Principles of political economy : with some of their applications to social philosophy

I ,

PRINCIPLES

POLITICAL ECONOMY

PRINCIPLES

POLITICAL ECONOMY

WITH

SOME OF THEIR APPLICATIONS TO SOCIAL
PHILOSOPHY.

JOHN STUART MILL

PEOPLE S EDITION

LONDON

LONGMANS, GREEN AND CO

1885.

Stack
Annex

PltEFACB.

TIIK appearance of a treatise like the present, on a subject on which so
many works of merit already exist, may be thought to require some
explanation.

It might perhaps be sufficient to say, that no existing treatise on
Political Economy contains the latest improvements which have been
made in the theory of the subject. Many new ideas, and new applica-
tions of ideas, have been elicited by the discussions of the last few
years, especially those on Currency, on Foreign Trade, and on the
important topics connected more or less intimately with Colonization :
and there seems reason that the field of Political Economy should be
re- surveyed in its whole extent, if only for the purpose of incorporating
the results of these speculations, and bringing them into harmony with
the principles previously laid down by the best thinkers on the subject.

To supply, however, these deficiencies in former treatises bearing a
similar title, is not the sole, or even the principal object which the
author has in view. The desigu of the book is different from that of
any treatise on Political Economy which has been produced in England
since the work of Adam Smith.

The most characteristic quality of that work, and the one in which it
most differs from some others which have equalled and even surpassed
it as mere expositions of the general principles of the subject, is that it
invariably associates the principles with their applications. This of
itself implies a much wider range of ideas and of topics, than are
included in Political Economy, considered as a branch of abstract specu-
lation. For practical purposes, Political Economy is inseparably inter-
twined with many other branches of social philosophy. Except on
matters of mere detail, there are perhaps no practical questions, even
among those which approach nearest to the character of purely econo-
mical questions, which admit of being decided on economical premises
alone. And it is because Adam Smith never loses sight of this truth ;
because, in his applications of Political Economy, he perpetually appeals
to other and often far larger considerations than pure Political Economy
affords — that he gives that well-grounded feeling of command over the

a

vi HiliFACE.

principles c( the subject for purposes of practice, owing to which
the " Wealth of Nations," alone among treatises on Political Economy,
lias not only been popular with general readers, but has impressed
itself strongly on the minds of meii of the world and of legislators.

It appears to the present writer, that a wcrk similar in its object and
general conception to that of Adam Smith, but adapted to the more
extended knowledge and improved ideas of the present age, is the kind
tf contribution which Political Economy at present requires. The
"Wealth of Nations" is in many parts obsolete, and in all, imperfect.
Political Economy, properly so called, has grown up almost from
infancy since the time of Adam Smith : and the philosophy of society,
from which practically that eminent thinker never separated his more
peculiar theme, though still in a very early stage of its progress, has
advanced many steps beyond the point at which he left it. No
attempt, however, has yet been made to combine his practical mode of
treating his subject with the increased knowledge since acquired of its
theory, or to exhibit the economical phenomena of society in the rela-
tion in which they stand to the best social ideas of the present time, as
he did, with such admirable success, in reference to the philosophy of
bis century.

Such is the idea which the writer of the present work has kept before
him. To succeed even partially in realizing it, would be a sufficiently
useful achievement, to induce him to incur willingly all the chances of
failure. It is requisite, however, to add, that although his object is
practical, and, as far as the nature of the subject admits, popular, he
has not attempted to purchase either of those advantages by the
sacriBcc of strict scientific reasoning. Though he desires that his
treatise should be more than a mere exposition of the abstract doctrines
of Political Economy, he is also desirous that such an exposition should
be found in. it.

The present edition is an exact transcript from the sixth, except that
all extracts and most phrases in foreign languages have been translated
into English, and a very small number of quotations, or parts of quota-
tions, which appeared superfluous, have been struck out. A reprint of
an old controversy with the " Quarterly Review" on the condition of
lauded property in France, which had been subjoined as an Appendix,
has been dispensed with.

CONTENTS.

PRELIMINARY KEMARKS • • • i » t * » • •, 1

BOOK I.
PRODUCTION.

CUAPTEB I. Of the Requisites of Production.

§1. Koquisites of production, what 15

2. The function of labour defined 16

3. Does nature contribute more to the efficacy of labour in some occu-

pations than in others ? 17

4. Some natural agents limited, others practically unlimited, ia

quantity ll

CHAPTEE II. Of Labour as an Agent of Production.

% 1. Labour employed either directly about the thing produced, or in

operations preparatory to its production 19

2. Labour employed in producing subsistence for subsequent labour . 20

3. — in producing materials 21

4. — or implements 22

n. — in the protection of labour 23

G. — in the transport and distribution of the produce 24

7. Labour which relates to human beings 25

8. Labour of invention and discovery 2G

9. Labour agricultural, manufacturing, and commercial 27

CHAPTER III. Of Unproductive Labour.

§ 1. Labour does not produce objects, but utilities . 28

2. — -which are of three kinds 2?

3. Productive labour is that which produces utilities fixed and em-

bodied in material objects 30

4. All other labour, however useful, is classed as unproductive . . 31

5. Productive and Unproductive Consumption 32

6. Labour for the supply of Productive Consumption, and labour for

the supply of Unproductive Consumption 33

CHAPTEB IV. Of Capital.

§ 1. Capital is wealth appropriated to reproductive employment ... 34

2. More capital devoted to production than actually employed in it . 3G

8. Examination of some cases illustrative of the idea of capital . . 37

a. 2

„•;; CONTENTS.

CHAPTER V. Fundamental Propositions respecting Capital.

TAG*

§ 1. Industry is limited by Capital . .- . 39

2. — but docs not always come up to that limit 41

3. Increase of capital gives increased employment to labour, without

assignable bounds 41

4. Capital is the result of saving 43

5. All capital is consumed _ 44

6. Capital is kept up, not by preservation, but by perpetual repro-

duction . . . 40

7. Why countries recover rapidly from a state of devastation ... 47

8. Effects of defraying government expenditure by loans .... 47

9. Demand for commodities is not demand for labour ..... 49
10. Fallacy respecting Taxation 55

CHAPTEE VI. Of Circulating and Fixed Capital.

I 1 . Fixed and Circulating Capital, what 57

2. Increase of fixed capital* when at the expense of circulating, might

be detrimental to the labourers 58

3. — but this seldom if ever occurs 61

CHAPTEB VII. On what depends the dcrjree of Productiveness
of Productive Agents.

§ 1. Land, labour, and capital, are of different productiveness at diffe-
rent times and places 63

2. Causes of superior productiveness. Natural advantages ... 63

3. — greater energy of labour 65

4. — superior skill and knowledge 66

f>. — superiority of intelligence and trustworthiness in the commu-
nity generally 67

6. — superior security 70

CHAPTEE VIII. Of Co-operation, or the Combination of Labour.

| 1. Combination of Labour a principal cause of superior productiveness 71

2. Effects of separation of employments analysed 73

3. Combination of labour between town and country ...... 74

4. The higher degrees of the division of labour 75

5. Analysis of its advantages 77

6. Limitations of the division of labour 80

CHAPTEB IX. Of Production on a Large, and, Production on
a Small Scale.

j 1. Advantages of the large system of production in manufactures . 81

2. Advantages and disadvantages of the joint-stock principle ... 84

3. Conditions necessary for the large system of production .... 87

4. Large and small farming compared 89

CHAPTER X. Of the Law of the Increase of Labour.

§ 1. The law of the increase of production depends on those of three

elements, Labour, Capital, and Land 90

2. The Law of Population m 07

3. By what checks the increase of population is practically limited . 93

CONTENTS. «

CHAPTER XI. Of the Law of the Increase of Capital.

PiGl

1. Means and motives to saving, on what dependent 100

2. Causes of diversity in the effective strength of the desire of accu-

mulation 102

3. Examples of deficiency in the strength of this desire 103

4. Exemplification of its excess 107

CHAPTEB XII. Of the L<no of the Increase of Production
from Land.

1. The limited quantity and limited productiveness of land, tho real

limits to production 108

2. The law of production from the soil, a law of diminishing return

in proportion to the increased application of labour and capital . 109

3. Antagonist principle to the law of diminishing return ; the pro-

gress of improvements in production Ill

CHAPTER XIII. Consequences of the foregoing Laics.

1. Remedies when the limit to production is the weakness of the

principle of accumulation 117

2. Necessity of restraining population not] confined to a state of

inequality of property 117

3. — nor superseded by free trade in food 119

4. — nor in general by emigration r 121

BOOK II.
DISTRIBUTION.

CHAPTER I. Of Property .

§ 1. Introductory remarks 1t8

2. Statement of the question 124

3. Examination of Communism .....125

4. — of St. Sirnonisin and Fourieiism liJO

CHAPTBE II. The same subject continued.

§ 1. The institution of property implies freedom of acquisition by con-
tract 133

2. — the validity of prescription 134

3. — the power of bequest, but not the right of inheritance. Ques-

tion of inheritance examined 135

4. Should the right of bequest be limited, and how? 138

5. Grounds of property in land, different from those of property in

moTeablos 140

6. — only valid on certain conditions, which arc not always realized.

The limitations considered 141

7. Eights of property in abuses 1 14

x CONTENTS.

CHAPTER III. Of the Classes among whom the Produce
is distributed.

Pi OH

§ 1. The produce sometimes shared among three classes 145

2. — sometiincs belongs undividcdly to one 145

3. — sometimes divided between two ........... 146

CHAPTER IV. Of Competition and Custom.

§ 1. Competition not the sole regulator of the division of the produce . 147

2. Influence of custom on rents, and on the tenure of land . . . 148

3. Influence of custom on prices 149

CHAPTER V. Of Slavery.

§ 1. Slavery considered in relation to the slaves ........ 151

2. — in relation to production 152

3. Emancipation considered in relation to the interest of the slave-

owners 153

CHAPTER VI. Of Peasant Proprietors.

§ 1. Difference between English and Continental opinions respecting

peasant properties 155

2. Evidence respecting peasant properties in Switzerland . . . . 1~>6

3. — in Norway 159

4. — in Germany 1G1

5. — in Belgium 1 64

6. — in the Channel Islands 167

7. — in France 168

CHAPTER VII. Continuation of thi same subject.

§ 1. Influence of peasant properties in stimulating industry .... 171

2. — in training intelligence 172

3. — in promoting forethought and self-control 773

4. Their effect on population 174

5. — en the subdivision of land 180

CHAPTER VIII. Of Metayers.

§ 1. Nature of the metayer system, and its varieties 183

2. Its advantages and inconveniences 184

3. Evidence concerning its effects in different countries 185

4. Is its abolition desirable ? 191

CHAPTER IX. Of Cottiers.

§ 1. Nature and operation of cottier tenure 193

2. In an overpeopled country its necessary consequence is nominal

rents , '. 195

3. — which arc inconsistent with industry, frugality, or restraint on

population 19(5

$ Ryot tenancy of India ....... 197

CONTENTS. xi
CHAPTER X. Means of alolishing Cottier Tenancy.

PAG*

§ 1. Irish cottiers should be converted into peasant proprietors . . . 199

2. Present state of this question ............ 204

CHAPTER XI. Of Wages.

§ 1. W.TXCS depend on the demand and supply of labour — in other

words, on population and capital ........... 207

2. Examination of some popular opinions respecting wages . . . 208

3. Certain rare circumstances excepted, high wag(/s imply restraints

on population ................ .211

4. — which are in some cases legal ........... 213

5. — in others the effect of particular customs ........ 214

6. Due restriction of population the only safeguard of a labouring

.................... 216

CHAPTER XII. Of Popular Remedies for Low Wages.

§ 1. A legal or customary minimum of wages, with a guarantee of

employment ................. 218

2. — would require as a condition, legal measures for repression of

population .................. 219

3. Allowances in aid of wages ............. 221

4. The Allotment System ............... 223

CHAPTER XIII. The Remedies for Low Wages further
considered.

§ 1. Pernicious direction of public opinion on the subject of population 225

2. Grounds for expecting improvement .......... 227

3. Twofold means of elevating the habits of the labouring people :

by education ................. 230

4. — and by large measures of immediate relief, through foreign and

home colonization ................ 231

CHAPTER XIV. Of the Differences of Wages in different
Employments.

§ 1. Differences of wages arising from different degrees of attractive-

ness in different employments ............ 233

2. Differences arising from natural monopolies ........ 236

3. Effect on wages of a class of subsidized competitors ..... 238

4. — of the competition of persons with independent means of sup-

port .................... 240

5. Wages of women, why lower than those of men ...... 242

0. Differences of wages arising from restrictive laws, and from combi-

nations ................... 243

7. Casej in which wagos are fixed by custom ..».•»,. 244

CHAPTER XV. Of Profits.

§ 1. Profits resolvable into three parts; interest, insurance, and wages

of superintendence ................ 245

2. The minimum of profits ; and the variations to which it is liable . 246

xii CONTENTS.

TAG*

§ 3. Differences of profits arising from the nature of the particular em-
ployment ; 247

4. General tendency of profits to an equality '248

5. Profits do not depend on prices, nor on purchase and sale . . . 2">1

6. The advances of the capitalist consist ultimately in wages of labour 2~>'2

7. The rate of profit depends on the Cost of Labour 253

CHAPTER XVI. Of Sent.

} 1. Pent the effect of a natural monopoly 255

2. No land can pay rent except land of such quality or situation, as

exists in less quantity than the demand 255

3. The rent of land consists of the excess of its return above the

return to the worst land in cultivation 2">7

4. — or to the capital employed in the least advantageous circum-

stances 2">8

6. Is payment for capital suiik in the soil, rent, or profit? .... 2;VJ
6. Rent does not enter into the cost of production of agricultural

produce 262

BOOK III.
EXCHANGE.

CHAPTER I. Of Value.

| 1. Preliminary remarks 264

2. Definitions of Value in Use, Exchange Value, and Price .... 265

3. What is meant by general purchasing power 265

4. Value a relative term. A general rise or fall of Values a contra-

diction 266

5. The laws of Value, how modified in their application to retail

transactions 267

CHAPTER II. Of Demand and Supply, in their relation to Value.

§ 1. Two conditions of Value: Utility, and Difficulty of Attainment . 268

2. Three kinds of Difficulty of Attainment 269

3. Commodities which are absolutely limited in quantity .... 270

4. Law of their value, the Equation of Demand and Supply . . , 271

5. Miscellaneous cases falling under tkis law 272

CHAPTER III. Of Cost of Production, in its relation to Value.

§ 1. Commodities which are susceptible of indefinite multiplication

without increase of cost. Law of their Value, Cost of Production 274

2. — operating through potential, but not actual, alterations of supply 275

CHAPTER IV. Ultimata Analysis of Cost of Production.

K 1. Principal element in Cost of Production — Quantity of Labour . . 277

2. Wages not an element in Cost of Production 278

CONTENTS. xiii

PAG I

§ 3. — except in so far as they vary from employment to employment -J7'J

4. Profits an (-lenient in Cost of Production, in so far as they vary

from employment to employment 280

5. — or are spread over unequal lengths of time 281

6- Occasional elements in Cost of Production : taxes, and scarcity

value of materials 283

CHAPTEB V. Of Kent, in its Relation to Value,

§ 1. Commodities which are susceptible of indefinite multiplication, but
not without increase of cost. Law of their Value, Cost of Pro-
duction in the most unfavourable existing circumstances . . . 285

2. Such commodities, when produced in circumstances more favour-

able, yield a rent equal to the difference of cost 286

3. Rent of mines and fisheries, and ground-rent of buildings . . . 288

4. Cases of extra profit analogous to rent . 289

CHAPTEB VI. Summary of the Theory of Value.

§ 1. The theory of Value recapitulated in a scries of propositions . . 290

2. JIow modified by the case of labourers cultivating for subsistence . 292

3. — by the case of slave labour 293

CHAPTES VII. Of Money.

§ 1. Purposes of a Circulating Medium 293

2. Gold and Silver, why fitted for those purposes 294

3. Money a mere contrivance for facilitating exchanges, which docs

not aft'ect the laws of Value 296

CHAPTEE VIII. Of the Value of Money, as de-pendent on
I)emand and Supply.

% 1 . Value of Money, an ambiguous expression 297

2. The value of money depends, caiteris paribus, on its quantity . . 298

3. — together with the rapidity of circulation 300

4. Explanations and limitations of this principle 301

CHAPTEE IX. Of the Value of Money, as dependent on
Cost of Production.

§ 1. The value of money, in a state of freedom, conforms to the value of

the bullion contained in it 303

2. — which is determined by the cost of production 304

3. This law, how related to the principle laid down in the preceding

chapter 306

CHAPTER X. Of a Double Standard, and Subsidiary Coins.

§ 1. Objections to a double standard 307

•2. The use of the two metals as money, how obtained without making

both of them legal tender 308

JT CONTENTS.

CHAPTER XI. Of Credit, as a Substitute for Money.

PAT,*

1. Credit not a creation but a transfer of the means of production . . 309

2. In what manner it assists production 310

3. Function of credit in economizing- the use of money oil

4. Bills of exchange " 312

5. Promissory notes , , . o 1 4

6. Deposits and cheques . 315

CHAPTER XII. Influence of Credit on Prices.

1. The influence of bank notes, bills, and cheques, on price, a part of

the influence of Credit 31 C»

2. Credit a purchasing power similar to money 317

3. Effects of great extensions and contractions of credit. Phenomena

of a commercial crisis analysed 318

4. Bills a more powerful instrument for acting on prices than book

credits, and bank notes than bills 320

5. — the distinction of little practical importance 322

6. Cheques an instrument for acting on prices, equally powerful with

bank notes 32-4

7. Are bank notes money? 32?

8. No generic distinction between bank notes and other forms of credit 327

CHAPTER XIII. Of an Inconvertible Paper Currency.

J . The value of an inconvertible paper, depending on its quantity, is

a matter of arbitrary regulation 328

2. If regulated by the price of bullion, an inconvertible currency

might be safe, but not expedient 330

3. Examination of the doctrine that an inconvertible currency is safe

if representing actual property 331

4. — of the doctrine that an increase of the currency promotes

industry 332

5. Depreciation of currency a tax on the community, and a fraud on

creditors 334

6. Examination of some pleas for committing this fraud ..... 334

CHAPTER XIV. Of Excess of Supply.

1. Can there be an oversupply of commodities generally? .... 336

2. The supply of commodities in general, cannot exceed the power of

purchase 337

3. — never does exceed the inclination to consume 338

4. Origin and explanation of the notion of general oversnpply . . . 339

CHAPTER XV. Of a Measure of Value.

1. A Measure of Exchange Value, in what sense possible .... 341

2. A Measure of Cost of Production 342

CHAPTER XVI. Of some Peculiar Cases of Value.

1. Values of commodities which have a joint cost of production . . 345

2. Values of the different kinds of agricultural produce ..... 344

CONTENTS. sv

CHAPTER XVII. Of International Trade.

PAGl

§ 1. Cost oi' production not the regulator of international values . . . 347

2. Interchange of commodities between distant places, determined by

differences not in their absolute, but in their comparative, cost

of production 348

3. The direct benefits of commerce consist in increased efficiency of

the productive powers of the world 349

4. — not in a vent for exports, nor in the gains of merchants . . . 350

5. Indirect benefits of commerce, economical and moral; still greater

than the direct , . 351

CHAPIEE XVIII. Of International Values.

8 1 . The values of imported commodities depend on the terms of inter-
national interchange 352

2. — which depend on the Equation of International Demand . . . 353

3. Influence of cost of carriage on international values 350

4. The law of values which holds between two countries, and two

commodities, holds of any greater number 356

5. Effect of improvements in production, on international values . . 358

6. The preceding theory not complete 360

7. International values depend not solely on the quantities demanded,

but also on the means of production available in each country

for the supply of foreign markets 361

8. The practical result little affected by this additional element . . 363

9. The cost to a country of its imports, on what circumstances

dependent 365

CHAPTER XIX. Of Money, considered as an Imported
Commodity.

g I. Money imported in two modes; as a commodity, and as a medium

of exchange 367

2. As a commodity, it obeys the same laws of value as other imported

commodities 367

3. Its value does not depend exclusively on its cost of production at

the mines 3G9

CHAPTER XX. Of the Foreign Exchanges.

§ 1 . Purposes for which money passes from country to country as a

medium of exchange 370

2. Mode of adjusting international payments through the exchanges. 370

3. Distinction between variations in the exchanges which are self-

adjusting, and those which can only be rectified through prices. 373

CHAPTER XXI. Of the Distribution of the Precious Metals
through the Commercial World.

§ 1. The substitution of money for barter makes no difference in exports

and imports, nor in the law of international values 374

2. The preceding theorem further illustrated 37g

xvi CONTENTS.

FAG3

§ 3. The precious metals, as money, are of the same value, and dis-
tribute themselves according to the same law, with the precious

metals as a commodity 379

4. International payments of a non-commercial character .... 379

CIIAPTEB XXII. Influence of Currency on the Exchanges and
on Foreign Trade.

§ 1. Varialions in the exchange, which originate in the currency . . 380

2. Ell'cct of a sudden increase of a metallic currency, or of the sudden

creation of bank notes or other substitutes for money .... 38*

3. Eflect of the increase of an inconvertible paper currency. Eeal

and nominal exchange 384

CHAPTEE XXIII. Of the Rate of Interest.

§ 1 . Tho rate of interest depends on the demand and supply of loans . 385

2. Circumstances which determine the permanent demand and supply

of loans 386

3. Circumstances which determine the fluctuations ...... 388

4. The rate of interest, how far, and in what sense, connected with

the value of money 390

5. The rate of interest determines the price of land and of securities . 393

CHAPTEE XXIV. Of the Regulation of a Convertible
Paper Currency.

% 1 . Two contrary theories respecting the influence of bank issues . . 394

2. Examination of each 395

3. Keasons for thinking that the Currency Act of 1844 produces a

part of the beneficial effect intended by it 397

4. — but produces mischiefs more than equivalent 400

5. Should the issue of bank notes be confined to a single esta-

blishment? 408

6. Should the holders of notes be protected in any peculiar manner

against failure of payment ? 409

CHAPTEE XXV. Of the Competition of different Countries
in the same Market.

§ 1. Causes which enable one country to undersell another .... 410

2. Low wages one of those causes 411

3. — when peculiar to certain branches of industry 412

4. — but not when common lo all 414

5. Some anomalous cases of trading communities examined . . . . 414

CHAPTEE XXVI. Of Distribution, as affected by Exchange.

| 1. Exchange and Money make no difference in the law of wages . . 416

2. — in the law of rent . . . 417

3. — nor in the law of profits • • • • 418

CONTENT'S. xvii

BOOK IV.

INFLUENCE OF THE PROGRESS OF SOCIETY ON
PRODUCTION AND DISTRIBUTION.

CHAPTER I. General Characteristics of a Progressive State
of Wealth.

PAGB

i 1. Introductory Remarks 421

2. Tendency of the progress of society towards increased command
over the powers of nature ; increased security ; and increased
capacity of co-operation 421

CHAPTEB II. Influence of the Progress of Industry and
Population on Values and Prices.

§ 1. Tendency to a decline of the value and cost of production of all

commodities 424

2. — except the products of agriculture and mining, which have a

tendency to rise 425

3. — that tendency from time to time counteracted by improvements

in production 42G

4. Effect of the progress of society in moderating fluctuations of value 427

5. Examination of the influence of speculators, and in particular of

corn dealers 423

CHAPTER III. Influence of the Progress of Industry and
Population on Rents, Profits, and Wages.

§ 1 . First case ; population increasing, capital stationary 430

2. Second case; capital increasing, population stationary .... 432

3. Third case ; population and capital increasing equally, the arts of

production stationary 433

4. Fourth case; the arts of production progressive, capital and popu-

lation stationary 433

5. Fifth case ; all the three elements progressive ....... 437

CHAPTEB IV. Of the Tendency of Profits to a Minimum.

§ 1. Doctrine of Adam Smith on the competition of capital .... 439

2. Doctrine of Mr. Wakefield respecting the field of employment . . 4 1C*

3. AVhat determines the minimum rate of profit 4 It

4. In opulent countries, profits habitually near to the minimum . . 441!

5. — prevented from reaching it by commercial revulsions ....-111

6. — by improvements in production 445

7. — by the importation of cheap necessaries and instruments . . 41(5

8. — by the emigration of capital . . . 417

viij CONTENTS.

CHAPTER V. Consequences of the Tendency of Profits to
a Minimum.

PAOl

1. Abstraction of capital not necessarily a national loss 448

2. In opulent countries, the extension of machinery not detrimental

but beneficial to labourers 450

CHAPTER VI. Of the Stationary State.

1. Stationaiy state of wealth and population, dreaded and deprecated

by writers 452

2. — but not in itself undesirable 453

CHAPTER VII. On the Probable Futurity of His Labouring
Classes.

1. The theory of dependence and protection no longer applicable to

the condition of modern society 455

2. The future well-being of the labouring classes principally dependent

on their own mental cultivation 458

3. Probable effects of improved intelligence in causing a better

adjustment of population — Would be promoted by the social
independence of women 459

4. Tendency of society towards the disuse of the relation of hiring

and service 459

5. Examples of the association of labourers with capitalists . . . . 461

6. — of the association of labourers among themselves ..... 4(55

7. Competition not pernicious, but useful and indispensable .... 476

BOOK V.
ON THE INFLUENCE OF GOVERNMENT.

CHAPTER I. Of the Functions of Government in general.

1. Necessary and optional functions of government distinguished . . 479

2. Multifarious character of the necessaiy functions of government . 480

3. Division of the subject 482

CHAPTER II. Of the General Principles of Taxation.

1 . Four fundamental rules of taxation 483

2. Grounds of the principle of Equality of Taxation 484

3. Should the same percentage be levied on all amounts of income ? . 485

4. Should the same percentage be levied on perpetual and on termi-

nable incomes ? 488

6. The increase of the rent of land from natural causes a fit subject of

peculiar taxation 492

6. A land tax, in some cases, not taxation, but a rent-charge in favour

of the public 493

7. Taxes falling on capital, not necessarily objectionable .... 494

CONTENTS. xbt
CHAPTER III. Of Direct Taxes.

FXGB

§ 1. Direct taxes either on income or on expenditure 495

2. Taxes on rent 496

3. — on profits . 496

4. — on wages 498

5. An Income Tax 490

6. A House Tax 501

CHAPTEB IV. Of Taxes on Commodities.

§ 1 . A Tax on all Commodities would fall on profits ....... 504

2. Taxes on particular commodities fall on the consumer 505

3. Peculiar effects of taxes on necessaries 506

4. — how modified by the tendency of profits to a minimum . . . 507

5. Effects of discriminating duties 510

6. Effects produced on international exchange by duties on exports

and on imports 512

CHAPTEB V. Of some other Taxes.

§ 1 . Taxes on contracts ...517

2. Taxes on communication 518

3. Law Taxes 519

4. Modes of taxation for local purposes 520

CHAPTER VT. Comparison between Direct and Indirect
Taxation.

§ 1. Arguments for and against direct taxation 521

2. "\Vliatfbrmsofindirecttaxationmosteligible ....... 523

3. Practical rules for indirect taxation 524

CHAPTEE VII. Of a National Delt.

§ 1. Is it desirable to defray extraordinary public expenses by loans? . 526

2. Not desirable to redeem a national debt by a general contribution 528

3. In what cases desirable to maintain a surplus revenue for the

redemption of debt . . 529

CHAPTER VIII. Of the Ordinary Functions of Government,
considered as to tJieir Economical Effects.

§ 1. KlTocts of imperfect security of person and property 531

2. Kfi'i.vls of over-taxation 532

3. Effects of imperfection in the system of the laws, and in the admi-

nistration of justice 533

CHAPTEK IX. The same subject continued.

§ 1. Laws of Inheritance 526

2. Law and Custom of Primogeniture 537

3. Entails 539

xx CONTENTS.

§ 4. Law of compulsory equal division of inheritances 540

o. Laws of Partnership 541

6. Partnerships with limited liability. Chartered Companies . . . 542

7. Partnerships in cnmmandite 545

8. Laws relating to insolvency 548

CHAPTEB X. Of Interferences of Government grounded on \
Erroneous Theories.

| 1. Doctrine of Protection to Native Industry 552

2. Usury Laws • • j^. 558

3. Attempts to regulate the prices of commodities 561

4. Monopolies 502

5. Laws against Combination of Workmen 5G3

6. Restraints on opinion or on its publication 506

CHAPTER XI. Of the Grounds and Limits of the Laisser-faire
or Non-interference Principle.

§ 1. Governmental intervention distinguished into authoritative and

unauthoritative 567

2. Objections to government intervention — the compulsory character

of the intervention itself, or of the levy of funds to support it . . 568

3. — increase of the power and influence of government 570

4. — increase of the occupations and responsibilities of government . 570

5. — superior efficiency of private agency, owing to stronger interest

in the work 571

6. — importance of cultivating habits of collective action in the

people 572

7. Laisser-faire the general rule 573

8. — but liable to large exceptions. Cases in which the consumer is

an incompetent judge of the commodity. Education .... 575

9. Case of persons exercising power over others. Protection of chil-

dren and young persons ; of the lower animals. Case of women

not analogous 577

10. Case of contracts in perpetuity 579

11. Cases of delegated management 579

12. Cases in which public intervention may be necessary to give effect

to the wishes of the persons interested. Examples : hours of
labour; disposal of colonial lands 581

13. Case of acts done for the benefit of others than the persons con-

cerned. Poor Laws 585

14. Colonization 585

,5. - — other miscellaneous examples 539

"6. Government intervention may be necessary in default of private

agency, in cases where private agency would bo more suitable . 590

PRINCIPLES

POLITICAL ECONOMY.

PRELIMINARY REMARKS.

IN every department of human affairs,
Practice long precedes Science : sys-
tematic enquiry into the modes of
action of the powers of nature, is the
tardy product of a long course of
efforts to use those powere for practical
ends. The conception, accordingly, of
Political Economy as a branch of
science, is extremely modern ; but the
(subject with which its enquiries are
conversant has in all ages necessarily
constituted one of the chief practical
interests of mankind, and, in some, a
most unduly engrossing one.

That subject is Wealth. Writers
on Political Economy profess to teach,
or to investigate, the nature of Wealth,
and the laws of its production and dis-
tribution : including, directly or re-
motely, the operation of all the causes
by which the condition of mankind, or
of any society of human beings, in
respect to this universal object of
human desire, is made prosperous or
the reverse. Not that any treatise on
Political Economy can discuss or even
Dmimerate all these causes ; but it
undertakes to set forth as much as is
known of the laws and principles ac-
cording to which they operate.

Every one lias a notion, sufficiently
correct for common purposes, of what
is meant by wealth. The enquiries
which relate to it are in no danger of
being confounded with those relating
to any other of the great human in-
t'Trsts. All know that it is one
tiling to be rich, another thing to be
enlightened, br»~<i, or humane ; that

the questions how a nation is made
wealthy, and how it is made free, or
virtuous, or eminent in literature, in
the fine arts, in arms, or in polity,
are totally distinct enquiries. Those
things, indeed, are all indirectly con-
nected, and react upon one another.
A people has sometimes become free,
because it had first grown wealthy ; or
wealthy, because it had first becom»
free. The creed and laws of a people
act powerfully upon their economical
condition ; and this again, by its influ-
ence on their mental development and
social relations, reacts upon their creed
and laws. But though the subjects
are in very close contact, they are
essentially different, and have never
been supposed to be otherwise.

It is no part of the design of this
treatise to aim at metaphysical nicety
of definition, where the ideas suggested
by a term are already as determinate
as practical purposes require. But,
little as it might be expected that any
mischievous confusion of ideas could
take place on a subject so simple as
the question, what is to be considered
as wealth, it is matter of history that
such confusion of ideas has existed —
that theorists and practical politicians
have been equally, and at one period
universally, infected by it, and that
for many generations it gave a tho-
roughly false direction to the policy
of Europe. I refer to the set of doc-
trines designated, since the time of
Adam Smith, by the appellation of the
Mercantile System,

PRELIMINARY REMARKS.

While this system prevailed, it was
assumed, either expressly or tacitly, in
the \\holepolicyofnations, that wealth
consisted solely of money ; or of the
precious metals, which, when not already
in the state of money, are capable of
being directly converted into it. Ac-
cording to the doctrines then preva-
lent, whatever tended to heap up
money or bullion in a country added to
its wealth. Whatever sent the precious
metals out of a country impoverished
it. If a country possessed no gold or
silver mines, the only industry by
which it could be enriched was foreign
trade, being the only one which could
bring in money. Any branch of trade
which was supposed to send out more
money than it brought in, however
ample and valuable migbt be the re-
turns in another shape, was looked
upon as a losing trade. Exportation of
goods was favoured and encouraged
(even by means extremely onerous to
the real resources of the country), be-
cause the exported goods being stipu-
lated to be paid for in money, it was
hoped that the returns would actually
be made in gold and silver. Importa-
tion of anything, other than the preci-
ous metals, was regarded as a loss to
the nation of the whole price of the
things imported; unless they were
brought in to be re-exported at a profit,
or unless, being the materials or in-
struments of some industry practised
in the country itself, they gave the
power of producing exportable articles
at smaller cost, and thereby effecting
a larger exportation. The commerce
of the world was looked upon as a
struggle among nations, which could
draw to itself the largest share of the
gold and silver in existence ; and in
this competition no nation could gain
anything, except by making others
lose as much, or, at the least, prevent-
ing them from gaining it.

It often happens that the universal
belief of one age of mankind — a belief
from which no one was, nor without
an extraordinary effort of genius and
courage, could at that time be free —
becomes to a subsequent age so palpa-
ble an absurdity, that the only difficulty
then is to imagine how such a thing

can ever have appeared credible. Tt
has so happened with the doctrine that
money is synonymous with wealth.
The conceit seems too preposterous to
be thought of as a serious opinion. It
looks like one of the crude fancies of
childhood, instantly corrected by a
word from any grown person. But let
no one feel confident that he would
have escaped the delusion if he had
lived at the time when it prevailed.
All the associations engendered by
common life, and by the ordinary course
of business, concurred in promoting it.
So long as those associations were the
only medium through which the sub-
ject was looked at, what we now
think so gross an absurdity seemed a
truism. Once questioned, indeed, it
was doomed ; but no one was likely to
think of questioning it whose mind had
not become familiar with certain modes
of stating and of contemplating econo-
mical phenomena, which have only
found their way into the general
understanding through the influence of
Adam Smith and of his expositors.

In common discourse, wealth is
always expressed in money. If you
ask how rich a person is, you are
answered that he has so many thousand
pounds. All income and expenditure,
all gains and losses, everything by
which one becomes richer or poorer,
are reckoned as the coming in or going
out of so much money. It is true that
in the inventory of a person's fortune
are included, not only the money in
his actual possession, or due to him,
but all other articles of value. These,
however, enter, not in their own cha-
racter, but in virtue of the sums of
money which they would sell for ; and
if they would sell for less, their owner
is reputed less rich, though the things
themselves are precisely the same. It
is true, also, that people do not grow
rich by keeping their money unused,
and that they must be willing to
spend in order to gain. Those who
enrich themselves by commerce, do so
by giving money for goods as well as
goods for money ; and the first is as
necessary a part of the process as the
last. But a person who buys goods
for purposes of gain, does so to sell

PRELIMINARY REMARKS.

them again for money, and in the ex-
pectation of receiving more money than
he laid out : to get money, therefore,
Beems even to the person himself the
ultimate end of the whole. It often
happens that he is not paid in money,
but in something else ; having bought
goods to a value equivalent, which are
set off against those he sold. But he
accepted these at a money valuation,
and in the belief that they would
bring in more money eventually than
the price at which they were made
over to him. A dealer doing a large
amount of business, and turning over
his capital rapidly, has but a small
portion of it in ready money at any one
time. But he only feels it valuable to
him as it is convertible into money : he
considers no transaction closed until
the net result is either paid or credited
in money : when he retires from busi-
ness it is into money that he converts
the whole, and not until then does he
deem himself to have realized his
gains : just as if money were the only
wealth, and money's worth were only
the means of attaining it. If it be now
asked for what end money is desirable,
unless to supply the wants or pleasures
of oneself or others, the champion of
the system would not be at all embar-
rassed by the question. True, he would
say, these are the uses of wealth, and
very laudable uses while confined to
domestic commodities, because in that
case, by exactly the amount which you
expend, you enrich others of your
countrymen. Spend your wealth, if
you please, in whatever indulgences
you have a taste for ; but your wealth
is not the indulgences, it is the sum
of money, or the annual money income,
with which you purchase them.

While there were so many things to
render the assumption which is the
basis of the mercantile system plausi-
ble, there is also some small foundation
in reason, though a very insufficient
one, for the distinction which that sys-
tem so emphatically draws between
money and every other kind of valua-
ble possession. We really, and justly,
look upon a person as possessing the
advantages of wealth, not in proportion
to the useful and agreeable things of

which he is in the actual enjoyment,
but to his command over the general
fund of things useful and agreeable;
the power he possesses of providing for
any exigency, or obtaining any object
of "desire. Now, money is itself that
power ; while all other things, in a
civilized state, seem to confer it only
by their capacity of being exchanged
for money. To possess any other arti-
cle of wealth, is to possess that par-
ticular thing, and nothing else: if you
wish for another thing instead of it,
you have first to sell it, or to submit
to the inconvenience and delay (if not
the impossibility) of finding some one
who has what you want, and is wiDing
to barter it for what you have. But
with money you are at once able to
buy whatever things are for sale : and
one whose fortune is in money, or in
things rapidly convertible into it, seems
both to himself and others to possess not
any one thing, but all the things which
the money places it at his option tA
purchase. The greatest part of the
utility of wealth, beyond a very mode-
rate quantity, is not the indulgences it
procures, but the reserved power which
its possessor holds in his hands of at-
taining purposes generally ; and this
power no other kind of wealth confers
so immediately or so certainly as
money. It is the only form of wealth
which is not merely applicable to some
one use, but can be turned at once to
any use. And this distinction was the
more likely to make an impression
upon governments, as it is one of con-
siderable importance to them. A civi-
lized government derives comparatively
little advantage from taxes unless it
can collect them in money : and if it
has large or sudden payments to make,
especially payments in foreign countries
for wars or subsidies, either for the sake
of conquering or of not being conquered
(the two chief objects of national policy
until a late period), scarcely any
medium of payment except money will
serve the purpose. All these causes
conspire to make both individuals and
governments, in estimating their
means, attach almost exclusive im-
portance to money, either in csse or in
posse, and Icok upon all other things
B2

PRELIMINARY REMARKS.

(when viewed as part of their resources)
scarcely otherwise than as the remote
means of obtaining that which alone,
when obtained, affords the indefinite,
and at the same time instantaneous,
command over objects of desire, which
best answers to the idea of wealth.

An absurdity, however, does not cease
to be an absurdity when we have dis-
covered what were the appearances
which made it plausible ; and the Mer-
cantile Theory could not fail to be seen
in its true character when men began,
even in an imperfect manner, to explore
into the foundations of things, and seek
their premises from elementary facts,
and not from the forms and phrases of
common discourse. So soon as they
asked themselves what is really meant,
by money — what it is in its essential
characters, and the precise nature of
the functions it performs — they reflected
that money, like other things, is only
a desirable possession on account of its
uses ; and that these, instead of being,
as they delusively appear, indefinite,
are of a strictly defined and limited
description, namely, to facilitate the
distribution of the produce of industry
according to the convenience of those
among whom it is shared. Further
consideration showed that the uses of
money are in no respect promoted by
increasing the quantity which exists
and circulates in a country ; the service
which it performs being as well rendered
by a small as by a large aggregate
amount. Two million quarters of corn
will not feed so many persons as four
millions ; but two millions of pounds
sterling will carry on as much traffic,
will buy and sell as many commodities,
as four millions, though at lower nomi-
nal prices. Money, as money, satisfies
no want ; its worth to any one, consists
in its being a convenient shape in which
to receive his incomings of all sorts,
which incomings he afterwards, at the
times which suit him best, converts into
the forms is which they can be useful
to him. Great as the difference would
be between a country with money, and
a country altogether without it, it would
be only one of convenience ; a saving of
time and trouble, like grinding by water
power instead of by hand, or (to use

Adam Smith's illustration) like the
benefit derived from roads ; and to mis-
take money for wealth, is the same sort
of error as to mistake the highway
which may be the easiest way of get-
ting to your house or lands, for the
house and lands themselves.

Money, being the instrument of an
important public and private purpose,
is rightly regarded as wealth ; but
everything else which serves any hu
man purpose, and which nature does
not afford gratuitously, is wealth also.
To be wealthy is to have a large stock
of useful articles, or the means of pur-
chasing them. Everything forms there-
fore a part of wealth, which has a power
of purchasing ; for which anything use-
ful or agreeable would be given in
exchange. Things for which nothing
could be obtained in exchange, how-
ever useful or necessary they may be,
are not wealth in the sense in which
the term is used in Political Economy.
Air, for example, though the most ab-
solute of necessaries, bears no price in
the market, because it can be obtained
gratuitously : to accumulate a stock of
it would yield no profit or advantage to
any one ; and the laws of its produc-
tion and distribution are the subject of
a very different study from Political
Economy. But though air is not wealth,
mankind are much richer by obtaining
it gratis, since the time and labour
which would otherwise be required for
supplying the most pressing of all wants,
can be devoted to other purposes. It
is possible to imagine circumstances in
which air would be a part of wealth.
If it became customary to sojourn long
in places where the air does not natur-
ally penetrate, as in diving-bells sunk
in the sea, a supply of air artificially
furnished would, like water conveyed
into houses, bear a price : and if from
any revolution in nature the atmosphere
became too scanty for the consumption,
or could be monopolized, air might ac-
quire a very high marketable value. IE
such a case, the possession of it, beyond
his own wants, would be, to its owner,
wealth; and the general wealth of
mankind might at first sight appear to
be increased, by what would be so great
a calamity to them. The error would

PRELIMINARY REMARKS.

He in not considering, that however
rich the possessor of air might become
at the expense of the rest of the com-
munity, all persons else would be poorer
by all that they were compelled to pay
for what they had before obtained with-
out payment.

This leads to an important distinc-
tion in the meaning of the word wealth,
as applied to the possessions of an in-
dividual, and to those of a nation, or of
mankind. In the wealth of mankind,
nothing is included which does not of
itself answer some purpose of utility or
pleasure. To an individual, anything
is wealth, which, though useless in it-
self, enables him to claim from others
a part of their stock of things useful or
pleasant. Take, for instance, a mort-
gage of a thousand pounds on a landed
estate. This is wealth to the person
to whom it brings in a revenue, and
who could perhaps sell it in the market
for the full amount of the debt. But
it is not wealth to the country ; if the
engagement were annulled, the country
would be neither poorer nor richer. The
mortgagee would have lost a thousand
pounds, and the owner of the land would
nave gained it. Speaking nationally,
the mortgage was not itself wealth, but
merely gave A a claim to a portion of
the wealth of B. It was wealth to A,
and wealth which he could transfer to
a third person ; but what he so trans-
ferred was in i'act a joint ownership, to
the extent of a thousand pounds, in the
land of which B was nominally the
sole proprietor. The position of fund-
holders, or owners of the public debt of
a country, is similar. They are mort-
gagees on the general wealth of the
country. The cancelling of the debt
would be no destruction of wealth, but
a transfer of it : a wrongful abstraction
of wealth from certain members of the
community, for the profit of the govern-
ment, or of the tax-payers. Funded
property therefore cannot be counted
as part of the national wealth. This
is not always borne in mind by the
dealers in statistical calculations. For
example, in estimates of the gross in-
come of the country, founded on the
proceeds of the income-tax, incomes
deri red from the funds are not always

excluded: though the tax-payers are
assessed on their whole nominal income,
without being permitted to deduct from
it the portion levied from them in taxa-
tion to form the income of the fund-
holder. In this calculation, therefore,
one portion of the general income of the
country is counted twice over, and the
aggregate amount made to appear
greater than it is by almost thirty mil-
lions. A country, however, may include
in its wealth all stock held by its citi-
zens in the funds of foreign countries,
and other debts dne to them from
abroad. But even this is only wealth
to them by being a part ownership in
wealth held by others. It forms no
part of the collective wealth of the hu-
man race. It is an element in the dis-
tribution, but not in the composition,
of the general wealth.

It_has been proposed to define wealth
as signifying " instruments,:1' meaning
riot tools and machinery alone, but the
whole accumulation possessed by indi-
viduals or communities, of means i'or
the attainment of their ends. Thus, a
field is an instrument, because it is a
means to the attainment of corn. Corn
is an instrument, being a means to the
attainment of flour. Flour is an instm
ment, being a means to the attainment
of bread. Bread is an instrument, as a
means to the satisfaction of hunger
and to the support of life. Here we at
last arrive at things which are not in-
struments, being desired on their own
account, and not as mere means to
something beyond. This view of thn
subject is philosophically correct ; or
father, this mode of expression may be
usefully employed along with others, not
as conveying a different view of the sub-
ject from the common one, but as giving
more distinctness and reality to the
common view. Itjdeparts, however, too
widely from the custom of language, to
be likely to obtain general acceptance,
or to be of use for any other purpose
than that of occasional illustration.

Another example of a possession
which is wealth to the person holding
it, but not wealth to the nation, or to
mankind, is slaves. It is by a strange
confusion of ideas that slave property
(as it is termed) is counted, at so mud

PEEL1MINARY REMARKS.

per head, in an estimate of tlic wealth.
or of the capital, of the country which
tolerates the existence of such property.
If a human being, considered as an
object possessing productive ]>.•
part of the national wealth when his
powers are owned by another man, he
cannot be less a part oi' it when they
are owned by himself. Whatever he
is worth to his master is so much pro-
perty abstracted from himself, and its
abstraction cannot augment the posses-
sions of the two together, or of the
country to which they both belong. In
propriety of classification, however, the
people of a country are not to be counted
in its wealth. They are that for the
sake of which its wealth exists. The
term wealth is wanted to denote the de-
sirable objects which they possess, not
inclusive of, but in contradistinction to,
their own persons. They are not wealth
to themselves, though they are means
of acquiring it.

Wgalth, then, may be defined, all
n i-o t'nl or agreeable things which possess
exchangeable value ; or, in other words,
all useful or agreeable things except
those which can be obtained, in the
quantity desired, without labour or sa-
crifice. To this definition, the only
objection seems to be, that it leaves in
uncertainty a question which has been
much debated — whetherwhat are called
immaterial products are to be considered
as wealth : whether, for example, the
skill of a workman, or any other natural
or acquired power of body or mind, shall
be called wealth, or not : a question,
not of very great importance, and
•which, so far as requiring discussion,
will be more conveniently considered in
another place.*

These things having been premised
respecting wealth, we shall next turn
our attention to the extraordinary dif-
ferences in respect to it, which exist
between nation and nation, and be-
tween different ages of the world ; dif-
ferences both in the quantity of wealth,
and in the kind of it ; as well as in the
manner in which the wealth existing
in the community is shared among its
saembers.

iL here is, perhaps, no people or corn-
Infra, book j. chap. iii.

munity, now existing, which subsists
entirely on the spontaneous produce of
vegetation. But many tribes still live
exclusively, or almost exclusively, on
wild animals, the produce of hunting or
fishing. Their clothing is skins ; theit
habitations, huts rudely formed of loga
or boughs of trees, and abandoned at
an hour's notice. The food they use
being little susceptible of storing up,
they have no accumulation of it, and
are often exposed to great privations.
The wealth of such a community con-
sists solely of the skins they wear ; a
few ornaments, the taste for which
exists among most savages ; some rude
utensils ; the weapons with which they
kill their game, or fight against hostile
competitors for the means of subsistence;
canoes for crossing rivers and lakes, or
fishing in the sea ; and perhaps some
furs or other productions of the wilder-
ness, collected to be exchanged with
civilized people for blankets, brandy,
and tobacco ; of which foreign produce
also there may be some unconsumcd
portion in store. To this scanty in-
ventory of material wealth, ought to be
added their land; an instrument of
production of which they make slender
use, compared with more settled com-
munities, but which is still the source
of their subsistence, and which has a
marketable value if there be any agri-
cultural community in the neighbour,
hood requiring more land than it pos-
sesses. This is the state of greatest
poverty in which any entire community
of human beings is known to exist ;
though there are much richer commu-
nities in which portions of the inhabit-
ants are in a condition, as to subsist-
ence and comfort, as little enviable as
that of the savage.

The first great advance beyond this
state consists in the domestication of
the more useful animals ; giving rise to
the pastoral or nomad state, in which
mankind do not live on the produce of
hunting, but on milk and its products,
and on the annual increase of flocks
and herds. This condition is not only
more desirable in itself, but more con-
ducive to further progress ; and a much
more considerable amount of wealth \
accumulated under it. So long as tL\

PRELIMINARY REMARKS.

rast natural pastures of the earth are
not yet so fully occupied as to be con-
sumed more rapidly than they are
spontaneously reproduced, a large and
constantly increasing stock of subsist-
ence may be collected and preserved,
with little other labour than that of
guarding the cattle from the attacks of
wild beasts, and from the force or wiles
of predatory men. Large flocks and
herds, therefore, are in time possessed,
by active and thrifty individuals through
their own exertions, and by the heads
of families and tribes through the ex-
ertions of those who are connected with
them by allegiance. There thus arises,
in the shepherd state, inequality of
possessions ; a thing which scarcely
exists in the savage state, where no
one has much more than absolute ne-
cessaries, and in case of deficiency must
share even those with his tribe. In the
nomad state, some have an abundance
of cattle, sufficient for the food of a mul-
titude, while others have not contrived
to appropriate and retain any super-
fluity, or perhaps any cattle at all. But
subsistence has ceased to be precarious,
since the more successful have no other
use which they can make of their sur-
plus than to feed the less fortunate,
while every increase in the number of
persons connected with them is an in-
crease both of security and of power :
and thus they are enabled to divest
themselves of all labour except that of
government and superintendence, and
acquire dependents to fight for them in
war and to serve them in peace. One
of the features of this state of society
is, that a part of the community, and
in some degree even the whole of it,
possess leisure. Only a portion of time
is required for procuring food, and the
remainder is not engrossed by anxious
thought for the morrow, or necessary
repose from muscular activity. Such
a life is highly favourable to the growth
of new wants, and opens a possibility
of their gratification. A desire arises
for better clothing, utensils, and imple-
ments, than the savage state contents
itself with ; and the surplus food ren-
ders it practicable to devote to these
purposes the exertions of a part of the
tribe. In all or most nomad commu-

nitk-s we find domestic manufactures
of a coarse, and in some, of a fine kind.
There is ample evidence that while
those parts of the world which have
been the cradle of modern civilization
were still generally in the nomad state,
considerable skill had been attained in
spinning, weaving, and dyeing woollen
garments, in the preparation of leather,
and in what appears a still more diffi-
cult invention, that of working in metals.
Even speculative science took its first
beginnings from the leisure character-
istic of this stage of social progress.
The earliest astronomical observations
are attributed, by a tradition which has

: much appearance of truth, to the shep-
herds of Chaldaea.

From this state of society to the
agricultural the transition is not indeed
easy, (for no great change in the habits
of mankind is otherwise than difficult,

' and in general either painful or very
slow,) but it lies in what may he called
the spontaneous course of events. The
growth of the population of men and
cattle began in time to press upon the
earth's capabilities of yielding natural
pasture : and this cause doubtless pro-
duced the first tilling of the ground,
just as at a later period the same cause
made the superfluous hordes of the
nations which had remained nomad
precipitate themselves upon those
which had already become agricul-
tural ; until, these having become suf-
ficiently powerful to repel such inroads,
the invading nations, deprived of this
outlet, were obliged also to become
agricultural communities.

But after this great step had been
completed, the subsequent progress of
mankind seems by no means to have
been so rapid (certain rare combina-
tions of circumstances excepted) as
might perhaps have been anticipated.
The quantity of human food which the
earth is capable of returning even to
the most wretched system of agricul-
ture, so much exceeds what could be
obtained in the purely pastoral state,
that a great increase of population is
invariably the result. But this addi-
tional food is onjy obtained by a great
additional amount of labour; so that
not only an agricultural has much les?

8

PRELIMINARY REMARKS.

leisure than a pastoral population, but,
with the imperfect tools and unskilful
processes which are for a long time
employed (and which over the greater
part of the earth have not even yet
been abandoned), agriculturists do not,
unless in unusually advantageous cir-
cumstances of climate and soil, produce
so great a surplus of food beyond their
necessary consumption, as to support
any large class of labourers engaged in
other departments of industry. The
surplus, too, whether small or great, is
usually torn from the producers, either
by the government to which they are
subject, or by individuals, who by
superior force, or by availing them-
selves of religious or traditional feel-
ings of subordination, have established
themselves as lords of the soil.

The first of these modes of appro-
priation, by the government, is cha-
racteristic of the extensive monarchies
which from a time beyond historical
record have occupied the plains of
Asia. The government, in those coun-
tries, though varying in its qualities
according to the accidents of personal
character, seldom leaves much to the
cultivators beyond mere necessaries,
and often strips them so bare even of
these, that it finds itself obliged, after
taking all they have, to lend part of it
back to those from whom it has been
taken, in order to provide them with seed,
and enable them to support life until an-
other harvest. Under the regime in
question, though the bulk of the popu-
lation are ill provided for, the govern-
ment, by collecting small contributions
from great numbers, is enabled, with
any tolerable management, to make a
show of riches quite out of proportion
to the general condition of the society;
and hence the inveterate impression,
of which Europeans have only at a late
period been disabused, concerning the
great opulence of Oriental nations. In
this wealth, without reckoning the
large portion which adheres to the
iiands emp'oyed in collecting it, many
of course participate, besides
the immediate household of the sove-
A large part is distributed
among the various functionaries of go-

vernment, and among the objects of
the sovereign's favour or caprice. A
part is occasionally employed in works
of public utility. The tanks, wells,
and canals for irrigation, without which
in many tropical climates cultivation
could hardly be carried on ; the em-
bankments which confine the rivers,
the bazars for dealers, and the seraees
for travellers, none of which could have
been made by the scanty means in the
possession of those using them, owe
their existence to the liberality and
enlightened self-interest of the better
order of princes, or to the benevolence
or ostentation of here and there a rich
individual, whose fortune, if traced to
its source, is always found to have been
drawn immediately or remotely from
the public revenue, most frequently by
a direct grant of a portion of it from
the sovereign.

The ruler of a society of this descrip-
tion, after providing largely for his
own support, and that of all persons in
whom he feels an interest, and after
maintaining as many soldiers as he
thinks needful for his security or his
state, has a disposable residue, which
he is glad to exchange for articles of
luxury suitable to his disposition : as
have also the class of persons who
have been enriched by his favour, or by
handling the public revenues. A de-
mand thus arises for elaborate and costly
manufactured articles, adapted to a
narrow but a wealthy market. This
demand is often supplied almost ex-
clusively by the merchants of more
advanced communities, but often also
raises up in the country itself a class
of artificers, by whom certain fabrics
are carried to as high excellence as
can be given by patience, quickness
of perception and observation, and
manual dexterity, without any con-
siderable knowledge of the properties
of objects: such as some of the cotton
fabrics of India. These artificers are
fed by the surplus food which has
been taken by the government and its
agents as their share of the produce.
So literally is this the case, that in
some countries the workman, instead
of taking the work home, and being

PRELIMINARY REMARKS.

9

paid for it after it is finished, proceeds
with his tools to his customer's house,
and is there subsisted until the work is
complete. The insecurity, however, of
all possessions in this state of society,
induces even the richest purchasers to
give a preference to such articles as,
being of an imperishable nature, and
containing great value in small bulk,
are adapted for being concealed or car-
ried off. Gold and jewels, therefore,
constitute a large proportion of the
wealth of these nations, and many a
rich Asiatic carries nearly his whole
fortune on his person, or on those of
the women of his harem. No one,
except the monarch, thinks of invest-
ing his wealth in a manner not suscep-
tible of removal. He, indeed, if he
feels safe on his throne, and reasonably
secure of transmitting it to his descen-
dants, sometimes indulges a taste for
durable edifices, and produces the
Pyramids, or the Taj Mehal and the
.Mausoleum at Sekundra. The rude
manufactures destined for the wants of
the cultivators are worked up by vil-
lage artisans, who are remunerated by
land given to them rent-free to culti-
vate, or by fees paid to them in kind
from such share of the crop as is left
to the villagers by the government.
This state of society, however, is not
destitute of a mercantile class ; com-
posed of two divisions, grain dealers
and money dealers. The grain dealers
do not usually buy grain from the pro-
ducers, but from the agents of govern-
ment, who, receiving the revenue in
kind, are glad to devolve upon others
the business of conveying it to the
places where the prince, his chief civil
and military officers, the bulk of his
troops, and the artisans who supply
the wants of these various persons, are
assembled. The money dealei's lend
to the unfortunate cultivators, when
ruined by bad seasons or fiscal exac-
tions, the means of supporting life and
continuing their cultivation, and are
repaid with enormous interest at the
next harvest : or, on a larger scale,
they lend to the government, or to
those to whom it has granted a portion
oi the revenue, and are indemnified by

assignments on the revenue collectors,
or by having certain districts put into
their possession.that they may pay them-
selves from the revenues ; to enable
them to do which, a great portion of
the powers of government are usually
made over simultaneously, to be exer-
cised by them until either the districts
are redeemed, or their receipts have
liquidated the debt. Thus, the com-
mercial operations of both these classes
of dealers take place principally upon
that part of the prod.ice of the country
which forms the revenue of the govern-
ment. From that revenue their capital
is periodically replaced with a profit,
and that is also the source from which
their original funds have almost always
been derived. Such, in its general
features, is the economical condition of
most of the countries of Asia, as it has
been from beyond the commencement
of authentic history, and is still, wher-
ever not disturbed by foreign influ-
ences.

In the agricultural communities of
ancient Europe whose early conditiot
is best known to us, the course of
things was different. These, at their
origin, were mostly small town-commu-
nities, at the first plantation of which,
in an unoccupied country, or in one
from which the former inhabitants had
been expelled, the land which was
taken possession of was regularly
divided, in equal or in graduated allot-
ments, among the families composing
the community. In some cases, in-
stead of a town there was a confedera-
tion of towns, occupied by people of the
same reputed race, and who were sup-
posed to have settled in the country
about the same time. Each family
produced its own food and the mate-
rials of its clothing, which were worked
up within itself, usually by the women
of the family, into the coarse fabrics
with which the age was contented.
Taxes there were none, as there were
either no paid officers of government,
or if there were, their payment had
been provided for by a reserved portion
of land, cultivated by slaves on account
of the state ; and the army consisted
of the body of citizens. The wholo

io

PRELIMINARY REMARKS

produce of the soil, therefore, belonged,
without deduction, to the family which
cultivated it. So long as the progress
of events permitted this disposition of
property to last, the state of society
was, for the majority of the free culti-
vators, probably not an undesirable
one ; and under it, in some cases, the
advance of mankind in intellectual cul-
ture was extraordinarily rapid and
brilliant. This more especially hap-
pened where, along with advantageous
circumstances of race and climate, and
no doubt with many favourable acci-
dents of which all trace is now lost,
was combined the advantage of a
position on the shores of a great inland
sea, the other coasts of which were
already occupied by settled commu-
nities. The knowledge which in such
a position was acquired of foreign pro-
ductions, and the easy access of foreign
ideas and inventions, made the chain
of routine, usually so strong in a rude
people, hang loosely on these commu-
nities. To speak only of their indus-
trial development ; they early acquired
variety of wants and desires, which
stimulated them to extract from their
own soil the utmost which they knew
how to make it yield ; and when their
Boil was sterile, or after they had
reached the limit of its capacity, they
often became traders, and bought up
the productions of foreign countries, to
sell them in other countries with a
profit.

The duration, however, of this state
of things was from the first precarious.
These little communities lived in a
state of almost perpetual war. For
this there were many causes. In the
ruder and purely agricultural commu-
nities a frequent cause was the mere
pressure of their increasing population
upon their limited land, aggravated as
that pressure so often was by deiicient
harvests in the rude state of their agri-
culture, and depending as they did for
food upon a very small extent of coun-
try. On these occasions, the commu-
nity often emigrated in a body, or sent
forth a swarm of its youth, to seek,
Bword in hand, for some less warlike
people, who could be expelled from their
land, or detained to cultivate it as

slaves for the benefit of their despoilers.
What the less advanced tribes did
from necessity, the more prosperous
did from ambition and the military
spirit : and after a time the whole of
these city-communities were either
conquerors or conquered. In some
cases, the conquering state contented
itself with imposing a tribute on the
vanquished : who being, in considera-
tion of that burden, freed from the ex-
pense and trouble of their own military
and naval protection, might enjoy
under it a considerable share of econo-
mical prosperity, while the ascendant
community obtained a surplus of
wealth, available for purposes of collec-
tive luxury or magnificence. From
such a surplus the Parthenon and the
Propylaea were built, the sculptures of
; ; paid for, and the festivals

celebrated, for which ^Eschy his, Sopho-
cles, Euripides, and Aristophanes com-
posed their dramas. But this state of
Eolitical relations, most useful, while it
isted, to the progress and ultimate
interest of mankind, had not the ele-
ments of durability. A small conquer-
ing community which does not incor-
porate its conquests, always ends by
being conquered. Universal dominion,
therefore, at -last rested with the
people who practised this art — with the
Romans ; who, whatever were their
other devices, always either began or
ended by taking a great part of the
land to enrich their own ler.ding citi-
zens, and by adopting into the govern-
ing body the principal possessors (>f the
remainder. It is unnecessary to dwell
on the melancholy economical history
of the Roman empire. When in-
equality of wealth once .commences, in
a community not constantly engaged
in repairing by industry the . injuries of
fortune, its advances are gigantic ; the
great masses of wealth swallow up the
smaller. The Roman empire ulti-
mately became covered with the vast
landed possessions of a comparatively
few families, for whose luxury,'- and
still more for whose ostentation, the
most costly products were raised, whilo
the cultivators of the soil were slaves,
or small tenants in a nearly servile
condition. From this time the wealth

PRELIMINARY REMARKS.

11

of the empire progressively declined.
In the beginning, the public revenues,
and the resources of rich individuals,
sufliei.-d at least to cover Italy with
splendid edifices, public and private :
but at length so dwindled under the
enervating influencesofmisgovernment,
that what remained was not even suffi-
ci<-iit to keep those edifices from decay.
The strength and riches of the civilized
world became inadequate to make head
against the nomad population which
skirted its northern frontier : they
overran the empire, and a different
order of things succeeded.

In the new frame in which European
society was now cast, the population
of each country may be considered as
composed, in unequal proportions, of
two distinct nations or races, the con-
querors and the conquered : the first the
proprietors of the land, the latter the
tillers of it. These tillers were allowed
to occupy the land on conditions which,
being the product of force, were always
onerous, but seldom to the extent of
absolute slavery. Already, in the later
times of the Roman empire, predial
s-lavi-ry had extensively transformed
itself into a kind of serfdom : the coloni
of the Romans were rather villeins than
actual slaves ; and the incapacity and
distaste of the barbarian conquerors
for personally superintending industrial
occupations, left no alternative but to
allow to the cultivators, as an incentive
to exertion, some real interest in the
soil. If, for example, they were com-
pelled to labour, three days in the
week, for their superior, the produce of
the remaining days was their own. If
they were required to supply the pro-
visions of various sorts, ordinarily
needed for the consumption of the
castle, and were often subject to
requisitions in excess, yet after sup-
plying these demands they were suf-
fered to dispose at their will of what-
ever additional produce they could
raise. Under this system during the
Middle Ages it was not impossible, no
more than in modern Russia (where,
up to the recent measure of emancipa-
tion, the same system still essentially
prevailed) for serfs to acquire property ;
and in fact, their accumulations are the

primitive source of the wealth of
modern Europe.

In that age of violence and disorder,
the first use made by a serf of any small
provision which he had been able to
accumulate, was to buy his freedom
and withdraw himself to some town or
fortified village, which had remained
undestroyed from the time of the Ro-
man dominion ; or, without buying his
freedom, to abscond thither. In that
place of refuge, surrounded by others of
his own class, he attempted to live, se-
cured in some measure from the out-
rages and exactions of the warrior caste,
by his own prowess and that of his fel-
lows. These emancipated serfs mostly
became artificers ; and lived by ex-
changing the produce of their industry
for the surplus food and material which
the soil yielded to its feudal proprietors.
This gave rise to a sort of European
counterpart of the economical condition
of Asiatic countries; except that, in
lieu of a single monarch and a fluctua-
ting body of favourites and employes,
there was a numerous and in a consider
able degree fixed class of great land-
holders ; exhibiting far less splendour,
because individually disposing of a
much smaller surplus produce, and for
a long time expending the chief part of
it in maintaining the body of retainers
whom the warlike habits of society, and
the little protection afforded by govern-
ment, rendered indispensable to their
safety. The greater stability, the fixity
of personal position, which this state
of society afforded, in comparison with
the Asiatic polity to which it economi-
cally corresponded, was one main rea-
son why it was also found more favour-
able to improvement. From this time
the economical advancement of society
has not been further interrupted. Se-
curity of person and property grew
slowly, but steadily ; the arts of life
made constant progress; plunder ceased
to be the principal source of accumula-
tion ; and feudal Europe ripened into
commercial and manufacturing Europe.
In the latter part of the Middle Ages,
the towns of Italy and Flanders, tho
free cities of Germany, and some towns
of France and England, contained a
large and energetic population of arti-

12

PRELIMINARY REMARKS.

sans, and many ricn burghers, whose
wealth had been acquired by manufac-
turing industry, or by trading in the
produce of such industry. The Com-
mons of England, the Tiers-Etat of
France, the bourgeoisie of the Conti-
nent generally, are the descendants of
this class. As these were a saving
class, while the posterity of the feudal
aristocracy were a squandering class,
the former by degrees substituted them-
selves for the latter as the owners of
a great proportion of the land. This
natural tendency was in some cases
retarded by laws contrived for the pur-
pose of detaining the land in the fami-
lies of its existing possessors, in other
cases accelerated by political revolu-
tions. Gradually, though more slowly,
the immediate cultivators of the soil, in
all the more civilized countries, ceased
to be in a servile or semi-servile state :
though the legal position, as well as
the economical condition attained by
them, vary extremely in the different
nations of Europe, and in the great
communities which have been founded
beyond the Atlantic by the descendants
of Europeans.

