, compete with 
 each other, while those who have the power will always 
 combine to keep it, the result is that the workmen stripped of 
 their instruments of production by the capitalists, have no 
 resource but, like disarmed soldiers, to sue for the favours of 
 their masters and to compete against each other for them ; and 
 so, like all helpless passive things, must when shaken down as 
 in a sieve, tend to a common dead level of equality : while the 
 masters can take for themselves a greater share of the produce 
 than Avould naturally fall to them (except in the case of the 
 inventors) from the operation of mere economic laws alone. 
 And as corroboration of this, we see that in all ages, kings and 
 despots who have won for themselves supreme power, whether 
 by the sword, or by usurpation, or as a free gift of their 
 followers, have always taken the largest share of the industrial 
 wealth for themselves ; have given their supporters, courtiers, 
 or accomplices, the next largest ; and have thrown only the 
 leavings to the great masses of the population, to be struggled 
 for by pure competition among themselves. The great land- 
 owners of the past in all countries competed only in War and 
 Politics, but in Industry they left the competition for their 
 favours to their tradesmen, dependents, and menials. In 
 Modern Capitalist Industry beginning with Adam Smith, 
 it is the capitalists whose power makes of them a loose 
 informal combination, while the individual workmen have to 
 compete for their favours, and so their remuneration, or wages, 
 for services rendered tend to equality. More recently, the 
 workmen have, with the greatest difficulty, managed to 
 combine on their own account ; and the masters, no longer 
 able to squeeze them as before to make good their trade losses, 
 have been obliged to enter into cut-throat competition with 
 each other to secure the custom of" the Public, with the usual 
 consequence that they in turn were having their profits 
 reduced to a minimum, if not to an equality. It was this stage 
 in the evolution of Industry that ]Mill and the economists who
 
 ON THE TENDENCY TO INEQUALITY. 379 
 
 succeeded him saw going on before their eyes, and from which 
 they deduced the doctrines of their text-books, — doctrines 
 which, believing this stage to be the final and permanent one, 
 they proceeded to elevate into what they imagined were the 
 eternal laws of Political Economy. But just when they had got 
 their science perfected, as they thought, the great capitalists 
 and captains of Industry kicked their feet through it by uniting 
 themselves into those giant Trusts wdiich have crushed out all 
 their smaller com[)etitors ; with the result that the Public 
 which had formerly squeezed the capitalists of their profits by 
 making them compete like rival gladiators in the old Roman 
 arena, for its favour, now found itself, in turn, to its surprise, 
 between the upper millstone of the Trusts and the lower one 
 of the consolidated phalanx of Trades-Unionism ; — and there it 
 is likely to remain so long as the present industrial regime 
 lasts. 
 
 And yet, although all economic things in the present stage 
 of industrial development tend to inequality in so far as the 
 action of the purely economic influences that play through 
 them are concerned, it is necessary to observe in order to give 
 our subject more completeness, that there is always in Political 
 Economy as in all other departments of Civilization, some 
 part of the field which has been subjected to the levelling 
 influence of equality ; and further, that wherever and whenever 
 this has occurred, it has always, as in general Civilization (as 
 I attempted to demonstrate in the first volume of this series 
 ' Civilization and Progress ') been a condition essential to the 
 freer and fuller play of greater inequalities than before in other 
 parts of the field. If we take, for example, the domain of 
 Politics, we shall find that it was only after private revenge 
 wns put down among the masses of the dependent population 
 by the baronial courts, whereby the unregulated inequalities of 
 the lowest stratum of society were levelled and equalized, that 
 the barons themselves had a free hand in their own feuds in 
 their struggle for inequality ; and further that it was only
 
 380 ON THE TENDENCY TO INEQUALITY. 
 
 when these feiuls in turn were put down by the kings' courts, 
 that the kings had a free arena in Avhich to establish inequalities 
 of rank and power among themselves. And we have reason to 
 believe that it will only be when 'balances of power' among 
 the nations shall compel the creation of international tribunals 
 for the settlement of national differences, that the inequalities 
 both of kings and peoples will at last be reduced to equality. 
 It is the same with private Morality. It was only after the 
 Ten Commandments had been thoroughly ground into men, 
 thereby putting the morality of the masses on a general level 
 of equality, that free scope was given to the upper ranks of 
 society to establish their own special criteria of moral judgment 
 unchecked ; and we had, in consequence, special codes and 
 courts of ' honour ' (by no means synonymous with morality) 
 with their appeals to the duel and other punctilious observances, 
 the breach of which entailed social ostracism, and which were 
 believed to be necessary to estimate and judge their inequalities. 
 And here again it may be remarked, that it will only be when 
 publicity and the light of 'public opinion' shall penetrate every- 
 where and make secretly recognised immoralities impossible, 
 that the real inner inequalities of individual character and 
 morality will shine forth and make themselves fully felt in the 
 world : in the same way as the real inequalities in the intellects 
 and capacities of men will only become graded in a scale of 
 relative values, when the purely factitious elements of wealth 
 and position which are now mixed up and confounded with 
 them, shall have been reduced, by a better organization and 
 distribution of that wealth, more nearly to a practical equality. 
 And it is the same with Political Economy. For although in 
 the present stage of industrial development, Rent, Profits, and 
 Wages naturally tend, as we have seen, to inequality, still 
 there is always a tendency, increasingly visible everywhere, for 
 the remuneration of the lowest grades of service to become 
 generalized, and to range itself along the line of equality. 
 But in connection with this tendency to economic equality two
 
 ON THE TENDENCY TO INEQUALITY. 381 
 
 points are to be observed ; — first, that it is due to civilizing and 
 humanitarian agencies, and not to strictly economic anes : and 
 secondly, that it has the effect, as we should anticipate, of 
 giving freer scope to the higher grades of industrial functions 
 to blossom into still more striking inequalities. Already there 
 is a tendency for the most ineffectual workers of the lowest 
 class to have given to them as their right a ' bare subsistence ' 
 wage, which in its way may be said to be the lowest and 
 crudest form of equality ; and now the cry is going up for a 
 ' living wage ' for all workers whatever above this ' bare 
 subsistence ' grade, and is already within measurable distance 
 of realization ; while jwW passu with it. Trades Unionism is 
 everywhere gradually raising by its own efforts, as well as by 
 political pressure, the level of equality in all the skilled trades. 
 And the consequence is, as we should expect, that Capitalism 
 having now got a comparatively firm and level highway, and 
 not a mere quagmire, beneath its feet, is everywhere running 
 rampant with inequality ; — as indeed is exemplified economically 
 in the industrial undertakings which are now being combined 
 and consolidated into mammoth Trusts, as well as in the huofe 
 inequalities of private fortunes on the higher levels of income. 
 And here again we may say that it will only be when these 
 inequalities in turn are coerced by national or international 
 pressure (whether taking the form of legislation which shall 
 lop off * unearned increments ' of every kind, or of a new 
 industrial organization which will have the same effect), that 
 in the grading of men, inequalities in the manner in which they 
 employ their wealth, or in the culture, taste, and refinement 
 exhibited in its mode of expenditure, will make themselves 
 the primary considerations in the world's esteem ; and that 
 not only modest incomes with ' plain living and high thinking,' 
 but honest povei'ty itself, will cease to be shunned and concealed 
 as if it were a leprosy or ci'ime. But in the meantime we may 
 venture to predict, that the play of these leviathan inequalities 
 of fortune which have only recently begun, will before their
 
 382 ON THE TENDENCY TO INEQUALITY. 
 
 noontide and consummation, breed a class of men whose moral 
 standards and ideals will if unchecked sink the race as low as 
 ever did the imperial throne of the Caesars — with its Neros, 
 Calignlas, and Caracallas, — all ranks alike of the Roman people. 
 And this it will do through the low ideals of the great masses 
 of men, whose poverty breeds the base admirations which 
 colossal wealth and ostentation draw out, as the sun does the 
 miasms of the marsh ; fascinating their secret idolatries, and 
 hypnotizing them as the eyes of malignant serpents do birds, 
 and so reproducing their base ideals faster than either preaching 
 or prophesying, religion or the hope of heaven, can outroot 
 them. Even now the streets of the world are lined with crowds 
 who drink in every movement of these overblown financial 
 potentates, as if they were emperors or kings. But to return. 
 
 We have seen, then, that in the present stage of the 
 evolution of Industry, the distribution of Rents, Profits, and 
 Wages, would all alike tend, if left to themselves, to inequality ; 
 even the simplest bargain between individuals never being quite 
 on level terms, but depending always on the relative strength 
 of the desires with which the one party to a transaction wishes 
 to part witii an article or piece of property, and the other 
 wishes to acquire it. 80 that although in the Pure Science of 
 Political Economy there is, as we have seen, only one law of 
 distribution, namely that all the factors alike, whether Rent, 
 Profits, Interest, or Wages, tend to rise and fall together 
 according to the speed of the revolutions of the wheel ; in the 
 Applied Science with which we are dealing, — and Avhich has 
 to function in a world of separate nationalities with their 
 respective political constitutions, policies, legislative enactments, 
 etc., — the distribution of wealth depends for its variations from 
 the normal, entirely on the incidence of Power in the widest 
 sense of that term ; whether it be the power of the sword, of 
 legislation, of custom, of the pressure of public opinion, or of 
 those purely economic advantages of time, place, situation, and 
 position which are not transferable, and cannot be annulled. 
 
 i)
 
 ON THE TENDENCY TO INEQUALITY. 383 
 
 This is the real world in which the wheel of wealth revolves 
 and functions, and by which all its natural revolutions are 
 accelerated or impeded at each and every point ; and it is in 
 this world that our doctrine holds true, that the distribution 
 of all economic things tends to inequality, — and not, as the 
 orthodox economists hold (except in the case of Kent), to 
 equality. And the conclusion of it all for economic reformers 
 and statesmen is, that as the distribution of wealth is a 
 composite of two factors ; — namely of Power on the one hand, 
 which, as being ahvays centred in the hands of human 
 beings, tends ever to the conservation, aggrandizement, and 
 augmentation of itself, and so to make cumulatively for 
 inequality ; and of the pure abstract laws of the wheel on the 
 other, which if not interfered with by the intrusion of Power 
 from without or from within, would tend everywdiere to make 
 the economic prosperity or adversity of all the classes engaged 
 rise or fall together ; — it follows, that to handle any tanoled 
 economic situation with a view to the general welfare, we 
 must keep our eye fixed on where the incidence of Power 
 falls, rather than on the pure laws of the wheel itself. For it 
 is the intrusions of Power that are usually the cause of any 
 obstructions that may arise in its running ; and just as in the 
 complications of home life, cynical observers have suo-o-ested 
 that it is always advisable to ' cherchez-la-femme,'' so in all 
 economic situations of difficulty, it is always necessary to ask, 
 where is the man, or class of men, or institution, or law, or 
 policy, or what not, which has succeeded in entrenchino- itself 
 so firmly in its position that if left unmolested it will continue 
 to dominate the situation indefinitely, and so keep up the 
 economic grievances which it is the interest of the public to 
 remove ; — and there to direct its batteries. In other words, it 
 is to Politics and Legislation that we must look primarily for 
 the remedying of economic grievances, and not to ' laist<ez-faire^ 
 and the abstract laws of the wheel itself when runnino- in 
 vacuo as it were, and cut off from its roots in the real world.
 
 384 ox THE TENDENCY TO INEQUALITY. 
 
 And now we have come to the end of our survey of the 
 orthodox Political Economy from Adam Smith to John Stuart 
 !Mill. At one point or another of our discussion we have 
 managed, I think, to introduce practically all of the main 
 doctrines of the orthodox system which are included in this 
 stage of its development, and have endeavoured to give to 
 each as much space and consideration as its importance would 
 seem to demand. In the immediately succeeding chapters, 
 I propose to concentrate attention on those modifications of 
 the doctrine of the orthodox school of Ricardo and Mill which 
 have been made by the later writers who have carried on its 
 traditions to the present time, as well as on the doctrines of 
 those outside economic thinkers who while still cling-inff to 
 many of the doctrines of the orthodox school, have made the 
 most effective breaches in its walls at one and another point, 
 and so have prepared the way for the new Copernican system 
 which, borrowing an analogy from Astronomy, I am here 
 making a first rough attempt to erect on the ruins of the old 
 Ptolemaic one.
 
 CHAPTEE III. 
 
 THE ACADEMICAL ECONOMISTS — JEVONS, 
 
 BOHM-BAWERK, MAHSHALL — 
 
 ON VALUE. 
 
 f N continuing our examination of the evolution of Political 
 Economy from Mill to the present day, the task before 
 us will, after our foregoing discussions, be a comparatively 
 simple one. With Mill, Political Economy became at once 
 orthodox and academic ; and the impress then given it, so far 
 as its organic skeleton and the concatenation of its leading 
 principles are concerned, has remained to the present day. 
 Practically, therefore, most of the criticisms we have applied 
 to the developed Economy of Mill, will apply equally well to 
 all his orthodox successors, and need no longer detain us. 
 But the object of this volume would be but imperfectly attained 
 if the matter were left here. It is incumbent on me to show 
 as well that, as I said in my opening chapter. Political 
 Economy is no exception to the doctrine that if once any 
 de[)artment of human activity is cut from its roots in History 
 and Civilization, for the purpose of making an academic 
 epecialism of it, the further its evolution and development 
 have proceeded from its original basis and its delimited stock 
 of first principles, the more unreal and fantastic do its 
 specialized doctrines become, until they end too frequently in 
 sand-heaps of pedantry and absurdity. Scientific laws are
 
 386 THE ACADEMICAL ECONOMISTS — 
 
 replaced by detailed inventories of sliort-sighted methods and 
 processes, constructive combinations by ultra-microscopic 
 analyses, until all focus and perspective is lost ; and of this 
 tendency, the evolution of academic Political Economy since 
 Mill, aiFords one of the most striking exemplifications. But 
 as my space is restricted, and there are limits to the reader's 
 endurance of prolonged discussions on human pedantry, I 
 propose to plunge at once in Dwdias res by concentrating 
 attention on a few of the leading representatives of the 
 different schools — Jevons, Marshall, Bohm-Bawerk, Walker. 
 Clark, and others, — and on the three problems which have most 
 exercised the minds of the orthodox economists since Mill, 
 namely the problems of Value, of Interest, and of Distribution ; 
 leaving what 1 have to say of the ' outside economists' — the 
 men like Ruskin, Marx, Henry George, Gunton, Hobson, and 
 others — to a later chapter. 
 
 But if my criticisms of this rather intricate set of problems 
 are to have coherence and continuity, it is necessary that I 
 should prepare the reader beforehand, by a tabulation of the 
 errors of method which he may expect to find in the specula- 
 tions of these later economists ; and as these errors all hang 
 together in a chain, each following on what went before, it 
 will be better to exhibit them in their connection, before 
 starting on the main business of this chapter. 
 
 In the first place, then, like the earlier economists, they 
 have missed the part played by Consumption as an integral 
 factor in their Science, and as a consequence have missed the 
 fact that the mechanism with which they are dealing is a 
 double-sided revolving and self-regulating wheel of Production 
 and Consumption, as the mechanism of the eye is a self- 
 regulating globe of sight. In missing the wheel, they have 
 missed its central axle, — which, as we shall see, plays so 
 important a part in the problem of Value and of Interest, — 
 and therefore the focussing point from which all its movements 
 can be surveyed in a single view. In missing this central
 
 JEVONS, BuIlM-lJAWEliK, MAItSHALL — ON VALUE. 387 
 
 point of survey on the axle, again, and the men of the central 
 exchanges who sit on it, — the dealers of the Money, the 
 Corn, the Metal, and other Exchanges, who are in touch with 
 every side and aspect of the wheel — they have missed the fact 
 that these men really control the amount of supply of any 
 commodity that shall be forthcoming to keep pace with the 
 demand — ^the amount of new land taken into cultivation, or 
 of old land allowed to fall out of it, of new mills to be erected, 
 or of old ones to be closed, etc., — and so are the initiators of 
 economic phenomena, and not merely the passive registrars 
 of them, and help to regulate and steady the pace of the 
 wheel, while themselves guided by that pace. And the 
 consequence, again, of these academic economists not seeing 
 things all round from this commanding point of view in the 
 centre, and in the open sunlight, as it were, is, that they have 
 had no other alternative but to conduct their investiofations 
 of the laws of the wheel from a distracted multiplicity of 
 independent transactions on one or other side of it, where only 
 half the significance of each is visible ; and in consequence 
 have missed the element of economic Power which results 
 from concealed but virtual monopolies, and which, as we 
 shall see, is to be found gathered up and concentrated in bulk, 
 only in the hands of the men on the axle — the power of 
 landlord over tenant, of capitalist over workman, of the 
 money-lender over the money-borrower, — all of which, like 
 loaded dice, give their possessors an advantage in every, the 
 smallest, individual transaction or bargain. For althouo-h 
 negotiated under the form of 'freedom of contract,' these 
 bargains involve, as we have seen, the freedom to combine 
 as well as to compete ; the competition being only a half- 
 way-house, as it were, — as the industrial world has lately 
 given proof, — on the road to combination. And having missed 
 this intrusion of economic Power, under the illusion that all 
 contracts are free, and that competition reigns everywhere, 
 they have missed the fact that all economic forces alike tend
 
 388 THE ACADEMICAL ECONOMISTS — 
 
 not to Equality, but, as we saw in the last chapter, to 
 Inequality. 
 
 Now the above errors of method, and neglects, are the 
 common heritage of the Orthodox Political Economy both 
 before and since the time of Mill ; but in the discussion on 
 Value, Interest, and the Distribution of Wealth, with which 
 the academic Economists since Mill have been mainly 
 concerned, and to which I am now to invite the reader's 
 consideration, there are three special illusions into which they 
 have fallen, and which it is necessary we should keep in mind. 
 These all spring from their inability to focus their subject- 
 matter properly, owing to their not seeing that they were 
 dealing with a revolving wheel which has a central axle, and, 
 in consequence, to their having lost their way in groping about 
 among their own subtleties. These three illusions are : — 
 
 1. That they have ground down what are essentially 
 
 matters of relative quantity and velocity, into in- 
 dividual psychological estimates of satisfaction or 
 aversion ; and so have been unable to construct 
 anything with them ; just as would happen if one 
 were to grind down bricks into brickdust, and then 
 attempt to build with the dust; and so have 
 confused Psychology and Biology with Political 
 Economy. 
 
 2. In not seeing that the wheel of wealth is double-sided, 
 
 each side keeping pace with the other, they have 
 not been able to connect the phenomena turning 
 up on one side of the wheel with the correlated 
 phenomena on the other ; and as no product can be 
 said to be properly on the wheel at all (and so 
 belong to the Science of Political Economy) unless 
 it is being continually produced, sold, and reproduced, 
 the consequence is that not only are they unable to 
 separate what strictly belongs to their problem from 
 what does not, but they are only able to give one-
 
 JEVONS, BOHM-BAWERK, MARSHALL— ON VALUE. 389 
 
 sided (and therefore practically false) solutions to 
 all the problems discussed. This is especially seen 
 in their discussions of Value and Interest. 
 3. But more important still, in not seeing that the wheel 
 is a continuously revolving one, they have fallen 
 into the error (everywhere seen in their treatment 
 of the Distribution of Wealth) of supposing that 
 the complexities of their Science, whose subject- 
 matter is entirely dynamic, can be approached by 
 first separating out the dynamical elements and 
 throwing them away, and then concentrating on 
 the relations of the statical, in the belief that the 
 dynamical complications can be unravelled and 
 woven into the statical, later on ; and so have 
 missed the true method of approach, which is to 
 begin with the dynamical relations, and then to add 
 the statical, which, as being merely hindrances or 
 obstructions to the free running of the wheel, do 
 not affect the Science in its essentially dynamical 
 character, — whether they come from outside the 
 wheel altogether as in Politics, or are concealed in 
 its interstices, as in the purely economic exploita- 
 tions of one industrial class by another. This latter 
 method, as the reader will remember, is the one 
 which I have been obliged to pursue, as seen in my 
 treatment of the Pure and the Applied Science of 
 the Wheel at the beginning of this volume. 
 Of the affectation of mathematical diaorams and 
 curves, again, in the statical presentation of the 
 academical Economists, I shall have something to 
 say later on. 
 Let us begin, then, with Jevons, the most important, 
 perhaps, of all the orthodox economists since Mill, in so far at 
 least as his influence on the still later schools of the academic 
 Political Economy is concerned, — especially his influence on the
 
 3itO THE ACADEMICAL ECONOMISTS 
 
 English School, us represented by Marshall ; on the Austrian, 
 by Bohin-Bawerk; and, in a roundabout way, on the American, 
 by Clark and others. 
 
 And first, as to his solution of the problem of Value, and 
 the modifications he has introduced into the doctrines of Mill 
 and Ricardo. They, it will be remembered, made the value of 
 an article depend on the labour and capital spent in producing 
 it, any variation from the normal market-price being referable 
 to the temporary fluctuations of supply and demand. Jevons 
 proposed to upset this, and to make Value depend on the 
 mental or bodily sathfaction which people got out of things — 
 their ' utility,' as he called it — and although he admitted that 
 the cost of producing them had .something to do with their 
 value, it was neither a definite nor an essential element in it. 
 It might be a * determining circumstance,' he allowed, but 
 not a ' cause.' And the reasons he gave for this were : — first, 
 that the different kinds of labour were essentially variable, 
 and therefore not reducible to any common denomination for 
 purposes of comparison ; — for how, lie asks, could you ever 
 possibly determine a jjjnori the relative productive powers of a 
 navvy, a carpenter, an iron-puddler, a schoolmaster, or a 
 barrister ? Or, again, what, he asks, have the values of old 
 coins, old china, antiques, pictures by old masters, etc., to do 
 with the cost of their production, — in any proper sense of the 
 term cost ? But should you suggest that Value, economically 
 speaking, applies only to things that can be produced and 
 reproduced, — as corn, cotton, iron, etc., — he counters you by 
 pointing to the fact that their values are always fluctuating, 
 and therefore cannot have depended on their cost^ which at 
 any rate nnist have been a definite amount. And although he 
 afterwards admits that Labour, if never the cause of Value, is 
 in a large proportion of cases the ' determining circumstance,' 
 still when he has to make up his mind which he is going to 
 stick to — Labour, or Utility — after making his amende by 
 recognizing a certain element of truth in Mill and Ricardo, he
 
 JEVONS, BOHM-BAWERK, :MARSHALL ON VALUE. 891 
 
 plumps solidly for his own dogma of ' final utility ' as the one 
 on which he is going to hang his subsequent deductions, and 
 throws overboard the labour-cost — like an advocate M-ho, 
 beginning by admitting that there is something plausible in 
 his opponent's arguments, allows them to grow dimmer and 
 dimmer as he proceeds, until they fade out of sight altogether ; 
 — and so relegates Labour to the scurvy position of a 
 'determining circumstance' and not to the dignity of a true 
 ' cause ' ! Now the worst feature of irresolute Thinkers like 
 .levons, who have not natural penetration enough to gravitate 
 to the central reality, is that, like a man with a candle groping 
 about amono; the miscellaneous contents of a cellar, thcv shift 
 their ai-guments and observations to adapt them to the particular 
 side of the object against Avhich they happen to collide ; and, 
 not seeing the other side, either only feebly believe that it has 
 another side, or are unable to bring the two into relation with 
 each other. For what, after all, is the distinction which 
 Jevons wishes us to draw between a 'cause ' and a 'determiningr 
 circumstance ' ? If he means that a ' cause ' must be an 
 ultimate mental thing, like desire or satisfaction, while a 
 ' determining circumstance ' is only a physical thing, like 
 Labour ; and if, as he admits. Labour in a large proportion of 
 cases is the 'determining circumstance' of Value ; then he ought 
 frankly to have admitted that Value, or market price, was the 
 result of the co-operation of two factors equally necessary, 
 namely Labour and Utility, and not of Utility alone ; whereas 
 he has afterwards made his new system of Political Economy 
 turn on the single factor of Utility ; like a man who because 
 when asked why he gave £100 for a piece of old china or an 
 old master, he could justly reply because of the personal 
 satisfaction, or ' utility,' he got out of it, should when asked 
 why it was fourpence, and not a shilling, that he gave for a loaf 
 of bread, deem it also a sufficient explanation to say, because 
 of the amount of personal satisfaction which, being hungry, he 
 got out of it. And yet it is Jevons' own answer ; for after
 
 392 THE ACADEMICAL ECONOMISTS 
 
 much to-and-fro discussion, his conclusion is that Value 
 depends solely on ' final utility.' Now the truth is, Jevons 
 confounds the cause of Value in general, which of course is 
 solely utility, or in general terms personal desire and satisfaction, 
 and that alone, (otherwise no one would buy anything), with 
 the cause of value in particular' cases, or market price — quite a 
 different matter. And this although it is precisely the problem 
 of the cause or causes of particular values, which Political 
 Economy has asked him to solve — not of the cause of Value in 
 general. 
 
 The fact Is, he did not see that no definite thing in this 
 world, whether it be a market price or anything else, is ever 
 the result of a single cause, but must always require at least 
 two factors — a general and a limiting one, — and that it is only 
 when the two are brought together that a definite something 
 can arise ; in the same way as it is only when a positive charge 
 of electricity is brought into relation with a negative one, that 
 a definite spark passes between them. And if this be so, it is 
 evident that a definite market-price cannot be the result of any 
 one thing, or degree of one thing, — whether it be the ' final ' or 
 any other degree of ' utility ' or satisfaction, — but must be the 
 result of a relation between that and some other thing. And 
 the question now becomes why did .levons stick so doggedly 
 to his single cause — Utility ? For if we can find an answer to 
 this, it will give us an insight into the fallacy involved in his 
 whole scientific procedure. He has himself given us the hint 
 as to where to look for it, when he asks ; — how can you ever 
 compare the productive powers of a navvy, a carpenter, a 
 schoolmaster, or a barrister, so as to reduce them to a 
 common denomination of labour? And if you cannot, then the 
 diff"erent values of things must, according to him, come out of 
 the utility or satisfaction they yield, — only in difterent degrees. 
 But as the value of a thing is always the same at any given 
 time in the same market, whereas the satisfaction which people 
 get out of it at any particular time varies with every circum-
 
 JEVONS, BOHM-BAWERK, MARSHALL — OX VALUE. 393 
 
 stance of tlieir lives, — whether they are liimgry or not liungry, 
 whether they have just eaten their loaf or not yet eaten it, 
 the amount of the commodity they have on hand or can look 
 forward to having, the price they have to pay for it, the 
 extent of their means, etc., — it follows that to get a common 
 denominator in degrees of utility or satisfaction, as the basis 
 of a definite market price, is even more hopeless than to get it 
 out of the different kinds of labour. It is evident, then, that 
 the different degrees of utility do not give us the second term 
 of the relation of which we are in search. Now, if Jevons had 
 said that the market price of an article was the relation between 
 the mental or bodily disagreeableness to which one set of persons 
 were put in producing the article, and the mental or bodily 
 satisfaction which another set were to get out of it, not only 
 would he have got the second term of the relation necessary, 
 but both terms would have been of the same denomination ; 
 and his solution of the problem of value, accordingly, would 
 have been in essence substantially true. Or if he had made 
 the price depend on the relation between the amount of labour 
 that had to be put into an article, and the amount of labour to 
 be got out of it — as out of a loaf of bread or ton of coals, — 
 again he would have had two terms of the same denomination, 
 and again would have been substantially right in his solution. 
 In each case he would have got the two co-equal and co- 
 essential causes, of the same denomination, which are necessary 
 to produce a definite market-price. But by settling himself 
 on one arm of the relation only, and excluding the other 
 altogether as a ' cause,' not only did he set back the develop- 
 ment of his science instead of advancing it, but he rendered all 
 the deductions whicli he was about to draw from his solution 
 futile. That he did intend to deduce other conclusions 
 ])ertaining to the Science from it, is manifest; for at the outset 
 of his work, he announces that his theory of Value ' is the 
 keystone of the whole theory of Exchange, and of the principal 
 problems of Political Economy.' But the deductions which he
 
 394 THR ACADEMICAL ECONOMISTS 
 
 did not live long enough liimself to draw, were drawn for him 
 wholesale, as we shall see, by his pupil Bohm-Bawerk, as well 
 as in limited directions by certain Economists of the English 
 and American Schools — of which, more anon. 
 
 But in the meantime his announcement gives us a hint of 
 the second reason why he should have persisted in so strange 
 and patent a fallacy as that Value depends .wlely on ' final ' or 
 * marginal ' utility. It lies in his confounding a theory of the 
 e.Tchange of different things, with a theory of tlie value of 
 particular' tilings. " Articles," he says with real truth, " will 
 exchange in quantities inversely as the cost of production of 
 the most costly portion, i.e., the last portion added ; " or, in 
 other Avords, they will exchange, not according to the rich 
 capabilities of the best lands, or the productivity of the best 
 machines, etc., but according to the difficulties of the ivorst 
 that are in use in supplying the market; the most fertile lands, 
 the richest and most easily worked mines, the most productive 
 machines, etc., getting as a free gift the excess of their product 
 over that of the poorest and worst in competition with them ; 
 just in the same way as if a man happened to own a field where 
 gold or diamonds lay strewn on the surface, he might sit still 
 and grow rich on the 'unearned increment' which would flow in 
 to him from the high price he would get for them, and which 
 would be fixed by the labour of those who had to get them at 
 great cost, and by expensive machinery, from the bowels of 
 the earth. But although articles of different kinds — as wheat 
 and coal — will exchange with each other in the inverse ratio of 
 the cost of bringing to market the most expensive portions of 
 the supply of each, and not of the cost of the least expensive 
 portions, — or, in other words, will exchange in quantities 
 inversely as the respective values of each, — still this does not 
 bring us any nearer to our problem, which is; — what determines 
 the value of each article separately ? It is easy to know how 
 the things will exchange, when once you know their respective 
 values : but the problem is, what is the cause of the particular
 
 JEV'ONS, BOHM-BAWEEK, :\IARSHAT>L — OX VALUE. 395 
 
 value of each? Jev^ns, at any rate, cannot affirm that it lies 
 in the Labour-cost of the most expensive portion : for his whole 
 theory is, that Value does not depend on labour-cost at all, as 
 its 'cause,' but solely, as he says, on Utility. Leaving him, 
 then, in the muddle of his own creating, whereby he makes the 
 Exchange-value of two different things depend on their relative 
 l^abour-costs, but the value of each to depend, not on Labour- 
 cost at all, but only on Utility ; we may now turn to the other 
 academical Economists, and see hoAv they propose to solve this 
 problem of Value, and of Market-price. 
 
 And first let us consider Bohm-Bawerk's solution. Now 
 of him it may be said, that instead of extricating his master, 
 Jevons, from his confusion and one-sidedness, he has only 
 succeeded, by the uncompromising definiteness and dogmatism 
 with which he defends liim, in making them more conspicuous. 
 Jevons himself evidently had qualms in ruling out cost of 
 production as a ' cause ' of price, for, as we have seen, he 
 hesitatingly tried to bring it back as a ' determining circum- 
 stance.' But Bohm-Bawerk ruled out this concession as a 
 mere weakness, and boldly declared that " the measure in 
 which a want is satisfied, is actually and everywhere the 
 measure of value of the commodity that satisfies it, and not 
 the difficulty or cost of making the article ; the costs of the 
 different factors in the production of a commodity, being- 
 represented by the satisfaction given by the finished product, 
 and not the value of the product by the costs incurred at the 
 different stages of its manufacture." Here you have the 
 Utility theory of Value in its full flowering; — and it is only 
 another instance of the tendency of all specialisms in their 
 decadence to lose all sense of measure, proportion, and quali- 
 fication, until they end in downright absurdity. For here, 
 like Jevons, it is evident that Bohm-Bawerk confounds Value 
 in the abstract, with a particular ujarket price ; and because 
 the sole cause of Value in general is Utility, thinks that the 
 particular value of a particular thing, or its market price, is
 
 3y6 THE ACADEMICAL ECONOMISTS — 
 
 that people in general desire it, or get* satisfaction out of 
 it. Like Jevons, too, with his old coins and old china, 
 Bohm-Bawerk draws his proofs from the fancy prices that 
 are paid for articles like rare vintages of wine, which are 
 desired chiefly for purposes of ostentation by those to whom 
 price is a matter of indifference, instead of from commodities 
 which are more or less freely producible on demand, and 
 which minister to normal economic wants. And it is the same 
 with commodities necessary for Production, as for articles of 
 Consumption ; for he contends that the market price of every 
 stage of a product from the time the raw material is taken 
 from the field or the mine, until the finished article finds its 
 way into the retailer's shop, is regulated by the degree of 
 enjoyment got out of the finished product ; but how the prices 
 at each stage are to be apportioned, unless the costs of each 
 are estimated, is a mystery which no man can solve. Indeed, 
 this introduction of matters of individual psychology, personal 
 caprice, etc., into market price, — which is, after all, only a 
 matter of the movements of economic quantities, and the 
 obstructions they encounter in their progress round the wheel, — 
 is as much an affectation and excess of analytic subtlety, as it 
 would be to reduce the issue of a prize-fight to an elaborate 
 analysis and calculation of the particular muscles and nerves 
 involved in the respective combatants, instead of into their 
 relative strength and skill as men merely, by whatever elaborate 
 internal mechanism these are brought about, — like that econo- 
 mist, whom Marshall mentions, who proposed to construct a 
 system of Political Economy on the relations between the nerves 
 of sensation and the nerves of motion ; — and is to be wise above 
 what is written. In spite of its array of mathematical fornmlae, 
 curves, and diagrams, — like the apothecary's shop in ' Romeo 
 and Juliet * with its old dried fish-skins, empty boxes, bladders, 
 and stuffed alligators, ' thinly scattered to make up a show,' — 
 and the consequent appearance it has of deep and recondite 
 scientific analysis, it exhibits a want of penetration and insight
 
 JEVONS, BOHM-BAWERK, ^MARSHALL — ON VALUK. 397 
 
 as to how to focus the subject-matter of the Science in the 
 way best calculated to bring out its essential relations and 
 harmonies ; and is a disease and retrogression, rather than an 
 advance. For in this problem of market-price, it is necessary 
 to keep our sight 'dilated,' as Bacon would say, rather than 
 contracted to a pin point, if we are to bring the subject into 
 just relation and perspective with the other aspects of the 
 Science, as parts of a harmonious whole. 
 
 Leaving Jevons and Bohm-Bawerk, then, with their reduc- 
 tion of the problem of Value to its one-sided function of being 
 a mere register of degrees of mental or bodily satisfaction, or 
 Utility, let us now see what is the attitude of the English 
 School of Economists to this doctrine. 
 
