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 THE POSTULATES 
 
 OF 
 
 ENGLISH POLITICAL ECONOMY
 
 J. l"t.| LK 1V1AYLK 
 
 LIBRARY 
 
 LOSDOX : PRINTED BT 
 
 8POTTISWOODK AND CO., KXW-STBEET SQCAttB 
 ASD PAHHAilEST STUKKT
 
 EXGLTSH POLITICAL ECONOMY 
 
 BY THE LATE 
 
 WALTER BAGEHOT 
 
 >:.A. AND FELLOW OF CXIVERSITT COLLEGE, LONDON 
 
 STUDENTS EDITION 
 
 WITH A PREFACE 
 BT 
 
 ALFRED MARSHALL 
 
 PROFESSOR OF POLITICAL ECONOMY, CAMBRIDGE 
 
 LONDON 
 LONGMANS, GREEN, AND CO. 
 
 1885 
 
 All nyhtt i-eiervtd
 
 LIBRARY 
 
 UNIVERSITY OF CALIFORNIA 
 SAM A BARBARA 
 
 PREFACE. 
 
 MR. BAGEHOT left behind him some materials for a 
 book which promised to make a landmark in the 
 history of economics, by separating the use of the 
 older, or Bicardian, economic reasonings from their 
 abuse, and freeing them from the discredit into 
 which they had fallen, through being often mis- 
 applied. Unfortunately, he did not complete more 
 than the examination of two of their postulates 
 the transferability of labour and capital. But these 
 he treated with so much sagacity and suggestiveness 
 as to give us great help in dealing with the others, 
 and I have long been anxious that what he wrote 
 about them should be published in a cheap form, so 
 as to have a wide circulation among students. 1 
 
 1 They were originally published in the Fortnightly Review 
 in 1876, and are republished with some other materials for the 
 great book, as Economic Studies, by the late Walter Bagehot, M.A.
 
 Vl PKEFACE. 
 
 He was excellently qualified for the task he 
 undertook. He had a well-trained scientific mind, 
 and a large experience of city life. He was an inde- 
 pendent thinker, and perfectly free in his criticisms ; 
 but he reverenced the great men who had gone 
 before him, and knew nothing of the temptation to 
 try to raise himself by disparaging them. Though 
 he has shown more clearly than perhaps anyone else 
 the danger of a careless application of theory, he 
 saw with great distinctness the need of its aid in 
 dealing with complex economic problems. ' If you 
 attempt to solve such problems,' he says, ' without 
 some apparatus of method, you are as sure to fail as 
 if you try to take a modern military fortress a Metz 
 or a Belfort by common assault.' 
 
 Perhaps there never was anyone better fitted to 
 show the real bearing of Ricardian modes of reason- 
 ing on the practical problems of life, or to bring 
 out the fundamental unity which, in spite of minor 
 differences, connects all the true work of the present 
 with that of the earlier generation of economists. 
 
 and Fellow of University College, London, edited by Richard H 
 Mutton. Longmans, 1 880.
 
 PEEFACE. vii 
 
 And in reading these essays we must remember that 
 they deal almost exclusively with one side of what 
 he had to say. Here he has explained the danger of 
 assuming that the changes which are made quickly 
 among modern English business men have been made 
 quickly in other places and other times. But what 
 he has written proves that had he lived he would 
 have thrown much light on the question how the 
 rapid changes of modern city life may help us to 
 understand, by analogy and indirect inference, the 
 slow changes of a backward people. 
 
 ALFRED MARSHALL. 
 CAMBRIDGE: July 10, 1885.
 
 CONTENTS. 
 
 PACK 
 
 THE POSTULATES OF ENGLISH POLITICAL ECONOMY . 1 
 
 I, THE TRANSFEBABILITY OF LABOUR . . . 34 
 
 II. THE TRANSFERABILITY OF CAPITAL 65
 
 THE POSTULATES 
 
 OF 
 
 ENGLISH POLITICAL ECONOMY. 
 
 ADAM SMITH completed the ' Wealth of Nations ' in 
 1776, and our English Political Economy is there- 
 fore just a hundred years old. In that time it has 
 had a wonderful effect. The life of almost everyone 
 in England perhaps of everyone is different and 
 better in consequence of it. The whole commercial 
 policy of the country is not so much founded on it as 
 instinct with it. Ideas which are paradoxes every- 
 where else in the world are accepted axioms here as 
 results of it. No other form of political philosophy 
 has ever had one thousandth part of the influence on 
 us ; its teachings have settled down into the common 
 sense of the nation, and have become irreversible. 
 
 We are too familiar with the good we have thus 
 acquired to appreciate it properly. To do so we 
 
 B
 
 2 THE POSTULATES OF 
 
 should see what our ancestors were taught. The 
 best book on Political Economy published in England 
 before that of Adam Smith is Sir James Steuart's 
 ' Inquiry,' a book full of acuteness, and written by a 
 man of travel and cultivation. And its teaching is 
 of this sort : c In all trade two things are to be con- 
 sidered in the commodity sold. The first is the 
 matter ; the second is the labour employed to render 
 this matter useful. The matter exported from a 
 country is what the country loses ; the price of the 
 labour exported is what it gains. If the value of the 
 matter imported be greater than the value of what 
 is exported the country gains. If a greater value of 
 labour be imported than exported the country loses. 
 Why? Because in the first case strangers must 
 have paid in matter the surplus of labour exported ; 
 and in the second place because the strangers must 
 have paid to strangers in matter the surplus of labour 
 imported. It is, therefore, a general maxim to dis- 
 courage the importation of work, and to encourage 
 the exportation of it.' 
 
 It was in a world where this was believed that 
 our present Political Economy began. 
 
 Abroad the influence of our English system has 
 of course not been nearly so great as in England it- 
 self. But even there it has had an enormous effect.
 
 ENGLISH POLITICAL ECONOMY 3 
 
 All the highest financial and commercial legislation 
 of the Continent has been founded upon it. As 
 curious a testimony perhaps as any to its power is to 
 be found in the memoir of Mollien the financial 
 adviser of the first Napoleon, le Ion Mollien, whom 
 nothing would induce him to discard because his 
 administration brought francs, whereas that of his 
 more showy competitors might after all end in ideas. 
 1 It was then,' says Mollien, in giving an account of 
 his youth, 'that I read an English book of which 
 the disciples whom M. Turgot had left spake with 
 the greatest praise the work of Adam Smith. I 
 had especially remarked how warmly the venerable 
 and judicious Malesherbes used to speak of it this 
 book so deprecated by all the men of the old routine 
 who spoke of themselves so improperly as of the 
 school of Colbert. They seemed to have persuaded 
 themselves that the most important thing for our 
 nation was that not one sou should ever leave France : 
 that so long as this was so, the kind and the amount 
 of taxation, the rate of wages, the greater or less 
 perfection of industrial arts, were things of complete 
 indifference, provided always that one Frenchman 
 gained what another Frenchman lost.' 
 
 And he describes how the ' Wealth of Xations ' 
 led him to abandon those absurdities and to substi- 
 
 B 2
 
 4 THE POSTULATES OF 
 
 tute the views with which we are now so familiar, 
 t>ut on which the ' good Mollien ' dwells as on new 
 paradoxes. In cases like this, one instance is worth 
 a hundred arguments. We see in a moment the 
 sort of effect that our English Political Economy has 
 Imd when we find it guiding the finance of Napoleon, 
 Vho hated ideologues, and who did not love the 
 English. 
 
 But notwithstanding these triumphs, the posi- 
 tion of our Political Economy is not altogether satis- 
 factory. It lies rather dead in the public mind. 
 Not only does it not excite the same interest as 
 formerly, btft there is not exactly the same confidence 
 in it. Yoimger men either do not study it, or do 
 not feel that it comes home to them, and that it 
 matches with their most living ideas. New sciences 
 have come up in the last few years with new 
 modes of investigation, and they want to know 
 what is the relation of economic science, as their 
 fathers held it, to these new thoughts and these new 
 instruments. They ask, often hardly knowing it, 
 will this ' science ' as it claims to be, harmonise with 
 what we now know to be sciences, or bear to be tried 
 as we now try sciences ? And they are not sure of 
 the answer. 
 
 Abroad, as is natural, the revolt is more avowed.
 
 ENGLISH POLITICAL ECONOMY 5 
 
 Indeed, though the Political Economy of Adam 
 Smith penetrated deep into the Continent, what has 
 been added in England since has never penetrated 
 equally ; though if our ' science ' is true, the newer 
 work required a greater intellectual effort, and is far 
 more complete as a scientific achievement than any- 
 thing which Adam Smith did himself. Political 
 Economy, as it was taught by Ricardo, has had in 
 this respect much the same fate as another branch of 
 English thought of the same age, with which it has 
 many analogies jurisprudence as it was taught by 
 Austin and Bentham ; it has remained insular. I 
 do not mean that it was not often read and under- 
 stood ; of course it was so, though it was often mis- 
 read and misunderstood. But it never at all reigned 
 abroad as it reigns here ; never was really fully 
 accepted in other countries as it was here where it 
 arose. And no theory, economic or political, can 
 now be both insular and secure ; foreign thoughts 
 come soon and trouble us ; there will always be 
 doubt here as to what is only believed here. 
 
 There are, no doubt, obvious reasons why Eng- 
 lish Political Economy should be thus unpopular out 
 of England. It is known everywhere as the theory 
 ' of Free-trade,' and out of England Free-trade is 
 almost everywhere unpopular. Experience shows
 
 6 THE POSTULATES OF 
 
 that no belief is so difficult to create, and no one so 
 easy to disturb. The Protectionist creed rises like a 
 weed in every soil. 'Why,' M. Thiers was asked, 
 ' do you give these bounties to the French sugar- 
 refiners ? ' 'I wish/ replied he, * the tall chimneys 
 to smoke.' . Every nation wishes prosperity for some 
 conspicuous industry. At what cost to the con- 
 sumer, by what hardship to less conspicuous indus- 
 tries, that prosperity is obtained, it does not care. 
 Indeed, it hardly knows, it will never read, it will 
 never apprehend the refined reasons which prove 
 those evils and show how great they are ; the visible 
 picture of the smoking chimneys absorbs the whole 
 mind. And, in many cases, the eagerness of Eng- 
 land in the Free-trade cause only does that cause 
 harm. Foreigners say, 'Your English traders are 
 strong and rich ; of course you wish to under-sell 
 our traders, who are weak and poor. You have 
 invented this Political Economy to enrich yourselves 
 and ruin us ; we will see that you shall not do so.' 
 
 And that English Political Economy is more op- 
 posed to the action of Government in all ways than 
 most such theories, brings it no accession of popu- 
 larity. All Governments like to interfere; it ele- 
 vates their position to make out that they can cure 
 the evils of mankind. And all zealots wish they
 
 ENGLISH POLITICAL ECONOMY 7 
 
 should interfere, for such zealots think they can and 
 may convert the rulers and manipulate the State 
 control : it is a distinct object to convert a definite 
 man, and if he will not be convinced there is always 
 a hope of his successor. But most zealots dislike to 
 appeal to the mass of mankind ; they know instinc- 
 tively that it will be too opaque and impenetrable 
 for them. 
 
 Still I do not believe that these are the only 
 reasons why our English Political Economy is not 
 estimated at its value abroad. I believe that this 
 arises from its special characteristic, from that which 
 constitutes its peculiar value, and, paradoxical as it 
 may seem, I also believe that this same characteristic 
 is likewise the reason why it is often not thoroughly 
 understood in England itself. The science of Poli- 
 tical Economy as we have it in England may be 
 denned as the science of business, such as business is 
 in large productive and trading communities. It is 
 an analysis of that world so familiar to many Eng- 
 lishmen the ' great commerce ' by which England 
 has become rich. It assumes the principal facts 
 which make that commerce possible, and as is the 
 way of an abstract science it isolates and simplifies 
 them : it detaches them from the confusion with 
 which they are mixed in fact. And it deals too with
 
 8 THE POSTULATES OF 
 
 the men who carry on that commerce, and who make 
 it possible. It assumes a sort of human nature such 
 as we see everywhere around us, and again it simpli- 
 fies that human nature ; it looks at one part of it 
 only. Dealing with matters of ' business,' it assumes 
 that man is actuated only by motives of business. 
 It assumes that every man who makes anything, 
 makes it for money, that he always makes that which 
 brings him in most at least cost, and that he will 
 make it in the way that will produce most and spend 
 least ; it assumes that every man who buys, buys 
 with his whole heart, and that he who sells, sells 
 with his whole heart, each wanting to gain all pos- 
 sible advantage. Of course we know that this is not 
 so, that men are not like this ; but we assume it for 
 simplicity's sake, as an hypothesis. And this de- 
 ceives many excellent people, for from deficient 
 education they have very indistinct ideas what an 
 abstract science is. 
 
 More competent persons, indeed, have understood 
 that English Political Economists are not speaking 
 of real men, but of imaginary ones : not of men as 
 we see them, but of men as it is convenient to us to 
 suppose they are. But even they often do not under- 
 stand that the world which our Political Economists 
 treat of, is a very limited and peculiar world also.
 
 ENGLISH POLITICAL ECONOMY 9 
 
 They often imagine that what they read is applicable 
 to all states of society, and to all equally, whereas it is 
 only true of and only proved as to states of society 
 in which commerce has largely developed, and where 
 it has taken the form of development, or something 
 near the form, which it has taken in England. 
 
 This explains why abroad the science has not 
 been well understood. Commerce, as we have it in 
 England, is not so full-grown anywhere else as it is 
 here at any rate, is not so outside the lands popu- 
 lated by the Anglo-Saxon race. Here it is not only 
 a thing definite and observable, but about the most 
 definite thing we have, the thing which it is most 
 difficult to help seeing. But on the Continent, 
 though there is much that is like it, and though that 
 much is daily growing more, there is nowhere the 
 same pervading entity the same patent, pressing, 
 and unmistakable object. 
 
 And this brings out too the inherent difficulty of 
 the subject a difficulty which no other science, I 
 think, presents in equal magnitude. Years ago I 
 heard Mr. Cobden say at a League Meeting that 
 ' Political Economy was the highest study of the 
 human mind, for that the physical sciences required 
 by no means so hard an effort.' An orator cannot 
 be expected to be exactly precise, and of course
 
 10 THE POSTULATES OF 
 
 Political Economy is in no sense the highest study 
 of the mind there are others which are much 
 higher, for they are concerned with things much 
 nobler than wealth or money ; nor is it true that 
 the effort of mind which Political Economy requires 
 is nearly as great as that required for the abstruser 
 theories of physical science, for the theory of gravi- 
 tation, or the theory of natural selection ; but, 
 nevertheless, what Mr. Cobden meant had as was 
 usual with his first-hand mind a great fund of 
 truth. He meant that Political Economy effectual 
 Political Economy, Political Economy which in 
 complex problems succeeds is a very difficult thing ; 
 something altogether more abstruse and difficult, as 
 well as more conclusive, than that which many of 
 those who rush in upon it have a notion of. It is 
 an abstract science which labours under a special 
 hardship. Those who are conversant with its abstrac- 
 tions are usually without a true contact with its 
 facts ; those who are in contact with its facts have 
 usually little sympathy with and little cognisance of 
 its abstractions. Literary men who write about it 
 are constantly using what a great teacher calls ' un- 
 real words ' that is, they are using expressions with 
 which they have no complete vivid picture to corre- 
 spond. They are like physiologists who have never
 
 ENGLISH POLITICAL ECONOMY 11 
 
 dissected ; like astronomers who have never seen the 
 stars ; and, in consequence, just when they seem to 
 be reasoning at their best, their knowledge of the 
 facts falls short. Their primitive picture fails them, 
 and their deduction altogether misses the mark 
 sometimes, indeed, goes astray so far, that those who 
 live and move among the facts boldly say that they 
 cannot comprehend ' how any one can talk such non- 
 sense/ Yet, on the other hand, these people who live 
 and move among the facts often, or mostly, cannot of 
 themselves put together any precise reasonings about 
 them. Men of business have a solid judgment a 
 wonderful guessing power of what is going to happen 
 each in his own trade ; but they have never prac- 
 tised themselves in reasoning out their judgments and 
 in supporting their guesses by argument : probably if 
 they did so some of the finer and correcter parts of 
 their anticipations would vanish. They are like the 
 sensible lady to whom Coleridge said, ' Madam, I 
 accept your conclusion, but you must let me find 
 the logic for it.' Men of business can no more put 
 into words much of what guides their life than they 
 could tell another person how to speak their language. 
 And so the ' theory of business ' leads a life of obstruc- 
 tion, because theorists do not see the business, and 
 the men of business will not reason out the theories.
 
 12 THE POSTULATES OF 
 
 Far from wondering that such a science is not com- 
 pletely perfect, we should rather wonder that it exists 
 at all. 
 
