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THE

ELEMENTS OF POLITICAL ECONOMY.

THE

ELEMENTS

POLITICAL ECONOMY

EMILE DE LAVELEYE

TRANSLATED BY

ALFRED W. POLLARD, B.A.

ST. JOHN'S COLLEGE, OXFOBD
■WITH AN INTRODUCTION AND SUPPLEMENTARY CHAPTER BY

F. W. TAUSSIG

IN8TBUCTOB IN POLITICAL ECONOMY, HABYABD COLLEGE

.Mi

NEW YORK
G. P. PUTNAM'S SONS

27 and 29 West 23d Street
1884

Digitized by the Internet Archive

in 2007 with funding from

Microsoft Corporation

http://www.archive.org/details/elementsofpolitiOOIaveuoft

AUTHOR'S PREFACE.

In this elementary treatise, designed as a manual
of instruction, I deviate from time to time from
the course commonly followed, because, in my
view, the object of Political Economy is not that
ordinarily indicated. What is of importance, as
it seems to me, is the conduct of individuals and
of states, with regard to the production and
employment of wealth — that is to say, the moral
and political side of our science. In manuals
where everything has to be condensed into a few
pages, writers often confine themselves to the defini-
tions and to the brief summary of a few general
laws. Reduced to this, political economy presents
little that is useful.

I have endeavoured to connect my subject
closely with those of the other branches of study

vi Author's Preface.

dealing with human life ; that is to say, with
philosophy, moral science, the traditions of the
past, history and geography. Geography describes
the positions of nations, and history relates their
annals. No advantage can be gained from the
lessons which either offers without the aid of
political economy. At the present day it is
allowed that the most important part of history
is that which traces the progress of humanity in
comfort and liberty. To understand this advance
from prehistoric barbarism to the prodigious de-
velopment of wealth which marks our own
epoch, a knowledge of economy is indispensable.

In order to show more clearly the close con-
nection which exists between history and political
economy, I have not hesitated to multiply quota-
tions from established writers. To the enunciation
of each principle I have added an example, a
fact, a maxim, hoping that the volume thus en-
larged might yet seem all the shorter, through
the attention being better sustained.

Some chapters, such as those which deal with
socialism, with credit, with commercial crises or

Authors Preface. vii

with population, will seem perhaps to treat the
questions in greater detail than is needed in an
elementary treatise. It should not, however, be
forgotten that nowadays the young man, on leaving
his school or college, finds himself at once beset
with these important problems. The social question
is the subject of every day discussion ; as to credit,
we all resort to it ; crises threaten our property at
every instant. The question of population is that
on which the future of our country depends.

As citizens of a free country we need the training
of men. From our earliest years the state claims
our attention ; even in childhood political economy
ought to make us see that freedom leads nations
to prosperity, while despotism leads them to decay.

Need more be urged to prove the necessity of
spreading economic knowledge ? The greater part
of the evils from which societies suffer spring from
their ignorance of this subject. National rivalries,
restrictions on trade, wars of tariffs, improvidence
of the labouring classes, antagonism between
workmen and employers, over-speculation, ill-
directed charity, excessive and ill-assessed taxes,

\iii Authors Preface.

unproductive expenditure on the part of nations
or towns — are all so many causes of misery spring-
ing from economic errors.

Natural science, which is so highly esteemed at
the present day, shows man, like other animate
beings, subservient to his individual interest. While
maintaining that man, a free moral agent, may
and ought to listen to the voice of duty, and
sacrifice himself for his family, for his country
and for mankind, one must recognise the fact that
the habitual motive of his actions is the pursuit
of what is useful to him. If this be so, is not
the science indispensable which shows in what
utility consists, and how men united in society
may best attain it?

TRANSLATOR'S PREFACE.

This translation of M. de Laveleye's Les Elements
de VJEconomie Politique was undertaken in the
hope that the work in its English dress might
be useful to students as a supplement to some
of the many handbooks already in existence. In
English treatises political economy still retains
its character of the "dismal science." In Les
Elements the subject seemed humanised by a
more liberal and broader treatment, and this is
the reason of the present translation being offered
to the reader.

As the difference in tone is thus the distinctive
feature of M. de Laveleye's work, the fewest pos-
sible alterations have been made in this edition.
A few quotations have been omitted, and here
and there an English illustration substituted for

Translators Preface.

a French one. It may be added that the whole
of the translation has had the benefit of the
author's revision.

Before the present translator began his task a
few chapters of Book I. had been already Englished
by Mr. G. L. Marriott, the author of the able version
of M. de Laveleye's work on Prirnitive Property.
The translator desires to acknowledge Mr. Marriott's
kindness in handing him over his translation of
these chapters when prevented by other engage-
ments from continuing his version.

INTRODUCTORY NOTE.

No apology is needed for introducing to American
readers the work of so distinguished an author as
Professor Laveleye. A large number of publications,
covering a remarkably wide range of subjects, have
made his name familiar to the reading public of
civilized countries. Professor Laveleye has been an
active literary worker for forty years ; and in the
course of his career he has thrown light on some of
the most important problems of literature, history,
and social science. In the field of literature, he
published, in his early years, an interesting book on
the language and literature of Provence ; and has
written translations of the Nibelungen-lied and the
Edda. In history, he has published a volume on the
Frankish Kings, and has made a number of contribu-
tions to the recent history of Germany, with especial

reference to the events of 1866. Chiefly historical,

xi

xii Introductory Note.

but with an important bearing on social and economic
questions, is the well-known work on Primitive
Property, which has been translated into English, and
has done more, perhaps, than any other single work,
to extend the reputation of its author. But it is in
the field of social and economic science that his con-
tributions to knowledge have been of most importance.
He has published numerous books and articles on the
forms of government in modern societies, on the re-
lations of church and state, on several branches of
international law, on education, on economic topics,
and on the political questions of his own country and
of foreign countries. Many of his publications ap-
peared first in the columns of periodicals, notably in
the Revue de Deux Mondes, to which he has been for
many years an active contributor. In recent years he
has also made contributions to English periodicals.
The ease and grace of his style, and the clearness of
his exposition, have brought his writings before a large
circle of readers; and their general soundness and
impartiality have made them of great weight with
competent judges. Professor Laveleye was born in
1822, and has been since 1864 professor of political
economy at the University of Liege.

Introductory Note, xiii

On political economy the more important works of
Professor Layeleye have been : an essay on the Sural
Economy of Belgium (1863), and a similar essay on
the Rural Economy of Holland (1864) ; the Money
Market during the last fifty years (1865) ; the volume
on Primitive Property, already referred to (1874) ;
Contemporary Socialism (1881) ; and the present
Elements of Political Economy, published in Erench
in 1882. A large number of articles in reviews and
periodicals, many of them of permanent importance,
have also appeared from his pen. Professor Laveleye's
economic views are in strong sympathy with those who
declare themselves to have broken loose from what
may be called the classic system, as built up in the
works of Adam Smith, Malthus, Ricardo, and the
younger Mill. At the same time, he by no means goes
as far as those writers, chiefly German, who declare
that the classic system is entirely superseded. His
position is rather that of the more moderate Ger-
man writers who protest against the hard and fast
lines of Ricardo's system, and especially against
the dogmatic exposition of Ricardo's system which
has been common with some of his followers ; but
who nevertheless retain, with more or less quali-

xiv Introductory Note.

fication and explanation, the essential doctrines of the
great English thinker. In the presentation of eco-
nomic principles by these writers, the qualifications
and explanations, which are undoubtedly necessary to
the correct statement of the principles, sometimes
overshadow the latter, and detract from their incisive-
ness. This fault may perhaps be found with the
present work. The edge may be said to be taken off
the great principles by the qualifications and excep-
tions with which they are stated. But surely this
method of presenting the subject is preferable to the
bald, unqualified, and scientifically inexact statements
which are common in many English elementary books.
And, after all, the divergence of this moderate school
from the classic system is more in spirit than in sub-
stance. The spirit of the classic writers was, for
instance, strongly against government interference
in industry. Professor Laveleye, like most German
writers, and unlike most French writers, is not a
decided adherent of the laissez faire principle.
Especially in the relations of the state to the working
classes, he has been willing to disregard that principle ;
and his keen sympathy with these classes has some-
times perhaps carried him too far in his views of the

Introductory Note. xv

duty of the state, and of the possible results to be
achieved by legislation. Again, Professor Laveleye
insists on a more concrete treatment of economic sub-
jects than was common with Eicardo and his fol-
lowers. He believes, as the reader will observe from
the chapter in this book on the method of investiga-
tion, that economic laws are to be ascertained by in-
duction,— by observation of the facts presented by
history, physical science, and statistics. Some results
of this belief are to be found in the frequent historical
references in the present volume. Whatever may be
the difference of opinion among economists on the
question of the proper method in their subject, no
one will deny that this greater attention to the actual
facts of the past and of the present is an advan-
tage.

On some questions of detail, and on some of the
unsolved problems of political economy, Professor
Laveleye differs, inevitably, from other writers ; and
his opinions on such questions, though of weight, can-
not be accepted as authoritative. But in an elementary
work like the present, questions of this kind are but
little touched on. Such a work must necessarily be
occupied chiefly with a presentation of the great

xvi Introductory Note.

principles of the science. On these, competent
thinkers are agreed ; and the fundamental principles
of the production and consumption of wealth, of its
distribution into wages, interest, and rent, of popula-
tion, of value and price, of money and credit, of inter-
national trade, and of taxation, as laid down in these
elements, cannot be disputed.

Some doubtful points are necessarily touched on ;
and it may be well to point out cases in which the
propositions advanced in this volume are to be accepted
with qualification. The wages question is still one
of the disputed fields of political economy. Professor
Laveleye's explanation of the causes that govern the
rate of wages, which is the one usually given in Ger-
man treatises of the present time, is doubtless true as
far as it goes ; but it hardly gives a complete solution
of that difficult problem.

Professor Laveleye, it is well known, has been an
earnest advocate of international bi-metallism ; and in
connection with that question he states, probably too
strongly, the objections against a single gold standard,
and the reasons in favor of a double standard.

It has already been said that the strong humani-
tarian spirit of our author sometimes carries him too

Introductory JVote. xvii

far ; an instance may be found in the somewhat sweep-
ing statement, on page 96, that it is the duty of the
public to indemnify workmen who are thrown out
of employment by the introduction of machinery.
Again, the connection between the abundance or
scarcity of money, and the rate of interest, is perhaps
too broadly stated on page 197. But these statements,
and others in which economic critics may find flaws,
turn very largely on questions of degree or of
emphasis, on which there is a natural divergence of
opinions, and on which, moreover, Professor Laveleye
does not stand alone. In the main, the principles
laid down are those accepted by all economists of
weight. The clearness and attractiveness of the
author's style make his presentation of them especially
valuable for those who wish to obtain an elementary
knowledge of political economy.

In the supplementary chapter some of the questions
which are of great practical importance at the present
time in the United States are taken up, and a brief
statement is made of the economic principles which
apply to them. On practical questions, difference of
opinion is inevitable ; and there may be those who will
object to some of the conclusions reached in this

xviii Introductory Note,

chapter, especially in regard to the subject of money.
The writer has endeavoured to state only such con-
clusions as are warranted by reason and expe-
rience.

F. W. Taussig.

TABLE OF CONTENTS.
BOOK I.

PRELIMINARY REMARKS.

CHAPTER I.
The Meaning of Economic Science

§ 1. Definition and object of Political Economy .... 1
§ 2. What Political Economy is not 3

CHAPTER II.

The Connection between Political Economy and other
Moral and Political Sciences 5

§ 1. Connection between Political Economy and Philo-
sophy or Religion 5

§ 2. Connection between Political Economy and Ethics . 7
§ 3. Connection between Political Economy and Law . 9
§ 4. Connection between Political Economy and Politics 10
§ 5. Connection between Political Economy and Inter-
national Law 11

§ 6. Connection between Political Economy and History 12
§ 7. Connection between Political Economy, Geography

and Statistics 14

§ 8. Laws of Nature in Political Economy 15

xx Contents.

CHAPTER III.

Wealth 16

§ 1. The meaning of Wealth or Riches 16

§2. Wants 18

§3. False Wants and False Wealth 20

CHAPTER IV.

Value 23

§ 1. The meaning of Value 23

§ 2. Value in Use and Value in Exchange 26

CHAPTER V.
The Method of Investigation 27

CHAPTER VI.
Division of Political Economy 29

BOOK II.

THE FACTORS OF PRODUCTION AND
PRODUCTIVE LABOUR.

CHAPTER I.

The Production of Wealth 30

§ 1. Definition of Production 30

§ 2. The three Factors of Production 31

CHAPTER II.
Nature 32

Contents. xxi

CHArTER III.

PAGE

Labour 33

§ 1. Definition of Labour 33

§ 2. Productiveness of Labour 36

§ 3. Responsibility 37

§ 4. Influence of Nature on the Productiveness of Labour 39

§ 5. Influence of Race 41

§ 6. Influence of Philosophic and Religious Doctrines . 43

§ 7. Influence of the Moral Sentiments 49

§ 8. Influence of Justice 52

§ 9. Civil Laws, especially those as to Property, in

their Relation to the Productiveness of Labour . 55
§ 10. Influence of Systems of Inheritance on the Produc-
tiveness of Labour 56

§ 11. Influence of Systems of Tenure 57

§ 12. Influence of Systems of Rewarding Labour .... 59

§ 13. Influence of Systems of Government 60

§ 14. Influence of Democracy 63

§ 15. Influence of Liberty 64

§ 16. Influence of Association and Co-operation .... 66

§ 17. Influence of the Division of Labour 67

§ 18. Influence of Science applied to Manufacture ... 74

§ 19. Influence of Instruction and Education 77

§ 20. Obstacles opposed by Ignorance to the Productive-
ness of Labour 79

CHAPTER IV.

Gross Product, Net Product, and the Cost of Produc-
tion 82

CHAPTER V.

Capital 83

§ 1. Different Kinds of Capital 83

§ 2. The Formation of Capital 87

§ 3. Machines 89

xxii Contents.

PAGE

§ 4. Does Machinery Diminish the Employment and

Wages of "Workmen ? 93

§ 5. How Machinery may Compel Workmen to change

their Occupation 95

§ 6. How Machinery increases the Employment of

Workmen 96

CHAPTER VI.
The Establishment of an Equilibrium between Pro-
duction and Consumption 98

CHAPTER VII.
Classification of Useful Occupations 100

CHAPTER VIII.
Occupations which have to do with Men 101

CHAPTER IX.

Occupations Concerned with Things 103

§ 1. Extractive Industries 103

§ 2. Agriculture 105

§ 3. The Progress of Agriculture 107

§ 4. Large and Small Farming 110

§ 5. Manufacturing Industries Ill

§ 6. Necessary Conditions of Industries on a Large Scale 115

§ 7. Industries of Transport 116

§ 8. Should Roads be made, and Means of Transport

provided from Public Funds ? 118

§ 9. Commerce 119

CHAPTER X.
Colonies 121

CHAPTER XI.
Associations for the Combination of Capital .... 125

Contents. xxiii

BOOK III.

DISTRIBUTION AND CIRCULATION.

PART I.— DISTRIBUTION.

CHAPTER I.

PAGE

Distribution : Rent, Wages, Interest ........ 131

CHAPTER II.
How Distribution is Accomplished 132

CHAPTER III.
Principles Regulating Distribution 133

CHAPTER IV."
Reward of the Natural Agents 135

§1. Rent 135

§ 2. Theory of Rent held by Ricardo and Mill .... 137
§ 3. Arguments of Economists who deny the Existence

of Rent 139

CHAPTER V.

"Wages -,,h

§ 1. Systems of Remuneration 141

§ 2. The Iron Law '. '. ! 143

§ 3. Causes of Different Rates of Wages 144

§ 4. Low Wages not a Cause of Cheap Work .... 146

§5. The Wages Fund 147

§6. Is there a Natural or Normal Wage ? 148

§ 7. The Causes which Fix the Rate of Wages .... 149

§ a Has the Condition of the Working Classes improved ? 152

xx iv Contents.

CHAPTER VI.

PAGE

Means of Improving the Condition of Wage Earners . 153

§1. Charity 154

§ 2. Communism 154

§ 3. Nihilism 156

§ 4. Anarchy 157

§ 5. Collectivism and the Organisation of Labour ... 158

§ 6. Co-operative Societies 159

§ 7. Emigration 160

§ 8. Corporations and Trades Unions 160

§ 9. Coalitions and Strikes 161

§ 10. Increase of Capital and Diffusion of Property . . 163
§ 11. The Relation between the Rise of Wages and

the Increase of Population 164

CHAPTER VII.
On the Increase of Population 164

CHAPTER VIII.

Profit 169

§ 1. Meaning and Reason of Profit 169

§ 2. Is the Rate of Interest in Inverse Proportion to the

Rate of Wages ? 170

§ 3. Profit Tends to Diminish 171

CHAPTER IX.

The Reward of Capital 171

§ 1. What Interest is ^ . ... 171

§ 2. Interest Tends to Diminish 173

§ 3. The Lawfulness of Interest, and the Laws Against

usury 175

§ 4. The Influence of the Abundance or Scarcity of

Money on the Rate of Interest 179

Contents.

xxv

PART II.— THE CIRCULATION OF WEALTH.
CHAPTER I.

PAGE

Exchange 180

§ 1. Barter 180

§ 2. Employment of Money : Sale and Purchase ... 181

§ 3. Influence of Exchange on Prosperity 183

CHAPTER II.

Sale and Purchase 184

§ 1. Price 184

§ 2. Supply and Demand, and the Cost of Production . 185

§ 3. The Just Price 187

§ 4. Usefulness of Fairs and Exchanges 188

CHAPTER III.

Money 189

§ 1. Nature and Function of Money 189

§ 2. Different Kinds of Money 191

§3. Value of Money 193

§ 4. Is the Abundance of Money an Advantage ? . . . 195

§ 5. Monetary Systems 197

§ 6. Monometallism and Bimetallism 202

§ 7. The Laws of Gresham and Newton 203

§ 8. The Maintenance of Monetary Systems 204

CHAPTER IV.

Credit 205

§ 1. What Credit is 205

§ 2. The Advantages and Effects of Credit 206

§3. The Drawbacks of Credit 210

§ 4. The Instruments of Credit 211

§ 5. Banks . 216

§ 6. Free Creation of Note-issuing Banks 222

b

xxvi Contents.

CHAPTER V.

PAOK

Monetary, Commercial, and Industrial Crises ... . i . 223

§ 1. Nature of Crises 223

§ 2. Periodical Recurrence of Crises 223

§ 3. Characteristics of Crises 224

§ 4. Causes of Commercial and Monetary Crises .... 227

§ 5. Means of Preventing and Remedying Crises . . . 228

§ 6. Industrial Crises 229

§ 7. Speculative Crises or Crashes 229

CHAPTER VI.

Free Trade and Protection 231

§ 1. Free Trade 231

§ 2. The Balance of Trade 236

§ 3. The Oversight of Freetraders 238

§ 4. The System of Temporary Protection 239

§ 5. Reciprocity 240

§ 6. Commercial Treaties 241

BOOK IV.

TEE CONSUMPTION OF WEALTH.
CHAPTER I.

On the Consumption of Wealth 243

§ 1. What is Consumption 243

§ 2. Different Kinds of Consumption 245

§ 3. Should the Increase of Consumption be Encouraged ? 248

CHAPTER II.

Private Consumption 249

§1. Luxury 249

§ 2. Insurances 254

Contents. xxvii

CHAPTER III.

PAOB

Public Consumption 256

§ 1. The Usefulness of Public Consumption 256

§ 2. Functions of the State 257

§ 3. Limits of the Functions of Public Bodies .... 259

§ 4. Public Luxury 262

CHAPTER IV.

Taxation 264

§ 1. What is Taxation , 264

§ 2. Rules as to the Imposition of Taxes 265

§ 3. Incidence of Taxation 268

§ 4. A Single Tax 269

§ 5. Direct and Indirect Taxation 269

§ 6. The Budget 270

§7. Loans 271

SUPPLEMENTARY CHAPTER.

Economic Questions in the United States. . 275

§1. The Tariff and Wages 275

§ 2. The Present Phase of the Tariff Question ..... 277

§3. The Internal Taxes 280

§ 4. The Money of the United States 280

§ 5. The Silver Question 283

§ 6. American Shipping and the Navigation Laws ... 286

ELEMENTS OF POLITICAL ECONOMY.

BOOK I.

PRELIMINARY REMARKS.
CHAPTER I

THE MEANING OF ECONOMIC SCIENCE.

§ i. Definition and Object of Political
Economy.

The term "political economy," first used by Aristotle
in the second book of his CEconomica, and then by
Antoine de Montchretien, the author of a TraiU de
VEconomie Politique, published at Rouen in 1615,
comes from three Greek words : Oikos, house ; nomos,
law ; and polis, city or state. It denotes, therefore,
the law, or laws, which ought to direct the adminis-
tration of property in the state, that is, in society.
Such iSj in fact, the object of economic science.

B

2 Elements of Political Economy

Human beings have wants, and, when united in
societies, observe customs or laws. To satisfy these
wants, they have their intelligence and their arms1,
which they employ in the production of useful
objects. How should they be organised, or, in other
terms, what laws should they adopt, in order to
attain by their labour to the fullest and most
rational satisfaction of their wants ? This is the
problem of which political economy seeks the
solution.

Political economy has to do with legislation. It
seeks an ideal the same as moral science, law, or
politics. Almost all the economical questions that
come under discussion are questions of legislation —
such as the reform of the laws relating to custom
duties, of the land laws, of the laws on currency, of
credit, of banking, companies, factory labour, rail-
ways, taxation, &c. The justice of these questions
must be solved by the study of equity, their utility
by the study of statistical and historical facts.

The father of political economy, Adam Smith,
denned it perfectly when he said that it proposed two
distinct objects: first, to put the people in the
way of procuring for themselves an ample sub-
sistence ; and, secondly, to furnish the state with
a revenue sufficient for the public service.

The very name of Adam Smith's book, The
Wealth of Nations, shows that the object is to
determine what is conducive to the production of
wealth, and what hinders such production. As has

Preliminary Remarks.

been well said by Droz : " Political economy is a
science whose object is to make comfort as general
as possible." Bossuet, again, speaking of politics,
said that " their true end is to make life easy and
nations happy;" and such is also the aim of political
economy.

The doctor ought to know the human body, to
diagnose its ailments and prescribe remedies for
them, as well as the course of life which will pre-
serve health. This is precisely what the economist
has to do for society. He must know minutely the
mechanism of the social body, must point out those
laws and customs which bring misery upon it, and
describe the system most favourable to the creation
of comfort by means of labour.

Political economy may therefore be denned as
" the science which determines what laws men ought
to adopt in order that they may, with the least
possible exertion, procure the greatest abundance of
things useful for the satisfaction of their wants;
may distribute them justly, and consume them
rationally."

§ 2. What Political Economy is not.

Political economy is commonly denned as "the
science which describes the methods of production,
distribution, and consumption of wealth." This de-
finition is altogether inaccurate. The modes of
producing wealth are described in industrial manuals
or treatises on agriculture ; the mode of its distribu-

b2

4 Elements of Political Economy.

tion is the subject of statistics; the account of its
consumption the history of the daily life of the
various nations.

Political economy is not an exact science, for it
is concerned with the wants of man, which constantly
vary, and with his actions, which are free. Neither
strict definitions nor methods of mathematical
deduction are applicable to it.

Political economy is not a physical science, for
it does not deal with commodities considered in
themselves, i.e., as material objects, but with the laws
that assist the production of these commodities ; and
these laws are relations of the moral order.

Nor yet is political economy a branch of the
natural history of man, for it does not inquire how
he arrives at producing what he consumes, but what
the institutions are which allow of his doing this to
the best advantage.

Again, it is not, as is so often asserted, " the science
of labour." Descartes' idea of this latter science is
this : " There is a practical science, by means of which,
understanding the nature of force and the action
of fire, water, air, the stars, the heavens, and all the
bodies which surround us as clearly as we understand
the various crafts of our artisans, we might in the
same manner put these agents to all the uses for
which they are adapted, and so make ourselves
masters and owners of nature."

The science of labour is technology. Political
economy has quite another object. It seeks to dis-

Preliminary Remarks.

cover the laws, whether moral, religious, political,
civil, or commercial, which are most favourable to
the efficiency of labour. It does not teach us how
to cultivate the soil, or to work mines, or to make
bread. All this is strictly the science of labour.

CHAPTER II.

THE CONNECTION BETWEEN POLITICAL ECONOMY AND
OTHER MORAL AND POLITICAL SCIENCES.

Political economy is one branch of the group of
sciences, the object of which is the study of human
societies, and which are known in the present day
by the name of Sociology.

§ i. Connection between Political Economy
and Philosophy or Religion.

Political economy, regarding man as pursuing the
useful, is subordinate to the sciences which regard
man as pursuing the good and the true, that is to
say, to religion or philosophy. These discuss what
are the nature and destiny of man, and the use
individuals or societies make of their time and of
their property depends on the idea which they form
of man's destiny. The doctrines which see in man
nothing but a body, and in life nothing but an exist-
ence of a few moments, stolen from nothingness,

6 Elements of Political Economy.

will plunge societies into the exclusive pursuit of
enjoyment. Asceticism, on the other hand, for which
the body is only a source of sin, and life only a
probation, will wish to suppress the satisfaction of
the most essential wants, and will urge the individual
to annihilate himself in the deserts of the Thebaid,
on the pillar of the Stylite, or, in India, in the
aspiration after the Nirvana.

Avoiding both these excesses, true philosophy
teaches us that man ought to seek the full develop-
ment of all his faculties : those of the mind first,
because the intellectual life is the most essential,
but those of the body as well, because it is the
instrument of the soul. This object is indicated in
the well known maxim of antiquity : Mens sana in
corpore sano (Juvenal, Sat. xv., 1. 356). Hence it
follows that while seeking the useful, which is its
peculiar object, political economy should never forget
that material wealth is a means and not an end — the
condition of moral and intellectual progress, not the
end of life. On the one hand one must not listen to
asceticism which sacrifices the body, nor, on the
other, to Sybaritism, which sacrifices everything to
the body.

The economist should learn from the philosopher
what are the motives of human action, so as to
regulate the order of society in such manner that
men should be constantly induced to employ their
time and their strength to the greatest use. The
science of the motives which determine the will

Preliminary Remarks.

ought accordingly to serve as "basis for the science of
the laws which govern the production of wealth.

§ 2. Connection between Political Economy
and Ethics.

The connection between ethics and political
economy is close.

"Ethics," says an eminent French philosopher,
Francois Huet, " is the science of moral perfection
and worth, just as economy is the science of material
comfort and value/' Ethics, in fact, determines what
are our duties in relation to God, to our neighbours,
and to ourselves ; and these ideas of our duties ought
to govern all the actions of economic life.

Ethics enjoins moderation in our needs, energy and
conscientiousness in our work, fidelity to our engage-
ments, thrift and prudence in the use of our income,
and regard for justice in our relations with one
another. There is not one of these laws that is not
an essential rule in economy. Energy in labour
insures abundant production; respect for justice, a
fair distribution ; respect for engagements, abundant
credit; the spirit of thrift leads to the creation of
capital, and the moderation of desires to a good use
of time and property.

In the ethical code you find the true root of
economic laws. The good, the end of ethics, and
the useful, the end of political economy, without
being confounded, are inseparable; for the pursuit
of the good is always favourable to the production of

8 Elements of Political Economy.

the useful. Hutcheson, the father of Scotch philo-
sophy, inserted in his course of moral philosophy
(1729-1747) some lessons on Economics. Adam
Smith's book, The Wealth of Nations, regarded as
the gospel of political economy, was only a fragment
of a larger work treating of the Moral Sentiments.
In his treatise on ideology Destutt de Tracy discusses
political economy as an application of the theory
of will.

Political economy, in its turn, is, as Droz has said,
the best aid to ethics, for it shows the advantages
which result from the practice of virtue, and the evils
which are the inevitable consequence of vice.

In fine, ethics is the science of "The Good,"
political economy the science of goods. The latter
is thus the application of the former — that is to say,
it is morality in action. Ancient writers, such as
Xenophon and Aristotle, understood by political
economy certain rules which the state or the indi-
vidual ought to follow in the pursuit of comfort and
the employment of wealth. The most erudite of
contemporary economists, M. Roscher, has declared
that the rales laid down by the ancients for the
employment of wealth are the essence of the
whole matter. In these maxims the relation con-
necting political economy and ethics is conclusively
established.

Preliminary Remarks.

§ 3. Connection between Political Economy
and Law.

At any given moment there is some organisation
for societies, which, if respected, would be most
favourable to the advancement of the human race.
This dispensation is the law — civil, constitutional,
economic, international ; obedience to this is a duty,
and at the same time the highest advantage.

Right, or law, is accordingly the direct, or right,
road to good, that is, to the perfection of man
and society. In Sanskrit rita, in German recht, in
English right, in French droit, signify alike the
straight or direct road, and right, justice, law. To
walk in the right road, or in the path of right, is
therefore to do everything which is truly advan-
tageous. Justice and utility lay down the same
laws. As a French philosopher, Bordas-Demoulin,
has said : " The useful is the practical aspect of the
just ; the just the moral aspect of the useful." These
qualities cannot be antagonistic ; and if they appear to
be so, to choose that which is just is to ensure doing
that which is useful. On the other hand, what is un-
just or immoral can never be really useful. Nihil
utile quod non sit honestum, was an ancient proverb.
" The plan of Themistocles," said Aristides, " is much
to our advantage, but it is supremely unjust," and so
saying he secured its rejection. Seek justice first,
and the rest will be added unto you.

Political economy and law underlie one another.

10 Elements of Political Economy.

The man who is ignorant of law will be unable
to fathom political economy; and the man who
is ignorant of political economy will be unable
to trace the sources of law. All the acts of
economic life are exercised under the empire of
civil institutions ; and all civil institutions have
economic interests for their final cause. If civil
codes have established rights of property, of in-
heritance, or of testamentary disposition, the equal
right of succession or the right of primogeniture,
mortgage and terms of prescription, it is because
the legislator has believed that these laws were the
most favourable to the preservation and increase of
wealth. For laws ought to be such that it is to a
man's interest to be always upright, industrious, and
thrifty. Lastly, commercial law, governing the legal
relations arising out of trade, is dictated entirely by
economic considerations.

§ 4. Connection between Political Economy
and Politics.

Politics seeks to determine the form of govern-
ment which, at a given time and for a given country,
will secure in the highest degree the liberty and
well-being of individuals. Political economy, in a
more general manner, seeks to determine the laws
which are most conducive to an abundant produc-
tion of wealth, its fair distribution, and wholesome
consumption.

These two sciences, therefore, as their names

Preliminary Remarks. 11

indicate, have the same end. A good political con-
stitution is the first condition of productive labour
and of the saving that creates capital, in a word, of
economic progress. To this despotism and anarchy
are alike an obstacle. Before promulgating a political
law, the lawgiver should always examine what in-
fluence it will have on the increase of the national
well-being. The science of administration, which is
only the application of public law, ought to take
the same principles as its guide.

§ 5. Connection between Political Economy
and International Law.

Political economy has given a new basis to inter-
national law. In all ancient times, and until the
economists of the last century, the interests of
nations were thought to be antagonistic to one
another; and men believed with Montaigne, that
"the profit of the one is the loss of the other."
Economists have proved, on the contrary, that just
as it is to a merchant's interest to have customers
near him rich enough to pay a high price for his
commodities, so it is to the interest of a nation
to be surrounded by other prosperous nations in a
condition to purchase of it, at a good price, all that
it wishes to sell, and to supply it with an abund-
ance of all that it wishes to obtain. For the popular
maxim : " One man's loss is another man's gain," we
ought to substitute, " One man's loss is every man's
loss." By proving that every one is interested in

12 Elements of Political Economy.

the well-being of his fellows, our science has given
selfishness as a motive to fraternity, and proved the
truth of Beranger's fine lines :

" Aimer, aimer, c'est etre utile a soi ;
Se faire aimer, c'est etre utile aux autres."

If the truths established by political economy
were generally understood, there would be no longer
either war, or preparation for war ; for the most
successful war is always a calamity for the victor
as much as for the vanquished. As Scialoja, an
Italian economist, has justly said : International
justice will be the offspring of economic calculation.
The prophet Isaiah uttered the admirable expres-
sion : ■ The work of Righteousness shall be Peace."

§ 6. Connection between Political Economy
and History.

Political economy can establish nothing without
the aid of statistics and history ; for it is
only by consulting these two sciences that it can
learn what it seeks to determine ; that is to say,
what are the laws which are useful or fatal to
nations.

Equally in its turn is political economy indis-
pensable to history, for it alone can discover the
causes which have led to the greatness or decay of
states. The power of states is proportional to their
population and their wealth. The development of
population and wealth depends on economic causes.

Preliminary Remarks. 13

These, therefore, are the ultimate source of the great
events of history.

In history this is the question which dominates all
the rest — Why did a given state become great ?
Why did another given state decline ? To this
question political economy alone can give a sound
answer.

Historians speak of the fatal cycle which empires
pass through, growing to greatness at first merely to
arrive at final decay. These vicissitudes, or cor si and
ricorsi, as Vico calls them, they explain by saying
that nations must pass through the four ages of life
traversed by individuals — infancy, youth, manhood,
and old age, attended by decrepitude. The com-
parison, however, does not hold good ; for, as gene-
ration succeeds to generation, a nation is always
equally young.

A philosopher-economist, Destutt de Tracy, ex-
plains the economic cause of the fact attested by
the historian. " Society," he says, " by securing to
every one security of person and property, causes
the development of our faculties. This develop-
ment produces the increase of our wealth; the
increase of wealth leads sooner or later to its very
unequal distribution ; and this, by bringing back the
inequality of power, which society at first limited
and was intended to abolish, begets weakness and
sometimes final dissolution." (Moments oV Idfologie,
pt. iv. c. x.)

Since the fall of states has always been brought

14 Elements of Political Economy.

about by the imperfection of laws and institutions
producing economic disorder, we may suppose that
the progress of social science will allow us to escape
from the fatal circle, and will secure to mankind a
career of unlimited progress. This is the hope of
our time, and probably the destiny of our race.

The philosophy of history, which seeks in the
course of events a law of Providence, as with Bossuet,
or an inevitable physical law, as with Buckle, is at
once chimerical and of little use. That philosophy,
however, which should make known the causes which
have made certain nations free and prosperous, and
others servile and miserable, would be of the greatest
use ; for it would teach men what they ought to do
and what they ought to avoid.

§ 7. Connection between Political Economy,
Geography, and Statistics.

Geography is the description of natural facts,
statistics the science of social facts expressed by
numbers. These two sciences are the indispensable
allies of political economy. For it is by the study of
the facts attested by them that the economist can
learn the effect of laws, and thus decide whether
they are favourable or injurious to the production
of useful commodities and the increase of comfort.

For instance : Are small estates preferable to
large ? It is statistics that must tell us what is
the production of food, the quantity of cattle, the

Preliminary Remarks. 15

length of roads, the number and condition of the
inhabitants — in short, what is the wealth of countries
where large and small properties prevail, and thus
enable us to compare the results of the two systems.
On the other hand, political economy will suggest
the questions to which geography and statistics
must find the answer, questions which too often they
neglect. For instance, what, in any given country,
is the system of property, of succession, the distri-
bution of the soil, the modes of exchange, and so
forth ?

§ 8. Laws of Nature in Political Economy.

Economic laws are commonly called natural laws.
This is a mistake. The laws of nature, that of
gravitation or chemical affinities, for example, are
imposed on man just as on the rest of the universe.
He must set himself to understand them in order to
turn them to account, as he already does in the
majority of industries, and especially in the use of
steam and electricity.

But the laws with which political economy has
principally to do are not laws of nature or natural
laws ; they are laws laid down by the legislator. He
turns the one to account by obeying them, the other
by perfecting them. The one defy the will of man ;
the others emanate from it.

16 Elements of Political Economy.

CHAPTER III.

§ i. The Meaning of Wealth or Riches

Political economy is the science of the Useful,
or of riches or wealth. We must therefore form
an exact idea of what riches consists in.

The word " riches " comes from the Gothic Reiki,
in Old German Rike, in Modern German Reich. It is
connected with the Sanscrit root raj, " to be power-
ful," whence the title of Indian princes, rajah, Latin
rex, and in German Reich, " empire." The ricos homhres
of Spain were the " great " and " powerful."

Riches or wealth is, in fact, power ; the power of
getting what one wishes done by other men, either
by remunerating*them directly, as in the case of
servants, or by purchasing the products to which
their labour must be applied. In the middle ages
a rich man kept in his pay a number of retainers
ready to obey him. Thus Warwick, "the king-
maker," is said to have constantly maintained more
than three thousand persons. In the present day
the wealthy command the obedience of even more
men ; but indirectly, by paying for the commodities
they consume.

Wealth, then, may be defined as everything which
answers to men's rational wants. A useful service,
or a useful object, are equally wealth.

Preliminary RemarJcs. 17

But what is a rational want ? The complete and
harmonious development of every human faculty
being the object in view, all wants, the satisfaction
of which tends to this end, may be considered
rational. Psychology, or the knowledge of our
intellectual being, will teach us the wants of the
mind ; hygiene will teach us the wants of the
body.

It was long thought that the wealth of nations con-
sisted chiefly in the amount of gold and silver which
they could draw to themselves. As this quantity
is limited, every state endeavoured to obtain from
other states as much of it as possible by bounties,
by customs dues, and by regulations restricting trade
with foreign countries. Hence arose commercial
rivalry, political hostility, and finally open war.

A well-known economist, J. B. Say, remarks that
in the seventeenth and eighteenth centuries more
than fifty years' war was caused solely by this false
idea of wealth. In social science errors are fruitful
in evils which afflict mankind and ruin nations.

Many economists have regarded as wealth only
such things as can be bought and sold. This is
an error, in our view. Wealth is what is good and
useful — a good climate, well-kept roads, seas teeming
with fish, are unquestionably wealth to a country,
and yet they cannot be bought.

" Goods " (nearly synonymous with " wealth ") is
an admirable word. The supreme good is the sub-
ject of philosophy and religion, and "goods" the

c

18 Elements of Political Economy.

subject of political economy. In " goods " or wealth
must be included all that is good for the advance-
ment of the individual and of the human race.

From this idea of wealth it follows, that besides
material riches there is also immaterial riches, such
as knowledge, manual skill, or the taste for work.
The growth of riches is not an unmixed benefit
unless it be accompanied by the growth of justice
and morality.

It is the abundance of commodities, and not their
money value, which constitutes wealth. The greater
the abundance of useful objects the less will be their
price and money value ; but, meanwhile, real wealth
is increased.

§ 2. Wants.

A want is the being without something that is
necessary, useful, or agreeable. Want begets desire,
and desire action. Action, in this view, is the pursuit
of objects desired because they answer to wants.

These objects are good, inasmuch as they are the
condition of that development of our nature which
is the supreme good. The abundance of goods or
commodities constitutes wealth. Man attains to it
by labour, which is regulated by reason and directed
by knowledge, under the sway of law and right.

Political economy tells us what social laws best
enable human labour to satisfy human wants. The
science of economy is therefore based on the notion
of want. In order to satisfy his wants, man labours

Preliminary Remarks. 19

and saves, and seeks incessantly to improve the
instruments and processes of his labour. Wants,
labour, the satisfaction of wants — such is therefore
the economic circle, in which nations and individuals
are moving day by day and year by year.

Food, clothing, lodging, and furniture are the chief
wants of the body. The cultivation of the mind
and the moral sentiments, of taste, and of family
and social relations, is a want of the moral
kind.

The number and nature of rational wants varies
with the climate and the state of civilisation. It
may be good to satisfy more and more wants, in
proportion as the means of producing useful com-
modities are improved. Still it is not true that
the progress of civilisation must be measured by the
number of wants satisfied ; nor that it is necessary
to the solution of economic problems that they
should be constantly multiplying. Ancient philo-
sophy, as well as the Christian code, preached the
moderation of wants, in accordance with the fine
maxim of Seneca : Si qicem volueris esse divitcm, non
est quod augeas divitias, sed minuas cupiditatcs. If
you would make a man rich, you need not increase
his wealth, but rather diminish his desires. The
economist will not gainsay Seneca.

The time devoted to the creation of superfluous
commodities, useless alike to the body and the mind,
is time wasted ; and time is the material of life. It-
should be turned to good account, for it cannot be

c 2

20 Elements of Political Economy.

recovered. Bodily wants, however refined they may
be, only plunge us doubly into materialism, at the
time when we satisfy them, and at the time when we
are procuring what is necessary for their satisfaction.

To encourage the indefinite multiplication of
wants is to drive humanity into sensualism, which
is the death of virtue, and therefore of liberty.
Aristotle spoke very truly when he said : " The
quantity of things which suffice to make life happy
is limited." The greatest of human benefactors.
Christ, Buddha, Zoroaster, all lived on little, because
they lived the spiritual life, which is the true one:
The spirit of an apostle in a body inured to all
hardship, a combination of which Socrates and St.
Paul are examples — this is the model which the
economist will recommend.

The end of human existence is not eating and
drinking, but happiness, which is made up of health,
leisure, artistic or intellectual enjoyment, and the
pleasures derived from intercourse with our fellows,
There is no need to deprive either ourselves or others
of everything in order to be always accumulating
more wealth. This is the error stamped by Juvenal
(viii. 84) : Et propter vitam, vivendi perdere caussas —
for life's sake to forfeit all that makes life worth
living.

§ 3. False Wants and False Wealth.

By false wants I mean wants, the satisfaction of
which carries man farther from his aim, which is the

Preliminary Remarks. 21

development of his faculties, instead of bringing
him nearer to it.

Commodities consumed by these false wants are
false wealth. They are rightly called wealth, for
they are bought and sold for large sums. But they
are false wealth, for they are of no real good or
use. Often they are worse than useless — they are
injurious ; worse than this, they are fatal.

Alcoholic liquors are condemned by hygiene.
They are fatal to health, produce drunkenness and all
the vices which accompany it, degrade the man who
abuses their use, and plunges him in the mire. Yet
every year in France their cost* amounts to about
16,000,000/. ; in England to 20,000,000/. ; in Belgium
to 3,200,000/. ; and in Holland to quite as much. In
Russia the tax on such liquors brings the State
200,000,000 roubles, or 32,000,000/.— about one-
third of the imperial revenue.

According to calculations made in the United States,
in ten years alcohol imposed on the country a direct
expenditure of about 300,000,000/., and an indirect
expenditure of a similar sum. It has sent 100,000
orphans to the asylums, it has brought 138,000
persons to the prison or the workhouse, it has led
to 10,000 suicides, and has made 200,000 widows
and 1,000,000 orphans. The total expenditure for
civilised countries can hardly be less than 250,000,000/.

Opium, which brings those who smoke it to idiocy,
annually costs China at least 16,000,000/.