 In his discussion of the pi'oblem of Value, Professor Marshall, 
 while leaning on the whole to the Labour-cost side of Mill 
 and Ricardo, ends by making a compromise ; but this he gets 
 rather by ' splitting the difference ' between them and Jevons, 
 than by any such firm handling of the problem as would 
 necessitate a reconstruction of the other fundamental proposi- 
 tions of the school of Mill, to which, indeed, in a hesitating 
 way, he still in the main adheres. He declares, quite justly, 
 in opposition to Jevons, that value depends as much on ' final ' 
 labour-cost as on ' final utility,' and strikes down on the truth 
 very happily when he says that the cost and the satisfaction 
 mutually determine each other, like a number of balls in a 
 bowl, or like the separate blades of a pair of scissors, both of 
 which are needed for cutting. That this was a lucky hit on 
 the part of Professor Marshall, rather than a real illumination, 
 is rendered probable by the fact that, if followed up, it would 
 have revolutionized his whole Political Economy ; for it would 
 have led him to the introduction of the factor of Consumption 
 as a definite, and not merely an indeterminate, element in the 
 science. For if the upper blade of his pair of scissors stands 
 for Production, or Labour-cost, his lower blade must stand for 
 Consumption, or Utility ; and the two together would — had he
 
 39<*S THE ACADEMICAL ECONOMISTS — 
 
 seen that the problem was a cl3'naraical one — have led him to 
 the wheel (or some other dynamical construction) as the true 
 symbol and central principle from which all the doctrines of 
 Political Economy are to be deduced. But he did not see 
 that any double-sided phenomenon, economic or other, in 
 which the two sides or aspects are so connected as to mutually 
 determine each other, must be a dynamical one, and follow 
 dynamical laws ; and so his system, as a whole, is as statical in 
 its nature and methods as that of either Mill or Ricardo. 
 Instead, therefore, of revolutionizing all his doctrines, this 
 chance aperai remained with him barren and alone, and bore 
 no further fruit ; it was a gleam of true perception in the midst 
 of the general sand-desert of refinements and distinctions of 
 the academic Political Economy. 
 
 The only English Economist who has arrived at a true 
 theory of the nature of Value by an exhaustive analysis of all 
 its sides, and one which is in harmony with all his other views, 
 — and not, as with Marshall, in contradiction to most of them, — 
 is Mr. Hobson, whose work the academic Economists have so 
 lono- affected to ignore. In his ' Economics of Distribution,' 
 he has shown that Value is always a relation, whether you 
 reofard it from the Labour-cost side of Mill and Ricardo, or 
 from the Utility side of Jevons and Bohm-Bawerk. If you 
 take it from the Labour side, the value of anything is, he 
 contends, a relation between the Labour-cost (acting on 
 natural resources) which constitutes the limits of 'supply'; and 
 the work you are to get out of it, when backed by your power 
 to purchase it, — as, for example, the work of a ton of coals, or 
 the vital energy from a loaf of bread, — which constitutes the 
 ' effective demand.' Or, if you take it from the mental, or 
 Utility, side, it is a relation between the strain on brain or 
 nerves, involved in the disagreeableness of getting a thing, 
 which constitutes the supply, and the satisfaction which it will 
 bring you, when acquired, which determines and regulates the 
 demand. And with this analysis I quite agree.
 
 JEVONS, RuHM-BAWERK, MARSHAL!. — ON VALUE. 399 
 
 Now, it will be observed that the above solutions of the 
 problem of Value which have followed one another in line from 
 the time of Ricardo and Mill to the present day, have all been 
 arrived at by the same general process or method of approach, 
 — by the point to point inspection, namely, of the different 
 aspects of the mechanism of exchange, and of the relation of 
 its various parts with each other. But as this mechanism in 
 its actual running is very complicated, so that the whole has 
 to be arrested, as it were, before each point can be inspected, 
 and started going again ; and as without some general idea 
 of what it all means beforehand, it is difficult to combine 
 these separate observations into a harmonious conception of 
 the whole, — much in the same way as it would be difficult to 
 understand from the inside of a watch what its intricate 
 mechanism meant, unless one came to it with some under- 
 standing of the meaning of the hands on its face ; or of a 
 printing machine, without a prior knowledge of the general 
 fact that the paper that went in blank at one end, was to come 
 out in printed columns and pages at the other ; — -reflecting on 
 this, and on how easy it is to go astray when one goes searching 
 about among a miscellany of hitherto unconnected objects or 
 operations as with a candle in the dark, and on how, if a sino-le 
 essential item is overlooked, or not seen on all its sides in its 
 true relation with all the rest, the real meaning and interpre- 
 tation of the whole is obscured and falsified ; and remembering 
 besides, that as a result of this method of approach, the problem 
 of Value which we are now considering has taken nearly a 
 hundred years for the true solution, given to it by Mr. Hobson 
 by this method, to appear ; reflecting on all this, I sav, the 
 question naturally occurs to one, as to whether the problem 
 might not have been solved more simply and broadly in another 
 way, namely by an approach from the outside as it were, and 
 in terms more consonant with the ordinary usage of business 
 men, and more suitable for the practical purposes of an applied 
 Science of Political Economy ; and as to whether by some
 
 400 THE ACADEMICAL ECONOMISTS 
 
 more illuminating method than this of the candle, other factors 
 and powers whose significance has only been dimly or half 
 perceived, may not be brought more fully into the light. For 
 we have not forgotten that our perpetual-motion schemers, in 
 spite of all their searchings and gropings among the wheels of 
 their machines, always missed the all-important element of 
 friction, which the broader illumination afforded by a knowledge 
 of general mechanical principles afterwards brought to light. 
 And as in this volume I have contended that our symbol of the 
 wheel, with its dynamical, not statical, method of approach, 
 affords a parallel illumination for the science of Political 
 Economy, my readers will naturally expect me to show what 
 light, if any, it can throw on this perplexed problem of Value. 
 And accordingly, without further ado, let us venture to put 
 this problem of Value, like the rest, on our wheel ; and after 
 setting the wheel agoing, see what kind of solution it will turn 
 out. But first, I must make some addition to the wheel, in 
 order that the smaller complications may find a place for 
 themselves on it, as a fisherman might do to his net when he 
 was more than usually anxious that none of the smaller fishes 
 should escape him. Now the first addition we must make to 
 our wheel — and without which, indeed, no solution of tlie 
 detailed problems of Political Economy is possible, — is to 
 furnish it not only with an axle like an actual wheel, but with 
 spokes radiating from it on every side to every part of the 
 circumference. On the axle, or central platform, are to sit all 
 those who are engaged in organizing and controlling the 
 mechanism both of the production and the consumption of 
 wealth, — the bankers, the brokers, and the dealers of the 
 central Corn, Metal, and other exchanges ; the spokes being 
 the feelers which keep them, as the central intelligence depart- 
 ment of the whole, in instant touch with every part both of 
 the Production and of the Consumption sides or aspects of the 
 wheel. And the first advantage we propose to get for the 
 science from this addition is, that it will separate at once all
 
 JEVONS, 150HM-15AWERK, MARSHALL— ON VALUE. 401 
 
 those economical or industrial transactions which are not strictly 
 on the wheel at all — and which cannot therefore be admitted 
 as the basis for arguments properly belonging to the science 
 of Political Economy — for although in the form of business 
 bargains, they often really belong to the domain of other 
 sciences, like Psychology — from transactions strictly belong- 
 ing to the science. For, unless an article, or commodity, or 
 service, has its place both on the Production and Consumption 
 sides of the wheel, and so can come within the purview of the 
 men on the axle, through their feelers at all points of the 
 circumference, it cannot be said to be on the wheel at all as 
 part of the legitimate subject-matter of Political Economy. 
 And the first effect of this elaboration of our wheel will be to 
 throw out of consideration as arguments, all analyses which 
 would resolve the broad facts of industry — as, for example, 
 the actual supply and demand of actual commodities, of which 
 the men on the axle can keep track and register — into terms 
 of the mere personal motives, caprices, or satisfactions, of 
 individuals, which have induced them to make, or refrain from 
 making purchases, to enter into industrial speculations or 
 refrain from entering into them, etc.; — and for this reason, that 
 the men on the axle can neither have any cognizance of the 
 infinite variations of these motives, caprices, or satisfactions, or 
 of their number or their strength, inasmuch as they have no 
 record of them, and even if they had, would find them entirely 
 unmanageable, requiring a book-keeping which would fill up 
 the world with its ledo^ers and derange the human reason ! It 
 is as if they should convert a plain fraction, say y^, into its 
 recurring decimal '3333333, etc., where the procession of figures, 
 like Macbeth's ghosts, might stretch out to the crack of doom 
 before they could come down on the figure on which they were 
 to pause, and of which they were in search. Besides, there can 
 be no advantage in it of any kind, inasmuch as all these 
 miscellaneous motives of every degree of strength, which 
 enter into the ' marginal ' supply and demand of the article 
 
 c c
 
 402 THE ACADEMICAL ECONOMISTS 
 
 in question, would register tlieniselves, after all, in the exact 
 market price represented bj the simple fraction ^, On the 
 other hand, should a single element of marginal utility or cost 
 be left out, the result would no longer accurately register the 
 actual value or market price. And therefore, although you 
 can, if you please, speculatively resolve the relation between 
 supply and demand into terms of these 'marginal' motives, 
 costs, or satisfactions, like our recurring decimals; for practical 
 purposes, they are as barren as the speculations of the School- 
 men as to the number of angels that could dance on the point 
 of a needle ; or as a calculation of the number of movements 
 of a violinist's elbow in playing a concerto. And just as with 
 the infinite forms of the crests and hollows of the waves of the 
 sea, you can trust that they will find their level, on the simple 
 law of gravitation, although you never could prove it by any 
 possible detailed calculation of the ultimate, endless, intricacies 
 of movement involved ; so for practical purposes you can 
 trust that the simple supph^ and demand of commodities or 
 services, as measured in terms of money, is the ultimate 
 scientific determinant of their relative value, into whatever 
 differentiations of difficulty, cost, marginal utility, or personal 
 satisfaction, you choose from psychological curiosity to resolve 
 them. For although money may not be the ideal measure of 
 value, it is the only one at present practical or possible. And 
 as the quantities of the supply of any article will always 
 balance the quantity of its demand when once it is put on the 
 wheel, inasmuch as Production and Consumption must always 
 balance each other by a quickening or slowing of the whole 
 wheel ; and further, as the value of any article by itself, or its 
 exchange value in reference to another, will, when it is 
 converted into terms of money, always be determined by some 
 relation between these quantities ; it is evident that we need 
 go no deeper than the simple relations of the quantiti/ of the 
 demand and supply of anything, whatever its ultimate nature 
 may be, to solve the problem of Value, when once the article
 
 JEVONS, BOHM-BAWEIIK, MARSHALL — OX VALUE. 403 
 
 in question is put on the wheel, and the result registered on 
 the axle in terms of money. And so all these dialectics of the 
 academical Economists on the problem of Value, with their 
 ultimate analyses of the respective factors into the brick-dust 
 of degrees of satisfaction, or utility, 'margin of indifference,' 
 'final productivities,' etc., are so much surplusage, which not 
 only confuse the problem, but add nothing of value to its 
 solution. And, indeed, with all their refinements they have 
 not, as we have seen, been able to solve the problem of Value 
 after all; even when we allow them like duellists to select 
 their own weapons. And this, again, is due to the fact — which 
 our wheel would have made clear to them — that they have not 
 seen when a commodity was on or off the wheel, as a possible 
 basis of their arguments, if they were to be strictly scientific in 
 character ; as, for example, when Jevons selects old coins, or 
 pictures by old masters, old unsaleable machines, or ships 
 which have had to be ' scrapped ' for old iron, etc., or 
 Bohm-Bawerk his old wines, in proof of their theory of Value. 
 For no commodity can be properly or legitimately the subject- 
 matter of the science of Political Economy, which is not 
 reproducible, or, in a word, which is not permanently on the 
 market, so that it has a place both on the production and on 
 the consumption side of the wheel, where the supply and 
 demand can be compared. A thing for which there is a 
 demand, — as an old coin, a violin, or picture by a dead 
 master, — but uo possibility of further supply, is economically 
 dead ; it is a mere curiosity, and the price that is paid for it is 
 a mere psychological whim or caprice, and has nothing to do 
 with the problem of economic value properly so called. In 
 the same way, an article which has been produced with much 
 expenditure of time and labour, but for which there is no 
 demand, — or if tliere is a demand, it is not a demand for the 
 thing itself, and in its proper function, but for some other 
 thing into which it can be resolved, as when a machine or ship 
 is sold for old iron, — is also not on the wheel, and cannot be
 
 404 THE ACADEMICAL E(M)NOMISTS 
 
 considered in any legitimate discussion of the problem of 
 Value. All these figure only on the Consumption side of the 
 wheel, but not on its Production side, as they are not re- 
 producible ; and so are not in touch on their Production side, 
 with the men on the axle, to receive the stamp of market 
 price ; and although they are sold, it is true, and so bring a 
 price, they cannot be said to have a scientific ^'alue, or a 
 legitimate market price. For the essence of a scientific law of 
 Value, like all other scientific laws, is that it enables us to 
 foresee and predict something ; but who can predict the price 
 of a picture by Turner or Whistler, or of the original 
 manuscript of a Burns or Tennyson, which may rise to any- 
 thing to-day, or sink to nothing to-morrow, according to the 
 private fancies or fashion of the hour ? 
 
 So, too, no article that is subject to either absolute Scarcity 
 or absolute Monopoly can figure in any scientific solution of 
 the problem of Value. They either appeal to small sections 
 of persons who will pay almost any price, for any and every 
 reason except a business or economic one, — for ostentation, 
 affectation, singularity, or obstinacy ; or if they are articles in 
 economic and daily use, their value is regulated by nothing 
 but the power of the monopolists, by limiting their output, to 
 foire their own prices on the public ; the price being modified 
 only by the expediency of not drying up or diverting the 
 demand to other things, by too great an extortion. These goods 
 are technically on the market, and so are on the wheel, and 
 circulate around it ; but as the men on the axle can neither 
 foresee the actions of these monopolists, nor control the 
 supply of their goods, they are really not on the wheel as the 
 subject-matter for the determination of scientific Value at all, — 
 any more than the fifty per cent charged by the money-lenders 
 to the necessitous, has anything to do with the scientific law 
 of Interest. 
 
 But there is another advantage in our putting the problem 
 of Value on our continuously revolving wheel, with its central
 
 JEVONS, BOHM-BAWERK, MARSHALL — ON VALUE. 405 
 
 axle, and spokes in touch with every side of its circumference, 
 and in letting it be ground out as a dynamical problem dealing 
 with quantities of definite products continually thrown on the 
 wheel and continually taken off again ; — and that is, that our 
 wheel will, by its revolutions, bring to light, as we shall 
 presently see, any hidden powers that may enter into market 
 prices other than purely economic ones, by concentrating them 
 in visible, tangible, masses, — powers which would otherwise 
 escape detection when diffused over numberless individual 
 transactions, in the same way as if you put a miscellaneous 
 number of fluid ingredients into a cylindrical vessel, and make 
 them revolve fast enough, they will separate out in layers, and 
 in bulk sufficient to be estimated and scientifically determined ; 
 precisely as you can only find out the flaws or oversights in 
 an invention, when the machine is set to work, or of a play, 
 when it is actually set on the stage. 
 
 For no numbers of inspections of individual bargains would 
 ever enable the public to know where a ' forced gain ' had 
 entered into the market price of the ordinary commodities 
 or services with which Political Economy deals, inasmuch as 
 no individual ca7i ever know, — except in the case of notorious 
 monopolies like diamonds, or Standard Oil, etc., where the 
 output is admittedly restricted, or the market known to be 
 manipulated, — whether the sum-total of the supply of a 
 commodity, drawn perhaps from all quarters of the world, is 
 permanently able to keep up with the demand, or not. That 
 can only be known, if known at all. by the men of the central 
 exchanges on the axle. But what is more important still, no 
 individual can know from bargains conducted under ' free 
 contract,' whether one division of the industrial community 
 has the ' whip-hand,' and so the power of extortion, over 
 another — except, perhaps, in such palpable instances as the 
 power of capitalists over their workmen, where the power to 
 wait of the one, and the immediate necessity of living of the 
 other, gives the former a ' pull,' a ' forced gain ' or power of
 
 406 THE ACADEMICAL ECONOMISTS 
 
 extortion exercised by capital purely as such, over wages as 
 such, — or the power of a small body of large landowners, over 
 all other classes of the community, when they happen to have 
 the full control of the market. But the men on the axle, who 
 are in touch at all points with both the Production or 'supply,' 
 and the Consumption or ' demand,' side of the wheel, know 
 quite well ; and it is they who, by practically gathering all 
 producers or possessors of a given class of industrial product 
 into a solid combination, and organizing tiiem, keep the profits 
 and interest of capitalists and financiers, as we shall see later 
 on, higher than the normal, by the addition of a distinct 
 percentage of ' forced gain ' which could not have been seen 
 if it had been left to the separate individual buyers and sellers 
 to find out. It is they who know when a 'corner' is possible 
 in any commodity, as in cotton, for example, inasmuch as, 
 being in touch with both the extent of its production and its 
 consumption, they are in a position to know the chances or 
 likelihood of supply being short, in a way that would be 
 impossible to any number of unorganized and unconnected 
 individual buyers and sellers. 
 
 And this leads us to the last and most important advantage 
 to be got from our wheel with its central axle ; — namely the 
 recognition of the fact that the men of the central exchanges 
 are not merely the passive registrars of variations in value, but 
 are initiators and partly controllers of them as well. It is they 
 who, through their published market prices, give notice to all 
 the world of when new lands must be brought into cultivation, 
 when new mines may with safety be opened, when the different 
 classes of capitalists can expand and when they must contract 
 their operations, and so on. They also let the world know 
 the points at which monopolies and exploitations of one 
 industrial class by another are jiossible ; — the significance of all 
 of which will be seen farther on. 
 
 And now to come to this problem of Value, which is not, as 
 we have said, a problem of the ultimate cause of Value in general,
 
 JEVONS, BOHM-BAWEKK, .MARSHALL — ON VALUE. 407 
 
 as that, indeed, would bo easy sailing ; and Jevons and Bohm- 
 Bawerk need not have taken volumes to convince us that it has 
 its roots ultimately in the single element alone of needs, 
 desires, satisfactions, or, as they call it, Utility, (for that is a 
 truism and platitude) but is a problem of the cause or causes 
 which enter into the values of particular things — quite a 
 different matter. And the first observation we have to make 
 is, that as the problem, as we have shown, is a dynaviicul one ; 
 and as all dynamical things which have an environment in 
 which they function, must follow the general law of Evolution 
 from the standpoint of which this book is avoAvedly Avritten : 
 it follows that the market price of no commodity or service 
 can be explained by detaching it and hanging it up by itself in 
 mid-air, as it were, for inspection and analysis, but must relate 
 and attach itself to the skirts of a previous market-price of the 
 same commodity or service, and that to a previous one again, 
 and so on — modified, of course, at each turn of the industrial 
 wheel, by the new environment in which it finds itself ; in the 
 same way as the special points of a particular animal or plant 
 can only be explained by the points of the animals or plants 
 which were its immediate progenitors, modified by its own 
 special environment. 
 
 With these as preliminary, then, let us put our commodity 
 on the wheel, and try and see how its market-price is determined. 
 We will suppose it to be the product of some new undertaking 
 of which, although it may be launched with a starting price 
 and a fairly accurate estimate of its costs by its projectors, 
 there is no way of knowing how it will be received by the 
 public, or what the returns are likely to be, until it is tried. 
 At this stage although formally on the wheel, it is not yet 
 economicaUy on it ; for until the wheel has carried it round full 
 circle a time or two, the public will neither have had time to 
 get cognizance of it, and to express by their demand for it at 
 its starting price, the satisfaction they expect to get out of it, 
 nor will they have settled in their own minds whether the
 
 408 THE ACADEMICAL ECONOMISTS 
 
 starting price is one which will continue to suit their pockets. 
 This is the tentative stage in fixing the value ; if the commodity 
 hangs fire, the price is lowered with the object of tapping a 
 different class or stratum of the public ; and if the demand still 
 lasrs, ao-ain lowered ; and so on. When at last a sufficient 
 number of experiments of this kind have been made, and the 
 commodity has found its public as it were, then it is quoted, 
 and falls under the cognizance, and to a certain extent control, 
 of the central exchange dealing with that class of conmiodity, 
 and can be said to be on the market, and to have had 
 determined for it its market-price or value. Now when put in 
 this way, it will be at once seen that this market-price is a 
 relation between two sets of persons occupying for the nonce 
 two different sides of the wheel, the producers and consumers, 
 and so cannot be determined by either set alone ; neither by 
 the costs to the Producers alone, as Mill and Ricardo would 
 have it, nor yet by the satisfaction, or ' utility,' given to the 
 consumers alone, as Jevons and Bohm-Bawerk contend, but by 
 some kind of relation between the two, as Mr. Hobson has 
 shown. And the question now is, first, in what terms can this 
 relation be best expressed so as to correspond to the facts, and 
 to be not only true, but most practically serviceable ; and 
 secondly, how is our putting the article on a revolving wheel, 
 going to hel}) us to determine its value by the process of 
 evolution ? 
 
 In the first |)lace then, it is evident that we shall never get 
 the price out of a relation between the cost and the satisfaction, 
 so far as an individual at any given point of time, is concerned, 
 inasmuch as there are always times when no object will give 
 him satisfaction, as for example, as we have said, when he has 
 just eaten his loaf and does not want another at any price, or 
 when he has already bought all the household necessaries he 
 requires, and does not want any more. In the former case, 
 the unit of time necessary to get the market price would have 
 to be continued and extended until his appetite came round
 
 JEVONS, 150HM-BAAVERK, MARSHALL — ON VALUE. 409 
 
 acjain : and in the latter, he 18 no longer in the market as 
 consumer, and so there cannot be in his case the relation 
 between consumption and production necessary to determine a 
 value. So far, then, it is evident that the relation must be 
 one operating not at points of time, but in a coidinuous section 
 of time, the length of which must correspond to the length of 
 time necessary to make the article or commodity. If it took 
 an individual a week to make his loaf of bread, it must last him 
 a week, or he would starve in the end ; if it took him a year 
 to make a fishing rod and hook, the fish caught must, for the 
 same reason, last him a year. And it is the same with a 
 nation. If it takes it a yeax* to make a commodity in sufficient 
 quantities to supply the wants of its people, so that any 
 particular individual may be able to get it at the point of 
 time at which he wants it, some other individual must put it 
 on the market at that time ; and therefore, in order that all 
 the persons in the nation may have it as they want it, it must 
 be put on the market at all the points of time. And from this, 
 again, it follows that if the time is represented by a single 
 revolution of the wheel, the only scientific terms in which 
 Value can be expressed are those of the qnantity and pace of 
 commodities around a wheel ; and that the problem of Value 
 must be a relation between the quantity of a thing produced 
 in a given time, and taken oiF in the same time ; or if the 
 quantity is fixed, on the relation between the time it takes to 
 be put on the wheel, and the time it takes to be taken off : — 
 all the costs, difficulties, and scarcities involved in the 
 pi'oduction of commodities, all the marginal utilities, personal 
 satisfactions, etc., involved in their consumption, being summed 
 up, as it were, and finding their expression, in the relative 
 quantity or rajndity of their coming on and going off the wheel ; 
 all these elements which enter into it being submerged hence- 
 forth, and so passing out of cognition or estimate, and replaced 
 by the single category of units of economic quantity produced, as 
 ■against units of economic gnantity consumed, in given units of
 
 410 THE ACADEMICAL ECONOMISTS 
 
 time. If the commodity cannot be had in its usual quantity 
 at a given moment of time, it means that some obstruction has 
 taken phice on the production side of the wheel — as a failure 
 of crops, or the exhaustion of a mine, or an industrial ' corner,' — 
 and as the two sides of the wheel must, as we have seen, keep 
 time with each other, the consumption side must slow down to 
 keep pace with it ; and this it can only do by a rise of price. 
 On the other hand, if the commodity is accumulating in 
 greater quantities at any point than can be taken off, it means 
 that the production side has been stimulated and is running 
 too fast, — whether it be through better harvests, better 
 machinery, new inventions, quicker and simpler processes, or 
 what not, — and that the consumption side can only keep pace 
 with it by a lowering of price, and so a carrying off of the 
 congestion by a demand for a greater quantity at that lowered 
 price ; the pace being determined on the one side, as in a 
 four-in-hand, by the slowest-footed of those engaged in the 
 production of the commodity, that is to say by those who can 
 only get their goods on the wheel under the greatest difficulties 
 of labour and cost ; and on the other, by those consumers who 
 have the greatest hesitation, disinclination, or difficulty, in 
 taking them off; all the rest of the producers benefiting by 
 the increase of price caused by their slower-footed brethren, 
 and all the consumers losing by it ; while all the rest of the 
 consumers gain by their own laggards, and all the producers 
 lose by them. From all of which it is evident, that the 
 market price of any commodity is simply, in the language of 
 the market, a relation between the quantity of its supply and 
 the quantity of its demand at a given point of time, and at a 
 given price ; any change in the market price having the effect 
 of determining, through the agency of the men on the axle, 
 what a-mounts will be thrown on the wheel at its next 
 revolution ; and this, in turn, reacting on the price at which 
 it will be taken off again ; — the two sides of the wheel keeping 
 time and step together as before. And from this, again, it
 
 JEVOKS, BOHM-BAWEKK, MARSHALL — ON VALUE. 411 
 
 follows that there is no normal, or natural, price of a 
 commodity, depending- on Labour-cost alone, as Mill and 
 liicardo thought, — and as distinguished from the separate 
 market prices from day to day, which depend on the relation 
 between the supply and the demand : — and further, that these 
 market prices of a commodity, like the supply and demand of 
 the commodity itself, are not fixed but fluid, attending the 
 commodity around the wheel as its shadow, and keeping time 
 and step with it as its lackey, just as we saw the paper credits 
 do in a former cha}»ter. In other words, the problem of Value 
 or Market price, like all other problems of Political Economy, 
 is a dynamical problem and not a statical one, and must be 
 solved by dynamical methods and symbols from the very start, 
 and not by the statical ones everywhere in vogue among the 
 academical Economists ; — it must, in short, be solved by the 
 ' wheel,' not by the rigid ' stick,' with its imaginary sub- 
 divisions into indefinite numbers of homogeneous units or 
 increments, tapering down, like tails, to their zeros of 
 ' marginal,' or ' final ' costs and utilities. Indeed, it is only 
 because the problem of Value is a dynamical one, dealing with 
 contumously revolving economic quantities and continuously 
 changing prices corresponding to them, that the advisers of 
 the Chancellor of the Exchequer can form the shrewd guesses 
 they do, on the relations between taxation and revenue. 
 
 Now all this will be more apparent when we come to the 
 problem of Distribution, but in the meantime we still have to 
 enquire, not what factors enter theoretically into price, or how 
 price in itself is constituted, but how best a market price can 
 be practically fixed and made definite ; in other words, what 
 is the best way to determine that a small diamond, for example, 
 shall cost as many pounds as a loaf of bread does pence, in 
 spite of all ordinary fluctuations in the market price of either. 
 And here, again, the dynamical method of solution is not only 
 the simplest and most definite, but the most scientific as well ; 
 inasmuch as it applies to new and as yet untested commodities ;
 
 412 THE ACADEMICAL ECONOMISTS 
 
 whereas the analysis of price into its constituent elements, 
 assumes that the price has already been determined. And the 
 only way that the price can get started is, as we have seen, by 
 throwing the commodity on the wheel, and letting it evolve, 
 as it were, its own value by a series of trials ; in the same way 
 as we have to put a horse through its paces before we can 
 estimate its chances when entered in a race against other 
 horses. Knowledge of existing business, and knowledge of 
 human nature, may have taught us much, and our forecast may 
 prove correct, but it would be a psychological forecast mainly, 
 not an economic one. But to proceed by breaking up an 
 economic problem into its ultimate psychological constituents, 
 and trying to solve it by that method, is as if, wanting to 
 know the exact relation of objects to each other in a landscape, 
 instead of using our natural eyes for the purpose, Ave should 
 try to get at it by looking at it through each constituent of an 
 artificial eye in tuiu, — the curve of the cornea, the contraction 
 of the pupil, the composition of the retina, or the use of each 
 eye separately — and then piecing the separate results together. 
 Why, then, seek to get at the problem of market-price by 
 breaking it up into its costs and satisfactions, its 'marginal' 
 utilities, and other psychological and economic debris, when 
 the wheel with its axle, — and the men on it in touch with every 
 part of its circumference — is already there, like an organized 
 eye, ready and waiting to do it for us ? If Shakespeai'e had 
 waited until the analAtical psychologists had at last managed 
 to get the movements of the cells of the brain under a glass 
 case, before he wrote Hamlet and Othello^ he would have died 
 with them unwritten. And even when the psychologists had 
 reached their goal, I suspect there would still be something 
 wanting somewhere, before they could give us another Hamlet 
 or Othello; just as in a highly complex chronometer, if the 
 smallest cog in its wheels, the minutest contraction or expansion 
 of its metals were omitted, it would not keep accurate time. 
 Besides as this method of the Economists is })urely analytical.
 
 JEVONS, BOHM-BAWERK, MARSHALL — ON VALUE. 41 H 
 
 and not synthetic, nothing practical, in the way of construction, 
 can emerge from it. It is as if we were to break up our brick 
 into brick-dust, and then attempt to buikl with it. Better by 
 far leave it as a simple brick, and not be too curious as to the 
 nature or composition of its ultimate constituents. Besides it 
 is to reverse the true method of all the sciences, which as they 
 increase in complexity must gather their analyses up into 
 concrete synthetic symbols if we are to use them for hanging 
 other deductions upon : in the same way as in Mathematics 
 we must gather up discrete analytical particuhirs into general 
 xs, and ys, if we are to solve the more difficult problems, 
 whether of the pure or the applied science. And this I have 
 attempted to do for Political Economy by the symbol of the 
 wheel. And hence it seems to me that to descend farther into 
 the ultimate analysis and dissection of Value than that of the 
 pace with which quantities of commodities are thrown on the 
 wheel and taken off again at any given point of time, would 
 be to focus your subject-matter too microscopically fo]- the 
 purposes of a science of Political Economy, whose end and aim 
 is that it shall eventuate in an Applied Science for purposes 
 of practical policy and business utility ; and would be like 
 applying the microscope to every square inch of the face, in 
 the hope that you were making a more profoundly scientific 
 analysis of its beauty or ugliness, when in fact you would be 
 depriving it of the focus and perspective on which all beauty 
 or ugliness depends. It would be, as we have said, a psvcho- 
 logical, or biological, study, rather than an economic one ; as 
 much so, indeed, as in the case of our over-subtle economist 
 who proposed to construct his system on the relation between 
 the nerves of sensation and the nerves of motion. In Literature, 
 Music, and Painting, it is true, we make use of an internal 
 psychological standard and standpoint for focussing our material, 
 and not of the grosser outside standpoint of the movements of 
 the player's arms or fingers, the composition and mixture of 
 the artist's paints, or the merely grammatical structure of the
 
 414 THE ACADEMICAL ECONOMISTS — 
 
 poet's sentences ; but in Political Economy it is different. 
 For here quantities of gross material commodities supplied or 
 demanded in given periods of time, are of the essence of the 
 problem, — and not the bodily or mental difficulties encountered 
 in the production, or the desires or satisfactions entering into 
 the consumption of these commodities ; and therefore our focal 
 standpoint must be a purely material one like that of our 
 dynamic mechanical wheel. 
 
 But the main reason why the definite market prices or values 
 of all economic commodities, not only are, but must be, best 
 determined by actually putting them on the wheel — and not 
 by ti'ving to reduce them to any merely abstract statical law 
 formulated in terms either of costs alone or utility alone, cr 
 even of the relations between the two, — is because combination 
 as well as competitwi operates at all points both on the 
 production and on the consumption side ; and because com- 
 bination and its results having no law, cannot be reduced to 
 law. For a man who has a thousand pounds which he is free 
 either to invest in some productive enterprise, or to spend in 
 articles of consumption, has the advantage in every bargain 
 over a hundred separate and unrelated men who have ten 
 pounds apiece to invest or consume, inasmuch as he is a 
 combination, w^hile they must be, owing to the difficulties of 
 combination, mostly or mainly competitors. And inasmuch as 
 combination, whether on a large or a small scale, always 
 ' partakes,' as Plato would say, of the nature of monopoly ; 
 while monopoly, in turn, knows no law but that of Power or 
 Expediency, — any more than does a military or a political 
 despotism ; — the upshot of it all is, that there is no known 
 a priori way of determining actual and definite market prices 
 or values until they are put on the wheel, and have been 
 ground out by it in its revolutions. And one may even go 
 farther and say, that when we remember that ' freedom of 
 contract ' involves the freedom to combine, as well as the 
 freedom to compete, there cannot be, it is evident, with the
 
 JEVONS, BOHM-BAWEKK, MARSHALL — ON VALUE, 415 
 
 present rules or conditions under which the game of industry- 
 is played, any scientific law of Value at all — if by science we 
 mean the power of predicting the actual market price of new 
 and untried commodities, and not merely of dissecting out the 
 ultimate factors entering into the market prices of old ones.
 
 CHAPTEE IV. 
 
 THE ACADEMICAL ECONO^nSTS. 
 
 (Continued). 
 
 ON INTEREST. 
 
