The fallacy of saving; a study in economics

The Fallacy of Saving

JOHN M.ROBERTSON.

UNIVERSITY OF CALIFORNIA
AT LOS ANGELES

GIFT OF

MR. RO v-nT UNTER

THE FALLACY OF SAVING

A STUD Y IN ECONOMICS

THE

FALLACY OF SAVING

A

Stnos in Economics

BY

JOHN M. ROBERTSON

AUTHOR OF
"MODERN HUMANISTS," "essays TOWARDS A CRITICAL METHOD,'" ETC

'Let us not confound the statement that human interests are at one with the state-
ment that class interests are at one. The latter I believe to be as false as the
former is true, and, moreover, to be one of those plausible optimist fallacies
against which it especially behoves us in the present day to be on our guard." —

C air ties

LONDON

SWAN SONNENSCHEIN & CO.

NEW YORK : CHARLES SCRIBNER'S SONS

1892

V\C3r

T2>ao

'

to

CO

PREFACE.

■"•^■^^s-"

DC

<c The following essay is an expansion of one written

j*- several years ago, and recently read to the Political

-fc
* Economy Circle of the National Liberal Club. The

character of the criticism it then met with from some

^ of the most competent members removed any hesita-

jD . . ,

pO tion I might formerly have felt as to the chance of

my being right in an argument which will strike most

©

,_ readers at first sight as a strange paradox, and which

IX.

83 runs counter not only to the standard authorities, but
to the views of many of the younger economists who
are supposed to have thrown off the old " orthodoxy."
The trained economists of the National Liberal Club,
to my thinking, did not really defend the received
economic doctrine of saving at all : they defended

45979

vi PREFACE.

something else. And yet, while the received doctrine
stands thus naked to criticism, I find that when a
young economist presses the criticism he is made to
suffer for it by exclusion from educational posts which
are in the gift of adherents of the orthodox view.
Having personally nothing to fear in this way, I feel
the more bound to press the true doctrine, as I regard
it, on public attention. I would preface my exposi-
tion, however, with an appeal to the candour and
leniency alike of economic students and general
readers, in consideration of the difficulty which
attends all rectifications of abstract theory, and
efforts at new economic analysis in perhaps a special
degree.

As regards the practical solution propounded in the
Second Part, I wish it to be noted that it is evolved
as a strict economic solution of the problem led up to
in the First, and, though it coincides with some pro-
posals classified as Socialistic, is no a priori applica-
tion of any abstract theory of society, and does not
stand or fall with any such theory. In this connec-

PREFACE Vl 1

tion I am glad to see that a widening hearing is being
won for the doctrine of a naturalist as distinguished
from an idealist treatment of social problems. This
doctrine has been admirably put by a recent essayist,
whose words I have as much pleasure in quoting as
in endorsing :

" The solution which remains to be considered, and which the
course of the argument has gradually brought into view, is the
doctrine of State-control or State-regulation of industry accord-
ing to the best ideas and knowledge attainable at the time.
This, in distinction from the others, may be called the political
solution. It is untouched by any of the arguments that have
been fatal to the rest. In essence, it is the doctrine that has
been instinctively acted upon both in ancient and modern
States. When a mistaken industrial policy was pursued in the
past, this was not because the State failed to recognise the limits
of its own general sphere of action, but because it was ignorant
of some particular law of economics. The remedy is not to
exclude as many industrial questions as possible from the sphere
of State-action, but to gain the most accurate knowledge of the
conditions of particular problems, and then to apply it both
negatively and positively, and not simply for the maintenance
of prosperity, but for the transformation of the industrial sys-
tem itself. This does not imply State-ownership of all capital,
which is the Socialistic solution, but it implies that no limit shall
be recognised to the action of the State upon industry except
the knowledge that action would be injurious to the Common-
wealth. Where there is doubt, there may be action or abstinence

viii PREFACE.

from action, according to the probabilities of the case. At a
time like the present, when the industrial system is compara-
tively plastic, the bias ought to be in favour of action."1

That may be taken as the political standpoint of the
following treatise.

1 Art. Politics and Industry, by Thomas Whittaker, in Mac-
miUan's Magazine for January, 1892.

CONTENTS.

Chap. Page

PREFACE --- V

PART I.— THE FALLACY.

I. THE VOGUE OF THE FALLACY - - I

II. THE CONTRADICTIONS OF ADAM SMITH- - - 12

III. HOW THE FALLACY AROSE— TURGOT AND SMITH - 23

IV. THE FIRST CORRECTIONS— LAUDERDALE AND HIS

CRITICS — MALTHUS, CHALMERS, SISMONDI— THE
OPTIMISM OF M'CULLOCH ----- 28
V. THE ARGUMENT OF J. S. MILL - - - - 42

VI. THE DOCTRINE SINCE MILL 56

VII. THE RATIONALE OF CAPITAL— THE FALLACY— THE
DOCTRINE THAT SUPPLY IS DEMAND— CAPITAL

AND MISPRODUCTION 72

VIII. "THE PHYSIOLOGY OF INDUSTRY" — A CONFIRMA-
TORY ARGUMENT 105

PART II.— THE PRACTICAL ISSUE - - 119

THE FALLACY OF SAVING.

PART L— THE FALLACY.

CHAPTER I.

THE VOGUE OF THE FALLACY.

Throughout the bulk of the literature of modern
political economy, down to recent years, there runs
the teaching, explicit or implicit, that the practice of
parsimony by all and sundry is the surest way to
prosperity not only for the savers singly but for the
community to which they belong. We have the
doctrine very plainly stated in the late Professor
Bonamy Price's Chapters on Practical Political
Economy :

" The man who saves, be he prince or peasant, is the bene-
factor of his country; for it is capital which bestows all neces-
saries an I all comforts, which rescues population from poverty,
which sustains and increases their numbers. Nothing can be
more fatal to the happiness of a people than to bring profit into
discredit." 1

1 Second Edition, p. 128.

MM I \l .1. M \ I »l - WING.

Eere, it will be aoted, the economist expresses him-
as if all saving were made out of traders' profits ;
but it is not to be supposed, even if he had not made
his advice universal, that he wanted to restrict the
practice of saving to the profit-makers. He is re-
peating a standing- economic doctrine, which pro-
nounces all saving by individuals to be a public
benefit.

On all. fours with this viewT, of course, is the opinion
that if only people in general would be " thrifty," in
the sense of " saving " a good deal of their weekly or
annual income, poverty would be sure to lessen pro-
portionately, or even disproportionately. This is im-
plied in Mr. Spencer's censure of the English masses
for their " improvidence ; " his idea being, not simply
that they tend to have more children than they can
support, but that by not saving some of their wages
all round they as a class throw away some of their
bread and butter. For it is assumed, as we shall see
in detail, by economists of most schools, that the pro-
cess of saving money means the accumulation of
wealth in the full sense of the term. Thus we find
M. Leroy Beaulieu, a leading French economist, in his
recent work on the State, remarking that "a few
moments of imprudence," on the part of a speculative
legatee, " may be enough to endanger, or even to
destroy, wealth which it has taken the labour and
pain of years, it may be of centuries, to amass."1 M.
Beaulieu is here evidently thinking of mere money
accumulations, and the dispersal of such accumulations

1 The Modem State in Relation to Society and the Individual,
Eng. trans., p. 9.

THE VOGUE OF THE FALLACY.

by bad speculations in stock. Yet even to the ordin-
ary unscientific citizen it must surely be clear enough,
on reflection, that all that happens is a passing of
" claim to wealth " from one hand to others, and that
there is no destruction of anything whatever. The
same reflection is set up by various passages in a
Utopistic novel — now perhaps forgotten, but display-
ing a considerable amount of freshness of thought,
with a good deal of old prejudice — which was pub-
lished some nineteen years ago. The novelist, not
content with endorsing the capitalistic form of society
as morally good, thus discourses on economics : —

" Capital is stored industry. As the coal-beds, to which England
owed its greatness until their approaching exhaustion " [the novel
is an anticipation of Looking Backward], " led to the discovery
of something more efficient, represented millions of years of
stored sun-power, so capital represents the accumulated toil of

And again, in a description of a public meeting in
the future Jerusalem, we have this : —

" On this platform sat the Committee and a large assemblage
of the principal members of the Stock Exchange, the heads of
all the great mercantile houses, and the governing chiefs of
the Jewish people. It was an assembly representative of the
world's wealth of accumulated industry and realised property." -

This is not the writing of a professed economist,
but we shall see that it is largely in harmony with

1 By and By : An Historical Romance of the Future, by
Edward Maitland, author of The Pilgrim and the Shrine, etc.,
1873, vol. ii., p. 28.

2 lb., p. 186.

llli: FALLACY OF SAVING.

the teaching of many professed economists ; and it
becomes seriously necessary to prove, though many
readers may sec it at once, that the "accumulated
industry" and "realised property" spoken of are
pure chimeras. "Realised propert}7 " in this context,
if there is any meaning in words, should be tangible
property — lands, or goods, or bullion, or houses, or
cattle, or valuable objects — and not mere money-
title. No doubt it is customary to speak of a man as
"realising" his property when he sells it for money
and has the price standing at his credit in his bank
account ; and it is very suggestive of the gift of man-
kind for conventional fiction, that a treatment of pro-
perty which consists in getting instead of it the right to
have certain figures marked on a banker's book should
be called "realising," while the process of exchanging
that right for a house is not so described. But Mr.
Maitland's analogy about coal would be meaningless
if he did not signify by "realised property" something
else than the abstract money credit received for giv-
ing away concrete property. His words point to
genuine, useful property, as distinct from even con
or bullion. But in the nature of the case, such pro-
perty is not represented by the money wealth of
investors in general. It might be argued to exist in
the case of a railway company ; but even there the
main part of the real wealth is the land, which is in
no sense " accumulated industry," and the plant, which
is always wearing away instead of accumulating, and
represents at any given moment the product of a few
years' industry at most. Mr. Maitland had not
learned the lesson, accepted by John Mill from Dr.

THE VOGUE OF THE FALLACY. 5

Chalmers, that the greater part of the existing wealth
of any nation is produced within the current year, as
is seen in the case of the recuperation of a country
after a war.1 That, however, is only part of the
blunder. The novelist shows that he knows of the
existence of National Debts, and implies that the
capital of his capitalists largely consists in such
securities. He is thus committed to saying that the
e'ght hundred millions of English debt, notoriously
owing for old loans spent in processes of destruction
of wealth and life, represent so much "accumulated
industry " and " realised property," as coal represents
stored sunlight, capable of yielding so much heat and
energy. This is tolerably absurd ; and yet, as we
shall see, it cannot be taken for granted that even
economists will admit as much. Many of them still
reason as if the National Debt represented so much
accumulated product of labour, so much actual
" wealth."

The novelist from whom I have quoted, agreeing
with the mass of the economists in his notion of
capital, if not in his way of expressing it, lays down
one proposition which, as it happens, coincides with
past economic teaching but not with present. "To
tax capital," he says in the passage first above quoted
from, "is to tax wages, which are paid out of capital."
Modern economists have abandoned this view. And yet
it is on the face of it distinctly more plausible, false as it
is, than the formulas about the "accumulated industry "
and "realised property" of investors' money-claims.
" Wages " are often " paid " out of " capital." Curiously,

1 Mill's Principles of Political Economy, B. [., Ch. v., Sec. 7.

THE I A 1.1 \< V OF SAVING

the economists have abandoned the plausible error
without abandoning a correlative error which is hardly
at all plausible to plain common-sense. They have
all now given up the doctrine of a " wages fund," and
yet most of them continue to speak as if saved
"capital," that is, money-claim, were really a "fund,"
the lessening of which would be a deprivation to the
community at large. Professor Sidgwick in his latest
work, a careful and thoughtful treatise on politics,
stys of a graduated income tax that " the serious objec-
tion to such a measure lies in the danger of economic
loss to the whole community caused by checking
accumulation or driving capital from the country.1
This might be supposed to mean something different
from Mr. Maitland's doctrine that money capital is
"accumulated industry;" but Professor Sidgwick
goes on to show that he too really has such an idea.
He speaks again 2 still more explicitly of the motives
that urge men to " produce and accumulate wealth,"
as if saving money from income meant the accumu-
lating of that which is produced ; and of the probable
" bad effect " 3 of a heavy tax on inheritances in
" diminishing the inducements of prospective testators
to industry and thrift," as if money thrift were as
truly productive, from the point of view of the
community, as industry. In taking up these posi-
tions, as we shall see later, Professor Sidgwick is
really retrograding from a much more rational
position reached by him in his previous treatise on
economics, so that it becomes more and more plainly

1 Tlie Element* of Politics, p. 173. - Page 176.

:i Page 177.

THE VOGUE OF THE FALLACY. /

necessary to combat the delusion to which he now
gives countenance.

I do not anticipate, however, that the main diffi-
culty for most readers will be over this form of the
"saving" fallacy, taken singly. I apprehend that
many will readily acquiesce in my thesis that the
saving of money from income, and the accumulation of
credits, is merely a saving of claim to wealth ; that
such claim is not at all represented by actual wealth
of any sort at present prices ; that an attempt to
exchange the whole mass of money capital or bankers'
credits for actual property, movable or tangible,
would so immensely raise prices as to prove clearly
the abstract nature of the capital in question ; and
that instead of representing <; accumulated industry,"
the mass of capital is rather a potentiality of pro-
ducing new wealth by setting in motion future
labour, an extremely different thing. These pro-
positions, I think, will recommend themselves to most
open-minded people who are not already hypnotised
by conventional doctrines. Such readers may even,
I imagine, be not unready to concede that, if the pro-
duction of new wealth is thus dependent on saved
money capital in the sense only that the proffer of
abstract or moral claim to wealth suffices to set
labour in motion, then labour may conceivabl}' be set
in motion to a much greater extent without the
intervention of saved claim-to-wealth at all. At
least, it seems pretty obvious that if all the members
of a small community agreed to help in production of
some sort, doing services all round as seemed best from
the common point of view, they might accumulate

THE FALLACY OF SAVING.

durable results of industry, as well as produce a
sufficiency of the more perishable products, to an
indefinite extent, without any individual accumula-
tion of claim to the property and services of the
rest.

But just here the problem may easily be obscured
by the suggestion, offered afresh, that in a competitive
society like ours the claim-to-wealth of the capita isf
represents just that right to accumulated products
which in the imagined commune society would be
held to vest in each member equally. Though it
before seemed clear that the saved claim-to- wealth
was not a saved mass of products at all, it would now
seem less clear. And even if the ordinary economists
did not argue that saved money-claim was saved
products ; even if Professor Sidgwick should abandon
his plainly erroneous description of the process of
saving, he and the others might still perplex the
ingenuous student by using the old argument that in
our competitive society it is " capital " (in one sense)
that "feeds" and clothes and houses labour, and
"capital" (in another sense) that "employs" and
" pays " labour ; and that accordingly " capital " (in
yet another sense) must needs be saved in great
masses to keep our society going, and the more the
saved capital the better it must be for the workers.
And this is what I call the Fallacy of Saving.

How far the fallacy rests on or is fostered by
shifting definitions of capital, will appear in the
course of our examination of the reigning doctrines.
But it will be well at the outset to take note that
while the term " capital " has in practice tende 1 more

THE VOGUE OF THE FALLACY.

and more to signify in particular not plant or goods,
but money-credit or claim on bankers' books, or claim
in the shape of debentures, most economists have con-
tinued to speak of it in argument as if it strictly
signified plant and stock in trade, while tacitly em-
ploying the term whenever convenient in the other
sense. It is not difficult to confute the "saving''
doctrine in terms of the avowed definitions of capital,
especially in the case of the earlier economists ; but
when so confuted the maintainers of the doctrine
have only to shift their ground in order to open the
discussion afresh. We must accordingly hunt down
singly the different conceptions involved.

Equally necessary is it to go warily into the
other side of the fallacy, namely, the notion that by
abstaining as far as possible from consumption all
round, people will promote industry all round. Here
again it might seem as if the delusion were too gross
to have any wide acceptance. Industry is a matter
of supplying markets, and the employing class is
always speaking of the importance of finding new
markets. Not a few of our wars have been made at
their instigation, to the end of forcibly opening such
markets. And yet not only the "orthodox econo-
mists " but this very employing class habitually reason
on the assumption that industry depends for its
maintenance on abstinence from consumption, that
is, the restriction of the market demand for goods.
They do not merely recommend such abstinence to a
limited class as a means of providing for the future
by securing a claim over the majority: they urge it
on all, and habitually speak as if everybody might

(O THE FALLACY OF SAVING.

restrict consumption without restricting the employ-
ment of labour; as if everybody might accumulate
claim over the services of everybody else, and so
secure all round the advantages that are enjoyed by
the few who at present accumulate claim over the
services of the many. This, I say, seems a sufficiently
flagrant delusion ; and yet there can be no question
about its vogue. Either the advocates of thrift realise
in their hearts that the principle can only advantage
the few as against the many, and are thus putting
forward as a panacea what they know cannot be a
panacea, or they are sincerely possessed b}7 the delu-
sion I have specified. One comes, of course, to the
latter conclusion. That such a delusion should exist,
is unhappily only too easily explained. Like popular
delusions of all kinds, it rests primarily on an unen-
lightened self-interest. A man wants to " save " in
order to advantage himself ; and when he has gained
his advantage he naturally wants to lay on the less
fortunate the blame of their disadvantage. They
might all, he argues, do as he has done. In the same
way he instinctively wants to believe that in gaining
his advantage he has really been benefiting the rest —
that his saving, his non-consumption, has given them
emploj^ment and promoted trade generally. Thus it
comes that a doctrine almost nakedly absurd in a
plain statement becomes the creed of a whole class,
wrho are able, of course, to fortify their creed by
obscuring the issues, which are numerous and, in de-
signing or misguided hands, complex. A doctrine
thus resting1 on a strongly-felt self-interest must
obviously be hard to overthrow; and if the overthrow

THE VOGUE OF THE FALLACY. IT

is to be accomplished at all, it must be by a systematic
attack all along the economic line.

I propose then, with a view to final demon-
stration, to go methodically over the ground, track-
ing the economic doctrine of Saving step by step
as closely as may be in the compass of an essay that
shall not be a " great evil." The different forms of the
fallacy, as I regard it, are always tending to merge
into one another as the argument is pushed against
one or another ; and only a close analysis can dispose
of the entire case. There are some, I hope, who will
not refuse to be at that amount of trouble to clear up
for themselves a problem which lies at the root of
the great sociological issues of our time. For this is
not an inquiry into the mere metaphysics of econo-
mics, like some very able and indeed intellectually
stimulating treatises of recent years, but a practical
inquiry in the strictest sense of the term. The fallacy
alleged and impugned is a fallacy not merely of
speculation but of conduct — a fallacy which must, I
think, be rectified in speculation before men will in
any numbers make up their minds to rectify it in
conduct, and which must be rectified in conduct before
our social system can to any satisfying extent be
soundly reconstructed.

CHAPTELt II.

THE CONTRADICTIONS OF ADAM SMITH.

We are to examine, then, the standing economic
doctrine that "parsimony," or " thrift," or the "sav-
ing " of money out of income, conduces to the well-
being not only of him who practises it, but of the
entire community in an industrial country such as
ours. The common ground for this belief is suffi-
ciently obvious. It being clear that the individual
who " saves money " acquires an advantage over his
neighbours who do not, it is at least as natural to
prescribe the universal adoption of his plan as it once
was to assume that the nation with most gold and
silver was the wealthiest nation, seeing that the man
with most gold and silver was the wealthiest man.
And whereas the rise of modern industry set up
conditions that led men to look into and to challenge
the notion that much bullion made a country rich,
those very conditions at first tended to strengthen
the notion that " saving " on the part of individuals
really did tend to do so. In Adam Smith, who has
done most to establish the belief, the bullion fallacy
is rejected, and the doctrine of saving enforced, in the
same pages ; just as it was in Turgot, whom he so
closely followed in time. Smith saw that the accumu-
lation of savings in the hands of bankers in his own

smith's contradictions. 13

country had, under certain conditions, promoted pro-
duction alike of food and manufactures; and, anxious
to justify the freeing of industry from ail restraints,
he argued that under a free system the natural
tendency of the majority to save money would in-
fallibly secure endless commercial prosperity. But
the argument,1 in which the wish was father to the
thought, is the most superficial and inconsistent part
of the Wealth of Nations.

Smith had a healthy preference for industrious
people over idlers, and his advocacy of saving takes
to a large extent the shape of discrediting outlay
which maintains and multiplies " unproductive "
people, as superfluous domestic servants, rather than
productive artificers. The average spendthrift, he
notes, feeds horses and dogs, idle friends and half-idle
servants ; whereas saved money, put in the bank,
goes to employ labourers who create objects of value
in return for what they consume. Thus far, of course,
the statement is perfectly just, save in so far as (a)
the question of the desirableness of horses and dogs
as wealth is overlooked, (/;) the question of idle living
in general is evaded, and (c) the question is begged as
to the destination of the money put in the bank. It
does not seem to occur to Smith that it might be
borrowed by a spendthrift. There remains the
general truth that the action of the spendthrift tends
in part to turn activity, in the case of those he em-
ploys, in unproductive rather than in productive

1 B. II. ch. iii.

- Thus defined, the term, otherwise objectionable, may he
allowed currency in the present connection.

14 Till". FALLACY OF SAVING.

directions; and that he who multiplies menials is
tending so far to limit useful industry. But even this
general truth is not studied in its relations to other
facts ; and it is obvious that if it be not proved that
the money put in the bank will secure the employ-
ment of labourers who would otherwise be unem-
ployed, the correlative facts of the case may be such
as to destroy the moral force even of the appeal
against employing menials. Let us examine further.

In taking it for granted that the money saved and
invested will of a certainty secure the employment of
labour, Smith was assuming that it is always pro-
fitable for producers to extend their production ; since
if this be not so, the money put in the bank will not
always be borrowed. Now, in order that it shall be
always profitable to extend production, we must ha\e
one of two conditions : either (1) a stationary or
nearly stationary population must be always increas-
ing its consumption, or (2) the population must itself
be constantly and rapidly increasing, so that the de-
mand for necessaries is always extending. But the
first of these alternatives is excluded by Smith's own
argument and precept. A constant increase of con-
sumption among a stationary population would mean
the reverse of that parsimony on which he declares
national prosperity to depend. He must therefore
look, for that increasing consumption which shall
make possible the continual increase of production, to
the simple increase in the numbers of the people.
That is to say, the proper and certain' destination of
saved capital is mainly the employment of labourers
in producing either such articles as frugal labourers

SMITH S C< tNTRADICTIONS.

consume, or things which facilitate the production of
these.

Now, Smith had alleged not only that the majority,
at least of well-to-do people, practised saving, but that
the more they saved the more would industry extend,
because — and here the argument is curiously inverted
— the wants of mankind are insatiable. He was thus
virtually predicating, if anything, the possibility of an
indefinitely rapid increase of population within the
limits of biological possibility (which he knew to be
wide), conditional only on the assiduous " saving; of
money" by the majority. Tins very saving of money
or income, however, had been already defined by
Smith to be in reality a saving of products — an
abstinence from consumption — bringing it about that
the products abstained from were consumed by pro-
ductive people, employed by the lending of the money
saved. :< The consumption is the same, but the con-
sumers are different" — i.e., useful labourers instead of
domestics, when the saver was a member of the upper
classes. But when the majority are productive
labourers, who are to be the consumers of their
savings ? Apparently the class of the babe unborn.

Even in laying down his proposition, Smith reveals
the fallacy of his contrast between the spender and
the saver. The spender's " revenue, we shall suppose,
is paid him in money. Had he spent the whole, tin-
food, clothing, and lodging which the whole could
have purchased, would have been distributed among "
the "idle guests and menial servants." But by his
saving some as capital, " the food, clothing, and
lodging which may be purchased with it, are

\6 THE FALLACY OF SAVING.

necessarily reserved" for the "labourers, manu-
facturers, and artificers/' Now, it is very clear that
in the latter case the process can only continue if the
things produced by the labourers are bought ; and in
the terms of Smith's doctrine there ought to be
nobody to buy them, save in so far as they represent
mere necessaries for the fresh members of the popu-
lation. But the spendthrift provides better than any-
body else for this mere consumption of necessaries,
since his guests and servants must eat and will waste
and he is thus actually facilitating for the saver the
process of profitable production. Further, if there be
a moral objection to his employing servants and feed-
ing idlers, the correction of his conduct would plainly
consist in his buying different services. "The con-
sumption is the same.'' Then, instead of saving, he
has only to buy chairs and tables and houses, nnd
the right people will be fed, inasmuch as the un-
employed menials will tend to drift into industry.
This line, we shall find, was later actually taken by
John Mill, without any perception that it is a sur-
render of the case for parsimony.

Yet again, Smith makes admissions which go to
prove that in the end the saving and the spending
will come to the same thing as regards capital : —

" The effects of misconduct are often the same as those of
prodigality. Every injudicious and unsuccessful project in
agriculture, mines, fisheries, trade, or manufactures, tends in
the same manner to diminish the funds destined for the main-
tenance of productive labour."

But if the precept of parsimony be generally acted

smith's contradictions. 17

on, and the saved capital be yet used to emplo}r pro-
ductive labour, there must be unsuccess in many of
the projects, and those which succeed will do so by
ruining older ones. The excess of goods will not be
bought. The extension of capital could not go on as
proposed for a year unless the precept of parsimony
were disregarded.