The inexplicable habit, borrowed from the savages

22 Elements of Political Economy.

of burning a leaf of tobacco between the lips, in order
to absorb a certain dose of a highly noxious narcotic
poison, costs France every year 14,400,000/. ; Italy,
5,520,000/.; Belgium, 1,200,000/.; and civilised
countries generally more than 120,000,000/. — a
moderate price for the 600,000 tons of tobacco
which, according to the Austrian statistician, von
Neumann- Spallart, are annually consumed. The
highest part of the human race accordingly spends
some 400,000,000/. to poison itself in large or small
doses.

Women also pay thousands of pounds for precious
stones, which have* no other effect than to foster two
serious vices — vanity in those who wear them, and
envy in those foolish enough to wish to have them.

Throw into the sea the alcohol and opium, the
tobacco and precious stones, and nothing will be lost.
On the contrary, those who were poisoning them-
selves and corrupting their minds and bodies will
gain much in moral and physical well-being. Things
whose destruction improves the condition of man-
kind cannot be true wealth. If all the money and
all the hours of labour which this money remunerates,
instead of being devoted, as they now are, to pro-
ducing hurtful commodities, were devoted to manu-
facturing useful ones, how the comfort in the world
would increase and the destitution diminish I

Preliminary Remarks. 23

CHAPTER IV.
§ i. Value.

The value of things is in proportion to their
utility, for wealth only merits this name in so far as
it corresponds to a want, and thus is useful. E-eal
value, then, does not depend on estimation, but on
the property possessed by the articles answering to
our rational wants. Nevertheless, there will also be
a value depending on estimation, i.e. on the opinion
of those who desire an object ; and this opinion may
give a value to things which do not naturally
possess any.

Value is a relation between the physical properties
of things on the one hand, and men's needs on the
other, and this relation is modified by any change in
the needs, even when the qualities of commodities
remain the same. Thus fur has a value in the north,
because it is needed as a defence against the cold.
Beneath the equator it is valueless, because this need
no longer exists. Medicines, again, have no value
for the healthy man, any more than food has for the
sick man unable to swallow it.

The value of things is not, as has been maintained,
determined by the labour employed in their produc-
tion, since there are many things of the same value
which have nevertheless cost very unequal amounts

24 Elements of Political Economy.

of labour ; a quarter of wheat, for instance, reaped
from a fertile soil, and another quarter reaped from
a poor one. Again, there are other things which have
required similar amounts of labour and yet are of
very different values, as the vintages of choice
growths and ordinary wines. Lastly, the value of
things changes daily, although it is impossible that
any change should have taken place in the amount
of labour embodied in them ; thus a quarter of corn
may be worth much more, or much less, this month
than it was last.

Value, again, is not determined by exchange. If
I am to exchange my horse for an ox, I must first
form an idea of the respective values of the two
beasts, and then compare them. Thus the idea of
value precedes and determines exchange. An ex-
change, when made, is constantly criticised in the
light of ideas of value, as in the remark, A has sold
his house, field, horse, &c, for much above, or below,
its value.

The real basis of a thing's value is its utility, i.e.
the uses to which it can be put, or the wants which
it supplies ; it is because bread satisfies my hunger
that it has a value in my eyes. The greater this
power of satisfying a rational want, the greater an
object's value. An ox is thus worth ten times as
much as a sheep, as giving ten times as much
nourishment.

It must, however, be added that the value of a
comm odity increases in proportion to its scarceness,

Preliminary Remarks. 25

and decreases with its abundance, and this for obvious
reasons. The scarcer the commodity, the more
difficult will it be to replace, and the more advan-
tageous to possess. On the other hand, the greater
its abundance, the less profit will it bring its
owner. A loaf is thus of greater utility than a hat,
but of less value, because, as a rule, more easily
replaceable. If, however, bread became scarce and
to replace the stock of it a matter of great difficulty,
as in time of siege, no one would give a loaf to
obtain ten hats. Value is thus determined by the
object's utility, combined with the greater or less
difficulty of replacing it.

To prove that it is inaccurate to maintain that
value depends on utility, it has been pointed out
that while water, which is supremely useful, possesses
no value, a diamond is of great value and of almost
no use. This objection is founded on the vicious
method of argument which employs the same word
to express two different ideas. In saying that water
is supremely useful we speak of water as an element,
that is to say, of the whole procurable volume of it,
and in this sense water is truly supremely useful ; but
in this sense it is also of supreme value, inasmuch as
any one, if deprived of it, would give all he possessed
to obtain it. On the other hand, in speaking of
water as of small utility, we are speaking of a fixed
quantity of water, such as a gallon or pint, and in
this case water, it is true, has very little value ; but
it is also true that such a quantity of water is of very

26 Elements of Political Economy.

small utility, since nothing is easier than to replace
it. Again, in saying that a diamond, which is of great
value, is of very little use, we pass a moral judgment,
undoubtedly well-founded, but very ill-understood.
The diamond possesses the utility of satisfying a
want still very keenly felt among men, the cravings,
namely, of vanity. In this case both the want and
the utility are false, but neither will disappear until
reason and justice have made great progress. Thus,
even in the case of water and diamonds, wherever
there is value there is also utility.

§ 2. Value in Use, and Value in Exchange.

"Every commodity," says Aristotle (Politics, I. ix.),
" may be used in two ways, first to help to satisfy the
want to answer which it has been created, and,
secondly, to serve for exchange. Boots are of service
in walking, but they may also, by means of exchange,
serve to procure other objects, such as money, food,
or any other product."

According to Adam Smith, the utility of a thing
in so far as it serves the need which gave it birth,
is its value in use ; its utility, in so far as it serves
to procure other objects, is its value in exchange.
Value in use will depend on the services which an
object can be made to render, such as, in the case of
boots, the length of time they can be worn.

Value in exchange will depend on the quantity of
the articles which I desire to exchange already on
the market, and also on the quantity on the market

Preliminary Remarks. 27

of the articles I desire to receive and which can be
offered in exchange. If there is a large supply of
boots and but little money, the value of boots will be
less than if there were few of these and an abun-
dance of money.

CHAPTER V.

THE METHOD OF INVESTIGATION.

Stuart Mill says that political economy is es-
sentially an abstract science, and its method the
a priori method ; and he maintains that it is con-
structed on hypotheses completely analogous to those
which, under the name of definitions, form the basis
of the other abstract sciences.

J. B. Say, on the other hand, remarks : " Political
economy has only become a science by becoming a
science of observation/' Say is right; but not in
the sense in which the majority quote him. The
economist ought to employ the method of observation
in quite a different way from the student of nature
or physics. The latter observe facts as nature pre-
sents them, and do not dream of changing them.
When their task is at an end, that of the economist
commences.

The economist observes the motives which rouse

28 Elements of Political Economy.

men to action. Then he seeks the conditions in
which men must be placed in order that, influenced
by these motives, they may attain to comfort by
their labour.

Like all animate beings, man seeks to support
himself and to reproduce his species ; so much the
naturalist observes. But what are the ideas and the
laws which will induce him to increase the stock of
food rather than to multiply his species ? This is the
inquiry for the economist. To solve the problem he
must study the facts presented by history, geography,
and statistics. He marks under the empire of what
ideas and what laws societies have been prosperous,
and why they have been prosperous ; and under the
empire of what ideas and what laws they have been
wretched, and why they have been wretched. Man
being a reasonable creature, a free agent and capable
of improvement, the economist advises him to use
this reason and freedom so as to adopt the former
and reject the latter.

The true method, then, is this : to observe facts
not merely with a view to stating them as the
naturalist does, but to deduce from them what laws
and what ideas must be adopted in order that men
may attain to comfort and subsequently to perfection.

Preliminary Remarks. 29

CHAPTER VI.

DIVISION OF POLITICAL ECONOMY.

I NEED bread to feed me. I have to produce it as
economically as possible — this is the production of
wealth.

A companion has helped me to sow the corn, another
to grind it, a third to make the flour into bread.
Each ought to have his share in the produce, and we
make the division as fairly as possible — this is the
distribution of wealth.

When every one has his share he ought to use it
as rationally as possible — this is the consumption of
wealth.

To determine the social laws which enable wealth
to be produced most economically, to be distributed
most equitably, and to be consumed most rationally,
we must study separately each of the three acts
which make up the work of economy.

Accordingly, we must divide the matter with
which our science has to deal into three parts : —

1. The production of wealth,

2. The distribution and circulation of wealth.

3. The consumption of wealth.

BOOK II.

THE FACTORS OF PRODUCTION AND
PRODUCTIVE LABOUR.

CHAPTER I.

THE PRODUCTION OF WEALTH.

§ i. Definition of Production.

Man has many and constantly recurring wants.
Guided by the impulse of the desires to which these
give rise, he takes certain natural objects and either
consumes them directly or fashions them in such a
manner as to fit them to satisfy his wants. In a
word, he produces.

Man cannot create an atom of matter, but he
draws minerals and combustibles from the earth,
provisions, textiles, and commodities of all kinds
from the cultivated soil, and by fashioning and
transporting all these things renders them useful.
Production, then, is the creation of utilities.

Those who render services to their fellow-men — the
magistrate who enforces respect for the law, the
policeman who protects us, the doctor who cures,

Production and Productive Labour. 31

and the teacher who instructs, are all doing useful
work, and thus contribute to production, although
their labour is not incorporated into material objects.
To render service is, indeed, often more useful to
man than to fashion objects, for we do not live by
bread alone.

§ 2, The Three Factors of Production.

Production requires the aid of three factors,
nature, labour, and capital. A market-gardener
produces vegetables ; the field he cultivates is nature,
his arms provide the labour, and the implements of
husbandry and manure he uses are the capital. Of
these factors the first two have preceded and created
the third. Quite in the beginning man can be con-
ceived living on the spontaneous products offered by
the earth : but soon in order to kill game he would
use a stick, or, like Hercules, a club, and, for making
dwellings and utensils, chips of flint such as were
owned by the prehistoric inhabitants of the lacustrine
grottoes and cities. From this time forward capital
has assisted labour.

It is principally by the progressive employment of
capital and skill that the production of riches has
increased. Nature is not more, but less fertile, now
than formerly, neither has there been any addition
to man's muscular strength : by means, however, of
more powerful machines and better processes, man
has forced nature to yield him larger products, and
so his prosperity continually increases.

32 Elements of Political Economy.

CHAPTER II.

NATURE.

In the case of everything adapted to satisfy man's
wants nature furnishes the raw material upon which,
with the help of capital, labour works, and often also
supplies the force which facilitates production. Thus
the soil yields us corn, and the waterfall sets in
motion the mill which turns the corn into flour.
But with every improvement of industrial processes
the share of nature in the work of production
diminishes, while those of labour and capital
increase.

At the outset of civilisation, under such circum-
stances as still exist in the isles of the Pacific, man was
nurtured by nature as a child on its mother's breast ;
he had but to stretch his hand to take the fruit from
the tree, the game in the forest, the fish in the
water. To-day, in our great manufacturing towns
the aid given by natural agents no longer attracts
notice. We only remark the wonders of human
labour.

Production and Productive Labour. 33

CHAPTER III.

LABOUK.

§ I. Definition of Labour.

Labour is man's action on nature to the end to
satisfy his wants.

All living creatures have wants and the means of
satisfying them by the use of their faculties ; the
mollusc absorbs the nutritive elements contained in
water ; the ruminant browses on grass ; carnivorous
animals pursue their prey.

In every species there is a proportion between
wants and the means of satisfying them ; when this
relation ceases, the species disappears. Had he been
devoid of reason, this must have been the fate of
man, since in his primitive condition he appears to
have had more wants and fewer means of satisfying
them than any other animal. Endowed, however,
with an intelligence capable pf continuous improve-
ment, man has been able to ceaselessly perfect his
means of supplying the wants which have as cease-
lessly grown more varied and numerous. A hammer
strikes harder than his fist, a knife cuts better
than his teeth, a hatchet, even of flint, is far
more powerful than his nails. As the methods of
his labour improve, it becomes more productive,

D

34 Elements of Political Economy.

that is to say, produces more useful articles with less
exertion.

Labour, as La Fontaine has told us, is a treasure.
It is, in fact, the source of all our wealth. We can-
not appropriate to our needs the smallest particle of
matter without, at least, seizing it, and in most cases,
fashioning it to our use.

Labour is thus a natural law for man, and, as a
consequence, a duty. Man has not only a stomach
demanding nourishment, he has also arms intended
to procure its food. When St. Paul said, " Whoso
will not work, neither shall he eat," he only formu-
lated a universal law, the breaker of which wrongs
all his fellow-men.

Complete idleness is a fraudulent bankruptcy.

" Idlers," says the old Greek poet, Hesiod, are as
the drones which eat up the fruit of the bees
labour. Labour will make you dearer both to gods
and men, for they hold the idle man in horror." In
the book of Job one reads, " Man is made to labour
as the bird to fly ; " and the Wisdom of the nations
also has said that " Idleness is the mother of all the
vices." We should not, however, forget that the
labour of the hand is not the only, or the most pro-
ductive, form of toil. The brain produces more than
do the muscles.

Man is made for action. As a rule it brings him
happiness, and, even in times of affliction, a consola-
tion. Action is indispensable to the health alike of
his body and his soul. Inaction, on the other hand,

Production and Productive Labour. 35

engenders misery in the poor, and in the rich, melan-
choly. It often happens that a man who leads an
active life longs for repose, and when he obtains it
finds in it a burden that brings him to the grave.
It has been well said by Vauvenargues that " Man
only aims at rest as a release from the bondage
of labour ; but he can have no enjoyment save
by action, and this is his only love." In the fine
words of a French poet :

11 Nous ne recevons l'existence
Qu'afin de travailler pour nous ou pour autrui.
De ce devoir sacre quiconque se dispense

Est puni de la Providence

Par le besoin ou par l'ennui."

Montesquieu relates a saying of an Emperor of
China, " If one of my subjects does not labour, there
is some one in my country who suffers from hunger
and cold." Since labour is action towards an end,
it is always composed of an effort of the muscles
guided by an effort of the mind ; thus in nailing
planks together to make a door, my intelligence
directs my arms towards the goal of making a
useful object.

The farther industry advances the greater will be
the share of intelligence in labour. Compare the
carrier employed by explorers in Africa with the
engineer who guides a locomotive. The first sweats
and toils under a load of half a hundredweight ; the
second by merely opening a valve sets in motion
hundreds of tons.

D 2

36 Elements of Political Economy.

All labour is a form of motion ; man can do
nothing save alter the positions of objects. By
placing them in what observation has revealed as
the more useful positions, he enables the forces of
nature to act for him and accomplish the transform-
ations his needs require. I open a furrow with the
iron of my plough, and throw into it grains of
wheat ; moisture and heat set the vegetative pro-
perties of the seeds in action : all I have done is to
alter positions and I obtain a harvest of wheat.
Again, I cast into a blast furnace a mixture of ore,
coal, and flux, or calcareous stones. I strike a
match and set light to the fuel. Once more there
is only a change of positions, but chemical forces
are set at work and I obtain iron foundings. In
all labour, then, objects must be disposed in such
manner as to make the forces of nature lend the
greatest possible help to the work of production.

Labour, which is always a duty, can never be a
right. The prosperity of human societies depends
above all things on the wise direction of labour.
Let us examine what is favourable to this.

§ 2. Productiveness 01 Labour.

Since labour is always a pain we must endeavour
to obtain the maximum of utilities with the mini-
mum of efforts and pains. As a consequence the
question how to attain the knowledge of what may
lead to this result, in other words of what will increase
the productiveness of labour, is the most important

Production and Productive Labour. 37

of any in economy. If considered under all its
aspects, it may even be said to include every other.

The causes which increase or diminish the pro-
ductiveness of labour are very numerous : facts of
nature, human ideas, knowledge, sentiments, institu-
tions and laws. Here, in truth, lies the true field
for the studies of the economist ; it is in this domain
of human liberty that he can point out the reforms
which should be effected, the ideal which should be
pursued. History and statistics supply the facts
from which he draws his conclusions. The subject
is a vast one. Not to diverge too widely from cus-
tomary methods, I can only touch on it in pointing
out the most important causes which render labour
productive.

§ 3. Responsibility.

Responsibility is the motive power of the economic
world.

Just as the mainspring turns the wheels of a
watch, so the instinctive desire for self-preservation,
for development, and for perpetuation, impels all
animate creatures to economic action, from the
monad, or simple living cellule absorbing in itself
the substances on which it lives, to man in the most
wondrous creations of his industry. The stronger
this spring the greater will be industrial activity ;
and the greater and better directed industrial
activity, the more utilities will then be created, the
greater will be the growth of prosperity.

38 Elements of Political Economy.

The problem, then, to be solved, is the means of
giving to this mainspring a maximum of force. Its
solution is simple : we must assure to every act a
treatment proportioned to its deserts ; reward for the
good, punishment for the bad, gratification and
comfort to the laborious and thrifty, privation and
destitution to the idle and prodigal. In this way we
apply to economic relations the great principle of
distributive justice. The allotments of rewards in
schools are an example of the application of the
principle. The thing, then, which we have to do, is
to organise responsibility. In the case of animals re-
sponsibility is brought home in natural ways under
the rule of natural laws. The ox which should
sleep throughout the day, or the lion which should
neglect the chase, would soon die of hunger. Among
men, however, where freedom of will is paramount
instead of necessary laws, responsibility has to be
organised by social laws. The more completely these
social laws assure to the labourer the fruit of his
labour, the greater will be the incentive towards
working long and hard, and the more active will be
the mainspring of the economic world.

In his article on political economy in the Ency-
clopedia Rousseau lays down that " The laws should
be so framed that labour should be always necessary,
and never useless."

Production and Productive Labour. 39

§ 4. The Influence of Nature on the Productive-
ness of Labour.

Some philosophers, such as Montesquieu, Cuvier,
and Buckle, have believed that the degree of pros-
perity to which nations attain, very greatly depends
on the influences of nature. Thus Cuvier writes : —
" Of varying height and with many branches, small
limestone ranges, the sources of numerous streams,
intersect both Greece and Italy. Under the shelter
of these, in charming valleys, rich in every product
of living nature, philosophy and the arts sprang into
being, and here mankind witnessed the birth of its
most honoured geniuses, while the vast sandy plains
of Barbary and Africa have always retained their
inhabitants in the condition of roving and savage
shepherds." The great naturalist even goes so far as
to say, " Granite districts produce on all the customs
of human life quite different effects from those of
limestone. Board, lodging, and habits of thought
will never be the same in Limousin or Basse-
Bretagne, as in Champagne or Normandy."

Undoubtedly the constitution of the soil, the con-
formation of the country, and, above all, the climate,
must exercise a great influence on the labours of
man, on the produce which he gathers in, and, con-
sequently, on economic progress. A country without
mines will produce no metals, and a people living
far inland will not be able to devote itself to naviga-
tion. Climates, like those of the polar regions, of

40 Elements of Political Economy.

excessive cold, or as in the equatorial, of excessive
heat, are not favourable to the productiveness of
labour. Excess of cold diminishes the activity of
nature ; excess of heat, the activity of man. It is a
temperate climate that most favours industrial pro-
gress. As has been well said, " Man is here perpetu-
ally invited to labour," for here, if nature is generous,
she is so within limits, and only for those who study
and understand her.

The variation of the seasons develops a spirit of
reflection, habits of foresight, and consequently that
creation of capital which is a condition of all
economic progress. In proportion, however, as man's
empire over nature increases, her influence on his
condition diminishes. Under the guidance of science
the power of industry in every country turns local
resources to advantage, and, thanks to commerce,
any people can enjoy the products of every kind of
climate.

In the ages of barbarism nature makes man ; in
the ages of civilisation man makes nature. In the
course of a generation we have seen the same
country, with the same climate, successively occupied
by men plunged in the most abject destitution, and
then by other men enjoying the highest degree of
prosperity. In Australia, where but lately the abori-
gines were feeding on carrion and often died of
hunger, magnificent towns, like Sydney and Mel-
bourne, are now rising, ornamented with all the
splendours of civilisation. In America, on the vast

Production and Productive Labour. 41

plains where the Indian would have for ever con-
tinued to live in misery on the uncertain products of
the chase, the Anglo-Saxons are every day founding
societies of astonishiDg prosperity.

Traverse the world, and it will not be in the
countries most ' favoured by nature that the richest
peoples will be found. It is the right direction of
labour, rather than the fertility of the soil, that con-
tributes to wealth. The value of the land varies
with that of the men who work it ; it is the intelli-
gence and energy of the cultivators which make it
precious.

The powers of civilised man are becoming more
and more competent to annul the effects of natural
differences. The conquests of science in their uni-
versal diffusion will produce a very similar condition
of civilisation in every country. Montesquieu was
right in his assertion : " Bad legislators are those who
enhance the defects of climate, good legislators are
those who oppose them."

§ 5. Influence of Race on the Productiveness
of Labour.

It is impossible to deny that aptitudes and inclina-
tions are different in different races, and that these
are not all equally ready to devote themselves to
labour and the perfecting of its processes. Contrast
the Australian, who will submit to starvation a id
misery rather than cultivate the earth, and the
Chinese, who seems to find his happiness in relentless

42 Elements of Political Economy.

and unceasing toil. Even among Europeans all
nations do not bring the same aptitudes to their
work. Where energy and perseverance are de-
manded the English are without rivals. The French
have more taste and dexterity. Americans are the
greatest adepts in the division of labour and the
invention of machinery. If regard be had to the
work done, the Belgian labourer is the least costly of
any. Further, every country has its specialties : in
marble, Italians are the best workers; in zinc,
the Belgians ; in iron, the English, and in silk, the
French. Extreme cases excepted, education, habits,
beliefs, institutions and laws — in a word, the causes
susceptible of modification, exercise on the product-
iveness of labour a much greater influence than do
flesh and blood, i.e. than the causes which are
hereditary and unalterable.

Man is never sparing of his pains when these are
properly rewarded. Thus Italians, though they are
accused of idleness, brave the risk of fever in the
Roman Campagna, and reap the corn under the
terrible heat of June. Thus, too, the negro in the
United States, since he has obtained his liberty and
the right to hold property, takes care of his hut and
his crop of cotton ; and even in the middle of Africa
the blacks cultivate their fields well whenever they
are in a state of security. In former times, so-
called inferior races, as the Indians of Peru, and the
Aztecs of Mexico, have constructed cities, palaces, and
irrigatory canals, the ruins of which excite astonish-

Production and Productive Labour. 43

ment, while they maintained the highest system
of cultivation in countries which under Europeans
have become impoverished and depopulated. This
affords the most convincing proof that in favouring
production, institutions and laws are more effective
than blood and race.

Since man is capable of perfection, to whatever
race he may belong, he can acquire by means of
education the greater part of the aptitudes in which
he may be deficient.

§ 6. Influence of Philosophic and Religious
Doctrines on the Productiveness of Labour.

In proportion as a philosophic or religious doctrine
is founded on a just conception of man, his destiny
and duties, it is favourable to abundant production
of wealth, to its fair distribution and rational
consumption. Exactly so far as a philosophy or
creed is contrary to reason, it helps to perpetuate
misery and injustice. If the economic condition of
Christians be compared with that of peoples of other
creeds, the difference is at once apparent. Nor can
this difference be attributed to the influence of race,
since many Mussulmans and Hindoos are whites,
while the barbarous and Mohammedan Circassians
of the Caucasus are among the noblest branches of
our race, which certain writers have even called
"Caucasian."

Christianity has been favourable to national
prosperity, because by it labour, simplicity of life,

44 Elements of Political Economy.

and justice in social relations, have been brought
into honour. Again, it has put an end to slavery,
not by commanding its abolition, but by proclaiming
to men that they are brethren and equals. Even i
while preaching indifference to riches it has opened
the sources from which wealth flows. The Christian
communities which have followed most strictly the
spirit of the Gospel have enjoyed the most widely
spread prosperity, and among the Quakers in
England, as Voltaire has remarked, and among the
Mennonites in Holland, no poor can be found.

Notwithstanding the spiritual elevation of his
monotheism the religion of Mohammed, except among
the Moors of Spain, has everywhere been opposed to
economic progress. Its fanaticism has produced
indolence ; its polygamy, the degradation of women ;
and the constant theocratic nature of its government
a diminution of individual energy.

The religion of China, in which the moral element
has longed gained the ascendant over the childish
theogony which it contains, has been most favourable
to labour by making it a duty, jd, might even be
said an act of devotion. Thus on certain festivals
the Emperor himself guides the plough. In Japan,
again, agriculture and industry had reached the
highest pitch of perfection, unaffected by any
European influences. The fields were admirably
cultivated, and comfort widely diffused. Shinto, the
ancient religion of the Japanese, was a worship of
nature of the simplest character, encumbered with

Production and Productive Labour. 45

few rites and superstitions, and enjoining simplicity
and economy not only on the great, but on the
Emperor himself, and on all men the duty of
work.

The aptitude of the Israelites for self-enrichment
is one of the most curious facts in economic
history. In former times they converted the barren
hills of Palestine into a land "flowing with milk
and honey," the comfortable home of a dense popu-
lation. Since their dispersion, by their accumulation
of capital, they have been advancing to the conquest
of the world throughout which they are scattered.
With their superiority in this respect race can have
nothing to do, since their fellow Semites, the Arabs,
have offered obstinate resistance to all economic
progress. Their success is the consequence of their
moral and religious ideas, which have created in
them a second nature wholly devoted to the produc-
tion and capitalisation of wealth. In other ancient
countries labour was despised as the lot of a slave ;
in Israel, on the contrary, the prophets glorified it
as the source of all prosperity, while they blamed
idleness as the mother of vice and suffering.
Manual labour was considered as a means of im-
provement, and even the learned were obliged to
practise it. Sages and their disciples alike guided
the plough, and took as their maxim " labour and
learn." Here are some extracts from the Proverbs
of Solomon :

"He becometh poor that dealeth with a slack

46 Elements of Political Economy.

hand, but the hand of the diligent maketh rich"
(x. 4).

" Go to the ant, thou sluggard, consider her ways and
be wise ; which provideth her meat in the summer,
and gathereth her food in the harvest " (vi. 6 — 8).

" Yet a little sleep, a little slumber, a little folding
of the hands to sleep : so shall thy poverty come
as one that travelleth, and thy want as an armed
man" (vi. 10,11).

The Talmud, on the authority of Psalm cxxviii.,
places the man who works above the merely
pious, and upholds the labour of the hands as
equally honourable with that of the intellect
(Berachot, 17). On this subject some sentences in
the Talmud are truly admirable :

" Great is labour : whoso gives himself to it is
nourished, exalted and ennobled."

" Only he who serves the earth receives its full
bounty."

" Rather gnaw carrion in the streets than have
recourse to charity."

" Whoso teaches not his son a trade brings him
up to be a thief."

Here again is a story from the Talmud : A rabbi,
carrying a plank from his field, was asked if there
were no workmen to save him the trouble. He
replied, " This I do to show the people that labour
is no disgrace. It is only he who shuns it who is
dishonoured." Hence the maxim, "Love labour,
and hate excessive wealth/'

Production and Productive Labour. 47

The regions of the Tigris and Euphrates, now so
desolate, once formed the Persian Empire, renowned
in all antiquity for the fertility of its fields and the
wealth of its towns. This prosperity was due to
the blessing which Zoroastrism, a religion of great
purity and elevation, pronounced upon labour.
Here are some extracts from the Zendavesta in
praise of toil :

" Creator of the corporeal world, Pure One !
What is the increase of the Mazdayacnian law ?

" Then answered Ahura Mazda (Ormuzd, God) :
When one diligently cultivates corn, O holy
Zarathustra. He who cultivates the fruits of the
field cultivates purity" (Vendidad, iii. § 97 — 99.
Bleek's translation).

" Creator of the corporeal world, Pure One !
What is in the third place most acceptable to the
earth ?

" Then answered Ahura Mazda : Where by cul-
tivation there is produced most corn, provender and
fruit-bearing trees ; where dry land is watered, or
the water drained from too moist land."

" Creator of the corporeal world, Pure One !
What is in the fourth place most acceptable to
the earth ?

" Then answered Ahura Mazda : Where most
cattle and beasts of burden are born" (iii. § 11 — 17).

" He who cultivates this earth with the left arm
and the right, with the right arm and the left,
0 holy Zarathustra ! to him it brings wealth.

48 Elements of Political Economy.

Like as a friend to his beloved, she brings to him
issue or riches " (iii. § 84 — 86).

" He who does not cultivate this earth, O holy
Zarathustra, then this earth speaks to him : Man, thou
who dost not cultivate me. Always thou standest
there, going to the doors of others to beg for food.
Always they bring food to thee, thou who beggest
lazily out of doors " (iii. § 91—94).

If some religious doctrines have been singularly
favourable to economic progress, certain errors have
been productive of great evils. Such is the case
with intolerance, that aberration of religious senti-
ment of which it may be said that it is not only a
crime but a mistake — a crime against the majesty of
man, and a great mistake in economy. Thus it was
intolerance which robbed Spain of the Moors with
their perfect system of cultivation, and of the Jews
who created its commerce and procured its financial
credit. It was intolerance, too, that ruined the
Belgian provinces in the sixteenth century, and,
after the revocation of the Edict of Nantes, chased
from France its most industrious inhabitants.
Religious liberty, on the other hand, attracted to
Holland refugees and proscribed persons from every
country, victims of every kind of intolerance ; it
thus contributed greatly to the prosperity of the
united provinces.

Production and Productive Labour. 49

§ 7. The Influence of the Moral Sentiments on
the Productiveness of Labour.

There is not a virtue which does not lead to true
wealth, nor a vice which is not an obstacle to well-
being. As has been well said, " Moral progress
always brings with it an increase of prosperity.
But material progress, unless accompanied by an
equivalent progress in morality, is always the fore-
runner of decline." The circumstances of the
downfall of every great empire of antiquity may
be cited in support of this truth.

A good conscience in a workman means a good
piece of work. When the conscience is bad, the
work will be little and ill done. Prudence leads to
thrift, thrift gives birth to capital, capital makes
labour productive.

Prudence is a mental gift ; it is the seeing future
events as if they were actually present. "Dig
your well before you are thirsty," says the Japanese
proverb. Because they foresee needs yet to come,
men save a portion of what they produce, and thus
collect the means of living in greater comfort and
producing more. The spirit of economy enriches,
not only families, but states. Prussia, which, in the
phrase of Voltaire, was only "the desert of the
Marquis of Brandenburg," has become a powerful
state, thanks to the spirit of order, economy, and
intelligent administration, which imbued its kings,
especially Frederick II., while during the same

E

50 Elements of Political Economy.

period France was being ruined by the extravagance
of the time of Louis XIV.? the immorality of the
Regency, and all the disorders of Louis XV.

According to Montesquieu, the Caribbees break
down a tree in order to gather its fruit. Here we
have improvidence personified. From improvidence
spring drunkenness and intemperance ; these destroy
at once the fruits of labour and the aptitude for
work, and in this way misery is perpetuated.

Credit is only another word for confidence, and
confidence depends on the certainty that engage-
ments will be faithfully observed. Thus this power-
ful lever of commerce rests on a virtue as its
support; where, as in the East, this virtue is not
present, credit also is not to be found.

Perseverance, another virtue, is also a great
economic force. It is by perseverance that the men
of Zealand have justified their assumption of the
proud motto Luctor et emcrgo ("I struggle and sur-
vive ") by twice conquering their territory, the first
time from the sea, the second, from the tyranny of
Spain. It was perseverance, again, that presided
at the birth of the United States, when the first
emigrants had to contend against the climate, disease,
and the savage tribes.

Administrative venality and partiality in dispensing
justice are great obstacles to progress in Russia. Of
this the Emperor is not ignorant, but he knows no
means of remedying the ill.

As M. Le Play remarks in his Etudes sur les

Production and Productive Labour. 51

Ouvriers Europdens (p. 4), "The social rank of the
different classes of workmen is determined by the
degree of development in them of the feeling o/
prudence." If the Flemish communes were so rich
and powerful in the Middle Ages, it was because all
the manly virtues of the labourer prevailed among
them, assiduity, conscientious workmanship, the
spirit of economy, intelligence, carefulness, a feeling
of brotherhood among the members of the corpora-
tion, and, finally, courage to defend their liberties
and privileges.

In his Survey of Political Economy Mr. Macdonell
makes the following very just remarks : " Wherever
there is a great store of wealth there must be a
people living under moral restraint and possessed of
a code of duty, and a land dotted with bursting
stackyards, mapped out into well-tilled fields, and
noisy with the hum of looms and clang of hammers,
is evidence that there is at hand no small portion of
the stuff out of which martyrs and heroes are
formed. Though fine names may not be given to
the qualifications of a busy people, skilled in many
crafts and trades, producing articles cheaply and
well, it is patience and sobriety, and faithfulness
and honesty, that have gained for them eminence "
(ch. v. p. 57).

E 2

52 Elements of Political Economy.

§ 8. The Influence of Justice on the
Productiveness of Labour.

"Seek first justice, and all things else shall be
added to you." The truth of this quotation from
the Gospel can be clearly demonstrated.

Distributive justice consists in treating every man
according to his deserts, rewarding the well-doer,
punishing the ill. This principle, in the economical
order, leads to the maxim, ■ To every man according
to his work." For this maxim to be applied the law
must assure to every one the full enjoyment of the
fruits of his labour. Let him who sows, reap, and
let him who plants the tree, eat of its fruit. You
have performed your task with intelligence, zeal and
care ; you are entitled to good lodgment, good food,
and a provision for your old age. You have been
idle and careless; want and famine shall be your
punishment. Such is the will of justice. It is the
fable of the grasshopper and the ant.

Men have not been wrong when, in confidence in
the power of right, they have pronounced the
celebrated phrase, Fiat justitia, pereat mundus
(" Let justice be done, though the world perish "), or
when at the time of the French Revolution, in
reference to the abolition of slavery, they exclaimed,
" Rather perish our colonies than our principle."

What is absolutely opposed to justice can never
be favourable to the well-being even of those who

Production and Productive Labour. 53

seem to profit by the wrong. Thus it was slavery
which was the main cause of the decline of the
Roman power. In the early days of the Republic
the earth was tilled by freemen, and everywhere
there reigned a prosperity which, if simple, was real
and sound. By dint of constant war this race of
well-to-do, brave, and vigorous peasants, gradually
disappeared. The aristocracy invaded their little
homesteads, as well as the Ager puUicus, or public
land, and formed vast estates, which they cultivated
by means of slaves. Livy records this depopulation
in an expressive sentence : Innumerabilem multitu-
dinem liberorum capitum in eisfuisse locis, quce nunc,
vix seminario exigno militum relido, servitia Romana
ab solitudine vindicant. . . . (" Vast numbers of free-
men used to live in these regions, which now
remain a nursery for scarce a handful of soldiers,
and are only saved from absolute solitude by the
Roman slave gangs.")

Tiberius Gracchus, when on his way to Spain,
saw with grief the deserted condition of the fields,
and afterwards, in his harangues to the people,
painted it in flaming colours : " The wild beasts of
Italy have their lairs to which they can retreat, the
brave men who shed their blood in her cause have
nothing left but light and the air they breathe ;
without houses, without any fixed abode, they
wander from place to place with their wives and
children. They fight and die to advance the wealth
and luxury of the great. They are called masters

54 Elements of Political Economy.

of the world, and have not a foot of ground in their
possession."

In spite of the laws of Licinius and the Gracchi,
and of all the attempts made to re-establish the class
of small proprietors, the process of depopulation
did not stop. Rome was supported by the plunder
and ruin of the provinces by its proconsuls, and the
trial of Verres shows us the hateful brigandage with
which these were effected. It was under the weight
of the iniquities by which she lived that Rome fell.
In the words of Juvenal : Scevior armis luxuria in-
cubuit, vidumque ulciscihcr orbem (Sat. vi. 292).
("A luxury more ruthless than the sword settled
upon Rome and avenged the world she had enslaved.")
When the barbarians arrived they found the empire
almost depopulated.

In the United States the curse of slavery was only
extirpated at the price of the most frightful civil
war known to history, the death of half a million of
men, and the loss of five hundred millions (sterling)
of money.

When the injustice of laws reaches such a point,
that the hopes of most people are set on robbery,
and the most utterly wretched are resorting to crime,
the society is advancing towards its ruin. The
greater the exactness with which the economic
organisation insures the application of justice, the
more eagerly wall men, who naturally make well-
being their aim, betake themselves to labour. To
cite a single example : it is to insure this result that

Production and Productive Labour. 55

patents are granted to inventors, and authors allowed
the copyright of their books.

Besides just laws, there must be just judges to
apply them. This point is of the first importance.
How often do we read in works of history that
"justice caused the kingdom to flourish/ ' " Le
royaume multiplie tellement par la bonne droiture,"
writes the chronicler Joinville, a que le domaine,
c&nsive, rentes et revenus du Boy croissent tons les
ans de moiiieT I borrow from Destutt de Tracy
this wise remark : " Among sensitive beings, whose
interests often clash, justice is the greatest of
blessings ; it alone can pacify them without leaving
to any a cause of complaint."

§ 9. Civil Laws, especially those as to Property,
in their Relation to the Productiveness of
Labour.

Civil laws should be applications of the principles
of justice. They must, therefore, assure to every one
the enjoyment of that which lawfully belongs to him :
cuique suum — " to each man his own." Such is, in
reality, the formula of justice. From this principle
by a direct deduction we reach the most important
of all civil institutions, that of property, which we
define as the exclusive right to use an article within
the limits of reason and law, or, in the admirable
phrase of the Roman code, usque patitur ratio juris.

Aristotle (Politics, i. 3) well characterised property
as " an external instrument necessary to man's exist-

56 Elements of Political Economy.

ence." Property is necessary to man's accomplish-
ment of his destiny, because it is the indispensable
complement of his individuality. Property in all
the fruits of his work must be guaranteed to the
worker. This is the decree of equity, and it is
also the decree of the interests of society. It is
only the certainty that he will enjoy this legitimate
reward of his toil that will impel man to work his best
and his hardest. " Make proprietors and you make
good citizens," says P. L. Courier. "Nothing can
be more beneficial than to give the land to the men
who work it : the more an estate is divided, the more
it will prosper and improve."

§ 10. Influence of Systems of Inheritance on
the Productiveness of Labour.

Differences in the system of inheritance have
a considerable influence on men's activity, and on
the constitution and progress of societies. Tocque-
ville {Democratic en Ame'iHqtce, iii. 3) even asserts
that " whenever human societies undergo any great
change, hidden among its causes is invariably found
the law of inheritance."

An analysis of the motives which impel men to
production establishes the fact that his daily needs
are sufficient to keep the workman to his labour,
and in the case of an exceptionally prudent man,
to induce him to save a little as a provision for his
old age : on the other hand, to bring about great
improvements of which the fruits will only be reaped

Production and Productive Labour. 57

after the lapse of years, the interests of children
must be introduced as an incentive. No one will
plant trees for a stranger to gather their produce.
As La Fontaine puts it, " It is still wonh while to
build, but to begin planting at my age ! " Thus
for the creation and preservation of capital the
institution of inheritance is an essential.

To maintain and increase the productiveness of
labour, is it better that all the real property should
pass to one only of the children, as the English
law desires, or that it should be shared among
them all, as under the French code ? The division
of an estate may sometimes involve inconveni-
ences, but these are as nothing compared to the
immense advantage of making as many families
as possible into proprietors.

Property is the condition and complement of
liberty. Ideally, every family should have its house,
its field, and its instruments of labour, or a title
representing a share in a common capital — a factory,
for example, or some other enterprise. By the regu-
lation of inheritances this ideal is attainable.

§ ii. Influence of Systems of Tenure on the
Productiveness of Labour.

Lands are cultivated sometimes directly by their
owner, sometimes by other persons to whom he
grants the occupation of them under such differ-
ent conditions as mdtayage, leasage, emphyteusis,
&c. Modes of tenure are favourable to production

58 Elements of Political Economy.

in proportion to the completeness with which they
assure to the cultivator both the fruits of his labour
and the benefit of his improvements. Thus tested,
no system is equal to that of absolute proprietorship.
Arthur Young, an economist of the eighteenth cen-
tury well versed in agriculture, says, " Give a small
proprietor a strip of rock, and he will make it into a
garden. The magic of property turns sand into
gold/' In the Pyrenees, in Tuscany, on the slopes
of the Apennines, or at Capri, that shelf of cal-
careous rocks at the entrance of the Gulf of Naples,
famous as the retreat of Tiberius — in all these places
the traveller will see the soil actually created by
man's labour. Terraces of unmortared stones are
constructed on the hill-sides : to these earth is
carried in baskets, and often is carried afresh after
each violent storm. Vines and olives are then
planted, and at the foot of these grow corn and
lupine. The proprietor has created his property
by the sweat of his brow, and affords us an example
of what men will do when they are assured of the
exclusive enjoyment of the fruits of their toil.
Again, Arthur Young tells us that, " with a yearly
tenancy a farmer will ruin the finest soil," and the
misery of the Irish and their wretched system of
cultivation are his proofs. The cultivator cannot
be expected to improve the soil if an increase of
rent continually comes to rob him of the results
of his improvements. As means of forwarding
agricultural progress, hereditary tenancy, emphy-

Production and Productive Labour. 59

teusis, and long leaseholds compete the more closely
with actual proprietorship in exact proportion to the
greater security and permanence of the tenure. A
scale of the different systems of land tenure may
thus be formed, arranged according to the encourage-
ment which they give to labour. The order will
be, in descending scale : —

(1) Proprietorship vested in the cultivator.

(2) Hereditary tenancy or emphyteusis.

(3) Long Leaseholds.

(4) Metayage.

(5) Short leaseholds.

(6) Tenure at will.

§ 12. Influence of Systems of Rewarding
Labour on its Productiveness.

Man will work with so much the more care
and zeal the more exactly his reward is in pro-
portion to the quantity and quality of his labour.
Pay the industrious and the idle workman the
same wages and it will be to the interest of
both to do as little -as possible. Since activity in
labour is thus in proportion to the strength of the
motives which result in it, labourers, compared in
this respect, can be arranged in the following
descending scale : —

(1) Those who keep for themselves all they pro-
duce.

(2) Those who have a share in the profits.

60 Elements of Political Economy.

(3) Those paid according to the work done.

(4) Those paid according to the time they are
supposed to be working.

(5) Slaves, the produce of whose labours belongs
to their masters.

The small proprietor is already in his fields before
the dawn, and at sunset he is still toiling; the
harvest, that is to say his welfare, depends on his
industry. On the other hand, the idleness of
government officials is proverbial, and it is so,
because they are treated the same whatever quan-
tity of work they do. Lastly, slavery, by taking
from man his rights of property as well as of liberty,
has blighted his* labours with barrenness, and it was
slavery which formed the principal obstacle to
material progress among the peoples of antiquity.

§ 13. Influence of Systems of Government on
the Productiveness of Labour.