The world now contains several ex-
tensive regions, provided with the va-
rious ingredients of wealth in a degree
of abundance of which former ages had
not even the idea. Without compulsory
labour, an enormous mass of food is
annually extracted from the soil, and
maintains, besides the actual producers,
an equal, sometimes a greater number
of labourers, occupied in producing
conveniences and luxuries of innumer-
able kinds, or in transporting them from
place to place ; also a multitude of per-
sons employed in directing and super-
intending these various labours; and
over and above all these, a class more
numerous than in the most luxurious
ancient societies, of persons whose oc-
cupations are of a kind not directly
productive, and of persons who have
no occupation at all. The food thus
raised, supports a far larger population
than had ever existed (at least in the
same regions) on an equal space of
ground; and supports them with cer-
tainty, exempt from those periodically

recurring famines so abundant in the
early history of Europe, and in Oriental
countries even now not nnfrequent.
Besides this great increase in the quan-
tity of food, it has greatly improved in
quality and variety ; while conveniences
and luxuries, other than food, are no
longer limited to a small and opulent
class, but descend, in great abundance,
through many widening strata in so-
ciety. The collective resources of one
of these communities, when it chooses
to put them forth for any unexpected
purpose ; its ability to maintain fleets
and armies, to execute public works,
cither useful or ornamental, to perform
national acts of beneficence like the
ransom of the West India slaves; to
found colonies, to have its people
taught, to do anything in short which
requires expense, and to do it with no
sacrifice of the necessaries-or even the
substantial comforts of its inhabitants,
are such as the world never saw
before.

But in all these particulars, charac-
teristic of the modern industrial com-
munities, those communities differ
widely from one another. Though
abounding in wealth as compared with
former ages, they do so in very different
degrees. Even of the countries which
are justly accounted the richest, some
have made a more complete use of their
productive resources, and have obtained,
relatively to their territorial extent, a
much larger produce, than others ; nor
do they differ only in amount of wealth,
but also in the rapidity of its increase.
The diversities in the distribution of
wealth are still greater than in the
production. There are great differences
in the condition of the poorest class in
different countries ; and in the propor-
tional numbers and opulence of the
classes which are above the poorest.
The very nature and designation of the
classes who originally share among
them the produce of the soil, vary not
a little in different places. In some,
the landowners are a class in them,
selves, almost entirely separate from
the classes engaged in industry: in
others, the proprietor of the land is
almost universally its cultivator, own-

PRELIMINARY REMARKS.

13

Ing the plough, and often himself hold-
ing it. Where the proprietor himself
does not cultivate, there is sometimes,
between him and the labourer, an in-
termediate agency, that of the farmer,
who advances the subsistence of the
labourers, supplies the instruments of
production, and receives, after paying
a rent to the landowner, all the pro-
duce : in other cases, the landlord,
his paid agents, and the labourers, are
the only sharers. Manufactures, again,
are sometimes carried on by scattered
individuals, who own or hire the tools
or machinery they require, and employ
little labour besides that of their own
family ; in other cases, by large num-
bers working together in one building,
with expensive and complex machinery
owned by rich manufacturers. The
same difference exists in the operations
of trade. The wholesale operations in-
deed are everywhere carried on by large
capitals, where such exist ; but the
retail dealings, which collectively oc-
cupy a very great amount of capital,
are sometimes conducted in small shops,
chiefly by the personal exertions of the
dealers themselves, with their families,
and perhaps an apprentice or two ; and
sometimes in large establishments, of
which the funds are supplied by a
wealthy individual or association, and
the agency is that of numerous salaried
shopmen or shopwomen. Besides these
differences in the economical pheno-
mena presented by different parts of
what is usually called the civilized
world, all those earlier states which we
previously passed in review, have con-
tinued in some part or other of the
world, down to our own time. Hunt-
ing communities still exist in America,
nomadic in Arabia and the steppes of
Northern Asia ; Oriental society is in
essentials what it has always been ; the
great empire of Russia is even now, in
many respects, the scarcely modified
image of feudal Europe. Every one of
the great types of human society, down
to that of the Esquimaux or Patago-
nians, is still extant.

These remarkable differences in the
state of different portions of the human
•fcoe, with regard to the production and

distribution of wealth, must, like all
other phenomena, depend on causes.
And it is not a sufficient explanation
to ascribe them exclusively to the de-
grees of knowledge, possessed at dif-
ferent times and places, of the laws of
nature and the physical arts of life.
Many other causes co-operate ; and
that very progress and unequal dis-
tribution of physical knowledge, are
partly the effects, as well as partly the
causes, of the state of the production
and distribution of wealth.

In so far as the economical condition
of nations turns upon the state of phy-
sical knowledge, it is a subject for the
physical sciences, and the arts founded
on them. But in so far as the causes
are moral or psychological, dependent
on institutions and social relations, or
on the principles of human nature,
their investigation belongs not to phy-
sical, but to moral and social science,
and is the object of what is called Po-
litical Economy.

The production of wealth ; the ex-
traction of the instruments of human
subsistence and enjoyment from the
materials of the globe, is evidently not
an arbitrary thing. It has its neces-
sary conditions. Of these, some are
physical, depending on the properties
of matter, and on the amount of
knowledge of those properties possessed
at the particular place and time. These
Political Economy does not investigate,
but assumes; referring for the grounds,
to physical science or common expe-
rience. Combining with these facts
of outward nature other truths relating
to human nature, it attempts to trace
the secondary or derivative laws, by
which the production of wealth is de-
termined ; in which must lie the ex-
planation of the diversities of riches
and poverty in the present and past,
and the ground of whatever in-
crease in wealth is reserved for the
future.

Unlike the laws of Production, those
of Distribution are partly of human
institution : since the manner in which
wealth is distributed in any given so-
ciety, depends on the statutes or usage*
therein obtaining. But though govern

PRELIMINAttY REMARKS.

mcnts or nations have the power of de-
ciding what institutions shall exist,
they cannot arbitrarily determine hnw
those institutions shall work. The con-
ditions on which the power they possess
over the distribution of wealth is depen-
dent, and the manner in which the dis-
tribution is affected by the various modes

of conduct which society may think fit to
adopt, are as much a subject for scien-
tific inquiry as any of the physical laws
of nature.

The laws of Production and Distri-
bution, and some of the practical con-
sequences deducible from them, are the
subject of the following treatise.

BOOK L

PEODUCTIOIST.

CHAPTER I.

OP THE REQUISITES OP PRODUCTION.

§ 1. THE requisites of production are
two: labour, and appropriate natural
objects.

Labour is cither bodily or mental ;
or, to express the distinction more com-
prehensively, either muscular or nerv-
ous ; and it is necessary to include in
the idea, not solely the exertion itself,
but all feelings of a disagreeable kind,
all bodily inconvenience or mental an-
noyance, connected with the employ-
ment of one's thoughts, or muscles, or
both, in a particular occupation. Of
the other requisite — appropriate na-
tural objects — it is to be remarked, that
some objects exist or grow up sponta-
neously, of a kind suited to the supply
of human wants. There are caves and
hollow treeB capable of affording shel-
ter ; fruit, roots, wild honey, and other
natural products, on which human life
can be supported ; but even here a con-
siderable quantity of labour is generally
required, not for the purpose of creating,
but of finding and appropriating them.
In all but these few and (except in the
very commencement of human society)
unimportant cases, the objects supplied
by nature are only instrumental to hu-
man wants, after having undergone
Bome degree of transformation by hu-
man exertion. Even the wild animals
of the forest and of the sea, from which
the hunting and fishing tribes derive
their sustenance — though the labour of
which they are the subject is chiefly
that required for appropriating them —
must yet, before they are used as food,
be killed, divided into fragments, and
iubjected in almost all cases to some

culinary process, which are operations
requiring a certain degree of human
labour. The amount of transformation
which natural substances undergo bo-
fore being brought into the shape in
which they are directly applied to hu-
man use, varies from this or a still less
degree of alteration in the nature and
appearance of the object, to a change
so total that no trace is perceptible of
the original shape and structure. There
is little resemblance between a piece of
a mineral substance found in the earth,
and a plough, an axe, or a saw. There
is less resemblance between porcelain
and the decomposing granite of which
it is made, or between sand mixed with
sea-weed, and glass. The difference is
greater still between the fleece of a
sheep, or a handful of cotton seeds, and
a web of muslin or broad cloth ; and
the sheep and seeds themselves are not
spontaneous growths, but results of pre-
vious labour and care. In these se-
veral cases the ultimate product is s»
extremely dissimilar to the substance
supph'ed by nature, that in the custom
of language nature is represented as
only furnishing materials.

Nature, however, does more than
supply materials; she also supplies
powers. The matter of the globe is
not an inert recipient of forms and pro-
perties impressed by human tends ; it
has active energies by which H co-ope-
rates with; and may even be used as a
substitute for, labour. In the early
ages people converted their com into
flour by pounding it between two stones;
they next hit on a contrivance whicb

COOK I. CHAPTER I. § 2.

enabled them, by turning a handle, to
make one of the stones revolve upon
the other ; and this process, a little im-
proved, is still the common practice of
the East. The muscular exertion,
however, which it required, was very
severe and exhausting, insomuch that
it was often selected as a punishment
for slaves who had offended their
masters. When the time came at
which the labour and sufferings of
slaves were thought worth economizing,
the greater part of this bodily exertion
was rendered unnecessary, by contriv-
ing that the upper stone should be
made to revolve upon the lower, not by
human strength, but by the force of
the wind or of falling water. In this
case, natural agents, the wind or the
gravitation of the water, are made to
4o a portion of the work previously
done by labour.

§ 2. Cases like this, in which a cer-
tain amount of labour has been dis-
pensed with, its work being devolved
upon some natural agent, are apt to
suggest an erroneous notion of the
comparative functions of labour and
natural powers ; as if the co-operation
of those powers with human industry
were limited to the cases in which they
are made to perform what would other-
wise be done by labour ; as if, in the
case of things made (as the phrase is)
by hand, nature only furnished passive
materials. This is an illusion. The
powers of nature are as actively opera-
tive in the one case as in the other. A
workman takes a stalk of the flax or
hemp plant, splits it into separate
fibres, twines together several of these
fibres with his fingers, aided by a simple
instrument called a spindle ; having
thus formed a thread, he lays many
such threads side by side, and places
other similar threads directly across
them, so that each passes alternately
over and under those which are at right
.•ingles to it ; this part of the process
being facilitated by an instrument
called a shuttle. Pie has now produced
a web of cloth, either linen or sack-
cloth, according to the material. He
is said to have done this by hand,
BO natural force being supposed to
have acted in concert with him.

Hut by what force Is each step
of this operation rendered possi-
ble, and the web, when produced,
held together? By the tenacity, or
force of cohesion of the fibres : which
is one of the forces in nature, and which
we can measure exactly against other
mechanical forces, and ascertain how
much of any of them it suffices to neu-
tralize or counterbalance.

If we examine any other case of what •
is called the action of man upon r.a- \
ture, we shall find in like manner that
the powers of nature, or in other words
the properties of matter, do all the work,
when once objects are put into the rigLt
position. This one operation, of putting
things into fit places for being acted upon
by their own internal forces, and by
those residing in other natural objects,
is all that man does, or can do, with mat
ter. He only moves one thing to or from
another. He moves a seed into the
ground ; and the natural forces of vege-
tation produce in succession a root, a
stem, leaves, flowers, and fruit. He .
moves an axe through a tree, and it
falls by the natural force of gravitation ;
he moves a saw through it, in a parti-
cular manner, and the physical proper-
ties by which a softer substance gives
way before a harder, make it separate
into planks, which he arranges in cer-
tain positions, with nails driven through
them, or adhesive matter between them,
and produces a table, or a house. He
moves a spark to fuel, and it ignites,
and by the force generated in combus-
tion it cooks the food, melts or softens
the iron, converts into beer or sugar
the malt or cane-juice, which he lias
previously moved to the spot. He has
no other means of acting on matter
than by moving it. Motion, and re-
sistance to motion, are the only things
which his muscles are constructed for.
By muscular contraction he can create
a pressure on an outward object, which,
if sufficiently powerful, will set it in
motion, or if it be already moving, will
check or modify or altogether arrest its
motion, and he can do no more. But
this is enough to have given all the
command which mankind have acquired
over natural forces immeasurably more
powerful than themseJvas : a command

REQUISITES OF PRODUCTION.

17

which, great as it is already, is without
doubt destined to become indefinitely
greater. He exerts this power either
by availing himself of natural forces in
existence, or by arranging objects in
those mixtures and combinations by
\vhich natural forces are generated ; &a
when by putting a lighted match to
fuel, and water into a boiler over it, he
generates the expansive force of steam,
a power which has been made so largely
available for the attainment of human
purposes.*

(Labour, then, in the physical world,
is always and solely employed in put-
ting objects in motion ; the properties
of matter, the laws of nature, do the
rest. The skill and ingenuity of hu-
man beings are chiefly exercised in
discovering movements, practicable by
their powers, and capable of bringing
about the effects which they desire.
But, while movement is the only effect
which man can immediately and
directly produce by his muscles, it is
not necessary that he should produce
directly by them all the movements
which he requires. The first and most
obvious substitute is the muscular ac-
tion of cattle : by degrees the powers
of inanimate nature are made to aid in
this too, as by making the wind, or
water, things already in motion, com-
municate a part of their motion to the
wheels, which before that invention
were made to revolve by muscular
force. This service is extorted from
the powers of wind and water by a set
of actions, consisting like the former in
moving certain objects into certain
positions in which they constitute
what is termed a machine ; but the
muscular action necessary for this is
not constantly renewed, but performed
once for all, and there is on the whole
a great economy of labour.

§ 3. Some writers have raised the
question, whether nature gives more
assistance to labour in one kind of
industry or in another ; and have said

* This essential and primary law of man's
power over nature was, I believe, first illus-
trated ami made prominent as a fundamental
principle of Political Economy, in the first
chapte* of Mr. Mill's Element*.

that in some occupations labour does
most, in others nature most. In this,
however, there seems much confusion
of ideas. The part which nature has
in any work of man, is indefinite ar.d
incommensurable. It is impossible to
decide that in any one thing nature
does more than in any other. One
cannot even say that labour does less.
Less labour may be required ; but if
that which is required is absolutely
indispensable, the result is just as
much the product of labour, as of
nature. When two conditions arc
equally necessary for producing the
effect at all, it is unmeaning to say
that so much of it is produced by ono
and so much by the other ; it is like
attempting to decide which half of a
pair of scissors has most to do in the
act of cutting ; or which of the factors,
five and six, contributes most to the
production of thirty. The form which i
this conceit usually assumes, is that o< :
supposing that nature lends more assist-
ance to human endeavours in agricul-
ture, than in manufactures. This
notion, held by the French Economistcs,
and from which Adam Smith was not
free, arose from a misconception of the
nature of rent. The rent of land being
a price paid for a natural agency, and
no such price being paid in manufac- :
tures, these writers imagined that since
a price was paid, it was because there
was a greater amount of service to be
paid for : whereas a better considera-
tion of the subject would have shown
that the reason why the use of land
bears a price is simply the limitation
of its quantity, and that if air, heat,
electricity, chemical agencies, and the
other powers of nature employed by
manufacturers, were sparingly supplied,
and could, like land, be engrossed and
appropriated, a rent could be exacted
for them also.

§ 4. This leads to a distinction
which we shall find to be of primary
importance. Of natural powers, some
are unlimited, others limited in quan-
tity. By an unlimited quantity is of
course not meant literally, but prac-
tically unlimited : a quantity beyond
the use which can in any, or at least

BOOK I. CHAPTER 1. § 4.

in present circumstances, be made of
it. Land is, in some newly settled
countries, practically unlimited in
quantity : there is more than can be
used by the existing population of the
country, or by any accession likely to
In- made to it for generations to come.
But even there, land favourably situa-
ted with regard to markets or means
of carriage, is generally limited in
quantity : there is not so much of it as
persons would gladly occupy and culti-
vate, or otherwise turn to use. In all
old countries, land capable of cultiva-
tion, land at least of any tolerable
fertility, must be ranked among agents
limited in quantity. Water, for ordi-
nary purposes, on the banks of rivers
or lakes, may be regarded as of un-
limited abundance ; but if required for
irrigation, it may even there be in-
sufficient to supply all wants, while in
places which depend for their consump-
tion on cisterns or tanks, or on wells
which are not copious, or are liable to
fail, water takes its place among things
the quantity of which is most strictly
limited. Where water itself is plenti-
ful, yet water-power, i.e. a fall of water
applicable by its mechanical force to
the service of industry, may be ex-
ceedingly limited, compared with the
use which would be made of it if it
were more abundant. Coal, metallic
ores, and other useful substances found
in the earth, are still more limited than
land. They are not only strictly local, but
exhaustible ; though, at a given place
and time, they may exist in much
greater abundance than would be ap-
plied to present use even if they could
be obtained gratis. Fisheries, in the
sea, are in most cases a gift of nature
practically unlimited in amount ; but
the Arctic whale fisheries have long
been insufficient for the demand which
exists even at the very considerable
price necessary to defray the cost of
appropriation : and the immense ex-
tension which the Southern fisheries
have iu consequence assumed, ie tend-

ing to exhaust them likewise. River
fisheries are a natural resource of a
very limited character, and would be
rapidly exhausted, if allowed to be used
by every one without restraint. Air,
even that state of it which we term
wind, may, in most situations, be ob-
tained in a quantity sufficient for every
possible use ; and so likewise, on the
sea coast or on large rivers, may water
carriage : though the wharfage or
harbour-room applicable to the service
of that mode of transport is in many
situations far short of what would be
used if easily attainable.

It will be seen hereafter how much
of the economy of society depends on
the limited quantity in which some of
the most important natural agents
exist, and more particularly, land. For
the present I shall only remark that so
long as the quantity of a natural agent
is practically unlimited, it cannot, un-
less susceptible of artificial monopoly,
bear any value in the market, since no
one will give anything for what can be
obtained gratis. But as soon as a
limitation becomes practically opera-
tive ; as soon as there is not so much
of the thing to be had, as would be
appropriated and used if it could be
obtained for asking; the ownership or
use of the natural agent acquires an
exchangeable value. When more
water-power is wanted in a particular
district, than there are falls of water to
supply it, persons will give an equiva-
lent for the use of a fall of water.
When there is more land wanted for
cultivation than a place possesses, or
than it possesses of a certain quality
and certain advantages of situation,
land of that quality and situation may
be sold for a price, or let for an annual
rent. This subject will hereafter be
discussed at length ; but it is often
useful to anticipate, by a brief sugges-
tion, principles and deductions which
we have not yet reached the place for
exhibiting and illustratiu g fully.

LABOUR AS AN AGENT OF PRODlfCTtON.

19

CHAPTER IT.

OF I.AnOUR AS AX AGENT OF PRODUCTION.

§ 1. Tnr. labour which terminates in
*lio production of an article fitted for
some human use, is 'either employed
directly about the thing, or in previous
operations destined to facilitate, perhaps
r s-ential to the possibility of, the SUD-
sequent ones. In making bread, for
example, the labour employed about
the thing itself is that of the baker;
but the labour of the miller, though
employed directly in the production
not of bread but of flour, is equally part
of the aggregate sum of labour by
which the bread is produced ; as is
also the labour of the sower, and of the
reaper. Some may think that all these
persons ought to be considered as em-
ploying their labour directly about the
thing ; the corn, the flour, and the
bread being one substance in three
different states. Without disputing
about this question of mere language,
there is still the ploughman who pre-
pared the ground for the seed, and
whose labour never came in contact
with the substance in any of its states ;
and the plough-maker, whose share in
the result was still more remote. All
these persons ultimately derive the re-
muneration of their labour from the
bread, or its price : the plough-maker
as much as the rest ; for since ploughs
are of no use except for tilling the soil,
no one would make or use ploughs for
any other reason than because the in-
creased returns, thereby obtained from
the ground, afforded a source from
which an adequate equivalent could be
asMLrned for the labour of the plough-
maker. If the produce is to be used
or consumed in the form of bread, it is
from the bread that this equivalent
must come. The bread must suffice
to remunerate all these labourers, and
several others ; such as the carpenters
and bricklayers who erected the farm-
buildings ; the hedgers and ditchers
who made the fences necessary for the
protection of the crop ; the miners and

smelters who extracted or prepared
the iron of which the plough and
other implements were made. These,
however, and the plough-maker, do not
depend for their remuneration upon
the bread made from the produce of
a single harvest, but upon that made
from the produce of all the har-
vests which are successively gathered
until the plough, or the buildings and
fences, are worn out. ^A'e must add
yet another kind of labour; that of
transporting the produce from the place
of its production to the place of its
destined use : the labour of carrying
the com to market, and from market
to the miller's, the flour from the
miller's to the baker's, and the bread
from the baker's to the place of its final
consumption. This labour is some-
times very considerable : flour is trans-
ported to England from beyond the
Atlantic, corn from the heart of Russia ;
and in addition to the labourers imme-
diately employed, the waggoners and
sailors, there are also costly instru-
ments, such as ships, in the construc-
tion of which much labour has been
expended : that labour, however, not de-
pending for its whole remuneration upon
the bread, but for a part only ; ships
being usually, during the course of their
existence, employed in the transport of
many different kinds of commodities.

To estimate, therefore, the labour of
which any given commodity is the re-
suit, is far from a simple operation.
The items in the calculation are very
numerous — as it may seem to some
persons, infinitely so ; for if, as a part
of the labour employed in making
bread, we count the labour of tho
blacksmith who made the plough, why
not also (it may be asked) the labour
of making the tools used by the black-
smith, and the tools used in making these
tools, and so back to the origin of
things ? But after mounting one or two
steps in this ascending scale, we corns

20

into a region of fractions too minute
for calculation. Suppose, for instance,
that the same plough will last, before
being worn out, a dozen years. Only
one-twelfth of the labour of making the
plough must be placed to the account
of each year's harvest. A twelfth part
of the labour of making a plough is an
appreciable quantity. But the same set
of tools, perhaps, suffice to the plough-
maker for forging a hundred ploughs,
which serve during the twelve years of

their existence to prepare the soil of
as many different farms. A twelve-
hundredth part of the labour of making
his tools, is as much, therefore, as has
been expended in procuring one year's
harvest of a single farm : and when
this fraction comes to be further appor-
tioned among the various sacks of corn
and loaves of bread, it is seen at once
that such quantities are not worth
taking into the account for any prac-
tical purpose connected with the com-
modity. It is true that if the tool-
maker had not laboured, the com and
bread never would have been produced ;
but they will not be sold a tenth part
of a farthing dearer in consideration of
his labour.

§ 2. Another of the modes in which
labour is indirectly or remotely instru-
mental to the production of a thing,
requires particular notice : namely,
when it is employed in producing sub-
sistence, to maintain the labourers
while they are engaged in the produc-
tion. This previous employment of
labour is an indispensable condition to
every productive operation, on any
other than the very smallest scale.
Except the labour of the hunter and
fisher, there is scarcely any kind of
labour to which the returns are imme-
diate. Productive operations require
to be continued a certain time, before
their fruits are obtained. Unless the
labourer, before commencing his work,
possesses a store of food, or can obtain
access to the stores of some one else,
in .sufficient- quantity to maintain him
until the production is completed, he
ca.i undertake no labour but such as
can be carried on at odd intervals,
concurrently with the oursuit of his

BOOK 1. CHAFTEU II. § 2.

subsistence. lie cannot obtain food
itself in any abundance ; for eveiy
mode of so obtaining it, requires that
there be already food in store. Agri-
culture only brings forth food after the
lapse of months ; and though the
labours of the agriculturist are not
necessarily continuous during the whole
period, they must occupy a considera-
ble part of it. Not only is agriculture
impossible without food produced in
advance, but there must be a very

great quantity in advance to enable
any considerable community to sup-
port itself wholly by agriculture. A
country like England or France is only
able to carry on the agriculture of the
present year, because that of past years
has provided, in those countries or
somewhere else, sufficient food to sup-
port their agricultural population until
the next harvest. They are only
enabled to produce so many other
things besides food, because the food
which was in store at the close of the
last harvest suffices to maintain not
only the agricultural labourers, but a
large industrious population besides,

The labour employed in producing
this stock of subsistence, forms a groat
and important part of the past labour
which has been necessary to enable
present labour to be carried on. But
there is a difference, requiring parti-
cular notice, between this and the other
kinds of previous or preparatory labour.
The miller, the reaper, the ploughman,
the plough-maker, the waggoner and
waggon-maker, even the sailor and
ship-builder when employed, derive
their remuneration from the ultimate
product --the bread made from the corn
on which they have severally operated,
or supplied the instruments for ope-
rating. The labour that produced the
food which fed all these labourers, is as
necessary to the ultimate result, the
bread of the present harvest, as any of
those other portions of labour ; but is
not, like them, remunerated from it.
That previous labour bus received its
remuneration from the previous food.
In order to raise any product, there are
needed labour, tools, and materials, and
food to feed the labourers. But the
tools and materials arc of »o use except

LABOUR AS AN AGENT OF PKODUCTION.

for obtaining the product, or at least
are to be applied to no other use, and
the labour of their construction can be
remunerated only from the product
when obtained. The food, on the con-
tiary, is intrinsically useful, and is ap-
plied to the direct use of feeding human
beings. The labour expended in pro-
ducing the food, and recompensed by
it, needs not be remunerated over again
from the produce of the subsequent
labour which it has fed. If we suppose
that the same body of labourers carried
on a manufacture, and grew food to
F-u.-itaiu themselves while doing it, they
have had for their trouble the food and
the manufactured article ; but if they
also grew the material and made the
tools, they have had nothing for that
trouble but the manufactured article
alone.

The claim to remuneration founded
on the possession of food, available for
the maintenance of labourers, is of an-
other kind; remuneration for abstinence,
not for labour. If a person has a store
of food, he has it in his power to con-
sume it himself in idleness, or in feed-
ing others to attend on him, or to fight
for him, or to sing or dance for him.
If, instead of these things, he gives it
to productive labourers to support them
during their work, he can, and natur-
ally will, claim a remuneration from the
produce. He will not be content with
simple repayment ; if he receives merely
that, he is only in the same situation
as at first, and has derived no advan-
tage from delaying to apply his savings
to his own benefit or pleasure. He will
look for some equivalent for this for-
bearance : he will expect his advance
of food to come back to him with an
increase, called in the language of busi-
ness, a profit ; and the hope of this
profit will generally have been a part of
the inducement which made him accu-
mulate a stock, by economizing in his
own consumption ; or, nt any rate,
which made him forego the .application
of it, when accumulated, to his personal
ease or satisfaction. The food also
which maintained other workmen while
producing the tools or materials, must
have Lcen provided in advance by some
one, a id he, too, must have his profit

from the ultimate product ; but there
is this difference, that here the ultimate
product has to supply not only the
profit, but also the remuneration of the
labour. The tool-maker (say, for in-
stance, the plough-maker) does not in-
deed usually wait for his payment until
the harvest is reaped ; the farmer ad-
vances it to him, and steps into his
place by becoming the owner of tho
plough. Nevertheless, it is from tho
harvest that the payment is to come ,
since the fanner would not undertake
this outlay unless he expected that the
harvest would repay him, and with a
profit too on this fresh advance ; that
is, unless the harvest would yield, be-
sides the remuneration of the farm
labourers (and a profit for advancing
it), a sufficient residue to remunerate
the plough-maker's labourers, give the
plough-maker a profit, and a profit to
the fanner on both.

§ 3. From these considerations it ap-
pears, that in an enumeration and clas-
sification of the kinds of industry which
are intended for the indirect or rena >te
furtherance of other productive labour,
we need not include the labour of pro-
ducing subsistence or other necessaries
of life to be consumed by productive
labourers ; for tho main end and pur-
pose of this labour is the subsistence
itself; and though the possession of a
store of it enables other work to be done,
this is but an incidental consequence.
The remaining modes in which labour is
indirectly instrument*! to production,
may be arranged under five heads.

First : Labour employed in producing
materials, on whica industry is to bf.
afterwards employed. This is, in many
cases, a labour of mere appropriation ;
extractive industry, as it has been aptly
named by M. Dunoyer. The labour of
the miner, for example, consists of ope-
rations for digging out of the earth
substances convertible by industry into
various articles fitted for human use.
Extractive industry, however, is not
confined to the extraction of materials.
Coal, for instance, is employed, not
only in the processes of industry, but in
directly warming human beings. When
so used, it is not a material of produc-

22

BOOK I. CHAPTER II. § 4.

tion, but is itself the ultimate product.
So, also, in the case of a mine of pre-
cious stones. These are to some small
extent employed in the productive arts,
as diamonds by the glass-cutter, emery
and corundum for polishing, but their
principal destination, that of ornament,
is a direct use ; though they cotnmcrnTy
require, before being soused, some pro-
cess of manufacture, which may per-
haps warrant our regarding them as
materials. Metallic ores of all sorts are
materials merely.

Under the head, production of mate-
rials, we must include the industry of
the wood-cutter, when employed in
cutting and preparing timber for build-
ing, or wood for the purposes of the
carpenter's or any other art. In the
forests of America, Norway, Germany,
the Pyrenees and Alps, this sort of
labour is largely employed on trees of
spontaneous growth. In other cases,
we must add to the labour of the wood-
cutter that of the planter and culti-
vator.

Under the same head are also com-
prised the labours of the agriculturists
in growing flax, hemp, cotton, feeding
silk-worms, raising food for cattle, pro-
ducing bark, dye-stuffs, some oleaginous
plants, and many other things only
useful because required in other de-
partments of industry. So, too, the
labour of the hunter, as' far as his
object is furs or feathers ; of the shep-
herd and the cattle-breeder, in respect
of wool, hides, horn, bristles, horse-hair,
and the like. The things u-ed as
materials in some process or other of
manufacture are of a most miscel-
laneous character, drawn from almost
every quarter of the animal, vegetable,
and mineral kingdoms. And besides
this, the finished products of many
branches of industry are the materials
of others. The thread produced by
the spinner is applied to hardly any
use except as material for the weaver.
Even the product of the loom is chiefly
used as material for the fabricators of
articles of dress or furniture, or of
further instruments of productive in-
dustry, as in the case of the sailmaker.
The currier and tanner find their
whole occupation in converting raw

material into what may be termed
prepared material. In strictness of
speech, almost all food, as it comes
from the hands of the agriculturist, is
nothing more than material for the
occupation of the baker or the cook.

§ 4. The second kind of indirect
labour is that employed in making
tools or implements for the assistance
of labour. I use these terms in their
most comprehensive sense, embracing
all permanent instruments or helps to
production, from a flint and steel for
striking a light, to a steam ship, or
the most complex apparatus of manu-
facturing machinery. There mny be
some hesitation where to draw the line
between implements and materials ;
and some things used in production
(such as fuel) would scarcely in com-
mon language be called by either name,
popular phraseology being shaped out
by a different class of necessities from
those of scientific exposition. To
avoid a multiplication of classes and
denominations answering to distinc-
tions of no scientific importance, poli-
tical economists generally include all
things which are used as immediate
means of production (the means wliich
are not immediate will be considered
presently) either in the class of imple-
ments or in that of materials. Per-
haps the line is most usually and most
conveniently drawn, by considering as
a material every instrument of produc-
tion which can only be used once, being
destroyed (at least as an instrument
for the purpose in hand) by a single
employment. Thus fuel, once burnt,
cannot be again used as fuel ; what
can be so used is only any portion
which has remained unburnt the first
time. And not only it cannot be used
without being consumed, but it is only
useful by being consumed ; for if no
part of the fuel were destroyed, no
heat would be generated. A fleece,
again, is destroyed as a fleece by being
spun into thread ; and the thread can-
not be used as thread when woven
into cloth. But an axe is not de-
stroyed as an axe by cutting down a
tree : it may be used afterwards to
cut down a hundred or a thousand

LABOUR AS AN AGENT OF PRODUCTION.

23

more ; and though deteriorated in
some small degree by each use, it does
not do its work by being deteriorated,
as the coal and the fleece do theirs by
oeing destroyed ; on the contrary, it is
the better instrument the better it re-
si-ts deterioration. There are some
things, rightly classed as materials,
which may be used as such a second
and a third time, but not while the
product to which they at first contri-
buted remains in existence. The iron
which formed a tank or a set of pipes
may be melted to form a plough or a
eteam-engine ; the stones with which
a house was built may be used after it
is pulled down, to build another. But
this cannot be done while the original
product subsists ; their function as
materials is suspended, until the ex-
haustion of the first use. Not so with
the things classed as implements ; they
may be used repeatedly for fresh work,
until the time, sometimes very distant,
at which they are worn out, while the
work already done by them may sub-
sist unimpaired, and when it perishes,
does so by its own laws, or by casual-
ties of its own.*

The only practical difference of much
importance arising from the distinction
between materials and implements, is
one which has attracted our attention
in another case. Since materials are
destroyed as such by being once used,
the whole of the labour required for
their production, as well as the absti-
nence of the person who supplied the
means of carrying it on, must be
remunerated from the fruits of that

* The able and friendly reviewer of this
treatise in the Edinburgh Review (October
18 IS) conceives the distinction between ma-
terials and implements rather differently :
proposing to consider as materials " all the
things which, after having undergone the
change implied in production, are them-
selves matter of exchange," and as imple-
ments (or instruments) " the things which
are employed in producing that change, but
do not themselves become part of the ex-
changeable result." According to these
definitions, the fuel consumed in a manufac-
tory would be considered, not as a material,
but as an instrument. This use of the terms
accords better than that proposed in the
text, with the primitive physical meaning of
the word " material ;" but the distinction on
which it is grounded is one almost irrelevant
to political economy.

single use. Implements, on the con
trary, being susceptible of repeated
employment, the whole of the products
which they are instrumental in bring-
ing into existence are a fund whiVh
can be drawn upon to remunerate the
labour of their construction, and the
abstinence of those by whose accumu-
lations that labour was supported. It
is enough if each product contributes
a fraction, commonly an insignificant
one, towards the remuneration of that
labour and abstinence, or towards in-
demnifying the immediate producer for
advancing that remuneration to the
person who produced the tools.

§ 5. Thirdly : Besides materials
for industry to employ itself on, and
implements to aid it, provision must be
made to prevent its operations from !
being disturbed and its products in-
jured, either by the destroying agencies
of nature, or by the violence or rapa-
city of men. This gives rise to an-
other mode in which labour not I
employed directly about the product
itself, is instrumental to its production ;
namely, when employed for the protec-
tion of industry. Such is the object of
all buildings for industrial purposes,1
all manufactories, warehouses, docks,
granaries, barns, farm-buildings de-
voted to cattle, or to the operations of
agricultural labour. I exclude those
in which the labourers live, or which
are destined for their personal accom-
modation : these, like their food, supply
actual wants, and must be counted in
the remuneration of their labour.
There are many modes in which labour
is still more directly applied to the
protection of productive operations.
The herdsman has little other occupa •
tion than to protect the cattle from
harm : the positive agencies concerned
in the realization of the product, go on
nearly of themselves. 1 have already
mentioned the labour of the hcdger and
ditcher, of the builder of walls or dykes.
To these must be added that of the
soldier, the policeman, and the judge.
These functionaries are not indeed
employed exclusively in the protection
of industry, nor dors their payment
constitute, to the individual producer,

BOOK I. CHAFFER II. § 9.

a part of the expenses of production.
T»ut they are paid from the taxes,
which are derived from the produce of
industry ; and in any tolerably go-
verned coiuitry they render to its
operations a sen-ice far more than
equivalent to the cost. To society at
large they are therefore part of the
expenses of production : and if the
returns to production were not suf-
ficient to maintain these labourers in
addition to all the others required,
production, at least in that form and
manner, could not take place. l>c-
sides, if the protection which the
government affords to the operations of
industry were not afforded, the pro-
ducers would be under a necessity of
cither withdrawing a large share of
•heir time and labour from production,
to employ it in defence, or of engaging
armed men to defend them ; all which
labour, in that case, must be directly
remunerated from the produce ; and
things which could not pay for this
additional labour, would not be pro-
duced. Under the present arrange-
ments, the product pays its quota to-
wards the same protection, and not-
withstanding the waste and prodigality
incident to government expenditure,
obtains it of better quality at a much
smaller cost.

§ 6. Fourthly : There is a very
great amount of labour employed, not
in bringing the product into existence,
but in rendering it, when in existence,
accessible to those for whose use it is
intended. Many important classes of
labourers find their sole employment in
some function of this kind. There is
first the whole class of carriers, by
land or water : muleteers, waggoners,
bargemen, sailors, wharfmen, coal-
neavers, porters, railway establish-
ments, and the like. Next, there are
the constructors of all the implements
of transport ; ships, barges, carts, loco-
motives, &c., to which must be added
roads, canals, and railways, lloads
are sometimes made by the govern-
ment, and opened gratuitously to the
public ; but the labour of making them
is not the less paid for from the pro-
duce. Each producer, in paying his

quota of the taxes levied generally fo»
the construction of roads, pays for the
use of those which conduce to his con-
venience ; and if mad; with any toler-
able judgment, they increase the re-
turns to his industry by far more than
an equivalent amount.

Another numerous ckss of labourers
employed in rendering the things pro-
duced accessible to their intended con-
sumers, is the class of dealers and
traders, or, as they may be termed,
distributors. There would be a great
waste of time and trouble, and an in-
convenience often amounting to im-
practicability, if consumers could only
obtain the articles they want by treat-
ing directly with the producers. Doth
producers and consumers are too much
scattered, and the latter often at too
great a distance from the former. To
diminish this loss of time and labour,
the contrivance of fairs and markets
was early had recourse to, where con-
sumers and producers might periodi-
cally meet, without any intermediate
agency : and this plan answers toler-
ably well for many articles, especially
agricultural produce, agriculturists
having at some seasons a certain quan-
tity of spare time on their hands. 1 !ut
even in this case, attendance is often
very troublesome and inconvenient to
buyers who have other occupations,
and do not live in the immediate
vicinity ; while, for all articles the pro-
duction of which requires continuous
attention from the producers, these
periodical markets must be held at
such considerable intervals, and the
wants of the consumers must cither be
provided for so long beforehand, of
must remain so long unsupplied, that
even before the resources of society
admitted of the establishment of shops,
the supply of these wants fell univer-
sally into the hands of itinerant
dealers ; the pedlar, who might appear
once a month, being preferred to the
fair, which only returned once or twice
a year. In country districts, remote
from towns or large villages, the in-
dii.-try of the pedlar is not yet wholly
superseded. But a dealer who has a
fixed abode and fixed customers is so
much more to be depended on, that

LABOUR AS AN AGENT OF PRODUCTION.

25

consumers prefer resorting to him if he
is conveniently accessible ; and dealers
therefore find their advantage in esta-
blishing themselves in every locality
where there are sufficient consumers
IK ,u- at hand to afford them a remune-
ration.

In many cases the producers and
i.l<-alcrs are the same persons, at least
as to the ownership of the funds and
the control of the operations. The
tailor, the shoemaker, the baker, and
many other tradesmen, are the pro-
ducers of the articles they deal in, so
far as regards the last stage in the
production. This union, however, of
the functions of manufacturer and re-
tailer, is only expedient when the article
can advantageously be made at or near
the place convenient for retailing it,
and is, besides, manufactured and sold
in small parcels. When things have
to be brought from a distance, the
same person cannot effectually superin-
tend both the making and the retailing
of them : when they are best and most
cheaply made on a large scale, a single
manufactory requires so many local
channels to carry off its supply, that
the retailing is most conveniently dele-
gated to other agency : and even shoes
and coats, when tney are to be furnished
in large quantities at once, as for the
supply of a regiment or of a workhouse,
are usually obtained not directly from
the producers, but from intermediate
dealers, who make it their business to
ascertain from what producers they can
be obtained best and cheapest. Even
when things are destined to be at last
sold by retail, convenience soon creates
a class of wholesale dealers. When
products and transactions have multi-
plied beyond a certain point ; when
one manufactory supplies many shops,
and one shop has often to obtain goods
from many different manufactories, the
loss of time and trouble both to the
manufacturers and to the retailers by
treating directly with one another,
makes it more convenient to them to
treat with a smaller number of great
•lealcrs or merchants, who only buy to
sell again, collecting goods from the
various producers, and distributing
them to the retailers, to be by them

further distributed among the con-
sumers. Of these various elements is
composed the Distributing Class, whose
agency is supplementary to that of the
Producing Class : and the produce so
distributed, or its price, is the source
from which the distributors arc remu-
nerated for their exertions, and for the
abstinence which enabled them to ad-
vance the funds needful for the business
of distribution.

§ 7. We have now completed the
enumeration of the modes in which
labour employed on external nature is
subservient to production. But there
is yet another mode of employing labour
which conduces equally, though still
more remotely, to that end: this is,
labour of which the subject is human
beings. Every human being has been
brought up from infancy at the expense
of much labour to some person or per-
sons, and if this labour or part of it,
had not been bestowed, the child would
never have attained the age and
strength which enable him to become
a labourer in his turn. To the com-
munity at large, the labour and ex-
pense of rearing its infant population
form a part of the outlay which is a
condition of production, and which is
to be replaced with increase from the
future produce of their labour. By the
individuals, this labour and expense are
usually incurred from other motives
than to obtain such ultimate return,
and, for most purposes of political eco-
nomy, need not be taken into account
as expenses of production. But the
technical or industrial education of the
community ; the labour employed in
learning and in teaching the arts of
production, in acquiring and communi-
cating skill in those arts ; this labour
is really, and in general solely, under-
gone for the sake of the greater or more
valuable produce thereby attained, and
in order that a remuneration, equivalent
or more than equivalent, may be reaped
by the learner, besides an adequate re-
muneration for the labourof the teacher,
when a teacher has been employed.

As the labour which confers produc-
tive powers, whether of hand or of head,
may be looked upon as part of the la

?G

COOK 1. CHAPTER II. §

hour by which society accomplishes its

productive operations, or in other words,

as part of what the produce costs to

society, so too may the labour employed

/n keeping up productive powers ; in

preventing them from being destroyed

or weakened by accident or disease.

The labour of a physician or surgeon,

when made use of by persons engaged Newton could not have produced the

in industry, must be regarded in the Principia without the bodily exertion

economy of society as a sacrifice in-

be taught to do it. The
dullest human being, instructed before-
hand, is capable of turning a mill ; but
a horse cannot turn it without some-
body to drive and watch him. On the
other hand, there is some bodily ingre-
dient in the labour most purely mental,
when it generates any external result.

turred, to preserve from perishing by
death or infirmity that portion ot the
productive resources of society which is
tixed in the lives and bodily or mental
powers of its productive members. To
the individuals, indeed, this forms but
a part, sometimes an imperceptible part,
of the motives that induce them to sub-
mit to medical treatment : it is not
principally from economical motives
that persons have a limb amputated,
or endeavour to be cured of a fever,
though when they do so, there is gene-
rally sufficient inducement for it even
on that score alone. This is, therefore,
one of the cases of labour and outlay
which, though conducive to production,
yet not being incurred for that end, or
for the sake of the returns arising from
it, are out of the sphere of most of the
general propositions which political eco-
nomy has occasion to assert respecting
productive labour : though, when so-
ciety and not the individuals are con-
sidered, this labour and outlay must
be regarded as part of the advance by
which society effects its productive ope-
rations, and for which it is indemnified
by the produce.

§ 8. Another kind of labour, usually
classed as mental, but conducing to the
ultimate product as directly, though
not so immediately, as manual labour
itself, is the labour of the inventors of
industrial processes. I say, usually
classed as mental, because in reality it
is not exclusively so. All human exer-
tion is compounded of some mental and
some bodily elements. The stupidest
hodman, -who repeats from day to day
the mechanical act of climbing a ladder,
performs a function partly intellectual ;
so much so, indeed, that the most in-
telligent dog or elephant could not,

either of penmanship or of dictation;
and he must have drawn many dia-
grams, and written out many calcula-
tions and demonstrations, while he was
preparing it in his mind. Inventors,
besides the labour of their brains, gene-
rally go through much labour with their
hands, in the models which they con-
struct and the experiments they have
to make before their idea can realize
itself successfully in act. Whether
mental, however, or bodily, their labour
is a part of that by which the produc-
tion is brought about. The labour of
Watt in contriving the steam-engine
was as essential a part of production
as that of the mechanics who build or
the engineers who work the instru-
ment ; and was undergone, no less than
theirs, in the prospect of a remuneration
from the produce. The labour of inven-
tion is often estimated and paid on the
very same plan as that of execution.
Many manufacturers of ornamental
goods have inventors in their employ-
ment, who receive wages or salaries for
designing patterns, exactly as others do
for copying them. All this is strictly
part of the labour of production ; as the
labour of the author of a book is equally
a part of its production with that of the
printer and binder.

In a national, or universal point of
view, the labour of the savant, or spe-
culative thinker, is as much a part of
production in the very narrow'.- ;
as that of the inventor of a practical
art; many such inventions Laving been
the direct consequences of theoretic
discoveries, and every extension of
knowledge of the powers of nature
being fruitful of applications to the
purposes of outward life. The electro-
magnetic telegraph was the wonderful
and most unexpected consequence of
the experiments of Gutted and the

LABOUR AS AN AGENT OF PftODUCTION.

27

mathematical investigations of Am-
pere : and the modern art of naviga-
tion is an unforeseen emanation fi-oin
tlic purely speculative and apparently

rurioiis iii(|in'ry, by the mathe-
maticians of Alexandria, into the pro-
perties of three curves formed by the
intersection of a. plane surface and a
cone. No limit can be set to the im-
portance, even in a purely productive
and material point of view, of mere
thought. Inasmuch, however, as these

.1 fruits, though the result, are
seldom the direct purpose of the pur-
suits of savants, nor is their remu-
neration in general derived from the
increased production which may be
caused incidentally, and mostly after
a long intcival, by their discoveries;
this ultimate influence does not, for
most of the purposes of political eco-
nomy, require to be taken into con-
sideration ; and speculative thinkers
are generally classed as the producers
only of the books, or other useable or
saleable articles, which directly ema-
nate from them. But when (as in po-
litical economy one .should always be
prepared to do) we shift our point of
view, and consider not individual acts,
and the motives by .which they are
determined, but national and universal
results, intellectual speculation must
be looked upon as a most influential
part of the productive laoour of society,
and the portion of its resources em-

in carrying on and in remune-
rating such labour, as a highly produc-
tive part of its expenditure.

§ 9. In the foregoing survey of the
modes of employing labour in further-
ance of production, I have made little
r.ss of the popular distinction' of indus-
try into agricultural, manufacturing,
and commercial. For, in truth, this
division fulfils very badly the purposes
of a classification. Many great Blanches
of productive industry find no place in
it, or not without much straining; for
example (not to speak of hunters or
fishers) the miner, the road-maker, and
the sailor. The limit, too, between
agricultural and manufacturing indus-
try cannot be precisely drawn. The
tuiiler, ''or instance, and the baker —

are they to be reckoned among agri-
culturists, or among manufacturers?
Their occupation is in its nature ma-
nufacturing; the food has finally parted
company with the soil before it is
handed over to them : this, however,
might be said with equal truth of tha
thresher, the winnower, .the makers of
butter and cheese ; operations always
counted as agricultural, probably be-
cause it is the custom for them to .be
performed by persons resident on the
farm, and under the same superinten-
dence as tillage. For many purposes,
all these persons, the miller and baker
inclusive, must be placed in the same
class with ploughmen and reapers.
They are all concerned in producing
food, and depend for their remuneration
on the food produced; when the one
class abounds and flourishes, the others
do so too ; they form collectively the
" agricultural interest ;" they render
but one service to the community by
their united labours, and are paid fiom
one common source. Even the tillers
of the soil, again, when the produce is
not food, but the materials of what are
commonly termed manufactures, belong
in many respects to the same division
in the economy of society as manufac-
turers. The cotton-planter of Carolina,
and the wool-grower of Australia, have
more interests in common with the
spinner and weaver than with the
corn-grower. But, on the other hand,
the industry which operates immedi-
ately upon the soil has, as we shall see
hereafter, some properties on which
many important consequences depend,
and which distinguish it from all the
subsequent stages of production, whe-
ther carried on by the same person or
not ; from the industry of the thresher
and winnower, as much as from that of
the cotton-spinner. When I speak,
therefore, of agricultural labour, I shall
generally mean this, and this exclu-
sively, unless the contrary is either
stated or implied in the context. The
tenn manufacturing is too vague to be
of much use when precision is required,
and when I employ it, I wish to be un-
derstood as intending to speak pcpu-
larly rather thin scientifically.

26

BOOK I. CHAPTER III. §1,

CHA1TER IIL

Or CXPKODUGTIYK LABOUR.

§ 1. LABOUR is indispensable to pro-
duction, but has not always production
for its effect. There is much labour,
and of a high order of usefulness, of
which production is not the object.
Labour has accordingly been distin-
guished into Productive and Unpro-
ductive. There has been not a little
controversy among political economists
on the question, what kinds of labour
should be reputed to be unproductive ;
and they have not always perceived,
that there was in reality no matter of
I'act in dispute between them.

Many writers have been unwilling to
class any labour as productive, unless
its result is palpable in some material
object, capable of being transferred
from one person to another. There are
others (among whom are, Mr. M'Culloch
and M. Say) who looking upon the
word unproductive as a term of dis-
paragement, remonstrate against im-
posing it upon any labour which is
regarded as useful — which produces a
benefit or a pleasure worth the cost.
The labour of officers of government,
of the army and navy, of physicians,
lawyers, teachers, musicians, dancers,
actors, domestic servants, &c. when
they really accomplish what they are
paid for, and are not more numerous
than is required for its performance,
ought not, say these writers, to be
"stigmatized" as unproductive, an ex-
pression which they appear to regard
as synonymous with wasteful or worth-
less. But this seems to be a misunder-
standing of the matter in dispute. Pro-
ihiction not being the sole end of human
existence, the term unproductive does
not necessarily imply any stigma ; nor
was ever intended to do so in the pre-
sent case. The question is one of mere
language and classification. Differ-
ences of language, however, arc by no
means unimportant, even when not
grounded on differences of opinion ; for
though either of two expressions may

be consistent with the whole truth, they
generally tend to fix attention upon
different parts of it. We must there-
fore enter a little into the considera-
tion of the various meanings which
may attach to the words productive
and unproductive when applied to
labour.

In the first place, even in what is
called the production of material ob-
jects, it must be remembered that what
is produced is not the matter composing
them. All the labour of all the human
beings in the world could not produce
one particle of matter. To weave
broadcloth is but to re-arrange, in a
peculiar manner, the particles of wool :
to grow corn is only to put a portion of
matter called a seed, into a situation
where it can draw together particles of
matter from the earth and air, to form
the new combination called a plant.
Though we cannot create matter, we
can cause it to assume properties, by
which, from having been useless to us,
it becomes useful. What we produce,
or desire to produce, is always, as M.
Say rightly terms it, an utility. La-
bour is not creative of objects, but of
utilities. Neither, again, do we con-
sume and destroy the objects them-
selves ; the matter of which they were
composed remains, more or less ahcrcd
in form: what ha-- really been consumed
is only the qualities by which they were
fitted for the purpose they have been
applied to. It is, therefore, pertinently
asked by M. Say and others — since,
when we are said to produce objects,
we only produce utility, why should not
all labour which produces utility be
accounted productive ? Why refuse
that title to the surgeon who sets a
limb, the judge or legislator who con-
fers security, and give it to the lapi-
dary who cuts and polishes a diamond?
Why deny it to the teacher from whom
I learn an art by which I can gain my
bread, and accord it to the confectioner

UNPRODUCTIVE LABOUR.

29

who i. mkes bonbons for the momentary
pleasure of a sense of taste ?

It is quite true that all these kinds
of labour are productive of utility ; and
the question which now occupies us
could not have been a question at all,
if the production of utility were enough |
to satisfy the notion which mankind
have usually formed of productive la-
bour. Production, and productive, are
d! i I'nrsc elliptical expressions, involv-
ing the idea of a something produced ;
but this something, in common appre-
h.'iisi>.ii, I conceive to be, not utility,
but Wealth. Productive labour means
labour productive of wealth. We are
recalled, therefore, to the question
touched upon in our first chapter, what
Wealth is, and whether only material
products, or all useful products, are to
U: included in it.

§ 2. Now the utilities produced by
labour are of three kinds. They are,

First, utilities fixed and embodied in
outward objects ; by labour employed
in investing external material things
with properties which render them ser-
viceable to human beings. This is the
common case, and requires no illus-
tration.

Secondly, utilities fixed and embodied
in human beings ; the labour being in
this case employed in conferring on
human beings, qualities which render
them serviceable to themselves and
others. To this class belongs the la-
bour of all concerned in education ; not
only schoolmasters, tutors, and profes-
sors, but governments, so far as they
aim successfully at the improvement of
the people ; moralists, and clergymen,
as far as productive of benefit ; the
labour of physicians, as far as instru-
mental in preserving life and physical
or mental efficiency ; of the teachers of
bodily exercises, and of the various
trades, sciences, and arts, together with
the labour of the learners in acquiring
them ; and all labour bestowed by any
persons, throughout life, in improving
the knowledge or cultivating the bodily
or mental faculties of themselves or
others.

Thirdly and lastly, utilities not fixed
or embodied in am

ing in a mere seiviee rendered ; a plea-
sure given, an inennvcnidi'v or a pnin
averted, during a longer or a thorter
time, but without leaving a permanent
acquisition in the improved qualities of
any person or thing ; the labour being
employed in producing an utility di-
rectly, not (as in the two former cases)
in fitting some other thing to afford an
utility. Such, for example, is the la-
bour of the musical performer, the actor,
the public declaimer or reciter, and the
showman. Some good may no doubt
be produced, and much more might be
produced, beyond the moment, upon the
feelings and disposition, or general state
of enjoyment of the spectators ; or in-
stead of good there may be harm ; but
neither the one nor the other is the
effect intended, is the result for which
the exhibitor works and the spectator
pays ; nothing but the immediate plea-
sure. Such, again, is the labour of the
army and navy ; they, at the best, pre-
vent a country from being conquered,
or from being injured or insulted, which
is a service, but in all other respects
leave the country neither improved nor
deteriorated. Such, too, is the labour
of the legislator, the judge, the officer
of justice, and all other agents of go-
vernment, in their ordinary functions,
apart from any influence they may
exert on the improvement of the na-
tional mind. The service which they
render, is to maintain peace and secu-
rity ; these compose the utility which
they produce. It may appear to some,
that earners, and merchants or dealers,
should be placed in this same class,
since their labour does not add any
properties to objects : but I reply that
it does: it adds the property of being
in the place where they are wanted,
instead of being in some other place :
which is a very useful property, and
the utility it confers is embodied in the
things themselves, which now actually
are in the place where they are re-
quired for use, and in consequence of
that increased iitility could be sold at
an increased price, proportioned to the
labour expended in conferring it. This
labour, therefore, does not belong to the
third class, but to the first.

80 BOOK I. CHAPTER HI.

§ 3. We have now to consider which
of these three classes of labour should
be accounted productive of wealth, since
that is what the term productive, when
used by itself, must be understood to
import. Utilities of the third class,
consisting in pleasures which only exist
while being enjoyed, and services which
only exist while being performed, can-
not be spoken of as wealth, except by
an acknowledged metaphor. It is es-
sential to the idea of wealth to be sus-
ceptible of accumulation : things which
cannot, after being produced, be kept
for some time before being used, are
never, I think, regarded as wealth,
since howaver much of them may be
produced and enjoyed, the person bene-
fited by them is no richer, is nowi-c
improved in circumstances. But there
is not so distinct and positive a viola-
tion of usage in considering as wealth
any product which is both useful and
susceptible of accumulation. The skill,

and the energy and perseverance, of
the artisans of a country, are reckoned
part of its wealth, no less than their
tools and machinery.* According to
this definition, we should regard all
labour as productive which is employed

* Some authorities look upon it as an essen-
tial element in the idea of wealth, that it
should he capable not solely of being accu-
mulated, but of being transferred; and inas-
much as the valuable qualities, and even
the productive capacities, of a human being
cannot be detached from him and passed to
some one else, they deny to these the appel-
lation of wealth, and to the labour expended
in acquiring them the name of productive
labour. It seems to me, however, that the
skill of an artisan (for instance) being both
a desirable possession and one of a certain
durability (not to say productive even of
material wealth), there is no better reason for
refusing to it the title of wealth because it is
attached to a man, than to a coalpit or a
manufactory because they are attached to a
place. Besides, if the skill itself cannot be
parted with to a purchaser, the use of it niny ;
if it cannot be sold it can be hire.l ; and it
may be, and is, sold outright in all countries
whose laws permit that the man himself
should be sold along with it. Its defect of
transferability does not result from a natural,
but from a legal and moral obstacle.

The human being himself (as formerly
observed) I do not class as wealth. He is
the purpose fur which wealth exists. But
his acquired capacities, which exist only as
means, and have been called into existence
by labour, fall rightly, as it seems to me,
within that designation.

§3.

in creating permanent utilities, whe-
ther embodied in human beings, or in
any other animate or inanimate objects.
This nomenclature I have, in a former
publication, f recommended as the most
conducive to the ends of classification;
and I ii m still of that opinion..

But in applying the term wealth to
the industrial capacities of human be-
ings, there seems always, in popular
apprehension, to be a tacit reference to
material products. The skill of an
artisan is accounted wealth, only as
being the means of acquiring wealth in
a material sense ; and any qualities
not tending visibly to that object are
scarcely so regarded at all. A country
would hardly be said to be richer, ex-
cept by a metaphor, however precious
a possession it might have in the
genius, the virtues, or the accomplish-
ments of its inhabitants ; unless indeed
these were looked upon as marketable
articles, by which it could attract the

material wealth of other countries, as
the Greeks of old, and several modem
nations have done. While, therefore,
I should prefer, were I constructing a
new technical language, to make the
distinction turn upon the pcrmaner
riali

rather than ur

materiality ol
employing terms
) has taken corn-

product, yet when
which common usac
plete possession of, it seems advisable
so to employ them as to do the least
possible violence to usage ; since any
improvement in terminology obtained
by straining the received meaning of a
popular phrase, is generally purchased
beyond its value, by the obscurity
arising from the conflict between new
and old associations.

I shall, therefore, in this treatise,
when speaking of wealth^ understand
by it only w'hat is called mafanaT
wcalil), and by productive labour only
those kinds of exertion which produce
utilities embodied in materiaLolaejts. ;
But in limiting myself to "this sense of
the word, I mean to avail myself of the
full extent of that restricted accepta-
tion, and I shall not refuse the appella-
tion productive, to labour which yields

t Et.i'uts on tome Umeltled Questions of
Political Economy. Essay III. On the word*
Productive and Unproductive.

UNPRODUCTIVE LABOUR.

51

no material product as its direct result,
provided that an increase of material
products is its ultimate consequence.
Thus, jabour__£xpciuled in the acquj-
ni t i on of manufacturing skill, 1 class as
Plj^uctive. not in virtue ot tne skill
itself, but of the manufactured products
created by the skill, and to the creation
of which the labour of learning the
trade is essentially conducive. The
labour of officers of government in
ail'« 'idTng the protection which, afforded
in some manner or other, is indispen-
sable to the prosperity of industry, must
be classed as productive even of mate-
rial wealth, because" without it, mate-
rial wealth, in anything like its pre-
sent abundance, could not exist. Such
lal'nur may be said to be productive
indirectly or mediately, in opposition
to the labour of the ploughman and the
cotton-spinner, which are productive
immediately. They are all alike in
this, that they leave the community
richer in material products than they
found it ; they increase, or tend to in-
crease, material wealth.

§ 4. By Unproductive Labour, on

!tho contrary, will be understood labour
which does not terminate in. .the ,cjca-
t i«n of material wealth; which, Imw-
eVer largely or successfully practised,
does not render the community, and the
world at large, richer in material pro-
ducts, but poorer by all that is con-
sumed by the labourers while so em-
ployed.

All labour is, in the language of
political economy, unproductive, which
ends in immediate enjoyment, without
any increase of the accumulated stock
of permanent means of enjoyment.
And all labour, according to our pre-
sent definition, must be classed as un-
luctive, which terminates in a per-
manent benelit, however important,
provided that an increase of material
products forms no part of that benefit.
The labour of saving a friend's life is
not productive, unless the friend is a
productive labourer, and produces more
than ho consumes. To a religious per-
son the saving of a soul must appear a
far more important service than the
saving of a life ; but he will not there-

fore call a missionary or a clergyman
productive labourers, unless they teach,
as the South Sea Missionaries have in
some cases done, the arts of civilization
in addition to the doctrines of their
religion. It is, on the contrary, evi-
dent that the greater number of mis-
sionaries or clergymen a nation main-
tains, the less it has to expend on other
things ; while the more it expends
judiciously in keeping agriculturists
and manufacturers at work, the more it
will have for every other purpose. By
the former it diminishes, cceteris pari-
'•«.?, its stock of material products ; by
the latter, it increases them.

Unproductive may be as useful as pro-
ductive labour ; it may be more useful,
even in point of permanent advantage ;
or its use may consist only in pleasur-
able sensation, which when gone leaves
no trace ; or it may not afford even
this, but may be absolute waste. In
any case society or mankind grow no
richer by it, but poorer. All material
products consumed by any one while he
produces nothing, are so much sub-
traced, for the time, from the material
products which society would other-
wise have possessed. But though
society grows no richer by unproduc-
tive labour, the individual may. An
unproductive labourer may receive for
his labour, from those who derive
pleasure or benefit from it, a remunera-
tion which may be to him a considera-
ble source of wealth ; but his gain is
balanced by their loss ; they may
have received a full equivalent for
their expenditure, but they are so
much poorer by it. When a tailor
makes a coat and sells it, there is a
transfer of the price from the customer
to the tailor, and a coat besides which
did not previously exist; but what is
gained by an actor is a mere transfer
from the spectator's funds to his, leav-
ing no article of wealth for the specta-
tor's indemnification. Thus the com-
munity collectively gains nothing by
the actor's labour ; and it loses, of hii
receipts, all that portion which he con-
sumes, retaining only that which he
lays by. A community, however, may
add to its wealth by unproductive
labour, at the expense of other coui-

32

BOOK I. CHAPTER III § 5.

m unities, as an individual may at the
expense of other individuals. The
gains of Italian opera singers, German
governesses, French ballet dancers,
&c., arc a source of wealth, as far as
, they go, to their respective countries,
/ if they return thither. The petty
states of Greece, especially the ruder
and more backward of those states,
were nurseries of soldiers, who hired
themselves to the princes and satraps
of the East to carry on useless and de-
structive wars, and returned with their
savings to pass their declining years in
their own country : these were unpro-
ductive labourers, and the pay they
received, together with the plunder they
took, was an outlay without return to
the countries which furnished it ; but,
though no gain to the world, it was a
gain to Greece. At a later period the
same country and its colonies supplied
the Boman empire with another class
of adventurers, who, under the name of
philosophers or of rhetoricians, taught
to the youth of the higher classes what
were esteemed the most valuable ac-
complishments : these were mainly
unproductive labourers, but their ample
recompense was a source of wealth to
their own country. In none of these
cases was there any accession of
wealth to the world. The services of
the labourers, if useful, were obtained
at a sacrifice to the world of a portion
of material wealth ; if useless, all that
these labourers consumed was, to the
world, waste.

To be wasted, however, is a liability
.not confined to unproductive labour,
i Productive labour may equally be
! wasted if more of it is expended than
really conduces to production. If de-
fect of skill in labourers, or of judgment
in those who direct them, causes a
ini.sapplicalion of productive industry ;
if a farmer persists in ploughing with
three horses and two men, when ex-
perience has shown that two horses
and one man are sufficient, the sur-
plus labour, though employed for pur-
poses of production, is wasted. If a
new process is adopted which proves
no better, or not so good as those before
in use, the labour expended in perfect-
ing the invention and in carrying it

into practice, though employed for a
productive purpose, is wasted. Pro-
ductive labour may render a nation
poorer, if the wealth it produces, that
is, the increase it makes in the stock
of useful or agreeable things, be of a
kind not immcdi itely wanted : as
when a commodity is unsaleable, be-
cause produced in a quantity beyond
the present demand ; or when specula-
tors build docks and warehouses befoic
there is any trade. Tho bankrr.pl
states of North America, with their
premature railways and canals, have
made this kind ol mistake ; and it
was for some time doubtful whether
England, in the disproportionate de-
velopment of railway enterprise, had
not, in some degree, followed the
example. Labour sunk in expectation
of a distant return, when the great
exigencies or limited resources of the
community require that the return be
rapid, may leave the country not only
poorer in the meanwhile, by all which
those labourers consume, but less rich
even ultimately than if immediate re-
turns had been sought in the first
instance, and enterprises for distant
profit postponed.

§ 5. The distinction of Productive
and Unproductive is applicable to con-
sumption as well as to labour. All the
members of the community are not
labourers, but all are consumers, and
consume either unproductively or pro-
ductively. Whoever contributes no-
thing directly or indirectly to produc-
tion, is an unproductive consumer.
The only productive consumers are j
productive labourers ; the labour of I
direction being of course included, as
well as that of execution. But tho
consumption even of productive labour
ers is not all of it productive consump-
tion. There is unproductive consump-
tion by productive consumers. "\Vhat
they consume in keeping up or im-
proving their health, strength, and
capacities of work, or in rearing other
productive labourers to succeed them,
is productive consumption. But con-
sumption on pleasures or luxuries,
whether by the idle or by the indus-
trious, since r'JOduction is neither its

UNPRODUCTIVE LABOCK.

93

object nor is in any way advanced by
h, must be reckoned unproductive :
with a reservation perhaps of a certain
quantum of enjoyment which may be
classed among necessaries, since any-
thing short of it would not be consistent
with the greatest efficiency of labour.
That alone is productive consumption,
which goes to maintain and increase
the prod active powers of the commu-
nity; either those residing in its soil,
in its materials, in the number and
efficiency of its instruments of produc-
tion, or in its people.