 Something has been done to lessen the difficulty 
 by statistics. These give tables of facts which help 
 theoretical writers and keep them straight, but the 
 cure is not complete. Writers without experience of 
 trade are always fancying that these tables mean 
 something more than, or something different from, 
 that which they really mean. A table of prices, for 
 example, seems an easy and simple thing to under- 
 stand, and a whole literature of statistics assumes 
 that simplicity : but in fact there are many difficulties. 
 At the outset there is a difference between the men of 
 theory and the men of practice. Theorists take a 
 table of prices as facts settled by unalterable laws ; 
 a stockbroker will tell you such prices can be 
 ' made.' In actual business such is his constant ex- 
 pression. If you ask him what is the price of such a 
 stock, he will say, if it be a stock at all out of the 
 common, c I do not know, sir : I will go on to the 
 market and get them to make me a price.' And the 
 following passage from the Report of the late Foreign 
 Loans Committee shows what sort of process ' making ' 
 a price sometimes is : ' Immediately,' they say, 
 ' after the publication of the prospectus ' the case is
 
 ENGLISH POLITICAL ECONOMY 13 
 
 that of the Honduras Loan 'and before any allot- 
 ment was made, M. Lefevre authorised extensive pur- 
 chases and sales of loans on his behalf, brokers were 
 employed by him to deal in the manner best calculated 
 to maintain the price of the stock ; the brokers so 
 employed instructed jobbers to purchase the stock 
 when the market required to be strengthened, and to 
 sell it if the market was sufficiently firm. In conse- 
 quence of the market thus created dealings were car- 
 ried on to a very large amount. Fifty or a hundred 
 men were in the market dealing with each other and 
 the brokers all round. One jobber had sold the loan 
 (2,500,000?.) once over.' 
 
 Much money was thus abstracted from credulous 
 rural investors ; and I regret to say that book statists 
 are often equally, though less hurtfully, deceived. 
 They make tables in which artificial prices run side 
 by side with natural ones ; in which the price of an 
 article like Honduras scrip, which can be indefinitely 
 manipulated, is treated just like the price of Consols, 
 which can scarcely be manipulated at all. In most 
 cases it never occurs to the maker of the table that 
 there could be such a thing as an artificial a maid 
 fide price at all. He imagines all prices to be 
 equally straightforward. Perhaps, however, this may 
 be said to be an unfair sample of price difficulties,
 
 14 THE POSTULATES OF 
 
 because it is drawn from the Stock Exchange, the 
 most complex market for prices ; and no doubt the 
 Stock Exchange has its peculiar difficulties, of which 
 I certainly shall not speak lightly ; but on the other 
 hand, in one cardinal respect, it is the simplest of 
 markets. There is no question in it of the physical 
 quality of commodities: one Turkish bond of 1858 
 is as good or bad as another; one ordinary share in 
 a railway exactly the same as any other ordinary 
 share ; but in other markets each sample differs in 
 quality, and it is a learning in each market to judge 
 of qualities, so many are they, and so fine their gra- 
 dations. Yet mere tables do not tell this, and cannot 
 tell it. Accordingly in a hundred cases you may 
 see ' prices ' compared as if they were prices of the 
 same thing, when, in fact, they are prices of different 
 things. The Gazette average of corn is thus com- 
 pared incessantly, yet it is hardly the price of the 
 same exact quality of corn in any two years. It is 
 an average of all the prices in all the sales in all the 
 markets. But this year the kind of corn mostly sold 
 may be very superior, and last year very inferior 
 yet the tables compare the two without noticing the 
 difficulty. And when the range of prices runs over 
 many years, the figures are even more treacherous, 
 for the names remain, while the quality, the thing
 
 ENGLISH POLITICAL ECONOMY 15 
 
 signified, is changed. And of this persons not 
 engaged in business have no warning. Statistical 
 tables, even those which are most elaborate and care- 
 ful, are not substitutes for an actual cognisance of 
 the facts : they do not, as a rule, convey a just idea 
 of the movements of a trade to persons not in the 
 trade. 
 
 It will be asked, why do you frame such a science 
 if from its nature it is so difficult to frame it ? The 
 answer is that it is necessary to frame it, or we must 
 go without important knowledge. The facts of com- 
 merce, especially of ' the great commerce,' are very 
 complex. Some of the most important are not on 
 the surface ; some of those most likely to confuse are 
 on the surface. If you attempt to solve such pro- 
 blems without some apparatus of method, you are as 
 sure to fail as if you try to take a modern military 
 fortress a Metz or a Belfort by common assault ; 
 you must have guns to attack the one, and method 
 to attack the other. 
 
 The way to be sure of this is to take a few new 
 problems, such as are for ever presented by investi- 
 gation and life, and to see what by mere common 
 sense we can make of them. For example, it is said 
 that the general productiveness of the earth is less 
 or more in certain regular cycles, corresponding with
 
 16 THE POSTULATES OF 
 
 perceived changes in the state of the sun, what 
 would be the effect of this cyclical variation in the 
 efficiency of industry upon commerce ? Some hold, 
 and as I think hold justly, that, extraordinary as it 
 may seem, these regular changes in the sun have 
 much to do with the regular recurrence of difficult 
 times in the money market. What common sense 
 would be able to answer these questions ? Yet we 
 may be sure that if there be a periodical series of 
 changes in the yielding power of this planet, that 
 series will have many consequences on the industry 
 of men, whether those which have been suggested or 
 others. 
 
 Or to take an easier case, who can tell without 
 instruction what is likely to be the effect of the new 
 loans of England to foreign nations ? We press 
 upon half-finished and half-civilised communities 
 incalculable sums ; we are to them what the London 
 money-dealers are to students at Oxford and Cam- 
 bridge. We enable these communities to read in 
 every newspaper that they can have ready money, 
 almost of any amount, on ' personal security.' No 
 incipient and no arrested civilisations ever had this 
 facility before. What will be the effect on such 
 civilisations now, no untutored mind can say. 
 
 Or again : since the Franco -German War an
 
 ENGLISH POLITICAL ECONOMY 17 
 
 immense sum of new money lias come to England ; 
 England has become the settling-place of inter- 
 national bargains much more than it was before ; but 
 whose mind could divine the effect of such a change 
 as this, except it had a professed science to help it ? 
 
 There are indeed two suggested modes of in- 
 vestigation, besides our English Political Economy, 
 and competing with it. One is the Enumerative, or, 
 if I may coin such a word, the 'All-case method.' 
 One school of theorists say, or assume oftener than 
 they say, that you should have a ' complete experi- 
 ence;' that you should accumulate all the facts of 
 these subjects before you begin to reason. A very 
 able German writer has said, in the ' Fortnightly 
 Review,' l of a great economical topic, banking, ' I 
 venture to suggest that there is but one way of 
 arriving at such knowledge and truth' that is 
 absolute truth and full knowledge ' namely, a 
 thorough investigation of the facts of the case. By 
 the facts, I mean not merely such facts as present 
 themselves to so-called practical men in the common 
 routine of business, but the facts which a complete 
 historical and statistical inquiry would develop. When 
 such a work shall have been accomplished, German 
 economists may boast of having restored the prin- 
 1 Fortnightly Review for September 1873. 
 
 C
 
 18 THE POSTULATES OF 
 
 ciples of banking, that is to say, of German banking, 
 but not even then of banking in general. To set forth 
 principles of banking in general, it will be necessary 
 to master in the same way the facts of English, 
 Scotch, French, and American banking, in short, of 
 every country where banking exists.' ' The only,' 
 he afterwards continues, ' but let us add also, the 
 safe ground of hope for political economy, is, fol- 
 lowing Bacon's exhortation, to recommence afresh 
 the whole work of economic inquiry . In what con- 
 dition would chemistry, physics, geology, zoology be, 
 and the other branches of natural science which have 
 yielded such prodigious results, if their students had 
 been linked to their chains of deduction from the as- 
 sumptions and speculations of the last century ? ' 
 
 But the reply is that the method which Mr. Cohn 
 suggests was tried in physical science and failed. 
 And it is very remarkable that he should not have 
 remembered it as he speaks of Lord Bacon, for the 
 method which he suggests is exactly that which Lord 
 Bacon himself followed, and owing to the mistaken 
 nature of which he discovered nothing. The in- 
 vestigation into the nature of heat in the .A* 
 Organum is exactly such a collection of facts as Mr. 
 Cohn suggests, but nothing comes of it. As Mr. 
 Jevons well says, ' Lord Bacon's notion of scientific
 
 ENGLISH POLITICAL ECONOMY 19 
 
 method was that of a kind of scientific book-keeping. 
 Facts were to be indiscriminately gathered from 
 every source, and posted in a kind of ledger from 
 which would emerge in time a clear balance of truth. 
 It is difficult to imagine a less likely way of arriving 
 at discoveries.' And yet it is precisely that from 
 which, mentioning Bacon's name, but not forewarned 
 by his experience, Mr. Cohn hopes to make them. 
 
 The real plan that has answered in physical 
 science is much simpler. The discovery of a law of 
 nature is very like the discovery of a murder. In 
 the one case you arrest a suspected person, and in 
 the other you isolate a suspected cause. When 
 Newton, by the fall of the apple, or something else, 
 was led to think that the attraction of gravitation 
 would account for the planetary motions, he took 
 that cause by itself, traced out its effects by abstract 
 mathematics, and so to say, found it ' guilty,' he dis- 
 covered that it would produce the phenomenon under 
 investigation. In the same way Geology has been re- 
 volutionised in our own time by Sir Charles Lyell. He 
 for the first time considered the effects of one particular 
 set of causes by themselves. He showed how large 
 a body of facts could be explained on the hypothesis 
 ' that the forces now operating upon and beneath the 
 earth's surface are the same both in kind and degree 
 
 c 2
 
 20 THE POSTULATES OF 
 
 as those which, at remote epochs, have worked out 
 geological changes.' He did not wait to begin his 
 inquiry till his data about all kinds of strata, or even 
 about any particular kind, were complete ; he took 
 palpable causes as he knew them, and showed how 
 many facts they would explain ; he spent a long and 
 most important life in fitting new facts into an ab- 
 stract and youthful speculation. Just so in an in- 
 stance which has made a literature and gone the round 
 of the world. Mr. Darwin, who is a disciple of Lyell, 
 has shown how one vera causa, 'natural selection,' 
 would account for an immense number of the facts of*" 
 nature ; for how many, no doubt, is controverted, but, 
 as is admitted, for a very large number. And this he 
 showed by very difficult pieces of reasoning which very 
 few persons would have thought of, and which most 
 people found at first not at all easy to comprehend. 
 The process by which physical science has become 
 what it is, has not been that of discarding abstract 
 speculations, ba* of working out abstract specula- 
 tions. The most important known laws of nature 
 the laws of motion the basis of the figures in the 
 ' Nautical Almanack ' by which every ship sails, are 
 difficult and abstract enough, as most of us found to 
 our cost in our youth. 
 
 There is no doubt a strong tendency to revolt
 
 ENGLISH POLITICAL ECONOMY 21 
 
 against abstract reasoning. Human nature has a 
 strong ' factish ' element in it. The reasonings of the 
 Principia are now accepted. But in the beginning 
 they were ' mere crotchets of Mr. Newton's ; ' Flam- 
 stead, the greatest astronomical discoverer of his day 
 the man of facts, par excellence so called them ; 
 they have irresistibly conquered ; but at first even 
 those most conversant with the matter did not 
 believe them. I do not claim for the conclusions of 
 English Political Economy the same certainty as for 
 the laws of motion.' But I say that the method by 
 which they have been obtained is the same, and that 
 the difference in the success of the two investigations 
 largely comes from this that the laws of wealth are 
 the laws of a most complex phenomenon which you 
 can but passively observe, and on which you cannot 
 try experiments for science' sake, and that the laws 
 of motion relate to a matter on which you can 
 experiment, and which is comparatively simple in 
 itself. 
 
 And to carry the war into the enemy's country, 
 I say also that the method proposed by Mr. Cohn, the 
 ' all case ' method is impossible. When I read the 
 words ' all the facts of English banking,' I cannot but 
 ask of what facts is Mr. Cohn thinking. Banking in 
 England goes on growing, multiplying, and changing,
 
 22 THE POSTULATES OF 
 
 as the English people itself goes on growing, multiply- 
 ing, and changing. The facts of it are one thing to-day 
 and another to-morrow ; nor at one moment does any 
 one know them completely. Those who best know 
 many of them will not tell them or hint at them ; gradu- 
 ally and in the course of years they separately come to 
 light, and by the time they do so, for the most part, 
 another crop of unknown ones has accumulated. If 
 we wait to reason till the * facts ' are complete, we 
 shall wait till the human race has expired. I think 
 that Mr. Cohn, and those who think with him, are 
 too ' bookish ' in this matter. They mean by having 
 all the ' facts ' before them, having all the printed 
 facts, all the statistical tables. But what has been said 
 of Nature is true of Commerce. ' Nature,' says Sir 
 Charles Lyell, ' has made it no part of her concern to 
 provide a record of her operations for the use of men ; ' 
 nor does trade either only the smallest of fractions 
 of actual transactions is set down so that investigation 
 can use it. Literature has been called the ' fragment 
 of fragments,' and in the same way statistics are the 
 ' scrap of scraps.' In real life scarcely any one knows 
 more than a small part of what his neighbour is doing, 
 and he scarcely makes public any of that little, or of 
 what he does himself. A complete record of commer- 
 cial facts, or even of one kind of such facts, is the
 
 ENGLISH POLITICAL ECONOMY 23 
 
 completest of dreams. You might as well hope for 
 an entire record of human conversation. 
 
 There is also a second antagonistic method to that 
 of English Political Economy, which, by contrast, I 
 will call the l single case ' method. It is said that 
 you should analyse each group of facts separately 
 that you should take the panic of 1866 separately, 
 and explain it ; or, at any rate, the whole history of 
 Lombard Street separately, and explain it. And this 
 is very good and very important ; but it is no 
 substitute for a preliminary theory. You might as 
 well try to substitute a corollary for the proposition 
 on which it depends. The history of a panic is the 
 history of a confused conflict of many causes ; and 
 unless you know what sort of effect each cause is 
 likely to produce, you cannot explain any part of 
 what happens. It is trying to explain the bursting 
 of a boiler without knowing the theory of steam. Any 
 history of similar phenomena like those of Lombard 
 Street could not be usefully told, unless there was a 
 considerable accumulation of applicable doctrine 
 before existing. You might as well try to write the 
 ' life ' of a ship, making as you went along the theory 
 of naval construction. Clumsy dissertations would 
 run all over the narrative and the result would be 
 a perfect puzzle.
 
 24 THE POSTULATES OF 
 
 I have been careful not to use in this discussion 
 of methods the phrase which is offcenest used, viz., 
 the Historical method, because there is an excessive 
 ambiguity in it. Sometimes it seems what I have 
 called the Enumerative, or, ' all case ' method ; some- 
 times the ' single case ' method ; a most confusing 
 double meaning, for by the mixture of the two the 
 mind is prevented from seeing the defects of either. 
 And sometimes it has other meanings, with which, 
 as I shall show, I have no quarrel, but rather much 
 sympathy. Rightly conceived, the Historical method 
 is no rival to the abstract method rightly conceived. 
 
 This conclusion is confirmed by a curious circum- 
 stance. At the very moment that our Political 
 Economy is objected to in some quarters as too ab- 
 stract, in others an attempt is made to substitute for 
 it one which is more abstract still. Mr. Stanley 
 Jevons, and M. Walras, of Lausanne, without com- 
 munication, and almost simultaneously, have worked 
 out a ' mathematical ' theory of Political Economy ; 
 and any one who thinks what is ordinarily taught in 
 England objectionable, because it is too little con- 
 crete in its method, and looks too unlike life and 
 business, had better try the new doctrine, which he 
 will find to be much worse on these points than the 
 old.
 
 ENGLISH POLITICAL ECONOMY 25 
 
 But I shall be asked, Do you then say that 
 English Political Economy is perfect ? surely it is 
 contrary to reason that so much difficulty should 
 be felt in accepting a real science properly treated ? 
 At the first beginning no doubt there are difficulties 
 in gaining a hearing for all sciences, but English 
 Political Economy has long passed out of its first 
 beginning ? Surely, if there were not some intrinsic 
 defect, it would have been firmly and coherently 
 established, just as others are ? 
 
 In this reasoning there is evident plausibility, 
 and I answer that, in my judgment, there are three 
 defects in the mode in which Political Economy has 
 been treated in England, which have prevented 
 people from seeing what it really is, and from prizing 
 it at its proper value. 
 
 First, It has often been put forward, not as a 
 theory of the principal causes affecting wealth in 
 certain societies, but as a theory of the principal, 
 sometimes even of all, the causes affecting wealth in 
 every society. And this has occasioned many and 
 strong doubts about it. Travellers fresh from the 
 sight, and historians fresh from the study, of peculiar 
 and various states of society, look with dislike and 
 disbelief on a single set of abstract propositions 
 which claim, as they think, to be applicable to all
 
 26 THE POSTULATES OF 
 
 such societies, and to explain a most important part 
 of most of them. I cannot here pause to say how 
 far particular English Economists have justified this 
 accusation ; I only say that, taking the whole body 
 of them, there is much ground for it, and that in 
 almost every one of them there is some ground. No 
 doubt almost every one every one of importance 
 has admitted that there is a 'friction' in society 
 which counteracts the effect of the causes treated of. 
 But in general they leave their readers with the 
 idea that, after all, this friction is but subordinate ; 
 that probably in the course of years it may be 
 neglected ; and, at any rate, that the causes assigned 
 in the science of Political Economy, as they treat it, 
 are the main and principal ones. Now I hold that 
 these causes are only the main ones in a single kind 
 of society a society of grown-up competitive com- 
 merce, such as we have in England ; that it is only 
 in such societies that the other and counteracting 
 forces can be set together under the minor head of 
 ' friction ; ' but that in other societies these other 
 causes in some cases one, and in some another 
 are the most effective ones, and that the greatest 
 confusion arises if you try to fit on tm-economic 
 societies the theories only true of, and only proved 
 as to, economic ones. In my judgment, we need
 
 ENGLISH POLITICAL ECONOMY 27 
 
 not that the authority of our Political Economy 
 should be impugned, but that it should be minimised ; 
 that we should realise distinctly where it is estab- 
 lished, and where not; that its sovereignty should 
 be upheld, but its frontiers marked. And until this 
 is done, I am sure that there will remain the same 
 doubt and hesitation in many minds about the science 
 that there is now. 
 