"Riches," said J. B. Say, in 1803, "are absolutely
independent of political organisation.' ' In this
opinion he was profoundly mistaken. Nothing is
more favourable to the production of wealth than
a good government, nothing more fatal than a bad.
To this the history of all countries and of all eras
bears witness, and its lessons are better understood
by Montesquieu when he tells us " countries are not
prosperous by reason of their fertility, but by reason
of their liberty ; " and by Tocqueville, who writes,

Production and Productive Labour. 61

" I do not know that a single example can be cited,
from the Syrians to the English, of a manufacturing
and commercial people which has not also been a
free one. There is thus a close tie and necessary-
relation between these two things, liberty and
industry."

Liberty is the daughter of reason and the mother
of wealth.

Despotism finds its ordinary result in decay.
Never has this been better exemplified than in the
fall of the Roman Empire. " Thanks to the multi-
plicity of functionaries," says Lactantius, " there
were more tax-consumers in the Empire than tax-
payers, so that the cultivator was ruined by the
exactions to which he was exposed. Fields were
deserted, and lands, once tilled, abandoned, till they
lapsed again into the forest." "The Fiscus" says
Salvienus, writing in the sixth century, "was a
robbery which completed the ruin of the Roman
Empire."

Order, security, liberty, justice, above all, that
organisation of responsibility which assures to the
industrious the fruits of their labours — these are
necessary conditions of the development of wealth ;
and a government will advance this development
in proportion as it guarantees these conditions.
When, as under the old regime, taxes fine the
workers and savers, without touching those who
squander at court the money torn from the culti-
vators, under such a government prudence is shown

62 Elements of Political Economy.

in doing nothing and living from hand to mouth.
When, as in Turkey, the arbitrary exactions of the
treasury increase in proportion to the outward signs
of prosperity, to be or to appear poor is the sole
guarantee of safety.

To be convinced that a bad government is the
worst of scourges it is only necessary to visit the
Turkish provinces, formerly the richest in the Roman
Empire. " The populations of these provinces," says
a traveller, Dr. Lennep, " capable in themselves of
great progress, are stifled in a general atmosphere
of malversation and decay. Beggars are everywhere ;
from top to bottom of the social scale there is
mendicity, theft and extortion. Little work is done
at present, and there will be less in the future.
Commerce is degenerating into peddling, banking
into mere usury; every undertaking is a fraud?
politics are an intrigue, and the system of police
sheer brigandage. The fields are deserted, the
forests devastated, mineral riches neglected, and the
roads, bridges, and all public works falling into ruin."
The grass withers in the footprint of the Turk, not
because the Turk is worse than his neighbours, but
because the Turkish government is detestable.

In the reign of Louis XIV. the same cause pro-
duced the same effects. The Marechal de Vauban,
of whom Saint Simon said that he was " the most
honest man of his time, with a passion for the
public good amounting to madness," wrote, " If any
one is well off he must hide what little comfort he

Production and Productive Labour. 63

has so carefully that his neighbours have no know-
ledge of it. He must even push precaution so far
as to deprive himself of necessaries lest he should
appear to be in easy circumstances " {La Dime
royals).

We pray in the Litany to be delivered from
" plague, pestilence, and famine," and from " battle
and sudden death," but these are only passing evils,
soon repaired by the fruitfulness alike of labour and
marriages. A bad government is a permanent evil,
and, so long as it lasts, the ills it produces go on
increasing. Montesquieu has expressed himself ad-
mirably on this point. " There are two kinds of
poor people," he tells us, " the first made so by the
harshness of the government, and thus incapable of
almost any virtue, since their ^poverty is part of their
slavish lot ; the second only poor because they have
despised or never known the conveniences of life,
and capable of great things since their poverty is
a part of ' their freedom " {Esprit des Lois, xx. 3).
Elsewhere, to explain how liberty enriches a people,
the same author writes, " As a general rule a nation
which is in bondage works rather to preserve than
to acquire, a free nation rather to acquire than
preserve."

§ 14. Influence of Democracy on the Produc-
tiveness of Labour.

In passages not easily forgotten Tocqueville has
shown the influence which democracy exercises on

64 Elements of Political Economy.

the production of wealth. " Every cause," he writes,
" which gives force in the human heart to the love
of the goods of this world, helps to develop commerce
and industry. One of these causes is equality ; and
this favours commerce, not directly by giving men a
love for business, but indirectly by strengthening and
extending in their minds the love of comfort."

Despite the turmoils inseparable from freedom,
the democratic communities of Greece, of Flanders,
and of Italy, all enjoyed exceptional prosperity andg
great renown. The Florentine historian, Machiavelli,
gives as the reason that "the virtue, morality, and
independence of the citizens were more effective in
strengthening the state than their dissensions in
weakening it. A little agitation lends energy to
the mind, and the real promoter of human prosperity
is, not so much peace, as freedom."

Slavery brings about decay by diminishing activity.
* When everything rests crushed beneath the yoke,"
says Kousseau, "it is then that everything perishes
and that the chiefs destroy the people." " Uhi solitudi-
nemfaciunty pacem appellant — they make a wilderness
and call it peace " (Tacitus).

§ 15. Influence of the Freedom of Labour upon
its Productiveness.

Guided by self-interest, where he has any light,
man will devote himself to the most profitable form
of labour. It follows that the more labour is free

Production and Productive Labour. 65

the more it will be productive. Freedom of labour
comprises : —

(1) Freedom to choose a trade. Of this mono-
polies and guilds are the negation.

(2) Freedom to labour wherever one pleases: no
privileges for certain districts ; freedom in the choice
of a dwelling.

(3) Freedom of partnership.

(4) Freedom to buy and sell to the best advantage :
freedom of trade.

(5) Freedom to lend money : abolition of the laws
against usury.

All these liberties, proclaimed by the French Revo-
lution and adopted in England, have since the end of
the last century successively gained a footing in the
different civilised countries. Hence has resulted an
extraordinary increase in the activity and productive-
ness of labour.

Nothing contributes so much to render labour
productive as the free competition of the labourers.
It is a pacific contest to see who will sell the most
and with the greatest profit. Every one is on the
alert, racks his brains, and tries to devise some
saving, some improvement, or some new piece of
machinery. The punishment of those who fail is
embarrassment or misery ; the reward of the
successful comfort and wealth.

Among animals the struggle for existence is
decided by strength of claws and teeth ; among

66 Elements of Political Economy.

barbarians by the sharpness of hatchet and javelin ;
among civilised men by superiority in labour, ' in
invention, and in capital.

§ 16. Influence of Association and Co-operation
on the Productiveness of Labour.

To extinguish a fire twenty or thirty men stand
in a line, forming a chain from the water to the
place of the conflagration ; with one hand they
quickly pass along full buckets, and with the other
return the empty ones. In this way they convey
twenty times the amount of water that could be
brought by each man running between the foun-
tain and the burning building ; and here we have an
illustration of the advantages offered by association.

If a boat has to be launched ten men successively
pushing will never stir it ; if they all push together
she is floated at once. Here we have an illustration
of the advantages of co-operation.

When arranged in an intelligent and orderly
fashion men succeed in doing what a hundred times
the number of isolated individuals would never
accomplish. This important truth is symbolised by
the Roman emblem of a fascis or bundle, and by
the Austrian device Viribus unitis, " By united
strength/'

The division of labour is based upon spontaneous
co-operation. The baker who supplies the teacher
with bread, and the teacher who instructs the baker's
children, are co-operating in a common worki— the

Production and Productive Labour, 67

furnishing man with the food of the body and the
food of the mind. Although they neither know nor
intend it, in reality they are partners.

§ 17. Influence of the Division of Labour on
its Productiveness.

The division of labour consists in parcelling out a
piece of work among those who have to execute it, in
such a manner that each workman shall always do the
game work, or even only a part of the work. A black-
smith forges nails all the year, and with these nails
procures, by means of exchange, everything he needs.
This is the first form of the division of labour.

Again, eighteen different operations are needed
to make a single pin, and each of these is intrusted
to a special workman. This is the second form of
the division of labour.

The principle of the specialisation of functions is
of sp ontaneous application. Every one is disposed to
do the work for which he has an aptitude, and every-
body else profits by his doing it. In the simplest
form of life, as seen among savages, the man devotes
himself to hunting, the woman prepares the food
and clothing.

As human industry progresses, though most of the
work continues to be done in the bosom of the family,
certain separate occupations make their appearance,
such as those of the blacksmith, the worker in
copper, and the potter. Still later, speciality of
occupation, when combined with hereditary succes

F 2

68 Elements of Political Economy.

sion, as in Egypt, gives rise to caste ; when, as in
the Middle Ages, with privileges, to craft guilds.

The division of labour greatly increases its pro-
ductiveness, and thus proportionately diminishes the
price of produce. Pins at from sixpence to ninepence
a thousand, playing cards for sixpence a pack, watches
for from twelve shillings apiece, are all examples of
this cheapness, which will seem wonderful on reflec-
tion. These advantages of the division of labour
proceed from different causes, of which the following
are the chief : —

(1) Increase of skill in the workman from repeat-
ing the same process.

(2) Saving of the time lost in getting to work,
whenever the occupation and tools have to be
changed.

(3) Economy effected in the use of tools, since
each workman now only requires one, whereas, when
there is no division he needs a different tool for
each several operation.

(4) More advantageous employment of the dif-
ferent aptitudes of the workmen, since each is
constantly employed on what he does best ; and a
notable saving in the cost of labour, inasmuch as
where all payments are in proportion to the diffi-
culty of the work, the simpler processes can be
intrusted to weaker or less skilful hands, often
unhappily to those of women and children, and so
are less highly paid.

(5) More frequent employment of machinery to

Production and Productive Labour. 69

replace the workmen, wherever any part of the
work can be reduced to an identical and regular
movement.

(6) The tendency of division of labour to promote
equality by a balance of functions. If the strong
and the weak are set to the same work the strong
will accomplish twice as much as the weak, and,
since the fruits of labour are its legitimate reward,
will be twice as well off. On the other hand, if
they agree to divide their labours between them,
the strong man will cultivate the earth for both,
the weak will prepare the food and clothing, also
for both. In this way, in the first place, both will
be better fed and better clothed, and, in the second,
since the services each renders to the association
balance, they can be equally rewarded. Where ad-
vantage is taken of the diversity of men's aptitudes,
these can be made to contribute equally to the
general production.

The division of labour can be applied with the
greater completeness according to the greater extent
of the market for the produce, the facility of ex-
change, and the perfection of the means of com-
munication. In a village where the customers are
few the farrier will do all kinds of work in which
iron is employed. In a large town, work in iron
will be divided among the farrier, the stove-maker,
the locksmith, and the makers of tools and safes.

When roads are bad and ill-protected, exchanges
are infrequent and difficult, and every group of

70 Elements of Political Economy.

men has to produce on the spot everything which
it consumes. In the villas of Charlemagne the
estate provided food, the women spun and wove
the wool and flax for clothes, and men made their
own tools and agricultural implements. Nowadays,
thanks to railways, steamers, and the good under-
standing that prevails among nations, the whole globe
forms a single market, and in the workshop of the
world every nation has to apply itself to furnish the
produce which the soil and climate allow it to obtain
at the smallest cost.

The market for a given class of goods, that is to say
the portion of the world within which they can be
sold, is of less or greater extent according to the
bulk and weight of the goods when compared with
their value. The market for coal is limited because
the cost of transport is great. The market for
watches and silks embraces the whole world.

Men have not all the same aptitudes, and, in
harmony with this, different aptitudes are required
by different tasks. In each kind of labour, then,
a workman should be employed endowed with the
faculties this labour requires. Iron should be forged
by strong arms; a watch spring be constructed
by a workman with delicate fingers; carving in
wood be done by a man with taste; the direction
of an enterprise be intrusted to the thoughtful
and educated ; in this way labour will attain a
maximum of productiveness. According to our
English maxim we shall have "the right man in

Production and Productive Labour. 71

the right place," or, as Cicero long ago perfectly
expressed it : Ad quas res aptissimi erimus, in Us
potissimum elabordbimus — " We shall be choosing for
our occupation the employments for which we are
best fitted.' '

In order to attain to division of labour between
geographical regions, we must apply free trade be-
tween the different countries. From each of these
we should demand the products for which nature has
given it special advantages : tea from China, coffee
from Brazil and Java, iron from England, wine from
France, wheat from the black lands of the Danube
and of Russia, from the United States cotton, from
India rice. In this way mankind in general will
obtain the most abundant satisfaction of its needs
in exchange for the smallest amount of effort.
Division of labour when applied to the whole globe
makes all men partners in the universal workshop
from which there issues the ever-increasing welfare
of mankind.

Alarm has been felt at the consequences of the
division of the details of labour. What is to become
of the workman who shall devote his whole life to
making pins' heads ? This was the indignant question
evoked by Adam Smith's now classic illustration.
This idea is elaborated by Tocqueville with his
usual profundity. " In proportion," he writes, " as
the principle of the division of labour receives more
complete application, the workman will become more
and more feeble, limited, and dependent. If art

72 Elements of Political Economy.

progress, the artisan will retrograde. The employer
will approach ever more nearly to the administrator
of a great empire, the workman to the condition of
a brute. The difference between them will increase
every day " [La Vdmocratie en Ame'rique, vol. ii.
p. 20). Happily the fears Tocqueville expresses
have not been realised.

The division of labour cannot be carried very
far in agriculture, inasmuch as the tasks to be
performed, the sowing and reaping, succeed one
another. Yet the agricultural labourer is far from
being more intelligent than the manufacturing ; and
it is in manufactures where the division of details
is pushed to an extreme, in the making of watches
and fire-arms, for instance, that the most intelligent
workmen are to be met. It is very fortunate that
this is the case, since the workman must never
be sacrificed to the perfecting of the work, inasmuch
as the goal to be attained is the improvement and
welfare of the human race, and not the mere increase
of wealth.

Nowadays, however, specialisation seems carried
too far. He who works with his hands should
be left some leisure for head-work ; and he who
works with his head should have some hours for
manual labour. Thus Mr. Gladstone cuts down
trees, and Lincoln, the President of the limited
States, used to chop wood. To insure health both of
body and mind, both the one and the other must
be given proper food and exercise.

Production and Productive Labour. 73

The advantages of the division of labour were
remarked by the ancients. Plato, Xenophon, and
Dionysius of Halicarnassus all speak of them. Plato
praises the Egyptians for having always intrusted
the same kind of work to the same workman,
thereby making him more skilful ; and we read in
his Republic (book ii.) : " Would things go better
if each man had several crafts, or if each confined
himself to his own ? Obviously, if each man confined
himself to his own."

The following passage from the Cyropcedia shows
that Xenophon perfectly understood the advantages
of the division, and even of the sub-division, of
labour, as well as the causes which occasion or re-
strict it. " In small cities the same workman makes
beds, doors, ploughs, and furniture ; and often even
builds the houses. A workman occupied with so
many tasks cannot succeed equally well in all. In
a large town, on the other hand, where a number
of the inhabitants have the same needs, a single
craft will suffice for an artisan's support. Sometimes
even he will only exercise one part of his craft, as
when one shoemaker makes soles for men and
another for women ; or one gains a livelihood by
stitching them, another by cutting them out. Ac-
cording to the nature of things a man whose toil
is limited to a single kind of work will excel in
this kind."

74 Elements of Political Economy.

§ 18. Influence of Science Applied to Manufac-
ture on the Productiveness of Labour.

Virgil sang, Felix qui potuit rerum cognoscere
causas — " Happy is he who has knowledge of the
causes of things," and, in very truth, the better he
knows them the better he will be able to profit by
them to his own advantage. In the words of
Bacon, " Knowledge is power," or as the French
philosopher, Victor Cousin, expresses it : " In in-
telligence we have the primitive capital which
contains and produces all others."

Nothing contributes more to increase the pro-
ductiveness of labour than the application to
it of science, that is to say of observation of
the facts and laws of nature. Of this the history
of economic progress furnishes a proof at every
step. .

Primitive man observes that in the forest two dry
branches when rubbed against each other by the
wind, ignite. Imitating the operations of nature, he
bores a hole in a piece of light, dry wood, and in
this hole turns the point of a piece of very hard
wood rapidly round till a flame shoots up. Here
we have the discovery of fire, perhaps the greatest
which man has ever made, a discovery which at
once raised him above the level of the animals. Of
the point of wood he has made an emblem to
be worshipped, and of the flame a supernatural
power — among the Aryans the god Agni. The

Production and Productive Labour. 75

Prometheus of the Greeks, who stole fire from
heaven, is the Pramatha of primitive India, the
point of wood, the rotation of which creates the
flame (from the Sanskrit root math, " to nib ").
At Rome the sacred fire was kept up by the
vestals, and the same is the case in Peru. It .may
only be relighted by means of the friction of sticks
of wood.

A man picks up a flint and makes it into a
hatchet. With this tool in his hand he sallies
forth to conquer the world, as do the American
squatters to this day. Later on he observes that a
bent branch, with its two ends tied with a string,
possesses an elastic force which hurls a dart to a long
distance. Here we have him armed with a bow,
with which he procures much more game than with
the boomerang — the sole weapon known to the
Australians and to prehistoric men. Again, he sees
a tree floating on the water, and concludes that by
hollowing it out he can place himself in it and move
along the surface of the waves. He does so, and
navigation is invented. Once more he perceives
that by fashioning the pieces of stone with which
he meets into particular shapes, he can use them to
hollow wood and to wound and kill animals ; he thus
makes himself knives, saws, and javelin heads, either
in flint or obsidian. After a long interval of time
he learns the use of metals, and replaces these tools
and weapons of stone, at first by copper and bronze,
afterwards by iron. In this way, after an incalculable

76 Elements of Political Economy.

series of happy chances, observations, deductions,
and trials of every kind, man has arrived at the
possession of a metal hatchet or arrow-head. It is
from this point that the industry of civilised aces,
really dates. Starting from this, observations are
grouped together systematically till they become
sciences, and chemistry, physics, mineralogy, and
mechanics multiply their discoveries, and water,
wind, steam, and electricity lend to man's feeble
arms the aid of their colossal powers.

Every process of production in agriculture, in
manufactures, and in the means of transport is
continually being perfected by the application of
new scientific discoveries. The progress of the
useful arts may be summed up in the single
sentence, " every industry becomes a science." A
comparison of the widely different degrees of welfare
enjoyed by different races confirms the truth of
this observation. The savages of Australia live in
the most terrible destitution in the same country
in which Englishmen are overflowing with wealth.
The former know only how to use their hands, the
latter, under the guidance of science, oblige the
forces of nature and properties of matter to help
them in production. The inhabitants of the United
States are in every respect better provided than
those of Brazil. They make greater use of machinery
and scientific processes than do the Brazilians, and
this because among Americans knowledge is much
more widely diffused.

Production and Productive Labour. 77

Progress in the social sciences, philosophy, morals,
law, political economy, and politics, enables man
to gain a better knowledge of himself, to fulfil
his duties, to respect justice, and to organise society.
It thus helps to favour the production of wealth
fully as much as do the natural sciences. Hence
we may conclude that a country desirous of in-
creasing its prosperity should cultivate all the
sciences, and shrink from no sacrifice necessary to
forward their advance or diffuse the knowledge of
their discoveries.

§ 19. Influence of Instruction and Education on
the Productiveness of Labour.

This point has been admirably elucidated by an
Italian economist, Luigi Cossa. Instruction and
education aid in increasing the productiveness of
labour by augmenting, and, still more, by giving a
better direction to the employment of man's powers.
To this end there is needed in the first place a
general and " humane " education ; in the second,
one of a more special and professional character.
In each of these the bodily, mental, and moral
faculties must alike be exercised and cultivated.

The bodily faculties are maintained and improved
by hygienics and by gymnastics, as the Greeks of
old so admirably understood. Thus in the Apologue
of Procidus, Virtue says to Hercules, " Do you wish
your body to be strong ? Remember to accustom

78 Elements of Political Economy.

it to the governance of the soul, and to exercise
it amid fatigue and sweat."

Intellectual culture, in so far as it aims at
increasing the productiveness of labour, in the first
place, must exercise the attention, the memory, and,
above all, the reasoning powers ; in the second,
must instil a knowledge of the laws both of the
physical and moral world, which wield so great
an influence over economic activity. Lastly, the
cultivation of the moral faculties should stimulate
the practical virtues, such as the love of work,
forethought, and the spirit of thrift ; combat vicious
inclinations, such as idleness and prodigality, and
aim at strengthening the whole character so as to
overcome the obstacles of every kind which impede
the path of industrial progress.

To diffuse professional education special institu-
tions must be organised, such as schools of mines,
colleges of agriculture, and technical and industrial
schools of all descriptions. Every expense incurred
with this object will be repaid a hundred fold by the
increase of wealth. For the vast majority of men,
however, as J. S. Mill remarks, the greater aim of
all mental cultivation should be the development of
that common sense which will teach a sound appre-
ciation of the circumstances amid which they live,
and of the consequences which wait upon their
actions.

As an illustration of the manner in which the
ancients understood mental and bodily education,

Production and Productive Labour. 79

we may cite the example of Marcus Aurelius. This
emperor went about his palace in the robe of a
philosopher, slept on a skin stretched on the earth,
studied philosophy, jurisprudence, rhetoric, geometry,
and music, and at the same time devoted several
hours in every day to such bodily exercise as tennis,
running, riding, wrestling, and even boxing.

§ 20. Obstacles Opposed by Ignorance to the
Productiveness of Labour.

If it be true that knowledge is the principal
source of our welfare, the greater part of our mis-
fortunes must be caused by ignorance. Remember-
ing how earnestly man pursues his good, it is plain
that did he know clearly in what it consists, and
above all how it is to be reached, he would certainly
attain all the happiness of which life on this earth
is capable. But amid the intricacies of social life,
man fails to discern where his true interest lies, and,
too often, when there are no just laws to oppose
him. he is ready to sacrifice the good of others to
his own selfishness.

Among carnivorous animals the strong devour
the weak. Among men, since cannibalism has
proved insufficient, the strong have found a more
profitable way of using the weak than eating them,
this is, to force them to labour, while depriving
them, by different methods, of the fruits of their
toil. Hence come slavery, war, revolutions and all

80 Elements of Political Economy.

the train of miseries which, wickedness and violence
have let loose upon mankind.

In ancient times robbery was held the most
honourable way of acquiring wealth. This is plainly
shown by a passage from an heroic song of Tyrtseus,
the patriot poet of Greece. u Everywhere," he sings,
"we reign as masters. Wherever we approach all
things are ours. We reap the vintage with our
lances, our labour is done by our swords." Aristotle
considers war and slave-hunting as legitimate
methods of acquiring wealth. "The art of war,"
he writes, "is a natural method of acquisition.
War is a kind of hunt for such beasts and men as
are born to obey, and yet refuse to be enslaved"
{Politics, i. 5). In a phrase, stamped with all the
sharpness of a Roman medal, Tacitus shows us the
same idea prevailing among the Germans : Nee arare
terram aut exspectare annum tarn facile persuaderis,
qnam vocare hostem et vulnera mereri. Pigrum quin
immo et iners videtur sudore acquirers quod possis
sanguine parare (Germania, xiv.). — " Nor are they
as easily persuaded to plough the earth and
to wait for the year's produce as to challenge an
enemy and earn the honour of wounds. Nay, they
actually think it tame and stupid to acquire by the
sweat of toil what they might win by their blood."
Despite the high aptitudes of their race and the
excellence of their political and communal institu-
tions, the Germans remained barbarians until the
introduction of Christianity. Robbery maintained

Production and Productive Labour. 81

a perpetual state of war both between peoples
and tribes, just as among the Redskins of North
America.

Throughout antiquity, and, despite the teaching
of the Gospel, throughout the Middle Ages, the
sword of the warrior was glorified, and the labourer's
hoe despised. All these fatal errors still linger in
men's minds, and from them proceed national
antagonisms, war, and the spirit of war, and that
curse, perhaps the greatest of all, an armed peace.
This armed peace, it has been calculated, if the loss
of the labour of some three millions of soldiers and
sailors be included, costs the civilised countries some
four hundred millions sterling a year. What a
fruitful source of misery would be dried up if nations
could be led to understand that they have no
interest in ruining and enslaving themselves in
order to filch a province or an estuary ! A single
error expelled from the brains of men, and, above
all, of sovereigns, would suffice to transform the lot
of mankind.

The obstacles to international trade, wars of
tariffs, the unproductive and immoral expenditure
of private persons, the abuses of speculation, the
misconception of charity, bad taxes, the vicious
distribution of wealth, the ill uses to which it is
put by states and unions — all these are so many
impediments to welfare which find their causes
in as many economic errors. Peace, justice, and
brotherhood are to the interests of all : as soon as

G

82 Elements of Political Economy.

this truth shall be more clearly perceived, the
causes of misery will diminish. Whoever is anxious
for man's welfare should strive to dispel ignorance
and root out error.

CHAPTER IV.

GROSS PRODUCT, NET PRODUCT, AND THE COST
OF PRODUCTION.

Gross product is the total of all the commodities
produced by an individual or nation ; net product,
the amount which remains available, when deduction
has been made for the consumption necessary to create
fresh gross product. This deduction, these necessary
advances, constitute the cost of production.

I harvest a hundred quarters of corn — this is
my gross product. But in order to obtain a similar
crop the next year, I must keep myself in food, and
pay for clothing, hire of tools, manure and other
articles I consume. These will cost me the price
of fifty quarters — here we have my cost of produc-
tion. Deducting then from my crop of one hun Ired
quarters, fifty quarters for expenses, I shall have left
fifty quarters, and these constitute my net product.

The productiveness of an industry varies with the
amount of its net product ; but, as Adam Smith has
remarked, it is the gross product which is the more
important for the nation, for it is on the mass of

Production and Productive Labour. 83

commodities destined for consumption that the
nation is supported. By dividing, in the case of
any country, this total mass by the number of the
population, a figure will be obtained which will give
an idea of the average of individual welfare. The
net, as distinguished from the gross product, is the
support of all persons not directly engaged in any
business, such as stockholders, officers of govern-
ment, doctors, barristers, &c. It is in England that
this net product is greatest, for it is in this country
that the greatest number of people are found outside
the occupations which have directly to do with
matter. The net produce of a nation is that part
of the total produce which is not necessary for
reproduction. It is this part which economy
can capitalise, i.e. turn into capital by using it
to create fresh instruments of labour: it is this
part which is so often frittered away in foolish
extravagance.

CHAPTER V.

CAPITAL.

§ i. Different Kinds of Capital.

The third factor in production is capital, which
may be denned as any product of labour saved and
employed for fresh production. Capital is thus, as
has been said, accumulated labour. A spade, a saw,

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84 Elements of Political Economy.

a plough are all capital : men's hands have made
them, and now employ them for the creation of
commodities.

All wealth is not capital. Thus the earth, our
chief riches, cannot be reckoned as capital, since it
is not the work of man. A beautiful hunter is
wealth ; it is not capital, since it is not employed in
production. It is the character of the employment
which determines whether a thing is or is not
capital. Thus the same horse, if used for carrying
letters, becomes capital, since it contributes to the
production of commodities.

Capital is not productive of itself. Labour is
the only active force. But labour cannot produce
abundantly without the help of capital. If a man
scratched the earth with his nails, he would never
draw from it a subsistence ; but armed with the
spade or plough he need want for nothing. The
qualities, aptitudes, and knowledge of the con-
tributors to production may be considered as
immaterial capital, since they are the results of
past labour applied to new. Labour, which is often
called "the poor man's capital," is not really capital.
Labour is an act, capital the result of an act.

Capital is divided into fixed and circulating. Fixed
or sunken capital is capital not consumed in each
operation of production. It subsists, is used for
successive operations, only renews itself slowly,
and yields a profit without changing owners. This
kind of capital comprehends : (i.) buildings destined

Production and Productive Labour. 85

for manufactures ; (ii.) machines and implements ;
(iii.) improvements absorbed by the soil, such as
inclosures, hedges, galleries in mines, &c.

Circulating or floating capital is consumed at each
operation and reappears transformed into new pro-
ducts. At each sale of these products the capital
is represented in cash, and it is from its transfor-
mations that profit is derived. Floating capital
includes : (i.) raw materials destined for fabrication,
such as wool and flax ; (ii.) products in the ware-
houses of manufacturers or merchants, such as cloth
and linen ; (iii.) money for wages, and stores.

On a farm the implements of husbandry and
beasts of draught that work them are the fixed
capital ; the cattle for sale, the crops and the money
in the cash-box, the circulating. The difference
between the two forms of capital depends on the
destination for which they are intended. Coin is
fixed capital for a whole country, just as a railroad ;
for the manufacturer it is circulating capital. Wages
to the master who pays them are circulating capital,
to the workmen to whom they are paid they are
merely incomings.

In each kind of industry a normal proportion
exists between the two kinds of capital. A banker
or a merchant possesses only circulating capital.
On a railroad the capital is nearly all fixed.

It is unsafe for a manufacturer to have an
insufficient floating capital, for this obliges him to
depend largely on credit, which may be his ruin.

86 Elements of Political Economy.

For a country it is unsafe to increase too rapidly
the amount of fixed capital. If this be done there
results a crisis such as that of 1847 in Europe, and
those of 1856 and 1873 in America, all of which
arose from the construction of too many railways.

J. S. Mill was inaccurate in his assertion,
" industry is limited by capital." On the contrary,
certain inventions, and even certain combinations,
have the effect of greatly increasing the power of
industry by diminishing the amount of capital it
need employ. Thus, as we have seen, the division
of labour permits a great economy of implements.
A steam engine, again, for navigation, while obtain-
ing the same motive power, costs and burns much
less than thirty years ago. It is especially by the
more scientific employment of the forces of nature
that the power of industry has been increased.

Capital by immobilising the labour of to-day saves
that of to-morrow. In primitive times a Rebecca
goes to the well to fetch water which she carries
in a pitcher on her head. Here the pitcher is the
only capital employed, but the journey to and fro
consumes much time. Later on, a well is dug and
a pump built. The capital sunk is greater, but the
daily labour much less. At last, and at considerable
cost, waterworks are constructed. The capital em-
ployed in making the conduits, &c, is now ten or
twenty times greater ; but a tap has only to be
turned, and more water is procured than Rebecca
could have fetched if she had run about all day.

Production and Productive Labour. 87

§ 2. The Formation of Capital.

Capital is the offspring of saving. If the means
of subsistence for three days are procured by the
labour of one, and the two days of leisure are
employed in making a spade, with which more
produce can be obtained from the earth and in less
time, the amount of spare time will be further
increased, and it will be more easy to construct
fresh implements. Every step in advance renders
it easier to make still greater strides. This example
supplies a key to all the mysteries of the creation of
capital. For the spade to be made, the previous
labour must have left a surplus, which is the net
produce, and for this surplus to be employed, not in
idle enjoyment, but in the construction of a useful
implement, the labourer must possess the virtue
of prudence to induce him to sacrifice a present
enjoyment to a future gain.

To put by wealth for the future constitutes
saving, but to consume this wealth in making an
article which will enable future commodities to be
produced with less exertion is the best form which
saving can take. To save by creating capital is thus
no mere abstention from consumption, it is consump-
tion so regulated as to give birth to an instrument
which will increase production, and consequently
consumption also. During the two days devoted
to making the spade sustenance is consumed. If
the time had been passed in amusement, exactly the

88 Elements of Political Economy.

same amount would have been consumed. The
difference is that the saver, thanks to his spade,
is better off for the future, while the spendthrift
must continue to scratch the earth with his hands.
The error is thus manifest of those who believe that
the saving which creates capital is a check on the
consumption and circulation of wealth, or, in the
popular phrase, is " bad for trade."

The crowd curses the avaricious miser and praises
the spendthrift with its usual folly. Miser and
spendthrift are alike foolish, but the first only-
wrongs himself, the second harms others also.

The creation of capital by saving will increase
with every increase of the productiveness of labour
and of men's inclination to thrift. Where a day's
labour produces a bare day's sustenance, the creation
of capital by saving is an impossibility. As soon,
however, as labour becomes more productive so that
one day's work produces enough sustenance for three,
there is a net produce available of food for two
days. This food can be made the means of pro-
ducing instruments of labour, and it will be used
for this purpose if the owner of it is disposed to
save. This disposition is the result of habits
acquired in childhood, at school for instance, of the
customs of the country, of public opinion, of the
safety and facility of investment, and lastly of the
profits which investments can return.

Saving is permanent and really useful to society
only when it results in the creation of fresh capital.

Production and Productive Labour. 89

The greater the destitution of an individual or
country, the greater are at once the necessity and
the difficulty of saving. Hence the obstacles a poor
nation has to encounter in escaping from its des-
titution. On the other hand, the possession of a
capital to begin with, by increasing the productiveness
of labour, facilitates the acquisition of fresh capital.
Hence the increase of national wealth advances at
an accelerating speed, and " to him who hath, more
is given."

It is the spirit of economy shown in the creacion
of capital which has successively raised Holland,
England, and the United States to power. It is
an ignorant prodigality, shown in the destruction
of capital, which completed the ruin of Spain
from the time of Philip II. to the end of the last
century.

§ 3. Tools and Machinery.

Among the objects which constitute capital it
is especially tools and machines that render labour
productive. Aristotle speaks of man as a " political
animal," i.e. as suited for a social life. Adam Smith
remarked that " man is the only animal that makes
exchanges." Franklin speaks of him as " a tool-
making animal." Thus it is from association, from
exchange, and from tools that mankind derives its
power over nature, or, in other words, its welfare
and civilisation.

Everything over and above man's teeth and nails,

90 Elements of Political Economy.

that assists labour, is a tool. A machine is a tool,
only it is a tool set in motion, no longer by human
muscles, but by the forces of nature, by a " motor."
Thus, as has been shown, the history of the
progress of tools is the history of the progress
of civilisation.

Industry has had recourse to motors of ever
increasing power, and ever better adapted to its
needs, first to the domesticated animals, then to
water, then to wind, then to steam, then to
electricity, which last is as yet in its infancy.

The advantages of machines are many and
great. They may be briefly enumerated as
follows : —

(i.) They bring into man's service forces of almost
limitless extent. It is reckoned that the power of
the machinery worked by steam in the civilised
countries is equivalent to that of fourteen million
horses, or of more than two hundred and eighty
million slaves. Besides this there are in the world
locomotives with a total power of twenty million
horses, and steam vessels of another four million.
The horse power of these calculations is equal to
that of at least two real horses, and thus we have
an equivalent for forty-eight million horses working
at the transport of men and their goods. In fixed
machinery, France possesses three million horse
power, and Belgium half a million. Reckoning
this unit of horse power as equal to the power of
twenty-one men, we find that to each French and

Production and Productive Labour. 91

Belgian family there are five iron slaves, always
ready, never tired, and amply nourished by a small
supply of coal.

In ancient times, slaves, as we may read in the
Odyssey, used to crush corn by hand in stone
mortars. Later on, like Plautus, they were set to
turn a mill. Towards the end of the Roman
Republic there was introduced from Asia the
water-mill. Antiparos, a Greek poet, celebrates
as follows this labour of nature in the service of
man, the marvel from which has issued every
improvement in production. "Slaves who turn
the mill, spare your toil and sleep in peace. It
is to no purpose that the cock's shrill tones herald
the dawn ; take ye your sleep. By command of
Ceres, the task of the young maidens is performed
by Naiads, and these are now bounding in all their
agile brilliancy upon the turning wheel. Let us
live the happy life of our fathers, and enjoy at
our ease the bounty which the goddess showers
upon us.w Machinery thus creates either leisure,
or, if the will exists to employ this leisure in further
production, additional wealth.

(ii.) Thanks to these mighty forces, men now
execute enormous works which are the wonders
of our time — the tunnels of Mont Cenis and the
Saint Gothard, and those that are in progress under
the Simplon and the Pyrenees; canals across the
isthmuses of Suez and Panama which change the
constitution of continents and the highways of

92 Elements of Political Economy.

commerce ; the draining of the lake of Harlem,
working of mines at three and four thousand feet
below sea level, a telegraph that encircles the entire
globe with a network of wire along which human
thoughts circulate with the swiftness of lightning.

(iii.) Machinery releases man from mechanical
labour. With the foresight usual to genius, Aristotle
wrote, " If a tool could anticipate and execute the
workman's orders, if the shuttle could transverse the
woof of its own accord, art would have no more need
of labourers, or masters of slaves."

(iv.) Machinery multiplies, sometimes enormously,
the amount of produce which a given number of
workmen can turn, out. In cotton-spinning a single
workman in charge of five hundred spindles does the
work of a thousand spinners by hand. In the same
way, a knitting machine in a given time makes six
thousand times as many stitches as a good work-
woman.

(v.) The rapidity with which work is done spares
manual labour, and, as a result, cheapens the price
of all machine-made articles. Lucifer matches can
thus be sold at a penny the box of over a hundred,
and a number of the New York Herald, containing
as much matter as two volumes of 500 pages, 8vo,
for five cents, or about twopence-halfpenny.

(vi.) Machinery does its work with perfect regularity
and mathematical precision, witness its division of a
metre into thousandth parts.

(vii.) Machinery makes the best use of raw

Production and Productive Labour. 93

materials ; thus a steam saw can cut up the thinnest
planks.

(viii.) Machinery brings within a workman's means
a whole host of useful and agreeable articles, once
the exclusive property of the rich ; for instance,
printed cottons, which are no longer luxuries.

(ix.) The tendency of machinery is thus to promote
equality among men, and it is consequently the
cause and the ally of all democratic progress.
Books and travelling are nowadays accessible
to all.

Certain kinds of machinery are open to the
reproach of sometimes imposing on workmen labours
which exhaust and emaciate them, or give rise to
special diseases. On the other hand, however, the
old low, ill- ventilated rooms are now replaced by large
workshops, in which the rules of hygiene are usually
observed. It is the duty of employers, and failing
these, of the state, to obviate the evils which may
sometimes accompany the use of machinery. The
science which invents the machines, provides the
means for their safe employment.

§ 4. Does Machinery diminish the Employment
and Wages of Workmen ?

This is the present state of affairs in Europe. The
country in which industry employs most machines
is England, and England is also the country in,
which industry employs most workmen. The country
in which industry employs fewest machines is

94 Elements of Political Economy.

Russia, and Russia is also the country in which
industry employs fewest workmen. Thus, far from
diminishing employment, machinery actually increases
the number of workmen. The explanation of this
may be stated as follows.

A great proprietor maintains on his estate a
hundred workmen who labour for him. He invents
sundry machines, which enable him to save one-half
of the manual labour, so that for the future fifty men
are sufficient to do all his work. Will he then leave
the other fifty, whose labour is no longer necessary,
unemployed, and cast into the sea, as useless, the food
with which they were nourished ? Certainly not.
He will continue to support them, and will employ
them to do him fresh services. The same number
of workmen will be employed, but more commodities
will be produced, and more wants satisfied.

Take another case : the proprietor may content
himself with the old amount of produce, and reduce
by a half the number of hours he requires his hundred
retainers to work. If he does this, the machines will
have created additional leisure, instead of additional
products. If all his rational wants were already
satisfied, the second course will be the wiser ; if this
was not so, it is the first that will prevail. A country,
viewed as one great consumer, is in exactly the
position of this proprietor.

What happens is really this. Machinery shortens
labour, and saves hand-work. The economy of hand-
work lowers the prices of all fabrics, and with the

Production and Productive Labour. 95

fall in price of these articles, the consumers have
money available, with which they purchase other
commodities. Workmen, whom the new machinery
has temporarily thrown out of employment, are again
taken on to make the articles which are the objects
of the new demand. Since the employment of work-
men remains the same, while the means of subsist-
ence does not diminish, there will be no reduction of
wages. On the contrary, the working classes will be
benefited, since with the same wages they will be
able to purchase a greater amount of the com-
modities whose prices have been lowered by the
use of machinery.

§ 5. How Machinery may compel Workmen to
change their Occupation.

If consumers employ the money which machinery
enables them to save, in purchasing a greater amount
of the goods thus cheapened, all the workmen may
continue to work at this industry, employed in
producing greater quantities to meet the increased
demand. In this case the only difference will be
that wants will be more largely satisfied.

If, however, the consumers prefer to purchase new
products, workmen will be obliged to take to new
industiies. Often they will only be able to do this
slowly and with difficulty ; sometimes they will be
unable to do it at all, will suffer, perhaps even
succumb. They will have to endure a crisis. This
crisis will be of greater severity, if the new industry

96 Elemnets of Political Economy.

is situated in another province, and worse still if it
is transferred to another country. As soon, however,
as it is passed, the same number of workmen will be
employed, only there will have been a displacement
which will leave more workmen in one place and
fewer in another. A crisis of this sort was suffered
in Flanders, when spinning machines broke the
spindle in the hands of the country spinning women,
and summoned a new class of workwomen to the
factories at Ghent.

In these instances, happily of rare occurrence, it is
the duty of employers of labour and of public bodies
to come to the aid of the dispossessed workmen by
instructing them, by facilitating their migration, and
even by giving them actual help, as was done in
Flanders in 1847. The new machinery benefits
society at large, it is, therefore, intolerable that the
workman, who is not responsible for the modifications
introduced into industry, should be made their
victim. Since he is deprived of his livelihood in
the interests of the public good, he has a right,
should he need it, to an indemnity, and the machinery
which has increased production, affords the means
of paying it.

§ 6. How Machinery increases the Employment
of Workmen.

Thanks to machinery, the earth produces more
new sources of wealth are being discovered, and
works are multiplying on every side. In this way

Production and Productive Labour. 97

more workmen are employed, and at the same time
there are more commodities to satisfy their hunger,
their need of clothing, and their other wants. The
number is incalculable of the workmen employed
in industries which machinery has created, such as
railroads, post offices, telegraphs, steamships, mines,
great manufactories, and the construction of machines
themselves. Printing employs twenty times more
workmen than there were ever copyists transcribing
manuscripts. Transport, again, demands the services
of a hundred times the number of people it used to
employ when people and produce grew up side by
side.

J. S. Mill has remarked with profound sadness,
that it is doubtful if hitherto all the machines that
have been invented have decreased the sum of human
labour by a single hour. Far from the hours of
labour being decreased, far more men work at present
and work for a longer time. Formerly the night
brought sleep to all, and the Sabbath, rest. Now
numbers are kept at work all night, on railroads, on
ships, in the depths of coal mines, in blast furnaces,
in sugar refineries, at offices, and even in the laboratory
or library of the student, everywhere in fact where
industrial process may not be interrupted, and the
activity of modern life forbids delay. Man is harassed
and consumed by these indefatigable iron slaves
which he commands, but which he has also to serve,
and whose activity " doth make the night joint-
labourer to the day."

H

98 Elements of Political Economy.

The immediate remedy for this excess of toil is
to preserve with all possible scrupulousness, at least
one day out of the seven to be spent in complete
rest by those who are incessantly occupied with
daily toil. Hereafter, when all rational wants are
satisfied, machines will be required to cease the
incessant increase of productions, and create more
leisure for that true life, which, as the Greeks so well
understood, is the life of the soul.

CHAPTEK VI.

THE ESTABLISHMENT OF AN EQUILIBRIUM BETWEEN
PRODUCTION AND CONSUMPTION.