There are numerous products which
may be said not to admit of being con-
sumed otherwise than unproductively.
The annual consumption of gold lace,
pine apples, or champagne, must be
reckoned unproductive, since these
things give no assistance to produc-
tion, nor any support to life or strength,
but what would equally be given by
tilings much less costly. Hence it
might be supposed that the labour em-
ployed in producing them ought not to
be regarded as productive, in the sense
in which the term is understood by
political economists. I grant that no
labour tends to the permanent enrich-
ment of society, which is employed in
producing things for the use of unpro-
ductive consumers. The tailor who
makes a coat for a man who produces
nothing, is a productive labourer ; but
in a few weeks or months the coat is
worn out, while the wearer has not
produced anything to replace it, and
the community is then no richer by the
labour of the tailor, than if the same
sum had been paid for a stall at the
opera. Nevertheless, society has been
richer by the labour while the coat
lasted, that is, until society, through
one of its unproductive members, chose
to consume the produce of the labour
unproductively. The case of the gold
lace or the pine apple is no further
dill'erent, than that they are still fur-
ther removed than the coat from the
character of necessaries. These things
also are wealth until they have been
consumed.

§ 6. We see, however, by this, that
there is a distinction, more important

to the wealth of a community than
even that between productive and un-
productive labour; the distinction,
namely, between labour for the supply
of productive, and for the supply of
unproductive, consumption ; between
labour employed in keeping up or in
adding to the productive resources oi
the country, and that which is em-
ployed otherwise. Of the produce of
the country, a part only is destined to
be consumed productively ; the re-
mainder supplies the unproductive con-
sumption of producers, and the entire
consumption of the unproductive classes.
Suppose that the proportion of the
annual produce applied to the first pur-
pose amounts to half; then one-half
the productive labourers of the country
are all that are employed in the opera-
tions on which the permanent wealth
of the country depends. The other
half are occupied from year to year and
from generation to generation in pro-
ducing things which are consumed and
disappear without return ; and what-
ever this half consume is as completely
lost, as to any permanent effect on the
national resources, as if it were con-
sumed unproductively. Suppose that
this second half of the labouring popu-
lation ceased to work, and that the
government or their parishes main-
tained them in idleness for a whole
year : the first half would suffice to
produce, as they had done before, their
own necessaries and the necessaries of
the second half, and to keep the stock
of materials and implements undi-
minished : the unproductive classes,
indeed, would be either starved or
obliged to produce their own subsist-
ence, and the whole community would
be reduced during a year to bare neces-
saries ; but the sources of production
would be unimpaired, and the next
year there would not necessarily be a
smaller produce than if no such interval
of inactivity had occurred ; while if
the case had been reversed, if the first
half of the labourers had suspended
their accustomed occupations, and the
second half had continued theirs, the
country at the end of the twelvemonth
would have been entirely impOTorished.
It would be a great error to regret

34

BOOK I. CHAPl'EK IT. § 1.

the large proportion of the annual pro-
duce, which in an opulent country goes
to supply unproductive consumption.
It would be to lament that the com-
munity has so much to spare from its
necessities, for its pleasures and for all
higher uses. This portion of the pro-
duce is the fund from which all the
•wants of the community, other than
that of mere living, are provided for ;
the measure of its means of enjoyment,
and of its power of accomplishing all
purposes not productive. That so great

a surplus should be available for stich
purposes, and that it should be applied
to them, can only be a subject of con-
gratulation. The things to be re-
gretted, and which are not incapable of
being remedied, are the prodigious
inequality with which this surplus is
distributed, the little worth of the ob-
jects to which the greater part of it is
devoted, and the large share which falla
to the lot of persons who render no
equivalent service in return.

CHAPTER IV.

OF CAPITAL.

§ 1. IT has been seen in the pre-
ceding chapters that besides the pri-
mary and universal requisites of pro-
duction, labour and natural agents,
there is another requisite without which
no productive operations beyond the
rude and scanty beginnings of primitive
industry, are possible : namely, a stock,
previously accumulated, of the products
of former labour. This accumulated
stock of the produce of labour is termed
Capital. The function of Capital in
production, it is of the utmost import-
ance thoroughly to understand, since
a number of the erroneous notions with
which our subject is infested, originate
in an imperfect and confused appre-
hension of this point.

Capital, by persons wholly unused
to reflect on the subject, is supposed to
be synonymous with money. To ex-
' pose this misapprehension, would be to
| repeat what has been said in the intro-
• ductory chapter. Money is no more
] synonymous with capital than it is
J with wealth. Money cannot in itself
perform any part of the office of capital,
since it can afford no assistance to
production. To do this, it must be
exchanged for other things ; and any-
thing, which is susceptible of being
exchanged for other things, is capable
. of contributing to production in the
same degree. What capital does for

production, is to afford the shelter,
protection, tools and materials which
the work requires, and to feed and
otherwise maintain the labourers during
the process. These are the services
which present labour requires from
past, and from the produce of past,
labour. Whatever things are destined
for this use — destined to supply pro-
ductive labour with these various pre-
requisites— are Capital.

To familiarize ourselves with the
conception, let us consider what is
done with the capital invested in any
of the branches of business which com-
pose the productive industry of a
country. A manufacturer, for example,
has one part of ha eapital in the form
of buildings, fitted and destined for
carrying on his branch of manufacture.
Another part he has in the form of
macliinery. A. third consists, if he be
a spinner, of raw cotton, flax, or wool ;
if a weaver, of flaxen, woollen, silk, or
cotton, thread ; and the like, according
to the nature of the manufacture.
Food and clothing for his operatives, it
is not the custom of the present age
that ho should directly provide ; and
few capitalists, except the producers of
food or clothing, have any portion
worth mentioning of their capital in
that shape. Instead of this, each
capitalist ha.s money, which he pays to

CAPITAL.

35

his workpeople, and so enables them to
supply themselves : he has also finished
pio'ls in hi.s warehouses, by the sale of
which he obtains more money, to em-
ploy in the same manner, as well as to
replenish his stock of materials, to
keep his buildings and machinery in
repair, and to replace them when worn
out. His money and finished goods,
however, are not wholly capital, for he
does not wholly devote them to these
purposes : he employs a part of the
one, and of the proceeds oi the other,
in supplying his personal consumption
and that of his family, or in hiring
grooms and valets, or maintaining
hunters and hounds, or in educating
his children, or in paying taxes, or in
charity. What then is his capital ?
Precisely that part of his possessions,
whatever it be, which is to constitute
his fund for carrying on fresh produc-
tion. It is of no consequence that a
part, or even the whole of it, is in a
form in which it cannot directly supply
the wants of labourers.

Suppose, for instance, that the capi-
talist is a hardware manufacturer, and
that his stock in trade, over and above
his machinery, consists at present
wholly in iron goods. Iron goods
cannot feed labourers. Nevertheless,
by a mere change of the destination of
these iron goods, he can cause labourers
to be fed. Suppose that with a portion
of the proceeds he intended to maintain
a pack of hounds, or an establishment
of servants ; and that he changes his
intention, and employs it in his busi-
paying it in wages to additional
workpeople. These workpeople are
enabled to buy and consume the food
which would otherwise have been con-
sumed by the hounds or by the ser-
vants ; and thus without the employer's
having seen or touched one particle of
the food, his conduct has determined
that so much more of the food existing
in the country has been devoted to the
use of productive labourers, and so
much less consumed in a manner
wholly unproductive. Now vary the
hyp.'thrMs, and suppose that what is
thus paid in wages would otherwise
have been laid out not in feeding ser-
Tants or hounds, but in buying plate

and jewels ; and in order to render the
effect perceptible, let us suppose that
the change takes place on a considera-
ble scale, and that a large sum is
divert i d from buying plate and jewels
to employing productive labourers,
whom we shall suppose to have been
previously, like the Irish peasantry,
only half employed and half fed. The
labourers, on receiving their increased
wages, will not lay them out in plate
and jewels, but in food. There is not,
however, additional food in the country ;
nor any unproductive labourers or ani-
mals, as in the former case, whose food
is set free for productive purposea
Food will therefore be imported if
possible ; if not possible, the labourers
will remain for a season on their short
allowance : but the consequence of
this change in the demand for com-
modities, occasioned by the change in
the expenditure of the capitalists from
unproductive to productive, is that next
year more food will be produced, and
less plate and jewellery. So that
again, without having had anything to
do with the food of the laboureni
directly, the conversion by individual)!
of a portion of their property, no matter
of what sort, from an unproductive
destination to a productive, has had the
effect of causing more food to be appro-
priated to the consumption of produc-
tive labourers. The distinction, then,
between Capital and Not-capital, dpea
not lie in the kind of commodities, but

iiii'1 of tin.- ea- '.

will to employ them forgone purpose
rather than another ; and all property,
however ill adapted in itself for the
use of labourers, is a part of capital, so
soon as it, or the value to be received
from it, is set apart for productive re-
investment. The sum of all the values
so destined by their respective posses-
sors, composes the capital of the country.
Whether all those values are in a shape
directly applicable to productive uses,
makes no difference. Their shape,
whatever it may be, is a temporary
accident ; but, once destined for pro-
duction, they do not fail to find a way
of transforming themselves into tilings
capable of being applied to it.

36

BOOK I. CHAPTER IV. § 2.

§ 2. As whatever of the produce of
the country is devoted to production is
capital, so, conversely, the whole of the
capital of the country is devoted to
production. This second proposition,
however, must, be taken with some
limitations and explanations. A fund
may be seeking for productive employ-
ment, and find none, adapted to the
inclinations of its possessor : it then is
capital still, but unemployed capital.
Or the stock may consist of unsold
goods, not susceptible of direct applica-
tion to productive uses, and not, at the
moment, marketable : these, until sold,
are in the condition of unemployed
capital. Again, artificial or accidental
circumstances may render it. necessary
to possess a larger stock in advance,
that is, a larger capital before entering
on production, than is required by the
nature of things. Suppose that the
government lays a tax on the produc-
tion in one of its eavlier stages, as for
instance by taxing the material. The
manufacturer has to advance the tax,
before commencing the manufacture,
and is therefore under a necessity of
having a larger accumulated fund than
is required for, or is actually employed
in, the production which he carries on.
He must have a larger capital, to
maintain the same quantity of produc-
tive labour ; or (what is equivalent)
with a sri\e:i capital he maintains less
labour. Tli's mode of levying taxes,
liu.1 re lore, li...its unnecessarily the in-
dustry of the country: a portion of the
fund destined by its owners for produc-
tion being diverted from its purpose,
and kept in a constant state of advance
to the government.

For another example : a farmer may
enter on his farm at such a time of the
year, that he may be required to pay
one, two, or even three quarters' rent
before obtaining any return from the
produce. This, therefore, must be paid
out of his capital. Now rent, when
paid for the land itself, and not for
improvements made in it by labour, is
not a productive expenditure. It is
not an outlay for the support of labour,
or for the provision of implements or
materials the produce of labour. It is
the price paid for the use of an appro-

priated natural agent. This natural
agent is indeed as indispensable (and
even more so) as any implement : but
the having to pay a price for it, is not.
In the case of the implement (a thing
produced by labour) a price of some
sort is the necessary condition of its
existence : but the land exists by
nature. The payment for it, therefore,
is not one of the expenses of produc-
tion ; and the necessity of making the
payment out of capital, makes it requi-
site that there should be a greater
capital, a greater antecedent accumu-
lation of the produce of past labour,
than is naturally necessary, or than ia
needed where land is occupied on a
different system. This extra capital,
though intended by its owners for pro-
duction, is in reality employed nnpro-
ductively, and annually replaced, not
from any produce of its own, but from
the produce of the labour supported by
the remainder of the farmer's capital.

Finally, that large portion of the
productive capital of a country which
is employed in paying the wages and
salaries of labourers, evidently is not,
all of it, strictly and indispensably
necessary for production. As much of
it as exceeds the actual necessaries of
life and health (an excess which in the
case of skilled labourers is usually con-
siderable) is not expended in supporting
labour, but in remunerating it, and the
labourers could wait for this part of
their remuneration until the production
is completed : it needs not necessarily
pre-exist as capital : and if they un-
fortunately had to forego it altogether,
the same amount of production might
take place. In order that the whole
remuneration of the labourers should
be advanced to them in daily or weekly
payments, there must exist in advance,
and be appropriated to productive use,
a greater stock, or capital, than would
suih'ce to carry on the existing exte.it
of production : greater, by whatever
amount of remuneration the labourers
receive, beyond what the self-interest
of a prudent slave-master would as.-ign
to his slaves. In truth, it is only after
an abundant capital had already been
accumulated, that the practice of pay-
ing in advance any remuneration o'

CAPITAL.

labour beyond a bare subsistence, could
possibly have arisen : since whatever is
so pakl, is not really applied to produc-
tion, but to the unproductive consump-
tion of productive labourers, indicating
a fund for production sufficiently ample
to admit of habitually diverting a part
of it to a mere convenience.

It will be observed that I have
assumed, that the labourers are always
subsisted from capital: and this is
obviously the fact, though the capital
needs not necessarily be furnished by a
person called a capitalist. When the
labourer maintains himself by funds of
his own, as when a peasant-farmer or
proprietor lives on the produce of his
land, or an artisan works on his own
account, they are still supported by
capital, that is, by funds provided in
advance. The peasant does not subsist
this year on the produce of this year's
harvest, but on that of the last. The
artisan is not living on the proceeds of
the work he has in hand, but on those
of work previously executed and dis-
posed of. Each is supported by a small
capital of his own, which he periodically
replaces from the produce of his labour.
The large capitalist is, in like manner,
maintained from funds provided in
advance. If he personally conducts
his operations, as much of his personal
or household expenditure as does not
exceed a fair remuneration of his labour
at the market price, must be considered
a part of his capital, expended, like any
other capital, for production : and his
personal consumption, so far as it con-
sists of necessaries, is productive con-
sumption.

§ 3. At the risk of being tedious,
I must add a few more illustrations, to
bring out into astill clearerand stronger
light the idea of Capital. As M. Say
truly remarks, it is on the very elements
of our subject that illustration is most
usefully bestowed, since the greatest
errors which prevail in it may be traced
to the want of a thorough mastery
over the elementary ideas. Nor is this
surprising : a branch may be diseased
and all the rest healthy, but unsound-
ness at the root diffuses unhealthiness
through the whole tree.

Let ns therefore consider whether,
and in what cases, the property of those
who live on the interest of what they
possess, without being personally en-
gaged in production, can be regarded
as capital. It is so called in common
language, and, with reference to the
individual, not improperly. All funds
(mm which the possessor derives an in-
come, which income he can use without
sinking and dissipating the fund itself,
are to him equivalent to capital. But
to transfer hastily and inconsiderately
to the general point of view, proposi-
tions which are true of the individual,
has been a source of innumerable
errors in political economy. In the
present instance, that which is virtually
capital to the individual, is or is not
capital to the nation, according as the
fund which by the supposition he lias
not dissipated, has or has not been dis-
sipated by somebody else.

For example, let property of the
value of ten thousand pounds belonging
to A, be lent to 13, a farmer or manufac-
turer, and employed profitably in B's
occupation. It is as much capital as if
it belonged to B. A is really a farmer
or manufacturer, not personally, but in
respect of his property. Capital worth
ten thousand pounds is employed in
production — in maintaining labourers
and providing tools and materials;
which capital belongs to A, while B
takes the trouble of employing it, and
receives for his remuneration the dif-
ference between the profit which it
yields and the interest he pays to A.
This is the simplest case.

Suppose next that A's ten thousand
pounds, instead of being lent to B, aro
lent on mortgage to C, a landed pro-
prietor, by whom they are employed in
improving the productive powers of hia
estate, by fencing, draining, road-mak-
ing, or permanent manures. This is
productive employment. The ten thou-
sand pounds are sunk, but not dis-
sipated. They yield a permanent re-
turn ; the land now affords an increase
of produce, sufficient, in a few years, if
the outlay has been judicious, to replace
the amount, and in time to multiply it
manifold. Here, then, is a value of
ten thousand pounds, employed in in-

BOOK I. CHAPTER IV. § 3.

ie produce °f ^le country.
This constitutes a capital, for which C,
it* he lets his land, receives the returns
in the nominal form of increased rent ;
nnd the mortgage entitles A to reo.-ive
from these returns, in the shape of in-
terest, such annual sum as has heen
agreed on. We will now vary the cir-
cumstances, and suppose that C does
not employ the loan in improving his
land, but in paying off a former mort-
gage, or in itiaking a provision for
children. Whether the ten thousand
pounds thus employed are capital cr
not, will depend on what is done with
the amount by the ultimate receiver.
If the children invest their fortunes in
a productive employment, or the mort-
gagee on being paid off lends the
amount to another landholder to im-
prove his land, or to a manufacturer to
extend his business, it is still capital,
because productively employed.

Suppose, however, that C, the bor-
rowing landlord, is a spendthrift, who
burdens his land not to increase his
fortune but to squander it, expending
the amount in equipages and entertain-
ments. In a year or two it is dissi-
pated, and without return. A is as
rich as before ; he has no longer his
ten thousand pounds, but he has a lien
on the land, which he could still sell for
that amount. C, however, is 10,OOOZ.
poorer than formerly ; and nobody is
richer. It may be said that those are
richer who have made profit out of the
money while it was being spent. Xo
doubt if C lost it by gaming, or was
cheated of it by his servants, that is a
mere transfer, not a destruction, and
those who have gained the amount may
employ it productively. But if C has
received the fair value for his expendi-
ture in articles of subsistence or luxury,
which he has consumed on himself, or
by means of his servants or guests,
these articles have ceased to exist, and
nothing has been produced to replace
them : while if the same sum had been
employed in farming or manufacturing,
the consumption which would have
taken place would have been mere than
balanced at the end of the year by new
products, created by the labour of those
TJO would in that case have been the

consumers. By C's prodigality, that
which would have been consumed with
a return, is consumed without return.
C?fl tradesmen may have made a profit
during the process ; but if the capital
had been expended productively, an
equivalent profit would have been made
by builders, fencers, tool-makers, and
the tradespeople who supply the con-
sumption of the labouring classes ; while
at the expiration of the time (to say
nothing of any increase), C would have
had the ton thousand pounds or its
value replaced to him, which now he
has not. There is, therefore, on the
general result, a difference to the dis-
advantage of the community, of at least
ten thousand pounds, being the amount
of C's unproductive expenditure. To
A, the difference is not material, since
his income is secured to him, and while
the security is good, and the market
rate of interest the same, he can always
sell the mortgage at its original value.
To A, therefore, the lien of ten thou-
sand pounds on C's estate, is virtually
a capital of that amount; but is it so
in reference to the community ? It is
not. A had a capital of ten thousand
pounds, but this has been extinguished
— dissipated and destroyed by C's pro-
digality. A now receives his income,
not from the produce of his capital, but
from some other source of income be-
longing to C, probably from the rent of
his land, that is, from payments made
to him by farmers out of the produce of
tli, ir capital. The national capital is
diminished by ten thousand pounds,
and the national income by all which
those ten thousand pounds, employed as
capital, would have produced. The
loss does not fall on the owner of the
destroyed capital, since the destroyer
has agreed to indemnify him for it.
But his loss is only a small portion of
that sustained by the community, since
what was devoted to the use and con-
sumption of the proprietor was only the
interest ; the capital itself was, or
would have been, employed in the per-
petual maintenance of an equivalent
number of labourers, regularly repro-
ducing what they consumed : and o!
this maintenance they are deprived
without compensation.

FUNDAMENTAL PROPOSITIONS ON CAPITAL.

39

I. ft us no-.y vary the hypothesis still
further, and suppose that the money is
borrowed, not by a landlord, but by the
State. A lends his capital to Govern-
ment to carry on a war : he buys from
the State what are called government
securities ; that is, obligations on the
government to pay a certain annual in-
come. If the government employed
the money in making a railroad, this
might be a productive employment, and
A's property would still be used as
capital ; but since it is employed in
war, that is, in the pay of officers and
soldiers who produce nothing, and in
destroying a quantity of gunpowder and
bullets without return, the government
is in the situation of C, the spendthrift
landlord, and A's ten thousand pounds
are so much national capital which
once existed, but exists no longer :
virtually thrown into the sea, as far as
vealth or production is concerned ;
though for other reasons tho employ-
ment of it may have been justifiable.
A's subsequent income is derived, not
from the produce of his own capital, but
from taxes drawn from the produce of
the remaining capital of the commu-
nity ; to whom his capital is not yield-

ing any return, to indemnify them for
the payment ; it is lost and gone, and
what he now possesses is a claim on the
returns to other people's capital and in-
dustry. This claim he can sell, and
get back the equivalent of his capital,
which he may afterwards employ pro-
ductively. True ; but he does not get
back his own capital, or anything which
it has produced ; that, and all its possi-
ble returns, are extinguished : what ho
gets is the capital of some other per-
son, which that person is willing to ex-
change for his lien on the taxes. An-
other capitalist substitutes himself for
A as a mortgagee of the public, and A
substitutes himself for the other capi-
talist as the possessor of a fund em-
ployed in production, or available for it.
By this exchange the productive powers
of the community are neither increased
nor diminished. The breach in the
capital of the country was made when
the government spent A's money :
whereby a value of ten thousand pounds
was withdrawn or withheld from pro-
ductive employment, placed in the fund
for unproductive consumption, and de-
stroyed without equivalent.

CHAPTER V.

FUNDAMENTAL PROPOSITIONS RESPECTING CAPITAL.

§1. IF the preceding explanations
have answered their purpose, they have
given not only a sufficiently complete
possession of the idea of Capital accord-
ing to its definition, but a sufficient
familiarity with it in the concrete, and
amidst the obscurity with which the
complication of individual circumstances
surrounds it, to have prepared even the
unpractised reader for certain elemen-
tary propositions or theorems respecting
capital, the full comprehension of which
is already a considerable step out of
darkness into light.

The first of these propositions is,
That industry is limited by capital.
This is so obvious as to be taken for

granted in many common forms of
speech ; but to see a truth occasionally
is one thing, to recognise it habitually,
and admit no propositions inconsistent
with it, is another. The axiom was
until lately almost universally disre-
garded by legislators and political
writers ; and doctrines irrcconcileablo
with it are still very commonly pro-
fessed and inculcated.

The following are common expres-
sions, implying its truth. The act of
directing industry to a particular em
ployment is described by the phrase
" applying capital " to the employment.
To employ industry on the land is to
apply capital to the land. To etnjiloj

BOOK I. CHAPTER V. J 1.

labour in A manufacture is to invest
capital in the manufacture. This im-
plfes that industry cannot be employed
to any greater extent than there is
capital to invest. The proposition, in-
deed, must be assented to as soon as it
is distinctly apprehended. The ex-
pression " applying capital " is of
course metaphorical : what is really
applied is labour ; capital being an in-
dispensable condition. Again, we often
speak of the "productive powers of
capital." This expression is not lite-
rally correct. The only productive
powers are those of labour and natural
agents ; or if any portion of capital
can by a stretch of language be said to
have a productive power of its own, it
is only tools and machinery, which, like
wind or water, may be said to co-ope-
rate with labour. The food of labourers
and the materials of production have
no productive power ; but labour cannot
exert its productive power unless pro-
vided with them, 'riiere can be no
more industry than is supplied with
materials to work up and food to eat.
Self-evident as the thing is, it is often
forgotten that the people of a country
are maintained and have their wants
supplied, not by the produce of present
labour, but of past. They consume
what has been produced, not what is
about to be produced. Now, of what
has been produced, a part only is al-
lotted to the support of productive
labour ; and there will not and cannot
be more of that labour than the por-
tion so allotted (which is the capital
of the country J can feed, and provide
with the materials and instruments of
production.

Yet, in disregard of a fact so evident,
it long continued to be believed that
laws and governments, without creat-
ing capital, could create industry.
Not by making the people more labo-
rious, or increasing the efficiency of
their labour; these are objects to
whict the government can, in some
degree, indirectly contribute. But
without any increase in the skill or
energy of the labourers, and without
causing any persons to labour who had
previously been maintained in idleness,
it WW still thought that the govern-

ment, without providing additional
funds, could create additional employ-
ment. A government would, by pro-
hibitory laws, put a stop to the impor-
tation of some commodity ; and when
by this it had caused the commodity
to be produced at home, it would plume
itself upon having enriched the country
with a new branch of industry, would
parade in statistical tables the amount
of produce yielded and labour em-
ployed in the production, and take
credit for the whole of this as a gai n
to the country, obtained through the
prohibitory law. Although this sort
of political arithmetic has fallen a
little into discredit in England, it still
flourishes in the nations of Continental
Europe. Had legislators been aware
that industry is limited by capital,
they would have seen that, the aggre-
gate capital of the country not having
been increased, any portion of it which
they by their laws had caused to be
embarked in the newly-acquired branch
of industry must have been withdrawn
or withheld from some other ; in which
it gave, or would have given, employ-
ment to probably about the same quan-
tity of labour which it employs in its
new occupation.*

* An exception must be admitted when
the industry created or upheld by the re-
strictive law belongs to the class of what are
called domestic manufactures. These beiiig
carried on by persons already fed — by la-
bouring families, in the intervals ol other
employment— no transfer of capital to the
occupation is necessary to its being under-
taken, beyond the value of the materials and
tools, which is often inconsiderable If,
therefore, a protecting duty causes this occu-
pation to be carried on, when it otherwise
would not, there is in this case a real increase
of the production of the country.

In order to render our theoretical proposi-
tion invulnerable, this peculiar case must be
allowed for : but it does not touch the prac-
tical doctrine of free trade. Domestic
manufactures cannot, from the very nature
of things, require protection, since the sub-
sistence of the labourers being provided from
other sources, the price of the product, how-
ever much it may be reduced, is nearly all
elear gain. If, therefore, the domestic pro-
ducers retire from the competition, it is
never from necessity, but because the pro.
duct is not worth the labour it costs, in the
opinion of the best judges, those who enjoy
the one and undergo the other. They prefer
the sacrifice of buying their clothing to ihe
labour of making it. They will not continue

FUNDAMENTAL PROPOSITIONS ON CAPITAL.

41

§ 2. Because industry is limited by
capita], we are not however to infer that
it always reaches that limit. Capital
may be temporarily unemployed, as in
the case of unsold goods, or funds that
have not yet found an investment ;
during this interval it does not set in
motion any industry. Or there may
not be as many labourers obtainable,
as the capital would maintain and em-
ploy. This has been known to occur
in new colonies, where capital has
sometimes perished uselessly for want
of labour : the Swan River settlement
(now called Western Australia), in the
first years after its foundation, was an
instance. There are many persons
maintained from existing capital, who
produce nothing, or who might produce
much more than they do. If the
labourers were reduced to lower wages,
or induced to work more hours for the
same wages, or if their families, who
are already maintained from capital,
were employed to a greater extent
than they now are in adding to the
produce, a given capital would afford
employment to more industry. The
unproductive consumption of produc-
tive labourers, the whole of which is
now supplied by capital, might cease,
«r be postponed until the produce
came in ; and additional productive
labourers might be maintained with
the amount. By such means society
might obtain from its existing re-
sources a greater quantity of produce :
and to such means it has been driven,
when the sudden destruction of some
large portion of its capital rendered
the employment of the remainder with
the greatest possible effect, a matter of
paramount consideration for the time.

Where industry has not come up to the
limit imposed by capital, governments
may, in various ways, for example by
importing additional labourers, bring
it nearer to that limit : as by the im-
portation of Coolies and free Negroes
into the West Indies. There is an-
other way in which governments can
create additional industry. They can
create capital. They may lay on

their labour unless society will give them
more for it, than in their own opinion its
product is worth.

taxes, and employ the amount produc-
tively. They may do what is nearly
equivalent ; they may lay taxes on
income or expenditure, and apply the

Sroceeds towards paying off the public
ebts. The fundholder, when paid off,
would still desire to draw an income
from his property, most of which there-
fore would find its way into productive
employment, while a great part of it
would have been drawn from the fund
for unproductive expenditure, since
people do not wholly pay their taxes
from what they would have saved, but
partly, if not chiefly, from what they
would have spent. It may be added,
that any increase in the productive
power of capital (or, more properly
speaking, of labour) by improvements
in the arts of life, or otherwise, tends
to increase the employment for labour ;
since, when there is a greater produce
altogether, it is always probable that
some portion of the increase will be
saved and converted into capital ;
especially when the increased returns
to productive industry hold out an
additional temptation to the conver-
sion of funds from an unproductive
destination to a productive.

§ 3. While, on the one hand, in-
dustry is limited by capital, so on the
other, every increase of capital gives,
or is capable of giving, additional em-
ployment to industry ; and this with-
out assignable limit. I do not mean
to deny that the capital, or part of it,
may be so employed as not to support
labourers, being fixed in machinery,
buildings, improvement of land, and the
like. In any large increase of capital
a considerable portion will generally be
thus employed, and will only co-operate
with labourers, not maintain them.
What I do intend to assert is, that the
portion which is destined to their
maintenance, may (supposing no altera-
tion in anything else) be indefinitely
increased, without creating an impos-
sibility of finding them employment :
in other words, that if there are human
beings capable of work, and food t«
feed them, they may always be em-
ployed in producing something. Thia
proposition requires to be somewhat

BOOK I. CHAFf/EH V. § 3.

dwelt upon, being one of those which
it is exceedingly easy to assent to
when presented in general terms, but
somewhat difficult to keep fast hold of,
in the crowd and confusion of the
actual facts of society. It is also very
much opposed to common doctrines.
There is not an opinion more general
among mankind than this, that the
unproductive expenditure of the rich is
necessary to the employment of the
poor. Before Adam Smith, the doc-
trine had hardly been questioned ; and
even since his time, authors of the
highest name and of great merit* have
contended, that if consumers were to
save and convert into capital more
than a limited portion of their income,
and were not to devote to unproductive
consumption an amount of means bear-
ing a certain ratio to the capital of the
country, the extra accumulation would
be merely so much waste, since there
would be no market for the commo-
dities which the capital so created
would produce. I conceive this to be
one of the many errors arising in poli-
tical economy, from rte practice of not
beginning with the examination of
simple cases, but rushing at once into
the complexity of concrete phenomena.
Ever)- one can see that if a benevo-
lent government possessed all the food,
and all the implements and materials,
of the community, it could exact pro-
ductive labour from all capable of it,
to whom it allowed a share in the food,
and could be in no danger of wanting
a field for the employment of this pro-
ductive labour, since as long as there
was a single want unsaturatcd (which
material objects could supply), of any
one individual, the labour of the com-
munity could be turned to the produc-
tion of something capable of satisfying
that want. Now, the individual pos-
sessors of capital, when they add to it
by fresh accumulations, are doing pre-
cisely the same thing which we sup-
pose to be done by a benevolent govern-
ment. As it is allowable to put any
case by way of hypothesis, let us ima-
gine the most extreme case conceiv-
able. Suppose that every capitalist

• For example, Mr. Malthus, Dr. Chalmers,
M. de Sismondi.

came to be of opinion that not being
more meritorious than a well-conducted
labourer, he ought not to fare better ; and
accordingly laid by, from conscientious
motives, the surplus of his profits ; or
suppose this abstinence not sponta-
neous, but imposed by law or opinion
upon all capitalists, and upon land-
owners likewise. Unproductive ex-
penditure is now reduced to its lowest
limit : and it is asked, how is the in-
creased capital to find employment ?
Who is to buy the goods which it will
produce ? There are no longer cus-
tomers even for those which were pro-
duced before. The goods, therefore,
(it is said) will remain unsold ; they
will perish in the warehouses ; until
capital is brought down to what it was
originally, or rather to as much less,
as the demand of the consumers lias
lessened. But this is seeing only one-
half of the matter. In the case sup-
posed, there would no longer be any
demand for luxuries, on the part
of capitalists and landowners. But
when these classes turn their in-
come into capital, they do not thereby
annihilate their power of consumption ;
they do but transfer it from themselves
to the labourers to •whom they give
employment. Now, there are two pos-
sible suppositions in regard to the
labourers ; either there is, or there is
not, an increase of their numbers, pro-
portional to the increase of capital. If
there is, the case offers no difficulty.
The production of necessaries for tho
new population, takes the place of the
production of luxuries for a portion of
the old, and supplies exactly the
amount of employment which has been
lost. But suppose that there is no in-
crease of population. The whole of
what was previously expended in
luxuries, by capitalists and landlords,
is distributed among the existing
labourers, in the form of additional
wages. We will assume them to be
already sufficiently supplied with neces-
saries. What follows? That the
labourers become consumers of luxu-
ries ; and the capital previously em-
ployed in the production of luxuries, ia
still able to employ itself in the same
j manner : the difference being, that tho

FUNDAMENTAL PROPOSITIONS ON CAPITAL.

43

Kixuries are shared among the com-
munity generally, instead of being con-
,-i few. The increased accumu-
lation and increased production might,
rigorously speaking, continue, until
every labourer had every indulgence of
wealth, consistent with continuing to
work ; supposing that the power of
their labour were physically sufficient to
produce all this amount of indulgences
for their whole number. Thus the
limit of wealth is never deficiency of
consumers, but of producers and pro-
ductive power. Every addition to
capital gives to labour cither additional
employment, or additional remunera-
tion ; enriches either the country, or
the labouring class. If it finds addi-
tional hands to set to work, it increases
the aggregate produce : if only the
same hands, it gives them a larger
share of it ; and perhaps even in this
case, by stimulating them to greater
exertion, augments the produce itself.

§ 4. A second fundamental theorem
respecting Capital, relates to the source
from which it is derived. It is the re-
sult of saving. The evidence of this
lies abundantly in what has been al-
ready said on the subject. But the
proposition needs some further illus-
tration.

If all persons were to expend in per-
sonal indulgences all that they produce,
and all the income they receive from
what is produced by others, capital
could not increase. All capital, with a
trifling exception, was originally the
result of saving. I say, with a trifling
exception ; because a person who la-
bours on his own account, may spend
on his own account all he produces,
without becoming destitute ; and the
provision of necessaries on which he
subsists until he has reaped his harvest,
or sold his commodity, though a real
capital, cannot be said to have been
saved, since it is all used for the sup-
ply of his own wants, and perhaps as
speedily as if it had been consumed in
idleness. We may imagine a number
of individuals or families settled on as
many separate pieces of land, each
living on what their own labour pro-
duces, and consuming the -whole pro-

duce. But even these must >»ave (that
is, spare from their personal consump-
tion) as much as is necessary for seed.
Some saving, therefore, there must have
been, even in this simplest of all states
of economical relations; people must
have produced more than they used, or
used less than they produced. Still
more must they do so before they can
employ other labourers, or increase their
production beyond what can be accom-
plished by the work of their own hands.
All that anyone employs in supporting
and carrying on any other labour than
his own, must have been originally
brought together by saving ; somebody
must have produced it and forborne to
consume it. We may say, therefore,
without material inaccuracy, that all
capital, and especially all addition to
capital, are the result of saving.

In a rude and violent state of society,
it continually happens that the person
who has capital is not the very person
who has saved it, but some one who,
being stronger, or belonging to a more
powerful community, has possessed
himself of it by plunder. And even in
a state of things in which property waa
protected, the increase of capital baa
usually been, for a long time, mainly
derived from privations which, though
essentially the same with saving, are
not generally called by that name, be-
cause not voluntary. The actual pro-
ducers have been slaves, compelled to
produce as much as force could extort
from them, and to consume as little as
the self-interest or the usually very
slender humanity of their taskmasters
would permit. This kind of compul-
sory saving, however, would not have
caused any increas? of capital, unless
a part of the amouut had been saved
over again, voluntarily, by the master.
If all that he made his slaves produce
and forbear to consume, had been con-
sumed by him on personal indulgences,
he would not have increased his capital,
nor been enabled to maintain an in-
creasing number of slaves. To main-
tain any slaves at all, implied a pre-
vious saving ; a stock, at least of food,
provided in advance. This saving may
not, however, have been made by any
self-imposed privation of the mister;

44

but more probably by that of the slaves
themselves while free ; the rapine or
war, which deprived them of their per-
sonal liberty, having transferred also
their accumulations to the conqueror.

There are other cases in which the
term saving, with the associations usu-
ally belonging to it, does not exactly
fit the operation by which capital is
increased. If it were said, for instance,
that the only way to accelerate the in-
crease of capital is by increase of saving,
the idea would probably be suggested
of greater abstinence, and increased
privation. But it is obvious that what-
ever increases the productive power of
labour, creates an additional fund to
make savings from, and enables capital
to be enlarged not only without addi-
tional privation, but concurrently with
an increase of personal consumption.
Nevertheless, there is here an increase
of saving, in the scientific sense.
Though there is more consumed, there
is also more spared. There is a greater
excess of production over consumption.
It is consistent with correctness to call
this a greater saving. Though the
term is not unobjectionable, there is no
other which is not liable to as great
objections. To consume less than is
produced, is saving ; and that is the
process by which capital is increased ;
not necessarily by consuming less, ab-
solutely. We must not allow ourselves
to be so much the slaves of words, as
to be unable to use the word saving in
this sense, without being in danger of
forgetting that to increase capital there
is another way besides consuming less,
namely, to produce more.

§ 5. A third fundamental theorem
respecting Capital, closely connected
with the one last discussed, is, that
although saved, and the result of
saving, it is nevertheless consumed.
The word saving does not imply that
what is saved is not consumed, nor
even necessarily that its consumption
is deferred ; but only that, if consumed
immediately, it is not consumed by the
person who saves it. If merely laid
by for future use, it is said to be
hoarded; and while hoarded, is not
consumed at all. But if employed as

BOOK I. CHAPTER V. § 5.

capital, it is all consumed ; though not
by the capitalist. Part is exchanged
for tools or machinery, which are worn
out by use : part for seed or materials,
which are destroyed as such by being
sown or wrought up, and destroyed al-
together by the consumption of the
ultimate product. The remainder is
paid in wages to productive labourers,
who consume it for their daily wants ;
or if they in their turn save any part, this
also is not, generally speaking, hoarded,
but (through savings banks, benefit
clubs, or some other channel) re-em-
ployed as capital, and consumed.

The principle now stated is a strong
example of the necessity of attention to
the most elementary truths of our sub-
ject : for it is one of the most elemen-
tary of them all, and yet no one who
has not bestowed some thought on the
matter is habitually aware of it, and
most are not even willing to admit 't
when first stated. To the vulgar, it is
not at all apparent that what is saved
is consumed. To them, every one who
saves, appears in the light of a person
who hoards ; they may think such con-
duct permissible, or even laudable, when
it is to provide for a family, and the
like ; but they have no conception of it
as doing good to other people : saving
is to them another word for keeping a
thing to oneself; while spending ap-
pears to them to be distributing it
among others. The person who ex-
pends his fortune in unproductive con-
sumption, is looked upon as diffusing
benefits all around ; and is an object
of so much favour, that some portion
of the same popularity attaches even
to him who spends what does not be-
long to him ; who not only destroys his
own capital, if he ever had any, but,
under pretence of borrowing, and on
promise of repayment, possesses him-
self of capital belonging to others, and
destroys that likewise.

This popular error comes from at-
tending to a small portion only of the
consequences that flow from the saving
or the spending ; all the effects of
either which are out of sight, being out
of mind. The eye follows what is saved,
in t n imaginary strong box, and there
loses sight of it ; what is spent, it fol

FUNDAMENTAL PROPOSITIONS ON CAPITAL.

45

lows into the hands of tradespeople and
dependents ; but without reaching the
ultimate destination in either case.
Saving (for productive investment), and
spending, coincide very closely in the
first stage of their operations. The
effects of both begin with consumption ;
with the destruction of a certain portion
of wealth ; only the things consumed,
and the persons consuming, are different.
There is, in the one case, a wearing out
of tools, a destruction of material, and
a quantity of food and clothing supplied
to labourers, which they destroy by use ;
in the other case, there is a consump-
tion, that is to say, a destruction, of
wines, equipages, and furniture. Thus
far, the consequence to the national
wealth has been much the same ; an
equivalent quantity of it has been de-
stroyed in both cases. But in the
mending this first stage is also the
final stage ; that particular amount of
the produce of labour has disappeared,
and there is nothing left ; while, on the
contrary, the saving person, during the
whole time that the destruction was
going on, has had labourers at work
repairing it ; who are ultimately found
to have replaced, with an increase, the
equivalent of what has been consumed.
And as this operation admits of being
repeated indefinitely without any fresh
act of saving, a saving once made be-
comes a fund to maintain a correspond-
ing number of labourers in perpetuity,
reproducing annually their own mainte-
nance with a profit.

It is the intervention of money which
obseurrg, to an unpractised apprehen-
sion, the true character of these pheno-
mena. Almost all expenditure being
carried on by means of money, the
money comes to be looked upon as the
main feature in the transaction ; and
since that does not perish, but only
changes hands, people overlook the
destruction which takes place in the
case of unproductive expenditure. The
money being merely transferred, they
think the wealth also has only been
handed over from the spendthrift to
other people. But this is simply con-
founding money with wealth. The
wealth which has been destroyed was
not the money, but the wines, equipages,

and furniture which the money pur-
chased ; and these having been de-
stroy, -d without return, society collec-
tively is poorer by the amount. It may
be said, perhaps, that wines, equipap's,
and furniture, are not subsistence, tools,
and materials, and could not in any
case have been applied to the support
of labour ; that they are adapteil for no
other than unproductive consumption,
and that the detriment to the wealth
of the community was when they were
produced, not when they were con-
sumed. I am willing to allow this, as
far as is necessary for the argument,
and the remark would be very perti-
nent if these expensive luxuries were
drawn from an existing stock, never to
be replenished. But since, on the con-
trary, they continue to be produced as
long as there are consumers for them,
and are produced in increased quantity
to meet an increased demand ; the
choice made by a consumer to expend
five thousand a year in luxuries, keeps
a corresponding number of labourers
employed from year to year in pro-
ducing things which can be of no use
to production ; their services being lost
so far as regards the increase of the
national wealth, and the tools, mate-
rials, and food which they annually
consume being so much subtracted
from the general stock of the commu-
nity applicable to productive purposes.
In proportion as any class is improvi-
dent or luxurious, the industry of the
country takes the direction of producing
luxuries for their use ; while not only
the employment for productive labourers
is diminished, but the subsistence and
instruments which arc the means of
such employment do actually exist in
smaller quantity.

Saving, in short, enriches, and spend-
ing impoverishes, the community uk-r:^
with the individual ; which is but say-
ing in other words, that society at large
is richer by what it expends in main-
taining and aiding productive labour,
but poorer by what it consumes in its
enjoyments.*

* It is worth while to direct attention to
several circumstances which to a curtain ex-
tent diminish the detriment cau*e<l to th«
general wealth by the prodigality of in-

46

BOOK I. CHAPTER V. § 6.

§ 6. To return to our fundamental
theorem. Everything which is pro-
duced is consumed ; both what is saved
and what is said to be spent ; and the
former quite as rapidly as tho latter.
All the ordinary forms of language tend
to disguise this. When people talk of
the ancient wealth of a country, of
riches inherited from ancestors, and
similar expressions, the idea suggested
is, that the riches so transmitted were
produced long ago, at the time when
they are said to have been first ac-
quired, and that no portion of the
capital of the country was produced
this year, except as much as may have
been this year added to the total
amount. The fact is far otherwise.
The greater part, in value, of the
wealth now existing in England has
been produced by human hands within
the last twelve months. A very small
proportion indeed of that large aggre-
gate was in existence ten years ago ;
— of the present productive capital of
the country scarcely any part, except
farm-houses and manufactories, and a

dividuals, or raise up a compensation, more
or less ample, as a consequence of the detri-
ment it sol f. One of these is that spend-
thrifts do not usually succeed in consuming
all they spend. Their habitual carelessness
as to expenditure causes them to be cheated
and robbed on all quarters, often by persons
of frugal habits. Large accumulations are
continually made by the agents, stewards,
and even domestic servants, of improvident
persons of fortune ; and they pay much
higher prices for all purchases than people
of careful habits, which accounts for their
being popular as customers. They are,
therefore, actually not able to get into their
possession and destroy a quantity of wealth
by any means equivalent to the fortune which
they dissipate. Much of it is merely trans-
ferred to others, by whom a part may be
saved. Another thing to be observed is,
that the prodigality of some may reduce
others to a forced economy. Suppose a sud-
den demand for some article of luxury,
caused by the caprice of a prodigal, which
not having been calculated on belbrehand,
there has been no increase of the usual
supply. The price will rise ; and may rise
beyond the means or the inclinations of some
of the habitual consumers, who may in con-
sequence forego their accustomed indulgence,
and save the amount. If they do not, but
continue to spend as great a value as before
on the commodity, the dealers in it obtain,
for only the same quantity of the article, a
return increased by the whole of what the
spendthrift has paid; and thug the amount

few ships and machines; and even
these would not in most cases have
survived so long, if fresh labour had
not been employed within th.it period
in putting them into repair. The land
subsists, and the land is almost tho
only thing that subsists. Everything
which is produced perishes, and most
things very quickly. Most kinds of
capital are not fitted by their nature to
be long preserved. There are a few,
and but a few productions, capable of
a very prolonged existence. West-
minster Abbey has lasted many cen-
turies, with occasional repairs ; some
Grecian sculptures have existed above
two thousand years ; the Pyramids
perhaps double or treble that time.
But these were objects devoted to un-
productive use. If we except bridges
and aqueducts (to which may in some
countries be added tanks and embank-
ments), there are few instances of any
edifice applied to industrial purposes
which has been of great duration ;
such buildings do not hold out against
wear and tear, nor is it good economy

which he loses is transferred bodily to them,
and may be added to their capital : his in-
creased personal consumption being made up
by the privations of the other purchasers,
who have obtained loss than usual of their
accustomed gratification for the same equiva-
lent. On the other hand, a counter-process
must be going on somewhere, since the
prodigal must have diminished his purchases
in some other quarter to balance the aug-
mentation in this ; he has perhaps called in
funds employed in sustaining productive la-
bour, and the dealers in subsistence and in
the instruments of production have had com-
modities left on their hands, or have re-
ceived, for the usual amount of commodities,
a less than usual return. But such losses of
income or capital, by industrious persons,
except when of extraordinary amount, are
generally made up by increased pinching and
privation ; so that the capital of the com-
munity may not be, on the whole, impaired,
and the prodigal may have had his self-
indulgence at the expense not of the perma-
nent resources, but of the temporary plea-
sures and comforts of others. For in every
case the community are poorer by what any
one spends, unless others are in consequence
led to curtail their spending. There are yet
other and more recondite ways in which the
profusion of some may bring about its com-
pensation in the extra savings of others; but
these can only be considered in that part
of the Fourth Hook, which treats of the
limiting principle to the accumulation of

FUNDAMENTAL PROPOSITIONS ON CAPITAL.

to construct them of the solidity
necessary for permanency. Cubital
is kept in existence from age to age
not by preservation, but by perpetual
reproduction : every ]urt of it is used
and destroyed, generally very soon after
it is produced, but those who consume
it are employed meanwhile in produc-
ing more. The growth of capital is
similar to the growth of population.
Every individual who is born, dies, but
in each year the number born exceeds
the number who die : the population,
therefore, always increases, though not
one person of those composing it was
alive until a very recent date.

§ 7. This perpetual consumption
and reproduction of capital affords the
explanation of what has so often excited
wonder, the great rapidity with which
countries recover from a state of devas-
tation ; the disappearance, in a short
time, of all traces of the mischiefs done
by earthquakes, floods, hurricanes, and
the ravages of war. An enemy lays
waste a country by fire and sword, and
destroys or carries away nearly all the
moveable wealth existing in it : all the
inhabitants are ruined, and yet in a
few years after, everything is much as
it was before. This vis medicatrix
natural has been a subject of sterile
astonishment, or has been cited to ex-
emplify the wonderful strength of the
principle of saving, which can repair
such enormous losses in so brief an in-
terval. There is nothing at all won-
derful in the matter. What the enemy
have destroyed, would have been de-
stroyed in a little time by the inhabit-
ants themselves : the wealth which
they so rapidly reproduce, would have
needed to be reproduced and would
have been reproduced in any case, and
probably in as short a time. Nothing
is changed, except that during the re-
production they have not now the ad-
vantage of consuming what had been
produced previously. The possibility
of a rapid repair of their disasters,
mainly depends on whether the country
Las been depopulated. If its effective
population have not been extirpated at
the time, and are not starved after-
wards ; then, with the same skill and

knowledge which they had before, with
their land and its permanent improve-
ments undestroyed, and the more dur-
able buildings probably unimpaired, or
only partially injured, they have nearly-
all me requisites for their former
amount of production. If there is as
much of food left to them, or of valu-
ables to buy food, as enables them by
any amount of privation to remain
alive and in working condition, they
will in a short time have raised as
great a produce, and acquired collec-
tively as great wealth and as great a
capital, as before ; by the mere conti-
nuance of that ordinary amount of ex-
ertion which they are accustomed to
employ in their occupations. Nor does
this evince any strength in the princi-
ple of saving, in the popular sense of
the term, since what takes place is not
intentional abstinence, but involuntary
privation.

Yet so fatal is the habit of thinking
through the medium of only one set of
technical phrases, and so little reason
have studious men to value themselves
on being exempt from the very same
mental infirmities which beset the vul-
gar, that this simple explanation was
never given (so far as I am aware) by
any political economist before Dr.
Chalmers ; a writer many of whose
opinions I think erroneous, but who has
always the merit of studying phenomena
at first hand, and expressing them in a
language of his own, which often un-
covers aspects of the truth that the re-
ceived phraseologies only tend to hide.

§ 8. The same author carries out
this train of thought to some important
conclusions on another closely connected
subject, that of government loans for
war purposes or other unproductive ex-
penditure. These loans, being drawn
from capital (in lieu of taxes, which
would generally have been paid from
income, and made up in part or alto-
gether by increased economy) must,
according to the principles we have
laid down, tend to impoverish the
country : yet the years in which ex-
penditure of this sort has been on tho
greatest scale, have often been years of
great apparent prosperity : the wealth

48

and resources of the country, instead of
diminishing, have given every sign of
rapid increase during the process, and
of greatly expanded dimensions after
its close. This was confessedly the
case with Great Britain during the last
long Continental war ; and it would
take some space to enumerate all the
unfounded theories in political economy,
to which that fact gave rise, and to
which it secured temporary credence ;
almost all tending to exalt unproduc-
tive expenditure, at the expense of pro-
ductive. Without entering into all the
causes which operated, and which
commonly do operate, to prevent these
extraordinary drafts on the productive
resources of a country from being so
much felt as it might seem reasonable
to expect, we will suppose the most
unfavourable case possible : that the
whole amount borrowed and destroyed
by the government, was abstracted by
the lender from a productive employ-
ment in which it had actually been in-
vested. The capital, therefore, of the
country, is this year diminished by so
much. But unless the amount ab-
stracted is something enormous, there
is no reason in the nature of the case
why next year the national capital
should not be as great as ever. The
loan cannot have been taken from that
portion of the capital of the country
which consists of tools, machinery, and
buildings. It must have been wholly
drawn from the portion employed in
paying labourers : and the labourers
will suffer accordingly. But if none of
them are starved ; if their wages can
bear such an amount of reduction, or
if charity interposes between them and
absolute destitution, there is no reason
that their labour should produce less
in the next year than in the year
before. If they produce as much as
usual, having been paid less by so
many millions sterling, these millions
are gained by their employers. The
breach made in the capital of the
country is thus instantly repaired, but
repaired by the privations and often
the real miserv of the labouring class.
Here is ample reason why such periods,
even in the most unfavourable circum-
utances, may easily be times of great

BOOR I. CHAPTER V. § 8.

gain to those whose prosperity usual!*
passes, in the estimation of society, for
national prosperity.*

This leads to the vexed question to
which Dr. Chalmers has very particu-
larly adverted ; whether the funds re-
quired by a government for extraor-
dinary unproductive expenditure, are
best raised by loans, the interest only
being provided by taxes, or whether
taxes should be at once laid on to the
whole amount ; which is called in the
financial vocabulary, raising the whole
of the supplies within the year. Dr.
Chalmers is strongly for the latter
method. He says, the common notion
is that in calling for the whole amount
in one year, you require what is either
impossible, or very inconvenient ; that
the people cannot, without great hard-
ship, pay the whole at once out of their

* On the other hand, it must be remem-
bered that war abstracts from productive
employment not only capital, but likewise
labourers, that the funds withdrawn from
the remuneration of productive labourers
are partly employed in paying the same or
other individuals for unproductive labour ;
and that by this portion of its effects, war
expenditure acts in precisely the opposite
manner to that which Dr. Chalmers points
out, and, so far as it goes, directly counter-
acts the effects described in the text. So far
as labourers are taken from production to
man the army and navy, the labouring
classes are nut damaged, the capitalists are
not benefited, and the general produce of
the country is diminished by war expendi-
ture. Accordingly, Dr. Chalmers's doctrine,
though true of this country, is wholly inap-
plicable to countries differently circum-
stanced ; to France, for example, during the
Napoleon wars. At that period tlie draught
on the labouring population of France, for a
long series of years, was enormous, while
the funds which supported the war were
mostly supplied by contributions levied on
the countries overrun by the French arms,
a very small proportion alone consisting of
French capital. In France, accordingly, the
wages of labour did not fall, but rose ; the
employers of labour were not benefited, but
injured; while the wealth of the country was
impaired by the suspension or total loss of so
vast an amount of its productive labour. In
England all this was reversed. England
employed comparatively few additional
soldiers and sailors of her own, while she
diverted hundreds of millions of capital from
productive employment, to supply munitions
of war and support armies for her Conti-
nental allies. Consequently, as shown in the
text, her labourers suffered, her capitalist*
prospered, and her permanent productive
resources did not tall off.

FUNDAMENTAL PROPOSITIONS ON CAPITAL.

49

veany income ; ami that it is much
tjetter to require of them a small pay-
ment every year in the shape of interest,
than so great a sacrifice once for all.
T.I \\hich his answer is, that the sacri-
fice is made equally in either case.
Whatever is spent, cannot but be
drawn from yearly income. The whole
and every part of the wealth produced
in the country, forms, or helps to form,
the yearly income of somebody. The
privation which it is supposed must
result from taking the amount in the
shape of taxes, is not avoided by taking
it in a loan. The suffering is not
averted, but only thrown upon the
labouring classes, the least able, and
who least ought, to bear it : while all
the inconveniences, physical, moral,
and political, produced by maintaining
taxes for the perpetual payment of the
interest, are incurred in pure loss.
Whenever capital is withdrawn from
production, or from the fund destined
for production, to be lent to the State
and expended unproductively, that
whole sum is withheld from the
labouring classes : the loan, therefore,
is in truth paid off the same year ; the
whole of the sacrifice necessary for
paying it off is actually made : only it
is paid to the wrong persons, and
therefore does not extinguish the claim ;
and paid by the very worst of taxes, a
tax exclusively on the labouring class.
And after having, in this most painful
and unjust way, gone through the
whole effort necessary for extinguishing
the debt, the country remains charged
with it, and with the payment of its
interest in perpetuity.

These views appear to me strictly
just, in so far as the value absorbed in
loans would otherwise have been em-
ployed in productive industry within
the country. The practical state of the
case, however, seldom exactly corre-
sponds with this supposition. The
loans of the less wealthy countries are
made chiefly with foreign capital, which
would not, perhaps, have been brought
in to be invested on any less security
than that of the government : while
those of rich and prosperous countries
we generally made, not with funds
withdrawn from productive employ-

ment, but with the new accumulations
constantly making from income, and
often with a part of them which, if not
so taken, would have migrated to colo-
nies, or sought other investment?
abroad. In these cases (which will
be more particularly examined here-
after*), the sum wanted may be ob-
tained by loan without detriment to the
labourers, or derangement of the na-
tional industry, and even perhaps with
advantage to both, in comparison with
raising the amount by taxation ; since
taxes, especially when heavy, are al-
most always partly paid at the expense
of what would otherwise have been
saved and added to capital. Besides,
in a country which makes so great
yearly additions to its wealth that a
part can be taken and expended un-
productively without diminishing capi-
tal, or even preventing a considerable
increase, it is evident that even if the
whole of what is so taken would have
become capital, and obtained employ-
ment in the country, the effect on the
labouring classes is far less prejudicial,
and the case against the loan system
much less strong, than in the case first
supposed. This brief anticipation of a
discussion which will find its proper
place elsewhere, appeared necessary to
prevent false inferences from the pre-
mises previously laid down.

§ 9. We now pass to a fourth fun-
damental theorem respecting Capital,
which is, perhaps, oi'tener overlooked
or misconceived than even any of the
foregoing. What supports and employs
productive labour, is the capital ex-
pended in setting it to work, and not
the demand of purchasers for the pro-
duce of the labour when completed.
Demand for commodities is not demand
for labour. The demand for commodi-
ties determines in what particulai
branch of production the labour and
capital shall be emplo)-ed; it deter-
mines the direction of the labour ; but
not the more or less of the labour itself,
or of the maintenance or payment of
the labour. These depend on tho
amount of the capital, or other funds

• Infra, bock iv. chaps, iv. v.

E

BOOK I. CHAPTER V. § 9.

directly devoted to the sustenance and
remuneration of labour.

Suppose, for instance, that there is
a demand for velvet ; a fund ready to
be laid out in buying velvet, but no
capital to establish the manufacture.
It is of no consequence how great the
demand may be ; unless capital is at-
tracted into the occupation, there will
be no velvet made, and consequently
none bought ; unless, indeed, the desire
of the intending purchaser for it is so
strong, that he employs part of the
price he would have paid for it, in
making advances to work-people, that
they may employ themselves in making
velvet ; that is, unless he converts part
of his income into capital, and invests
that capital in the manufacture. Let
us now reverse the hypothesis, and sup-
pose that there is plenty of capital
ready for making velvet, but no de-
mand. Velvet will not be made ; but
there is no particular preference on the
part of capital for making velvet. Ma-
nufacturers and their labourers do not
produce for the pleasure of their cus-
tomers, but for the supply of their own
wants, and having still the capital and
the labour which are the essentials of
production, they can either produce
something else which is in demand, or
if there be no other demand, they
themselves have one, and can produce
the things which they want for their
own consumption. So that the employ-
ment afforded to labour does not depend
on the purchasers, but on the capital.
I am, of course, not taking into con-
sideration the effects of a sudden
change. If the demand ceases unex-
pectedly, after the commodity to supply
it is already produced, this introduces
a different element into the question :
the capital has actually been consumed
in producing something which nobody
wants or uses, and it has therefore
perished, and the employment which
it gave to labour is at an end, not be-
cause there is no longer a demand, but
because there is no longer a capital.
This case therefore does not test the
principle. The proper test is, to sup-
pose that the change is gradual and
for<*een. and is attended with no waste
«f capital, the manufacture being dis-

continued by merc-Iy not replacing tho
machinery as it v.-cars out, and not re-
investing the money as it comes in from
the sale of the produce. The capital
is thus ready for a new employment, in
which it will maintain as much labour
as before. The manufacturer and liLs
work-people lose the benefit of the skill
and knowledge which they had ac-
quired in the particular business, and
which can only be partially of use to
them in any other ; and that is the
amount of loss to the community by the
change. But the labourers can still
work, and the capital which previously
employed them will, either in the same
hands, or by being lent to others,
employ cither those labourers or an
equivalent number in some other occu-
pation.

This theorem, that to purchase prc
duce is not to employ labour ; that the
demand for labour is constituted by the
wages which precede the production,
and not by the demand which may
exist for the commodities resulting from
the production ; is a proposition which
greatly needs all the illustration it can
receive. It is, to common apprehen-
sion, a paradox ; and even among poli-
tical economists of reputation, I can
hardly point to any, except Mr. Eicardo
and M. Say, who have kept it con-
stantly and steadily in view. Almost
all others occasionally express them-
selves as if a person who buys com-
modities, the produce of labour, was an
employer of labour, and created a de-
mand for it as really, and in the same
sense, as if he bought the labour itself
directly, by the payment of wages. It
is no wonder that political economy
advances slowly, when such a question
as this still remains open at its very
threshold. I apprehend, that if by de-
mand for labour be meant the demand
by which wages are raised, or the num-
ber of labourers in employment in-
creased, demand for commodities does
not constitute demand for labour. I
conceive that a person who buys com-
modities and consumes them himself
does no good to the labouring classes ,
and that it is only by what ho abstains
from consuming, and expends in direct
payments to labourers in exchange for

FUNDAMENTAL PROPOSITIONS ON CAPITAL.

51

labour, that he benefits the labouring
classes, or a;lds anything to the amount
of their employment.

For the better illustration of the
principle, let us put the following case.
A consumer may expend his income
either in buying services or commodi-
ties. He may employ part of it in
hiring journeymen bricklayers to build
a house, or excavators to dig artificial
lakes, or labourers to make plantations
and lay out pleasure-grounds ; or, in-
stead of this, he may expend the same
value in buying velvet and lace. The
question is, whether the difference be-
tween these two modes of expending
his income affects the interest of the
labouring classes. It is plain that in
the first of the two cases he employs
labourers, who will be out of employ-
ment, or at least out of that employ-
ment, in the opposite case. But those
from whom I differ say that this is of
no consequence, because in buying
velvet and lace he equally employs
labourers, namely, those who make the
velvet and lace. I contend, however,
that in this last case he does not em-
ploy labourers ; but merely decides in
what kind of work some other person
shall employ them. The consumer
does not with his own funds pay to the
weavers and lacemakers their day's
wages. He buys the finished com-
modity, which has been produced by
labour and capital, the labour not being
paid nor the capital furnished by him,
but by the manufacturer. Suppose
that he had been in the habit of ex-
pending this portion of his income in
hiring journeymen bricklayers, who
laid out the amount of their wages in
food and clothing, which were also pro-
duced by labour and capital. Jle,
however, determines to prefer velvet,
for which he thus creates an extra de-
mand. This denicisid cannot be satis-
fied without an extra supply, nor can
the supply be produced without an ex-
tra capital : where, then, is the capital
to come from? There is nothing in the
consumer's change of purpose which
makes the capital of the country
greater than it otherwise was. It ap-
pears, then, that the increased demand
for velvet could not for the present be

supplied, were it not that the very cir-
cumstance which gave rise to it has set
at liberty a capital of the exact amount
required. The very sum which the
consumer now employs in buying vel-
vet, formerly passed into the hands of
journeymen bricklayers, who expended
it in food and necessaries, which they
now either go without, or squeeze by
their competition, from the shares of
other labourers. The labour and ca-

Sital, therefore, which formerly pro-
uced necessaries for the use of these
bricklayers, are deprived of their mar-
ket, and must look out for other em-
ployment ; and they find it in making
velvet for the new demand. I do not
mean that the very same labour and
capital which produced the necessaries
turn themselves to producing the vel-
vet ; but, in some one or other of a
hundred modes, they take the place of
that which does. There was capital
in existence to do one of two things —
to make the velvet, or to produce ne-
cessaries for the journeymen brick-
layers ; but not to do both. It was at
the option of -the consumer which of
the two should happen ; and if he
chooses the velvet, they go without
the necessaries.

For further illustration, let us sup-
pose the same case reversed. The
consumer has been accustomed to buy
velvet, but resolves to discontinue that
expense, and to employ the same
annual sum in hiring bricklayers. If
the common opinion be correct, this
change in the mode of his expenditure
gives no additional employment to
labour, but only transfers employment
from velvet-makers to bricklayers. On
closer inspection, however, it will bo
seen that there is an increase of the
total sum applied to the remuneration
of labour. The velvet manufacturer,
supposing him aware of the diminished
demand for his commodity, diminishes
the production, and sets at liberty a
corresponding portion of the capital
employed in the manufacture. Thi»
capital, thus withdrawn from the
maintenance of velvet-makers, is not
the same fund with that which the ciu
tomer employs in maintaining brick-
layers ; it ia a second fund. There are
E2

BOOK I. CHAPTER V. § 9.

therefore two funds to be employed in
the maintenance and remuneration of
labour, where before there was only
one. There is not a transfer of em-
ployment from velvet-makers to brick-
layers; there is a new employment
created for bricklayers, and a transfer
of employment from velvet-makers to
some other labourers, most probably
those who produce the food and other
things which the bricklayers consume.

In answer to this it is said, that
though money laid out in buying velvet
is not capital, it replaces a capital ;
that though it does not create a new
demand for labour, it is the necessary
means of enabling the existing demand
to be kept up. The funds (it may be
said) of the manufacturer, while locked
up in velvet, cannot be directly applied
to the maintenance of labour ; they do
not begin to constitute a demand for
labour until the velvet is sold, and the
capital which made it replaced from
the outlay of the purchaser ; and thus,
;t may be said, the velvet-maker and
the velvet-buyer have not two capitals,
but only one capital between them,
which by the act of purchase the buyer
transfers to the manufacturer : and if
instead of buying velvet he buys
labour, he simply transfers this capital
elsewhere, extinguishing as much de-
mand for labour in one quarter as he
creates in another.

The premises of this argument are
not denied. To set free a capital
which would otherwise be locked up in
a form useless for the support of labour,
is, no doubt, the same thing to the in-
terests of labourers as the creation of a
new capital. It is perfectly true that
if I expend WOOL in buying velvet, I
enable the manufacturer to employ
1000Z. in the maintenance of labour,
•which could not have been so employed
while the velvet remained unsold : and
if it would have remained unsold for
ever unless I bought it, then by chang-
ing my purpose and hiring bricklayers
instead, I undoubtedly create no new
demand for labour : for while I employ
1000J. in hiring labour on the one hand,
I annihilate for ever 1000?. of the
velvet-maker's capilal on the other.
But this is confounding the effects

arising from the mere suddenness of a
change with the effects of the change
itself. If when the buyer ceased to pur-
chase, the capital employed in making
velvet for his use necessarily perished,
then his expending the same amount
in hiring bricklayers would be no crea-
tion, but merely a transfer, of employ-
ment. The increased employment
which I contend is given to labour,
would not be given unless the capital
of the velvet-maker could be liberated,
and would not be given until it was
liberated. But every one knows that
the capital invested in an employment
can be withdrawn from it, if sufficient
time be allowed. If the velvet-maker
had previous notice, by not receiving
the usual order, he will have produced
1000Z. less velvet, and an equivalent
portion of his capital will have been
already set free. If he had no previous
notice, and the article consequently re-
mains on his hands, the increase of his
stock will induce him next year to sus-
pend or diminish his production until
the surplus is carried off. When this
process is complete, the manufacturer
will find himself as rich as before, with
undiminished power of employing la-
bour in general, though a portion of his
capital will now be employed in main-
taining some other kind of it. Until
this adjustment has taken place, the
demand for labour will be merely
changed, not increased : but as soon as
it has taken place, the demand for
labour is increased. 'Where there was
formerly only one capital employed in
maintaining weavers to make lOQQl.
worth of velvet, there is now that same
capital employed in making something
else, and 1000Z. distributed among
bricklayers besides. There are now
two capitals employed in remunerating
two sets of labourers ; while before,
one of those capitals, that of the cus-
tomer, only served as a wheel in tho
machinery' by which the other capital,
that of the manufacturer, carried on its
employment of labour from year to year.
The proposition for which I am con-
tending is in reality equivalent to tho
following, which to some minds will
appear a truism, though to others it is
a paradox : that a person does good tf

FUNDAMENTAL PROPOSITIONS ON CAPITAL.