 Secondly, I think in consequence of this defect 
 of conception Economists have been far more abstract, 
 and in consequence much more dry, than they need 
 have been. If they had distinctly set before them- 
 selves that they were dealing only with the causes of 
 wealth in a single set of societies, they might have 
 effectively pointed their doctrines with facts from 
 those societies. But, so long as the vision of universal 
 theory vaguely floated before them, they shrank from 
 particular illustrations. Real societies are plainly so 
 many and so unlike, that an instance from one kind 
 does not show that the same thing exists in other 
 societies ; it rather raises in the mind a presumption 
 that it does not exist there ; and therefore speculators 
 aiming at an all-embracing doctrine refrain from 
 telling cases, because those cases are apt to work in 
 unexpected ways, and to raise up the image not only 
 of the societies in which the tenet illustrated is
 
 28 THE POSTULATES OF 
 
 true, but also of the opposite group in which it is 
 false. 
 
 Thirdly, It is also in consequence, as I imagine, 
 of this defective conception of their science, that 
 English Economists have not been so fertile as they 
 should have been in verifying it. They have been 
 too content to remain in the ' abstract,' and to shrink 
 from concrete notions, because they could not but 
 feel that many of the most obvious phenomena of 
 many nations did not look much like their abstrac- 
 tions. Whereas in the societies with which the 
 science is really concerned, an almost infinite harvest 
 of verification was close at hand, ready to be gathered 
 in ; and because it has not been used, much con- 
 fidence in the science has been lost, and it is thought 
 ' to be like the stars which give no good light because 
 they are so high.' 
 
 Of course this reasoning implies that the bounda- 
 ries of this sort of Political Economy are arbitrary, 
 and might be fixed here or there. But this is already 
 implied when it is said that Political Economy is an 
 abstract science. All abstractions are arbitrary ; they 
 are more or less convenient fictions made by the 
 mind for its own purposes. An abstract idea means a 
 concrete fact or set of facts minus something thrown 
 away. The fact or set of facts were made by nature ;
 
 ENGLISH POLITICAL ECONOMY 29 
 
 but how much you will throw aside of them and how 
 much you will keep for consideration you settle for 
 yourself. There may be any number of political 
 economies according as the subject is divided off in 
 one way or in another, and in this way all may be 
 useful if they do not interfere with one another, or 
 attempt to rule further than they are proved. 
 
 The particular Political Economy which I have 
 been calling the English Political Economy is that 
 of which the first beginning was made by Adam 
 Smith. But what he did was much like the rough 
 view of the first traveller who discovers a country ; 
 he saw some great outlines well, but he mistook 
 others and left out much. It was Ricardo who made 
 the first map ; who reduced the subjects into con- 
 secutive shape, and constructed what you can call a 
 science. Few greater efforts of mind have been 
 made, and not many have had greater fruits. From 
 Ricardo the science passed to a whole set of minds 
 James Mill, Senior, Torrens, Macculloch, and 
 others, who busied themselves with working out his 
 ideas, with elaborating and with completing them. 
 For five-and-twenty years the English world was 
 full of such discussions. Then Mr. J. S. Mill the 
 Mr. Mill whom the present generation know so well, 
 and who has had so much influence,- -shaped with
 
 30 THE POSTULATES OF 
 
 masterly literary skill the confused substance of 
 those discussions into a compact whole. He did not 
 add a great deal which was his own, and some oi 
 what is due to him does not seem to me of great 
 value. But he pieced the subjects together, showed 
 where what one of his predecessors had done had 
 fitted on to that of another, and adjusted this science 
 to other sciences according to the notions of that 
 time. To many students his book is the Alpha and 
 Omega of Political Economy ; they know little of 
 what was before, and imagine little which can come 
 aftsr in the way of improvement. But it is not 
 given to any writer to occupy such a place. Mr. Mill 
 would have been the last to claim it for himself. He 
 well knew that, taking his own treatise as the 
 standard, what he added to Political Economy was 
 not a ninth of what was due to Ricardo, and that for 
 much of what is new in his book he was rather the 
 Secretaire de la Redaction, expressing and formu- 
 lating the current views of a certain world, than 
 producing by original thought from his own brain. 
 And his remoteness from mercantile life, and I 
 should say his enthusiastic character, eager after 
 things far less sublunary than money, made him 
 little likely to give finishing touches to a theory of 
 ' the great commerce.' In fact he has not done so ;
 
 ENGLISH POLITICAL ECONOMY 31 
 
 much yet remains to be done in it as in all sciences. 
 Mr. Mill, too, seems to me open to the charge of 
 having widened the old Political Economy either too 
 much or not enough. If it be, as I hold, a theory 
 proved of, and applicable to, particular societies only, 
 much of what is contained in Mr. Mill's book should 
 not be there ; if it is, on the contrary, a theory holding 
 good for all societies, as far as they are concerned 
 with wealth, much more ought to be there, and 
 much which is there should be guarded and limited. 
 English Political Economy is not a finished and com- 
 pleted theory, but the first lines of a great analysis 
 which has worked out much, but which still leaves 
 much unsettled and unexplained. 
 
 There is nothing capricious, we should observe, 
 in this conception of Political Economy, nor, though 
 it originated in England, is there anything specially 
 English in it. It is the theory of commerce, as 
 commerce tends more and more to be when capital 
 increases and competition grows. England was the 
 first or one of the first countries to display these 
 characteristics in such vigour and so isolated as to 
 suggest a separate analysis of them, but as the 
 world goes on, similar characteristics are being 
 evolved in one society after another. A similar 
 money market, a similar competing trade based on
 
 32 THE POSTULATES OF 
 
 large capital, gradually tends to arise in all countries. 
 As ' men of the world ' are the same everywhere, 
 so ' the great commerce ' is the same everywhere. 
 Local peculiarities and ancient modifying circum- 
 stances fall away in both cases ; and it is of this one 
 and uniform commerce which grows daily, and which 
 will grow, according to every probability, more and 
 more, that English Political Economy aspires to be 
 the explanation. 
 
 And our Political Economy does not profess to 
 prove this growing world to be a good world far 
 less to be the best. Abroad the necessity of con- 
 testing socialism has made some writers use the 
 conclusions brought out by our English science for 
 that object. But the aim of that science is far more 
 humble ; it says these and these forces produce these 
 and these effects, and there it stops. It does not 
 profess to give a moral judgment on either ; it 
 leaves it for a higher science, and one yet more 
 difficult, to pronounce what ought and what ought 
 not to be. 
 
 The first thing to be done for English Political 
 Economy, as I hold, is to put its aim right. So long 
 as writers on it do not clearly see, and as readers do 
 not at all see, the limits of what they are analysing, 
 the result will not satisfy either. The science will
 
 ENGLISH POLITICAL ECONOMY 33 
 
 continue to seem what to many minds it seems now, 
 proved perhaps, but proved in nubibus', true, no 
 doubt, somehow and somewhere, but that somewhere 
 a ierra incognita, and that somehow an unknown 
 quantity. As a help in this matter I propose to take 
 the principal assumptions of Political Economy one 
 by one, and to show, not exhaustively, for that would 
 require a long work, but roughly, where each is true 
 and where it is not. We shall then find that our 
 Political Economy is not a questionable thing of 
 unlimited extent, but a most certain and useful thing 
 of limited extent. By marking the frontier of our 
 property we shall learn its use, and we shall have a 
 positive and reliable basis for estimating its value.
 
 34 THE POSTULATES OF 
 
 I. 
 
 THE TRANSFERABILITY OF LABOUR. 
 
 THE first assumption which I shall take is that 
 which is perhaps often er made in our economic 
 reasonings than any other, namely, that labour (mas- 
 culine labour, I mean) and capital circulate readily 
 within the limits of a nation from employment to 
 employment, leaving that in which the remuneration 
 is smaller and going to that in which it is greater. 
 No assumption can be better founded, as respects 
 such a country as England, in such an economic 
 state as our present one. A rise in the profits of 
 capital, in any trade, brings more capital to it with 
 us now-a-days I do not say quickly, for that would 
 be too feeble a word, but almost instantaneously. If, 
 owing to a high price of corn, the corn trade on a 
 sudden becomes more profitable than usual, the bill- 
 cases of bill-brokers and bankers are in a few days 
 stuffed with corn-bills that is to say, the free 
 capital of the country is by the lending capitalists,
 
 ENGLISH POLITICAL ECONOMY 35 
 
 the bankers and bill-brokers, transmitted where it is 
 most wanted. When the price of coal and iron rose 
 rapidly a few years since, so much capital was found 
 to open new mines and to erect new furnaces that 
 the profits of the coal and iron trades have not yet 
 recovered it. In this case the influence of capital 
 attracted by high profits was not only adequate but 
 much more than adequate : instead of reducing these 
 profits only to an average level, it reduced them below 
 that level ; and this happens commonly, for the 
 speculative enterprise which brings in the new capital 
 is a strong, eager, and rushing force, and rarely stops 
 exactly where it should. Here and now a craving for 
 capital in a trade is almost as sure to be followed by 
 a plethora of it as winter to be followed by summer. 
 Labour does not flow so quickly from pursuit to 
 pursuit, for man is not so easily moved as money 
 but still it moves very quickly. Patent statistical 
 facts show what we may call ' the tides ' of our 
 people. Between the years shown by the last census, 
 the years 1861 and 1871, the population of 
 
 The Northern counties increased 23 per cent. 
 Yorkshire 19 
 
 North-Western counties ., 14 
 London 16 
 
 D 2
 
 36 THE POSTULATES OF 
 
 While that of 
 
 The South- Western counties only increased 2 per cent. 
 Eastern 7 
 
 North Midland 9 
 
 though the fertility of marriages is equal. The 
 set of labour is steadily and rapidly from the counties 
 where there is only agriculture and little to be made 
 of new labour, towards those where there are many 
 employments and where much is to be made 
 of it. 
 
 No doubt there are, even at present in England, 
 many limitations to this tendency, both of capital 
 and of labour, which are of various degrees of im- 
 portance, and which need to be considered for various 
 purposes. There is a ' friction,' but still it is only a 
 ' friction ; ' its resisting power is mostly defeated, and 
 at a first view need not be regarded. But taking the 
 world, present and past, as a whole, the exact con- 
 trary is true ; in most ages and countries this tendency 
 has been not victorious but defeated ; in some cases, 
 it can scarcely be said even to have existed, much 
 less to have conquered. If you take at random a 
 country in history, the immense chances are that 
 you will find this tendency either to be altogether 
 absent, or not at all to prevail as it does with us now. 
 This primary assumption of our Political Economy is
 
 ENGLISH POLITICAL ECONOMY 37 
 
 not true everywhere and always, but only in a few 
 places and a few times. 
 
 The truth of it depends on the existence of con- 
 ditions which, taken together, are rarely satisfied. 
 Let us take labour first, as it is the older and 
 simpler of the two. First, there must be ' employ- 
 ments ' between which labour is to migrate ; and 
 this is not true at all of the primitive states of 
 society. We are used to a society which abounds 
 in felt wants that it can satisfy, and where there 
 are settled combinations of men trades, as we call 
 them each solely occupied in satisfying some one 
 of them. But in primitive times nothing at all like 
 this exists. The conscious wants of men are few, 
 the means of supplying them still fewer, and the 
 whole society homogeneous one man living much 
 as another. Civilisation is a shifting mixture of 
 many colours, but barbarism was and is of a dull 
 monotony, hardly varying even in shade. 
 
 A picture or two of savage tribes brings this 
 home to the mind better than abstract words. Let 
 us hear Mr. Catlin's description of a favourite North 
 American tribe, with which he means us to be much 
 pleased : ' The Mandans, like all other tribes, live 
 lives of idleness and leisure, and of course devote a 
 great deal of time to their amusements, of which
 
 38 THE POSTULATES OF 
 
 they have a great variety. Of these dancing is one 
 of the principal, and may be seen in a variety of 
 forms: such as 'the buffalo dance, the boasting dance, 
 the begging dance, the scalp dance, and a dozen other 
 dances, all of which have their peculiar characters 
 and meanings and objects.' 
 
 Then he describes the 'starts and jumps' of 
 these dances and goes on : ' Buffaloes, it is well 
 known, are a sort of roaming creatures congregating 
 occasionally in huge masses, -and strolling away about 
 the country from east to west or from north to south, 
 or just where their whims or fancies may lead them ; 
 and the Mandans are sometimes by this means most 
 unceremoniously left without anything to eat, and 
 being a small tribe and unwilling to risk their lives 
 by going far from home in the face of their more 
 powerful enemies, are oftentimes left almost in a 
 state of Starvation. In any emergency of this kind 
 every man musters and brings out of his lodge his 
 mask (the skin of a buffalo's head with the horns on), 
 which he is obliged to keep in readiness for the 
 occasion ; and then commences the buffalo dance of 
 which I have spoken, which is held for the purpose 
 of making "buffalo come," as they term it of in- 
 ducing the buffalo herds to change the direction of 
 their wanderings, and bend their course towards the
 
 ENGLISH POLITICAL ECONOMY 39 
 
 Mandan village and graze about on the beautiful hills 
 and bluffs in its vicinity, where the Mandans can 
 shoot them down and cook them as they want them 
 for food. For the most part of the year the young 
 warriors and hunters by riding out a mile or two 
 from the village can kill meat in abundance ; and 
 sometimes large herds of these animals may be seen 
 grazing in full view of the village. There are other 
 seasons also when the young men have ranged about 
 the country, as far as they are willing to risk their 
 lives on account of their enemies, without finding 
 meat. This sad intelligence is brought back to the 
 chiefs and doctors, who sit in solemn council and 
 consult on the most expedient measures to be taken 
 until they are sure to decide the old and only ex- 
 pedient " which has never failed." This is the buffalo 
 dance, which is incessantly continued till " buffalo 
 come," and which the whole village by relays of 
 dancers keeps up in succession. And when the buffa- 
 loes are seen, there is a brisk preparation for the 
 chase a great hunt takes place. The choicest 
 pieces of the carcase are sacrificed to the Great 
 Spirit, and then a surfeit or a carouse. These dances 
 have sometimes been continued for' two or three 
 weeks until the joyful moment when buffaloes made
 
 40 THE POSTULATES OF 
 
 their appearance. And so they " never fail" as the 
 village thinks, to bring the buffaloes in.' 
 
 Such is the mode of gaming the main source of 
 existence, without which the tribe would starve. 
 And as to the rest we are told : ' The principal 
 occupations of the women in this village consist in 
 procuring wood and water, in cooking, dressing 
 robes and other skins, in drying meat and wild fruits, 
 and raising maize.' 
 
 In this attractive description there is hardly any 
 mention of male labour at all ; the men hunt, fight, 
 and amuse themselves, and the women do all the rest. 
 
 And in the lowest form of savage life, in the stone 
 age, the social structure must have been still more 
 uniform, for there were still less means to break or 
 vary it. The number of things which can be made 
 with a flint implement is much greater than one would 
 have imagined, and savages made more things with 
 it than anyone would make now. Time is nothing 
 in the savage state, and protracted labour, even with 
 the worst instrument, achieves much, especially 
 when there are no other means of achieving anything. 
 But there is no formal division of employments no 
 cotton trade, no iron trade, no woollen trade. There 
 are beginnings of a division, of course, but as a rule, 
 everyone does what he can at everything.
 
 ENGLISH POLITICAL ECONOMY ' 41 
 
 In much later times the same uniformity in the 
 structure of society still continues. We all know 
 from childhood how simple is the constitution of a 
 pastoral society. As we see it in the Pentateuch it 
 consists of one family, or a group of families, possess- 
 ing flocks and herds, on which, and by which, they 
 live. They have no competing employments ; no 
 alternative pursuits. What manufactures there are 
 are domestic, are the work of women at all times, 
 and of men, of certain men, at spare times. No 
 circulation of labour is then conceivable, for there is 
 no circle ; there is no group of trades round which 
 to go, for the whole of industry is one trade. 
 
 Many agricultural communities are exactly 
 similar. The pastoral communities have left the life 
 of movement, which is essential to a subsistence on 
 the flocks and herds, and have fixed themselves on 
 the soil. But they have hardly done more than 
 change one sort of uniformity for another. They 
 have become peasant proprietors combining into a 
 village, and holding more or less their land in 
 common, but having no pursuit worth mentioning, 
 except tillage. The whole of their industrial energy 
 domestic clothes-making and similar things ex- 
 cepted is absorbed in that. 
 