When so many and such powerful machines are
seen at work on every side, the question arises as to
how this enormous and ever-increasing quantity of
products will find purchasers and consumers. Will
not the lack of an outlet some day produce a
glut?

Economists reply that a general glut is impossible,
since it is a fundamental principle that "products
exchange for products," and thus if everybody who
may wish to exchange offers twice as much as
heretofore, the exchange will be effected exactly the
same, the equation will be maintained, and the sole
difference will be that every one will give and receive

Production and Productive Labour. 99

twice as much. A partial glut, however, is perfectly
possible, if some one industry greatly increases its
production while its customers have neither the wish
nor the means to buy the surplus thus created. In
the first of the cases they contemplate, economists
have made an unfair use of mathematical formulas.
Even if we suppose a general and identical increase
of production a glut might arise, since the consump-
tion of the various commodities could not possibly
increase at a uniform rate. If twice the number of
hats were made it is very unlikely that they would
all be sold.

The true answer to our problem is that when there
is a lack of equilibrium between production and
consumption certain influences come into play which
tend to restore this in the following way.

First Case. — Too few shoes are made. Those
desirous of them will bid against each other for
their possession. The price will rise, and shoemakers,
gaining a greater profit, will make a greater number
of shoes till the equilibrium is established.

Second Case. — Too many shoes are made. To sell the
surplus shoemakers will lower their prices. This will
have two results : first, the fall of prices will increase
the number of consumers ; secondly, shoemakers,
finding themselves at a loss, will make fewer shoes,
until the equilibrium is here again established.

In this way, by the fluctuation between the rise
and fall of prices a certain equilibrium, though
always an unstable one, tends to be established

H 2

100 Elements of Political Economy.

about the point at which production satisfies
consumption.

CHAPTER VII.

CLASSIFICATION OF USEFUL OCCUPATIONS.

The time-honoured classification of the different
branches of production, and the one usually illustrated
in sculpture and painting on public monuments, is
that which distinguishes them into agriculture,
manufacture, and commerce.

In international exhibitions the order followed is
often that of the completion of the products and
according to the wants which these supply. Raw
materials and articles of food, building, furniture,
clothing, artistic manufactures, and the fine arts.

The following is an expansion of a classification
based on the actual nature of the labour, proposed
by M. Dunoyer. This distinguishes —

I. Labours which have to do with men, and consist
in the rendering of services.

II. Labours which have to do with things, and
produce material commodities.

These may be subdivided into —

(i.) Extractive industries, which demand from
nature useful substances without either modifying
these or preserving the sources from which they are
obtained. Such are the gathering of wild fruits,

Production and Productive Labour. 101

fishing, hunting, and the working of virgin forests,
mines and quarries.

(ii.) Agriculture, which also extracts commodities
from the soil, but preserves in good condition the
sources of their production ; and above all sets in
motion the organic force called life, which multiplies
both vegetation and animals.

(iii.) Manufactures, which receive the materials
obtained by the two preceding kinds of labour, and
by the help of physical and chemical forces so
fashion them that the made-up articles are able to
satisfy the different human wants. Thus out of wool
is made cloth, and out of flax, linen.

(iv.) Commerce, which summons goods to where
they are wanted, and preserves, unites, and divides
them to suit the convenience of consumers.

(v.) Transport, which conveys men and articles to
the places where they are of the greatest use.

CHAPTER VIII.

OCCUPATIONS WHICH HAVE TO DO WITH MEN.

It has been maintained that such occupations as
those of the physician or the magistrate, although
useful and even necessary, are not productive, since
they do not produce any of those material objects
with which political economy is alone concerned. A

102 Elements of Political Economy.

more careful analysis would have made it plain that
any useful labour is necessarily productive, since in
this case the two adjectives have nearly the same
meaning. Those who render services to their fellows
by procuring them greater security, health, or instruc-
tion, ought to be regarded as the partners of the
labourers who work upon material objects. In the
social workshop they are indirect producers, and we
have here an application of the division of labour.

If a farmer could not rely on the services of the
policeman, the magistrate and the schoolmaster, he
would have to spend his time in teaching his
children, guarding his stacks, and judging crimes
and suits. Thanks to the help of the members of
special professions he is able to devote all his time to
his farm. In this way more products are obtained,
and every article is better made.

Once more, the labours which aim at giving
society security, justice, health, and instruction are
by far the most productive of any, since without
these the work of production languishes or dies
outright. Capital is secreted or never amassed,
manufacture dares not spread its wings, credit hardly
exists, commerce is timid, or a nonentity. Of all
this the East furnishes an example.

Production and Productive Labour. 103

CHAPTER IX.

OCCUPATIONS CONCERNED WITH THINGS.

§ i. Extractive Industries.

In prehistoric times, as among the populations
which still remain in savagery, the gathering wild
fruits, fishing, and the chase supply man with all he
consumes, the food he eats, and the skins with which
he is clothed. In the Europe of to-day gathering
wild fruits is little more than a memorial of the
golden age, and hunting a pleasure which costs more
than it returns. Only fishing has preserved any
importance. This still everywhere furnishes a notable
amount of a light and nutritious food. In Norway
it is estimated to produce as much as agriculture.
Moreover, it has played a great part in history by
furnishing ships of war with their best sailors, a
service which in some countries has rendered it the
object of sometimes undue encouragement. The
process of barrelling herrings, invented by Willem
Benkels, of Biervliet, created the large fisheries of
Holland, and these were the training school of those
'* sea-beggars " who beat the Spaniards, and of the
fearless sailors who carried the flag of the Nether-
lands on every sea.

The working of mines in our own days has made
an immense stride. Besides the precious metals the

104 Elements of Political Economy.

ancients extracted from the soil copper, tin, and iron,
but all in small quantities. To-day the mining
industry is the basis of every other, since it supplies
the coal which has been well called " the bread of
industries."

Iron, again, is of such importance that it is said
that the material prosperity of a country may be
measured by the amount of this metal which it
consumes. The statistics of a single one of its
branches will suffice to give an idea of the present
importance of the mining industry. In 1880 there
were produced three hundred and forty-three million
tons of coal, the value of which, at the very low price
of eight shillings a ton, would be 137,200,000/.

All the extractive industries have the unfortunate
characteristic of exhausting the sources of their
production, 'which they are powerless either to create
or in any sensible degree reconstitute. Pisciculture
may transform fishing into an "agriculture of the
rivers and sea," and on this account deserves the
utmost consideration, both of the State and of
individuals.

But what are men to do when they once have
burnt the layers of combustible matter which repre-
sent the accumulated forests of the geological eras
and the warmth of the sun stored in the secondary
strata ? It is calculated that in Europe there is
coal enough to last for three or four centuries, but
scarcity will make itself felt long before the complete
exhaustion of the supply. Already in many countries

Production and Productive Labour. 105

iron, lead, zinc, and copper are becoming rare. Every
store that cannot be renewed must end by being
exhausted.

To whom, in the interests of production, should
mines belong ? In England they are the property
of the owners of the surface. In France and
Belgium by the law of 1810 they are assigned to
the State, which concedes the right of working them
to individuals, reserving to itself a rent and general
supervision. The French system appears the better
of the two, since it avoids subdivision, and allows of
concessions being granted such extension as may
be most adapted to a wise system of working.

§ 2. Agriculture.

The ancients held, and rightly, that no other
labour is at once as good for mind and body, and so
worthy of a free man as agriculture. In the fine
words of Cicero : " Omnium rerum ex quibus aliquid
acquiritur, nihil est agricultura melius : nihil nberius,
nihil dulcius, nihil homine libero dignius (De Officiis, i.
42). Elsewhere he again remarks that the pleasures
of those who till the soil are almost as elevated as
those of the philosophic life. Voluptates agricolarum
mihi ad sapientis vitam proxime videntur accedere.
Cato the Elder pronounces this fine eulogy on
agriculture : Pius qucestus, stdbilissimus, minimeque
invidiosus. Minimeque male cogitantes sunt qui in eo
studio occupati sunt {Cato Major, 15, § 51). "Holy
calling, most steadfast and most free from envy : they

106 Elements of Political Economy.

who engage in this pursuit have their thoughts least
set on evil." Xenophon in the Country Economy of
Ischomachos paints the life of a Greek farmer in all
its happiness and social usefulness. Horace is never
tired of vaunting the felicity of the country life :
Beatus Me qui . . . paterna rura bobus exercet suis,
solutus omni fcenore (Epode ii). The type of those
brave peasants who used the same hand to guide the
plough and wield the spear, like Cincinnatus, was
always admired by the Romans, especially in the
days of the decline.

At the present time attention and encouragement
are exclusively given to the manufacturing industries.
This is a mistake. If it be more important to make
men healthy and happy, than to incessantly increase
production, it is agriculture that deserves every
advantage. Sully's saying will always be right :
" Tillage and pasturage are the two breasts of the
State."

Quesnay and his disciples, who, from their desire
to regulate societies by the order of nature, were
called physiocrates, maintained that the labour of the
farmer is the only one which leaves a surplus on
which the other professions can live. On the other
hand, Destutt de Tracy asserts that a farm is only a
factory like any other.

As to the essence of the matter in dispute, the
physiocrates were in the right. Undoubtedly, despite
their arguments, the other industries are productive,
since they increase the utility of things by rendering

Production and Productive Labour. 107

them fit for our use ; but the farmer sets at work
not only physical and chemical but also vital forces,
and thus multiplies commodities. He sows one
grain of corn and reaps twenty ; this year he has a
couple of sheep, in a few years he will have a flock.
Agriculture is the first of industries, because it is
the foundation of all the others. These can only
increase the number of persons they employ, if the
farms supply them with more food.

Real civilisation dates from the day when man
first intrusted a grain of corn to the soil ; from that
day forward it has been his interest to live at peace
with his fellows. So long as he was supported by
the chase or even by cattle-farming, disputes might
arise as to the run of the game or the pastures of
the flocks. It was at this time that Hobbe's atrocious
phrase, Homo homini lupus, man a wolf to his fellow,
was really true. As soon as he drew his subsistence
from the soil, a subsistence extracted by the sweat of
his brow, man was forced to desire that justice should
take the place of violence, in order that he might
gather in security the fruits of his toil.

§ 3. The Progress of Agriculture.

The domestication of animals preceded agriculture,
and was a great step in the progress of primitive
man, whose meal no longer depended on a chance
javelin shot, but was always ready at hand. The
pastoral system has lasted unaltered in certain
countries adapted to it, such as Arabia and Tartary.

108 Elements of Political Economy.

It is still the most advantageous in countries where
at the outset population is scarce and pasture lands
extensive, as in Australia, Natal, and the pampas of
La Plata.

Agricultural progress has consisted in obtaining
from the same space a larger amount of produce by
the employment of better processes and larger
capital. From being extensive cultivation has
become intensive. This truth has been well ex-
pressed by Palladius, a Latin agriculturist of the
fourth century, who summed up the works of his
three illustrious predecessors, Cato, Varro, and
Columella. His words are : Fecundior est culta exi-
guitas quam magnitude* neglecta. " A little field well
tilled is more productive than a large one neglected/'

At the outset cultivation was intermittent and at
times even nomadic. The surface soil was burnt
and a crop obtained from the ashes ; eighteen or
twenty years had then to elapse for spontaneous
vegetation to restore to the soil its elements of
fertility.

At a later date, by the side of the large tracts
reserved as pasturesy the arable land lies fallow every
other year in biennial rotation, or one year in three
in triennial. Still later, the earth is given no rest at
all, but by alternating cereals with fodder and roots
is made to yield a harvest every year. Finally, by
continually increasing the amount of manure, by the
system of "stolen crops," two harvests may be
obtained in a single year. Thus, the fundamental

Production and Productive Labour. 109

principle of agriculture is to restore to the soil as
much as is taken from it, and even to add fresh
fertilizing matter such as lime, chalk, Peruvian
guano, phosphates, ditch mud, and the sewage of
towns. Thievish cultivation, Baubcullur, as the great
chemist Liebig well called it, sterilises the most
productive regions, such as those of Sicily and
Algeria, once the granaries of ancient Rome.

The forms of property have passed through a
similar development to those of cultivation. Origi-
nally collective and communal, it came, later on, to
belong to the family and finally to the individual.

In Belgium the different agricultural regions still
present a picture of the successive stages of agri-
cultural progress, and the most primitive methods of
cultivation are to be found in the districts geologically
the most ancient and the most elevated. On the
plateau of the Ardennes, the first schists which
emerged from the primitive ocean, the collective
lands of the commune are prepared by fire, every
fifteen or twenty years to give a crop of rye. The soil
of Condroz, built upon limestone or on schists more
recent than those of the Ardennes, is cultivated by a
triennial rotation. The biennial system is dominant on
the clay of the herbage ; finally, on the modern and
well cultivated sands of Flanders prevails the inten-
sive system of high farming and double crops. Thus
in ascending, stage by stage, from the cea board to
Luxembourg the traveller ascends at once the scale
of altitudes, epochs of agriculture, and geological eras.

110 Elements of Political Economy.

§ 4. Large and Small Farming.

It is often discussed whether preference should be
given to large or small farming. Large farming may
be taken as cultivating an extent of more than a
hundred acres, small farming as working less than
twenty-five.

If it is above all things advantageous to a country
to be inhabited by a vigorous race of proud and inde-
pendent peasant proprietors, like that of Rome in the
early days of the republic, or those of Switzerland,
France, and Norway in our. own times, small farming,
united with peasant proprietorship, is far superior to
large. It may be added that, except in England,
small farming everywhere yields a larger gross, and
even a larger net product. To be convinced of this
it is only necessary to compare districts respectively
of large and small farming in the different countries
of Europe ; in Italy, the small poderi of Tuscany
with the latifundia of the Roman States and Sicily ;
in Spain, the bare plains of Castille with the neigh-
bourhood of Barcelona or Valentia ; in Portugal, the
desert wastes of Alementego with the smiling afora-
mentos of the northern provinces; in France, the
departments of the centre with those of the north ;
in Prussia, the provinces of the East with those
of the Rhine ; and in Belgium, Flanders with
Condroz.

In England large farming and large properties
have killed this class of free and brave peasant pro-

Manufactures.

Comn

. . . 43

. .

. 15

. . • 26

. 11

. . . 30

. .

6

. . . 21

. .

9

. . . 30

. .

. 7

Production and Productive Labour. Ill

prietors, the yeomen who won the battles of Poitiers,
Crecy, and Agincourt. The following table shows
how small is the rural population in England : —

DIVISION OF THE POPULATION AMONG THE
DIFFERENT OCCUPATIONS.

Agriculture

England 26

France 53

Prussia 54

United States ... 48
Belgium 31

Never to be forgotten is Pliny's cry of grief which
echoes like a warning voice through economic his-
tory: Latifundia perdidere Italiam et provincias.
" Overgrown estates ruined Italy and the provinces."
Large properties everywhere produce excessive in-
equality, depopulation, class divisions, and decay.
Countries inhabited by peasant proprietors have
withstood all these crises. The farmer who is his
own landlord, who sees on his field the fruits of his
toil, who pays neither rent nor wages, can brave
without fear both foreign competition and the
variations of prices.

§ 5. Manufacturing Industries.

The manufacturing industries receive from the
extractive and agricultural their raw materials and
give them the final form demanded by consumption
In primitive times the labour of the manufacturer

112 Elements of Political Economy.

was closely connected with that of the husbandman.
In the home of the Greek or Roman, who lived by
the produce of their fields, the women spun the
flax and made the clothes. The same organisation
of labour is found on the estates of Charlemagne
and at the present day there are examples of it in
India, in Russia, and amongst the Slavs ot the
Danube.

Whenever the ease of communication makes it
possible, the division of labour calls into being the
workmen with a special craft. Industry can then
make a great advance, as has been seen in antiquity
in Phoenicia and Egypt, and in the middle ages in
the Italian republics, and the Flemish communes.
It continues, however, to preserve its domestic
character, and still remains manufacture on a small
scale.

Manufacture on a large scale comes into being
with mechanical motive powers. The contrast be-
tween these two forms of production is very striking.
Even when the weavers of Bruges or Florence were
sending their clothes to all the markets of Europe,
the work was carried on by the domestic hearth, as
one sees in the illustrations of manuscripts. The
children cleaned the wool, the wife spun it, and the
husband, helped by some journeymen, worked at the
loom. The capital employed is small; the circle
of workpeople limited. Equality prevails between
the master-workman and the hands he employs ;
they have the same labours, the same kind of life

Production and Productive Labour. 113

and the same mental culture. The market for which
they work is known and assured.

Nowadays a large capital unites in a large work-
shop, around the engine which supplies the power,
a perfect crowd of workmen, separated from their
hearths, and working for a market which sometimes
expands and sometimes contracts or closes. The
head of this army of industry is wealthy or largely
paid, for his position demands varied and unusual
aptitudes, the power of governing, technical know-
ledge, an acquaintance with the markets, the spirit
of order in administration, and, above all, good sense
in business matters. Ways of life and mental culti-
vation have thus opened a great gulf between the
employers who furnish the capital and the labourers
who lend their strength. Hence results what is
called "the conflict of labour and capital," and
all the novel phenomena of the existing economic
order.

Even in the manufacturing countries of the West,
industries on a small scale employ more workmen
than those on a large. For instance, in France, at
the census of 1872, there were reckoned to be
950,000 men employed in the first as against 909,000
in the second. It is plain, however, that manufacture
on a large scale is everywhere gaining ground. It is
even invading what might have seemed the special
field of bespoken labour, the making of clothes and
shoes. This is explained by the advantages it
possesses, which are as follows :

I

114 Elements of Political Economy.

(1) Application on a large scale of the principle
of the division of labour. Over each duty is set a
man specially suited for it ; thus, on a great railroad
there will be "specialties" for the maintenance of
the line, for the rolling-stock, for the traction, for
the combustibles, for the tariffs, for the commercial
details, and for litigation.

(2) Relative diminution of the general expenses.
Among the expenses of production there are some
which arise from the very nature of the enterprise,
and, like patent fees, scarcely vary; others, again,
vary in proportion to the activity of production, like
the fuel in a steam engine. The first expenses are
called " general, or fixed," the second " variable, or
proportional." From this very definition it follows
that the first expenses must become relatively smaller
with every increase in the total produced by the
enterprise.

(3) Less capital is required to create the same
produce. A furnace casting ten thousand tons of
iron a year will cost less than two furnaces each
casting five thousand.

(4) Employment of machines of exceptional power,
sometimes carrying with them a monopoly, like the
famous Krupp hammer, which cost 200,000Z.

(5) Purchase of raw material on a large scale and
consequently at cheaper prices, and a greater profit
made on waste.

(6) Greater means for finding markets, agencies,
foreign travellers, world-wide reputation, &c.

Production and Productive Labour. 115

(7) Coalitions effecting economies, as does an
amalgamation of the systems of different railways.

(8) The expenses of the original model reduced
with every increase of production ; for example,
where 50,000 copies of a paper are printed the
cost per copy of setting up the type becomes
insignificant.

The inconveniences of industry on a large scale
are as follows : —

(1) It removes the workman from his family
life. This evil is aggravated when wives also are
employed.

(2) It diminishes the power of personal interest
and the efficaciousness of what is called " the master's
eye."

(3) By working for an unknown and very variable
market it is exposed to frequent crises.

(4) It crowds workmen together in certain locali-
ties which are thus made unhealthy. This last
defect, however, can be obviated by building work-
men's houses.

§ 6. Necessary Conditions of Industries on a
large Scale.

Industry on a large scale can only be developed
when certain conditions occur together.

(1) Cheap means of transport — the sea, canals, or
railroads — to bring vast amounts of raw materials
and carry away vast amounts of fabrics.

(2) A good political, civil, and judicial organisation,

T 2

116 Elements of Political Economy.

assuring the security necessary to the employment of
large capitals.

(3) A capable staff, especially for the management,
as the success of an enterprise mainly depends on
the skill of its directors.

It is often strangers who introduce a new industry
into a country ; thus the first railroads were almost
everywhere constructed by Englishmen. These
foreigners should not be regarded with jealousy ;
they come to open up fresh sources of wealth. The
first care, however, of a government should be to
create institutions that will serve as training schools
for good industrial managers.

§ 7. Industries of Transport.

Industries of transport contribute to the produc-
tion of wealth by carrying articles to the places
where they are most wanted and will be propor-
tionately most useful. Transport is thus the ally
and instrument of commerce. Sometimes it even
creates the whole value of .certain products which,
useless in one place, so soon as they are conveyed
elsewhere acquire great utility. Transport in this
acts in the same way as the extractive industries
which obtain minerals from the bosom of the earth
in which they were lying useless. Again, by con-
veying men and commodities transport disseminates
the benefits of new discoveries, multiplies the rela-
tions between nations, indistinguishably intertwines
their interests, softens or destroys their antipathies,

Production and Productive Labour. 117

and finally makes their fraternity and co-operation
something more than a word or a dream. It is thus
a powerful agent of civilisation throughout the whole
world.

The progress made in the means of transport is
truly astonishing. A horse can carry on his back and
on a footpath 2 cwt. at most ; in a cart and on a
macadamized road 2 tons ; on the rails of a tramway
10 tons; on a canal or by sea 100 tons; lastly, by
river, that walking road, as Pascal calls it, the bulk
of the burden makes no difference, as is seen in the
case of the huge timber rafts.

The Romans were the first who knew how to con-
struct the splendid roads, whose huge polygonal
slabs resting on a foundation of mortar, may still be
seen in the neighbourhood of Rome. These strategic
roads, linking the most distant provinces with the
centre of the Empire, served also the ends of com-
merce, and caused Roman civilisation to penetrate
everywhere.

The advantages of improved channels of com-
munication are numerous.

(1) By diminishing the expenses of transport they
enable goods to be sold to producers at higher profits,
and at the same time allow of these buying more
cheaply what they have to procure for their manu-
factures. As a result there is an increase in the
value of the sources of production, lands, forests,
mines, and quarries, and an immense aggrandise-
ment of the national wealth.

118 Elements of Political Economy.

(2) Merchandise is sent to market in greater
quantities and, consequently, consumers obtain it at
cheaper rates.

(3) Rise of prices at the place of output ; fall of
prices at the place of consumption; tendency of
prices towards uniformity.

(4) Aggrandisement of the large towns, especially
capitals. The attraction which these exercise on the
seekers after employment, instruction, pleasure,
seclusion or society, is no longer counterbalanced by
the dearness of living. When, however, this aggran-
disement of cities is favoured by an excess oi political
and administrative centralization it becomes a great
evil.

§ 8. Should Roads be made, and Means of
Transport provided from Public Funds ?

Should the State, the county, the union, construct
highways, ports, canals, and railroads ? If indi-
viduals undertake these tasks, so much the better;
if not, it lies with the public authorities to take
action ; and for two reasons. In the first place,
after public instruction there is no more powerful
cause of progress than an improvement in the means
of communication. In the second, since the nation
profits by any increase in the revenue of taxes, or in
the value of all the sources of production, it follows
that the construction of railroads, &c, even though
they yield no direct profit, is yet a most advan-
tageous investment of the public funds. This can

Production and Productive Labour. 119

be shown by keeping a strict account of debit and
credit. To debit put down the cost of construction,
to credit the increased value of lands, forests, mines,
and quarries, the new industries which spring up,
and the improvements in agriculture ; the credit side
of the account will be by far the larger.

The much discussed question as to whether the
State ought also to take upon itself the working of
railways is of the most complex character. Perhaps
it should be answered by the economist in the
affirmative, by the politician in the negative. Pos-
sibly both parties might be satisfied if all the lines
were concentrated in the hands of the State, which
should then entrust their working to a company
acting under Government control.

§ 9. Commerce.

In the clear and simple manner taught him by
Socrates, Xenophon explains the cause and the
advantages of commerce. "No town," he says,
" possesses at the same time both wood and flax, for
wherever flax is plentiful the country is flat and
without wood. One country has one commodity,
another another. It follows that every state is
obliged both to export and import. Commerce thus
enriches the city by substituting useful commodities
for articles which, by their excessive abundance, had
lost all value."

In the words of Montesquieu — " The natural effect
of commerce is a tendency towards peace." How,

120 Elements of Political Economy.

indeed, is it possible to inflict harm upon an enemy
without either ruining a debtor or killing a cus-
tomer? Commerce, again, applies between nation
and nation the fertile principle of the division of
labour. This is admirably expressed in a sentence
of President Garfield — " Commerce makes all man-
kind a family of brothers, in which the welfare of
each member depends on that of the others. It thus
creates that unity of our race which causes the
resources of the whole world to be at the disposal of
each individual."

The maxim of commerce is to buy cheap and sell
dear. Stimulated by sell-interest, the merchant is
ceaselessly summoning commodities from where they
are over abundant and consequently cheap, to sell
them where they are scarce and therefore dear;
and in doing this he is serving the general
interest. Retail traders choose goods with discrimi-
nation, buy them under the best conditions, class
them in assortments, preserve and sell them in small
quantities in such a way as to suit the resources and
needs of the consumers. Were it possible to abolish
these middlemen and bring customers face to face
with producers, nothing could be better. Mean-
while, however, the middlemen render very real
services

Production and Productive Labour. 121

CHAPTER X.

COLONIES.

In speaking of commerce, a few words must be said
on the subject of colonies, since it is imagined now-
adays, very wrongly, that a state must have colonies
if it is to have a flourishing trade and large navy.

The commercial city of Tyre and, later on, Carthage,
established factories for trading purposes, and these
developed into colonies and flourishing towns. The
Greek cities founded colonies as outlets for the
surplus population deprived by the slaves of the
resource of manual labour. Despite the diminishing
population of Italy, Rome founded colonies by estab-
lishing veteran soldiers and the poorer burgesses on
lands wrested from the conquered nations. The
object was to " romanise " the provinces and con-
solidate the imperial rule, and it was completely
attained. In modern times the Spaniards and
Portuguese founded colonies as a means of obtain-
ing what was believed to be the most real kind of
wealth, the precious metals. The Dutch and English
afterwards followed their example in order to develop
their trade and gain a monopoly of the sale of certain
products much sought after in Europe.

Little by little from out a mass of restrictive regu-
lations was born the " colonial system/' This system

122 Elements of Political Economy.

rested on two monopolies. The mother country-
reserved to itself the exclusive right of purchasing
the products of the colonies and selling them in
Europe. It thus reckoned, in the absence of all
competition, to buy cheaply and sell dear. This was
the first monopoly. Again, it reserved to itself the
exclusive right of selling in the colonies its made up
goods, once more reckoning, in the absence of com-
petition, to obtain extremely high prices. This was
the second monopoly. Both hopes were deceived,
and the violation of freedom produced, as usual
nothing but bitter fruits. On the one side, the
colonies, crushed beneath so many obstacles, con-
tinued poor and purchased little; on the other
the inhabitants of the parent country paid high
prices for the products of their colonies, which free
trade would have brought to them at cheaper rates.
Their slender profits were thus more than counter-
balanced by the disguised tax they had imposed on
themselves. To this must be added the cruel work-
ing of the Indians, the slavery of the blacks, the
frightful amount of blood and money which their
enfranchisement has cost in the colonies of England,
France, and recently of the United States, the
destruction of the ancient civilisations of Mexico and
Peru, the ruinous cost of maintaining armies and
fleets, and, lastly, half a century of barbarous wars
between European states rising out of colonial rela-
tions. If all these be taken into consideration the
total loss will far outweigh the total profit.

Production and Productive Labour. 123

Undoubtedly the discovery of America and the
trade with Asia have enlarged the dominion of the
human race, and procured it the enjoyment of a large
number of useful and agreeable products. But
trade would have supplied the world with the same
goods without making it pay so cruel a price. There
is not a colony to-day which does not cost the inhabit-
ants of the mother country more than it brings in.

No more magnificent possession can be imagined
than India. An immense empire, peopled by
300,000,000 laborious and submissive inhabitants,
and on the plains which descend in a gentle slope
from the heights of the Himalayas to the sea, yield-
ing every kind of product, because every kind of
soil and climate is successively represented ; an
empire, again, which is the theatre of one of the
most ancient civilisations of the world ! Yet, if we
look at its balance sheet, we find a permanent annual
deficit, continual disquietudes, and, what is worse,
smouldering jealousy or expensive wars with one
or another of the European states ; lastly, the whole
foreign policy dominated by a single interest. The
English economists have adjusted the balance, and
it does not incline in their favour. The younger
sons of well-to-do families are employed by the
Indian treasury, but, in reality, it is the English
people that pays them. The imperial crown which
the Queen has recently placed on her forehead, has
cost, and will cost again, many a million of her
subjects' money.

124 Elements of Political Economy.

For modern states the possession of colonies is an
anachronism. That it is so may be easily proved
against objectors as follows : —

At the present day there are three kinds of
colonies. The first, countries in which the emigrants
from the parent state can live, work, and beget
children, as Australia, Canada, and South Africa.
The second are military and victualling stations,
such as Gibraltar, Malta, Aden, Singapore, Hong-
kong. The last are tropical regions, inhabited by
races adapted to the climate, such as India and Java.
Of these three kinds only the third need be con-
sidered, because the first will soon emancipate them-
selves like the New England, which has now
developed into the United States ; the second are
only powerful fortresses scattered over the surface
of the oceans for the protection of trade.

To govern colonies there is needed that spirit
of continuity and authority which may be expected
from an absolute power, but not from parliamentary
ministers, who change at each election, and bring
to the task of government views different if not
opposed. A parliament elected to regulate the
affairs of the mother country has neither inclination
nor capacity to concern itself with those of the
colonies. In England, when the Indian budget is
discussed in Parliament, hardly fifty members stay
in the House. Again, colonial affairs become com-
plicated with those of the home country — themselves
sufficiently intricate — and still further increase

Production and Productive Labour. 125

the difficulties and instability of parliamentary
government. An example of this may be found
in Holland.

White men, who cannot work under a tropical
sun, live of necessity from the tax exacted on the
labour of the old inhabitants. This system was
formerly considered a natural one; to-day it is
attacked by those who defend the rights of humanity,
and cannot last much longer. As soon as the
equality of the different races is accepted as a dogma,
equal rights are demanded for the aborigines ; but
these rights cannot be granted while the aborigines
are kept in a state of subjection.

What an impulse would be given to education and
every kind of civilisation if to their promotion were
devoted the money devoured in maintaining the
military and naval forces and in the frontier wars
occasioned by colonies.

The greatest evil of all is that the possession of
colonies multiplies, between people and people, points
of contact, and causes of dissension. To this the
differences perpetually arising between England and
the United States are a standing witness.

In the present state of the world peace is such
an inestimable blessing that all the colonies together
both past and present, are not worth a single year
of war. England, the greatest colonial power that
has ever existed, understands this. She cedes the
Ionian Islands to Greece, and sets an example of
prudence which cannot be too much admired. She

126 Elements of Political Economy.

laments the acquisition of Cyprus; she counts the
cost of her possession of India; she is paving the
way for the complete emancipation of Australia,
Canada, and South Africa. If a country has more
money than it knows what to do with it should
colonise its own waste lands : in France, Sologne ; in
Italy, Calabria ; in Belgium, Campine. States
which have no colonies may console themselves, and
states which have colonies should prepare to lose
them, for in this loss they will find a gain.

CHAPTER XL

ASSOCIATIONS FOR THE COMBINATION OF CAPITAL.

Industries on a large scale need a large capital.
Who is to furnish it ? Formerly the employer con-
tributed all the capital necessary, which was either
wholly his own or borrowed on his credit. To-day
this capital is usually formed by a combination of
the capitals of a large number of persons. In this
way the risk is shared in fractions. Each share-
holder only ventures a small part of his property, and
remembers the useful proverb : " All the eggs should
not be carried in the same basket." The telegraph
cable across the Atlantic was estimated to cost
1,200,000/., and the experts asserted that, the electric

Production and Productive Labour. 127

spark could not traverse the ocean. Baron Roths-
child himself would not have ventured the whole
sum needed. But when the capital was divided, a
share of the risk was no longer appalling; millions
of persons subscribed for shares ; the electric cable
was a success, and to-day links together all the
continents across the seas. In this way a financial
combination — the association of capitals — came to
the assistance of science and enabled it to realise
its wonders. Thanks to this principle of association,
isthmuses are cut, mountains pierced, and every
country in succession endowed with railroads,
factories, banks, and all the enterprises which aim
at turning the gifts of nature to advantage.

Associations of capitals have taken certain definite
forms : these are the commercial companies. Of these
the laws of civilised countries recognise five distinct
kinds : —

(1) Companies Trading under a Common Name. —
These rest on no legal fiction. The shareholders
have all a certain control over the management.
They divide the profits in proportion to their con-
tributions, but are indefinitely liable for all debts.
This form of association is suitable only to enter-
prises which present few risks. It was already
known in Roman times ; thus Livy relates that the
provisions for Scipio's army fighting against the
Carthaginians in Spain were supplied by a com-
pany. The jurist, Ulpian, again speaks of banking
companies (societates argcntariai).

128 Elements of Political Economy.

(2) Companies with Mixed Liability (socieUs en
commandite^). — In these some of the shareholders (les
commandite) are active partners and have unlimited
liability, others (les commanditaires) are sleeping
partners who supply capital, but only venture the
amount of their shares so long as they refrain from
any participation in the management. This kind
of company, which is more frequent in France than
in England, is very convenient for supplying a
person of special aptitude — an inventor for instance
— with the funds that are indispensable for profiting
by his exceptional qualities or invention. It was
first used in the middle ages in the Italian republics
as a means of evading the canon law which forbade,
under the name of usury, any fixed remuneration for
a loan of money. The possessors of capital entrusted
it to traders, and stipulated to receive a share of the
profits in the place of a fixed rate of interest.

(3) Joint Stock Companies. — In these no one, not
even the manager or director, is responsible for more
than the amount of his share, on condition that the
laws are respected. This kind of company resembles
a republic. All its authorities emanate from the
body of shareholders. These nominate at a general
meeting the chief of the executive, or manager, and
the senate, or board of directors.

T~int. stock companies first arose in the Low
Countries in the seventeenth century, when they
were formed for the purpose of organising those
powerful associations which engaged in distant trade.

Production and Productive Labour. 129

(4.) Companies with limited liability resemble the
preceding, with the exception that no previous
authorisation is necessary for their constitution. It
is sufficient to comply with the rules laid down by
the law.

The contributions of the members in these differ-
ent forms of association can be, and usually are,
represented by documents called bonds.

(5.) Co-operative societies differ from others in the
number of shareholders being variable, as also in the
amount of their shares. They take as their aim the
forming associations of workmen and artisans. The
subscription, which is usually very small, can be paid
in instalments to suit the convenience of small savers.
The combination of these petty savings, which in
isolation would have been powerless, constitutes a
capital sufficiently large to obtain credit or to form
the funds of an industrial enterprise.

The multiplication of joint stock companies is
incredible. They are daily being started in every
quarter and for every purpose. All new enterprises
and most old ones are constituted in this form, and
methods of possession have been really transformed.
Of the causes of this astonishing success we have
already indicated the first in the ease with which
a great capital may be formed by the combination of
small capitals and a division of risks. But, in the
second place, joint stock companies obtain the most
capable men to direct their affairs, and their
managers, instead of being appointed by the chance

K

130 Elements of Political Economy.

of birth, are chosen by election from among the
most capable administrators. Again, these com-
panies give to industrial property that democratic
form which our era demands. The manufacturing
industries, as they develop, take the form of immense
enterprises, which oust the smaller workshops and
artisans from the market. Of themselves they thus
tend to constitute a kind of industrial feudalism.
But joint stock companies, by dividing and partition-
ing the proprietorship of large enterprises into a
vast number of shares, each of a small amount,
enable even working men to participate in their
success. Since property is the necessary comple-
ment of freedom, the aim of civilisation should be
to render the head of each household the proprietor
of the instrument of his labour — the farmer of his
field, the workman of his tool, or a share of the
colossal machine into which the tool is often trans-
formed. If a labourer purchase a share in the
industrial company which employs him, the problem
is at once solved; the conflict between labour and
capital comes to an end.

By one of those frequent and natural harmonies
between the changes introduced in the methods of
production and the methods of possession, the joint
stock company has become common at the moment
of the development of industry on a large scale.
It thus favours a subdivision of property increasingly
democratic.

BOOK III.

DISTRIBUTION AND CIRCULATION.

Part I.— DISTRIBUTION.

CHAPTER I.

DISTRIBUTION : RENT, WAGES, INTEREST.

Three factors contribute to the production of
commodities — nature, labour and capital. Each
must have a share of the product as its reward, and
this share, if it is to be just, must be proportionate
to the several contributions.

The share of the natural agents is Rent. The
share of labour, Wages. The share of capital,
Interest.

The clerk receives a salary ; the lawyer and doctor,
fees ; the manufacturer, profits : salary, fees, and
profits are so many forms of wages for services
rendered.

K 2

132 Elements of Political Economy.

As soon as the contributors have been rewarded
with their several shares, they are able to make
exchanges, and exchanges constitute the circulation
of wealth. Distribution, therefore, precedes cir-
culation.

CHAPTER II.

HOW DISTRIBUTION IS ACCOMPLISHED.

In primitive societies such as existed before the
rise of Rome, among the Italian tribes, and are still
found in Norway and among the Slavs on the Danube,
each father of a family cultivates his own patrimony,
and produces all he consumes. Here there is no
place for distribution ; labour, capital, and natural
materials are all in the same hands. Remuneration
is always fair. Each man gathers that which he
sowed. Energy is rewarded, and indolence punished.

When, however, the three factors are in the hands
of different persons, and, in consequence of the
division of labour, each depends on a process of
exchange for obtaining what he consumes, distribution
is no longer an easy matter, and no longer in such
strict proportion to the several contributions. It is
now brought about by the agency of an " employer,"
who pays each " factor of production " just as much
as competition forces him to give, retaining the
surplus as his own profit.

Distribution and Circulation. 133

— — — — ^— — j — < — *

Let us follow the fortunes of a loaf of bread. The
farmer pays rent to his landlord, wages to his
labourers, interest to the banker fiom whom he
borrows ; the surplus left when all payments have
been made is his profit. The corn arrives at the
miller's. He, in his turn, makes a similar distribution
to reward the labour used in grinding it. The baker,
who turns the flour into bread, does the same. Last
of all, the consumer who buys the loaf pays a price
sufficient to replace the advances which farmer,
miller, and baker have successively made by way
of rewarding the three factors.

Obviously, if the employer owns either the natural
materials or the capital, he pays himself in the one
case the rent, in the other the interest, or reckons it
among his expenses.

CHAPTER III.

PRINCIPLES REGULATING DISTRIBUTION.

Distribution is determined firstly by the civil
institutions fixing the rights of individuals and the
acquisition and inheritance of wealth ; secondly, and
subordinately to these, by authority, by custom, or by
free contract regulated by competition.

The influence of the institutions of the state is
plain. As in Egypt, the land, the great factories and,

134 Elements of Political Economy.

the railways may all belong to the sovereign. The
soil of each parish may be owned in common by all
the families of the village, as is the case in Great
Russia. Again, as in France and Belgium, landed
estates on the death of the proprietor may be equally
divided among his children. In each of these cases,
distribution will be very different from what it is in
England, where landed property is held by a small
number of rich proprietors, and descends, as a rule, to
the eldest son.

Subserviently to the influence of institutions, the
share of one or another of the factors of production
may be regulated by custom, as in the case of the
fees of the lawyer or physician ; by authority, as in
that of the salary of civil servants ; or by contract and
competition, as with wages and rent.

Formerly distribution was regulated, to a very
considerable extent, by custom and authority. Thus
in ancient Egypt and India, in the same way as in
our own western countries during the middle ages,
wages, payments in kind, and rentals were all fixed
by use and tradition. The metayer system, which
shares the produce equally between landlord and
tenant, has not changed since the days of antiquity.
On the other hand, in our own times, distribution
is almost entirely governed by contract and
competition.

Distribution and Circulation. 135

CHAPTER IV.

REWARD OF THE NATURAL AGENTS.

§ i. Rent.

If I fish in a well-stocked lake, hunt in a forest
where game abounds, or cultivate a fertile soil, I
obtain enough to live on and something over. Nature
lends me her aid j and the greater her fertility, the
greater will be the surplus which my labour, if well
directed, will leave me over and above my necessary
expenses.

This surplus, due to the happy direction of my
labour and the productiveness of the natural agents,
is natural rent. Whether I am obliged to pay it to
the proprietors of these agents depends not on nature,
nor on my industry, but on social conditions. If the
extent of fertile land is unlimited, as in new countries
I shall pay nothing for the possession of a holding, as
I can have one almost for the asking. In this case,
then, I shall keep the natural rent, or surplus of
produce over cost of production, for myself. If,
however, the natural agents are already appropriated,
I shall have to give up all or part of this surplus to
the landlord to gain the right to work his lands. The
proportion I shall have to pay will depend on the
competition among landless farmers, bidding against

136 Elements of Political Economy.

each other for the holdings from which to gain a
livelihood. If these are few in number I shall have
little to pay ; if, on the contrary, there are more
would-be farmers than farms, I shall be reduced to
surrender all the produce, save what is absolutely
needful for my maintenance.

Anything that produces useful commodities and is
limited in quantity may yield a rent, just as well as
arable land, a waterfall which turns a mill, a river
or lake containing fish, a quarry or mine, building
ground, or an exceptionally fine voice. The posses-
sion of these things constitutes a monopoly, and their
owners can therefore exact a rent from those who
wish to enjoy them.

Labour expended on good land is more productive
than the same amount spent on bad. To obtain the
right to cultivate good land it is, therefore, worth
while to pay a sum equivalent to the advantage
obtained by its greater fertility. The excess of the
produce over the cost of production constitutes the
natural rent. The portion of this excess which
circumstances force the farmer to pay to the proprietor
ia the effective rent.

it is often said that rent arises from the difference
of fertility in different soils. This difference, however,
is the cause of the different rates of rent, not of rent
itself. As a matter of fact, if all lands were of the
same quality they might all pay a rent, so long as
they yielded a surplus, and so long as there were no
waste lands to be appropriated. In Egypt the whole

Distribution and Circulation. 137

soil formed by the muddy deposit of the Nile is
of an almost uniform quality, yet it all yields a very
high rent.

A good situation, such as one near a market, a
river, a railroad or the sea, increases the utility of
land, and has the same effect as fertility in giving
rise to a rent. Land in the centre of a large town
is often worth £100 the square yard, and is let
at a proportionately high rate.

Rent obeys the law which regulates value. It
depends on utility and scarceness. The rent which
a property yields increases in proportion firstly to
the usefulness, and secondly to the rarity of its
products.

§ 2. Theory of Rent held by Ricardo and Mill.

Ricardo, a disciple of Adam Smith, formulated a
theory of rent which bears his name. According to
this theory the most fertile lands are the first
cultivated, and as long as any of these are available,
rent has no existence. But, in time, population
increases and the free lands are all occupied;
agricultural produce is in greater demand, and prices
rise. This rise in prices makes it profitable to
cultivate land of inferior quality. But in the land
market, as in any other, articles of the same quality
cannot sell for different prices, nor the same prices be
obtained for articles of different quality. In this
way the greater surplus which the better lands yield
brings rent into existence.