 ¥ F, as we have endeavoured to show, Jevons and Bohm- 
 -^ Bawerk have failed to solve the problem of Value by 
 resting it on a single factor, Utility, much more will their 
 failure be apparent in their solution of the problem of Interest. 
 Indeed the depth of absurdity which Bohm-Bawerk has 
 reached in his solution of this problem, through his determined 
 adherence to the one-sided Economy of Jevons, is one of the 
 best illustrations which these latter days afford of the pedantry 
 and sterility into which the academical Political Economy 
 has fallen by making of itself a narrow specialism divorced 
 from the broad general currents of the business world. The 
 problem of Interest has always been a controversial one in 
 its purely economic aspect, but its ethical justification since 
 the days of Aristotle — with the Canon Law of the Church 
 thundering against it all along down the Middle Ages — has 
 been to many pious souls an even more perplexing one. It 
 gave Ruskin, wlio was himself a wealthy man and in his early 
 days drew a large part of his income from it, many a pang in 
 his later years, and I imagine he went to his grave with the 
 problem both on its speculative and on its ethical side still 
 unresolved. But to see how Bohm-Bawerk proposes to solve
 
 THE ACADEMICAL ECONOMISTS — ON INTEREST. 417 
 
 the problem, we must search for the root-principles of his 
 solution in the scattered seeds let fall by Jevons ; and in doing 
 this, Ave shall at the same time be enabled to catch a passing 
 glimpse of tlie more characteristic innovations made by Jevons 
 himself in the orthodox Economy bequeathed to him by Mill 
 and Ricardo, But it is important to remember at the outset 
 that Jevons in practically all other doctrines but those of Value 
 and Interest still adhered to the orthodox Economy. He 
 believed, for example, in the orthodox theory of Rent and 
 Population; and held with Mill (but with a difference) that 
 Wages are paid out of Capital and, in consequence, that if 
 Trades-Unions can get a higher rate of wages out of this 
 capital, there will be less left to be divided among the other 
 workers; as well as other illusions deducible from the orthodox 
 symbol of the divided stick. Again, like the orthodox 
 Economists, he could find no place for Consumption as a 
 definite factor in his system, and so did not see the essentially 
 dynamical nature of the science, — a cardinal and fatal illusion 
 if our previous demonstrations have any validity. Here and 
 there, it is true, he introduces a variant on the old doctrines, 
 as when, for reasons which we shall presently see, he contends 
 that although Capital is the result of Abstinence, it is the 
 abstinence of the labourer rather than of the capitalist ; or 
 again where he denies that Profits must fall if Wages rise, and 
 vice versa, because, as he says, not only are Profits not a fixed 
 amount, but Ricardo's ' iron law,' which keeps Wages down to 
 the ' bare subsistence ' level, is not a true law ; and therefore, 
 that in the progress of society, although Profits always tend, 
 they need not actually fall, as Mill feared, to a minimum 
 after all. But as these are minor divergencies from the older 
 doctrine, and still leave its fundamental principles unchanged, 
 and as we have already tried to show in former chapters that 
 the foundation principles of the orthodox Economy of Mill and 
 Ricardo are all alike illusions, nothing more than the bare 
 mention of these modified orthodox views of Jevons need 
 
 DD
 
 418 THE ACADEMICAL ECONOMISTS — ON INTEREST. 
 
 detain us here. Besides, it was not on these, but on liis 
 doctrine of ' final utility ' us the sole ' cause ' of Value, that he 
 most prided himself; and it was on this doctrine that he hoped 
 to lay the foundation for a new system of Political Economy. 
 And as we have already discussed the fallacy of this one-sided 
 explanation of Value in our last chapter, nothing remains for 
 us here but to piece together those scattered observations 
 bearing on the problem of Interest which he left more or less 
 undeveloped himself, but on which his faithful disciple Bohm- 
 Bawerk seized as a prize, and carried to their equally one-sided 
 conclusion. 
 
 To begin with, then, we may note that at the very outset, 
 Jevons falls into a fallacy which of itself is sufficient to ruin 
 any and every deduction based on it. It consists in his 
 identifying 'fixed' with 'circulating' capital, and both with 
 ' the food and maintenance of labourers ' ; thus obliterating 
 at the start what we have seen to be one of the most important 
 distinctions in Political Economy, and the one, moreover, most 
 fruitfid in practical consequences. (Jr, to quote him precisely, 
 he declares categorically that ' Capital consists merely in the 
 aggregate of those commodities which are required for sustain- 
 ing labourers of any class or kind engaged in work ' ; that ' to 
 invest capital is to spend money — or the food and maintenance 
 which money purchases — upon the completion of some work " ; 
 and generally, that 'all employments of Capital resolve them- 
 selves into the fact of time elapsing between the beginning 
 and the end of industry '—or in other words, that the longer 
 it is necessary that labourers should be employed on an 
 industrial undertaking before the finished product can appear, 
 the greater the produce will be, and that this lengthening of 
 the interval of time between the beginning and the end of the 
 undertaking is the ' sole ' use of Capital. And to punctuate 
 and definitize these separate observations, he adds that he 
 ' would not say that a railway is, fixed capital, but that capital in 
 fia'cd in the railway^ That is to say, that as the 'fixed capital'
 
 THE ACAUE31ICAL ECONOiMlSTS ON INTEREST. 419 
 
 of the railway i^ only the food and maintenance of the work- 
 men dnring the time they are engaged in preparing and making 
 the railway, and as these, in tnrn, are the same as the money 
 wages spent on them, it follows that, economically considered, 
 a railway, a factory, or an engine, is identical with the money 
 spent in making or building it — nothing more. 
 
 Now if there is one thing which in our discussion of the 
 Free Trade problem we have attempted to demonstrate more 
 fully than another, it is that there is something more in an 
 engine or a machine than the money spent on its separate 
 materials and on the putting of them together. There are 
 besides, the economic powers of A'ature which play through 
 the engine, or the machine, when once it is made ; and these 
 economic powers are added as a free gift over and above the 
 maintenance of the workmen when engaged in making it" and 
 keeping it in repair, — economic powers which if we take a 
 steam engine, for example, will do for its capitalist-owner the 
 work of a hundred men, say, for each man employed in making 
 it, repairing it, and supplying it with fuel ; and what is more, 
 will continue to give him this surplus as a free gift so long as 
 the engine lasts ; in the same way as a charge of gunpowder 
 when used for purposes of blasting, contains a thousand times 
 the quantity of pure economic labour-power that is bought in 
 the work of the labourers who supply the saltpetre, charcoal, 
 and sulphur, of which it is composed. It is only the economic 
 poicers of Man which can be got out of the food and main- 
 tenance of the labourers while they are at work, and not what 
 in this volume we have distinguished as powers of Nature ; and 
 these economic powers of Man, without the use of machinery 
 to help them, practically 'eat their own heads off' economically 
 speaking. So that to have made his argument consistent, 
 .levons ought to have made his engine keep his labourers not 
 only while they were making it, but — allowing for repairing, 
 running, and stoking it — as long as it lasted. Or to be still 
 more precise, he ought to have made it keep them and their
 
 420 THE ACADEMICAL ECONOMISTS — ON INTEREST. 
 
 heirs for ever, just as it would be in the case of the interest 
 
 of a money loan, inasmuch as with a portion of this free gift 
 
 of economic power set apart as a sinking fund to replace the 
 
 engine itself when it was altogether worn out, the capitalist 
 
 could supply another ready to take its place, and yet another, ■: 
 
 and another, and so on ad infinitum. But were he to do this, a 
 
 where does Jevons imagine that either the interest or the *■ 
 
 profits of the capitalist would come from? And would the 
 
 capitalist then be so anxious to get hold of that engine ? I 
 
 suspect not. But as the capitalist, when once the engine is 
 
 made, has only to employ, say, a single labourer to repair it 
 
 and keep it in running order, and perhaps another to supply 
 
 the coal for stoking it, out of the hundred he had to pay for 
 
 making it, we begin to see where his interest and his profits 
 
 come from, namely out of the surplus of economic powers of 
 
 Nature which the machine now yields him as a free gift ; 
 
 precisely as it is out of the powers of Nature in the soil that 
 
 the farmer gets the surplus which will enable him to pay 
 
 both the wages of his labourers and the rent of his landlord. 
 
 Indeed, as the game of Industry is money-getting, one shrewdly 
 
 suspects that if the use of capital, as Jevons thinks, is to keep 
 
 the labourers while they are at work on making any machine 
 
 or instrument of production, the object of the capitalist in using 
 
 it, is to enable him to capture through the machines those 
 
 economic powers of Nature which will yield him a margin of 
 
 ' surplus labour ' for nothing at all. It is true, of course, that 
 
 the competition of rival owners of like machines will, by the 
 
 cutting down of the prices of the products, hand over a large 
 
 part of this free gift of labour-power to the general public who 
 
 buy the products of these machines. The reason they are not 
 
 obliged to hand over the whole of it will be seen later on ; 
 
 but in the meantime what we have to note is, that Jevons, 
 
 by grinding down ' fixed capital ' into ' circulating capital,' 
 
 and both alike into the money-wages paid the labourers while 
 
 engaged on any given industrial undertaking, instead of
 
 THE ACADEMICAL ECONOMISTS — ON INTEREST. 421 
 
 improving the Science by giving it, as he imagined, a greater 
 unity, was in reality merely mixing and confounding its 
 categories ; and that this, which his followers hailed as an 
 advance, was actually a retrogression. For even Mill and 
 Kicardo, whom they threw overboard for Jevons, saw that there 
 was a distinction someiohere between ' fixed ' and ' circulating ' 
 capital, although by not seeing clearly precisely where it lay, 
 they got off the track and lost their way when they came to 
 apply it. Indeed, the orthodox Economists have all along seen 
 the difference between ' fixed ' and ' circulating " capital in the 
 case of Land, and have recognized that the ' surplus product ' 
 from which all concerned with it are paid, comes from the 
 powers of Nature yielded as a free gift by the soil ; but they 
 have been slow to see that it is precisely the same with 
 machinery, whei'e the powers of Nature involved are in the 
 form of steam, electricity, etc., instead of soil. Karl Marx, 
 too, saw that there was a ' surplus value ' to be got somewhere 
 out of machine production, but not seeing that it came out of 
 the machine itself, — that is to say the inventor of the machine, — 
 and not out of the money capitid of the capitalist or the work 
 of the labourer, he ruined his theory of Political Economy as 
 a system, by arguing that this ' surplus value ' nuist come out 
 of the work of the labourer alone, whom he chooses to represent 
 as having been ' exploited ' by the capitalist. Formally he was 
 quite right, inasnuich as the capitalist is the owner of the 
 machine, and therefore of its gratuitous productive powers ; 
 but if anyone has a right to complain, it is the inventor of the 
 machine, who, if the question is one of 'exploiting,' lias been 
 exploited both by the capitalist and by the labourer. But to 
 imagine, as Marx does, that it is out of the miscellaneous mass 
 of navvies, coal-heavers, and ordinary humdrum working men 
 of every class, who neither invent nor originate anything, (and 
 who, but for the machines, would ' eat their heads off',') that 
 the surplus value inherent in the machine is exploited, is 
 frankly as if he were to identify the work of a locomotive with
 
 422 THE ACADEMICAL ECONOMISTS — ON INTEREST. 
 
 the work of the engine driver and fireman, and of the miner 
 who supplies it with coah It does not follow that because the 
 inventors have been robbed of the surplus which is as direct 
 a product of their ideas as ever a landlord's rent was the 
 surplus product of his soil, that therefore we are to shut our 
 eyes to whence the surplus out of which Interest is paid so 
 paljiably comes, and to allow either interested politicians on 
 the one hand, or political economists professing not to see, 
 on the other, to lead us around on their artificial elaborate 
 searcli ; while one section of them stands over the Avorking 
 men, and pointing to them exclaims; — 'Here are the men 
 who make the surplus Avhich the capitalists exploit,' and another 
 set stands over the money capitalists and cries ' Behold the 
 makers of the wealth of the world I ' 
 
 But if the surplus comes neither out of the money capitalists 
 nor out of the great masses of ordinary working-men, neither 
 does it come, as Walker contends, out of the organizers of 
 labour, tlie enfreprenevrs, whether capitalists or not : for their 
 work consists mainlv in brino^iuo- the machines together under 
 one roof, and planting their manufactories in such situations 
 as shall give them at once the easiest access to natural powers, 
 and the best facilities for transport ; as well as in turning 
 everywhere to account most cheaply and metliodically, that 
 principle of the ' division of labour ' which, although it was 
 reasonable in Adam Smith to believe was the cause of any 
 ' surplus value ' from manufactures, — inasmuch as in his time 
 the great inventions which have made the wealth of the 
 modern world had not yet appeared, — it was unpardonable in 
 Mill, who living in the very midst of their triumphs, still 
 harked back on the 'division of labour' made possible by 
 them, as if it were their main function. It is true, of course, 
 that the services rendered by the entrepreneurs of the world 
 are most value-producing and important, but they are rather of 
 a negative than a positive character, inasmuch as they depend 
 for their efficiency on the powers of Nature embodied in the
 
 THE ACADEMICAL ECONOMISTS — ON INTEREST. 4-23 
 
 machinery and processes which these men have been permitted 
 by law to appropriate after the short periods of their patents 
 have expired, and without which, indeed, there would be 
 nothing of value for them to organize. No, it is out of the 
 machines and the brains that have invented them, that the 
 ' surplus value ' out of which Interest and Profits are paid 
 mainly arises, and not out of the work either of the capitalists 
 or of the workmen as such : so that if the question of Interest 
 is to be discussed on ethical gi'ounds, the discussion must be 
 based from the start on a series of exploitations, beginning 
 with the capitalists who first exploit the labourers, and ending 
 with both in turn exploiting the inventors and discoverers. 
 And with this, by way of preliminary, we may now return to 
 the views of .levons and Bohm-Bawerk on the problem of 
 Interest. 
 
 To begin, then, witli Jevons ; — it is evident that having 
 ground down ' fixed ' into ' circulating ' capital, and both into 
 the money wages of the labourers when employed in making 
 any particular instrument of Production, — whether it be a 
 machine, a railway, a manufactory, or what not, — and so 
 eliminating the gratuitous economic powers of Nature from his 
 problem, he has left himself no surplus anywhere on Avhich he 
 can draw for the payment of Interest ; and the question now 
 becomes where does he get it from ? He expressly assei'ts 
 that the increase of the product comes out of Capital and 
 Abstinence ; but as the capital, as he also asserts, comes out 
 of abstinence, and not out of the machines, there is evidently 
 no source from which interest can come, unless it be out of 
 the labourers. And this, indeed, he indirectly admits when 
 in discussing the rate of Interest and the reason why it 
 tends to equality, he urges that it is because ' the workers 
 all live on the same things,' and so fm*nish a common level 
 fund from which by abstinence on their part, a common 
 level rate of interest may be skimmed off; — and for this, 
 at least, we may remark in passing, the Socialists of the
 
 424 THE ACADEMICAL ECONOMISTS — ON INTEREST. 
 
 school of Marx, usually so hostile to Jevons, should have 
 thanked him. Starting, then, from this, he goes on to 
 observe that when once the particular industrial undertaking 
 is finished, the rate of interest on the capital invested in 
 it will ' vary inverselii as the period of investment ; ' so that if 
 you do not increase the number of your labourers, but go on 
 adding successive increments of capital long enough, the capital 
 will yield no interest at all ; — all this being illustrated by a 
 mathematical diagram in which vou see the interest shrinking 
 more and more, while the wages of the labourers increase more 
 and more as the interest falls. And the question we have to ask 
 is, what has he done, in order to get this result ? The answer 
 is, that he has been guilty of all the fundamental illusions, both 
 in method and treatment, of the orthodox Economy which we 
 have already passed under review, and some of which we have 
 already emphasised in dealing with Mill. lie has made 
 Interest, like Capital, depend on abstinence ; he has neglected 
 the element of Consumjition : he has se[)arated the factors of a 
 complex whole, and treated them as if they could each function 
 independently ; he has kept the element of Labour rigidly fixed, 
 while allowing Time and Capital to be elastic and free, — 
 instead of either keeping them all alike definite, or all alike 
 free, — and so, like Mill, starts either with unnatural combina- 
 tions which breed economic centaurs, monsters and chimeras, 
 or with crippled [)remises in which half of the problem, namely 
 Consumption, is left out. lie has proceeded, besides, on the 
 statical fallacy of the divided stick, whereby if interest falls, 
 wages must rise, and vice versa, instead of on the dynamical 
 princi[)le of the wheel, where both must rise or fall together, 
 and so on ; — all of which it would be a work of supererogation to 
 re-argue in detail. But a single consideration will be sufficient 
 to show the fallacy of the whole argument, and it is this ; — if the 
 interest, as Jevons contends, becomes less and less according to 
 the length of time of its investment, while the wages rise 
 hioher and hioher owing to the number of the labourers
 
 THE ACADEMICAL ECONOMISTS ON INTEREST. 425 
 
 remaining the same, it is evident that this result can only 
 occur if the labourers instead of spending their wages on the 
 product abstain from doing so, and put it in an old stocking, 
 as, indeed, Jevons' theory of abstinence requires them to do. 
 But as they, unlike the capitalists, have no reason for abstaining, 
 and as they have only the product of their own work, by the 
 hypothesis, on whicii to spend their wages, the probabilities 
 are that they will not abstain ; and in any case Jevons is put on 
 the horns of this dilemma, namely, that if they do spend them, 
 the increased consumption which comes from their increased 
 wages will so raise the price of the product, that the capitalists 
 will get all their interest back again in this rise of price ; 
 whereas if both capitalists and workers go on abstaining, as 
 the hypothesis assumes, there will soon be no demand, the 
 enterprise will have to close down, and neither the capitalist 
 nor his workmen will get either interest or wages at all ! The 
 truth is, the whole method is so false through and through, 
 that there is nothing true in the demonstration but the abstract 
 mathematics, where if you put in a general error or fallacy in 
 the premise, it will only bring out a more precise and definite 
 error or fallacy in the conclusion. But indeed I should not 
 have introduced this theory of Jevons' here at all, had it not 
 been a stepping stone to the still more celebrated, but 
 sophistical, doctrine of his disciple, Bohm-Bawerk, whicli I am 
 anxious in as few words as possible to introduce to the reader. 
 
 Jevons, then, having ground down Capital into the food and 
 maintenance of the labourers, the factors which he bequeathed 
 to Bohm-Bawerk out of which Interest and Profits had to 
 emerge, were not machines and processes embodying gratuitous 
 economic powers of Nature, and yielding products which are 
 continuously being produced, consumed, and reproduced, but 
 simply the money-wages of labourers, out of which the fund 
 both for interest and profits had to be saved by Abstinence and 
 Time ; and the problem, accordingly, for Bohm-Bawerk was, 
 not only how Interest was to be got out of these abstract or
 
 42fi THE ACADEMICAL ECONOMISTS ON INTEREST. 
 
 negative factors, but how its rate was to be determined. 
 Jevons' theory was, as we have seen, that the rate of interest 
 varied inversely as the time of investment ; but as he made the 
 vakie of all things depend on 'final utility' and not on Labour,. 
 Bohm-Bawerk, in following his master, was severely put to it 
 to find anything but Time alone out of which Interest could 
 emerge. For Jevons, in grinding down the machines into the 
 mere food and maintenance of the labourers, had, like the 
 proverbial man who threw away the child in emptying the 
 water out of its bath, thrown away the economic powers of 
 Nature with the machines; and so had left no source fron> 
 which Interest could emerge, — unless indeed, as we have seen, 
 from the labourers' waofcs, bv an enforced abstinence from 
 which part of these wages could be exploited and deducted. 
 But as it was Bohm-Bawerk's theory that all increase of 
 production came from a union of Nature and Labour, as in the 
 case of the land, he could not see how mere abstinence could 
 ever get an increase out of Labour alone, when once the powers 
 of Nature could no longer co-operate ; and distinctly says, that 
 when thus left functioning in vacuo, saving, or abstinence, can 
 never be a 'means' of the increase of production, but only a 
 'motive' for it. And accordingly, as is usual with him wlien 
 following his master, he went a step or two farther, and boldly 
 throwing overboard at once both the work of the labourers and 
 their abstinence, reduced the problem of Interest to a function 
 of Tiuie alone. Now, it may seem to the reader a somewhat 
 difficult feat of conjuring, to get a solid substantial asset like 
 Interest out of this detruncated stump of Time alone, but 
 Bohm-Bawerk was equal to it ; and, nothing daunted, set out 
 gaily, accordingly, after the manner of most German authors, 
 with provisions for a long siege ; passing some scores of writers 
 on the question of Interest under review before he arrived at 
 his own theory, founded on !Money functioning in an element 
 of Time alone. To sum up his conclusion in a word; — it is 
 that Interest is not what you pay for the produciiva use you
 
 THE ACADEINIICAL ECONOMISTS — ON INTEREST, 427 
 
 can make of the money you borrow, but, on the principle that 
 ' a bird in the liand is worth two in the bush,' it is simply what 
 you have to pay the lender for his having to wait a year, or 
 five years, say, for the satisfaction which he might have had 
 to-day out of the money if he had chosen to spend it, and for 
 the pain of having to wait for this satisfaction until the money 
 is returned to him a year or five years hence. But as the 
 Availing is more painful at the start, when he has to con- 
 template the long vista ahead of him with all its uncertainties, 
 but gets less and less, like the home coming of a friend, as 
 time goes on, until at last when the period is up and the loan 
 is repaid, the satisfaction or ' utility ' to be got out of it by its 
 immediate use is the same as it was before the money was lent; 
 it follows that as the interest, when measured in this way by 
 the deofree of disao-reeableness of waiting, must set less from 
 year to year, the only way to get the Jixed rate of interest 
 which is to hold over all the years covered by the loan, is by 
 striking an average of disagreeableness among them all : and 
 this average is what is called the rate of interest for the loan. 
 Stripped of all its technical jargon and long-windedness, this, in 
 brief, is Bohm-Bawerk's complete solution of the problem of 
 Interest. And what we have chiefly to remark about it in its 
 general aspect is, that it is after all only a solution from the 
 point of view of the lender ; but as ' it takes two to make a 
 bargain,' we still have to ask, — how about the horrower i^ 
 If he had obtained the money purely for personal expenditure 
 and enjoyment, and so cannot pay at all, then the loan falls 
 under the category of an error of judgment — and so forms the 
 subject-matter of Psychology, but not of Political Economy. 
 On the other hand, if it has been borrowed to invest in some 
 legitimate industrial undertaking, — in the purchase of land or 
 machinery, or processes of manufacture, or means of transport, 
 or productive business services generally of whatever kind, 
 whether in new undertakings or in the extension of old ones, 
 (and it is these and their collaterals that are the only kind of
 
 428 THE ACADEMICAL ECONOMISTS — ON INTEREST. 
 
 loans with which Political Economy has to do) : — how then 
 does the matter stand ? Now, if the industrial undertaking 
 for which the loan is wanted, is a new and untried one, the 
 borrower will have to pay a higher rate of interest than if it 
 were an old and established one, as his banker will not be slow 
 to remind him : thus proving that the rate varies not merely 
 with the feelings of the lender in parting with the loan, but 
 with something in the financial circumstances of the borrower 
 as well. And as it is on the strength of the confidence, both 
 of the lender and borrower, in the industrial enterprise yielding 
 tiie necessary surplus to repay the loan and its interest, that 
 the agreement has been made, it is a proof, I submit, that the 
 Interest comes out of the productive powers of the machine, 
 the mine, or the processes concerned, and neither out of the 
 mere lapse of Time, nor yet out of the disagreeableness which 
 the waiting involves. And that there is a surplus fund in 
 the economic powers of Nature embodied in tiie machines, 
 processes, means of transport, etc., which is conferred as a 
 free gift on their possessors after all expenses have been paid, 
 the whole of this vohune has been one long demonstration. 
 If the enterprise should fail, it is because the expenses exceed 
 the surplus gift — and so it has been a miscalculation and 
 fored(X)med failure from the start, and has no further economic 
 significance. Now, in thus labouring what to most business 
 men must seem so palpable a truism, 1 must apologise to my 
 readers, to whom this long rigmarole about nothing, as they 
 must regard it, cannot have been a greater boredom to read 
 than for me to write. And indeed it is ])robable that in the 
 world of men, no one could be found to countenance the waste 
 of time spent on it. unless indeed it were some academical 
 political economist, sitting in the decadence of his unreal and 
 exploded specialism, spinning cobwebs of economic perpetual- 
 motion out of principles which, as we have seen, have had 
 from the beginning no dynamical or motor-power whatever. 
 But Bohm-Bawerk is not to be so lightly gainsaid without
 
 THE ACADEMICAL ECONOMISTS — ON INTEREST. 429 
 
 ii desperate effort to defend liimself and liis theory. And 
 accordingly, of the scores of writers whose views on Interest 
 he passes under review, what thinks the reader is his one 
 reply to all those who contend that the interest must come out 
 of the increased production of the machines? It is this: — 
 Admitting- the inci'cased productivity that comes from the 
 co-operation of capital with labour, — not because the machines 
 add a surplus as a free gift, like the land, but because they 
 make, as he says, ' the adoption of new and profitable methods 
 possible ' — how do you know, he asks, that the products will 
 not have been so cheapened by this very excess of productivity, 
 that by the time the loan is due they may not repay the outlay? 
 IIow, in a word, do you know that the pi'oduct, say, of a new 
 and improved loom may not have so cheapened the cloth, that 
 the i)rofits will not repay the cost of the machine ? How, 
 indeed ? we reply, if you choose to put the matter in that wav, 
 any more than you can get the interest on the monev borrowed 
 to pay for the machine, if before the time of repayment a still 
 newer patent has so undercut the price of the product, that 
 the machine itself has had to be ' scrapped ' for old iron. As 
 well say that there was no fund for the repayment of interest 
 in opening up a diamond mine, because diamonds might go out 
 of fashion before the diamond deposits were reached, and so 
 might be worth no more than their paste imitations. It is not 
 all machines or processes that can yield a sufficient surplus of 
 economic powers of Nature to pay the expenses involved in 
 liberating them ; and when they do not, neither workers nor 
 money-lenders can be sure of getting either their wages or 
 their interest out of them ; but if the money-lenders do get 
 their interest, it is out of these free gifts of Nature that it 
 comes, not out of the disagreeableness of waiting for the 
 return of the money lent, on the part of the lender ; nor does 
 it depend for its rate, on the length of Time alone. And 
 hence this reiterated question thrown by Bohm-Bawerk in his 
 extremity as a Parthian shot at his opponents when he is
 
 430 THE ACADEMICAL ECONOMISTS — ON INTEREST. 
 
 closely pursued, is as absurd as the appeal of Jevons to the 
 price of old coins, old pictures, etc., when trying to prove that 
 Value does not depend on Labour-cost, but only on ' final 
 utility.' 
 
 Thus far, then, Jevons and Bohm-Bawerk. But now let us 
 put the problem of Interest on our wheel, as we have already 
 done that of Value, and see whether the solution it yields will 
 prove any more satisfactory, or be more in consonance with 
 the knowledge and experience of men. 
 
 To begin with, then, we may premise that the game of the 
 industrial world is money -getting, and quite as much so in the 
 case of those who have money to lend as of those engaged in 
 definite industrial operations. And with this we may further 
 observe that there is in every industrial community always a 
 certain amount of free money, very elastic in quantity, read}- 
 to be loaned on interest, and varying in its amount according 
 to the security offei'ed for its repayment when balanced against 
 the abstinence entailed on the lender in parting with it. Now 
 if these separate sums of money scattered about in the hands 
 of separate individuals were without any mechanism to collect, 
 organize, and negotiate them, it is probable that the rate of 
 interest received by each of their scattered holders would vary 
 according to local and accidental circumstances, and be high, 
 low, or altogether non-existent, as the case may be. But it so 
 happens that there is a central organized market for these 
 scattered rivulets, namely the bankers, brokers, and other 
 money dealers on the axle of our wheel, whose function it is to 
 register, and in part determine, what the general rate of interest 
 on money shall be, in the same way as, on this same axle, 
 there are dealers for every other species of industrial commodity. 
 And the first point we have to determine is : — What is it on 
 which these money dealers keep their eye in forecasting the 
 fluctuations in the rate of interest, — if, that is to say, we are to 
 get at the causes which give rise to Interest, — for he who 
 knows the causes operating in the fluctuations of a thing has
 
 THE ACADEMICAL ECONOMISTS — ON INTEREST. 431 
 
 come very near to the causes of the tiling itself. And these 
 may be summed up, so far as the bankers and money dealers 
 « are concerned, in the one consideration of the supply and 
 
 ^ demand of money at the existing market rate. In a word, it is 
 
 in the relation between the quantity or pace at which money 
 is thrown on one side of the wheel by lenders, and the quantity 
 or pace at which it is taken off by borrowers, on the other, 
 that the fluctuations in the rate of interest are to be found, — 
 just in the same way as the fluctuations in the value of any 
 other commodity, — and &o it need no longer detain us here, as 
 we have already discussed it in our last chapter. 
 
 So far well, but, as in the parallel case of Value, what we 
 want specially to get at is the cause of the general rate of 
 Interest around which these fluctuations revolve — the reason, 
 for example, why in one country this general rate is, say, 
 5 per cent., in another country 10 per cent., or why in one 
 industrial age or epoch of the same country the general rate is 
 10 per cent., and in the next age only 5, and so on. And for 
 this we must pursue our investigations a little farther, and in 
 doing so, the first and most obvious thing that strikes us is, 
 that it must be a relation between the degree of security, on 
 the one hand, of which the lender is assured, and on the other, 
 the profit that can be made out of the loan by the borrower ; a 
 knowledge of both of which is possessed by the men in the 
 centra] exchanges ; — not by the bankers and money lenders 
 alone, nor by the dealers in industrial commodities, as coal, 
 iron, corn, cotton, etc., alone, but by both combined, — as is 
 seen in the anxiety shown on the one hand by the money 
 lenders in critical times to know the state of the crops, the 
 likelihood of the forthcoming supplies of all kinds of industrial 
 products, as well as of any political complications on the 
 horizon, etc. ; and the parallel anxiety of the industrial 
 exchanges to know the general state of the money market on 
 the other. But one thing is certain, and that is, that it is not 
 from either of the above mentioned factors separately, that a
 
 432 THE ACADEMICAL ECONOMISTS — ON INTEREST. 
 
 definite rate of interest can arise. Not from the question of risk 
 
 or security, even when there is added to it the disagreeableness 
 
 or disinclination to part with money for a time ; for many loans 
 
 are equally secure even when the purposes to which they are 
 
 to be put vary from the most to the least profitable enterprises. 
 
 Not from the profits ; for whether those who borrow the money 
 
 make a hundred per cent, profit or only 10 per cent, out of* 
 
 it, they all alike can borrow it at, say, a uniform rate of 
 
 5 per cent. The rate of interest in general, then, can only 
 
 come from a relation between the ' marginal,' or lowest, rate of 
 
 profit from industrial investments which is nsual at the time, 
 
 on the one hand, and the stifFest or ' marginal ' sticklers for 
 
 safety and security, on the other ; rising with the marginal 
 
 increase of productivity when the security is fixed, and falling 
 
 with the marginal increase of security when the productivity 
 
 is fixed ; tlie relation being identical in principle with what 
 
 we saw was the case in determining the value of any other 
 
 commodity. But still, this does not answer the question 
 
 as to how this definite rate or market-price of money is to be 
 
 determined. The answer is, in the same way as every other 
 
 market-price is determined, namely by actually putting the 
 
 money on the wheel, where it will come into touch with the 
 
 feelers of the central money exchanges both when thrown on 
 
 the one side of the wheel by lenders, and when taken off on 
 
 the other side again by borrowers ; and where the movement 
 
 and balance of the wheel itself, whose two sides must keep 
 
 time and step with each other, will, like a millstone, grind 
 
 down each separate increment or contribution thrown on to it, 
 
 to a common and definite uniformity of rate, varying from day to 
 
 day according to the quantity or rapidity with which it is thrown 
 
 on and taken off; and that, too, quite independently of the 
 
 infinity of psychological or business inducements which may 
 
 have called forth the supply and the demand in each particular 
 
 instance ; every fluctuation in the rate hanging on to the skirts 
 
 of the I'ate immediately preceding it, and none being altogether
 
 THE ACADEMICAL ECONOMISTS — ON INTEREST. 433 
 
 independent, capricious, or casual ; — and all alike forming 
 successive links in a continuous and unbroken chain of orderly 
 and regulated development : the industrial products with their 
 values, the money with its interest, together with the credit 
 notes, bills of exchange, and all collaterals which cling to and 
 attend them, all whirling round and round the wheel from its 
 production to its consumption side, and keeping time and step 
 together. 
 
 But the most important practical point which we have now 
 to determine is, whether the actual rate of interest is a natural 
 rate flowing from free competition, or whether, like other 
 values, it contains elements of Monopoly ? — Now at a first 
 glance it would seem as if nothing could be more subject to 
 the law of pure competition, which of itself when absolutely 
 free reduces all things to equality, than money ; for it is at 
 once the most nimble, the most unimpeded, and, in a way, the 
 most lightly moving, of all things ; and yet w^e shall find on 
 closer inspection that it, too, like all else in the present stage 
 of industry, partakes of the nature of a monopoly. In an ideal 
 wheel revolving in the pure ether of a millennial time, there 
 would neither be fluctuations of interest, nor interest itself, 
 inasmuch as all industrial operations would be certainties, all 
 securities equally good, all men honest, and none embarrassed 
 in their fortunes ; and whether money were invested or were 
 kept in your pocket, it would be all the same. But as that 
 millennial time has not yet been reached, what we have now to 
 note is that in the present stage of industry, whei'c all new 
 industrial undertakings, or expansions of old ones, have as their 
 object the capturing by the use of machinery, inventions, new 
 processes, etc., those powers of Nature in the soil or mines or 
 machines, which will yield an increase of wealth as a free gift 
 over and above the labour spent on them ; and as these must 
 always require floating capital, or money, at short notice to 
 establish and develop them, over and above the amounts on 
 which industrial capitalists and speculators can at a moment's 
 
 E £
 
 434 THE ACADEMICAL ECONOMISTS — ON INTEREST. 
 
 notice lay theii- hands ; it follows that the possessors of this 
 free capital, or ready money, when brought into a solid 
 combination by the bankers and money-dealers, as against the 
 unorganized and dispersed individual farmers, manufacturers, 
 mine owners, and traders (never twice the same people) who 
 must manage to get command of this money-capital if they are 
 to snatch the gains which new enterprises, inventions, or 
 improvements in methods of production will yield them ; — it 
 follows, I say, that the money-lenders must occupy the superior 
 position in their bargains with these industrial capitalists, and 
 that having a virtual modified monopoly, they will have the 
 power to levy toll on all men who wish to borrow, whether for 
 long or short periods, and will not refrain from exercising it. 
 For it is not likely that they are going to stand by and see the 
 projectors of new enter))rises, or the developers of old ones, 
 who are dependent on them for the ways and means, quietly 
 appropriating the sj)oils with Avhich the powers of Nature are 
 about to present them, without being paid for this privilege at 
 a inodified monopoly rate. And the game of wealth being how 
 you can get the greatest amount of it possible within the limits 
 imposed by the legitimate rules of the game — whether by 
 competition, or still better by combination — it follows that, 
 having the power, the money-lenders of the central exchanges 
 will always keep the interest of money above its natural value, 
 and will take good care that it shall never fall to the zero point 
 while their superior position, as possessors of a modified 
 monopoly, over that of the industrial capitalists lasts ; in the 
 same way as an invading host which has taken the lands of a 
 neighbouring country from its former possessors, will never, if 
 they intend to live on rents, permit these rents to fall to zero, 
 whatever may befall either the farmers, the capitalists, or the 
 public in general, who are now in their power (otherwise they 
 would not have entered on the conquest) ; or as the capitalist 
 masters of industry are not going to allow the Avages of the 
 men — so long at least as they are dependent on them for their
 
 THE ACADEMICAL ECONOMISTS ON INTEREST. 435 
 
 livelihood — to swallow up their own profits, whatever the state 
 of the labour market may be. In a word, in the present stage 
 of industrial development, the laws of Political Economy, as 
 in an auction room where certain prices are reserved, will 
 never be allowed to operate quite freely, but only within 
 limits, inasmuch as they will always be controlled by the 
 incidence of Power which springs from the existence of the 
 economic monopolies which different classes of industry possess 
 and exercise over those below them, and which proceed from 
 above downwards in a graduated series of exploitations, the 
 bankers and money-lenders squeezing a ' forced gain ' out of 
 the individual capitalists, who in turn squeeze another out of 
 their workmen, while the landlords — were they few enough to 
 hold solidly together, and could keep out the corn of foreign 
 nations — could squeeze all alike. Now all these monopoly 
 powers, which interpose themselves between the different 
 classes of an industrial community are, it is to be observed, 
 purely economic ; and whether it be a single nation that we 
 take as our standpoint, or the world of nations, they must and 
 will take their tax and toll in the shape of unearned gains, so 
 long as the present industrial regime lasts, — an economic tax 
 and toll which can only be neutralized and redressed by 
 Governmental taxation in turn, whenever this shall be found 
 expedient from the higher political point of view. Meantime 
 we may remark that these economic exploitations, though 
 differing in form from exploitations by the sword or by 
 despotism, are none the less real exploitations, and, what is 
 more important, that they find their fulcrum in that 'freedom of 
 contract' which is the basis of the present industrial regime, 
 involving as it does, as we have had so often to repeat, the 
 freedom to combine, out of which these monopolies arise, as 
 well as the freedom to compete which can at best only partially 
 mitigate their effects. 
 