As his unmethodical exposition goes on, Smith ap-
parently begins to perceive that a policy of general
parsimony would not work so well as he had at first
assumed, though his admission is made not by a
modification of his general statement, but by fresh
statements inconsistent with it. He had spoken
slightingly of the idle people ; but he had also
prescribed a policy which, on the face of the argument,
was to tend to multiply idle people. Were his advice
generally taken, with the results he had predicted,
saving would be carried on more strenuously than
ever; and as the assumed motive to saving was the
prospect of interest, the result in the terms of the
case would be an ever-increasing class of people who
lived on interest. Spending being discouraged, while
interest continued to come in, families would be
"endowed" in increasing numbers. Either these
would, in accordance with average tendency, live idly
011 their interest, or they would develop a new passion
\'<>v industry, and by production add further to the
mountains of savings which, as it was, they were
accumulating year by year. If they took the former
course, we should have, according to the thesis, the
phenomenon of a rapidly and continually increasing
idle class in an always increasingly industrious com-

IS THE FALLACY OF SAVING.

raunity. If the latter, we should have the no less
remarkable phenomenon of a community in which
production was increasingly in excess of consumption,
the majority always producing more and more, and,
in the terms of the case, selling their products, while,
on the same assumptions, the same majority avoided
buying the Increased products.

If, on the other hand, we took only the case of the
working-classes, ignoring the confusion of the thesis,
the same contradiction would arise. Smith's argu-
ment had implied, as we have seen, a constant in-
crease of these classes. But his doctrine of parsimony
in that case must certainly appl}r to them, since it
asserted the necessity of saving on the part of the
majority, if the prosperity of the country were to he
maintained. The majority of the workers, then,
must save. Now, as we have said, saving, according
to Smith, was to mean a refraining from the con-
sumption of part of the produce. When upper-class
people saved, this abstinence meant that what they
did not cause to be consumed unproductively would
be consumed productively by the workers. But now
the workers were not wholly to consume even that
lohich teas " saved" for them to consume, such abstin-
ence being their only way of performing the necessary
and profitable act of saving. At this stage of the
exposition, if not earlier, the reader will perhaps be
disposed to abandon the thread of the argument.
That Smith consciously carried it thus far seems im-
probable. If it could be carried farther, the concep-
tion arrived at would be something like this : — That
a wise proletariat would always abstain as far as

smith's contradictions. 19

possible from consuming what it produced, because
the more unconsumed products there were, the better
it would be for trade.

The reasonable presumption is, of course, that
Smith never clearly saw what his proposition led to,
an}* more than the truth which ought to be substi-
tuted for it. In economics as in philosophy lie
tended to evade fundamental issues, making optimistic
assumptions where gaps had to be tilled. But his
cautious common-sense was always supplying him
with some saving lights ; and he does actually go on,
in his chapter "Of the Accumulation of Capital," to
contradict his doctrine as to the ruinousness of spend-
ing, and the dependence of prosperity on parsimony.
Such contradictions abound in his book. He con-
tradicts himself on rent, on interest, and on money.
Thus in this very chapter we have the statement that
" the quantity of money .... must, in every coun-
try, naturally increase as the value of the annual pro-
duct increases;" although he had alleged only in the
chapter before that the circulating gold and silver of
Scotland had suffered a " great diminution " during a
period in which the " annual produce of its land and
labour" had " evidently been augmented." So now,
after asserting that the spendthrift, as such, tends to
ruin his country as well as himself, the economist not
only concedes that "great nations" are never im-
poverished by private "prodigality," but intimates
that "some modes of expense, however, seem to con-
tribute more to the growth of public opulence than
others" Opulence is here understood as something
different £rom capital, for the statement is that only

20 THE FALLACY OF SAVING.

parsimony adds to capital, while the complete spend-
ing of revenue neither increases nor diminishes
capita], though it promotes "public opulence." The
preferable form of expenditure, we now learn, is that
which produces good houses, furniture, and works of
art ; and of this expenditure we are told, further, that
it " gives Tnaintenance to a greater number of people
than that which is employed in the most profuse hos-
pitality." Expenditure, then, may give maintenance
to productive labour. The whole previous drift of
the chapter had been to the effect that the expendi-
ture of mere revenue counted for nothing in pro-
moting industry, and that only the increase of capital
by parsimony was of service ; and now it appears
that what the frugal man does by his annual saving,
other men do by their annual outlay. There is thus
no final security even for the doctrine that the man
who spends his capital is " diminishing the funds
destined for the emplojnnent of productive labour,"
since his very expenditure may confessedly give rise
to such employment, and those to whom his money
passes may do the same without limit.

So deeply rooted in Smith's mind, however, was
the faith in parsimony, that while admitting that
certain kinds of expenditure tended to " public-
opulence,''' he goes on to point out that, after all, " the
expense which is laid out in durable commodities is
favourable not only to accumulation, but to frugality."
That is to say, when once a man has laid out a good
deal of money on durable things, he may stop short
and begin to " save " without seeming to lack money ;
whereas those who have spent mainly on sport and

SMITH'S CONTRADICTIONS. 21

hospitality rarely have the "courage to reform, till
ruin and bankruptcy oblige them." Having spent
enough on building and furniture and books and
pictures, then, the model man saves his money to put
it in the bank. To what end? His durable pos-
sessions, we were told, added to public opulence,
because the more good houses and furniture are made,
the cheaper and more accessible these become. But
now he has ceased to call for the production of these
things ; and yet now it is that the main gain is sup-
posed to accrue. His money is banked, and is lent
out to producers. In the terms of the case, these are
not the producers of furniture, and books, and pic-
tures, for he [i.e. the whole class of frugal men] having
ceased to buy these articles, there is so far less and
not more demand for them, and therefore there is no
temptation to the producers to borrow money for the
extension of their business. The producers who
borrow must be others. Who are they ? Hypotheti-
cally, the producers of articles for which there is an
increasing demand. And what are these ? All over
the field of consumption, in the terms of the hypo-
thesis, there is frugality, each man spending as little
as may be. The only increase in production, then,
will be that positively enforced by the gradual in-
crease of population — every year a little more corn, a
few more houses, more clothes, more furniture ; but
no more than can be helped. Thus, on Smith's own
prescription, the increase "I production, if there were
to be no waste, would be in n few branches of produc-
tion only, and would be stiictly limited by the
normal advance in population ; whereas his pre crip-

22 THE FALLACY OF SAVING.

tion of parsimony was unqualified and unlimited, and
implied on the face of it that there were no bounds
to the possibility of employing saved money in pro-
fitable production. He had laid down a general pro-
position with no practical regard to its working out
in detail : he had given society a quack's nostrum,
with no other excuse than the good intentions which
equally underlay so much of the economic and
political quackery lie exposed.

CHAPTER III.

HOW THE FALLACY AROSE — TURGOT AND SMITH.

The final refutation of any error, most men agree, is
the showing not merely that it is an error but how it
came to be made ; and in the case of Smith's doctrine
of parsimony this is not difficult. He lived in an
industrial society, with democratic tendencies, just at
the time when the habit of investment was admitted
to have formed a new and important social stratum.
His own income, after his retirement to Kirkcaldy,
came from investments ; and it is natural that the
investor should wish to make out that in promoting
his own interests he is promoting those of the com-
munity. And not only was he the first to grapple
comprehensively with the obscure and complicated
economics of industry, but he had the current doctrine
of parsimony recommended to him by those very
Physiocrats who gave him his best scientific inspira-
tion, and whose fundamental positivism bulks so
much more largely in his book than his refutation of
their formal fallacies. While the Physiocrats brushed
aside the bullion delusion, and went straight enough
to primary truth in insisting on the pre-eminent
importance of the exploitation of the soil, they seem
to have tacitly or expressly accepted the immemorial
principle of individual money-saving, without making

23

24 THE FALLACY OF SAVING.

any thorough inquiry as to what it was that, in in-
dustrial societ}7", was really saved by the owners of
investments. Quesna}^, indeed,1 has a curt caveat
against "des epargnes steriles;"2 but in this he
merely condemns the locking-up of coin ; and on the
other hand 3 he insists that rise in prices is increase of
national wealth. And the lucid and sagacious Turgot,
ably formulating the conclusions of his school, dis-
tinctly identifies individual saving with the national
accumulation of a mass of riches. In the very last
section of his Reflexions sur la Formation et la Dis-
tribution des Richesses he admits that, "en effet,
presque toutes les epargnes ne se font qu'en argent," 4
which is more explicit than the language either of
Smith or of the later Smithians ; but the problem
thus acknowledged is simply dismissed with the state-
ment that while " l'accroissement annuel des capitaux
se fait en argent," 5 " tous les entrepreneurs n'en font
d'autre usage que de le convertir sur le champ dans
differentes natures d'effets sur lesquels roule leur
entreprise ; ainsi, cette argent rentre dans la circula-
tion, et la plus grand partie des capitaux n'existent
qu'en effets de differentes natures, comme nous l'avons
deja explique plus haut." c Here, in the final sentence

1 Maxime 21, Physiocrat ie, p. 17. - "Barren savings."

3 Max. 13.

4 "In fact, nearly all savings are made only in money."

5 " The annual increase of capitals is made in money."

c " All traders make no other use of it than to convert it
immediately into effects of different kinds, with which they
carry on their business ; thus this money re-enters circulation ;
and the greater part of capitals only exist as effects of different
kinds, as we hive already explained above."

TURCOT AND SMITH. 2;

of the treatise, the doctrine of the previous part is
suddenly and radically transformed ; and whereas we
had been taught (§ 49) to think of a " reserve des
-produits annuels, aceunmles pour former des capi-
taux " x (which again was modified (§ GO) into
" valeurs mobiliaires accumules," 2 but re-modified
(§ 61) into " richesses mobiliaires accumulees " 3), we
are now to understand that the process of saving is
not really one of accumulation of products or riches
at all, but the conversion of money into goods or plant
by producers — i.e., saving is fresh production. The
matter being thus dropped, the practical teaching of
Turgot's treatise remains that of his 80th section,
which is to the effect that " l'esprit d'economie dans une
nation augmente sans cesse la somme des capitaux ; le
luxe tend sans cesse a les de'truire"4 — precisely the
position taken up immediately afterwards by Smith.

Thus led by his Physiocrat predecessors — whose
faith he held on the points of free trade and the
fallacy of the bullion principle — to endorse the
popular faith in parsimony, Smith could not conceiv-
ably have taken a more advanced view. The problem
for his day was not that which we to-day term the
industrial : the futility of saving as a basis of
national prosperity could not be apparent in a society
which had not yet tried free trade ; and the very
confidence in liberty which inspired the protest
against old restrictions excluded the tendency t<>

1 " Reserve of annual products accumulated to form capitals."
- " Accumulated movable vah
3 ''Accumulated movable riches."

1 "The spirit of economy in a nation augments unceasingly
the sum of capitals ; luxury tends unceasingly to destroy them.'

26 THE FALLACY OF SAVING.

speculate on the difficulties that might arise when
trade was free. To question the principle of parsi-
mony and investment as a permanent provision for
national growth would have been not merely to pro-
pose reform, but to challenge the whole social system.
As it was, Smith had the merit of analysing to some
extent the facts of the case. It was something to
have gone the length of the proposition that " that
which is saved is consumed/' and that what money
saving partly does is to determine how food should
be consumed — whether employment should be given
to footmen or to workmen. It was much better to
have seen that, after all, " public opulence " is increased
by an expenditure which, instead of simply multi-
plying a proletariat labouring fur its elementary wants,
secures durable and valuable products, and so tends
to raise the general standards of culture and comfort.
It would seem, after this, no great matter to have
recognised that a policy of " public opulence " stood
at least as well justified as one which amassed
" capital." But the fact remains that Smith left his
teaching divided against itself, condemning expendi-
ture while admitting that it might promote public
opulence, and urging non-consumption as tending
to encourage production. What is finally to be said
for him is that every publicist in the century had
similarly failed to reach consistency in the face of the
imbroglio of modern industry. Montesquieu alter-
nately advocated luxury and frugality, freedom of
trade and restriction ; 1 Voltaire now insisted that thu

1 Esprit des Lois, vii. 1-7 ; xx. 22. Cp. Blanqui, Histoire de
VEconomie Politique, ch. 36.

TURGOT AND SMITH.

27

outlay of the rich must always maintain the poor,
and again desired the equalisation of fortunes j1 and
even Hume argues for protection as well as for free
trade.2

1 L' Homme aux Quarante Ecus; D-iscov/rs a VAcaddmie;
Ddf&nse dxt Mmidain.

2 Essays on Balance of Trade and Jealousy of Trade.

CHAPTER IV.

THE FIRST CORRECTIONS — LAUDERDALE AND HIS
CRITICS — MALTHUS, CHALMERS, SISMONDI — THE
OPTIMISM OF M'CULLOCH.

If Smith was excusable, however, for failure to see
round the developing industrial problem before the
French Revolution, the same can hardly be said for
the economists who, coming one or two generations
after him, failed not only to develop his argument
but to profit by the criticism directly brought to bear
upon it. In 1804 appeared the Earl of Lauderdale's
Inquiry into the Nature and Origin of Public
Wealth, which was in large part a criticism of
Smith's doctrine of parsimony, but which also
attacked his dogma of an invariable measure of
value and his discrimination between productive and
unproductive labour. On Lauderdale's own testi-
mony x his arguments, especially as to parsimony,
were much assailed in his own countiy, but were well
received in France, Germany, Italy, and America ;
and in 1819 he is found claiming that even at home
his propositions " have gradually gained ground to
such a degree that, in most recent publications, they
are assumed as undisputed and uncontrovertible."
To the reader of to-da}7 this is puzzling ; for while

1 Second Ed. 1819. Introd.
2S

LAUDERDALE S CRITICISM. 29

certainly Smith's confusions as to value were soon
recognised, and his (Physiocratic) division between
productive and unproductive work soon modified, it
does not appear from the ordinary run of economic
literature that his doctrine of parsimony was in any
degree departed from by his more influential suc-
cessors. Mill indeed asserts later1 that " there is not
an opinion more general among mankind than this,
that the unproductive expenditure of the rich is
necessary to the employment of the poor ;" and he
points to Sismondi, Malthus, and Chalmers, who had
all argued that capital could be advantageously
amassed only up to a certain point. But on the
other hand, J. B. Say, James Mill, Ricardo, McCulloch,
and Senior had all sided with Smith ; and these were
the writers who substantially formed the orthodox
English economics of the century, Malthus and
Chalmers having little influence apart from the
population cpuestion. Doubtless Lauderdale heard
chiefly the talk of those who agreed with him ; and
he would tend to have a good deal of not very valu-
able support for a reason which probably told heavily
against him in many quarters. This was his arguing
against the proposed rapid reduction of the National
Debt on the score that the resulting sudden appli-
cation of millions of money to purposes of capital, and
the withdrawal of so much revenue from ordinary
consumption, would utterly disorganise industry.
Nothing could be more certain; but Lauderdale, un-
happily, never goes beyond the demonstration of the
danger, and has the air of being well pleased to Bee
1 Prim iples of Political Economy^ B. I., ch. v, sec. ."..

THE FALLACY OF SAVING.

the National Debt subsist in full for ever. Such a
point of view might be attractive to the idle classes,
but could never be to the majority ; and Lauderdale's
disappearance from notice is in all probability mainly
due to his having thus ostensibly countered one of
the most natural instincts of a democratic and com-
mercial community.

Nothing, however, could be more just than his
whole criticism of Smith. He accepts Smith's view
of capital, and assumes with him that the process of
saving secures the application to productive purposes,
in the shape largely of plant, of a quantity of food
and energy which would otherwise be turned to con-
sumption relatively unproductive. He then adroitly
turns against the advocates of parsimony that very
argument of analogy from individual practice on
which they relied so much, only making the analogy
genuine instead of spurious. An isolated individual
catering for his own necessities, he points out,1
would only waste his wealth and his energy if
he turned to the form of capital more of his
wealth than was needed to perform or supplant his
necessary labour; and what was true for the isolated
individual must be true for the total community.
Lauderdale further lays his finger on the point which
Smith had perceived at a late stage of his exposition,
and which, as we have seen, reduced his teaching to
final contradiction :

"Parsimony does not augment opulence ; it only changes the
direction in which the labour of a community is exerted ; and

1 Second Ed., p. 208.

LAUDERDALE S CRITICISM. 3 I

unless we adopt an opinion which, in economical reasoning,
seems long to have been unconsciously cherished— that capital
exclusively forms wealth — we cannot conceal from ourselves
that if a society, by parsimony, increases its opulence in capital,
it inevitably must diminish its wealth in articles produced for
consumption/' 1

Nor did Lauderdale for a moment countenance the
upside-down doctrine that it is the idle rich who
" maintain " labour : he declared in terms of the
Smithian sociology (p. 347) that " the real source of
increasing wealth is alone to be found amongst
farmers, manufacturers, merchants, whose habits open
their eyes to farther means of supplanting the labour
they perform or superintend;"2 and he devotes an
unanswerable chapter to refuting the assumption that
the total of individual "riches"3 (= nominal com-
mand of wealth) served as a measure of the national
wealth. But, whether it was that men would not
believe that an earl could be a good economist, or that
his opposition to the sinking-fund caused him to be
ranked with those who called the National Debt a
national blessing, Lauderdale's book passed out of
notice in his own country, though his formula of the
right contingencies of value i was quoted with ap-

iPage 210.

- In an earlier passage (p. L94) he puts it that " labour . . .

is the great means of increasing wealth." He also points (p.
344) to " inequality of fortune" as the "principal impediment
to the increase of public wealth," ami strongly condemns (p. 364)
all interference with t radc.

'■'' This distinction between "riches" ami "wealth-' is of
course arbitrary, and is not followed in this essay save in ex-
pounding Lauderdale.

1 Worked out later, independently, in terms of the desires

THE FALLACY OF SAVING.

proved by Ricardo.1 J. B. Say dismissed hiixi in a
single flims}^ footnote,2 summing up his thesis in the
unintelligible proposition that " l'accumulation retire
de la circulation des valev/rs qui seraient favorahles
(I Vindustrie" B and refuting this by saying that " ni
le capital productif, ni ses accroissements, ne sont
retires de la circulation." 4 Evidently he had not
read the book ; but his bogus refutation would settle
the matter for France. Blanqui in his bibliography
speaks of the Inquiry and the Earl's Considerations
on the State of the Currency (1813) as works "encore
estime aujourd'hui, surtout le dernier, meme apres les
ecrits de Ricardo ; " 5 but McCulloch, who drew on
his learning, does not criticise the Inquiry either in
his Principles or in his Literature, merely insinua-

of buyer and seller, by Professor Perry, as cited by Professor
Price (Practical Political Economy, 2nd ed., p. 46).

1 Principles, ch. 30. It is probably needless to point out
here the formal inefficiency of Ricardo's contention, as against
the supply and demand formula of value, that the prices of freely
produced commodities " will ultimately depend, not on the
state of demand or supply, but on the increased or diminished
cost of their production/' Obviously the antithesis is only
verbal, and the proper statement is that cost of production
ultimately regulates supply, price being still a function of
supply and demand, just as where supply is determined by
hazard or by a monopolist's choice.

2 Traite d'Econoniic Politique, 4ieme edit., i. 107.

:; " Accumulation withdraws from circulation values which
would be favourable to industry.''

i " Neither productive capital nor its augmentations are with-
drawn from circulation."

5 " Still esteemed to-day, especially the latter, even after the
writings of Ricardo/'

BROUGHAM AND LAUDERDALE.

ting that Brougham disposed of it in the Edinbi
Revieiv ; and Lauderdale is not so much as named in
Cossa's Guide to the Study of Political Economy,
though Roscher and Bohm-Bawerk cite him with a
frequency which testifies to some study. Professor
Ingram, again,1 alludes to him with approbation, but
with his usual failure to discern the economic issue.

Brougham's criticism 2 in all probability was a means
of discrediting Lauderdale among English economists
and Liberals generally,3 though he not only left the
Earl's central position untouched but stole some of his
thunder. The critic actually adopted without acknow-
ledgment Lauderdale's effective attack on Smith's dis-
crimination of " productive " and " unproductive "
labour, just as lie adopted without acknowledgment
Say's rebuttal 4 of Smith's assumption (on the lines of
the Physiocrats) that only in agriculture did Nature
assist men's efforts. These refutations were likely to
win acceptance for the article as a whole, put forward

1 History of Political Economy, p. 111.

2 Edinburgh Review, July, 1804.

8 I strongly suspect that Lauderdale's grossly adulatory dedi-
cation of his book to the Prince of Wales did something to
arouse distrust.

4 Traite d'JEconomie Politique, 4ieme <klit. i. 9, 13. The Traite
was published in 1803. Cairnes (Essays in Political Economy,
"Bastiat," p. 328) seems to credit Ricardo with originating the
argument. John Mill (B. I., ch. i. , sec. 2, note) thought it
originated with his father. But as J. B. Say and MoCulloch
have shown (Traite, i. 13 ; Principles, 2nd. ed., pp. 56, <ii">), it
was put forward by Count di Verri last century, and later by
Destutt de Tracy. And Lauderdale quotes (p. 109) a passage
implying it from an anonymous writer (really Asgill) in L696.

c

34 THE FALLACY OF SAVING.

as they were in the reviewer's own person; and for
many readers, no doubt, Lauderdale's book was dis-
posed of by a critique whose strongest points were
really derived from it. The book as a whole is de-
preciated with every air of omniscient superiority that
an early reviewer could assume. And yet the crit-
icism expressly concedes the main argument of
Lauderdale against Smith : —

" If by accumulation our author means only too great ac-
cumulation of stock (that is, a greater aggregation of capital by
parsimony, than can be employed), we have only to deny the
novelty or importance, not certainly to dispute the truth of hie
doctrine." x

But, as we have seen, the whole drift of Smith's
argument had denied that there could be over-
accumulation of capital ; and that was the prevailing
view among his followers ; so that Brougham was de-
preciating Lauderdale on a ground which his own
party could not honestly take. For the rest, when
he goes on to argue that the undue multiplication of
" capital " by production would be just as bad as its
multiplication by saving, because in the former case
also it could not be " profitably employed," he falls
into complete confusion. Lauderdale was actually
arguing that there were necessary limits to the ac-
cumulation of capital — that is, stock devoted to fresh
production — and contending that what was wanted
was not more capital but more consumption. In fine,
Brougham's criticism, marked as it was by his usual
hasty cleverness, as well as his usual egoism, was

1 Revieiv as cited, p. 373.

MALTHUS'S CRITICISM. 35

merely that of a lawyer. It was thus at its best on
questions of plain analogy, where it was not original,
and became insignificant and evasive where the pro-
blem became vital and practical. But that is just the
sort of criticism that commonly serves to put down an
innovating argument among partisans glad to have it
dismissed.

The argument of Malthus, again, would seem to
have missed its mark for a similar reason. He too
gives a forcible answer to Smith's prescription of
parsimony. The rationale of the matter he sum-
marises thus : —

" National saving, considered as the means of increased pro-
duction, is confined within much narrower limits than individual
saving. While some individuals continue to spend, other indi-
viduals may continue to save to a very great extent ; but the
national saving, or the balance of produce above consumption,
in reference to the whole mass of producers and consumers,
must necessarily be limited by the amount which can be ad-
vantageously employed in supplying the demand for produce ;
and to create this demand there must be an adequate consump-
tion either among the producers themselves, or other classes of
consumers.'1 1

And he passes an irresistible criticism on the incon-
sistency of Smith in asserting, despite his dogma of
parsimony, that " the desire of the conveniences and
ornaments of building, dress, equipage, and household
furniture, seems to have no limit or certain boundary.''
Smith's course, he points out, " is to found a doctrine
upon the unlimited desire of mankind to consume ;
then to suppose this desire limited in order to save

1 Principles of Political Economy, p. 4G7 : cp. 486.

36 THE FALLACY OF SAVING.

capital, and thus completely alter the premises; and
}-et still to maintain that the doctrine is true." But
while this criticism was never met, Malthus, like
Lauderdale, passed out of notice as an economist,
presumably because he too lent himself to the cause
of the idle classes. His opposition to the repeal of
the corn laws, bottomed though it avowedly was on
his established doctrine of population, would alone
have gone far to discredit him in the eyes of the trad-
ing classes ; but he had further the unhappy inspira-
tion (1) to put his case in the proposition that the
most incontestably " unproductive " classes actually
promoted public wealth inasmuch as they were con-
sumers ; (2) to argue for consumption by idlers rather
than by workers ; and (3) to insist positively that
the National Debt was a condition of public well-
being.1 Malthus saw further into the social problem

1 It is easy to see that it was not want of good feeling that
made Malthus formulate his views so unluckily. He anxiously
but vainly modified his more unfortunate statements. After
ruinously arguing (p. 472) that a greatly increased consumption
among the workers must greatly increase cost of production, and
so diminish agriculture and commerce, and that therefore the
idlers must do the extra consumption, he shifts his position and
puts it (p. 489) that even if the workers might have the power
to consume sufficiently, experience shows they have " not the
will ; and it is to supply this will that a body of unproductive
consumers is necessary." And he goes yet further. In the
later redaction of his Essay (7th ed., p. 473) he even makes
bold to declare that "it is the diffusion of luxury among the
mass of the people, and not an excess of it in a few, that seems
to me most advantageous both with regard to national wealth
and national happiness. ;; And it is plainly the danger of dis-

MALTHUS AND CHALMERS. 37

than the Free Traders ; but unfortunately, in his
economics, he read it backwards. The question for
him should have been : How could the sum of pro-
duction be maintained while minimising the idle
class ? He, however, read it simply thus : What would
be the effect on production of annihilating the revenue
of the idle class, or of causing them to invest their
(nominal) capital otherwise than in State debt ?
Giving the true answer to this, he went no further,
and so figured as an advocate of national indebtedness,
putting only a few lukewarm objections against his
account of the benefits. Finally, as McCulloch was
careful to point out, he was not optimistic about
machinery ; and only in our own day has economic
optimism on that and other matters been effectively
discredited.