5i

labourers, not by what he consumes on
himself, but solely by what he does not
so consume. If instead of laying out
100Z. in wine or silk, I expend it in
wages, the demand for commodities is
precisely equal in both cases : in the
one, it is a demand i'or 100Z. worth of
wine or silk, in the other, for the same
value of bread, beer, labourers' clothing,
fuel, and indulgences ; but the la-
bourers of the community have in the
latter case the value of 100Z. more of
the produce of the community dis-
tributed among them. I have con-
sumed that much less, and made over
my consuming power to them. If it
were not so, my having consumed less
would not leave more to be consumed
by others ; which is a manifest contra-
diction. When less is not produced,
what one person forbears to consume is
necessarily added to the share of those
to whom he transfers his power of pur-
chase. In the case supposed I do not
necessarily consume less ultimately,
since the labourers whom I pay may
build a house for me, or make some-
thing else for my future consumption.
But I have at all events postponed my
consumption, and have turned over
part of my share of the present produce
of the community to the labourers. If
after an interval I am indemnified, it
is not from the existing produce, but
from a subsequent addition made to it.
I have therefore left more of the exist-
ing produce to be consumed by others ;
and have put into the possession of
labourers the power to consume it.

There cannot be a better reductio ad
aljsurdumot the opposite doctrine than
that afforded by the Poor Law. If it
be equally for the benefit of the labour-
ing classes whether I consume my
means in the form of things purchased
for my own use, or set aside a portion
in the shape of wages or alms for their
direct consumption, on what ground
can the policy be justified of taking my
money from me to support paupers ?
since my unproductive expenditure
would have equally benefited them,
while I should have enjoyed it too. If
society can both eat its cake and have
it, why should it not be allowed the
doable indulgence ? But common sense

tells every one in his own case (though
he does uot see it on the larger scale)
that the poor-rate which he pays is
really subtracted from his own con-
sumption ; and that no shifting of pay-
ment backwards and forwards will
enable two persons to eat the same
food. If he had not been required to
pay the rate, and had consequently
laid out the amount on himself, the
poor would have had as much less for
their share of the total produce of the
country, as he himself would have con-
sumed more.*

* The following case, which presents the
argument in a somewhat different shape,
may serve for still further illustration,

Suppose that a rich individual, A, expends
a certain amount daily in wages or alms,
which, as soon as received, is expended and
consumed, in the form of coarse food, by the
receivers. A dies, leaving his property to B,
who discontinues this item of expenditure,
and expends in lieu of it the same sum each
day in delicacies for his own table. I have
chosen this supposition, in order that the
two cases may be similar in all their cir-
cumstance', except that which is the subject
of comparison. In order not to obscure the
essential facts of the case by ?xhibiting them
through the hazy medium of a money trans-
action, let us further suppose that A, anc1
B after him, are landlords of the estate on
which both the food consumed by the re-
cipients of A's disBursemente, and the arti-
cles of luxury supplied for B's table, are
produced ; and that their rent is paid to
them in kind, they giving previous notice
what description of produce they shall re-
quire. The question is, whether B's expen-
diture gives as much employment or as much
food to his poorer neighbours as A's gave.

From the case as stated, it seems to follow
that while A lived, that portion of his income
which he expended in wages or alms, would
be drawn by him from the farm in the shape
of food for labourers, and would be used a--
such ; while B, who came after him, wotiKl
require, instead of this, an equivalent value-
in expensive articles of food, to be consumed
in his own household : that the farmer,
therefore, would, under B's regime, produce-
that much less of ordinary food, and more of
expensive delicacies, for each day of the
year, than was produced in A's time, and
that thei» would be that amount less of
food shared, throughout the year, among the
labouring and poorer classes. This is what
would be conformable to the principles laid
down in the text. Those who think differ-
ently, must, on the other hand, suppose that
the luxuries required by B would be pro-
duced, not instead of, but in addition to, the
food previously supplied to A's labourers, and
that the aggregate produce of the country
would be increased in amount. But when it
is asked, how this double production woult1

M

It appears, then, that a demand de-
layed until the work is completed, and
furnishing no advances, but only re-
imbursing advances made by others,
contributes nothing to the demand for
labour ; and that what is so expended,
is, in all its effects, so far as regards
the employment of the labouring class,
a mere nullity ; it does not and cannot
create any employment except at the
expense of other employment which
existed before.

I>ut though a demand for velvet does
nothing more in regard to the employ-
ment tor labour and capital, than to
determine so much of the employment
which .already existed, into that par-
ticular channel instead of any other ;
still, to the producers already engaged

be effected— how the farmer, whose capital
and labour were already fully employed,
would be enabled to supply the new wants of
]{, without producing less of other things;
the only mode which presents itself is, that
he should Jirst produce the food, and then,
giving that food to the labourers whom A
formerly fed, should by means of their
labour, produce the luxuries wanted by B.
This, accordingly, when the objectors are
hard pressed, appears to be really their
meaning. But it is an obvious answer, that
on this supposition, B must wait for his
luxuries till the second year, and they are
wanted this year. By the original hypo-
thesis, he consumes his luxurious dinner day
by da.y,paripiifsit. with the rations of bread
and potatoes formerly served cut by A to his
labourers. There is not time to feed the
labourers first, and supply B afterwards:
he and they cannot both have their wants
ministered to : he can only satisfy his own
demand for commodities, by leaving as much
of theirs, as was formerly supplied from that
I'und, unsatisfied.

It may, indeed, be rejoined by an objector,
that, since on the present showing, time is
the only thing wanting to render the expen-
diture of B consistent with as large an em-
ployment to labour as was given by A, why
may we not suppose that B postpones his in-
creased consumption of personal luxuries
until they can be furnished to him by the
labour of the persons whom A employed ? In
that case, it may be said, he would employ
and feed as much labour as his predecessors.
Undoubtedly he would ; but why ? Because
his income would be expended in exactly
the same manner as his predecessor's; it
would be expended in wage?. A reserved
from his personal consumption a fund which
he paid away directly tc labourers; B does
I he same, only instead of paying it to them
himself, he leaves it in the hands of the
farmer, who pays it to them for him. On
this supposition, B, in the first year, neither
expending the amount, as far as lie is per-

BOOK I. CHAPTER V. § 9.

in the velvet manufacture, and not in-
tending to quit it, tlii.s is of tlie utmost
importance. To them, a falling off in
the demand is a real loss, and one
which, even if none of their goods
finally perish unsold, may mount to
any height, up to that which would
make them choose, as the smaller evil,
to retire from the business. On the
contrary, an increased demand enables
them to extend their transactions — to
make a profit on a larger capital, if
they have it, or can borrow it ; and,
turning over their capital more rapidly,
they will employ their labourers moro
constantly, or employ a greater num-
ber than before. So that an increased
demand for a commodity does really,
in the particular department, often

serially concerned, in A's manner nor in his
own, really saves that portion of his income,
and lends it to the farmer. And if, in sub-
sequent years, confining himself within the
year's income, he leaves the farmer in arrears
to that amount, it becomes an additional
capital, with which the farmer may per-
manently employ and feed A's labourers.
Nobody pretends that such a change as this,
a change from spending an income in wages
of labour, to saving it for investment, de-
prives any labourers of employment. What
is affirmed to have that effect is, the change
from hiring labourers to buying commodities
for personal use ; as represented by our
original hypothesis.

In our illustration we have supposed no
buying and selling, or use of money. But
the case as we have put it, corresponds with
actual fact in everything except the details
of the mechanism. The whole of any
country is virtually a single farm and manu-
factory, from which every member of the
community draws his-appointed share of the
produce, having a certain number of coun-
ters, called pounds sterling, put into his
hands, which, at his convenience, he brings
back and exchanges for such goods as he pre-
fers, up to the limit of the amount. He does
not, as in our imaginary case, give notice
beforehand what things he shall require;
but the dealers and producers are quite capa-
ble of finding it cut by observation, and any
change in the demand is promptly followed
by an adaptation of the supply to it. If a
consumer changes from paying away a part
of his income in wages, to spending it that
same day (not some subsequent and distant
day) in things for his own consumption, and
perseveres in this altered practice until pro-
duction has had time to adapt itself to the
alteration af demand, there will from that
time be less food and other articles for the
use of labourers, produced in the country, by
exactly the value of the extra luxuries now
demanded ; and the labourers, us a class,
will be worse off by the pr >cise amount.

FUNDAMENTAL PROPOSITIONS ON CAPITAL.

56

cause a greater employment to be
given to labour by the same capital.
The mistake lies in not perceiving that
in the cases supposed, this advantage
is given to labour and capital in one
department, only by being withdrawn
from another; and that when the
change has produced its natural effect
of attracting into the employment ad-
ditional capital proportional to the in-
creased demand, the advantage itself
ceases.

The grounds of a proposition, when
well understood, usually give a tolera-
ble indication of the limitations of it.
The general principle, now stated, is,
that demand for commodities deter-
mines merely the direction of labour,
and the kind of wealth produced, but
not the quantity or efficiency of the
labour, or the aggregate of wealth.
]>ut to this there are two exceptions.
First ; when labour is supported, but
not fully occupied, a new demand for
something which it can produce, may
stimulate the labour thus supported to
increased exertions, of which the re-
sult may be an increase of wealth, to
the advantage of the labourers them-
selves and of others. Work which can
be done in the spare hours of persons
subsisted from some other source, can
(as before remarked) be undertaken
without withdrawing capital from other
occupations, beyond the amount (often
very small) required to cover the ex-
pense of tools and materials ; and even
this will often be provided by savings
made expressly for the purpose. The
reason of our theorem thus failing, the
theorem itself fails, and employment
of this kind may, by the springing up
of a demand for the commodity, be
called into existence without depriving
labour of an equivalent amount of em-
ployment in any other quarter. The
demand does not, even in this case,
operate on labour any otherwise than
through the medium of an existing
capital ; but it affords an inducement
which causes that capital to set in
motion a greater amount of labour than
it did before.

The second exception, of which I
shall speak at length in a subsequent
chapter, consists in the known <

of an extension of the market for a com-
mo.lity, in rendering possible an in-
creased development of the division of
labour, and hence a more effective dis-
tribution of the productive forces of so-
ciety. This, like the former, is more
an exception in appearance, than it is
in reality. It is not the money paid by
the purchaser which remunerates the
labour ; it is the capital of the pro-
ducer : the demand only determines in
what manner that capital shall be em-
ployed, and what kind of labour it shal1
remunerate ; but if it determines that
the commodity shall be produced on a
large scale, it enables the same capital
to produce more of the commodity, and
may, by an indirect effect in causing
an increase of capital, produce an even-
tual increase of the remuneration of the
labourer.

The demand for commodities is a
consideration of importance rather in
the theory of exchange, than in that
of production. Looking at things in
the aggregate, and permanently, the
remuneration of the producer is derived
from the productive power of his own
capital. The sale of the produce for
money, and the subsequent expenditure
of the money in buying other commo-
dities, are a mere exchange of equiva-
lent values, for mutual accommodation.
It is true that, the division of employ-
ments being one of the principal means
of increasing the productive power of
labour, the power of exchanging gives
rise to a great increase of the produce ;
but even then it is production, not ex-
change, which remunerates labour and
capital. We cannot too strictly repre-
sent to ourselves the operation of ex-
change, whether conducted by barter
or through the medium of money, as
the mere mechanism by which each

Eerson transforms the remuneration of
is labour or of his capital into the par-
ticular shape in which it is most conve-
nient to him to possess it; but in no wise
the source of the remuneration itself.

§ 10. The preceding principles de-
monstrate the fallacy of many popular
arguments and doctrines, which are
continually reproducing themselves in
new iunus. Fur example, it fois been

BOOK I. CHAPTER V. § 10.

contended, and by some from •whom
better things might have been ex-
pected, that the argument for the in-
come-tax, grounded on its falling on
the higher and middle classes only,
and sparing the poor, is an error ; some
have gone so far as to say, an impos-
ture ; because in taking from the rich
what they would have expended
among the poor, the tax injures the
poor as much as if it had been directly
levied from them. Of this doctrine
we now know what to think. So far,
indeed, as what is taken from the rich
in taxes, would, if not so taken, have
been saved and converted into capital,
or even expended in the maintenance
and wages of servants or of any class
of unproductive labourers, to that ex-
tent the demand for labour is no doubt
diminished, and the poor injuriously
affected, by the tax on the rich ; and
as these effects are almost always pro-
duced in a greater or less degree, it is
impossible BO to tax the rich as that
no portion whatever of the tax can fall
on the poor. But even here the ques-
tion arises, whether the government,
after receiving the amount, will not
lay out as great a portion of it in the
direct purchase of labour, as the tax-
payers would have done. In regard to
all that portion of the tax, which, if
not paid to the government, would
have been consumed in the form of
commodities (or even expended in ser-
vices if the payment has been advanced
by a capitalist), this, according to (he
principles we have investigated, falls
definitively on the rich, and not at all
on the poor. There is exactly the same
demand for labour, so far as this por-
tion is concerned, after the tax, as
before it. The capital which hitherto
employed the labourers of the country,
remains, and is still capable of employ-
ing the same number. There is the
same amount of produce paid in wages,
or allotted to defray the feeding and
clothing of labourers.

If those against whom I am now
contending were in the right, it would
be impossible to tax anybody except
the poor. If it is taxing the labourers,
to tax what is laid out in the produce
of labour, the labouring classes pay all

the taxes. The same argument, how-
ever, equally proves, that it is impos-
sible to tax the labourers at all ; since
the tax, being laid out either in labour
or in commodities, comes all back to
them ; so that taxation has the
singular property of falling on nobody.
On the same showing, it would do the
labourers no harm to take from them
all they have, and distribute it among
the other members of the community.
It would all be " spent among them,"
which on this theory comes to the
same thing. The error is produced by
not looking directly at the realities of
the phenomena, but attending only to
the outward mechanism of paying and
spending. If we look at the effects
produced not on the money, which
merely changes hands, but on the com-
modities which are used and con-
sumed, we see that, in consequence of
the income-tax, the classes who pay it
do really diminish their consumption.
Exactly so far as they do this, they are
the persons on whom the tax falls. It
is defrayed out of what they would
otherwise have used and enjoyed. So
far, on the other hand, as the burthen
falls, not on what they would have
consumed, but on what they would
have saved to maintain production, or
spent in maintaining or paying unpro-
ductive labourers, to that extent the
tax forms a deduction from what would
have been used and enjoyed by the
labouring classes. But if the govern-
ment, as is probably the fact, expends
fully as much of the amount as the
tax-payers would have done in the
direct employment of labour, as in
hiring sailors, soldiers, and policemen,
or in paying off debt, by which last
operation it even increases capital;
the labouring classes not only do nol
lose any employment by the tax, but
may possibly gain some, and the whole
of the tax falls exclusively where it
was intended.

All that portion of the produce of
the country which any one, not a
labourer, actually and literally con-
sumes for his own use, does not contri-
bute in the smallest degree to the
maintenance of labour. No one is
benefited by mere consumption, except

CIRCULATING AND FIXED CAPITAL.

57

the person wbo consumes. And a per-
son cannot both consume his income
himself, anil make it over to be con-
sumed by others. Taking away a cer-
tain portion by taxation cannot deprive
both him and them of it, but only him

or them. To know which is the suf-
ferer, we must understand whose con-
sumption will have to be retrenched in
consequence : this, whoever it be, is
the person on whom the tax really
falls.

CHAPTER VI.

ON CIRCULATING AND FIXED CAPITAL.

§ 1. To complete our explanations
on the subject of capital, it is necessary
to say something of the two species
into which it is usually divided. The
distinction is very obvious, and though
not named, has been often adverted to,
in the two preceding chapters : but it is
now proper to define it accurately, and
to point out a few of its consequences.

Of the capital engaged in the pro-
duction of any commodity, there is a
part which, after being once used,
•xists no longer as capital ; is no
longer capable of rendering service to
production, or at least not the same ser-
vice, nor to the same sort of produc-
tion. Such, for example, is the portion
of capital which consists of materials.
The tallow and alkali of which soap is
made, once used in the manufacture,
are destroyed as alkali and tallow ; and
cannot be employed any further in the
soap manufacture, though in their al-
tered condition, as soap, they are
capable of being used as a material or
an instrument in other branches of
manufacture. In the same division
must be placed the portion of capital
which is paid as the wages, or con-
sumed as the subsistence, of labourers.
That part of the capital of a cotton-
spinner which he pays away to his
workpeople, once so paid, exists no
longer as his capital, or as a cotton-
spinner's capital : such portion of it
as the workmen consume, no longer
exists as capital at all : even if they
save any part, it may now be more
properly regarded as a fresh capital,
the result of a second act of accumula-
tion. Capital which in this manner

fulfils the whole of its office in the pro-
duction in which it is engaged, by a
single use, is called Circulating Capital.
The term, which is not very appro-
priate, is derived from the circum-
stance, that this portion of capital re-
quires to be constantly renewed by the
sale of the finished product, and when
renewed is perpetually parted with in
buying materials and paying wages ;
so that it does its work, not by being
kept, but by changing hands.

Another large portion of capital,
however, consists in instruments of pro-
duction, of a more or less permanent
character : which produce their effect
not by being parted with, but by being
kept ; and the efficacy of which is not
exhausted by a single use. To this
class belong buildings, machinery, and
all or most things known by the name
of implements or tools. The durability
of some of these is considerable, and
their function as productive instruments
is prolonged through many repetitions
of the productive operation. In this
class must likewise be included capital
sunk (as the expression is) in permanent
improvements of land. So also the
capital expended once for all, in the
commencement of an undertaking, to
prepare the way for subsequent opera-
tions : the expense of opening a mine,
for example : of cutting canals, of
making roads or docks. Other ex-
amples might be added, but these are
sufficient. Capital which exists in any
of these durable shapes, and the return
to which is spread over a period of
corresponding duration, is called Fixed
Capital.

BOOK I. CHAPTER VI. § 2.

Of fixed capitals, some kinds require
to Le occasionally or periodically re-
newed. Such are all implements and
buildings : they require, at intervals,
partial renewal by means of repairs,
and are at last entirely worn out, and
cannot be of any further service as
buildings and implements, but fall back
into the class of materials. In other
cases, the capital docs not, unless as a
con.sequence of some unusual accident,
require entire renewal : but there is
always some outlay needed, either
regularly or at least occasionally, to
keep it up. A dock or a canal, once
made, does not require, like a machine,
to be made again, unless purposely
destroyed, or unless an earthquake or
some similar catastrophe has filled it
up : but regular and frequent outlays
are necessary to keep it in repair.
The cost of opening a mine needs not
be incurred a second time ; but unless
some one goes to the expense of keeping
the mine clear of water, it is soon ren-
dered useless. The most permanent
of all kinds of fixed capital is that em-
ployed in giving increased productive-
ness to a natural agent, such as land.
The draining of marshy or inundated
tracts like the Bedford Level, the
reclaiming of land from the sea, or its
protection by embankments, are im-
provements calculated for perpetuity;
but drains and dykes require frequent
repair. The same character of perpe-
tuity belongs to the improvement of
land by subsoil draining, which adds
so much to the productiveness of the
clay soils ; or by permanent manures,
tha't is, by the addition to the soil, not
of the substances which enter into the
composition of vegetables, and which
are therefore consumed by vegetation,
but of those -which merely alter the
relation of the soil to air and water ;
as sand and lime on the heavy soils,
clay and marl on the light. Even such
works, however, require some, though
it may be very little, occasional out.ay
to maintain their lull effect.

These improvements, however, by

the very fact of their deserving that

title, produce an increase of return,

which, alter defraying all expenditure

1"'^ them up, still

leaves a surplus. This surplus formn
the return to the capital sunk in the
first instance, and that return does not,
as in the case of machinery, terminate
by the wearing out of the machine, but
continues for ever. The land thus in-
creased in productiveness, bears a
value in the market, proportional to
the increase : and hence it is usual to
consider the capital which was in-
vested, or sunk, in making the improve-
ment, as still existing in the increased
value of the land. There must be no
mistake, however. The capital, like
all other capital, has been consumed.
It was consumed in maintaining the
labourers who executed the improve-
ment, and in the wear and tear of the
tools by which they were assisted.
But it was consumed productively, and
lias left a permanent result in the im-
proved productiveness of an appropri-
ated natural agent, the land. Wo
may call the increased produce the
joint result of the laud and of a capital
fixed in the land. But as the capital,
having in reality been consumed, can-
not be withdrawn, its productiveness
is thenceforth indissolubly blended
with that arising from the original
qualities of the soil ; and the remune-
ration for the use of it thenceforth de-
pends, not upon the laws which govern
the returns to labour and capital, but
upon those which govern the recom-
pense for natural agents. What tlie»e
are, we shall see hereafter.*

§ 2. There is a great difference be-
tween the effects of circulating and
those of fixed capital, on the amount of
the gross produce of the country. Cir-
culating capital being destroyed as
such, or at any rate finally lost to the
owner, by a single use ; and the pro-
duct resulting from that one use being
the only source from which the ownjr
can replace the capital, or obtain any
remuneration for its productive em-
ployment ; the product must of course
be sufficient for those purposes, or in
other words, the result of a single use
must be a reproduction equal to tho
whole amount of the circulating capi-
tal used, and a profit besides. This,

* Infra, book ii, chap. xvi. On I(ent.

CIRCULATING AND FIXED CAPITAL.

59

however, is by no means necessary in
the case of fixed capital. Since ma-
iliiiK i-y, for example, is not wholly
cosi-umed by one use, it is not neces-
sary that it should be wholly n placed
t'n in the product of that use. The
machine answers the purpose of its
if it brings in, during each in-
terval of time, enough to cover the ex-
pense of repairs, and the deterioration
in value which the machine has sus-
tained during the same time, with a
surplus sufficient to yield the ordi-
iary profit on the entire value of the
machine.

From this it follows that all increase
of fixed capital, when taking place at
the expense of circulating, must be, at
least temporarily, prejudicial to the in-
terests of the labourers. This is true,
not of machinery alone, but of all im-
provements by which capital is sunk ;
that is, rendered permanently incapa-
ble of being applied to the maintenance
Mild remuneration of labour. Suppose
that a person farms his own land, with
a capital of two thousand quarters of
corn, employed in maintaining la-
bourers during one year (for simplicity
we omit the consideration of seed and
tools), whose labour produces him an-
nually two thousand four hundred
quarters, being a profit of twenty per
cent. This profit we shall suppose
that he annually consumes, carrying
on his operations from year to year on
the original capital of two thousand
quarters. Let us now suppose that by
tne expenditure of half his capital he
effects a permanent improvement of his
land, which is executed by half his
labourers, and occupies them for a
year, after which he will only require,
for the effectual cultivation of his land,
half as many labourers as before. The
remainder of his capital he employs as
usual. In the first year there is no
difference in the condition of the la-
bourers, except that part of them have
received the same pay for an operation
on the land, which they previously
obtained for ploughing, sowing, and
reaping. At the end of the year, how-
ever, the improver has not, as before,
a capital of two thousand quarters of
corn. Only one thousand quarters of

his capital have been reproduced in
tho usual way: he has now (inly
those thousand quarters and his im-
provements, lie will employ, in the
next and in each following year, only
half the number of labourers, and will
divide among them only half the
former quantity of subsistence. The
loss will soon be made up to them if
the improved land, with the diminished
quantity of labour, produces two
thousand four hundred quarters as be-
fore, because so enormous an accession
of gain will probably induce the im-
prover to save a part, add it to his
capital, and become a larger employer
of labour. But it is conceivable that
this may not be the case ; for (sup-
posing, as we may do, that the im-
provement will last indefinitely, with-
out any outlay worth mentioning to
keep it up) the improver will havo
gained largely by his improvement if
the land now yields, not two thousand
four hundred, but one thousand five
hundred quarters ; since this will re-
place the one thousand quarters forming
his present circulating capital, with a
profit of twenty-five per cent (instead
of twenty as before) on the whole capital,
fixed and circulating together. Tho
improvement, therefore, may be a very
profitable one to iim, and yet very
injurious to the labourers.

The supposition, in the terms in
which it has been stated, is purely
ideal; or at most applicable only to
such a case as that of the conversion of
arable land into pasture, which, though
formerly a frequent practice, is re-
garded by modern agriculturists as the
reverse of an improvement. The cleap-
ing away of the small farmers in the
north of Scotland, within the present
century, was however a case of it ; and
Ireland, since the potato famine and
the repeal of the corn-laws, is another.
The remarkable decrease which has
lately attracted notice in the gross
produce of Irish agriculture, is, to all
appearance, partly attributable to the
diversion of land from maintaining
human labourers to feeding cattle : and
it could not have taken place without
the removal of a large part of the Irish
population by emigration or death-

60 BOOK I. CHAPTER VI.

We have thus two recent instances in
which what was regarded as an agri-
cultural improvement, has diminished
the power of the country to support its
population. The effect, however, of
all the improvements due to modern
science is to increase, or at all events,
not to diminish the gross produce. But
this does not affect the substance of
the argument. Suppose that the im-
provement does not operate in the
manner supposed — does not enable a
part of the labour previously employed
on the land to be dispensed' with — but
only enables the same labour to raise
a greater produce. Suppose, too, that
the greater produce, which by means of
the improvement can be raised from
the soil with the same labour, is all
wanted, and will find purchasers. The
improver will in that case require the
same number of labourers as before, at
the same wages. But where will he
find the means of paying them ? He

has no longer his original capital of
two thousand quarters disposable for
the purpose. One thousand of them
are lost and gone — consumed in making
the improvement. If he is to employ
as many labourers as before, and pay
them as highly, he must borrow, or
obtain from some other source, a thou-
sand quarters to supply the deficit.
But these thousand quarters already
maintained, or were destined to main-
tain, an equivalent quantity of labour.
They are not a fresh creation ; their
destination is only changed 1'rom one
productive employment to another;
and though the agriculturist has made
up the deficiency in his own circulating
capital, the breach in the circulating
capital of the community remains un-
repaired.

The argument relied on by most of
those who contend that machinery can
never be injurious to the labouring
class, is, that by cheapening produc-
tion it creates such an increased de-
mand for the commodity, as enables,
ore long, a greater number of persons
than ever to find employment in pro-
ducing it. This argument does not
seem to me to have the weight com-
monly ascribed to it. The fact, though
loo broadly stated, is, no doubt, often

§ 2.

true. The copyists who were thrown
out of employment by the invention
of printing, were doubtless soon out-
numbered by the compositors and
pressmen who took their place : and
the number of labouring persons now
occupied in the cotton manufacture is
many times greater than were so occu-
pied previously to the inventions of
Hargreaves and Arkwright, which
shows that besides the enormous fixed
capital now embarked in the manufac-
ture, it also employs a far larger circu-
lating capital than at any former time.
But if this capital was drawn from
other employments ; if the funds which
took the place of the capital sunk in
costly machinery, were supplied not by
any additional saving consequent on
the improvements, but by drafts on the
general capital of the community;
what better are the labouring classes
for the mere transfer? In what manner
is the loss they sustained by the con-

version of circulating into fixed capital,
made up to them by a mere shifting of
part of the remainder of the circulating
capital from its old employments to a
new one ?

All attempts to make out that the
labouring classes as a collective body
cannot suffer temporarily by the intro-
duction of machinery, or by the sinking
of capital in permanent improvements,
are, I conceive, necessarily fallacious.
That they would suffer in the par-
ticular department of industry to which
the change applies, is generally ad-
mitted, and obvious to common sense ;
but it is often said, that though em-
ployment is withdrawn from labour in
one department, an exactly equivalent
employment is opened for it in others,
because what the consumers save in
the increased cheapness of one par-
ticular article enables them to augment
their consumption of others, therein'
increasing the demand for other kin-Is
of labour. This is plausible, but, as
was shown in the last chapter, involves
a fallacy ; demand for commodities
being a totally different thing . from
demand for labour. It is true, the con-
sumers have now additional means of
buying other things; but this will not
create the other things, unleis there is

CIRCULATING AND FIXED CAPITAL.

61

capital to produce them, and the im-
provement has not set at liberty any
capital, if even it has not nbsorl.ed
some from other employments. The
supposed increase of production and of
employment for labour in other depart-
ments therefore will not take place ;
and the increased demand for com-
modities by some consumers, will be
balanced by a cessation of demand on
the part of others, namely, the la-
bourers who were superseded by the
improvement, and who will now be
maintained, if at all, by sharing, either
in the way of competition or of charity,
in what was previously consumed by j
other people.

§ 3. Nevertheless, I do not believe \
that as things are actually transacted,
improvements in production are often,
if ever, injurious, even temporarily, to
the labouring classes in the aggregate.
They would be so if they took place
suddenly to a. great amount, because
much of the capital sunk must ne-
cessarily in that case be provided from
funds already employed as circulating
capital. But improvements are always
introduced very gradually, and are
seldom or never made by withdrawing
circulating capital from actual produc-
tion, but are made by the employment
of the annual increase. There are
few, if any, examples of a great in-
crease of fixed capital, at a time and
place where circulating capital was
not rapidly increasing likewise. It is
not in poor or backward countries that
great and costly improvements in pro-
duction are made. To sink capital in
land for a permanent return — to intro-
duce expensive machinery — are acts
involving immediate sacrifice for dis-
tant objects ; and indicate, in the first
place, tolerably complete security of
property; in the second, considerable
activity of industrial enterprise ; and
in the third, a high standard of what
has been called the " effective desire
»f accumulation :" which three things
are the elements of a society rapidly
progressive in its amount of capital.
Although, therefore, the labouring
classes must suffer, not only if the in-
crease of fixed capital takes place at

the expense of circulating, but even if
it is so large and rapid as to retard
that ordinary increase to which the
growth of population has habitually
adapted itself; yet, in point of fact,
this is very unlikely to happen, since
there is probably no country whose
fixed capital increases in a ratio more
than proportional to its circulating.
If the whole of the railways which,
during the speculative madness of
1845, obtained the sanction of Parlia-
ment, had been constructed in the
times fixed for the completion of each,
this improbable contingency would,
most likely, have been realized; but
this very case has afforded a striking
example of the difficulties which op-
pose the diversion into new channels of
any considerable portion of the capital
that supplies the old : difficulties
generally much more than sufficient to
prevent enterprises that involve the
sinking of capital, from extending
themselves with such rapidity as to
impair the sources of the existing em-
ployment for labour.

To these considerations must be
added, that even if improvements did
for a time decrease the aggregate pro-
duce and the circulating capital of the
community, they would not the less
tend in the long run to augment both.
They increase the return to capital ;
and of this increase the benefit must
necessarily accrue either to the capi-
talist in greater profits, or to the cus-
tomer in diminished prices ; affording,
in either case, an augmented fund from
which accumulation may be made,
while enlarged profits also hold out an
increased inducement to accumulation.
In the case we before selected, in which
the immediate result of the improve-
ment was to diminish the gross pro-
duce from two thousand four hundred
quarters to one thousand five hundred,
yet the profit of the capitalist being
now five hundred quarters instead of
four hundred, the extra one hundred
quarters, if regularly saved, would in
a few years icplace the one thousand
quarters subtracted from his circulating
capital. Now the extension of business
which almost certainly follows in any
department in which an improvement

62

BOOK I. CHAPTER VI. § 3.

lias been made, affords a strong in-
ducement to those engaged in it to add
to their capital ; and hence, at the slow
pace at which improvements are usually
introduced, a great part of the capital
which the improvement ultimately ab-
sorbs, is drawn from the increased
profits and increased savings which it
has itself called forth.

This tendency of improvements in
production to cause increased accumu-
lation, and thereby ultimately to in-
crease the gross produce, even if tem-
porarily diminishing it, will assume a
still more decided character if it should
appear that there are assignable limits
both to the accumulation of capital,
and to the increase of production from
the land, which limits once attained,
all further increase of produce must
stop ; but that improvements in pro-
duction, whatever may be their other
effects, tend to throw one or both of
these limits farther off. Now, these
are truths which will appear in the
clearest light in a subsequent stage of
our investigation. It will be seen, that
the quantity of capital which will, or
even which can, be accumulated in
any country, and the amount of gross
produce which will, or even which can,
be raised, bear a proportion to the state
of the arts of production there exist-
ing ; and that every improvement,
even if for the time it diminish the
circulating capital and the gross pro-
duce, ultimately makes room for a
larger amount of both, than could pos-
eibly have existed otherwise. It is
this which is the conclusive answer to
the objections against machinery ; and
the proof thence arising of the ulti-
mate benefit to labourers of mechanical
inventions even in the existing state of
society, will hereafter be seen to be
conclusive.* But this does not dis-
charge governments from the obligation
of alleviating, and if possible prevent-
ing, the evils of which this source of
ultimate benefit is or may be produc-
tive to an existing generation. If the
sinking or fixing of capital in ma-
chinery or useful works, were ever to
proceed at such a pace as to impair
materially the funds for the mainte-
* Infra, book iv, chap. T.

nance of labour, it would be incumbent
on legislators to take measures for mo-
derating its rapidity : and since im-
provements which do not diminish
employment on the whole, almost al-
ways throw some particular class of
labourers out of it, there cannot lie a
more legitimate object of the legisla-
tor's care than the interests of those
who are thus sacrificed to the gains of
their fellow-citizens and of posterity.

To return to the theoretical distinc-
tion between fixed and circulating
capital. Since all wealth which is
destined to be employed for reproduc-
tion comes within the designation of
capital, there are parts of capital which
do not agree with the definition of
either species of it ; for instance, the
stock of finished goods which a manu-
facturer or dealer at any time possesses
unsold in his warehouses. But this,
though capital as to its destination, is
not yet capital in actual exercise : it is
not engaged in production, but has
first to be sold or exchanged, that is,
converted into an equivalent value of
some other commodities ; and there-
fore is not yet either fixed or circulating
capital ; but will become either one or
the other, or be eventually divided
between them. With the proceeds of
his finished goods, a manufacturer will
partly pay his work-people, partly re-
plenish his stock of the materials of
his manufacture, and partly provide
new buildings and machinery, or repair
the old ; but how much will be devoted
to one purpose, and how much to
another, depends on the nature of the
manufacture, and the requirements of
the particular moment.

It should be observed further, that
the portion of capital consumed in tha
form of seed or material, though, un-
like fixed capital, it requires to be at
once replaced from the gross produce,
stands yet in the same relation to the
employment of labour as fixed capital
does. What is expended in materials
is as much withdrawn from the main-
tenance and remuneration of labourers,
as what is fixed in machinery ; and if
capital now expended in wages wero
diverted to the providing of materials,
the effect on the labourers would be a*

DEGREES OF PRODUCTIVENESS.

63

prejudicial as if it were converted into
fixed capital. This, however, is a kind
of change which never takes place.
The tendency of improvements in pro-
duction is always to economize, never

to increase, the expenditure of seed or
material for a given produce ; and t'.y
interest of the labourers has no detri-
ment to apprehend from this source.

CHAPTER VII.

U.\ WHAT DEPENDS THE DEGREE OF PRODUCTIVENESS OF PRODUCTIVE A6EXTS

§ 1 . WE have concluded our general i
survey of the requisites of production.
\Ve have found that they may be reduced
to three : labour, capital, and the mate-
rials and motive forces afforded by
nature. Of these, labour and the raw
material of the globe are primary and
indispensable. Natural motive powers
may be called in to the assistance of
labour, and are a help, but not an es-
sential, of production. The remaining
requisite, capital, is itself the product
of labour: its instrumentality in pro-
duction is therefore, in reality, that of
labour in an indirect shape. It does
not the less require to be specilk-d
separately. A previous application of
labour to produce the capital required
for consumption during the work, is no
less essential than the application of
labour to the work itself. Of capital,
again, one, and by far the largest, por-
tion, conduces to production only by
sustaining in existence the labour which
produces : the remainder, namely the
instruments and materials, contribute
to it directly, in the same manner with
natural agents, and the materials sup-
plied by nature.

We now advance to the second great
question in political economy ; on what
the degree of productiveness of these
agents depends. For it is evident that
their productive efficacy varies greatly
at various times and places. With the
same population and extent of territory,
some countries have a much larger
amount of production than others, and
the same country at one time a greater
amount than itself at another. Com-
pare England either with a similar
extent of territory in Russia, or with

an equal population of Russians. Com-
pare England now with England in
the Middle Ages ; Sicily, Northern Af-
rica, or Syria at present, with the same
countries at the time of their greatest
prosperity, before the Roman conquest.
Some of the causes which contribute
to this difference of productiveness are
obvious ; others not so much so. We
proceed to specify several of them.

§ 2. The most evident cause of
superior productiveness is what are
called natural advantages. These are
various. Fertility of soil is one of the
principal. In this there are great
varieties, from the deserts of Arabia
to the alluvial plains of the Ganges,
the Niger, and the Mississippi. A
favourable climate is even more im-
portant than a rich soil. There are
countries capable of being inhabited,
but too cold to be compatible with
agriculture. Their inhabitants cannot
pass beyond the nomadic state ; they
must live, like the Laplanders, by the
domestication of the rein-deer, if not
by hunting or fishing, like the miser-
able Esquimaux. There are countries
where oats will ripen, but not wheat,
such as the North of Scotland ; others
where wheat can be grown, but from
excess of moisture and want of sun-
shine, affords but a precarious crop ;
as in parts of Ireland. With each
advance towards the south, or, in tho
European temperate region, towards
the east, some new branch of agricul-
ture becomes first possible, then advan-
tageous ; the vine, maize, figs, olives,
silk, rice, dates, successively present
themselves, until we come to the

sugar, coffee, cotton, spices, &c. of
climates which also afford, of the more
common agricultural products, and
with only a slight degree of cultiva-
tion, two or even three harvests in a
year. Nor is it in agriculture alone

that differences of climate are impor-
tant. Their influence is felt in many
other branches of production : in the
durability of all work which is exposed
to the air ; of buildings, for example.
If the- temples of Karnac and Luxor
had not been injured by men, they
might have subsisted in their original
perfection almost for ever, for the in-
scriptions on some of them, though
anterior to all authentic history, are
fresher than is in our climate an in-
scription fifty years old : while at St.
Petersburg, the most massive -works,
solidly executed in granite hardly a
generation ago, are already, as tra-
vellers tell us, almost in a state to
require reconstruction, from alternate
exposure to summer heat and intense
frost. The superiority of the woven
fabrics of Southern Europe over those
of England in the richness and clear-
ness of many of their colours, is
ascribed to the superior quality of the
atmosphere, for which neither the know-
ledge of chemists nor the skill of dyers
has been able to provide, in our hazy and
damp climate, a complete equivalent.

Another part of the influence of
climate consists in lessening the phy-
sical requirements of the producers.
In hot regions, mankind can exist in
comfort with less perfect housing, less
clothing ; fuel, that absolute necessary
of liie in cold climates, they can almost
dispense with, except for industrial
uses. They also require less aliment ;
as experience had proved, long before
theory had accounted for it by ascer-
taining that most of what we consume
as food is not required for the actual
nutrition of the organs, but for keeping
up the animal heat, and for supplying
the necessary stimulus to the vital
functions, which in hot climates is
almost sufficiently supplied by air and
sunshine. Much, therefore, of the
labour elsewhere expended to procure
the mere necessaries of life, not being
required, more remains disposable for

BOOK I. CHAPTER VII. f 2.

its higher uses and its enjoyments: if
the character of the inhabitants docs
not rather induce them to use up these
advantages in over-population, or in
the indulgence of repose.

Amons natural advantages, besides

soil and climate, must be mentioned i
abundance of mineral productions, in «
convenient situations, and capable of '
being worked with moderate labour.
Such are the coal-fields of threat
Britain, which do so much to compen-
sate its inhabitants for the disadvan-
tages of climate ; and the scarcely
inferior resource possessed by this
country and the United State.s, in a
copious supply of an easily reduced
iron ore, at no great depth below the
earth's surface, and in close proximity
to coal deposits available for working
it. In mountain and hill districts,
the abundance of natural water-power
makes considerable amends for the
usually inferior fertility of those re-
gions. But perhaps a greater advan- 1
tage than all these is a maritime
situation, especially when accompanied
with good natural harbours ; and, next
to it, great navigable rivers, These
advantages consist indeed wholly in
saving the cost of carriage. But fe^v
who have not considered the subject,
have any adequate notion how great
an extent of economical advantage
this comprises ; nor, without having
considered the influence exercised on
production by exchanges, and by what
is called the division of labour, can it
be fully estimated. So important is it,
that it often does more than counter-
balance sterility of soil, and almost
every other natural inferiority ; es-
pecially in that early stage of industry
in which labour and science have not
yet provided artificial means of com-
munication capable of rivalling the
natural. In the ancient world, and in
the middle ages, the most prosperous
communities were not those which
had the largest territory, or the most
fertile soil, but rather those which had
been forced by natural sterility to
make the utmost use of a convenient
maritime situation ; as Athens, Tyre,
Marseilles, Venice, the free sitiea on
the Baltic, awl the lik-j.

DEGilEES OF PRODUCTIVENESS

8 3. So much for natural advan-
the value of which, cateris
j"irilitts, is too obvious to be ever
underrated. But experience testifies
that natural advantages scarcely ever
do for a community, no more than
fortune and station do for an indivi-
dual, anything like what it lies in their
nature, or in their capacity, to do.
Neither now nor in former ages have
jhe nations possessing the best climate
and soil been either the richest or the
most powerful ; but (in so far as
regards the mass of the people) gene-
rally among the poorest, though, in
the midst of poverty, probably on the
•whole the most enjoying. Human b'fe
in those countries can be supported on
BO little, that the poor seldom suffer
from anxiety, and in climates in which
mere existence is a pleasure, the
luxury which they prefer is that of
repose. Energy, at the call of passion,
they possess in abundance, but not
that which is manifested in sustained
and persevering labour: and as they
seldom concern themselves enough
about remote objects to establish good
political institutions, the incentives to
industry are further weakened by im-
perfect protection of its fruits. Suc-
cessful production, like most other
kinds of success, depends more on the
qualities of the human agents, than on
the circumstances in which they work :
and it is difficulties, not facilities, that
nourish bodily and mental energy.
Accordingly the tribes of mankind
who have overrun and conquered
others, and compelled them to labour
for their benefit, have been mostly
reared amidst hardship. They have
either been bred in the forests of
northern climates, or the deficiency of
natural hardships has been supplied,
as among the Greeks and Romans, by
the artificial ones of a rigid military
discipline. From the time when the
circumstances of modern society per-
mitted the discontinuance of that
discipline, the South lias no longer
produced conquering nations ; military
vigour, as well as speculative thought
and industrial energy, have all had
their principal seats in the less
favoured North.
JMJ.

As the second, therefore, of the
causes of superior productiveness, we
may rank the greater energy of labour.
By this is not to be understood occa-
sional, but regular and habitual energy.
No one undergoes, without murmur-
ing, a greater amount of occasional
fatigue and hardship, or has his bodily
powers, and such faculties of mind aa
he possesses, kept longer at their
utmost stretch, than the NortU Ame-
rican Indian ; yet his indolence is
proverbial, whenever he has a brief
respite from the pressure of present
wants. Individuals, or nations, do
not differ so much in the efforts
they are able and willing to make
under strong immediate incentives,
as in their capacity of present ex-
ertion for a distant object, and in
the thoroughness of their application
to work on ordinary occasions. Some
amount of these qualities is a necessary
condition of any great improvement
among mankind. To civilize a savage,
he must be inspired with new wants
and desires, even if not of a very ele-
vated kind, provided that their gratifi-
cation can be a motive to steady and
regular bodily and mental exertion.
If the negroes of Jamaica and De-
merara, after their emancipation, had
contented themselves, as it was pre-
dicted they would do, with the neces-
saries of life, and abandoned all labour
beyond the little which in a tropical
climate, with a thin population and
abundance of tha richest land, is
sufficient to support existence, they
would have sunk into a condition more
barbarous, though less unhappy, than
their previous state of slavery. The
motive which was most relied on for
inducing them to work was their love
of fine clothes and personal ornaments.
No one will stand up for this taste as
worthy of being cultivated, and in
most societies its indulgence tends tc
impoverish rather than to enrich ; but
in the state of mind of the negroes it
might have been the only incentive
that could make them voluntarily
undergo systematic labour, and so ac-
quire or maintain habits of voluntary
industry which may be converted to
' uiore valuable ends, lii England, it is

BOOK I. CHAPTER VII. § 4.

not the desire of wealth that needs to
be taught, but the use of wealth, and
appreciation of the objects of desire
which wealth cannot purchase, or for
attaining which it is not required.
Every real improvement in the cha-
racter of the English, whether it
consist in giving them higher aspira-
tions, or only a juster estimate of the
value of their present objects of desire,
must necessarily moderate the ardour
of their devotion to the pursuit of
wealth. There is no need, however,
that it should diminish the strenuous
and business-like application to the
matter in hand, which is found in the
best English workmen, and is their
most valuable quality.

The desirable medium is one which
mankind have not often known how to
hit : when they labour, to do it with all
their might, and especially with all
their mind ; but to devote to labour,
for mere pecuniary gain, fewer hours
in the day, fewer days in the year, and
fewer years of life.

§ 4. The third element which de-
termines the productiveness of the
labour of a community, is the skill and
knowledge therein existing; whether
it be the skill and knowledge of the
labourers themselves, or of those who
direct their labour. No illustration is
requisite to show how the efficacy of
industry is promoted by the manual
dexterity of those who perform mere
routine processes ; by the intelligence
of those engaged in operations in
which the mind has a considerable
part ; and by the amount of knowledge
of natural powers and of the properties
of objects, which is turned to the pur-
poses of industry. That the produc-
tiveness of the labour of a people is
limited by their knowledge of the arts
t>f life, is self-evident; and that any
progress in those arts, any improved
application of the objects or powers of
nature to industrial uses, enables the
eame quantity and intensity of labour
to raise a greater produce.

One principal department of these
Improvements consists in the invention
and use of tools and machinery. The
manner in which these serve to in

crease production and to economize
labour, needs not be specially detailed
in a work like the present : it will be
found explained and exemplified, in a
manner at once scientific and popular,
in Mr. Babbage's well-known "Eco-
nomy of Machinery and Manufac-
tures." An entire chapter of Mr.
Babbage's book is composed of in-
stances of the efficacy of machinery iu
" exerting forces too grtat for human
power, and executing operations too
delicate for human touch." But to
find examples of work which could not
be performed at all by unassisted
labour, we need not go so far. With-
out pumps, worked by steam-engines or
otherwise, the water which collects in
mines could not in many situations be
got rid of at all, and the mines, after
being worked to a little depth, must be
abandoned : without ships or boats the
sea could never have been crossed ;
without tools of some sort, trees could
not be cut down, nor rocks excavated ;
a plough, or at least a hoe, is necessary
to any tillage of the ground. Very
simple and rude instruments, however,
are sufficient to render literally possible
most works hitherto executed by man-
kind ; and subsequent inventions have
chiefly served to enable the work to be
performed in greater perfection, and,
above all, with a greatly diminished
quantity of labour: the labour thus
saved becoming disposable for other
employment.

The use of machinery is far from
being the only mode in which the
effects of knowledge in aiding produc-
tion are exemplified. In agriculture
and horticulture, machinery is only
now beginning to show that it can do
anything of importance, beyond the
invention and progressive improve-
ment of the plough and a few other
simple instruments. The greatest agri-
cultural inventions have consisted in
the direct application of more judicious
processes to the land itself, and to the
plants growing on it : such as rotation
af crops, to avoid the necessity of
leaving the land uncultivated for one
season in every two or three ; improved
manures, to renovate its fertility when
xhausted by cropping ; ploughing an.1

DEGREES OF PRODUCTIVENESS.

67

draining the subsoil as well as the
surface ; conversion of bogs and marshes
into cultivable land ; such modes of
pruning, and of training and propping
up plants and trees, as experience has
shown to deserve the preference; in the
case of the more expensive cultures,
planting the roots or seeds further
apart, and more completely pulverizing
the soil in which they are placed, &c.
In manufactures and commerce, some
of the most important improvements
consist in economizing time ; in making
the return follow more speedily upon
the labour and outlay. There are
others of which the advantage consists
in economy of material.

§ 5. But the effects of the in-
creased knowledge of a community in
increasing its wealth, need the less
illustration as they have become
familiar to the most uneducated, from
such conspicuous instances as railways
and steam-ships. A thing not yet so
well understood and recognised, is the
economical value of the general diffu-
sion of intelligence among the people.
The number of persons fitted to direct
and superintend any industrial enter-
prise, or even to execute any process
which cannot be reduced almost to an
affair of memory and routine, is always
far short of the demand ; as is evident
from the enormous difference between
the salaries paid to such persons, and
the wages of ordinary labour. The
deficiency of practical good sense,
which renders the majority of the la-
bouring class such bad calculators —
which makes, for instance, their do-
mestic economy so improvident, lax,
and irregular — must disqualify them
for any but a low grade of intelligent
labour, and render their industry far
less productive than with equal energy
it otherwise might be. The impor-
tance, even in Jhis limited aspect, of
popular education, is well worthy of
the attention of politicians, especially
in England ; since competent observers,
accustomed to employ labourers of
various nations, testify that in the
workmen of other countries they often
find great intelligence wholly apart
from instruction, but that if an English

labourer is anything but a hewer of
wood and a drawer of water, he is
indebted for it to education, which in
his case is almost always self-education.
Mr. Escher, of Zurich, (an engineef
and cotton manufacturer employing
nearly two thousand working men of
many different nations,) in his evidence
annexed to the Report of the Poor
Law Commissioners, in 1840, on tbn
training of pauper children, gives a
character of English as contrasted
with Continental workmen, which all
persons of similar experience will, I
believe, confirm.

" The Italians' quickness of percep-
tion is shown in rapidly comprehending
any new descriptions of labour put into
their hands, in a power of quickly com-
prehending the meaning of their em-
ployer, of adapting themselves to new
circumstances, much beyond what any
other classes have. The French work-
men have the like natural characteris-
tics, only in a somewhat lower degree.
The English, Swiss, German, and
Dutch workmen, we find, have all much
slower natural comprehension. As
workmen only, the preference is un-
doubtedly due to the English ; because,
as we find them, they are all trained
to special branches, on which they have
had comparatively superior training,
and have concentrated all their
thoughts. As men of business or of
general usefulness, and as men with
whom an employer would best like to
be surrounded, I should, however, deci-
dedly prefer the Saxons and the Swiss,
but more especially the Saxons, be-
cause they have had a very careful gen-
eral education, which has extended
their capacities beyond any special
employment, and rendered them fit to
take up, after a short preparation, any
employment to which they may be
called. If I have an English work-
man engaged in the erection of a
steam-engine, he will understand that,
and nothing else ; and for other cir-
cumstances or other branches of me-
chanics, however closely allied, he will
be comparatively helpless to adapt him-
self to all the circumstances that may
arise, to mako arrangements for them,
and give EC- void advice or write clear
F 2

BOOK I. CHAPTER VH. § 5.

Btatements and letters on his work
in the various related branches of
mechanics.1'

On the connexion hetween mental
cultivation and moral trustworthiness
in the labouring class, the same wit-
ness says, " The better educated work-
men, we find, are distinguished by
superior moral habits in every respect.
In the first place, they are entirely so-
ber ; they are discreet in their enjoy-
ments, which are of a more rational
and refined kind ; they have a taste
for much better society, which they
approach respectfully, and consequently
find much readier admittance to it ;
they cultivate music ; they read ; they
enjoy the pleasures of scenery, and
make parties for excursions in the
country ; they are economical, and
their economy extends beyond their
own purse to the stock of their master ;
they are, consequently, honest and
trustworthy.'' And in answer to a
question respecting the English work-
men, " Whilst in respect to the work
to which they have been specially
framed they are the most skilful, they
are in conduct the most disorderly, de-
bauched, and unruly, and least respect-
able and trustworthy of any nation
whatsoever whom we have employed ;
and in saying this, I express the expe-
rience of every manufacturer on the
Continent to whom I have spoken, and
especially of the English manufactu-
rers, who make the loudest complaints.
These characteristics of depravity do
not apply to the English workmen who
have received an education, but attach
to the others in the degree in which
they are in want of it. When the un-
educated English workmen are re-
leased from the bonds of iron discipline
in which they have been restrained by
their employers in England, and are
treated with the urbanity and friendly
feeling which the more educated work-
men on the Continent expect and re-
ceive from their employers, they, the
English workmen, completely lose their
balance : they do not understand their
position, and after a certain time be-
come totally unmanageable and use-
less."* This result of observation is

• The •vhole evidence of this intelligent

borne out by experience in England
itself. As soon as any idea of equal-
ity enters the mind of an uneducated
English working man, his head is
turned by it. When he ceases to be
servile, he becomes insolent.

The moral qualities of the labourers
are fully as important to the efficiency
and worth of their labour, as the in-
tellectual. Independently of the effects
of intemperance upon their bodily and
mental faculties, and of flighty un-
steady habits upon the energy and con-
tinuity of their work (points so easily
understood as not to require being in-
sisted upon), it is well worthy of medi-
tation, how much of the aggregate
effect of their labour depends on their
trustworthiness. All the labour now
expended in watching that they fulfil
their engagement, or in verifying that
they have fulfilled it, is so much with-
drawn from the real business of pro-
duction, to be devoted to a subsidiary
function rendered needful not by the
necessity of things, but by the dis-
honesty of men. Nor are the greatest
outward precautions more than very
imperfectly efficacious, where, as is now
almost invariably the case with hired
labourers, the slightest relaxation of
vigilance is an opportunity eagerly
seized for eluding performance of their
contract. The advantage to mankind
of being able to trust one another, pen-
etrates into every crevice and cranny
of human life : the economical is per-
haps the smallest part of it, yet even
this is incalculable. To consider only
the most obvious part of the waste of
wealth occasioned to society by human
improbity ; there is in all rich commu-
nities a predatory population, who live
by pillaging or over-reaching other
people ; their numbers cannot bo
authentically ascertained, but on the
lowest estimate, in a country like
England, it is very large. The sup-
port of these persons is a direct bur-
then on the national industry. The
police, and the whole apparatus of pun-
ishment, and of criminal and partly of

and experienced employer of labour is de-
serving of attention ; as woll as mucli testi-
mony on similar points by other witnesses,
contained in the same volume.

DEGREES OF PRODUCTIVENESS.

civil justice, are a second burthen ren-
dered necessary by the first. The ex-
orbitantly-paid profession of lawyers,
so far as their work is not created by
defects in the law of their own contri-
ving, are required and supported prin-
cipally by the dishonesty of mankind.
As the standard of integrity in a com-
munity rises higher, all these expenses
become less. But this positive saving
would be far outweighed by the im-
mense increase in the produce of all
kinds of labour, and saving of time and
expenditure, which would be obtained
if the labourers honestly performed
what they undertake ; and by the in-
creased spirit, the feeling of power
and confidence, with which works of
all sorts would be planned and carried
on by those who felt that all whose aid
was required would do their part faith-
fully according to their contracts. Con-
joint action is possible just in propor-
tion as human beings can rely on each
other. There are countries in Europe,
of first-rate industrial capabilities,
where the most serious impediment to
conducting business concerns on a
la' ge scale, is the rarity of persons who
are supposed fit to be trusted with the
receipt and expenditure of large sums
of money. There are nations whose
commodities are looked shily upon by
merchants, because they cannot depend
on finding the quality of the article
conformable to that of the sample.
Such short-sighted frauds are far from
unexampled in English exports. Every
one has heard of "devil's dust :'' and
among other instances given by Mr.
Babbage, is one in which a branch of
export trade was for a long time ac-
tually stopped by the forgeries and
frauds which had occurred in it. On
the other hand the substantial advan-
tage derived in business transactions
from proved trustworthiness, is not less
remarkably exemplified in the same
work. " At one ot our largest towns,
sales and purchases on a very exten-
sive scale are made daily in the course
of business without any of the parties
ever exchanging a written document."
Spread over a year's transactions, how
great a return, in saving of time,
trouble, and expense, is brought in to

the producers and dealers of such a
town from their own integrity. " The
influence of established character in
producing confidence operated in a-
very remarkable manner at the time ot
the exclusion of British manufactures
from the Continent during the last
war. One of our largest establish-
ments had been in the nabit of doing
extensive business with a house in the
centre of Germany : but on the closing
of the Continental ports against our
manufactures, heavy penalties were
inflicted on all those who contravened
the Berlin and Milan decrees. The
English manufacturer continued, never-
theless, to receive orders, with direc-
tions how to consign them, and appoint-
ments for the time and mode of pay-
ment, in letters, the handwriting of
which was known to him, but which
were never signed except by the
Christian name of one of the firm, and
even in some instances they were
without any signature at all. These
orders were executed, and in no in-
stance was there the least irregularity
in the payments."*

* Some minor instances noticed by Mr.
Babbage may be cited in further illustration
of the waste occasioned to society through
the inability of its members to trust one
another.

" The cost to the purchaser is the price he
pays for any article, added to the cost of
verifying the fact of its having that degree
of goodness for which he contracts. In some
cases, the goodness of the article is evident
on mere inspection ; and in those cases there
is not much difference of price at different
shops. The goodness of loaf sugar, for in-
stance, can be discerned almost at a glance ;
and the consequence is, that the price is so
uniform, and the profit upon it so small, that
no grocer is at all anxious to sell it ; whilst
on the other hand, tea, of which it is exceed-
ingly difficult to judge, and which can be
adulterated by mixture so as to deceive the
skill even of a practised eye, has a great
variety of different prices, and is that article
which every grocer is most anxious to sell to
his customers. The difficulty and expense
of verififtation are in some instances ?o great
as to justify the deviation from well-estab-
lished principles. Thus it is a general maxim
that Government can purchase any article
at a cheaper rate than that at which they
can manufacture it themselves. But it has,
nevertheless, been considered more econo-
mical to build extensive flour-mills (such aa
those at Deptford), and to grind their own
corn, than to verify each sack of purchased
flour, and to employ persons in devising me-

70

BOOK I. CHAFfER Vlf. § 6.

§ 6. Among the secondaiy causes
frhich determine tlic productiveness of
productive agents, the most important
is Security. By security I mean the
wmpleteness or the protection which
society affords to its members. This
consists of protection by the govern-
ment, and protection against the go-
vernment. The latter is the more
important. Where a person known to
possess anything worth taking away,
can expect nothing but to have it torn
from him, with every circumstance of
tyrannical violence, by the agents of a
rapacious government, it is not likely
/hat many will exert themselves to
produce much more than necessaries.
This is the acknowledged explanation
of the poverty of many fertile tracts of
Asia, which were once prosperous and
populous. From this to the degree of
security enjoyed in the best governed

thods of detecting the new modes of adulte-
ration which might be continually resorted
to." A similar want of confidence might
deprive a nation, such as the United States, of
a large export trade in flour.

Again : " Some years since, a mode of pre-
paring old clover and trefoil seeds by a pro-
cess called doctoring became so prevalent as
to excite the attention of the House of Com-
mons. It appeared in evidence before a
Committee, that the old seed of the white
clover was doctored by first wetting it slightly,
and then drying it by the fumes of burning
sulphur; and that the red clover seed had its
colour improved by shaking it in a sack with
a small quantity of indigo ; but this being
detected after a time, the doctors then used
a preparation of logwood, fined by a little
copperas, and sometimes by verdigris ; tlius
at once improving the appearance of the old
seed, and diminishing, if not destroying, its
vegetative power, already enfeebled by age.
Supposing no injury had resulted to good
»eed so prepared, it was proved that, from
the improved appearance, the market price
would be enhanced by this process from five
to twenty-five shillings a hundred-weight.
But the greatest evil arose from the circum-
stance of these processes rendering old and
worthless seed equal in appearance to the
best. One witness had tried some doctored
seed, and found that not above one grain in
a hundred grew, and that those which did
vegetate died away afterwards; whilst about
eighty or ninety per cent of good seed usually
grows. The seed so treated was sold to
retail dealers in the country, who of course
endeavoured to purchase at the cheapest
rate, and from them it got into the hands of
the farmers, neither of these classes being ca-
pable of distinguishing the fraudulent from
the genuine seed. Many cultivators in conse-
quence diminished their consumption of the

parts of Europe, there are
gradations. In many provinces of
France, before the Revolution, a vicious
system of taxation on the land, and
still more the absence of redress against
the arbitrary exactions which were
made under colour of the taxes, ren-
dered it the interest of every cultivator
to appear poor, and therefore to culti-
vate badly. The only insecurity which
is altogether paralyzing to the active
energies of producers, is that arising
from the government, or from persons
invested with its authority. Against
all other depredators there is a hope of
defending oneself. Greece and the
Greek colonies in the ancient world,
Flanders and Italy in the Middle Ages,
by no means enjoyed what any one
with modern ideas would call security :
the state of society was most unsettled
and turbulent ; person and property

articles, and others were obliged to pay a
higher price to thoee who had skill to distin-
guish the mixed seed, and who had integrity
and character to prevent them from dealing
in it."

The tame writer states that Irish flax,
though in natural quality inferior to none,
sells, or did lately sell, in the market at a
penny to twopence per pound less than
foreign or British flax; part of the difference
arising from negligence in its preparation,
but part from the cause mentioned in the
evidence of Mr. Corry, many years Secretary
to the Irish Linen Board : " The owners of
the flax, who are almost always people in the
lower classes of life, believe that they can
best advance their own interests by imposing
on the buyers. Flax being sold by weight,
various expedients are used to increase it ;
and every expedient is injurious, particularly
the damping of it ; a very common practice,
which makes the flax afterwards heat. The
inside of every bundle (and the bundles all
vary in bulk) is often full of pebbles, or dirt
of various kinds, to increase the weight. In
this state it ii purchased and exported to
Great Britain."

It was given in evidence before a Com-
mittee of the House of Commons that the
lace trade at Nottingham had greatly itulen
off, from the making of fraudulent and bad
articles : that " a kind of lace called tingle*
press was manufactured," (I still quote Mr.
Babbage) " which, although good to the eye,
became nearly spoiled in washing by the
slipping of the threads ; that not one person
in a thousand could distinguish the difference
between single-press and double-press lace;
that even workmen and manufacturers were
obliged to employ amagnifying-glass for that
purpose; and that in another similar article,
called warp-lace, such aid was essential."

COMBINATION OF LABOUR.

Tl

were exposed to a thousand dangers.
But they were free countries; they
were in general neither arbitrarily op-
pressed, nor systematically plundered
by their governments. Against other
enemies the individual energy which
their institutions called forth, enabled
them to make successful resistance:
their labour, therefore, was eminently
productive, and their riches, while they
remained free, were constantly on the
increase. The Roman despotism, put-
ting an end to wars and internal con-
flicts throughout the empire, relieved
the subject population from much of
the former insecurity : but because it
left them under the grinding yoke of
its own rapacity, they became ener-
vated and impoverished, until they
were an easy prey to barbarous but
free invaders. They would neither
fight nor labour, because they were no
longer suffered to enjoy that for which
they fought and laboured.

Much of the security of person and
property in modern nations is the effect
of manners and opinion rather than of
law. There are, or lately were, coun-
tries in Europe where the monarch
was nominally absolute, but where,
from the restraints imposed by estab-
lished usage, no subject felt practically
in the smallest danger of having his
possessions arbitrarily seized or a con-
tribution levied on them by the govern-
ment. There must, however, be in
such governments much petty plunder
and other tyranny by subordinate
agents, for which redress is not ob-
tained, owing to the want of publicity
which is the ordinary character of
absolute governments. In England the
people are tolerably well protected, both
by institutions and manners, against
jhe agents of government ; but, for the

security they enjoy against other evil-
doers, they are very little indebted to
their institutions. The laws cannot be
said to afford protection to property,
when they afford it only at such a cost
as renders submission to injury in
general the better calculation. The
security of property in England is
owing (except as regards open violence)
to opinion, and the fear of exposure,
much more than to the direct operation
of the law and the courts of justice.

Independently of all imperfection in
the bulwarks which society purposely
throws round what it recognises as
property, there are various other modes
in which defective institutions impede
the employment of the productive re-
sources of a country to the best ad-
vantage. We shall have occasion for
noticing many of these in the progress
of our subject. It is sufficient here to
remark, that the efficiency of industry
may be expected to be great, in pro-
portion as the fruits of industry are
insured to the person exerting it : and
that all social arrangements are con-
ducive to useful exertion, according as
they provide that the reward of every
one for his labour shall be proportioned
as much as possible to the benefit which
it produces. All laws or usages which
favour one class or sort of persons to
the disadvantage of others; which
chain up the efforts of any part of the
community in pursuit of their own
good, or stand between those efforts
and their natural fruits — are (indepen-
dently of all other grounds of condem-
nation) violations of the fundamental
principles of economical policy ; tend-
ing to make the aggregate productive
powers of the community productive
in a less degree than they would other-
wise be.

CHAPTER VI1L

OF CO-OPERATION, OR THB COMBINATION OP LABOUR.

§ 1. Is- the enumeration of the
ciiviiiiistances which promote the pro-
ductiveness of labour, we have left

one untouched, which, because of its
importance, and of the many topics of
discussion which it involves, requires

72

BOOK I. CHAPTER VIII. § 1

to be treated apart. This is, co opera-
tion, or the combined action of numbers.
Of this great aid to production, a
tingle department, known by the name
of Division of Labour, has engaged a
large share of the attention of political
economists; most deservedly indeed,
but to the exclusion of other cases and
exemplifications of the same compre-
hensive law. Mr. Wakefield was, I
believe, the first to point out, that a
part of the subject had, with injurious
effect, been mistaken for the whole;
that a more fundamental principle lies
beneath that of the division of labour,
and comprehends it.

Co-operation, he observes,* is "of
two distinct kinds: first, such co-
operation as takes place when several
persons help each other in the same em-
ployment ; secondly, such co-operation
as takes place when several persons
help each other in different employ-
ments. These may be termed Simple
Co-operation and Complex Co-operation .