 To sura up, then, we may say that the fluctuations of Interest 
 or the value of Money, like that of the value of all other
 
 436 THE ACADEMICAL ECONOMISTS — ON INTEREST. 
 
 commodities that are put on the wheel to be ground into 
 definite market-prices, is fixed by the relation between the 
 quantity or rapidity with which the money is put on the 
 wheel, and the quantity or rapidity with which it is taken off 
 at the existing market-rate ; — not on an ideal free-running 
 wheel, but on one where modified monopoly powers, economic 
 or legislative, make their entrance at every point and impede 
 its movements, and so reduce the possible amount of wealth 
 that is being constantly produced, consumed, and reproduced. 
 But should a time ever arrive Avhen it shall seem expedient 
 and consistent with the broader and more important issues of 
 national policy, that the nation should itself supply the capital 
 required for industrial operations, instead of entrusting it to 
 the private interests of special classes ; then the bankers and 
 money-lenders, as well as the industrial capitalists, would no 
 longer be able to roll themselves up into modified monopolies 
 fighting each for their own hand, but, as the Socialists so 
 devoutly desire, would have their ' teeth drawn ' ; and Interest 
 and Profits alike would cease, being merged in Wages and 
 Salaries alone. 
 
 As for the ethical aspect of the problem ; — we may sum it up 
 bv saving that if each individual is to receive Avhat each has 
 produced, then so far as either Rent, Profits, or Interest, are 
 concerned, — all of which come from the gratuitous gifts of 
 Nature — these should go in a descending hierarchy of rewards, 
 first, to the Thinkers and Scientists who discover the laws of 
 Nature ; secondly, to the Inventors who turn these laws to 
 account by the machinery and processes which they devise 
 to capture and enchain the powers of Nature for the use of 
 man ; thirdly, to the great practical Organizers and entrepreneurs 
 who can adapt these machines and processes most economically 
 to their particular environments ; and fourthly, to the Skilled 
 Workmen without whose co-operation many of the surplus gifts 
 of Nature would be but imperfectly utilized. These are they 
 who have realized the myth of Prometheus and the fire which
 
 THE ACADEMICAL ECONOMISTS — ON INTEREST. 4J57 
 
 he drew down from Heaven as a free gift to man, — and not 
 the merely idle rent-receivers, the do-nothing profit or interest 
 dividers, or the miscellaneous herd of ordinary unskilled 
 labourers, — and if it is a question of abstract economic ethics, 
 it is to them that the bulk of the spoils of wealth should 
 belong. Now in the preceding volume of this series (History 
 of Intellectual Development, Vol. III.), I have endeavoured 
 to show that no merely ahstract ethical ideal has any realized 
 existence in the world of men, — any more than an abstract 
 ideal love has, — but only a succession of co)icrete ethical ideals 
 developed by evolution, in which the pure ideal is always 
 mingled with elements of a baser strain ; and this mixture of 
 elements may be most compendiously summed up in the answer 
 to the question; — what is the particular game that is being 
 played at any given time by a given nation, and what are the 
 accepted rules of that game ? In Economics, the game is that 
 of money-getting ; and it is played on the basis of the family 
 as the unit, and heredity as the mode of transmission of wealth, 
 with force, power, custom, and precedence mixed, as its main- 
 stays, and freedom of contract as its accepted method of play ; 
 but with the abstract ethical ideal in the background colouring: 
 all, and at all times, but only slowly gathering strength out 
 of the clash of these warring forces so unlike in nature to the 
 higher product which is to emerge from them. But it needs 
 little penetration to foresee that the industrial world will have 
 to advance much nearer to the millennial time than it is 
 to-day, before the hierarchy of wealth-distribution which I 
 have indicated above, has any chance of realization.
 
 CHAPTER V, 
 
 THE ACADEMICAL ECONOMISTS. 
 
 (Continued). 
 
 ON RENT AND THE STATICAL FALLACY. 
 
 ^T'HE earlier orthodox economists were so intent on measuring 
 with their divided stick the relations of the dead products 
 of industry, that it is little wonder thev altog-ether overlooked 
 those great blocks of Power which in the last chapter we 
 saw interposing themselves everywhere between the different 
 classes who own the living instrwnents of production — the land, 
 the fixed capital, and the labour, — powers whereby one or 
 other of these classes was enabled to extort ' forced gains ' 
 from the rest ; and this oversight is as great in the works of 
 the recent academic economists as in the earlier ones. Consider, 
 for example, the naivete of General A\'alker, who declares that 
 if worknien will only work harder and better, the increase in 
 the product must go to them in higher wages ; — but why must 
 it ? On the ground, he says, that as Rent and Interest will 
 not be increased, the excess must go to Labour. It would, of 
 course, if the master and his workmen could bargain on equal 
 terms, but they cannot if they would : and the mere fact that 
 each master makes his own bargain with his workmen, cannot 
 neutralize the fact that the informal combination of the master- 
 capitalists as a body gives them an advantage over the class 
 of dispersed workmen as a body, seeing that the one class own
 
 ON RENT AND THE STATICAL FALLACY. 439 
 
 the int«trumcnt8 of Procluction from which Profits and Interest 
 arise, while the other, divorced from them, are dependent on 
 their masters for their living ; and this difference in the power 
 of bargaining of the masters over their workmen, involuntarily 
 affects the contract between every master and every individual 
 workman. He could scarcely help taking advantage of it if 
 he would, any more than rival crews entering on a race on 
 even terms can help being affected by the fact that the one 
 is made up of twelve-stone men and the other only of ten, or 
 that the one has the shore, and the other the mid-stream. It 
 was a rare piece of simplicity on the part of General Walker 
 to imagine that the masters were going to throw away this 
 differential advantage under any contract, however free, — and 
 so spoil the game which the trump cards they have been 
 enabled to secure have given them, — by handing it over to 
 their workmen, Avhen they could quite legitimately, according 
 to the rules of the present game of wealth, pocket the difference 
 themselves under that very elastic and convenient category of 
 ' wages of superintendence.' Besides, do the masters in point 
 of fact ever hand over any excess of product to their workmen, 
 however hard they work ? Do they do so even in piece-work ? 
 On the contrary, they cut down the wages of the piece-work 
 so that it will average with ordinary time-labour, and thereby 
 still retain the differential advantage which their economic 
 position gives them ; like the Bank of Monte Carlo, which, 
 while freely allowing you to choose your form of play, has so 
 loaded the chances in its own favour all round — by its zero 
 and maximum — before you begin, that it has the advantage 
 of you in every spin. Is it not, indeed, a truism that wages 
 do not rise pfiri passu with profits, but lag behind them ; and 
 is it not only by laborious and difficult combinations on the 
 part of the workmen that they can be got to rise at all t 
 Another equally false assumption of General Walker's is, that 
 it is the ability of the eidrepreneur or organising capitalist 
 which makes the difference between a dear and a cheap product.
 
 440 THE ACADEMICAL ECONOMISTS 
 
 On this he dwells with as much insistence and at as great a 
 length, as if the entrepreneur were the very soul and crown 
 of all industry, instead of too often being merely that cunning 
 cuckoo who has managed to turn the eggs of the others out 
 of their nests. It is true that he does a service to industry, 
 and a very great service, but it is the negative one of increasing 
 the produce by picking up the savings that are to be had by 
 a more economical ' division of labour,' not the positive one 
 Avhieh can only come, as we have seen, from capturing the 
 great powers of Nature embodied in machines and processes, 
 and which is to be credited to the inventors and scientists, 
 not to the entrepreneurs. It is true that the entrepreneurs have 
 got hold of the new inventions and processes and are using 
 them ; for without them their organizing ability would go a 
 very little way, and would, indeed, be the play of Hamlet with 
 the Prince of Denmark left out. But how have they got 
 them'? Mainly by taking advantage of the inventors' poverty 
 it is generally admitted, like those old theatrical entrepreneurs 
 Avhose custom was to throw to the playwright a £10 note and 
 be done with him, instead of the new, more reasonable and 
 more honourable arrangement which divides the profits between 
 them according to the success of the play. But not only has 
 (jreneral Walker forgotten the inventor in his apotheosis of 
 the entrepreneur, he has forgotten also the advantage held by 
 large and concentrated capitals over dispersed smaller ones ; 
 first, in the savings which large-scale production makes possible 
 through the • division of labour,' and secondly, in enabling the 
 entrepreneurs to crush out in detail the competition of the 
 smaller concerns by underselling them. He has forgotten 
 too, the advantage which situation itself gives — the proximity 
 to railways, canals, and markets, etc, — of which the giant 
 industrial magnates can command the pick, but none of which 
 advantages proceed from the entrepreneur, although in their 
 aggregate they are so great that without them he would be as 
 helpless to add to the wealth of the world as his own staff of
 
 ON KENT AND THE STATICAL FALLACY. 441 
 
 clerks. But when once lie has managed to become possessed 
 of any one of these differential advantages, it quickly, — owing 
 to the tendency of profits to inequality , — gives him a fresh 
 lever for seizing more of them ; until in the end, with the 
 wealth thus pouring in on him, the poor eutrepretienr, if he 
 have a sense of humour, must stand in the midst of it all, 
 astonished at the greatness thus thrust on him. But General 
 Walker, believing with all the orthodox economists that profits 
 tend to equality — instead of rolling themselves up like snow- 
 balls as the capital inci'eases, — figures each particular coup as 
 a masterstroke of genius, and their authors as little Napoleons. 
 Had he read, as I have recently done, the inner history of 
 the Standard Oil Company, he Avould have perceived to what 
 a set of poor tricksters inflated into greatness by his own 
 imagination, he had given not merely the nominal, but the real 
 ])rimacy of the industrial world. 
 
 And with this we may now proceed to the main burden of 
 this chapter, which is to sliow that if there were nothing more 
 to find fault with, the met hod itself by which these later 
 academic economists propose to solve the problems that come 
 before them, would condenui their whole labours to falsity and 
 sterility. For what they propose to do is nothing less than 
 this; — namely to shear off" at a stroke all the cli/7iaiuical e\e\ucnts 
 in the problems of a science which is itself purely dynamical, 
 and wlien they have in this way taken the life out of them, to 
 reduce them to their ])urely statical elements, as in a body after 
 it is dead ; the excluded dynamical elements being afterwards 
 allowed for under the innocent looking phrase ' other things 
 being equal.' Now this is to kill ^our subject first, and add the 
 life afterwards— a hopeless procedure I It is a fallacy we have 
 already had occasion to notice in our study of Mill, but it 
 reaches its full flowering in his successors, of whom we may 
 take as examples. Walker, Marshall, and Professor Clark. 
 
 To begin with Walker. He is dealing with the problem of 
 Value, and in order to show that it follows the cost of pro-
 
 442 THE ACADEMICAL ECONO:\nSTS 
 
 duction of that part of the supply whicli is pi-odiiced under the 
 greatest difficulties and disadvantages, the following are the 
 emasculating conditions to which he subjects the facts before 
 he starts out ; — first, that competition must be perfect ; next 
 that there is no large stock on hand, but that things are 
 produced as they are wanted ; next, again, that there is a 
 uniform demand ; then, that there is no large plant, and no 
 great amount of capital or machinery required ; and lastly, that 
 the producers have an easy resort to other occupations. Now 
 without dwelling on the obvious fact that he has illegitimately 
 inserted among these provisos which bear on cost of production, 
 one which bears on consumption, namely that there shall be a 
 uniform demand — a condition which proves that Value does not 
 depend on cost of production after all, as he contends, but, as 
 we have seen, on the relation between cost, and the amount of 
 consumption; — but ignoring this for the moment, is it not 
 evident that these conditions which he imposes on his problem 
 at the outset, reduce it as much to a nullity as if he had 
 proposed to forecast the issue of a foot-race by insisting that 
 the strength and height and agility of all the runners should be 
 equal, and that they should all equally ' toe the line ' before 
 setting out ; in which case the runners, it is evident, would all 
 end as they began ; or as if he were to say that life was the 
 result of the vital principle, that the tree was the cause of the 
 fruit, that two and two are four, antl that things that are equal 
 to the same thing are equal to one another, — barren propositions 
 all. For is it not evident that the conditions imposed by 
 Walker can only exist in the very childhood of production, — 
 at that stage of homogeneity, namely, where evolution begins, 
 but from which it is taking it farther and farther every day, — 
 or else in the millennial kingdom itself? Instead of competi- 
 tion being free and equal, it is already being replaced in all the 
 great industries by combination, as we see in the great Trusts ; 
 instead of small stocks continually replenished in driblets, huge 
 stocks kept always on hand are the order of the day ; instead
 
 ON RENT AND THE STATICAL FALLACY. 143 
 
 of no large plant, no great amount of machinery or capital, the 
 future of industry is by universal admission in the hands of the 
 gigantic capitals and plants concentrated in special centres, and 
 enabled by the present facilities of transport and communication 
 not only to hold their own customers but to swoop down on the 
 customers of all lesser concerns as well, and carry them ofT as 
 spoils ; and lastly, instead of the labourers having an easy 
 resort to other occupations than their own, the fact is that with 
 the existing specialisation of work in all industries, it is the 
 most difficult of all things, unless one is a dock labourer, a hod- 
 carrier, or a scavenger. And yet it is all these that Walker 
 proposes to cut out of the problems of Political Economy 
 before he begins his deductions ; — as disturbing elements 
 merely, which can afterwards be allowed for, and not as 
 belonging to the very essence of the problem. 
 
 And next, let us turn to Professor Marshall, and sec what 
 are the conditions for which he stipulates before he can show 
 that the value of two commodities is proportionate to the 
 relative amounts of labour and capital expended in producing 
 them. They are, firstly, that the labour is equally skilled, 
 secondly, that it is assisted by proportionate amounts of capital, 
 thirdly, that the period of investment of the capital is the 
 same, and fourthly, that the rates of profit are equal. It will 
 be observed, in passing, that in this inventory he lias avoided 
 the illogical error of AYalker in admitting an equality of 
 demand as one of his conditions, for neither he nor Walker 
 allow that the consumption which is involved in demand is a 
 necessary factor and postidate of the Science at all. It is 
 true, as we have already seen, that in his comments on .fevons 
 he sees that Value depends on demand, — that is to say, 
 consumption, — as well as on cost of production, as is evident 
 by his analogy of the pair of scissors each blade of which is 
 necessary to the other; but unfortunately, as he has ruled out 
 Consumption as a definite factor in his scheme of the Science, 
 his consumption-blade could only have had a very negative
 
 444 THE ACADEMICAL ECONOMISTS 
 
 function after all, for there was nothing that he could 
 consistently and logically give it to do. But as regards these 
 impossible conditions of Walker and Marshall, what are we to 
 say ? In the first place they are right in trying to simplify 
 their problem by reducing all its factors to a common 
 denomination as it were, with the object of finding out their 
 law, but they must be sure, first, that no important factor has 
 been left out ; and in leaving out Consumption, their labours 
 have been rendered futile and their deductions false. But 
 even had they recognised Consumption as a definite factor, 
 this simplification of the problem would have availed them 
 nothing, so long as they kept their factors all on a dead level, 
 as in i\ post-mortem room, as parts of a statical theorem instead 
 of a livino^, movinof, dynamical oro;anism. For althouoh 
 statically you may reduce a line to a number of points or units 
 lyino' side bv side, vou still have missed something in the line, 
 namely the dynamical power which runs them all together. In 
 the same way in a dynamical Science like Political Economy, 
 which has to deal with quantities of commodities and services 
 continually being produced, consumed, and reproduced, you 
 may have omitted none of the essential factors, and yet unless 
 in every practical problem you can manage somehow to catch 
 the dynamical power which keeps all the factors moving and 
 runs them all together as it were, no mere reduction of them 
 to their separate statical units will avail for a true solution. 
 This we abundantly demonstrated, for example, in our 
 discussion on Free Trade and Protection, where we saw that 
 the fallacy of the wliole Free Trade argument reduced itself 
 precisely to this leaving out of the motor-power, namely the 
 powers of Natiu'e embodied in the instriimeiits of production, 
 thereby reducing it to a question of the passage to-and-fro of 
 the dead products of these instruments, to which alone statical 
 methods, — with their apparatus of discrete units and increments 
 thus broken up into a series of separate points instead of 
 forming part of a coidinuous movement — are applicable, and
 
 ON RENT AND THE STATICAL FALLACY. 445 
 
 vvhicli would land us at every point in our demonstration in 
 the fallacies of the ' Achilles and tortoise,' and the ' flying 
 arrow ' puzzles. And so it is with the problem of Value ; and 
 even although in this particular instance Professor Marshall 
 recognised the dynamical element of Consumption as a factor 
 in its solution, he could not have solved the problem until he 
 had thrown all the other factors on the wheel, and so allowed 
 the dynamical elements hidden in them to disclose themselves 
 in its revolutions ; thus converting all these factors alike into 
 dynamical instead of statical ones. It is true that I have 
 myself in this volume tried to simplify the immense complexity 
 of the subject-matter of the Science by first postulating an 
 ideal wheel, equally balanced, and moving continuously like 
 the heavenly bodies without friction in an aetherial medium, 
 where competition is absolutely free, where all the factors have 
 equal elasticity, and where all are kept in jyroportion to each 
 other by the very revolutions of the wheel itself. But this, it 
 is to be observed, is a dynamical construction, and is, as I shall 
 attempt to prove later, the true method of the Science ; and it 
 is from this ideal wheel with its motor powers that I have 
 deduced the laws of the Applied Science, where all irregularities 
 are explained by ohatruction)^ at this or that point to its free 
 running. So that by my method it is only these obstructions 
 that are relegated to the category of 'other things being equal.' 
 The academical economists, on the other hand, begin at the 
 other end as it Avere, and hope by equalizing the conditions of 
 the problem by means of marginal units and increments, either 
 to do away altogether with the great driving dynamical forces 
 of Consumption, on the one hand, and of Inventions and 
 improvements in the instruments of production on the other, 
 as well as of Monopoly and combinations everywhere ; or else 
 to reduce these to so subsidiary a position that they can be 
 disposed of, or allowed for afterwards, under their category of 
 'other things being equal.' Professor Marshall, for example, 
 thinks that he can solve the problem of Value by equalizing
 
 44fi THE ACADEMICAL ECONOMISTS — 
 
 the conditions of comjyetition ; and this he proposes to do by 
 equalizing the skill of the labourer, the amount of capital 
 employed, the period of its investment, and the rate of profit. 
 But when he has done this, what chance is there of his finding 
 the element of ' forced gain ' which enters into Value from the 
 comhinatious Avhich are now everywhere taking the place of 
 unlimited free competition, and which end either in partial or 
 complete monopolies'? Or again, how is he going to get a law 
 of Value by excluding at the outset, as we have seen, the 
 element of Consumption from his list of factors, when 
 (.'onsumption, as we have all along attempted to show, is the 
 motor driving power of the whole wheel of wealth ; its 
 variations not only entering into Value, under their common 
 designation of ' demand,' — quite as much so as difficulties of 
 Production, ending in scarcity, enter into it under the 
 connnon designation of ' supply,' — but actually helping to 
 determine that ' supply ' by the stimulus given by increased 
 consumption to inventions and improvements in production, 
 etc ? So that we have this curious result ; — that while the 
 whole problem of Value and of definite market-price is 
 practically covered by the three great dynamical factors of 
 Consumption on the one hand, of Inventions and improve- 
 ments in the instruments of production on the other, and of 
 Monopoly more or less operative everywhere ; the academical 
 economists have thrust all these into the background, as if they 
 were the merest side-issues of the problem ; while the primacy 
 and place of honour in its solution is given to such considera- 
 tions, as how the separate p^'odncts of these living dynamical 
 factors operate — such as the existing stock of commodities on 
 hand, the quantity of money in circulation, the existence of 
 substitutes or other occupations for capital or labour to fall 
 back upon, the lengths of the periods of investment of capital, 
 the rates of its profits, the state of the labour-market, etc. — a 
 mere distracted miscellany of dead particulars, without central 
 living powers to draw them together and impose proportion
 
 ON KENT AND THE STATICAL FALLACY. 447 
 
 and limitations on tlieni ; all of tlieni, it i^ true, affording 
 valuable indieatiouf;, in their way, of how the matter stands 
 when once you have the key to them, but apt to be as mis- 
 leading otherwise as if you were to try and determine the 
 staying power of foxes by the respective lengths of their tails I 
 And it is from wandering in the mazes of such oiitlvinsr 
 distracted particulars, that we have Professor JNIarshall not 
 only not seeing, but actually denying, that Consuni})tion can 
 enter as a definite factor into any economic problem whatever ; 
 denying, too, that scarcity rents, as well as differential ones, 
 enter into price; or that a monopoly, the result of Combination, 
 can enter into it ; or again that Trades-Unions can raise the 
 rate of wages, etc. ;■ — and all on the ground that a ' substitute ' 
 will always somewhere be found, to grind them down to the 
 common level |^by competition again. If, for example, we 
 imagine that the capitalists have a ' pull ' over their labourers, 
 inasmuch as they own the instruments of production, Professor 
 Marshall will reply ; — Not at all, for men can be substituted 
 for machines or horses if the profits of any one capitalist get 
 unduly high over those of another, and thereby the competition 
 between the men and the horses or machines will ensure that 
 neither capitalists nor wage-earners, neither profits nor wages, 
 can get any advantage over the other, and that each will get 
 precisely what each earns, under any circumstances whatever. 
 This is what he calls Von Thiinen's great Maw of substitution,' 
 and is a most comforting doctrine for the Rockfellers and 
 Astors of the world, inasmuch as it gives them the assurance 
 that however colossal their fortunes may be, they at least have 
 earned them ; and hoAvever much appearance the labourer may 
 have of being ' sweated,' what he is paid is really all that he 
 has earned. Now of this demoralizing doctrine we may say at 
 once that it may be true enough that the men cannot exploit 
 their masters, inasmuch as if they attempted it, the masters, 
 taking advantage of this ' law of substitution,' would use 
 machinery instead ; but why the masters should not exploit
 
 448 THE ACADEMICAL, ECONOMISTS 
 
 the men, when they have it in their power to cut them off In 
 detail from all access to the instruments of production (above 
 the i-ange of a pickaxe, a spade, or a wheelbarrow) by Avhich 
 alone they can live, is a mystery which Professor Marshall 
 does not think it necessary to explain. Besides, how does he 
 imagine that men can replace machinery, and vice, versa, when 
 in ninety-nine cases out of a hundred the work of the men and 
 of the machines is not interchangeable ? Does he imagine 
 that because fifty navvies, say, can do the work of a crane in 
 liftino- weights, and so can replace the crane if the capitalist 
 demands too much profit for the use of it, that therefore any 
 number of men whatever can replace a locomotive under similar 
 circumstances ? They might, it is true, succeed in hauling the 
 train, but where are they to get the speed ? Or again, how 
 can any number of men do the work of a ship, or of the 
 mathematical instruments which direct its course? And if not, 
 how can the work of capital and labour be reduced to a common 
 denominator for purposes of comparison, — unless, indeed, it be 
 those forms of capital which scarcely rise in complexity above 
 the work of a navvy or hod-man I As well expect the worker 
 with his hands, by some hocus-pocus of this 'law of substitu- 
 tion,' to be put in competition with the worker with his brains. 
 But if not, how are you going to prevent the monopolists of brains 
 — the inventors and entreprenenrs between them — from exploit- 
 ing the competing hordes of workmen who can neither invent 
 the machines nor do without them '? And yet this is what the 
 'law of substitution' has brought Professor Marshall to, by his 
 method of skimming off' the great dynamic forces of the science 
 at the stai't, under the phrase ' other things being equal," and 
 thinking that by whipping up the skim-milk he is likely to get 
 the cream ! And it all comes from the attempt of the academical 
 economists, by their statical method of the minutely divided 
 stick with its successive units or increments, to arrive at those 
 ' margins of indifference ' as they are called where all things being 
 alike interchangeable, they form ' substitutes ' for each other. 
 
 I
 
 ON RENT AND THE STATICAL FALLACY. 449 
 
 And this brings us to the academical solution of the problem 
 of Rent, which, by its ' margin of cultivation,' started this 
 maro-inal method which has had so disastrous an effect on the 
 Science. But to see the fallacies into which the academical 
 economists have fallen on this important subject, it is necessary 
 at the outset to get it into proper focus. And to begin with 
 we may say that in this problem of Rent, the central figure 
 is not the landlord, but the capitalist — whether he be a farmer 
 a manufacturer, or a merchant, — for it is he who starting from 
 the existing market-price of his product, whatever it may be, 
 has to organise and determine on the basis of that price, what 
 amounts of land, labour, and capital, at their existing prices, 
 he can use to make his business pay. And the second point 
 we have to observe is that the way in which he will act in 
 regard to the land, the labour, and the machinery he will 
 employ, will depend on whether it is a merely local market, 
 a national market, or the world-market that he is about to 
 supply; just as in an athletic competition the entries will be 
 different for a local, a national, or an international competition ; 
 many of those who would enter for a local one l)eing deterred 
 by a national one, and of those for a national, by an inter- 
 national one. And hence it is that there are as many kinds 
 of rents as there are classes of markets to be served ; certain 
 lands available for the local market not being available for a 
 national or an international one, owing to want of transport, 
 or what not. And the consequence of this, again, is that 
 everywhere land of the same intrinsic quality or productivity 
 is put to all kinds of uses, — local, national, and international, — 
 by the capitalists of all kinds who want to use it for their 
 respective purposes ; — whether it be farmers who have to 
 decide whether they shall use it for wheat, or oats, or hay, or 
 hops, or stock-raising, or dairy-produce, etc. ; or manufacturers 
 and builders, for factories, or warehouses, or dwelling-houses ; 
 or peasants, for market-gardening, and so on. If, then, we 
 ask what are the considerations that we must bear in mind in
 
 450 THE ACADEMICAL ECONOMISTS 
 
 attempting to solve the question of whether Rent enters 
 into Price or not, they may be reduced, practically, to the 
 following ; — first, that the market price of the product is fixed 
 for the capitalist by causes beyond his control, before he starts 
 his undertaking : secondly, that this price has been determined 
 as much by the demand for the product in the particular 
 market for which he is catering, i.e. by its consumption, as by 
 the supply, or the diflficulties and costs incident to its py^oduction ; 
 thirdly, that all the products that are brought to any market 
 are the result of the union in a single complex ivhole of land, 
 machinery or implements of some kind, and labour ; and that 
 to place the product on the market at the least cost, these 
 must be mixed in certain definite proportions, which depend on 
 the nature of the land available and its existing rent, the price 
 to be paid for the machinery or implements used, and the state 
 of the labour-market at the particular time and place ; fourthly, 
 that there is no one of these instruments of production, — 
 neither land, nor machinery, nor labour, — but has exchange- 
 value in general, that is to say, that no one of them is like 
 water, air, sunshine, and rain, for example, which are all alike 
 without exchange-value in general ; and that therefore there 
 is no part of them — no particular piece of land in use, no 
 particular machine in use, and no particular labourer employed, 
 — but has economic exchange-value ; and further, that if there 
 be such a piece of land, or machine, or labourer, in actual 
 employment, it or he is not in economic use, inasmuch as they 
 have no existence in the mind of the master-capitalist who is 
 organising his instruments of production for the purpose of 
 putting the product on the market. In a word, these no-rent 
 pieces of land, no-profit-producing machines, no-profit-earning 
 labourers, have no economic existence at all ; and if they 
 happen to be actually on the wheel — as in the case of a patch 
 or patches of worthless land lying among the good acres, but 
 not detachable from them ; or an old and worn-out machine, 
 kept going to enable capable workmen to earn their bare wages
 
 ON RENT AND THE STATICAL FALL AC V. 451 
 
 by its use in periods of transition or when work is slack ; or 
 of labourers who just earn their wages, and are kept on as a 
 charity, or what not — tliey are really not on it as economic 
 entities, and so do not count ; in a word, they do not form 
 part of the subject-matter of Political Economy, or its laws. 
 Now. if we bear these points in mind, two important conclusions 
 will be seen to follow ; — the first is, that in any organic or 
 organised product made up of the play and interaction of 
 different organs or factors, no one of these can for purposes 
 of analysis or investigation be suppressed, or reduced to zero, 
 but all alike must be held to have positive values. Otherwise 
 you would have such unnatural phenomena as trees growing 
 into the sky when you suppressed the organic factors that 
 imposed on them limitation, measure, and proportion ; or men 
 with bodies and no heads, or with stomachs and livers but no 
 hearts; or perpetual-motion machines that would go on for ever, 
 etc. — impossibilities all, which in the world of Nature do not, 
 and cannot exist; the fallacy of the method lying in not seeing 
 that some definite positive amount of each factor, however small, 
 must exist in every instance ; and that you have no alternative 
 but either to make all the factors that enter into the product, 
 zero, — in which case the product ceases to exist, — or to give 
 them all alike a definite positive value. And this fallacy, as we 
 shall see, pervades the whole of the orthodox and academical 
 economists' treatment of the problem of Rent. And the 
 consequences of this, again, are two, first, that there being- 
 no such thing, economically speaking, as a •' margin of culti- 
 vation ' or land paying no rent, a ' margin of capital ' or capital 
 paying no profits, a 'marginal labourer' or a labourer not 
 earning for his master more than his wages, it follows either 
 that all Rent, all Profits, and all Labour, enter into the price 
 of their united product, or that none of them do. The 
 academical economists have unanimously agreed that all alike, 
 Land, Labour, and Capital, enter into the product, but that only 
 two of them, the profits of Capital and the wages of Labour,
 
 452 THE ACADEMICAL ECONOMISTS 
 
 enter into the price, — Rent being excluded. And we have now 
 to ask, Avhat Is the source of the fallacy by which this anomaly 
 of the exclusion of Rent, so contrary to the natural opinion of 
 every business man, has found its way into the orthodox 
 science of Political Economy. 
 