And Chalmers, in his turn, frustrated himself in a
similar fashion. Following Malthus in the main in
general economics as he did on the population ques-
tion, he worked out an independent refutation of the
principle of parsimony ; and he did not fall into the
snare of justifying the National Debt. On the con-
trary, he advanced a telling economic argument for
the payment of war debts out of revenue by extra
taxation. But he must needs, on the other hand, not
only champion primogeniture for the sake of the
"moral and humanising effect " of a resident gentry,
but propose1 that the State should make a " liberal
provision in all the branches of the public service "

tress that makes him hesitate {PrmovpUs, \>. 485) even about
the slow reduction of the Debt.

On I'alil inil I'Jrintonaj, p. 1372.

245. 1 ..

38 THE FALLACY OF SAVING.

whereby all younger sons should have places of a
thousand a year ! " We should still have the State
to support the younger branches ; yet not by the
violation of its integrity, but by a more severe taxa-
tion than our politicians of the present day [1832]
have the courage to impose." Somehow the politicians
of to-day are still more degenerate ; and the reverend
gentleman's heroic politics have sunk his economics.

One and all, the English opponents of the fallacy of
parsimony had contrived to associate their argument
with the doctrine that it was a good thing to multiply
rich idlers ; Lauderdale seemingly doing it by mere
reticence ; Mai thus and Chalmers doing it more or
less of malice prepense. On the Continent, again,
Sismondi's opposition to machinery seems to have had
a similar effect in discrediting his opposition to the
theory of parsimony. In view of the utter neglect of
Sismondi's wisest and weightiest writing, it would in-
deed be unwarrantable to assume that he would have
been much more listened to had his practical prescrip-
tion been different. Perhaps his impeachment of the
life of blind competition was in those days too far
wide of the average moral sense to make converts
under any circumstances. Long before either Carlyle
or Ruskin, and with more sanity and temperance than
cither, he insisted in the name of political economy
itself that man lived in society to secure his happiness
and not to produce cotton and buttons at the lowest
possible price.1 Even in London, he pointed out,2 the
people had made for themselves public parks, and —

1 Nouveaux Priucipes d'Ecouumie Politique, 2e 6d.it., 1827, ii.
141. - lb., p. 140.

SISMONDl'S CRITICISM. 39

"les habitants ont senti que l'air pur, la promenade, la jouis-
sance des yeux, sont aussi des produits, et que la richesse qui
donne de la saute" et du plaisir n'est pas infructueuse." x

Misconceived and misrepresented by his friend Say,
he thus2 summed up his attitude towards industrial-
ism:—

" Seulement j'ai pretend u que la multiplication des produits
dtait un bien quand elle etait demandee, payee, consommee ;
qu'elle etait un mal au contraire quand n'etant point d^mand^e,
tout l'espoir du producteur etait d'enlever un consommatewr aux
produits cPune i/ndusbrie ricale." .... " La consequence de nos
institutions, de notre legislation, ayant ete" de depouiller la classe
travaillante de toutc propriete et de toute garantie, l'avait en
meme temps pouss^e a un travail de~sordonne, qui n'etait point
en rapport avec la demande ou avec les moyens d'acheter, et qui
aggravait en consequence sa misere." 3

The general truth of this was later admitted by Mill,
in his avowal that "hitherto it is questionable if all
the mechanical inventions yet made have lightened

1 " The inhabitants have felt that pure air, free walking, the
pleasure of the eyes, are also products, and that the riches which
give health and pleasure are not unfruitful."

- lb., p. 462.

3 "I have simply contended that the multiplication of pro-
ducts was a good thing when they were demanded, paid for,
consumed ; that, on the other hand, it was an evil when,
not being demanded, the whole hope of the producer was to
withdraw a consumer from the products of a rival industry." . . .
" The upshot of our institutions, of our legislation, having been
to despoil the working-class of all property and of all security,
they were at the same time driven to reckleBS labour, which was
not correlated with demand or the means of purchase, and which
in consequence aggravated their misery."

40 Till: FALLACY OF SAVING.

the day's toil of an}- human being-."1 But even Mill
would not see the force of Sismondi's economic argu-
ment against the optimistic positions ; and inasmuch
as that went with an attitude of unscientific hostility
to machinery, as well as with a perfectly scientific
propaganda in favour of forms of consumption which
machinery could not meet, Sismondi's lack of influence
is partly intelligible, even apart from the general
backwardness of sociology and the association of his
doctrine with some of those of Conservatism. Enough
that whereas the natural optimism of the Free Trade
movement was alone sufficiently hostile to a scientific
recognition of the possibilities of disaster under a free
regimen; and whereas even the doctrine of Mai thus on
population tended to be willingly ignored by the
average Free Trader as soon as possible, despite its
acceptance by his economists, the English writers who
challenged optimism had further given fatal grounds
for the belief that they were the friends of the old
order and not of the new. Commercial opinion went
with the optimists who were visibly democrats as
well as Free Traders, and who endorsed the healthy
moral instinct which formally, however illogicalry,
condemned idle livingf.

There was, indeed, an optimism in those days which
had stomach for everything, bar protection; which
was content alike with parsimony, luxury, pressure of
population, and primogeniture. The robust McCulloch
is the typical optimist of Laissez-faire. Defying
Smith, he was not a whit afraid of spendthrifts : he
endorsed Dudley North's decision that sumptuary
1 B. IAT., ch. iv., sec. 2.

m'culloch's optimism. 41

laws kept a country poor by checking ambition ; and
he thought luxury a very good thing, as promoting
production.1 He also held that increase of labour de-
pended on increase of saved capital ; 2 but then capital
was " formed out of profit." 3 He disposed of the fear
of insufficient saving by a Leibnitzian pre-ordained
harmony : — " It has been wisely ordered that the
principle which prompts to save and amass should
be as powerful as it is advantageous.""1 With
Smith he decided that there would always be more
saving than spending;5 and, again with Smith, he
also maintained on the contraiy6 that nobody ever
heard of a want of will to spend. Over-population
he showed, with Bishop Sumner,7 to be the basis of
civilisation, even if it did reduce wages;8 primogeni-
ture promoted energy and benevolence ; 9 and even
taxation, up to a certain point,10 stimulated thrift and
industry. Gluts, though certainly the results of mis-
calculation,11 were at the same time really caused by
insufficient production12 of the things which there
was not a glut ; if there was too much of one thing,
it only needed, as M. Say had shown,13 more of other
things to buy it up. Sic itur ad astra. Taken all
round, McCulloch's optimism is a memorable pheno-
menon. But it was to be superseded by an optimism
a little more sympathetic, a little more discriminating,
and, at the same time, a little more preposterous.

1 Principles, 2nd ed., pp. 515-523.
2 Pages 515-534. ° Page 185. 10 Pages 113-llt>.

■■ Page 11G. ■ Pages 225-230. ll Page 203.

* Page 112. » Page 484. 1- Page 185.

5 Pa<'e 535. •' Pages 259-260. 1:; Page 201.

CHAPTER V.

THE ARGUMENT OF J. S. MILL.

I have said that the wish was father to the thought
when Adam Smith urged that the man who saved
money for investment could not fail to benefit his
fellows. No other explanation can suffice for the
strange energy of error which inspired John Mill's
" Fundamental Propositions Respecting Capital."1 In
so far as that chapter is an explicit statement of the
wage fund theory, he of course abandoned it later ;
but no excision of a subsidiary doctrine can save from
decomposition the deplorable tissue of fallacy which
he thought fit to dub fundamental. The great defect
of Mill's great quality of open-mindedness was always
laxity of hold on the parts of a thesis ; a laxity which
made possible to him strokes of self-contradiction not
to be paralleled outside of the works of Mr. Ruskin.
His father, on whose strength of conviction some
think the son's catholicity an improvement, was in-
capable of these astonishing self-stultifications — of
saying in one section 2 that a socialistic adjustment of
work to individual faculty is quite possible, and in the
next that the supposition is " almost too chimerical to
be reasoned against ; " of saying in the proem that the
laws of distribution, unlike those of production, are

1 Principles, B. I., ch. v. - B. II., ch. i., sec. 3.

42

J. S. MILL S ARGUMENT. 43

" partly of human institution," and in the beginning
of the second book that distribution is " a matter of
human institution solely." These and other vacilla-
tions have been exclaimed against by critics friendly
enough to Mill ; but nobody, I think, has yet done
full justice to the indescribable see-saw of the " Funda-
mental Propositions." Nobody, perhaps, ever will ;
there is nothing in non-theological literature to com-
pare with it.

The applications of the idea of capital are prepared
for by the previous chapter on capital itself. In the
first section of that we learn that " whatever things
.... are destined to supply productive labour with
.... requisites, are capital." Then we have the
statement that a capitalist who has nothing but iron
goods can, by a " mere change of the destination of
those iron goods, cause labourers to be fed," — the
meaning really being that with a portion of the pro-
ceeds he can pay wages to extra workpeople. Here,
too, we have the proposition that capital exists as
such by virtue of the owner's intention to use it as
capital, an admission that a nation's capital may
fluctuate greatly from day to day ; which was al-
ready a surrender of the wage-fund theory. Then
we have the explanation that " all funds from which
the possessor derives an income .... are to him
equivalent to capital ; " but what is capital to him is
not capital to the nation. And yet, after all, we have
this illustration. A capitalist, A., lends on mortgage
£10,000 ["property of the value of £10,000," is the
desperate phrase by which the argument is sought to
be bolstered up] to C, a spendthrift landlord, who

-14 tin: fallacy of saving.

lays it out on " equipages and entertainments," — the
good old Smithian illustration. Then, when it is
spent, A. is " as rich as before .... he has a lien on
the land, which he could still sell for" his £10,000 ;
but C. is £10,000 poorer, "and nobody is richer."
This, though, the nominal command of that £10,000,
which was all that A. parted with and all that C. lost,
was, in the terms of the case, transferred to other
people ! Of course nothing even of the " equipages "
is left: all "unproductive" spending, doubtless, is
" unproductive," but for these arguments you are
farther to assume that the spending man is an or-
ganism who makes a clean sweep of all he buys. In
the " fundamental " chapter (§ 5) we definitely learn
that not only his equipage but his furniture is invari-
ably " destroyed without return."

In the first section of that chapter we have the
implicit proposition that when legislators by their
laws contrive that any portion of the capital of the
country be emploj^ed in a new industry, that capital
" must have been withdrawn or withheld from some
other " industry. This is one contradiction of the
previous dictum that capital as such comes into
existence when a man decides to use as capital what
he might have spent as revenue. But the contradic-
tion is promptly recontradicted in the second section,
which assures us that not only can capital increase in
productive power, but " increased returns " hold out
an " additional temptation to the conversion of funds
from an unproductive destination to a productive " —
which is another denial of the wage-fund theoiy.
Thus is economics made at once a terror to leuislator

J. s. mill's argument. 45

who create new industries, and a comfort to civilians
who want them. And yet the legislator in turn is
informed that he may " lay on taxes and employ the
amount productively " ! The reeling intelligence is,
however, supported at this point by the quick adden-
dum that the legislator may " do what is nearly
equivalent" — he may tax income or expenditure and
pay off some of the public debt ; in which case the
amount paid off will be capital, necessarily to be in-
vested— to produce the goods the investor could no
longer afford to buy.

The first Fundamental Proposition had been " that
industry is limited by capital." In the second section
it is explained that " we are not, however, to infer that
it always reaches that limit. Capital may be tem-
porarily unemployed, as in the case of unsold goods,
or funds that have not yet found an investment. '
That is to say, in the case of the goods, lack of demand
for the time limits industry. But this contradiction
mustof necessity be contradicted, so in the third section
we attain the conclusion that the "limit of wealth"
[which please to read as = industry] "is never deficiency
of consumers, but of producers and productive power.
Every addition to capital" [including unsold goods or
money that cannot find an investment] "gives to
labour either additional employment or additional
remuneration." And this how ? The goods remained
unsold; yes; "but this is seeing only one half of the
matter." "The whole of what was previously ex-
pended in luxuries, by capitalists and landlords, is
distributed among the existing labourers iti the form
of additional wages" — that is to say, in employing

46 THE FALLACY OF SAVING.

labourers to make unsaleable goods, which is so much
more beneficent a process than encouraging the con-
tinued employment of those who produce the
" luxuries," now also unsaleable. And if you are not
impressed, you must try and assume, as does Mill
here, that luxuries are made by nobody.

After this the fun grows fast and furious. The
cause at stake being that of saving, it becomes a
fundamental proposition that only by saving can you
have capital. There arises the random hypothesis
that without consuming less, nay, even while consum-
ing more, you may produce still more; but "never-
theless there is here an increase of saving in the
scientific sense. Though there is more consume J,
there is also more spared. There is a greater excess
of production over consumption .... We must not
allowT ourselves to be so much the slaves of words as
to be unable to use the word saving in this sense."
In fact, if you will, there had been no great difference
of doctrine between Smith and Lauderdale.

Two fundamentals being thus secured, we reach a
third — that capital, though saved, is nevertheless
consumed — the formula of Smith. And whereas that
might be too difficult a conception to " the vulgar,"
whose eye follows all savings "into an imaginary
strong-box," we have a further interesting demonstra
tion that what is consumed is saved. As thus. The
spending man, that suicidal materialist, effects " a
consumption, that is to say, a destruction, of wines,
equipages, and furniture." But while the destroyer
has been implacably conducting his daily bonfire,
" the saving person, during the whole time that the

J. s. mill's argument. 47

destruction was going on, has had labourers at work
repairing it ; who are ultimately found to have re-
placed, with an increase, the equivalent of what has
been consumed." The beneficent task of this estimable
person is thus the production of fresh wines, equipages,
and furniture, for the (so to speak) annihilist spend-
thrift to destroy. But as it appears on reflection that
from this point of view the moral merits of the spender
and the saver are not sufficiently differentiated, the
economist, candidly admitting that the pabulum of
the spendthrift " could not in any case have been
applied to the support of labour" (which contemns
wines, shuns equipages, and distrusts furniture), pro-
ceeds to explain that for a change we may produce
something else. Since the wine, furniture, and equip-
ages " continue to be produced as long as there are
consumers for them, and are produced in increased
quantity to meet an increased demand," why, it is the
man who demands things who is really responsible
for their being produced. On which comparatively
commonplace proposition (which, as we shall see, is in
flat contradiction to the fourth Fundamental Pro-
position) there follow some remarks to the effect that
structures not intended for productive purposes, such
as Westminster Abbey, sometimes last very long,
while it does not pay to make durable factories ; a
truth set forth not so much to encourage saving,
which rather runs to factories, as to show more fully
that most things that are saved are consumed.

It is after an interval of agreement, as to taxation,
with the original but questionable Chalmers, that we
reach Mill's fourth and last Fundamental Proposition

48 THE FALLACY OF SAVING.

Concerning Capital, "which is, perhaps, of toner over-
looked or misconceived than any of the foregoing.''
This proposition is that " Demand for commodities is
not demand for labour." That is to say, " The de-
mand for commodities determines in what particular
branch of production the labour and capital shall be
employed; it determines the direction of the labour;
but not the more or less of the labour itself, or of the
maintenance or payment of the labour. These depend
on the amount of the capital or other funds directly
devoted to the sustenance and remuneration of labour/'
Now, we had previously agreed that there was such a
thing as "additional temptation to the conversion of
funds from an unproductive destination to a produc-
tive " ; and it might be thought that a demand for
more goods would constitute such a temptation ; but
we have since changed all that. The task nowr is to
show that mere fresh demand can never extend in-
dustry, since the human faculty of demand is a strictly
limited quantity, though it can perhaps be expanded
when saved capital creates supply. To be sure, there
is an admission at the other end of the book1 that
" restoration of confidence " may revive trade from
collapse ; but we are a long wray from that chapter at
present ; and the creed of the moment is investment,
not expenditure. If, then, you elect to demand one
thing, you must go without another; and if, perad-
venture, you used to save money and are now minded
to spend it, you still do not call for fresh labour, but
only turn labour from other things to do what you
want. It wTould follow on this that wdien, instead of

1 B. III. ch. xiv., sec. 4.

J. S. -MILL'S ARGUMENT. 49

spending your money on products, you lend it to a
manufacturer, there happens just the same thing —
you cause labour to be drawn from one branch to
another. But this altogether too simple equation
would give no special moral encouragement to saving,
so it becomes necessary to substitute for it an extended
process of reasoning, in which, haply, things may come
to look different.

To begin with, then, let us suppose that there is a
demand for velvet, but no capital to make it ; then no
velvet will be made. So much for that. The pro-
position is meaningless, but no matter. Let us sup
pose next that there is plenty of capital but no demand,
then, again, no velvet will be made. But in this case
manufacturers and labourers will either produce some-
thing that is in demand, " or if there be no other de-
mand, they themselves have one, and can produce the
things which they want for their own consumption "
— velvet-makers and others having happily always
this resource in dull times. " So that the employment
afforded to labour does not depend on the purchasers,
but on the capital." Q. E. D. !

At this stage it is thoughtfully admitted by Mill,
that if a demand for a commodity suddenly ceases
after it is produced, the' capital employed is lost. But
wo are not to suppose that this is merely for lack of
demand for the commodity. " The employment which
[the capital] gave to labour is at an end, not because
there is no longer a demand, but because there is no
longer a capital." In other words, when you arc
shivering, with coals and sticks in your grate which
you have no means of lighting, the trouble is not that

50 THE FALLACY OF SAVING.

you have no paper and matches, but that you have no
fire. The student may here inconsiderately suggest
that if demand set in anew it would create afresh that
evanished capital — but — revenons a nos moutons.
" This case does not test the principle. The proper
test is to suppose that the change is gradual and fore-
seen " — in fact, if you will have it so, it is perhaps
better not to stop your velvet-buying all at once, lest
by stopping demand you destroy capital and dis-
employ labour. But that is not the point : the point
is saving.

A flood of light being thus already shed on the
subject, we proceed to suppose the case of a consumer
at the parting of the wa}7s, as it were, hesitating
whether to hire bricklayers to build, or " excavators
to dig artificial lakes," or simply to buy velvet and lace,
obeying the fatal bias of the typical spender to these
articles. On one side beams the voluptuous velvet
(we do not dally over the lace) ; on the other beckons
the tawny bricklayer, the more sophisticated lake-
excavator being on second thoughts kept out of sight,
so as not to complicate the problem. Now, observe
the difference. If the consumer casts the fatal die for
velvet, " he does not employ labourers ; but merely
decides in what kind of work some other person shall
employ them. The consumer does not with his own
funds pay to the weavers and lacemakers their day's
wages." Let there be no mistake about that. And
now suppose after all that he had previously been in
the " habit " of " hiring journeymen bricklayers," and
see the fatal result ! He calls for velvet, but where is
the capital to make it ? Alas ! all old dreams of fresh

J. s. mill's argument. 5 1

savings notwithstanding, the capital can only come
from those concerns which formerly provided food for
the now forsaken bricklayers — such being the natural
and inevitable course of commerce ! " There was
capital in existence to do one of two things — to make
the velvet, or to produce necessaries for the journey-
men bricklayers, but not to do both." Here, perhaps,
the inquiring mind pauses to raise this problem : If
the capital of the bricklayers' provision-dealers is thus
inevitably transferred to the making of velvet, what
is to become next of the new velvet-makers, to feed
whom there is no capital left, though they are earning
wages ? And what if, after all, the bricklayers them-
selves, taking a leaf from the book of their whilom
grocers and bakers, went to work in the velvet-factory ?
The fundamental exposition saith not — though to be
sure we had heard that demand for commodities did
transfer labour from one task to another.

Rather we turn to this other pleasing hypothesis.
Suppose the slave of velvet " resolves to discontinue
that expense, and to employ the same annual sum in
hiring bricklayers." Now observe the beneficent
change. The velvet-manufacturer "sets at liberty " a
portion of his capital — he naturally would ! — and
whereas the reformed consumer is now employing
bricklayers with one fund, the versatile manufacturer
has a " second fund " free to employ more labour with.
Your velvet-maker is thus ready for whatever may
turn up. So " there is a new employment created for
bricklayers, and a transfer of employment from velvet-
makers to some other labourers, most probably those
whu produce the food ami other things which the

52 T1IK FALLACY OF SAVING.

bricklayers consume." To the harmonious adoption
of this view, there are necessary only three concessions.
You have (1) merely to assume, for peace" sake that
no capital had ever been employed in producing fund
for the velvet-makers ; (2) you are to blot the dis-
missed velvet-makers from the book of your re-
membrance; and (3) you are not to go back on old
discussions and ask how the velvet-manufacturer
contrives to " set free " the capital embodied in the
velvet which he cannot sell. With these trifling
adjustments, the argument for hiring bricklayers
versus buying velvet is complete. As for the doctrine
of saving and investment, that must for the present be
left to shift for itself ; because there is the drawback
that the mere investor does not pay wages with his
own hands : he only enables other people to pay them
as the merest velvet-buyer might do.

That is to say, Mill's attempt to vindicate the
principle of parsimony has ended in negating it.
Smith counselled us to save money in order to invest,
or produce goods for sale. Mill, carrying Smith's
confu-ion further, ends by counselling us to spend
directly in wages, on the score that only by such
expenditure can we really " employ labour." The
argument that " capital is the result of saving " comes
to absolutely nothing, for the money saved to be ex-
pended is no more capital than any other money
spent in ordinary course. It is spent without profit.
The statement that saving enriches, and spending im-
poverishes, the individual along with the community,
comes to nothing, for in the end it is sheer spending
that is prescribed.

j. s. mill's argument. 53

The upshot of this precious demonstration is worthy
of the steps. Desiring to help the working-classes,
you have hired them to make a house you do not wa nt,
and which you are not to sell. You are not to sell
it, for the reason for which you were not to buy it.
" A demand delayed until the work is completed . . .
contributes nothing to the demand for labour ; and
that which is so expended is, in all its effects, so far as
regards the employment of the labouring classes, a
mere nullity." On that ground }7ou did not try to
buy a house ready-made, or even to order one ; and
would you then encourage anyone else to take the
nugatory course which you avoided ? No : there is
your house; there are the fed and clothed bricklayers;
and if you would continue your beneficent course }tou
have only to set them building another useless house,
or, perhaps, for a change, digging an artificial lake.
That, too, must be made for no ulterior purpose.
There was no outside demand for the house you have
built ; if there had been, the bricklayers would have
been employed by a builder, without your personal
intervention. But " when there is no demand for
houses, no houses will be made," so that you yourself
had to make demand for the house you built, after all
that argumentation about the futility of demand.
Only, you were to take the work of hiring the men,
instead of letting a master-builder hire them for you.
And it is to this that the argument for savin"- and
investment comes in the hands of the economist who
professes most elaborately to establish it; the saving
and investment are finally to consist in sinking
capital in personally employing men to build houses

54 THE FALLACY OF SAVING.

not destined for consumption. And the whole econo-
mic upshot, as has been remarked by Mr. R. S. Moffat,
is to indicate a preference for bricks over velvet.1

Nor is this all. I have commented elsewhere2 on
the fashion in which Mill here keeps out of sight in
his " Fundamental Propositions " what he elsewhere
recognises3 as a fundamental truth in social affairs —
the impossibility of providing genuine labour or even
food for all, unless there is a restraint on the number
born. He does, indeed, put it i that on his plan
workers may always be employed while there is
" food to feed them ; " but he does not offer the least
hint that the continuous employment of unskilled
and slightly skilled labour would soon carry popula-
tion to a point at which there would not be food to
feed it. He puts forward his unhappy demonstration

1 Tlie Economy of Consumption : An Omitted Chapter in
Political Economy, 1878, p. 90. This able writer, who has pro-
duced one of the most oi'iginal books in recent English economics,
an effective criticism of the parsimony fallacy in general, and
Mill's fallacies in particular, illustrates afresh the strange fatality
which pursues the opponents of the doctrine of universal saving.
Like Malthus and Chalmers, if not like Lauderdale, he undoes
his work by ranking himself on the side of privilege. He can
smile at Chalmers' plan for endowing younger sons; but he himself
arrives (p. 376) at the doctrine that landlords are at once neces-
sary and advantageous, "that rent is inseparable from the duties
of proprietorship; that it is the price paid for the performance
of these duties; and that a rent is thus a part of the natural
cost of production." In the face of this perversity I can but
speculate as to whether I in turn part company somewhere with
scientific politics and universal ethics.

- Modern Humanists, p. 99. 3 B. II., ch. xii., sec. 2.

4 B. I., ch. v., sec. 3.

J. s. mill's argument. 55

as if it were a real solution of the industrial problem,
and only takes into account the population difficulty
in another chapter, for the purpose of rebutting the
demands of the Socialists who want State-provided
employment for all. Individ ludly -provided employ-
ment is represented as involving no such drawback.
No doubt he tended to see things differently in his
latter years, but there the old fallacy stands in his
book, unretracted. Like Smith, he went on adding
new views to old without reducing them to agree-
ment ; and there is scarcely a proposition in his argu-
ment on Saving that is not explicitly gainsaid by
others, in the same chapter or later. Thus, after all
his insistence on the destructiveness of the spend-
thrift, he adds a footnote admitting that there is a
" compensation, more or less ample," in the fact that
spendthrifts " do not usually succeed in consuming all
they spend" (sic); and this note ends with a refer-
ence to " that part of the Fourth Book which treats
of the limiting lyrinciple to the accitmidation of
capitcd" — a principle which he has just been ex-
pressly refusing to accept. The upshot is that the
denial stands as part of the Fundamental Propositions,
while the truth is recognised at the other end of the
book; and even the glimpse of the rationale of spend-
ing does not prevent a repetition of the dogma of
parsimony in the same note. The confusion is hope-
less

CHAPTER VI

THE DOCTRINE SINCE MILL.