" The advantage of simple co-opera-
tion is illustrated by the case of two
greyhounds running together, which,
it is said, will kill more hares than four
greyhounds running separately. In
a vast number of simple operations
performed by human exertion, it is
quite obvious that two men working
together will do more than four, or
four times four men, each of whom
should work alone. In the lifting of
heavy weights, for example, in the
felling of trees, in the sawing of timber,
in the gathering of much hay or corn
during a short period of fine weather,
in draining a large extent of land
during the short season when such a
work may be properly conducted, in
the pulling of ropes on board ship, in
the lowing of large boats, in some
mining operations, in the erection of a
scaffolding for building, and in the
breaking of stones for the repair of a
road, so that the whole of the road
shall always be kept in good order ; in
all these simple operations, and thou-
sands more, it is absolutely necessary
that many persons should work to-
gether, at the same time, in the same

* Note to WaUefield's edition of Adam
EiuUi). vol. :. p. 20.

place, and in the Fame way. The
savages of New Holland never help
each other, even in the most simple
operations ; and their condition is
hardly superior, in some respects it
is inferior, to that of the wild animals
which they now and then catch. Let
any one imagine that the labourers of
England should suddenly desist from
helping each other in simple employ-
ments, and he will see at once the
prodigious advantages of simple co-
operation. In a countless number of
employments, the produce of labour is,
up to a certain point, in proportion to
such mutual assistance amongst the
workmen. This is the first step in
social improvement." The second is,
when " one body of men having com-
bined their labour to raise more food
than they require, another body of
men are induced to combine their
labour for the purpose of producing
more clothes than they require, and
with those clothes buying the surplus
food of the other body of labourers ;
while, if both bodies together have
produced more food and clothes than
they both require, both bodies obtain,
by means of exchange, a proper
capital for setting more labourers to
work in their respective occupations."
To simple co-operation is thus super-
added what Mr. Wakefield terms
Complex Co-operation. The one is
the combination of several labourers
to help each other in the same set of
operations ; the other is the combina-
tion of several labourers to help one
another by a division of operations.

There is " an important distinction
between simple and complex co-opera-
tion. Of the former, one is always
conscious at the time of practising it :
it is obvious to the most ignorant and
vulgar eye. Of the latter, but a very few
of the vast numbers who practise it are
in any degree conscious. The cause of
this distinction is easily seen. When
several men are employed in lifting
the same weight, or pulling the same
rope, at the same time, and in the
same place, there can be no sort of
doubt that they co-operate with each
other ; the fact is impressed on the
mind by the mere sense of eight; but

COMBINATION OF LABOUR.

73

when several men, or bodies of men,
are employed at different times and
places, and in different pursuits, their
co-operation with each other, though
it may be quite as certain, is not so
readily perceived as in the other case :
in order to perceive it, a complex ope-
ration of the mind is required."

In the present state of society the
breeding and feeding of sheep is the
occupation of one set of people, dress-
ing the wool to prepare it for the
spinner is that of another, spinning it
into thread of a third, weaving the
thread into broadcloth of a fourth,
dyeing the cloth of a fifth, making it
into a coat of a sixth, without counting
the multitude of carriers, merchants,
factors, and retailers put in requisition
at the successive stages of this progress.
All these persons, without knowledge of
one another or previous understanding,
co-operate in the production of the
ultimate result, a coat. But these are
far from being all who co-operate in it ;
for each of these persons requires food,
and many other articles of consump-
tion, and unless he could have relied
that other people would produce these
for him, he could not Lava devoted his
whole time to one step in the succes-
sion of operations which produces one
single commodity, a coat. Every
person who took part in producing
food or erecting houses for this series
of producers, has, however uncon-
sciously on his part, combined his
labour with theirs. It is by a real,
though unexpressed, concert, "that
the body who raise more food than
they want, can exchange with the
body who raise more clothes than they
want ; and if the two bodies were sepa-
rated, either by distance or disincli-
nation— unless the two bodies should
Virtually form themselves into one, for
the common object of raising enough
food and clothes for the whole — they
could not divide into two distinct parts
the whole operation of producing a
sufficient quantity of food and clothes."

§ 2. The influence exercised on
reduction by the separation of em-
ployments, is more fundamental than,
from the mode in which the subject is

usually treated, a reader might be in-
duced to suppose. It is not merely
that when the production of different
things becomes the sole or principal
occupation of different persons, a much
greater quantity of each kind of article
is produced. The truth is much be-
yond this. Without some separation
of employments, very few things would
be produced at all.

Suppose a set of persons, or a
number of families, all employed
precisely in the same manner ; each
family settled on a piece of its own
land, on which it grows by its labour
the food required for its o\fn suste-
nance, and as there are no persons to
buy any surplus produce where all are
producers, each family has to produce
within itself whatever other articles
it consumes. In such circumstances,
if the soil was tolerably fertile, and
population did not tread too closely on
the heels of subsistence, there would
be, no doubt, some kind of domestic
manufactures ; clothing for the family
might perhaps be spun and woven
within it, by the labour probably of the
women (a first step in the separation
of employments) ; and a dwelling of
some sort would be erected and kept
in repair by their united labour. But
beyond simple food (precarious, too,
from the variations of the seasons),
coarse clothing, and very imperfect
lodging, it would be scarcely possible
that the family should produce any-
thing more. They would, in general,
require their utmost exertions to ac-
complish so much. Their power even
of extracting food from the soil would
be kept within narrow limits by the
quality of their tools, which would
necessarily be of the most wretched
description. To do almost anything
in the way of producing for themselves
articles of convenience or luxury, would
require too much time, and, in many
cases, their presence in a different
place. Very few kinds of industry,
therefore, would exist ; and that which
did exist, namely the production of
necessaries, would be extremely in-
efficient, not solely from imperfect
implements, but because, when the
ground and the domestic industry fed

74

BOOK I. CHAPTER VIII. § 8.

by it bad been made to supply tbe
necessaries of a single family in tole-
rable abundance, tbere would be little
motive, while the numbers of the
family remained the same, to make
either the land or tbe labour produce
more.

But suppose an event to occur, which
would amount to a revolution in the
circumstances of this little settlement.
Suppose that a company of artificers,
provided with tools, and with food
sufficient to maintain them for a year,
arrive in the country and establish
themselves in the midst of the popu-
lation. These new settlers occupy
themselves in producing articles of use
or ornament adapted to the taste of a
simple people ; and before their food is
exhausted they have produced these in
considerable quantity, and are ready
to exchange them for more food. The
economical position of the landed popu-
lation is now most materially altered.
They have an opportunity given them
of acquiring comforts and luxuries.
Things which, while they depended
solely on their own labour, they never
could have obtained, because they
could not have produced, are now ac-
cessible to them if they can succeed
in producing an additional quantity
of food and necessaries. They are
thus incited to increase the produc-
tiveness of their industry. Among
the conveniences for the first time
made accessible to them, better tools
are probably one ; and apart from this,
they have a motive to labour more
assiduously, and to adopt contrivances
for making their labour more effectual.
By these means they will generally
succeed in compelling their land to
produce, not only food for themselves,
but a surplus for the new comers,
wherewith to buy from them the pro-
ducts of their industry. The new
settlers constitute what is called a
market for surplus agricultural pro-
duce : and their arrival has enriched
the settlement not only by the manu-
factured articles which they produce,
but by the food which would not have
been produced unless they had been
there to consume it.

There is no inconsistency between

this doctrine, and the proposition T»e
before maintained, that a market for
commodities does not constitute em-
ployment for labour.* The labour of
the agriculturists was already pro-
vided with employment ; they are not
indebted to the demand of the new
comers for being able to maintain
themselves. What that demand does
for them is, to call their labour into
increased vigour and efficiency ; to
stimulate them, by new motives, to
new exertions. Neither do the new
comers owe their maintenance and
employment to the demand of the agri-
culturists : with a year's subsistence in
store, they could have settled side by
side with the former inhabitants, and
produced a similar scanty stock of
food and necessaries. Nevertheless, we
see of what supreme importance to the
productiveness of the labour of pro-
ducers, is the existence of other pro- j
ducers within reach, employed in a
different kind of industry. The power '
of exchanging the products of one kind
of labour for those of another, is a
condition, but for which, there would
almost always be a smaller quantity of
labour altogether. When a new mar-
ket is opened for any product of in-
dustry, and a greater quantity of the
article is consequently produced, the
increased production is not always ob-
tained at the expense of some other
product ; it is often a new creation, the
result of labour which would otherwise
have remained unexerted ; or of assist-
ance rendered to labour by improve-
ments or by modes of co-operation to
which recourse would not have been
had if an inducement had not been
offered for raising a larger produce.

§ 3. From these considerations it
appears that a country will seldom
have a productive agriculture, unless it
has a large town population, or the
only available substitute, a largo ex-
port trade in agricultural produce to
supply a population elsewhere. I use
the phrase town population for short-
ness, to imply a population non-agri-
cultural ; which will generally be
collected in towns or large villages, for
* Supra, pp. 43 — 55.

COMBINATION OF LABOUK.

75

the sake of combination of labour.
The application of this truth by Mr.
AVakefidd to the theory of colonization,
has excited much attention, and is
doubtless destined to excite much
more. It is one of those great practical
discoveries, which, once made, appear
BO obvious that the merit of making
them seems less than it is. Mr.
Wakefield was the first to point out
that the mode of planting new settle-
ments, then commonly practised —
Betting down a number of families side
by side, each on its piece of land, all
employing themselves in exactly the
same manner, — though in favourable
circumstances it may assure to those
families a rude abundance of mere
necessaries, can never be other than
unfavourable to great production or
rapid growth : aud his system con-
sists of arrangements for securing that
every colony shall have from the first
a town population, hearing due propor-
tion to its agricultural, and that the
cultivators of the soil shall not be so
widely scattered as to be deprived by
distance, ol the benefit of that town
population as a market for their pro-
duce. The principle on which the
scheme is founded, does not depend on
any theory respecting the superior pro-
ductiveness of land held in large
portions, and cultivated by hired la-
bour. Supposing it true that land
yields the greatest produce when
divided into small properties and cul-
tivated by peasant proprietors, a town
population would be just as necessary
to induce those proprietors to raise
that larger produce : and if they were
too far from the nearest seat of non-
agricultural industry to use it as a
market for disposing of their surplus,
and thereby supplying their other
wants, neither that surplus nor any
equivalent for it would, generally
speaking, be produced.

It is, above all, the deficiency of
town population which limits the pro-
ductiveness of the industry of a country
ake India. The agriculture of India is
/mducted entirely on the system of
rfmall holdings. There is, however, a
considerable amount of combination of
labour. The village institutions and

customs, which are the real framework
of Indian society, make provision for
joint action in the cases in which it is
seen to be necessary; or where they
fail to do so, the government (when
tolerably well administered) steps in,
and by an outlay from the revenue,
executes by combined labour the tanks,
embankments, and works of irrigation,
which are indispensable. The imple-
ments and processes of agriculture are
however so wretched, that the produce
of the soil, in spite of great natural
fertility and a climate highly favourable
to vegetation, is miserably small : and
the land might be made to yield food
in abundance for many more than the
present number of inhabitants, without
departing from the system of small
holdings. But to this the stimulus is
wanting, which a large town popula-
tion, connected with the rural districts
by easy and unexpensive means of
communication, would afford. That
town population, again, does not grow
up, because the few wants and unas-
piring spirit of the cultivators (.joined
until lately with great insecurity of
property, from military and fiscal ra-
pacity) prevent them from attempting
to become consumers of town produce.
In these circumstances the best chance
of an early development of the produc-
tive resources of India, consists in the
rapid growth of its export of agricul-
tural produce (cotton, indigo, sugar,
coffee, &c.) to the markets of Europe.
The producers of these articles are
consumers of food supplied by their
fellow-agriculturists in India ; and the
market thus opened for surplus food
•will, if accompanied by good govern-
ment, raise up by degrees more ex-
tended wants and desires, directed
either towards European commodities,
or towards things which will require
for their production in India a larger
manufacturing population.

§ 4. Thus far of the separation of
employments, a form of the combina-
tion of labour without which there can-
not be the first rudiments of industrial
civilization. But when this separation
is thoroughly established ; when it has
become the general practice for cash

76 BOOK L

producer to supply many others with
one commodity, and to be supplied by
others with most of the things which
he consumes ; reasons not less real,
though less imperative, invite to a
further extension of the same principle.
It is found that the productive power
of labour is increased by carrying the
separation further and further; by
breaking down more and more every
process of industry into parts, so that
each labourer shall confine himself to
an ever smaller number of simple ope-
rations. And thus, in time, arise those
remarkable cases of what is called the
division of labour, with which all
readers on subjects of this nature are
familiar. Adam Smith's illustration
from pin-making, though so well
known, is so much to the point, that I
will venture once more to transcribe it.
"The business of making a pin is
divided into about eighteen distinct
operations. One man draws out the
wire, another straights it, a third cuts
it, a fourth points it, a fifth grinds it at
the top for receiving the head ; to
make the head requires two or three
distinct operations ; to put it on, is a
peculiar business ; to whiten the pins
is another ; it is even a trade by itself

to put them into the paper

I have seen a small manufactory where
ten men only were employed, and
where some of them, consequently, per-
formed two or three distinct operations.
But though they were very poor, and
therefore but indifferently accommo-
dated with the necessary machinery,
they could, when they exerted them-
selves, make among them about twelve
pounds of pins in a day. There are in
a pound upwards of four thousand pins
of a middling size. Those ten persons,
therefore, could make among them up-
wards of forty-eight thousand pins in a
day. Each person, therefore, making
a tenth part of forty-eight thousand
pins, might be considered as making
four thousand eight hundred pins in a
day. But if they had all wrought
separately and independently, and with-
out any of them having been educated
to this peculiar business, they cer-
tainly could not each of them have made
twenty, perhaps not one pin in a day."

CHAPTER VITT. § 4.

M. Say furnishes a still strongef
example of the effects of division
of labour — from a not very important
branch of industry certainly, the manu-
facture of playing cards. "It is said
by those engaged in the business, that
each card, that is, a piece of paste-
board of the size of the hand, before
being ready for sale, does not undergo
fewer than seventy operations, every
one of which might be the occupation
of a distinct class of workmen. And
if there are not seventy classes of work-
people in each card manufactory, it is
because the division of labour is not
earned so far as it might be ; because
the same workman is charged with
two, three, or four distinct operations.
The influence of this distribution of
employments is immense. I have seen
a card manufactory where thirty work-
men produced daily fifteen thousand
five hundred cards, being above five
hundred cards for each labourer ; and
it may be presumed that if each of
these workmen were obliged to perform
all the operations himself, even suppo-
sing him a practised hand, he would
not perhaps complete two cards in a
day : and the thirty workmen, instead
of fifteen thousand five hundred cards,
would make only sixty."*

In watchmaking, as Mr. Babbage
observes, "it was stated in evidence
before a Committee of the House of
Commons, that there are a hundred
and two distinct branches of this art,
to each of which a boy may be put ap-
prentice ; and that he only learns his
master's department, and is unable,
after his apprenticeship has expired,
without subsequent instruction, to
work at any other branch. The watch-
finisher, whose business it is to put
together the scattered parts, is the only
one, out of the one hundred and two
persons, who can work in any other de-
partment than his own."f

* SAT, Court d'Economie Polilique Pra-
tique, vol. i. p. 340.

It is a remarkable proof of the economy of
labour occasioned by this minute division of
occupations, that an article, the production
of which is the result of such a multitude of
manual operations, can be sold for a trifling
sum.

t Economy of Machinery and Manufac-
tures, 3rd ICdition, p. 201.

§ 5. The causes of the increased
efficiency given to labour by the divi-
sion of employments are some of them
too familiar to require specification ;
but it is worth while to attempt a com-
plete enumeration of them. 15y Adam
Smith they are reduced to three.
" First, the increase of dexterity in
every particular workman ; secondly,
the saving of the time which is com-
monly lost in passing from one species
of work to another ; and lastly, the in-
vention of a great number of machines
which facilitate and abridge labour,
and enable one man to do the work of
many.'1

Of these, the increase of dexterity of
the individual workman is the most ob-
vious and universal. It does not fol-
low that because a thing has been done
oftener it will be done better. That
depends on the intelligence of the
workman, and on the degree in which
his mind works along with his hands.
But it will be done more easily. The
organs themselves acquire greater
power : the muscles employed grow
stronger by frequent exercise, the
sinews more pliant, and the mental
powers more efficient, and less sensible
of fatigue. What can be done easily
has at least a better chance of being
done well, and is sure to be done more
expeditiously. What was at first done
slowly comes to be done quickly ; what
was at first done slowly with accuracy
is at last done quickly with equal ac-
curacy. This is as true of mental opera-
tions as of bodily. Even a child, after
much practice, sums up a column of
figures with a rapidity which resembles
intuition. The act of speaking any
language, of reading fluently, of play-
ing music at sight, are cases as remark-
able as they are familiar. Among
bodily acts, dancing, gymnastic exer-
cises, ease and brilliancy of execution
on a musical instrument, are examples
of the rapidity and facility acquired by
repetition. In simpler manual opera-
tions, the effect is of course still sooner
produced. " The rapidity," Adam
iSmith observes, " with which some of
the operations of certain manufactures
are performed, exceeds what the human
hand could, by those who have never seen

COMBINATION OF LABOUR.

them, be supposed capable of acquir-
ing."* This skill is, naturally, at-
tained after shorter practice, in propor-
tion as the division of labour is more
minute ; and will not be attained in
the same degree at all, if the workman
has a greater variety of operations to
execute than allows of a sufficiently
frequent repetition of each. The ad-
vantage is not confined to the greater
efficiency ultimately attained, but in-
cludes also the diminished loss of time,
and waste of material, in learning the
art. " A certain quantity of material,"
says Mr. Babbage,f " will in all cases
be consumed unprofitably, or spoiled,
by every person who learns an art ;
and as he applies himself to each new
process, he will waste some of the raw
material, or of the partly manufactured
commodity. But if each man commits
this waste in acquiring successively
every process, the quantity of waste
will be much greater than if each per-
son confine his attention to one process.' '
And in general each will be much
sooner qualified to execute his one pro-
cess, if he be not distracted while learn-
ing it, by the necessity of learning
others.

The second advantage enumerated
by Adam Smith as arising from the
division of labour, is one on which I
cannot help thinking that more stress
is laid by him and others than it
deserves. To do full justice to
his opinion, I will quote his own
exposition of it. " The advantage
which is gained by saving the time

* " In astronomical observations, the
senses of the operator are rendered so acute
by habit, that he can estimate differences of
time to the tenth of a second ; and adjust his
measuring instrument to graduations of
which five thousand occupy only an inch.
It is the aanie throughout the commonest
processes of manufacture. A child who
fastens on the heads of pins will repeat an
operation requiring several distinct motions
of the muscles one hundred times a minute
for several successive hours. In a recent
Manchester paper it was stated that a
peculiar sort of twist or 'gimp,' which cost
three shillings making when first introduced,
was now manufactured for one penny; and
this not, as usually, by the invention of a
now machine, but solely through the in-
creased dexterity of the workman. '' — J^lin-
burgh Revieu for January 18 19, p 81.
t Page 171.

BOOK I. CHAPTER Vill. § 5.

commonly lost in passing from one
son, of work to another, is much
greater than we should at first view be
«pt to imagine it. It is impossible to
>ass very quickly from one k»»d of
work to another, that is carried on in
A different place, and with quite differ-
ent tools. A country weaver, who
cultivates a small farm, must lose a
good deal of time in passing from his
loom to the field, and from the field to
his loom. When the two trades can
be carried on in the same workhouse,
the loss of time is no doubt much less.
It is even in this case, however, very
considerable. A man commonly saun-
ters a little in turning his hand from
one sort of employment to another.
When he first begins the new work,
he is seldom very keen and hearty ;
his mind, as they say, does not go to
it, and for some time he rather trifles
than applies to good purpose. The
habit of sauntering and of indolent
careless application, which is naturally,
or rather necessarily acquired by every
country workman who is obliged to
change his work and his tools every
half hour, and to apply his hand in
twenty different ways almost every
day of his life, renders him almost
always slothful and lazy, and incapable
of any vigorous application even on the
most pressing occasions." This is
surely a most exaggerated description
of the inefficiency of country labour,
where it has any adequate motive to
exertion. Few workmen change their
work and their tools oftener than a
gardener; is he usually incapable of
vigorous application? Many of the
higher description of artisans have to
perform a great multiplicity of opera-
tions with a variety of tools. They do
not execute each of these with the
rapidity with which a factory work-
man performs his single operation ;
but they are, except in a merely
manual sense, more skilful labourers,
and in all senses whatever more ener-
getic.

Mr. Babbage, following in the track
of Adam Smith, says, " When the
human hand, or the human head, has
been for some time occupied in any
kind of work, it cannot instantly

change its employment with full effect.
The muscles of the limbs employed
have acquired a flexibility during their
exertion, and those not in action a
stiffness during rest, which renders
every change slow and unequal in the
commencement. Long habit also pro-
duces in the muscles exercised a capa-
city for enduring fatigue to a much
greater degree than they could support
under other circumstances. A similar
result seems to take place in any change
of mental exertion ; the attention
bestowed on the new subject not being
so perfect at first as it becomes after
some exercise. The employment of
different tools in the successive pro-
cesses, is another cause of the loss of
time in changing from one operation
to another. If these tools are simple,
and the change is not frequent, the
loss of time is not considerable ; but
in many processes of the arts, the tools
are of great delicacy, requiring accu-
rate adjustment every time they are
used ; and in many cases, the time
employed in adjusting bears a large
proportion to that employed in using
the tool. The sliding-rest, the divi-
ding and the drilling engine are of this
kind : and hence, in manufactories of
sufficient extent, it is found to be good
economy to keep one machine con-
stantly employed in one kind of work :
one lathe, for example, having a screw
motion to its sliding-rest along the
whole length of its bed, is kept con-
stantly making cylinders ; another,
having a motion for equalizing the
velocity of the wovk at the point at
which it passes tho tool, is kept for
facing surfaces ; whilst a third is con-
stantly employed in cutting wheels."

I am very far from implying that
these different considerations are of no
weight ; but I think there are counter-
considerations which are overlooked.
If one kind of muscular or mental la-
bour is different from another, for that
very reason it is to some extent a rest
from that other ; and if the greatest
vigour is not at once obtained in the
second occupation, neither could the
first have been indefinitely prolonged
without some relaxation of energy.
It is a matter of common experience

COMBINATION OF LABOUfc.

that s change of occupation will often i
afford relief where complete repose
would otherwise be necessary, and that
A person can work many more hours
without fatigue at a succession of oc-
cupatu-:s, than if confined during the
whole time to one. Different occupa-
tions employ different muscles, or
different energies of the mind, some
of which rest and are refreshed while
others work. Bodily labour itself restg
from mental, and conversely. The
variety itself has an invigorating
effect on what, for want of a more phi-
losophical appellation, we must term
the animal spirits ; so important to
the efficiency of all work not mechani-
cal, and not unimportant even to that.
The comparative weight due to these
considerations is different with differ-
ent individuals ; some are more fitted
than others for persistency in one
occupation, and less fit for change ;
they require longer to get the steam
Dp (to use a metaphor now common) ;
the irksomeness of setting to work lasts
longer, and it requires more tune to
bring their faculties into full play, and
therefore when this is once done, they
do not like to leave off, but go on long
without intermission, even to the in-
jury of their health. Temperament
has something to do with these differ-
ences. There are people whose facul-
ties seem by nature to come slowly
into action, and to accomplish little
until they have been a long time
employed. Others, again, get into
action rapidly, but cannot, without
exhaustion, continue long. In this,
however, as in most other things,
though natural differences are some-
thing, habit is much more. The habit
of passing rapidly from one occupation
to another may be acquired, like other
habits, by early cultivation ; and when
it is acquired, there is none of the
sauntering which Adam Smith speaks
cf, after each change; no want of
energy and interest, but the workman
comes to each part of his occupation
with a freshness and a spirit which he
does not retain if he persists in any
one part (unless in case of unusual
excitement) beyond the length of time
to which he is accustomed. Women j

are usually (at least in their present
social circumstances) of far greater
versatility than men ; and the present
topic is an instance among multitudes,
how little the ideas and experience oi
women have yet counted for, in form-
ing the opinions of mankind. There
are few women who would not reject the
idea that work is made vigorous by being
protracted, and is inefficient for some
time after changing to a new thing.
Even in this case, habit, I believe,
much more than nature, is the cause
of the difference. The occupations of
nine out of every ten men are special,
those of nine out of every ten women
general, embracing a multitude of
details, each of which requires very
little time. Women are in the con-
stant practice of passing quickly from
one manual, and still more from one
mental operation to another, which
therefore rarely costs them either effort
or loss of time, while a man's occupation
generally consists in working steadily
for a long time at one thing, or one
very limited class of things. But the
situations are sometimes reversed, and
with them the characters. Women
are not found less efficient than men
for the uniformity of factory work, or
they would not so generally be em-
ployed for it ; and a man who has
cultivated the habit of turning his
hand to many things, far from being
the slothful and lazy person described
by Adam Smith, is usually remarkably
lively and active. It is true, however,
that change of occupation may be too
frequent even for the most versatile.
Incessant variety is even more fa-
tiguing than perpetual sameness.

The third advantage attributed bj
Adam Smith to the division of labour,
is, to a certain extent, real. Inven-
tions tending to save labour in a par-
ticular operation, are more likely to
occur to any one in proportion as his
thoughts are intensely directed to that
occupation, and continually employed
upon it. A person is not BO likely to
make practical improvements in ona
department of things, whose attention
is very much diverted to others. But,
in this, much more depends on general
intelligence and habitual activity cf

BOOK I. CHAPTER VIH. § 6.

mind, than on exclusiveness of occupa-
tion ; and if that exclusiveness is
carried to a degree unfavourable to the
cultivation of intelligence, there will be
more lost in this kind of advantage
than gained. We may add, that what-
ever may be the cause of making
inventions, when they are once made,
the increased efficiency of labour is
owing to the invention itself, and not
to the division of labour.

The greatest advantage (next to the
dexterity of the workmen) derived from
the minute division of labour which
takes place in modern manufacturing
industry, is one not mentioned by
Adam Smith, but to which attention
has been drawn by Mr. Babbage ; the
more economical distribution of labour,
by classing the •work-people according
to their capacity. Different parts of
the same series of operations require
unequal degrees of skill and bodily
strength ; and those who have skill
enough for the most difficult, or
strength enough for the hardest parts
of the labour, are made much more
useful by being employed solely in
them ; the operations which every-
body is capable of, being left to those
who are fit for no others. Production
is most efficient when the precise
quantity of skill and strength, which is
required for each part of the process,
's employed in it, and no more. The
operation of pin-making requires, it
seems, in its different parts, such
different degrees of skill, that the wages
earned by the persons employed vary
from fourpence halfpenny a day to six
shillings ; and if the workman who is
paid at that highest rate had to perform
the whole process, he would be working
a. part of his time with a waste per
day equivalent to the difference be-
tween six shillings and fourpence half-
penny. Without reference to the loss
sustained in quantity of work done, and
supposing even that he could make a
pound of pins in the same time in
which ten workmen combining their
labour can make ten pounds, Mr. Bab-
bage computes that they would cost, in
making, three times and three-quarters
88 mucli as they now do by means of
Uie division of labour. In needle-

making, he adds, the difference would
be still greater, for in that, the scale
of remuneration for different parts of
the process varies from sixpence to
twenty shillings a day.

To the advantage which consists in
extracting the greatest possible amount
of utility from skill, may be added the
analogous one, of extracting the utmost
possible utility from tools. "If any
man," says an able writer,* " had all
the tools which many different occupa-
tions require, at least three-fourths of
them would constantly be idle and
useless. It were clearly then better,
were any society to exist where each
man had all these tools, and alternately
carried on each of these occupations,
that the members of it should, if
possible, divide them amongst them,
each restricting himself to some par-
ticular employment. The advantages
of the change to the whole community,
and therefore to every individual in it,
are great. In the first place, the va-
rious implements, being in constant
employment, yield a better return for
what has been laid out in procuring
them. In consequence their owners
can afford to have them of better
quality and more complete construc-
tion. The result of both events is, that
a larger provision is made for the
future wants of the whole society."

§ 6. The division of labour, as all
writers on the subject have remarked,
is limited by the extent of the market.
If, by the separation of pin-making
into ten distinct employments, forty-
eight thousand pins can be made in a
day, this separation will only be ad-
visable if the number of accessible
consumers is such as to require, every
day, something like forty-eight thou-
sand pins. If there is only a demand'
for twenty-four thousand, the division
of labour can only bj advantageously
carried to the extent which will every
day produce that smaller number.
This, therefore, is a further mode in
which an accession of demand for
a commodity tends to increase the

* Statement of some New Principles on tht
tub/ret of Political Eco'to.ni/, b\ John Rae^
(Boston, U.S.) p. 164,

PRODUCTION ON A LARGE AND ON A SMALL SCALE. 81

efficiency of the labour employed in its
production. The extent of the market
may be limited by several causes : too
small a population ; the population too
scattered and distant to be easily ac-
cessible ; deficiency of roads and water
carriage ; or, finally, tlie population too
poor, that is, their collective labour
too little effective, to admit of their
being large consumers. In'VJence,
want of skill, and want of combination
of labour, among those who would
otherwise be buyers of a commodity,
limit, therefore, the practicable amount
of combination of labour among its pro-
ducers. In an early stage of civiliza-
tion, when the demand of any par-
ticular locality was necessarily small,
industry only flourished among those
who by their command of the sea-coast
or of a navigable river, could have the
whole world, or all that part of it
which lay on coasts or navigable rivers,
as a market for their productions.
The increase of the general riches of
the world, when accompanied with
freedom of commercial intercourse, im-
provements in navigation, and inland
communication by roads, canals, or
railways, tends to give increased pro-
ductiveness to the labour of every

nation in particular, by enabling each
locality to supply with its special
products so much larger a market, that
a great extension of the division of
labour in their production is an ordi-
nary consequence.

The division of laibour is also limited,
in many cases, by the nature of the
employment. Agriculture, for example,
is not susceptible of so great a division
of occupation as many branches of
manufactures, because its different
operations cannot possibly be simul-
taneous. One man cannot be always
ploughing, another sowing, and another
reaping. A workman who only prac-
tised one agricultural operation would
be idle eleven months of the year. The
same person may perform them all in
succession, and have, in most climates,
a considerable amount of unoccupied
time. To execute a great agricultural
improvement, it is often necessary that
many labourers should work together ;
but in general, except the few whose
business is superintendence, they all
work in the same manner. A canal or
a railway embankment cannot be
made without a combination of many
labourers ; but they are all excavators,
except the engineer and a few clerks.

CHAPTER IX.

OP PRODUCTION OK A LARGE, AND PRODUCTION OR A SMALL SCALB.

§ 1. FROM the importance of com-
l.iiuvtion of labour, it is an obvious con-
clusion, that there are many cases in
which production is made much more
effective by being conducted on a large
scale. Whenever it is essential to the
greatest efficiency of labour that many
labourers should combine, even though
only in the way of Simple Co-operation,
the scale of the enterprise must be
such as to bring many labourers to-
gether, and the capital must be large
enough to maintain them. Still more
needful is this when the nature of the
employment allows, and the extent of
the possible market encourages, a
F.E.

considerable division of labour. The
larger the enterprise, the farther tho
division of labour may be carried. This
is one of the principal causes of large
manufactories. Even when no addi-
tional subdivision of the work would
follow an enlargement of the opera-
tions, there will be good economy it
enlarging them to the point at which
every person to whom it is convenient
to assign a special occupation, will
have full employment in that occupa-
tion. This point is well illustrated by
Mr. Babbage.*

" If machinesbe kept working through
* Page 214, et seqq.

82

BOOK I. CHAPTER IX. § 1.

the twenty-four hours," (which is evi-
dently the only economical mode of
employing them,) "it is necessary that
some person shall attend to admit the
workmen at the time they relieve each
other ; and whether the porter or other
servant so employed admit one person
or twenty, his rest will he equally dis-
turhed. It will also be necessary occa-
sionally to adjust or repair the machine;
and this can be done much better by
a workman accustomed to machine-
making, than by the person who uses
it. Now, since the good performance
and the duration of machines depend,
to a very great extent, upon correcting
every shake or imperfection in their
parts as soon as they appear, the
prompt attention of a workman resi-
dent on the spot will considerably re-
duce the expenditure arising from the
wear and tear of the machinery. But
in the case of a single lace-frame, or a
single loom, this would be too expensive
a plan. Here then arises another
circumstance which tends to enlarge
the extent of a factory. It ought to
consist of such a number of machines
as shall occupy the whole time of one
workman in keeping them in order : if
extended beyond that number, the
same principle of economy would point
out the necessity of doubling or tripling
the number of machines, in order to
employ the whole time of two or three
skilful workmen.

" When one portion of the workman's
labour consists in the exertion of mere
physical force, as in weaving, and in
many similar arts, it will soon occur to
the manufacturer, that if that part
were executed by a steam-engine, the
same man might, in the case of weav-
ing, attend to two or more looms at
once : and, since we already suppose
that one or more operative engineers
have been employed, the number of
looms may be so arranged that their
time shall be fully occupied in keeping
the steam-engine and the looms in
order.

" Pursuing the same principles, the
manufactory becomes gradually so en-
larged, that the expense of lighting
during the night amounts to a con-
nderable sum : and as there are

already attached to the establishment
persons who are up all night, and can
therefore constantly attend to it, and
also engineers to make and keep in re-
pair any machinery, the addition of an
apparatus for making gas to light the
factory leads to a new extension, at the
same time that it contributes, by di-
minishing the expense of lighting, and
the risk of accidents from fire, to re-
duce the cost of manufacturing.

" Long before a factory has reached
this extent, it will have been found
necessary to establish an accountant's
department, with clerks to pay the
workmen, and to see that they arrive
at their stated times ; and this de-
partment must be in communication
with the agents who purchase the raw
produce, and with those who sell the
manufactured article." It will cost
these clerks and accountants little more
time and trouble to pay a large number
of workmen than a small number :
to check the accounts of large transac-
tions, than of small. If the business
doubled itself, it would probably be
necessary to increase, but certainly not
to double, the number either of ac-
countants, or of buying and selling
agents. Every increase of business
would enable the whole to be carried on
with a proportionally smaller amount
of labour.

As a general rule, the expenses of a
business do not increase by any means
proportionally to the quantity of busi-
ness. Let us take as an example, a
set of operations which we are ac-
customed to see carried on by one great
establishment, that of the Post Office.
Suppose that the business, let us say
only of the London letter-post, instead
of being centralized in a single concern,
were divided among five or six com-
peting companies. Each of these would
be obliged to maintain almost as large
an establishment as is now sufficient
for the whole. Since each must arrange
for receiving and delivering letters in
all parts of the town, each must send
letter-carriers into every street, and
almost every alley, and this too as
many times in the day as is now done
by the Post Office, if the service is to
be as well performed. Each must have

PRODUCTION ON A LARGE AND ON A SMALL SCALE. 83

an office for receiving letters in every
neighbourhood, with all subsidiary
arrangements for collecting the letters
i'roin the different offices and re-dis-
tributing them. To this must be added
the much greater number of superior
officers who would be required to check
and control the subordinates, implying
not only a greater cost in salaries for
such responsible officers, but the neces-
sity, perhaps, of being satisfied in many
instances with an inferior standard of
qualification, and so failing in the
object.

Whether or not the advantages ob-
tained by operating on a large scale
preponderate in any particular case
over the more watchful attention, and
greater regard to minor gains and
losses, usually found in small establish-
ments, can be ascertained, in a state
of free competition, by an unfailing
test. Wherever there are large
and small establishments in the same
business, that one of the two which in
existing circumstances carries on the
production at greatest advantage, will
be able to undersell the other. The
power of permanently underselling can
only, generally speaking, be derived
from increased effectiveness of labour ;
and this, when obtained by a more ex-
tended division of employment, or by
a classification tending to a better
economy of skill, always implies a
greater produce from the same labour,
and not merely the same produce from
less labour : it increases not the sur-
plus only, but the gross produce of
industry. If an increased quantity of
the particular article is not required,
and part of the labourers in conse-
quence lose their employment, the
capital which maintained and employed
them is also set at liberty ; and the
general produce of the country is in-
creased, by some other application of |
their labour.

Another of the causes of large manu-
factories, however, is the introduction
of processes requiring expensive ma-
chinery. Expensive machinery sup-
poses a large capital ; and is not re-
sorted to except with the intention of
producing, and the hope of selling, as
much of the article aa comes up to the

full powers of the machine. For both
these reasons, wherever costly ma-
chinery is used, the large system of
production is inevitable. But the
power of underselling is not in this
case so unerring a test as in the former,
of the beneficial effect on the total
production of the community. The
power of underselling does not depend
on the absolute increase of produce,
but on its bearing an increased propor-
tion to the expenses : which, as was
shown in a former chapter,* it may
do, consistently with even a diminution
of the gross annual produce. By the
adoption of machinery, a circulating
capital, which was perpetually con-
sumed and reproduced, has been con-
verted into a fixed capital, requiring
only a small annual expense to keep it
up : and a much smaller produce \vill
suffice for merely covering that ex-
pense, and replacing the remaining
circulating capital of the producer.
The machinery therefore might answer
perfectly well to the manufacturer, and
enable him to undersell his competitors,
though the effect on the production of
the country might be not an increase
but a diminution. It is true, the
article will be sold cheaper, and there-
fore, of that single article, there will
probably be not a smaller, but a greater
quantity sold ; since the loss to the
community collectively has fallen upon
the work-people, and they are not the
principal customers, if customers at
all, of most branches of manufacture.
But though that particular branch of
industry may extend itself, it will be
by replenishing its diminished circu-
lating capital from that of the com-
munity generally ; and if the labourers
employed in that department escape
loss of employment, it is because the
less will spread itself over the labouring
people at large. If any of them are
reduced to the condition of unproduc
tive labourers, supported by voluntary
of legal charity, the gross produce of
the country is to that extent perma-
nently diminished, until the ordinary
progress of accumulation makes it up :
but if the condition of the labouring
classes enable them to bear a tempo-
» Supra, chap. vi. p. 59.
G 2

84

BOOK i. CHAPTER IX. § 2.

rary reduction of wages, and the super-
seded labourers become absorbed in
other employments, their labour is
etill productive, and the breach in the
gross produce of the community is re-
paired, though not the detriment to
., the labourers. I have restated thie
exposition, which has already been
made in a former place, to impress
more strongly the truth, that a
mode of production does not of neces-
sity increase the productive effect of
the collective labour of a community,
because it enables a particular com-
modity to be sold cheaper. The one
consequence generally accompanies the
other, but not necessarily. I will not
here repeat the reasons I formerly
gave, nor anticipate those which will
be given more fully hereafter, for deem-
ing the exception to be rather a case
abstractedly possible, than one which
is frequently realized in fact.

A considerable part of the saving of
labour effected by substituting the
large system of production for the
small, is the saving in the labour of
the capitalists themselves. If a hun-
dred producers with small capitals
carry on separately the same business,
the superintendence of each concern
will probably require the whole atten-
tion of the person conducting it, suffi-
ciently at least to hinder his time or
thoughts from being disposable for any-
thing else : while a single manufac-
turer possessing a capital equal to the
sum of theirs, with ten or a dozen
clerks, could conduct the whole of their
amount of business, and have leisure
too for other occupations. The small
capitalist, it is true, generally com-
bines with the business of direction
eome portion of the details, which the
other leaves to his subordinates : the
small farmer follows his own plough,
the small tradesman serves in his own
shop, the small weaver plies his own
jboin. But in this very union of func-
tions there is, in a great proportion of
cases, a want of economy. The prin-
cipal in the concern is either wasting,
in the routine of a business, qualities
suitable for the direction of it, or he is
only fit for the former, and then the
latter will be ill done. I must observe

however that I do not attach, to this
saving of labour, the importance often
ascribed to it. There is undoubtedly
much more labour expended in the
superintendence of many small capitals
than in that of one large capital. For
this labour however the small pro-
ducers have generally a full compensa-
tion, in the feeling of being their own
masters, and not servants of an em-
ployer. It may be said, that if they
value this independence they will sub-
mit to pay a price for it, and to sell at
the reduced rates occasioned by the
competition of the great dealer or ma-
nufacturer. But they cannot always
do this and continue to gain a living.
They thus gradually disappear from
society. After having consumed their
little capital in prolonging the unsuc-
cessful struggle, they either sink into
the condition of hired labourers, or be-
come dependent on others for support.

§ 2. Production on a large scale is
greatly promoted by the practice of
forming a large capital by the combi-
nation of many small contributions ; or,
in other words, by the formation of
joint stock companies. The advan-
tages of the joint stock principle are
numerous and important.

In the first place, many undertakings
require an amount of capital beyond
the means of the richest individual or
private partnership. No individual
could have made a railway from Lon-
don to Liverpool ; it is doubtful if any
individual could even work the traffic
on it, now when it is made. The go-
vernment indeed could have done both ;
and in countries where the practice of
co-operation is only in the earlier
stages of its growth, the government
can alone be looked to for any of the
works for which a great combination
of means is requisite ; because it can
obtain those means by compulsory
taxation, and is already accustomed to
the conduct of large operations. For
reasons, however, which are tolerably
well known, and of which we shall treat
fully hereafter, government agency for
the conduct of industrial operations is
generally one of the least eligible re-
sources, when any other is available.

PRODUCTION ON A LARGE AND ON A SMALL SCALE. 65

Next, there are undertakings which
individuals are not absolutely inca-
pable of performing, but which they
cannot perform on the scale and with
the continuity which are ever more
and more required by the exigencies of
n. society in an advancing state. In-
dividuals are quite capable of despatch-
ing ships from England to any or every
partTof the world, to carry passengers
nnd letters ; the thing was done before
joint stock companies for the purpose
were heard of. But when, from the
increase of population and transactions,
as well as of means of payment, the
public will no longer content them-
selves with occasional opportunities,
but require the certainty that packets
shall start regularly, for some places
once or even twice a day, for others
once a week, for others that a steam
ship of great size and expensive con-
struction shall depart on fixed days
twice in each month, it is evident that
to afford an assurance of keeping up
with punctuality such a circle of costly
operations, requires a much larger
capital and a much larger staff of
qualified subordinates than can be
commanded by an individual capitalist.
There are other cases, again, in which
though the business might be perfectly
well transacted with small or mode-
rate capitals, the guarantee of a great
subscribed stock is necessary or desir-
able as a security to the public for the
fulfilment of pecuniary engagements.
This is especially the case when the
nature of the business requires that
numbers of persons should be willing
to trust the concern with their money :
as in the business of banking, and
that of insurance : to both of which
the joint stock principle is eminently
adapted. It is an instance of the folly
and jobbery of the rulers of mankind,
that until a late period the joint stock
principle, as a general resort, was in
this country interdicted by law to these
two modes of business ; to banking
altogether, and to insurance in the
department of sea risks ; in order to
bestow a lucrative monopoly on par-
ticular establishments which the go-
vernment was pleased exceptionally to
license, namely the Bank of England,

and two insurance companies, the Lon-
don and the Royal Exchange.

Another advantage of joint stock, or
associated management, is its incident
of publicity. This is not an invariable,
but It is a natural, consequence of the
joint stock principle, and might be, as
in some important cases it already is,
compulsory. In banking, insurance,
and other businesses which depend
wholly on confidence, publicity is a still
more important element of success than
a large subscribed capital. A heavy
loss occurring in a private bank may be
kept secret ; even though it were of
such magnitude as to cause the ruin of
the concern, the banker may still carry
it on for years, trying to retrieve its po-
sition, only to fall in the end with a
greater crash: but this cannot so easilj
happen in the case of a joint stock com
pany whose accounts are publisher
periodically. The accounts, even if
cooked, still exercise some check ; and
the suspicions of shareholders, breaking
out at the general meetings, put the
public on their guard.

These are some of the advantages of
joint stock over individual manage-
ment. But if we look to the other side
of the question, we shall find that indi-
vidual management has also very great
advantages over joint stock. The chief
of these is the much keener interest of
the managers in the success of the
undertaking.

The administration of A joint stock
association is, in the main, adminis-
tration by hired servants. Even the
committee, or board of directors, who
are supposed to superintend the manage-
ment, and who do really appoint and
remove the managers, have no pecu-
niary interest in the good working of
the concern beyond the shares they in-
dividually hold, which are always a
very small part of the capital of the
association, and in general but a small
part of the fortunes of the directors
themselves ; and the part they take in
the management usually divides their
time with many other occupations, of
as great or greater importance to their
own interest; the business beinj the
principal concern of no one except those
who are hired to carry it 011. Bui

BOOK 1. CHAPTER IX. § 2.

experience shows, arid proverbs, the ex-
pression of popular experience, attest,
how inferior is the quality of hired
servants, compared with the ministra-
tion of those personally interested in
the work, and how indispensable, when
hired service must be employed, is
" the master's eye" to watch over it.

The successful conduct of an indus-
trial enterprise requires two quite dis-
tinct qualifications : fidelity, and zeal.
The fidelity of the hired managers of a
concern it is possible to secure. When
their work admits of being reduced to
a definite set of rules, the violation of
these is a matter on which conscience
cannot easily blind itself, and on which
responsibility may be enforced by the
loss of employment. But to carry on a
great business successfully, requires a
hundred things which, as they cannot
be defined beforehand, it is impossible
to convert into distinct and positive
obligations. First and principally, it
requires that the directing mind should
be incessantly occupied with the sub-
ject ; should be continually laying
schemes by which greater profit may
be obtained, or expense saved. This
intensity of interest in the subject it is
seldom to be expected that any one
should feel, who is conducting a busi-
ness as the hired servant and for the
profit of another. There are experi-
ments in human affairs which are con-
clusive on the point. Look at the
whole class of rulers, and ministers of
state. The work they are entrusted
with, is among the most interesting
and exciting of all occupations; the per-
sonal share which they themselves reap
of the national benefits or misfortunes
which befal the state under their rule,
is far from trifling, and the rewards
and punishments which they may ex-
pect from public estimation are of the
plain and palpable kind which are
most keenly felt and most widely ap-
preciated. Yet how rare a thing is it
to find a statesman in whom mental
indolence is not stronger than all these
inducements. How infinitesimal is the
proportion who trouble themselves to
form, or even to attend to, plans of
public improvement, unless when it is
made etill more troublesome to them

to remain inactive ; or who have any
other real desire than that of rubbing
on, so as to escape general blame. On
a smaller scale, all who have ever em-
ployed hired labour have had ample
experience of the efforts made to give
as little labour in exchange for the
wages, as is compatible with not being
turned off. The universal neglect by
domestic servants of their employer's
interests, wherever these are not pro-
tected by some fixed rule, is matter of
common remark ; unless where long
continuance in the same service, and
reciprocal good offices, have produced
either personal attachment, or some
feeling of a common interest.

Another of the disadvantages of joint
stock concerns, which is in some degree
common to all concerns on a large scale,
is disregard of small gains and small
savings. In the management of a great
capital and great transactions, espe-
cially when the managers have not
much interest in it of their own, small
sums are apt to be counted for next to
nothing ; they never seem worth the
care and trouble which it costs to attend
to them, and the credit of liberality and
openhandedness is cheaply bought by
a disregard of such trifling considera-
tions. But small profits and small ex-
penses, often repeated, amount to great
gains and losses : and of this a large
capitalist is often a sufficiently good
calculator to be practically aware ; and
to arrange his business on a system,
which if enforced by a sufficiently vigi-
lant superintendence, precludes thepos-
sibility of the habitual waste, otherwise
incident to a great business. But the
managers of a joint stock concern sel-
dom devote themselves sufficiently to
the work, to enforce unremittingly,
even if introduced, through every detail
of the business, a really economical

From considerations of this nature,
Adam Smith was led to enunciate as a
principle, that joint stock companies
could never be expected to maintain
themselves without an exclusive privi-
lege, except in branches of business
which like banking, insurance, and
some others, admit of being, in a con-
siderable degree, reduced to fixed rules.

PRODUCTION ON A LARGE AND ON A SMALL SCALE. 87

This however is one of those over-state-
ments of a tme principle, often met
with in Adam Smith. In his days there
were few instances of joint stock com-
panies which had been permanently
successful without a monopoly, except
the class of cases which he referred to ;
but since his time there have been
many ; and the regular increase both
of the spirit of combination and of the
ability to combine, will doubtless pro-
duce many more. Adam Smith fixed
his observation too exclusively on the
superior energy and more unremitting
attention brought to a business in which
the whole stake and the whole gain be-
long to the persons conducting it ; and
he overlooked various countervailing
considerations which go a great way
towards neutralizing even that great
point of superiority.

Of these one of the most important
is that which relates to the intellectual
and active qualifications of the direct-
ing head. The stimulus of individual
interest is some security for exertion,
but exertion is of little avail if the in-
telligence exerted is of an inferior order,
which it must necessarily be in the
majority of concerns carried on by the
persons chiefly interested in them.
Where the concern is large, and can
afford a remuneration sufficient to at-
tract a class of candidates superior to
the common average, it is possible to
select for the general management, and
for all the skilled employments of a
subordinate kind, persons of a degree
of acquirement and cultivated intelli-
gence which more than compensates
for their inferior interest in the result.
Their greater perspicacity enables
them, with even a part of their minds,
to see probabilities of advantage which
never occur to the ordinary run of men
by the continued exertion of the whole
of theirs ; and their superior knowledge,
and habitual rectitude of perception
and of judgment, guard them against
blunders, the fear of which would pre-
vent the others from hazarding their
interests in any attempt out of the
ordinary routine.

It must be further remarked, that it
is not a necessary consequence of joint
stock management, that the persons

employed, whsther in superior or in
subordinate offices, should be paid
wholly by fixed salaries. There are
modes of connecting more or less inti-
mately the interest of the employe*
with the pecuniary success of the con-
cern. There is a long series of inter-
mediate positions, between working
wholly on one's own account, and work-
ing by the day, week, or year for an
invariable payment. Even in the case
of ordinary unskilled labour, there is
such a thing as task-work, or working
by the piece : and the superior effi-
ciency of this is so well known, that
judicious employers always resort to it
when the work admits of being put out
in definite portions, without the neces-
sity of too troublesome a surveillance to
guard against inferiority in the execu-
tion. In the case of the managers of
joint stock companies, and of the super-
intending and controlling officers in
many private establishments, it is a
common enough practice to connect
their pecuniary interest with the inte-
rest of their employers, by giving them
part of their remuneration in the form
of a percentage on the profits. The
personal interest thus given to hired
servants is not comparable in intensity
to that of the owner of the capital ; but
it is sufficient to be a very material
stimulus to zeal and carefulness, and,
when added to the advantage of supe-
rior intelligence, often raises the quality
of the service much above that which
the generality of masters are capable of
rendering to themselves. The ulterior
extensions of which this principle of
remuneration is susceptible, being of
great social as well as economical im-
portance, will be more particularly ad-
verted to in a subsequent stage of the
present inquiry.

As I have already remarked of large
establishments generally, when com-
pared with small ones, whenever com-
petition is free its results will show
whether individual orjoint stock agency
is best adapted to the particular case,
since that which is most efficient and
most economical will always in the end
succeed in underselling the other.

§ 3 The possibilitv of substituting

88

the large system of production for the
small, depends, of course, in the first
place, on the extent of the market. The
large system can only be advantageous
when a large amount of business is to
be done : it implies, therefore, either a
populous and flourishing community,
or a great opening for exportation.
Again, tbis as well as every other
change in the system of production is
greatly favoured by a progressive con-
dition of capital. It is chiefly when
the capital of a country is receiving a
great annual increase, that there is a
large amount of capital seeking for
investment : and a new enterprise is
much sooner and more easily entered
upon by new capital, than by with-
drawing capital from existing employ-
ments. The change is also much faci-
litated by the existence of large capitals
in few hands. It is true that the same
amount of capital can be raised by
bringing together many small sums.
But this (besides that it is not equally
well suited to all branches of industry),
supposes a much greater degree of com-
mercial confidence and enterprise dif-
fused through the community, and
belongs altogether to a more advanced
stage of industrial progress.

In the countries in which there are
the largest markets, the widest diffu-
sion of commercial confidence and en-
terprise, the greatest annual increase
of capital, and the greatest number of
large capitals owned by individuals,
there is a tendency to substitute more
and more, in one branch of industry
after another, large establishments for
small ones. In England, the chief
type of all these characteristics, there
is a perpetual growth not only of large
manufacturing establishments, but also,
wherever a sufficient number of pur-
chasers are assembled, of shops and
warehouses for conducting retail busi-
ness on a large scale. These are almost
always able to undersell the smaller
tradesmen, partly, it is understood, by
means of division of labour, and the
economy occasioned by limiting the
employment of skilled agency to cases
where skill is required ; and partly, no
doubt, by the saving of labour arising
from the great scale of the transactions :

BOOK I. CHAPTER IX. § 3.

as it costs no more time, and not much
more exertion of mind, to make a large
purchase, for example, than a small
one, and very much less than to make
a number of small ones.

With a view merely to production,
and to the greatest efficiency of labour,
this change is wholly beneficial. In
some cases it is attended with draw-
backs, rather social than economical,
the nature of which has been already
hinted at. But whatever disadvan-
tages may be supposed to attend on the
change from a small to a large system
of production, they are not applicable
to the change from a large to a still
larger. \Vhen. in any employment,
the regime of independent small pro-
ducers has either never been possible,
or has been superseded, and the sys-
tem of many work-people under one
management has become fully es-
tablished, from that time any further
enlargement in the scale of production
is generally an unqualified benefit. It
is obvious, for example, how great an
economy of labour would be obtained
if London were supplied by a single
gas or water company instead of the
existing plurality. While there are
even as many as two, this implies
double establishments of all sorts, when
one only, with a small increase, could
probably perform the whole operation
equally well ; double sets of machinery
and works, when the whole of the gas
or water required could generally be
produced by one set only ; even double
sets of pipes, if the companies did not
prevent this needless expense by agree-
ing upon a division of the territory.
Were there only one establishment,
it could make lower charges, consist-
ently with obtaining the rate of pro-
fit now realized. But would it do so ?
Even if it did not, the community in
the aggregate would still be a gaine r
since the shareholders are a part of
the community, and they would obtain
higher profits while the consumers
paid only the same. It is, however, an
error to suppose that the prices are
ever permanently kept down by the
competition of these companies. Where
competitors are so few, they always
end by agreeing not to compete. They

PRODUCTION ON A LAftGE AND ON A SMALL SCALK 89

may run a race of cheapness to ruin a
new candidate, but as soon as he has
established his footing they come to
terms with him. When, therefore, a
business of real public importance can
only be carried on advantageously upon
so large a scale as to render the liberty
of competition almost illusory, it is an
unthrifty ciispensation of the public re-
•Tources that several costly sets of ar-
rangements should bo kept up for the
purpose of rendering to the community
this one service. It is much better to
treat it at once as a public function ;
and if it be not such as the government
itself could beneficially undertake, it
should be made over entire to the com-
pany or association which will perform
it on the best terms for the public. In
the case of railways, for example, no
one can desire to see the enormous
waste of capital and land (not to speak
of increased nuisance) involved in the
construction of a second railway to
connect the same places already united
by an existing one ; while the two
would not do the work better than it
could be done by one, and after a short
time would probably be amalgamated.
Only one such line ought to be permitted,
but the control over that line never
ought to be parted with by the State,
unless on a temporary concession, as
in France ; and the vested right which
Parliament has allowed to be acquired
by the existing companies, like all
other proprietary rights which are op-
posed to public utility, is morally valid
only as a claim to compensation.

§ 4. The question between the
large and the small sj'stems of pro-
duction as applied to agriculture — be-
tween large and small farming, the
arande and the petite culture — stands,
in many respects, on different grounds
from the general question between
great and small industrial establish-
ments. In its social aspects, and as
an element in the Distribution of
Wealth, this question will occupy us
hereafter: but even as a question of
production, the superiority of the large
system in agriculture is by no means
BO clearly established as in manufac-
tures.

I have already remarked, that tho
operations of agriculture are little sus-
ceptible of benefit from the division of
labour. There is but little separation
of employments even on the largest
farms. The same persons may not in
general attend to the live stock, to the
marketing, and to the cultivation of
the soil ; but much beyond that pri-
mary and simple classification the
subdivision is not carried. The com-
bination of labour of which agriculture
is susceptible, is chiefly that which
Mr. Wakefield terms Simple Co-opera-
tion ; several persons nelping one
another in the same work, at the same
time and place. But I confess it
seems to me that this able writer at-
tributes more importance to that kind
of co-operation, in reference to agricul-
ture properly so called, than it de-
serves. None of the common farming
operations require much of it. There
is no particular advantage in setting a
great number of people to work to-
gether in ploughing or digging or sow-
ing the same field, or even in mowing
or reaping it unless time presses. A
single family can generally supply all
the combination of labour necessary
for these purposes. And in the works
in which an union of many efforts is
really needed, there is seldom found
any impracticability in obtaining it
where farms are small.

The waste of productive power by sub-
division of the land often amounts to a
great evil, but this applies chiefly to a
subdivision so minute, that the cultiva-
tors have not enough land to occupy
their time. Up to that point the same
principles which recommend large
manufactories are applicable to agri-
culture. For the greatest productive
efficiency, it is generally desirable
(though even this proposition must be
received with qualifications) that no
family who have any land, should have
less than they could cultivate, or than
will fully employ their cattle and tools.
These, however, are not the dimensions
of large farms, but of what are reckoned
in England very small ones. Th«
large farmer has some advantage it
the article of buildings. It does not
cost BO much to house a great numbet

90

BOOK I. CHAPTER IX. §- 4.

of cattle 5n one building, as to lodgi
them equally well in several buildings
There is also some advantage in im
plements. A small farmer is not so
likely to possess expensive instru
ments. But the principal agricultural
implements, even when of the best
construction, are not expensive. It may
not answer to a small farmer to own a
threshing machine, for the small quan-
tity of corn he has to thresh ; bul
there is no reason why such a machine
should not in every neighbourhood be
owned in common, or provided by some
person to whom the others pay a con-
sideration for its use ; especially as,
when worked by steam, they are so
constructed as to be moveable.* The
large fanner can make some saving in
cost of carriage. There is nearly as
much trouble in carrying a small por-
tion of produce to market, as a much
greater produce ; in bringing home a
small, as a much larger quantity of
manures, and articles of daily con-
sumption. There is also the greater
cheapness of buying things in large
quantities. These various advantages
must count for something, but it does
not seem that they ought to count for
very much. In England for some
generations, there has been little
experience of small farms ; but in Ire-
land the experience has been ample,
not merely under the worst but under
the best management : and the highest
Irish authorities may be cited in oppo-
sition to the opinion which on this
subject commonly prevails in England.
Mr. Blacker, for example, one of the
most experienced agriculturists and
successful improvers in the North of
Ireland, whose experience was chiefly
in the best cultivated, which are also
the most minutely divided parts of the
country, was of opinion, that tenants
holding farms not exceeding from five

* The observations in the text may here-
after require some degree of modification
from inventions such as the steam plough
and the reaping machine. The effect, how-
ever, of these improvements on the relative
advantages of large and small farms, will not
depend on the efficiency of the instruments,
but on their costliness. I see no reason to
expect that this will be such as to make
them inaccessible to small farmers, or com-
binations of small farmers.

to eight or ten acres, could live corn-
fortably, and pay as high a rent as any
large farmer whatever. " I am firmly
persuaded" (he says,*) " that the small
farmer who holds his own plough and
digs his own ground, if he follows a
proper rotation of crops, and feeds his
cattle in the house, can undersell the
large farmer, or in other words can pay
a rent which the other cannot afford :
and in this I am confirmed by the
opinion of many practical men who
have well considered the subject. . . .
The English farmer of 700 to 800
acres is a kind of man approaching to
what is known by the namts of a gentle-
man farmer. He must have his horse to
ride, and hi s gig, and perhaps an overseer
to attend to his labourers ; he certainly
cannot superintend himself the labour
going on in a farm of 800 acres."
After a few other remarks, he adds,
" Besides all these drawbacks, which
the small farmer knows little about,
there is the great expense of carting
out the manure from the homestead to
such a great distance, and again cart-
ing home the crop. A single horse
will consume the produce of more land
than would feed a small farmer and
his wife and two children. And what
is more than all, the large farmer says
to his labourers, go to your work ; but
when the small farmer has occasion to
hire them, he says, come ; the intelli-
gent reader will, I dare say, understand
the difference."

One of the objections most urged
against small farms is, that they do not
and cannot maintain, proportionally to
their extent, so great a number of cattle
as large farms, and that this occasions
such a deficiency of manure, that a soil
much subdivided must always be im-
poverished. It will be found, however,
that subdivision only produces this
effect when it throws the land into the
hands of cultivators so poor as not to
possess the amount of live stock suit-
ible to the size of their farms. A small
'arm and a badly stocked farm are not
synonymous. To make the comparison
"airly, we must suppose the same

* Prize Essay on the Management of Landed
^roperty in Ireland, by "William Blacker,
*isq. (1837,) p. 23.

PRODUCTION ON A LARGE AND OK A SMALL SCALE.

amount of capital which is possessed
by the large farmers to be disseminated
among the small ones. When this
condition, or even any approach to it,
exists, and when stall feeding is prac-
tised (and stall feeding now begins to
be considered good economy even on
large farms), experience, far from bear-
ing out the assertion that small farm-
ing is unfavourable to the multiplica-
tion of cattle, conclusively establishes
the very reverse. The abundance of
cattle, and copious use of manure, on
the small farms of Flanders, are the
most striking features in that Flemish
agriculture which is the admiration of
all competent judges, whether in Eng-
land or on the Continent.*

* " The number of beasts fed on a farm
of which the whole Is arable land," (says the
elaborate and intelligent treatise on Flemish
Husbandry, from personal observation and
the best sources, published in the Library of
the Society for the Diffusion of Useful
Knowledge,) "is surprising to those who are
not acquainted with the mode in which the
food is prepared for the cattle. A beast for
every three acres of land is a common pro-
portion, and in very small occupations where
much spade husbandry .9 used, the propor-
tion is still greater. After comparing the
accounts given >n a variety of places and
situations of the average quantity of milk
which a eow gives when fed in the stall, the
result is, that it greatly exceeds that of our
best dairy farms, and the quantity of butter
made from a given quantity of milk is
also greater. It appears astonishing that the
occupier of only ten or twelve acres of light
arable land should be able to maintain four
or five cows, but the fact is notorious in the
Waes country." (pp. 59, GO.)

This subject is treated very intelligently
in the work of M. Passy, On Systems of Cul-
tivation and their Influence on Social Economy,
ona of the most impartial discussions, as be-
tween the two systems, which has yet ap-
peared in France.

" Without doubt it ii England that, on an
equal surface, feeds the greatest number of
animals ; Holland and some parts of Lom-
bardy can alone vie with her in this respect :
but is this a consequence of the mode of cul-
tivation, and have not climate and local
situation a share in producing it ? Of this
I think there can be no doubt. In fact, what-
ever may have been said, wherever large and
tmall cultivation meet in the same place, the
latter, though it cannot support as many sheep,
possesses, all things considered, the greatest
quantity of manure-producing animals.

" In Belgium, for example, the two pro-
vinces of smallest farms are Antwerp and
East Flanders, and they possess on an average
for every 100 hectares (250 acres) of culti-
vated land, 74 horned cattle and 14 sheep.

The disadvantage, when disadvan-
tage there is, of BUI all, or rather of pea-
sant farming, as compared with capi-
talist fanning, must chiefly consist in
inferiority of skill and knowledge ; but
it is not true, as a general fact, that
such inferiority exists. Countries of
small farms and peasant farming, Flan-
ders and Italy, had a good agriculture
many generations before England, and
theirs is still, as a whole, probably the
best agriculture in the world. The
empirical skill, which is the effect of
daily and close observation, peasant
farmers often possess in an eminent
degree. The traditional knowledge,
for example, of the culture of the vine,
by the peasantry of the

The two provinces where we find the large
farms are Namur and Hainaut, and they
average, for every 100 hectares of cultivated
ground, only 30 horned cattle and 45 sheep.
Reckoning, as is the custom, ten sheep a.
equal to one head of horned cattle, we find
in the first case, the equivalent of 76 I <M st.
to maintain the fecundity of the soil ; in the
latter case less than 35, a difference which
must be called enormous. (See the statisti-
cal documents published by the Minister of
the Interior.) The abundance of animals, in
the parts of Belgium which are most sub-
divided, is nearly as great as in England.
Calculating the number in England in pro-
portion only to the cultivated ground, there
are for each 100 hectares, 65 horned cattle
and nearly 260 sheep, together equal to 91
of the former, being only an excess of 15.
It should besides be remembered, that in
Belgium stall feeding being continued nearly
the whole year, hardly any of the manure is
lost, while in England, grazing in the open
fields diminishes considerably the quantity
which can be completely utilized.

" Again, in the Department of the Nord,
the arrondissements which have the smallest
farms support the greatest quantity of
animals. While the arrondissements of Lille
and Hazebrouck, besides a greater number
of horses, maintain the equivalent of 52 and
46 head of horned cattle, those of Dunkirk
and Avesnes, where the farms are larger,
produce the equivalent of only 44 and 40
head. (See the statistics of France published
by the Minister of Commerce.)

" A similar examination extended to other
portions of France would yield similar re-
sults. In the immediate neighbourhood ot
towns, no doubt, the small farmers, having
no difficulty in purchasing manure, do not
maintain animals : but, as a general rule, the
kind of cultivation which takes most out of
the ground must be that which isobligedtobe
most active in renewing its fertility. Assur-
edly the small farms cannot have numerous
flocks of sheep, and this is an inconvenieltBB";
but they support more horned cattle than the

BOOK 1. CHAPTER Lt. § 4.

countries where the best wines are
produced, is extraordinary. There is
no doubt an absence of science, or at
least of theory ; and to some extent a
deficiency of the spirit of improvement,
BO far as relates to the introduction of
new processes. There is also a want
of means to make experiments, which
.ran seldom be made with advantage
except by rich proprietors or capitalists.
As for those systematic improvements
which operate on a large tract of coun-
try at once (such as great works of
draining or irrigation) or which for
any other reason do really require large
numbers of workmen combining their
labour, these are not in general to be
expected from small farmers, or even
small proprietors ; though combination
among them for such purposes is by no
means unexampled, and will become
more common as their intelligence is
more developed.