 To begin with, then, I imagine it took its rise in the mere 
 fact of the existence of a special class of men, the landlords, 
 who doing nothing, were able to draw to themselves while 
 they slept as it were, large slices of the produce of industry ; 
 the instrument by which this was done, the Land, being so 
 simple and uncomplicated, so separate from either machinery 
 or labour, that it seemed as if it might be quite legitimately 
 detached from the other factors of industry, Capital and 
 Labour, as a thing that could be set aside in a niche by itself 
 and be reduced to some simple law ; after which, it would 
 be easier to determine the shares of the remainder, when 
 uncomplicated by Rent, that would fall to Capital and Labour 
 respectively. And it was to find some way of determinhig not 
 only the definite share of the produce of industry that would 
 fall to Rent, but also the cause of the difference of rents 
 between one landlord and another, that some accm'ate instru- 
 ment of measurement was required. And as all instruments of 
 measurement, — even a two-foot-rule or a tape measure, — must 
 begin with nought or zero, so, too, it was in the measurement 
 of the differential rents of land, which could only be accurately 
 compared if all alike started from some real or imaginary no- 
 rent land. And hence it was that the conception of a * margin 
 of cultivation,' or no-rent land, found its way into the science 
 of Political Economy. But no sooner had it made its entrance 
 as a mere instrument of calculation, than it speedily gave rise 
 to the illusion that there was such a no-rent land on the 
 ' margin of cultivation ' in actual economic use, besides 
 strengthening the illusion with which its authors had set out, 
 namely that Land, as one of the instruments of production, 
 could be detached from the other instruments of production
 
 ON RENT AND THE STATICAL FALLACY. 453 
 
 and subjected to economic measurement by itself, and without 
 reference to any action it might have on Capital and Labour, 
 or they on it, when the price of the product of their united 
 services had to be redistributed among the landlords, capitalists, 
 and wage-earners, respectively, as payment for these services. 
 At that time no one had thought of detaching Capital and 
 Labour from each other, in the same way as they had detached 
 the Land from both the Capital and the Labour, and subjecting 
 them to the same mode of measurement by means of a real or 
 imaginary zero of no-profit capital, and no-wage-earning labour. 
 And the reason of this was, that it was generally felt that 
 Capital and Labour Avere too intimately bound up together, 
 and that they varied too much in relation to each other to be 
 separated and independently estimated, just as we can imagine 
 a man's hair to be cut off as a superfluity, and estimated 
 independently of the rest of the body, in a way not possible 
 with the heart or the liver. Besides, the very conception of 
 an employer using a machine that brought in no profit, or a 
 labourer who only earned his wages, would have seemed such 
 an anomaly that it did not occur to them as possible. It is 
 true that Kicardo at this time had got the wage of the labourer 
 down to a ' bare subsistence wage,' but then that afi'ected the 
 capitalist, whose profits were correspondingly increased. It is 
 true, also, that Kicardo and Mill had fixed the no-rent land or 
 the ' margin of cultivation ' at the point where Capital and 
 Labour received just the current rate of profits and wages, and 
 no more ; so that if the usual rate of farmers' profits stood at 
 10 per cent., say, the margin of no-rent land would have to 
 be fixed at a difi'erent point from what it would have been if 
 profits stood at 5 per cent. ; — and therefore it may be said the 
 economists did see that Land varied in relation to Capital and 
 Labour. This is quite true, but still the mere fact that Capital 
 and Labour got precisely the same profits and wages when 
 working on the hypothetical no-rent lands as on lands paying- 
 rent — inasmuch as any excess over the current rate, which
 
 454 THE ACADEMICAL ECONOMISTS 
 
 would otherwise have gone to Capital and Labour, is skimmed 
 off by the landlord as rent, — was sufficient of itself to create 
 just so much illusion as to Rent being in some way different in 
 its laws from Capital and Labour, as to prevent the economists 
 from going any further at that time; the land that paid no rent 
 being always figured as patches lying here and there in the 
 midst of land that did vield rent ; the oood and bad beino; 
 averaged together, as it were, and the no-rent patches only 
 servino' to lower the average rent of the farm. But it was not 
 long before it began to be seen that the same mode of 
 measurement which Avas applied to Land, could be applied to 
 Capital and Labour as well : and that if there was a no-rent 
 land, so, too, there was a no-profit-earning machine, and a 
 no-profit-earning labourer ; the ditf'erence between a better 
 class machine and a worse in turning out the same product, or 
 between a superior and an inferior workman in the same class of 
 work, being precisely the same in principle as the difference 
 between a fertile and a barren corn field, I first came across 
 this principle definitely stated in one of the early Fabian tracts, 
 if I remember rightly; but the general conception of 'marginal 
 units ' had already been introduced by Jevons; and the general 
 conception of the laws of Rent as being applicable to the 
 differences in the products of Capital and Labour as well as of 
 Land, flowing from this conception of ' marginal units,' had been 
 utilized and brought definitely into prominence by Marshall. 
 Then, again. Von Thiinen's ' law of substitution ' which dealt 
 with the *• marginal units ' of Capital and Labour, and by 
 means of which he sought to show, as we have seen, that their 
 products being interchangeable, neither Capital nor Labour 
 could get any ultimate advantage over the other in the matter 
 of jjrofits and wages, had already appeared ; while Henry 
 George's general statement of the law, in his ' Progress and 
 Poverty,' — introduced by him to prove, in opposition to the 
 Socialists, that there could be no exploitation of Labour by 
 Capital, inasmuch as the smallest capitalists and the best of the
 
 ON RENT AND THE STATICAL FALLACY. 455 
 
 workmen were interchangeable, — had made tlie conception of 
 ' margins ' familiar to the general body of economic readers ; 
 Professor Clark making special acknowledgment of his debt to 
 George in this particular. And since then, again, Mr. Hobson 
 with his usual wariness and penetration has, in his ' Economics 
 of Distribution ' given a more rigidly scientific statement of the 
 whole question of these ' margins ' than any of his predecessors 
 had done. But at the earlier time of which 1 have been 
 speaking, none of the economists ventured to regard the 
 differences between the worst forms of Capital in use and the 
 best, or between the worst labourers employed and the best, as 
 being the same in pruiclple as between the worst lands in use 
 and the best, and so to try and assimilate the laws of Capital 
 and Labour with the law of Rent. And, indeed, their 
 hesitation need cause us no surprise, for it would have landed 
 them at once on the horns of this dilemma ; — namely that 
 either Rent, as well as Profits and Wages, enters into the price 
 of commodities ; or if Rent does not, then neither do Profits 
 nor Wages ; — a frankly impossible situation I But the strangest 
 circumstance of all, and one that shows how firmly the orthodox 
 economists have been able to fasten their law that Rent does 
 not enter into price on the necks of every school of Economists 
 down to the present hour, is that no one has as yet had the 
 boldness to affirm that all Rent, as well as Profits and Wages, 
 enters into price. And this is what I now venture to do, — 
 with becoming deference, I trust, to the great array of 
 authorities against me, for whose consensus of opinion on this 
 important subject I have, in spite of my different point of 
 view, the greatest respect. Even Mr. Hobson, who sees quite 
 clearly the identity between the differential rent of Land and 
 the dift'erential rents of Capital and liabour, and openly asserts 
 that land put to superior uses enters into price, still hesitates, 
 if I read him aright, to assert definitively that all Rent, as well 
 as Profits and Wages, enters into price. But I can myself see 
 no logical escape from this conclusion ; and it behoves me
 
 456 THE ACADEMICAL ECONOMISTS 
 
 therefore to go into the matter somewhat more fully and 
 carefully. 
 
 In the first place, then, the primal source of the error (as I 
 regard it) into which the orthodox schools have fallen on this 
 question of Rent, being, as I have said, their treating separately 
 the factors of Land, Capital, and Labour, instead of keeping 
 them all together as parts of a single complex whole : and this 
 procedure having been prompted by their laudable desire to 
 find out how much of the product would go to the landlords, 
 capitalists, and labourers, respectively ; they were led directly 
 to the use, as we have seen, of no-rent and no-profit margins 
 for purposes of measurement and calculation, and so (had they 
 only followed their own argument to its logical conclusion), to 
 the absurdity that neither Rent, Profit, nor Wages enter into 
 price. Xow had they kept the factors of Land, Capital, and 
 I^abour solidly together, instead of treating each separately, 
 they would have seen at once that as they all enter into the 
 product in c/e/itiite jiosidve amounts, and are each allowed for by 
 the capitalist in estimating his costs, these zero or tail-end 
 margins of each factor would have been whipped off at the 
 start : and that some positive amount of each in definite pro- 
 jyoi'tion, to the rest must always enter into price ; the proportion 
 of each which will thus enter being settled, like all other 
 economic things, by all being put on the wheel and this 
 proportion definitely fixed by the ordinary law of supply and 
 demand ; while the particular coiiihi nation of the three which 
 fixes the price of the product in the particular market to which 
 it is sent, will be that one Avhich gives the loicest yield and yet 
 is necessary to meet the demand ; all the other and better 
 producers getting an advantage over the weaker, not in a rise 
 of price but in an increased yield — unless, indeed, they choose 
 to combine and, by the superior eflficiency of their instruments 
 of production, drive the weaker producers from the market by 
 starting a fresh price on a lower level. 
 
 And this leads us to our second, but indirect, pi'oof that
 
 ON BENT AND THE STATICAL FALLACY. 457 
 
 Rent as well as Profits and Wages enters into price. For just 
 as in a thermometer there are degrees of frost beloiv the 
 freezing point — which for the nonce we may assume as the 
 zero or ' margin of indifference ' between heat and cold — so 
 in the same way there are degrees of sterility or uselessness 
 below the no-rent land on the margin of cultivation ; and as 
 the degrees of frost enter into the quantity of vegetation quite 
 as much as the degrees of heat, only that they do so by lessening 
 its amount instead of increasing it ; so there can be no question 
 that land below the ' margin of cultivation ' enters into price, 
 inasmuch as the costs incurred, say, in pumping out a water- 
 flooded mine ; or in keeping a patch of no-rent land permanently 
 drained, or free from thistles, to prevent it injuring the adjoin- 
 ing rent-paying patches ; or in paying extra insurance against 
 floods, volcanic eruptions, earthquakes, or what not, raises the 
 price ; and this in turn shifts the zero-margin from which rent 
 will begin to be paid, precisely in the same way as the use of 
 old rickety machines which do not pay for their repairs, or old 
 worn out labourers who do not pay by their work for the wages 
 they receive, also aflects price, and shifts the zero-point from 
 which Capital will begin to receive differences of profits, and 
 Labour to receive wages above its keep ; like those ghosts in 
 Hamlet and Macbeth, or the ancestral spirits of the .Tapanese 
 religion, which though dead, yet enter into the works and lives 
 of men. If, then, in the present stage of industrial develop- 
 ment every product is the result of the conjoined operation of 
 the three factors of Land, Capital, and Labour ; and if any 
 change occurring in any one of them alters its price, — -whether 
 by lowering or raising it, whether directly by itself or indirectly 
 by its reactions on the other factors ; — it follows that all three 
 factors alike must enter into price. And this, again, leads 
 us to point out once more how curiously the symbol of the 
 divided stick, which has been the bane of the orthodox 
 Economy from the beginning, is still found in its latest and 
 most diflerentiated developments, and how it falsifies the
 
 4o8 THE ACADEMICAL EC0N031ISTS — 
 
 solution of every problem into which it enters. In the })rcsent 
 case it takes the form of drawing an arbitrary line or ' margin 
 of indifference,' as it is called, like the freezing point on a 
 thermometer, across the centre or lower end of their instru- 
 ments of production ; all above this point being regarded as a 
 positive or plus quantity, and all below it as a negative or minus 
 one ; with the absurd result that while all below it enters into 
 price by increasing the costs and lessening the supply, and all 
 above it by increasing th ■ supply and lessening the costs, 
 nothing on the imaginary marginal line itself enters into price 
 at all. It is as if they had arrested a cannon ball at some point 
 in its flight, called that point zero, and then agreed, as in the 
 paradox of the ' flying arrow,' that while during all the rest of 
 its flight on either side of this imaginary point the ball was in 
 motion, at this point itself it was at rest, and not moving at 
 all ! And from this, again, it follows that the academical 
 economists can get no true law of Distribution from keeping- 
 the instruments of production apart, and manipulating them by 
 means of these imaginary zero-margins of no-rent and no-profit- 
 earning abstractions; or in other words, that in a purely 
 dynamical science you cannot begin with mere statical subdi- 
 visions ending in imaginary ' margins of indifference,' etc., and 
 then think you will allow for the dynamical complications 
 afterwards, for that would involve you from the start as we 
 have seen, in all the fallacies of the 'Achilles and tortoise ' and 
 ' flying arrow ' paradoxes which come directly from the use of 
 these statical units and margins, and from which you cannot 
 afterwards escape; on the contrary you must begiii from the 
 start with a dynamical construction, in which the great motor 
 factors, or instruments of production, planted at different 
 points around the circumference of the wheel, propagate their 
 influences from one to the other in a continuous movement, 
 without pause or break ; whether this dynamical construction 
 take the form we have given it in this book of a running wheel, 
 or some other and better one which it is for the future of
 
 ON RENT AND THE STATICAL FALLACY. 459 
 
 Political Economy to discover ; the statical elements being 
 brought in, as we have already seen, in the form of ohM.ructions 
 at this or tliat point to the free running of the wheel. 
 
 So much, then, for our first problem, namely as to whether 
 Rent enters into price or not ; — and it is evident that if Ave are 
 right. Professor Marshall, who with his statical method and 
 imaginary marginal levels denies not only that Rent in general 
 enters into price, but that even monopoly or scarcity rent 
 enters into it, — on the ground that by his ' law of substitution ' 
 there will always be found some substitute which will by 
 competition keep the price down to a no-rent margin, — has in 
 these later days of the bankruptcy of the old orthodox 
 Economy, wandered far from the path. The issue, then, 
 presented to the reader for his consideration in this problem of 
 Rent is quite clear ; — The orthodox and academical economists, 
 proceeding by their statical method of the divided stick, 
 and havino; folloAved Jevons in subdividino; this aoain into 
 infinitesimal increments ending in ' final units,' ' margins of 
 indifference,' etc., hold that while Profits and Wages enter 
 into the price of a commodity. Rent does not ; my solution, on 
 the contrary, founded on the dynamical method from the start, 
 is that Rent, as well as Profits and Wages, enters into price ; 
 and that if it does not, neither do they, inasmuch as the 
 marginal method which has been applied to Rent, can equally 
 well, and by the same principle, be applied to them. 
 
 As for our second problem, namely as to how the price of 
 the products of Land, Capital, and Labour, is to be apportioned 
 between the landlords, capitalists, and wage-earners, res])ectively, 
 and by what law, if any, this is to be determined, I know of no 
 work in connection with which this problem has been better 
 discussed than in Professor Clark's ' Distribution of Wealth,' 
 inasmuch as he has carried the statical and marginal method to 
 the farthest point it has yet reached. Professor Clark inherits 
 the tendency which is so characteristic of the best American 
 authors in every department of thought, of keeping his eye
 
 460 THE ACADEMICAL ECONOMISTS 
 
 firmly fixed on }3ractical realities and their relations, rather than 
 
 on abstractions ; and with the changes going on in America on 
 
 the great scale in the methods of industrial development — as 
 
 seen in the organization of the great Trusts, etc., — as an ever 
 
 present object-lesson, he has been enabled to shake himself 
 
 quite free from the fallacies of the orthodox school of Mill and 
 
 Kicaixlo, and so far as tlieir doctrines are concerned may be 
 
 said not to belong; to the orthodox school of economists at all. 
 
 But like all the other academical economists of recent years 
 
 whom we have passed under review, he has been hooked by 
 
 the suljtle bait of these ' statical marginal ' theories of Jevons 
 
 and his pupils of the English and Austrian schools ; and 
 
 imagines, like Walker and Marshall, that he can get a valid 
 
 law of the distribution of wealth by cutting off" at a stroke 
 
 all the dynamical diff"erentiating elements at the start, and 
 
 reducing the problem to a purely statical one ; — first by 
 
 keeping each factor, or instrument of production, entering into 
 
 the product, namely Land. Capital, and Labour, separate from 
 
 the rest ; and secondly, by reducing these factors each to a 
 
 series of homogeneous units stretched out like the homogeneous 
 
 hypothetical points of a mathematical line ; the last, or 
 
 ' marginal ' one, of these points, being the one which is to 
 
 determine the share of all other units entering into that 
 
 particular factor — whether it be Land, Capital, or Labour — 
 
 and so yielding the statical law of distribution of which he is 
 
 in search. After which, he proposes in a second volume, not 
 
 yet published, to work in those dynamical elements which he 
 
 has purposely excluded from the narrower statical presentation 
 
 which he has given us in this first volume, in the hope that 
 
 when these dynamical complications have been added to or 
 
 superimposed on the statical, the result of the union will be a 
 
 formula or law which can be depended on to hold true of the 
 
 distribution of wealth as it actually exists. In the meantime 
 
 and so far as he has gone, the result he has arrived at from his 
 
 purely statical study is, that under perfectly free competition,
 
 ON RENT AND THE STATICAL FALLACY. 461 
 
 the rent of all land, the interest of all capital, and the wages of 
 all labour tend to be equal to that part of the produce which 
 is separately to be attributed to the 'marginal' landlord, 
 the ' marginal ' capitalist, and the ' marginal ' wage-earner 
 respectively ; whereby it comes about, as he puts it, that " the 
 product and its pay are identical." But as the dynamical 
 elements which, like another Caligula, he has felt himself 
 obliged to cut off at a single stroke before he begins, in order 
 to arrive at this simple law, are no less important than the 
 following : — (1) the increase of population, (2) the increase of 
 capital, (3) improvements in the methods of production, (4) the 
 substitution of combination for competition, and (5) the 
 amount of consumption, it seems more than probable that 
 when he comes to add them to, or otherwise work them into 
 his simple statical law, their effects on this law will, like the 
 simple formula of ' liberty, fraternity, and equality.' with 
 which Rousseau was to regenerate the political world, end not 
 in a modification of his statical law merely, but in its entire 
 revolution ! But as it would be as impertinent as it would be 
 unfair for me to criticise here his preliminary statement of the 
 law before he has given his own full expression to it — and 
 especially as my criticism would have to be made from my own 
 purely dynamical point of view, — I would venture to commend 
 to those readers who may desire to see a current criticism of it 
 from his own standpoint, Mr, Hobson's detailed criticism in 
 the ' Journal of Political Economy ' for September, 1904 — a 
 criticism with which I entirely agree, and to which I can add 
 nothing worthy of being inserted hei-e. But one prediction I 
 will permit myself to make, and it is this ; — that when 
 Professor Clark's new volume on the dynamics of Distribution 
 does appear, he will either have to start by wiping out as with 
 a sponge all he has written, and begin afresh from a purely 
 dynamical standpoint, or else he will leave the problem of 
 Distribution in a more hopeless confusion than when he beo-an 
 his labours. For the problem being, as I have attempted to
 
 462 THE ACADEMICAL ECONOMISTS 
 
 show thi'oug'hout this book, essentially a dynamical one, the 
 statical elements must be subordinated to the dynamical from 
 the start ; but as Professor Clark, like all the academical 
 economists, believes it to be essentially a statical problem, 
 though with dynamical variants and accompaniments which 
 have to be allowed for afterwards, the consequence is that 
 instead of a dynamical wheel moving amid fluid homogeneous 
 conditions, he starts with the homogeneous conditions — free 
 competition, unlimited quantities of the different insti'uments 
 of production, and unlimited freedom in their movements — but 
 with nothing whatever in the nature of a dynamical construction, 
 either of a wheel or anything else, to move in them ! And the 
 conclusion he deduces from it all, so far, is as we should 
 expect, that no factor, — no instrument of production, whether 
 Land or Capital or Labour, — can get any advantage over the 
 others ; that there Avill be no exploited surpluses got by one 
 out of the others, no scarcity rents, no monopoly prices from 
 combinations and Trusts, no exploitation of wage-earners 
 (owing to a modified form of Von Thiinen's ' law of substitution' 
 being everywhere in evidence), and in a word, no injustice in 
 the existing distribution of wealth at all ; but each will get 
 what it earns, neither more nor less, — ' the product and the 
 pay being identical.' 
 
 And now, in closing this chapter, if I am asked in turn by 
 the reader what my own theory of Distribution, as seen from a 
 purely dynamic standpoint, is, I will answer in a word, as 
 before ; — There is no law of Distribution as such at all, but only 
 " the good old rule, the simple plan, that he shall take who has 
 the power, and he shall keep who can ; " — that is to say, that 
 the distribution of wealth is a matter of the relative economic 
 powers of those who own the instruments of production, — the 
 landlords, the capitalists, and the wage earners — at any given 
 time and place ; that it is a contest between these living 
 dynamic powers and these only; and that the one which has 
 the ' pull ' over the others, whether from economic situation.
 
 ON RENT AND THE STATICAL FALLACY. 463 
 
 economic combination, or what not, will take tlie lion's share of 
 the produce as in war ; the rest having to take the leavings ; — 
 whether those who have the power be the landlords, as was the 
 case in England before the repeal of the Corn Laws ; oi' the 
 capitalists, as the great Trust magnates in America; or the 
 wage-earners, as in Australia and New Zealand — modified of 
 course and mitigated everywhere by the free play of competition 
 on the margins and fringes, and in the interstices between 
 each ; as when prosperous workmen turn themselves into 
 little capitalists or little capitalists go back to their trades ; or 
 when the army of small retailers compete with each other for 
 customers : — but nothins more.
 
 CHAPTEE VI. 
 
 THE ACADEMICAL ECONOMISTS. 
 
 (Continued). 
 GEAMMAR AND MATHEMATICS. 
 
 TN the preceding chapters of this work I have endeavoured 
 to follow the evolution of the orthodox academical 
 Economy from the time of the Mercantilists down to our own 
 day, and have discussed in more or less detail practically all 
 the main positions which have been taken up by its leading 
 representatives ; but before passing on to a consideration of 
 the fresh germs of thought which have been dropped into it, 
 as it were, at points here and there along its course by 
 independent outside thinkers, I am anxious to gather up into a 
 definite statement the results which have followed, and which 
 in my opinion must follow, the statical method pursued by the 
 orthodox and academical economists. 
 
 The first is, as indeed we might know beforehand, that no 
 ' law ' in the scientific sense of the term, whereby from 
 somethino- known vou will be able to foresee something 
 unknown, and on the result of which human action can 
 be taken, can emerge from a science of Political Economy 
 founded on a purely statical basis, inasmuch as every law is in 
 its very nature a tendency, and always involves movement from 
 one point to another, — whether it be direct, or by reaction and 
 rebound, — or, in other words, it involves dynamical force. It
 
 GRAMMAR AND MATHEMATICS. 465 
 
 always involves, besides, at least two different terms between 
 which the law operates, and which it has to draw into a unity 
 of relation. If it be a law of the human mind, for example, 
 which is in question, then it must draw a relation between 
 a thought, say, and a feeling-, or between one kind of feeling 
 and another, or between both of these and the will, or what 
 not,— as is seen in the penetrating maxims of great poetic 
 philosophers like Bacon, Carlyle, and Emerson, and in the inter- 
 play of action and passion in the dramas of great philosophic 
 poets like Shakespeare and Goethe. Or, again, if it be a 
 physical law that is in question, like gravitation, then the law 
 must draw a relation between one body in space, and another 
 but different body whose movement under the influence of the 
 first the law seeks to determine. But no law of any kind can 
 be got out of the relation between two parts of the same thing, 
 as between the two divisions of a stick, nor yet from its infinite 
 subdivisions; and this, as we have seen, is precisely the present 
 method of the academical Political Economists. Indeed one 
 might almost go so far as to say that every step of their 
 procedure is as if designed to prevent any real law whatever 
 from emerging. Instead of keeping the different factors in 
 direct relation with each other, their tendency has been more 
 and more to isolate them, and to treat each in relation to itself 
 alone, by mere subdivisions and margins of itself ; with the 
 result, as we have seen, that not only have they discovered no 
 true law, but have fallen into the most convicted fallacies 
 which the history of human thought affords, — perpetual motion, 
 the ' flying arrow,' the confusion of the laws of dead with the 
 laws of living things, the cutting of an organism from its 
 environment and treating it as if it existed by itself alone, etc. 
 I am aware of course that many mathematical problems bearing 
 on human life can be solved by statical methods ; but that is 
 only when the dynamical force or power which enters into 
 them, and which is always presupposed in the background, can 
 be dispensed with for the nonce, inasmuch as, like gravitation,
 
 466 THE ACADEMICAL ECONOMISTS — 
 
 it acts equally on all things alike from outside them ; just as 
 the water which envelopes alike all the fishes that swim in it, 
 does not alter their relations with each other. But in all 
 hmian Sciences like Political Economy, the dynamical powers 
 concerned are the possessions of living individual human 
 beings, are part of them as it were, and so tend to accumlate 
 around and adhere to them ; and are not like mere physical 
 things, such as sea-sand which is washed on and off the beach 
 with equal indifference as the tides and waves determine. And 
 the consequence of this for the Academical Political Economists 
 is, that they can get nothing more out of their Science than mere 
 abstract definitions, or mere inventories of the various rules 
 and practices of business men, digested into summary abstract 
 formula? which they dignify with the title of ' laws.' And 
 although these are quite necessary for the purpose of teaching 
 the elements of the Science to the youths for whom their text- 
 books are written, they are as barren as the rules of grammar ; 
 and will no more enable the pupil (as true laws ought to do) 
 to construct an economic scheme, than definitions of the ' parts 
 of speech,' or catalogues of the rules of grammar will enable a 
 man to construct a sentence above the average, or to write a 
 line of poetry above mediocrity. What these sf,atical dividers 
 of single sentences into their separate clauses, with the proper 
 use and disposition of verbs, adverbs, prepositions, etc., do, is 
 to folloio some recognised master of style who has furnished 
 them with a model ; in the same way as a grammar of music is 
 but a pale abstract statical re-hash of the practice of the great 
 musicians. It is the same with the statical Academical 
 Economists who, to make up for the want of scientific ' laws ' 
 in their works, give minute analyses and elaborate abstract 
 digests of the practices of the most successful business men in 
 their industrial operations ; so that the idea of a Government 
 calling them in to advise, as is often done, on some economic 
 problem, is as absurd as if on a medical one, they were to call 
 in the newspaper reporters who had been sent around to report
 
 GRAMMAR AND MATHEMATICS. 467 
 
 on the methods of the best men in the profession, instead of 
 directly consulting the medical specialists themselves. And 
 that I am not doing the academical economists an injustice in 
 this impeachment of their methods, may be seen by a glance 
 through any of their text-books, and in none more, perhaps, 
 than in the works of Professor Marshall. For when not 
 engaged in giving names to super-subtle distinctions which 
 the ordinary business man takes for granted as truisms and 
 matters of course, — such impressive looking abstractions for 
 example as ' Marginal Utility,' ' Producers' Rent,' ' Consumers' 
 Rent,' ' Composite Demand,' ' Composite Supply,' ' Quasi- 
 Rent,' and the like, most of Avhich ideas I have had to use in 
 this volume without givino- them these hioh-sounding- names, 
 and so boring the reader by elevating into importance platitudes 
 he already knows, — Marshall is mostly occupied in discussing 
 such a purely business question as the different modes of 
 investment of capital ; but discussing it, it must be admitted, 
 not with any pretence of adding anything to the knowledge of 
 the capitalists actually engaged in these operations, but simply 
 of making a short-hand abstract transcript of them and the 
 considerations which are operative in the mind of the capitalist 
 in deciding to invest his capital in this or that way. The 
 reader is informed, for example, in carefully expressed phrases, 
 of the considerations which decide a farmer to sow oats instead 
 of wheat ; as to whether he shall concentrate his operations on 
 the cultivation of superior soils by intensive methods, or extend 
 them to inferior ones by extensive ones ; of whether on a balance 
 of considerations a manufacturer or builder should add another 
 story to his manufactory or dwelling-house, and so save his 
 rent charges, or extend it laterally by taking in fresh 
 ground, and so increase his rent costs rather than his capital 
 costs ; or of whether a farmer should hire a reaper and employ 
 fewer men, or more men without the reaper ; or whether it 
 would be more profitable to use horses instead of men on a 
 particular job or not ; and so on. Even the ordinary fact that
 
 468 THE ACADEMICAL, ECONOMISTS 
 
 business men will substitute one instrument of production for 
 another if it will do the work more cheaply, — as Avhen, for 
 example, they substitute horse-power for human labour, or 
 steam-power for horse-power, and so on, — is, as we have 
 seen, dignified by the name of the 'law of substitution' ! It is 
 expressed by von Thiinen, its discoverer, as follows ; — " So far 
 . as the knowledge and business enterprise of the producers 
 reach, they will in each case choose those factors of production 
 which are best for their purpose. The sum of the supply-prices 
 of those factors which are used, is as a rule less than the sum 
 of the supply-prices of any other set of factors which could be 
 substituted for them. Whenever it appears to the producers 
 that this is not the case, the}' will, as a rule, set to work to 
 substitute the less expensive method " ; and this ponderous 
 platitude is illustrated by Marshall from the fact that there are 
 certain kinds of field-work for which horse-power is more 
 suitable than steam-power, and vice versa, and that there is a 
 narrow margin on which either could be indifferently applied, 
 Avhich margin, again, also is elevated into importance by being 
 characterised as the ' margin of indifference ' ; and then comes 
 the sage reflection that " on that margin the net eflttciency of 
 either horse or steam power will be proportioned to the cost of 
 applying it." In the same way, too, on this "margin of 
 indifference " the wages of skilled and unskilled labour " will 
 bear to one another the same ratio that their efficiencies do at 
 this margin of indifference." And again in reference to hand 
 power and horse power, the reader is informed that "their 
 prices on this margin of indifference must be proportionate to 
 their efficiency " ; and so, as the upshot of it all, it is claimed 
 by Marshall that " the Law of Substitution will have established 
 directly a relation between the wages of labour and the price 
 that has to be paid for horse power." Biit in order that there 
 may be no mistake about it, he lets Yon Thiinen himself sum 
 the matter up in his own Avords ; — " the efficiency of capital 
 must be the measure of its earnings, since if the labour of
 
 GRAMMAR AND MATHEMATICS. 469 
 
 capital Avere cheaper tlian that of men, the undertaker Avouhl 
 dismiss some of his workmen, and in the opposite case he woukl 
 increase their number." Now ahhough it must be admitted 
 that these are the veriest platitudes, it may be said that the 
 conclusion drawn from them is of prime importance, inasmuch 
 as it establishes a real Law of Distribution. For that 
 conclusion is, that "free competition tends to make each man's 
 wages equal to the net j^^'oduct of his own labour, or the 
 discounted value of the produce of his labour"; to Avhich 
 Marshall adds that " this is not an independent theory of 
 wages, but only a particular way of Avording the familiar 
 doctrine that the value of everything tends to be equal to its 
 expenses of production " ; and taking as an illustration an 
 additional shepherd employed on a grazing farm, who just 
 earns his wages and nothing more, — that is to say, a shepherd on 
 the ' margin of indifference,' — he concludes that this ' marginal 
 shepherd ' adds to the total produce a net value just equal to 
 his own wages, and therefore that " the wages of every class 
 of labour tend to be equal to the produce due to the additional 
 labour of the marginal labourer of that class " ; or, in other 
 words, that the value of the produce of his labour, and his 
 wages, are identical. Now I have introduced these quotations 
 here as instances to prove that out of the statical method of 
 the academical political economy, no scientific ' law,' in the 
 proper sense of that term, can possibly emerge. For in these 
 quotations we see as in a mirror all the fallacies which I have 
 attempted to expose in the last chapter. In the first place, no 
 capitalist employs a marginal labourer at all, — that is to say a 
 labourer who onlv earns his bare wae'es, — or if he does, it is 
 either from miscalculation or as a charity, neither of which 
 considerations can be used to establish a law of political 
 economy ; and so Marshall's marginal labourer must be cut off! 
 In the second place, there is no such thing as absolutely free 
 competition, or even a tendency to it, among the capitalists 
 who are supposed to employ these ' marginal laboiu'ers ' ;
 
 470 THE ACADE3II0AL ECONOMISTS — 
 
 inasmuch as the aim of each capitalist is to seize the power 
 which comes from combination, in order to extinguish com- 
 petition ; — whether, as in the giant Trusts, by a union of 
 capitalists to produce on a large scale, and so extinguish the 
 smaller isolated ones ; or by using the superior instruments of 
 production which they may chance to have in their own hands, — 
 whether of larger capital, better patents, better situation for 
 transport, better reputation, or what not, — for the same purpose. 
 And this, in turn, will not only whip off the ' marginal labourer,' 
 but whole batches and establishments of labourers in the employ 
 of those smaller defeated capitalists who are forced by the 
 competition of the larger firms to close down their works. In 
 the third place, the triumphant capitalists in thus cutting off 
 whole regiments of ' marginal ' men, have by that very act cut 
 off the head of the " Law of Substitution " itself at a stroke ; 
 inasmuch as it is only on these margins between Capital and 
 Labour, where cranes or horses or steam power can be employed 
 instead of men, or men instead of them, that, by the admission 
 of these Economists themselves, the law is held to operate. 
 And hence, to conclude as we began, we may say that just as 
 in Astronomy you must have two different points on the earth's 
 circumference from which to get a law of measurement for the 
 distance of a planet or a star ; so in Political Economy you 
 must get two different and opposite points on the circumference 
 of the wheel, if you are to get any economic ' law ' whatever. 
 But the academical Economists by ruling out Consumption at 
 the start as one of these necessary points, made it impossible 
 for them (with their one factor only, of Production) ever to 
 get a ' law ' ; and so, with their endless refinings and useless 
 distinctions, could only end in Saharas of sand merely. 
 
 I am aware, of course, that Professor Marshall has hedged 
 himself against the imputation of not having the tAvo factors 
 of Production and Consumption necessary to get a ' law ' of 
 Political Economy, by a pronouncement like the following, 
 which he repeats in several parts of his volume ; — that " the
 
 GRAMMAR AND MATHEMATICS. 471 
 
 amount of the commodity and its price, the amounts of the 
 several factors of production used in making it and their 
 prices, mutually determine one another, as balls lying in a 
 bowl determine each other's position." Now this looks as if he 
 had found at least the two factors which I claim are necessary 
 for the establishment of a true scientific law ; but on inspection 
 it will be seen that he is only dealing with one after all. For 
 the ' amount of the commodity and its price ' is only one of the 
 divisions of the single factor Production, and is quite a different 
 matter from what it would have been had he said " the amount 
 of the commodity ,solJ and its price," for that would have 
 definitely pledged him to the admission into his proposition of 
 the factor of Consumption as a distinct and separate factor in 
 the Science, the variations of which, by affecting Production at 
 every point, make it a necessary constituent not only in this or 
 that law, but in every ' law ' of the Science whatever. But 
 Professor Marshall, having thrown out Consumption as a 
 definite factor altogether, that is to say, having cut away 
 half of the wheel, can no more get a ' law ' out of 
 Production alone, by merely subdividing it into factors of 
 production on the one hand, and the products of these factors 
 on the other, than he could get a law out of his pair of scissors 
 in his criticism of Jevons' theory of Value, where, although he 
 beo;an with two blades, he o^ave one of them nothino; definite or 
 positive to do. But if the reader is still unconvinced, and still 
 feels that I must be doing the academical Economists some 
 injustice, all I can do, — if I am not to drag him, already 
 wearied, through more instances of the same fallacious method, — 
 is to make them a direct challenge to produce a genuine law of 
 Political Economy, in which the element of Consumption as a 
 definite factor is left out. And I will go so far even as to defy 
 them by their present statical method to get anything more out 
 of their Science than either mere definitions of terms, catalogues 
 of the accredited methods of doing business, or (in the way of 
 professed 'laws'), such identical propositions (as in the case of
 
 472 THE ACADEMICAL ECONOMISTS 
 
 differeviial rents, profits, and wages), that twice two are four, 
 and that things that are equal to the same thing are equal to 
 each other. The truth is, the Science as it exists to-day is a 
 pseudo-science in precisely the same sense as perpetual-motion 
 is a pseudo-mechanics. 
 