After the foregoing it matters little that Mill goes on
to supply half-a-dozen more self-stultifications on
points of detail, admitting now that to manufacturers
" a falling off in the demand is a real loss ; " and that,
after all, " an increased demand for a commodity does
really .... often cause a greater employment to be
given to labour by the same capital" These fresh
collapses make the infirmity of the writer a little
more abundantly manifest : they cannot heighten the
ineptitude of the general argument. And yet that
tissue of childish sophistry constitutes to this day the
orthodox economic teaching on the subject. Mill's
unquestionable good faith, with the contagion of
optimism which had bewitched him, sufficed to blind
men to the abject absurdity of his reasoning. I can-
not agree with the late Professor Jevons that the
economics of Ricardo is a substantially unsound
system, which, by the help of Mill and his followers,
has overridden a substantially sound economics set
forth by Malthus and Senior ; but I am bound to de-
clare that on this one question of saving fallacy has
pushed aside science.1 So far as economics has been

1 Jevons himself is on the wrong side. He laid down the
doctrine of universal saving in the most absolute terms (Primer

56

MR. LESLIE STEPHEN. $7

studied among us, Mill lias been the leading authority
down to the other day ; and the popular Fawcett is a
recapitulation of Mill.

Mr. Leslie Stephen has remarked that " Hitherto it
may be roughly said that the advantages gained [from
the study of political economy] have consisted rather
in clearing away old errors than in discovering new
truths — so far as these processes can be separated." l
The latter words are suggestive of an imperfect appre-
hension on the writer's part of the truth he seeks to
expound ; and the suspicion here set up is more than
justified when, a little farther on, we have from him
this deliverance : —

"Beneath the fallacy of the balance of trade and the identi-
fication of money and wealth 2 lay another fallacy, apparently
more transparent, and yet so obstinately persistent that its roots
must clearly strike very deep in the minds of most observers.
The fallacy is that which was made celebrated by Mandeville,
and the complete confutation of which lies in the doctrine — so

of Political Economy, pp. 45, 84-G) without once asking how all
the savings could be profitably applied, though he put it for-
ward (p. 133) as a reason why it was absurd for a nation to
accumulate gold and silver that there is "a loss of interest upon
their value." That is itself an old fallacy; but the doctrine
might have set him reflecting upon the excessive accumulation
of money-credits. In his Theory of Political Economy, however,
he exhausted his powers over purely theoretic reforms withoul
coming in sight of the practical fallacy of saving. In the Primer
he appears to follow Cairnes.

1 History of English Thought in the Eighteenth Century, ii., 285.

2 Mr. .Stephen is not clear about the existence of this fallacy,
even in the work quoted from (cp. pp. 287, 289); and in a later
composition he almost denies that it ever existed (Fortnightly
R new, -May, 1880, p. 689).

THE FALLACY OF SAVING.

rarely understood that its complete apprehension is, perhaps,
the best test of a sound economist — that demand for com-
modities is not demand for labour." x

Of this doctrine, recognised to be so elusive, Mr.
Stephen makes no exposition ; and we can only sur-
mise that he adopted his conviction second-hand from
his friend Fawcett, who had dutifully taken it from
Mill, and who so far outwent his master that, like
Cairnes, he declined to give up the wage-fund theory
when Mill did, continuing to hold it in its crudest
form, however, 2 while Cairnes reduced it to the
" arithmetical truism presented as an economic law/'
which might equally have evoked the derision of Marx.

But an abler economist than Fawcett, the clear and
careful Professor Sidgwick, takes the distressing
course of avowing that Mill's doctrine of demand for
commodities not being demand for labour " is, I
believe, perfectly true when properly explained," 3
when, in point of fact, the " proper explanation '' in his
own hands becomes either a truism or a quibble, as
you may happen to regard it. He ends by "granting
it to be substantially true that the consumers of
luxuries do not ' demand labour ' in Mill's sense, i.e., do
not supply the real wages of the labourers who 'pro-
duce the luxuries " bought by that particular act of
demand. And while on the one hand reducing the
" truth " in Mill's laborious argument to this com-
plexion, after stating that Mill's argument in support
of his formula " appears to me to a great extent sound,"

1 lb., p. 297.

2 Manual of Political Economy, B. II., ch. iv.

3 Principles of Political Economy, B. I., ch. v. Note at end.

PROFESSOR MARSHALL. 59

he notes: "I think, however, that it is all in form
unsatisfactory ;" and " I think that a part of the argu-
ment— that which compares the effects of a purchase
of luxuries in a shop with the employment of labourers
to produce luxuries — is quite erroneously stated."
What Professor Sidgwick here calls a part of the
argument is really its essence. But even if he had
exposed Mill's fallacy with that explicitness which
his conscientiousness seems to make so difficult to him,
it would avail little against the reigning cult. Mill's
and Fawcett's are still the current manuals.

The same comment is applicable to the latest and most
magistral English treatment of Mill's Fundamental
Propositions. In his ripely considered Principles of
Economics, Professor A. Marshall puts forward a view
of Mill's doctrine which, while apparently expressly
framed to give the most reasonable sense to his
Fundamental Propositions, ends by reducing them to
nullity. Professor Marshall admits l that the state-
ment that industry is limited by capital is " an awk-
ward and unfortunate sentence ; " and in examining
it later2 he says that it "has been applied for many
purposes," and that Mill himself " chiefly " used it to
show that protective duties cannot increase the total
employment of labour. Professor Marshall offers no
further defence. " This first Fundamental Proposition
of Mill's," he continues, "is closely connected with his
fourth, viz., that Demand for commodities is not
demand for labour, and (his again expresses his mean-
ing badly." That is to say, Professor Marshall tries

1 Isted., p. 138 ; 2nd ed., p. 133.

2 1st ed., pp. 5G'J, 570 ; 2nd ed., pp. 575, 570.

Go THE FALLACY OF SAVING.

to find a better meaning for Mill's words than lie
ostensibly meant to give them. It is thus suggested:

" It will l»e found that in every instance in which he has
chosen to illustrate the doctrine, his arguments imply, though he
does not seem to be awewt of it, that the consumer when passing
from purchasing commodities to hiring labour, postpones the
date of his own consumption of the fruits of labour. It is this
postponement, this waiting, that in Mill's illustrative instances
really increases the capital ready to aid and support labour ; and
therefore increases the effective demand for labour. And the
same postponement would have resulted in the same benefit to
labour if the purchaser had made no change in the mode of his
expenditure."

Here an attempt is made to minimise the absurdity
of Mill's argument, yet even thus it is admittedly
nugatory. I have only to add that Professor Mar-
shall, in putting the best form on the fallacy, himself
makes an unwarranted statement. He gives no proof
for the assertion that the postponement of consump-
tion of what is made "increases the effective demand
for labour." He too, in turn, has forgotten the " vel-
vet-makers," who in the terms of Mill's case will be
either unemployed or half-employed when the em-
ployer finds a falling-off in the demand for his pro-
ducts. Thus Professor Marshall does not finally take
note of the fundamental fallacy of all four of Mill's
propositions ; and the doctrine of saving is left in
command of the field. Every British student of
economics is still shown the folly of the young noble-
man who bought eighteen waistcoats to help trade,
instead of lending money to the tailor to make un-
saleable waistcoats, or lay in superfluous cloth.

PROFESSOR CAIRNES. 6 1

And one of the most respected of English econo-
mists since Mill, Professor Cairnes, who had the
merit of repudiating the old laissez-faire optimism
and dealing frankly with the political side of econo-
mics in the light of his knowledge, has stood sted-
fastly to the old faith on saving.

"I take it to be a fundamental and indispensable condition
of all progressive human society, that by some means or other a
large aggregate capital available for its recpuirements should be
provided. Without such a fund, accumulated from the 'products
of past toil, division of labour and continuous industry are im-
possible ; population cannot attain the degree of density in-
dispensable to civilised existence ; nor can that amount of
leisure from physical toil be secured for any considerable por-
tion of the people which is required for the cultivation of
science and literature." 1

Professor Cairnes, though here pointing to social
arrangements which might obviously be set up on
other lines than that of money-saving, could not con-
ceive that the special process of " sacrifice " which he
saw in " saving " might be enforced in a socialised
•State by mere " benevolence and public spirit," and
accordingly decided on that ground against Socialism.
He was positive that " capital can only be created by
saving," and accordingly declared : " If then the
labourer is to emerge from his present position and
become a sharer in the gains of capital, he must in
the first instance learn to save." 2 That is to say,
there may be universal saving, with gain all round —
the old doctrine in its wildest form. It is nothing to

1 >s'o)//< Leading Prmciples <>f Politicoii /vo/km/m/, ed. L884, p.
271. - lb., p. 287.

THE FALLACY OF SAVING.

the purpose that Cairnes points to the money-claim
wasted annually by the workers on drink ; for if that
money were saved it would do nothing for the dis-
tillers' and brewers' men thrown idle. Only fresh
consumption could provide employment for them,
and no provision is made in the argument for such
fresh consumption. Cairnes, with all his sincerity
and aspiration, was but helplessly repeating the old
shibboleth, having done nothing to analyse afresh the
special problem involved. He did, indeed, repudiate
the notion that the idle rich class conferred a public
benefit : —

" It is important, on moral no less than on economic grounds,
to insist upon this, that no public benefit of any kind arises from
the existence of an idle rich class. The wealth accumulated by
their ancestors and others on their behalf, where it is employed
as capital, no doubt helps to sustain industry ; but what they
consume in idleness and luxury is not capital, and helps to sus-
tain nothing but their own unprofitable lives. By all means
they must have their rents and interest, as it is written in the
bond ; but let them take their proper place as drones in the
hive, gorging at a feast to which they have contributed no-
thing." 1

Here, however, the moral outburst counts for no-
thing in view of the economic doctrine ; inasmuch as
Cairnes goes on to insist that the only way to keep
industry going is to reward the drones for their or
their ancestors' act of saving, which he pronounces
all-essential. Naturally, the average man pays little
heed to a diatribe thus countervailed by its author's
own admissions. Cairnes had, indeed, on his own

1 Page 35.

PROFESSOR CAIRNES. 63

showing, no right to say that the idle rich " con-
tributed nothing : " he expressly credited them with
" sustaining industry " by their capital. His net pre-
scription thus came to this, that in order to be wholly
admirable, the capitalists had only to go on accumu-
lating capital unceasingly while living as frugally as
possible. It would, on his own principles, avail them
no more to spend money on public objects than to
spend it on private, since industry is only " sustained "
by the productive employment of capital. Thus,
Cairnes's economic advice to his generation, despite
the entire wisdom of such a negative proposition as
that quoted on our title-page, was finally futile,
amounting to the old counsel to produce without con-
suming, to sell without buying.

As against Cairnes's fling at the idle rich, again, the
other economists of the same succession have haloed
the interest-drawing class with an earned or imputed
sanctification in respect of the " abstinence " which bad
to be practised to secure the creation of their capital
to start with. And this, which is the older ethical
sentiment,1 is naturally the more popular with the
interest-drawing class, who can meet Cairnes's attack

1 Professor Bbhm-Bawerk (Capital ami Interest, Smart's
trans., B. IV., ch. i., p. 209), following Marx (Capital, I., ch.
xxix., sec. 3), speaks of Senior as the founder of the abstinence
theory. But, as Bbhm-Bawerk notes,it was put by Poulett Scrope
(Principles of Pol. Ec, 1833, p. 140) before Senior published his
treatise ; and it was explicitly laid down long before either by
Petty, who described interest as "a reward tor forbearing the
use of your own money for a term of time agreed upon ,; (Quan-
tulumcumqiic, cited by Lauderdale, p. 152). No dcubt Senior gave
the doctrine its currency. (Jp. Marx, B. I.,ch. ix., sec. 3, note.

64 THE FALLACY OF SAVING.

with his own endorsement of the abstinence prin-
ciple— a conception still so attractive that it finds
favour with Professor Bohm-Bawerk, who, by way of
confuting those who insist that a purely negative act
can count for nothing as an aid to production, skil-
fully cites in support 1 of it the very citation from
Spinoza which Marx 2 employed to show that any act
may be regarded as an abstinence from its contrary.
Of course, the common interpretation of Senior is a
trifle less sophisticated, at least in his native land.
Here he has been one of the prophets of saving ; and
if some, refusing to endorse Mill's applause, have re-
jected this formula, even these have let the implied
prescription for conduct go uncontradicted.

In French and German economics, so far as I have
seen, there has been on this point the same prepon-
derance of Smithian dogma, though Rodbertus and
others have called for modifications, lvoscher has,
of course, contemplated the problem, but is character-
istically inconclusive. He does indeed make an ex-
plicit statement of the necessary limitation of capital.

" It may be seen from the foregoing that the mere saving of
capital, if the nation has to be really enriched thereby, has its
limits ... As trade becomes more flourishing, smaller stores
answer the same purpose. :; And no intelligent man can desire
his productive capital increased except up to the limit that he
expects a larger market for his enlarged production." i

1 Positive Theory, p. 123. - As last cited.

'■'J So in English translation, made from 13th German ed. The
passage is not in my copy of the original, 3rd ed., and it seems
unfortunately put.

4 Principles of Political Economy, sec. 221, Lai or's trans.

ROSCHER. 65

This, however, does not squarely put the point as
to individual money-saving; nor is it definitely put in
the following observations :

" If a people were to save all that remained to them over and
above their most urgent necessities, they would soon be obliged
to seek a wider market in foreign countries ; but they would
make no advance whatever in higher culture nor add anything
to the gladness of life. On the other hand, if they would not
save at all, they would be able to extend their enjoyments only
at the expense of their capital and of their future. Yet these
two extremes find their correctives in themselves." ....
" The ideal of progress demands that the increased outlay with
increased production should be made only for worthy objects,
and chiefly by the rich, while the middle and lower classes
should continue to make savings, and thus continue to wipe out
differences of fortune.'' .... "That there is, at least, not too
much (!) to be feared from the making of too great savings is
shown by Hermann, St. Untcrsiich. 371 etseq. On the other hand,
there is less wealth destroyed by spendthrifts than is generally
supposed, for spendthrifts are most frequently cheated by men
who make savings themselves (Mill i., 5, 5).''1

This somewhat bi-frontal performance is probably
the most advanced practical teaching on the subject
in German economics. Walcker2 does indeed speak
of capital with some alertness of perception : —

" Die Begriffe Capital und Vermogen vcrhalten sich ahnlich
wie die Begriffe Ertrag und Einkommen. Im Worte Vermogen
liegt ein Hinweis auf den oder die Eigenthiimer einer Surarae
(z. B. ein Haus und Werthpapiere) oder eines Organismus von
wirthschaftlichen Giitern, wiihrend das Wort Capital etwas un-
perBonliches enthalt. Es bczeichnet ein Vermogen oder eincn
Vermogenstheil in seinen objectivcn Beziehungen zur Produc-

1 lh. and note.

- Lehrbuch der Nationalb'konomie, L875, S. 8.

THE FALLACY OF SAVING.

tion, zum Umlauf and zur Conaumtion oVr Giiter. In derRegel
gehl nur das Vermogen, aber nicht das Capital eines Versch-
wenders oder Bankrotteura unter; das letztere geht meist in
andere Hande iiber."1

But a few pages farther on,2 Dr. Walcker begins to
make it intelligible how abstract conceptions of capital
may be brought into discredit : —

" Das Capital zerfallt, entssprechend seinem Begriff, in folgende
Classen : Landgliter, Grundstiicke, Bcrgwerke, Bodenameliora-
tionen, Bauwerke, Werkzeuge, Maschinen und Gerathe,
Arbeits- und Nutzthiere (resp. Sclaven), Hanpt- und Hiilfsstoffe,
Unterlialtsmittel, Handelsvorrathe, Geld, korperliche und
geistige Arbeitskraft und imnviterielle Capitalien. Zu den
letzteren gehoren der Staat, die Cultur eines Yolkes und stm ng
genommi a auch ein gesundes Itirchliches Lebm, wenn es nichi
unpassend ware, das JEwige unter erne okonomische vergangliche
Kategorie srw Ziehen. " s

1 " The ideas capital and property relate together similarly with
the ideas proceeds and income. In the word property is im-
plied an allusion to the ownership of a total (e.g., a house and
title-deeds), or an organism of domestic possessions, whereas
the woi'd capital implies something impersonal. It indicates a
property or a portion of property in its objective relation to
production, to circulation, and to consumption of goods. As a
rule, only the property and not the capital of a spendthrift or
bankrupt is destroyed ; the latter mostly passes into other
hands."

2 S. 14.

3 " Capital, corresponding to its idea, divides into the following
classes : Landed estates, plots of ground, mines, soil-improve-
ments, buildings, implements, machines and utensils, animals
for labour and use (in a sense, slaves) ; principal and accessory
materials, means of subsistence, stock-in-trade, money, corporal
and mental labour-power, and immaterial capitals. To the

WALCKER. 67

After this it is not \vh0ll3- disappointing to the
believer in immaterial capital to find Dr. Walcker *
making the orthodox declaration : —

"Die alte Irrlehre, class die Reiclien, resp. die Regierungen
Almosen geben, wenn sie verschwenden, spukt noch immer. Jede
Luxusausgabe vernichtet ein Capital, welches, productiv ver-
wandt, die Subsistenzmittel des Yolkes vermehrt hiitte." 2

Thus, within twenty pages of his statement that, as
a rule, only the property (Vermdgen) but not the
capital of a spendthrift or bankrupt is destroyed, the
latter mostty passing into other hands, Dr. Walcker
affirms, in flat self-contradiction, the old dogma that
" every luxurious outlay annihilates a capital which,
productively applied, would have increased the means
of subsistence of the people." It is the old fatality.
Especially piquant, in the circumstances, is the old
specification of " luxurious outlay " as a cause of
annihilation of capital. On the same principle, obvi-
ously, every outlay whatever would do the same thing;
and all expenditure, and accordingly all consumption,
becomes an evil, to be minimised by the self-denial
of the righteous, prepared thereto by " a sound
spiritual (Icirchliches) life — if it were not improper to
1 >i ing the Eternal under a transient economic category.'

latter belong the State, the culture of a people, and, strictly
speaking, a soxvnd religious life, if it ire re nut im/impey in phuu
the Eternal wilder a t/ra/nsitory economic category."

1 S. 37.

" " The old error, that the rich, or rather the ruling classes, give
bounty when they squander, is always cropping up. Every
luxurious expenditure annihilates a capital, which, productively
applied, would have increased the people's means <>f subsistence.

TIIK FALLACY OF SAVING.

Only a German can attain to quite such transcend-
ent heights; but on the strictly economic line of the
argument, Dr. Walcker is not unrivalled in France.
One of the most widely-read manual-makers, M. Joseph
Gamier, outdoes Smith in his denunciation of the
prodigal and his praise of the saver, arguing explicitly
that to spend is to annihilate labour, in terms which
imply that all consumption is, at best, a necessary
evil, while production is man's mission on earth : —

" Toutes les fois qu'un capital se dissipe, il y a dans quelque
coin du monde une quantite e'quivalente d'industrie, qui s'
t'teint. Le prodigue qui perd un capital augmente la premiere
annde le revenu de ses fournisseurs, souvent peu recommand-
ables, mais il detruit pour les annees suivantes le salaire des
hommes laborieux dont son revenu eut alimente le travail " — *

would have alimented, that is, in employing them to
make goods which it would in the nature of the case
be prodigality to buy.
And again : —

" Pour apprecier les funestes efl'ets de la dissipation, il suffit
de remarquer qu'une valeur epargnde devient une valeur
capital dont la consummation se renouvelle sans cesse, tandis
qu'une valeur dissipde ne se consomme qu' une fois"— -

1 "Every time that a capital is dissipated, there is in some
corner of the world an equivalent quantity of industry which
is extinguished. The prodigal who loses a capital increases
for the first year the revenue of his caterers, often not very
respectable, but he destroys for future years the wages of
laborious men whose labour his revenue might have maintained."
(Traite oVEconomie Politique, par Joseph Gamier, Gieme ddit. ,
sec. 843.)

2 " To appreciate the pernicious effects of expenditure, it

GARNIER. 69

the thing saved being here envisaged as value, with-
out any recognition that to multiply value is in no
wa}' to feed labouring men. M. Gamier has, probably
unintentionally, committed himself to one of the de-
lusions of the Physiocrats.

Helplessly led by McCulloch, M. Gamier goes on to
recognise that luxury is after all a relative thing, and
not to be condemned in the spirit of the old moralists ;
and in this view reasons that outlay is to be decided
on by each for himself, with a view to the highest
kinds of enjoyment; but here the good gentleman
pulls himself up to reiterate that

" II ne faufc pas oublier que l'homme econome qui se borne au
ndcessaire rend, de son cotd, des services a la societe par la
formation d'un capital, d'un instrument de travail, de progres
et d'emancipation physique et intellectuelle"— x

that is to say, the thrifty man renders a service to
society in consuming only the necessary and causing
to be produced the unnecessary, which, we have just
been told, it is economically injurious to the com-
munity for the individual to buy. So that " pro-
gress" is always an economic loss to the community.
Similarly M. Droz inculcates saving in a paragraph
in which he unconsciously specifies its bad effects : —

suffices to remark that a saved value becomes a capital value of
which the consumption renews itself without cessation, while a
value expended is only consumed once." Id. ib.

1 " We must not forget that the thrifty man who limits him-
self to necessaries renders, on his part, services to society by
the formation of a capital, an instrument of labour, of progress,
and of physical and moral emancipation." Id. sec. 818.

70 TIIK FALLACY OF SAVING.

"II ne faut done point, dans des vues d'interct pour lc com-
merce, de"clamer confcre la prevoyance et 1'cpargne. Cc qui
paralyse surtout les capitaux, ce sont les circonstances oil,
mecontens du present, inquiets de l'avenir, les homines in-
dustrious suspendent leurs projets, et nieme craignent de
preter leurs fonds a cuux qui sc montrent plus confians ou plus
teme'raires. Alors les capitaux se resserrent, le travail languit,
la souffrance devient generale." l

That very paralysis of production here described is
obviously a consequence of such saving as is being re-
commended, inasmuch as producers will always pro-
duce where there is market demand. Here it is not
even pretended that industry is paralysed by lack of
" capital ; " and }Tet the advice to amass more capital
is endorsed. Such is the drift of economic prescrip-
tion in France as in England, the habit of saving be-
ing indeed much more rooted and general in France
than here. There must, I suppose, have been en-
lightened protest against the delusion in France as
there has been in England ; but it has counted for
nothing, the only visible opposition being that im-
plied in the socialistic movement, which does not
specially attack the economic fallacy of saving. Nay,
so thoroughly did the Smithian succession establish
the optimistic dogma of the all-sufficiency of saving

1 -l We must not then, with a view to helping commerce, de-
claim against foresight and saving. 'What chiefly paralyse
capitals are the circumstances in which, discontented with the
present, anxious for the future, business men suspend their
projects, and even fear to lend their funds to those who show
themselves bolder or more confident. Then capitals are locked
up, trade languishes, hardship becomes general/' Economic
Politique, par Joseph Di-oz, 1854, p. 49.

JOURNALISM. 71

and investment, that when, a few years ago, a London
alderman sought to make out that the Lord Mayor's
banquet was " good for trade," the outcry against him
was virtually universal. He was ridiculed, not for
defending a gross and vulgar form of expenditure as
distinguished from worthier forms, but for supposing
that any kind of expenditure could help trade half as
efficiently as would the act of putting the money iu
the bank. Smith's saving clause about " public opu-
lence " had disappeared from economic memory, and
the argument was pure Bonamy Price — for the news-
papers had not room for sophistry on the scale of
Mill. Not only the middle-class press but professedly
socialist economists 1 hurled at the friendless alder-
man the information that if he or his colleagues had
only put their money in the bank it would have gone
to build railways — for it is always railways that are
supposed to spring from accumulations. This was at
a time when " money " was notorious!}' abundant and
extremely cheap, and when promising concerns, such
as brewery companies, could have sold their shares ten
times over. If the dogma of investment can thus
find an overwhelming majority of devoted adherents
at a time when abundance of nominal capital and
sluggishness of trade are equally obvious, it is not
difficult to understand how it could be believed at
times when interest was high and trade brisk.

1 One of these I understand to have since abandoned his
position.

CHAPTER VII.

THE RATIONALE OF CAPITAL— THE FALLACIES — THE
DOCTRINE THAT SUPPLY IS DEMAND— CAPITAL
AND MISPRODUCTION.

It is easy to see, however, that the vogue of the
Saving fallacy has from the first depended on the
mass of misconceptions set up by applying the word
" capital " to the phenomena of money-saving while
conceiving it in the old sense of saved products. We
saw at the outset how profoundly this procedure con-
fused and vitiated the reasoning of Turgot. But it
has been just as potent for evil in orthodox economics
since. Everywhere there is made the monstrous as-
sumption that the money, or rather claim to money,
saved annually represents a saving of products and
means of production to that amount. In John Mill's
lamentable argument about the bricklayers and the
velvet- makers, we saw him speaking of capital as a
motive-force transferable from one emplo37ment to
another totally different. " There was," he says at
one juncture, " capital in existence to do one of two
things — to make the velvet, or to produce necessaries
for the bricklayers, but not to do both." He must
have meant money-credit, or money-claim, which
could be turned from manufactures to agriculture, or
from velvet-making to tailoring and boot-making.