 No doubt in happy communities a division of
 
 42 THE POSTULATES OF 
 
 labour very soon and very naturally arises, and at 
 first sight we might expect that with it a circulation 
 of labour would begin too. But an examination of 
 primitive society does not confirm this idea ; on the 
 contrary, it shows that a main object of the social 
 organisation which then exists, is to impede or pre- 
 vent that circulation. And upon a little thought 
 the reason is evident. There is no paradox in the 
 notion ; early nations were not giving up an ad- 
 vantage which they might have had ; the good 
 which we enjoy from the circulation of labour was 
 unattainable by them ; all they could do was to 
 provide a substitute for it a means of enjoying the 
 advantages of the division of labour without it, 
 and this they did. We must cany back our minds 
 to the circumstances of primitive society before we 
 can comprehend the difficulty under which they 
 laboured, and see how entirely it differs from any 
 which we have to meet now. 
 
 A free circulation of labour from employment 
 to employment involves an incessant competition 
 between man and man, which' causes constant 
 quarrels, some of which, as we see in the daily 
 transactions of trades unions, easily run into vio- 
 lence ; and also a constant series of new bargains, 
 one differing from another, some of which are sure
 
 ENGLISH POLITICAL ECONOMY 43 
 
 to be broken, or said to be so, which makes disputes 
 of another kind. The peace of society was exposed 
 in early times to greater danger from this source 
 than now, because the passions of men were then 
 less under control than now. ' In the simple and 
 violent times,' as they have been well called, ' which 
 we read of in our Bibles,' people struck one another, 
 and people killed one another, for very little matters 
 as we should think them. And the most efficient 
 counteractive machinery which now preserves that 
 peace, then did not exist. We have now in the 
 midst of us a formed, elaborate, strong government, 
 which is incessantly laying down the best rules 
 which it can find to prevent trouble under changing 
 circumstances, and which constantly applies a sharp 
 pervading force running through society to prevent 
 and punish breaches of those rules.' We are so 
 familiar with the idea of a government inherently 
 possessing and daily exercising both executive and 
 legislative power, that we scarcely comprehend the 
 possibility of a nation existing without them. But 
 if we attend to the vivid picture given in the Book 
 of Judges of &n early stage in Hebrew society, we 
 shall see that there was then absolutely no legislative 
 power, and only a faint and intermittent executive 
 power. The idea of law-making, the idea of making
 
 44 THE POSTULATES OF 
 
 new rules for new circumstances, would have been as 
 incomprehensible to Gideon or Abimelech as the 
 statutes at large to a child of three years old. They 
 and their contemporaries thought that there was an 
 unalterable law consecrated by religion and con- 
 firmed by custom which they had to obey, but they 
 could not have conceived an alteration of it except 
 as an act of wickedness a worshipping of Baal. 
 And the actual coercive power available for punish- 
 ing breaches of it was always slight, and often 
 broken. One 'judge,' or ruler, arises after another, 
 sometimes in one tribe and place, and sometimes in 
 another, and exercises some kind of jurisdiction, but 
 his power is always limited ; there is no organisation 
 for transmitting it, and often there is no such person 
 no king in Israel whatever. 
 
 The names and the details of this book may or may 
 not be historical, but its spirit is certainly true. The 
 peace of society then reposed on a confused senti- 
 ment, in which respect for law, as such at least law 
 in our usual modern sense was an inconsiderable 
 element, and of which the main components were a 
 coercive sense of ingrained usage, which kept men 
 from thinking what they had not before thought, and 
 from doing what they had not before done ; a vague 
 horror that something, they did not well know what,
 
 ENGLISH POLITICAL ECONOMY 45 
 
 might happen if they did so ; a close religion which 
 filled the air with deities who were known by in- 
 herited tradition, and who hated uninherited ways ; 
 and a submission to local opinion inevitable when 
 family and tribe were the main props of life, when 
 there really was ' no world without Verona's walls,' 
 when every exile was an outcast, expelled from what 
 was then most natural, and scarcely finding an alter- 
 native existence. 
 
 No doubt this sentiment was in all communities 
 partially reinforced by police. Even at the time of 
 the ' Judges,' there were no doubt ' local authorities,' 
 as we should now say, who forcibly maintained some 
 sort of order even when the central power was weak- 
 est. But the main support of these authorities was 
 the established opinion ; they had no military to call 
 in, no exterior force to aid them ; if the fixed senti- 
 ment of the community was not strong enough to 
 aid them, they collapsed and failed. But that fixed 
 sentiment would have been at once weakened, if not 
 destroyed, by a free circulation of labour, which is a 
 spring of progress that is favourable to new ideas, 
 that brings in new inventions, that prevents the son 
 being where his father was, that interrupts the tra- 
 dition of generations and breaks inherited feeling. 
 Besides causing new sorts of quarrels by creating
 
 46 THE POSTULATES OF 
 
 new circumstances and new occasions, this change 
 of men from employment to employment decomposes 
 the moral authority which alone in this state of 
 society can prevent quarrels or settle them. Accord- 
 ingly, the most successful early societies have for- 
 bidden this ready change as much as possible, and 
 have endeavoured, as far as they could, to obtain 
 the advantages of the division of labour without it. 
 Sir Henry Maine, to whom this subject so peculiarly 
 belongs, and who has taught us so much more on it 
 than any one else, shall describe the industrial ex- 
 pedients of primitive society as he has seen them 
 still surviving in India : ' There is,' he says, ' yet 
 another feature of the modern Indian cultivating 
 group which connects them with primitive western 
 communities of the same kind. I have several times 
 spoken of them as organised and self-acting. They, 
 in fact, include a nearly complete establishment of 
 occupations and trades for enabling them to continue 
 their collective life without assistance from any per- 
 son or body external to them. Besides the headmen 
 or council exercising quasi-judicial, quasi-legislative 
 power, they contain a village police, now recognised 
 and paid in certain provinces by the British Govern- 
 ment. They include several families of hereditary 
 traders; the blacksmith, the harness-maker, the
 
 ENGLISH POLITICAL ECONOMY 47 
 
 shoemaker. The Brahmin is also found for the per- 
 formance of ceremonies, and even the dancing-girl 
 for attendance at festivities. There is invariably a 
 village accountant, an important person among an 
 unlettered population, so important, indeed, and so 
 conspicuous, that, according to reports current in 
 India, the earliest English functionaries engaged in 
 settlements of land were occasionally led by their 
 assumption that there must be a single proprietor 
 somewhere to mistake the accountant for the owner 
 of the village, and to record him as such in the 
 official register. But the person practising any one 
 of these hereditary employments is really a servant 
 of the community as well as one of its component 
 members. He is sometimes paid by an allowance in 
 grain, more generally by the allotment to his family 
 of a piece of land in hereditary possession. What- 
 ever else he may demand for the wares he produces 
 is limited by a fixed price very rarely departed 
 from.' 
 
 To no world could the free circulation of labour, 
 as we have it in England, and as we assume it in our 
 Political Economy, be more alien, and in none would 
 it have been more incomprehensible. In this case as 
 in many others, what seems in later times the most 
 natural organisation is really one most difficult to
 
 48 THE POSTULATES OF 
 
 create, and it does not arise till after many organisa- 
 tions which seem to our notions more complex have 
 preceded it and perished. The village association of 
 India, as Sir Henry Maine describes it, seems a much 
 more elaborate structure, a much more involved piece 
 of workmanship, than a common English village, 
 where everyone chooses his own calling, and where 
 there are no special rules for each person, and where 
 a single law rules all. But in fact our organisation 
 is the more artificial because it presupposes the per- 
 vading intervention of an effectual Government the 
 last triumph of civilisation, and one to which early 
 times had nothing comparable. In expecting what 
 we call simple things from early ages, we are in fact 
 expecting them to draw a circle without compasses, 
 to produce the results of civilisation when they have 
 not attained civilisation. 
 
 One instance of this want of simplicity in early 
 institutions, which has, almost more than any other, 
 impaired the free transit of labour, is the com- 
 plexity of the early forms of landholding. In a 
 future page I hope to say something of the general 
 effects of this complexity, and to compare it with the 
 assumptions as to ownership in land made by Eicardo 
 and others. I am here only concerned with it as 
 affecting the movement of men, but in this respect
 
 ENGLISH POLITICAL ECONOMY 49 
 
 its effect has been incalculable. As is now generally 
 known, the earliest form of landowning was not in- 
 dividual holding, but tribal owning. In the old 
 contracts of Englishmen with savages nothing was 
 commoner than for the king or chief to sell tracts of 
 land, and the buyers could not comprehend that 
 according to native notions he had no right to do so, 
 that he could not make a title to it, and that accord- 
 ing to those notions there was no one who could. 
 Englishmen in all land dealings looked for some 
 single owner, or at any rate some small number of 
 owners, who had an exceptional right over particular 
 pieces of land ; they could not conceive the supposed 
 ownership of a tribe, as in New Zealand, or of a 
 village in India, over large tracts. Yet this joint- 
 stock principle is that which has been by far the 
 commonest in the world, and that which the world 
 began with. And not without good reason. In the 
 early ages of society, it would have been impossible 
 to maintain the exclusive ownership of a few persons 
 in what seems at first sight an equal gift to all a 
 thing to which everyone has the same claim. There 
 was then no distinct government apart from and 
 above the tribe any more than among New Zea- 
 landers now. There was no compulsory agency 
 which could create or preserve exclusive ownership 
 
 E
 
 50 THE POSTULATES OF 
 
 of the land, even if it had been wished. And of 
 course it could not have been wished, for though 
 experience has now conclusively shown that such 
 exclusive ownership is desirable for and beneficial to 
 the nation as a whole, as well as to the individual 
 owner, no theorist would have been bold enough to 
 predict this beforehand. This monopoly is almost a 
 paradox after experience, and it would have seemed 
 monstrous folly before it. Indeed, the idea of a dis- 
 cussion of it, is attributing to people in the year 
 1000 B.C. the notions of people in the year 1800 A.D. 
 Common ownership was then irremediable and in- 
 evitable ; no alternative for it was possible, or would 
 then have been conceivable. But it is in its essence 
 opposed to the ready circulation of labour. Few 
 things fix a man so much as a share in a property 
 which is fixed by nature ; and common ownership, 
 wherever it prevails, gives the mass of men such a 
 share. 
 
 And there is another force of the same tendency 
 which does not act so widely, but which when it does 
 act is even stronger in many cases is omnipotent. 
 This is the disposition of many societies to crystallise 
 themselves into specialised groups, which are definite 
 units, each with a character of its own, and are 
 more or less strictly hereditary. Sir Henry Maine has
 
 ENGLISH POLITICAL ECONOMY 51 
 
 described to us liow in an Indian village the black- 
 smith is hereditary, and the harness-maker, and the 
 shoemaker, and this is natural, for every trade has 
 its secrets, which make a kind of craft or ' mystery ' 
 of it, and which must be learnt by transmission or 
 not at all. The first and most efficient kind of 
 apprenticeship is that by birth ; the father teaches 
 his son that by which he makes his living^ almost 
 without knowing it ; the son picks up the skill which 
 is in the air of the house, almost without feeling that 
 he is doing so. Even now we see that thene are city 
 families, and university and legal families, families 
 where a special kind of taste and knowledge are 
 passed on in each generation by tradition, and which 
 in each have in that respect an advantage over others. 
 In most ages most kinds of skilled labour have shown 
 a disposition to intensify this advantage by combina- 
 tion to form a bounded and exclusive- society, guild, 
 trades union, or whatever it may be called, which 
 keeps or tries to keep in each case to itself the rich 
 secret of the inherited art. And even when no 
 pains are taken, each special occupation, after it 
 gains a certain size, tends to form itself into a 
 separate group. Each occupation has certain peculiar 
 characteristics which help to success in it, and which, 
 therefore, it fosters and develops ; and in a subtle 
 
 E 2
 
 52 THE POSTULATES OF 
 
 way these traits collect together and form a group- 
 character analogous to a national character. The 
 process of caste-making is often thought to be an 
 old-world thing which came to an nd when certain 
 old castes were made and fixed before the dawn of 
 history. But in fact the process has been actively at 
 work in recent times, and has hardly yet died out. 
 Thus in Cashmere, where the division of castes is 
 already minute, Mr. Drew tells us that of the Batals 
 a class at the very bottom of the scale, ' whose 
 trade it is to remove and skin carcasses, and to cure 
 leather,' he has heard ' that there are two classes ; 
 so apt are communities in India to divide and to sub- 
 divide, to perpetuate differences, and to separate 
 rather than amalgamate. The higher Batals follow 
 the Mohammedan rules as to eating, and are allowed 
 some fellowship with the other Mohammedans. The 
 lower Batals eat carrion, and would not bear the 
 name of Mohammedans in the mouths of others, 
 though they might call themselves so.' Just so, Mr. 
 Hunter says that ' the Brahmans of Lower Bengal 
 bore to the Brahmans of Oudh the same relation that 
 the landed gentry of Canada or Australia bears to 
 the landed gentry of England. Each is an aristo- 
 cracy, both claim the title of esquire, but each is 
 composed of elements whose social history is widely
 
 ENGLISH POLITICAL ECONOMY 53 
 
 different, and the home aristocracy never regards the 
 successful settlers as equal in rank. The Brahmans 
 of the midland land went further ; they declared the 
 Brahmans of Lower Bengal inferior not only in the 
 social scale, but in religious capabilities. To this 
 day many of the north country Brahmans do not eat 
 with the Brahmans of the lower valley, and convicted 
 felons from the north-west will suffer repeated flog- 
 gings in jail, for contumacy, rather than let rice 
 cooked by a Bengal Brahman pass their lips.' Caste- 
 making is not a rare act, but a constantly occurring 
 act, when circumstances aid it, and when the human 
 mind is predisposed to it. 
 
 One great aid to this process is the mutual 
 animosity of the different groups. l What one nation 
 hates,' said Napoleon, e is another nation ; ' just so, 
 what one caste hates is another caste : the marked 
 characteristics of each form by their difference a 
 certain natural basis for mutual dislike. There is an 
 intense disposition in the human mind as you may 
 see in any set of schoolboys to hate what is unusual 
 and strange in other people, and each caste supplies 
 those adjoining it with a conspicuous supply of what 
 is unusual. And this hatred again makes each caste 
 more and more unlike the other, for everyone wishes 
 as much as possible to distinguish himself from the
 
 54 THE POSTULATES OF 
 
 neighbouring hated castes by excelling in the pecu- 
 liarities of his own caste, and by avoiding theirs. 
 
 In the ancient parts of the world these contrasts 
 of group to group are more or less connected for the 
 most part with contrasts of race. Very often the 
 origin of the -caste the mental tendency which made 
 its first members take to its special occupation was 
 some inborn peculiarity of race ; and at other times, 
 as successive waves of conquest passed over the 
 country, each race of conquerors connected themselves 
 most with, and at last were absorbed in, the pre- 
 existing kind of persons which they most resembled, 
 and frequently in so doing hardened into an absolute 
 caste what was before a half-joined and incipient 
 group. 
 
 Each conquest, too, tends to make a set of out- 
 casts generally from the worst part of the previous 
 population and these become ' hewers of wood and 
 drawers of water ' to the conquerors that is, they are 
 an outlying and degraded race, which is not admitted 
 to compete or mix with the others, and which becomes 
 more degraded from feeling that it is thus inferior, 
 and from being confined to the harder, baser, and 
 less teaching occupations. And upon these unhappy 
 groups the contempt and hatred of the higher ones 
 tend to concentrate themselves, and, like most strong
 
 ENGLISH POLITICAL ECONOMY 55 
 
 sentiments in the early world, these feelings find for 
 themselves a religious sanction. To many villages in 
 India, Sir Henry Maine says, there are attached a 
 class of ' outsiders ' who never enter the village, or 
 only enter reserved portions of it, who are looked on 
 as ' essentially impure,' ' whose very touch is avoided 
 as contaminating.' These poor people are more or 
 less thought to be ' accursed ; ' to have some taint 
 which shows that the gods hate them, and which 
 justifies men in hating them too, and in refusing to 
 mix with them. 
 
 The result of these causes is, that many ancient 
 societies are complex pieces of patchwork bits of 
 contrasted human nature, put side by side. They 
 have a variegated complexity, which modern civilised 
 States mostly want. And there must clearly have 
 been an advantage in this organisation of labour to 
 speak of it in modern phrase though it seems to us 
 now so strange, or it would not have sprung up 
 independently in many places and many ages, and 
 have endured in many for long tracts of years. This 
 advantage, as we have seen, was the gain of the 
 division of labour without the competition which with 
 us accompanies it, but which the structure of society 
 was not then hard enough to bear. 
 