 But before taking farewell of the academical economists, I 
 wish to say a word or two on the Mathematics which have 
 been so freely employed by their later representatives since 
 their use by .Tevons. Owing to the general contempt into 
 which the academical Political Economy has fallen in those 
 later days, — a contempt which I have in this volume 
 attempted to prove is thoroughly justified, — the economists in 
 their extremity have snatched at the high authority of Matlie- 
 matics not only as a shield to protect them from the taunts of 
 the vulgar, but as lending an air of greater scientific precision 
 to the science itself. And it is this latter consideration which 
 has been mainly instrumental in ])roducing that curious assump- 
 tion of special and exclusive authority which is becoming more 
 and more noticeable in the 3'ounger economists who have been 
 brought up under this mathematical regime. In the recent 
 Fiscal Controversy, it may have been observed that such 
 phrases as 'the consensus of experts,' 'expert economic 
 opinion,' and the like, were freely waved over the heads of 
 their antagonists by these younger men, to silence contradic- 
 tion and to close discussion as by pa[)al authority ; and on 
 looking more closely into the source of this arrogance, so 
 foreign to the earlier exponents of the Science who never 
 claimed more for their arguments than their natural weight in 
 the ordinary exchanges of the world of thought, it soon begins 
 to dawn on one that it is to the mathematics which have been 
 imported into the Science that these lordly assum[)tions are 
 due ; — as when, in a particular instance which I remember, the 
 reader was told tiiat ' the full proof of the argument in question 
 involved much intricate mathematical calculation, but that he 
 might take it for granted that this was how the matter stood,'
 
 GRAMMAR AXT) MATHEMATICS. 473 
 
 etc., or words to tliat effect. Now I might as well sjiy at once 
 that in my judgment this appeal to Mathematics as helping to 
 establish any doctrine of Political Economy whatever which 
 otherwise would be unable to stand on its own feet, is entirely 
 gratuitous ; and this for the reason I have already given, 
 namely that whatever result a mathematical calculus may grind 
 out at the end of an argument, is entirely conditioned bv the 
 ]>resuppositions, axioms, postulates, and genei'al relations put 
 in at the beginning ; and that if these do not represent the 
 true organic relations of the different factors of the subject- 
 matter dealt with, the mathematical mani})ulation of them by 
 the calculus will only make them more definitely and irretriev- 
 ably false. Given, for example, that the average length of life 
 of human beings in a given community has been correctly 
 estimated, the 'law of probabilities' will work you out a table 
 of insurance rates on which an insurance company can rely to 
 realise a dividend for its shareholders ; but if the average 
 length of human life on the one hand, or the dangers to which 
 from outside circumstances the particular community is exposed 
 on the other, were to alter, Mathematics would be obliged to 
 construct an entirely new table of insui*ances to meet the altered 
 relations with which the com])any had to deal. In other words, 
 the mathematics must folloic the general laws and relations of 
 the facts on which it has to operate when their complications 
 get beyond the range of ordinary human foresight ; but can 
 never precede, anticipate, or prescribe to them. It is the same 
 with Political Economy. When once you have ascertained the 
 way in which Taxation, for example, is shifted from one class to 
 another, mathematical diagrams and formula? will enable you 
 to calculate its incidence in individual concrete cases with a 
 degree of certainty impossible without their aid ; but they can- 
 not help 3'ou, unless you have made sure of the general laws of 
 taxation beforehand. It is the same, too, with the mathematical 
 cvu'ves for determining Rent and Value, which are only of use 
 after you have discovered the true laws Avhich determine Rent
 
 474 THE ACADEMICAL ECONOMISTS 
 
 or Value in preneral ; otherwise, they are not merely useless but 
 positively mischievous, inasmuch as they lend the high authority 
 of Mathematics to what lies quite beyond its sphere. And 
 hence it is that if I am right in my contention that a dynamical 
 wheel is the true symbol from which have to be deduced the 
 laws of the production, exchange, and distribution of wealth, 
 and not the academical symbol of the infinitely divided stick, 
 the whole set of mathematical formulae used by the Science to 
 work out the quantitative aspects of its laws must be entirely 
 changed.
 
 CHAPTEK YII, 
 
 THE OUTSIDE ECONOMISTS. 
 
 4 MONG the Economists from outside the orthodox and 
 ■^^ academic ranks who have either pointed out particular 
 fallacies in the old system, or have added fresh considerations 
 from a wider range of thought which in their aggregate have 
 gone far to discredit that system altogether, I may mention 
 the names of Comte, Carlyle, Ruskin, Marx, Henry George, 
 Gunton, Robertson, Mallock, Hobson, and the members of the 
 Fabian Society ; and before closing this volume I feel it 
 incumbent on me to point out, if only in the most general and 
 discursive way, what the contributions of these men have been. 
 But as the aim of this book is rather to make a first rough 
 sketch of a new system of Political Economy founded on purely 
 dynamical principles, than an encyclopjedia of the doctrines of 
 existing schools founded on statical ones, and as I have not, in 
 the matter of space, that ' wide sea of wax ' over which the poet 
 in ' Timon of Athens' was accustomed to disport himself, I am 
 oblio;ed to omit much otherwise intei'esting; matter, and to 
 confine my criticisms to a certain limited class of particulars, if 
 I am to avoid blurring the unity of my own presentation just 
 ended, by overlaying it, as it were, with a mass of hetero- 
 geneous opinions drawn from the most diverse and conflicting 
 points of view. And the point at which I propose to draw the 
 line in these exclusions is where these economists follow the
 
 476 THE OUTSIDE ECONOMISTS. 
 
 errors of tlie orthodox and academical schools which I have 
 passed under review, inasmuch as any re-arguing of these 
 purely statical principles would only be a waste of time, if the 
 reader, after all we have said in deprecation of this method of 
 approaching the great problems of the Science, still remains 
 unconvinced. 
 
 The first great thinker, outside of the ranks of the pro- 
 fessional Economists, who occurs to me as having protested 
 ao;ainst the entire method of the Orthodox Political Economv, 
 is Comte, who in his controversy with Mill confined himself 
 mainly to insisting in general terms on the great broad fact 
 that there could be no ultimate truth in any system which had 
 so completely cut itself off from the currents of general civiliza- 
 tion as had the then existing system of Political Economy, 
 with its 'economic man,' etc., as expounded in the writings of 
 Mill ; and as with this protest of Comte's I entirely agree, 
 nothino- further need be added to it here. But long before 
 either ^lill had written his book, or Comte had entered his 
 protest against it, Carlyle, — who many years later in his ' Latter 
 Day Pamphlets ' declared that he had been compelled ' for his 
 sins ' to read ' barrowfuls of treatises ' on Political Econoni}', — 
 had written his ' Sartor Resartus ' and his ' Past and Present,' 
 and had hurled his satirical gibes at it, on the ground of its 
 immoral, inhuman, and anti-social tendencies, in the hope that 
 this would of itself be sufficient to arrest public attention, and 
 compel thoughtful men to reconsider their attitude to what had 
 now begun to arrogantly claim for itself the title of a ' science.' 
 He nicknamed it the ' Dismal Science,' and suggested that if 
 its professors could not make anything more out of Malthus' 
 doctrine of Population than that the working classes were, by 
 the so-called laws of Political Economy, fated to increase in 
 numbers to the point where they would reduce themselves to 
 starvation, the capitalists had better at once imitate the 
 practice of the Spartans with their helots, and shoot down 
 their excess for the sport of it as it w^ere, and ' to keep their
 
 THE OUTSIDE ECONOMISTS. 477 
 
 hands in!' And then turning on them seriously, he wanted to 
 know why, if their very horses were secure of a well-fed 
 subsistence, their human workmen with their infinitely finer 
 capabilities, who by their skill at the loom and the spinning- 
 jenny were at that very time not only contributing to the 
 wealth of the capitalists but to the abounding wealth of the 
 nation itself, should not be able to earn their living on some 
 more decently human terms than those of semi-starvation ; ho^v 
 it was that stacks of shirts covdd lie piled ceiling high in ware- 
 houses in times of glut, and not be able by any known human 
 expedient to get on to the backs of the very men who had 
 made them, or corn get into the stomachs of the men who had 
 sown it, and watched over it, and reaped it ? And further, if 
 by their impotent doctrine of ' laissez-faix'e ' an excess of 
 Population had been allowed to become the fatal barrier to any 
 solution of the problem, why, if the nation could spend twenty 
 millions sterling in a year to shoot the French, it could not 
 raise the merest fraction of that sum to emigi'ate the superflux, 
 and educate, regiment, and coerce the derelicts and the rest 
 into the paths of useful labour again? All this he demanded 
 time after time with indignant iteration ; and indeed I must 
 Confess that were my role that of the ' moralist ' instead of 
 the ' philosopher ' this is precisely what I too should want to 
 know even down to the present hour. For this impeachment 
 by Carlyle of the orthodox Economy, and of the successive 
 British ministries that embraced it, was in its issue a purely 
 moral one ; and for the first time since the decay of the Feudal 
 System, recalled the nation in general, and the governing- 
 classes in particular, to a sense of the duties and responsibilities 
 of society to all its members alike. But he omitted to do the 
 one thing needful — and it is an omission which all those who 
 assume the prophetic role would do well to ponder — he did 
 not attempt to refute in detail, and by reasoned arguments, a 
 sino;le one of the orthodox economic doctrines ao-ainst which 
 in general terms he inveighed. He simply repudiated them all
 
 478 THE OUTSIDE ECONOMISTS. 
 
 alike, on the moral ground that the tree must be judged by its 
 fruits ; and with the general feeling in his mind that something 
 was wrong somewhere with their system, without precisely 
 seeing where, called on them to put it right before he would 
 even consent to discuss it : much in the same way as he refused 
 to discuss a single definite doctrine of the French Revolution, 
 or a single utilitarian doctrine of the reigning political school 
 of Bentham. Nor did he, so far as I can remember, confront 
 a single doctrine of the orthodox Economy with a parallel 
 but opposite one of his own, so as to give his readers a hint 
 of precisely where, or on what, it was that he wished them to 
 fix their minds for the purpose of arriving at a true decision, 
 but confined himself to gibes and general denunciations merely. 
 Had he done otherwise, I feel sure that by the majority of us 
 young men of the time, in whose eyes he had something of 
 that ' mystic sublime reputation ' which he himself attributed 
 to Coleridge, his every word would have been weighed, and 
 have received our most serious and careful consideration. But 
 as he did not choose to take this course, and apparently felt 
 that by reason of their very monstrosities he could not do 
 justice to the doctrines of the Economists except by a wholesale 
 denunciation and repudiation of them, his diatribes, in spite of 
 his assurance that he had read ' barrowfuls ' of their treatises 
 and text-books, had not the slightest effect ; — proving that no 
 mere • diatribes, unless they are supported point by point 
 by reasoned criticism, are of any avail when you wish to 
 convince, and not merely to hypnotize for the moment, the 
 serious and thoughtful student. But in thus doing an injustice 
 to his readers and to his opponents alike, he did a real injustice 
 to himself also. For, strictly speaking, Carlyle was one of the 
 most profound and penetrating thinkers on all problems bearing 
 on human life, that the world has yet seen ; and when he did go 
 down into the depths of any problem, always struck bottom ; — 
 as I found to my surprise when in later years I had to handle 
 some of these problems myself. Indeed, as I have already had
 
 THE OUTSIDE ECONOMISTS, 479 
 
 occasion to insist more than once, no man could have given 
 the interpretation he did to Goethe's celebrated ' Tale ' who 
 had not the profoundest insight into all the great dynamic 
 forces of Civilization, of Society, and of the Human Mind, in 
 their most complex and intricate interplay, down to the 
 minutest particulars. Speaking for myself, I am bound to 
 admit that I cannot recall with my utmost eifort and as my 
 own experience of all these problems becomes larger, more 
 than one great general principle in which, in my judgment, he 
 went practically wrong; and that was. his curious insistence on 
 the irul entity of the moral and intellectual faculties in each 
 individual, — a doctrine which led directly to his presupposition 
 that the man who was o-reat in one thino- could, if he chose 
 to exert himself, be equally great in all, and which ended in his 
 ' Great Man ' theory of Politics ; — a theory which Emerson spent 
 his life in controverting by insisting on the opposite and, as I 
 believe, truer doctrine, that the greatest ' great man ' is great 
 only at his own peculiar angle, and that Society depends, like 
 a necklace of jewels, on a circle of great men of all kinds and 
 shades, to give it the unity, the harmony, and the completeness 
 it requires. But how profound and penetrating, in spite of 
 this, Carlyle was on all the great issues of Society and Life, 
 may be seen in the simple fact that all we young men who at 
 that time railed at his doctrines and prophecies, have only had 
 to give him fifty years or so for every one of them to come 
 true ; — his prophecy, for example, of the impotence and final 
 bankruptcy of the orthodox Political Economy; his recognition 
 of the fact that man being an animal that goes in herds, must 
 follow the law of all herds, and make for himself heroes real or 
 imaginary, before whom, once made, he is only too proud to 
 prostrate both intellect and heart ; and further, his assertion 
 that the whole chain of doctrines which hung on the denial of 
 this great central truth — namely laissez-faire, abstract liberty 
 and equality, the sovereignty of the ballot-box and universal 
 suffrage, negro franchise, Utilitarianism, Scientific Materialism,
 
 480 THE OUTSIDE ECONOMISTS. 
 
 and the sovereignty everywhere of ahstract instead of concrete 
 ideals — was a collection of merest half-truths, and at bottom, 
 if we consider it well, of denials of the principle of Evolution 
 which carries both them and their complementary halves and 
 opposites on the bosom of its ample and all-embracing stream. 
 Now all these doctrines, — involving as they did an attempt 
 to make a society progress by following its tail of mediocrities 
 who are the veriest slaves of their environment, instead of the 
 great initiative and controlling spirits who have to foresee, 
 devise, invent, carve out the path, and lead the way, — were 
 believed in at that time, thirty years ago, as words of holy 
 writ, and hence the denunciations of Carlyle fell on unheeding 
 ears ; so that in his old age, and within a generation of the 
 time when they were one and all to be thrown out by the 
 world as convicted impostures that had strangled themselves 
 when sufficient time had been given them to do it in, he had 
 to complain that he and Ruskin in all England, as a ' minority 
 of two,' were the only ones who could be found to seriously 
 question them. But what with the prestige of Adam Smith 
 and his gospel of laissez-faire, among the politicians from 
 Pitt downward, whom the people had made their leaders not 
 only in Politics but in Economics as well; what with the 
 ' intellectuals ' who as followers of Bentham and Mill had 
 captured the advanced organs of opinion ; what with the 
 beautiful candid mind of Mill himself, and the glamour it 
 threw over the elaborate logical apparatus of half-truths of 
 which, as we have seen, his system was built up ; what with 
 the rapid succession of superficial politicians, windbags many 
 of them, who had caught the ear of the masses, as well as of 
 the half-baked, self-made leaders of the working classes who 
 being mainly men ' of one book ' and of one shibboleth, posed 
 as ' intellectuals ' and so became each again in turn a kind of 
 subsidiary tail to these political windbags; — what with all this, 
 the rising Science of Political Economy had got itself so 
 entrenched and rooted in the soil of general ' public opinion '
 
 THE OUTSIDE ECONOMISTS. 481 
 
 that in spite of the people beino" on the verge of starvation, not 
 only the denunciations of Carlyle but even the immense prestige 
 of the Crown and Aristocracy (aLvays the most potent factor 
 in opinion of all kinds in smooth-running times) had no effect 
 against it. 
 
 And yet, as I have said, 1 am convinced that had Carlyle 
 thrown off his prophetic mantle, and instead of alternately 
 railing and denouncing, like some old Hebrew Prophet, had 
 set himself down quietly to work out the fallacies of the old 
 Economy in detail by the ordinary methods of logic and 
 demonstration, he had both ability and penetration enough 
 to have arrested, if not averted, the consequences of these 
 doctrines of the orthodox Economy ; not only as regards the 
 Land of England, — which as we see has gone half out of 
 cultivation since then, — but for the Working Classes in their 
 . struo-gles to earn a ' living wage ' as well. 
 
 But the capitalists having captvu'ed the economists, and the 
 economists in turn having captured the politicians, the working 
 class leaders, and the nation generally, nothing could arrest 
 the triumphant march of the orthodox Economy with its 
 gospel of ' laissez-faire ' and Free Trade ; and it now only 
 remains for the great Trusts of the world to get hold of the 
 Instruments of Production, by Protection, and then turning the 
 hose of Combination on the smaller ' laissez-faire ' capitalists 
 wherever they are to be found, to drown them all out in turn, 
 to make the rout of the old Political Economy complete. 
 But to return. Ruskin, meantime, who prided himself on his 
 purely analytical powers, finding that the words of Carlyle in 
 denunciation of the old Economy were falling on deaf ears, 
 and sympathizing besides with his righteous indignation at the 
 practical results of its teachings, determined to take the field 
 himself in defence of his master ; in the hope that if he avoided 
 his error of general abuse and denunciation, and went into the 
 subject in detail on fresh lines, he might do something to stem 
 the popular current in favour of the reigning Economy. But 
 
 H H
 
 482 THE OUTSIDE ECONOMISTS. 
 
 before giving an outline of his scheme, I may remark in passing, 
 
 that never in the history of human thought has so marked and 
 
 entire a change come over tlie method, principles, structure, 
 
 and organization, of the Sciences dealino; with human, as 
 
 distinct from purely mechanical and physical things, as that 
 
 which within the last two generations has made the principle 
 
 of Evolution the standpoint and guiding star from which all 
 
 political, moral, religious, and economical movements are 
 
 surveyed ; and further that nowhere do we become more 
 
 conscious of this change than in studying the two books of 
 
 Ivuskin on Political Kconomy — ' Unto this Last,' and ' Munera 
 
 Pulveris,' — both of which were written in pre-evolutionary 
 
 times. They are purely statical in their standpoint from their 
 
 first pages to their last, and seek to gain their end by painting 
 
 on the sky, as it were, an ideal moral picture of what Political 
 
 Economy oiigld to be, in elaborate detail, for the contemplation 
 
 of statesmen and business men of all times and places, rather 
 
 than by shoAving precisely how this millennial ideal was to be 
 
 reached. And although his work was intended to be an 
 
 extension of the moralized economic principles of Carlyle, 
 
 it nevertheless differed from what Carlyle would have done. 
 
 had he seriously tackled the special problems of the orthodox 
 
 Economy, by that whole world of difference which separated 
 
 the two men both in their temperaments and in their general 
 
 intellectual equipment. Carlyle, although his ends and aims 
 
 in all things were quite as high and ideal as those of Ruskin, 
 
 would have nothing to do with anything weak or sentimental, 
 
 or even conventionally moral, in the handling of practical 
 
 problems ; — as indeed is sufficiently evidenced by his almost 
 
 brutal insistence on the necessity of resorting to force in great 
 
 emergencies, as in the French Revolution and the Irish 
 
 Campaign of Cromwell ; his admiration for the ])romptness 
 
 and effectiveness in action of men like Frederick the Great and 
 
 Napoleon, andjhis apotheosis of great men of action generally ; 
 
 as well as in the contempt he always exhibited for men who.
 
 THE OUTSIDE ECONOMISTS. 483 
 
 ignoring realities, thought to remedy unfavourable conditions 
 by pouring buckets of ' rose-water sentimentalism,' moral 
 precepts, and phrases like ' liberty, fraternity, and equality,' 
 over them, — as seen, for example, in his contrast of the methods 
 of Robespierre, on the one hand, and of Mirabeau and Danton, 
 on the other. And I doubt not that had Sir Robert Peel 
 called on him, as he hoped, to preside over one or other of the 
 Government ' circumlocution ' offices, he would have done the 
 work of clearance of the ' red-tape ' methods in vogue there, 
 in a way that would have been an enduring object-lesson for 
 practical men in every department of government. So, too, 
 had he lived to-day and been called on to handle the problems 
 of Political Economy in their practical bearing, he would have 
 begun by recognizing with Shakespeare, that the world in 
 every department would soon become an unweeded garden 
 were it not that our intellects and wills have been given us to 
 be its gardeners, and would have allowed no mere Law of 
 Population of Malthus or another, to so over-run the field that 
 there was no standing room left for an3'body, while he sat 
 moaning and groaning retrospectively over it, — and then 
 generalizing his groans into ' laws ' of the Science of Political 
 Economy. Nor would he, like the present Academical Schools, 
 have permitted any tail-end or ' marginal ' pieces of useless No- 
 Rent land, any ' marginal ' machines or wage-earners ' eating 
 their heads off' and earning no profits, to make their way into 
 the data of the Science, but would have cut them off ruthlessly 
 to start with, as butchers do bits of dead and useless carcnss, 
 and so be done with them once and for all : and would then 
 have constructed his Science out of factors every one of which 
 was dynamical and alive — the Science being a human one and 
 therefore fluid and coercible, and not, like the physical sciences, 
 rigid and unamenable to human methods— and have got the 
 morality which was his ultimate aim, out of his mode of 
 combining and handling them. In other words, he would have 
 permitted no merely statical elements to form any part of his
 
 484 THE OUTSIDE ECONOMISTS. 
 
 solution, except in so far as they were obstructions to be got 
 out of the way, but woukl have struck at once to the heart of 
 the matter by trying to find out wliat the dynamical elements 
 in it were, and getting a firm grasp of them and their relations ; 
 as knowing well that all the rest were but mere dead surplusage 
 wliich could be coerced and made to follow obsequiously the 
 great lines of dynamic power. Or, to put it differently, he 
 would not have treated the subject analytically or retro- 
 spectively, by looking at it from the stern of the boat as it 
 were, but prospectively from the point of view of the 
 projectors of economic enterprises who take their stand on the 
 bridge as their point of outlook, and not only steer the boat 
 but generalize the laws of the Science from that standpoint ; 
 thereby keeping the theory of the Science parallel with, and a 
 living transcript of, the actual methods and operations of 
 business men. If the game of Wealth that was being played 
 were to have a purely moral end in view, he would have laid 
 out his principles and rules in one way ; if the end, on the 
 contrary, were to be the mere accumulation of loealth as such 
 by individuals, he would have played his cards in a different 
 way and on a different principle of combination ; and if the 
 question were of whether this mere money-getting end were 
 to be purely national on the one hand, or cosmopolitical and 
 international (however much any particular nation might be 
 injuriously affected by it) on the other, then again he would 
 have handled the great dynamical factors in a yet different 
 way. But in any case Carlyle would have kept his eye fixed 
 on the central dynamic powers involved, in whatever confusion 
 or complexity they lay, or with what obstructions soever they 
 were entangled, and would not have rested until he had seen 
 how they were to be handled so as to reach the end in view. 
 
 But with liuskin all was different. In his enthusiasm to 
 reach Carljde's great aim of moralizing all the relations of 
 Industry, instead of pointing out the successive economic 
 expedients by means of which it was to be attained, as was
 
 THE OUTSIDE ECONOMISTS. 485 
 
 expected of him after the formidable and elaborate analytical 
 preparations with which he set out, — he begins and ends by 
 merelv inworkins; his moralizino-s into the interstices of the 
 details of the processes, in the hope apparently that if he 
 could only once present the world with a harmonious picture 
 and pattern of wliat would be the most ideal moral relations 
 between landlord and farmer, farmer and labourer, capitalist 
 and wage-earner, master and servant, rich and poor, and so 
 on, on lines of the purest abstract, justice, men might be 
 induced to set about realizing it. And accordingly he begins 
 by arranging his pieces in a hierarcliy of values, as on a chess 
 board, founded on the inequalities of men in ability, character, 
 moral and aesthetic culture, spiritual elevation, and so on ; and 
 not, like Rousseau, as on a draught-board, where the pieces 
 between whom the moral and economic relationships were to 
 be wrought out, were all on an absolute equality of value. 
 This done, he would then attach to them the salaries or wages 
 they were to receive, each and all definitely fixed ; — so much 
 for a prime-minister, so much for a general, a bishop, a lawyer, 
 a doctor, the different grades of skilled workmen, common 
 labourers, navvies, etc. With the pieces thus arranged on the 
 board, and each given its |n-oper value, the reader naturally 
 expects the game to begin, but to his surprise he finds that 
 there is no game to be played, that this arrangement is the 
 game, and that these figures of Ruskin's are expected to 
 remain where he has put them like the statues of saints in 
 the niches of a cathedral, or say, rather, like the mixture 
 of heroes, saints, extortioners, and malefactors, in INIadame 
 Tussaud's exhibition ; and that if there is any game or 
 problem to be solved, it is how to keep them there as they 
 are ! Ruskin accordingly exhausted all his ingenuity in trying 
 to prove that once fixed in these their proper statical attitudes, 
 all the apparatus of the old Economy which was devised to 
 enable them to escape, and so to begin again their depre- 
 dations on each other by playing the old game of general and
 
 486 THE OUTSIDE ECONOMISTS. 
 
 reciprocal exploitation, — would have been checkmated and 
 sealed up. And the first argument he uses for this purpose 
 is his demonstration of the difference, if men would only 
 consider it, between real ivealth and mere riches ; the first 
 being, like a perfect-fitting suit of clothes, a garment suitable 
 in every way to the authority, dignity, culture, taste, spiritual 
 or moral worth of the wearer ; while the second is only a mere 
 ignoble accumulation of base money coins, or documentary 
 credits convertible at pleasure into coins, which, like counters, 
 have no value or utility in themselves, but which, if you can 
 only capture enough of them, can, like opera tickets, be used 
 as instruments of extortion for the purpose of gaining mere 
 base power' over other people, whereby they may be forced 
 to empty their purses, and (in the case of the working-men) 
 part with their instruments of production and become your 
 economic slaves. This was well and right nobly said by 
 Ruskin, and is a real distinction ; and he punctuates it still 
 further when he demands from the capitalist an answer to 
 the question ; — why, if two men present themselves for work 
 at your factory gates and you want to employ only one, you 
 should make the fact of there being two, an excuse for beating 
 down the wages of the one you select to a lower point than 
 you would have done had there been only one applicant for 
 work ? A most pregnant question, and one which not only 
 Kuskin but the world of working-men themselves, were they 
 not ' mostly sheep,' would demand to have answered. It is 
 not the rule of the game, answer the capitalists. Precisely 
 so, and thev too are rioht. But when we wait to see how 
 liuskin is going to alter it, like all the economic moralists 
 he can give no practical help, but merely suggests that you 
 should select the workman you want, pay him the full regu- 
 lation wage, and let the other go ; or in other words, as he says, 
 pay the same wages to good and bad workmen alike, but employ 
 only the good. And this he thinks could be done if all individuals 
 and classes alike, — whose incomes by his arrangement were
 
 THE OUTSIDE ECONOMISTS. 4<S7 
 
 definitely fixed for them, — would consent to work as one man 
 for the benefit of the nation as a whole, — much as all the 
 individual bees in a hive work for the good of the swarm — and 
 if the masters would not begin to gamble on their own account 
 the moment that j)rices began to rise. But unfortunately, 
 like all purely ideal statical constructions which are intended 
 to be fixed and permanent, the amount of pruning and paring- 
 necessary to fit the heterogeneous millions of a population into 
 their respective niches, where full justice shall be done to each 
 of them, would involve a limbo for castaways compared with 
 which in range and extent Dante's Inferno of the danmed 
 would show as a mere molehill on the landscape. For without 
 some means of coercing the Population into limits — an 
 unsavoury question which Ruskin was either too delicate or 
 too reticent to tackle — tlie number of those whom his rejection 
 of the intellectually or morally unfit would require to be 
 chloroformed or otherwise painlessly extinguished, woidd, if 
 no provision were made for them — and he makes none — choke 
 up the streets of his Utopia to the doors ; just as in a hive of 
 bees, where the statical construction of the hive is intended 
 to be fixed and permanent, — and not as with human beings 
 who follow the gleam of a series of dynamic moving ideals 
 which change their nature and character from age to age — the 
 periodical holocaust of the drones is a necessity of the very 
 existence of the hive. But on all this lluskin is silent ; and 
 so, by cutting off quite the most important half of the problem, 
 and the one where all its entanglements and difficulties lie, and 
 from which they are perennially recruited, he left the problem 
 as he found it, still unsolved. 
 
 But if we are asked, in turn ; — Have Ruskin's labours in the 
 economic field, which he himself prized more highly than all his 
 other work, been altogether in vain, we answer unhesitatingly, 
 by no means. On the contrary, he definitized once and for all 
 the economic moral ideal at which all men should aim, and so 
 (juickened the general conscience on a whole region of life
 
 488 THE OUTSIDE EGOXOMTSTS. 
 
 which, under the convenient formula of ' business is business,' 
 had practically cut itself off from the other great humanizing 
 and civilizing currents of the world and been left a prey to 
 the wolves ; and so helped to bring it into line with the great 
 doctrine of his master Carlyle, and with the permanent laws of 
 all creatures that go in herds ; — namely, that nothing can be left 
 to mere laissez-faire or to the unregulated personal and private 
 self-interests of the great body of the herd itself, but that all 
 must depend on those ' great men ' in every department who 
 can make their ideas and their wills prevail. But as to how 
 this, aaain, Avas to be done on this side of the millennium, 
 Ruskin gives us no hint ; and even Carlyle, it will be 
 remembered, had his doubts. — so long as the herd were to have 
 the selection as well as the ratification of these ' great men ' in 
 their hands : — inasmuch as they would be sure to elect some 
 ' Bobissimus,' the rich sausage-maker, or some mere man of 
 birth, or sportsman, or frothy stump-orator, as their highest 
 ideal of what their ' heroes ' were to be. 
 
 Tlie outcome of the Avork of Ruskin, then, on this subject of 
 Political Economy, when surveyed at a sufficient perspective, 
 is a pure statical Utopia, constructed on a combination of old 
 feudal relations with the mediicval guild-system of master and 
 Avorkman; — as though the Modern World Avere a mere decadence, 
 and the gradual evolution of all sides of life, iuA'oh'ing infinite 
 complexities of adaptation and management in the handling, a 
 thing unknoAvn. His Utopia differs from that of Rousseau, as 
 Ave have already said, in loading the possessors of the great 
 instruments needed for the production of Avealth, Avith imequal 
 degrees of value, and in confining them to entirely different 
 functions, as aa'cU as in gi\nng to different kinds of consumption 
 — as of good books A^ersus good Avine — unequal degrees of 
 moral AA'orth ; instead of beginning as Rousseau did Avith a 
 mere sand-heap of undifferentiated units called human beings, 
 all equal in value, all more or less interchangeable in function, 
 and all absolutely free to do as they pleased so long as they did
 
 THE OUTSIDE ECONOMISTS. 4<S9 
 
 not encroach on the equal freedom of others : — and so far was 
 an advance over Rousseau's crude Utopian dream. Tt differs 
 from the ' Modern Utopia ' of Mr. Wells, on the other hand, 
 in so far as that while both agree that the economic as well as 
 the political world is to be ruled by a special order of men of 
 exceptional ability, Ruskin would give tliese great ones an 
 economic garniture suitable to their age and position, their 
 dignity, their culture, and their refinement of taste ; while Mr. 
 AVells would train them, like Roman Catholic or High Church 
 priests, to habits of a somewhat rigid personal asceticism ; but 
 both would give to svll men alike equal opportunities to rise to 
 the highest positions, as the Roman Catholic Church originally 
 did, Avherever or howsoever l>orn. Both must have a limbo for 
 their derelicts and incapables, but while Ruskin leaves the 
 problem of what is to be done with them altogether in the 
 dark, ^Mr. Wells would have them packed off to some island in 
 the Southern Seas, or other outlying dejiendency, there to 
 fight out and solve both the problem of existence in general 
 and of their own economic salvation in particular, for them- 
 selves. But as in a moving world, where all the elements and 
 forces engaged must keep time and pace with each other, no 
 mere statical immoveable ideal of what all men would like to 
 see realized, has any real intellectual value,^ — inasmuch as it is 
 impotent to show hoio it is to be realized (and this after all is 
 the only test of intellectual penetration), but at most, like a 
 picture-book for children can only be placarded on the walls 
 of the world as an object-lesson for its imitation — it is not 
 surprising that neither Ruskin nor Mr, AVells should have 
 touched even the fringe of the real subject-matter with which 
 they had to deal ; and that far from making any attempt to 
 reconstruct the orthodox Scierce of Political Economy, which, 
 as we have seen is honeycombed with fallacies from beginning 
 to end, they could only sit wailing and weeping over it, and 
 end by leaving it precisely whei'e it was before ; — Ruskin 
 hoping and trusting that one of Carlyle's ' great men ' would
 
 490 THE OUTSIDE ECONOMISTS. 
 
 come along and either persuade or coerce the world into 
 realizing his dream ; Mr. Wells, kicking over his own Samurai, 
 and imagining that he could make so complete and har- 
 monious a picture out of the fragments they had dropped by 
 the way, that by its glamour the world might be fascinated 
 into accepting it, — with himself as leader and regenerator ! — 
 as if some optician, motor-car manufacturer, or mechanical 
 instrument maker, son)e over-inflated actor, or what not, were 
 by taking advantage of the popular ignorance on these matters 
 to attempt to throw overboard in their own favour the claims 
 of Faraday, Helmholtz, Kelvin, Newton, or Shakespeare, — on 
 the ground, as he expresses it, that the ' creators of Utopias ' 
 are the real founders of the Science of Sociology. 
 