72

J. B. SAY AND JAMES MILL. 73

Even in that sense the statement is absurd, for the
capital is, in the terms of the case, sunk in machinery,
which must be unsaleable. But since the mere pa}*-
ment of wages to the bricklayers would at once enable
them to get necessaries, it clearly follows that the
capital is merely claim on services, which can be
transferred. Yet the same economist, in order to
justify saving and vindicate the saver, must needs
write in many other passages as if to save capital
were to accumulate necessaries of industry, without
which it must collapse. So, J. B. Say, even with his
eye on matter and motion, speaks habitually of a
" productive fund'' which " renews itself '; " and, de-
claring capital to be one of the three agents of pro-
duction, defined it as being at the same time an
" accumulation of values." x James Mill, after decid-
ing that " the instruments which aid labour, and the
materials on which it is employed, are all that can be
correctly included in the idea of capital," 2 goes on to
lay it down that in this sense capital is " evidently a
result of what is called saving"; when all that is evi-
dent in the matter is that food capital is such a result
— that is, primarily. If it be meant that all industrial
actions result from saving because proceeding upon
food, it might as well be said that they result from
aii- or water, or health, or rationality. But James
Mill 8 proceeds to declare in express terms that "the
augmentation of capital is everywhere exactly in pro-

1 Traibd, i. !'!', 103, ii. 454. " Un capital n'est point la somme
d'argent sous la forme do laquelle il est souvent prdte' ; rnais la
ocdeur de cet argent" (ii. 4.")."}, 456 ; i. 97).

2 Elements of Political Economy, 3rd ed., p. 17. :i Page 20

M THE FALLACY OF SAVING.

portion to the degree of saving; in fact, the amount
of that augmentation, annually, is the same thingwith
the amount of savings which are actually made."
That is to say, the mass of machinery and tools made
each year for productive purposes, added to the
amount of raw material provided for manufacture, is
identical with that year's savings. And as the econo-
mist must have had in his view money or nominal
savings, since he offers no discrimination, and must
have known he would be so understood, we find him
formally landed in the extraordinary hallucination
that the net amount of annual saving, recorded by
the bank totals, always equates exactly with a mass
of tangible " saved " materials. We can only conclude
that, like Smith, he did not realise his proposition
conceptually at all, but was merely carrying on a
verbal demonstration, which could only have continu-
ous significance by a continual change in the values
of his terms. As it stands, it is meaningless. Cer-
tainly, James Mill has here made a bold and open
attempt to settle the question of what it is that is
saved by the thrifty, and to face the difficulty about
the saving being made in money — the only frank
attempt, almost, since Turgot. But it is a complete
failure, and his successors manage no better.

Ricardo,1 in the same way, passes with no attempt
at analysis from concrete capital to capital " employed
in the payment of wages," and, later,2 speaks without
explanation of bankers " employing a large capital "
in discounting bills. Yet he also speaks3 of diminu-

1 Oh. i., sec. 4. - Ch. iv.

:i Chs. ii. viii. Works, pp. 41, 87.

bohm-bawerK. 75

tion of capital as diminishing the population and the
amount of production clearly meaning diminution of
food. He thus implicitly accepts Mill's doctrine.

And that fantastic hypothesis is to this day found
to be the basis of most economists' doctrine as to in-
crease of capital. Professor Bohm-Bawerk notes that
" not long ago Kleinwachter (Schonberg's Handbuch,
2nd ed., p. 210) could explain: 'common usage in
political economy to-day considers it an essential
characteristic of capital that it is a material means of
production.' " x And Professor Bohm-Bawerk, despite
his analytical method and his vigilance, lends himself
to this virtual confusion of the facts of ordinary
commerce — for it is a confusion to define " capital " as
above without express exclusion of the common
significance of money-credit. He does, it is true, make
a formal division of capital into that used for pro-
duction and that which yields interest, and he demurs
to the refusal to call both forms capital.2 But still he

1 Positive Theory of Capital, Eng. tr., B. I., ch. iv., p. 40, note.

- " Of recent French writers on the subject," lie writes, " I ride
(Principes d'Economie Politique, Paris, 1884) recognises the two
varieties in the conception of capital with a clearness rare even
in French literature, and distinguishes them as ' capitaux
siinplement lucratifs,' and ' capitaux productifs.' ' Les premiers,1
he says, ' sont ceux qui rapportent un revenu a une personne ;
les seconds sont ceux cpii produisent une richesse nouvelle dans
le pays ' (p. 148). His only failure is that he would recognise
productive capitals alone as true capitals." (Positive Theory, as
cited.) But this of M. Gide is simply a textual repetition of
what was said by Droz as long ago as 1854 : "Les capitaux
sont tou jours des produits amasses par L'epargne, mais ils a'ont
pas tous la meine destination. Ceux qu'on emploie a cn'er de
nouvelles richesse. sont les plus utiles p mrla socie^e*. D'autres

/6 THE FALLACY OF SAVING.

speaks of capital in the whole as " a group of pro-
ducts which serve as means to the acquisition of
goods "' x [ = wealth]. " Under this general concep-
tion," he adds, " we shall put that of social capital as
narrower conception." 2 And the reason for this de-
finition is found to be substantially the Smithian
tradition.

" Without laying any particular weight on the fact that the his-
torical origin of the word capital indicates a relation to an
acquisition or a gain, and that our reading remains true to this,
it preserves the double relation — the relation to acquisition of
interest on the one side, and to production on the other — which
was imported into the conception of capital by Adam Smith "
[Professor Bohm-Bawerk himself shows, however, that the
beginning was made by Turgot, who did it for the encouragement
of saving], " and since his time has been adopted in scientific
usage." 3

Now, we have seen that Smith's notion of capital,
as set forth in connection with his fundamental
doctrine of saving, was confused and fallacious to the
last degree ; and it is impossible to see how there
could be any gain to economics from adhering to his
definition of capital, even if we guarded against his

rapportent seulement un revenu a leurs possesseurs. . . . [Les
capitaux qui] dounent un revenu et qui multiplient les richesses
de la soci^te\ . . . sont les seuls vraiment prod/uctifs, on pourrait
dire que les autres sont seulement lucratifs." (Economie Poli-
tique, as cited, pp. 47, 48.)

1 There is some danger of misconception of Bohm-Bawerk's
meaning at times in respect of the use desired to be given to the
English word "goods" by his able translator Mr. Smart. See
Mr. Smart's Introduction to the Theory of Value, p. 11.

- Posit ice Theory, p. 38. :i lb., p. 3D.

BOIIM-BAWERK. JJ

confusions. But Professor Bohm-Bawcrk does not
finally guard against them, for while formally dis-
puting Smith's formula that capital is the result of
saving, he only substitutes the formula that it is the
result of production and saving;1 he adheres to the
doctrine that all capital is material ; and he explicitly
sets his face against those who recognise how exten-
sively the word means something else : —

"Finally," he says, after discussing the various definitions,
' ' there remain those conceptions which see in capital not a
complex of goods, but an abstract quantity hovering over goods,
as it were; as, for instance, Kiihnast's 'sum of value,' or
Macleod's ' circulating power.' I have, generally speaking, a
very poor opinion of such idealisations of economic conceptions.
They are usually cheap expedients for getting round difficulties." -

I will not presume to charge against Professor Bohm-
Bawerk the use of cheap expedients, but I do say
that he himself is all the while evading a difficult}'.
He ought to have grappled with Mr. Macleod's ex-
position (I pass over Kiihnast), which he does not.
Mr. Macleod is almost the only economist who has
expressly recognised as matter of economics the dis-
tinction between jus in rem and jus in persona m ,
concrete property and claim; and he is therefore the
clearest in his declaration of the economic bearing of
credit. He has laid down, too, the one truly

1 This is the old position of J. 13. Say, who differed
formally from Turgot and Smith (Traite, i., 110-113), after say-
ing with Smith that saving is the "only'' means of increasing
capitals (p. 103), and that to save values is to turn them from a
sterile to a reproductive consumption.

2 26., p. 08.

/8 THE FALLACY OF SAVING.

philosophical definition of capital: — "Any Economic
Quantity used for the purpose of profit."1 This
definition, I confidently affirm, will survive Professor
Bohm-Bawerk's, if only we substitute " gain " for
" profit." It covers a multitude of economic facts
which the Professor's definition does not, though he
recognises them separately as facts. It goes back
(which Professor Bohm-Bawerk's definition does not,
though he says so) to the pre-Smithian sense of
capital as that money-credit which yields a gain.
The Professor has shown2 that Turgot had partly
fixed the material sense on capital before Smith; and
it is not difficult to see historically how this came
about. They were on the side of home production,
but also on that of parsimony, and they gave the
" capital" significance rather to the kind of property
which was in their day beginning to yield the largest
masses of profit, as in the hands of manufacturers,
who gave capital the material form. At the end of
last century, and in the first half of this, the largest
gains were made by traders and manufacturers, and
attention was fastened on their plant as the chief or
" capital" means of acquiring wealth. In later years,
competition has greatly lowered the profits of trade
and manufacture, and the multiplication of invest-
ments has, in general usage, distinctly tended to give
the term capital a significance largely made up of
mere money-credit or claim.

1 Economics for Beginners, p. 45. See also the valuable trea-
tise on Capital in his Dictionary of Political Economy, where he
traces the history of the idea.

- Work cited, pp. 24-30. But on this see Macleod.

BOHM-BAWERK. 79

And the practical necessity of a reformed definition
is finally proved by the collapse of Bohm-Bawerk's
own. The collapse takes place, according to pre-
cedent, when he deals with the doctrine of saving.
He argues, as we saw Cairnes did, that saving would
be as necessary in a socialistic as in a competitive
community. But his proof shows that what is needed
is not at all saving in the normal sense of the term.

"The method," he says, " would simply be to put a consider-
able proportion of the national workers to very lengthy pro-
cesses, whereby the making of capital, in the form of intermediate
products, would be very great, and the amount of matured
products in the future would be much increased.'' ]

Quite so ; and thus is Cairnes answered. The social-
istic State would make its "capital "— plant; and to
call this process " saving," after recognising its nature,
is to make a confusion of language doubly un-
warrantable in view of Bohm-Bawerk's own excuse
for his old-world definition of capital. In regard to
present-day saving, however, he himself supplies the
refutation of his definition of capital, and of his en-
dorsement of the doctrine of saving. He admits that
the undertakers or master-producers " do not decide
at their pleasure" the direction which the national
production takes ; " they follow impulses given by the
l>ricrs of products, hi the last resort, therefore,
it is not the undertakers who decide the direction of
national production, but the consumers, tin; ' public.'"
Nothing can be more explicit: here we are fully
delivered from the hallucination of Mill. Hut note

1 Positive Theory, B. II., ch. v., pp. 113, i I I.

SO THE FALLACY OF SAVING.

how the difficulty as to general saving is finally
evaded by Professor Bohm-Bawerk. He allows that
a check of consumption causes loss and hardship, but
argues that the demand for consumption-goods must
not be so great as to take all the labour-power
and leave none for replacing and extending plant.
Therefore, so much (of what ?) must be " saved '' as
will employ labour in doing this. Now, it is a matter
of fact that in ordinary commerce the replacement of
plant is an ordinary charge on a business, and is nor-
mally met by the plant-owners themselves, leaving
only extensions of plant to be met by outside
" savings." In any case the replacement and exten-
sion of plant is clearly a charge strictly limited by
the state of consumption, and represents just that
amount of " saving " or " capital-making " that is
argued for by Lauderdale in opposition to Smiths
doctrine of unlimited saving. Yet Bohm-Bawerk
does not once put this explicitly. The necessary
savings, he declares,1 " will be spent in the increasing
of capital," because —

"An economically advanced people does not hoard, but puts
out what it saves, in the purchase of valuable pa/per, in deposits
in a bank or savings haul:, in loan securities, etc. In these ways
the amount saved " (no limitation) " becomes part of productive
credit ; it increases the purchasing power of producers for pro-
ductive purposes ; it is thus the cause of an extra demand for
means of production or intermediate products ; and this, in the
last resort, induces those who have the regulation of under-
takings to invest the productive powers at their disposal in these
intermediate products."

1 Pa£?e 115.

BQHM-BAWERK. 8 1

Here we have one of the abstract formulas before
rejected. What is saved is here just purchasing
power. Either this saving is capital or it is not. If
not, Bbhm-Bawerk's argument collapses to insignifi-
cance. If yes, his definition of capital has broken
down. And this last is what really happens. As
regards the general problem of individual saving, he
has passed it by. It is clear that saving in excess of
the purchasing power needed to cause the making of
plant or intermediate goods enough for the industrial
situation, can have no producing influence, there
being only a given amount of demand for consump-
tion products ; but Bohm-Bawerk does not say so.
What he proves gives no economic countenance to the
doctrine of general saving ; yet his general language
has the air of giving such countenance, and he never
undeceives Iffe readers. In view of the clear collapse
of his definition of capital, we can only conclude that
he had not seen what the problem really was. His
further paragraphs * are perfectly irrelevant to it, as
he simply proves over again that if the demand for
consumption-goods were so great that all existing
labour-power went to producing them, the stock of
" capital," = plant and intermediate goods, would fall
off with disastrous results. This obviously impossible
conjuncture figures as a final implicit justification of
the practice of money-saving in general.

Old sensations revive whu*i we find Professor Bohm-
Bawerk after this performance going on to explain
with serious unction that in his foregoing exposition lie
has "risked being tedious rather than being suspected

1 Pages 110, 117.

82 THE FALLACY OF SAVING.

of sophistry." I will not accuse the Professor of
sophistry save in the sense of paralogism. But I
affirm that he docs substantially what Smith and
Mill did in their turn — go astray over one of the
greatest of the practical issues of European economics;
and I can only offer the old explanation, that he was
dominated by a desire to justify the prevailing social
ideal and practice. Fortunately, he being the later
and the closer reasoner, his argument contains the
larger measure of sound statement, and the less
measure of unsound. His practical fallacy is an
implication rather than a statement; and he shows
consciousness enough of his exigencies to make it
likely that his exposition will yet be recast. In the
next chapter he writes 1 with significant heat : —

" If anyone is stupid enough to interpret the theory of saving
as meaning that Jinislied capital in its form of concrete capital
must be ' saved, ' he must submit to the retort that man cannot
eat iron machines. But that is not at all the meaning of any
thoughtful representative of the theory. What is maintained
is only that, without saving, capital cannot be made or in-
creased ; that saving is as indispensable a condition of the
formation of capital as labour. And this is literally correct."

What is here called stupid is the express doctrine
of the apostolic succession of economists, who say
that it is products that are " saved.;' Those who
have said otherwise have been those who, like J. B.
Say and Mr. Macleod, recognise capital as an abstract.
And Bohm-Bawerk, as we saw, has himself explicitly
defined capital as consisting in concretes, and has

1 Page 119.

BOHM-BAWERK. 83

expressly depreciated other definitions as evasions of
difficulties. Now he implicitly admits that capital
may have a non-concrete form. Yet all the while he
evades plainly answering the general question, — What
is saved? His case of the socialistic community, how-
ever, gives the simple answer. It is industrial motive
or inducement (in our society, claim to ivealth or pur-
chasing power) that is needed to make labour do any-
thing, and " saving," properly so-called, is only our
special blind competitionist form of accumulation of
such power or motive, an accumulation always de-
feating itself by misdirection. So that the doctrine of
universal thrift is once more seen to be a futility, and
the old definition of capital a stumbling-block, on the
line of the latest economic analysis.

And yet the ruck of the economists, as of the
politicians, mostly adhere to the Smithian conception,
vitiated as it is by the flagrant fallacies of its applica-
tion. Knowing that the claims of investors in
national debts are constantly reckoned as capital, they
persist in talking of all capital as consisting in
material things.

On such a foundation, error is sure to arise. Even
Mr. Macleod, who sees that rights are economic
quantities, and as such, like other credit, may be
capital, does not recognise the Fallacy of Saving as it
pervades our economics. And if Mr. Macleod misses
the practical or sociological upshot, the more orthodox
economists do worse. Just as some assume all banked
credits to be represented by actual money, despite the
notoriety of the fact that they cannot be, so do others
assume all credits to be represented by saved products

84 Tm: FALLACY OF SAVING.

despite the obvious fact that they cannot be. Pro-
fessor Sidgwick, rightly deciding (though he has since
gone back on his perception) that " the greater part of
the 'unequalled loan fund ' of Lombard Street can
never emerge from the immaterial condition of
bankers' liabilities," points out that

" this obvious truth is overlooked, or even implicitly denied,
not merely in all formal definitions of money, but in most of
what is said and written about the functions of bankers. Mill,
for instance, implies over and over again that the medium for
exchange, which it is the business of bankers to collect from
private individuals and lend to traders, consists altogether ot
coined metal — or at least of coin and paper substitutes for coin
made legal tender by Government. A similar implication is
contained in much of Bagehot's language. And indeed 1 hardly
know a single English writer on the subject, with the exception
of Mr. Macleod, who does not continually present this view to
his readers." 1

But if it be a serious blunder to conceive of all bank
credits as being represented by money in the ordinaiy
sense of the term, it is an immenseby more serious
blunder to conceive of all such credits as being1 re
presented by saved goods. Says Mr. Macleod

&

" It is a very prevalent opinion, even among men of business,
that real bills are essentially safe, because they arise out of real
transactions, and always represent property. But .... we
have seen that in the most legitimate course of business there
will generally be two or three bills afloat arising out of the

1 Principles of Political Economy, 1883, pp. 236,237. Let the
reader note how distinctly the admission made here conflicts
with the teaching in the Elements of Politics, cited in our first
chapter.

MACLEOD. 85

transfers of any given goods ; so that, in the ordinary course of
business, there will be twice as many bills afloat as there is pro-
perty to which they refer.'' l

What is true of bills is equally true of the mass of
credits in general. The added ciphers of the bankers'
books represent no addition of " saved products " to
the store of such products available for the "mainten-
ance of industry," but simply the metaphysical fact of
so much general " claim to wealth," claim of which the
validity is constantly fluctuating, being plainly de-
pendent on the extent to which individual claims are
at any moment sought to be realised, relatively to the
state of production. It ought to need no demonstration
that if the purchasing power of money is a fluctuant,
much more so is the wealth-claiming power of credits,
which are but claims to money. In our industrial
system, services are rendered only for the reward of a
lien over other services, and this lien is in the last
resort represented by money. While, however, we
wish to accumulate our claim on services in general,
we cannot all accumulate it in money, and so it comes

1 The Theory of Credit, 1800, vol. ii., pt. i. p. 344. Mr.
Sidgwick, in acknowledging his obligations to Mr. Macleod, adds:
"1 must guard myself againsl being understood to approve of
Mr. Macleod's general treatment of Economics." I regret that
in making similar acknowledgments I must make the same
qualification. In tin- passage I have quoted, Mr. Macleod lays
his linger on a great delusion, profoundly affecting economic
science ; further on (pp. 481-0) he does desperate battle against
the mere verbal solecism of calling the National Debt a mortg
on the property of the count iy instead of a charge mi its income.
A reader is invited to suppose that these issues are of equal or
similar practical important <■

86 THE FALLACY OF SAVING.

to be stored up in simple credits. Thus the nominal
mass of saved capital represents simply claims to
wealth or power to buy services, and, so far from the
wealth being actually saved, it is in large part purely
prospective, for the services which are to constitute it
have not yet been rendered. As the National Debt
burdens in advance the industry of the future, so does
all saving of conventionally recognised claim to wealth
constitute a lien over future labour.

The recognition of these simple truths would rid
economics of two correlative dogmas which stand in
the way of all scientific reconstruction of the social
system. The first is that, but for assiduous " saving "
of claim to wealth, industry would collapse: the
second, that multiplication of " saved " claim to
wealth means increase of national wealth.

I. The fear of decline of industry through defect
of "capital," in the sense of bankers' liabilities,
would be annihilated by the perception that " credit
is capital " in precisely the sense in which " savings
are capital." Professor Sidgwick's fear of the explicit
makes him give only a half-confident exposition of
this truth. Mill, he notes,

" speaks contemptuously of an ' extension of credit being talked
of .... as if credit actually were capital,' whereas it is only
' permission to use the capital of another person.' Now, in a
certain rather strained way, we might say this of gold coin : its
function is to ' permit ' or enable its owner to obtain and use
other wealth. And it is only in this sense that Mill's statement
is true of the credit or liabilities which a banker lends to his
customers, whether in the foim of notes, or under the rather
misleading name of ' deposits.' This credit, no doubt, is a com-

SIDGWICK. 87

paratively fragile and perishable instrument for transferring
wealth ; but that is no reason for ignoring the fact that, in a
modern industrial community, it is the instrument mainly used
for this important purpose." 1

All this should have been put as emphatically as it is
<y put gingerly. The function of gold coin is precisely,
and in no strained sense, to permit its holder to obtain
and use other wealth ; 2 and on the definition of
capital which Mill employed in common with his
predecessors, all money is simply permission or title
to use capital. Having seen this even partially,
Professor Sidgwick has " fallen from light " to Mill's
own level of error when in his later work, before
cited, he teaches that unchecked accumulation of
savings is necessary to the industrial well-being of the
whole community. It lies on the face of the argu-
ment before us that the power wanted is set up by
.simple extension of credit. And here is the whole
case in a nutshell: that whereas actual money =
" capital '' means power to get and move products, so
credit or recognised title to money means primarily
power to get and move money. In practice this latter
motion might actually take place, and to some extent
does take place, the circulating rate of money being
indefinitely capable of quickening; but since the
movement of coin can in many cases be dispensed
with, the movement of products which brings about
fresh production takes place in great measure on the

1 As cited, p. 239.

- This is expressly stated even by Mill, B. III., ch. vii., sec. 3.
Cp. Macleod, Economics for Beginners, p, 33.

88 THE FALI^CV OF SAVING.

simple "permit" of credit, as represented by bankers'
liabilities.

But if " faith in the bank " can admit of the move-
ment of products and money, and thus of fresh
production, so, obviously, can mere mutual faith as
among producers. This is implicitly admitted by
economists, such as Mill and Professor Marshall,1 who
maintain, with whatever ambiguity of meaning, that
all industry depends on capital, and that all capital is
saved. Professor Marshall, we have seen, deprecates
Mill's formula in his latest work; but in another
passage he still gives it a virtual endorsement in the
sense which it properly carries. Bowing, with his
usual candour, to the necessity for a widened defini-
tion of capital, he includes in individual capital " all
wealth or command over wealth which is lent out at
interest, whether in money or in any other form."2
Yet he still states in a footnote3 that "whatever
definition of capital we take, it will be found to be
true that a general increase of capital augments the
demand for labour and raises wages." He adds that

1 Mill's Principles, B. III., ch. xiv., sec. 4 ; Economics of In-
dustry, B. III., ch. i., sec. 4. Mill, in the passage cited, expressly
argues that a commercial crisis is the effect, not of over-produc-
tion, but of "an excess of speculative purchases." Yet he pre-
scribes new purchases as the cure. Mr. and Mrs. Marshall,
while affirming that all supply is demand, explain that " though
men have the power to purchase they may not choose to use it,"
which by context means, if anything, that the error lies in
checking their production, which might go on multiplying for
ever. And still no word of consumption.

- 1st. ed., p. 127.

8 1st. ed., p. 133,

MARSHALL. 89

" whatever definition we take, it is not true that all
kinds of capital act with equal force in this direction;"
but this leaves the fallacy unrectified. His pro-
position remains that increase either of saved claim
to wealth or of, say, machinery, generally tends to
increase the demand for labour and so to raise wages.
Now, it would be a mere quibble to say that increase
of machine plant augments the demand for labour in
respect that labour was needed to make the new
machinery, and yet only in that sense would the
proposition be valid. New machinery, once made,
can be employed only when there is demand for
what it will produce ; and saved money-claim will,
similarly, only be put to the employment of new
labour when there is supposed to be demand for what
it can do, or hope of underselling other labour, which
will be thrown idle. To demand we always return.
When again Professor and Mrs. Marshall write that
" The demand for labour in a disirict cannot in the
long run be increased by any device that docs not
lead to an increase of the supply of capital in it,"1
they are plainly right if they simply mean that
increased employment of labour means increased
consumption of food and tools, and so forth. But it
does not at all follow that there must also be an
increase of that nominal "saving" of money which,
in the exposition of Mr. and Mrs. Marshall, as in that
of "orthodox" economists in general, is sure to be
understood (whatever they may have meant) from
their repetition of the old formula about capital being
a result of saving. And the futility of that formula

Economics of Industry, p. 10.

90 THE FALLACY OF SAVING.

in any case is now clear, when we recognise that mere
mutual trust as between producers will lead to the
creation of fresh capital in the concrete form of plant
and stock, which but for such mutual confidence
•would not have come into existence, the really
"saved" food-capital remaining in either case the
same.

But if, finally, industrial confidence means the move-
ment of products and the spontaneous creation of actual
capital = products, then the saving of "claim to wealth"
is no necessary part of the process of wealth-creation
even in a competitive community. And as industrial
confidence is notoriously commensurate with activity
of demand, the creation of wealth can obviously be
promoted by the substitution of an ideal of consump-
tion for an ideal of parsimony.

Here, however, it will be well to carry the exposi-
tion briefly to its sociological conclusions. These are
(a) that as consumption cannot be indefinitely in-
creased in quantity of each product for each individ-
ual, the ideal must be in the main one of rising quality
— the consumption of things and services which are
not mechanically facile of production ; and (b) that as
such raising of the standard of consumption is im-
possible among a blindly multiplying population, the
limiting of families is indispensable to the proposed
transformation.