138 Elements of Political Economy.

If population and prices continue to increase,
recourse must be had to land of the third quality, and
the rents of the other lands again rise.

It follows that the rent of any given land is the
difference which exists between the produce of this
land and that of the worst in cultivation ; or, with
greater exactness, where there is competition for the
tenancy the rent is equal to the whole of the produce
less the working expenses. It is the surplus, great
or small, which labour yields when aided by the
greater or less fertility of the natural agents.

From what precedes we may draw two very im-
portant conclusions. The first of these is that a
rise in the price of agricultural produce is not, as is
generally believed, the consequence of the rise of
rents, but has this as its result. It is only when
the farmer sells his corn and cattle dearer that he
can pay a higher rental. Secondly, we may say
that in all societies where wealth and population
are developing, rents also tend to increase. In
France and Belgium the average rent of land has
almost doubled in the last fifty years. In England,
also, the same tendency has shown itself, although
during the last ten years it has been held in abeyance.

A rise in prices favours the increase of rent in
two ways ; firstly, the cultivator need sell less of
his produce to cover his expenses ; secondly, each
article of produce sells more dearly. The fall of
prices naturally acts in the contrary way.

Increase of rent is stopped, in the first place, by

Distribution and Circulation. 139

all agricultural improvements whose effect is to
increase production, and, secondly, by the facilities
for foreign importation. These two causes lead to
the same result — a greater abundance of produce —
and from this comes a fall of prices, and a con-
sequent fall of rents. At the same time it is quite
possible that an increased quantity of produces,
even when sold at a lower price, will yield an equal
or greater total. In this case rents will not fall,
and may even rise.

Agricultural improvements, such as better ploughs
and reaping machines, new highways, &c, which
diminish the cost of production without increasing
the total amount of products brought into the
market, have a uniform tendency to raise rents.
It is to this, together with the increase in the
prices of meat and butter, that recently the rise of
rent has generally been due.

§ 3. Arguments of Economists who Deny the
Existence of Rent.

Certain economists, disciples of Bastiat and Carey,
deny the existence of rent. The share of nature in
production, says Bastiat, is always given gratuitously.
If a rental is paid it is as a return for the labour
and capital which have been sunk in the earth,
and not for its natural fertility. Carey adds,
contrary to the theory of Ricardo, it is the light
land of the hills that are first cultivated, and only
afterwards the more fertile districts of the valley.

140 Elements of Political Economy.

Bastiat's statement is opposed to facts. The lands
which yield the highest rent in virtue of returning
the largest amount of produce with the least ex-
pense are often those in which the least human
labour has been sunk. Such are the rich pasture-
lands of Normandy, the soil of Egypt, and the " black
lands" of Russia and Roumania. You have only
to ask a farmer to be told that one field in a farm
can often pay twice the rent of another. The
Clos-Vougeot, the Chateau-Lafitte, the Johannisberg,
yield a rent ten times as high as that of neighbour-
ing vineyards which have required the same amount
of labour. The European rivers in which salmon
is caught pay a very considerable rent. There are
many sources of utilities which bear a price which
owe their value entirely to nature.

The remark of Carey, on the other hand, has
some foundation, but it does not weaken the
principle of Ricardo's theory. Men have cultivated
the most fertile or best situated lands first among
those within their reach. For them other lands had
no existence. When, later on, these other lands
came into the market, they had the effect of an
agricultural improvement. By yielding more abun-
dant produce they momentarily arrested the rise
of rents ; but where they were of exceptional fertility
they must themselves have paid a heavy rent from
the first. Soon, wealth and population continuing
to increase, the rents of all the lands increase also.
On this point Ricardo is in the right.

Distribution and Circulation. 141

CHAPTER V.

WAGES.

Wages are the reward of labour.

Wages reckoned in money must not be confounded
with wages calculated by the amount of commodities
this money will procure. A workman can barely
live in London on half-a-crown a day, because board
and lodging are both very dear. In China or Japan
with a third of this sum he need want for nothing,
because everything is cheap.

What is important to the labourer is the amount
of commodities, such as bread, meat, and clothing,
which his wage will allow him to consume. A
decrease in the cost of production, causing a fall
in the price of products, tends indirectly to increase
wages. The labourer does not receive more money,
but for the same money gets more commodities.

ft
§ i. Systems of Remuneration.

Labourers are usually paid in money, but some-
times in kind, as in countries where the farm hands
are still boarded by their master.

Labour may be paid according to time — by the
day or hour ; or according to the work done — by
the job or piece, as when painters are paid by the
square yard, or masons by the cubic foot. Payment

142 Elements of Political Economy.

by the piece is preferable for many reasons. In
the first place it is fairer ; every one is paid according
to his skill and his industry. Again, it stimulates
activity by bringing home the feeling of responsibility
— the mainspring of the economic world. Thus the
total production is increased, and the cost of super-
vision abolished. If the workman is not tied down
to a machine piecework enables him to choose his
own hours, and to become, in a small way, a con-
tractor himself, since all piecework is of the nature
of a contract. On the other hand, it is of great
advantage to the master, who has only to pay for
what he actually receives.

In spite of these advantages workmen dislike the
introduction of piecework. In England they have
often struck against it. In France, after the
Revolution of 1848, they even demanded that it
should be forbidden by law. They contend that
the price of piecework is reckoned by what a " crack "
workman can do, and that, consequently, an
ordinary workman cannot earn a living. In reality
work %y the piece is, as a rule, better paid than
work by the day, except when employers are com-
pelled by competition either to reduce the rate or
stop work altogether. It is to be wished that the
system of piecework should prevail as widely as
possible, inasmuch as by considerably increasing
production it must indirectly promote the prosperity
of the working classes.

A still greater stimulus to work and to the

Distribution and Circulation. 143

improvement of the labourer's condition is afforded
by adding to wages a certain share in the profits. It
is now very usual to grant such a share to the
manager and head- workmen in a commercial com-
pany in order to interest them in its success, and
thus increase their zeal. The best results would
follow if this system could be extended to all the
workmen.

In France, Germany, Holland, and Switzerland,
by a happy idea, some employers, instead of im-
mediately handing over to their workmen this
addition to their pay, save it so as to provide them
with a fund for their old age.

§ 2. The Iron Law.

" In all kinds of work," says Turgot, " it must, and
does, come to pass that a workman's wages are
limited to what is needful for his subsistence."
Later on Ricardo reproduced this idea, and believed
that he had demonstrated its truth beyond con-
tradiction. The wages of a workman, he says,
naturally reduce themselves to what is indispensable
if he is to live and support a family. He cannot
be content with less, for excess of destitution
diminishes the number of workmen, and the fewer
the hands the higher the wages. Neither can he
for any length of time obtain more; for easier
circumstances increases the number of marriages
and births, so that there are soon more hands in the

144 Elements of Political Economy.

market, and wages return to the necessary or natural
minimum.

Lassalle, a leader among the German socialists,
appealing to Kicardo and the majority of economists,
exclaims, " Here is the iron law, formulated by the
masters of political economy, a law which condemns
workmen to irremediable misery. A society which
culminates in such an iniquity must be profoundly
modified ! "

Happily the observation of facts does not confirm
the truth of Ricardo's supposed law. It has been
abundantly proved that throughout Europe the
condition of the working classes has considerably
improved during the last century. Far from pro-
ducing an excessive increase of population, easier
circumstances tend to moderate it by the effect of
prudence. Misery, on the other hand, has ever been
prolific, as has been proved in Ireland, and a-s is
indicated by the ill-omened word "proletariate,"
which means at once the miserable class, and the
class that is overburdened with children.

Labour, prosperity, and virtue, working together
under the reign of justice, will effectually abolish the
iron law.

§ 3. Causes of Different Rates of Wages.

Wages are very different in the various occupa-
tions. A diamond-cutter in Amsterdam earns a
pound a day ; an agricultural labourer in the same
country little over a shilling.

Distribution and Circulation. 145

Many causes give rise to exceptional wages.

(1) Bare Ability of Certain Kinds. — This con-
stitutes a sort of monopoly. A great singer earns
more than £5,000 a year, which is too much. Again,
in a different rank, glass blowers who make the large
panes of glass earn their ten shillings a day.

(2) Locality. — Nominal wages are dearer in town
because living is dearer.

(3) The Average Length of the Working Season. —
A workman who can only ply his trade during a
part of the year must earn higher wages when he
does work or he could not make both ends meet.
Masons, in countries where the work is interrupted
by frosts, are an example of this.

(4) The Repugnant Element in Certain Occupa-
tions.— No one would submit to this except for
unusually high pay. The hangman is well paid,
though he works but rarely. In many occupations,
on the other hand, the certainty or agreeable
character of the work compensate for the smallness
of the remuneration. A junior clerk is contented
with a slender salary because his future is assured.
Governesses, if one may judge by advertisements,
often ask only for "a comfortable home," and no
salary.

(5) The Length of the Apprenticeship. — This insures
a high salary in certain occupations, for part of the
salary goes towards repaying the expenses which
have been incurred.

The old economists thought that, taking these

L

146 Elements of Political Economy.

differences into consideration, wages might be said
to tend towards a uniform rate. Certainly, other
things being equal, an exceptionally high salary must
attract workers in such numbers as to cause a
reduction ; whereas an exceptionally low salary will
make the workmen seek trades where the pay
is better. Nevertheless, as Mr. Cliffe Leslie has
shown by numerous examples, wages in the same
country and for the same trade will vary considerably
according to the locality. Love of home, habit, the
difficulty of moving and finding houseroom, and
sometimes differences of dialect, are all obstacles
to a uniform rate of wages. In France, in the neigh-
bourhood of Paris, a journeyman can earn twice as
much as in the midlands, and in Belgium, out of
two country districts, in one, the Campine, he gains
a shilling a day, in the other, the Ardennes,
nearly half-a-crown !

§ 4. Low Wages not a Cause of Cheap Work.

The great railway contractor, Mr. Brassey, after
having employed labourers in every country in the
world, has written a book, called Work and Wages,
to prove that cheapness of work is obtained by
paying good wages. An ill-paid workman is weak
and indolent ; the work hangs fire and ends by
costing dear. Mr. Brassey 's advice is to insist on
energy and industry, and pay well. Every one will
benefit by this system, workman, employer, and
society at large.

Distribution and Circulation. 147

§ 5. The Wages Fund.

Many economists have believed that in every
country, at any given moment, there exists a fund
specially devoted to the reward of labour. In this
way an average rate of wages is imposed upon all
alike, and this of necessity, since when each work-
man takes his share of the fund, the value of the
share is the result of the amount of the fund divided
by the number of the workmen. Neither the
resistance of . the workmen nor the watchfulness of
the master can modify this mathematical law. If
you give more to one, there will be less for the
others. The average rate of wages will only in-
crease, if the wages fund increase more rapidly than
the number of the workmen.

The truth of the matter is as follows. The nation
lives on the sum total of the useful articles which it
produces. It cannot consume more than this, but
the manner in which this fund is divided between
rent, interest, wages and profits, depends on contracts,
custom, and the will of the parties concerned. The
one thing true is that if one of these parties obtains
more, one or all of the others will have less.

In this way since 1870, the extraordinary activity
of industries in Europe has occasioned a general rise
of wages. It is rent which since this date has been
diminished.

The problem may be presented in the following
form :

Product = Rent + Interest + Wages -f Profits.

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148 Elements of Political Economy.

If the share assigned to wages is increased, the
balance which is divided among the other participators
must diminish, for Product — Wages = Rent + Interest
+ Profits. To take a more simple proof : a market gar-
dener who pays two shillings a day to the labourer he
employs on a garden which brings in four shillings a
day will have two shillings to keep for himself. If
he is obliged to pay his labourer three shillings,
plainly he himself will only have one.

§ 6. Is there a Natural or Normal Wage ?

Economists of the school of Eicardo maintain that
there is a natural rate of wages, which is determined,
like the price of any other commodity, by the cost
of production of labour.

The cost of production of the commodity labour is
the sum which is absolutely necessary to enable the
labourer to live and work.

Undoubtedly wages have often been as low as this,
and history teaches us that frequently they have not
even sufficed to support the labourer, since whole
populations were decimated by famine, as in the
reigns of Louis XIV. and Louis XV. But this was
the effect of detestable institutions and of human
ignorance, not of any so-called natural laws.

The normal rate of wages is that which, at the
least, supplies the labourer and his family with the
means of subsistence, and of the normal development
of the faculties of body and mind.

If it be asked " Who shall determine the sum

Distribution and Circulation. 149

which this subsistence and the normal development
of the faculties demand ? " I answer " The science of
health." This problem, so often declared insoluble,
is solved every day in the administration of the army
in the different countries. This administration fixes
the amount of nourishment and the quality of the
clothes necessary to keep the soldier's powers in good
condition. Ought not the labourer to be able to
earn by his work at least the rations of a soldier ?

§ 7. The Causes which fix the Rate of Wages.

Are wages, as some economists assert, in proportion
to the productiveness of labour? It would seem
that they ought to be so. If labour produced twice
the amount of useful articles, surely the labourer
ought to be twice as well off. This, however, is not
the case, except when he is also the possessor of the
capital, as in the instance of the peasant proprietor.

The pay given simply as wages is determined by
other causes. The increase of production profits, in
the first place, the manufacturer, and subsequently,
by the fall of prices, the general public. A manu-
facturer sets up in his factory a machine which
enables the workman to produce each day ten times
as much as he could do by hand ; if no greater
dexterity is required from him his wages will not be
increased. All the advantage of the machine will
go to the manufacturer, until there comes a fall of
prices consequent upon the increased ease and
abundance of production. Again, by giving his

150 Elements of Political Economy.

orchard a double layer of manure a market gardener
may double his crop of apples. He will not make
this a reason for paying high wages to the labourers
who gather them, though their real wages may in-
cidentally be increased by the fall in the price of apples.

It is plain that the productiveness of labour only
acts indirectly on its market value by multiplying
useful objects, and thus enabling the wage earners to
buy more of them.

What regulates wages is the competition between
the labourers offering their work and the masters in
need of it. As Cobden said with great force, when
two workmen are running after one master, wages
fall ; when two masters are running after one work-
man, wages rise. In other words, wages are subject
to the great law of supply and demand which will
be explained later on.

To this rise and fall of wages, however, there are
certain limits. They cannot fall below what is ab-
solutely necessary for the labourer to subsist ; in that
case he would disappear altogether. On the other
hand, they cannot rise beyond the total of the value
added to the object. As has been well observed, the
piece of work which is only just worth doing brings
in very little, and if the wages to be paid exceed
this little, the work will never be ordered or bought.

A journeyman shoemaker makes a pair of shoes
worth eight shillings with leather worth three;
under no circumstances can his pay exceed five
shillings. From the increase of value created by

Distribution and Circulation- 151

the wage-earner, something must be deducted to
reward the employer and the capitalist, or the one
would cease to employ workmen, and the other to
advance money.

With the reward of his labour, say Proudhon and
Karl Marx, the workman cannot buy back the
product of his labour ; he is therefore robbed by the
capitalist. The socialists who talk thus make an
error of calculation. The object has not been pro-
duced solely by the exertion of the workman, but by
his exertions aided by tools and employed on raw
materials. It is true that labour alone is active, but
it only becomes productive by the cooperation of
capital and nature. This cooperation has an equal
right to reward. If the workman can make himself
the proprietor of the tools and materials he requires
in his work, he will be able to keep the whole of the
product. The aim of the wage-earner must therefore
be to become a proprietor.

Wages rise when a large number of workmen are
required, and this is the case when industrious and
enterprising persons abound, and there is plenty of
capital. The way, therefore, to improve the condition
of the working classes is to encourage the creation of
capital by thrift and the development of education
and the spirit of enterprise. On the other hand,
wages diminish when the numbers of the workmen
are increasing more rapidly than the undertakings
and capital which can employ them. Here we touch
on what is called the population question.

152 Elements of Political Economy.

The competition between masters requiring work-
men, on the one side, and workmen requiring
masters, on the other, only influences each branch of
labour separately. A demand for a number of tailors
will raise the wages of tailors but not those of other
trades. Nevertheless if several industries are simul-
taneously so prosperous as to require a large number
of workmen, for a time the rise of wages will spread
by degrees up to a certain point, inasmuch as the
rush of workmen to these trades will cause a
deficiency in others.

§ 8. Has the Condition of the Working Classes
Improved ?

No one will maintain that the condition of those
who work with their hands is all that it should be,
but it is certain that it has improved and is still
improving every day. Let any one who has doubts
on this subject enter the cottage of the worst paid
agricultural labourer, and examine his food and
clothing, utensils and furniture, and then let him
read the famous passage in which La Bruyere
described the French peasantry of the reign of
Louis XIV.

" Spread over the country are to be seen certain
wild animals, of either sex, black, livid and sun-
scorched, chained to the earth which they dig and
turn with unyielding persistency. They have what
may be called an articulate voice ; when standing
erect they show a human face ; in fact they are men.

Distribution and Circulation. 153

At night they retire to their dens, where they live
on black bread, water, and roots. They spare other
men the trouble of sowing, digging and reaping for
their food, and so ought not to lack this bread which
they have sown."

In 1740 Massillon, Bishop of Clermont-Ferrand,
wrote to Cardinal Fleury, Prime Minister of Louis XV:
"The country people live in frightful misery,
without beds, without furniture; one half of the
year, the greater part of them eat hay and barley-
bread, their only food, and this they are obliged to
snatch from their children's mouths, to pay the taxes."

When we think of the time when men died of
hunger in crowds along the high roads, we shall see
no reason to despair of our own days, while we hope
still better things for the next century.

CHAPTER VI.

MEANS OF IMPROVING THE CONDITION OF WAGE
EARNERS.

In past centuries the rich and powerful always
sought to reduce the share of the labourers in order
to increase their own. Our own century, however,
appears to have undertaken the duty pointed out
by the famous reformer, Saint-Simon, of improving
the material, intellectual, and moral condition of the

154 Elements of Political Economy.

working class. The means of arriving at this result
is nothing less than the social problem of the day.
Let us examine some of the solutions proposed.

§ i. Charity.

Formerly benevolence knew but one way of assist-
ing those who were called "the poor," namely, by
almsgiving, and in their sublime enthusiasm the
charitable would sometimes go the length of aban-
doning all they had to embrace voluntary poverty.
But economic analysis has demonstrated that alms-
giving mulcts labour for the support of needy idleness.
It diminishes responsibility and self-respect, weakens
the incentive to activity, and thus only fosters misery.
Of this the effect of the daily distributions of food
made by the convents under the old system furnishes
an ample proof.

There will always be involuntary misfortunates to
relieve, but it is not to charity that we must look for
the final improvement of the lot of the majority.

§ 2. Communism.

Communism has alternately been the war-cry of
the oppressed, as in the insurrections of Spartacus,
Wat Tyler, the Jacquerie, and the peasants in the
time of Luther, or the dream of some great mind, as
with Plato in the Republic, Sir Thomas More in the
Utopia (1516), Campenella in the Givitas Solis (1620),
and Fenelon in the Salente of the Telemaque.

The Essen es in Judaea, the disciples of Pythagoras

Distribution and Circulation. 155

in Magna Graecia, the first Christians in Jerusalem,
were alike in having all things in common, and in
our own day monastic societies multiply on the Con-
tinent with their vows to annul the distinction
between " mine " and " thine." We have here the
application of the saying of J. J. Rousseau, " Beware
of forgetting that the fruits of the earth are every
one's, and the earth itself no one's."

In this system the means of production are the
property of the society. The principle which governs
the division of the produce is the rule, " From each
according to his strength, and to each according to
his needs." The society constituted on this basis
would be the copy of the family economy, in which
each member does actually labour as much as he can,
and consume as much as he wants.

Communism, however, will never attain perma-
nence, since it violates justice and despises the
deepest instincts of man's nature. The formula of
justice is Cuiqiie situm, " to every man his own," or
" to each according to his works." Communism, on
the contrary, takes no account of works, and recog-
nises no " his own." The industrious are made the
dupes of the sluggards who trade upon them.

The spring of human activity is always and every-
where self-interest. In communism self-interest is
continually sacrificed ; if it acts at all it is to impel
men to sloth and gluttony, for where needs are the
, measure of rights, that man will look out best for
himself who shall eat the most and work the least.

156 Elements of Political Economy.

If convents continue and even increase, it is only by
uprooting from the hearts of their inmates the deep-
est of natural feelings, the craving for independence,
the love of self, and family affections. It is the hope
of heavenly happiness that works the miracle.
Egoism is not really dead, for it endures as long as
life; but its aim has been transferred to another
world. Who can believe that an industrial society
can be organised on the principles and the plan of a
convent ? " Communism," said the socialist Proudhon,
" means the disregard of work, the weariness of life,
suppression of thought, destruction of the self, and
affirmation of chaos."

§ 3. Nihilism.

A Russian revolutionist, Bakounine, comes before us
with the assertion : the labourer is robbed, crushed,
reduced to misery by all those institutions which
take the assurance of his welfare as their mission,
the state, royalty, religion, the army, property, and
the family. Man will only be free and happy when
of existing society not one stone shall rest upon
another. Everything must be annihilated : nihil,
"nothing," this is the goal. Nihilism will bring
salvation.

If he be asked what new organisation it is proposed
to adopt, Bakounine replies that he interdicts both
himself and us from seeking one. Every utopist is
a tyrant, for he would like to impose the organisation
which he believes the best. The gospel of nihilism

Distribution and Circulation. 157

is " shapelessness," that is to say, the absence of any-
social organisation; the one best adapted to en-
franchised humanity will spring spontaneously from
the people.

The ascetics of the first centuries of Christianity,
and the believers in the millennium, thinking society
irretrievably abandoned to wickedness, expected its
renovation from a cosmic cataclysm. Out of the fire
that consumed the world were to issue " a new
heaven and a new earth." Justice would triumph,
and the reign of Right begin. Rousseau, in his
despair of remedying our vices and iniquities, would
lead humanity back to its primitive forest. It is the
same sentiment, pushed to the verge of madness,
which gives birth to nihilism. Such a doctrine there
is no need to combat. Indeed, how is it possible to
argue against and refute " that which is not " ?

§ 4. Anarchy.

Among existing socialists many call themselves
anarchists, that is to say, adversaries of every form
of government, from the Greek word, avapx/a, which
means " the absence of a governing power."

If these socialists simply aim at reducing the
powers of the state to a minimum, they are, in this,
in agreement with the " non-interference " school of
economists. If they really take the suppression of
the state as their aim, they must wish to lead us
back to a condition of prehistoric savagery, in which,
in the absence of all law and authority, violence

158 Elements of Political Economy.

carries the day, and the weak, as among animals, are
devoured by the strong.

§ 5. Collectivism and the Organisation of
Labour.

Existing socialists reject communism, but preach
the gospel of collectivism. Like communism, col-
lectivism assigns to society the possession of the
materials of production, and the instruments of
labour, that is to say, land, mines, railways, and tools
of all sorts. In the division, however, of the produce,
they admit the principle of a reward proportionate
to the work done, and in this way do not suppress
responsibility or the stimulus of private interest.
But who is to be the proprietor of the means of
production, the state, the commune, or the corpora-
tion of workmen ? The system is so imperfectly
formulated that it is difficult to discuss.

In his famous book, IS Organisation du Travail, M.
Louis Blanc proposed that all industries should be
functions of the state, as is the case at present with
the working of the railways in Belgium, and this is,
roughly speaking, the proposal of the collectivists of
to-day. If it were adopted it would follow that
every one would be a Civil servant, and that the
whole society would be organised like an army..
At present the workman who does not work is
dismissed. If all industries were in the hand of the
state, dismissal would be no longer possible. It
would have to be replaced by the police-cell or the

Distribution and Circulation. 159

prison. The spring of productive activity would no
longer be the initiative of the individual, but passive
obedience and compulsion.

Industrial progress is attained under the present
system, because every manufacturer endeavours to
make cheaply and sell largely, so as to make larger
profits. But who would find it his interest to
improve its processes of production, if every one were
paid by a salary ?

The cessation of progress and a universal despotism
regulating every action of the economic life, that is
what would be the world's condition !

§ 6. Cooperative Societies.

In a cooperative society for production the workmen
supply at once the capital and labour, and the union
of these two factors in the same hands brings the
antagonism between capitalist and labourer to a
natural end. It has been thought to find in this
union the solution of the social conflict. Unfortu-
nately the management of an industrial undertaking
is a difficult task. The majority of workmen are as
yet incapable of it, and any' adequate remuneration
to the managers and head employes appears to them
a violation of the piinciple of equality. Cooperative
societies have generally failed owing to the incapacity
or dishonesty of the managers. A joint-stock com-
pany with the workmen as shareholders, would offer
the same advantages, and probably succeed better.

It must not be forgotten that in the economic

160 Elements of Political Economy.

world, just as in the political, authority is indispen-
sable. In a manufactory, as on board ship or in the
state, there must be a master in command, and
subordinates to obey him ; if not, we have a condition
of anarchy, disorder and ruin. Up to the present
workmen who choose their masters show themselves
as ignorant of how to obey them as soldiers who
elect their captain.

§ 7. Emigration.

Emigration only brings about a rise of wages
when it abruptly carries off a large part of the popu-
lation without disturbing industry, as in the " exodus "
which, after the famine of 1847, carried off from
Ireland three of its eight millions of inhabitants.
Slow emigration, like that which ships from Germany
its one to two hundred thousands a year, has no effect
on wages beyond preventing their decrease. The births
fill up the void ; and in the absence of any diminu-
tion in the supply of hands, wages do not increase.

§ 8. Corporations and Trades Unions.

Formerly the workmen of any given trade formed
a close corporation, admission to which could only
be obtained after a long apprenticeship and severe
tests. In this way no one not a member of the
corporation of locksmiths might make a lock. The
performance of certain kinds of work was a monopoly.
A man was permitted to starve, but not to earn a
livelihood by his skill. In the edict of 1776 Turgot

Distribution and Circulation. 161

affirmed, "The right to labour is the possession
of all, and the first and most inalienable of all
possessions."

Nowadays the old corporations have disappeared,
but the enfranchised workmen finding themselves
weak in their individual isolation, have once more
banded themselves together according to their crafts,
though in no case with any exclusive privileges.
These " Trade Unions " reckon a considerable num-
ber of members in England and America. By
means of a weekly payment they form a relief-fund,
and assemble for deliberation and common action
towards raising wages. Their weapons are coalitions
and strikes.

§ 9. Coalitions and Strikes.

Workmen from time to time endeavour to obtain
an increase of wages by coalescing to exact it and
refusing to labour, that is to say by going out on
strike if their demands are not satisfied. Strikes
are of common occurrence in England — 2,352 in the
ten years 1870-1879 — inasmuch as the workmen
associated in the trades unions, by means of weekly
contributions form a fund which is employed, at
need, for the support of the men on strike.

The strike is organised in one manufactory, in
the others the workmen continue to labour and pay
wages to those out of employ. In the end the
employer is compelled to yield. In order to avoid
being thus one by one beset and reduced to terms

M

162 Elements of Political Economy.

the masters reply to the strike by the lock-out, that
is to say by a complete stoppage of work, a step
which forces the workmen to speedy submission, for
want of funds to maintain the struggle.

These strikes* are the cause of great suffering,
especially to the workmen. Mr. Bevan, a statistician,
has calculated that one hundred and twelve strikes
have cost as many millions by loss of wages. Some-
times, in certain localities, they have destroyed an
industry altogether.

Strikes can only raise wages when economic laws
permit, that is to say, when profits are high ; on the
Continent they more often only take place when the
manufacturers are reduced to extremity and cannot
pay labour better without ruining themselves, and,
as a result, rendering the lot of their workmen
still worse.

To avoid strikes recourse is now had in England
to two expedients.

(1) Arbitration, in which masters and workmen
lay their arguments before a competent judge, who
is chosen by agreement to decide the dispute.

(2) The fixing of wages according to the selling
price of the produce, by what is called the sliding
scale. Example : a rise or fall in the price of iron
effects a proportionate rise or fall in the wages of
the workmen who produce it.

Distribution and Circulation. 163

§ 10. Increase of Capital and Diffusion of
Property.

Economists assert that the only means to improve
the condition of the labourer is to increase capital.
The increase of capital, if not accompanied by an
increase in the number of workmen, will have as its
effect a rise of wages. "Nothing can be more exact
than this statement ; but the means it describes are
insufficient. The growth of capital has a limit, and
this limit is conceivably attainable. We can already
catch a glimpse of it, though the reward of labour
has none the less failed to become sufficient. What
is needed is that the increment of capital should pass
in a great part, into the hands of the labourers them-
selves by the help of good laws and thrift.

Thus to preach thrift to those who, it is owned,
have not even enough for necessities, may seem at
first a cruel mockery. It is true that they lack
necessaries ; yet how much money they spend on
such, to them, deadly superfluities as alcohol and
tobacco ! If workmen would save only the vast
sums which they devote to the alcoholic beverages
which brutalise them, in twenty years they could
buy every factory at which they work. It is thus
from the practice of certain virtues such as prudence,
continence, and sobriety, that help can alone arrive.

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164 Elements of Political Economy.

§ ii.. The Relation Between the Rise of Wages
and the Increase of Population.

If population increase more rapidly than capital,
and above all, than the means of subsistence, no
reform can permanently improve the lot of the
poorest classes, for the fairest division of the pro-
duce will only yield to each of them an insufficient
reward.

J. S. Mill is therefore right in his assertion that
in political economy the question of population
dominates every other.

CHAPTER VIL

ON THE INCREASE OF POPULATION.

Is the increase of population to be dreaded ? Two
opposite opinions have long existed on this subject.
In the cities of ancient Greece, where space was
limited, philosophers, politicians, and legislators, be-
lieved that the increase of the number of citizens
was an evil which had to be remedied, even by
means which make us shudder. In Rome, on the
other hand, where the want of men was felt, large
families were honoured and celibates punished. So
too in the seventeenth and eighteenth centuries
when the country was nearly everywhere de-
populated by despotic governments, it was thought

Distribution and Circulation. 165

necessary to favour in every way the multiplication
of the human race. Thus we find Montesquieu
saying that, " population is always a gain," and
Rousseau that, "there is no worse dearth for a
nation than that of men."

Most economists, however, agree with the opinion
that " it is more necessary to multiply the means of
subsistence than men," and are concerned at too
prolific marriages, because they increase the number
of mouths to fill, while politicians and conquest-
loving kings lejoice at . them, as swelliDg the
numbers of their soldiers.

Malthus, whose name is inseparably connected
with this question, has expounded in two thick
volumes the following theory. The human race
tends to increase more rapidly than the means of
subsistence. It advances in a geometrical progression
by continuous multiplication, like the numbers —

2x2 = 4x2 = 8x2 = 16 x2 = 32 x2 = 64.

The means of subsistence, on the contrary, increase
in an arithmetical progression by continuous addition,
like the numbers —

2 + 2 = 4 + 2 = 6 + 2 = 8 + 2 = 10 + 2 = 12,
and thus equilibrium soon ceases to exist between
the number of mouths to fill and the amount of
nourishment available to fill them. If these two
laws of progression are not in reality observed, it
is because the increase of population is stopped by
certain repressive forces. But these forces are the

166 Elements of Political Economy.

very scourges under which humanity groans, such as
disease, famine, war, and, above all, misery. To
escape these the only way is to arrest the excessive
multiplication of the race by moral constraint.

While abandoning the mathematical formulas of
Malthus, J. S. Mill has re-stated his theory in the
following propositions, which appear unassailable.
The human race, when not odiously ill-governed,
tends to increase. As a matter of fact, it doubles
its numbers within a period which varies in each
country. This period is of about 30 years for the
United States and Java, and from 125 to 150 for
France; the annual increase per 10,000 inhabitants
being 26 for France, 98 for Belgium, 101 for
England, 115 for Germany, and 260 for the United
States. On the other hand, the number of acres
of arable land is limited in each country, and in the
earth as a whole, and the quantity of food which
each acre is capable of producing can only increase
in a certain measure. Thus a want of equilibrium
must sooner or later occur between the increase of
the race, which is unlimited, and the increase of
food, which is limited. The time when this want of
equilibrium will produce a famine is doubtless
distant; out long before this last extremity is
reached, the increasing demand for the agricultural
produce won from the limited soil will cause a rise of
prices and a greater difficulty in living which will
only be diminished, even momentarily, by improve-
ments in the art of agriculture.

Distribution and Circulation. 167

Many writers have rejected these gloomy fore-
bodings. Here are some of their objections.

(1) Matter, says Carey, takes the form of lower
organisms more easily than that of higher. There-
fore there will always be more herbs and roots than
bullocks and sheep, and more bullocks and sheep
than men. A manifest error, for already in densely
populated countries, there is not enough meat
produced for every one to have the quantity necessary
for health.

(2) The density of population increases the pro-
ductiveness of labour, by rinding employment for
more capital. This is true, but the question is not
one of industrial products in general, but solely of
food ; and a hundred bales of cloth will not feed a
single child.

(3) It is said that if we restore to the soil as much
as is taken from it, a circidus is created, i.e. a circle
of life from which humanity can always draw the
means of maintaining its own. Here the advice is
excellent. Let us restore to the earth even more
than it gives us, and enrich it with elements of fer-
tility extracted from inorganic substances. Never-
theless with too much manure the corn lies and rots ;
and here we find our limit.

(4) The world has innumerable fertile plains unoc-
cupied, to which the inhabitants of countries where
the population is too dense can emigrate. It has
been calculated that there is abundant space on our
planet for twelve thousand million human beings,

168 Elements of Political Economy.

and there are not as many as fifteen hundred millions
in existence. Moreover commerce, in its ever-de-
veloping freedom and activity, brings to the countries
of our old continent the products of all the virgin
soils in increasing quantities. All this is true, but it
does not upset the other truth, demonstrated by J. S.
Mill, that if population always continues to increase,
the time must come when the most perfect system of
agriculture will be unable to produce sufficient food.
Such a state of things has been already reached in
Flanders, with its more than two inhabitants to every
acre, and in Oudh in India, where the population is
almost equally dense.

Is there then no loop-hole ? Will men grow too
numerous and be reduced to devour each other for
lack of food, and shall our race at the end of this
progressive development of which it is so proud, end,
as it began, in simple cannibalism ? Not so ; but it
will find a refuge in that true progress which may be
summed up in the three words, more light, more
virtue, more justice.

Increase of light will make the life of the spirit
triumph over that of the brute that is in us. In-
crease of virtue will lead us to greater prudence and
continence. Lastly, increase of justice, by securing
to each man the full enjoyment of the fruits of his
labour, will make proprietorship more general, and
so supply the well-attested antidote to the excessive
multiplication of our species.

Distribution and Circulation. 169

CHAPTER VIII.

PROFIT.

§ i. Meaning and Reason of Profit.

Profit is the reward of the labour of the employer.
This reward is uncertain, variable, speculative ; for
the employer disburses fixed sums for rent, wages,
and interest, without knowing how much the sale of
his productions will return him. At the end of the
year he calculates the total cost of his business, and
deducts this from the sum of his receipts. The dif-
ference is his profit. Profit is, therefore, the surplus
of the price obtained for productions over the costs of
all kinds which have been incurred in creating them.

There are two elements in profit. The first rewards
the skill and energy of the proprietor, and therefore
increases in proportion to the greater knowledge and
preparation which, an industry demands, and the
fewer attractions it possesses. It varies greatly in
every industry according to the qualities of the
individual proprietors, for it is on these that success
principally depends, so that where one man is ruined,
another makes a fortune.

The second element is risk. The farmer sows a field
without any means of knowing what the crop will be
worth, or whether it will not be destroyed by hail.
The incidental risks must be covered by a premium of

170 Elements of Political Economy.

insurance which goes to increase the profit ; the more
risky the undertaking the greater ought the profit
to be.

Profits will tend to a uniform level in all the
different industries, inasmuch as enterprising men of
business, furnished with fresh supplies of capital,
engage in such industries as offer any unusual returns.
This levelling process, however, is never accurately
effected, since the fluctuations of industry and trade
cause perpetual variations in the rate of profits.

§ 2. Is the rate of Interest in Inverse Propor-
tion to the rate of Wages ?

Considering the wealth produced as a fixed quan-
tity, Kicardo and his school have deduced from this
that profits can only increase at the expense of
wages. If an employer can pay exceptionally low
wages, it is certain that the decrease in his expenses
will increase his profit. His competitors, however,
will soon obtain the some advantage, and the diminu-
tion in the cost of production will be followed by a
fall of the selling price, and profits return to their
former rate.

The truth of the matter is rather that profit, being
also the reward of labour, will rise and fall simul-
taneously with wages. Where large profits are made
the workmen can and ought to be well paid. In the
United States profit and wages are high. In the
States of Western Europe they are both much lower.

Distribution and Circulation. 171

§ 3. Profits tend to Diminish.

The greater the productiveness of labour, the better
will both master and workmen be rewarded by the
large products which it creates. In a new country
where the sources of wealth are numerous and little
worked, masters and workmen can make large gains.
In an old country, where every source has already
been worked, persistent labour is needed for a liveli-
hood, and skill or exceptional good fortune to make
a fortune. Profits thus tend to diminish in proportion
as the field of employment is limited when compared
with the number of those who seek to employ their
faculties, their arms, and capital.

The fall of profits is arrested by every improvement
in the processes of labour by which it is enabled
to produce more at a less cost. Railroads, for ex-
ample, have given many people the opportunity of
enriching themselves. In this may be seen the
benefits which science confers alike upon master
and man.

CHAPTER IX.

THE REWARD OF CAPITAL.

§ i. What Interest is.

The third factor which contributes to production
is capital, and this, like the others, must be rewarded.
The reward which it receives is called interest.

172 Elements of Political Economy.

For replaceable and circulating capital, which is
consumed by the borrower, interest is usually reckoned
at so much per cent, the year, e.g. five pounds for
a years loan of a hundred. For fixed capital which
the borrower has to return in its original form, the
reward is proportionate to the service rendered and
the probable depreciation.

Two elements may be distinguished in the interest
which is paid for the enjoyment of a capital : the
first, an insurance premium to cover the risk of loss ;
the second, simply the hire of the capital. In a
country where there are bad laws and bad judges, the
lender of capital runs the risk of never recovering
it ; he will therefore stipulate for a premium at a
sufficiently high percentage to at least cover this risk.
It is for this reason that the rate of interest is always
very high in the East — as much as fifteen or twenty
per cent., or even more. The only means of reducing
it is to make good laws and appoint upright judges.

The lender deprives himself of the use of his
capital ; the borrower enjoys and profits by it. It is
therefore only natural that the second should pay
the first an idemnity, or hire, for this enjoyment.
This is the second element of interest.

The rate of this hire will be high if there are few
lenders compared to the number of borrowers, low if
there are many lenders and few borrowers ; and this
in accordance with the general law of supply and
demand. Lenders in search of an investment will
be numerous when there are many persons rich

Distribution and Circulation. 173

enough to be able to save, and sufficiently eco-
nomical to wish to do so. In Holland in the seven-
teenth century interest had fallen to three and even
two per cent. Every one worked and traded, and no
one spent all his income. Descartes was greatly
struck at this circumstance. Ibi nemo qui non exercet
mercaturam, was his exclamation. Borrowers, on the
other hand, abound when the spirit of enterprise is
developed, and at the same time nature offers numer-
ous remunerative employments to industry. In the
United States, the majority of undertakings, such as
the cultivation of virgin soils, the purchase of build-
ing ground, construction of houses, mines, factories
and railways, yield profits as large as ten, twenty, or
thirty per cent. Although, therefore, there is no
deficiency of capital, enterprising men are ready to
pay six and eight per cent, a year for the use of it.
Great fortunes are quickly made, and several cases
might be cited of twenty millions sterling having
been accumulated in a few years.

§ 2. Interest tends to Diminish.

In countries like England where there is a dense
population and wealth has long been abundant, the
rate of interest tends to diminish for two reasons ; in
the first place, because the value of capitals which
thrift is continually creating is reduced by their com-
petition, and, in the second, because the fields of
employment, i.e. the improvable sources of wealth,
are ever diminishing.

174 Elements of Political Economy.

The means of arresting this tendency of the rate
of interest in rich countries to fall, would be the
employment of capital in foreign investments, the
discovery of new sources of wealth, or the progress
of industry in certain directions, which, as in the case
of railroads, require costly but remunerative advances.
From 1850 to 1870 the rate of interest rose in
Europe because all over the world electric telegraphs,
both inland and submarine, railroads, canals for
transport and irrigation, new factories, banks, gas
companies, and profitable enterprises of all sorts
were able to use and richly reward all the capital that
was amassed.

When everywhere all the great undertakings shall
have been accomplished, and every industry have the
most perfect m ^ans of production at its disposal, the
time will come when new capital will no longer find
remunerative employment. This is what J. S. Mill
calls the stationaiy state, and he regards it as a
happy one for humanity, which, he says, has not been
created to weary itself for ever in the pursuit of
wealth ; and Mill is right. The life truly worthy of
our high destinies is that of the Athenian citizen in
the time of Socrates, occupied in philosophy, art and
public affairs, but with the added condition that the
one half of the day shall be devoted to some sort of
productive labour.

The extreme limit to the fall of interest is the
point at which the reward of thrift shall become
insufficient to cause the renunciation of the immediate

Distribution and Circulation. 175

consumption of the wealth produced. When a
saving of a hundred pounds shall bring in no more
than ten shillings the year, the number of savers
will greatly diminish, though we should not forget
that simple anxiety for the future is often a sufficient
inducement to cause money to be hoarded in a chest,
where it will bear no interest at all.

When the reward of capital shall no longer be
sufficient to attract to new savings, the time will also
have come when humanity will have at its disposal
all the necessary means of production, and so long as
it keeps these in good repair it will be able to devote
the whole product of each year's labour to immediate
enjoyment. This time is still far distant.

§ 3. The Lawfulness of Interest, and the Laws
against Usury.

Moral sentiment throughout antiquity, Aristotle,
the Withers of the Church, and ecclesiastical law,
have united in condemning all interest in the
severest terms as a theft and even a homicide.
Cato remarked : Majoresitain legibus posuerunt furem
dupli condemnari, fenatorem quadrupli — " The laws of
our fathers condemned the thief to restore double,
and the usurer quadruple ;" and in his time it was
still asked at Rome, Quid est fenerari ? Quid est
hominem occidere ? — " What is lending at interest ?
What killing a man ? "

This condemnation was dictated, in the first place,

176 Elements of Political Economy.

by an error as to the nature of capital, in the second
by the sight of the evils which actually resulted from
lending at interest.

As regards the error as to the nature of capital, it
was believed that capital consisted exclusively of
silver and gold, which are "barren." "Interest,"
says Aristotle, " is money born of money, and of all
acquisitions is the most unnatural." The same idea is
found again at Rome : Nummus non parit nummum —
" One coin does not give birth to another," and, truly
enough, a sovereign will not at the end of a year
produce a shilling to pay its hire.