Against these disadvantages is to be
placed, where the tenure of land is of
the requisite kind, an ardour of indus-
try absolutely unexampled in any other
condition of agriculture. This is a
subject on which the testimony of com-
petent witnesses is unanimous. The
working of the petite culture cannot
be fairly judged where the small culti-
vator is merely a tenant, and not even
a tenant on fixed conditions, but (as

large farms. To do so is a necessity they
cannot escape from, in any country where
the demands of consumers require their ex-
istence : if they could not fulfil this condi-
tion, they must perish.

" The following are particulars, the exact-
ness of which is lully attested by the excel-
lence of the work from which I extract
them, the statistics of thecommuneorVensat
(department of Puy de Dome), lately pub-
lished by Dr. Jusseraud, mayor of the com-
mune. They are the more valuable, as they
throw full light on the nature of the changes
which the extension of small farming has, in
that district, produced in the number and
kind of animals by whose manure the pro-
ductiveness of the soil is kept up and in-
creased. The commune consists of 1612
hectares, d;vided into 4600 parcelles, owned
by 591 proprietors, and of this extent 14C6
hectares are under cultivation. In 1790,
seventeen farms occupied two-thirds of the
whole, and twenty others the remainder.
Since then the land has been much divided,
and the subdivision is now extreme. What
has been the effect on the quantity of cattle ?
A considerable increase. In 1790 there were

until lately in Ireland) at a nominal
rent greater than can be paid, and
therefore practically at a varying rent
always amounting to the utmost that
can be paid. To understand the sub-
ject, it must be studied where the cul-
tivator is the proprietor, or at least a
mttayer with a permanent tenure;
where the labour he exerts to increase
the produce and value of the land
avails wholly, or at least partly, to his
own benefit and that of his descend-
ants. In another division of our sub-
ject, we shall discuss at some length
the important subject of tenures of
land, and I defer till then any citation
of evidence on the marvellous industry
of peasant proprietors. It may suffice
here to appeal to the immense amount
of gross produce which, even without a
permanent tenure, English labourers
generally obtain from their little
allotments; a produce beyond com-
parison greater than a large farmer
extracts, or would find it his interest
to extract, from the same piece of
land.

And this I take to be the true rea-
son why large cultivation is generally
most advantageous as a mere invest-
ment for profit. Land occupied by a
large farmer is not, in one sense of the
word, farmed so highly. There is not
nearly so much labour expended on it.

only about 300 horned cattle, and from 1SOO
to 2000 sheep ; there are now 676 of the
former and only 533 of the latter. Thus
1300 sheep have been replaced by 376 oxen
and cows, and (all things taken into ac-
count) the quantity of manure has increased
in the ratio of 490 to 729, or more than 48
per cent, not to mention that the animals
being now stronger and better fed, yield a
much greater contribution than formerly to
the fertilization of the ground.

" Such is the testimony of facts on the
point. It is not true, then, that small farm-
ing feeds fewer animals than large ; on the
contrary, local circumstances being the
same, it feeds a greater number : and this is
only what might have been presumed ; for,
requiring more from the soil, it is obliged to
take greater pains for keeping up its pro-
ductiveness. All the other reproaches cast
upon small farming, when collated one by
one with facts justly appreciated, will be
seen to be no better founded, and to have
been made only because the countries com-
pared with one another were differently
situated in respect to the general causes of
agricultural prosperity." (pp. 116-120.)

PRODUCTION ON A LARGE AND ON A SMALL SCALE. 93

This is not on account of any economy
arising from combination of labour, but
because, by employing less, a greater
return is obtained in proportion to the
outlay. It does not answer to any one
to pay others for exerting all the la-
bour which the peasant, or even the
allotment holder, gladly undergoes
\vlu-n the fruits are to be wholly reaped
by himself. This labour, however, is
not unproductive ; it all adds to the
gross produce. With anything like
equality of skill and knowledge, the
large farmer does not obtain nearly so
much from the soil as the small pro-
prietor, or the small farmer with ade-
quate motives to exertion : but though
his returns are less, the labour is less
in a still greater degree, and as what-
ever labour he employs must be paid
for, it does not suit his purpose to em-
ploy more.

But although the gross produce of
the land is greatest, other tilings being
the same, under small cultivation, and
although, therefore, a country is able
on that system to support a larger
aggregate population, it is generally
assumed by English writers that what
is termed the net produce, that is, the
eurplus after feeding the cultivators,
must be smaller; that therefore, the
population disposable for all other pur-
poses, for manufactures, for commerce
and navigation, for national defence,
for the promotion of knowledge, for the
liberal professions, for the various
functions of government, for the arts
and literature, all of which are depen-
dent on this surplus for their existence
as occupations, must be less numerous ;
and that the nation, therefore, (waving
all question as to the condition of the
actual cultivators,) must be inferior in
the principal elements of national
power, and in many of those of general
well-being. This, however, has been
iaken for granted much too readily.
Undoubtedly, the non-agricultural po-
pulation will bear a less ratio to the
agricultural, under small than under
.arge cultivation. But that it will be
vess numerous absolutely, is by no
means a consequence. If the total
population, agricultural and non-ugri-
wultural, is greater, the non-agricultural

portion may be more numerous in itself,
and may yet be a smaller proportion of
the whole. If the gross produce i.s
larger, the net produce may be larger,
and yet bear a smaller ratio to tho
gross produce. Yet even Mr. Wake-
field sometimes appears to confound
these distinct ideas. In France it is
computed that two-thirds of the whole
population are agricultural In Eng-
land, at most, one-third. Hence Mr.
Wakefield infers, that "as in France
only three people are supported by the
labour of two cultivators, while in Eng-
land the labour of two cultivators sup
ports six people, English agriculture
is twice as productive as French agri-
culture," owing to the superior effi-
ciency of large farming through com-
bination of labour. But in the first
place the facts themselves are over-
stated. The labour of two persons in
England does not quite support six
people, for there is not a little food
imported from foreign countries, and
from Ireland. In France, too, the
labour of two cultivators does much
more than supply the food of three per-
sons. It provides the three persons,
and occasionally foreigners, with flax,
hemp, and to a certain extent with
silk, oils, tobacco, and latterly sugar,
which in England are wholly obtained
from abroad ; nearly all the timber
used in France is of home growth,
nearly all which is used in England is
imported ; the principal fuel of France
is procured and brought to market by
persons reckoned among agriculturists,
in England by persons not so reckoned.
I do not take into calculation hides
and wool, these products being com-
mon to both countries, nor wine or
brandy produced for home consumption,
since England has a corresponding
production of beer and spirits ; but
England has no material export of
either article, and a groat importation
of the last, while France supplies wines
and spirits to the whole world. I say
nothing of fruit, eggs, and such minor
articles of agricultural produce, in
which the export trade of France is
enormous. But, not to lay undue stress
on these abatements, we will take the
statement as it stands. Suppose that

BOOK I. CHAPTER IX. § 4.

two persons, in England, do bond fide
produce the food of six, while in France,
for the same purpose, the labour of four
is requisite. Does it follow that Eng-
land must have a larger surplus for the
support of a non-agricultural popula-
tion ? No ; hut merely that she can
devote two-thirds of her whole produce
to the purpose, instead of one-third.
Suppose the produce to be twice as
great, and the one-third will amount to
as much as the two-thirds. The fact
might be, that owing to the greater
quantity of labour employed on the
trench system, the same land would
produce food for twelve persons which
on the English system would only pro-
duce it for six : and if this were so,
which would be quite consistent with
the conditions of the hypothesis, then
although the food for twelve was pro-
duced by the labour of eight, while the
six were fed by the labour of only two,
there would be the same number of
hands disposable for other employment
in the one country as in the other. I
am not contending that the fact is so.
I know that the gross produce per acre
in France as a whole (though not in
its most improved districts) averages
\iuch less than in England, and that,
in proportion to the extent and fertility
of the two countries, England has, in
the sense we are now speaking of,
much the largest disposable popula-
tion. But the disproportion certainly
is not to be measured by Mr. Wake-
field's simple criterion. As well might
it be said that agricultural labour
in the United States, where, by a
late census, four families in every five
appeared to be engaged in agricul-
ture, must be still more inefficient than
in France.

The inferiority of French cultivation
(which, taking the country as a whole,
must be allowed to be real, though
much exaggerated,) is probably more
owing to the lower general average of
industrial skill and energy in that
country, than to any special cause :
and even if partly the effect of minute
subdivision, it does not prove that
small farming is disadvantageous, but
only (what is undoubtedly the fact)
that farms in France are very fre-

quently too small, and, what is worte,
broken up into an almost incredible
number of patches or parcelled, most in-
conveniently dispersed and parted from
one another.

As a question, not of gross, but of
net produce, the comparative merits of
the grande and the petite culture,
especially when the small farmer is
also the proprietor, cannot be looked
upon as decided. It is a question
on which good judges at present
differ. The current of English opinion
is in favour of large farms : on the
Continent, the weight of authority
seems to be on the other side. Profes-
sor Eau, of Heidelberg, the author of
one of the most comprehensive and
elaborate of extant treatises on politi-
cal economy, and who has that large
acquaintance with facts and authorities
on his own subject, which generally
characterises his countrymen, lays it
down as a settled truth, that small or
moderate-sized farms yield not only a
larger gross but a larger net produce:
though, he adds, it is desirable there
should be some great proprietors, to
lead the way in new improvements.*
The most apparently impartial and
discriminating judgment that I have
met with is that of M. Passy, who
(always speaking with reference to
net produce) gives his verdict in favour
of large farms for grain and forage :
but, for the kinds of culture which
require much labour and attention,
places the advantage wholly on the
side of small cultivation ; including in
this description, not only the vine and
the olive, where a considerable amount
of care and labour must be bestowed on
each individual plant, but also roots,
leguminous plants, and those which
furnish the materials of manufactures.
The small size, and consequent multi-
plication, of farms, according to all
authorities, are extremely favourable
to the abundance of many minor pro-
ducts of agriculture.f

* See pp. 352 and 353 of a French transla-
tion published at Brussels in 1839, by M.
Fred, de Kemmeter, of Ghent.

t " In the department of the Nord," says
M. Passy, " a farm of 20 hectares (50 acres)
produces in calves, dairy produce, poultry,
and eggs, a value of sometimes 1000 franc*

PRODUCTION ON A LARGE AND ON A SMALL SCALE. 95

Impressed with the conviction that,
of all faults which can he committed
by a scientific writer on political and
social subjects, exaggeration, and asser-
tions beyond the evidence, most require
to be guarded against, I limited myself
in the early editions of this work to the
foregoing very moderate statements.
I little knew how much stronger my
language might have been without
exceeding the truth, and how much
the actual progress of French agricul-
ture surpassed anything which I had
at that time sufficient grounds to
affirm. The investigations of that
eminent authority on agricultural sta-
tistics, M. Leonce de Lavergne, under-
taken by desire of the Academy of
Moral and Political Sciences of the
Institute of France, have led to the
conclusion that since the Revolution of
1789, the total produce of French agri-
culture has doubled ; profits and wages
having both increased in about the
same, and rent in a still greater ratio.
M. de Lavergne, whose impartiality is
one of his greatest merits, is, moreover,
so far in this instance from the sus-
picion of having a case to make out,
that he is labouring to show, not how
much French agriculture has accom-
plished, but how much still remains for
it to do. "We have required" (he
says) " no less than seventy years to
bring into cultivation two million hec-
tares" (five million English acres) " of
waste land, to suppress half our fallows,
double our agricultural products, in-
crease our population by 30 per cent,
our wages by 100 per cent, our rent by
150 per cent. At this rate we shall
require three quarters of a century
more to arrive at the point which
England has already attained."*

After this evidence, we have surely
now heard the last of the incompati-
bility of small properties and small
farms with agricultural improvement.
The only question which remains open
is one of degree ; the comparative
rapidity of agricultural improvement
under the two systems ; and it is the

* Economic Rurale de la, France depuit
1789. Par M. Leonce de Lavergne, Membre
de 1'Institut et de la Societ6 Centrale d'AgrU
culture d« France. 2me ed. p. 69.

It is evident that every labourer who
extracts from the land more than his
own food, and that of any family he
may have, increases the means of sup-
porting a non-agricultural population.
Even if his surplus is no more than
enough to buy clothes, the labourers
who make the clothes are a non-
agricultural population, enabled to
exist by food which he produces.
Every agricultural family, therefore,
•which produces its own necessaries,
adds to the net produce of agriculture ;
and so does every person born on the
land, who by employing himself on it,
adds more to its gross produce than
the mere food which he eats. It is
questionable whether, even in the most
subdivided districts of Europe which
are cultivated by the proprietors, the
multiplication of hands on the soil has
approached, or tends to approach,
within a great distance of this limit.
In France, though the subdivision is
confessedly too great, there is proof
positive that it is far from having
reached the point at which it would
begin to diminish the power of sup-
porting a non-agncultural population.
This is demonstrated by the great in-
crease of the towns ; which have of
late increased in a much greater ratio
*han the population generally,* show-
ing (unless the condition of the town
labourers is becoming rapidly de-
teriorated, which there is no reason to
believe) that even by the unfair and
inapplicable test of proportions, the
productiveness of agriculture must be
on the increase. This, too, concur-
rently with the amplest evidence that
in the more improved districts of
France, and in some which, until
lately, were among the unimproved,
there is a considerably increased con-
sumption of country produce by the
country population itself.

(.£40) a year : which, deducting expenses, is
an addition to the net produce of 15 to 20
francs per hectare."— On Syitemt of Cultiva-
tion, p. 114.

* During the interval between the census
of 1851 and that of 1856, the increase of the
population of Paris alone, exceeded the ag-
fregate increase of all France : while nearly
»11 the other large towns likewise showed an
increase.

BOOK I. CHAPTER X. § 1.

general opinion of those who are equally | of the efficiency of labour. We shall

\\cll acquainted with both, that im-
provement is greatest under a due ad-
mixture between them.

In the present chapter, I do not enter
on the question between great ami
small cultivation in any other respect
than as a question of production, and

return to it hereafter as affecting the
distribution of the produce, and the
physical and social well-being of the
cultivators themselves ; in which aspects
it deserves, and requires, a still more
particular examination.

CHAFIER X.

OP THE LAW OF THE INX'REASE OF LABOUR.

§ 1 . WE have now successively
considered each of the agents or condi-
tions of production, and of the means
by which the efficacy of these various
agents is promoted. In order to
come to an end of the questions
which relate exclusively to produc-
tion, one more, of primary importance,
remains.

Production is not a fixed, but an in-
creasing thing. When not kept back
by bad institutions, or a low state of
the arts of life, the produce of industry
has usually tended to increase ; stimu-
*ated not only by the desire of the pro-
ducers to augment their means of
consumption, but by the increasing
number of the consumers. Nothing in
political economy can be of more im-
portance than to ascertain the law of
this increase of production ; the condi-
tions to which it is subject ; whether it
has practically any limits, and what
these are. There is also no subject in
political economy which is popularly
less understood, or on which the errors
committed are of a character to pro-
duce, and do produce, greater mis-
chief.

We have seen that the essential re-
quisites of production are three — labour,
capital, and natural agents ; the term
capital including all external and phy-
sical requisites which are products of
Jabour, the term natural agents all those
which are uot. But among natural
agents we need not take into account
vlioae which, existing in unlimited

quantity, being incapable of appropria-
tion, and never altering in their quali-
ties, are always ready to lend an equal
degree of assistance to production,
whatever may be its extent ; as air,
and the light of the sun. Being now
about to consider the impediments to
production, not the facilities for it,
we need advert to no other natural
agents than those which are liable to
be deficient, either in quantity or in
productive power. These may be all
represented by the term land. Land,
in the narrowest acceptation, as the
source of agricultural produce, is the
chief of them ; and if we extend the
term to mines and fisheries — to what
is found in the earth itself, or in the
waters which partly cover it, as well as
to what is grown or fed on its surface,
it embraces everything with which we
need at present concern ourselves.

We may say, then, without a greater
stretch of language than under the
necessary explanations is permissible,
that the requisites of production are
Labour, Capital, and Land. The in- '
crease of production, therefore, depends
on the properties of these elements. It
is a result of the increase either of the
elements themselves, or of their pro-
ductiveness. The law of the incrcaso
of production must be a consequence^of
the laws of these elements ; the limits
to the increase of production must I
the limits, whatever they are, set_ Lj
those laws. We proceed to consider
the three elements successively, with

LAW OF THE INCREASE OF LABOUR.

reference to this effect ; or in other
words, the law of the increase of pro-
duction, viewed in respect of its de-
pendence, first on Labour, secondly on
Capital, and lastly on Land.

§ 2. The increase of labour is the
increase of mankind ; of population.
Un this subject the discussions excited
by the Essay of Mr. Malthus have
made the truth, though by no means
universally admitted, yet so fully
known, that a briefer examination of
the question than would otherwise have
been necessary will probably on the
present occasion suffice.

The power of multiplication inherent
in all organic life may be regarded as
infinite. There is no one species of
vegetable or animal, which, if the earth
were entirely abandoned to it, and to
the things on which it feeds, would not
in a small number of years overspread
every region of the globe, of which the
climate was compatible with its ex-
istence. The degree of possible rapidity
is different in different orders of beings ;
but in all it is sufficient, for the earth
to be very speedily filled up. There
are many species of vegetables of which
a single plant will produce in one year
the germs of a thousand ; if only two
come to maturity, in fourteen years the
two will have multiplied to sixteen
thousand and more. It is but a mode-
rate case of fecundity in animals to be
capable of quadrupling their numbers
in a single year ; if they only do as
much in half a century, ten thousand
will have swelled within two centuries
to upwards of two millions and a half.
The capacity of increase is necessarily
in a geometrical progression : the nume-
rical ratio alone is different.

To this property of organized beings,
the human species forms no exception.
Its power of increase is indefinite, and
the actual multiplication would be
extraordinarily rapid, if the power were
exercised to the utmost. It never is
exercised to the utmost, and yet, in
the most favourable circumstances
known to exist, which are those of a
fertile region colonized from an in-
dustrious and civilized community,
population has continued, for several
r.E.

generations, independently of fresh i:u-
migration, to double itself in not much
more than twenty years.* That tho
capacity of multiplication in the human
species exceeds even this, is evident
if we consider how great is the ordinary
number of children to a family, where
the climate is good and early mar-
riages usual ; and how small a propor-
tion of them die before the age of
maturity, in the present state of
hygienic knowledge, where the locality
is healthy, and the family adequately
provided with the means of living. It
is a very low estimate of the capacity
of increase, if we only assume, that in
a good sanitary condition of the people,
each generation may be double the
number of the generation which pre-
ceded it.

Twenty or thirty years ago, theso
propositions might still have required
considerable enforcement and illustra-
tion ; but the evidence of them is so
ample and incontestable, that they
have made their way against all kinds
of opposition, and may now be re-
garded as axiomatic : though the
extreme reluctance felt to admitting
them, every now and then gives birth
to some ephemeral theory, speedily
forgotten, of a different law of increase
in different circumstances, through a
providential adaptation of the fecundity
of the human species to the exigencies
of society.f The obstacle to a just

* This has been disputed ; but the highest
estimate I have seen of the term which
population requires for doubling itself in the
United States, independently of immigrants
and of their progeny — that of Mr. Carey —
does not exceed thirty years.

t Ons of these theories, that of Mr. Double-
day, may be thought to require a passing
notice, because it has of late obtained some
followers, and because it derives a semblance
of support from the general analogies of
organic life. This theory maintains that tha
fecundity of the human animal, and of all
other living beings, a in inverse proportion
to the quantity of nutriment : that an under-
fed population multiplies rapidly, hut that
all classes in comfortable circumstances are,
by a physiological law, so unproiinc, as sel-
dom to keep up their numbers without being
recruited from a poorer class. There is no
doubt that a positive excess of notriincnt,
in animals as well as in fruit trees, is un-
favourable to reproduction ; and it is quits
possible, though by no means proved, that
the physiological conditions of fecundity maj

BOOK I. CHAPTER X. § 3.

understanding of the subject docs not
arise from these theories, but from too
confused a notion of the causes which,
at most times and places, keep the
actual increase of mankind so far
behind the capacity.

§ 3. Those causes, nevertheless, are
in no way mysterious. What pre-
vents the population of hares and
rabbits from overstocking the earth ?
Not want of fecundity, but causes
very different : many enemies, and in-
sufficient subsistence; not enough to
eat, and liability to being eaten. In
the human race, which is not generally
subject to the latter inconvenience,
the equivalents for it are war and
disease. If the multiplication of man-
kind proceeded only, like that of the
other animals, from a blind instinct, it
would be limited in the same manner
with theirs; the births would be as
numerous M the physical constitution
of the species admitted of, and the
population would be kept down by

exist in the greatest degree when the supply
of food is somewhat stinted. But any one
who might be inclined to draw from this,
even if admitted, conclusions at variance
with the principle of Mr. Malthus, needs
only be invited to look through a volume of
the Peerage, and observe the enormous fami-
lies almost universal in that class; or call
to mind the large families of the English
clergy, and generally of the middle classes of
England. It is, besides, well remarked by
Mr. Carey, that, to be consistent with Mr.
Doubleday's theory, the increase of the popu-
lation of the United States, apart from im-
migration, ought to be one of the slowest on
record.

Mr. Carey has a theory of his own, also
grounded on a physiological truth, that the
total sum of nutriment received by an or-
ganiied body directs itself, in largest propor-
tion, to the parts of the system which are
most used ; from which he anticipates a
diminution in the fecundity of human beings,
not through more abundant feeding, but
through the greater use of their brains inci-
dent to an advanced civilization. There is
considerable plausibility in this speculation,
and experience may hereafter confirm it.
But the change in the human constitution
Which it supposes, if ever realized, will con-
duce to the expected effect rather by ren-
dering physical self-restraint easier, than by
dispensing with its necessity ; since the most
rapid known rate of multiplication is quite
compatible with a very sparing employment
•f tb* multiplying power.

deaths.* Cut the conduct of human
creatures is more or less influenced by
foresight of consequences, and by im-
pulses superior to mere animal in-
stincts : and they do not, therefore,
propagate like swine, but are capable,
though in very unequal degrees, of
being withheld by prudence, or by the
social affections, from giving existence
to beings born only to misery and pre-
mature death. In proportion as man-
kind rise above the condition of the
beasts, population is restrained by the
fear of want, rather than by want
itself. Even where there is no question
of starvation, many are similarly acted
upon by the apprehension of losing
what have come to be regarded as the
decencies of their situation in life.
Hitherto no other motives than these
two have been found strong enough, in
the generality of mankind, to counter-
act the tendency to increase. It has
been the practice of a great majority
of the middle and the poorer classes,
whenever free from external control,
to marry as early, and in most coun-
tries to have as many children, as was
consistent with maintaining themselves
in the condition of life which they were
born to, or were accustomed to consider
as theirs. Among the middle classes,
in many individual instances, there is
an additional restraint exercised from
the desire of doing more than main-

* Mr. Carey expatiates on the absurdity ot
supposing that matter tends to assume the
highest form of organization, the human, at
a more rapid rate than it assumes the lower
forms which compose human food; that
human beings mulliply faster than turnips
and cabbages. But the limit to the increase
of mankind, according to the doctrine of Mr.
Malthus, does not depend on the power of
increase of turnips and cabbages, but on the
limited quantity of the land on which they
can be grown. So long as the quantity of
land is practically unlimited, which it is in
the United States, and food, consequently,
can be increased at the highest rate which
is natural to it, mankind also may, without
augmented difficulty in obtaining subsistence,
increase at their highest rate. When Mr.
Carey can show, not that turnips and cab-
sages but that the soil itself, or the nutritive
elements contained in it, tend naturally to
multiply, and that, too, at a rate exceeding
;he most rapid possible increase of mankind,
le will have said something to the purpose.
Till then, this part, at least, of his argument
may be considered as non-existent.

\

LAW OF THE INCREASE OF LABOUR.

taining their circumstances — of im-
proving them ; but such a desire is
rarely found, or rarely has that effect,
in the labouring classes. If they can
bring up a family as they were them-
selves brought up, even the prudent
among them are usually satisfied. Too
often they do not think even of that,
but rely on fortune, or on the resources
to be found in legal or voluntary
charity.

In a very backward state of society,
like that of Europe in the Middle Ages,
and many parts of Asia at present,
population is kept down by actual
starvation. The starvation does not
take place in ordinary years, but in
seasons of scarcity, which in those
states of society are much more fre-
quent and more extreme than Europe
is now accustomed to. In these seasons
actual want, or the maladies conse-
quent on it, carry off numbers of the
population, which in a succession of
favourable years again expands, to be
again cruelly decimated. In a more
improved state, few, even among the
poorest of the people, are limited to
actual necessaries, and to a bare
sufficiency of those : and the increase
is kept within bounds, not by excess
of deaths, but by limitation of births.
The limitation is brought about in
various ways. In some countries, it is
the result of prudent or conscientious
self-restraint. There is a condition to
which the labouring people are ha-
bituated; they perceive that by having
too numerous families, they must sink
below that condition, or fail to trans-
mit it to their children ; and this they
do not choose to submit to. The
countries in which, so far as is known,
a great degree of voluntary prudence
has been longest practised on this
subject, are Norway and parts of
Switzerland. Concerning both, there
happens to be unusually authentic in-
formation ; many facts were carefully
brought together by Mr. Malthus, and
much additional evidence has been
obtained since his time. In both these
countries the increase of population is
very slow ; and what checks it, is not
multitude of deaths, but fewness of
births. Both the births and the

deaths are remarkably few in propor-
tion to the population ; the average
duration of life is the longest in
Europe ; the population contains fewer
children, and a greater proportional
number of persons in the vigour of life,
than is known to be the case in any
other part of the world. The paucity
of births tends directly to prolong life,
by keeping the people in comfortable
circumstances ; and the same prudence
is doubtless exercised in avoiding
causes of disease, as in keeping clear
of the principal cause of poverty.
It is worthy of remark that the
two countries thus honourably distin-
guished, are countries of small landed
proprietors.

There are other cases in which the
prudence and forethought, which per-
haps might not be exercised by the
people themselves, are exercised by the
state for their benefit ; marriage not
being permitted until the contracting
parties can show that they have tho
prospect of a comfortable support,
under these laws, of which I shall
speak more fully hereafter, the condi-
tion of the people is reported to bo
good, and the illegitimate births not
so numerous as might be expected.
There are places, again, in which the
restraining cause seems to be not so
much individual prudence, as some
general and perhaps even accidental
habit of the country. In the rural
districts of England, during the last
century, the growth of population was
very effectually repressed by the diffi-
culty of obtaining a cottage to live in.
It was the custom for unmarried la-
bourers to lodge and board with their
employers ; it was the custom for mar-
ried labourers to have a cottage : and
the rule of the English poor laws by
which a parish was charged with the
support of its unemployed poor, ren-
dered landowners averse to promote
marriage. About the end of the cen-
tury, the great demand for men in war
and manufactures, made it be thought
a patriotic thing to encourage popula-
tion: and about the same time tho
growing inclination of farmers to live
like rich people, favoured as it was by
a long period of high prices, made
H2

100

BOOK I. CHAPTER XI. § 1.

them desirous of keeping inferiors at
a greater distance, and pecuniary
motives arising from abuses of the
poor laws being superadded, they
gradually drove their labourers into
cottages, which the landlords now no
longer refused permission to build. In
some countries an old standing custom
that a girl should not marry until she
had spun and woven for herself an
ample trousseau (destined for the
supply of her whole subsequent life), is
said to have acted as a substantial
check to population. In England, at
present, the influence of prudence in
keeping down multiplication is seen by
the diminished number of marriages
in the manufacturing districts in years
when trade is bad.

But whatever be the causes \ty
which the population is anywhere
limited to a comparatively slow rate of
increase, an acceleration of the rate
very speedily follows any diminution of
the motives to restraint. It is but
rarely that improvements in the con-
dition of the labouring classes do any-
thing more than give a temporary
margin, speedily filled up by an in-
crease of their numbers. The use they
commonly choose to make of any ad-
vantageous change in their circum-
stances, is to take it out in the form
which, by augmenting the population,
deprives the succeeding generation of
the benefit. Unless, either by their
general improvement in intellectual
and moral culture, or at least by
raising their habitual standard of com-
fortable living, they can be taught to
make a better use of favourable cir-

cumstances, nothing permanent fun bf
done for them ; the most promising
schemes end only in having a more
numerous, but not a happier people.
By their habitual standard, 1 mean
that (when any such there is) down to
which they will multiply, but not
lower. Every advance they make in
education, civilization, and social im-
provement, tends to raise this standard;
and there is no doubt that it is gra-
dually, though slowly, rising in I ho
more advanced countries of Western
Europe. Subsistence and employment
in England have never increased more
rapidly than in the last forty years,
but every census since 1821 showed a
smaller proportional increase of popula-
tion than that of the period preceding;
and the produce of French agriculture
and industry is increasing in a pro-
gressive ratio, while the population
exhibits, in every quinquennial census,
a smaller proportion of births to the
population.

The subject, however, of population,
in its connexion with the condition of
the labouring classes, will be con-
sidered in another place : in the
present, we have to do with it solely as
one of the elements of Production : and
in that character we could not dis-
pense with pointing out the unlimited
extent of its natural powers of increase,
and the causes owing to which so
small a portion of that unlimited
power is for the most part actually
exercised. After this brief indica-
tion, we shall proceed to the other
elements.

CHAPTER XL

OP THE LAW OP THE INCREASE OF CAPITAL.

§ 1. THE requisites of production
being labour, capital, and land, it has
been seen from the preceding chapter
that the impediments to the increase
of production do not arise from the
first of these elements. On the side

of labour there is no obstacle to an
increase of production, indefinite in
extent and of unslackening rapidity
Population has the power of increasing
in an uniform and rapid geometrical
ratio. If the only essential rendition

LA W OP THE INCREASE OF CAPITAL.

of production were i.ilxrar, the produce
might, and natunilly would, increase
in the same ratio ; and there would be
no limit, until the numbers of mankind
were brought to a stand from actual
want of space.

But production has other requisites,
and of these, the one which we shall
next consider is Capital. There cannot
be more people in any country, or in
the world, than can bo supported from
the produce of past labour until that
of present labour comes in. There
will be no greater number of productive
labourers in any country, or in the
world, than can be supported from that
portion of the produce of past labour,
which is spared from the enjoyments
of its possessor for purposes of repro-
duction, and is termed Capital. "We
have next, therefore, to inquire into
the conditions of the increase of capi-
tal ; the causes by which the rapidity
of its increase is determined, and
the necessary limitations of that in-
crease.

Since all capital is the product of
saving, that is, of abstinence from
present consumption for the sake of a
future good, the increase of capital
must depend upon two things — the
amount of the fund from which saving
can be made, and the strength of the
dispositions which prompt to it.

The fund from which saving can be
made, is the surplus of the produce of
labour, after supplying the necessaries
of life to all concerned in the produc-
tion: (including those employed in
replacing the materials, and keeping
the fixed capital in repair.) More
than this surplus cannot be saved
nnder any circumstances. As much
as this, though it never is saved,
always might be. This surplus is the
fund from which the enjoyments, as
distinguished from the necessaries of
the producers, are provided ; it is the
lund from which all are subsisted, who
are not themselves engaged in produc-
tion ; and from which all additions are
made to capital. It is the real net
produce of the country. The phrase,
net produce, is often taken in a more
limited sense, to denote only the profits
of the caoitalist and the rent of the

101

; landlord, under the idea that nothing
can be included in the net produce of
capital, but what is returned to the
owner of the capital after replacing
his expenses. But this is too narrow
an acceptation of the term. Tha
capital of the employer forms the
revenue of the labourers, and if this
exceeds the necessaries of life, it gives
them a surplus which they may either
expend in enjoyments or save. For
every purpose for which there can be
occasion to speak of the net produce of
industry, this surplus ought to be in-
cluded in it. When this is included,
and not otherwise, the net produce of
the country is the measure of its
effective power ; of what it can spare
for any purposes of public utility, or
private indulgence ; the portion of
its produce of which it can dispose at
pleasure ; which can be drawn upon
to attain any ends, or gratify any
wishes, either of the government or
of individuals ; which it can either
spend for its satisfaction, or save for
future advantage.

The amount of this fund, this net
produce, this excess of production
above the physical necessaries of the
producers, is one of the elements that
determine the amount of saving. The
greater the produce of labour after
supporting the labourers, the mjre
there is which can be saved. The
same thing also partly contributes to
determine how much mil be saved.
A part of the motive to saving consists
in the prospect of deriving an income
from savings ; in the fact that capital,
employed in production, is capable of
not only reproducing itself but yielding
an increase. The greater the profit
that can be made from capital, the
: stronger is the motive to its accumu-
I lation. That indeed which forms the
inducement to save, is not the whole
of the fund which supplies the mea7is
of saving, not the whole net produce of
the land, capital, and labour of the
country, but only a part of it, the part
which forms the remuneration of the
capitalist, and is called profit of stock.
It will however be readily enough
understood, even previously to the ex-
planations which will be given here-

BOOK I. CHAPTER XI. § 2.

102

a ft IT, that when tHe general produc-
tiveness of labour and capital is great,
the returns to the capitalist are likely
to be large, and that some proportion,
though not an uniform one, will com-
monly obtain between the two.

§ 2. But the disposition to save
does not wholly depend on the external
inducement to it ; on the amount of
profit to be made from savings. With
the same pecuniary inducement, the
inclination is very different, in differ-
ent persons, and in different commu-
nities. The effective desire of accumu-
lation is of unequal strength, not only
according to the varieties of individual
character, but to the general state of
society and civilization. Like all
other moral attributes, it is one in
which the human race exhibits great
differences, conformably to the diver-
sity of its circumstances and the stage
of its progress.

On topics which if they were to be
fully investigated would exceed the
bounds that can be allotted to them
in this treatise, it is satisfactory to be
able to refer to other works in which
the necessary developments have been
presented more at length. On the
subject of Population this valuable
service has been rendered by the
celebrated Essay of Mr. Malthus ;
and on the point which now occupies
us 1 can refer with equal confidence to
another, though a less known work,
"New Principles of Political Eco-
nomy," by Dr. Rae.* In no other

* This treatise is an example, such as not
unfrequently presents itself, how much more
depends on accident, than on the qualities
of a book, in determining its reception. Had
it appeared at a suitable time, and been fa-
voured by circumstances, it would have had
every requisite for great success. The author,
a Scotchman settled in the United States,
unites much knowledge, an original vein of
thought, a considerable turn for philosophic
generalities, and a manner of exposition and
illustration calculated to make ideas tell not
only for what they are worth, but for more
than they are worth, and which sometimes,
I think, has that effect in the writer's own
mind. The principal fault of the book ia
the position of antagonism in which, with
the controversial spirit apt to be found in
those who have new thoughts on old subjects,
he has placed himself towards Adam Smith.
I call this a fault, (though I think many of

book known to me is so much light
thrown, both from principle and
history, on the causes which deter-
mine the accumulation of capital.

All accumulation involves the sacri-
fice of a present, for the sake of a
future good. But the expediency of such
a sacrifice varies very much in different
states of circumstances ; and the wil-
lingness to make it, varies still more.

In weighing the future against the
present, the uncertainty of all things
future is a leading element ; and that
uncertainty is of very different degrees.
"All circumstances,'' therefore, "in-
creasing the probability of the provi-
sion we make for futurity being en-
joyed by ourselves or others, tend"
justly and reasonably " to give
strength to the effective desire of
accumulation. Thus a healthy climate
or occupation, by increasing the pro-
bability of life, has a tendency to add
to this desire. When engaged in
safe occupations, and living in healthy
countries, men are much more apt to
be frugal than in unhealthy or hazard-
ous occupations, and in climates per-
nicious to human life. Sailors and
soldiers are prodigals. In the West
Indies, New Orleans, the East Indies,
the expenditure of the inhabitants is
profuse. The same people, coming to
reside in the healthy parts of Europe,
and not getting into the vortex of
extravagant fashion, live economically.
War and pestilence have always waste
and luxury among the other evils that
follow in their train. For similar
reasons, whatever gives security to the
affairs of the community is favourable
to the strength of this principle. In
this respect the general prevalence of
law and order, and the prospect of the
continuance of peace and tranquillity,
have considerable influence."t The
more perfect the security, the greater

the criticisms just, and some of them far-
seeing), because there is much less real dif-
ference of opinion than might be supposed
from Dr. Rae's animadversions ; and because
what he has found vulnerable in his great
predecessor is chiefly the " human too much"
in his premises ; the portion of them that is
over and above what was either required or
is actually used for the establishment of his
conclusions.

t Rae, p. 123.

LAW OF THE INCREASE OF CAPITAL.

103

will be the effective strength of the
desire of accumulation. Where pro-
perty is less safe, or the vicissitudes
ruinous to fortunes are more frequent
and severe, fewer persons will save at
all, and of those who do, many will
require the inducement of a higher
rate of profit on capital, to make them
prefer a doubtful future to the tempta-
tion of present enjoyment.

These are considerations which affect
the expediency, in the eye of reason,
of consulting future interests at the
expense of present. But the inclination
to make this sacrifice does not solely
depend upon its expediency. The dis-
position to save is often far short of
what reason would dictate: and at
other times is liable to be in excess of it.

Deficient strength of the desire of
accumulation may arise from improvi-
dence, or from want of interest in
others. Improvidence may be con-
nected with intellectual as well as
moral causes. Individuals and com-
munities of a very low state of intelli-
gence are always improvident. A
certain measure of intellectual develop-
ment seems necessary to enable absent
things, and especially things future, to
act with any force on the imagination
and will. The effect of want of interest
in others in diminishing accumulation,
will be admitted, if we consider how
much saving at present takes place,
which has for its object the interest of
others rather than of ourselves; the
education of children, their advance-
ment in life, the future interests of
other personal connexions, the power
of promoting by the bestowal of money
or time, objects of public or private
usefulness. If mankind were generally
in the state of mind to which some
approach was seen in the declining
period of the Roman empire — caring
nothing for their heirs, as well as
nothing for friends, the public, or any
object which survived them — they
would seldom deny themselves any in-
dulgence for the sake of saving, beyond
what was necessary for their own future
years ; which they would place in life
annuities, or in some other form which
would make its existence and their
lives terminate together.

§ 3. From these various causes, in-
tellectual and moral, there is, in differ-
ent portions of the human race, a
greater diversity than is usually ad-
verted to, in the strength of the effective
desire of accumulation. A backward
state of general civilization is often
more the effect of deficiency in this
particular than in many others which
attract more attention. In the cir-
cumstances, for example, of a hunting
tribe, " man may be said to he neces-
sarily improvident, and regardless of
futurity, because, in this state, the
future presents nothing which can be
with certainty either foreseen or go-
verned Besides a want of the

motives exciting to provide for the
needs of futurity through means of the
abilities of the present, there is a want
of the habits of perception and action,
leading to a constant connexion in the
mind of those distant points, and of the
series of events serving to unite them.
Even, therefore, if motives he awakened
capable of producing the exertion na-
cessary to effect this connexion, there
remains the task of training the mind
to think and act so as to establish it."

For instance: "Upon the banks of
the St. Lawrence there are several
little Indian villages. They are sur-
rounded, in general, by a good deal of
land, from which the wood seems to
have been long extirpated, and have,
besides, attached to them, extensive
tracts of forest. The cleared land is
rarely, I may almost say never, culti-
vated, nor are any inroads made in the
forest for such a purpose. The soil is,
nevertheless, fertile, and were it not,
manure lies in heaps by their houses.
Were every family to inclose half an
acre of ground, till it, and plant it in
potatoes and maize, it would yield a
sufficiency to support them one-half
the year. They suffer, too, every now
and then, extreme want, insomuch
that, joined to occasional intemperance,
it is rapidly reducing their numbers.
This, to us, so strange apathy proceeds
not, in any great degree, from repug-
nance to labour ; on the contrary, they
apply very diligently to it when its
reward is immediate. Thus, besides
their peculiar occupations of huntiug

104

BOOK I. CHAPTER XI. § 3.

and fishing, in which they are ever
leadv to engage, they are much em-
ployed in the navigation of the St.
Lawrence, and may be seen labouring
at the oar, or setting with the pole, in
the large boats used for the purpose,
and .always furnish the greater part of
(he additional hands necessary to con-
duct rafts through some of the rapids.
Nor is the obstacle aversion to agri-
cultural labour. This is no doubt a
prejudice of theirs ; but mere prejudices
always yield, principles of action cannot
be created. When the returns from
agricultural labour are speedy and
great, they are also agriculturists.
Thus, some of the little islands on
Lake St. Francis, near the Indian
village of St. Regis, are favourable to
'the growth of maize, a plant yielding
a return of a hundredfold, and forming,
even when half ripe, a pleasant and
substantial repast. Patches of the
best land on these islands are, there-
fore, every year cultivated by them for
this purpose. As their situation renders
them inaccessible to cattle, no fence is
required ; were this additional outlay
necessary, I suspect they would be
neglected, like the commons adjoining
their village. These had apparently,
at one time, been under crop. The
cattle of the neighbouring settlers
would now, however, destroy any crop
not securely fenced, aud this additional
necessary outlay consequently bars
their culture. It removes them to an
order of instruments of slower return
than that which corresponds to the
strength of the effective desire of accu-
mulation.in this little society.

" It is here deserving of notice, that
what instruments of this kind they do
form, are completely formed. The
small spots of corn they cultivate are
thoroughly weeded and hoed. A little
neglect in this part would indeed re-
duce the crop very much ; of this ex-
perience has made them perfectly
aware, and they act accordingly. It is
evidently not the necessary labour that
is the obstacle to more extended cul-
ture, but the distant return from that
labour. I am assured, indeed, that
among some of the more remote tribes,
the labour tbu»«xpended much exceeds

that given by the whites. The Rntna
portions of ground being cropped with-
out remission, and manure not being
used, they would scarcely yield any
return, were not the .soil most^carefully
broken and pulverized, both with tho
hoe and the hand. In such a situation
a white man would clear a fresh piece
of ground. It would perhaps scarce
repay his labour the first year, and he
would have to look for his reward in
succeeding years. On the Indian, suc-
ceeding years are too distant to make
sufficient impression ; though, to obtain
what labour may bring about in the
course of a few months, he toils even
more assiduously than the white man .''*
This view of things is confirmed by
the experience of the Jesuits, in their in-
teresting efforts to civilize the Indians
of Paraguay. They gained the confi-
dence of these savages in a most
extraordinary degree. They acquired
influence over them sufficient to make
them change their whole manner of
life. They obtained their absolute sub-
mission and obedience. They estab-
lished pea'ce. They taught them all
the operations of European agricul-
ture, and many of the more difficult
arts. There were everywhere to bo
seen, according to Charlevoix, " work-
shops of gilders, painters, sculptors,
goldsmiths, watchmakers, carpenters,
joiners, dyers,' ' &c. These occupations
were not practised for the personal
gain of the artificers : the produce was
at the absolute disposal of the mis-
sionaries, who ruled the people by a
voluntary despotism. The obstacles
arising from aversion to labour were
therefore very completely overcome.
The real difficulty was the improvi-
dence of the people ; their inability to
think for the future ; and the necessity
accordingly of the most unremitting
and minute superintendence on the
part of their instructors. "Thus at
first, if these gave up to them the caro
of the oxen with which they ploughed,
their indolent thoughtlessness would
probably leave them at evening still
yoked to the implement. Worse than
this, instances occurred where they cut
them up for supper, thiukinp, when re-
* Bae, p. 130.

LAW OF THE INCREASE OF CAPITAL.

105

prelicnded, that they sufficiently ex-
cuscil themselves by saying they were
hungry. . . . These fathers, says Ul-
loa, have to visit the houses, to examine
what is really wanted : for, without this
care, the Indians would never look after
anything. They must be present, too,
when animals are slaughtered, not only
that the meat may be equally divided,
but that nothing may be lost." " But
notwithstanding all this care and su-
perintendence," says Charlevoix, " and
all the precautions which are taken to
prevent any want of the necessaries of
life, the missionaries are sometimes
much embarrassed. It often happens
that they" (the Indians) "do not reserve
to themselves a sufficiency of grain,
even for seed. As for their other pro-
visions, were they not well looked alter,
they would soon be without where-
withal to support life."*

As an example intermediate, in the
strength of the effective desire of accu-
mulation, between the state of things
thus depicted and that of modern
Europe, the case of the Chinese de-
serves attention. From various cir-
cumstances in their personal habits
and social condition, it might be an-
ticipated that they would possess a
degree of prudence and self-control
greater than other Asiatics, but inferior
to most European nations ; and the fol-
lowing evidence is adduced of the fact.

" Durability is one of the chief
qualities, marking a high degree of
the effective desire of accumulation.
The testimony of travellers ascribes to
the instruments formed by the Chinese,
a very inferior durability to similar
instruments constmcted by Europeans.
The houses, we are told, unless of the
higher ranks, are in general of unburnt
bricks, of clay, or of hurdles plastered
with earth ; the roofs, of reeds fastened
to laths. We can scarcely conceive
more unsubstantial ortemporary fabrics.
Their partitions are of paper, requiring
to be renewed every year. A similar
observation may be made concerning
their implements of husbandry, and
other utensils. They are almost en-
tirely of wood, the metals entering
but very sparingly into their construc-
• Rac, D. HO.

tion ; consequently they soon wear out,
and require frequent renewals. A
greater degree of strength in the effec-
tive desire of accumulation, would
cause them to be constructed of mate-
rials requiring a greater present ex-
penditure, but being far more durable.
From the same cause, much land, that
in other countries would be cultivated,
lies waste. All travellers take notice
of large tracts of lands, chiefly swamps,
which continue in a state of nature.
To bring a swamp into tillage is gene-
rally a process, to complete which,
requires several years. It must be
previously drained, the surface long
exposed to the sun, and many opera-
tions performed, before it can be made
capable of bearing a crop. Though
yielding, probably, a very considerable
return for the labour bestowed on it,
that return is not made until a long
time has elapsed. The cultivation of
such land implies a greater strength of
the effective desire of accumulation
than exists in the empire.

" The produce of the harvest is, as
we have remarked, always an instru-
ment of some order or another ; it is a
provision for future want, and regulated
by the same laws as those to which
other means of attaining a similar end
conform. It is there chiefly rice, of
which there are two harvests, the one
in June, the other in October. The
period then of eight months between
October and June, is that for which
provision is made each year, and the
different estimate they make of to-day
and this day eight months will appear
in the self-denial they practise now, in
order to guard against want then.
The amount of this self-denial would
seem to be small. The father Parennin,
indeed, (who seems to have been one
of the most intelligent of the Jesuits,
and spent a long life among the
Chinese of all classes,) asserts, that
it is their great deficiency in fore-
thought and frugality in this respect,
which is the cause of the scarcities
and famines that frequently occur."

That it is defect of providence, not de-
fect of industry, that limits production
among the Chinese, is still more ob-
vious than in the case of tho somi-agri-

106

BOOK I. CHAPTER XL § 3.

culturalised Indians. " Where the re-
turns are quick, where the instruments
formed require but little time to bring
the events for which they were formed
to an issue,'' it is well known that
"the great progress which has been
made in the knowledge of the arts
suited to the nature of the country and
the wants of its inhabitants" makes
industry energetic and effective. " The
warmth of the climate, the natural fer-
tility of the country, the knowledge
which the inhabitants have acquired
of the arts of agriculture, and the dis-
covery and gradual adaptation to every
soil of the most useful vegetable pro-
ductions, enable them very speedily to
draw from almost any part of the sur-
face, what is there esteemed an equiva-
lent to much more than the labour be-
stowed in tilling and cropping it.
They have commonly double, some-
times treble harvests. These, when
they consist of a grain so productive
as rice, the usual crop, can scarce fail
to yield to their skill, from almost any
portion of soil that can be at once
Drought into culture, very ample re-
turns. Accordingly there is no spot
that labour can immediately bring
under cultivation that is not made to
yield to it. Hills, even mountains are
ascended and formed into terraces;
and water, in that country the great
productive agent, is led to every part
by drains, or carried up to it by the in-
genious and simple hydraulic machines
which have been in use from time im-
memorial among this singular people.
They effect this the more easily, frem
the soil, even in these situations, being
very deep and covered with much vege-
table mould. But what yet more than
this marks the readiness with which
labour is forced to form the most diffi-
cult materials into instruments, where
these instruments soon bring to an
issue the events for which they are
formed, is the frequent occurrence on
many of their lakes and rivers, of struc-
tures resembling the floating gardens
of the Peruvians, rafts covered with
vegetable soil and cultivated. Labour
in this way draws from the materials
on which it acts very speedy returns.
Nothing can exceed the luxuriance of

vegetation when the quickening powers
of a genial sun are ministered to by a
rich soil and abundant moisture. It is
otherwise, as we have seen, in cases
where the return, though copious, is
distant. European travellers are sur-
prised at meeting these little floating
farms by the side of swamps which
only require draining to render them
tillable. It seems to them strange
that labour should not rather be be-
stowed on the solid earth, where its
fruits might endure, than on structures
that must decay and perish in a few
years. The people they are among
think not so much of future years, as
of the present time. The effective de-
sire of accumulation is of very different
strength in the one, from what it is in
the other. The views of the European
extend to a distant futurity, and he is
surprised at the Chinese, condemned,
through improvidence, and want of
sufficient prospective care, to incessant
toil, and as he thinks, insufferable
wretchedness. The views of the
Chinese are confined to narrower
bounds ; he is content to live from day
to day, and has learnt to conceive even
a life of toil a blessing."*

When a country has carried produc-
tion as far as in the existing state of
knowledge it can be carried with an
amount of return corresponding to the
average strength of the effective desire
of accumulation in that country, it has
reached what is called the stationary
state ; the state in which no further ad-
dition will be made to capital unless
there takes place either some improve-
ment in the arts of production, or
an increase in the strength of the de-
sire to accumulate. In the stationary
state, though capital does not on the
whole increase, some persons grow
richer and others poorer. Those whose
degree of providence is below the usual
standard, become impoverished, their
capital perishes, and makes room for
the savings of those whose effective de-
sire of accumulation exceeds the ave-
rage. These become the natural pur-
chasers of the land, manufactories, and
other instruments of production owned
by their less provident countrymen.
* Rae, pp. 151—6,

LAW OF THE INCREASE OF CAPITAL.

107

What the causes arc which make the
return to capital greater in one country
than in another, and which, in certain
circumstances, make it impossible for
any additional capital to find invest-
ment unless at diminished returns, will
appear clearly hereafter. In China,
if that country has really attained, as
it is supposed to have done, the sta-
tionary state, accumulation has stopped
when the returns to capital are still as
high as is indicated by a rate of inte-
rest legally twelve per cent, and prac-
tically varying (it is said) between
eighteen and thirty-six. It is to be
presumed therefore that no greater
amount of capital than the country
already possesses, can find employment
at this high rate of profit, and that any
lower rate does not hold out to a
Chinese sufficient temptation to induce
him to abstain from present enjoyment.
What a contrast with Holland, where,
during the most flourishing period of
its history, the government was able
habitually to borrow at two per cent,
and private individuals, on good secu-
rity, at three. Since China is not a
country like Burmah, or the native
states of India, where an enormous in-
terest is but an indispensable compen-
sation for the risk incurred from the
bad faith or poverty of the state, and
of almost all private borrowers; the
fact, if fact it be, that the increase of
capital has come to a stand while the
returns to it are still so large, denotes
a much less degree of the effective de-
sire of accumulation, in other words a
much lower estimate of the future rela-
tively to the present, than that of most
European nations.

§ 4. We have hitherto spoken of
countries in which the average strength
of the desire to accumulate is short of
that which, in circumstances of any
tolerable security, reason and sober
calculation would approve. We have
now to speak of others in which it deci-
dedly surpasses that standard. In the
more prosperous countries of Europe,
there are to be found abundance of
prodigals ; in some of them (and in
none more than England) the ordinary
degre« of economy and providence

among those who live by manual la-
bour cannot be considered high ; still,
in a very numerous portion of the com-
munity, the professional, manufactu-
ring, and trading classes, being those
who, generally speaking, unite more of
the means with more of the motives for
saving than any other class, the spirit
of accumulation is so strong, that the
signs of rapidly increasing wealth
meet every eye : and the great amount
of capital seeking investment excites
astonishment, whenever peculiar cir-
cumstances turning much of it.intosome
one channel, such as railway construc-
tion or foreign speculative adventure,
bring the largeness of the total amount
into evidence.

There are many circumstances,
which, in England, give a peculiar
force to the accumulating propensity.
The long exemption of the country from
the ravages of war, and the far earlier
period than elsewhere at which pro-
perty was secure from military violence
or arbitrary spoliation, have produced a
long-standing and hereditary confidence
in the safety of funds when trusted out
of the owner's hands, which in most
other countries is of much more re-
cent origin, and less firmly established.
The geographical causes which have
made industry rather than war the
natural source of power and importance
to Great Britain, have turned an un-
usual proportion of the most enter-
prising and energetic characters into
the direction of manufactures and com-
merce ; into supplying their wants and
gratifying their ambition by producing
and saving, rather than by appropria-
ting what has been produced and
saved. Much also depended on the
better political institutions of this
country, which by the scope they have
allowed to individual freedom of action,
have encouraged personal activity and
self-reliance, while by the liberty they
confer of association and combination,
they facilitate industrial enterprise on
a large scale. The same institutions
in another of their aspects, give a most
direct and potent stimulus to the desire
of acquiring wealth. The earlier de-
cline of feudalism having removed or
much weakened invidious distinction!

t08

between tho originally trading classes
and those who had been accustomed to
despise them ; and a polity having
grown up which made wealth the real
source of political influence ; its acqui-
sition was invested with a factitious
value, independent of its intrinsic uti-
lity. It became synonymous wi th power ;
and since power with the common herd
of mankind gives power, wealth became
the chief source of personal considera-
tion, and the measure and stamp of
success in life. To get out of one rank
in society into the next above it, is the
great aim of English middle-class life,
and the acquisition of wealth the
means. And inasmuch as to be rich
without industry, has always hitherto
constituted a step in the social scale
above those who are rich by means of
industry, it becomes the object of am-
bition to save not merely as much as
will afford a large income while in busi-
ness, but enough to retire from business
and live in affluence on realized gains.
These causes have in England been
greatly aided by that extreme incapa-
city oi the people for personal enjoy-
ment, whicn is a characteristic of
countries over which puritanism has
passed. But if accumulation is, on one
hand, rendered easier by the absence
of a taste for pleasure, it is, on the
other, made more difficult by the pre-
sence of a very real taste for expense.
So strong is the association between
personal consequence and the signs of
wealth, that the silly desire for the
appearance of a large expenditure has
the force of a passion, among large
classes of a nation which derives less
pleasure than perhaps any other in the
world from what it spends. Owing to this
circumstance, the effective desire of ac-

BOOK L CHAPTER XII. § 1.

cumulation has never reached so hi^h
a pitch in England as it did in Hol-
land, where, there being no rich idle
class to set the example of a reckless
expenditure, and the mercantile classes,
who possessed the substantial power on
which social influence always waits,
being left to establish their own scale
of Jiving and standard of propriety,
their habits remained frugal and unos
tentatious.

In England and Holland, then, for
a long time past, and now in most
other countries in Europe (which are
rapidly following England in the same
race), the desire of accumulation does
not require, to make it effective, the
copious returns which it requires in
Asia, but is sufficiently called into
action by a rate of profit so low, that
instead of slackening, accumulation
seems now to proceed more rapidly
than ever ; and the second requisite of
increased production, increase of capi-
tal, shows no tendency to become
deficient. So far as that element is con-
cerned, production is susceptible of an
increase without any assignable bounds.

The progress of accumulation would
no doubt be considerably checked, if the
returns to capital were to be reduced
still lower than at present. But why
should any possible increase of capital
have that effect? This question
carries the mind forward to the re-
maining one of the three requisites of
production. The limitation to produc-
tion, not consisting in any necessary
limit to the increase of the other two
elements, labour and capital, must turn
upon the properties of the only element
which is inherently, and in itself,
limited in quantity. It must depend
on the properties of land.

CHAPTER XIL

OF THE LAW OP THE INCREASE OP PRODUCTION PROM LAND.

§ 1. LAND differs from the other | definite increase. Its extent is limited,
elements of production, labour and and the extent of the more pi-oductive
capital, \n not being susceptible of in- kinds of it more limited still. It is

LAW OF INCREASE OF PRODUCTION FROM LAND. 1M

of agricultural skill and knowledge, bj
increasing tho labour, the produce i»
not increased iu an equal degree,
doubling the labour does not double
the produce ; or, to express the same
thing in other words, every increase ol
produce is obtained by a more than
proportional increase in the applica-
tion of labour to the land.

This general law of agricultural
industry is the most important propo-
sition in political economy. Were the
law diflerent, nearly all the phenomena
of the production and distribution of
wealth would be other than they are.
The most fundamental errors which
still prevail on our subject, result from
not perceiving this law at work under-
neath the more superficial agencies
on which attention fixes itself; but
mistaking those agencies for the ulti-
mate causes of effects of which they
may influence the form and mode, but
of which it alone determines the

also evident that the quantity of pro-
duce capable of being raised on any
given piece of land is not indefinite.
This limited quantity of land, and li-
mited productiveness of it, are the real
limits to the increase of production.

That they are the ultimate limits,
roust always have been clearly seen.
But since the final barrier has never
in any instance been reached ; since
tliere is no country in which all the
land, capable of yielding food, is so
highly cultivated that a larger produce
could not (even without supposing any
fresh advance in agricultural know-
ledge) be obtained from it, and since
a large portion of the earth's surface
still remains entirely uncultivated ; it
is commonly thought, and is very
natural at first to suppose, that for the
present all limitation of production or
population from this source is at an
indefinite distance, and that ages must
elapse before any practical necessity
arises for taking the limiting principle
into serious consideration.

I apprehend this to be not only an
error, but the most serious one, to be
found in the whole field of political
economy. The question is more im-
portant and fundamental than any
other ; it involves the whole subject of
the causes of poverty, in a rich and
industrious community; and unless
this one matter be thoroughly under-
stood, it is to no purpose proceeding
any further in our inquiry.

§ 2. The limitation to production
Trom the properties of the soil, ia
not like the obstacle opposed by a
wall, which stands immovable in one
particular spot, and offers no hindrance
to motion short of stopping it entirely.
"We may rather compare it to a highly
elastic and extensible band, which is
hardly ever so violently stretched that
it could not possibly be stretched any
more, yet the pressure of which is felt
long before the final limit is reached,
and felt more severely the nearer that
limit is approached.

After a certain, and not very ad-
vanced, stage in 'the progress of agri-
culture, it is the law of production
from the land, that in any given state

essence.

When, for the purpose of raising an
increase of produce, recourse is had to
inferior land, it is evident that, so far,
the produce does not increase in the
same proportion with the labour. The
very meaning of inferior land, is land
which with equal labour returns a
smaller amount of produce. Land
may be inferior either in fertility or in
situation. The one requires a greater
proportional amount of labour for grow-
ing the produce, the other for carrying
it to market. If the land A yields a
thousand quarters of wheat, to a given
outlay in wages, manure, &c., and in
order to raise another thousand re-
course must be had to the land B,
which is either less fertile or more
distant from the market, the two
thousand quarters will cost more
than twice as much labour as tho
original thousand, and the produce of
agriculture will be increased in a less
ratio than the labour employed in pro-
curing it.

Instead of cultivating the land B,
it would be possible, by higher culti-
vation, to make the land A produce
more. It might be ploughed or har-
rowed twice instead of once, or three
times instead of twice ; it might b«

110

BOOK I. CHAPTER XIL f 2.

lug instead of being ploughed ; after
ploughing, it might be gone over with a
toe instead of a harrow, and the soil
more completely pulverized; it might be
oftener or more thoroughly weeded;
the implements used might be of
higher finish, or more elaborate con-
struction ; a greater quantity or more
expensive kinds of manure might be
applied, or when applied, they might
be more carefully mixed and incor-
porated with the soil. These are some
of the modes by which the same land
may be made to yield a greater pro-
duce ; and when a greater produce
must be had, some of these are among
the means usually employed for obtain-
ing it. But, that it is obtained at a
more than proportional increase of
expense, is evident from the fact that
inferior lands are cultivated. Inferior
lands, or lands at a greater distance
from the market, of course yield an
inferior return, and an increasing
demand cannot be supplied from them
unless at an augmentation of cost, and
therefore of price. If the additional
demand could continue to be supplied
from the superior lands, by applying
additional labour and capital, at no
greater proportional cost than that
at which they yield the quantity first
demanded of them, the owners or
farmers of those lands could undersell
all others, and engross the whole
market. Lands of a lower degree of
fertility or in a more remote situation,
might indeed be cultivated by their
proprietors, for the sake of subsistence
or independence ; but it never could be
the interest of any one to farm them
for profit. That a profit can be made
from them, sufficient to attract capital
to such an investment, is a proof that
cultivation on the more eligible lands
has reached a point, beyond which any
greater application of labour and capi-
tal would yield, at the best, no greater
return than can be obtained at the
same expense from less fertile or less
favourably situated lands.

The careful cultivation of a well-
farined district of England or Scotland
is a symptom and an effect of the more
unfavourable terms which the land has
begun to exact for any increase of its

fruits. Such elaborate cultivation costs
much more in proportion, and requires
a higher price to render it profitable,
than farming on a more superficial
system ; and would not be adopted if
access could be had to land of equal
fertility, previously unoccupied. Where
there is the choice of raising the in-
creasing supply which society requires,
from fresh land of as good quality as
that already cultivated, no attempt is
made to extract from land anything
approaching to what it will yield on
what are esteemed the best European
modes of cultivating. The land is
tasked up to the point at which the
greatest return is obtained in proportion
to the labour employed, but no further :
any additional labour is carried else-
where. " It is long," says an intelligent
traveller in the United States,* "before
an English eye becomes reconciled to
the lightness of the crops and the care-
less farming (as we should call it) which
is apparent. One forgets that where
land is so plentiful and labour so dear
as it is here, a totally different prin-
ciple must be pursued to that which
prevails in populous countries, and that
the consequence will of course be a
want of tidiness, as it were, and finish,
about everything which requires la-
bour." Of the two causes mentioned,
the plentifulness of land seems to me
the true explanation, rather than the
dearness of labour ; for, however dear
labour may be, when food is wanted,
labour will always be applied to pro-
ducing it in preference to anything
else. But this labour is more effective
for its end by being applied to fresh
soil, than if it were employed in bring-
ing the soil already occupied into
higher cultivation. Only when no soils
remain to be broken up but such as
either from distance or inferior quality
require a considerable rise of price to
render their cultivation profitable, can
it become advantageous to apply the
high farming of Europe to any American
lands ; except, perhaps, in the imme-
diate vicinity of towns, where saving
in cost of carriage may compensate fot

* Letters from America, by John Robert
Godley, vol. i. p. 42. See also Lyell's Traotlt
in America, vol. ii. p. 83.

LAW OF INCREASE OF PRODUCTION FROM LAND. Ill

great inferiority in the return from the
soil itself. As American farming is to
English, so is the ordinary English to
that of Flanders, Tuscany, or the Terra
di Lavoro ; where by the application of
a far greater quantity of labour there
is obtained a considerably larger gross
produce, but on such terms as would
never be advantageous to a mere spe-
culator for profit, unless made so by
much higher prices of agricultural
produce.

The principle which has now been
stated must be received, no doubt, with
certain explanations and limitations.
Even after the land is so highly culti-
vated that the mere application of ad-
ditional labour, or of an additional
amount of ordinary dressing, would
yield no return proportioned to the ex-
pense, it may still happen that the
application of a much greater additional
labour and capital to improving the
soil itself, by draining or permanent
manures, would be as liberally remu-
nerated by the produce, as any portion
of the labour and capital already em-
ployed. It would sometimes be much
more amply remunerated. This could
not be, if capital always sought and
found the most advantageous employ-
ment; but if the most advantageous
employment has to wait longest for its
remuneration, it is only in a rather ad-
vanced stage of industrial development
that the preference will be given to it ;
and even in that advanced stage, the
laws or usages connected with property
in land and the tenure of farms, are
often such as to prevent the disposable
capital of the country from flowing
freely into the channel of agricultural
improvement : and hence the increased
supply, required by increasing popula-
tion, is sometimes raised at an aug-
menting cost by higher cultivation,
when the means of producing it without
increase of cost are known and acces-
sible. There can be no doubt, that if
capital were forthcoming to execute,
within the next year, all known and
recognised improvements in the land
of the United Kingdom which would
pay at the existing prices, that is,
which would increase the produce in
as great or a greater ratio than the

expense ; the result would be such
(especially if we include Ireland in the
supposition) that inferior land would
not for a long time require to be brought
under tillage : probably a considerable
part of the less productive lands now
cultivated, which are not particularly
favoured by situation, would go out of
culture ; or (as the improvements in
question are not so much applicable to
good land, but operate rather by con-
verting bad land into good) the con-
traction of cultivation might principally
take place by a less high dressing and
less elaborate tilling of land generally ;
a falling back to something nearer the
character of American farming; such
only of the poor lands being altogether
abandoned as were not found suscep-
tible of improvement. And thus tho
aggregate produce of the whole culti-
vated land would bear a larger propor-
tion than before to the labour expended
on it ; and the general law of diminish-
ing return from land would have un-
dergone, to that extent, a temporary
supersession. No one, however, can
suppose that even in these circum-
stances, the whole produce required for
the country could be raised exclusively
from the best lands, together with those
possessing advantages of situation to
place them on a par with the best.
Much would undoubtedly continue to
be produced under less advantageous
conditions, and with a smaller propor-
tional return, than that obtained from
the best soils and situations. And in
proportion as the further increase of
population required a still, greater ad-
dition to the supply, the general law
would resume its a urse, and the further
augmentation would be obtained at a
more than proportionate expense of
labour and capital.