II. The foregoing reasoning involves the rejection of
the doctrine that national wealth is to be measured by
the totals either of banked credit or of the values

LAUDERDALE AND RICARDO. 9 1

which measure individual claim to wealth. I have
said that Lauderdale devoted an unanswerable chapter
to the refutation of this notion. He pointed out that
on the system of computation which began in the
seventeenth century and flourishes still, x national
wealth is actually estimated in terms of popular hard-
ship, since that increase in values which arises from
relative scarcity is included among the individual
riches which are totalled. He laid it down on the con-
trary that

"In proportion as the riches of individuals are increased by an
augmentation of the value of any commodity, the wealth of the
society is generally diminished ; and in proportion as the mass
of individual riches is diminished, by the diminution of the value
of any commodity, its opulence is greatly increased." a

This proposition has been denounced as a " melan-
choly paradox" by an able wrriter3 in a passage which
goes on to praise the " masterly exposition " of Ei-
cardo's chapter on " Value and Riches," in which
Lauderdale's doctrine is actually embodied. Ricardo,
it is true, goes through the form of refuting Lauder-
dale on one contention : but he is really affirming the
same thing as Lauderdale does ; and if lie drew up his
own index, we are forced to conclude that he did not
realise what Lauderdale was driving at. The index
reference to Lauderdale runs: "his theory that the

1 Compare his citations from I'etty, King, Hooke, I'ullcmy,
a id Beeke, pp. 39, 40.

- Work cited, p. 4!». Cf. p. 57.

:JP. J. Stirling, The Philosophy of Trade, L846, ]>. L0. This
writer among other things made important correction
Ricardo's doctrine of rent.

92 THE FALLACY OF SAVING.

scarcity and monopoly of a commodity increase wealth,"
which is the exact reverse of Lauderdale's position.
Lauderdale used " riches " to describe individual claim
to wealth, and pointed out that the nominal adding
together of individual riches did not represent real
national wealth at all. Ricardo, of course, admits
that scarcity of commodity would "enrich" the
holders. He writes: —

" Let water become scarce," sajTs Lord Lauderdale, " and be
exclusively possessed by an individual, and you will increase his
riches, because water will then have value ; and if wealth be the
aggregate of individual riches, you will by the same means also
increase wealth. You undoubtedly will increase the riches of
this individual, but inasmuch as . . . all men give up a portion
of their possessions for the sole purpose of supplying themselves
with water, which they before had for nothing, they are poorer
. . . and the proprietor of water is benefited precisely by the
amount of their loss."

Quite so. But inasmuch as the nominal values of
the transferred possessions remain, the " total of indi-
vidual riches," in Lauderdale's sense, has increased by
the nominal value of the (unconsumed and prospective)
water, though, in the terms of the case, the well-being
of the majority has diminished. And if for a promptly
consumed commodity like water, we substituted a
fixed commodity like land, the case would be still
clearer. The upshot is, as Ricardo puts it, that
" value is not the measure of riches," when by
" riches " you understand, not individual claim to
wealth, which was Lauderdale's definition, but what
Lauderdale called public wealth. He and Ricardo
were at one, the opposed doctrine being that of the

SAVINGS DEFINED. 93

Physiocrats, who, as before noted, counted a rise of
prices as an addition to national wealth. And that
very doctrine is subsumed in the estimates of national
wealth which still pass current, and in the notion that
" savings " are part of such wealth. The economic
truth is accurately put by Ruskin in the formula that
riches are " a power like that of electricity, acting
only through inequalities or negations of itself. The
force of the guinea you have in your pocket depends
wholly on the default of a guinea in your neighbour's
pocket."1 And the final sociological truth is that
" savings" in the last resort represent a power to ex-
tort the labour of those who have been unable to
" save," from having to toil for bare life from their
childhood, or being ill-fitted for a life of struggle.

Nor is this all. Not only does the system of sav-
ing offer no special security for the continuance of
industry, but it constitutes a visibly and peculiarly
disastrous means of misdirecting human energy. Few
economic hypotheses are more audacious than the
orthodox assumption that invested " savings " are
sure to be set to employing labour " productively."
To begin with, everybody is quite well aware that
much of the saved claim to wealth passes to borrow-
ing States, who spend it on implements of slaughter
which in a generation grow obsolete even at that;
and to the mere buying of foreign land. But it is
further notorious that of the annual savings of claim

1 Unto this Last, ]>. 40. Compare Coleridge: "Half the
wealth of this country is purely artificial — existing only in
and on the credit given to it by the integrity and honesty of
the nation." Table Talk, March 'JOth, 1831.

94 THE FALLACY OF SAVING.

to wealth an immense mass passes away, even on the
bankers' books, in respect of futile undertakings for
the production of certain forms of wealth. Mill,
coming in his fourth book1 to a question with which
he ought to have grappled in connection with his so-
called Fundamental Propositions, admits that there
goes on a great waste of capital in periods of over-
trading and speculation. Noticing the fact thus late
in the day, he pronounces it " so simple and con-
spicuous that some political economists, especially M.
de Sismondi and Dr. Chalmers, have attended to it
almost to the exclusion of all other " causes of hind-
rance to the downward tendenc}^ of profits. But it is
not merely in " periods " of over-trading that this loss
goes on : the financial journalists chronicle an annual
loss of many millions. And this loss takes place be-
cause the kind of stimulus given by " saving " to pro-
duction is so ill-related to the real needs of the com-
munity, setting up as it so often does a speculation on
increased demand when actual demand seems to be
provided for. A regimen of consumption would not
incur these disasters of the regimen of parsimony ;
that is to say, it would not mean the gambling of
producers for large hauls on which to subsist by way
of investment.

It is only right to admit that these annual mis-
calculations of capitalists benefit the workers in re-
spect that they really mean processes of consumption.
" What is saved is consumed," as the orthodox formula
has it. And this brings us to one more refutation of
orthodoxy — of the doctrine, that is to say, that " the
1 Ch. iv., Of the Tendency of Profits to a Minimum.

CONSUMPTION AND TRADE. 95

destruction of things is not good for trade." l Seeing
that the same creed has all along contemplated the
mere consumption (destruction) of saved capital as
constituting the benefit derived by the workers from
capital, we have here a mere dogmatic suicide.
Orthodoxy is reduced once more to the Leibnitzian
position that it is " good for trade " to consume at a
certain rate (else all trade is a perpetuity of disaster),
but not to consume any quicker ; and that ordinary
commerce sets the right rate.

" It is not good for trade," we are told, " to have dresses made
of material which wears out quickly. For if people did not
spend their means on buying new dresses, they would spend
them on giving employment to labour in some other way.'' -

Why, what does it matter to "trade'' whether I
employ three men in making dimsy clothes or one in
making strong clothes and two in making an orrery ?
The orthodox position frequently resolves itself into
denying that wanton destruction, e.g., the smashing of
window-panes, is good for trade.3 The argument is,
that the money that has to be spent on mending the
windows is withheld from the employment of labour

1 Mr. and Mrs. Marshall, Economics of Industry, p. 17.
a Ibid.

'■'• When the main part of this ossay was read to the Political
Economy circle of the National Liberal Club, the main defence
offered to the criticism on Mill was that his doctrine, " Demand
for commodities is not demand for labour," really meant that
mere destruction of property did not help to employ labour.
Dut the impartial reader must see, first, that this is not at all
Mill's drift, and, second, that the doctrine is economically idle.
It is a part of the wages fund theory.

96 THE FALLACY OF SAVING.

of other kinds. But that does not follow. Where
the spender is one of the " saving " class, the pre-
sumption is that he merely fails to " save " the money
in question. Had he saved it, that amount of claim
to wealth might have lain idle in the bank for weeks
or months, or been borrowed by a gambler ; or it
might have gone to employ labour in making gun-
powder in Russia, or to employ or over-employ some
labour at home. In the former cases it gave no im-
pulse to production. In the latter case the invest-
ment would come to the same thing with the spending
labour in either case was employed, whether to make
new panes not in demand or to put panes into sashes.
The only difference would be that in the process of
investment part of the claim was diverted to the
maintenance of the banking class. Since " what is
saved is consumed," the question comes to this, Which
class is to do any given portion of the consuming ?
In a community where the burdens of labour fell up-
on all, the breaking of window-panes would be a
waste of labour representing a common loss ; but in a
community where one section has accumulated a mass
of claim to future services, and is concerned to get for
its transferred claim a perpetual tribute of new claim,
those who have no accumulated claim are employed
or unemployed just as their employers see chances of
accumulating claim by production. And as employ-
ment is clearly more abundant when consumption is
abundant, and often dwindles while there is plenty of
" saving's " seeking investment, it is clear that no
stimulus to demand in one direction need necessarily
check it in another, and that no drain on savings need

THE worker's side. 97

necessarily check profitable production. Of course,
in practice it does do so when the savers decide to
consume still less ; but the fact that such abstinence
checks production is the refutation of the doctrine
that saving promotes production. The economic
sophist cannot be allowed to employ both arguments
alternately. What is clear is that the consumer,
whether he saves or spends, is considering merely his
own private interest, and not at all that of the com-
munity. And why should the economist suddenly
demand from the workman an other-regarding
scrupulosity which he never suggests to the man who
saves ? It is idle. A broken pane is a means of
putting so much consumption in the way of the
glazier. And as the problem for each labour class is
just to do its share of consuming the " remuneratory
capital " available, the glaziers must needs rejoice
when the stress of a riot falls on windows and not on
hats.

The spectacle is, indeed, painful from the point of
view of an enlightened humanism ; but that stand-
point cannot be taken by the advocate of the principle
of saving for productive investment. When the
motive force of " saved " money capital is not being
spent on pure futility, it is as often as not producing
bad goods to undersell better. In commerce, under
the regimen of parsimony, every producer seeks to
produce as much as possible without consuming any
more of the products that others are multiplying,
much less calling for new products of a higher order
which might divert labour from the abundant sorts.
The Smithian economists insist that " general " ovcr-

G

9S THE FALLACY OF SAVING.

production is impossible, meaning really " universal "
over-production. J. B. Say and Ricardo established
the doctrine that, as goods exchange for goods, all
supply is demand, and over-production is impossible x
— a tenacious fallacy, consequent on the inveterate
evasion of the plain fact that men want for their
goods, not merely some other goods to consume, but
further, some credit or abstract claim to future wealth,
goods, or services. This all want as a surplus or
bonus, and this surplus cannot be represented for all
in present goods. On Say's theory, there could be no
profit save what was immediately realised by extra
consumption, and such consumption he deprecated.
In Mill's hands, the sophism loses none of its out-
rageousness. Proceeding complacently, like his pre-
decessors, to refute those who pointed to the glaring
evils of gluts, he triumphantly explains that if only
other things were as freely produced there would be

1 Say, Traite, L. I. ch. xv., Des DebouchSs. Ricardo, Principles,
ch. xxi. It is noteworthy, however, that Ricardo modified his
first emphatic statement. In his first edition (p. 3G2) he writes :
" Productions are always bought by productions or by services ;
money is only the medium by which the exchange is effected.
Hence the increased production being always accompanied by
a correspondingly increased ability to get and consume, there is
no possibility of over-production." The passage is thus cpuoted
by Messrs. Mummery and Hobson, whose book is described in
our next chapter. But in the second and later editions the
second sentence disappears, and the argument simply goes on to
the effect that "too much of a. particular commodity may be
produced," but not of all commodities, which is an idle truism.
J. B. Say also notes that the commodities required to buy
others must be "of the right sort," which reduces the general
doctrine to a quibble.

OVER-PRODUCTION. 99

no gluts. And this comfort is offered to the thousands
of producers who know that their products are often
in excess of effective demand, in the face of the
mathematical certainty that all other products cannot
be so multiplied. Mill himself, in his worst manner, l
points out that money is a commodity like another,
and that a superfluity of that would mean rising
prices, which would negate a glut. He might have
added that land (to say nothing of credits) is a com-
modity not producible in excess of demand. He is
arguing that there will be no glut if everything is
multiplied, when he knows everything cannot be.
And while perpetrating this paralogism, and making
the incredible assumption that his opponents were
afraid of universal over-production, he writes of the
" fatal misconception " which has " spread like a veil
between them and the more difficult portions of the
subject, not suffering one ray of light to penetrate."

In Mill's case the optimistic doctrine is peculiarly
preposterous, because, as we have seen, he had before
laid it down that the only way in which capital couM
keep industry always going, was by employing labour
at first hand without profit. But if in Mill's case the
capitalists had to ignore one chapter in order to deri\ e

1 B. III., ch. xiv. sec. 2. Sismondi (Etudes snr I'Economie
Politigpte, 1837, i., 79 ; iii., 314) advanced the very fact of the im-
possibility of exchanging I he same kind <>f goods ad mftnitum in a
fixed population as a plain refutation of the sophism that all
supply is demand. So Stirling (Philosophy of Trade, p. 55)
pointed out in 1840, that "labour and the products of agri-
culture cannot be increased in the same ratio or with the same
facility as the products of manufacturing industry."

TOO THE FALLACY OF SAVING.

encouragement from another, they had a more single-
minded support elsewhere. Ricardo explicitly set
forth,1 (and this proposition he did not recast) that
" .Mr. Say has most satisfactorily shown that there is
no amount of capital which may not be employed in
a country, because demand is only limited by pro-
duction." True, even Ricardo found Mr. Say im-
perfectly sound in his own faith.

" Is the following," he asks in a footnote, "quite consistent
with Mr. Say's principle ? ' Hie more [that] disposable capitals
are abundemt in proportion to the extent of employment for them,
the more will the rate of interest on loans of capital fall' — (Traite
ii., 108). If capital to any extent can be employed in a country,
how can it be said to be abundant, compared with the extent of
employment for it ? "

How indeed ! And how could Ricardo leave the
matter with that comment, knowing as he did that
lendable "capital " did vary in abundance? By im-
plication, he would have to answer that the under-
takers had merely failed to employ capital as they
might — a proposition disallowed by his whole habit
of economic reasoning. The truth is, that Say's ex-
pression was a fresh surrender of his doctrine that
supply is demand, for if he repeated the sophism that
what was wanted was production of a different sort
of commodities, he had no way of explaining why
these commodities were not produced when capital was
admittedly available — no way, that is, save admitting
that consumption-demand is the limit of each kind
of production. Nor could Ricardo offer any other

1 As last cited.

OVER-PRODUCTION. 10 1

explanation. But, committed like the rest to the
gospel of saving and investment, he allowed the old
doctrine of unlimited saving to stand in the teeth of
the current refutations, and the undertakers held by
the doctrine that chimed with their main inclinations
— that is, if they thought of doctrine at all.

Whether or not they study the economists, the pro-
ducers of popular goods have chronically exemplified
the fatal tendency of the " saving " ideal towards the
stage of carrying the industrial head under the in-
dustrial arm. Periodically do they find themselves
outrunning demand ; and though there does now seem
to be a tendency towards rational organisation, it must
be hard for the capital-hunter to keep short of fatality
while the regimen of parsimony subsists. Over-pro-
duction is chronic ; and all the while, in the face of
that kaleidoscopic principle that lie who supplies also
demands, the over-producer (master and workman
alike) is exhorted to sell as far as possible without
buying, to " save " as much as possible of his wages, or
the money or credit which he is paid for his goods, so
as to cause that to be applied to — further production !
In that case, does not his capital buy plant or labour ?
As for the goods produced, why, these must be left to
the chances of trade. Thus are still more goods pro-
duced without being consumed, and, in self-preserva-
tion, inferior goods are produced to undersell the
others, till at length nothing will serve but the dis-
missal of workmen.1 So that, at any one moment of

1 Doubtless the fall in prices benefits bhe workers before
the collapse comes, just ,-is waste of capital in bad Bcheraes
feeds them. Thus it turns out that the miscalculation of

102 THE FALLACY OF SAVING.

commercial history, there is either over-production,
crisis, or strategic check of production ; and all the
while multitudes are perforce striving not to consume
what they might, so that they may have something to
fall back on in sickness or idleness. And all the more
surely the idleness comes, and they do fall back on it.
And thus life is narrowed and degraded, products
made poorer, dwellings more paltry, so that the
collective " comfort " of the industrial population is
something immeasurably ignoble, like the pullulating
of rabbits and mice. A great industrial city of to-day
represents a povert}7-, in some of the main elements of
pleasurable life, such as would have appalled a Greek
or Roman : the 'public wealth of the greatest city in
the industrial era is sordid penury compared with
that of a city of antiquity.

From the most enlightened commercial standpoint,
which here coincides with the orthodox economic
tradition, future development is to be merely a matter
of multiplying the conditions of cheap existence.
The forethoughtful trader, that is, sees that production
of ordinary machine-made commodities is always out-
running demand ; and puts his faith only in " new
markets " for these same commodities, in Africa or
elsewhere. Even Mill, after all his polemic about em-
ploying bricklayers, and the impossibility of "general"

the manufacturer, which Smith put on a level with the pro-
digality of the spendthrift as tending to national impoverishment,
is, like that, a cause of popular gain. The spendthrift's pur-
chases, in many cases, go into the second-hand market at greatly
reduced prices ; and he and the unlucky manufacturer have
thus both promoted "public opulence," The trouble sets in
when the manufacturer shuts up his factory.

OVER-PRODUCTION. 103

gluts, conies at loug last1 to this view, making no
attempt to bring it into harmony with his optimism.
He accepts as " substantially true " the proposition of
Wakefield2 that " production is limited not solely by
the quantity of capital and of labour, but also by the
extent of the ' field of employment ; ' " and then we
have this commentary : —

" The error which seems to me imputable to Mr. Wakefield is
that of supposing his doctrines to be in contradiction to the prin-
ciples of the best (!) school of preceding political economists,
instead of being, as they really are, corollaries from these prin-
ciples ; though corollaries which, perhaps, would not always have
been admitted by tliosc political economists themselves."

Such a vindication of the " preceding " economists
needs no discussion. The point is that, just as his
" fundamental " prescription for the employment of
labour was an indefinite multiplication of work for
work's sake, so his independent common-sense con-
clusion is that we can only jog on by opening up new
markets for the most facile products of labour. With
all his genuine humane aspiration, he will in no wise
see that the line of upward progress can only be
through an ideal of increasing and refining consump-

1 B. IV., ch. iv., sec. 2.

- Author of England and America (1834), and editor of an
edition of Smith's Wealth of Nations. In the former he exposed
('pp. 74-89J somewhat diffusely, not only the prevailing fallacy
as to unlimited accumulation of capital, but the glaring contra-
diction between the doctrine of capital and wages and the actual
state of things in America. In his edition of Smith (1835, ii.,
387-390) he criticises the doctrine of parsimony, admitting that
his views were suggested to him by passages of Chalmers,

104 TIIE FALLACY OF SAVING.

tion all round. And what Mill would not see, the
trader naturally will not.

There is one last encouragement to the ideal of
parsimony which should be noticed, by way of con-
stating all the forces of the situation. In one way, or
at one point, the saving system can be seen directly
to add to national wealth — I say national wealth, ad-
visedly. Mill notes l that in " old countries " the
tendency to fall in profits " is stopped at the point
which sends capital abroad." That is the beginning
of the really public advantage. " Money " lent abroad
must needs go in the form of home products, in mak-
ing which the workers get permits to consume ; and
for these products there comes back, in a certain num-
ber of cases, an annual tribute of interest in the shape
of foreign products, wdiich are thus cheapened to us
in general. Of course foreign investments in English
stocks and industries draw a tribute from us per
contra, but the Board of Trade returns thus far show
a surplus of imports over exports (whereat the blun-
derers lament) ; and while the experts can give the
true interpretation of this, the " saving " class are not
likely to be discountenanced in their ideal by the con-
sideration that the gain comes of a perpetual lien on
the labour of alien poor. Thus is the economic fallacy
buttressed.2

1 B. IV., ch. v., sec. 1.

2 The argument is so used by Dr. Walcker (Lchrbuch, p. 37).
He notes that " a rich Englishman may buy Russian railway
preferences, and thereby promote the well-being of the English
people with cheaper Russian corn." But he does not stay to
ask what is the effect on the well-being of the Russian people.
In the terms of the case, it must be to make corn dearer to them.

CHAPTER VIII

"THE PHYSIOLOGY OF INDUSTRY" — A CONFIRMATORY
ARGUMENT.

Since this essay was first written, there has appeared
a treatise which so ably and effectively sets forth the
same doctrine, that only the difference in my method
of approach makes the publication of mine still advis-
able. It is The Physiology of Industry, by Messrs.
A. F. Mummery and J. A. Hobson.1 " An Exposure of
Certain Fallacies in Existing Theories of Economics " is
the sub-title; and the fallacies exposed are in particu-
lar those dealt with in the foregoing chapters. But
Messrs. Mummery and Hobson have made their
analysis, as it were, from the other end, taking the
received doctrine and comparing it with the actual
processes of industry, both abstractly and concretely,
analysing rather these processes than the teaching
which misrepresents them, and finally grounding their
refutation on their exposition of the real processes of
the industrial system in the concrete. It is the more
satisfactory to me, and it will perhaps be the more
noteworthy to the reader, that from the different
lines of approach the conclusion as to the Fallacy of
Saving is arrived at with equal emphasis in both
cases.

1 London : John Murray. 1889.
i°5

106 THE FALLACY OF SAVING.

Messrs. Mummery and Hobson, without dwelling on
the history of the doctrine of parsimony, attack it in
John Mill's statement as I have done, but they give
us the profit of a confirmatory argument by working
consistently on those definitions of capital and saving
which were set forth, but not consistently adhered to,
by the older economists. They confute Mill and the
later writers as Lauderdale confuted Smith. I can-
not think that the use of this definition in a general
discussion is the best way of enlightening the ingenu-
ous student ; at all events, I have sought to impress
on him that the old definitions of capital and saving
do not quadrate with the facts and the speech of
everyday affairs. But for the purpose of confutation,
Messrs. Mummery and Hobson's method is irresist-
ible.

Capital they define, x after a survey of the diffi-
culties and exigencies of the case, as " (1) Raw
material and goods in their various stages of de-
velopment, including shop-goods ; (2) plant and all
machinery ; " and saving they define 2 as " the differ-
ence between what is produced and what is con-
sumed. The correct formula is as follows : production
— consumption = savings." On these definitions the
old doctrine can be tested with the utmost logical
rigour. As the authors observe, 3 capital " has been
described as ' the result of saving' by those who have
not yet explained what saving means, and who after-
wards appear to include in savings, the food which is
not saved but consumed by labourers." Their own
definition precludes confusion by clearly excluding
1 Page 34. - Paw 30. » Page 31.

"THE PHYSIOLOGY OF INDUSTRY.' \0J

the process of what commonly passes for saving, i.e.,
the " putting-by " of money or credits. And on tins
basis it becomes instantly apparent that, as they put
it, " A belief in the infinite possibility of saving
implies a belief in the infinite increase of consump-
tion," 1 precisely what the exhortation to saving- aims
at limiting. Messrs. Mummery and Hobson here
seize and expose the fallacy as I have sought to do
in the opening examination of Smith ; noting in
turn that Mill's doctrine of saving stultifies itself,
inasmuch as

"The new labourers have already got a stock of necessaries
provided for them in the new wages fund, constantly maintained
by a continuance of the former abstinence of the capitalists.
The wealth, then, which the new labourers produce must either
go to provide luxuries for themselves or for the old class of
labourers, or it must provide luxuries for the capitalists, who
will thus be obliged to revoke their vow of abstinence. To one
or two, or all of these uses, it must be put, and in any case it
will be unproductively consumed in the shape of luxuries." 2

In fine, we may put it that Mill's doctrine in
practice would work out the artificial and gratuitous
multiplication of the poorest sort of labourers,3 which
we know was certainly not his social ideal. And as
to Mill's successors, Messrs. Mummery and Hobson,
too, note 4 how, " strange to say, those who have most
distinctly repudiated the wage fund theory have
retained the theory of the possibility of infinite
saving, which depended on it." On the general sur-
vey of the broad relation of production to consump-
tion, they themselves sum up6 that "if increa <-'l

1 Page :J7. - Page 45. ;; Page 49. ' Page 46. B Page 61.

IOS THE FALLACY OF SAVING.

thrift or caution induces people to save more in the
present, they must consent to consume more in the
future." That is, of course, as regards ': the produc-
tion and consumption of the entire community;"1 for,
of course, as between individuals, the balancing
consumption can be and is done by others than the
savers in so far as it is finally done at all.