 No doubt we must not push too far this notion of
 
 56 THE POSTULATES OF 
 
 the rigidity of caste. The system was too rigid to 
 work without some safety-valves, and in every age 
 and place where that system prevails, some have been 
 provided. Thus in India we are told ' a Brahmana 
 unable to subsist by his duties may live by the duty 
 of a soldier ; if he cannot get a subsistence by either 
 of these employments, he may apply to tillage and 
 attendance on cattle, or gain a competence by traffic, 
 avoiding certain commodities. A Ghatriya in distress 
 may subsist by all these means, but he must not have 
 recourse to the highest functions. A Vaisya unable 
 to subsist by his own duties may descend to the servile 
 acts of a Sudra ; and a Sudra, not finding employ- 
 ment by waiting on men of the higher classes, may 
 subsist by handicrafts ; besides the particular occu- 
 pations assigned to the mixed classes, they have the 
 alternative of following that profession which regularly 
 belongs to the class from which they derive their 
 origin on the mother's side ; ' and so on, without end. 
 And probably it is through these supplementary 
 provisions, as I may call them, that the system of 
 caste ultimately breaks down and disappears. It 
 certainly disappeared in ancient Egypt when the 
 compact Roman Government was strong enough to 
 do without it, and when a change of religion had 
 removed the sanctions which fixed and consecrated
 
 ENGLISH POLITICAL ECONOMY 57 
 
 it. The process is most slow, as our experience in 
 India proves. The saying that ' La Providence a ses 
 aises dans le temps ' has rarely elsewhere seemed so 
 true. Still, the course is sure, and the caste system 
 will in the end pass away, whenever an efficient 
 substitute has been made for it, and the peace of 
 industry secured without it. 
 
 But it would be a great mistake to believe that, 
 whenever and wherever there is an efficient external 
 government capable of enforcing the law, and of 
 making the competitive migration of labour safe 
 and possible, such migration of itself at once begins. 
 There is, in most cases, a long and dreary economic 
 interval to be passed first. In many countries, the 
 beginning of such migration is for ages retarded by 
 the want of another requisite the want of external 
 security. We have come in modern Europe to look 
 on nations as if they were things indestructible at 
 least, on large nations. But this is a new idea, and 
 even now it has to be taken with many qualifications. 
 But in many periods of history it has not been true 
 at all ; the world was in such confusion, that it was 
 almost an even chance whether nations should con- 
 tinue, or whether they should be conquered and 
 destroyed. In such times the whole energy of the 
 community must be concentrated on its own defence j
 
 58 THE POSTULATES OF 
 
 all that interferes with it must be sacrificed, if it is to 
 live. And the most efficient mode of defending it 
 is generally a feudal system ; that is, a local militia 
 based on the land, where each occupier of the soil 
 has certain services to render, of which he cannot 
 divest himself, and which he must stay on certain 
 fields to perform when wanted. In consequence the 
 races of men which were possessed of an organisation 
 easily adapting itself to the creation of such a militia, 
 have had a striking tendency to prevail in the strug- 
 gle of history. ' The feudal system,' says Sir George 
 Campbell, on many accounts one of our most compe- 
 tent judges, { I believe to be no invention of the 
 Middle Ages, but the almost necessary result of the 
 hereditary character of the Indo-Germanic institu- 
 tions, when the tribes take the position of dominant 
 conquerors. They form, in fact, an hereditary army, 
 with that gradation of fealty from the commander to 
 the private soldier which is essential in military opera- 
 tions. Accordingly, we find that among all the tribes 
 of Indo-Germanic blood which have conquered and 
 ruled Indian provinces, the tendency is to establish a 
 feudal system extremely similar to that which prevailed 
 in Europe. In Rajpootana the system is still in full 
 force. The Mahrattas and Sikhs had both established 
 a similar system. In my early days it existed in
 
 ENGLISH POLITICAL ECONOMY 59 
 
 great perfection in some parts of the Cis-Sutlej 
 States.' And where the system is most developed, 
 at the lowest point of the scale there is always an 
 immovable class serfs, villeins regardants, or what 
 we choose to call them who do not fight themselves, 
 who perhaps are too abject in spirit, or perhaps are 
 of too dubious fidelity to be let have arms, but who 
 cultivate the ground for those who really fight. The 
 soldier class, rooted to the land by martial tenure, 
 has beneath it a non-soldier class even more rooted 
 to the soil by the tenure of tilling it. I need not 
 say how completely such a system of military defence, 
 and such a system of cultivation, are opposed to the 
 free transit of labour from employment to employ- 
 ment. Where these systems are perfectly developed, 
 this transit is not so much impeded as prevented. 
 
 And there is a yet more pervading enemy of 
 the free circulation of labour. This is slavery. We 
 must remember that our modern notion that slavery 
 is an exceptional institution, is itself an exceptional 
 idea ; it is the product of recent times and recent 
 philosophies. No ancient philosopher, no primitive 
 community, would have comprehended what we 
 meant by it. That human beings are divided into 
 strong and weak, higher and lower, or what is 
 thought to be such ; and that the weak and inferior
 
 60 THE POSTULATES OF 
 
 ought to be made to serve the higher and better, 
 whether they would wish to do so or not, are settled 
 axioms of early thought. Whatever might be the 
 origin and whatever might be the fate of other in- 
 stitutions, the ancient world did not doubt that 
 slavery at all events existed ' by the law of nature,' 
 and would last as long as men. And it interferes 
 with the ready passage of labour from employment 
 to employment in two ways. First, it prevents what 
 we call for this purpose * employments ' that is, 
 markets where labour may be bought, mostly in 
 order that the produce may be sold. Slavery, on the 
 contrary, strengthens and extends domestic manufac- 
 tures where the produce is never sold at all, where it 
 is never intended to be so, but where each household 
 by its own hands makes what it wants. In a slave- 
 community so framed, not only is there little quick 
 migration of free labour, but there are few fit places 
 for it to migrate between ; there are no centres for 
 the purchase of much of it ; society tends to be 
 divided into self-sufficing groups, buying little from 
 the exterior. And at a later stage of industrial 
 progress slavery arrests the movement of free labour 
 still more effectively by providing a substitute. It 
 is, then, the slave labour which changes occupation, 
 and not the free labour. Just as in the present day
 
 ENGLISH POLITICAL ECONOMY 61 
 
 a capitalist who wants to execute any sort of work 
 hires voluntary labour to do it, so in a former stage 
 of progress he would buy slaves in order to do it. 
 He might not, indeed, be able to buy enough slaves 
 enough suitable slaves, that is, for his purpose. 
 The organisation of slavery has never been as effectual 
 as our present classified system of free labour, and 
 from intrinsic defects never can be. But it does 
 develop earlier. Just when the system of free labour 
 might develop if it were let alone, the imperfect 
 substitute of slavery steps in and spoils it. When 
 free labour still moves slowly and irregularly, and 
 when frequent wars supply the slave-market with 
 many prisoners, the slave-market is much the easiest 
 
 *, 
 
 resource of the capitalist. So it is when a good 
 slave-trade keeps it well filled. The capitalist finds 
 it better to buy than to hire, for there are in this 
 condition of things comparatively many men to be 
 bought and comparatively few to be hired. And the 
 result takes unexpected directions. ' What the 
 printing press is in modern times,' says a German 
 writer, 'that slavery was in ancient times. 5 And 
 though this may be a little exaggerated, it is certain 
 that in ancient Rome books were produced much 
 cheaper and in much greater number than they were 
 for hundreds of years afterwards. When there was
 
 62 THE POSTULATES OF 
 
 a demand for a book, extra copying-slaves could be 
 ' turned on ' to multiply it in a way which in later 
 times, when slavery had ceased, was impossible, and 
 which is only surpassed by the way in which addi- 
 tional compositors are applied to works in demand 
 now. And political philosophers proposed to obtain 
 revenue from this source, and to save taxation. 
 ' Suppose,' says Xenophon, ' that the Athenian State 
 should buy twelve thousand slaves, and should let 
 them out to work in the mines at an obolus a head, 
 and suppose that the whole amount annually thus 
 received should be employed in the purchase of new 
 slaves, who should again in the same way yield the 
 same income, and so on successively ; the State 
 would then by these means in five or six years possess 
 six thousand slaves,' which would yield a large 
 income. The idea of a compound interest investment 
 in men, though abhorrent to us, seemed most natural 
 to Xenophon. And almost every page of the classics 
 proves how completely the civilisation then existing 
 was based on slavery in one or other of its forms 
 that of skilled labour (the father of Demosthenes 
 owned thirty-three cutlers and twenty coachmakers) 
 or unskilled, that might either be worked by the 
 proprietor or let out, as he liked. Even if this 
 system had only economic consequences, it must
 
 ENGLISH POLITICAL ECONOMY 63 
 
 have prevented the beginning of freely moving labour, 
 for it is much handier than such a system can be at 
 its outset. And as we know, the system has moral 
 effects working in the same way even more powerful, 
 for it degrades labour by making it the slave-mark, 
 and makes the free labourer whether the proletaire 
 of ancient cities, or the ' mean white ' of American 
 plantations one of the least respectable and the 
 least workmanlike of mankind. 
 
 Happily this full-grown form of slavery is exceed- 
 ingly frail. We have ourselves seen in America how 
 completely it collapses at an extrinsic attack ; how 
 easy it is to destroy it, how impossible to revive it. 
 And much of the weakness of ancient civilisation was 
 also so caused. Any system which makes the mass 
 of a society hate the constitution of that society, 
 must be in unstable equilibrium. A small touch will 
 overthrow it, and scarcely any human power will 
 re-establish it. And this is the necessary effect of 
 capitalistic slavery, for it prevents all other labourers, 
 makes slaves the ' many ' of the community, and fills 
 their mind with grief and hatred. Capitalistic slavery 
 is, as history shows, one of the easiest things to efface, 
 as domestic slavery is one of the hardest. But 
 capitalistic slavery has vitally influenced most of the 
 greatest civilisations ; and as domestic slavery has
 
 64 THE POSTULATES OF 
 
 influenced nearly all of them, the entire effect of the 
 two has been prodigious. 
 
 We see then that there are at least four conditions 
 to be satisfied before this axiom of our English 
 Political Economy is true within a nation. Before 
 labour can move easily and as it pleases from employ- 
 ment to employment there must be such employments 
 for it to move between ; there must be an effectual 
 Government capable of maintaining peace and order 
 during the transition, and not requiring itself to be 
 supported by fixity of station in society as so many 
 governments have been ; the nation must be capable 
 of maintaining its independent existence against 
 other nations without a military system dependent 
 on localised and immovable persons ; and there must 
 be no competing system of involuntary labour limiting 
 the number of employments or moving between them 
 more perfectly than contemporary free labour. These 
 are not indeed all the conditions needful for the truth 
 of the axiom, but the others can be explained better 
 when some other matters have been first discussed.
 
 ENGLISH POLITICAL ECONOMY 65 
 
 II. 
 
 THE TRANSFERABILITY OF CAPITAL. 
 
 IN my last paper I discussed the fundaniental 
 principle of English Political Economy, that within 
 the limits of a nation labour migrates from employ- 
 ment to employment, as increased remuneration 
 attracts or decreased remuneration repels it ; and now 
 I have to treat the corresponding principle as to 
 capital, that it flows or tends to flow to trades of which 
 the profits are high, that it leaves or tends to leave 
 those in which the profits are low, and that in conse- 
 quence there is a tendency a tendency limited and 
 contracted, but still a tendency to an equality of 
 profits through commerce. 
 
 First, this requires such a development of the 
 division of labour as to create what we call ' trade,' 
 that is to say, a set of persons working for the wants 
 of others, and providing for their own wants by the 
 return-commodities received from those others. But 
 this development has only been gradually acquired
 
 66 THE POSTULATES OF 
 
 by the human race. Captain Cook found some Aus- 
 tralian tribes to whom the idea of traffic seemed 
 unknown. They received what was given them 
 readily, but they received it as a present only; 
 they seemed to have no notion of giving anything in 
 lieu of it. The idea of barter an idea usually so 
 familiar to the lower races of men appeared never 
 to have dawned on these very low ones. But among 
 races in such a condition there is no change of trades 
 as capital becomes more and more profitable in any 
 one. The very conception comes long after. Every- 
 one works for himself at everything ; and he always 
 works most at what he likes most for the time ; as 
 he changes his desires, so far as he can he changes 
 his labour. Whenever he works he uses the few 
 tools he has, the stone implements, the charred 
 wood, the thongs of hide, and other such things, in 
 the best way he can ; a hundred savages are doing 
 so at once, some in one way, some in another, and 
 these are no doubt ' shiftings of capital.' But there 
 is no computation of profit, as we now reckon profit, 
 on such shiftings. Profit, as we calculate, means 
 that which is over after the capital is replaced. But 
 a savage incapable of traffic does not make this cal- 
 culation as to his flints and his hides. The idea 
 could not even be explained to him.
 
 ENGLISH POLITICAL ECONOMY 67 
 
 Secondly, this comparison requires a medium in 
 which the profits can be calculated, that is, a money, 
 Supposing that in the flax trade profits are 5 per 
 cent., and that side by side in the cotton trade they 
 are 15 per cent., capital will now-a-days immediately 
 run from one to the other. And it does so because 
 those who are making much, try to: get more capital, 
 and those who are making little still more those 
 who are losing do not care to keep as much as they 
 have. But if there is no money to compute in, 
 neither will know what they are making, and- there- 
 fore the process of migration wants its motive, and 
 will not begin. The first sign of extra profit in a 
 trade not a conclusive, but a strongly presumptive 
 one is an extra high price in the article that trade 
 makes or sells; but this test fails altogether when 
 there is no ' money ' to sell in. And the debit side 
 of the account, the cost of production, is as difficult 
 to calculate when there is no common measure 
 between its items, or between the product, and any 
 of them. Political Economists have indeed an idea 
 of ' exchangeable value ' that is, of the number of 
 things which each article will exchange for and 
 they sometimes suppose a state of barter in which 
 people had this notion, and in which they calculated 
 the profit of a trade by deducting the exchangeable 
 
 F 2
 
 68 THE POSTULATES OF 
 
 value of the labour and commodities used in its pro- 
 duction from the value of the finished work. But 
 such a state of society never existed in reality. No 
 nation which was not clever enough to invent a 
 money, was ever able to conceive so thin and hard 
 an idea as ' exchangeable value.' Even now Mr. 
 Fawcett justly says that it puzzles many people, and 
 sends them away frightened from books on Political 
 Economy. In fact it is an ideal which those used to 
 money prices have framed to themselves. They see 
 that the price of anything, the money it fetches, is 
 equal to its ' purchasing power ' over things, and by 
 steadily attending they come to be able to think of 
 this ' purchasing power ' separately, and to call and 
 reason upon it as exchangeable value. But the idea 
 is very treacherous even to skilled minds, and even 
 now-a-days not the tenth part of any population could 
 ever take it in. As for the nations really in a state 
 of barter ever comprehending it, no one can imagine 
 it, for they are mostly unequal to easy arithmetic, 
 and some cannot count five. A most acute traveller 
 thus describes the actual process of bargaining among 
 savage nations as he saw it. 'In practice,' Mr. 
 Galton tells us of the Damaras, ' whatever they may 
 possess in their language, they certainly use no 
 numeral greater than three. When they wish to
 
 ENGLISH POLITICAL ECONOMY 69 
 
 express four they take to their fingers, which are 
 to them as formidable instruments of calculation as a 
 sliding rule is to an English schoolboy. They puzzle 
 very much after five, because no spare hand remains 
 to grasp and secure the fingers that are required for 
 " units." Yet they seldom lose oxen : the way in 
 which they discover the loss of one is not by the 
 number of the herd being diminished, but by the 
 absence of a face which they know. When bartering 
 is going on each sheep must be paid for separately. 
 Thus suppose two sticks of tobacco to be the rate of 
 exchange for one sheep, it would sorely puzzle a 
 Damara to take two sheep and give him four sticks. 
 I have done so, and seen a man first put two of the 
 sticks apart, and take a sight over them at one of 
 the sheep he was about to sell. Having satisfied 
 himself that that one was honestly paid for, and 
 finding to his surprise that exactly two sticks re- 
 mained in hand to settle the account for the other 
 sheep, he would be afflicted with doubts ; the trans- 
 action seemed too pat to be correct, and he would 
 refer back to the first couple of sticks, and then his 
 mind got hazy and confused, and wandered from one 
 sheep to the other, and he broke off the transaction 
 until two sticks were put into his hand and one 
 sheep driven away, and then the other two sticks
 
 70 THE POSTULATES OF 
 
 given him, and the second sheep driven a way.' Such 
 a delineation of primitive business speaks for itself, 
 and it is waste of space showing further that an 
 abstraction like ' value in exchange ' is utterly beyond 
 the reach of the real bartering peoples that a habit 
 of using money, and of computing in it, are necessary 
 preliminaries to comparisons of profits. 
 
 Unquestionably the most primitive community 
 can see if a pursuit utterly fails, or if it immensely 
 succeeds. The earliest men must have been eager in 
 making flint tools, for there are so many of them, and 
 no doubt they did not try to breed cattle where they 
 died. But there was in those days no adjusted com- 
 parison between one thing and another ; all pursuits 
 which anyhow suited went on then as they do among 
 savages now. 
 