The ancients, however, were deceived by appear-
ances. Silver and gold, it is true, produce nothing,
but they are only the means of reaching provisions,
tools, machines- — in a word, capital, which last is
essentially productive, since it is, thanks to this, that
anything is produced by labour. In the words used
by Bentham in answer to Aristotle, " one gold daric
cannot give birth to another, but with this piece of
money I can buy a ram and a sheep which will yield
me lambs, whence a whole flock may be born.

In ancient times the evils caused by the lending
money at interest rendered the custom odious, because
most often it was the wretched who borrowed for the
means of subsistence, not to make a profit from the
loan. The interest of the debt devoured the capital,
and the borrower was soon reduced to misery and the
mercy of his creditor. Such was the history of the
plebeians at Rome. Whoever reads the Law of the

Distribution and Circulation. 177

Twelve Tables will understand why, to escape their
creditors, the people fled the city and 'took refuge
on the sacred mount. Here is an extract on the
subject :

Aeris confessi rebusque jure For the payment of an acknow-
judicatis triginta dies justi ledged debt, or a legal judg-

sunt. ment, thirty 'days shall be

allowed by law.
Post deinde manus injectio esto, On the expiry of these, the
in jus ducito. debtor shall be seized and

brought before the magistrate.
Ni judicatum facit aut is endo If he neither pay nor give surety
em jure vindicit, vincito aut for the amount, the creditor

nervo aut compedibus quin- shall take him to his home,

decim pondo, ne minore, aut binding him either with

si volet majore vincito. thongs or with fetters of not

less than fifteen pounds weight,

and of more if he please.

Tertiis nundinis partes secanto, After the third market day the

si plus minusve secuerint, se creditors shall divide his body

fraude esto. into portions, and if they cut

more or less than their share
they shall be free from blame.

Again, among the Israelites the lending money at
interest was considered a means of ruin and perse-
cution, and as such was forbidden between Jews,
though allowed with respect to the stranger. Thus
the canon law and the Fathers of the Church in
condemning interest of every kind were only con-
forming to the idea of justice which prevailed on
this subject in Greece, in Rome, and in the Old
Testament.

Analysis proves that interest is at once just and
necessary. It is just, because whoever creates a piece
of capital, a plough, for example, has a right to be
rewarded for the sacrifice which he makes in not

N

178 Elements of Political Economy.

consuming at his ease the provisions which have
nourished him while he was making this new
instrument of labour. If he lends his plough the
borrower will obtain a greater profit than if he used
a spade. Would it be fair that the borrower should
retain the whole of this increased profit due to the
employment of the more perfect instrument ? The
lender and borrower in such a transaction are two
partners, and it is only just that they should share
the advantage obtained. Interest is thus only the
equivalent of the utility daily produced by the article
of which the enjoyment is lent.

But interest is not only just, it is also necessary.
Were it prohibited or suppressed no one would
economise except to hoard ; all savings, as in former
times, would be deposited in strong boxes, and this
reasonably, for why risk losing them without the
chance of profit ? Little new capital created, and
no capital lent, would be the result produced.

Formerly in every country laws against usury
forbade the exaction of what was considered excessive
interest, that is to say, interest at more than five or
six per cent. These laws have now been almost
everywhere abolished, and rightly, for they were
useless and even injurious to those whom they were
meant to protect. Useless, because the lender eluded
them by stipulating for a commission on each of
the frequent renewals of the loan ; injurious, because
they increased the risk of lending with the inevitable
result of raising the rate of interest.

Distribution and Circulation. 179

§ 4. The Influence of the Abundance or Scarcity
of Money on the Rate of Interest.

The manufacturer does not care about being able
to hire the use of money, but of provisions, raw-
materials, tools, machinery, and everything which,
when set at work by labour, produces useful objects.
It is, nevertheless, by money or by notes on the
security of money that possession of these instru-
ments of production is attained ; and it is under
the form of money that loans are negotiated.
Money is a circulating agent which makes things
pass from one hand to another. It follows, that, if
money is scarce the means of obtaining the capital
necessary to production are more difficult of attain-
ment and must be paid more dearly. Just as when
ships are wanting to convey merchandise, freight
charges are heavier, so, when the pecuniary means
of transport are lacking, interest rises.

In so far as the possession of objects is passed
from hand to hand by the employment of bills of
exchange, the influence of the scarcity of coined
money on the rate of interest is diminished. Again,
if this scarcity continue, prices fall, and in this way
each pecuniary means of transport transfers the
possession of more articles, until the existing quantity
of coined money is made sufficient, and its scarceness
— the cause of the rise of interest — is no longer felt.

N 2

180 Elements of Political Economy.

Part II.

THE CIRCULATION OF WEALTH.

When each of the factors who have contributed to
the creation of wealth, the landlord, the labourer,
and the capitalist, has obtained his share, he uses it
to procure the articles which he wishes to consume.
In order that he may receive, he gives; wealth
passes from hand to hand, and circulates by
exchange.

CHAPTER I.

EXCHANGE.

§ i. Barter.

The simplest form of exchange is the barter of wares
for wares. In prehistoric times only barter can have
been in use, and this is still the case among savages,
where a hatchet is given to obtain a pig, and a nail
for a bunch of bananas.

When exchanges multiplied, while at the same
time occupations were specialised, recourse was had
to money ; and barter was carried on by the double
process of selling and buying.

In the Iliad (Bk vii. 1. 472), when the vessels of
Lemnos bring wine to the Greeks, " Then the long-
haired Achaean bought ihem wine, some with bronze

Distribution and Circulation. 181

some with shining iron, some with skins, others with
live oxen, others with slaves." Here we have primitive
barter.

§ 2. Employment of Money : Sale and
Purchase.

Aristotle first, and afterwards the Roman juris-
consult Paulus, have shown to perfection the origin
and the function of money. This is how the Greek
philosopher expresses himself: —

"The use of a currency was an indispensable
device. People agreed mutually to give and receive
some article, which, while it was in itself a commodity,
was easy to handle in the business of life, some such
article as iron or silver which was at first defined
simply by size and weight, although finally they set
a stamp upon every coin as a mark of its value to
relieve themselves from the trouble of weighing it.
Money, however, is in itself mere trash, having only
a current or conventional, and not in any sense a
natural value, because if the people by whom it is
used give it up and adopt another, it is wholly
valueless, and does not serve to supply any want "
(Aristotle, Politics, i. vi., Welldon's translation).

The jurisconsult Paulus reproduces the same idea,
but with greater precision :

" The origin of sale and purchase is found in barter.
Money was unknown, and there were no words to
distinguish the merchandise and the price ; according
to the needs and circumstances of the moment,

182 Elements of Political Economy.

every one bartered what he found useless for what
was useful, for it often happens that one person has
in excess that which another lacks. As, however, it
did not always, nor easily happen, that when A had
what B wanted, B in his turn had something that A
was willing to accept, a substance was chosen whose
value, being legal and constant, obviated the diffi-
culties of barter by the equality of its quantity.
This substance, marked with an official stamp, derives
its usage and power of payment not from what it is
composed of, but from its quantity. Henceforth the
two objects exchanged are no longer both called
merchandise, but one system only, while the other
is called price"

Isidore of Seville (Orig. xvi. 17) sums up the
doctrine of antiquity in these terms: "There are
three things essential in money 5 the substance, the
law, and the form. In the absence of any one of
these, money ceases to exist."

The final result of selling and buying is the barter
of commodities either for other commodities or for
services. I need food, clothing, and the services of
the doctor, the lawyer, the judge, or the professor.
In exchange I am able to offer the objects which I
produce or the services which I can render.
Barter takes place, and the needs on both sides
are satisfied.

At bottom, the circulation of wealth effected
by money or its substitutes, amounts to a series
of barters, which the Roman law defines thus : —

Distribution and Circulation. 183

(1). Do ut des. "Gift for gift," e.g. coin for
wine.

(2). Do ut facias. " Gift for service," gold for the
instruction of a son.

(3). Facio ut des. "Service for gift," work for
food.

(4). Facio ut facias. " Service for service," the
pleading a case for the making a coat.

§ 3. Influence of Exchange on Prosperity.

Exchange contributes enormously to the increase
of wealth : in the first place indirectly by permitting
specialisation and the division of labour of which we
have pointed out the marvellous effects; in the
second place directly, for it increases the utility of
commodities by causing each object to reach the
hands of the person to whom it can be most useful.
Thus a farmer has a horse too slight to labour ; a
country doctor possesses one too heavy to go his
rounds. They exchange. The farmer ploughs his
furrows more easily, and the doctor pays his visits
more quickly. Each is better suited and gains
by the bargain; and so wealth is increased.

In primitive times each cluster of families produced
nearly everything it consumed. Nowadays exchanges
are incessantly made, between trade and trade,
between country and town, between province and
province,* land and land, continent and continent.
The poorest workman consumes the products of two
hemispheres. The wool for his clothes comes from

184 Elements of Political Economy.

Australia ; the rice for his pudding from the Indies ,
the corn for his bread from Illinois ; the petroleum
for his lamp from Pennsylvania ; his coffee from Java ;
the cotton for his wife's dress from Egypt or Alabama ;
his knife from Sheffield ; the silk of his neck-tie from
France.

With each improvement in the means of communi-
cation, and the mechanism of circulation, there is
an increase in the number of exchanges. It may
thus be said that the progress of economic civilisation
is measured by the progress of exchange.

CHAPTER II.

SALE AND PURCHASE.

§ i. Price.

Price, in the broadest meaning of the term, is any-
thing which is obtained in exchange for an object.
In its usual meaning it is the amount of money which
the exchange procures.

A thing's price is fixed by the competition estab-
lished between those who wish to sell and those who
desire to buy it, that is to say by what is called " the
law of demand and supply."

The supply of an article is the whole * quantity
which there is a desire to sell ; the demand, the
whole quantity which there is a desire to purchase

Distribution and Circulation. 185

accompanied by ability to pay. When the supply
exceeds the demand, prices fall ; when the demand
exceeds the supply, prices rise. Much cattle in the
market and few buyers, prices fall ; little cattle and
many buyers, prices rise.

§ 2. Supply and Demand, and the Cost of
Production.

The demand for an object is determined by the
need for it, or, which comes to the same thing, by the
utility of the object for satisfying a need. The supply
depends on the abundance or rarity of the object of
demand. An object is rare, either because it is
difficult or costly to produce, as in the case of a
chronometer, or, as in that of the diamond, because
nature produces it only in small quantities.

The demand for corn is very strong, since it answers
to a need of the first importance. Corn, however, is
not dear, because the supply of it is always abundant,
owing to the fact that it is not costly to produce. If,
however, the supply fails, as it does in a besieged
town, people will give everything to obtain corn. It
follows that a slight falling off in the crop suffices to
cause a great increase in price. This shows that the
supply of commodities which can be produced at will
depends on the cost of production.

The sum required to cover the expenses or cost of
production has been called the "necessary" or "natural"
price, and for this reason : — If the current price falls
below this necessary price, the producer, finding

186 Elements of Political Economy.

himself a loser, ceases to produce it ; the commodity
becomes more rare, and, as a result, prices rise till
they cover the expenses of production. On the other
hand, if the current price rises above the cost of
production, the exceptional profit of the manufacture
attracts fresh capital, and by the increased production
prices are made to fall. The current price is some-
times above, sometimes below, the necessary price,
but always tends to approach it.

For articles of which the quantity cannot be
increased at will a monopoly price is established,
which depends solely on the demand. The value
of a picture is the price which the competition of
picture buyers will force the most eager of them to
give ; and this because no one can now produce a
picture of Kubens at any price.

For objects which can be multiplied, but at an
ever-increasing expense, the necessary price will be
equal to the outlay on that portion of those objects
which shall have cost most to produce. If this outlay
were not covered by the selling price, the objects
would cease to be made. Let us suppose that the
cost of production of coal in some mines is four
shillings the ton, and in others seven shillings, the
necessary price will be at least seven shillings. Since,
if recourse must be had to the less abundant mines
owing to the inability of the others to satisfy the
demand, it is necessary that the selling price rise
sufficiently high to defray the cost of production of
this more hardly won coal. The same is the case

Distribution and Circulation. 187

with corn, and with everything else which can only
be produced in greater quantities at a greater expense.
Thus, as we have already seen, the most favoured
productive agents, since their produce sells at the
same price while the expenses have been less,
confer exceptional advantages which give rise to
rent.

§ 3. The Just Price.

In ancient times, and in the Middle Ages, people
talked of a just price, justum pretium, that is to say,
of a price proportionate to the value of the object.
The only equitable basis of exchange must be the
equality of value of the objects exchanged. If for
4*1. I give a heifer worth SI. I lose by the bargain,
and whoever buys the heifer is enriched at my
expense. When the loss incurred exceeded half the
value, the Roman law permitted the sale to be re-
scinded, and the French code has sanctioned the same
principle. Plato condemns those who try to sell corn
at more than its value, by concealing the fact of a ship's
arrival which will diminish its price, and St. Augus-
tin blames those whose only thought is to sell
dear and buy cheap, vili velle emere et caro vendidere
{Be Trinit. xiii. 3).

Modern economists do not admit the conception of
a just price. According to them the price accepted
by the two parties is always just. The reason of
this is that they derive justice from convention, while
in reality convention must conform itself to justice.

188 Elements of Political Economy.

From this latter principle result the maxims of prac-
tical uprightness which are accepted by all honest
tradesmen ; it is always a duty to " give good money's
worth," and to refrain from indulgence in deceit as to
the quality of goods.

§ 4. Usefulness of Fairs and Exchanges.

Since price is the result of the relation established
between the demand and the supply, the best way of
fixing prices is to put all those who respectively
supply and demand into communication. This is
the function of fairs and exchanges. Individually I
have no means of knowing how much I can obtain
for the sack of barley I have just harvested ; hence
isolated sales are accompanied by endless argument.
When once, however, all who wish to sell their corn
and all who wish to buy it, meet in one place ; out
of their competition will immediately result a cur-
rent price, and enormous transactions will then be
easily effected in a few minutes.

Exchanges and fairs are thus institutions which
have as their aim and result the better application
of the law of demand and supply.

Distribution and Circulation. 189

CHAPTER III.

MONEY.

§ i. Nature and Function of Money.

Money is the substance or substances which
custom or the law causes to be employed as the
means of payment, the instrument of exchange, and
the common measure of values.

The jurisconsult Paulus has shown us how the
difficulty of bartering wares against wares caused
the employment in exchanges of an intermediary as
a means of purchase and payment. Money is thus
the agent of circulation and the vehicle of exchange.
It causes the property in an object to pass from one
person to another, in the same way as a cart transports
an object from one place to another.

As an American economist, Dana Horton {Money
and Law, p. 14) has noted, from the first origin of
barbarous societies, law or custom established tributes,
fines, compositions, and forced gifts, and determined
by means of what objects they should be paid.
Money is thus a legal means of payment.

Money is at the same time the universal equiva-
lent. When I sell goods for twenty shillings, the
sovereign I receive is the equivalent of the goods I
deliver, and by means of the sovereign of money I

190 Elements of Political Economy.

can, in my turn, obtain an equal value in com-
modities. "A piece of gold," says Adam Smith,
" may be considered as an agreement for a certain
quantity of goods payable by the tradesmen of the
neighbourhood."

Lastly, money is a common measure or standard
of values. It is difficult to compare the relative
value of objects directly — to fix, for instance, the
amount of corn which a sheep is worth. But the
comparative valuation becomes easy by the employ-
ment in money of a common valuer. In the same
way the length of objects is compared by means of
the foot, the standard of long measure, and their
heaviness by means of the pound, the standard of
weight. Only the substance by means of which the
comparative value of different articles of commerce
is measured being itself merchandise delivered in
exchange, its value varies like that of all goods.
There is not, therefore, a fixed standard of values in
the same way as there is of length and weight.
What is desirable is to adopt one as fixed as possible.

Money, by its very constant and widely-admitted
value, permits the accumulation of wealth and its
transference from one country and generation to
another. It is thus a means of conservation and
transmission of wealth in time and space.

It is thanks to money that the division of labour
and interdependence of the different trades and
functions have been established. Money is thus the
bond of human society.

Distribution and Circulation. 191

§ 2. Different Kinds of Money.

Objects of every sort have been employed as
money : in Siberia, furs ; in Africa, cubes of salt,
tickets of blue cotton, and cowrie-shells ; iron at
Sparta; and, in former times, almost universally,
heads of cattle.

In the Big- Veda, in the Zend-Avesta, and in
Homer, objects are valued at so many head of cattle.
The arms of Diomede are worth nine oxen, and those
of Glaucos one hundred {Iliad, vi. 234). The tripod
given as a prize to the wrestlers in the twenty-third
book of the Iliad is valued at a dozen oxen, and a
slave, a quick workwoman, at four (Gladstone,
Juvenilis Mundi, p. 534). The tribute which the
Frank conquerors imposed on the Saxons was
reckoned in oxen. Our word " pecuniary " (pecunia)
comes from pecus, "cattle," as does the legal term
peculium} The English word "fee" (Saxon, feoh —
cattle) signifies " payment ; " the Scandinavian fa,
"wealth," is identical with it. The Greek word
KTrjfxa signifies both " property " and a " flock ; "
the Gothic skatts, " treasure " and " flock ; " schatz in
German, " treasure ; " Sket in Frisian, " cattle." In
Hebrew, kassaph means both " sheep " and " money ; "
gamal, u camel " and " payment ; " mikndh, from the

1 " Is it not strange," says the commentator Festus, " that these
commonly used words are derived from cattle ? Among the ancients
it was of cattle that wealth and patrimonies chiefly consisted, so
that we still speak of pecunia, peculium."

192 Elements of Political Economy.

root kana, " to ^create," a " flock and an acquisition,"
or " price." The Sanskrit rupya, the rupee of Indian
coinage, is derived from rilpa, " cattle."

Metal money was at first employed as represent-
ing money in cattle, for a passage in the Agamemnon
of iEschylus seems to show that the ancient Greek
pieces of money used to bear the mark of an ox, and
the same was the case with the Roman as.

When, with the progress of civilisation, exchanges
had become more frequent, moneys were made ex-
clusively of gold or silver. The simultaneous and
universal employment of these two metals is due to
their possessing, in a greater degree than any other
substance, the qualities which a good money ought to
unite. These qualities are as follow : —

(1) Gold and silver do not in the least deteriorate
with keeping. Minted, melted down, and re-minted,
the gold gathered by the Greeks and Romans, in
part, still circulates among us.

(2) The production of the precious metals is
restrained by the scarcity of the ores. As a result
they have great value in proportion to their weight,
and this facilitates their handling, transport, and
hoarding.

(3) Augmented by annual production, diminished
by accidental losses and wear and tear, the sum of
the precious metals throughout the world, of which
the value in money and ornaments is valued at about
2,000,000,000/., increases slowly, and in nearly the
same proportion as the increase of the need for money

Distribution and Circulation. 193

which arises from the development of population
and of the total amount of the exchanges in the
world. The demand and supply being thus nearly
at an equilibrium, the value of gold and silver is
very stable.

(4) This immense stock of the precious metals
lessens the variations in value which might result
from the variations in the annual supply ; just as the
level of a great lake is little affected by any changes
in the discharge of the rivers which flow into it.

(5) The precious metals are sought after and
accepted everywhere, an indispensable condition for
an object to be a general medium of exchange. They
are received in every civilised country, and can thus
serve as a means of universal payment.

(6) They are easily divisible, and each part has a
value proportionate to its weight.

(7) They receive and preserve unaltered the im-
print which makes known their origin and nominal
value, and thus also their weight in pure metal.

(8) They are easily recognisable: gold by its
weight, silver by its sound.

Of all these qualities of money the most essential
is that of stability of value? inasmuch as a change
in its value affects all contracts.

§ 3. Value of Money.
The value of money is measured by the quantity
of objects it procures, that is to say, by its power
of purchase.

O

194 Elements of Political Economy. .

In the Middle Ages three bushels of corn could be
bought for the pure silver contained in five of our
shillings. Nowadays only a fourth as much could
be obtained for the money. Silver, therefore, is
worth only the fourth of what it was before the
discovery of America.

The value of the precious metals has diminished
to this extent, despite the enormous increase in their
employment, because their sum total and annual pro-
duction have been considerably augmented. The
sum total of gold and silver existing in Europe in
the year 1500 is estimated at 80,000,000/., and the
annual production at about 1,000,000/. The pre-
sent sum total in the whole world must now be
over 2,000,000,000/., and the annual production
about 36,000,000/.

The value of money, like that of any other object,
depends on the relation between the supply and
demand. The supply is the result of the quantity
of money in circulation and the rapidity with which
it circulates. If every shilling effects three pur-
chases in a day, to accomplish the same number of
exchanges three times fewer shillings will be needed
than if each shilling only changed hands once. The
supply and usefulness of the same amount of money
are thus trebled. The demand for money is the
result of the number of changes which have to be
effected by means of cash. If the supply of money
increases beyond the demand, its value decreases
and prices rise. If the demand, i.e. the number of

Distribution and Circulation. 195

exchanges requiring payment in cash, increases
beyond the amount of money in circulation, the
value of money rises and prices fall. Lastly, if the
quantity of money and number of exchanges increase
equally, but at the same time means are found for
effecting certain transactions without having recourse
to cash, the employment of this is diminished, its
supply increases, and prices rise.

Gold and silver ornaments affect prices as creating
a demand for money, not as supplying it ; for cash
is needed in buying and selling these ornaments.
The precious metals, again, in the form of ingots,
only affect prices when they are represented by bills
which fulfil the functions of money. Lastly, the
cost of production of the precious metals only affects
their value in proportion as it contributes to modify
their quantity and in consequence, the supply.

§ 4. Is the Abundance of Money an Advantage ?

It is no advantage for mankind in general, or fcr
an isolated country, to possess much money ; as many
exchanges "can be effected with little money as with
much. Prices diminish in proportion to the falling
off in the quantity of cash, and the rarer and more
valuable the unit of money becomes the more ex-
changes will it effect. If mankind possessed twice
as much money as at present, it would be none the
richer. It would have no greater number of com-
modities or means of enjoyment. Every one's situ-
ation would remain as it was before. Everything

o 2

196 Elements of Political Economy.

else would be the same, but prices would be doubled.
Two shillings would be paid where one was paid
before, and the money value of all goods would be
twice as high — a change advantageous to nobody.

An alteration, however, in the value of money,
while in course of accomplishment, brings great
confusion into all legal and economic relations,
inasmuch as all debts and contracts are based on the
prices which are changing. The farmer who owes
the state twenty shillings for taxes and the holder
of a mortgage a like sum for interest, when the
quarter of wheat sells for forty shillings, pays these
two debts with the price of a single quarter. If
money, and, consequently, prices diminish by one-
half, to pay his debts he will have to surrender two
quarters of his wheat instead of one.

A decrease in the stock of money, whether absolute
or relative, by lowering prices, has as its immediate
consequence the restriction both of exchanges and
production. Its final result is a heavy burden upon
debtors.

An increase in the amount of money, by raising
prices, stimulates exchanges and production and
relieves debtors. Hence the discovery of America
by Christopher Columbus, and of the gold fields of
California in 1848, may be said with truth to have
saved many a bankruptcy.

It is desirable that the value of money should
remain as stable as possible, and this will be the case
so long as its quantity increases in the same pro-

Distribution and Circulation, 197

portion as the number of exchanges for which cash
is required.

§ 5. Monetary Systems.

In primitive times the precious metals were used
as a means of exchange by being weighed, and this
is still the case in China and many other countries.
With the Romans the As was originally the unit
both of weight and of money. In England the
pound is the monetary unit and the unit of
weight. The French monetary system is derived
from that of Charlemagne, in which the unit was
the livre or pound of silver. In order to facilitate
the use of gold and silver the state then struck pieces
of them on which were specified their weight, the
amount of pure metal they contained, their name,
and, consequently, their legal value or power of
payment. Thus, in order to pay a sum of money,
it is no longer necessary to assay and weigh the
metal, but only to count over a certain number
of coins.

To make the pieces of gold and silver hard, and
thus less liable to wear, a certain proportion of
copper is added to the pure metal ; this is called the
alloy. The proportion between the pure metal and
the alloy is the standard which, in the English
sovereign, is eleven parts of pure metal to one of
alloy. A coin is said to be good money when it is
of the legal standard.

The unit of money is the coin of gold or silver

198 Elements of Political Economy.

of which the other coins are the multiples or
measures. In England this is the sovereign ; in
France, the franc ; in Germany, the mark ; in Hol-
land, the florin ; and in the United States, the
dollar. Among coins there are some which have
a legal currency for all payments without limit;
others, of an inferior quality, have only legal cur-
rency for small payments ; while, for the smallest
payments of all, " token money " is issued, generally
made of bronze or nickel. In England " coppers "
may be tendered up to the value of a shilling, and
silver to that of 21.

The sum of the laws and regulations concerning
money constitutes the monetary system.

Formerly all sovereign powers — monarchs, cities,
bishops, and lords — reserved to themselves the right
of coining money, because by issuing it at a nominal
value greater than that of the metal it contained
they received the difference of these two values,
called seigneur age, as their profit, and made it a
source of revenue. At different periods they abused
their right of coinage to diminish the value of the
currency, either by lessening the amount of pure
metal contained in the coins, or by increasing their
legal value. If, by adding more alloy, two coins are
struck from the pure metal which formerly made
one, or if it be proclaimed that a coin be received
at double its former value, all payments are halved.
This was the way that bankrupt states formerly made
composition. Thus, a French king, Philippe le

Distribution and Circulation. 199

Bel, nicknamed the Coiner, because lie made great
use of false coining to diminish his debts, is placed
by Dante in Hell, —

La si vedra il duol che sopra Senna
Induce, falseggiando la moneta
Quei che morra di colpo di cotenna.

(Parad. xix. 118—120.)

" There will be seen the misery caused on the
banks of Seine through the falsifying of money by
him who is to die from the blow of a wild boar."

Plutarch relates that for the relief of debtors Solon
decreed that the mina should in future be worth
a hundred drachmas instead of seventy-three, and
adds : " In this way, by paying apparently the full
value, though really less, those who owed large sums
gained considerably, without causing any loss to
their creditors/' He here expresses the error which
has inspired all the issues of " depreciated " and
paper money. No one seems to lose because pay-
ments are made just as well with coins reduced in
value as with the unreduced. What is forgotten is
that prices rise in proportion as the unit of money
loses its value.

The best instance of this reduction in value, owing
to the successive " diminutions " decreed by different
sovereigns, is afforded by the French coinage in
which the livre which, as issued by Charlemagne, was
a pound's weight of silver and worth about fifty two
shillings, by the end of the eighteenth century had
a value of no more than ninepence halfpenny. In

200 Elements of Political Economy.

England the £ has lost not quite two-thirds of its
primitive value.

In order thoroughly to understand historical pas-
sages where sums of money and prices are concerned,
it is necessary to know, firstly, what quantity of gold
and silver these sums represented in the period in
question ; and, secondly, what quantity of goods
could be obtained for a certain weight of the precious
metal. Thus in Greece, in the time of Solon, the
drachma was worth something over ninepence, and
was the price of a medimnus, or about twelve gallons,
of wheat. In Rome the Papirian law De multarum
cestimatione (B.C. 430), which converted the old fines
of cattle into sums of money, fixed the value of a
sheep at ten asses, and that of a bullock at one
hundred. As the as libralis, composed of an alloy
of copper, tin, and lead, was worth about fivepence
farthing, the price of a sheep was thus about four
shillings and sixpence, and that of a bullock about
forty-four shillings.

At the present time, in civilised countries, the
coining of standard money is free. Any one has the
right to take an unlimited amount of ore to the
mint, and to receive in exchange an equal weight of
current coin, with a deduction for the expenses of
fabrication or coining, and in England without any
deduction at all. It is thus private persons who
cause money to be coined, but in conformance with
a legal tariff. According to this tariff, SI. lis. 10^d.
is paid in England for each ounce of gold of a

Distribution and Circulation. 201

fineness of eleven-twelfths. In France and in the
Latin Union where, however, free coinage is at present
suspended, 3,100 francs are given for a kilogramme
of gold of a fineness of nineteenths, and 200 francs
for a kilogramme of silver of the same standard.

The right of coining the inferior money the state
reserves to itself for two reasons : because its
intrinsic value is less than its nominal, and because,
the legal currency being limited, only a limited
quantity is required. The free coinage of money in
the two metals was introduced into England in
1666, and in France by the " loi du 7 germinal
an xi." (1803).

The monetary system flourishing in the countries
which in 1863 formed the Latin Monetary Union
(France, Italy, Switzerland, and Belgium) admits as
standard money all gold coins and five-franc pieces.
Other silver coins are of an inferior standard, of a
fineness of only 835 parts in 1,000. These have
only legal currency in each payment up to the
amount of fifty francs, and the associated states
cannot issue more than six francs for each
inhabitant.

Token money in France and Italy is made of
bronze, in Switzerland and Belgium of nickel. It
serves for very small payments, and no more than
five francs of it need be accepted. In England
copper money is only current to the amount of a
shilling.

An excellent provision in the Latin Union is a

202 Elements of Political Economy.

stipulation by which inferior coins and token money
can be changed at the public banks for standard
coins, when offered for a sum fixed by law. In this
way the amount of small money can never become too
great, since any unnecessary surplus can be converted
into standard money. .

§ 6. Monometallism and Bimetallism.

The monetary system of the Latin Union is called
the " double -standard or bimetallic system," because
it permits, in principle, the free and unlimited
coinage both of gold and silver pieces, to each of which
it gives legal currency, i.e., the right to be accepted in
all payments, every debt being presumed in law to
be payable in coins having a legal currency.

The monometallic system only accords free coinage
and unlimited legal currency to pieces of one metal,
either gold, as in England, or silver, as in Austria.
This system seems the simpler of the two, and fixes
more exactly the relations of value between the
different pieces of standard money, since these are
all made of the same metal. The relation of value,
however, between money and the goods of which
it has to effect the exchange is more variable with
a monometallic system than with a bimetallic.
Just as a compensated pendulum, with its bars
made of two metals of unequal expansiveness, is
less liable to variation because their inequalities
balance ; or just as a river with two tributaries flows
more regularly than it would with only one, so a

Distribution and Circulation. 203

monetary system, fed by the simultaneous influx
of both precious metals, is rendered more stable,
because the total mass of standard money is greater,
and because a falling off in the production of one
of the two metals may be compensated by an
increase in the production of the other.

§ 7. The Laws of Gresham and Newton.

A great drawback in the bimetallic system is
expressed in what is called Gresham's law. Sir
Thomas Gresham, one of the councillors of Queen
Elizabeth, showed in 1558 that the money which
has the less value always ousts that which has the
greater from circulation, this last being exported.
Aristophanes (Frogs, 1. 718) has recorded the same
observation : " In our state," he says, " the bad
citizens are preferred to the good, just as bad money
circulates while the good is hoarded."

In 1717 Newton first indicated the means of
obviating the vexatious effect of Gresham's law, by
establishing the relation of value between gold and
silver the same in all countries ; pointing out that, if
this were done, there would no longer be any motive
for exporting one of the two metals in preference to
the other. The economic law thus formulated by the
great discoverer of gravitation, should serve as a
basis for a monetary union between all civilised
states, which should draw closer the ties and relations
between the associated nations.

Till quite modern times silver has always been

204 Elements of Political Economy.

employed as the chief kind of money. In French
the word argent is used as a synonym for money, and
siller in Scotland had long a similar meaning. Silver
is in fact the better metal for monetary use, since its
value is more stable than that of gold, and this is the
essential quality for the legal medium' of payments,
and the common measure of values. The value of
silver is more stable than that of gold because it is
exclusively obtained from the working of mines. The
production of gold, three-fourths of which is obtained
from auriferous sands, increases and diminishes, as
history shows, in a very short time. If gold were
everywhere adopted as the sole standard metal, prices
would be subject to numerous and abrupt fluctuations,
and this is a great evil.

§ 8. The Maintenance of Monetary Systems.

To maintain a monetary system in its integrity
the following legislative measures are indispensable.

(1) The making and issuing false money, or
counterfeiting or clipping the legal money, must be
prohibited and punished.

(2) A minimum weight must be fixed which coins
must possess or lose their legal currency and be liable
to be refused in payment.

(3) At the expense either of the state or the last
owner, all these coins of less than the minimum legal
weight must be withdrawn from circulation and
reminted. Since the coins have been worn by the

Distribution and Circulation. 205

use of the public at large, and not of the last owner,
it is juster for the expense of reminting to be borne
by the state.

CHAPTER IV.

CREDIT.

§ I. What Credit is.

Credit is the act of confidence by which the
holders of a sum of money or a quantity of goods
delivers them to another person on his promise of
reimbursement or payment. The word credit comes
from the Latin credere, " to believe." Whoever
delivers to another person either money or goods on
the condition that after a certain time they shall
restore the sum lent, or pay the price agreed, does so
because he believes that this promise will be fulfilled.
The person who credits this promise and has the
right to demand payment is the creditor. The person
who promises and is under an obligation to pay is
the debtor. The sum which has to be paid is called a
debt, and is said to be placed to the credit of the first
and the debit of the second. The time which has to
run till the moment of payment is the term.

Promise and confidence in a promise, these, then,
are the elements of credit. That which inspires
confidence is solvency, intelligence, the spirit of
order and uprightness. Laws which develop these

206 Elements of Political Economy.

qualities and insure the rigorous execution of
engagements have as their result the expansion and
increase of credit — a good instance of the way in
which virtues and just laws favour the production
of wealth.

A debt when acknowledged in writing gives rise to
different kinds of vouchers, bank notes, bills payable
to order, letters of exchange, cheques, bills of sale,
municipal and joint stock debentures, and state loans.

" Personal " credit has as its basis either the in-
dividual qualities or the fortune, real or supposed,
of the debtor. " Real " credit depends on the goods
(res) which he pledges or gives as security. " Real M
pledges are more trustworthy than personal security.
Phis est cautionis in re quarn, in persona is the
expression of that " stereotype of good sense " the
Roman laws.

§ 2. The Advantages and Effects of Credit

Credit fosters the productivity of labour and
enables it to increase wealth ; it does not however
increase wealth itself. In other words, it augments
the activity of capital, not its quantity. All credit is
summed up in a promise or an order to pay, i.e. in a
signature ; and capital cannot be created by a stroke
of the pen.

Credit seems to multiply capital because side by
side with the thing owed appears the promise which
confers a right to it. In reality, however, these are
not two separate things ; one is only the shadow of

Distribution and Circulation. 207

the other. Burn every I O U in the world, and
nothing real will have ceased to exist. Only the
legal relations have been changed, since the creditors
lose exactly what the debtors gain. When a house
is reflected in the water, it may be said that there
are two houses. The water ruffles, and the reflection
vanishes; but the real house continues to exist.
When I buy a promise to pay a hundred pounds,
what I acquire is the future possession of this sum
with the interest attached to it. Wealth, and a
title to possess this wealth, cannot be reckoned as
two things.

The following are some of the useful effects of
credit.

(1) Credit brings to labour the capital necessary
for production.

A man with strong arms takes possession of a
piece of fertile land : he lacks, however, the tools to
cultivate it and provisions to maintain him until
harvest-time ; for lack of these he dies of hunger
and the land remains unproductive. Instead of this,
suppose I lend him the means of procuring tools and
subsistence : he sets to work, and at the end of the
year repays me my advance ; henceforth he can live
on the fruits of his labour. This is an instance of
how credit favours the increase of wealth by coming
to the aid of labour.

(2) Credit puts savings in motion and thus
prevents capital lying unemployed.

In the East no one dares to lend his savings for

208 Elements of Political Economy.

fear of losing them. He prefers to convert them into
jewels with which he ornaments his chibouque, his
yataghan, or the harness of his horse. Perhaps, more
prudent still, he buries them in order that they may
escape the greed of the government. Thus the wealth
which his savings creates in no way furthers production.
Credit has no existence. On the other hand, in
Scotland, landlords, farmers, manufacturers, artisans,
all deposit their disposable funds in banks, by which
they are immediately advanced to producers. In
this way no article of capital is left unemployed.
Founded on honesty and the love of work, credit
reigns and accomplishes marvels.

(3) Credit brings capital into the hands of those
who will make the best use of it.

New capital is for the most part created by persons
unoccupied in any industry and thus unable to
employ it remuneratively. The means of drawing an
income from it is to lend it, either directly, or through
the medium of a banker, to those who will pay most
for the use of it, i.e. to those who will employ
it most productively. Credit is thus constantly
transferring capital to the places and hands in which
it brings in the most. As a consequence it affords an
incentive to saving by assuring to thrift a reward, not
only immediate, but as high as can be paid.

(4) Credit allows of the immediate execution of
great works, or of the meeting of extraordinary
needs, such as those which arise in time of war, by
discounting the revenues or produce expected in the

Distribution and Circulation. 209

future. Even in this case, however, it must not
be supposed that credit creates anything; it only
determines the disposition of capital already in
existence.

There is no such thing, as some assert, as
anticipating the future, or releasing capital once
invested. We can only use what is actually in
existence at the given moment. The expressions
quoted are metaphorical ; and in political economy,
as elsewhere, metaphors are dangerous weapons to
handle.

(5) Credit creates economical methods of pay-
ment.

In this way it allows exchanges to be made with a
smaller quantity of metallic money. Gold and silver
are set free, and can be devoted to industry, or exported
in exchange for objects useful either for consumption or
production. As Adam Smith has said, credit opens
for the exchange of productions paths through the
air, and thus the ordinary roads can be put under
cultivation, and increase the production of articles of
food. This advantage, however, is, in part, more
apparent than real. The gold and silver remain in
the country, or if we take the world at large as our
field of observation, the addition cf bills to the
means of exchange afforded by metallic money, tends
towards a rise of prices. On the other hand, it is no
less certain that the greater facility of exchange will
give a stimulus to industry and commerce, which will
then, in their turn, require more of the instruments

P

210 Elements of Political Economy.

of exchange. When this is the case there will be no
depreciation of money, nor rise of prices.

The way in which credit performs the functions of
money is as follows : A solvent person promises to
pay 50Z. ; this promise, in which implicit confidence
is placed, is received in payment as readily as fifty
sovereigns, and, as it passes from hand to hand,
influences all transactions in the same way as they
would be influenced by these sovereigns to which it
gives a title, and represents. Side by side with the
circulation resting on coin, there is thus established
a circulation resting on confidence, the instruments
of which possess the following advantages :

(1) They are less cumbrous than the precious
metals.

(2) They enable large sums to be counted more
easily.

(3) They are not exposed to the wear and tear,
which gradually lessens the weight of coins.

(4) They can be more easily sent to a distance.

(5) Some of them can be so constructed that
their unlawful possessor can obtain no payment.

All the instruments of credit rest on a basis of
metal money, since they confer a right to receive a
sum in coin. But, in so far as they circulate, they
fulfil the functions of money.

§ 3. The Drawbacks of Credit.

The mother says to her son, " Buy nothing except
for money ; credit is ruinous." The father tells him,

Distribution and Circulation. 211

" Credit is the soul of industry ; it is the refusal of it
that ruins." Both are right : the mother who speaks
of the poisonous credit that ministers to unproductive
consumption, the father who alludes to the beneficent
credit that forwards production. Unfortunately the
borrowers on the largest scale, i.e. Governments,
have recourse more often to the first kind of credit
than to the second, and devour capital unproduc-
tively in war and the preparations for war.

Credit, also, by permitting purchases from funds
which people hope to, not only which they do,
possess, favours hazardous speculations and the over
excitement of industry and commerce.

§ 4. The Instruments of Credit.

All instruments of credit are alike in consisting of
a voucher which affirms the rights of the creditors
with respect to a debtor.

(1) In the acknowledgement, A acknowledges
himself indebted to B in the sum of 50£. and
promises to pay the same.

(2) In the hill payable to bearer at sight, A
promises to pay 50/. to any person who shall present
the bill, and at the moment of presentation ; this is
the bank-note. The bank-note when accepted in
payment extinguishes the debt the same as money
does, and thus, to the extent that it is received,
performs the function of the latter.

(3) In the bill to order, A has purchased goods to

p 2

212 Elements of Political Economy.

the value of 501. from B, and, instead of paying
ready money, gives him a bill in these terms : —

1 promise to pay to B, or his order, the sum of
501, payable July 1st, 1882.

This bill is transferable, so that if B owes 501. to
C, he can pay it, with C's consent, by passing him on
the bill signed by A and endorsing it, i.e. writing on
the back, " Pay to C or to his order." Each time
that a bill thus endorsed passes from one person to
another, it effects a provisional payment, which does
not become final unless the bill is paid on its expiry.
On the day of expiry, the last holder has to present
the bill to the original debtor who created it. If the
debtor fail to pay, his refusal must be established, at
the latest the second day after the expiry, by an act
called a protest. If this protest is duly made, the
successive endorsers of the bill are severally bound to
make it good, until the first creditor, B, (the drawer)
is reached, on whom falls the loss resulting from A's
inability to pay.

(4) The bill of exchange is created and afterwards
transmitted by endorsement in exactly the same way
as the bill to order, from which it differs only in
its form. Instead of the debtor who promises to
pay, it is now the creditor who gives the debtor an
order to pay, thus :

London, July 1st, 1883.

At three months pay to the order of C the sum
of 501.

To M B, Brussels Signed A

(The debtor). (The creditor).

Distribution and Circulation. 213

The great advantage of the bill of exchange is
that, when drawn from one place on another, it
settles the reciprocal debts of these places, and
dispenses with the transmission of coin. For
example living in London I have to pay 50£. to
M. Pierre at Paris. Mr. Smith, on the other hand,
has 501. to receive from a M. Jacques at Paris, and
draws a bill on him for this sum. I buy this bill of
Smith, who is thus paid, and send it to my creditor,
M. Pierre. M. Pierre presents the bill to M. Jacques,
and when the latter has paid it, M. Pierre's claim on
me is also satisfied. Both debts have thus been
paid, and no money has been sent from one city to
another. Exchanges between country and country
are regulated in the same manner, almost entirely
without the transmission of coin. English mer-
chants pay for their purchases in France by trans-
mitting bills drawn by Englishmen on Frenchmen.

(5) A cheque is an order to pay at sight a certain
sum to the credit of the bearer. When several
persons have the same banker, payments from one
to another can be made by cheques and transfers of
account in the simplest possible manner. Thus if I
owe Smith 50Z., I send him a cheque on our common
banker, with whom we both have a current account,
The banker subtracts 501. from my balance, i.e. the
amount due to me, and carries it to Smith's. This
transfer, made in two lines of writing, suffices to
effect the payment. The Bank of France effects
these settlements of its clients' reciprocal debts to

214 Elements of Political Economy.

the amount of more than 1,600,000,000Z. In
London and New York clerks from the principal
banks meet every day in the " Clearing House/' and
there balance the cheques they hold against each
other. These balancings amount in the course of
the year, in London to about 5,000,000,000/., and
in New York to rather over a thousand millions
more.