Now comes the independent analysis of "the
physiology of production," in which it appears that
'• to the maker and the trader, goods, raw material,
plant, etc., are valued exclusively for the more or less
of purchasing power which they afford to their
owners," and that, " from the point of view of the
individual tradesman, all acts of sale and purchase
are primarily exchanges of forms of this purchasing
power." Thus, the price the baker gets for his bread
keeps his capital intact when the bread is sold, the
capital being merely in a constant alternation of
forms ; and only the act of consumption extinguishes
a portion of purchasing power and annihilates " a
portion of the total stock of wealth of the com-
munity."2 (To be more strictly accurate, it should
be put that the baker is always slightly increasing
his purchasing power or capital in respect of his
profit on sales, and that he may or may not con-
tinuously extinguish the increase by his private
consumption.) Two propositions are in this way
established : —

"Firstly, that an exercise of demand (for commodities) can -
not diminish capital; secondly, that an exercise of demand,

1 Page 53. 2 Pages 60, 61.

TITE RATIONALE OF TRADE. 1G9

though it consumes a portion of previously existent wealth and
annihilates a portion of purchasing power, causes the production
of an equivalent amount of new forms of wealth and pur-
chasing power" —

that is, in respect that the act of purchase passes
back as a wave of impetus along the whole producing
series to the first member of it, and causes fresh pro-
duction. I have said that Messrs. Mummery and
Hobson consistently apply the definition of capital
as a set of concretes ; but it is not quite clear that
they do so at this point. We are here in face of a
constant transmutation of a concrete into an abstract,
and vice versa ; and the act of consuming a portion of
concrete stock (till then = capital) is balanced by
setting in motion an abstract force, which is the only
representative of the given amount of capital till the
new stock is made. Is not capital then here some-
thing else as well as what it was defined to be ?
True, the authors have pointed out * that when half
the machines in a factory are idle, or all are used
only at half-time or half -pressure, " the real capital
consists in half the machines, the other half being
surplus or nominal capital;" and as they show (as
di<l Lauderdale), that there may easily be concrete
fixed capital of certain sorts in excess of the existing
needs of the whole community, it would follow that
whun "purchasing power" in the form of saved
credit is in excess of the industrial needs of the time
(which we have seen is constantly the case), such
excess is only nominal and not real capital. But that

1 Page 35.

110 THE FALLACY OF SAVING.

does not alter the fact that just as the unused
machines still figure as capital in the owner's esti-
mate, so the superfluous saved money-credit figures
as capital. And though, as we have decided, the
superfluous saved money-credit would immensely
raise prices if it were all at once sought to be realised
in any or all of the existing forms of concrete wealth,
thus demonstrating its illusoriness, yet any one por-
tion of it still subsists as purchasing power, and it is
impossible to say what portions of it are " real "
capital and what are not. And this brings us back to
the question of what is realty the best definition of
capital. The question is not, it has been well said,
What is capital, but What is capital to be ? Messrs.
Mummery and Hobson write : —

"If we are unable to say whether a particular piece of wealth
which exists is or is not at the present time capital, it is absurd
to maintain that our term capital can be a useful part of our
economic nomenclature.''1

But is not the philosophic form of statement just
this, that a particular piece of wealth, or, in Mr.
Macleod's phrase, any economic quantity, is or is
not capital according as it stands or does not stand in
the " capital " or " principal '' relation to an industrial
or commercial process ? Defined in this way, capital
is as clearly specified as any concept whatever, and
we are at once delivered from all concrete confusion,
to the great gain of economic logic. The word will
cover, at need, alike concretes and abstracts, goods
and plant and credit and claim. And the only stipu-

1 Page 31.

CAPITAL INFINITE. Ill

lation necessary to be made all round is that all
writers shall make an end of the pretence of adding
up "the capital of the country," and of the use of
language about " additions to the total capital of the
country," — verbal processes which were always prac-
tically absurd, and are now specifically so. Defined
as above — and this, I maintain, is the only philo-
sophic definition — general or national capital is an
infinity ; and if we are to total anything included in
it, it must be specifically, as plant, and stock, and
machine-power, and water-power, and acreage, and
productivity, and working hands. To add up credit
or claim is futile. And Messrs. Mummery and
Hobson, it seems to me, are finally committed to this
reasoning and this definition. They explicitly state1
that " since the community, as a whole, can never con-
sume more 'subsistence, convenience, and amusements'
than it has actually produced, it is obvious that the
community [ = the whole industrial public, not the
nation as a receiver and spender through its political
executive] can never live beyond its income." But
the same line of analysis works out the conclusion
that the community as a whole can never live beyond
its capital, since as we have seen every act of effective
demand, involving a recognised claim, goes to set up
fresh production, and there is no necessary limit to
credit. And this truth, as it happens, was formulated
two hundred years ago, by one Dr. Bifield, cited by
Lauderdale. A person, says Bifield, can waste his
stock, " because his waste is finite : but the stock of
a nation is infinite, and can never be consumed ; for
1 Page 78.

112 THE FALLACY OF SAVING.

what is infinite can neither receive addition by par-
simony, nor suffer diminution by prodigality."1 This
was written in 1690. The 'mills of economics have
ground exceeding slow.

So much for theory. As to practice, Messrs.
Mummery and Hobson sum up dead against the
doctrine of parsimony. Treating Mill's worst formula
with the greatest consideration, they observe2 that he
" rightly contended that the demand for shop goods
was not the demand for the labour which had pre-
viously produced them " (a pleasing truism which, I
suppose, expresses the elusive truth recognised in the
doctrine by Mr. Leslie Stephen); and they point out
that " it by no means follows that present demand for
shop goods is not the source of present demand for
labour," but that, on the contrary, " the use of natural
agents, capital, and labour, produces commodities, and
demand for these commodities is demand for the
[further] use of the requisites of production."3 And
now comes the sociological conclusion4: —

''The identification of depression in trade with insufficient
consumption or excessive thrift is, we venture to assert, un-
assailable. . . . This conclusion is of critical importance to the
community : it means neither more nor less than that the com-
munity could at once and permanently enjoy a larger income. It
means that the East End problem, with its concomitants of vice
and misery, is traced to its economic cause, and that this
economic cause is the most respectable and highly extolled
virtue of thrift."

1 A Discourse of Trade, by H. Bifield, M.D., printed 1690,
cited by Lauderdale, p. 222, note.

2 Pa<?e 92. 3 Pa^e 95. 4 Pa^e 99.

THE CAUSES OF POVERTY. 113

Substantially as I am in agreement with this con-
clusion in its economics, I will take leave to suggest
certain qualifications which are necessary to make it
strictly accurate. First of all, it is necessary to keep
in view that the under-consumption which is specified
as the cause of trade depression must not be under-
stood as a regrettable under-consumption of the things
of which there is a glut. This brings us to the grain
of truth involved (unconsciously to them) in the old
optimists' maxim, that the cure for a glut was ex-
tended production of the things of which there is not
a glut. Not that the cure would or could operate as
they supposed. The one way, on their principles, to
cure a glut of boots and hats would be to consume
these wastefully in exchange against other things,
since mere increase of population, though thus en-
couraged by implication, could only after an interval
of time dispose of a present overplus. And the in-
crease of population, on the old lines of parsimony
and production, could mean ultimately nothing but
new and greater periodic gluts. The real cure, as
regards the labour-market, would be by way of ex-
tension of demand to objects not readily produced in
excess ; such as superior hand-made goods and pro-
ducts of art of all kinds. Here a glut is impossible,
provided only that the standard of taste goes on
rising with the many as it has done with the few.
Art is longer than life, and there lies the true philo-
sopher's stone of perpetual industry — the reaching
towards an end forever unattained. It is nut quantity
but hind of consumption, the setting up a continuous
demand which shall withdraw Labour from the fatally

114 THE FALLACY OF SAVING.

easy fruitions of the mechanical manufacture of com-
mon necessaries, that will prevent chronic depression
of trade. And such ever-rising standard of demand,
it is obvious, is impossible without such a restraint of
the rate of increase of population as shall give scope
for the play of the higher and subtler needs without
fatal encroachment on the part of the simpler and
lower. These things Messrs. Mummery and Hobson
should have stated as sociologists, since it is their
aim and their merit to carry their economics into
sociology.

Secondly, they overstate the sociological, and there-
fore the economic, case for consumption when they
teach that simple increase of consumption may solve
the " East End problem." For one thing, large families
must always mean relative poverty under a wage-
earning system, and, if numerous, comparative poverty,
up to the revulsion point, in a socialistic system. For
another thing, it must not be forgotten (some im-
patient readers, it may be, have long ere this accused
us of forgetting) that old people cannot work to their
last day for their own support, and that under a
regimen of increased and increasing consumption,
while healthy wage-earners (barring over-population)
will certainly have a better income, there will be ne-
cessitated a new social machinery for supporting the
aged. At present the aged poor (such as can become
aged) go to the workhouse, or subsist painfully on
small club allowances, while the less poor subsist on
the fruits of their savings, that is, on the interest of
their accumulated money-claim on the services of
others. Now, it is idle to suppose that while the

CONTINGENT ISSUES. 1 1 5

workhouse remains the only common provision for
old age, those capable of saving will abstain from
doing so. The instinct of self-preservation will
continue to assert itself; and either the battle
of saving will be intensified as more and more
persons accumulate claim, or there will ensue such
demoralisation of the wage-earning proletariat as
took place in the proletariat of ancient Rome, unless
a rational system of corporate action be developed.
One or other of these three courses our civilisation
must take ; because even the all-essential restraint of
population cannot alone secure that all who work
shall have a moiety of the comfort now enjoyed by
those who do not work at all, though it would
greatly modify the atrocity of the present scramble
for employment and the misery of the lower
strata. Even a controlled population acting on the
principle of parsimony will be one in which ma-
chinery will rapidly overtake the total demand for
necessaries, as it has already overtaken again and
again the effective demand, .so that even in such a
society there would be, barring organisation, chronic
industrial crises. A rising demand for the higher
products is as essential as control of procreation.
Moreover, the struggle of saving would grow more
and more internecine in a community in which re-
straint of population minimised the helpless mass,
and he who would live on his investments must save
more and more to outsave his competitors, in the
words of Messrs. Mummery and Hobson,1 " Each is
competing against the other; each is seeking t<> do

1 Pa^e 112.

Il6 THE FALLACY OF SAVING.

himself the largest portion of the useful saving." But
when there is any constant quantity of economically
superfluous saving, it is clear, cancelment is in the
main (allowing for variations of luck) a process affect-
ing all sums of savings proportionately, and he who
has the largest total will always have the largest
amount of effective claim. Thus the struggle must
go from bad to worse, with no relief but that chroni-
cally and partially supplied by the annihilation of
masses of money-credit in desperate enterprises.

Expanding consumption, then, is not enough : re-
straint of population must go with it. And it is clear
that expanding consumption, with or without restraint
of population, involving, as it must, the surrender of
the present means of self-preservation for the more or
less successful in old age, will never be adopted as the
general ideal until some common provision for old age
is set on foot.

In these conclusions, I think, Messrs. Mummery
and Hobson must acquiesce. It is clearly not enough
to say, as they do in one place,1 that " if the community
wishes to increase its capital, it must consent to in-
crease its consumption," for there is always going on
an increase in mass of consumption, and consequently
in capital in their sense, by force of the mere increase
of population. To the wider conclusion they are led
by their demonstration of

"the fundamental fallacy which underlies the economists'
view of saving, the assumption that the interests of the com-
munity must always be identical with the interests of its several
members. The statement of Adam Smith, 'what is prudence

1 Page 112.

CLASS INTERESTS. 117

in the conduct of a private family can scarce be folly in that of
a great nation,' has been taken too generally for a gospel truth.
This view, that a community means nothing more than the
addition of a number of individual units, and that the interests
of society can be ascertained by adding together the interests of
individual members, has led to as grave errors in economics as in
other branches of sociology." x

These general conclusions, I submit, have now been
proved, and no less the particular.

For the rest, Messrs. Mummery and Hobson supply
a close and cogent analysis of " Over-Production and
Economic Checks," which will be found to confirm my
own more summary statements on that head. Follow-
ing out the principle of their first chapter, that the
economics of consumption cannot without fallacy be
separated from that of production, and that con-
sumption is really only the closing act of production,2
they have really justified their title of The Physiology
of Industry, which would hardly have been done by

1 Page 106, citing Smith, B. IV., ch. ii., sec 1. It should be
noted that Smith, who generally saw the sound as well as the
unsound view of a case sooner or later, though he so often failed
to make the proper cancelment, himself remarked in another
passage that " the merchants knew perfectly well in what
manner to enrich themselves. It was their business to know it.
But to know in what manner it enriched the country was no
part of their business" (B. IV., ch. i., McCulloch's ed., p. 189) ;
and, still more explicitly, that " the interest of the dealers in any
particular branch of trade or manufactures is always in some re-
spect different from, and even opposite to, that of the public "
(B. I., ch. xi., end).

2 A view wrought out also by Mr. R. S. Moffat in his
Erenow 1/ nf Coiisiiiiijilioa, with much convincing illustration and
great expository power.

ITS THE FALLACY OF SAVING.

Mr. Stirling bad he called his work, as he at first in-
tended, The Physiology instead of The Philosophy of
Trade. They complete the argument, finally, by a
refutative chapter on " Scarcity of Gold as an Economic
Factor," to which those readers may turn who feel that
the arguments of the currency school call for detailed
answer. I apprehend, however, that those who
acquiesce in the present argument thus far will not
demur to my leaving those arguments on one side.

PART IL— THE PRACTICAL ISSUE.

I.

Already, perhaps, the reader, in accepting the argu-
ment, has recoiled in despair from the vast vista of
social reconstruction which it opens up as the only
alternative to a long decline towards darkness. He
may be moved to cry out with Mr. Lang, and with
perhaps the better justification as having really tried
to understand the case, that " the social problem is
insoluble," and that after a few centuries we shall just
" worry back to barbarism." There is a certain
sombre fascination in this species of pessimism that
especially captures the belletrist mind, even that mind
which, in resentment of other austere philosophies,
formulates for itself in the name of mythological
science the doctrine of a divine " Father who is not
far from anyone of us,"1 and is solaced under the
pressure of the insoluble social problem by the
spectacle of the "beautiful Church of England." But
if the belletrist, who at least realises that there is a
social problem, is thus impressed by it, we must con-
fess that it will be hard to bring home to his public
the falsity of the current economic gospel of saving.

All the forces of egoism and optimism are on its
side. As a matter of fact — and this is the real crux

1 Mr. Lang : Myth, Ritual, and Religion, i. 340.
ug

120 THE FALLACY OF SAVING.

of the case, remaining after all the economic fallacies are
exposed — the average middle-class man has at present
no way open to him but saving to provide for his old
age ; that is, the minority must " save " in order to
live one day on the labour of the majority. If the
saver buys an annuity, his money seeks investment
all the same. How make the middle-class multitude
ever realise that this proceeding of theirs is a saving
only of abstract purchasing power : how make them
see, even with the fall of interest before their eyes,
that the more people save, the nearer nullification will
be their mutual claims ; that instead of being a means
by which all can add to the common well-being and
their own, it is only a process by which a saving min-
ority can command the services of a non-saving
majority? These, we have seen, are the facts. The
increasing " savings " of the working-classes, we repeat
once more, represent no saved or made property of any
kind, but an abstract claim to wealth, which to seek at
once to realise would be to prove the unreality of the
wealth by immensely raising prices. It is practically
a claim on services in general, and these services are
only realisable in so far as alongside of the savers
there remains a multitude which saves nothing or
little. Let that multitude save also, and cancelment
of claim begins to take place all round. But just as
saving extends, cancelment of claim is proportionally
going on, the result being that the more A saves the
more B must save to get the better of him.

Meantime, the cure prescribed for the workers is
that they shall not onty be chary of consuming the
goods which they live by producing, but equally ab-

THE PRACTICAL ISSUE. T2I

stain from consuming high-class goods, the production
of which would call for labour of a higher class —
labour which could not be superseded by machinery.
And their saved money is consequently to be invested
in the production of only the kinds of goods or ser-
vices which, so far as parsimony prevails, must of
necessity be forthcoming, and are for the most part
only too easily multiplied. Thus their very savings do
but go to facilitate the crises which throw them idle.
The more they cause "capital" to abound, too, the
more nearly impossible it becomes for them to be their
own capitalists for productive purposes, since the sav-
ings of the upper classes go the more to form over-
whelming joint-stock concerns that blight smaller
undertakings. Thus, on the one hand, we have the
increasing class of idle rich, living on investments, and
well-to-do jobbers, living by spurious commerce; and,
on the other hand, the increasing class of toiling poor,
who on all hands are taught to aim at investments
likewise, but only here and there to limit their rate of
increase and raise their standards of comfort, though
only by these last courses can they, under any con-
ceivable regimen, countervail the constant extension
of labour-saving machinery, and make new labour in-
dependent of the capital of the idlers. We are in such
an impasse that even if the National Debt were rapidly
paid off by way of removing a burden from industry,
the result must needs be the throwing idle of many
thousands, through the stinting of the consumption of
fundholders left without investments, unless one of
two courses were pursued. Either (a) the principle of
parsimony must be generally abandoned, and the

122 THE FALLACY OF SAVING.

majority must demand high-class goods or services
which should be more or less providable by those who
formerly provided nominally high-class goods or
services for the f undholders ; or (b) the State or the
municipalities must institute important public works
(such as civic reconstruction, with good working-class
houses, or comprehensive sewage-schemes), which
should extensively employ and train inexpert labour.
Indeed, it is clear that the contingency could not be
met save by the action of both these general factors :
the workers must consume if production is to be kept
up. And, finally, restraint of propagation is an indis-
pensable condition of the maintenance of the improved
state of affairs.

Now, is there any prospect at present, in the face of
the faith in parsimony, that either, on the one hand,
the State or the municipalities will institute the
necessary" constructive works (which would of course
have to be based on an extended taxation of rent and
incomes), or that, on the other hand, the general
public will recast its standards of life and insist on
consuming and therefore producing more good things ?
Is there, again, any prospect that the State or the
municipalities will institute a system of provision for
old age and sickness, not by a scheme of insurance
fallaciously resting on blind investment, but on a
system of calculated production of the things people
need ? And, finally, is there any prospect that the
people in general will effect that control of their rate
of increase without which both of the other rearrange-
ments would be futile ?

As our sociology stands, the prospects are certainly

PREVIOUS FAILURES. 1 23

not bright. Are they then blank ? If so, why, then
we have been contemplating no mere corrigible fallacy
of the reason, but a radical fallacy or flaw in human
things — in life itself. And who outside the school of
Mr. Lang can accept such a conclusion?

It is certainly a clamping reflection that most of
the economists who have been cited as seeing through
the Fallacy of Saving have negatively or positively
failed in their prescriptions for society. Lauderdale,
in arguing down the sinking fund principle, had the
air of vindicating the National Debt ; Sismondi attacked
machinery ; Mr. Ruskin has done that and rather
worse things ; Malthus confessedly approved the insti-
tution of an idle rich class, and lost weight also by his
defence of the Corn Laws, though in that his error
was not absolute, seeing that he recognised the new
trouble of rapidly multiplied population, to which the
Free Traders shut their eyes. Chalmers, again, made
a preposterous proposal for the special support of
aristocrats ; and nearly all these economists in a way
seemed to endorse the old notion that labour neces-
sarily depends on the expenditure of the idle rich — a
doctrine which Mr. Ruskin has on moral grounds
gratuitously attacked as being that of the prevailing
economists (who, as we have seen, did not hold it),
and which was after all (inly a blundering version of
the true doctrine of spending enforced by Mr. Ruskin
himself. Later than Malthus and Chalmers, Mr.
Moffat, who, like them, has assailed the Fallacy of
Saving, has decided to credit the landlords with a
moral right to economic rent as the just reward of
their activities of superintendence. Nay, even Messrs.

124 TIIK FALLACY OF SAVING.

Mummery and Hobson give one a shock of alarm by
ottering as an ostensible encouragement to an Eight
Hours Law, what amounts to a rcductio ad absurdiun
of that scheme. This, I think, they must admit ; as
I trust they will admit the other sociological con-
siderations urged above in connection with their
conclusions. Their treatment of the Eight Hours
question brought upon them the keen thrust of Mr.
Bradlaugh ; and I doubt not they will mend the crack
in their armour. Any way, however, there arc
apparently heavy odds against 11137 concluding with a
sound practical solution where so many have either
failed or stopped short. I can but try.

II.

An accomplished economistof the individualist school,
hearing the gist of the foregoing argument read,
gave it as his opinion that the destructive criticism
was unanswerable, but that the constructive sug-
gestions made in the last few pages were unsound. It
was, I doubt not, the suggestion of State action that
was in view in this objection, for my critic agreed
with me as to the absolute necessity of restraint of
population under any regimen. And I am bound to
admit that while this necessity is not generally recog-
nised, State action in the way of providing enrploy-
ment must needs aggravate the industrial trouble by
giving a special stimulus to population. Nay more,
I admit that there are difficulties in the way of resort-
ing to any fresh form of State employment while the
State has not the power of interfering in some way

THE NATIONAL DEBT. 125

with over-breeding, even if the necessity of restraint
be brought home to the majority by voluntary pro-
paganda such as is going on at present. A certain
minority would for a time be reckless, and would add
unfairly to the pressure on the community's labour-
employing machinery, while profiting by the conscien-
tiousness of others.

The practical answer to this argument is twofold.
To begin with, as I have sought to show elsewhere,1
it is morally incumbent on the community to make
an end of the social injustice that is worked by main-
taining a National Debt, the interest on which means
the support of the idle and comfortable classes by the
poor and laborious. All interest on investments, of
course, as we have seen in the foregoing analysis,
means the same thing in the end ; but in the case of
the National Debt the community is corporately or
politically responsible, and has it in its power by
direct and simple action — by the simple process of
repayment — to put a stop sooner or later to this
particular form of social parasitism. Now, if this
moral perception be acted upon, as I think it must be,
and the Debt be paid off out of special taxation as
rapidly as possible, an acute industrial trouble would
arise, unless specially guarded against, in respect of the
intensified operation of the saving motive among the
investors whose principal was paid down to them.
In conformity with the conventional ideal which we
have been contemplating — or, let us say, on the spur
of the instinct of self-preservation — they will greatly
restrict their consumption until they can find new
1 Mod&rix Humcwdists, Epilogue.

126 THE FALLACY OF SAVING.

investments ; and, as we have seen, this must needs
be a very difficult matter. The immediate result,
then, will be a serious industrial depression, since
fallin '--ott* in demand for commodities means falling-
off in demand for labour.

It has been objected to my previous exposition1 that
when the principal of the Debt is paid off, the taxation
thereby remitted, on the score of abolished interest-
pa}Tments, will suffice to provide for the extra con-
sumption necessary. But this objection overlooks
three essential points : (1) that in the terms of the
case there had been extra taxation to provide for
the payment of the principal, and that this taxation
would, by parity of reasoning, act as a restrictive of
consumption; (2) that the restriction would be
immediate, while the remission of taxation would
only be prospective ; and (3) that while the ideal of
saving subsists, there is no security whatever that
remission of taxation will bring about increased or
raised consumption on the part of individuals. My
proposition, then, holds good, that, given a rapid re-
payment of the National Debt, in the absence of a
general reform in the matter of consumption, which
cannot reasonably be expected to take place quickly,
nothing can avert ruinous industrial depression save
the creation of a special demand for labour by the
corporate action of the community. I can understand
that a determined Individualist will face any amount
of industrial calamity rather than sanction such a
resort to the principle of State Socialism ; but I am
bound to declare that, if the circumstances be admitted

1 Epilogue cited.

STATE EMPLOYMENT. 1 27

to be as I say, such determined Individualism amounts
to a fanaticism of a very deplorable kind. At best,
the Individualist in such a case is purchasing what
he regards as safety in the future at the cost of
frightful misery in the present. That is to say, he
does this if he assents to the demand that the National
Debt shall be paid off as rapidly as possible. He has
the alternative of leaving the National Debt as it is.
In that case, he seems to me to identify his cause
with an immense social injustice. Democratic In-
dividualists, I submit, cannot take up such a position.
On the other hand, if those who desire to abolish
the injustice do not accept, along with the principle
of State employment of labour, that of restriction of
population, I can see nothing but new evil ahead. If
they will accept the principle of restraint, I can
conceive matters going substantially well, even with-
out the legal enforcement of restraint, a thing difficult
to arrange under any regimen, and plainly impossible
in the present state of sociological thought. In view
of the continuous fall in the birth-rate, along with an
increase in the number of marriages (a clear result of
the spread of Neo-Malthusian doctrine), I can conceive
that public opinion and voluntary propaganda inh-
ere long so far rationalise the general action that the
recklessness of the few will not in itself be ruinous,
and will serve to force on the discussion of the prin-
ciple of legal interference. The more slowly that
principle is adopted, the less risk is there of its being
crudely or arbitrarily reduced to practice. But if the
majority continue to set their fact's, as ;it present;
against the very notion of restraint, or tolerate only

128 THE FALLACY OF SAVING.

ascetic kinds of restraint which it would be idle to
prescribe for general adoption, even if they were
scientifically sound (which they are not), then there
is no escape from an extension of the old trouble.
Nothing short of prudence in procreation can ulti-
mately save the proletariat from chronic hardship.

And one can but hope that the increasing plainness
of the dilemma will ere long bring about the enlighten-
ment of the Liberal politicians who are as yet given
over to helpless empiricism. Already there are signs
that the enlightenment is in process. One Liberal
leader1 avows an uneasy wish that his party paid
more heed to the population problem. But the chances
are at present that this fundamental sociological prin-
ciple will be forced on national attention in connection
with a new form of political agitation, which bids
fair to absorb within itself several others. I mean
the demand for Old Aire Pensions.

III.

The rapid extension of the vogue of this proposal
within the past year or two is one of the few satis-
factory symptoms in industrial politics, from the
scientific point of view. For a time it seemed as if
the demand for an Eight Hours Law was going to
absorb all the self- regarding political energy of the
masses ; and the prospect looked sufficiently dark,
because the very failure which must so speedily dis-
credit such a measure as that would go to discredit

1 Mr. John Morley, in a speech to the Eighty Club in 1889.

OLD AGE PENSIONS. 1 29

democratic schemes in general, and a period of inan-
ition would follow that of miscalculation. But the
Old Age Pension scheme has the advantage of appeal-
ing to the mass of the workers, while being in no way
opposed to sound economic principle. The Eight
Hours Law would be an economic absurdity worthy
of the Middle Ages ; a workers' pension scheme — as
distinguished, that is, from a system of national in-
surance— is economically sound. And already, in one
form or another, it has been declared for by politicians
of different parties ; on one side, for instance, by Mr.
Chamberlain ; on the other side, and on sounder lines,
by Dr. W. A. Hunter, whose sagacious advocacy is
likely to count for much. But none of its advocates
has yet pointed out the weighty economic advantages
it may involve • on the contrary, several of its sup-
porters are so far from seeing these that they regard
them as imaginary drawbacks, against fear of which
the public must be reassured. Mr. Sidney Webb and
Mr. Charles Booth, for instance, expressly argue1 that
there is no danger of a pension scheme discouraging
thrift ; the implication being that, with pensions, the
workers will save more and not less — that is to say,
will not solidify industry by consuming more and
better products. But it will be the principal service
a pension system can render, to encourage the
workers to consume and not paral}rse production by
restricting their demand. Evidently we must still
justify the pension scheme on economic grounds ; and
such justification is the more necessary because there

1 Mr. Webb in the Contempora/ry Review, -Inly, 1890, pp,
103-4 ; Mr. Booth in .-i paper whioh I have nol Been.

1

130 THE FALLACY OF SAVING.

are still some publicists who oppose the pension prin-
ciple all round.