 Money, too, is in this matter essential, or all but 
 essential, in another way. It is a form in which 
 capital is held in suspense without loss. The transfer 
 of capital from employment to employment is a matter 
 requiring consideration, consideration takes time, and 
 the capital must be somewhere during that time. 
 But most articles are bought at a risk ; they lose in 
 the process, and become second-hand ; an ordinary 
 person cannot get rid of them without receiving for 
 tliem less often much less than he gave. But
 
 ENGLISH POLITICAL ECONOMY 71 
 
 money is never ' second-hand ; ' it will always fetch 
 itself, and it loses nothing by keeping. No doubt 
 modern civilisation has invented some other forms of 
 property which are almost as good to hold as money. 
 Some interest-bearing securities, like Exchequer bills, 
 are so, and pay an interest besides. But these are 
 the creatures of money, so to say, and based upon it ; 
 they presuppose it, and would not be possible without 
 it. A community of pure barter, even if it could 
 reckon and compare profits, would not be able to move 
 capital accurately from one trade to another, for it 
 possesses no commodity which could, without risk of 
 loss that could not be calculated, be held idle during 
 the computation. 
 
 The refined means by which the movement is now 
 effected is one of the nicest marvels of our commercial 
 civilisation. The three principal of them are as 
 follows : 
 
 First, There is the whole of the loan fund of 
 the country lying in the hands of bankers and bill- 
 brokers, which moves in an instant towards a trade 
 that is unusually profitable, if only that trade can pro- 
 duce securities which come within banking rules. 
 Supposing the corn trade to become particularly good, 
 there are immediately twice the usual number of corn 
 bills in the bill-brokers' cases ; and if the iron trade,
 
 72 THE POSTULATES OF 
 
 then of iron bills. You could almost see the change 
 of capital, if you could look into the bill cases at dif- 
 ferent times. But what you could not see is the 
 mental skill and knowledge which have made that 
 transfer, and without which it could not have been 
 made safely. Probably it would be new to many 
 people if stated plainly ; but a very great many of the 
 strongest heads in England spend their minds on little 
 else than on thinking whether other people will pay 
 their debts. The life of Lombard Street bill-brokers 
 is almost exclusively so spent. Mr. Chapman, one of 
 the partners in Overend, Gurney, and Co., once rather 
 amused a parliamentary committee by speaking with 
 unction and enthusiasm of ' paper of the very finest 
 quality,' by which he meant paper on which the best 
 promises were written. Bills of exchange are only 
 undertakings to pay money, and the most likely to be 
 paid are, in the market phrase, of the ' finest quality,' 
 and the less likely of inferior quality. The mind of 
 a man like Mr. Chapman, if it could be looked into, 
 would be found to be a graduating machine marking 
 in an instant the rises and falls of pecuniary likeli- 
 hood. Each banker in his own neighbourhood is the 
 same ; he is a kind of ' solvency-meter,' and lives by 
 estimating rightly the ' responsibility of parties,' as 
 he would call it. And the only reason why the
 
 ENGLISH POLITICAL ECONOMY 73 
 
 London bill-broker has to do it on a greater scale is 
 that, being in the great centre, he receives the surplus 
 savings not of one district but of many, which find 
 no means of employment there. He is thus become 
 the greatest and most just measurer of moneyed 
 means and moneyed probity which the world has ever 
 seen ; to reduce it to its lowest terms, he knows that 
 more people will pay more debts than anyone who 
 now is, or ever before was, in the world. And the 
 combined aggregate of these persons is a prepared 
 machine ready to carry capital in any direction. The 
 moment any set of traders want capital, the best of 
 them, those whose promises are well known to be 
 good, get it in a minute, because it is lying ready in 
 the hands of those who know, and who live by know- 
 ing, that they are fit to have it. 
 
 Secondly, In modern England, there is a great 
 speculative fund which is always ready to go into 
 anything which promises high profits. The largest 
 part of this is composed of the savings of men of 
 business. When, as in 1871, the profits of many 
 trades suddenly become much greater than usual, the 
 Stock Exchange instantly becomes animated ; there is 
 at once a market for all kinds of securities, so long as 
 they promise much, either by great interest or by rise 
 of prices. Men of business who are used to a high
 
 74 THE POSTULATES OF 
 
 percentage of profit in their own trade despise 3 or 4 
 per cent., and think that they ought to have much 
 more. In consequence there is no money so often 
 lost as theirs ; there is an idea that it is the country 
 clergyman and the ignorant widow who mostly lose 
 by bad loans and bad companies. And no doubt they 
 often do lose. But I believe that it is oftener still 
 men of business, of slight education and of active 
 temperament, who have made money rapidly, and 
 who fancy that the skill and knowledge of a special 
 trade which have enabled them to do so, will also 
 enable them to judge of risks, and measure con- 
 tingencies out of that trade ; whereas, in fact, there 
 are no persons more incompetent, for they think they 
 know everything, when they really know almost 
 nothing out of their little business, and by habit and 
 nature they are eager to be doing. So much of their 
 money as comes to London is in greater jeopardy 
 almost than any other money. But there is a great 
 deal which never comes there, and which those who 
 make it are able to put out in pushing their own trade 
 and in extending allied trades. The very defects 
 which make the trader so bad a judge of other things 
 make him an excellent judge of these, and he is ready 
 and daring, and most quick to make use of what he 
 knows. Each trade in modern commerce is surrounded
 
 ENGLISH POLITICAL ECONOMY 75 
 
 by subsidiary and kindred trades, which familiarise 
 the imagination with it, and make its state known ; 
 as soon, therefore, as the conspicuous dealers in that 
 trade are known to be doing particularly well, the 
 people in the surrounding trades say, l Why should 
 not we do as well too ? ' and they embark their capital 
 in it sometimes, of course, wrongly, but upon the 
 whole wisely and beneficially. In an animated busi- 
 ness world like ours, these inroads into the trades 
 with largest gains by the nearest parts of the specu- 
 lative fund are incessant, and are a main means of 
 equalising profits. 
 
 Lastly, There is the obvious tendency of young 
 men starting in business to go into the best-paying 
 business, or what is thought to be so at that time. 
 This, in the best cases, also acts mainly on the allied 
 and analogous trades. Little good, for the most 
 part, comes of persons who have been brought up on 
 one side of the business world going quite to the 
 other side of farmers' sons going to cotton-spinning, 
 or of lacemakers' sons going into shipping. Each 
 sort of trade has a tradition of its own, which is 
 never written, probably could not be written, which 
 can only be learned in fragments, and which is best 
 taken in early life, before the mind is shaped and the 
 ideas fixed. From all surrounding trades there is an
 
 76 THE POSTULATES OF 
 
 incessant movement of young men with new money 
 into very profitable trades, which steadily tends to 
 reduce that profitableness to the common average. 
 
 I am more careful than might seem necessary to 
 describe the entire process of equalisation at length, 
 because it is only by so doing that we can see how 
 complex it is, and how much development in society 
 it requires ; but as yet the description is not com- 
 plete, or nearly so. We have only got as far as the 
 influx of money into new trades, but this is but a 
 small part of what is necessary. Trades do not live 
 by money alone ; money by itself will not make any- 
 thing. What, then, do we mean when we speak of 
 ' capital ' as flowing from employment to employ- 
 ment? 
 
 Some writers speak as if the only thing which 
 transfers of capital effect is a change in the sort of 
 labour that is set in motion ; and no doubt this is 
 so far true, that all new employments of capital do 
 require new labour. Human labour is the primitive 
 moving force, and you must have more of it if you 
 want more things done ; but the description, though 
 true, is most incomplete, as the most obvious facts 
 in the matter prove. When new capital comes into 
 cotton-spinning, this means not only that new money 
 is applied to paying cotton operatives, but also that
 
 ENGLISH POLITICAL ECONOMY 77 
 
 new money is applied to buying new spinning 
 machines; these spinning machines are made by 
 other machines, as well as labour ; and the second lot 
 of machines again by a third set, as well as other 
 labour. In the present state of the world, nothing 
 is made by brute labour ; everything is made by aids 
 to labour; and when capital goes from trade to 
 trade, it settles not only which sort of labour shall 
 be employed, but which sort of existing machines 
 should be first used up, which sort of new ones 
 made, and how soon those new ones shall be worn 
 out, not only in the selected trade, but in an endless 
 series subsidiary to it. 
 
 To understand the matter fully, we must have a 
 distinct view of what on this occasion and on this 
 matter we mean by 'capital.' The necessity of a 
 science like Political Economy is that it must borrow 
 its words from common life, and therefore from a 
 source where they are not used accurately, and can- 
 not be used accurately. When we come to reason 
 strictly on the subjects to which they relate, we must 
 always look somewhat precisely to their meaning; 
 and the worst is that it will not do, if you are writ- 
 ing for the mass of men, even of educated men, to 
 use words always in the same sense. Common words 
 are so few, that if you tie them down to one meaning
 
 78 THE POSTULATES OF 
 
 they are not enough for your purpose ; they do their 
 work in common life because they are in a state 
 of incessant slight variation, meaning one thing in 
 one discussion and another a little different in the 
 next. If we were really to write an invariable 
 nomenclature in a science where we have so much 
 to say of so many things as we have in Political 
 Economy, we must invent new terms, like the 
 writers on other sciences. Mr. De Morgan said (in 
 defence of some fresh-coined substantive), ' Mathe- 
 matics must not want words because Cicero did not 
 know the differential calculus.' But a writer on 
 Political Economy is bound not perhaps by Cicero 
 but by his readers. He must not use words out 
 of his own head, which they never heard of; they 
 will not read him if he does. The best way, as we 
 cannot do this, is to give up uniform uses to write 
 more as we do in common life, where the context is a 
 sort of unexpressed ' interpretation clause,' showing 
 in what sense words are used ; only, as in Political 
 Economy we have more difficult things to speak of 
 than in common conversation, we must take more 
 care, give more warning of any change, and at 
 times write out the ' interpretation clause ' for that 
 page or discussion, lest there should be any mistake. 
 I know that this is difficult and delicate \vork ;
 
 ENGLISH POLITICAL ECONOMY 79 
 
 and all I have to say in defence of it is that in 
 practice it is safer than the competing plan of 
 inflexible definitions. Anyone who tries to express 
 varied meanings on complex things with a scanty 
 vocabulary of fastened senses, will find that his style 
 grows cumbrous without being accurate, that he has 
 to use long periphrases for common thoughts, and 
 that after all he does not come out right, for he is 
 half his time falling back into the senses which fit 
 the case in hand best, and these are sometimes one, 
 sometimes another, and almost always different from 
 his ' hard and fast ' sense. In such discussions we 
 should learn to vary our definitions as we want, just 
 as we say, ' let x, y, z mean ' now this, and now that, 
 in different problems ; and this, though they do not 
 always avow it, is really the practice of the clearest 
 and most effective writers. 
 
 By capital, then, in this discussion, we mean an 
 aggregate of two unlike sorts of artificial commodities 
 co-operative things which help labour, and re- 
 munerative things which pay for it. The two have 
 this in common, that they are the produce of human 
 labour, but they differ in almost everything else if 
 you judge of them by the visual appearance. Between 
 a loaf of bread and a steam-engine, between a gimlet 
 and a piece of bacon, there looks as if there were really
 
 80 THE POSTULATES OF 
 
 nothing in common, except that man manufactured 
 both. But, though the contrast of externalities is so 
 great, the two have a most essential common pro- 
 perty which is that which Political Economy fixes 
 upon; the possible effect of both is to augment 
 human wealth. Labourers work because they want 
 bread ; their work goes farther if they have good tools ; 
 and therefore economists have a common word for 
 both tools and bread. They are both capital, and 
 other similar things are so > too. 
 
 And here we come across another of the inevit- 
 able verbal difficulties of Political Economy. Taking 
 its words from common life, it finds that at times 
 and for particular discussions it must twist them in 
 a way which common people would never think of. 
 The obvious resemblances which we deal with in life 
 dictate one mode of grouping objects in the mind, 
 and one mode of speaking of them ; the latent but 
 more powerful resemblance which science finds would 
 dictate another form of speech and mental grouping. 
 And then what seems a perverse use of language 
 must be made. Thus, for the present discussion, the 
 acquired skill of a labourer is capital, though no one 
 in common life would call it so. It is a productive 
 thing made by man, as much as any tool ; it is, in 
 fact, an immaterial tool which the labourer uses just
 
 ENGLISH POLITICAL ECONOMY 81 
 
 as he does a material one. It is co-operative capital 
 as much as anything can be. And then, again, 
 the most unlikely-looking and luxurious articles are 
 capital if they reward and stimulate labour. Artisans 
 like the best of rabbits, the best bits of meat, green 
 peas, and gin ; they work to get these ; they would 
 stay idle if they were not incited by these, and 
 therefore these are ' capital.' Political Economy 
 (like most moral sciences) requires not only to 
 change its definitions as it moves from problem 
 to problem, but also for some problems to use 
 definitions which, unless we see the motive, seem 
 most strange ; just as in Acts of Parliament the 
 necessity of the draftsman makes a very technical 
 use of words necessary if he is to do his work neatly, 
 and the reader will easily be most mistaken and 
 confused if he does not heed the dictionary which 
 such Acts contain. 
 
 Remembering all this, we see at once that it is 
 principally remunerative capital which is transferable 
 from employment to employment. Some tools and 
 instruments are, no doubt, used in many trades, 
 especially the complex ones ; knives, hammers, 
 twine, and nails can be used, are used, in a thou- 
 sand. The existing stock of these is transferred 
 bodily when capital migrates from an employment. 
 
 G
 
 82 ' THE POSTULATES OF 
 
 But, in general, as I have said before, the effect of 
 the migration on co-operative capital is to change 
 the speed with which the existing machines are 
 worked out, and the nature of the new machines 
 which are made ; the ' live skill ' of an artisan being 
 treated as a machine. On remunerative capital the 
 effect is simpler. As a rule, much the same com- 
 modities reward labour in different trades, and if one 
 trade declines and another rises, the only effect is to 
 change the labourer who gets these commodities ; or, 
 if the change be from a trade which employs little 
 skilled labour to one which employs much, then the 
 costly commodities which skilled labour wants will 
 be in demand, more of them will be made, and there 
 will be an increase of animation in all the ancillary 
 trades which help their making. 
 
 We see also more distinctly than before what we 
 mean by an ' employment.' We mean a group of 
 persons with fitting tools and of fitting skill paid by 
 the things they like. I purposely speak of ' tools ' 
 to include all machines, even the greatest, for I want 
 to fix attention on the fact that everything depends 
 on the effort of man, on the primary fruit of human 
 labour. Without this to start with, all else is use- 
 less. And I use it out of brevity to include such 
 things as coal and materials, which for any other
 
 ENGLISH POLITICAL ECONOMY 83 
 
 purpose no one would call so, but which are plainly 
 the same for what we have now to do with. 
 
 And ' employment ' in any large trade implies an 
 ' employer.' The capitalist is the motive power in 
 modern production, in the ' great commerce.' He 
 settles what goods shall be made, and what not ; 
 what brought to market, and what not. He is the 
 general of the army ; he fixes on the plan of opera- 
 tions, organises its means, and superintends its 
 execution. If he does this well, the business 
 succeeds and continues ; if he does it ill, the busi- 
 ness fails and ceases. Everything depends on the 
 correctness of the unseen decisions, on the secret 
 sagacity of the determining mind. And I am 
 careful to dwell on this, though it is so obvious, and 
 though no man of business would think it worth 
 mentioning, because books forget it, because the 
 writers of books are not familiar with it. They 
 are taken with the conspicuousness of the working 
 classes ; they hear them say, it is we who made 
 Birmingham, we who made Manchester, but you 
 might as well say that it was the ' compositors ' who 
 made the ' Times ' newspaper. No doubt the crafts- 
 men were necessary to both, but of themselves they 
 were insufficient to either. The printers do not 
 settle what is to be printed ; the writers even do not 
 
 o 2
 
 84 THE POSTULATES OF 
 
 settle what is to be written. It is the editor who 
 settles everything. He creates the ' Times ' from 
 day to day ; on his power of hitting the public fancy 
 its prosperity and power rest; everything depends 
 on his daily bringing to the public exactly what the 
 public wants to buy ; the rest of Printing-House 
 Square all the steam-presses, all the type, all the 
 staff, clever as so many of them, are, are but imple- 
 ments which he moves. In the very same way the 
 capitalist edits the ' business ; ' it is he who settles 
 what commodities to offer to the public ; how and 
 when to offer them, and all the rest of what is 
 material. This monarchical structure of money 
 business increases as society goes on, just as the 
 corresponding structure of war business does, ami 
 from the same causes. In primitive times a battle 
 depends as much on the prowess of the best fighting 
 men, of some Hector or some Achilles, as on the 
 good science of the general. But now-a-days it i-^ a 
 man at the far end of a telegraph wire a Count 
 Moltke, with his head over some papers, who sees 
 that the proper persons are slain, and who secures 
 the victory. So in commerce. The primitive 
 weavers are separate men with looms apiece, the 
 primitive weapon-makers separate men with flints 
 apiece ; there is no organised action, no planning,
 
 ENGLISH POLITICAL ECONOMY 85 
 
 contriving, or foreseeing in either trade, except on 
 the smallest scale ; but now the whole is an affair of 
 money and management ; of a thinking man in a 
 dark office, computing the prices of guns or worsteds. 
 No doubt in some simple trades these essential cal- 
 culations can be verified by several persons by a 
 board of directors, or something like it. But these 
 trades, as the sagacity of Adam Smith predicted, 
 and as painful experience now shows, are very few ; 
 the moment there comes anything difficult or com- 
 plicated, the Board ' does not see its way,' and then, 
 except it is protected by a monopoly, or something 
 akin to monopoly, the individual capitalist beats it 
 out of the field. But the details of this are not to 
 my present purpose. The sole point now material is 
 that the transference of capital from employment to 
 employment involves the pre-existence of employ- 
 ment, and this pre-existence involves that of ' em- 
 ployers : ' of a set of persons one or many, though 
 usually one who can effect the transfer of that 
 capital from employment to employment, and can 
 manage it when it arrives at the employment to 
 which it is taken. 
 