(6) Warrants and certificates of bonding. Warrants
certifying that goods have been bonded in a public
warehouse or dock, can be used for giving a creditor
security, but not as a means of payment. On the
other hand certificates of the warehousing of coin, or
even of gold and silver ingots, serve perfectly as a
means of paying the sum which they represent.

(7) Mortgage bonds are bonds representing a
fraction of the mortgages possessed by the bank
which issues them on the property of the debtor.
They confer a right to interest and repayment in an
order determined by lot. The raiser of the mortgage
pays interest, and an annual sum which is devoted
to the extinction of the debt by a certain time.

(8) Debentures are bonds representing debts con-
tracted by industrial companies, chiefly railways.
They give a right to interest, paid yearly or half
yearly, and to repayment, often with a premium, in
an order determined by lot.

(9) Municipal debentures represent the debts of
various cities. Frequently they are in similar terms
to the bonds just mentioned.

Distribution and Circulation. 215

(10) Government stocks represent the debts owed
by the various Governments as a result of their
loans. In general, Governments engage to pay a
certain interest, not to refund the capital at any
fixed date, whence the term, "perpetual or con-
solidated debt" States which have the means
gradually refund their debts, by the operation of
a sinking fund, buying bonds on the Stock Exchange,
and destroying them.

Bonds of the description of numbers 7, 8, 9, and
10, representing loans for long terms, cannot serve
in the place of money. The other bonds do so to a
certain extent, but the only perfect substitute for coin
is the bank-note with its power of effecting a final
payment.

Money in the shape of bills was employed at
Carthage. In a dialogue entitled " Eryxias iEschine,"
Socraticus, in a discussion on the nature of wealth,
relates how " The Carthaginians provide themselves
with money in the following manner. In a small
piece of leather there is sewn an object of the size of
a stater (a Greek coin), but only those who have made
the seam know what this object is. A mark is then
stamped upon the leather, and henceforth it is used
as money. Those persons are considered the wealthiest
who have the most of these objects, though among us
they would be of no more value than the pebbles of
our mountains." This quotation explains the whole
mystery of the circulation of credit. Objects of a
limited quantity and receivable in all payments at a

216 Elements of Political Economy.

value fixed by law, discharge to perfection the function
of an equivalent sum of money, for this function con-
sists in procuring the holder everything he desires up
to the nominal value of these objects. Metal money
has only this additional advantage of possessing also
intrinsically as merchandise the conventional value
attributed to it by law.

§ 5. Banks.

Banks are institutions which facilitate the oper-
ations of credit and the circulation of its instru-
ments. Bankers and joint-stock banks must possess
a capital of their own; but they work chiefly by
receiving the capital of one set of persons to lend
it in different manners to another. Their principal
operations are as follow : —

(1) The receipt of deposits. Banks receive on
deposit capital of which its proprietors are unable to
make use, and lend it to persons in a position to
employ it profitably. To do this, bankers must know
the solvency of their borrowers. The bank's profit
consists in the difference between the interest which
it pays its depositors and that paid by its borrowers.

In countries where the employment of credit is
well understood, every one who has daily to make pay-
ments, makes a deposit at his bankers, and pays by
means of cheques on these deposits. In England
bank deposits exceed 320,000,000/., and in France
80,000,000/. In this way reciprocal debts are
balanced and settled without resort to coin. The

Distribution and Circulation. 217

manner in which this is effected is as follows : Let us
suppose that in a village every one has an account
open at the same banker's. The farmer will then pay
his rent by causing the amount to be written off his
balance and transferred to his landlord's. The land-
lord in paying for the bread supplied to his house will
transfer the price to the balance of the baker. The
baker will pay the corn and flour dealer, and this
latter the farmer who sells him his wheat, in the same
manner. In this way products pass from hand to
hand in the successive forms which labour gives them,
from their first production till they are finally
consumed. Property in the objects is transferred at
the same time at each exchange, but without the
employment of an equivalent in specie, as bills. The
farmer's deposit or credit at the bank, by changing
possessors, will have served to settle the successive
transactions, apportioning to each the share he can
claim in the value of the products. This simple
example supplies the key to the marvellous machinery
of credit as it is in operation in England and America.

(2) The keeping open of current accounts. The
bank keeps an account open for each of its clients,
with one column for the credit and another for the
debit. All sums received are carried to the credit side,
all sums paid on the client's account to the debit.
Interest is due to the depositor or to the bank according
to to whose advantage is the balance of credit when
the debited are greater than those credited.

(3) Discounting bills, i.e. promises to pay, bills to

218 Elements of Political Economy.

order, and litis of exchange. Any one who has sold
goods and received in payment either a promise or a
bill of exchange drawn on the debtor, may have
occasion to convert these bills into ready money
in order to discharge his own obligations for labour,
rent, or the purchase of provisions, &c. If the
banker puts trust in the solvency of the debtor and
creditor, the latter of whom by, his endorsement, is
also made responsible for the ultimate payment, he
takes over the bill, and gives its value after deducting
interest on the sum paid, calculated according to the
term to run before the bill expires, i.e. before the day
of payment, and also according to the current rate of
interest. This transaction is called " discounting "
and the rate of interest is called the " rate of discount."
Discounting really amounts to the purchase of the
credit represented by the bill. Discounting is the
principal operation of credit. Every fluctuation of
production and exchange depends on this, since
manufacturers and merchants ordinarily settle their
purchases by means of bills.

(4) Issue of bank-notes. In the year 807 the
Emperor of China, Hiang-Tsong, ordered that gold
and silver money should be deposited in the imperial
treasury, and in exchange for it gave certificates,
which circulated as legal currency, and were com-
pletely accepted as such by commerce. To these
certificates was given the very appropriate name of
fei-tsien, or " flying money." The Bank of Venice
(founded in 1171), the Banks of Amsterdam (1609),

Distribution and Circulation. 219

of Hamburg (1629), and Rotterdam (1635), issued
certificates of deposit representing, in round figures,
the value in pure metal of the coin deposited in their
safes. These bills, which gave a right to a fixed
weight of gold or silver, were preferred, as a means
of payment, to the current coinage, the value of which
was often modified either by edict of the government
or by wear and tear. Bank-notes were at a premium,
and the use of them in payments was made a matter
of stipulation. At the present time this form of
credit-money is in general use in all civilised countries,
and has even often been misused.

As a means of payment, if not recognised by law,
at least universally accepted, bank-notes payable at
sight or to bearer, are used instead of bills of commerce,
which only circulate among persons who know each
other, and are of assured responsibility. These notes
are also usually preferred to metal money, as lighter,
and more convenient when large sums have to be
counted. In France, when after 1848 the issue of
notes was restricted to a maximum insufficient for
the needs of exchange, a premium was paid to obtain
them.

The value of the bank-notes issued is covered by
a fund in coin or ingots, and by discounted bills,
which together constitute the " reserve." It is esti-
mated that a note-issuing bank ought to have in
cash one-third of its notes in circulation. A law
passed in 1844, called the Bank Charter Act, subjects
the Bank of England to a still more stringent rule.

220 Elements of Political Economy.

By this law, every issue of notes in excess of fourteen
and a half millions sterling, must be covered by an
equal sum in legal money or ingots, so that the
instrument of exchange can only increase in the pro-
portion which it would observe if it were exclusively
metal.

Prudence commands banks which issue notes to
keep their reserve fund at a suitable level by raising
the rate of discount when the precious metals are
leaving the country.

In times of great crises, Governments sometimes
decree a "forced currency." By this decree banks
are authorised to refuse to make good their notes
at sight, and all persons are obliged to receive these
non-convertible notes in all payments at their nominal
value. This extreme measure has as its object to
enable banks sometimes to continue to lend their
credit to commercial and industrial firms, which is a
good thing ; sometimes to make advances to the
State in the form of notes forced on the public, which
is an evil, and one which becomes greater in pro-
portion as the issue of these non-convertible notes
is more considerable.

When the amount of these non-convertible notes
surpasses the needs of the circulation, like everything
else that is in excess, they depreciate in value. This
depreciation takes the form of a general rise of
prices. It can be exactly measured by comparing
the value of the unit of money in paper, and that of
the same unit in metal. Thus the Russian silver

Distribution and Circulation. 221

rouble is worth about three shillings and fourpence,
while the paper rouble, at present, is only worth two
and twopence. So in England in 1810, to obtain a
gold guinea, in gold, or an equivalent weight of the
metal, paper money had to be given of the nominal
value of a guinea and a quarter.

Convertible notes are " money of paper," and this
necessarily keeps on an equality with metal money,
since the holder of a note, sooner than submit to a
loss, will demand that it be redeemed. On the other
hand, the non-convertible notes of a forced currency
are " paper-morfey," and the depreciation of this is
only limited in the same extent as is its issue in
excess. The most memorable example of this
depreciation is the case of the assignats. The French
Republic had confiscated property of the clergy and
emigrants to the value of over two hundred millions.
To facilitate its sale, on the proposition of Mirabeau,
the State issued notes called "assignats/' because
they were " assigned " for the purchase of the property
of the nation. Since the lands purchased were to be
paid for with these notes, which were to be destroyed
on their return from circulation, with the sale of the
last of the acres the last of the notes should have
been cancelled.

The assignats remained at par to the end of 1792,
though they had been issued to the amount of two thou-
sand million livres, (80,000,000/.). To meet, however,
the requirements of the war, they were created to the
amountofforty-fivethousandmillions(l,800,000,000/.),

222 Elements of Political Economy.

and their value diminished in proportion to the increase
of their issue. During the summer of 1795, one
hundred livres in assignats were hardly worth one in
silver, and their value varied enormously from day to
day. The price in assignats of a pair of boots was
fifteen hundred livres. In July, 1796, their legal
currency was suppressed. The important lesson
afforded by these facts is that credit-money, even
when guaranteed by real property, depreciates in
value if it is issued in excess of the requirements of
the circulation.

§ 6. Free Creation of Note-issuing Banks.

The issue of bank-notes should be permitted to all
persons and companies accepting responsibility for
their acts ; but it should be prohibited to companies
with limited liability because these constitute an
exception to the principles of the common law.

The control of the currency has always, and rightly,
been recognised as an attribute of the State. The
quantity of money in circulation has an influence on
all prices, and, as a consequence, on the financial
situation and the legal relations of every individual.
Bank-notes, however, are a money made of paper,
acting on prices just like money made of metal. The
history of the banks of the United States shows
clearly the dangers of an unlimited power of issuing
these notes.

Progress has led us from local currency to national
currency, and from national currency to international

Distribution and Circulation. 223

currency. The same progress must be made in the
case of bank-notes. The unity of the means of
exchange has the greatest advantages, and their
diversity the greatest inconveniences.

CHAPTER V.

MONETARY, COMMERCIAL, AND INDUSTRIAL CRISES.

§ i. Nature of Crises.
Crises are the diseases of credit, for countries
where credit is little used escape them. Sometimes
they are as sharp as an inflammation, sometimes as
slow and insidious as an anemic. They produce
widespread disturbance in the money market, and
consequently in production, and thus occasion heavy
losses and numerous failures. Three varieties of
crises may be distinguished, (1) monetary and com-
mercial, (2) industrial, (3) speculative; and their
phenomena demand as careful study as any in
economy, since a knowledge of crises diminishes
the risks of loss and increases the means of gain.

§ 2. The Periodical recurrence of Commercial
and Monetary Crises.

For the last century, i.e. ever since the employment
of credit became general in England, economic crises
have occurred nearly every tenth year, the exact dates
being 17G3, 1783, 1793, 1803, 1825, 1838, 1847

224« Elements of Political Economy.

1857, 1864 to 1866, 1875 to 1879. It has been
thought that a kind of natural law may be observed
in this periodical character of this return. Mr.
Jevons, who treats political economy mathematically,
has even suggested that crises are determined by the
spots in the sun. Their principal cause, he says, is
the exportation of specie. Specie is exported to pay
for the import of grain during years in which the
harvest is bad. Bad harvests are the result of in-
clement summers, and these are caused by the spots
in the sun. This explanation is ingenious, but has
the defect of being untrue to facts. That crises
should recur periodically is not a natural law. The
fact that they do so recur is explained by the re-
currence of the circumstances by which they are
produced ; and the science of finance can teach us
how to exorcise them.

§ 3. Characteristics of Crises.

Crises mostly occur at the end of several consecutive
years of prosperity, during which capital has been
accumulating. This abundant supply of capital
lowers the rate of interest. Cheap money stirs up
the spirit of enterprise. Numerous companies are
started, and the bonds which represent their capital
are in great demand. The rise in prices soon brings
in large profits to the bond-holders. Every one is
anxious to buy, to gain a share in these profits ; and
so the rise continues and stimulates the demand by
the increasing bonus which it brings in. No one loses.

Distribution and Circulation. 225

Everything that is touched turns to gold. The
prices of commodities also rise, for the people who
have grown rich increase their consumption. The
period is one of " expansion/' based on the employ-
ment of credit in all its forms. At last something
happens which absorbs specie, the basis of credit;
for example, an exceptional importation of grain in-
duced by a poor harvest, or large investments in
foreign securities.. The bank which regulates the
market raises the rate of discount. Credit contracts.
Confidence disappears. Distrust spreads. A panic
breaks out ; every one wishes to sell, and no more
buyers can be found. Prices fall lower and lower.
Credit is absolutely refused, and we have reached the
period of " revulsion." Deprived of the power both
of borrowing and selling, those who have payments
to make are involved in failure. One bankruptcy
follows on another. A crisis has come.

This in its violence does not last long. The
excessive fall in all prices once more attracts buyers,
and money and credit return with them. To recover,
however, from such disasters many years are needed,
and these are called the period of "recovery." At
the end of this the period of expansion recommences,
to end in a fresh crisis, and so the circle begins again.
This succession of events, one caused by another,
sufficiently explains the cycle of nine or ten years.

Since commercial and financial intercourse has
become easier and infinitely more frequent, all
civilised countries have been made, so to speak, into

226 Elements of Political Economy.

a single market. Nowadays, therefore, a crisis ori-
ginating in one or two affects more or less all the
others. Thus in 1857 the crisis began in the United
States in the month of September. By October 13th
it had reached its height ; discount had reached 50
and 60 per cent., no one could make further payments.
All the banks closed their shutters ; it was reckoned
that there were 5,123 failures with a liability
of £60,000,000. In November the crisis reached
England, and raged there with unexampled violence.
From England it was launched on Hamburg, and
the Scandinavian markets, Copenhagen and Stock-
holm. It then made itself successively felt in North
Germany, Vienna, Egypt, the Indies, Java, and,
completing its course round the world, Chili,
Buenos-Ayres, and Rio Janeiro. The financial
cyclone, like the atmospheric, had travelled from
west to east, everywhere scattering ruin on its road.
These events prove clearly the important truth that,
for evil as well as for good, the union of the human
race is becoming ever more potently effective.

Slow crises are the results of a scarcity of the
instrument of exchange. That which took place
from 1873 to 1879 in Europe and the United States
presents a type of them. Prices remain low. Profits
are little or nothing. Capital accumulates slowly.
The spirit of enterprise is not stimulated even by the
fall of interest. All economic life seems enfeebled.

Distribution and Circulation. 227

§ 4. Causes of Commercial and Monetary Crises.

These crises arise from different causes — the
opening of a new market, a low rate of interest
inciting to excessive speculation — bad harvest neces-
sitating exceptional importations of food, a sudden
change in the lines of commerce, such as occurs at
the end of a great war, as witness the years 1815 and
1871. These different causes may be grouped in the
following manner.

(1) A very general use of bonds as a circulating
agent. Bank notes, bills, cheques, deposits in banks,
are all promises or orders to pay in specie, of which,
however, there is not nearly enough for the payments
that have to be made. Thus the immense super-
structure of credit rests on a very narrow basis of cash.
Nine-tenths of the business done in England and
the United States, and three-fourths of that of the
Continent, are regulated by means of credit. The
mechanism brought to this perfection works admirably
so long as it is supported by confidence, but as soon
as credit diminishes all the agents of circulation which
rest on trust contract also, and there is a fall of prices.
If the contraction and consequent fall are sudden
and great, then we have a crisis.

(2) During the period of expansion a large
number of debts for short terms are contracted,
sometimes in the form of subscriptions to issues of
shares and bonds not fully paid up, i.e. where the
capital has to be paid in successive instalments;

Q 2

228 Elements of Political Economy.

sometimes in large purchases of bills and goods on
credit in the hope of a rise in prices ; sometimes in
numerous foreign investments prompted by the low
rate of interest, &c. This enormous mass of debts
based upon credit constitutes, so to say, the morbid
element of the crisis.

(3) The immediate cause of a crisis is always a
decrease in the quantity of ready money induced
sometimes by exportation, sometimes by the wants
of the national commerce. This decrease contracts
the resources of the banks which keep the machinery
of credit in motion. With this cessation of the
ordinary functions of the banks exchanges and
payments fall off or cease altogether, and hence
arise losses, ruin, bankruptcies, and, in one word,
a crisis.

§ 5. Means of preventing and remedying Crises.

To ward off or cure a disease it is necessary to
attack its causes. The nature of the causes indicates
that of the remedies.

(1) The amount of metal money should be kept
sufficiently large to serve as an adequate basis to the
credit employed. The best writers agree that
England and the United States have failed to main-
tain this proportion. France has suffered less from
crises than these two countries because its circulation
of specie is relatively greater. The losses occasioned
by crises greatly exceed the saving effected on the
reduced use of coin.

Distribution and Circulation. 22D

(2) In periods of excessive expansion time en-
gagements should be checked rather than multiplied.
(3) The rate of discount should be raised in good
time, either to moderate excessive expansion or to
recall money that has left the country. A higher
rate of discount, by lowering prices, brings back
buyers and specie with them.

§ 6. Industrial Crises.

These crises are not general like the preceding
ones, but attack sometimes one industry, sometimes
another. Several causes produce them.

(1) The closing of an important market, as in i864,
when all the southern ports of the United States
were blockaded.

(2) Competition from a fresh quarter, such as the
agriculture of Western Europe is suffering at the
present time from the supply of corn furnished by
the United States at very low prices.

(3) Excess of production. When an industry has
yielded exceptional profits a large amount of capital
is invested in it, and too many manufactories estab-
lished. Production surpasses the needs of consump-
tion. Prices fall, and the manufacturers not supplied
with the best machinery are ruined. There is a
crisis of " over-production."

§ 7. Speculative Crises or Crashes.

Crises of this class have been called " crashes,"
because their mode of manifestation is by a sudden

230 Elements of Political Economy.

collapse. Any one who wishes to learn their nature
and causes should read the history of the " system M
of Law. Law was a Scotchman who arrived in
France in 1715. By his knowledge of finance, and
brilliant genius, he seduced the Regent, who placed
all the power of the state at his disposal. So sup-
ported, Law founded a bank on the model of the
Bank of England, created commercial companies like
those of Holland, obtained a monopoly of all the
trade with Asia, Africa, and America, farmed the
taxes, and repaid the national debt of fifteen hundred
million francs. To effect these vast operations he
issued 624,000 shares of 500 livres, which, increasing
in price to 10,000 livres, represented a sum of
6,240,000,000 livres, and 1,700,000,000 more in
bank notes. He thus at one stroke created an
object of speculation, and the means of pushing it
to madness. The shares were fought for. Every one
was anxious to obtain them at any price, for to touch
them brought wealth. Their price rose incessantly,
until on January 5th, 1720, it reached the insensate
sum of 18,000 livres. Stockjobbers realised enor-
mous fortunes in a few days ; all prices rose and
every one was enriched. Soon the reaction set in ;
shares declined. Law tried to stop the fall by buy-
ing them in at 9,000 livres by means of an issue of
bank notes. The discredit then extended to these ;
the public would have no more paper of any kind,
but demanded coin. Coin there was none to have,
for it had all been hid. There was a general collapse ;

Distribution and Circulation. 231

and the mass of bonds and notes which at one time
had represented ten thousand million livres, vanished
with the confidence which had brought them into
being.

The characteristics of the "crash" may thus be
very shortly explained. The infatuation of the
public causes a rise of value. If this infatuation is
general, the rise is considerable, maintains itself, and
yields enormous profits. This attracts buyers, and
the greater the number of buyers the greater the
gains ; the greater the gains the more the buyers.
The shower of gold falls on every one ; but with the
slightest hesitation there begins a headlong fall, and
everything collapses. The imposing edifice was but
a fata morgana created by credit. When the mirage
disappears, no real wealth has been destroyed, but
enormous amounts have changed hands. Clever
men are enriched and their dupes ruined.

CHAPTER VI.

FREE TRADE AND PROTECTION.

§ i. Free Trade.

A merchant, on being asked by the French
statesman, Colbert, what was the best way of favour-
ing commerce, made answer : Laissez /aire ; laissez
passer, H Leave it alone ; " and this reply of his has

232 Elements of Political Economy,

become the watchword of the supporters of freedom
of trade, or, as it is sometimes called, free exchange.
What, in fact, can be more natural than to allow
every one to buy and sell where he can do so most
advantageously, whether in or out of his own
country ?

To raise a revenue a state is still justified in
imposing custom dues on the importation of certain
foreign goods, though the tax is a bad one ; but to
establish these duties under the pretext of protecting
national industries is an iniquitous measure, fatal to
the general interest. By forcing consumers to buy
from the protected manufacturers at higher prices
than they would elsewhere have to pay, the gross
injustice is committed of taxing one class for the
benefit of another. It is in this that the system of
protection consists. If it be said that the object is
to favour labour, and consequently labourers, a
double error is committed.

Error the First. — The aim of economics is not to
increase but to diminish labour. If I can obtain a
yard of cloth from a foreigner by means of one day's
work, it is contrary to this aim to force me to spend
two. This eagerness to increase labour without
augmenting production has been well called "Sisy-
phism," for it chains humanity to efforts that lead to
no result, just as Sisyphus was compelled to roll to
the summit of a hill a stone that always fell back
again. The goal we should pursue is the increase of
commodities and diminution of toil.

Distribution and Circulation. 233

Error the Second. — No service, but an injury, is
done to workmen in thrusting them into manufac-
tories by force of law and in spite of nature. Thus
in the case of Italy it is a thousand pities that the
custom-house should have snatched workmen and
workwomen from their open-air tasks in this lovely
country with its genial climate, to chain them in
gloomy workshops for twelve or fourteen hours a day
to the monotonous movements of machines.

Free trade by applying to whole peoples the prin-
ciple of the division of labour, assures them all the
benefits it can bestow, and thus greatly increases
their welfare. If in a family each member is em-
ployed at what he can do best, it is clear that the
total product, and consequently the individual shares,
will be as great as can be attained. On the contrary,
if each is forced by legislative restrictions to devote
a part of his time to a labour for which he has no
aptitude, each and all will be worse off. Apply this
principle to nations, and it is plain that when each
country devotes its energies to the tasks which its
nature most favours, not only will it bring to the
international market the maximum of products ob-
tained with the minimum of toil, but the welfare of
humanity at large will be increased in proportion
to the increase of the productivity of each country's
labour.

A man who, in the wish to be self-sufficing, should
constrain himself to manufacture everything he
needed, food, clothing, furniture, and books, would

234 Elements of Political Economy.

plainly be extremely foolish, nor is a nation that
imitates him any wiser.

If the soil of my farm is sandy, and so better
suited for rye than for wheat, the least laborious way
of obtaining wheat is, not to cultivate it myself, but
to ask for it in exchange for my rye of those who
have a clay soil. This plain truth demonstrates
the absurdity of the system of protection which
would oblige me to grow wheat even upon sand.

The upholders of protection make the further
objection that foreigners will inundate us with their
produce. Such a fear is quite idle, since foreigners
will not give us their goods for nothing, but will be
willing to take ours in payment. Commerce is
always an exchange of produce against produce. So
much imported, so much exported. If imports
exceed exports, all the better ; the foreigner is pay-
ing us a tribute, and we shall have more to consume.
If exports exceed imports, all the worse, it is now
we who are paying a tribute. Here, however, we
are touching on the difficult question of the balance
of commerce, the discussion of which we defer to a
later paragraph.

Protectionists are anxious to sell much and buy
little, in order that the foreigner may be forced to
pay the excess of his purchases in cash. These aims
involve a great contradiction. It is clearly impos-
sible for the different countries in their exchanges
with one another always to sell more than they
buy.

Distribution and Circulation. 235

The principal cause of industrial progress in a
country, is, as we have seen, the competition between
manufacturers, each of whom strives to improve, and,
above all, to cheapen, his fabrics, in order to extend
his business. The more widely competition is ex-
tended, the greater will be everyone's profit. Do
not, therefore, limit it by fche frontiers of a state, but
extend it from country to country. Monopoly begets
sloth, and protection, routine. On the other hand,
the manufacturer who is forced to carry everything
to perfection in endeavouring to keep his hold of the
home market will conquer that of the world.

A railroad uniting two countries facilitates ex-
changes. Custom dues on foreign goods impede
them. Yet the same men at the same time support
two policies, the results of which are thus completely
diverse. That Frenchmen and Italians after spend-
ing nearly two millions sterling in boring a tunnel
through the Alps, can place their custom-house
officers at each end to destroy in a great measure by
the dues they exact the usefulness of this marvel of
engineering, is an inexplicable contradiction.

To be consistent, a protectionist should demand
the destruction of machines, for machines and free
trade have as their common result the diminution of
the labour necessary to obtain an object. Thanks to
machinery I obtain my coal at less expense ; thanks
to the stranger I again obtain it cheaper ; the result
is identically the same. If we exclude the foreigner
we should also break our machines ; and thus increase

236 Elements of Political Economy.

in both ways the amount of labour requisite to obtain
a given quantity of coal.

Capital turns spontaneously to the most lucrative
field of employment. Protection diverts it from
these to the less lucrative, compensating it for the
difference by a tax levied on consumers, by the
amount of which tax production is again diminished.

As their last argument protectionists maintain that
for objects of the first necessity, such as corn and
iron, a country should be independent of foreigners,
lest, in case of war, it should find itself without the
means of nourishment or defence. There is no
example, however, of a people having lacked neces-
saries in war time, and to-day there is even less
cause for fear than formerly. In the first place
railways facilitate revictualling ; in the second, since
the Treaty of Paris in 1856 the ships of neutrals
may continue to transport the goods of belligerents.
The complete blockade of a state is thus more im-
possible than ever ; and it is the height of folly to
inflict a permanent and certain harm in order to
avoid a distant and more than improbable one.

§ 2. The Balance of Trade.

The balance of trade is the comparison which a
country establishes between its exports and imports.
When the total of the exports exceeds that of the
imports the balance is said to be favourable, for the
difference, it used to be thought, must be paid by
the foreigner in cash ; in the contrary case it is called

Distribution and Circulation. 237

unfavourable, since the country has to pay for the
excess of imports by means of the precious metals.
This method of calculating is now said to be erroneous.
I may export forty thousand pounds worth of goods,
and the custom-house records their being shipped.
The vessel, however, which carries them is lost in
a storm, and I have no means of purchasing foreign
wares. An excess of exports over imports is recorded
of £40,000, and the country is impoverished by
exactly this sum. If on the contrary my goods reach
their destination and are sold for £60,000, I employ
the money in buying other goods, which on their
importation will yield a fresh profit. In this case
the custom-house records an export of £40,000 and
import of £60,000, leaving a balance against my
country of £20,000. Yet it is exactly by this sum
that it is enriched. These examples, it is added, are
borne out by actual facts, since it is in the richest
countries that the excess of imports occurs : in
England, for instance, to the amount of more than
eighty millions, and in France of late years to about
half as much. Thus in 1880 England imported to
the value of one hundred and forty millions in excess
of her exports. Eighty of these are estimated to
have proceeded from freight charges, assurances and
merchants' profits, and the remaining sixty from the
interests on foreign investments.

The ancient doctrine of the balance of trade was,
nevertheless not wholly wrong. Men of business
still watch with attention, and, at times, anxiety,

238 Elements of Political Economy.

the fluctuations of this balance. As a matter of
fact if the customary balance of exports and imports
has been newly disturbed as, for example, when
payment has to be made for grain imported to
supply the deficiencies of a bad harvest, the debts t
created by the excess of imports have to be settled
by means of specie. Money, the medium of exchange
and basis of credit, becomes scarcer, and a " tight-
ness " of the market or actual crisis is the result.

§ 3. The Oversight of Free Traders.

The goal at which to aim is the suppression, not
the increase of labour. Free trade furthers this aim
just as machinery does ; and thus both are plainly
a blessing. There are men, however, who live solely
by their labour ; and these, if labour is suppressed,
have no alternative to extinction. Like machinery,
then, free trade may oblige workmen to remove from
one place to another, from the one in which custom
dues furnished them with a barren employment to
the one in which, with diminished effort, they will
obtain far greater results. It was a displacement
of this character that occurred in France when the
Revolution of 1789 abolished the custom-houses
which separated the ancient provinces. Abolish those
which still separate the different states, and the same
process may repeat itself.

When such a displacement is accomplished men
will be everywhere better off by reason of the greater
productiveness of their labour, but they will perhaps

Distribution and Circulation. 239

be differently distributed, and this cannot be effected
without suffering. The practical conclusion is that
we should create no fresh legal monopolies by means
of which workmen are settled where nature cannot
yield them a large recompense, but that when such
monopolies already exist the tariffs which maintain
them must be reformed with prudence and circum-
spection.

§ 4. The System of Temporary Protection.

This system has never been better expounded than
by the German economist, Friedrich List, the initiator
of the Customs Union (Zollverein) out of which has
sprung the political unity of Germany. The final
object, says List, is the establishment of universal
free trade, but in order that this may bring the
maximum of advantage to individual states, and
consequently to the world at large, each people must
make the best use of its natural resources. Now
a country that is exclusively agricultural is necessarily
backward, witness the past history of Poland. Since,
then, although it is undoubtedly bad for privileges to
give rise to artificial industries, many industries well
suited to the nature of a country will never develop
there unless at first protected, the best road to arrive
at free trade and obtain from it the maximum of
advantage lies through a temporary adoption of
protection.

Although both Adam Smith and J. S. Mill have
expressed the same opinion as this of List's, I admit

240 Elements of Political Economy.

neither its premises nor its conclusion. An agricul-
tural country is not necessarily backward. If Poland
was so in former days, it was because a frivolous
aristocracy which had the disposition of the nett
revenue employed it for its own amusement, without
doing anything to promote the instruction either of
its serfs or of itself. In no country has moral and
intellectual cultivation, comfort and happiness been so
general as they were in New England before protection
developed there the great industries. It is a mistaken
habit that measures the civilisation of a state by the
amount of the products to which its industries give
rise. Civilisation has never been more brilliant than
at Athens, where literature and art attained the
summit of perfection, but where industry remained
quite undeveloped.

Temporary protection is no more needed to-day
than it was in the times of Adam Smith. New
discoveries and processes are immediately known
all over the world, and capital and the spirit of
enterprise are ceaselessly seeking to cultivate natural
resources in whatever country they exist. Temporary
protection, moreover, always tends to become perma-
nent, since the interests created by privilege coalesce
in opposing all reform.

§ 5. Reciprocity.

The upholders of this system argue, we are
anxious for free trade, but for a free trade that shall
be reciprocal and not on one side only. If the

Distribution and Circulation 241

foreigner opens his frontiers to us we open ours to
him ; if he taxes our goods, we tax his. It is the
lex talionis, the law of tit-for-tat applied to trade,
just the same as the case of reprisals in war. In
England at present this system is called " fair trade "
in opposition to the " free trade " of its adversaries.

These reply to the argument just cited, " Foreigners
inflict loss on you by taxing your products on their
importation, but by taxing theirs, you inflict on your-
selves a second loss, by obliging yourselves to pay
more dearly for them. Because he injures you, you
impose a fine on yourselves. Impoverished by him,
you complete your own ruin."

The system of reciprocity can only be upheld as an
instrument of warfare. In this character it forms the
basis of all treaties of commerce. By taxing the
products of the principal industries of any foreign
country I obtain as my allies in his state all those
who are engaged in them, since in order to induce
me to lower my dues they will insist on counter-
concessions being made to me. Reciprocity is thus
the necessary introduction to free trade.

§ 6. Commercial Treaties.

Every state determines on a list of duties which
must be paid on the importation of different kinds of
goods. This list is called the general tariff. It
then negotiates commercial treaties with other states,
and grants reductions of the duties on certain goods,
in exchange for similar reductions for its own products.

B

242 Elements of Political Economy.

Each country endeavours to obtain the lowest scale
of duties for the industries whose prosperity it most
prizes. England bargains for its cottons and hard-
ware, France for its wines and silks, Belgium for its
coal and iron.

Often the states who are parties to the treaty
stipulate that each of them shall enjoy the advantage
of all reductions subsequently granted to any other
country. This is called " the most favoured nation "
clause.

Commercial treaties are useful in assuring to in-
dustry what is so essential to it, the fixity of foreign
custom dues throughout the period embraced by the
treaty. -Nowadays commercial treaties are of more
importance than political, for it is on commercial
treaties that the progress of industry in each country
in a great measure depends, and also what is no less
important, the development of commercial relations
and community of interest between different lands.

BOOK IV.

THE CONSUMPTION OF WEALTH.
CHAPTER I.

ON THE CONSUMPTION OF WEALTH.

§ i. What is Consumption ?

By the successive labours of the farmer, the miller
and the baker, a loaf has been produced. I eat it —
matter remains ; of this I cannot destroy a particle,
but the property it possessed of nourishing me under
the form of bread, i.e. its utility, has ceased to exist.
There has been a consumption of wealth. To
consume, then, is to destroy, by using, the utility
with which things have been invested by production.

Utility may be destroyed otherwise than in the
service of man. A house is burnt down, an object
no longer used, owing, as in the case of sedan-chairs
and hour-glasses, to a change in the taste or in the
manner of living or producing. When this happens,
there is a loss or diminution of wealth, but not a
consumption of it.

R 2

244 Elements of Political Economy.

Some economists have wished to exclude from the
sphere of their science everything that concerns con-
sumption, on the ground of its introducing a separate
series of phenomena relating to liberty, morals and
hygiene. On the other hand, the ancients only
approached political economy in considering the
problem of the employment of wealth, and in this
they were right, since, in the first place, all production
is in obedience to the demand of consumption, and,
in the second, the chief end of economical science is
to make wealth subservient to human development.

The happiness of a people consists in their rational
use of all it possesses, and it is precisely this that all
the social sciences have in view. The right dis-
tribution and employment of wealth are of more
importance than its copious production, nor was
Xenophon other than just in his aphorism, " No
wealth is useful save to him who can put it to a good
use."

It is in the regulation of expenses that morality
and hygienics impose their commands on political
economy. Out of the number of these we may cite
the following — All really unproductive consumption
should be suppressed, and productive consumption
directed according to the rules of science. Con-
sumption should be so regulated as to favour the
development of the faculties, moral, intellectual, and
physical. Nothing must be granted for superfluities
until every necessity has been satisfied. Lastly,
nothing must be wasted. It is the habit manifested

The Consumption of Wealth. 245

in picking up a fallen pin, or utilising the blank half
sheet of a letter, that leads to fortune. It is
economy that has been the basis of the prosperity of
Holland amid its marshes and sands. Everywhere the
Scotch proverb comes true, that " many a little
makes a mickle." Economy is a duty owed to one's
own dependants, and to other people as well, for
without economy liberality is impossible. While,
however, from the smallest income something should
be set apart for those who are destitute through no
fault of their own, beneficence should ever aim at the
encouragement of labour and not of idleness.

No favour should ever be shown to a consumption
that bears ill results. "I have been told," says
J. B. Say, " that the drunkenness of the people is
necessary to make them insensible to their woes : it
would be better to diminish their woes than excuse
their drunkenness."

Keep a watch on everything; neglect nothing.
Remember the Eastern fable, " For want of a nail the
horse cast his shoe : for want of the shoe the rider
lost his horse, and for want of the horse he was taken
and killed." When Garfield was in command of a
division he was wont to say, "Keep everything in order;
victory may depend on the wheel of a gun- carriage/'

§ 2. Different Kinds of Consumption.

Consumption may be divided as follows :
(1) According to the consumers into private, that
of individuals, and public, that of public bodies, such

246 Elements of Political Economy.

as the state, a county, a district or a parish
(township).

(2) According to the time of duration into rapid
and slow. A service rendered, for instance, a lawyer
or doctor's consultation, is consumed in the rendering ;
agricultural products, with the exception of wines
and preserves, at the end of a few days, or, at most a
year : clothes last longer than these, and furniture,
and, above all, buildings, longer still.

Slow consumption is preferable to rapid, as
favouring the accumulation of utilities. When a
bottle of wine has been drunk, after the fleeting
enjoyment nothing is left. The money it cost, if
spent on a good book, will procure lifelong amusement
and instruction to the purchaser and to his children
after him. "When everything goes into the mouth,
the result is destitution. On the other hand, a well-
furnished house forms a nest for a happy and
industrious family. In Holland pretty houses to
which nothing is lacking abound everywhere, even in
the country. The thoughtful and prudent Dutchmen
have known how to surround themselves with " home
comforts."

(3) According to its result consumption may be
once more distinguished as unproductive and re-
productive.

The aim of production is the consumption of its
products in the satisfaction of rational wants.
Consumption is thus essential to production and the
final cause of all economic activity. It is necessary,

The Consumption of Wealth. 247

however, that while consuming I also reproduce, lest
I be left in destitution and everything come to a
standstill. Thus consumption is bound to be re-
productive under penalty of destitution or death.

Consumption is unproductive when the consumer
produces nothing. The do-nothing can plainly only
live by taxing the fruits of other men's toil. Powder
is used in an unjust war. The consumption is
unproductive : nay, deadly. Powder is used in a
colliery. The consumption is reproductive, for from
it issues the coal which sets machines to work.

(4) Once more, we may distinguish between con-
sumption for enjoyment and industrial consumption.
The object of the first is the immediate satisfaction
of needs; that of the second, the manufacture of
articles which will be of ulterior service.

All production necessitates consumption. To
make a pair of shoes there must be a consumption of
leather, thread, nails, tools, and the provision needed
to maintain life during the completion of the work.
Industrial consumption is only another name for
" cost of production/'

The "consumption for enjoyment" of the work-
man and engineer, as that of the magistrate and
instructor is also an industrial consumption, since it
must be reckoned as the cost of production of the
work accomplished or the service rendered. If the
wealth produced exceed that which is consumed the
country is enriched; in the contrary case, it is
impoverished. Thus the increase of riches depends

248 Elements of Political Economy.

on the employment of the articles of wealth. Thus,
also, a country is enriched the more rapidly the less
the amount of its unproductive consumption, and the
greater the productiveness of its industrial.

§ 3. Should the Increase of Consumption be
Encouraged ?

It is only the increase of reproductive consumption
that can be called useful. Yet desire, it may be
said, is the mother of necessity ; and we may be told
to look at the savage who stagnates in sloth because
he has no desires. It is certainly true that to rouse
a man from the life of a plant it may be good at the
outset to teach him to appreciate the comforts of
existence, but the lesson that is soon needed is that
he must accumulate capital, produce more wealth,
and, above all, put it to a good use.

Modern times, in which civilisation is measured
by the subtleties of enjoyment, tend to multiply
wants. The ancients, on the contrary, ever preached
that desires should be moderated. He who can say
like the philosopher of old ** Omnia mecum porto " is
truly free. The man with a thousand wants is a
thousand times a slave, and needs other slaves to
procure him satisfaction. J. S. Mill has said, " Our
utility to others is measured not by what we do, but
by what we do not consume ourselves." In truth
it is only thus that there is created the capital from
which wages are paid, credit draws security, and
industry receives its food.

The Consumption of Wealth. 249

CHAPTER II.

PRIVATE CONSUMPTION.

§ i. Luxury.

In the eighteenth century there was much discus-
sion on the subject of luxury. When a financier
asserted that it was the support of states, an econo-
mist replied, " Yes, as the hangman's rope supports
a criminal ; " and the economist was right.

To be an object of luxury a thing must be at once
costly and superfluous, i.e. it must satisfy a purely
artificial want and have cost many days of labour.
This sacrifice of the fruit of much labour to an idle
enjoyment can never be other than an evil. It must
be remembered, however, that what was a luxury
yesterday will cease to be one to-morrow. A shirt
for the body and a chimney in the house were great
luxuries in the middle ages ; to-day they are necessities
even for the poorest.

Ancient philosophers and Christian moralists have
vied with each other in their condemnation of luxury.
Their instinct for the right opened their eyes to the
fact which economic science has since fully demon-
strated. Luxury is a source of trouble and wicked-
ness to those who indulge in it, and of misery to
every one else.

250 Elements of Political Economy.

Luxury has its root in three natural inclinations,
of which two are vicious, the third almost a virtue.
The first of these inclinations is sensuality, which
leads us to seek the most exquisite pleasures ; . the
second, vanity. Of these sensuality owns some limits ;
vanity none. " Heliogabalus," says Lampridius, " used
to feed the officers of his household on the entrails
of barbels, the brains of pheasants and thrushes,
partridge eggs, and the heads of parrots." Claudius
iEsopus caused dishes to be served of the tongues of
birds that had been taught to speak. It was not
sensuality, but vanity that recommended these dishes
so insensate in their costliness.

The crown of luxury consists in doing violence to
nature, and to this effect Seneca says in speaking of
Caligula, " Nihil tarn efficere concupiscebat quam quod
posse effici negaretur. Hoc est luxuriae proposition
gaudere pcrversis." " He desired nothing so much as
what seemed impossible, for the main point of luxury
is its delight in the perverse."

The savage is full of vanity, and uses tattooing before
clothing. When more civilised, men still seek dis-
tinction, but seek it by simplicity of attire and
brilliancy of genius. ' On the one hand, luxury
nourishes the vanity from which it was born, on
the other hand, it gives rise to envy; it is thus a
double source of a moral poison, the only antidote
to which is a high cultivation of the intelligence
and heart.

The third feeling which gives rise to luxury is the

The Consumption of Wealth. 251

taste for the beautiful and instinct for ornamentation
out of which have sprung the fine arts. Happily this
instinct is best satisfied not by the richness of
materials, but by the perfection of form. A natural
flower is a more charming ornament than an imitation
of it in precious stones, however much these may
have cost ; and a statuette in terra -cotta from Tanagra
is a thousand times more delightful than an idol
of pure gold encrusted with diamonds. In any case
it is by public, as opposed to private, luxury that
the taste for beauty and ornament should chiefly be
satisfied.

Is it not deplorable that mankind should, almost
everywhere, waste so large a portion of its time in
manufacturing useless objects, while so many men
and women still lack necessaries? If all the forces
that at present are thus squandered were but
employed to satisfy essential needs, human welfare
would indeed be increased !

Luxury has often been defended, not as good in
itself but as supporting trade and industry, and
supplying workmen with work. This error, though
there could be no greater one, has been shared in by
men of the highest genius, and even by eminent
economists. The prejudice is universal. Thus in
La Fontaine (liv. viii. 9), the rich man says : —

" Je ne sais d'homme necessaire
Que celui dont le luxe epand beaucoup de bien.
Nous en usons, Dieu sait ! Notre plaisir occupe
L'artisan, le vendeur."