Of these the most prominent is Mr. C. S. Loch,
Secretary of the London Charity Organisation Society.
Mr. Loch, who has given much professional study to
the phenomena of pauperism, is convinced that it is
largely " created " by loose methods of poor-relief, and
argues l that a national pension system would tend to
manufacture it. In so far as the risk is alleged to
arise in terms of the difficulty of escaping malinger-
ing, even among persons over sixty, the point need
not be disputed. Mr. Loch's conclusion is that

"To establish an annuity system, and not to prohibit out-door
relief to the able-bodied, or perhaps to all but those who require
medical out-relief, would be to foster a hybrid pauperism, in
part maintained by the rates, in part by imperial and local
taxes." 2

So be it — barring only the point as to what es-
sentially constitutes pauperism. Let it be provided
that under an adequate pension system out-door re-
lief to the able-bodied shall cease. But Mr. Loch's
theory of pauperism calls for further examination.
Looking at the problem from the standpoint of em-
pirical ethics, he sees in it mainly an outcome of
individual fault ; and, what is more, he supposes that
the faults in question, as society is now organised,
constitute a source of unrelieved individual burden to
all who pay the taxes which relieve paupers. But

1 Old A'je Pensions and Pauperism (Sonnenschein & Co. 1892),
piss' UK
aPae:e41.

PAUPERISM. P,I

that this is not so will be already clear to many who
have followed the foregoing economic analysis.

Mr. Loch cites 1 as typically or generally valid
an enquiry which discriminates city pauperism as
follows : —

" Pauperism caused by old age or infirmity, without any dis-
credit, explained nearly one-eighth of the pauperism of the town-
ship ; pauperism by disease (not brought on by misconduct) or
accidental injuries, involving inability to work, accounted for
one-seventh; drunkenness explained 51 '24 per cent."

Now, it of course never occurs to Mr. Loch that
this latter section of pauperism represents anything
but an infliction of loss on well-to-do ratepayers
generally. He would take that view, presumably, of
pauperism attributed to mere improvidence, apart
from drunkenness : much more would he take it of
drunkenness. And yet it is easy to show that, inas-
much as we have seen the spenders tend to keep in-
dustry going while the savers tend to paralyse it by
checking consumption and market demand, the victims
of improvidence have really sacrificed themselves (un
knowingly, of course) to the advantage of the pro-
vident. Had the whole population been alike bent
on saving, the total saved would positively have beeD
much less, inasmuch as (other tendencies remaining
the same) industrial paralysis would have been
reached sooner or oftener, profits would be less, in-
terest much lower, and earnings smaller and more
precarious. This, as the reader of the foregoing
chapters has seen, is no idle paradox, but the strictest

1 Page M.

132 THE FALLACY OF SAVING.

economic truth. It follows, then, that since the
spendthrifts facilitate the accumulations of the
savers, the pauper class, in so far as its members
have been industrious but " unthrifty " workers, has
all along been contributing to the general prosperity
as far as it could, while the more fortunate savers
have as such been doing the reverse. The savers, in
short, have as such been living on the spenders. Of
course they also have been to some extent spending ;
and they may also have been industriously producing ;
but in the nature of the case they got their accumu-
lation of purchasing power from those who pa/rted
ivith it, and their accumulations subsist only in so far
as the majority has been willing to go on spending.
To go back to Mr. Ruskin's words, their savings are
valid in virtue of the defect of saving in others.

Apply this to the case of the pauper class, and it
will be seen that even the drunkards have been put-
ting purchasing power in the hands of others. Of
the "saved" capital or money- credit owned among
the upper classes, enormous sums have come from the
drink trade. I suppose that even among those who
hold devoutly to the doctrine of saving there will be
hesitation in applauding the brewers and distillers
and publicans for their services in amassing capital.
But in the light of economic analysis it becomes a
peculiarly preposterous hypocris}7 to speak of the top-
ing pauper as typically a burden on society while the
brewer and publican are treated as bearers of the
burden.

It will not be supposed, of course, that I deny
the cumulative infelicity of expenditure on drink.

PAUPERISM. 133

Clearly it not only yields the most transient satisfac-
tions at best, but on the other hand actively negates
well-being to the extent of three-fourths of the con-
sumption. But the student has now realised that if
all intoxicants were totally abstained from, industrial
hardship could only be averted by the setting-up of
fresh consumption, which would constitute demand
for the labour thrown idle. And the temperance
party must be reminded that it does not at all follow
that the grain unconsumed by brewers and distillers
would continue to be produced, and so lower food
prices. That only is- produced for which there is
market demand. Of course the reformed topers
would consume more bread, but that would be all.

We are now in a position to pass judgment on Mr.
Loch's conception of pauperism, as bearing on his op-
position to a pension system. He is wrong even in
his implicit notion that improvidence annihilates pur-
chasing power and lessens the total command of
society over wealth and services. He is therefore
doubly wrong in his proposition1 that under a national
pension system the present " pauper pensioner would
become a pensioner-pauper," and that "pauper he
would remain under both guises." That is to sa}-,
Mr. Loch is wrong in implying as he unavoidably
does that the man who works while he can, and then
draws from the public treasury, lias deserve 1 ill of
society. It cannot be too emphatically declared thai
the true "paupers" arc those who, having done no
work whatever, subsist on the interest "I' savings
made by others. We have seen, indeed, that all
1 Page WT~

134 THE FALLACY OF SAVING.

subsistence on interest means in practice subsistence
on others' industry ; but inasmuch as investment at
interest is the principal means of providing for old
age, those who thus secure themselves are only get-
ting what, broadly speaking, they are entitled to —
setting aside, that is, the question of just share.
When, however, we deal with those who have in-
herited money-capital, and, themselves able-bodied,
live idly on its interest, the same defence does not
hold. They consume services and render none ; and
if any are to be socially and economically disparaged,
it is the}^. I have no wish, indeed, to set up a dis-
paragement which would in its turn operate unjustly,
inasmuch as the idle livers on investments are
actually doing the economic best open to them, in
many cases, when they spend without accumulating
further. But if we are to be considerate to these,
let us be just to those workers who do unquestionably
render service to the community before they idly con-
sume services. Mr. Loch quotes former Poor Law
Committee-men as pointing out that certain forms of
poor relief are " premiums upon indolence and vice."
If there be any meaning in words, our systems of
land accumulation and free bequest of money-capital
are premiums upon indolence and vice, fostering both
in the highest degree ; yet it never occurs to the
critics in question to say so. On the other hand, the
relatively much smaller risk of promoting indolence
and vice by a national pension system can be guarded
against, and will be increasingly so in practice, by
public interest inspiring public criticism.

Mr. Loch's general objection to a national pension

PENSIONS AND POPULATION. 1 35

system, then, breaks down alike morally and economi-
cally, he having, indeed, no economic light on the
subject at all. But there is a general objection which
he might very well have made — that, namely, which
has been above indicated in connecting the pension
scheme with the population problem. The omission
all round to raise the population difficulty is at least
a proof of the falsity of the common assertion that
that principle is usually employed as a means of
rebutting proposals made in the interests of the
people. I do not here employ it with any such pur-
pose. Rather I bring it forward in the belief that
fie growing acceptance of the pension principle will
be the most effective means of bringing home the
population principle to the general intelligence.
Those who have hitherto refused to face it must then
do so. Any measure of systematic State provision for
the necessities of the people will constitute a clear
national risk, unless at the same time the need for
limitation of rate of increase is generally recognised.
Of late years there has been an economic conspiracy of
silence, or worse, on the subject ; and even enlightened
writers like Professor Marshall and Professor Sidgwick
either obscure the issue or deny the solution. In his
latest work Professor Sidgwick makes the astonishing
declaration that in the present state of civilisation he
considers the increase of human life "in the world"
as a good and not as an evil. l Since he at the same
time admits that some day it is likely to be necessary
to restrict population, he is committed, in the very act
of encouraging increase, t<> the view that such increase
1 EU merits of Politics, p. 304.

136 THE FALLACY OF SAVING.

tends to become a danger. That is to say, the position
of civilisation is going to get worse and not better.
Yet it lies on the face of the case that such wqrsen-
ment can only appear under the guise of poverty
and struggle for subsistence, phenomena which are
glaringly apparent in the present state of civilisation,
in which Professor Sidgwick thinks all increase of
population is a good.

The fact is, it appears, that Professor Sidgwick
makes the ordinary empiric's confusion between gross
and net increase of population. He has not realised
that a restriction of gross increase of population is
compatible with a continued net increase of popula-
tion, in respect that of the fewer children born a
larger proportion can subsist. This lesson is of the
very essence of the Neo-Malthusian docti-ine. 1 But
even if we consider the demand for a continued net
increase of population, it is plain that it rests, even
when put forward by a thinker like Professor Sidg-
wick, on no scientific estimate of good and evil. The
first condition of jsuch an estimate is a discrimination of
the various lots into which human beings are born ;
but Mr. Sidgwick makes no discrimination whatever.
Thus can sociology still be written.

IV.

But, even assuming a recognition of the law of
population, there is still our problem of consumption,
which the advocates of State pensions leave wholly

1 See the author's pamphlet on Over-Population (Forder,
Stonecutter Street).

PENSIONS AND CONSUMPTION. 1 37

out of account, framing as they do a sociological pro-
position without a study of the economic contingencies.
With or without limitation of families, we saw, the
principle of parsimony would lead to economic over-
production of easily produced necessaries, and the
principle of parsimony, unless discredited or effectively
thwarted, would continue to operate widely even
alongside of a State pension system. Even if pensions
be withheld from all who have investments — and that
is a point that must clearly be considered when we
come to details — those who do the bulk of the present
" saving " would continue to do so, and the kind of
consumption possible to the pensioners, at the rates of
pension thus far proposed, would certainly not per-
mit of any great raising of the standard of consump-
tion. So the industrial problem would still subsist,
and we should soon be led up to the question of doles
to the unemployed.

Now, no State could enter on a system of doles to
the unemployed without rapid demoralisation and no
less rapid impoverishment. The causes which created
the lack of employment would subsist under a system
of doles. Rapidly perishable forms of wealth would
be freely produced at demand, and still there would be
idleness, unless among the classes with most purchasing
power there arose an increasing demand for the higher
and less easily producible forms of wealth — for
artistic products, in short. And what present likeli-
hood is there of these classes thus raising their
standards of consumption while they have no other
means than saving and investment of securing for 1 heir
old age the measure of income that investments might

T 38 THE FALLACY OF SAVING.

yield them ? Plainly, the establishment of pensions for
the workers is only one side of the process of recon-
struction ; and we must try to ascertain how the rest
of the process should go.

First, we come back to the old principle, otherwise
arrived at,1 of a graduated income tax as a necessary
means towards the payment of the National Debt.
Here we have at once a means of rectifying plain
political injustice and of checking under-consumption,
provided, that is, that we specially tax idle income
from investments. This is the course prescribed by
political equity apart from economic sociology, and it
entirely consists also with the economico-sociological
prescription. But the taxation of incomes will at first
necessarily tend to make those taxed spend less on
consumption ; and here, as before, we are faced by the
need for special employment of labour. Such employ-
ment can only be supplied by public action ; and I can
suggest no better lines of such action than genuine
public works, such as corporate cultivation of waste
or withheld lands ; the scientific utilisation of sew-
age and consequent salvation of rivers ; the proper
tunnelling of streets for sewage and lighting purposes,
and the rebuilding of the worst parts of our cities, in-
cluding in that the erection of good dwellings and
noble public buildings.

Thus far we shall provide for the employment of
unskilled and partially skilled labour generally ; and
if at the same time we establish a pension system for
the workers, stipulating that there shall be propor-
tional deduction where the pensioner has other sources
1 See Modem Humcuiists, Epilogue.

GRADUAL PROGRESS. I 39

of income, we may take it that common consumption
will be fairly safe. All this, be it observed, comes far
short of the universal transformation demanded by the
neck-or- nothing Socialists, who propose the nation-
alisation of all means of production. That is a trans-
formation which human nature cannot accomplish
save by a prolonged course of gradual change : what
we are here proposing is a set of social departures
plainly required by the industrial and moral situation,
and as plainly practicable. The reform of taxation, of
course, goes upon a principle which equally prescribes
the nationalisation, as is found feasible, of monopoly-
sources of profit, such as railways, gas-works, water-
works, and banks. Merely to nationalise these, and to
secure the national utilisation of the land, will be hard
enough work for some generations to come ; and it is
needless here to anticipate the problems of further
nationalisation of sources of profit which will arise
when these have been grappled with. Suffice it to say
that by all these means the sources of idle living may
be gradually restricted without any harm to industry
generally, and even without any violent hardship to
the idle classes, which will be gradually eliminated.
The practice of saving will be continued by the non-
pensioned classes on their own behalf ; but when en
lightened consumption is more and more generally
recognised as the right economic and social course,
there will be a decline in the desire to endow idle
families — provided only that there are careers open
which shall yield young people lair chances of living
in return for services rendered to society.

And here arises the question whether an extending

140 THE FALLACY OF SAVING.

pension system (for I will assume that as the com-
munity is found to prosper on the new lines, pensions
will he raised to the workers generally) may alone be
trusted to secure such raising of the standards of con-
sumption as shall elicit in an ever-increasing degree
the higher kinds of service, and not merely increase
the run upon the lower. We have seen that
machinery will always easily overtake the demand
for most necessaries (though the limits of the food
and fuel supplies, not to speak of room for houses
and gardens, must always be less elastic) ; and that
the true cure for over-supply of labour is primarily
restraint of population, and secondarily demand for
artistic products. Given the recognition of these
principles, will the pension system, with its security
of life, suffice to make them work ? Will the classes
employed and pensioned by the State be safe to pro-
vide as well among them for the maintenance of
literature, art, and science, as society does at present ?
I would answer that, without any such premature
extension of public emplo}nnent as would be a social
danger comparable to the present moral evil of a
large class of idle rich, the public service will neces-
sarily tend to provide more and more for the fostering
of the higher standards of consumption alongside of
the raising of the standards of the workers. The
education sj'stem must clearly be improved, till the
higher grades are relatively as fully available in the
public interest as the lower. And as the official
pension system is already in force in the public
service generally, and is bound to be extended rather
than dropped, it will come about that the great class

THE ARTS AND SCIENCES. I4I

engaged in all kinds of teaching, like the other classes
of public servants (likely ere long to include, as before
noted, the employees on the railway and gas and
water systems), will be in a good position to consume
the higher forms of literary and artistic service,
leaving the supply of these services (as apart from
public teaching) to the free operation of the present
supply-forces. In this, as in commercial matters,
there need be no fear of lack of supply, if there is
demand. And on the lines specified, demand will,
I think, be forthcoming. Indeed, it is safe to say
that on such lines of evolution, demand for the higher
intellectual services will be relatively much larger
than it is at present. It is one of the darkest features
of the present system that the ideals or standards of
consumption on the intellectual side rise so slowly, nay,
even seem at points to sink relatively to the material
possibilities. So far from there being, as Cairncs
implied, a danger that the more a State is socialised
the greater will be the risk of a decline of the arts
and sciences, it is inconceivable that any State more
socialised than ours should in future provide worse
for the advancement of these than we are doing at
present.1

Throughout all this argument, be it remembered,
there is assumed the general practice of restraint of

1 The prospects of literature under a more socialised
have, I think, been even under-estimated from a professedly social-
ist point of view, while those of art and science have not been
clearly enough set forth. Sue the articles <»n "Art and Litera-
ture under Socialism '' in the New Revieio for January, L891,
by Messrs. Morris & Salt.

I42 THE FALLACY OF SAVING.

births. Needless to say, this must hold good for the
more cultured as well as for the less ; and this re-
straint alone will serve to improve the situation for
the " upper " (there will still in a sense be upper and
lower, or more and less cultured) as well as for the
" lower " classes. At present the pressure of the com-
petitive saving system is much intensified by the
high rate of increase among the middle-classes, for
fathers naturally want to provide for their daughters,
and to start their sons in life with " capital." When
the English middle-classes learn the lesson of rational-
ism in life, the ideal of endowed idleness will be the
more easily superseded because the opportunities of
worthy and refined employment will be proportionally
much greater as the number of helpless middle-class
scions of both sexes relatively falls off. Thus in time
may be attained the complete euthanasia or elimina-
tion of that grave social evil, the idle class ; the com-
munity safeguarding otherwise, step by step, all the
compensations which the existence of that class lias
hitherto involved. Of course the complete elimination
will mean the socialisation of all the present sources
of interest on invested money-credit.

V.

But already we have gone, for scientific purposes,
quite far enough in anticipation of future possibilities ;
and our exposition must end on the strictly practi-
cal plane of present day economics. The practical
doctrine of this second part of our inquiry, over and
above restraint of population, is summed up in (1)

NATIONAL INSURANCE. 1 43

reform of taxation to the primary end of paying off
the National Debt ; (2) public works, to employ the
labour that tends to be thrown idle as a result of the
liquidation of the Debt ; (3) a national system of
pensions. The last point to be considered is the
method of the pension system in the light of the
economic principles before established.

It speedily appears that the old idea of a National
Insurance Fund is out of the question. Even apart
from any perception of the general Fallacy of Saving,
it is widely admitted that such a fund would be un-
workable. It is hard enough for private Insurance
Companies to go on investing their funds profitably,
without the Government attempting to compete with
them as an investor on a gigantic scale. But further,
it is being widely recognised that the collection of
premiums, or specific payments towards pensions,
would be an enormously difficult matter ; and al-
ready, alongside of the schemes which specify such
charges and payments, there are others which frankly
propose to make a national pension charge without
exacting payments from individual workers. Such
are the proposals of Mr. R. P. Hardy l and Dr.
Hunter.2

Here, however, there is a risk of such misconception
as is set up by the phrase "free education." Indeed,
there being a specific education-rate, the risk of mis-
conception is greater. At the present moment, the
working-classes pay, relatively to their mere money
income, a very large proportion of the national taxa-

1 Pamphlet on Old Age Pensions (Knighl A ('■'., L891).
- Articles in Weekly Dispatch,

144 THE FALLACY OF SAVING.

tion, of which so great a mass goes to pay interest on
national debt. Even if they were not thus taxed in
respect of their consumption, they obviously contribute
the great mass of the really useful services by which
all incomes are built up ; but as a matter of fact they
positively pay out of their wages a large part of the
national revenue. A sound system of taxation would,
remove much of their present burden, by making an
end of the taxes on articles of food. But if a pension
system can be established, it may be on many grounds
expedient to impose a direct income-tax on the work-
ing as on other classes. Such a tax would, represent
their specific contribution to the national burdens, and
would constitute by far the best quid pro quo as
against their pensions. It would be a universal tax as
against a universal obligation ; and it would be impos-
sible even for empirics then to speak as if the workers
drew pensions without doing anything to pay them.
No doubt there would still be outcry on the part of the
monied classes. 'So deeply rooted is the notion that
labour subsists chiefly by the bounty of capitalists,
that in the recent case of the Scotch railway strike
Mr. Lang, strong in intuitive sociology, could come
forward to satirise those who sympathised with the
strikers, as being generous at the expense of the
shareholders. It did not occur to Mr. Lang that to
sympathise with the shareholders was to be generous
at the expense of the men, whose lives were spent in
earning dividends for the shareholders. But while
Mr. Lang's view will of course be popular among
shareholders, we may hope that even in that class
there are now many who deriving their sociology

CONCLUSION. 145

from other than belletrist sources, can see that it is
industry which pays dividends, and not dividends
that pay industry.

That the workers would themselves readily acquiesce
in such a course seems the more likely in view of the
favour with which the Bismarckian system of national
insurance is regarded by them in Germany, where the
workmen's contribution is exacted through the em-
ployer. That in itself seems a cumbrous and vexa-
tious course under any circumstances, and would
certainly not be easy of introduction in England.
But inasmuch as the workers pay educational and
other rates already, there need be little difficulty in
charging them with a national rate, which it would be
so clearly worth their while to pay, and which more-
over ougdit to be a less burden than that which at

o

present presses on them in respect of the taxes on
their food and their poor " luxuries."

The great matter is that there shall be a general
abandonment of the established delusion that the uni-
versal saving of sums of money-credit, as an outcome
of non-consumption of the products of industry, can
ever lead to all-round well-being. And therefore it is
that I have stipulated for the limitation of the pension
in cases where the pensioner has an income from in-
vested savings. It must be admitted, however, that
this stipulation can hardly be insisted on so long as
the pension paid is only a few shillings a week, as is
at present proposed. The question, therefore, need
not be politically argued on this line at present. It
wid properly arise first in connection with those
official pensions which are sufficient in themselves to

146 THE FALLACY OF SAVING.

sustain life in comfort. These are as yet mainly re-
stricted to the upper grades of the public service ; and
to raise the principle in that direction will doubtless
give much offence at the outset. But if there be any
validity in the foregoing economic analysis, raised the
question must be ere very long. And we may hope
that the natural tendency to increase the small pensions
first asked for will be a force which will necessitate
the reconsideration of the received economic doctrine.
Legislators will never agree to a national system of
comfort-giving pensions while the theory of saving
holds its ground. That theory rests, as we have seen,
on unenlightened self-interest. But inasmuch as a
system of comfort-giving pensions would coincide
with the impulse of economically enlightened self-
interest, it seems reasonable to conclude that, once
established in a democratic State, it will be so de-
veloped as to undermine or override the contrary
policy, which will, besides, be scientifically discredited
step for step with the successful working of the
rational regimen of advancing consumption.

THE END.

Printed by Cowan 6° C#. , L united, Perth,

INDEX.

->t<-

Abstinence, Doctrine of, 63
Art and Industry, 113

Bagehot, 84
Beaulieu, M. eroy, 2
Bifield, 1 1 1
Bills, 84
Blanqui, 32

Bphm-Bawerk, 63, 64, 75-S3
Booth, C, 129
Bradlaugh, 124
Brougham, 33-35

Cairnes, Professor, 33, 5&>

61-64, 79, 141
Capital, Definitions of, 3, 8, 30,

43, 66, 72-91, 106, 109, in

Waste of, 94

Chalmers, Dr., 5, 29, 37, 47, 54,

94, 103, 123
Class Interests, 116, 117
Coleridge, 93
Consumption, 90, 103, 106- 118,

136
Cossa, 33
Credit, 77, 83, 86

Depression in Trade, 112
Destutt de Tracy, 33
Droz, 69-70, 75

Fawcrtt, 57-58

France, Saving in, 70

Garnier, M. Joseph, 6S-9
Germany, Pensions in, 145
Gide, 75
Gluts, 41, 98-100, 113

Hardy, R. P., 143

Hermann, 65

Hume, 27

Hunter, Dr. W. A., 129, 143

Improvidence, 2
Insurance, National, 143
Investments, Foreign, 104
Rationale of, 133-4

JEVONS, 56, 57

Kuhnast, 77

Land Nationalisation, 139
Lang, A., 118, 144
Lauderdale, Earl of, 2S-38, 80,

91, 92
Loan Fund, 84
Loch, C. S., 130-5

M'CULLOCH, 29, 32, 33, 37,

40-41, 69
Macleod, 77-8, 82, 83-5, 87, 1 10
Maitland, E., 3-6.

148

INDEX.

Malthus, 29, 33-37, 40
Markets, Extension of, 9
Marshall, Professor, 59-60,88-9,

95, 135
Marx, 58, 63, 64
Mill, J. S., 5, 16, 33, 42-57,

72-3,86-8,94,95,98-9, 102-4,

107

— ; James, 29, 33, 43, 73-4

Misproduction, 97

Moffat, R. S., 54, 117, 123

Montesquieu, 26

Morley, J., 128

Mummery and Hobson, 98, 105

National Debt, 5, 29, 37, 85,

121, 125-7, 138
North, Dudley, 41

Over-production, 41,98-101,
1 12

Parsimony (See Saving)

Pauperism, 130-5

Pensions for Old Age, 114-116,

128-146
Physiocrats, 23, 25
Population Question, 90, 113-

115, 125-128, 135-6
Price, Professor Bonamy, 1
Production, Process of, 108
Profits and Saving, 2

QUESNAY, 24

" Realised Property," 4
Ricardo, 29, 32, 74, 91-2, 98,

100
Roscher, 64-5
Ruskin, 93, 123

Saving, Nature of, 7, 30, 35, 46,
72-4, 81, 85-90,93, 106, 115,
120

Saving, Doctrine of, 1, 12-23,

24, 46, 68-71, 79-90
Say, J. B., 29, 32, 33, 39, 41,

73, 77, 82, 98, 100
Scrope, Poulett, 63
Self-interest, Delusions of, 10
Senior, N. W., 29, 63
Sidgwick, Professor, 6-8, 5 8-9,

84-7, 135
Sismondi, 29, 38-40, 99, 123
Smart, W., 76
Smith, Adam, 12-26, 30-35, 41,

76, 77, 102, 116-117
Socialism, 61, 71, 79, 139,

141
Spencer, Herbert, 2
Spendthrift, Theories as to, 13-

22, 67-9, 131
Spending, Effects of, 17-21, 53,

60, 79> 89, 95, "3, 131
Spinoza, 64

State Employment, 122, 124
Stephen, Leslie, 57-8, 112
Stirling, P. J., 91, 99, 11S
Sumner, Bishop, 41

Taxation, 138

Turgot, 24-25, 72, 76, 77, 78

Yerri, Count di, 33
Voltaire, 26

Wage-fund Theory, 5, 107
Wakefield, 103
Walcker, 65-67, 104
Wealth, Public, 17-21, 31, 91-3,

102
Webb, S., 129
Workers, Saving by, 15, 18,

121-2

Interest of, 95-7

Position of, 102, 114

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