 And this management implies knowledge. In 
 all cases successful production implies the power of 
 adapting means to ends, of making what you want
 
 86 THE POSTULATES OF 
 
 as you want it. But after the division of labour has 
 arisen, it implies much more than this : it then re- 
 quires, too, that the producer should know the wants 
 of the consumer, a man whom mostly he has never 
 seen, whose name probably he does not know, very 
 likely even speaking another language, living accord- 
 ing to other habits, and having scarcely any point of 
 intimate relation to the producer, except a liking for 
 what he produces. And if a person who does not 
 see is to suit another who is not seen, he must have 
 much head-knowledge, an acquired learning in 
 strange wants as well as of the mode of making 
 things to meet them. A person possessing that 
 knowledge is necessary to the process of transferring 
 capital, for he alone can use it when the time comes, 
 and if he is at the critical instant not to be found, 
 the change fails, and the transfer is a loss and not a 
 gain. 
 
 This description of the process by which capital 
 is transferred and of what we mean by it, may seem 
 long, but it will enable us to be much shorter in 
 showing the conditions which that transfer implies. 
 First, it presupposes the existence of transferable 
 labour, and I showed before how rare transferable 
 labour is in the world, and how very peculiar are its 
 prerequisites. You cannot have it unless you have a
 
 ENGLISH POLITICAL ECONOMY 87 
 
 strong government, which will keep peace in the 
 delicate line on which people are moving. You must 
 not have fixed castes in inherited occupations, which 
 at first are ways and means to do without a strong 
 government, but which often last on after it begins ; 
 you must not have a local army which roots men to 
 fixed spots for military purposes, and therefore very 
 much to fixed pursuits ; and you must not have 
 slavery, for this is an imperfect substitute for free 
 transferable labour, which effectually prevents the 
 existence of it. Complete freedom of capital pre- 
 supposes complete freedom of labour, and can only 
 be attained when and where this exists. 
 
 No doubt capital begins to move much before 
 the movement of labour is perfect. The first great 
 start of it commences with a very unpopular person, 
 who is almost always spoken evil of when his name 
 is mentioned, but in whom those who know the 
 great things of which he has been the forerunner will 
 always take a great interest. It is the money-lender 
 in a primitive community, whose capital is first 
 transferred readily from occupation to occupation. 
 Suppose a new crop, say cotton, becomes suddenly 
 lucrative, immediately the little proprietors throng to 
 the money-lenders to obtain funds to buy cotton. 
 A new trade is begun by his help, which could not
 
 88 THE POSTULATES OF 
 
 have been begun without him. If cotton ceases to 
 be a good crop, he ceases to lend to grow it, his 
 spare capital either remains idle or goes to some 
 other loan, perhaps to help some other crop which 
 has taken the place of cotton in profitableness. 
 There is no more useful trade in early civilisation, 
 though there is none which has such a bad name, 
 and not unnaturally, for there is none which then 
 produces more evil as well as good. Securities for 
 loans, such as we have them in developed commerce, 
 are rarely to be met with in early times ; the land 
 the best security as we think it is then mostly held 
 upon conditions which prevent its being made in 
 that way available ; there is little movable property 
 of much value, and peasants who work the land have 
 scarcely any of that little ; the only thing they can 
 really pledge is their labour themselves. But then 
 when the loan is not paid, ' realising the security ' is 
 only possible by making the debtor a slave, and as 
 this is very painful, the creditor who makes much 
 use of it is hated. Even when the land can be 
 pledged, peasant proprietors never think that it 
 ought really to be taken if the debt for which it is 
 pledged is not paid. They think that the land is 
 still theirs, no matter how much has been lent them 
 upon it, or how much they have neglected to pay.
 
 ENGLISH POLITICAL ECONOMY 89 
 
 But odious as the ' usurer ' thus becomes, he is most 
 useful really, and the beginner of the movement 
 which creates the ' great commerce.' 
 
 Another condition which precedes the free trans- 
 fer of labour the first prerequisite of the free transfer 
 of capital is slavery, and within its limits this is 
 free enough; indeed, more free than anything else 
 similar, for you have not to consult the labourer 
 at all, as in all other organisations you must. The 
 capitalist buys the slave and sets him to do, not what 
 the slave likes, but what he himself likes. I can 
 imagine that a theorist would say beforehand that this 
 was the best way of getting things done, though not 
 for the happiness of the doer. It makes the ' working 
 group ' into an army where the general is absolute, 
 and desertion penal. But so subtle is the nature 
 of things, that actual trial shows this structure of 
 society not to be industrially superior to all others, 
 but to be very ineffectual indeed, and industrially 
 inferior to most of them. The slave will not work 
 except he is made, and therefore he does little ; he 
 is none the better, or little the better, if he does his 
 work well than if he does it ill, and therefore he 
 rarely cares to do it very well. On a small scale, 
 and under careful supervision, a few slaves carefully 
 trained may be made to do very good work, but on
 
 90 THE POSTULATES OF 
 
 any large scale it is impossible. A gang of slaves 
 can do nothing but what is most simple and easy, 
 and most capable of being looked after. The South- 
 ern States of America, for some years before their 
 rebellion, were engaged in trying on the greatest 
 scale and the most ample means the world has ever 
 seen the experiment how far slavery would go ; and 
 the result is easily stated ; they never could ' make 
 brute force go beyond brute work.' 
 
 Next, in order that capital can be transferred, it 
 must exist and be at the disposal of persons who 
 wish to transfer it. This is especially evident as to 
 remunerative capital, which we have seen to be the 
 most transferable of all capital. But the earliest 
 wages-paying commodities the food and the neces- 
 saries which in simple communities the labourer 
 desires are accumulated by persons who want them 
 for their own use, and who will not part with them. 
 The ' untransferable ' labourer the labourer confined 
 to a single occupation in a primitive society saves 
 certain things for himself, and needs them for himself, 
 but he has no extra stock. He has no use, indeed, 
 for it. In a society where there is no transferable 
 labour, or need to hire, there is no motive, or almost 
 none, for an accumulation of wages-paying capital 
 which is to buy labour. The idea of it, simple as it
 
 ENGLISH POLITICAL ECONOMY 91 
 
 seems to us, is one of a much later age, like that in 
 which labour seeking to be hired is the commonest 
 of things, and therefore the commodities needed for 
 hiring it are among the commonest too. The means 
 of buying, and the thing bought, inevitably in such a 
 case as this grow together. 
 
 As to the other kind of capital that which aids 
 labour, the co-operative kind the scientific study of 
 savage tribes, which is so peculiar a feature of the 
 present world, has brought out its scantiness I 
 might say its meanness almost more distinctly than 
 it has brought out anything else. Sir John Lubbock, 
 one of our greatest instructors on this matter, tells us 
 the implements of the Australians are very simple. 
 ' They have no knowledge of pottery, and carry water 
 in skins, or in vessels made of bark. They are quite 
 ignorant of warm water, which strikes them with 
 great amazement.' Some of them carry ' a small bag 
 about the size of a moderate cabbage net, which is 
 made by laying threads, loop within loop, somewhat 
 in the manner of knitting used by our ladies to make 
 purses. This bag the man carries loose upon his back 
 by a small string, which passes over his head ; it 
 generally contains a lump or two of paint and resin, 
 some fish-hooks and lines, a shell or two out of which 
 these hooks are made, a few points of darts, and their
 
 92 'THE POSTULATES OF 
 
 usual ornaments, which include the whole worldly 
 treasure of the richest man among them.' All 
 travellers say that rude nations have no stock of 
 anything no materials lying ready to be worked 
 up, no idle tools waiting to be used ; the whole is a 
 * hand-to-mouth' world. And this is but another way 
 of saying that in such societies there is no capital of 
 this kind to be transferred. We said just now that 
 what we meant by transfer in such a case was a 
 change in the sort of stock the kind of materials, 
 the kind of machines, the kind of living things to be 
 used fastest and worn out quickest. But in these 
 poverty-stricken early societies there is substantially 
 no such stock at all. Every petty thing which there 
 exists is already being used for all its petty purposes, 
 and cannot be worked more quickly than it already 
 is, or be worn out more rapidly than it is being worn 
 out. 
 
 Next, this capital must be concentrated in 'trades,' 
 else it cannot be transferred from trade to trade for 
 the sake of profit, and it must be worked by a single 
 capitalist, or little group of capitalists, as the case 
 may be, else the trade will not yield profit. And 
 this, as has been explained, is not a universal feature 
 of all times, but a special characteristic of somewhat 
 advanced eras. And there must be the knowledge
 
 ENGLISH POLITICAL ECONOMY 93 
 
 capable of employing that capital a knowledge which 
 altogether differs in different trades. Now-a-days the 
 amount of the difference is a little disguised from us 
 because we see people with ' capital ' in various pur- 
 suits that is, who are traders in each and all of them. 
 But such persons could not do this unless they were 
 assisted by more specialised persons. The same 
 principle governs political administration. Sir George 
 Lewis, one of the most capable judges of it in our time, 
 has observed ' The permanent officers of a depart- 
 ment are the depositaries of its official tradition ; they 
 are generally referred to by the political head of the 
 office for information on questions of official prac- 
 tice, and knowledge of this sort acquired in one 
 department would be useless in another. If, for 
 example, the chief clerk of the criminal department 
 of the Home Office were to be transferred to the 
 Foreign Office, or to the Admiralty, the special 
 experience which he has acquired at the Home Office, 
 and which is in daily requisition for the guidance of 
 the Home Secretary, would be utterly valueless to 
 the Foreign Secretary, or to the First Lord of the 
 Admiralty. . . . Where a general superintendence is 
 required, and assistance can be obtained from sub- 
 ordinates, and where the chief qualifications are judg- 
 ment, sagacity, and enlightened political opinions,
 
 94 THE POSTULATES OF 
 
 such a change of offices is possible ; but as you 
 descend lower in the official scale, the speciality of 
 functions increases. The duties must be performed 
 in person, with little or no assistance, and there is 
 consequently a necessity for special knowledge and 
 experience. Hence the same person may be succes- 
 sively at the head of the Home Office, the Foreign 
 Office, the Colonial Office, and the Admiralty ; he 
 may be successively President of the Board of Trade, 
 and Chancellor of the Exchequer ; but to transfer an 
 experienced clerk from one office to another would be 
 like transferring a skilful naval officer to the army, or 
 appointing a military engineer officer to command a 
 ship of war.' And just so in mercantile business 
 there are certain general principles which are common 
 to all kinds of it, and a person can be of considerable 
 use in more than one kind if he understands these 
 principles, and has the proper sort of mind. But the 
 appearance of this common element is in commerce, 
 as in politics, a sign of magnitude, and primitive 
 commerce is all petty. In early tribes there is 
 nothing but the special man the clothier, the mason, 
 the weapon-maker. Each craft tried to be, and very 
 much was, a mystery except to those who carried it 
 on. The knowledge required for each was possessed 
 by few, kept secret by those few, and nothing else
 
 ENGLISH POLITICAL ECONOMY 95 
 
 was of use but this monopolised and often inherited 
 acquirement ; there was no ' general ' business know- 
 ledge. The idea of a general art of money-making is 
 very modern ; almost everything ancient about it is 
 individual and particular. Distance helped much in 
 this kind of speciality. ' To the great fair of Stour- 
 bridge,' in the south of England, there came, we are 
 told, besides foreign products, ' the woolpacks, which 
 then formed the riches of England, and were the 
 envy of outer nations. The Cornish tin-mine sent its 
 produce, stamped with the sign of the rich earl who 
 bought the throne of the German Empire, or of the 
 warlike prince who had won his spurs at Crecy, and 
 captured the French king at Poitiers. . . . Thither 
 came also salt from the springs of Worcestershire, as 
 well as that which had been gathered under the 
 summer sun from the salterns of the eastern coasts. 
 Here, too, might be found lead from the mines of 
 Derbyshire, and iron, either raw or manufactured, 
 from the Sussex forges.' In an age when locomotion 
 was tedious and costly, the mere distance of the 
 separate seats of industry tended to make separate 
 monopolies of them. Other difficulties of transfer- 
 ring capital were aggravated by the rarity and the 
 localisation of the knowledge necessary for carrying 
 it on.
 
 96 THE POSTULATES OF 
 
 Next, as we have seen, for the attraction of capital 
 from trade to trade, there must be a money in which 
 to calculate such profits, and a good money too. 
 Many media of interchange which have been widely 
 used in the world, and which are quite good enough 
 for many purposes, are quite unfit for this. Cattle, 
 for instance, which were certainly one of the first-used 
 kinds of money, and which have been said to have 
 been that most used, because what we call the primi- 
 tive ages lasted so long, are quite inadequate. They 
 are good enough for present bargains, but not for the 
 forward and backward-looking calculations of profit 
 and loss. The notation is not distinct enough for 
 accuracy. One cow is not exactly like another ; a 
 price list saying that so much raw cotton was worth 
 20 cows, and so much cotton worth 30 cows, would 
 not tell much for the purpose ; you could not be sure 
 what cows you would have to give or you would get. 
 There might be a ' loss by exchange ' which would 
 annihilate profit. Until you get good coined money, 
 calculations of profit and loss that could guide capital 
 are impossible. 
 
 Next, there must be the means of shifting 
 ' money,' which we analysed the loan fund, the 
 speculative fund, and the choice of employment by 
 young capitalists, or some of them. The loan fund
 
 97 
 
 on a small scale is, as we have seen, a very early 
 institution ; it begins in the primitive village almost 
 as soon as any kind of trade begins at all, and a per- 
 ception of its enormous value is one of the earliest 
 pieces of true economical speculation. ' In the 
 Athenian laws,' says Demosthenes, ' are many well- 
 devised securities for the protection of the creditor ; 
 for commerce proceeds not from the borrowers, but 
 from the lenders, without whom no vessel, no navi- 
 gator, no traveller could depart from port.' Even in 
 these days we could hardly put the value of discounts 
 and trade loans higher. But though the loan fund 
 begins so early in civilisation, and is prized so soon, 
 it grows very slowly ; the full development, modern 
 banking such as we are familiar with in England, 
 stops where the English language ceases to be spoken. 
 The peculiarity of that system is that it utilises all 
 the petty cash of private persons down nearly to the 
 end of the middle class. This is lodged with bankers 
 on running account, and though incessantly changing 
 in distribution, the quantity is nearly fixed on the 
 whole, for most of what one person pays out others 
 almost directly pay in ; and therefore it is so much 
 added to the loan fund which bankers have to use, 
 though, as credit is always precarious, they can, of 
 course, only use it with caution. Besides this, 
 
 H
 
 98 THE POSTULATES OF 
 
 English bankers have most of the permanent savings 
 of little persons deposited with them, and so have an 
 unexampled power of ready lending. But ages of 
 diffused confidence are necessary to establish such a 
 system, and peculiar circumstances in the banking 
 history of England, and of Scotland still more, have 
 favoured it. Our insular position exempting us from 
 war, and enabling our free institutions to develop 
 both quietly and effectually, is at the very root of it. 
 But here until within a hundred years there was no 
 such concentration of minute moneys, no such incre- 
 ment to the loan fund, and abroad there is nothing 
 equal to it now. Taking history as a whole, it is a rare 
 and special phenomenon. Mostly the loan fund of a 
 country consists of such parts of its moneyed savings 
 as those who have saved them are able to lend for 
 themselves. As countries advance banking slowly 
 begins, and some persons who are believed to have 
 much, are entrusted with the money of others, and 
 become a sort of middlemen to put it out ; but almost 
 everywhere the loan fund is very small to our English 
 notions. It is a far less efficient instrument for con- 
 veying capital from trade to trade everywhere else 
 than here ; in very many countries it is only inci- 
 pient ; in some it can hardly be said to exist at all. 
 The speculative fund, as I have called it, has also
 
 ENGLISH POLITICAL ECONOMY 99 
 
 but a bounded range of action. The number of 
 persons who have large moneyed savings who are 
 willing to invest them in new things is in England 
 considerable, but in most countries it is small. Such 
 persons fear the unknown ; they have a good deal" to 
 lose, and they do not wish to lose it. In most com- 
 munities there is not even the beginning of a settled 
 opinion to tell them which undertaking is likely to 
 be good, and which bad. In the industrial history 
 of most countries, the most marked feature- is an 
 extreme monotony ; enterprises are few ; the same 
 things continue for ages to be done in the same way. 
 The data which should guide original minds are few 
 and insufficient; there was not such a thing as a 
 ' price list ' in any ancient community. No Athenian 
 merchant could, by looking over a file of figures, see 
 which commodities were much lower in their average 
 price, and which therefore might be advantageously 
 bought with money that he could not employ in his 
 usual trade. Even for so simple a speculation as 
 this, according to our present notions, the data did 
 not exist, and for more complex ones the knowledge 
 was either altogether wanting or confined to a few 
 persons, none of whom might have the idle capital. 
 The speculative fund does not become a force of first- 
 rate magnitude till we have in the same community 
 
 H 2
 
 TOO THE POSTULATES OF 
 
 a great accumulation of spare capital, and a wide dif- 
 fusion of sound trade knowledge, and then it does. 
 The free choice by young men of the mode in 
 which they will invest the capital which they possess 
 is also in the early times of trade much hindered and 
 cramped, and it only gains anything near the effective 
 influence which it now has with us in quite late 
 times. For a long period of industrial history special 
 associations called ' guilds ' prohibited it ; these kept 
 each trade apart, and prevented capital from going 
 from one to the other. They even kept the trade of 
 city A quite apart from the same trade in city B ; 
 they would not let capital or labour flow from one to 
 the other. These restrictive hedges grew up natu- 
 rally, and there was no great movement to throw 
 them down. They strengthened what was already 
 strong, and that which was weak made no protest. 
 The general ignorance of trade matters in such 
 communities made it seem quite reasonable to keep 
 each trade to those who understood it ; other people 
 going into it would, it was imagined, only do ft ill, 
 lose their money, and hurt those who did it well by 
 a pernicious competition. We now know that this 
 is a great error, that such guilds did far more harm 
 than good, that only experiment can show where 
 capital will answer in trade, that it is from the out-
 
 ENGLISH POLITICAL ECONOMY 101 
 
 sider that the best improvements commonly come. 
 But these things, which are now commonplaces after 
 experience, were paradoxes before it. The first de- 
 duction of the uninstructed mind was and is the 
 other way. Nor is it dispelled by mere argument. 
 Civilisation must increase, trade ideas must grow 
 and spread, and idle capital waiting to change must 
 accumulate. Till these things have happened, the 
 free choice by a young man how he will invest his 
 capital is not the common rule, but the rare excep- 
 tion ; it is not what mostly happens, though it may 
 be resisted, but what happens only where it is 
 unusually helped. Even where there is no formal 
 guild, the circumstances which have elsewhere created 
 so many, create an informal monopoly, mostly much 
 stronger than any force which strives to infringe it. 
 