252 Elements of Political Economy.

" Fashions," says Montesquieu, " are of the greatest
importance. In the effort to gain the favour of
empty heads, all branches of trade are continually
being extended." Emptyheadedness, however, cannot
promote prosperity. Rather, J. B. Say is right when
he says, " The swift succession of fashions impoverishes
the state both by what it does and by what it does
not consume."

Voltaire in Le Mondain expresses the same idea as
Montesquieu : —

" Sachez surtout que le luxe enrichit
Un grande etat s'il s'eu perd un petit.
Le pauvre y vit des vanites des grands."

M. de Sismondi is still more precise. In his
Nouveaux Principles d'Economie politique (bk. ii. ch.
ii.), he writes, " If the wealthy class suddenly took
the resolution to live as the poor does, by its labours,
and add the whole of its income to the capital, work-
men would be reduced to starvation and despair."
This is exactly the vulgar prejudice, which arises
from a defective analysis. In the case instanced by
Sismondi, the rich are made to add their income to
the capital, but they can only do this by transform-
ing this income into machines, or agricultural and
industrial improvements, i.e. by employing a number
of workmen. Fifty pounds squandered on a fashion
will maintain fewer workmen than would be needed
to clear an estate, inasmuch as manual labour is
less highly paid in the country than in the towns.

The creation of capital always involves the

The Consumption of Wealth. 253

employment of labour, and tends at the same
time to increase wages ; since fresh capital requires
fresh labourers, and the increased demand for these
will cause them to be better paid.

To maintain that luxury supports labour is to assert
that every destruction of wealth involves an increase
of welfare. J. B. Say tells a story of his paying
Sunday visits while at college, to an uncle who was
both fond of good living, and at the same time a
philanthropist. At dessert, after finishing his bottle
this uncle used to break the glasses, exclaiming the
while, " It's only fair every one should live." Here we
have the popular error crystallised ; if the uncle had
broken all his crockery and gutted his house, it is to
be supposed that he would have fed still more mouths.
On this reasoning, Nero burning Rome is a bene-
factor of the race, and incendiarism a source of
wealth 1

To set forth the truth : if with the money employed
in replacing the broken glasses Say's uncle had
planted trees, he would have rewarded the same
number of hours of labour. Not only then would
he have saved his glasses, but he would also have
had trees which when grown, cut down, sawn, and
made into furniture would have brought him in an
income, supplied others with the means of furnishing
their houses, and benefited workmen by an increased
demand for their labours.

Historians and moralists agree in the assertion that
luxury accompanies the downfall of empires. The

254 Elements of Political Economy.

explanation of this truth is that luxury is an even
greater violation of the social than of the moral order.
Inordinate luxury is a result of an excessive inequality,
which gives rise to civil dissensions, despotism and
the overthrow of states.

Rightly does Voltaire say, " Luxury is the result,
not of the rights of property, but of bad laws. It is
bad laws which give birth to luxury, it is good laws
that can destroy it." This is one of the effects which
a system of equal inheritance in time might be
expected to bring about.

Montesquieu says, "When wealth is equally
divided luxury cannot exist, for this is only sup-
ported by the commodities obtained through the
labour of others."

"Were there no luxury," says Rousseau, "there
would be no poor." A visit to the Alpine cantons
of Switzerland, or to the valleys of Norway will
show that Montesquieu and Rousseau were in the
right.

§ 2. Insurances.

By ingenious applications of the principle of
combination, insurances have become the very
embodiment of the spirit of thrift and foresight.

If a large number of people pay an annual con-
tribution proportionate to the eventual loss against
which they wish to guarantee, a fund can be formed
out of which the victims of the misfortune may be
indemnified. This fund must be equal to the average

The Consumption of Wealth. 255

of annual losses, increased by the cost of manage-
ment. Houses are in this way insured against fire,
crops against hail, ships and their cargoes against
the perils of the sea, travellers against accident, men
against death.

A payment of eighteenpence per 100/. on the real
value of a house will confer a claim to receive this
value should the house be burnt. By the annual
payment of a certain premium, a man may secure
a capital sum to his heirs. The premium depends
on the capital contracted for and the chances of the
insurer's dying. The younger he is the smaller will
be the premium, since there is a higher probability
that he will continue to pay it for many years.

Assurances are based on the calculation of pro-
babilities and averages. Their advantages are great.
They free the individual from the mishaps of fate.
They set his mind at ease for the future. They
develop the spirit of thrift and foresight from which
they proceed. They furnish a solid basis for real
or personal credit, since the insurance policy con-
stitutes security for the loan. They disseminate the
habit of co-operation, and favour the re-constitution
of capital.

The sick clubs and pension funds of friendly
societies are managed on a similar principle. By
means of a daily or weekly deduction from the work-
man's pay or the clerk's salary, a fund is formed out
of which compensation is paid in cases of accident
and pensions granted in old age.

256 Elements of Political Economy.

CHAPTER III.

PUBLIC CONSUMPTION.

§ i. The Usefulness of Public Consumption.

Public consumption is the consumption of public
bodies, such as the state, the county, or the parish.

Because money is not annihilated by being spent
it has been thought that the consumption of public
bodies destroys nothing and favours production.
This is the same error as that as to the outlay on
luxuries : the money continues to circulate, but the
goods for which this money has paid have been
consumed.

"The King of England," says Voltaire, "has a
million a year to spend ; this million, as he consumes
it, is returned undiminished." Undoubtedly the
precious metal is not destroyed, but the commodities
purchased by the king have been made away with,
and the people are so much the worse off. Instead
of maintaining soldiers in barracks, make them board
with the inhabitants of the country ; the latter will
then soon perceive that there is less food for them-
selves. The taxes they pay to maintain the soldiers
represent the provisions which in this case they
would consume in their natural forms.

Thus all consumption is a destruction of utilities.

The Consumption of Wealth. 257

The problem to be solved is whether the utility pro-
duced by the action of the state is greater than the
utilities destroyed by its agents.

§ 2. Functions of the State.

Bad governments have done mankind so much
harm, by war, by organised spoliation, and by exces-
sive and badly-arranged taxes, that economists desire
to reduce the action of the state as much as possible.
They consider the state as an ulcer which eats into
the heart of the people, and would gladly say with
La Fontaine, "Our enemy is our master ; " or
commend, with Proudhon, that negation of all
government which is called anarchy (avap^ia).

Nevertheless the progress of civilisation has only
been made possible by the action of the state. The
definition and enforcement of law is the work of the
state, and it is the law which, by guaranteeing the
fruits of his labour to their creator, gives production
an object.

Bacon has said : " In sociciatc aut vis atit lex valet**
" the ruling power in society is either force or law."
Where it is law, there is order, industry, economy,
formation of capital, science, prosperity. Where it
is force, there is strife, robbery, indolence, and misery.

The state, by making roads and protecting those
who travel by them, has favoured exchange, the
division of labour, large manufactures, commerce, the
enrichment and unification of the human race. By

258 Elements of Political Economy.

providing instruction it diffuses science and the
indispensable knowledge which together are, as we
have seen, the principal sources of prosperity and
true civilisation. Lastly, the first interest of a people
is that justice should be well organised ; in other
words, that its administration should be upright,
speedy, aud inexpensive. Only the state can secure
this.

Some years ago a President of New Granada,
thoroughly imbued with political economy in all its
purity, announced that henceforth the state, restricted
to its true functions, would leave everything to
individual enterprise. In a short time roads were
destroyed, harbours choked with sand, public security
utterly lost, and education nowhere to be found. A
return had been made to barbarism and the life
in the primitive forests.

In Turkey the state does nothing, having no funds
at its disposal ; it is imprudent, however, to try
personally to ascertain the advantages of the system.

All public consumption is so much withdrawn
from private consumption ; but the first is often
much the more useful of the two. Apply the taxes
on truffles and wine to public libraries and schools,
and no one will have cause for complaint, not even
the payers of the taxes.

" Public expenditure," says Rossi, " is a method
of making the national co-operation a benefit not
only to some, but to all its members."

The Consumption of Wealth. 259

§ 3. Limits of the Functions of Public Bodies.

On this subject two opposite doctrines are upheld :
the doctrine of the state as policeman and the
doctrine of the state as providence. In the first
the state confines itself to guaranteeing security ;
in the second it assures to each of its subjects what
is necessary and useful for them. The first doctrine
is that of individualism, and maintains that from the
perfection of individuals will result that perfection
of the state which consists in its self-effacement.
The second doctrine is that of the socialism of
which Plato's Republic is the model, and maintains
that when once the state is made perfect the
perfection of its individual members will necessarily
follow.

Between these two extreme doctrines Adam Smith
has preserved the mean, nor can his definition of the
functions of government be improved. According
to him the functions of a state are : —

I. "The duty of protecting the society from

the violence and invasion of other inde-
pendent societies." On this point there
is a general agreement.

II. " The duty of protecting, as far as possible,

every member of the society from the
injustice or oppression of every other
member of it."

To guarantee to each individual the security of

s 2

260 Elements of Political Economy.

his person and property, and to support justice with
physical force, is an excellent definition of the essen-
tial mission of government ; but neither Smith nor
his successors seem to have suspected its compre-
hensiveness and difficulty.

To place and maintain every man in the possession
of his own is to secure the reign of justice. Cuique
suum, "to each man his own," is a principle which
can only be enforced by the civil laws, institutes, or
codes which actually regulate all economic activity.

The third function of the state according to Adam
Smith is the task "of erecting and maintaining
certain public works and certain public institutions,
which it can never be for the interest of any
individual, or small number of individuals, to erect
and maintain, because the profit could never repay
the expense to them, though it may frequently do
much more than repay it to a great society." ( Wealth
of Nations, bk. iv. ch. ix. ad fin?) Examples of
such works and institutions are light-houses, har-
bours, roads and canals, universities, hospitals, and
sometimes schools, &c.

Individual enterprise should be the rule, state
interference the exception. To justify the latter,
two conditions are necessary : firstly, the matter
in hand must be essentially for the public interest ;
secondly, private individuals must be unable to
render the services which this interest requires.
Even when thus justified, state interference is
always accompanied by inconveniences.

The Consumption of Wealth. 261

(1) The work it effects is done neither quickly
nor cheaply.

(2) Nepotism, favouritism and party exigencies
often cause useless works to be undertaken and
useful ones to be ill executed.

(3) The action of the state by accustoming
individuals to look to it for help paralyses private
enterprise.

The historian Bunsen when at Rome saw a house in
flames. The crowd was shouting, but no one stirred
a hand. Why ? Tocca al govemo — the state should
see to it — was the answer he received. In the
United States, on the contrary, so soon as a fire
breaks out, engines, admirably equipped by private
individuals, pour in from every side. Private en-
terprise is here fostered and on the alert.

Jules Simon remarks, "The state should labour
to render itself useless and pave the way for its
resignation." He is right, but only on the under-
standing that the state do not resign too soon.

Under the old regime the duties of police were
performed in Spain by a private society. This
society bore the fine name of the Santa Hermandad,
or Holy Brotherhood, but it committed the most
villainous acts.

If men saw clearly what is their interest, their
duty and their privileges, of their own accord they
would do everything that was right and nothing
that was wrong. All constraint would become un-
necessary. The state would be superfluous. There

262 Elements of Political Economy.

would arrive the reign of that perfect liberty which
consists in doing good.

In proportion then to the progress of society the
functions of the state will diminish in number and
importance. But this very progress is itself, in great
part, the work of the state.

The essential and permanent function of the state
is the declaration and maintenance of the law. The
state is, as Quesnay has well expressed it, " Physical
force placed at the disposal of Justice." Its transi-
tory, but no less important, function is to favour the
progress of civilisation.

First and above all the state is policeman and
judge. But it must also be the road maker and
schoolmaster.

§ 4. Public Luxury.

The more democratic a society becomes, the more
the state is justified in encouraging the fine arts,
the one luxury which it may be permitted. The
Athens of Pericles will always be a model for other
states to imitate. In his seventh Olympiad Pindar
sang, "The day the Rhodians raised an altar to
Athene, Zeus brought a yellow cloud into the sky
and rained much gold upon the land." The shower
of gold which falls upon a people which rightly
encourages literature and the fine arts is a shower
of pure and unselfish pleasures.

In his Histoire de Luxe, M. Baudrillart writes on
the subject of public luxury, "At times it invites

The Consumption of Wealth. 263

the masses to enjoy certain pleasures, as public
gardens, fountains and theatres ; at times it spreads
the treasures of the beautiful before the multitudes
shut out from the possession of the works of sculpture
and painting. There are museums for art, just as
there are libraries for science and literature, and,
exhibitions for manufactures. In all its forms this
collective luxury, if well directed, benefits every one.
It raises and stimulates the genius of industry. It
has, besides, this supreme merit that it deprives
luxury of the selfish and solitary character which
it displays in individuals, by bringing within reach
of the people the advantages which as a rule are
exclusively enjoyed by the rich, or grudgingly shared
with a small circle of acquaintances."

Athens raised the level of civilisation by the
diligent culture of a love for the fine arts. Artistic
decoration and art instruction in schools ought to be
a means to the same end. " If education must first
deal with realities and forms it uses these as vehicles
to attain to the intellectually sublime."

Would not the lower classes on whom material
surroundings press so heavily find the best relief to
their hard destiny if their eyes were opened to what
Leonardo da Vinci calls La Bellezza del Hondo, and
they, as well as others, were thus prepared to enjoy
all the splendours dispersed throughout the world,
splendours, which, as Pascal expresses it, when the
heart is open to receive them, soften its sorrows and
inspire a presentiment and foretaste of happier days."

264 Elements of Political Economy.

Public luxury ought never to be supported by taxes
on the necessities of life, nor be allowed to encourage
among the rich a love of ostentation and sensuality.
It should always tend to strengthen those highest
sentiments, love of country and humanity, of righte-
ousness and justice.

CHAPTER IV.

TAXATION.

§ I. What is Taxation?

To defray the expenses of government a revenue is
needed. This revenue may be furnished either from
domains or from taxation.

In former times kings derived almost all their
revenue from domains, just as a private proprietor
now lives from the rents of his estates. In the
present day states still obtain a certain revenue in
this way, as in Russia from the crown lands and in
Belgium from the state railways. It is, however,
chiefly by taxation that provision is made for the
public expenses.

Revenues derived from domains had one advantage
in not diminishing the incomes of individuals. A
tax on the other hand, is a fine on the incomes ol
all who pay it, that is of the taxpayers. It is the
price paid by the citizens for the blessings of social
order. As Montesquieu, well expresses, it, "The

The Consumption of Wealth. 265

revenue of the state is a portion of his wealth
sacrificed by each citizen in order to gain security
for the rest or the means of enjoying it more
agreeably." {Esprit des Lois, bk. xiii. ch. i.)

When in exchange for the tax a government gives
neither security nor comfort the tax is mere robbery.
It is even worse when the robberies of a tyrant help
to organise his oppression of his people.

When the tax is moderate, well adjusted and well
employed there is no expense more remunerative
to the nation at large, or more useful to its neediest
members.

§ 2. Rules as to the Imposition of Taxes.

The rules as to the imposition of taxes are of the
greatest importance, since national decline and
revolution mostly have excessive and ill adjusted
taxes as their principal cause.

Even when the expenses of the state are for
necessary or highly useful purposes, the taxes from
which they are defrayed give rise to much incon-
venience. To diminish this inconvenience as much
as possible certain rules have been devised which are
here given.

(1) The tax should be in proportion to the respec-
tive abilities of the taxpayer. Though this principle
is strictly just, it was not observed under the old
regime. Then the rich, in other words the nobles,
paid nothing, and the whole burden fell on the poorer
classes who alone worked.

266 Elements of Political Economy.

(2) The tax should be completely fixed in advance
in all its details, amount, method and time of payment.
When it is otherwise, every person subject to the tax
is in the power of the tax-gatherers. As these become
insolent, their victims grow servile ; this may still be
seen in eastern countries.

(3) The tax ought not to fall on the means of
production but on the net produce. Thus cattle,
trees, steam-engines, &c, should be left untaxed.
In many villages in Palestine the wealth-bringing
palm trees have been torn up, because each tree was
taxed. If this tax had been imposed on the land, it
would have been the owner's interest to have planted
as many trees as possible so as to reduce the amount
payable on each of them.

Taxation has often caused more misery by being
ill adjusted than by being excessive.

(4) The tax ought to be levied at the time in
which the taxpayer will be best able to afford it.
For this reason in some countries the land tax may
be paid by instalments. So too the succession duties
are always readily paid because they are levied from
an unexpected increase of the income of those who
already had the means of living.

(5) So far as possible the tax ought to bring into
the state as much as it costs the citizens. The
expenses of collection are paid by the nation and
lost to the treasury. Of the dues levied at the gates
of French towns twenty or thirty per cent, often serve
to support the collectors, who are thus diverted from

The Consumption of Wealth. 267

productive labour and hamper the circulation of the
goods of actual producers.

(6) Taxes should be moderate, and never so high
as to discourage production.

* The extortioners of the old regime" says J. B.
Say, " even used to maintain that the peasant must
be poor to prevent his being idle. This theory had
as its result the neglect of agriculture, exhaustion of
estates, a lazy peasantry, and a misery that often
amounted to positive famine."

When taxation absorbs too large a share of the
produce, labour is discouraged and economic decline
sets in. Under Louis XIV. vines were uprooted to
escape the taxes called Aids, which, according to
Yauban, often amounted to the price of the vintage.
The two most powerful empires of the world, the
Roman and that of Charles V., were both ruined by
excessive taxation.

In France the taxes collected by the state, the
departments and communes exceeded in 1882,
£160,000,000, and the net revenue from land was
estimated in 1874 at only £158,000,000. The limit
which it must be dangerous to pass seems to have
been almost reached.

(7) Taxes ought never to be raised from immoral
sources, such as lotteries and gambling houses.
Again, in fixing the amount to be paid, the taxpayer
must never be put on his oath, for this is placing
a premium on perjury.

(8) Taxes shculd not be of such a kind as can be

268 Elements of Political Economy.

evaded by cheating the treasury, or an encourage-
ment will be offered to fraud. Custom dues have
this effect when they give rise to smuggling.

There can be no worse laws than those which
teach law-breaking.

§ 3. Incidence of Taxation.

To fix the " incidence " of a tax is to determine on
whom the burden of it shall fall (incidere).

The effect of most taxes is transmissible, and their
burden is thus divided. The imposition of a tax on
the food of workmen will cause wages to rise, since
the workman must still live. The rise of wages will
increase the price of goods, and thus the weight of
the tax will finally fall on the consumer. Raise the
price of a shopkeeper's license, he will spread the
increase over his bills, and it will be paid by his
customers.

After all the changes of incidence, said the physio-
crates, the whole burden will fall on the land ; no, reply
their opponents, it is always the consumers who finally
pay it. The truth appears to be that when a tax
is of long standing everybody, either directly or
indirectly, shares the weight of it. The amount of
the several shares it is difficult to state, but the
society adjusts itself to the burden, just as foot and
boot end by fitting each other.

As a result we may recommend the suppression of
as many taxes as possible, beginning with the worst,
but readjustments should always be avoided.

The Consumption of Wealth. 269

§ 4. A Single Tax.

On reading the endless list of taxes invented by
the ingenuity of financiers the question occurs :
Why all these complications ? Why not make a
direct demand on each taxpayer for an amount pro-
portionate to his fortune ? Accordingly various
proposals have been made for a single tax either on
land, or income, or again on capital.

The obstacle to the adoption of this attractive plan
is the difficulty of finding any basis that would
insure the tax being duly proportioned to individual
means. The whole burden ought not to be borne by
land, for land is not the sole source of wealth. Nor
ought it to be imposed only on fixed capital, for those
who draw their incomes from circulating capital or
from their professions — merchants, bankers, lawyers,
doctors, engineers, tradesmen — would pay little or
nothing. Again, to require from every one a contri-
bution in proportion to their income would be the
perfection of justice ; but how is their income to be
ascertained ?

Rather than to commit gross injustices affecting
individuals, it is better to submit to many petty
inequalities of which every one feels a share.

§ 5. Direct and Indirect Taxation.

Direct taxes strike directly at those at whom they
are aimed, for instance, at landed proprietors when
they have to pay a land tax. Indirect taxes are

270 Elements of Political Economy.

really paid by consumers, but through the medium
of the manufacturers who have to advance them.
Thus the brewer pays the tax on beer, but since
prices rise to cover this advance, it is the beer con-
sumer who indirectly bears the burden.

Statesmen who maintain large armies prefer indirect
taxes, because the people pay them without noticing
it. In this way the pigeon may be plucked without
crying out. But the inconveniences of these taxes
are none the less great : they are obstacles to commerce,
as in the case of custom-dues ; they hamper industries,
like the sugar tax; or they diminish the comfort
of the working classes, like taxes or salt, beer or
wine.

Unfortunately as these taxes are very productive
they are difficult to suppress. Two free coun-
tries, England and the United States, still de-
rive the chief part of their revenue from indirect
taxation.

As- a general rule the most necessary articles of
consumption, such as salt and bread, should be left
untaxed, and heavy imposts should be placed on
superfluous or harmful luxuries, such as tobacco and
alcohol.

§ 6. The Budget.

The budget — an English word from the old
French bogdte, a small pocket — is the estimate of
the state's revenue and expenditure for the coming
year.

The Consumption of Wealth, 271

In free countries the budget is brought forward
by the Finance Minister, and passed by a vote of
Parliament.

The annual vote on the budget is the weapon by
which the legislative power, the Parliament, can
impose its will on the executive power, the elected
or hereditary sovereign. The holder of the purse
strings has always the upper hand. If Parliament
refuses to vote supplies the sovereign is reduced to
impotence, unless by a violation of the constitution
he impose taxes on his own authority.

The budget should be clear, exact, and with
securities against a deficit. In modern states this
last quality is rare. The bogdte from being a little
purse has become enormous. It grows every year,
and is too frequently empty.

§ 7. Loans.

When a deficit occurs in a budget, from some un-
expected event such as a war, or dearth, or an excess
of ordinary or extraordinary expenditure, states have
recourse to borrowing. The budgets of future years
are often burdened with the interest and sinking
funds for these loans.

Nearly all governments contract loans with a readi-
ness truly deplorable. A statesman who borrows has
large means at his disposal. The public who sub-
scribe for the shares find a good investment. The
tax payer is blind or indifferent, or, if he calculates,
only concerns himself with the facts immediately

272 Elements of Political Economy.

before him. The advantages of the expenditure are
felt at once, the weight of the debt is reserved for
the future.

The greater a government's want of foresight,
the more dangerous does the system of borrowing
become. In Spain, Mexico, Peru, and Turkey, it has
ruined either the state, or its creditors, and in some
cases both.

The only legitimate excuses for hampering future
generations with a debt, are to save a country,
or to execute works from which posterity will
profit.

The founders of the Republic of the United States
of America could not tolerate a standing debt.
They maintained that each generation ought to pay
its own way. It is in pursuance of this theory that
the citizens of the United States still continue to
pay war-taxes, to the end that their debt may be
completely wiped off.

The general public so little understands the dis-
astrous effects of loans that it is still ready to repeat
the foolish remark of Voltaire : "A state which is
indebted only to its own citizens is in no way im-
poverished, and its debts are actually a fresh
encouragement to industry. {Observations sur le
Commerce, le Luxe et les Impots.)

To meet exceptional expenses it is always better
to have recourse to taxation rather than borrowing.
This has always been the theory and the aim of
Mr. Gladstone. On either plan money, or the goods

The Consumption of Wealth.

273

which it represents, are withdrawn from private
consumers and employed by the state. The drain
effected by taxation is the more severe, since the
taxpayer receives no bonds in exchange. On the
other hand, the drain caused by loans, though less
severe, is more lasting. Every year the taxpayer
has to sacrifice some enjoyment to pay his share of
the interest of the National Debt. In addition to
this, as Tracy remarks, " The payment of this interest
provides the means of living for a crowd of idle
people who, without it, would be obliged to seek
useful employments either for themselves or their
capital." (Commentaire sur V Esprit desLois, bk. xxii.)
The national debts of most civilised countries are
enormous, and many states ' are no longer able to
pay the stipulated interest. The following table
will show the amounts of the debts of the principal
states in 1879:—

Millions Sterling.

United States

405-40

Germany

, 220-00

Austria-Hungary

421-24

France

825-00

Great Britain and Ireland .

778-24

Russia

600-00

Italy

. 408-48

Spain

. 525-00

Low Countries

82-00

Carried forward

4265*36

T

274 Elements of Political Economy.

Brought forward
Belgium

Millions Sterling.

4265-36
4620

Denmark

• i

10-24

Sweden

• • <

12-00

Norway-
Portugal
Greece

•
•
• «

524

82-48
20-00

Turkey

Turkish Tributary States

Switzerland .

. 250-00

21-00

1-40

Total .

. 471392

Four thousand seven hundre

id and fourteen

millions sterling !

Supplementary Chapter. 275

SUPPLEMENTARY CHAPTER.

ECONOMIC QUESTIONS IN THE UNITED STATES.

§ i. The Tariff and Wages.

The general question of free trade and protection has
been treated in a previous chapter (Book III. , Chapter
VI.). One argument for protection was not mentioned
there, which is much urged by protectionists in the
United States — the argument that protection is neces-
sary to maintain the high wages paid in this country.
It is said by the advocates of protection that the com-
petition of articles made by ill-paid labourers in Europe
would reduce, if free trade were established, the prices
of articles made in this country, and that wages must
fall correspondingly. Professor Laveleye does not
mention this argument, because it is not advanced by
protectionists in Europe. On the contrary, in Ger-
many and France high duties are demanded in order
to protect the ill-paid labourers of those countries from
the competition of the better-paid labourers of England.
This fact shows sufficiently that low wages in them-
selves do not enable a country to compete in another
country, and that high wages do not prevent it from
competing ; otherwise England could not compete on
the continent of Europe. The truth of the matter in
this country is, that in those branches of industry to
which we can most advantageously direct our labour
and capital, the labourers produce a large product, and
employers can afford to pay them high wages. If in

276 Elements of Political Economy,

a given branch of industry, these high wages cannot
be afforded, this industry is one which it is not ad-
vantageous for our country to undertake. Agricultu-
ral labourers in the United States are paid much higher
wages than such labourers receive in any European
country. Yet nobody believes that the wheat and
grain produced by the ill-paid labourers of Europe can
be imported hither in competition with our own .wheat
and grain ; everybody knows that, on the contrary,
we export these products to Europe. The reason is
that the United States have great advantages for rais-
ing agricultural products ; hence high wages are and
can be paid to the labourers producing them. The
general high rate of wages with us is due fundament-
ally to the great general productiveness of labour,
which, again, is due in part to the energy and effi-
ciency of our labourers, in part to the extended use of
machinery, and in a very large part to our great natu-
ral resources. It is in no sense due to the protective
policy. If in making particular commodities, for in-
stance, silk goods, such high wages cannot be paid to
labourers under a system of free trade, it is a proof
that it is not worth while for us to make silks. "We
can get labourers in Europe to make silks for us at the
lower rates of pay which prevail there. We can em-
ploy our own labourers, who are now making silks, in
producing other commodities — for instance, grain or
cotton goods. In producing the grain or cottons our
labourers are advantageously employed ; and in ex-
change for these commodities we can get from the
foreign labourers more silks than our domestic labour-
ers can produce at home.

Supplementary Chapter. 277

§ 2. The Present Phase of the Tariff Question.

Although the protective system directs the industry
of the country into unproductive channels, and is not
to be defended on economic principles, it does not
follow that it should immediately be swept away. A
bad state of things may exist, and it may still be diffi-
cult to substitute for it a good state of things. It has
already been said (see page 95) that the introduction
of new machinery, though beneficial and desirable,
may temporarily be injurious to those engaged in
using the old machines that are to be replaced. A simi-
lar injurious effect might result in this country from
the sudden introduction of free trade, or even from
a sudden great diminution of protection. The trans-
fer of labour and capital from an industry which has
been maintained only by the aid of protective duties,
to another industry which needs no protection, is like
the change from old machines to new and better ones.
It increases the productiveness of labour, and decreases
the cost of commodities. But it may be for a while
harmful to the labour and capital which have been em-
ployed in the protected industries. This labour and
capital may not be able to withdraw with ease from
their existing occupation to the more productive in-
dustries which need no protection. The capital can
perhaps be withdrawn only by permitting the ma-
chines and fixtures gradually to wear out ; the labour-
ers can change but slowly and with more or less diffi-
culty from the one class of industries to the other.
Hence any reduction of the protective duties should
take place gradually and carefully ; if possible, on a

278 Elements of Political Economy.

deliberate plan announced in advance, in order to en-
able the transfer of labour and capital to take place
without unnecessary hardship.

It is not likely that a complete abolition of protec-
tive duties in this country will take place at any time
in the near future. Professor Laveleye has called
attention to the familiar fact that direct taxes are
much more irksome than indirect taxes. This is
doubtless, in principle, an objection against indirect
taxes ; because, if the public revenue is raised by the
more irksome direct taxes, the people will be more
likely to insist on economy in the public expenses.
But on the other hand, indirect taxes, being paid in
the shape of higher prices of commodities consumed,
and not directly out of pocket, are much less objected
to by taxpayers. The people, that is, the taxpayers,
prefer to pay indirect taxes on commodities, rather
than direct taxes on their income or property ; and
this may be the case even if they know that the indi-
rect taxes have ulterior harmful effects on industry at
large, as in the case of protective duties. In the
United States, it would at present be practically im-
possible to raise the revenue required by the federal
government by direct taxes. Duties on imports are
the easiest and readiest form of indirect taxation.
Being easily levied and collected, and paid almost
unconsciously, they will probably continue to exist for
a long time, even though the knowledge of their
economic badness should become generally diffused.
But these duties, if they are to stand, should at least
be arranged so as to burden the people as little as
possible. They should not be higher than is necessary

Supplementary Chapter. 279

in order to bring in the revenue which the general
government needs. At present the government raises
by duties $100,000,000 a year more than it needs.
This is indefensible. Moreover, duties should not
be confined to articles which are produced in the
country, that is, to protected articles. They should
be levied equally as much on articles like coffee, tea,
and spices, which are not and practically cannot be pro-
duced within the country, as on articles like wool, iron,
and silks, which the country does produce. The tariff
on articles such as wool and iron, which as compara-
tively " raw" materials enter into the manufacture of
many articles of a higher degree of manufacture, is
also disadvantageous, in that it increases prices at
home, and stands in the way of making sales abroad.
In our present tariff, wool, iron, and silks are taxed ;
while articles like tea and coffee, almost without
exception, are admitted duty-free. This is a great
mistake. Duties on tea and coffee have no such effect
as do those on wool and iron ; namely, that of turning
the industry of the country into unproductive channels.
They act merely as taxes, like the internal taxes on
tobacco and spirits, and for this reason are greatly
preferable to duties on wool and iron. If any duties
are to be removed, the latter should be the first taken
off. Even if the revenues must be raised chiefly by
duties on imports, these should primarily be levied on
articles not produced in the country. The opposite
policy, that of levying protective duties on articles
like wool and iron, in preference to purely revenue
duties on articles like tea and coffee, has been fol-
lowed in this country ; and this is one of the most
emphatically bad features of the existing tariff.

280 Elements of Political Economy.

§ 3. The Internal Taxes.

The government at present raises a large part of
its revenue by means of internal taxes, chiefly on
spirits and tobacco. The revenue from these sources
has been, on the average of recent years, about
$120,000,000 yearly, of which more than two-thirds is
derived from spirits and fermented liquors. It has
been proposed to abolish these taxes, in order that the
duties on imports may be retained without change.
This would be highly impolitic. Taxes on articles
like these are little regarded by the consumer who
pays them. If he finds the taxes heavy, he can escape
them by refraining from consuming spirits or tobacco,
or diminish them by consuming less of these articles.
Such a decrease of consumption is not to be regretted,
as it would be in the case of wool, or iron, or sugar ;
for these are mainly taxes on bad habits and vices.
They are, moreover, easily collected and bring in a
large revenue. As compared with our import duties,
they have the great advantage of not diverting the
industry of the country from productive occupations
to less productive ones.

§ 4. The Money of the United States.

The chief quality necessary for money is stability
in value. The precious metals have been chosen to
perform the functions of money because they possess
this quality in a preeminent degree. Paper money
has some advantages over the precious metals, but the
only way in which effectually and certainly to secure
for it the essential quality of stability of value, is to

Supplementary Chapter. 281

base it on specie, and to make it immediately and un-
failingly exchangeable for specie. There is no strong
intrinsic objection against the issue of paper money
by the government. The objections are of a practical
kind. A government is likely to overissue its prom-
ises to pay, and when it overissues, it cannot be com-
pelled to redeem and contract them, as a bank can be
compelled. The temptation to governments to over-
issue is strong. The printing of paper money is the
easiest of all methods of raising revenue. Moreover,
there are always many ignorant and unthinking peo-
ple who believe that abundance of money is in itself
a good thing ; and debtors are apt to be in favor of
measures which, by raising prices, make easier the
payment of their debts. All experience proves that
there is no more baneful expedient than the overissue
of paper money ; and, since governments are under
such strong temptations to overissue, it is best that
they should not issue at all. Banks, which are
compelled to redeem in case of overissue, are more
safely to be entrusted with the issue of notes. It is
also said, in favor of the issue of notes by banks, that
they accommodate their issues to the demands of trade,
increasing them as more money is wanted, and decreas-
ing them as less money is wanted. It may be doubted,
however, whether their flexibility exists to a very great
extent ; it certainly does not exist, to a sufficient de-
gree to be of great utility, in our national bank sys-
tem. But under our national bank system the secur-
ity for the redemption of the notes is absolute ; the
danger of overissue by the banks does not exist. As
the issue of notes is based on a special deposit of bonds

282 Elements of Political Economy.

of the United States at the government treasury, the
objection which Professor Laveleye makes (page 222)
against the issue of notes by banks whose stockholders
have a limited liability for the debts of the banks, does
not apply. When a good system exists, no needless
change should be made from it. The national bank
system should therefore be retained as long as pos-
sible. At present the high price of government bonds,
the low rate of interest on them, and the tax on the
notes issued by the banks, make the notes a source of
so little profit that there is a tendency among the
banks to give up their circulation. By abolishing the
tax on circulation, and re-arranging the government
bonds in such a way that their market price may be
nearer their par value (on which latter alone the cir-
culation is based), the circulation may again be made
a source of profit sufficient to induce its retention.

It is not, however, desirable that the national debt
be retained forever. It is being paid off, as it should
be, though at present with needless haste. As the
government bonds are gradually redeemed, the basis
of the national bank-notes will be taken away, and
these notes must be withdrawn. Sooner or later some
substitute for them must be found. To have that
substitute consist entirely of specie would be need-
lessly costly. It has already been said that there are
strong practical objections against the issue of paper
money by the government, but it is possible that the
national bank notes, as they are withdrawn, will be
replaced by government notes, similar to those now in
circulation. If the government, however, is to issue
notes, rigorous measures should be taken that the

Supplementary Chapter. 283

issue be limited, and that the notes be made certainly
and immediately convertible into specie. The gov-
ernment should under no circumstances issue more
notes than there are bank-notes withdrawn ; and it
should always keep on hand an ample reserve of spe-
cie, with which to pay notes presented for redemp-
tion. If the specie reserve is to bear a proportion
to the note issue, it should be at least one-third of it.
The best plan probably would be one similar to that
now pursued by the English government in regard to
the Bank of England notes. Let a certain amount of
notes be issued ; let this quantity be decidedly less
than the amount of specie which the country would
need in the absence of paper money ; for every note
issued over and above this quantity let the govern-
ment keep dollar for dollar in specie.

§ 5. The Silver Question.

In the previous section specie has been spoken of as
the necessary basis for paper money. Should that
specie consist of both silver and gold, or only of the
latter of these metals ? The considerations which. bear
in favor of the general retention of silver, concurrently
with gold, as part of the money of civilized countries,
have been stated by Professor Laveleye (pages 202,
203). The most important argument is the greater
danger of fluctuations in the value of money, if gold
were the only metal freely coined. It is said, for in-
stance, that at the present time, if gold be retained as
the standard by civilized nations, there is danger of
an appreciation in the value of gold — that is, of a
general fall of prices— on account of the comparatively

284 Elements of Political Economy.

limited quantity of gold, and the very large and grow-
ing quantity of exchanges which that gold must effect.
This danger is probably exaggerated by the opponents
of the gold standard. It is by no means clear that any
permanent tendency toward a fall of general prices
exists. The argument at most is good against a
farther extension of the single gold standard, in
countries where that standard does not yet exist ; it
does not bear with force in favor of a change to a
double standard, in countries where a gold standard
now exists. On the other hand, there are very strong
considerations against the free coinage of silver. The
simplicity of a single standard is in itself an advantage.
Silver is bulky for any but small transactions. The
commercial community have a distinct preference for
gold ; and such a preference, if it exist in fact, is a
strong obstacle to the introduction of silver. Finally,
and most important, it is exceedingly difficult, in fact
impossible, to coin both gold and silver at such rela-
tive values that one of them will not be valued differ-
ently as a commodity from what it is valued as a coin.
In this case Gresham's law (page 203) comes into op-
eration, and that metal which is given less value as a
coin than it has as a commodity, will be exported.
There will then be nominally a double standard, but
practically only a single standard, for only one of the
metals will remain in circulation, namely, that one to
whicli the laws of the country give a greater value
than the open market gives it. For these reasons it
is best to make gold the standard of value, and to use
silver merely as a subsidiary coin. The difficulty aris-
ing from the operation of Gresham's law is recognized

Supplementary Chapter, 285

by all rational advocates of the double standard. It is
proposed to overcome that difficulty by an interna-
tional agreement fixing the rate at which the two
metals shall be coined by different countries. Such
an agreement, if entered into by a sufficient number
of important countries, might have an effect in coun-
teracting the operation of Gresham's law. No sensible
bimefcallist thinks the double standard practicable in
the absence of such an agreement.

"Whatever be one's opinion on the general question
of bimetallism, the present method of coining silver
in the United States cannot be defended. The
government now coins a silver dollar which contains
only as much silver as is worth about 85 cents in gold,
at the present market price of silver. This silver
dollar is made equal to a gold dollar in effecting pay-
ments. If the silver dollar were coined freely, that is,
if everybody who had 85 cents worth of silver could
go to the mint and have it coined into a dollar, it is
clear that silver would rapidly be coined in large quan-
tities. Gresham's law would come into operation.
The gold in the country would be rapidly displaced by
the silver and exported, and silver would become the
specie standard of value. This has not yet happened,
because the government does not coin silver freely. It
coins only 2,000,000 of the dollars each month. But
the fact that silver is coined in this limited way merely
makes a difference from the effect of its free coinage,
in the length of time it will take for the silver dollars
to displace the gold. To the extent that silver is
coined, it takes the place of gold. If the coinage of
silver is continued at the rate of $24,000,000 a year,

286 Elements of Political Economy.

gold will gradually be driven out of the country, and
the silver dollar will eventually become the sole
standard of value. This is equivalent to making 85
cents do what 100 cents formerly did. It is equivalent
to reducing all debts, and defrauding creditors, to
that extent. It is equivalent to depreciating the
money of the country, and has the evil effects of such
depreciation. The coinage of the silver dollar on the
present system should therefore be stopped. If silver
is to be retained as part of the standard of value, the
dollar of silver should at the least be made equal to
the dollar of gold. To do this in such a manner as
in fact to retain both metals in circulation, is hardly
possible, as has already been shown. It certainly is
not possible without an agreement between the differ-
ent nations which mean to coin silver freely, as to the
rate at which they will coin the silver. Such an
agreement is possible, though not probable. The ad-
vantages of the double standard to be attained by it,
are hardly sufficient to make it much to be desired.

§ 6. American Shipping and the Navigation
Laws.

Thirty years ago 75 per cent, of the foreign trade of
the United States was carried on in American vessels.
At present only about 15 per cent, is so carried. For
this great change there are several reasons. (1) Ships
can now be built more cheaply in other countries.
Timber for wooden ships is absolutely and relatively
much dearer in this country than it was a generation
ago ; and our protective tariff increases the cost of
many materials used in building ships. Moreover,

Supplementary Chapter, 287

iron steamships have been largely substituted for
wooden vessels. The iron steamships can be built
most cheaply in England, and can carry at lower rates ;
the work of carrying goods tends to be given to the
iron ships, which can do it at least cost. (2) The war
of the rebellion caused many American vessels to be
sold or transferred to the flags of other nations, in
order that they might escape capture by the Confederate
cruisers. By our navigation laws, vessels so sold can
never be bought back and again become American
vessels. (3) The laws of the United States impose
many restrictions and burdens on vessels which are to
sail under the American flag. They must be built in
this country ; they must be owned and officered en-
tirely by American citizens ; they must pay a heavy
tonnage tax, heavy local taxes, large fees to the con-
sular officers at foreign ports ; they must pay three
months' extra wages to seamen discharged in foreign
ports ; they are subject to many dues for pilotage,
wharfage, etc. To some of these charges and restric-
tions foreign vessels are also subject, and in so far they
do not, of course, hamper the competition of the Ameri-
can merchant vessels. But most of them affect Ameri-
can vessels alone. In so far as they prevent the people
of the United States from engaging in an occupation
which they can with advantage carry on, the restric-
tions are harmful, and should be abolished. There is
no reason, for instance, why we should not have free
ships ; why American citizens should not be allowed
to buy vessels built in foreign countries, and sail them
under the American flag. If it be said that it is de-
sirable for political reasons, that ships should be built

288 Elements of Political Economy,

in this country, in order that a naval service may be
more readily organized in case of war, the answer is
that the present prohibitory system has not caused the
construction of ships of the kind that would be needed
in case of war. Aside from this, if the government
is to be prepared for war, it should make its prepa-
rations directly and efficiently, by maintaining an
adequate navy.

It has been proposed to pay subsidies to American
vessels, in order to enable them to compete with
foreign vessels. This proposal should be energetically
resisted. It is not in itself a good thing that Americans
should sail ships and carry goods ; no more than it
would be in itself a good thing for them to engage
in growing tea and coffee, or than it is an advantage
for every producer to carry his own products to market.
The thing to be desired is that goods should be car-
ried cheaply. It is not worth while for the people of
this country to undertake the carriage of goods to
and from foreign countries, unless they have ability
for doing the work as cheaply as foreigners do it. If
our industry is not advantageously applied to the
shipping trade, let it be confined to other occupations.
The restrictions on that trade perhaps prevent
American citizens from undertaking the business of
carrying goods to and from other countries, when, in
the absence of these restrictions, they could do this
work as cheaply or more cheaply than foreigners.
The restrictions should therefore be removed. But if
Americans cannot do this work, under conditions of
freedom, as cheaply as foreigners can do it for the
country, they should not be paid for doing it.

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