 The next of the ' outside ' Economists to enter the field was 
 Karl Marx, with his elaborate attempt to found an entirely 
 new system of Political Economy, in the interest of the 
 Working Classes, on two doctrines of Ricardo's which even the 
 orthodox Economists were just then on the point of relinquish- 
 inor as no lonoer tenable. The first was the doctrine of the 
 ' iron law of wages,' as it was called (which was itself founded 
 on Malthus' law of Population), and the second, the doctrine 
 of Value, namely that ' the value of commodities is determined 
 by the quantity of labour necessaiy to their production.' And 
 the first thing; that Marx did was to emasculate this latter 
 doctrine of the truth it contained, by following the example 
 of the orthodox Economists, — -whose fallacy of ' averaging " both 
 Profits and Wages we have already seen, — and striking an 
 average of the amount of work done by labourers in a given 
 time, — an hour, a day, a week, or what not, — and then, under 
 the phrase ' average labour-time,' proceeding to stretch on it, 
 as on a rigid Procrustean bed, all labour alike, whether it were 
 that of coal-heavers or inventors, men of brains or men of 
 muscle ; subjecting all alike to the same measurement by the 
 pure * time ' of their labour alone. Indeed had it been a 
 question of the Napoleons of the world versus their private
 
 THE OUTSIDE ECONOMISTS. 4*,ll 
 
 soldiers, the Kaphaels versus the sign-painters, Shakespeare 
 versus the ballad-mongers, Wagner versus the players in his 
 orchestra, with whom Marx was dealing, it would logically 
 have been all the same ; they would all alike have had to 
 submit to be stretched on this abstract rack of ' labour-time ' 
 and to share and share alike according to the number of hours 
 they worked ; and I doubt not that if it had been a question 
 of the conquerors and the conquered after a pitched battle, 
 Marx, with his stolid logical inflexibility, would have argued 
 in all seriousness that each side ought to have the same share 
 of the spoils, because they had both fought the same number 
 of hours ! Perhaps the strangest theory of human life and 
 labour, the most unabashed attempt to grind down all things — 
 o-reat :vnd small, hio-h and low, knowledo^e and io-norance, the 
 dynamical forces and the statical, the alive and the dead, — into 
 a common undistinguishing level of undifferentiated sand, that 
 the world has yet seen. But before enquiring not so nuich 
 into the truth of it (for as we shall see there is little or none), 
 but into what has so commended it to human beings that whole 
 nations —and these not the least intelligent — have gone mad 
 over it, a word or two as to its purely economic characteristics 
 will suffice to indicate its real position in the evolution of 
 Political Economy. And I may as well begin by saying 
 frankly that it is made up of all the fallacies of the old 
 orthodox Economy, including some which even the academical 
 Economists, who will allow no part of their tradition to be torn 
 from them without a struggle, have been obliged to resign. So 
 that while they have begun to see that Value depends as nuich 
 on Utility, as expressed in the ' demand ' for a commodity, as 
 it does on the Labour put into it, as expressed in the ' supply,' 
 Marx grossly applies his rigid measuring-rod of Value, — namely 
 length of time alone, — to the production of a commodity, and 
 ignores its cojisumption altogether. And even here he gets off 
 the track ; for the question of Value, even on its purely 
 productive side, is not one of how many units of time you are
 
 492 THE OUTSIDE ECONOMISTS. 
 
 at work, but of liow many units of jyi'oduct you can turn out in 
 a given time — quite a different matter. For it is the imits of 
 product in a given time which alone the capitalist who is 
 entering on any industrial enterprise has to consider in framing 
 his estimates ; ;ind it is precisely what the labourers would 
 themselves have to consider if they abolished the capitalists 
 to-morrow, and owned and worked the land, machinery, 
 railways, and other instruments of production themselves; — as 
 they would soon discover when they entered into competition 
 with ofher nations for the world's trade, however much they 
 might be content at home to share the product between them- 
 selves according to the mere tune of labour spent on it. For 
 observe, if the same product could be turned out by a newly 
 invented machine in half the time that they would take to 
 make it, by what human device could they sell their product in 
 the open market unless they consented to sell it at half its 
 former jirice ? And what would this mean but that they 
 would have now to accept half the wages for tiieir labour-time 
 that they, were getting before : They would have been 
 ' exploited,' in a word, by the new machine which the inventor 
 had sold to a rival nation, as neatly and effectively as if it had 
 been tlie hated capitalists themselves who had done it. And 
 if they still insisted on having their pound of flesh whatever 
 should befall, and proceeded next to put the thumb-screw on 
 the inventor of the machine to force him to give it over to them 
 instead of to their rivals, on the usual terms of the ' labour- 
 time ' he had spent on it, and no more, they would now be 
 exploiting the inventor in turn as much as ever the capitalists 
 had exploited them. But if the inventor, defrauded of his due, 
 should strike work and refuse to invent, and they should then 
 proceed, like King John, to metaphorically ' draw his teeth ' 
 for him one by one until he consented to pi-esent them with 
 the contents of his brain, how would their tyranny differ from 
 that of the capitalist-masters under whom they now groan and 
 against whom they cry to Heaven for justice '? But let me
 
 THE OUTSIDE ECONOMISTS. 4:\)o 
 
 not be misunderstood. For did they now turn round iind give 
 back to the inventors and brain-workers, in honour, authority, 
 prestige, and esteem, what they had expropriated from them in 
 wealth, they would, in my judgment, have struck on a con- 
 stitution of economic society as nearly perfect as on this side 
 of the millennium we are ever likely to see. They would then 
 have given their really ' great men ' in Carlyle's sense of the 
 term, the place of honour and initiative. But would they do 
 this 1 Not they ; on the contrary they would give the chief 
 seats at their feasts to the ' wind-bags ' and coiners of phrases, 
 the platitudinarians, and be-puffed mediocrities, — especially if 
 they were good ' sportsmen,' footballers, cricketers, or what 
 not, as well, — and that, too, in the really sincere belief that 
 these were their ' great men.' For in themselves the mis- 
 cellaneous masses of men in any nation are nothing, a tail of 
 ciphers merely ; they can imagine nothing, invent nothing, do 
 nothing great, however much they may beat their brains for it : — 
 this is the prerogative of individuals alone, who are born in 
 every rank, and can come only by what the theologians call 
 ' the Grace of God.' Were you to pack all the ordinary chess- 
 players of the world into the Albert Hall, not all their 
 combined heads put together, with their vote taken on each 
 move before it was made, could get even within sight of a 
 ' draw ' from one of the great masters of the game. And it is 
 the same with the game of War, of Poetry, of Music, of Art, 
 of Mathematics, of Philosophy, of Religion, or of intellectual 
 penetration generally in any department of thought or life ; 
 or even, if you will, down to billiard-players, cricketers, and 
 the really great ' sportsmen ' in every line. The great players 
 are always individuals, alwji-ys uniques, with unbridgeable gulfs 
 between them and the rest of the world ; they are the only 
 dynamical forces of the world : the rest are but mere statical 
 accompaniments and chorus, mere ballast to keep the ship 
 steady, mere critics, like those who surround a cricket or foot- 
 ball field, with just ability enough to decide on the merits of
 
 494 THE OUTSIDE ECONOMISTS. 
 
 the great players, but not able to play themselves, and whose 
 function it is either to hiss or applaud. So that if in this game 
 of Industry any nation were so rash as to turn out the men 
 who discover, invent, organize, and legislate for its future, or 
 to rob them of their just reward, and to put a miscellaneous 
 herd of navvies, coal-heavers, and oi-dinary workmen in their 
 place, it would speedily find itself over-run, routed, and 
 reduced to a tributary and dependent position by the first 
 great nation that came along, which, like Japan, gave to its 
 great men a free hand. And this brings us at once to the 
 crux of the Marxian Socialism both as to its truth and its 
 falsity. Its falsity consists in its not seeing that while the 
 workmen are exploited directly by the capitalists who own the 
 pistols and pull the triggers, they are really made to stand and 
 deliver by the pistols, — that is to say by the machinery, — which 
 can do the work of thousands of men in a given unit of time ; 
 and that this is the work of the great scientists, inventors, and 
 organizers, and not of the capitalists or of the workmen them- 
 selves ; and that if you are going to raise the question of 
 justice, according to the ordinarily accepted standards, it is to 
 these that the ' surplus product ' belongs. The truth in it is 
 simply that they are the ' exploited ' ; and moreover that they 
 must forever be exploited in greater or less degree by their 
 own incapacity, ignorance, and delusions. Let them lay to 
 heart this golden sentence of Emerson's — ' It is the imbecility 
 of the masses that invites the impudence of power ! ' High- 
 minded men in every walk of life, yearning to give the working- 
 men every advantage, have gone out of their way, and at the 
 cost of much personal odium have at last succeeded in getting 
 for them the franchise, saying to them — ' Now you can have 
 no longer any cause of complaint ; you have the vote ; do not, 
 therefore, be afraid to exercise it until your grievances are 
 redressed.' But have they so used it t On the contrary, as 
 Ijord Beaconsfield, who had made a special study of the 
 baser admirations of the world foresaw when giving it to
 
 THE OUTSIDE ECONOMISTS. 495 
 
 them, they actually used it for forty years or more to keep 
 
 in power, — whom ? The very luen whom all the time thev 
 
 were railing at as their oppressors ! Even in America, 
 
 where every man is born not only witli the franchise, but 
 
 with every chance of winning in the race of life any position 
 
 in the Republic which is within the reach of any other man — 
 
 what has this immense mass of working-men done, or stood by 
 
 and seen done ? They have stood there with the vote in their 
 
 hands and have seen gigantic Trusts rise under their eyes and 
 
 become so powerful as not only to strangle all other capitalists, 
 
 but to well-nigh strangle them also and reduce them to the 
 
 position of the merest slaves. And why ? Because of their 
 
 own base admirations, and their secret belief that these 
 
 magnates were really their ' great men.' They think of 
 
 nothing else, talk of nothing else, dream of nothing else, but 
 
 to be like them. For it is not the intellectuals, the educated, 
 
 the cultured, the refined, the people of brains in any nation, 
 
 who keep up these baser ideals ; on the contrary it is the 
 
 masses, — as Gambetta said of the Clergy in France, — who are 
 
 ' the enemy,' Indeed, it is only now as I write, that the 
 
 working classes of England, after forty years of impotence, 
 
 have at last made up their minds that they will support their 
 
 own representatives at the polls. So far well. But if thev 
 
 should succeed in packing the House of Commons with an 
 
 overwhelming majority of their own members, what then ? 
 
 Would the fact that man is an animal that goes in herds, 
 
 and so must follow the law of all herds, be made, as St. Paul 
 
 says, of none effect? On the contrary, it would end as the 
 
 Christian Church did, which beginning as an assemblaoe of 
 
 equal units, — and, like the working men of to-day, equal 
 
 mainly in their poverty, — had, almost before a century had 
 
 elapsed, placed itself in subjection to bishops, each of whom 
 
 affected the state and magnificence of princes ; and (before 
 
 many centuries had passed) under a Popedom which in wealth 
 
 and State was equal to, as indeed it was an imitation of, the
 
 49t3 THE OUTSIDE ECONOMISTS. 
 
 pomp of the throne of the Cresars itself. And I will go farther 
 and venture to say, that if General Booth, for example, were 
 to announce to his legions of followers throughout the world 
 to-day, that the dignity and authority of the Salvation Army 
 demanded that its Head should be clothed in all the outward 
 insignia of power befitting its numbers and importance, — even 
 were it for no other reason than as another way of attracting 
 the masses, different in form perhaps but the same in principle 
 as its big drum and cymbals — he would be lodged in a palace 
 to-morrow like the Popes, and could, if he would, establish 
 a dynasty of Booths to succeed him and to rule over the 
 Salvation Army, precisely as the Church through its College 
 of Cardinals did before him. Let the working-men, therefore, 
 perfect their Trades-Unions and make them as strong and 
 solid as possible, and elect their representatives to Parliament 
 in numbers as great as they can ; but at the same time let the 
 other classes of the community do the same, and hold their 
 own as tenaciously and as long as they can ; as knowing well 
 that in the long run it will all end in the old familiar spectacle 
 of the ' upper and the under dog ; ' and let all alike ponder 
 well the twin generalizations of Thucydides and Shakespeare 
 which I have had occasion to refer to before, and which ought 
 to be inscribed in letters of gold on the walls of the world 
 f<n" its contemplation. In the innumerable wars among the 
 petty States of Greece in his own time, Thucydides had 
 observed that when any dispute arose between two States 
 which were nearly equal in power, so that each was not quite 
 sure of the issue in the event of an appeal to arms, they treated 
 with each other on the basis of r-easou and justice ; but that 
 when one State was much more powerful than the other, it 
 dictated its terms at the sword's point alone — a generalization 
 as true to-day as then, and of which the bullying attitude of 
 Russia to Japan before the late war affords a most pointed 
 illustration, and one which will not soon be forgotten. This 
 is the first generalization which all men and nations may ^^eIl
 
 THE OUTSIDE ECONOMISTS. 497 
 
 lay to heart as a permanent law of the world. The second is 
 where Shakespeare in ' Troilus and Cressida ' makes one of 
 his characters say that it is between ' the endless jar ' of Right 
 and Wrong that justice resides — ' Wrong ' in this connection 
 meaning all that is comprised under the conception of absolute 
 Power and Authority, Custom, Precedent, and the traditional 
 relations between men ; and Right meaning the pure abstract 
 ideal of Right. Or in other words, until the millennium of pure 
 abstract Right arrives, Justice must always be a compromise 
 between the established claims of the ' powers that be ' and 
 this abstract ideal of Right — a generahzation which is the 
 only sound definition of concrete Justice which the law of 
 Evolution can support, and which Shakespeare alone had the 
 penetration to perceive in pre-evolutionary times. 
 
 Leaving, then, Karl Marx with his legions of Socialists 
 to ponder these twin generalizations of Thucydides and 
 Shakespeare, while fighting for their own abstract social and 
 moral ideal ; and wishing them God-speed in their determina- 
 tion to get a larger share of the good things of this life for 
 themselves, so long as, in popular parlance, they do not in the 
 process ' kill the goose that lays the golden eggs,' we may now 
 pass on to the contribution of the next ' outside ' Economist 
 on our list — Henry George. But before doing so, it is only 
 fair to say on the side of Modern Capitalism that when once a 
 livins: waofe has been secured to the w^orkmen, the existence of 
 great capitalists like Mr. Carnegie, who are prepared to make 
 it a point of honour to return to the public the whole or a 
 greater part of the ' exploitations,' if you choose to call them so, 
 which the present game of wealth as played by its recognized 
 rules has given to them, and to invest it for the carrying out 
 of the greatest and highest causes, on the authority and by the 
 advice of the really great men, each in his own sphere, would do 
 more for the advancement of the nation in a single generation 
 than any Government whatever could get done by a popular 
 vote in a century. What Government, for example, would 
 
 II
 
 498 THE OUTSIDE ECONOMISTS. 
 
 ever venture to propose to a nation to endow its acknowletlged 
 greatest inventors, greatest scientists, greatest chemists, greatest 
 electricians, or what not, on any terms ; even when they are 
 doing out of their own pockets the work which has made and 
 will ofo on makino- the fortune of the nation 1 There is no 
 such Government. Millions spent in doles to the incapables, 
 the derelicts, the unthrifty, and the casuals, without a sigh ; 
 millions more on the education of the millions whose combined 
 heads no education will enable to turn out a product equal to 
 that of half-a-dozen really great minds ; but for these latter 
 the maxim of Governments which the public applauds and 
 supports, — and none more than the capitalists and workmen, — 
 is ' Starve them well ; it will do them good ; and will make 
 them, like milch cows, yield all the more for us to exploit ! ' 
 
 Of Henry George little need be said. He added nothing of 
 value to the Science, nor did he take any step towards its 
 reconstruction. In the main lines of his doctrine, he was, like 
 Marx, saturated both with the methods and the doctrines of 
 the reig-nino" orthodox Economv. His symbol was the old 
 statical one of the divided stick, whereby when profits rose 
 wages were bound to fall : and with him also it was impossible 
 for the rent of land to enter into the price of its products ; 
 and although he was largely instrumental in getting rid of the 
 nightmare of Population with which Malthus had affrighted 
 the world, he affrighted it Avith a parallel bogey of his own in 
 his doctrine of Rent, Avhich, curiously enough, depended, had 
 he had penetration enough to see it, for all the validity it ever 
 had, on that very doctrine of Population which he had himself 
 ' whittled ' away to a mere shadow ! For it had always been 
 admitted by the orthodox Economists that if you could only 
 arrest Population, the capitalists and wage-earners would have 
 the landlords at their mercy, inasmuch as the lessened demand 
 for food and clothing would create a less demand on the 
 resources of the soil. But George, like all men of ability but 
 with limited culture and confined outlook, became obsessed
 
 THE OUTSIDE ECONOMISTS. 499 
 
 with the idea that Kent was about to swallow up the rest of 
 the economic world, profits and wages alike ; and that men's 
 very existence, whether as capitalists or workmen, was to be 
 as much at the mercy of the landlords, as in Eastern lands their 
 heads are at the nod of Sultans and Rajahs. And although 
 the rents of the world were hedged about with as many 
 compensatory limitations to prevent them from growing into 
 the sky, as its populations, on which these rents depended, 
 were from increasing until they filled up the landscape and left 
 no further standing room, George could see no rift in the pall 
 of darkness which encom])assed the law of Rent, and no loop- 
 hole of escape from it ; although, as we have said, it could 
 only be a danger just so long as that Law of Population which 
 he had exhausted his ingenuity in 'spiriting' away, remained. 
 And yet, had he only paused for a moment to look around him, 
 he would have seen that compensations like those which he so 
 clearly saw limited the law of Population, were already in 
 existence to remove his fear of the Law of Rent. For at that 
 very time, the railway magnates of America and the great 
 Trusts that s{)rang from them, were beginning to get their 
 coils around the necks of the farmers and landowners ; and had 
 George lived until to-day he would have seen his landlords 
 who were to swallow all. themselves led to the slaughter, and 
 skinned and stripped to the bone by these same Trusts, now in 
 their full bloom and maturity— proving to us again how 
 impotent and false all so-called Laws of Distribution are when 
 divorced from Power, and its resulting exploitations, however 
 or by what means soever attained. Not that the dijfei-entia/ 
 rents of Land are of no effect, any more than the differential 
 rents from superior machinery and other instruments of 
 production ; but the one is no more a bugbear than the other. 
 Land itself without machinery and transj)ort, would be as 
 cheap to-day as when the Red Indians roamed over it : in the 
 same way as the machinery and transport would be useless 
 without the resources of the land. But it had apparently
 
 500 THE OUTSIDE ECONOMISTS. 
 
 never even dawned on George that there was such a thing as 
 a rent got without labour from the possession of a superior 
 invention, process, or machine, precisely as was the case with 
 the possession of a piece of superior land, or of land in a 
 superior position for business purposes, as in the centre of a 
 great city ; and not seeing this, he imagined that on the 
 ' margin ' between Capital and Labour, the defection of a few 
 petty masters to the ranks of labour or of a few labourers to the 
 ranks of petty capitalists, like the defection of a few stragglers 
 and camp-followers from an army to its opponents, was sufficient 
 to keep the balance between Capital and Labour so even that 
 neither could get any advantage over the other ; and that 
 therefore the profits of Capital and the wages of Labour would 
 by this self-acting and self-adjusting process, always be 
 equalized. He did not see that these petty masters or men 
 would be as much the slaves of the great Trusts, across 
 whatever boundaries of territory, country, or occupation, they 
 wandered, as the petty chieftains of all Indian tribes whatever 
 are of their Great Chiefs. He did not see, in a w^ord, that 
 the law of combination concealed in his fabled ' freedom of 
 contract,' is always as operative as free competition when it 
 sees its chance ; and so he reduced his whole scheme to fatuity. 
 For although he had a mania for clapping conceptions of 
 abstract Justice drawn from what he figured to be ' God's 
 own law,' on every economic situation as it arose, as if the}^ 
 were postage stamps bearing the head of a king, he yet with 
 an elaborate ingenuity of wrong-headedness which to-day 
 must seem almost farcical, poured the ' terrors of the law ' on 
 the heads of the landlords alone, allowing all the Rockfellers, 
 the Beef Trust and Cotton Corner magnates to escape ! Not 
 that there was a trace of insincerity in his nature, or that any 
 derogation is to be made from his moral ideal which was as 
 pure and noble as that of Mill, only that having struck on his 
 compact little tlieory of the passage of the smaller capitalists 
 across the border to the ranks of workmen, and of these in turn
 
 THE OUTSIDE ECONOMISTS. 501 
 
 to the ranks of the capitalists, he believed that it proved, in 
 opposition to Karl Marx, that no capitalists or Trusts, however 
 colossal their gains, could ever really ' exploit ' either their 
 own particular workmen or the world in general. And so he 
 played his part. But if the reader asks what, if any, was his 
 definite contribution to the Science, we may answer that it 
 was a real, although a negative and destructive, rather than 
 a positive and constructive one. He demolished once and for 
 all, and in a way which admits of no derogation from its 
 merits, the okl orthodox doctrine which still held sway in his 
 time, namely that Wages were drawn from Capital, instead of 
 being merely formally advanced by the capitalists to the wage- 
 earners for convenience ; and showed that Wages, on the 
 contrary, were paid out of the produce of the workmen's 
 labour, and not out of Capital at all. Now in this he did a 
 real service to the Science, although only a negative one ; for 
 like the removal of a linch-pin or key-stone, it heralded the 
 downfall of the orthodox Political Economy which since his 
 time has so quickly ensued. He was also, as we have seen, 
 the first, — if we except the contribution of Herbert Spencer 
 on other lines, — to rock to its foundation the old Malthusian 
 ' Law of Population,' which with its superficial jjlausibility and 
 its affectation of mathematical exactitude, had hypnotized the 
 minds of all the orthodox Political Economists for at least two 
 generations. Otherwise Henry George has added nothing of 
 positive and constructive value to the Science ; and in spite 
 of the enormous tail of his followers, who were caught up by 
 his simplicity and clearness of statement, his sincerity and 
 candour, as well as by his prophetic fervour, he may be 
 dismissed from the small circle of those political Economists 
 with whose works the world need give itself further concern. 
 It was when the controversy over Mr. George's book 
 ' Progress and Poverty ' was at its height, and when Marx's 
 doctrine — that not only were the wage-earners exploited by 
 their capitalist masters, but that on Ricardo's ' iron law of
 
 .502 THE OUTSIDE ECONOMISTS. 
 
 wages ' they must always be kept down by them to the ' bare 
 
 subsistence ' level, — was beginning to exercise the minds of 
 
 men in Enghxnd, that Mr. Mallock entered the field on behalf of 
 
 the Capitalists. As regarded the actual facts of the situation, 
 
 (jifFen had only recently proved from statistics that the wages 
 
 of the workers had increased in fifty years not less than a 
 
 hundred per cent, and that, too, over a period when the 
 
 purchasing power of the sovereign had remained steady ; — 
 
 the fall in the price of corn and clothing practically making 
 
 up for the increase in the price of meat and of house-rents. 
 
 Whereupon Mr. Mallock, taking his stand on this as a solid 
 
 foundation, was prepared to prove that the reason for this rise 
 
 in the workmen's wages was not that they had themselves 
 
 earned it ; and pointed out that not only coal-heavers, and 
 
 ordinary day-labourers, but the skilled workmen themselves, 
 
 could not have increased the product, inasmuch as their muscular 
 
 power and their technical skill were man for man no greater 
 
 than that of the workmen fifty years before ; and further, that 
 
 they were now working a much sliorter number of hours. And 
 
 from this he argued that although the capitalists as a body 
 
 had increased their wealth in a much higher proportion than 
 
 the workmen as a body, it was the capitalists alone who by 
 
 their skill in organization were the source of all this increase 
 
 of wealth per head of the population ; and that far from 
 
 exploiting the workers and keeping them down to a bare 
 
 subsistence wage, they had all along been sharing with them 
 
 the extra wealth which was due entirely to their own exertions. 
 
 This unexpected flank movement of Mr. Mallock's brought 
 
 the Fabians into the field in defence of Socialism in general 
 
 and of their modified form of it in particular. They had 
 
 already in one of their Tracts attempted to show, — and with 
 
 certain reservations justly, as I think, — that the fund from 
 
 which the interest and profits of the capitalists proceeded was 
 
 precisely the same as in the parallel case of the landlords, 
 
 namely from the whole of that ' unearned increment ' which
 
 THE OUTSIDE ECONOMISTS. 503 
 
 lay between the products of the poorest machinery and plant 
 needed to supply the market (for it was these which fixed the 
 price) and of those superior instruments of production of all 
 kinds which the possession of mere money capital put into the 
 hands of the great capitalists. And proceeding from this 
 standpoint, Mr. Bernard Shaw, who took up the cause of 
 Socialism generally as against Mr. Mallock, attempted to show 
 that these capitalists were for the most part mere idlers trying 
 to imitate the landlords by leading the lives of 'gentlemen,' 
 and doing little or nothing ; living on their yachts and letting 
 their poorly paid and exploited subordinates do for them the 
 work which was piling up their colossal fortunes ; precisely as 
 the landlords, whom no one had ever accused of doing any 
 work (for at that time the idea that they ought to do any 
 would have shocked most people) were doing with their lands. 
 The simple truth, of course, was that it was really the 
 inventors, the scientists, and the discoverers of new processes 
 in every department, whether of Industry or of the warlike 
 defences of the country, to whom the ' surplus ' wealth was 
 mainly due ; but neither Mr. Mallock nor Mr. Shaw cared to 
 look that way. Not Mr. Shaw, for how could he look into the 
 faces of his poor coal-heavers and the vast miscellany of 
 ordinary hum-di'um working men, and say ; — These are the 
 men to whom the vast accessions of wealth of the world are 
 due I Not Mr. Mallock, for unless his capitalists were also 
 the inventors of the machines and processes out of which they 
 had built up great industries, how could he pretend that an 
 increase of real wealth of any kind could come out of their 
 mere money-bags as such ? To have a ' cause ' to champion 
 you must, on the current doctrine of ' the greatest happiness of 
 the greatest number,' have your clients by the legion as a 
 foundation for it ; but in the case of the few great men who 
 do the great things of the world, and who at any one time can 
 be counted almost on your fingers, what scope can their 
 grievances, especially if they are poor, afford as a foundation for
 
 504 THE OUTSIDE ECONOMISTS. 
 
 a ' cause ' ? As well try and whip up the sympathies of men for 
 the casuals in workhouses as for them. Their very existence 
 is at once an indictment and a reproach to the world of 
 mediocrities who live and fatten on their labours ; and 
 although they are the real kings, yet being expatriated and 
 disinherited, like Napoleon in exile they count for nothing. 
 On the contrary, they may be thankful if like Shakespeare, 
 whom only special royal favour protected, they may succeed in 
 escaping a whipping at the cart's- tail as ' vagabonds.' 
 
 And this brings us at last to the two or three ' outside ' 
 Economists Avho within the last decade or two have been 
 instrumental in preparing the way for the reconstruction of 
 the Science on the new principles which it has been the aim 
 of this volume to still further develop, so as to bring all its 
 parts into harmony. These principles are embodied in the 
 works mainly of two economists — Mr. Gunton and Mr. Hobson 
 - — although I learn on the authority of Mr. J. M. Robertson's 
 book, the ' Fallacy of Saving,' that there was a work written 
 by a Mr. R. S. ISIofFat in the seventies, which was the 
 first to call attention to the element of Consumption as a 
 necessary factor in the Science. Of Mr. Robertson's book 1 
 may say in passing, that it is one of the most deadly assaults 
 on Mill's ' fundamental propositions ' which has yet appeared ; 
 and that had the orthodox Economists been alive to their 
 responsibilities, they would by its help have so reconstructed 
 their Science by this time as to have saved it from the reproach 
 of impotency and unreality into which it has fallen. But, as 
 usual, Mr. Robertson^s criticism was ignored, only however to 
 subject them to the more elaborate and determined assaults of 
 Mr. Gunton and Mr. Hobson, who like Mr. MofRit had 
 made the neglected factor of Consumption their mainstay in 
 their new method of approach to a reconstitution of the 
 Science. And the reason they have succeeded where the 
 other ' outside' Economists failed, was that Consumption gave 
 them that second pole — in relation to Production — which as
 
 THE OUTSIDE ECONOMISTS. 505 
 
 we saw in a preceding chapter, is in all the sciences necessary 
 for the establishment of any really ' scientific law ' whatever. 
 But there was a difference in the manner in which these two 
 Economists applied it. Mr. Gunton used it from the start 
 more boldly, perhaps, than Mr. Hobson, — owing probably to 
 the necessity imposed on the latter, as a professional Economist, 
 of following the fallacies of the academical and orthodox 
 schools through their various windings, and in a series of 
 volumes which had to keep step as it were with the academical 
 series. And as the point of view of the academical Economists, 
 as we have seen, was a purely statical one throughout, Mr. 
 Hobson instead of throwing it overboard once and for all and 
 adopting a purely dynamical standpoint, has from his long 
 immersion in their methods never, I think, quite succeeded in 
 thoroughly emancipating himself from this standpoint. And 
 although in his criticisms he has always proceeded from the 
 dynamic standpoint which his acceptance of the element of 
 Consumption as a definite factor in the Science gave him, still 
 in the constructive portions of his work, he has admitted statical 
 elements which in my judgment have been a source of weakness 
 rather than of strength. Indeed, how important I consider it 
 that all statical elements whatever should be got rid of as mere 
 dead obstructions to the living dynamical forces which form 
 the true subject-matter of Political Economy, may be seen in 
 the fact that, in my opinion, it is to them that is due the 
 difficulty in arriving at any unanimity on the most important 
 of all practical problems for nations at the present day — 
 namely that of Free Trade versus Protection. I do not know 
 what attitude Mr. Gunton has taken on this important question, 
 but the dynamical standpoint which we have in common, has, 
 as the reader will have seen, led me to a doctrine of Protection 
 as rigid in 2)ri7icij>le as that which is now being practised 
 by Japan ; whereas Mr. Hobson does not seem to see his 
 way to any modification of either the doctrine or practice of 
 Free Trade to which Enorland still adheres. And the reason
 
 r>OH THE OUTSIDE ECONOMISTS. 
 
 of this extreme divergence of opinion between two writers who 
 agree in ahnost every other fundamental doctrine is, I think, 
 that Mr. Hobson has retained more elements belongino; to the 
 statical point of view of the orthodox Economists than I can 
 bring myself to admit. But be this as it may, in the fresh 
 solutions which both Mr. Gunton and Mr. Hobson have given 
 to the old problems of the Science, Mr. Gunton took his 
 stand firmly on the position that the Science is a purely 
 dynamical one ; and concentrated accordingly on the dynamical 
 factors which a capitalist in entering on any new industrial 
 enterprise holds in his hands, and at once struck down on his 
 central position which was, that the amount of Consumption, 
 as roughly estimated in the wages which the great masses of 
 men have to spend, is the stimulant and efficient cause which 
 keeps the great dynamic factors of Production, like a tightly- 
 struno; bow, at their highest tension in order to meet that demand 
 — inventions, new machinery and processes, better cultivation 
 of the land, a greater variety of skill, and a greater efficiency 
 in the workmen, etc., — and that far from increasing the prices 
 of commodities, this increased consumption, by calling forth 
 all these powers, lowers them ; while all the time the landlords 
 and capitalists as a body are getting higher rents and greater 
 profits than before, lie saw, too, in opposition to the orthodox 
 Economists and to Henry George, the absurdity of imagining 
 that a rise of rent means a fall of profits and wages ; and laid 
 it down as a principle that Rent can no more precede Profits, 
 than Profits can precede Wages ; and that a man's land can 
 become valuable only in the proportion in which the capitalists, 
 whether farmers or others, can make profits out of it, — as is 
 seen most clearly in the enormous rents })aid for land in the 
 centres of great cities — ^^just as the capitalist in turn can make 
 no profits unless the workers receive wages enough to create a 
 demand for his products ; — all in point blank opposition to the 
 doctrines of the orthodox Economy. He sees too with the 
 Fabians, and in opposition to the orthodox Economists, that
 
 THE OUTSIDE ECONOMISTS. 507 
 
 owlnt; to the high differential rates of })rofit which the great 
 capitalists get from the superior machinery and processes 
 which they use, they can afford to pay high wages to their 
 workmen, in the same way as they can afford to pay high fees 
 to their lawyers, their architects, their doctors, and other 
 professional men whose services they require ; and that the 
 tendency is for all the lower class of workers to level up, 
 as it were, a stage higlier, when the wages of the highest class 
 advance. Now all this, not only Mr. Hobson, but the Fabian 
 Socialists with Mr. Bernard Shaw, Mr. Sidney Webb, and Mr. 
 Macrosty at their head, also see quite clearly ; but where Mr. 
 Gunton goes off' the track, in my judgment, is in laying down 
 the principle that it is the ' standard of living ' of the best paid 
 workmen which is the cause of the higher wages which both 
 they and the inferior ranks of workmen receive : and then 
 proceeding to introduce this ' standard of living ' (which is 
 only a concrete particular, and one withal as variable as the 
 wind), among the operative factors of the abstract science of 
 Political Economy. It would have been better, I think, had 
 he retained it only for its practical usefulness in explaining 
 particular economic situations — such for examjde as the 
 diff'erence of wages in one country and another, or in one trade 
 and another, — and kept the general term. Consumption, as 
 Mr. Hobson has done, for use in the abstract Science. Other- 
 wise it is apt in time to become invested with something like 
 the rigidity of a fixed idea, as when Mr. Gunton declares that 
 the reason the wages of labour rose from threepence to 
 fivepence a day after the ' Black Death ' in England, was a rise 
 in the ' standard of living,' — ^instead of being due to the simple 
 fact of the scarcity of labour. Does anyone imagine that the 
 capitalists of the East End of London, for example, care a fig 
 for the ' standard of living ' to which the hordes of ' sweated ' 
 tailors and seamstresses may have been accustomed? On the 
 contrary, were they all born and brought up in the purple, to 
 this complexion of the ' sweated ' must they come, if they have
 
 508 THE OUTSIDE ECONOMISTS. 
 
 not the economic fowei- to protect themselves, — by whatever 
 means attained. And it is the same with every other class of 
 worker in the community, and with every grade. It would be 
 better to let the general conception of ' Power ' stand for the 
 ability of workmen to give effect to their economic desires, 
 than a mere ' Standard of Living ' which if left to itself would 
 melt like wax in their hands the moment the demand for their 
 services fell ofF. Besides the ' standard of living ' is the result 
 of any one of a number of different causes, each of which is 
 quite capable of fixing it, for the time being, in the individual 
 instances. It may result from a Trades-Union combination, or 
 from simple scarcity of the workers or their skill, or from long 
 established custom which has the conventional force of law, or 
 from access to alternative sources of employment, — as was the 
 case in the placer-mining of California in the eai'ly days of the 
 gold discoveries, and which so impressed Henry George, — or 
 what not ; but in itself it is too vague, shadowy, and unstable, 
 to be admitted as a definite factor into the Science, inasmuch 
 as it cannot be definitely related to any corresponding factor 
 on the side of Production, so as to get a definite law or 
 equation out of it. 
 