 None, therefore, of the three instruments which 
 now convey capital from employment to employment 
 can in early times be relied on for doing so, even 
 when that capital exists, and when some labour at 
 least is available to be employed by it ; neither the 
 loan fund, nor the speculative fund, nor the free 
 choice of a trade by young men, is then a commonly 
 predominant power ; nor do the whole three taken 
 together commonly come to much in comparison 
 with the forces opposed to them.
 
 102 THE POSTULATES OF 
 
 And even if their intrinsic strength had been far 
 greater than it was, it would often have been success- 
 fully impeded by the want of a final condition to the 
 free transfer of capital, of which I have not spoken 
 yet. This is a political condition. We have seen 
 that for the free transfer of labour from employment 
 to employment a strong government is necessary. 
 The rules regulating the inheritance of trades and 
 the fixed separations of labour were really contri- 
 vances to obtain some part of the results of the divi- 
 sion of labour, when for want of an effectual govern- 
 ment, punishing quarrels and preserving life, free 
 competition and movement in labour were impos- 
 sible. And this same effectual government is equally 
 necessary, as need not be explained, for the free 
 migration of money. That migration needs peace 
 and order quite as obviously as the migration of 
 labour ; and those who understand the delicacy of 
 the process will need no proof of it. But though a 
 strong government is required, something more is 
 wanted too ; for the movement of capital we need a 
 fair government. If capital is to be tempted from 
 trade to trade by the prospect of high profits, it 
 must be allowed to keep those profits when they 
 have been made. But the primitive notion of taxa- 
 tion is that when a government sees much money it
 
 ENGLISH POLITICAL ECONOMY 103 
 
 should take some of it, and that if it sees more 
 money it should take more of it. Adam Smith laid 
 down, as a fundamental canon, that taxes ought to 
 be levied at the time when, and in the manner in 
 which, it is most easy for the taxpayer to pay them. 
 But the primitive rule is to take them when and 
 how it is most easy to find and seize them. Under 
 governments with that rule persons who are doing 
 well shrink from showing that they are doing well ; 
 those who are making money refuse to enjoy them- 
 selves, and will show none of the natural signs of that 
 money, lest the tax-gatherer should appear and should 
 take as much as he likes of it. A socialist speaker 
 once spoke of a ' healthy habit of confiscation,' and 
 that habit has been much diffused over the world. 
 Wherever it exists it is sure exceedingly to impede 
 the movements of capital, and where it abounds to 
 prevent them. 
 
 These reasonings give us a conception of a ' pre- 
 economic ' era when the fundamental postulates of 
 Political Economy, of which we have spoken, were 
 not realised, and show us that the beginnings of 
 all wealth were made in that era. Primitive capi- 
 tal accumulated in the hands of men who could 
 neither move it nor themselves who really never 
 thought of doing either to whom either would often
 
 104 THE POSTULATES OF 
 
 have seemed monstrous if they could have thought 
 of it, and in whose case either was still more often 
 prevented by insuperable difficulties. And this 
 should warn us not to trust the historical retro- 
 spect of economists, merely because we see and 
 know that their reasonings on the events and causes 
 of the present world are right. Early times had 
 different events and different causes. Reasoners like 
 economists, and there are many others like them, 
 are apt to modify the famous saying of Plunket ; 
 they turn history not into an old almanac, but into 
 a new one. They make what happens now to have 
 happened always, according to the same course of 
 time. 
 
 And these reasonings also enable us to explain 
 what is so common in all writing concerning those 
 early and pre-economic times. One of the com- 
 monest phenomena of primitive trade is ' fixed ' prices, 
 and the natural inquiry of everyone who is trained 
 in our Political Economy is, how could these prices 
 be maintained ? They seem impossible according to 
 the teaching which he has received, and yet they 
 were maintained for ages ; they lasted longer than 
 many things now-a-days which we do not reckon 
 short-lived. One explanation is that they were 
 maintained by custom ; but this fails at the crisis.
 
 ENGLISH POLITICAL ECONOMY 105 
 
 for the question is, how could the custom be main- 
 tained ? The unchanging price could not always be 
 right under changing circumstances. Why did not 
 capital and labour flow into the trades which at the 
 time had more than their ' natural ' price, desert 
 those which had less, and so disturb the first with 
 a plethora, and the second with a scarcity ? The 
 answer we now see is that what we have been used 
 to call ' natural ' is not the first but the second nature 
 of men ; that there were ages when capital and labour 
 could not migrate, when trade was very much one of 
 monopoly against monopoly. And in such a society, 
 fixing a price is a primitive way of doing what in 
 after ages we do as far as we can ; it is a mode of 
 regulating the monopoly of preventing the inces- 
 sant dissensions which in all ages arise about what 
 is a just price and what is not, when there is no 
 competition to settle that price. The way in which 
 ' custom ' settles prices, how it gradually arrives at 
 what is right and proper, or at least at what is en- 
 durable, one cannot well say ; probably many in- 
 cipient customary prices break down before the one 
 which suits and lasts is stumbled upon. But defects 
 of this rule-of-thumb method are no reproach to 
 primitive times. When we try to regulate monopolies 
 ourselves we have arrived at nothing better. The
 
 106 THE POSTULATES OF 
 
 fares of railways the fixed prices at which these 
 great monopolies carry passengers are as accidental, 
 as much the rough results of inconclusive experi- 
 ments, as any prices can be. 
 
 And this long analysis proves so plainly, that it 
 would be tedious to show it again, that the free 
 movement of capital from employment to employ- 
 ment within a nation, and the consequent strong 
 tendency to an equality of profits there, are ideals 
 daily becoming truer as competition increases and 
 capital grows, that all the hindrances are gradually 
 diminishing, all the incentives enhancing, and all 
 the instruments becoming keener, quicker, and more 
 powerful . 
 
 But it is most important to observe that this 
 ideal of English Political Economy is not like most 
 of its ideals, an ultimate one. In fact the ' great 
 commerce ' has already gone beyond it ; we can 
 already distinctly foresee a time when that commerce 
 will have merged it in something larger. English 
 Political Economy, as we know, says that capital 
 fluctuates from trade to trade within a nation, and it 
 adds that capital will not as a rule migrate beyond 
 that nation. ' Feelings,' says Ricardo, ' which I 
 should be sorry to see weakened, induced most men 
 of property to be satisfied with a low rate of profits
 
 ENGLISH. POLITICAL ECONOMY 107 
 
 in their own country, rather than seek a more ad- 
 vantageous employment for their wealth in foreign 
 nations.' But these feelings are being weakened 
 every day. A class of cosmopolitan capitalists has 
 grown up which scarcely feels them at all. When 
 Ricardo wrote, trade of the modern magnitude was 
 new : long wars had separated most nations from 
 most others, and especially had isolated England in 
 habit and in feeling. Ricardo framed, and others 
 have continued, a theory of foreign trade in which 
 each nation is bounded by a ring-fence, through 
 which capital cannot pass in or out. But the present 
 state of things is far less simple, and much of that 
 theory must be remodelled. The truth is that the 
 three great instruments for transferring capital 
 within a nation, whose operation we have analysed, 
 have begun to operate on the largest scale between 
 nations. The ' loan fund,' the first and most power- 
 ful of these, does so most strikingly. Whenever the 
 English money market is bare of cash it can at once 
 obtain it by raising the rate of interest. That is to 
 say, it can borrow money to the extent of millions at 
 any moment to meet its occasions : or what is the 
 same thing, can call in loans of its own. Other 
 nations can do so too, each in proportion to its credit 
 and its wealth though none so quickly as England,
 
 108 THE POSTULATES OF 
 
 on account of our superiority in these things. A 
 cosmopolitan loan fund exists, which runs every- 
 where as it is wanted, and as the rate of interest 
 tempts it. 
 
 A new commodity, one of the greatest growths 
 of recent times, is used to aid these operations. The 
 ' securities ' of all well-known countries, their na- 
 tional debts, their railway shares, and so on (a kind 
 of properties peculiar to the last two centuries, and 
 increasing now most rapidly), are dealt in through 
 Europe on every Stock Exchange. If the rate cf 
 interest rises in any one country the price of such 
 securities falls ; foreign countries come in and buy 
 them ; they are sent abroad and their purchase-money 
 comes here. Such interest-bearing documents are 
 a sort of national ' notes of hand ' which a country 
 puts out when it is poor, and buys back when it is 
 rich. 
 
 The mode in which the indemnity from France 
 to Germany was paid is the most striking instance 
 of this which ever occurred in the world. The sum 
 of 200,000,000?. was the largest ever paid by one 
 set of persons to another, upon a single contract, 
 since the system of payments began. Without a 
 great lending apparatus such an operation could not 
 have been effected. The resources of one nation, as
 
 ENGLISH POLITICAL ECONOMY 109 
 
 nations now are, would not have been equal to it. 
 In fact it was the international loan fund which did 
 the business. ' We may say,' M. Say states in his 
 official report, ' that all the great banking-houses of 
 Europe have concurred in this operation, and it is 
 sufficient to show the extent and the magnitude of it 
 to say that the number of houses which signed or 
 concurred in the arrangement was fifty-five, and 
 that many of them represented syndicates of bankers, 
 so that the actual number concerned was far more 
 considerable/ ' The concentration,' he adds, ' of the 
 effects of all the banks of Europe produced results of 
 an unhoped-for magnitude. All other business of a 
 similar nature was almost suspended for a time, while 
 the capital of all the private banks, and of all their 
 friends, co-operated in the success of the French 
 loans, and in the transmission of the money lent 
 from country to country. This was a new fact 
 in the economic history of Europe, and we should 
 attach peculiar importance to it.' The magnitude of 
 ir as a single transaction was indeed very new ; but 
 it is only a magnificent instance of what incessantly 
 happens ; and the commonness of similar small trans- 
 actions, and the amount of them when added to- 
 gether, are even more remarkable, and even more 
 important than the size of this one ; and similar
 
 110 THE POSTULATES OF 
 
 operations of the international ' loan fund ' are going 
 on constantly, though on a far less scale. 
 
 We must not, however, fancy that this puts all 
 countries on a level, as far as capital is concerned, 
 because it can be attracted from one to another. 
 On the contrary, there will always tend to be a fixed 
 difference between two kinds of countries. The old 
 country, where capital accumulates, will always, on an 
 average, have it cheaper than the new country, which 
 has saved little, and can employ any quantity. The 
 Americans in the Mississippi Valley are naturally a 
 borrowing community, and the English at home are 
 naturally lenders. And the rate of interest in the 
 lending country will of course be less than that in 
 the borrowing country. We see approaches distant 
 approaches even yet, but still distinct approaches 
 to a time at which all civilised and industrial coun- 
 tries will be able to obtain a proportionate share of 
 the international loan fund, and will differ only in the 
 rate they have to pay for it. 
 
 The ' speculative fund ' is also becoming common 
 to all countries, and it is the English who have 
 taken the lead, because they have more money, more 
 practical adaptation to circumstances, and more in- 
 dustrial courage than other nations. Some nations, 
 no doubt, have as much or more of one of these
 
 ENGLISH POLITICAL ECONOMY 111 
 
 singly, but none have as much of the efficiency which 
 is the combined result of all three. The way in 
 which continental railways the early ones espe- 
 cially, when the idea was novel were made by Eng- 
 lish contractors is an example of this. When Mr. 
 Brassey, the greatest of them, was making the line 
 from Turin to Novara, for the Italian Government, 
 Count Cavour sent one morning for his agent, and 
 said, c We are in a difficulty : the public have sub- 
 scribed for very few shares, but I am determined to 
 carry out the line, and I want to know if Mr. 
 Brassey will take half the deficiency if the Italian 
 Government will take the other half.' Mr. Brassey 
 did so, and thus the railway was made. This is the 
 international speculative fund in action, and the 
 world is filled with its triumphs. 
 
 So large, so daring, and indeed often so reckless 
 is this speculative fund, that some persons have ima- 
 gined that there was nothing which would seem 
 absurd to it. A very little while ago, a scheme a 
 fraudulent scheme, no doubt was gravely brought 
 out, for a ship railway over the Isthmus of Panama ; 
 the ships were to be lifted upon the line on one side, 
 and lifted off and returned to the ocean on the other. 
 But even the ' speculative fund ' would not stand that, 
 and the scheme collapsed. Yet the caricature shows
 
 112 THE POSTULATES OF 
 
 the reality ; we may use it to remind ourselves how 
 mobile this sort of money is, and how it runs from 
 country to country like beads of quicksilver. 
 
 Young men also now transfer their capital from 
 country to country with a rapidity formerly unknown. 
 In Europe perhaps the Germans are most eminent in 
 so doing. Their better school education, their better- 
 trained habits of learning modern languages, and their 
 readiness to bear the many privations of a residence 
 among foreigners, have gained them a prominence 
 certainly over the English and the French, perhaps 
 above all other nations. But taking the world as a 
 whole the English have a vast superiority. They 
 have more capital to transfer, and their language is 
 the language of ' the great commerce ' everywhere, and 
 tends to become so more and more. More transac- 
 tions of the ' cosmopolitan speculative fund ' are ar- 
 ranged in English, probably, than in all the other 
 languages of the world put together ; not only 
 because of the wealth and influence of mere England, 
 though that is not small, but because of the wealth 
 and influence of the other States which speak that 
 language also, the United States, our colonies, and 
 British India, which uses it mostly for its largest 
 trade. The number of English commercial houses 
 all over the world is immense, and of American very
 
 ENGLISH POLITICAL ECONOMY 113 
 
 many, and yearly a vast number of young English- 
 men are sent out to join them. The pay is high, the 
 prospect good, and insular as we are thought to be 
 (and in some respects we are so most mischievously), 
 the emigration of young men with English capital, 
 and to manage English capital, is one of the great 
 instruments of world-wide trade and one of the 
 binding forces of the future. 
 
 In this way the same instruments which diffused 
 capital through a nation are gradually diffusing it 
 among nations. And the efiect of this will be in the 
 end much to simplify the problems of international 
 trade. But for the present, as is commonly the case 
 with incipient causes whose effect is incomplete, it 
 complicates all it touches. We still have to consider, 
 after the manner Eicardo began, international trade 
 as one between two or more limits which do not in- 
 terchange their compound capitals, and then to con- 
 sider how much the conclusions so drawn are modi- 
 fied by new circumstances and new causes. And 
 as, even when conceived in Ricardo's comparatively 
 simple manner, international trade (as Mr. Mill 
 justly said, and as the readers of his discussion 
 on it well know) is an excessively difficult subject 
 of inquiry, we may expect to find many parts of 
 it very hard indeed to reduce to anything like 
 
 l
 
 114 ENGLISH POLITICAL ECONOMY 
 
 simplicity when new encumbrances are added. The 
 popular discussion of the subject tends to conceal its 
 difficulties, and indeed is mostly conducted by those 
 who do not see them. Nothing is commoner than 
 to see statements on it put forth as axioms which it 
 would take half a book really to prove or disprove. 
 But with the soundness or unsoundness of such 
 arguments I have at present nothing to do. The 
 object of these papers is not to examine the edifice 
 of our English Political Economy, but to define its 
 basis. Nothing but unreality can come of it till we 
 know when and how far its first assertions are true 
 in matter of fact, and when and how far they are not. 
 
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