§ 3. That the produce of land in-
creases, cceteris paribus, in a diminish-
ing ratio to the increase in the labour
employed, is a truth more often ignored
or disregarded than actually denied.
It has, however, met with a direct im-
pugner in the well-known American
political economist, Mr. H. C. Carey,
who maintains, that the real law of
agricultural industry is the very reverse ;

112 BOOK I. CHARIER XII.

the pitxlrice increasing in a greater
ratio than the labour, or in other words,
affording to labour a perpetually in-
creasing return. To substantiate this
assertion, he argues, that cultivation
does not begin with the better soils,
and extend from them, as the demand
increases, to the poorer, but begins
with the poorer, and does not, till long
after, extend itself to the more fertile.
Settlers in a new country invariably
commence on the high and thin lands ;
the rich but swampy soils of the river
bottoms cannot at first be brought into
cultivation, by reason of their un-
healthiness, and of the great and pro-
longed labour required for clearing and
draining them. As population and
wealth increase, cultivation travels
down the hill sides, clearing them as
it goes, and the most fertile soils, those
of the low grounds, are generally (he
even says universally) the latest culti-
vated. These propositions, with the
inferences which Mr. Carey draws
from them, are set forth at. much

length in his latest and most elaborate
treatise, "Principles of Social Science ;"
and he considers them as subverting
the very foundation of what he calls
the English political economy, with all
its practical consequences, especially
the doctrine of free trade.

As far as words go, Mr. Carey has
a good case against several of the
highest authorities in political economy,
who certainly did enunciate in too
universal a manner the law which they
laid down, not remarking that it is not
true of the first cultivation in a newly-
settled country. Where population is
thin and capital scanty, land which
requires a large outlay to render it
fit for tillage must remain untilled;
though such lands, when their time
has come, often yield a greater pro-
duce than those earlier cultivated, not
only absolutely, but proportionally to
the labour employed, even if we include
that which had been expended in
originally fitting them for culture.
But it is not pretended that the
law cf diminishing return was opera-
tive from the veiy beginning of society ;
and though some political economists
may have believed it to come into

§ 8-

operation earlier than it does, it begini
quite early enough to support the
conclusions they founded on it. Mr.
Carey will hardly assert that in any
old country — in England and France,
for example — the lands left waste are,
or have for centuries been, more
naturally fertile than those under
tillage. Judging even by his own im-
perfect test, that of local situation —
now imperfect, I need not stop to point
out — is it true that in England or
France at the present day, the uncul-
tivated part of the soil consists of the
plains and valleys, and the cultivated
of the hills I Every one knows, on the
contrary, that it is the high lands and
thin soils which are left to nature ; ami
when the progress of population de-
mands an increase of cultivation, the
extension is from the plains to the hills.
Once in a century, perhaps, a Bedford
Level may be drained, or a Lake of
Harlem pumped out ; but these are
slight and transient exceptions to the
normal progress of things ; and in old

countries which are at all advanced in
civilization, little of this sort remains
to be done.*

Mr. Carey himself unconsciously
bears the strongest testimony to the
reality of the law he contends against;
for one of the propositions most strenu-
ously maintained by him is, that the
raw products of the soil, in an advanc-
ing community, steadily tend to rise in
price. Now, the most elementary
truths of political economy show that
this could not happen, unless the cost of
production, measured in labour, of those
products, tended to rise. If the appli-
cation of additional labour to the land
was, as a general rule, attended with an
increase in the proportional return, the
price of produce, insteal of rising, must
necessarily fall as society advances,
unless the cost of production of gold

* Ireland may be alleged as an exception;
a large fraction of the entire soil of that
country being still incapable of cultivation
for want of drainage. But, though Ireland
is an old country, unfortunate social and
political circumstances have kept it a poor
and backward one. Neither is it at all cer-
tain that the bogs of Ireland, if drained and
brought under tillage, would take thoir place
alonx with Mr. Carey's fertile river bottoms,
or among any but the poorer soiU.

LAW OF INCREASE 05' PRODUCTION VkOM LAND. in

turnip husbandry, is spoken of as
amounting to a revolution. These im-
provements operate not only by enabling
the land to produce a crop every year,
instead of remaining idle one year in
every two or three to renovate its
powers, but also by direct increase of
its productiveness ; since the great ad-
dition made to the number of cattle
by the increase of their food, affords
more abundant manure to fertilize the
corn lands. Next in order comes the
introduction of new articles of food
containing a greater amount of sus-
tenance, like the potato, or more pro-
ductive species or varieties of the same
plant, such as the Swedish turnip. In
the same class of improvements must
be placed a better knowledge of the
properties of manures, and of the most
effectual modes of applying them ; the
introduction of new and more powerful
fertilizing agents, such as guano, and
the conversion to the same purpose, of
substances previously wasted; inven-
tions like subsoil-ploughing or tile-
draining ; improvements in the breed
or feeding of labouring cattle ; aug-
mented stock of the animals which con-
sume and convert into human food
what weuld otherwise be wasted ; and
the like. The other sort of improve-
ments, those which diminish labour,
but without increasing the capacity of
the land to produce, are such as the
improved construction of tools ; the in-
troduction of new instruments which
spare manual labour, as the winnow-
ing and threshing machines ; a more
skilful and economical application of
muscular exertion, such as the intro-
duction, so slowly accomplished in
England, of Scotch ploughing, with
two horses abreast and one man, in-
stead of three or four horses in a team
and two men, &c. These improve-
ments do not add to the productiveness
of the land, but they are equally ca'cu-
lated with the former to counteract the
tendency in the cost of production of
agricultural produce, to rise with the
progress of population and demand.

Analogous in effect to this second
class of agricultural improvements, nre
improved means of communication.
Good roads are equrrftlent to good tools.

and silver fell still more : a case so
rare, that there are only two periods in
all history when it is known to have
taken place : the one, that which fol-
lowed the opening of the Mexican and
Peruvian mines ; the other, that ii
which we now live. At all known
periods except these two, the cost of
production of the precious metals has
been either stationary or rising. If,
therefore, it be true that the tendency of
agricultural produce is to rise in money
price as wealth and population increase,
there needs no other evidence that the
labour required for raising it from the
soil tends to augment when a greater
quantity is demanded.

I do not go so far as Mr. Carey : I
do not assert that the cost of production
and consequently the price, of agricul-
tural produce, always and necessarily
rises as population increases. It tends
to do so, but the tendency may be,
and sometimes is, even during long
periods, held in check. The effect
does not depend on a single principle,
but on two antagonizing principles.
There is another agency, in habitual
antagonism to the law of diminishing
return from land ; and to the considera-
tion of this we shall now proceed. It
is no other than the progress of civili-
zation. I use this general and some-
what vague expression, because the
things to be included are so various,
tbat hardly any term of a more re-
stricted signification would comprehend
them all.

Of these, the most obvious is the
progress of agricultural knowledge,
skill, and invention. Improved pro-
cesses of agriculture are of two kinds :
some enable the land to yield a greater
absolute produce, without an equivalent
increase of labour ; others have not the
power of increasing the produce, but
nave that of diminishing the labour and
expense by which it is obtained.
Among the first are to be reckoned the
disuse of fallows, by means of the rota-
tion of crops ; and the introduction of
new articles of cultivation capable of
entering advantageously into the rota-
tion. The change made in British
agriculture towards the close of the
last century, by the introduction of

f. B.

114

It is of no consequence whether the
economy of labour takes place in ex-
tracting the produce from the soil, or
in conveying it to the place where it is
to be consumed. Not to say in addi-
tion, that the labour of cultivation
itself is diminished by whatever lessens
the cost of bringing manure from a
distance, or facilitates the many opera-
tions of transport from place to place
which occur within the bounds of the
farm. .Railways and canals are virtu-
ally a diminution of the cost of produc-
tion of all things sent to market by
them ; and literally so of all those, the
appliances and aids for producing
which, they serve to transmit. By
their means land can be cultivated,
which would not otherwise have re-
munerated the cultivators without a
rise of price. Improvements in naviga-
tion have, with respect to food or
materials brought from beyond sea,
a corresponding effect.

From similar considerations, it ap-
pears that many purely mechanical
improvements, which have, apparently
at least, no peculiar connexion with
agriculture, nevertheless enable a given
amount of food to be obtained with a
smaller expenditure of labour. A great
improvement in the process of melting
iron, would tend to cheapen agricultural
implements, diminish the cost of rail-
roads, of waggons and carts, ships, and
perhaps buildings, and many other
things to which iron is not at present
applied, because it is too costly ; and
would thence diminish the cost of pro-
duction of food. The same effect would
follow from an improvement in those
processes of what may be termed
manufacture, to which the material of
food is subjected after it is separated
from the ground. The first applica-
tion of wind or water power to grind
corn, tended to cheapen bread as much
as a very important discovery in agri-
culture would have done ; and any
great improvement in the construction
of corn-mills, would have, in proportion,
ft similar influence. The effects of
cheapening locomotion have been al-
ready considered. There are also
engineering inventions which facilitate
all great operations on the earth's

BOOK I CHAPTER XII. § 3.

surface. An improvement in tho art
of taking levels is of importance to
draining, not to mention canal and
railway making. The fens of Holland,
and of some parts of England, are
drained by pumps worked by the wind
or by steam. ^Vhere canals of irriga-
tion, or where tanks or embankments
are necessary, mechanical skill is a
great resource for cheapening pro-
duction.

Those manufacturing improvements
which cannot be made instrumental to
facilitate, in any of its stages, the
actual production of food, and there-
fore do not help to counteract or retard
the diminution of the proportional re-
turn to labour from the soil, have,
however, another effect, which is practi-
cally equivalent. What they do not
prevent, they yet, in some degree,
compensate for.

The materials of manufactures being
all drawn from the land, and many of
them from agriculture, which supplies
in particular the entire material of
clothing ; the general law of produc-
tion from the land, the law of diminish-
ing return, must in the last resort be
applicable to manufacturing as well as
to agricultural industry. As population
increases, and the power of the land to
yield increased produce is strained
harder and harder, any additional
supply of material, as woll as of food,
must be obtained by a more than pro-
portionally increasing expenditure of
labour. But the cost of the material
forming generally a very small portion
of the entire cost of the manufacture,
the agricultural labour concerned in
the production of manufactured goods
is but a small fraction of the whole
labour worked up in the commodity.
All the rest of the labour tends con-
stantly and strongly towards diminu-
tion, as the amount of production in-
creases. Manufactures are vastly more
susceptible than agriculture, of me-
chanical improvements, and contri-
vances for saving labour ; and it haa
already been seen how greatly tho
division of labour, and its skilful and
economical distribution, depend on th«
extent of the market, and on the possi
bility of production in large masses.

f;AW OF INCREASE OF PRODUCTION FROM LAND. 115

In inanufactures, accordingly, the
causes tending to increase the product-
iveness of industry, preponderate
greatly over the one cause which tends
.o diminish it: and the increase of
production, called forth by the progress
of society, takes place, not at an in-
creasing, but at a continually diminish-
ing proportional cost. This fact has
manifested itself in the progressive fall
of the prices and values of almost every
kind of manufactured goods during two
centuries past ; a fall accelerated by
the mechanical inventions of the last
seventy or eighty years, and susceptible
of being prolonged and extended beyond
any limit which it would be safe to
specify.

Now it is quite conceivable that the
efficiency of agricultural labour might
be undergoing, with the increase of
produce, a gradual diminution ; that
the price of food, in consequence, might
be progressively rising, and an ever
growing proportion of the population
might be needed to raise food for the
whole ; while yet the productive power
of labour in all other branches of in-
dustry might be so rapidly augmented,
that the required amount of labour could
be spared from manufactures, and
nevertheless a greater produce be ob-
tained, and the aggregate wants of
the community be on the whole better
supplied, than before. The benefit
might even extend to the poorest class.
The increased cheapness of clothing and
lodging might make up to them for
the augmented cost of their food.

There is, thus, no possible improve-
ment in the arts of production which
does not in one or another mode exer-
cise an antagonist influence to the
law of diminishing return to agricultu-
ral labour. Nor is it only industrial
improvements which have this effect.
•Improvements in government, and al-
most every kind of moral and social
advancement, operate in the same
manner. Suppose a country in the
condition of France before the Revolu-
tion : taxation imposed almost exclu-
sively on the industrious classes, and
on such a principle as to be an actual
penalty on production ; and no redress
obtainable for any injury to property or

person, when inflicted by people oi
rank or court influence. Was not
the hurricane which swept away this
system of things, even if we look no
further than to its effect in augment-
ing the productiveness of labour, equiva-
lent to many industrial inventions? The
removal of a fiscal burthen on agricul-
ture, such as tithe, has the same effect
as if the labour necessary for obtaining
the existing produce were suddenly
reduced one-tenth. The abolition of
corn laws, or of any other restrictions
which prevent commodities from being
produced where the cost of their pro-
duction is lowest, amounts to a vast
improvement in production. When
fertile land, previously reserved as
hunting ground, or for any other pur-
pose of amusement, is set free for cul-
ture, the aggregate productiveness
of agricultural industry is increased.
It is well known what has been the
effect iii England of badly administered

foor laws, and the still worse effect in
reland of a bad system of tenancy, in
rendering agricultural labour slack and
ineffective. No improvements operate
more directly upon the productiveness
of labour than those in the tenure of
farms, and in the laws relating to
landed property. The breaking up of
entails, the cheapening of the transfer
of property, and whatever else pro-
motes the natural tendency of land in
a system of freedom, to pass out of
hands which can make little of it into
those which can make more ; the sub-
stitution of long leases for tenancy at
will, and of any tolerable system of
tenancy whatever for the wretched
cottier system ; above all, the acqui-
sition of a permanent interest in tho
soil by the cultivators of.it; all these
things are as real, and some of them
as great, improvements in production,
as the invention of the spinning jenny
or the steam engine.

We may say the same of improve-
ment in education. The intelligence
of the workman is a most important
element in the productiveness of labour.
So low, in some of the most civilized
countries, is the present standard of in-
telligence, that there is hardly any
source from which a more indefinite
12

lie

BOOK I. CHAPTER XII. § 3.

amount of improvement may bo looked
for in productive power, than by en-
dowing with brains those who now
have only hands. The carefulness,
economy, and general trustworthiness
of labourers are as important as their
intelligence. Friendly relations, and
a community of interest and feeling
between labourers and employers, are
eminently so: I should rather say,
would be ; for I know not where any
such sentiment of friendly alliance now
exists. Nor is it only in the labouring
class that improvement of mind and
character operates with beneficial
effect even on industry. In the rich
and idle classes, increased mental
energy, more solid instruction, and
stronger feelings of conscience, public
spirit, or philanthropy, would qualify
them to originate and promote the
most valuable improvements, both in
the economical resources of their coun-
try, and in its institutions and customs.
To look no further than the most ob-
vious phenomena ; the backwardness
of French agriculture in the precise
points in which benefit might be ex-
pected from the influence of an edu-
cated class, is partly accounted for by
the exclusive devotion of the richer
landed proprietors to town interests
and town pleasures. There is scarcely
any possible amelioration of human
affairs which would not, among its
other benefits, have a favourable
operation, direct or indirect, upon the
productiveness of industry. The in-
tensity of devotion to industrial occu-
pations would indeed in many cases be
moderated by a more liberal and genial
mental culture, but the labour actually
bestowed on those occupations would
almost always be rendered more effec-
tive.

Before pointing out the principal
inferences to b« drawn from the nature
of the two antagonist forces by which
the productiveness of agricultural in-
dustry is determined, we must observe
that what we have said of agriculture
is true, with little variation, of the
other occupationi which it represents ;

of all the arts which extract materials
from the globe. Mining industry, for
example, usually yields an increase of
produce at a more than proportional
increase of expense. It does worse,
for even its customary annual produce
requires to be extracted by a greater
and greater expenditure of labour and
capital. As a mine does not repro-
duce the coal or ore taken from it, not
only are all mines at last exhausted,
but even when they as yet show no
signs of exhaustion, they must be
worked at a continually increasing
cost; shafts must be sunk deeper,
galleries driven farther, greater power
applied to keep them clear of water ;
the produce must be lifted from a
greater depth, or conveyed a greater
distance. The law of diminishing
return applies therefore to mining, in
a still more unqualified sense than to
agriculture : but the antagonizing
agency, that of improvements in pro-
duction, also applies in a still greater
degree. Mining operations are more
susceptible of mechanical improve-
ments than agricultural : the first
great application of the steam engine
was to mining ; and there are un-
limited possibilities of improvement in
the chemical processes by which the
metals are extracted. There is an-
other contingency, of no unfrequent oc-
currence, which avails to counterba-
lance the progress of all existing mines
towards exhaustion : this is, the dis-
covery of new ones, equal or superior
in richness.

To resume ; all natural agents
which are limited in quantity, are not
only limited in their ultimate produc-
tive power, but, long before that power
is stretched to the utmost, they yield
to any additional demands on pro-
gressively harder terms. This law
may however be suspended, or tempo-
rarily controlled, by whatever adds to
the general power of mankind over na-
ture ; and especially by any extension
of their knowledge, and their conse-
quent command, of the properties and
powers of natural agents.

CONSEQUENCES OF THE FOREGOING LAWS.

H7

CHAPTER Xni.

CONSEQUENCES OF THE FOREGOING LAWS.

§ 1. FROM the preceding exposition
It appears that the limit to the increase
ot production is twofold ; from defi-
ciency of capital, or of land. Production
conies to a pause, either because the
effective desire of accumulation is not
sufficient to gisTe rise to any further in-
crease of capital, or because, however
disposed the possessors of surplus in-
come may be to save a portion of it,
the limited land at the disposal of the
community does not permit additional
capital to be employed with such a re-
turn, as would be an equivalent to them
for their abstinence.

In countries where the principle of
accumulation is as weak as it is in the
various nations of Asia ; where people
will neither save, nor work to obtain
the means of saving, unless under the
inducement of enormously high profits,
nor even then if it is necessary to wait
a considerable time for them ; where
either productions remain scanty, or
drudgery great, because there is neither
capital forthcoming nor forethought
sufficient for the adoption of the con-
trivances by which natural agents are
made to do the work of human labour ;
the desideratum for such a country,
economically considered, is an increase
of industry, and of the effective desire
of accumulation. The means are, first,
a better government; more complete
security of property ; moderate taxes,
\ and freedom from arbitrary exaction
under the name of taxes ; a more per-
manent and more advantageous tenure
of land, securing to the cultivator as
far as possible the undivided benefits
of the industry, skill, and economy he
may exert. Secondly, improvement of
the public intelligence ; the decay of
usages or superstitions which interfere
with the effective employment of in-
dustry ; and the growth of mental ac-
tivity, making the people alive to new
objects of desire. Thirdly, the intro-
duction of foreigc arts, which raise the
returns derivable from additional capi-

tal, to a rate corresponding to the low
strength of the desire of accumulation ;
and the importation of foreign capital,
which renders the increase of produc-
tion no longer exclusively dependent
on the thrift or providence of the in-
habitants themselves, while it places
before them a stimulating example,
and by instilling new ideas and break-
ing the chains of habit, if not by im-
proving the actual condition of the
population, tends to create in them
new wants, increased ambition, and
greater thought for the future. These
considerations apply more or less to
all the Asiatic populations, and to the
less civilized and industrious part of
Europe, as Russia, Turkey, Spain, and
Ireland.

§ 2. But there are other countries,
and England is at the head of them, in
which neither the spirit of industry nor
the effective desire of accumulation
need any encouragement ; where the
people will toil hard for a small remu-
neration, and save much for a small
profit ; where, though the general
thriftiness of the labouring class ia
much below what is desirable, the
spirit of accumulation in the more
prosperous part of the community re-
quires abatement rather than increase.
La these countries there would never
be any deficiency of capital, if its in-
crease were never checked or brought
to a stand by too great a diminution
of its returns. It is the tendency of
the returns to a progressive diminution,
which causes the increase of produc-
tion to be often attended with a dete-
rioration in the condition of the
producers ; and this tendency, which
would in time put an end to increase
of production altogether, is a result of
the necessary and inherent conditions
of production from the land.

In Jill countries which have passed
beyond a rather early stage in the pro-
gress of agriculture, every increase in

118

BOOK I. CHAFFER XIII. § 2.

the demand for food, occasioned by
increased population, will always, un-
less there is a simultaneous improve-
ment in production, diminish the share
which on a fair division would fall to
each individual. An increased pro-
duction, in default of unoccupied tracts
of fertile land, or of fresh improve-
ments tending to cheapen commo-
dities, can never be obtained but by
increasing the labour in more than the
same proportion. The population must
either work harder, or eat less, or ob-
tain their usual food by sacrificing a
part of their other customary comforts.
Whenever this necessity is postponed,
notwithstanding an increase of popula-
tion, it is because the improvements
which facilitate production continue
progressive ; because the contrivances
of mankind for making their labour
more effective, keep up an equal
struggle with nature, and extort fresh
resources from her reluctant powers as
fast as human necessities occupy and
engross the old.

From this, results the important
corollary, that the necessity of restrain-
ing population is not, as many persons
believe, peculiar to a condition of great
inequality of property. A greater num-
ber of people cannot, in any given
state of civilization, be collectively so
•well provided for as a smaller The
niggardliness of nature, not the injus-
tice of society, is the cause of the
penalty attached to over-population.
An unjust distribution of wealth does
not even aggravate the evil, but, at
most, causes it to be somewhat earlier
felt. It is in vain to say, that all
mouths which the increase of mankind
calls into existence, bring with them
hands. The new mouths require as
much food as the old ones, and the
hands do not produce as much. If all
instruments of production were held in
joint property by the whole people,
and the produce divided with perfect
equality among them, and if in a
society thus constituted, industry were
as energetic and the produce as ample
as at present, there would be enough
to make all the existing population ex-
tremely comfortable ; but when that
population had doubled itself, as, with

the existing habits of the people, under
such an encouragement, it undoubtedly
would in little more than twenty years,
what would then be their condition ?
Unless the arts of production were in
the same time improved in an almost
unexampled degree, the inferior soils
which must be resorted to, and the
more laborious and scantily remunera-
tive cultivation which must be em-
ployed on the superior soils, to procure
food for so much larger a population,
would, by an insuperable necessity,
render every individual in the com-
munity poorer than before. If the
population continued to increase at the
same rate, a time would soon arrive
when no one would have more than
mere necessaries, and, soon after, a
time when no one would have a suffi-
ciency of those, and the further in-
crease of population would be arrested
by death.

Whether, at the present or any
ether time, the produce of industry,
proportionally to the labour employed,
is increasing or diminishing, and the
average condition of the people im-
proving or deteriorating, depends upon
whether population is advancing faster
than improvement, or improvement
than population. After a degree of
density has been attained, sufficient
to allow the principal benefits of
combination of labour, all further
increase tends in itself to mischief,
so far as regards the average con-
dition of the people ; but the progress
of improvement has a counteracting
operation, and allows of increased
numbers without any deterioration,
and even consistently with a higher
average of comfort. Improvement
must here be understood in a wide
sense, including not only new in-
dustrial inventions, or an extended
use of those already known, but im-
provements in institutions, education,
opinions, and human affairs generally,
provided they tend, as almost all im-
provements do, to give new motives or
new facilities to production. If the
productive powers of the country in-
crease as rapidly as advancing num-
bers call for an augmentation of pro-
duce, it is not necessary to obtain that

CONSEQUENCES OF THE FOREGOING LAWS.

119

augmentation by the cultivation of
Boils more sterile than the worst
already under culture, or by applying
additional labour to the old soils at a
diminished advantage ; or at all events
this loss of power is compensated by
the increased efficiency with which, in
the progress of improvement, labour is
employed in manufactures. In one
way or the other, the increased popula-
tion is provided for, and all are as well
off as before. But if the growth of
human power over nature is suspended
or slackened, and population does not
slacken its increase ; if, with only
the existing command over natural
agencies, those agencies are called
upon for an increased produce ; this
greater produce will not be afforded
to the increased population, without
either demanding on the average a
greater effort from each, or on the
average reducing each to a smaller
ration out of the aggregate produce.

As a matter of fact, at some periods
the progress of population has been the
more rapid of the two, at others that
of improvement. In England during
a long interval preceding the French
Devolution, population increased slowly;
but the progress of improvement, at
least in agriculture, would seem to have
been still slower, since though nothing
occurred to lower the value of the
precious metals, the price of corn rose
considerably, and England, from an
exporting, became an importing coun-
try. This evidence, however, is short
of conclusive, inasmuch as the extra-
ordinary number of abundant seasons
during the first half of the century, not
continuing during the last, was a
cause of increased price in the later
period, extrinsic to the ordinary pro-
gress of society. Whether during the
same period improvements in manufac-
tures, or diminished cost of imported
commodities, made amends for the
diminished productiveness of labour on
the land, is uncertain. But ever since
the great mechanical inventions of
Watt, Arkwright, and their cotempc-
raries, the return to labour has pro-
bably increased as fast as the popula-
tion ; and would have outstripped it, if
that very augmentation of return had

not called forth an alditional por-
tion of the inherent power of multipli-
cation in the human species. During
the twenty or thirty years last elapsed,
so rapid has been the extension of
improved processes of agriculture, that
even the land yields a greater produce
in proportion to the labour employed ;
the average price of corn had become
decidedly lower, even before the repeal
of the corn laws had so materially
lightened, for the time being, the pres-
sure of population upon production.
But though improvement may during
a certain space of time keep up with,
or even surpass, the actual increase of
population, it assuredly never comes
up to the rate of increase of which
population is capable : and nothing
could have prevented a general dete-
rioration in the condition of the human
race, were it not that population has
in fact been restrained. Had it been
restrained still more, and the same im-
provements taken place, there would
have been a larger dividend than thera
now is, for the nation or the species at
large. The new ground wrung from
nature by the improvements would not
have been all used up in the support of
mere numbers. Though the gross
produce would not have been so great,
there would have been a greater pro-
duce per head of the population.

§ 3. When the growth of numbers
outstrips the progress of improvement,
and a country is driven to obtain the
means of subsistence on terms more
and more unfavourable, by the inability
of its land to meet additional demands
except on more onerous conditicr.B ;
there are two expedients by which it
may hope to mitigate that disagreeable
necessity, even though no change
should take place in the habits of the
people with respect to their rate of in-
crease. One of these expedients is the
importation of food from abroad. The
other is emigration.

The admission of cheaper food from
a foreign country, is equivalent to an
agricultural invention by which food
could be raised at a similarly dimi-
nished cost at home. It equally in-
creases the productive power of labour.

120

BOOK I. CHAPTER XITL § 3.

The return was, before, so much food
for so much labour employed in the
growth of food: the return is now, a
greater quantity of food, for the same
labour employed in producing cottons
or hardware, or some other commodity
to be given in exchange for food. The
one improvement, like the other, throws
back the decline of the productive
power of labour by a certain distance :
but in the one case as in the other, it
immediately resumes its course ; the
tide which has receded, instantly be-
gins to re-advance. It might seem,
indeed, that when a country draws its
supply of food from so wide a surface
as the whole habitable globe, so little
impression can be produced on that
great expanse by any increase of mouths
in one small corner of it, that the in-
habitants of the country may double
and treble their numbers, without feel-
ing the effect in any increased tension
of the springs of production, or any en-
hancement of the price of food through-
out the world. But in this calculation
several things are overlooked.

In the first place, the foreign regions
from which corn can be imported do
not comprise the whole globe, but those
parts of it almost alone, which are in
the immediate neighbourhood of coasts
or navigable rivers. The coast is the
part of most countries which is earliest
and most thickly peopled, and has sel-
dom any food to spare. The chief
source of supply, therefore, is the strip
of country along the banks of some
navigable river, as the Nile, the Vis-
tula, or the Mississippi ; and of such
there is not, in the productive regions
of the earth, so great a multitude, as
to suffice during an indefinite time for
a rapidly growing demand, without an
increasing strain on the productive
powers of the soil. To obtain auxiliary
supplies of corn from the interior in
any abundance, would, in the existing
state of the communications, be hope-
less. By improved roads, and eventu-
ally by canals and railways, the obstacle
will be so reduced as not to be insuper-
able : but this is a slow progress ; in
all the food-exporting countries except
America, a very slow progress ; and
one which cannot keep peace with popu-

lation, unless the increase of the last is
very effectually restrained.

In the next place, even if the supply
were drawn from the whole instead of
a small part of the surface of the ex-
porting countries, the quantity of food
would still be limited, which could be
obtained from them without an increase
of the proportional cost. The countries
which export food may be divided into
two classes ; those in which the effec-
tive desire of accumulation is strong,
and those in which it is weak. In
Australia and the United States of
America, the effective desire of accu-
mulation is strong; capital increases
fast, and the production of food might
be very rapidly extended. But in such
countries population also increases with
extraordinary rapidity. Their agricul-
ture has to provide for their own ex-
panding numbers, as well as for those
of the importing countries. They must,
therefore, from the nature of the case,
be rapidly driven, if not to less fertile,
at least what is equivalent, to remoter
and less accessible lands, and to modes
of cultivation like those of old countries,
less productive in proportion to the
labour and expense.

But the countries which have at tho
same time cheap food and great indus-
trial prosperity are few, being only
those in which the arts of civilized life
have been transferred full grown to a
rich and uncultivated soil. Among old
countries, those which are able to ex-
port food, are able only because their
industry is in a very backward state ;
because capital, and hence population,
have never increased sufficiently to
make food rise to a higher price. Such
countries are Eussia, Poland, and tho
plains of the Danube. In those regions
the effective desire of accumulation is
weak, the arts of production most im-
perfect, capital scanty, and its increase,
especially from domestic sources, slow.
When an increased demand arose for
food to be exported to other countries,
it would only be very gradually that
food could be produced to meet it. The
capital needed could not be obtained
by transfer from other employments,
for such do not exist. The cottons or
hardware which would be received f'ron

CONSEQUENCES OF THE FOREGOING LAWS. 121

England in exchange for corn, the
Russians and Poles do not now produce
in the country : they go without them.
Something might in time be expected
from the increased exertions to which
producers would be stimulated by the
market opened for their produce ; but
*o such increase of exertion, the habits
of countries whose agricultural popula-
tion consists of serfs, or of peasants
\vlio have but just emerged from a ser-
vile condition, are the reverse of favour-
able, and even in this age of movement
these habits do not rapidly change. If
a greater outlay of capital is relied on
as the source from which the produce
is to be increased, the means must
either be obtained by the slow process
of saving, under the impulse given by
new commodities and more extended
intercourse (and in that case the popu-
lation would most likely increase as
fast), or must be brought in from foreign
countries. If England is to obtain a
rapidly increasing supply of corn from
Russia or Poland, English capital must
go there to produce it. This, how-
ever, is attended with so many dif-
ficulties, as are equivalent to great
positive disadvantages. It is opposed
by differences of language, differences
of manners, and a thousand obstacles
arising from the institutions and social
relations of the country : and after all
it would inevitably so stimulate popu-
lation on the spot, that nearly all the
increase of food produced by its means,
would probably be consumed without
leaving the country : so that if it were
not the almost only mode of introducing
foreign arts and ideas, and giving an
effectual spur to the backward

The law, therefore, of diminishing
return to industry, whenever population
makes a more rapid progress than im-
provement, is not solely applicable to
countries which are fed from their own
soil, but in substance applies quite as
much to those which are willing to
draw their food from any accessible
quarter that can afford it cheapest. A
sudden and great cheapening of food,
indeed, in whatever manner produced,
would, like any other sudden improve-
ment in the arts of life, throw the na-
tural tendency of affairs a stage or two
further back, though without altering
its course. There is one contingency
connected with freedom of importation,
which may yet produce temporary ef-
fects greater than were ever contem-
plated either by the bitterest enemies
or the most ardent adherents of free-
trade in food. Maize, or Indian corn,
is a product capable of being supplied
in quantity sufficient to feed the whole
country, at a cost, allowing for differ-
ence of nutritive quality, cheaper even
than the potato. If maize should ever
substitute itself for wheat as the staple
food of the poor, the productive power
of labour in obtaining food would be so
enormously increased, and the expense
of maintaining a family so diminished,
that it would require perhaps some
generations for population, even if it
started forward at an American pace,
to overtake this great accession to the
facilities of its support.

§ 4. Besides the importation of com,
there is another resource which can be
invoked by a nation whose increasing
numbers press hard, not against their

tion of those countries, little reliance 1 capital, out against the productive

could be placed on it for increasing the
exports, and supplying other countries
with a progressive and indefinite in-
crease of lood. But to improve the
civilization of a country is a slow pro-
cess, and gives time for so great an in-
crease of population both in the country
itself, and in those supplied from it,
that its effect in keeping down the
price of food against the increase of
demand, is not likely to be more de-
cisive on the scale of all Europe, than on
the smaller one of a particular nation.

capacity of their land : I mean Emigra-
tion, especially in the form of Coloniza-
tion. Of this remedy the efficacy as
far as it goes is real, since it consists
in seeking elsewhere those unoccupied
tracts of fertile land, which if they ex-
isted at home would enable the demand
of an increasing population to be met
without any falling off in the pro-
ductiveness of labour. Accordingly,
when the region to be colonized is near
at hand, and the habits and tastes
of the people sufficiently migratory,

122

this remedy is completely effectual.
The migration from the older parts of
the American Confederation to the new
territories, which is to all intents and
purposes colonization, is what enables
population to go on unchecked through-
out the Union without having yet
diminished the return to industry, or
increased the difficulty of earning a
subsistence. If Australia or the in-
terior of Canada were as near to Great
Britain as Wisconsin and Iowa to New
York ; if the superfluous people could
remove to it without crossing the sea,
and were of as adventurous and restless
a character, and as little addicted to
staying at home, as their kinsfolk of
New England, those unpeopled conti-
nents would render the same service to
the United Kingdom which the old
states of America derive from the new.
But these things being as they are —
though a judiciously conducted emigra-
tion is a most important resource for
suddenly lightening the pressure of
population by a single effort — and
though in such an extraordinary case
as that of Ireland under the threefold
operation of the potato failure, the

BOOK I. CHAPTER XIII. § 4.

poor law, and the general turning out
of tenantry throughout the country,
spontaneous emigration may at a par-
ticular crisis remove greater multitudes
than it was ever proposed to remove at
once by any national scheme ; it still
remains to be shown by experience
whether a permanent stream of emigra-
tion can be kept up, sufficient to take
off, as in America, all that portion of
the annual increase (when proceeding
at its greatest rapidity) which being
in excess of the progress made during
the same short period in the arts of
life, tends to render living more difficult
for every averagely-situated individual
in the community. And unless this
can be done, emigration cannot, even
in an economical point of view, dispense
with the necessity of checks to popula-
tion. Further than this we have not
to speak of it in this place. The gene-
ral subject of colonization as a practi-
cal question, its importance to old
countries, and the principles on which
it should be conducted, will be dis-
cussed at some length in a subsequent
portion of this Treatise.

BOOK IL

DISTRIBUTION.

CHAPTER I.

OP PROPERTY

§ 1. TUB principles \vlik-h have
been set forth in the first part of this
Treatise, are, in certain respects,
strongly distinguished from those, on
the consideration of which we are now
about to enter. The laws and condi-
tions of the production of wealth, par-
take of the character of physical
truths. There is nothing optional, or
arbitrary in them. Whatever man-
kind produce, must be produced in the
modes, and under the conditions, im-
posed by the constitution of external
things, and by the inherent properties
of their own bodily and mental struc-
ture. Whether they like it or not, their
productions will be limited by the
amount of their previous accumulation,
and, that being given, it will be pro-
portional to their energy, their skill,
the perfection of their machinery, and
their judicious use of the advantages
of combined labour. Whether they
like it or not, a double quantity of
labour will not raise, on the same land,
a double quantity of food, unless some im-
provement takes place in the processes
of cultivation. Whether they liKe it
or not, the unproductive expenditure of
individuals will pro tanto tend to im-
poverish the community, and only their
productive expenditure will enrich it.
The opinions, or the wishes, which
may exist on these different matters,
do not control the things themselves.
We cannot, indeed, foresee to what ex-
tent the modes of production may be
altered, or the productiveness of labour
increased, by future extensions of
otir knowledge of the laws of nature,

suggesting new processes of industry
of which we have at present no con-
ception. But howsoever we may suc-
ceed in making for ourselves mora
space within the limits set by the
constitution of things, we know that
there must be limits. We cannot alter
the ultimate properties either of matter
or mind, but can only employ those
properties more or less successfully, to
bring about the events in which we
are interested.

It is not so with the Distribution of
Wealth. That is a matter of human
institution solely. The things once
there, mankind, individually or col-
lectively, can do with them as they
like. They can place them at the dis-
posal of whomsoever they please, and
on whatever terms. Further, in the
social state, in every state except total
solitude, any disposal whatever of them
can only take place by the consent of
society, or rather of those who dispose
of its active force. Even what a person
has produced by his individual toil, un-
aided by any one, he cannot keep, un-
less by the permission of society. Not
only can society take it from him, but
individuals could and would take it
from him, if society only remained
passive ; if it did not either interfere
en masse, or employ and pay people
for the purpose of preventing him from
being disturbed in the possession. The
distribution of wealth, therefore, de-
pends on the laws and customs of so-
ciety. The rules by which it is de-
termined, are what the opinions and
feelings of the ruling portion of the

124

BOOK II. CHAPTER I. § «.

community make them, and are very
different in different ages and countries;
and might be still more different, if
mankind so chose.

The opinions and feelings of man-
kind, doubtless, are not a matter of
chance. They are consequences of the
fundamental laws of human nature,
combined with the existing state of
knowledge and experience, and the
existing condition of social institutions
and intellectual and moral culture.
But the laws of the generation of
human opinions are not within our
present subject. They are part of the
general theory of human progress, a
far larger and more difficult subject
of inquiry than political economy. We
have here to consider, not the causes,
but the consequences of the rules ac-
cording to which wealth may be dis-
tributed. Those, at least, arc as little
arbitrary, and have as much the
character of physical laws, as the laws
of production. Human beings can
control their own acts, but not the
consequences of their acts either to
themselves or to others. Society can
subject the distribution of wealth to
whatever rules it thinks best ; but what
practical results will flow from the opera-
tion of those rules, must be discovered,
like any other physical ormental truths,
by observation and reasoning.

We proceed, then, to the considera-
tion of the different modes of distri-
buting the produce of land and labour,
which have been adopted in practice,
or may be conceived in theory. Among
these, our attention is first claimed by
that primary and fundamental institu-
tion, on which, unless in some excep-
tional and very limited cases, the
economical arrangements of society
have always rested, though in its se-
condary features it has varied, and is
liable to vary. I mean, of course, the
institution of individual property.

§ 2. Private property, as an institu-
tion, did not owe its origin to any of
those considerations of utility, which
plead for the maintenance of it when
established. Enough is known of rude
ages, both from history and from analo-
gous states of society in our own time, to

show, that tribunals (which always pre-
cede laws) were originally established,
not to determine rights, but to repress
violence and terminate quarrels. With
this object chiefly in view, they natuK
ally enough gave legal effect to first
occupancy, by treating as the aggressor
the person who first commenced vio-
lence, by turning, or attempting to turn,
another out of possession. The pre-
servation of the peace, which was the
original object of civil government, was
thus attained ; while by confirming, to
those who already possessed it, even
what was not the fruit of personal ex-
ertion, a guarantee was incidentally
given to them and others that they
would be protected in what was so.

In considering the institution of pro-
perty as a question in social philosophy,
we must leave out of consideration its
actual origin in any of the existing na-
tions of Europe. We may suppose a
community unhampered by any pre-
vious possession ; a body of 'colonists,
occupying for the first time an uninha-
bited country ; bringing nothing with
them but what belonged to them in
common, and having a clear field for
the adoption of the institutions and

Solity which they judged most expe-
ient ; required, therefore, to choose
whether they would conduct the work
of production on the principle of indi-
vidual property, or on some system
of common ownership and collective
agency.

If private property were adopted, we
must presume that it would be accom-
panied by none of the initial inequa-
lities and injustices which obstruct the
beneficial operation of the principle in
old societies. Every full-grown man or
woman, we must suppose, would be
secured in the unfettered use and dis-
posal of his or her bodily and mental
faculties ; and the instruments of pro-
duction, the land and tools, would be
divided fairly among them, so that all
might start, in respect to outward ap-
pliances, on equal terms. It is possible
also to conceive that in this original
apportionment, compensation might be
made for the injuries of nature, and the
balance redressed by assigning to the
less robust members of the community

PROPERTY.

125

Advantages in the distribution, sufficient
to put them on a par with the rest. But
the division, once made, would not again
be interfered with ; individuals would
be left to their own exertions and to the
ordinary chances, for making an ad-
vantageous use of what was assigned
to them. If individual property, on the
contrary, were excluded, the plan which
must b« adopted would be to hold the
land and all instruments of production
as the joint property of the community,
and to carry on the operations of in-
dustry on the common account. The
direction of the labour of the commu-
nity would devolve upon a magistrate
or magistrates, whom we may suppose
elected by the suffrages of the commu-
nity, and whom we must assume to be
voluntarily obeyed by them. The di-
vision of the produce would in like
manner be a public act. The principle
might either be that of complete equa-
lity, or of apportionment to the neces-
sities or deserts of individuals, in what-
ever manner might be conformable to
the ideas of justice or policy prevailing
in the community.

Examples of such associations, on a
small scale, are the monastic orders,
the Moravians, the followers of Rapp,
and others : and from the hopes which
they hold out of relief from the miseries
and iniquities of a state of much in-
equality of wealth, schemes for a larger
application of the same idea have re-
appeared and become popular at all
periods of active speculation on the first
principles of society. In an age like
the present, when a general reconside-
ration of all first principles is felt to be
inevitable, and when more than at any
former period of history the suffering
portions of the community have a voice
in the discussion, it was impossible but
that ideas of this nature should spread
far" and wide. The late revolutions in
Europe have thrown up a great amount
of speculation of this character, and an
unusual share of attention has conse-
quently been drawn to the various forms
•which these ideas have assumed : nor
is this attention likely to diminish, but
on the contrary, to increase more and
more.

The assailants of the principle of in-

dividual property may be divided into
two classes : those whose scheme im-
plies absolute equality in the distribu
tion of the physical means of life and
enjoyment, and those who admit in-
equality, but grounded on some prin-
ciple, or supposed principle, of justice
or general expediency, and not, like so
many of the existing social inequalities,
dependent on accident alone. At the
head of the first class, as the earliest
of those belonging to the present gene-
ration, must be placed Mr. Owen and
his followers. M. Louis Blanc and M.
Cabet have more recently become con-
spicuous as apostles of similar doctrines
(though the former advocates equality
of distribution only as a transition to a
still higher standard of justice, that al!
should work according to their capa-
city, and receive according to their
wants). The characteristic name for
this economical system is Communism,
a word of continental origin, only of late
introduced into this country. The word
Socialism, which originated among the
English Communists, and was assumed
by them as a name to designate their
own doctrine, is now, on the Continent,
employed in a larger sense ; not neces-
sarily implying Communism, or the en-
tire abolition of private property, but
applied to any system which requires
that the land and the instruments of
production should be the property, not
of individuals, but of communities or
associations, or of the government.
Among such systems, the two of highest
intellectual pretension are those w-nich,
from the names of their real or reputed
authors, have been called St. Simonism
and Fourierism ; the former, defunct aa
a system, but which during the few
years of its public promulgation, sowed
the seeds of nearly all the Socialist
tendencies which have since spread so
widely in France : the second, still
flourishing in the number, talent, and
zeal of its adherents.

§ 3. Whatever may be the merits or
defects of these various schemes, they
cannot be truly said to be impractica-
ble. No reasonable person can doubt
that a village community, composed of
a few thousand inhabitants cultivating

126

BOOK II. CHAPTER I. § S.

in joint ownership the same extent oJ
laud which at present feeds that number
of people, and producing by combined
labour and the most improved processes
the manufactured articles which they
required, could raise an amount of pro-
ductions sufficient to maintain them in
comfort ; and would find the means of
obtaining, and if need be, exacting, the
quantity of labour necessary for this
purpose, from every member of the
association who was capable of work.

The objection ordinarily made to a
system of community of property and
equal distribution of the produce, that
each person would be incessantly occu-
pied in evading his fair share of the
work, points, undoubtedly, to a real
difficulty. But those who urge this
objection, forget to how great an extent
the same difficulty exists under the
system on which nine-tenths of the
business of society is now conducted.
The objection supposes, that honest and
efficient labour is only to be had from
those who are themselves individually
to reap the benefit of their own exer-
tions. But how small a part of all the
labour performed in England, from the
lowest paid to the highest, is done by
persons working for their own benefit.
From the Irish reaper or hodman to
the chief justice or the minister of
state, nearly all the work of society is
remunerated by day wages or fixed
salaries. A factory operative has less
personal interest in his work than a
member of a Communist association,
since he is not, like him, working for a
partnership of which he is himself a
member. It will no doubt be said,
that though the labourers themselves
have not, in most cases, a personal in-
terest in their work, they are watched
and superintended, and their labour
directed, and the mental part of the
labour performed, by persons who have.
Even this, however, is far from being
universally the fact. In all public,
and many of the largest and most
successful private undertakings, not
only the labours of detail, but the
control and superintendence are en-
trusted to salaried officers. And
though the "master's eye," when the
master is vigilant and intelligent, is of

proverbial value, it must be remem-
bered that in a Socialist farm or manu-
factory, each labourer would be under
the eye not of one master, but of the
whole community. In the extreme
case of obstinate perseverance in not
performing the due share of work, the
community would have the same re-
sources which society now has for com-
pelling conformity to the necessary
conditions of the association. Dis-
missal, the only remedy at present, is
no remedy when any other labourer
who may be engaged, does no better
than his predecessor : the power of
dismissal only enables an employer to
obtain from his workmen the customary
amount of labour, but that customary
labour may be of any degree of ineffi-
ciency. Even the labourer who loses
his employment by idleness or negli-
gence, has nothing worse to suffer, in
the most unfavourable case, than the
discipline of a workhouse, and if the
desire to avoid this be a sufficient mo-
tive in the one system, it would be
sufficient in the other. I am not
undervaluing the strength of the in-
citement given to labour when the
whole or a large share of the benefit of
extra exertion belongs to the labourer.
But under the present system of in-
dustry this incitement, in the great
majority of cases, does not exist. If
Communistic labour might be lesa
vigorous than that of a peasant pro-
prietor, or a workman labouring on his
own account,, it would probably be
more energetic than that of a labourer
for hire, who has no personal interest
in the matter at all. The neglect by
the uneducated classes of labourers for
hire, of the duties which they engage
to perform, is in the present state of
society most flagrant. Now it is as
admitted condition of the Communist
scheme that all shall be educated : and
this being supposed, the duties of the
members of the association would
doubtless be as diligently performed a»
those of the generality of salaried offi
cers in the middle or higher classes
who are not supposed to be neces
sarily unfaithful to their trust, because
so long as they are not dismissed, thej
is the same in however lax

COMMUNISM.

127

manner their duty is fulfilled. Un-
( doubtedly, as a general rale, remunera-
tion by fixed salaries does not in any
class of functionaries produce the
maximum of zeal : and this is as much
as can be reasonably alleged against
Communistic labour.

That even this inferiority would
necessarily exist, is by no means so
certain as is assumed by those who are
little used to carry their minds beyond
the state of things with which they are
familiar. Mankind are capable of a
far greater amount of public spirit than
the present age is accustomed to sup-
pose possible. History bears witness
to the success with which large bodies
of human beings may be trained to
feel the public interest their own. And
no soil could be more favourable to the
growth of such a feeling, than a Com-
munist association, since all the am-
bition, and the bodily and mental
activity, which are now exerted in the
pursuit of separate and self-regarding
interests, would require another sphere
of employment, and would naturally
find it in the pursuit of the general
benefit of the community. The same
cause, so often assigned in explanation
of the devotion of the Catholic priest
or monk to the interest of his order —
that he has no interest apart from it —
would, under Communism, attach the
citizen to the community. And inde-
pendently of the public motive, eveiy
member of the association would be
amenable to the most universal, and
one of the strongest of personal mo-
tives, that of public opinion. The
force of this motive in deterring from
any act or omission positively reproved
by the community, no one is likely to
deny ; but the power also of emulation,
in exciting to the most strenuous
exertions for the sake of the approba-
tion and admiration of others, is borne
witness to by experience in every
situation in which numan beings pub-
licly compete with one another, even
if it be in things frivolous, or from
which the public derive no benefit. A
contest, who can do most for the com-
mon good, is not the kind of competi-
tion which Socialists repudiate. To
\vhat extent, therefore, the energy of

labour would be diminished by Com-
munism, or whether in the long run it
would be diminished at all, must be
considered for the present an undecided
question. — •-

Another of the objections to Com-
munism is similar to that, so often
urged against poor-laws : that if every
member of the community were as-
sured of subsistence for himself and
any number of children, on the sole
condition of willingness to work, pru-
dential restraint on the multiplication
of mankind would be at an end, and
population would start forward at a
rate which would reduce the com-
munity through successive stages of
increasing discomfort to actual starva-
tion. There would certainly be much
ground for this apprehension if Com-
munism provided no motives to re-
straint, equivalent to those which it
would take away. But Communism is
precisely the state of things in which
opinion might be expected to declare
itself with greatest intensity against
this kind of selfish intemperance. Any
augmentation of numbers which di-
minished the comfort or increased the
toil of the mass, would then cause
(which now it does not) immediate and
unmistakeable inconvenience to every
individual in the association ; incon-
venience which could not then be im-
puted to the avarice of employers, or
the unjust privileges of the rich. In
such altered circumstances opinion
could not fail to reprobate, and if repro-
bation did not suffice, to repress by
penalties of some description, this or
any other culpable self-indulgence at
the expense of the community. Tho
Communistic scheme, instead of being
peculiarly open to the objection drawn
from danger of over-population, has
the recommendation of tending in an
especial degree to the prevention of
that evil.

A more real difficulty is that of fairly
apportioning the labour of the commu-
nity among its members. There are
many kinds of work, and by what
standard are they to be measured
one against another? Who is to
judge how much cotton spinning, or
distributing goods from the stores, of

12*

BOOK H. CHAPTER J. § S.

bricklaying, 01 chimney sweeping, is
equivalent to so much ploughing?
The difficulty of making the adjust-
ment between different qualities of
labour is so strongly felt by Com-
munist writers, that they have usually
thought it necessary to provide that
all should work by turns at every de-
scription of useful labour : an arrange-
ment which by putting an end to the
division of employments, would sacri-
fice so much of the advantage of co-
operative production as greatly to
diminish the productiveness of labour.
Besides, even in the same kind of
work, nominal equality of labour would
be so great a real inequality, that the
feeling of justice would revolt against
its being enforced. All persons are
not equally fit for all labour ; and
the same quantity of labour is an un-
equal burthen on the weak and the
strong, the hardy and the delicate, the
quick and the slow, the dull and the
intelligent.

But these difficulties, though real,
are not necessarily insuperable. The
apportionment of work to the strength
and capacities of individuals, the miti-
gation of a general rule to provide for
cases in which it would operate harshly,
are not problems to which human in-
telligence, guided by a sense of justice,
would be inadequate. And the worst
and most unjust arrangement which
could be made of these points, under a
system aiming at equality, would be
so far short of the inequality and in-
justice with which labour (not to speak
of remuneration) is now apportioned,
as to be scarcely worth counting in the
comparison. We must remember too
that Communism, as a system of
society, exists only in idea ; that its
difficulties, at present, are much better
understood than its resources ; and
that the intellect of mankind is only
beginning to contrive the means of
organizing it in detail, so as to over-
come the one and derive the greatest
advantage from the other.

If, therefore, the choice were to be
made between Communism with all its
chances, and the present state of
society with all its sufferings and in-
justices; if the institution of private

property necessarily carried with it as a
consequence, that the produce of labour
should be apportioned as we now see
it, almost in an inverse ratio to the
labour — the largest portions to those
who have never worked at all, the next
largest to those whose work is almost
nominal, and so in a descending scale,
the remuneration dwindling as the
work grows harder and more disagree-
able, until the most fatiguing and ex-
hausting bodily labour cannot count
with certainty on being able to earn
even the necessaries of life ; if this, or
Communism, were the alternative, all
the difficulties, great or small, of Com-
munism would be but as dust in the
balance. But to make the comparison
applicable, we must compare Com-
munism at its best, with the regime of
individual property, not as it is, but as
it might be made. The principle of
private property has never yet had a
fair trial in any country ; and less so, f
perhaps, in this country than in some
others. The social arrangements of
modern Europe commenced from a
distribution of property which was the
result, not of just partition, or acqui-
sition by industry, but of conquest and
violence : and notwithstanding what
industry has been doing for many
centuries to modify the work of force,
the system still retains many and large
traces of its origin. The laws of pro-
perty have never yet conformed to the
principles on which the justification of
private property rests. They have
made property of things which never
ought to be property, and absolute
property where only a qualified pro-
perty ought to exist. They have not
held the balance fairly between human
beings, but have heaped impediments
upon some, to give advantage to
others ; they have purposely fostered
inequalities, and prevented all from
starting fair in the race. That all /
should indeed start on perfectly equal
terms, is inconsistent with any law off
private property : but if as much pains
as has been taken to aggravate the
inequality of chances arising from the
natural working of the principle, had
been taken to temper that inequality
by every means not subversive of tht

COMMUNISM.

principle itself; if the tendency of
( legislation bad been to favour tbe dif-
fusion, instead of the concentration of
•wealth — to encourage the subdivision
of the large masses, instead of striving
to keep them together ; the principle
of individual property would have been
found to have no necessary connexion
; with the physical and social evils
which almost all Socialist writers
assume to be inseparable from it.

Private property, in every defence
made of it, is supposed to mean, the
guarantee to individuals, of the fruits
of their own labour and abstinence.
The guarantee to them of the fruits of
the labour and abstinence of others,
transmitted to them without any merit
or exertion of their own, is not of the
essence of the institution, but a mere
incidental consequence, which when it
reaches a certain height, does not pro-
mote, but conflicts with the ends which
render private property legitimate. To
judge of the final destination of the in-
stitution of property, we must suppose
everything rectified, which causes the
institution to work in a manner op-
posed to that equitable principle, of
proportion between remuneration and
exertion, on which in every vindication
of it that will bear the light, it is as-
sumed to be grounded. We must also
suppose two conditions realized, with-
out which neither Communism nor any
other laws or institutions could make
the condition of the mass of mankind
other than degraded and miserable.
One of these conditions is, universal
education ; the other, a due limitation
of the numbers of the community.
With these, there could be no poverty
even under the present social institu-
tions : and these being supposed, the
question of Socialism is not, as gener-
ally stated by Socialists, a question of
flying to the sole refuge against the

evils which now bear down humanity ;
but a mere question of comparative
advantages, which futurity must deter-
mine. We are too ignorant either of
what individual agency in its best
form, or Socialism in its best form, can
accomplish, to be qualified to decide
which of the two will be the ultimate
form of human society.
M,

129

If a conjecture may be hazarded, tho
decision will probably depend mainly
on one consideration, viz. which of the
two systems is consistent with tho
greatest amount of human liberty and
spontaneity. After the means of sub
sistence are assured, the next in strength
of the personal wants of human beings
is liberty ; and (unlike the physical
wants, which as civilization advances
become more moderate and more ame-
nable to control) it increases instead of
diminishing in intensity, as the intel-
ligence and the moral faculties are more
developed. The perfection both of social
arrangements and of practical morality
would be, to secure to all persons com-
plete independence and freedom of ac-
tion, subject to no restriction but that
of not doing injury to others : and the
education which taught or the social
institutions which required them to
exchange the control of their own ac-
tions for any amount of comfort or
affluence, or to renounce liberty for the
sake of equality, would deprive them
of one of the most elevated characte-
ristics of human nature. It remains to
be discovered how far the preservation
of this characteristic would be found
compatible with the communistic or-
ganization of society. No doubt, this,
like all the other objections to the
Socialist schemes, is vastly exagge-
rated. The members of the association
need not be required to live together
more than they do now, nor need they
be controlled in the disposal of their
individual share of the produce, and of
the probably large amount of leisure
which, if they limited their production
to things really worth producing, they
would possess. Individuals need not
be chained to an occupation, or to a
particular locality. The restraints of
Communism would be freedom in com-
parison with the present condition of

"the majority of the human race. Tha
generality of labourers in this and most
other countries, have as little choice of
occupation or freedom of locomotion,
are practically as dependent on fixed
rules and on the will of others, as they
could be on any system short of actual
slavery ; to say nothing of the entire
domestic subjection of one half the

/30

BOOK II. CHAPTER I. §4

species, to which it is the signal
honour of Owenism and most other
forms of Socialism that they assign
equal rights, iu all respects, with those
of the hitherto dominant sex. But it
is not by comparison with the present
bad state of society that the claims of
Communism can be estimated ; nor is
it sufficient that it should promise
greater personal and mental freedom
than is now enjoyed by those who
have not enough of either to deserve
the name. The question is whether
there would be any asylum left for
Jndividuality of character ; whether
public opinion would not be a tyran-
nical yoke ; whether the absolute de-
pendence of each on all, and surveil-
lance of each by all, would not grind
•all down into a tame uniformity of
thoughts, feelings, and actions. This
is already one of the glaring evils of
the existing state of society, notwith-
standing a much greater diversity of
•education and pursuits, and a much
less absolute dependence of the
individual on the mass, than would
Qxist in the Communistic regime. No
lociety in which eccentricity is a
matter of reproach, can be in a whole-
some state. It is yet to be ascertained
whether the Communistic scheme
would be consistent with that multi-
form development of human nature,
those manifold unlikenesses, that diver-
sity of tastes and talents, and variety
of intellectual points of view, which
not only form a great part of the inte-
rest of human life, but by bringing in-
tellects into a stimulating collision,
and by presenting to each innumerable
notions that he would not have con-
ceived of himself, are the mainspring
of mental and moral progression.

§ 4. I have thus far confined my
observations to the Communistic doc-
trine, which forms the extreme limit
of Socialism ; according to which not
only the instruments of production, the
laud and capital, are the joint pro-
perty of the community, but the pro-
duce is divided and the labour appor-
tioned, as far as possible, equally. The
objections, whether well or ill grounded,
to which Socialism is liable, apply to

this form of it M their greatest force.
The other varieties of Socialism mainly
differ from Communism, in not relying
solely on what M. Louis Blanc calls
the point of honour of industry, but
retaining more or less of the incentive*
to labour derived from private pecu«
niary interest. Thus it is already a
modification of the strict theory of
Communism, when the principle is pro-
fessed of proportioning remuneration
to labour. The attempts which have
been made in France to carry Social-
ism into practical eifect, by associa
tions of workmen manufacturing on
their own account, mostly began by
sharing the remuneration equally,
without regard to the quantity of
work done by the individual: but in
almost every case this plan was after
a short time abandoned, and recourse
was had to working by the piece. The
original principle appeals to a higher
standard of justice, and is adapted to a
much higher moral condition of human
nature. The proportioning of remu-
neration to work done, is really just,
only in so far as the more or less of the
work is a matter of choice : when it
depends on natural difference of strength
or capacity, this principle of remune-
ration is in itself an injustice : it ia
giving to those who have ; assigning
most to those who are already most
favoured by nature. Considered, how-
ever, as a compromise with the selfish
type of character formed by the present
standard of morality, and fostered by
the existing social institutions, it is
highly expedient ; and until education
shall have been entirely regenerated,
is far more likely to prove immediately
successful, than an attempt at a higher
ideal.

The two elaborate forms of non-
communistic Socialism known as St.
Simonism and Fourierism, are totally
free from the objections usually urged
against Communism ; and though
they are open to others of their own,
yet by the great intellectual power
which in many respects distinguishes
them, and by their large and philoso-
phic treatment of some of the funda-
mental problems of society and mora-
lity, they may justly be counted among

FOUKIERISM

131

the most remarkable productions of the
past and present age.

The St. Siinonian scheme does not
contemplate an equal, but an unequal
division of the produce; it does not
that all should he occupied
alike, but differently, according to their
vocation or capacity; the function of
caeh being assigned, like grades in a
regiment, by tho choice of the direct-
ing authority, and the remuneration
being by salary, proportioned to the
importance, in the eyes of that autho-
rity, of the function itself, and the
merits of the person who fulfils it. For
the constitution of the ruling body,
different plans might be adopted, con-
sistently with the essentials of the
system. It might be appointed by
popular suffrage. In the idea of the
original authors, the rulers were sup-
posed to be persons of genius and vir-
tue, who obtained the voluntary adhe-
sion of the rest by the force of mental
superiority. That the scheme might
in some peculiar states of society work
with advantage, is not improbahle.
There is indeed a successful experi-
ment, of a somewhat similar kind, on
record, to which I have once alluded ;
that of the Jesuits in Paraguay. A
race of savages, belonging to a por-
tion of mankind more averse to conse-
cutive exertion for a distant object
than any other authentically known to
us, was brought under the mental do-
minion of civilized and instructed men
who were united among themselves by
a system of community of goods. To
the absolute authority of these men
they reverentially submitted them-
selves, and were induced by them to
learn the arts of civilized life, and to
practice labours for the community,
which no inducement that could have
been offered would have prevailed on
them to practise for themselves. This
social system was of short duration,
being prematurely destroyed by diplo-
matic arrangements and foreign force.
That it could be brought into action
at all was probably owing to the im-
mense distance in point of knowledge
and intellect which separated the few
rulers from the whole body of tho
ruled, without any intermediate orders,

either social or intellectual. In any
other circumstances it would probably
have been a complete failure. It sup-
poses an absolute despotism in the
Leads of the association ; which woulf
probably not be much improved if tl*
depositaries of the despotism (contrary
to the views of the authors of the sys-
tem) were varied from time to time
according to the result of a popular
canvass. But to suppose that one or
a few human beings, howsoever se-
lected, could, by whatever machinery
of subordinate agency, be qualified to
adapt each person's work to his capa-
city, and proportion each person's re-
muneration to his merits — to be, in
fact, the dispensers of distributive jus-
tice to every member of a community ;
or that any use which they could
make of this power would give general
satisfaction, or would be submitted to
without the aid of force — is a supposi-
tion almost too chimerical to be rea-
soned against. A fixed rule, like that
of equality, might be acquiesced in,
and so might chance, or an external
necessity ; but that a handful of human
beings should weigh everybody in the
balance, and give more to one and less
to another at their sole pleasure aud
judgment, would not be borne, unless
from persons believed to be more than
men, and backed by supernatural
terrors.

The most skilfully combined, and
with the greatest foresight of objec-
tions, of all the forms of Socialism, is
that commonly known as Fourierism.
This system does not contemplate the
abolition of private property, nor even
of inheritance : on the contrary, it
avowedly takes into consideration, aa
an element in the distribution of the
produce, capital as well as labour. It
proposes that the operations of indus-
try should be carried on by associations
of about two thousand members, com-
bining their labour on a district of
about a square league in extent, under
the guidance of chiefs selected by
themselves. In the distribution, a
certain minimum is first assigned for
the subsistence of every member of the
community, whether capable or not of
labour. The remainder of the produce
K 2

132

COOK. II. CHAPTER I. « 4.

18 shared in certain proportions, to be
determined beforehand, among the
three elements, Labour, Capital, and
Talent. The capital of the commu-
nity may be owned in unequal shares
by different members, who would in
that case receive, as in any other joint-
stock company, proportional dividends.
The claim of each person on the share
of the produce apportioned to talent
is estimated by the grade or rank
which the individual occupies in the
several groups of labourers to which he
or she belongs ; these grades being in
all cases conferred by the choice of his
or her companions. The remunera-
tion, when received, would not of
necessity be expended or enjoyed in
common; there would be separate
menages for all who preferred them,
and no other community of living is
contemplated, than that -all the mem-
bers of the association should reside in
the same pile of buildings ; for saving
of labour and expense, not only in
building, but in every branch of do-
mestic economy ; and in order that,
the whole of the buying and selling
operations of the community being
performed by a single agent, the enor-
mous portion of the produce of industry
now carried off by the profits of mere
distributors might be reduced to the
smallest amount possible.

This system, unlike Communism,
does not, in theory at least, withdraw
any of the motives to exertion which
exist in the present state of society.
On the contrary, if the arrangement
•worked according to the intentions of
its contrivers, it would even strengthen
those motives , since each person
would have much more certainty of
reaping individually the fruits of
increased skill or energy, bodily or
mental, than under the present social
arrangements can be felt by any but
those who are in the most advan-
tageous positions, or to whom the
chapter of accidents is more than ordi-
narily favourable. The Fourierists,
however, have still another resource.
They believe that they have solved
the great and fundamental problem of
rendering labour attractive. That this
U not imoracticable, they contend by

very strong arguments ; in particular
by one which they have in common
with the Owenites, viz., that scarcely
any labour, however severe, undergone
by human beings for the sake of sub-
sistence, exceeds in intensity that
which other human beings, whose sub-
sistence is already provided for, are
found ready and even eager to undergo
for pleasure. This certainly is a most
significant fact, and one from which
the student in social philosophy may
draw important instruction. But the
argument founded on it may easily be
stretched too far. If occupations full
of discomfort and fatigue are freely
pursued by many persons as amuse-
ments, who does not see that they are
amusements exactly because they are
pursued freely, and may be discon-
tinued at pleasure ? The liberty of
quitting a position often makes the
whole difference between its being
painful and pleasurable. Many a per-
son remains in the same town, street,
or house from January to December,
without a wish or a thought tending
towards removal, who, if confined to
that same place by the mandate of
authority, would find the imprisonment
absolutely intolerable.

According to the Fourierists, scarcely
any kind of useful labour is naturally
and necessarily disagreeable, unless it
is either regarded as dishonourable, or
is immoderate in degree, or destitute
of the stimulus of sympathy and emu-
lation. Excessive toil needs not, they
contend, be undergone by any one, in
a society in which there would be no
idle class, and no labour wasted, as so
enormous an amount of labour is now
wasted, in useless things ; and where
full advantage would be taken of the
power of association, both in increasing
the efficiency of production, and in
economizing consumption. The other
requisites for rendering labour at-
tractive would, they think, be found
in the execution of all labour by social
groups, to any number of which the
same individual might simultaneously
belong, at his or her own choice ; their
grade in each being determined by the
degree of service which they were
found capable of rendering, as appra-

PROPERTY.

133

elated by the suffrages of their com-
rades. It is inferred from the diver-
sity of tastes and talents, that every
member of the community would be
attached to several groups, employing
themselves in various kinds of occupa-
tion, some bodily, others mental, and
would be capable of occupying a high
place in some one or more ; so that a
.oal equality, or something more nearly
approaching to it than might at first
be supposed, would practically result :
not from the compression, but, on the
contrary, from the largest possible de-
velopment, of the various natural supe-
riorities residing in each individual.