 Of Mr. Hobson's contributions to the Science, I cannot 
 speak too highly. He has carried it stages farther than all 
 his predecessors, and has received for his work but the merest 
 modicum of the credit which so justly belongs to him. His 
 excellences are everywhere so marked, the closeness and care- 
 fulness of his analysis of all its problems so central and free 
 from bias, that it is difficult to indicate the exact deductions 
 which, in my opinion, have to be made from the truth of his 
 doctrines in any direction, inasmuch as they consist rather of 
 shades of emphasis laid on this or that aspect of his subject, than 
 of any actual fallacies, oversights, or omissions. He always 
 keeps his eye on central realities, and if he allows any mere 
 abstractions to colour his work, they are always imported into it 
 from without but are never allowed to enter into, or pervert the
 
 THE OUTSIDE ECONOMISTS. 509 
 
 proper subject^iiatter of, the Science itself. But as the slightest 
 diiference of emphasis at the start is apt to become cumulative 
 when projected through a long series of logical deductions ; 
 and as the very slight difference in the setting of the problems 
 of Political Economy with which he starts out from that with 
 which I began this volume, end when logically evolved, in 
 differences so wide as his thorough- going support of the 
 principle of Free Trade and my equally thorough -going 
 support of the principle of Protection ; it is necessary before 
 closing to touch on the main principle of his system with some 
 particularity. In his first volume, ' The Physiology of Industry,' 
 he figured the process of Industry after the analogy of the 
 animal body, where the raw material of the food is elaborated by 
 the different organs of digestion, and is carried by the blood- 
 current to be distributed among the ultimate body-cells for 
 its final assimilation and consumption; and this type of the 
 structure and functions of Industry, he has had in his mind 
 and consistently applied in all his succeeding works. Now 
 the advantage of this symbol as a foundation for a constructive 
 Science, over that of the revolving mechanical wheel which I 
 have adopted, is that at first sight it gives a greater appearance 
 of life perhaps to a science which is essentially a human one. 
 But although I am quite prepared to admit that when carefully 
 handled, most of the great laws of the Science can be seen 
 reflected in it, I have nevertheless personally discarded it in 
 favour of the symbol of the wheel, — and this for a variety of 
 reasons. In the first place, the symbol of a biological organism 
 is much more complex, and so more difficult to manage when 
 the complications of the subject-matter begin to thicken around 
 it, — and in consequence more liable to the entrance of "imde- 
 tected fallacies — than is the case with a simple uncomplicated 
 mechanical wheel. In the second place it does not lend itself 
 so readily to the separation of what is a purely statical 
 mechanical product from what is a dynamical instrument of 
 production, as does the symbol of the mechanical wheel. For
 
 510 THE OUTSIDE ECONOMISTS. 
 
 just as a separate thumb and fore-finger are together more 
 delicate instruments not only for the finer differences of toucli 
 and sensation, but for the better manipulation of objects as 
 well, than if the two were welded toorether into a sinjjle 
 conjoined organ or implement, so the image of an inner 
 mechanical and dynamical wheel running in vacuo as it were, 
 and on which prodncti< are launched to be carried around it in 
 its revolutions, with a separate outer dynamical envelope sur- 
 rounding it, where the instruments of produciion reside whose 
 products are thrown on the wheel, is, like a revolving cylinder 
 for the separation of substances of different specific gravities, 
 a more delicate instrument for keeping unlike economic 
 phenomena apart and for keeping like economic phenomena 
 together, than is a biological organism, where although it is 
 true that the purely mechanical and chemical products, as seen 
 in the intake of food and its excretion, balance each other, 
 — and are quite separable in thought from the vital organs of 
 the body like the heart and stomach which do its dynamical 
 functioning, — still the complexity is so great that it is difficult 
 to separate them in detail. And hence, in my judgment, the 
 symbol of a bodily organism although it has a greater semblance 
 of life, is not so good a symbol on which to Avork out the finer 
 analytical processes of Political Economy and its laws, as is 
 the symbol of a wheel. And lastly, when the problem becomes 
 one of the economic relations between separate nations, its 
 complications become much more difficult to unravel when 
 these relations have to be represented in thought as between 
 separate animal bodies, than when they are represented 
 as between simple separate mechanical wheels with their 
 environing motor powers, which can be connected or discon- 
 nected from each other by means of belts thrown across between 
 them in all varieties of ways, — and where whole nations can 
 by means of them be set to work, and made prosperous, on 
 the one hand, or reduced to inaction and stagnation on the 
 other, as the case may be. Besides, the symbol of the wheel,
 
 THE OUTSIDE ECONOMISTS. 511 
 
 when the problem becomes one of trade between nations, will 
 help us to separate out more clearly in thought the products 
 that are complementary from those that are competitive, than 
 will the symbol of the relation between animal organisms. 
 And although Mr. Hobson sees the circular nature of all the 
 processes of Industry, the fact that in his discussion of the 
 Free Trade problem he keeps his eye almost invariably fixed 
 on what befalls the ptroducts of Industry of the trading nations 
 concerned, rather than on what befalls their respective instrxi- 
 nients of production (which like the engines in a factory are 
 the dynamic motor powers from which all these products are 
 derived) would seem to indicate that the symbol from which 
 he deduces the law of the Science is rather that of a statical 
 circle than of a dynamical running wheel ; and this is why 
 when developed from their respective symbols or germs, his 
 system ends in Free Trade, while mine ends in Protection. 
 And in this statical point of view he has had a tendency to 
 be confirmed, I think, from having come to the Science from 
 loithln itself as it were, as a specialism to be dissected and 
 analyzed, while I have approached it from without and from 
 the standpoint of general Civilization, of which the Applied 
 Science itself is a dependency which is regulated and coerced 
 by powers outside itself. Besides, Mr. Hobson has consistentlv 
 kept to a cosmopolitical and moral standpoint in discussino- all 
 international relations, whereas I have upheld throughout the 
 purely national standpoint ; the former being statical and ideal 
 in its point of view, the latter dynamical, progressive, and 
 following the methods and laws of Evolution. 
 
 And now in summing up this section of the historv and 
 evolution of the Science in the hands of its most prominent 
 representatives, it is my conviction that Avere all the works of 
 the orthodox Economists from Adam Smith down to the latest 
 representatives of the academical Schools thrown overboard 
 once and for all, and a fresh start made from the works of Mr. 
 Gunton and Mr. Hobson, — as in Astronomy from Copernicus
 
 512 THE OUTSIDE ECONOMISTS. 
 
 and Kepler, — the world of nations to whom the true solution 
 of the problems of Political Economy, and especially that of 
 Free Trade and Protection, is of the most pressing and vital 
 importance, would be the better for it. For so long as the 
 Universities of the world continue to turn out yearly thousands 
 of young men, — many of whom in after life are to control its 
 Council Chambers, its Parliaments, and its Press, — imbued 
 with the principles either of the old orthodox Economy or the 
 latest academical variations of it, the result must be in my 
 judgment, and as the whole of this volume is a laboured 
 attempt to prove, much the same as if the Technical Institutes 
 and workshops of the world were to turn out a race of believers 
 in the theory and practice of perpetual-motion. 
 
 FINIS.
 
 INDEX 
 
 PAGE. 
 
 Agriculture, powers of Nature in ... ... ... ... ... 122 
 
 ,, Physiocrats and ... ... ... ... ... ... 144 
 
 ,, Physiocrats on ... ... ... ... ... ... 153 
 
 America^ Southern States of ... ... ... ... ... ... 103 
 
 United States of 192 
 
 B 
 
 Bacon ... ... ... ... ... ... ... ... 8, 397 
 
 Bastiat 261 
 
 Beaconsfield, Lord, on the franchise ... ... ... ... ... 494 
 
 Biology ... ... ... ... ... 10 
 
 ,, confusion of, with Economy ... ... ... • ... ... 388 
 
 Bismarck, and Shipping... ... ... ... ... ... ... 332 
 
 Bohm-Bawerk 386, 390, 394 
 
 on Value 395 
 
 ,, his analysis ... . . ... ... ... ... 396 
 
 ,, on Interest ... ... ... ... ... 416,425 
 
 ,, his theory, refuted ... ... ... ... ... 428 
 
 Booth, General ... ... ... ... ... ... ... ... 496 
 
 Buckle 19 
 
 C 
 
 Capital, politicians and ... ... ... ... ... ... ••• 98 
 
 ,, and foreign market ... ... ... ... ... ... 100 
 
 ,, concentration of ... ... ... ... ... ... 103 
 
 „ not like a rod ... 166,299 
 
 „ Mill on 348 
 
 ,, Jevons on ' fixed ' and ' circulating ' ... ... 418,420 
 
 ,, Labour and, uudetachable ... ... 4:bS, seq. 
 
 ,, ' marginal units ' and ... ... ... ... ... ... 454
 
 514 
 
 INDEX. 
 
 Capital Fixed, and saviugs 
 
 ,, powers of nature in 
 
 ,, credits based on 
 
 ,, gold as ... 
 
 ,, where it ends 
 
 ,, land and slaves as 
 
 ,, working population as ... 
 
 Capitalists, and ' marginal labourer ' ... 
 Carlyle, and medicine ... 
 ,, on force... 
 ,. ' Past and Present ' 
 ,, ' Latter Day Pamphlets ' 
 
 on Mill 
 
 ,, as moralist 
 ,, his denunciations 
 Carnegie, Mr., value of millionaires like 
 Carnegie Institute 
 Chamberlain, Mr., and Free Trade 
 Civilization, science of ... 
 ,, my attempt 
 
 ,, mixing races and ... 
 
 ,, mixing religions ... 
 
 Clark, Prof. 
 
 ,, and Henry George 
 
 ,, on distribution of wealth 
 
 ,, on Margins 
 
 ,, and Dynamics 
 
 ,, his conclusion 
 
 Colbert, and taxation 
 Colonial Trade, Adam Smith and 
 
 ,, ,, English merchants in... 
 
 Colonies ... 
 
 Combination v. competition 
 ,, monopoly and 
 
 ,, workmen and 
 
 ,, prices and... 
 
 , , forced gain and ... 
 
 Comte 
 
 Comte and Mill ... 
 
 Consumers, economists on producers and 
 ,, not all on wheel 
 
 ., all men producers and 
 
 ,, as sacs 
 
 Consumption, production and... 
 „ importance of ... 
 
 ignored ... 
 
 340 
 
 89, 94, 157, 347 
 
 F 
 
 'AGE. 
 
 
 50 
 
 
 51 
 
 
 53 
 
 
 71 
 
 
 56 
 
 
 57 
 
 
 58 
 
 
 469 
 
 
 15 
 
 
 20 
 
 9S, 
 
 476 
 
 
 247 
 
 
 357 
 
 
 477 
 
 
 478 
 
 
 497 
 
 
 4 
 
 
 275 
 
 
 16 
 
 
 20 
 
 
 320 
 
 
 322 
 
 115, 386, 
 
 390 
 
 ... 
 
 455 
 
 459, 
 
 461 
 
 
 461 
 
 4G0, 
 
 462 
 
 
 462 
 
 
 142 
 
 158, 168, 
 
 176 
 
 180, 
 
 184 
 
 
 330 
 
 , 360, 364, 
 
 367 
 
 
 341 
 
 
 378 
 
 
 414 
 
 
 446 
 
 ... 19, 20, 
 
 115 
 
 
 476 
 
 
 61 
 
 
 113 
 
 
 249 
 
 
 334 
 
 ... 31, 33, 
 
 110 
 
 38, 40, 45, 90 
 
 , 349, 397, 
 
 444
 
 INDEX. 515 
 
 PAGE. 
 
 Consumjrtion, motor and controlling factor ... ... ... ... 40 
 
 market for 41,100,104 
 
 , , foreign market and ... ... ... ... ... 1 00 
 
 „ of other nations ... ... ... ... ... lO;') 
 
 ,, regulates production ... ... ... ... 105, 111 
 
 ,, and prices ... ... ... ... ... ... 410 
 
 Credits, paper ... ... ... ... ... ... ... ... 75 
 
 „ crises and ... ... ... ... ... ... ... 81 
 
 ,, basis of /io^/oy/r// ... ... ... ... ... ... 86 
 
 ,, in early times ... ... ... .. ... ... ... 132 
 
 D 
 
 Darwin ... 5, 11, 12, 24 
 
 Distribution of Wealth, Mill on 353 
 
 ,, ,, hierarchy of ... ... ... ... ... 436 
 
 ,, ,, no laws of ... ... ... ... ... 462 
 
 Dynamical method ... ... ... ... ... ... ... 889 
 
 ,, ,, its necessity ... ... ... ... ... 458 
 
 ,, no ' law ' without it ... ... ... ... 464 
 
 E 
 
 Economists, their symbol ... ... ... ... ... 32, 90 
 
 „ on consumption ... ... ... ... ... ... 38 
 
 ,, doctrines of . ... 41,90,94 
 
 ,, negative Gnuse oiincTeiise ... ... ... ... 41 
 
 ,, on producers and consumers ... ... ... ... 60 
 
 „ confusion of politics with economy ... ... 61, 113 
 
 fallacies of ... 105,386,451 
 
 ,, illusions of 65,297 
 
 ,, what they iguore ... ... ... ... ... 79, 95 
 
 ,, confused idea of ' cheapness' ... ... ... ... 301 
 
 ,, on savings ... ... ... ... ... ... ... 91 
 
 ,, on exchange ... ... ... ... ... ... 102 
 
 ,, perpetual motion schemes and ... ... ... ... 106 
 
 ,, on wages and profits ... ... ... ... ... 108 
 
 ,, on mercantile system ... ... ... ... ... 130 
 
 ' Wealth of Nations ' and 152, .300 
 
 ,, on superior and inferior nation ... ... ... ... 296 
 
 ,. on equality... ... ... ... ... ... ... 361 
 
 „ illusions of later ... ... ... ... ... ... 388 
 
 ,, shear off dynamics ... .. ... 389,441,444
 
 516 
 
 INDEX. 
 
 Economists, on Value ... 
 
 ,, their analyses 
 
 ,, on ' surplus' 
 
 ,, and the inventors ... 
 
 ,, what academic, ignore 
 
 ,, orthodox, on Rent 
 
 ,, Political, as grammarians 
 
 Economy, Political, reconstruction of 
 
 ,, ,, not founded on evolution 
 
 ,, >, a specialism _ 
 
 ,, ,, not a science 
 
 ,, ,, its symbol... 
 
 ,, ,, applied science of 
 
 ,, ,, cosmopolitical standpoint of 
 
 ,, ,, on wages and profits 
 
 ,, ,, extraneous influences in 
 
 ,, ,, Physiocrats' domination of 
 
 ,, ,, its divorce from civilization 
 
 ,, ,, four guiding principles ... 
 
 ,, ,, crudity of... 
 
 ,, ,, reconstitution of ... 
 
 ,, ,, its half truths 
 
 ,, ,, right method 
 
 ,, ,, and ' law ' ... 
 
 ,, ., Mathematics imported ... 
 
 ,, ,, Carlyle and 
 
 Emerson on ' Masses ' ... 
 PLquality, got by averaging 
 
 ,, effects of 
 Exchange, economists on 
 
 ,, complementary and competitive ... 
 
 ,, men on axle ... 
 
 Exchanges, Foreign, free traders and... 
 Exports, importance of .. 
 
 PAGE. 
 
 403 
 
 412 
 
 421 
 
 422 
 
 445, 446 
 
 451, seq. 
 
 466 
 
 3 
 
 4 
 
 4, G, 26, 185 
 
 25-28 
 
 30, 365 
 
 36 
 
 ... 87, 93, 313 
 
 108 
 
 112, 131, 137, 376 
 
 128, 145 
 152, 209, 385 
 
 210 
 
 271, 279, 369 
 272 
 
 347, 361 
 
 411, seq. 
 
 464 
 
 472 
 
 476, seq. 
 
 494 
 
 372 
 
 380 
 
 102 
 
 196, 234 
 387 
 
 276, 305 
 220 
 
 F 
 
 Fabians and Wages 
 
 Free Trade, England and 
 
 speculative doctrine of ... 
 forecast of effects of 
 its illusions 
 particular nation and 
 foreigner as friend or enemy 
 Protection and 
 
 ... 506 
 139, 324 
 
 ... 140 
 
 ... 202 
 
 ... 192 
 
 ... 197 
 
 .. 200 
 
 ... 201
 
 INDEX. 
 
 51' 
 
 Free Trade, diagnostic points of suitability of 
 
 ,, if universal 
 
 ,, an end 
 Free Traders, Adam Smith and modem 
 
 ,, what they ignore 
 
 ,, and exports 
 
 ,, and loss of trade 
 
 ,, their ' common reservoir ' 
 
 ,, their indifference 
 
 ,, cosmopolitanism of 
 
 Freedom of Contract, Mill and 
 
 „ necessary implication 
 
 „ and ' forced g-ains ' 
 
 PAGE. 
 
 206 
 
 274, 823 
 
 329 
 
 166, 170, 185, 192 
 
 218, 300 
 221 
 
 224, 244 
 
 244, 263 
 
 258 
 
 313 
 
 359 
 
 361, 364, 387 
 
 405, 435 
 
 G 
 
 George, Henry ... 
 
 „ and ' margins ' .. 
 
 ,, his theory 
 
 ,, on capitalists .. 
 
 ,, his contribution 
 
 Gold, as standard 
 
 place of, and silver 
 as medium of exchange ., 
 as single currency 
 mercantile system and .. 
 Governments and ... 
 free trade and 
 as measure of value 
 passage of . . . 
 its effect on prices 
 in banks ... 
 Goschen, on foreign exchange .. 
 Guizot 
 Gunton 
 
 ,, and Hobson 
 
 ,, on Rent ... 
 
 ,, and standard of living .., 
 
 116, ;;86 
 
 ... 454 
 498, W7. 
 ... 501 
 ... 501 
 49 
 ... 66 
 
 66, 280, 287 
 ... 74 
 ... 132 
 ... 134 
 ... 135 
 ... 173 
 • 276, se([. 
 ... 282 
 ... 284 
 ... 303 
 ... 19 
 
 38, 116, 386 
 ... 504 
 ... 506 
 ... 507 
 
 H 
 
 Hegel 
 Hobson 
 
 on consumption. 
 
 19, 120 
 
 38, 116, 386 
 
 45, 504
 
 518 
 
 INDEX. 
 
 Hobson on foreign exchanges ... 
 
 ,, cosmopolitanism of 
 
 ,, his method 
 
 ,, on value 
 
 ,, his ' Economics of Distribution ' and 
 
 ,, on Rent and Price 
 
 ,, his criticism of Frof. Clark ... 
 
 ,, on Wages 
 
 ,, Symbol in his ' Physiology of Industry ' 
 
 ,, his standpoint ... 
 Huxley 
 
 
 
 PAGE. 
 
 
 
 ... 307 
 
 
 
 ... 314 
 
 
 116, 
 
 315, 399 
 ... 398 
 
 margins ' 
 
 
 ... 455 
 ... 455 
 ... 461 
 ... 507 
 ... 509 
 ... 511 
 ... 12 
 
 Instruments of Production, keep them 
 , , never tax ... 
 
 ,, importance of 
 
 „ Free Traders and 
 
 „ cheap products v. 
 
 216, 
 
 home and foreign 
 products detached from., 
 Mill's neglect of ... 
 workmen divorced from 
 
 Interest, economists on ... 
 
 ,, Ruskin and 
 
 ,, Jevons on 
 
 ,, where does it come from V 
 
 „ Bbhm-Bawerk on 
 
 ,, put on ' wheel ' 
 
 ,, effect of money dealers ou 
 
 „ rate of, determined 
 
 ,, supply and demand and 
 
 ,, monopoly and ... 
 
 ,, Power and 
 Inventor, Karl Marx and the ... 
 
 210, 212 
 
 212, 215, 242 
 
 220, 264, 317, 319 
 
 217, 229, 444 
 
 283, 239, 242, 
 
 250, 253, 301, 438 
 
 252 
 
 268, 364, 368 
 ... . ... 352 
 
 377, 439 
 
 367 
 
 416 
 
 419 
 
 42U, 423, 428 
 416, 425, 428 
 
 430, 432 
 430 
 
 430, seq. 436 
 
 431, 436 
 433, 435 
 
 435 
 
 492 
 
 Jevons 
 
 on value ... 
 his ' old coins ' 
 on ' Utility ' 
 his ' cause ' 
 
 115, 386 
 390, 394 
 390, 403 
 390, seq. 
 390-393
 
 INDEX. 
 
 519 
 
 Jevoiis, his common denominator ... ..! 
 
 ,, Marshall and ... 
 
 ,, his divergences from the older Economy 
 
 ,, his fallacies 
 
 „ on Capital ... ... .. . . 
 
 ,, on Interest 
 
 ,, Socialists and ... 
 
 ,, his dilemma 
 
 on ' marsrinal units ' ... 
 
 PAGE. 
 
 nm 
 
 :397 
 
 417 
 
 418, 424 
 
 418, 420 
 
 419, 420, 42;} 
 
 423 
 
 425 
 
 454 
 
 K 
 
 Kitsou, Mr., on standard of value 
 
 73 
 
 Land, never sacrifice the 
 
 ,, peasant proprietors 
 
 ,, (ill, in use has exchange value 
 
 ,, why Economists detached it 
 
 ,, no-rent 
 Law, as relation ... 
 
 ... 335 
 
 338 
 
 450 
 
 452, 454, 456 
 450, 452 
 ... 465 
 
 M 
 
 Mallock, on capitalists ... 
 Malthus, law of . , 
 Man, powers of ... 
 Market, imjjortance of ... 
 Marshall, Professor 
 
 ,, on Value 
 
 his 'scissors' 
 
 and ' law of substitution 
 
 and ' marginal units ' 
 
 on ' margins ' 
 
 his two factors 
 
 Marx 
 
 Karl 
 
 on ' surplus value '... 
 
 ignores inventors ... 
 
 his system ... 
 
 errors of 
 
 Mathematics in Political Economy 
 Medicine ... 
 
 502 
 
 ... 375,483 
 
 31 
 
 210 
 
 115, 386, 390 
 397, 443 
 397, 443 
 447, seq. 
 
 454 
 
 467 
 
 471 
 
 386 
 
 421 
 
 421 
 
 .. 490 
 
 494 
 
 472 
 
 10, 13
 
 520 
 
 INDEX. 
 
 Mercantile System, rise of* 
 
 „ and imports 
 
 „ exports and 
 
 ,, France and... 
 
 Mercantilists 
 
 MiU, on market for consumption 
 ,, his stick of wealth ... 
 ,, on savings ... 
 ,, his half-truths 
 ,, his fundamental principles 
 ,, his neglect of consumption 
 ., on Profits ... 
 
 ,, his neglect of Instruments of Production 
 ,, his confusion of monej^ values ... 
 ,, on distribution 
 ,, his impossible combinations 
 .. mixes politics with economics 
 , , on rent and population 
 ,, freedom of contract and ... 
 ,, his successors 
 ,, Jevons on ... 
 ,, Marshall and 
 ,, on no-rent land 
 Mirabeau . . 
 Moffat, on Consumption 
 Money, functions of 
 ,, amphibious 
 ,, its negative services 
 ,, consumable goods and... 
 Monopoly, England and 
 ,, effects of 
 ,, Adam Smith and 
 ,, advantages of 
 ,, Interest and... 
 Morellet 
 
 PA«E. 
 
 ... 134 
 ... 136 
 ... 138 
 ... 143 
 ... 129 
 ... 42 
 ... 44 
 ... 50 
 847-350, 353 
 348-350 
 347, 349 
 350-352 
 ... 352 
 ... 351 
 358, 359 
 ... 354 
 ... 354 
 ... 358 
 ... 359 
 ... 385 
 ... 390 
 ... 397 
 . . . 453 
 ... 125 
 ... 504 
 66, 67 
 66, 69 
 69, 70 
 68, 71 
 ... 101 
 122, 360 
 158, 174 
 175,387 
 ... 433 
 ... 125 
 
 N 
 
 Nation, savings of individual and of ... 
 
 ,, money in, standing alone 
 
 ,, money in, side by side... 
 
 ,, standing alone and credits 
 
 ,, in trade relations 
 Nations, their object 
 
 ,, no hierarchy of employments for 
 
 ... 62 
 
 68, 71 
 ... 71 
 
 85, 86 
 170, 173 
 ... 130 
 .. 171
 
 INDEX. 
 
 521 
 
 Nations, importance of their relative superiorities 
 „ game played by separate 
 , , their individuality 
 Natural Selection 
 
 Nature, individuality protected in 
 
 ,, Powers of, as free gift to man 
 ,, ,, in fixed capital ... 
 
 ,, „ in manufactures ... 
 
 Interest and 
 
 171 
 
 235, 251, 267, 310 
 323, 327, 330 
 
 11 
 
 318 
 
 31, 40, 41, 42, 419 
 
 52 
 
 144, 156, 167, 188 
 
 428 
 
 Pater, Walter 
 
 Peel, Sir R., maxim of ... 
 
 ,, and Carlyle 
 
 Physical Science 
 Physiocrats, France and 
 
 ,, Free Trade and ... 
 
 ,, their scheme 
 
 ,, landlords and 
 
 ,, and taxes ... 
 
 „ negative foundations 
 
 ,, Adam Smith and ... 
 
 Pigou, Mr., free trade and 
 ,, on prices ... 
 
 ,, his mistakes 
 
 Politics, its intrusion into economics ... 
 ,, must help economics ... 
 ,, laissez-faire and 
 Population, Working, excessive 
 
 ,, as fixed capital 
 
 ,, combined or dispersed 
 
 Power, incidence of 
 Prices, effect of gold on... 
 ,, supply and demand and 
 ,, fixed by ' wheel ' 
 ,, how determined... 
 ,, combination and 
 ,, what determines 
 „ Rent and... 
 ,, zero margins and 
 Producers, Consumers and 
 Production. See Consumption. 
 Products, complementary and competitive ... 
 
 22 
 
 219, 221 
 
 483 
 
 125, 144 
 
 140, 146 
 
 146 
 
 146 
 
 147 
 
 156 
 
 185, 153, 155 
 
 276 
 
 277 
 
 292, 297 
 
 61, 236, 243, 246, 3,54 
 338, ;)8;) 
 
 33!» 
 
 113 
 
 58 
 
 358 
 
 364, 382, 387, 435, 439 
 
 282 
 
 290, 408 
 
 407, 409 
 
 411 
 
 414 
 
 460, 456 
 
 450, 455, seq. 
 
 457 
 
 60, 109 
 
 265, 270, 300
 
 522 
 
 INDEX. 
 
 
 
 PAOE. 
 
 Profits 
 
 Mill on 
 
 350 
 
 )» 
 
 Rent and 
 
 364 
 
 ,, 
 
 effects of war, etc., on... 
 
 352 
 
 )> 
 
 economists on 
 
 365 
 
 1) 
 
 their inequality 
 
 366, 373 
 
 Protection, corruption and 
 
 230 
 
 )j 
 
 world as a whole ... 
 
 230 
 
 >» 
 
 shipping trade and 
 
 232, 332 
 
 5' 
 
 home trade and 
 
 250 
 
 )) 
 
 signs of necessity of 
 
 255 
 
 )) 
 
 when advisable 
 
 323, 329, 336 
 
 )) 
 
 of limited areas 
 
 325, 327 
 
 5> 
 
 it increases wealth 
 
 331 
 
 »> 
 
 of infant industries 
 
 332 
 
 »» 
 
 diagonistic points for 
 
 33& 
 
 )» 
 
 for unique products 
 
 337 
 
 Psychological Method, and Value 
 
 412 
 
 
 „ and Interest ... 
 
 427 
 
 Q 
 
 Quesney 
 
 125 
 
 u 
 
 Rent, Mill on 
 
 
 .. 
 
 
 .. 350 
 
 ,, not different from Profits 
 
 
 363 
 
 ;, capitalist not landlord, central figure 
 
 in 
 
 
 449 
 
 ,, classes of markets and ... 
 
 
 
 419 
 
 „ does it enter into Price V 
 
 
 .. 45, 
 
 3, seq. 459, 456 
 
 „ four considerations on, and price 
 
 
 
 450 
 
 ,, no-rent laud 
 
 
 
 450, 452 
 
 ,, Economists fallacy on ... 
 
 
 
 451, seq. 
 
 ,, Hobsoii on, and price 
 
 
 
 455 
 
 ,, and zero margins... 
 
 
 
 
 .. 457 
 
 Ricardo 
 
 
 
 
 .. 115 
 
 ,, law of rent 
 
 
 
 
 .. 375 
 
 „ Jevons on 
 
 
 
 
 .. 390 
 
 ., Marshall and ... 
 
 
 
 
 .. 397 
 
 ,, on AVages 
 
 
 
 
 .. 453 
 
 ,, and Mill on no-rent land 
 
 
 
 
 .. 453 
 
 Robertson, J. M. 
 
 
 
 38,116 
 
 ,, and Mill 
 
 
 
 
 .. 504
 
 INDEX. 
 
 523 
 
 Romanes, and Natural Selection 
 Rousseau, Ruskin and ... 
 Ruskin 
 
 ., and Interest 
 
 ,, his standpoint ... 
 
 ,, his chess board ... 
 
 ,, his suggestions .. 
 his outcome 
 
 ... 12 
 485, 488 
 116, 386 
 ... 416 
 ... 482 
 ... 485 
 ... 486 
 
 Savings, what they come out of 
 
 ,, element of permanency in 
 
 ,, prerequisites of 
 
 „ paradox of 
 
 ,, fixed capital and 
 
 ,, not wealth 
 
 ,, in World-State... 
 
 ,, necessity of 
 
 ,, effect of general 
 
 ,, ' produce and save ' ... 
 
 „ capital as 
 Scientist, Christian 
 Shakespeare, on Justice... 
 Shaw, Bernard, and Socialism ... 
 ,, on Wacjes 
 
 Smitl 
 
 If 
 
 Adam 
 
 changes since time of 
 
 119, 121, 123, 1 
 189, 
 
 rod symbol and ... 
 
 he omits consumption ... 
 
 Physiocrats and ... ... ... ... 125, 
 
 his ' Wealth of Nations ' 121, 126, 144, 
 
 his successors 
 
 his infraction of Free Trade 
 
 differs from Physiocrats on manufactures .. 
 
 differs again on taxation 
 
 his five considerations ... 
 
 negative like Physiocrats 
 
 his fallacies 158,164, 
 
 his hierarchy 
 
 disingenuousness of 
 
 on Colonial merchants ... 
 
 on landlords 
 
 if he re-appeared 
 
 45, 48, 50, 63 
 
 51 
 
 .. 46, 51, 71 
 47, 93 
 50, 92 
 
 51 
 
 90 
 
 91 
 
 92 
 
 95 
 
 371 
 
 14 
 
 497 
 
 503 
 
 507 
 
 38, 115 
 24, 187, 
 191, 199, 202 
 124, 157, 160 
 ... 125 
 149, 156, 185 
 152, 158, 163 
 ... 127 
 ... 151 
 ... 153 
 ... 155 
 ... 153 
 ... 156 
 171, 174, 176 
 169, 166, 189 
 ... 179 
 ... 180 
 ... 181 
 ... 184
 
 524 
 
 INDEX. 
 
 Smith, Adam, his dilemma 
 
 „ a protectionist . . . 
 
 Sociology, need of Science of ... 
 Specialisms, classes of ... 
 ,, independent 
 
 ,, limitations of 
 
 Spencer, Herbert ... ... ... ... ...11, 19 
 
 ,, and ' Persistence of Force ' 
 
 Stick, symbol of 32,45,47,49,59,90,96 
 
 Mill and 
 
 influence on wages and profits theory 
 wheel and 
 Adam Smith and 
 Profits and 
 and ' margins ' 
 
 and bodily organism compared 
 Symbol of Industry 
 
 ,, ,, its importance ... ... ... 43, 
 
 PAGE. 
 
 184 
 
 191 
 
 24 
 
 7 
 
 17 
 
 20 
 
 20, 120, 121 
 
 ... 270 
 
 98, 100, 365 
 
 42, 44 
 
 ... 108 
 
 157, 158 
 
 169, 176 
 
 ... 369 
 
 ... 457 
 
 ... 510 
 
 ... 30 
 
 96, 108, 114 
 
 Tape-worm, analogy of ... 
 
 16;; 
 
 170 
 
 Taxes, capriciousness of 
 
 
 62 
 
 „ Colbert and 
 
 
 142 
 
 ,, Physiocrats and 
 
 
 147 
 
 ,, levjdng of 
 
 212,215, 
 
 242 
 
 Tennyson, Editor and his peerage 
 
 
 248 
 
 Thiinen, Yon, his ' law of substitution ' 
 
 
 447 
 
 , , on ' marginal units ' 
 
 
 454 
 
 Trusts 
 
 193 
 
 199 
 
 ,, how made possible 
 
 
 328 
 
 Turgot 
 
 
 125 
 
 u 
 
 i 
 
 United States, world as a whole and 
 Utility, Jevons and 
 Utopias, compared 
 
 193, 267 
 391, seq. 
 488-490 
 
 V 
 
 Value in use 
 ,, in exchange 
 
 172, 326 
 ... 173
 
 INDEX. 
 
 525 
 
 Value, Jevons ou 
 
 ,, Bohm-Bawerk on 
 ,, Marshall ou 
 ,, problem of, on the ' wheel ' 
 ,, measure of 
 
 ,, non-reproducible articles and 
 ,, monopoly prices and 
 ,, a dynamical problem 
 ,, its dissection 
 ,, later economists on 
 Karl Marx on 
 
 PAGE. 
 
 390 seq. 
 ... 395 
 ... 397 
 ... 400 
 ... 402 
 ... 403 
 ... 404 
 407, 411 
 ... 413 
 441, seq. 
 ... 491 
 
 W 
 
 Wage Fund, Physiocrats on 
 Wages, profits and, economists on 
 
 ,, profits and, rise and fall together 
 ,, apparent contradiction to this 
 
 Walker 
 
 ., on the entrepreneur 
 ,, his naivete 
 ,, on value ... 
 
 Wealth 
 
 factors in 
 reproduction of ... 
 consumption and 
 lessened ... 
 giant inequalities of 
 Wealth of Nations. See Adam Smith. 
 Webb, Sidney, and foreign exchanges 
 
 ,, and Wages 
 
 Wheel, symbol of 
 ,, and stick... 
 ,, ideal, postulated... 
 Wheel of Wealth, moves all together... 
 obstructions to 
 mechanical wheel and 
 motor power of 
 paper credits and ... 
 dealers on ... 
 national attached to foreign 
 all classes rise together on 
 additions made to ... 
 analyses useless for... 
 
 147 
 
 108, 375 
 
 109 
 
 112, 439 
 
 386 
 
 422,439 
 
 438 
 
 442 
 
 356 
 
 38 
 
 31, 40 
 
 89 
 
 108 
 
 382 
 
 275, 302 
 
 607 
 
 ... 31, 32, 34, 36, 353 
 
 43, 44, 108 
 
 445 
 
 32,388 
 
 34, 109 
 
 32-34 
 
 37, 40 
 
 77 
 
 78, 387, 401, 406, 430 
 
 100 
 
 108, 110, 356 
 
 400 
 
 401
 
 526 
 
 INDEX. 
 
 
 
 
 
 PAGE. 
 
 Wheel of Wealth, advantages of use of 
 
 
 
 
 •iOO, se<i. 
 
 ,, prices fixed by 
 
 
 
 
 407, 409 
 
 ,, Interest put on 
 
 
 
 
 4o0, 432 
 
 ,, no-rent land and ... 
 
 
 ... 
 
 
 ... 450 
 
 World State, of Socialists 
 
 
 
 
 ... 89 
 
 World as a Whole 
 
 
 
 162, 166 
 
 170, 192 
 
 ,, Free Trade and 
 
 
 196, 
 
 204, 209 
 
 266, 270 
 
 „ Protection and 
 
 
 
 
 ... 2^50 
 
 ,, as political unity ... 
 
 
 
 
 ... 234 
 
 ,, nation as political unit, 
 
 and 
 
 
 
 ... 310 
 
 ,, nations versus 
 
 
 
 
 266, 312
 
 ..'V-^ 
 
 ''■^i 
 
 
 ■i-'^^n.::
 
 iilif 
 
 
 T i