Even from so brief an outline, it
must be evident that this system does
no violence to any of the general laws
by which human action, even in the
present imperfect state of moral and
intellectual cultivation, is influenced ;
and that it would be extremely rash to
pronounce it incapable of success, or
unfitted to realize a great part of the
hopes founded oil it by its partisans.
With regard to this, as to all other
varieties of Socialism, the thing to be

desired, and to which they have a just
claim, is opportunity of trial. They
are all capable of being tried on a
moderate scale, and at no risk, either
personal or pecuniary, to any except
those who try them. It is for expe-
rience to determine how far or how
soon any one or more of the possible
systems of community of property will
be fitted to substitute itself for the
" organization of industry" based on
private ownership of land and capital.
In the meantime we may, without at-
tempting to limit the ultimate capabi-
lities of human nature, affirm, that the
political economist, for a considerable
time to come, will be chiefly concerned
with the conditions of existence and
progress belonging to a society founded
on private property and individual
competition ; and that the object to be
principally aimed at in the present
stage of human improvement, is not
the subversion of the system of indi-
vidual property, but the improvement
of it, and the full participation of
every member of the community in ita
benefits.

CHAPTER IT.

THE SAME SUBJECT CONTINUED.

§ I. IT is next to be considered,
what is included in the idea of private
property, and by what considerations
the application of the principle should
be bounded.

The institution of property, when
limited to its essential elements, con-
sists in the recognition, in each person,
of a right to the exclusive disposal of
what he or she have produced by their
own exertions, or received either by
gift or by fair agreement, without force
or fraud, from those who produced it.
The foundation of the whole is, the
right of producers to what they them-
selves have produced. It may be ob-
jected, therefore, to the institution as
it now exists, that it recognises rights
of property in individuals over things

which they have not produced. FOT
example (it may be said) the opera-
tives in a manufactory create, by their
labour and skill, the whole produce ;
yet, instead of its belonging to them,
the law gives them only their stipu-
lated hire, and transfers the produce
to some one who has merely supplied
the funds, without perhaps contribu-
ting anything to the work itself, even
in the form of superintendence. The
answer to this is, that the labour of
manufacture is only one of the condi-
tions which must combine for the pro-
duction of the commodity. The
labour cannot be carried on without
materials and machinery, nor without
a stock of necessaries provided in
advance, to maintain the labourers

134

BOOK II. CHAPTER n. § 2.

dining the production. All these
tilings are the fruits of previous labour.
If the labourers were possessed of
them, they would not need to divide
the produce with any one ; but while
they have them not, an equivalent
must be given to those who have, both
for the antecedent labour, and for the
abstinence by which the produce of
that labour, instead of being expended
on indulgences, has been reserved for
this use. The capital may not have
been, and in most cases was not, crea-
ted by the labour and abstinence of
the present possessor ; but it was
created by the labour and abstinence
of some former person, who may in-
deed have been wrongfully dispossessed
of it, but who, in the present age of
the world, much more probably trans-
ferred his claims to the present capi-
talist by gift or voluntary contract :
and the abstinence at least must have
been continued by each successive
owner, down to the present. If it be
said, as it may with truth, that those
who have inherited the savings of
others have an advantage which they
may have in no way deserved, over
the industrious whose predecessors
have not left them anything; I not
only admit, but strenuously contend,
that this unearned advantage should
be curtailed, as much as is consistent
with justice to those who thought fit
to dispose of their savings by giving
them to their descendants. But while
it is true that the labourers are at a
disadvantage compared with those
whose predecessors have saved, it is
also true that the labourers are far
better off than if those predecessors
had not saved. They share in the ad-
vantage, though not to an equal extent
with the inheritors. The terms of co-
operation between present labour and
the fruits of past labour and saving,
are a subject for adjustment between
the two parties. Each is necessary to
the other. The capitalists can do
nothing without labourers, nor the
labourers without capital. If the
labourers compete for employment, the
capitalists on their part compete for
labour, to the full extent of the circu-
lating capital of the country. Cora-

petition is often spoken of as if it were
necessarily a cause of misery and
degradation to the labouring class ; as
if high wages were not precisely as
much a product of competition as low
wages. The remuneration of labour
is as much the result of the law of
competition in the United States, as it
is in Ireland, and much more com-
pletely so than in England.

The right of property includes, then,
the freedom of acquiring by contract.
The right of each to what he has pro-
duced, implies a right to what has been
produced by others, if obtained by
their free consent; since the pro-
ducers must either have given it from .
good will, or exchanged it for what/
they esteemed an equivalent, and to
prevent them from doing so would
be to infringe their right of pro- 1
perty in the product of their own in- J
dustry.

§ 2. Before proceeding to consider
the things which the principle of indi-
vidual property does not include, we
must specify one more thing which it
docs include : and this is, that a title, f
after a certain period, should be given (
by prescription. According to the fun-
damental idea of property, indeed,
nothing ought to be treated as such,
which has been acquired by force or
fraud, or appropriated in ignorance of
a prior title vested in some other per-
son ; but it is necessary to the security
of rightful possessors, that they should
not be molested by charges of wrong-
ful acquisition, when by the lapse of
time witnesses must have perished or
been lost sight of, and the real cha-
racter of the transaction can no longer
be cleared up. Possession which has
not been legally questioned within a
moderate number of years, ought to
be, as by the laws of all nations it is,
a complete title. Even when the acqui-
sition was wrongful, the dispossession,
after a generation has elapsed, of the
probably bond fide possessors, by tha
revival of a claim which had been long
dormant, would generally be a greater
injustice, and almost always a greater
private and public mischief, than
leaving the original wrong without

1NHEBITANCE.

135

atonement. It may seem Lard, that
a claim, originally just, should be de-
feated by mere lapse of time ; but
there is a time after which, (even look-
ing at the individual case, and without
regard to the general effect on the
security of possessors,) the balance of
hardship turns the other way. With
the injustices of men, as with the con-
vulsions and disasters of nature, the
longer they remain unrepaired, the
greater become the obstacles to re-
pairing them, arising from the after-
growths which would have to be torn
up or broken through. In no human
transactions, not even in the simplest
and clearest, does it follow that a thing
; is fit to be done now, because it was
• fit to be done sixty years ago. It is
scarcely needful to remark, that these
reasons for not disturbing acts of in-
justice of old date, cannot apply to
unjust systems or institutions ; since
a bad law or usage is not one bad act,
in the remote past, but a perpetual re-
petition of bad acts, as long as the law
or usage lasts.

Such, then, being the essentials of
private property, it is now to be con-
sidered, to what extent the forms in
which the institution has existed in
different states of society, or still ex-
ists, are necessary consequences of its
principle, or are recommended by the
reasons on which it is grounded.

§ 3. Nothing is implied in pro-
perty but the right of each to his (or
her) own faculties, to what he can
produce by them, and to whatever he
can get for them in a fair market : to-
gether with his right to give this to
any other person if he chooses, and
the right of that other to receive and
enjoy it.

It follows, therefore, that although
the right of bequest, or gift after death,
forms part of the idea of private pro-
perty, the right of inheritance, as
distinguished from bequest, does not.
\ That the property of persons who have
made no disposition of it during their
lifetime, should pass first to their chil-
dren, and failing them, to the nearest
relations, may be a proper arrange-
ment or not but is no conseouence of

lii'- principle of private property,
Although there belong to the decisii^i
of such questions many considerations
besides those of political economy,
it is not foreign to the plan of this
work to suggest, for the judgment ot
thinkers, the view of them which most
recommends itself to the writer's
mind.

No presumption in favour of existing
ideas on this subject is to be derived
from their antiquity. In early ages,
the property of a deceased person
passed to his children and nearest rela-
tives by so natural and obvious an
arrangement, that no other was likely
to be even thought of in competition
with it. In the first place, they were
usually present on the spot : they were
in possession, and if they had no other
title, had that, so important in an early
state of society, of first occupancy.
Secondly, they were already, in a man-
ner, joint owners of his property during
his life. If the property was in land,
it had generally been conferred by the
State on a family rather than on an
individual : if it consisted of cattle or
moveable goods, it had probably been
acquired, and was certainly protected
and defended, by the united efforts of
all members of the family who were of
an age to work or fight. Exclusive
individual property, in the modern
sense, scarcely entered into the ideas
of the time ; and when the first magis-
trate of the association died, he really
left nothing vacant but his own share
in the division, which devolved on the
member of the family who succeeded to
his authority. To have disposed of the
property otherwise, would have been
to break up a little commonwealth,
united by ideas, interest, and habits,
and to cast them adrift on the world.
These considerations, though rather
felt than reasoned about, had so great
an influence on the minds of mankind,
as to create the idea of an inherent
right in the children to the possessions
of their ancestor ; a right which it was
not competent to himself to defeat.
Bequest, in a primitive state of so-
ciety, was seldom recognised ; a clear
proof, were there no other, that pro-
perty was conceived in a manner to-

136

COOK II. CHAPTER II. § 3.

tally different from the conception of it
in the present time.*

But the feudal family, the last histo-
-ical form of patriarchal life, has long
perished, and the unit of society is not
now the family or clan, composed of all
the reputed descendants of a common
ancestor, but the individual ; or at
most a pair of individuals, with their
unemancipated children. Property is
now inherent in individuals, not in
famines : the children when grown up
do not follow the occupations or for-
tunes of the parent : if they partici-
pate in the parent's pecuniary means
it is at his or her pleasure, and not by
a voice in the ownership and govern-
ment of the whole, but generally by
the exclusive enjoyment of a part:
and in this country at least (except as
far as entails or settlements are an ob-
stacle) it is in the power of parents to
disinherit even their children, and
leave their fortune to strangers. More
distant relatives are in general almost
as completely detached from the family
and its interests as if they were ia no
way connected with it. The only
claim they are supposed to have on
their richer relations, is to a preference,
cteteris paribus, in good offices, and
some aid in case of actual necessity.

So great a change in the constitu-
tion of society must make a consider-
able difference in the grounds on which
the disposal of property by inheritance
should rest. The reasons usually
assigned by modem writers for giving
the property of a person who dies in-
testate, to the children, or nearest
relatives, are first, the supposition that
in so disposing of it, the law is more
likely than in any other mode to do
' what the proprietor would have done,
I if he had done any thing; and secondly,
1 the hardship, to those who lived with
their parents and partook in their
opulence, of being cast down from
the enjoyments of wealth into poverty
and privation.

There is some force in both these
arguments. The law ought, no doubt,

* See, for admirable illustrations of this
and many kindred points, Mr. Maine's pro-
found work on Ancient Law and its relation
to Modern Ideas.

to do for the children or dependents of
an intestate, whatever it was the duty
of the parent or protector to have done,
BO far as this can be known by any
one besides himself. Since, however,
the law cannot decide on individual
claims, but must proceed by general
rules, it is next to be considered what
these rules should be.

We may first remark, that in regard
to collateral relatives, it is not, unless
on grounds personal to the particular
individual, the duty of any one to make
a pecuniary provision for them. No
one now expects it, unless there happens
to be no direct heirs ; nor would it be
expected even then, if the expectation
were not created by the provisions of
the law in case of intestacy. I sec,
therefore, no reason why collateral
inheritance should exist at all. Mr.
Bentham long ago proposed, and other
high authorities have agreed in ihe
opinion, that if there are no heirs
either in the descending or in the
ascending line, the property, in case
of intestacy, should escheat to the
State. With respect to the more
remote degrees of collateral relation-
ship, the point is not very likely to be
disputed. Few will maintain that
there is any good reason why the
accumulations of some childless miser
should on his death (as every now and
then happens) go to enrich a distant
relative who never saw him, who per-
haps never knew himself to be related j
to him until there was something to be
gained by it, and who had no moral
claim upon him of any kind, more than
the most entire stranger. But the \
reason of the case applies alike to all
collaterals, even in the nearest degree-
Collaterals have no real claims, but
such as may be equally strong in the
case of non-relatives ; and in the one
case as in the other, where valid claims
exist, the proper mode of paying regaid
to them is by bequest.

The claims of children are of a
different nature : they are real, and in-
defeasible. But even of these, I venture
to think that the measure usually taken
is an erroneous one : what is due to
children is in some respects under-
rated, in others, as it appears to mef

INHERITANCE.

137

exacrger.-.tc'.l. One of the most binding
of all obligations, that of not bringing
children into the world unless they can
be maintained in comfort during child-
hood, and brought up with a likelihood
of supporting themselves when of full
vge, is both disregarded in practice
and made light of in theory in a manner
disgraceful to human intelligence. On
the other hand, when the parent pos-
sesses property, the claims of the
children upon it seem to me to be the
subject of an opposite error, \\hat-
ever fortune a parent may have in-
herited, or still more, may have ac-
quired, I cannot admit that he owes
to his children, merely because they
ore his children, to leave them rich,
without the necessity of any exertion.
I could not admit it, even if to be so
left were always, and certainly, for the
good of the children themselves. But
this is in the highest degree uncertain.
It depends on individual character.
Without supposing extreme cases, it
may be affirmed that in a majority of
instances the good not only of society
but of the individuals would be better
consulted by bequeathing to them a
moderate, than a large provision. This,
which is a common-place of moralists
ancient and modern, is felt to be true
by many intelligent parents, and would
be acted upon much more frequently,
if they did not allow themselves to
consider less what really is, than what
will be thought by others to be, ad-
vantageous to the children.

The duties of parents to their
children are those which are indis-
solubly attached to the fact of causing
the existence of a human being. The
parent owes to society to endeavour to
make the child a good and valuable
member of it, and owes to the children
to provide, so i'ar as depends on him,
such education, and such appliances
and means, as will enable them to start
with a fair chance of achieving by
their own exertions a successful life.
To this every child has a claim ; and
I cannot admit, that as a child he
has a claim to more. There is a case
in which these obligations present
themselves in their true light, without
»ny extrinsic circumstances to disguise

or confuse them : it is that of an illegi-
timate child. To such a child it is
generally felt that there is due from
the parent, the amount of provision
for his welfare which will enable him
to make his life on the whole a desir-
able one. I hold that to no child,
merely as such, anything more is due,
than what is admitted to be due to an
illegitimate child : and that no child
for whom thus much has been done,
has, unless on the score of previously
raised expectations, any grievance, jf
the remainder of the parent's fortune
is devoted to public uses, or to the
benefit of individuals on whom in the
parent's opinion it is better bestowed.
In order to give the children that
fair chanco of a desirable existence,
to which they are entitled, it is gene-
rally necessary that they should not
be brought up from childhood in habits
of luxury which they will not have the
means of indulging in after life. This,
again, is a duty often flagrantly vio-
lated by possessors of terminable in-
comes, who have little property to
leave. When the children of rich\
parents have lived, as it is natural •
they should do, in habits correspond- !
ing to the scale of expenditure in
which the parents indulge, it is gene- ;
rally the duty of the parents to make ;
a greater provision for them, than
would suffice for children otherwise
brought up. I say generally, because
even here there is another side to the
question. It is a proposition quite
capable of being maintained, that to a
strong nature which has to make its
way against narrow circumstances, to
have known early some of the feelings
and experiences of wealth, is an ad-
vantage both in the formation of cha-
racter and in the happiness of life.
But allowing that children have a just
ground of complaint, who have been
brought up to require luxuries which
they are not afterwards likely to obtain,
and that their claim, therefore, is good
to a provision bearing some relation to
the mode of their bringing up ; this, too,
is a claim which i? particularly liable
to be stretched further than its reasons
warrant. The case is exactly that of
the younger children of the nobility

J38

BOOK Ii. CHAPTER II. § 4.

and landed gentry, the bulk of whose
Jurtune passes to the eldest son. The
other sons, who are usually numerous,
are brought up in the same habits of
luxury as the future heir, and they
receive, AS a younger brother's portion,
generally what the reason of the case
dictates, namely, enough to support,
in the habits of life to which they are
accustomed, themselves, but not a wife
or children. It really is no grievance
to any man, that for the means of
marrying and of supporting a family,
he has to depend on his own exertions .
A provision, then, such as is ad-
mitted to be reasonable in the case
of illegitimate children, of younger
children, wherever in short the justice
of the case, and the re"al interests of
the individuals and of society, are the
only things considered, is, I conceive,
all that parents owe to their children,
and all, therefore, which the state
owes to the children of those who
die intestate. The surplus, if any,
I hold that it may rightfully appro-
priate to the general purposes of the
community. I would not, however, be
supposed to recommend that parents
should never do more for their children
than what, merely as children, they
have a moral right to. In some cases
it is imperative, in many laudable, and
in all allowable, to do much more.
For this, however, the means are
afforded by the liberty of bequest. It
is due, not to the children but to the
parents, that they should have the
power of showing marks of affection,
of requiting services and sacrifices,
and of bestowing their wealth according
to their own preferences, or their own
judgment of iitness.

§ 4. Whether the power of bequest
should itself be subject to limitation, is
an ulterior question of great import-
ance. Unlike inheritance ab intestato,
bequest is one of the attributes of pro-
perty : the ownership of a thing can-
not be looked upon as complete with-
out the power of bestowing it, at death
or during life, at the owner's pleasure :
and all the reasons, which recommend
that private property should exist,
recommend pro tanto this extension of

it. But property is only a means to
an end, not itself the rnd. Like all
other proprietary rights, and even in a
greater degree than most, the power
of bequest may be so exercised as to
conflict with the permanent interests
of the human race. It does so, when,
not content with bequeathing an es-
tate to A, the testator prescribes that
on A's death it shall pass to his
eldest son, and to that son's son, and
so on for ever. No doubt, person?
have occasionally exerted themselves
more strenuously to acquire a fortune
from the .hope of founding a family in
perpetuity; but the mischiefs to society
of such perpetuities outweigh the
value of this incentive to exertion, and
the incentives in the case of those
who have the opportunity of making
large fortunes are strong enough with-
out it. A similar abuse of the power
of bequest is committed when a person
who does the meritorious act of leaving
property for public uses, attempts to
prescribe the details of its application
in perpetuity ; when in founding a
place of education, (for instance) he
dictates, for ever, what doctrines shall
be taught. It being impossible that
any one should know what doctrines
will be fit to be taught after he has
been dead for centuries, the law ought
not to give effect to such dispositions
of property, unless subject to the per-
petual revision (after a certain interval
has elapsed) of a fitting authority.

These are obvious limitations. But
even the simplest exercise of the right
of bequest, that of determining the
person to whom property shall pass
immediately on the de.ath of the tes-
tator, has always been reckoned among
the privileges which might be limited
or varied, according to views of es
pediency. The limitations, hitherto,
have been almost solely in favour of
children. In England the right is
in principle unlimited, almost the only
impediment being that arising from a
settlement by a former proprietor, in
which case the holder for the time
being cannot indeed bequeath his pos-
sessions, but only because there is
nothing to bequeath, he having merely
a life interest. By the Roman law,

BfcQUESTS.

139

on which the civil legislation of the
Continent of Europe is principally
founded, bequest originally was not
permitted at all, and even after it was
introduced, a legitima portio was cora-
pulsorily reserved for each child ; and
such is still the law in some of the
Continental nations. By the French
law since the Revolution, the parent
can only dispose by will, of a portion
equal to the share of one child, each of
the children taking an equal portion.
This entail, as it may be called, of the
bulk of every one's property upon the
children collectively, seems to me as
little defensible in principle as an en-
tail in favour of one child, though it
does not shock so directly the idea of
justice. I cannot admit that parents
should be compelled to leave to their
children even that provision whicn, as
children, I have contended that they
have a moral claim to. Children may
forfeit that claim- by general un-
worthiness, or particular ill-conduct to
the parents : they may have other
resources or prospects : what has been
previously done for them, in the way
of education and advancement in life,
may fully satisfy their moral claim ; or
others may have claims superior to
theirs.

The extreme restriction of the power
of bequest in French law was adopted
as a democratic expedient, to break
down the custom of primogeniture, and
counteract the tendency of inherited
property to collect in large masses. I
agree in thinking these objects emi-
nently desirable ; but the means used
are not, I think, the most judicious.
Were I framing a code of laws accord-
ing to what seems to me best in itself,
without regard to existing opinions and
sentiments, I should prefer to restrict,
not what any one might bequeath, but
what any one should be permitted to
acquire, by bequest or inheritance.
Each person should have power to dis-
pose by will of his or her whole pro-
perty ; but not to lavish it in enriching
iome one individual, beyond a certain
maximum, which should be fixed suffi-
ciently high to aflbrd the means of
comfortable independence. The in-
equalities of property which arise from

unequal industry, frugality, perse-
verance, talents, and to a certain extent
even opportunities, are inseparable from
the principle of private property, and
if we accept the principle, we must bear
with these consequences of it : but 1
see nothing objectionable in fixing a
limit to what any one may acquire by
the mere favour of others, without any
exercise of his faculties, and in requiring
that if he desires any furthur accession
of fortune, he shall work for it.* I
do not conceive that the degree of
limitation which this would impose
on the right of bequest, would be
felt as a burthensome restraint by
any testator who estimated a largo
fortune at its true value, that of the
pleasures and advantages that can be
purchased with it : on even the most?
extravagant estimate of which, it mus".
be apparent to every one, that the dif-
ference to the happiness of the possessor
between a moderate independence and
five times as much, is insignificant
when weighed against the enjoyment
that might be given, and • the perma-
nent benefits diffused, by Borne other
disposal of the four-fifths. So long
indeed as the opinion practically pre-
vails, that the best thing which can be
done for objects of affection is to heap
on them to satiety those intrinsically
worthless things on which large fortunes
are mostly expended, there might be
little use in enacting such a law, even
if it were possible to get it passed,
since if there were the inclination,
there would generally be the power of

* In the case of capital employed in the
hands of the owner himself, in carrying on
any of the operations of industry, there are
strong grounds for leaving to him the power
of bequeathing to one person the whole of
the funds actually engaged in a single enter-
prise. It is well that he should be enabled
to leave the enterprise under the control of
whichever of his heirs he regards as best fit-
ted to conduct it virtuously and efficiently ;
and the necessity (very frequent and incon-
venient under the French law) would be
obviated, of breaking up a manufacturing
or commercial establishment at the death of
its chief. In like manner it should be al-
lowed to a proprietor who leaves to one of
his successors the moral burthen of keeping
up an ancestral mansion and park or plea-
sure-ground, to bestow along with them as
much other property as is required for their
sufficient maintenance.

140

V.OOK II. CHAPITER IT. g 5.

evading it. The law would be unavail-
ing unless the popular sentiment went
energetically along with it; which
(judging from the tenacious adherence
of public opinion in France to the law
of compulsory division) it would in
some states of society and government
be very likely to do, however much the
contrary may be the fact in England
and at the present time. If the re-
striction could be made practically ef-
fectual, the benefit would be great.
Wealth which could no longer be em-
ployed in over-enriching a few, would
either be devoted to objects of public
usefulness, or if bestowedon individuals,
would be distributed among a larger
number. While those enormous for-
tunes which no one needs for any per-
sonal purpose but ostentation or im-
proper power, would become much less
numerous, there would be a great mul-
tiplication of persons in easy circum-
stances, with the advantages of leisure,
and all the real enjoyments which
wealth can give, except those of vanity ;
a class by whom the services which a
nation having leisured classes is enti-
tled to expect from them, either by
their direct exertions or by the tone
they give to the feelings and tastes of
the public, would be rendered in a much
more beneficial manner than at present.
A large portion also of the accumula-
tions of successful industry would pro-
bably be devoted to public uses, either
by direct bequests to the State, or by
the endowment of institutions; as is
already done very largely in the United
States, where the ideas and practice in
the matter of inheritance seem to be
unusually rational and beneficial.*

* " Munificent bequests and donations for
public purposes, whether charitable or edu-
cational, form a striking feature in the
modern history of the United States, and
especially of New England. Not only is it
common for rich capitalists to leave by will
a portion of their fortune towards the en-
dowment of national institutions, but indi-
viduals during their lifetime make magni-
ficent grants of money for the same objects.
There is here no compulsory law for the
equal partition of property among children,
as in France, and on the other hand, no
custom of entail or primogeniture, as in
England, so that the affluent leel themselves
at liberty to share their wealth between
their 'tindred and the public ; it being im-

§ 5. The next point to be- consi-
dered is, whether the reasons on which
the institution of property rests, are
applicable to all things in which a right
of exclusive ownership is at present
recognised ; and if not, on what other
grounds the recognition is defensible.

The essential principle of property
being to assure to all persons what
they have produced by their labour and
accumulated by their abstinence, this
principle cannot apply to what is not
the produce of labour, the raw material
of the earth. If the land derived its
productive power wholly from nature,
and not at all from industry, or if there
were any means of discriminating what
is derived from each source, it not only
would not be necessary, but it would
be the heighiof injustice, to let the gift
of nature be engrossed by individuals.
The use of the land in agriculture
must indeed, for the time being, be of
necessity exclusive ; the same persoc
who has ploughed and sown must be
permitted to reap : but the land might
be occupied for one season only, as
among the ancient Germans ; or might
be periodically redivided as population
increased : or the State might be the
universal landlord, and the cultivators
tenants underit,eitheron lease or at will.

But though land is not the produce
of industry, most of its valuable quali-
ties are so. Labour is not only requi-
site for using, but almost equally so for
fashioning the instrument. Consider-
able labour is often required at the com-
mencement, to clear the land for cul-
tivation. In many cases, even when

possible to found a family, and parents hav-
ing frequently the happiness of seeing all
their children well provided for and inde-
pendent long before their death. I have
seen a list of bequests and donations made
during the last thirty years for the benefit
of religious, charitable, and literary institu-
tions in the State of Massachusetts alone,
and they amounted to no less a sum than six
millions of dollars, or more than a million
sterling."— Lyell's Travel* in America,vQ\. i.
p. 2G3.

In England, whoever leaves anything, be-
yond trifling legacies, for public or benefi-
cent objects, when he has any near relatives
living, does so at the risk of being declared
insane by a jury after his death, or at the
least, of having the property wasted in *
Chancery suit to set aside the will.

PROPERTY IN LAND.

cleared, its productiveness is wholly,
the effect of labour and art. The
Bedford Level produced little or no-
thing until artiiicially drained. The
bogs of Ireland, until the same thing
is done to them, can produce little
besides fuel. One of the barrennest
soils in the world, composed of the ma-
terial of the (!oodwin Sands, the Pays
cle Waes in Flanders, has been so fer-
tilized by industry, as to have become
one of the most productive in Europe.
Cultivation also requires buildings
and fences, which are wholly the pro-
duce of labour. The fruits of this in-
dustry cannot ba reaped in a short
period. The labour and outlay are
immediate, the benefit is spread over
many years, perhaps over all future
time. A holder will not incur this
labour and outlay when strangers and
not himself will be benefited by it. If
he undertakes such improvements, he
must have a sufficient period before
him in which to profit by them ; and
he is in no way so sure of having al-
ways a sufficient period as when his
tenure is perpetual.*

§ 6. These are the reasons which
form the justification, in an economical
point of view, of property in land. It
is seen that they are only valid, in so
far as the proprietor of land is its im-
prover. Whenever, in any country,
the proprietor, generally" ;-jK-uluiig,

* " What endowed man with intelligence
and perseverance in labour, what made him
direct all his efforts towards an end useful
to his race, was the sentiment ,if perpetuity.
The lands which the streams have deposited
along their course are always the most fer-
tile, but are also those which they menace
with their inundations or corrupt by
marshes. Under the guarantee of perpe-
tuity men undertook long and painful la-
bours to give the marshes an outlet, to erect
embankments against inundations, to dis-
tribute by irrigation-channels fertilizing
waters over the same fields which the same
waters had condemned to sterility. Under
the same guarantee, man, no longer con-
tenting himself with the annual products of
the earth, distinguished among the wild ve-
getation the perennial plants, shrubs, and
trees whicli would be useful to him, im-
proved them by culture, changed, it may
almost be said, their very nature, and multi-
plied their amount. There are fruits which
it required centuries of cultivation to bring
\u their present perfection, and others which

141

ceases to be the improver, political

economy luu nothing to say m

, as thnv etabished.
in no sound theory of private property
was it ever contemplated that the pro-
prietor of land should be merely a
sinecurist quartered on it.

In Great Britain, the landed pro-
prietor is not unfrequently an improver.
But it cannot be said that he is gene-
rally so. And in the majority of cases
he grants the liberty of cultivation on
such terms, as to prevent improvements
from being made by any one else. In
the southern parts of the island, as •
there are usually no leases, permanent
improvements can scarcely be made
except by the landlord's capital ; ac-
cordingly the South, compared with
the North of England, and with the
Lowlands of Scotland, is still extremely
backward in agricultural improvement.
The truth is, that any very general
improvement of land by the landlords,
is hardly compatible with a law or
custom of primogeniture. When the
land goes wholly to the heir, it gene-
rally goes to him severed from the
pecuniary resources which would ena-
ble him to improve it, the personal
property being absorbed by the provi-
sion for younger children, and the land
itself often heavily burthened for the
same purpose. There is therefore but
a small proportion of landlords who
have the means of making expensive

have been introduced from the most remote
regions. Men have opened the earth to a
great depth to renew the soil, and fertilize
it by the mixture of its parts and by contact
with the air; they have fixed on the hill-
sides the soil which would have slid off,
and have covered the face of the country
with a vegetation everywhere abundant, anil
everywhere useful to the human race.
Among their labours there are some of
wiiich the fruits can only be reaped at the
end of ten or of twenty years; there are
others by which their posterity will still
benefit after several centuries. All have
concurred in augmenting the productive
force of nature, in giving to mankind a re-
venue infinitely more abundant, a revenue
of which a considerable part is consumed by
those who have no share in the ownership
of the land, but who would not have found
a maintenance but for that appropriation of
the soil by which they seem, at first sight, to
have been disinher.ted." — Sismundi, Studitt
in Political Economy, Third Essay, OT Ter-
ritorial Wealth.

142

improvements, unless they do it with
borrowed money, and by adding to the
mortgages with which in most cases
the land was already bnrthened when
they received it. But the position of
the owner of a deeply mortgaged estate
is so precarious ; economy is so unwel-
come to one whose apparent fortune
greatly exceeds his real means, and
the vicissitudes of rent and price which
only trench upon the margin of his in-
come, are so formidable to one who can
call little more than the margin his
own ; that it is no wonder if few land-
lords find themselves in a condition to
make immediate sacrifices for the sake
of future profit. Were they ever so
much inclined, those alone can pru-
dently do it, who have seriously studied
the principles of scientific agriculture :
and great landlords have seldom seri-
ously studied anything. They might
at least hold out inducements to the
fanners to do what they will not or
cannot do themselves ; but even in
granting leases, it is in England a
general complaint that they tie up
their tenants by covenants grounded
on the practices of an obsolete and ex-
ploded agriculture : while most of them,
by withholding leases altogether, and
giving the farmer no guarantee of pos-
session beyond a single harvest, keep
the land on a footing little more favour-
able to improvement than in the time
of our barbarous ancestors,

immetata quibus jugera liberas

Fruges et Cererem ferunt,

Nee cultura placet longior annua.

Landed property in England is thus
very far from completely fulfilling the
conditions which render its existence
economically justifiable. But if insuffi-
ciently realized even in England, in
Ireland those conditions are not com-
plied with at all. With individual
exceptions (some of them very honour-
able ones), the owners of Irish estates
do nothing for the land but drain it
of its produce. What has been epi-
grammatically said in the discussions
oil "peculiar burthens" is literally
true when applied to them ; that the
greatest "burthen on land" is the
landlords. Returning nothing to the
soil, they consume its whole produce,

BOOK II. CHAPTER II. § 6.

minus the potatoes strictly necessary
to keep the inhabitants from dying of
famine : and when they have any pur-
pose of improvement, the preparatory
step usually consists in not leaving
even this pittance, but turning out the
people to beggary if not to starvation.*
When landed properly has placed it-
self upon this footing it ceases to be
defensible, and the time has come for
making some new arrangement of the
matter.

When the " sacredness of property "
is talked of, it should always be remem-
bered, that any such sacredness does
not belong in the same degree to landed

froperty. No man made the land,
t is the original inheritance of the
whole species. Its appropriation is
wholly a question of general expe-
diency. When jmvate property in
land is not expedient, it is unjust. It
is no hardship to any one, to be ex-
cluded from what others have pro-
duced : they were not bound to produce
it for his use, and he loses nothing by
not sharing in what otherwise would
not have existed at all. But it is
some hardship to be born into the
world and to find all nature's gifts
previously engrossed, and no place left
for the new-comer. To reconcile peo-
ple to this, after they have once
admitted into their minds the idea that
any moral rights belong to them as
human beings, it will always be neces-
sary to convince them that the exclu-
sive appropriation is good for mankind
on the whole, themselves included.
But this is what no sane human being
could be persuaded of, if the relation
between the landowner and the cul-
tivator were the same everywhere as it
has been in Ireland.

Landed property is felt even by those
most tenacious of its rights, to be a
different thing from other property ;
and where the bulk of the community
have been disinherited of their share of
it, and it has become the exclusive

* I must beg the reader to bear in mind
that this paragraph was written eighteen
years ago. So wonderful are the changes,
both moral and economical, taking place in
our age, that, without perpetually re-writing
a work like the present, it is impossible to
keep up with thea&

PHOPERTY IN LAND.

143

attribute of a small minority, men have
gpniTally tried to reconcile it, at least
in theory, to their sense of justice, by
endeavouring to attach duties to it,
and erecting it into a sort of magis-
tracy, either moral or legal. But if
the "state is at liberty to treat the
possessors of land as public func-
tionaries, it is only going one step
further to say, that it is at liberty to
them. The claim of the land-
owners to the land is altogether subor-
dinate to the general policy of the
state. The principle of property gives
them no right to the land, but only
a right to compensation for whatever
portion of their interest in the land it
may be the policy of the state to
deprive them of. To that, their claim
is indefeasible. It is due to land-
owners, and to owners of any property
whatever, recognised as such by the
state, that they should not be dis-
possessed of it without receiving its
pecuniary value, or an annual income
equal to what they derived from it.
This is due on the general principles
on which property rests. If the land
was bought with the produce of the
labour and abstinence of themselves or
their ancestors, compensation is due to
them on that ground ; even if other-
wise, it is still due on the ground of
prescription. Nor can it ever be neces-
sary for accomplishing an object by
which the community altogether will
gain, that a particular portion of the
community should be immolated.
When the property is of a kind to
which peculiar affections attach them-
selves, the compensation ought to
exceed a bare pecuniary equivalent.
But, subject to this proviso, the state
is at liberty to deal with landed pro-
perty a.s the creneral interests of the
community may require, even to the
extent, if it so happen, of doing with
the whole, what is done with a part
whenever a bill is passed for a railroad
or a new street. The community has
too much at stake in the proper cul-
tivation of the land, and in the condi-
tions annexed to the occupancy of it,
to leave these things to the discretion
of a class of persons called landlords,
when they have shown themselves

unfit for the (rust. The legislature,
which if it pleased might convert
the whole body of landlords into fund-
holders or pensioners, might, a fortiori,
commute the average receipts of Irish
landowners into a fixed rent charge,
and raise the tenants into proprietors ;
supposing always that the full market
value of the land was tendered to the
landlords, in case they preferred that
to accepting the conditions proposed.

There will be another place for dis-
cussing the various modes of landed
property and tenure, and the advan-
tages and inconveniences of each ; in
this chapter our concern is with tho
right itself, the grounds which justify
it, and (as a corollary from these) the
conditions by which it should be limited.
To me it seems almost an axiom that
property in land should be interpreted
strictly, and that the balance in all
cases of doubt should incline against
the proprietor. The reverse is the
case with property in moveables, and
in all things the product of labour:'
over these, the owner's power both of
use and of exclusion should be abso-
lute, except where positive evil to
others would result from it ; but in the
case of land, no exclusive right should
be permitted in any individual, which
cannot be shown to be productive of
positive good. To be allowed any ex-
clusive right at all, over a portion of
the common inheritance, while there
are others who have no portion, is
already a privilege. No quantity of
moveable goods which a person can
acquire by bis labour, prevents others
from acquiring the like by the same
means ; but from the very nature of
the case, whoever owns land, keepi
others out of the enjoyment of it.
The privilege, or monopoly, is only
defensible as a necessary evil ; it be-
comes an injustice when carried to any
point to which the compensating good
does not follow it. .

For instance, the exclusive right to
the land for purposes of cultivation
does not imply an exclusive right to it
for purposes of access; and no such
right ought to be recognized, except
to the extent necessary to protect the
produce against damage, and the

144

owner's privacy against invasion. The
pretension of two Dukes to shut up
a part of the Highlands, and exclude
the rest of mankind from many spare
miles of mountain scenery to prevent
disturbance to wild animals, is an
abuse ; it exceeds the legitimate hounds
of the right of landed property. When
land is not intended to be cultivated,
. no good reason can in general be given
1 for its being private property at all;
and if any one is permitted to call it
his, he ought to know that he holds it
by sufferance of the community, and
on an implied condition that his owner-
ship, since it cannot possibly do them
any good, at least shall not deprive
them of any, which they could nave
derived from the land it it had been
unappropriated. Even in the case of
• cultivated land, a man whom, though
only one among millions, the law permits
/ to hold thousands of acres as his single
share, is not entitled to think that all
this is given to him to use and abuse,
and deal with as if it concerned nobody
but himself. The rents or profits which
he can obtain from it are at his sole
disposal ; but with regard to the land,
in everything which he does with it,
and in everything which he abstains
from doing, he is morally bound, and
should whenever the case admits be
legally compelled, to make his interest
and pleasure consistent with the public
good. The species at large still re-
tains, of its original claim to the soil
of the planet which it inhabits, as much
as is compatible with the purposes for
which it has parted with the remainder.

§ 7. Besides property in the pro-
duce of labour, and property in land,
there are other things which are or
have been subjects of property, in
which no proprietary rights ought to
exist at all. But as the civilized world
ias in general made up its mind on
most of these, there is no necessity for
dwelling on them in this place. At
the head of them, is property in human
beings. It is almost superfluous to
observe, that this institution can have
no place in any society even pretending
to be founded on justice, or on fellow-
ship between human creatures. But,

BOOK II. CHAPTER II. § f.

iniquitous as it is, yet when the state
has expressly legalized it, and human
beings, for generations, have been
bought, sold, and inherited under
sanction of law, it is another wrong, in
abolishing the property, not to make
full compensation. This wrong was
avoided by the great measure of justice
in 1833, one of the most virtuous acts,
as well as the most practically benefi-
cent, ever done collectively by a nation.
Other examples of property which
ought not to have been created, are
properties in public trusts ; such as
judicial offices under the old French
regime, and the heritable jurisdictions
which, in countries not wholly emerged
from feudality, pass with the land.
Our own country affords, as cases in
point, that of a commission in the
army, and of an advowson, or right of
nomination to an ecclesiastical bene-
fice. A property is also sometimes
created in a right of taxing the public ;
in a monopoly, for instance, or other
exclusive privilege. These abuses pre-
vail most in semibarbarous countries ;
but are not without example in the
most civilized. In France there are
several important trades and profes-
sions, including notaries, attorneys,
brokers, appraisers, printers, and (until
lately) bakers and butchers, of which
the numbers are limited by law. The
brevet or privilege of one of the per-
mitted number consequently brings a
high price in the market. "When this
is the case, compensation probably
could not with justice be refused, on
the abolition of the privilege. There
are other cases in which this would bo
more doubtful. The question would
turn upon what, in the peculiar cir-
cumstances, was sufficient to constitute
prescription; and whether the legal
recognition which the abuse had ob-
tained, was sufficient to constitute it
an institution, or amounted only to an
occasional licence. It would be absurd
to claim compensation for losses caused
by changes in a tariff, a thing confes-
sedly variable from year to year ; or for
monopolies like those granted to indivi-
duals by the Tudors, favours of a despo-
tic authority, which the power that gave
was competent at any time to recal.

CLASSES WHO DIVIDE THE PRODUCE.

145

So much on the institution of pro-
perty, a subject of which, for the pur-
iMisi's of political economy, it was
indispensable to treat, but on which
we could not usefully confine ourselves
to economical considerations. We

have now to inquire on what principles
and with what results the distribution
of the produce of land and labour is
effected, under the relations which
this institution creates among the
different members of the commnaity.

CHAFFER HL

OF THE CLASSES AHOXO WHOM THE PRODUCE IS DISTRIBUTED.

§ 1. PRIVATE property being as-
sumed as a fact, we have next to enu-
merate the different classes of persons
to whom it gives rise ; whose concur-
rence, or at least whose permission, is
necessary to production, and who are
therefore able to stipulate for a share
of the produce. We have to inquire,
according to what laws the produce
distributes itself among these classes,
by the spontaneous action of the inte-
rests of those concerned : after which,
a further question will be, what effects
are or might be produced by laws, in-
stitutions, and measures of government,
in superseding or modifying that spon-
taneous distribution.

The three requisites of production,
as has been so often repeated, are
labour, capital, and land : understand-
ing by ratfltel. -the means and np-
> wfncn are the accumulated
results of previous labour, and by land,
the materials and instruments suppliea
by nature, whether contained in the
interior of the earth or constituting its
surface. Since each of these elements
of production maybe separately appro-
priated, the industrial community may
be considered as divided into J,a^d-
capitalists, and productive
labourers. Each of these classes, as
RfBHJTfbTains a share of the produce :
no other person or class obtains any-
thing, except by concession from them.
The remainder of the community is,
in fact, supported at their expense,
giving, if any equivalent, one consist-
ing of unproductive services. These
three classes, therefore, are considered

in political economy as making up the
whole community.

§ 2. But although these three
sometimes exist as separate classes,
dividing the produce among them, they
do not necessarily or always so exist.
The fact is so much otherwise, that
there are only one or two communities
in which the complete separation of
these classes is the general rule. Eng-
land and Scotland, with parts of Bel-
gium and Holland, are almost the only
countries in the world where the land,
capital, and labour employed in agri-
culture, are generally the property of
separate owners. The ordinary case
is, that the same person owns either
two of these requisites, or all three.

The case in which the same person
owns all three, embraces the two ex-
tremes of existing society, in respect
to the independence and dignity of the
labouring class. First, when the
labourer himself is the proprietor.
This is the commonest case in the
Northern States of the American
Union ; one of the commonest in
France, Switzerland, the three Scan-
dinavian kingdoms, and parts of Ger-
many ;* and a common case in parts

* " The Norwegian return" (fay the
Commissioners of Poor Law Enquiry, to
whom information was furnished from nearly
every country in Europe and America by
the ambassadors and consuls there) " states
that at the last census in 182.5, out of a popu-
lation of 1,051,313 persons, there wer« 59,-lfU
freeholders. As by 59,464 freeholders must
be meant 59,404 heads of families, or about
300,000 individuals ; the freeholders must
form more Uwui one-fourth of the whole popu-

145

BOOK II. CHAPTER III. § 3.

of Italy and in Belgium. In all these
comntries there are, no doubt, large
landed properties, and a still greater
number which, without being large,
require the occasional or constant aid
of hired labourers. Much, however,
of the land is owned in portions too
small to require any other labour than
that of the peasant and his family, or
fully to occupy even that. The capital
employed is not always that of the
peasant proprietor, many of these small
properties being mortgaged to obtain
the means of cultivating ; but the
capital is invested at the peasant's
risk, and though he pays interest for
it, it gives to no one any right of inter-
ference, except perhaps eventually to
take possession of the land, if the in-
terest ceases to be paid.

The other case in which the land,
labour, and capital, belong to the same
person, is the case of slave countries,
in which the labourers themselves are
owned by the landowner. Our West
India colonies before emancipation, and
the sugar colonies of the nations by
whom a similar act of justice is still
unperformed, are examples of large
establishments for agricultural and
manufacturing labour (the production
of sugar and rum is a combination of
both) in which the land, the factories

lation. Mr. Macgregor states that in Den-
mark (by which Zealand and the adjoining
islands are probably meant) out of a popula-
tion of 926,110, the number of landed pro-
prietors and fanners is 415,110, or nearly
one-half. In Sleswick-Holstein, out of a
population of 604,085, it is 196,017, or about
one-third. The proportion of proprietors
and farmers to the whole population is not
given in Sweden ; but the Stockholm return
estimates the average quantity of land an-
nexed to a labourer's habitation at from one
to five acres; and though the Gottenburg
return gives a lower estimate, it adds, that
the peasants possess much of the land. In
Wurtemburg we are told that more than
two-thirds of the labouring population are
the proprietors of their own habitations,
and that almost all own at least a garden of
from th? tee-quarters of an acre to an acre
and a half." In some of these statements,
proprietors and farmers are not discrimi-
nated ; but " all the returns concur in stating
the number of day-labourers to be very
•mall."— (Preface toForeign Communicationi,
p, xxxviii.) As the general statin of the la-
bouring people, the condition of a work-
man for hire is almost peculiar to Great
Britain.

(if they may be so called), tfce ma-
chinery, and the degraded labourers,
are all the property of a capitalist. In
this case, as well as in its extreme
opposite, the case of the peasant pro-
prietor, there is no division of the
produce.

§ 3. When the three requisites are
not all owned by the same person, it
often happens that two of them are so.
Sometimes the same person owns the
capital and the land, but not the labour.
The landlord makes his engagement
directly with the labourer, and supplies
the whole or part of the stock neces-
sary for cultivation. This system is
the usual one in those parts of Conti-
nental Europe, in which the labourers
are neither serfs on the one hand, nor
proprietors on the other. It was very
common in France before the Revolu-
tion, and is still much practised in
some parts of that country, when the
land is not the property of the culti-
vator. It prevails generally in the
level districts of Italy, except those
principally pastoral, such as the Ma-
remma of Tuscany and the Campagna
of Rome. On this system the division
of the produce is between two classes,
the landowner and the labourer.

In other cases again the labourer
does not own the land, but owns the
little stock employed on it, the land-
lord not being in the habit of supplying
any. This system generally prevails
in Ireland. It is nearly universal in
India, and in most countries of the
Esst ; whether the government retains,
as it generally does, the ownership of
the soil, or allows portions to become,
either absolutely or in a qualified sense,
the property of individuals. In India,
however, things are so far better than
in Ireland, that the owner of land is
in the habit of making advances to
the cultivators, if they cannot cultivate
without them. For these advances
the native landed proprietor usually
demands high interest ; but the prih-
cipal landowner, the government,
makes them gratuitously, recovering
the advance after the harvest, together
with the rent. The produce is here
divided, as before between the sam«

COMPETITION AND CUSTOM.

147

two classes, ths landowner and the
labourer.

These are the principal variations
in the classification of those among
whom the produce of agricultural
labour- is distributed. In the case of
manufacturing industry there never
are more than two classes, the
laliniirors and the capitalists. The
original artisans in all countries were
either slaves, or the women of the
family. In the manufacturing esta-
blishments of the ancients, whether
on a large or on a small scale, the
labourers were usually the property of
the capitalist. In general, if any
manual labour was thought compatible
with the dignity of a freeman, it was
only agricultural labour. The converse
system, in which the capital was owned
by the labourer, was coeval with free
labour, and under it the first great ad-
vances of manufacturing industry were
achieved. The artisan owned the
loom or the few tools he used, and

worked on his own account; or at least
ended by doing so, though he usually
worked for another, first as apprentice
and next as journeyman, for a certain
number of years before he could be
admitted a master. ^But the status
of a permanent journeyman, all his
life a hired labourer and nothing more,
had no place in the crafts and guilds
of the Middle Ages. In country vil-
lages, where a carpenter or a black-
smith cannot live and support hired
labourers on the returns of his business,
he is even now his own workman ; and
shopkeepers in similar circumstances
are their own shopmen, or shopwomen.
But wherever the extent of the market
admits of it, the distinction is now
fully established between the class of
capitalists, or employers of labour, and
the class of .labourers ; the capitalists,
in general, contributing no other labour
than that of direction and superin-
tendence.

CHAPTER IV.

OF COMPETITION AND CUSTOM.

§ 1. UNDER the rule of individual
property, the division of the produce
is the result of two determining agen-
cies : Competition, and Custom. It is
important to ascertain the amount of
influence which belongs to each of these
causes, and in what manner the opera-
tion of one is modified by the other.

Political economists generally, and
English political economists above
others, have been accustomed to lay
almost exclusive stress upon the first
of these agencies ; to exaggerate the
effect of competition, and to take into
little account the other and conflicting
principle. They are apt to express
themselves as if they thought that
competition actually does, in all cases,
whatever it can be shown to be the
tendency of competition to do. This
is partly intelligible, if we consider
that only through the principle of com-

petition has political economy any
pretension to the character of a science.
So far as rents, profits, wages, prices,
are determined by competition, laws
may be assigned for them. Assume
competition to be their exclusive regu-
lator, and principles of broad generality
and scientific precision may be laid
down, according to which they will be
regulated. The political economist
justly deems this his proper business :
and, as an abstract or hypothetical sci-
ence, political economy cannot be re-
quired to do, and indeed cannot do,
anything more. But it would be a
great misconception of the actual course
of human affairs, to suppose that com-
petition exercises in fact this unlimited
sway. I am not speaking of monopo-
lies, either natural or artificial, or of
any interferences of authority with the
liberty of production or exchange.
L 2

148

ROOK II. CHAPTER IV. § 2.

Such disturbing en : cs have always
been allowed for by p 'iitical economists.
I speak of cases in which there is no-
thing to restrain competition : no hin-
drance to it either in the nature of the
-aso or in artificial obstacles ; yet in
which the result is not determined by
competition, but by custom or usage ;
competition either not taking place at
all, or producing its effect in quite a
different manner from that which is
ordinarily assumed to be natural to it.

§ 2. Competition, in fact, has only
become in any considerable degree the
governing principle of contracts, at a
comparatively modern period. The
farther we look back into history, the
more we see all transactions and en-
gagements under the influence of fixed
customs. The reason is evident. Cus-
tom is the most powerful protector of
the weak against the strong ; their sole
protector where there are no laws or
government adequate to the purpose.
Custom is a barrier which, even in the
most oppressed condition of mankind,
tyranny is forced in some degree to
respect. To the industrious population
in a turbulent military community,
freedom of competition is a vain phrase ;
they are never in a condition to make
terms for themselves by it : there is
always a master who throws his sword
into the scale, and the terms are such
as ho imposes. But though the law
of the strongest decides, it is not the
interest nor in general the practice of
the strongest to strain that law to the
utmost, and every relaxation of it has
a tendency to become a custom, and
every custom to become a right. IJights
thus originating, and not competition
in any shape, determine, in a rude state
of society, the share of the produce en-
joyed by those who produce it. The
relations, more especially, between the
landowner and the cultivator, and the
payments made by the latter to the
former, are, in all states of society but
th» most modern, determined by the
usage of the country. Never until late
times have the conditions of the occu-
pancy of land been (as a general rule)
an affair of competition. The occupier
fcr the time has very commonly been

considered to have a right to retain
his holding, while he fulfils the cus-
tomary requirements; and has thus
become, in a certain sense, a co-pro-
prietor of the soil. Even where the
holder has not acquired this fixity of
tenure, the terms of occupation have
often been fixed and invariable.

In India, for example, and other
Asiatic communities similarly consti-
tuted, the ryots, or peasant-farmers,
are not regarded as tenants at will,
nor even as tenants by virtue of a lease.
In most villages there are indeed some
ryots on this precarious footing, con-
sisting of those, or the descendants of
those, who have settled in the place at
a known and comparatively recent
period: but all who are looked upon
as descendants or representatives of
the original inhabitants, and even
many mere tenants of ancient date,
are thought entitled to retain their
land, as long as they pay the customary
rents. What these customary rents
are, or ought to be, has indeed, in most
cases, become a matter of obscurity ;
usurpation, tyranny, and foreign con-
quest having to a great degree obli-
terated the evidences of them. But
when an old and purely Hindoo prin-
cipality falls under the dominion of the
British Government, or the manage-
ment of its officers, and when the
details of the revenue system come to
be inquired into, it is usually found
that though the demands of the great
landholder, the State, have been swelled
by fiscal rapacity until all limit is
practically lost sight of, it has yet been
thought necessary to have a distinct
name and a separate pretext for each
increase of exaction ; so that the de-
mand has sometimes come to consist
of thirty or forty different items, in ad-
dition to the nominal rent. This cir-
cuitous mode of increasing the pay-
ments assuredly would not have been
resorted to, if there had been an ac-
knowledged right in the landlord to
increase the rent. Its adoption is a
proof that there was once an effective
limitation, a real customary rent ; and
that the understood right of the ryot
to the land, so long as he paid rent
according to custom, was at some tiros

COMPETITION AND CUSTOM.

149

or other more than nominal.* The
British Government of India always
simplifies the tenure by consolidating
the various assessments into one, thus
making the rent nominally as welf'as
really an arbitrary thing;, or at least a
matter of specific agreement: but it
scrupulously respects the right of the
ryot to the land, though until the re-
forms of the present generation (reforms
j\vn now only partially carried into
elluct) it seldom left him much more
lhan a bare subsistence.

In modern Europe the cultivators
have gradually emerged from a state
of personal slavery. The barbarian
conquerors of the Western empire
found that the easiest mode of ma-
naging their conquests would be to
leave the occupation of the land in the
hands in which they found it, and to
save themselves a labour so uncongenial
as the superintendence of troops of
slaves, by allowing the slaves to retainin
a certain degree the control of their own
actions, under an obligation to furnish
the lord with provisions and labour.
A common expedient was to assign to
the serf, for his exclusive use, as much
land as was thought sufficient for his
support, and to make him work on the
other lands of his lord whenever re-
quired. By degrees these indefinite
obligations were transformed into a
definite one, of supplying a fixed quan-
tity of provisions or a fixed quantity of
labour : and as the lords, in time, be-
came inclined to employ their income
in the purchase of luxuries rather than
in the maintenance of retainers, the
payments in kind were commuted for
payments in money. Each concession,
at first voluntary and revocable at
pleasure, gradually acquired the force
of custom, and was at last recognised
and enforced by the tribunals. In this
manner the serfs progressively rose
into a free tenantry, who held their
land in perpetuity on fixed conditions.
The conditions were sometimes very
onerous, and the people very miserable.

• The ancient law books of the Hindoos
mention in ?ome cases one-sixth, in others
one-fourth of the produce, as a proper rent ;
but there is no evidence that the rules laid
down in those books were, »t a-.y period of
history, really acted upon.

But their obligations were determined
by the usage or law of the country, and
not by competition.

Where tne cultivators had never
been, strictly speaking, in personal
bondage, or after they had ceased to
be so, the exigencies of a poor and little
advanced society gave rise to another
arrangement, which in some parts of
Europe, even highly improved parts,
has been found sufficiently advan-
tageous to be continued to the present
day. I speak of the metayer system.
Under this, the land is divided, in small
farms, among single families, the land-
lord generally supplying the stock
which the agricultural system of the
country is considered to require, and
receiving, in lieu of rent and profit, a
fixed proportion of the produce. This
proportion, which is generally paid in
kind, is usually (as is implied in the
words metayer, mezzaiuolo, and me-
dietarius,) one-half. There are places,
however, such as the rich volcanic soil
of the province of Naples, where the
landlord takes two-thirds, and yet the
cultivator by means ol an excellent
agriculture contrives to live. But
whether the proportion is two-thirds or
one-half, it is a fixed proportion ; not
variable from farm to farm, or from
tenant to tenant. The custom of the
country is the universal rule ; nobody
thinks of raising or lowering rents, or
of letting land on other than the cus-
tomary conditions. Competition, as a
regulator of rent, has no existence,

§ 3. Prices, whenever there was
no monopoly, came earlier under tho
influence of competition, and are much
more universally subject to it, than
rents: but that influence is by no
means, even in the present activity of
mercantile competition, so absolute as
is sometimes assumed. There is no
proposition which meets us in the field
of political economy oftener than this
— that there cannot be two prices in
the same market. Such undoubtedly
is the natural eflect of unimpeded com-
petition ; yet every one knows that
there are, almost always, two prices in
the same market. Not only are there
in every large town, and in almost

150

uvery trade, cheap shops and dear
shops, but the same shop often sells
the same article at different prices to
different customers : and, as a general
rule, each retailer adapts his scale of
prices to the class of customers whom
he expects. The wholesale trade, in
the great articles of commerce, is really
under the dominion of competition.
There, the buyers as well as sellers
are traders or manufacturers, and their
purchases are not influenced by indo-
lence or vulgar finery, nor depend on
the smaller motives of personal con-
venience, but are business transactions.
In the wholesale markets therefore it
is true as a general proposition, that
there are not two prices at one time
for the same thing : there is at each
time and place a market price, which
can be quoted in a price-current. But
re tail price, the price paid by the actual
consumer, seems to feel very slowly and
imperfectly the effect of Competition ;
and when competition does exist, it
often, instead of lowering prices, merely
divides the gains of the high price
among a greater number of dealers.
Hence it is that, of the price paid by
the consumer, so large a proportion is
absorbed by the gains of retailers ; and
any one who inquires into the amount
Which reaches the hands of those who
made the things he buys, will often be
astonished at its smallness. When
indeed the market, being that of a
great city, holds out a sufficient induce-
ment to large capitalists to engage in
retail operations, it is generally found
a better speculation to attract a large
business by underselling others, than
merely to divide the field of employ-
ment with them. This influence of
competition is making itself felt more
.and more through the principal
branches of retail trade in the large
towns ; and the rapidity and cheapness
of transport, by making consumers
less dependent on the dealers in their
immediate neighbourhood, are tending
to assimilate more and more the whole
country to a large town ; but hitherto
it is only in the gi eat centres of business
that retail transactions have been
chiefly, or even much, determined by
competition. Elsewhere it rather acts,

BOOK II. CHAPTER IV. § 3.

when it acts at all, as an occasional
disturbing influence ; the habitual re-
gulator is Custom, modified from time
to time by notions existing in the
minds of purchasers and sellers, of
some kind of equity or justice.

In many trades the terms on which
business is done are a matter of posi-
tive arrangement among the trade,
who use the means they always pos-
sess of making the situation of any
member of the body who departs from
its fixed customs, inconvenient or dis-
agreeable. It is well known that the
bookselling trade was, until lately, one
of these, and that notwithstanding the
active spirit of rivalry in the trade,
competition did not produce its natural
effect in breaking down the trade rules.
All professional remuneration is regu-
lated by custom. The fees of physi-
cians, surgeons, and barristers, the
charges of attorneys, are nearly inva-
riable. Not certainly for want of
abundant competition in those profes-
sions, but because the competition ope-
rates by diminishing each competitor's
chance of fees, not by lowering the fees
themselves.

Since custom stands its ground
against competition to so considerable
an extent, even where, from the multi-
tude of competitors and the general
energy in the pursuit of gain, the spirit
of competition is strongest, we may bo
sure that this is much more the case
where people are content with smaller
gains, and estimate their pecuniary
interest at a lower rate when balanced
against their ease or their pleasure.
I believe it will often be found, in Con-
tinental Europe, that pricesand charges,
of some or of all sorts, are much higher
in some places than in others not far
distant, without its being possible to
assign any other cause than that it has
always been so : the customers are
used to it, and acquiesce in it. An
enterprising competitor, with sufficient
capital, might force down the charges,
and make his fortune during the pro-
cess ; but there are no enterprising
competitors ; those who have capital
prefer to leave it where it is, or to
make less profit by it in a more quiet
way.

SLAVERY.

151

These observations must be r
as a general correction, to be applied
whenever relevant, whether expressly
mentioned or not, to the conclusions
contained in the subsequent portions
of this Treatise. Our reasonings must,
in general, proceed as if the known
Hiid natural effects of competition were
sctually produced by it, in all cases in
which it is not restrained by some
positive obstacle. Where competition,
though free to exist, does not exist, or
where it exists, but has its natural
consequences overruled by any other
agency, the conclusions •will fail more
or less of being applicable. To escape

error, we aught, in applying tho con-
clusions of political economy to tha
actual affairs of life, to consider not
only what will happen supposing the
maximum of competition, but how far
the result will be affected if competi
tion falls short of the maximum.

The states of economical relation
which stand first in order, to bo dis-
cussed and appreciated, are those in
which competition has no part, the
arbiter of transactions being either
brute force or established usage. These
will be the subject of the next four
chapters.

CHAPTER V.

OP SLAVERY.

§ 1. AMONG the forms which so-
ciety assumes under the influence of
the institution of property, there are,
as I have already remarked, two,
otherwise of a widely dissimilar cha-
racter, but resembling in this, that the
ownership of the land, tho labour, and
the capital, is in the same hands. One
of these cases is that of slavery, the
other is that of peasant proprietors.
In the one, the landowner owns the
labour, in the other the labourer owns
the land. We begin with the first.

In this system all the produce be-
longs to the landlord. The food and
other necessaries of his labourers are
part of his expenses. The labourers
possess nothing but what he thinks fit
to give them, and until he thinks fit to
take it back : and they work as hard
as he chooses, or is able, to compel
them. Their wretchedness is only
limited by his humanity, or his pecu-
niary interest. With the first conside-
ration, we have on the present occa-
sion nothing to do. What the second
in so detestable a constitution of so-
ciety may dictate, depends on the
facilities for importing fresh slaves.
If full-grown able-bodied slaves can be
procured in sufficient numbers, aad

imported at a moderate expense, self-
interest will recommend working the
slaves to death, and replacing them
by importation, in preference to the
slow and expensive process of breeding
them. Nor are the slave-owners gene-
rally backward in learning this lesson.
It is notorious that such was the prac-
tice in our slave colonies, while the
slave trade was legal; and it is said
to be so still in Cuba.

When, as among the ancients, the
slave-market could only be supplied
by captives either taken in war, or
kidnapped from thinly scattered tribes
on the remote confines of the known
world, it was generally more profitable
to keep up the number by breeding,
which necessitates a far better treat-
ment of them ; and for this reason,
joined with several others, the condi-
tion of slaves, notwithstanding occa-
sional enormities, was probably much
less bad in the ancient world than in
the colonies of modern nations. The
Helots are usually cited as the type of
the most hideous form of persona)
slavery, but with how little truth, ap.
pears from the fact that they were re-
gularly armed (though not with the
panoply of the hoplite) and formed an

152 BOOK II.

integral part of the military strength
of the State. They were doubtless an
inferior and degraded caste, but their
slavery seems to have been one of the
least onerous varieties of serfdom.
Slavery appears in far more frightful
colours among the Romans, during the
period in which the Roman aristocracy
was gorging itself with the plunder of
a newly conquered world. The Romans
were a cruel people, and the worthless
nobles sported with the lives of their
myriads of slaves with the same reck-
less prodigality with which they squan

clered any other part of their ill-ac-
quired possessions. Yet, slavery is
divested of one of its worst features
when it is compatible with hope : en-
franchisement was easy and common :
enfranchised slaves obtained at once
the full rights of citizens, and instances
were frequent cf their acquiring not
only riches, but latterly even honours.
By the progress of milder legislation
under the Emperors, much of the pro-
tection of law was thrown round the
slave, he became capable of possessing
property, and the evil altogether as-
sumed a considerably gentler aspect.
Until, however, slavery assumes the
mitigated form of villenage, in which
not only the slaves have property and
legal rights, but their obligations are
more or less limited by usage, and
they partly labour for their own bene-
fit ; tneir condition is seldom such as
to produce a rapid growth either of
population or of production.

§ 2. So long as slave countries are
nnderpeopled in proportion to their
cultivable land, the labour of the
slaves, under any tolerable manage-
ment, produces much more than is
eufficicnt for their support ; especially
as the great amount of superintendence
which their labour requires, preventing
the dispersion of the population, en-
sures some of the advantages of com-
bined labour. Hence, in a good soil
and climate, and with reasonable care
of his own interests, the owner of many
slaves has the means of being rich.
The influence, however, of such a state
of society on production, is perfectly
well understood. It is a truism to

CHAPTER V. § 2.

assert, that labour extorted by fear ofr
punishment is inefficient and unpro-
ductive. It is true that in some cir-
cumstances, human beings can be
driven by the lash to attempt, and
even to accomplish, things which they
would not have undertaken for any
payment which it could have been
worth while to an employer to ofl'cr
them. And it is likely that productive
operations which require much com-
bination of labour, the production of
sugar for example, would not have
taken place so soon in the American

colonies, if slavery had not existed tc
keep masses of labour together. Then
are also savage tribes so averse from
regular industry, that industrial life is
scarcely able to introduce itself among
them until they are either conquered
and made slaves of, or become con-
querors and make others so. But
after allowing the full value of these
considerations, it remains certain that
slavery is incompatible with any high
state of the arts of life, and any great
efficiency of labour. For all products
which require much skill, slave coun-
tries are usually dependent on fo-
reigners. Hopeless slavery effectu-
ally brutifies the intellect ; and intel-
ligence in the slaves, though often
encouraged in the ancient world and
in the East, is in a more advanced
state of society a source of so much
danger and an object of so much dread
to the masters, that in some of the
States of America it is a highly penal
offence to teach a slave to read. All
processes carried on by slave labour
are conducted in the rudest and most
unimproved manner. And even the
animal strength of the slave is, on an
average, not half exerted. The unpro-
ductiveness and wastefulness of the in-
dustrial system in the Slave States is
instructively displayed in the valuable
writings of Mr. Olmsted. The mikk-st
form of slavery is certainly the condi-
tion of the serf, who is attached to the
soil, supports himself from his allot-
ment, and works a certain number of
days in the week for his lord. Yet
there is but one opinion on the ex-
treme inefficiency of serf labour. The
following passage is from Professor

SLAVERY.

153

oones,* whose Essay on the Distribu-
tion of Wealth (or rather on Rent), is
a copious repertory of valuable facts
on the landed tenures of different
countries.

" The Russians, or rather those
German writers who have observed
the manners and habits of Russia, state
some strong facts on this point. Two
^Middlesex mowers, they say, will mow
in a day as much grass as six Russian
serfs, and in spite of the clearness of pro-
visions in England and their cheapness
in Russia, the mowing a quantity of
bay which would cost an English
farmer half a copeck, will cost a Hus-
sion proprietor three or four copecks.f
The Prussian counsellor of state, Jacob,
is considered to have proved, that in
Russia, where everything is cheap, the
labour of a serf is doubly as expensive
as that of a labourer in England. M.
Schmalz gives a startling account of
the unproductiveness of serf labour in
Prussia, from his own knowledge and
observation.! In Austria, it is dis-
tinctly stated, that the labour of a serf
is equal to only one-third of that of a
free hired labourer. This calculation,
made in an able work on agriculture
(with some extracts from which I have
been favoured), is applied to the prac-
tical purpose of deciding on the
number of labourers necessary to cul-
tivate an estate of a given magnitude.
So palpable, indeed, are the ill effects
of labour rents on the industry of the
agricultural population, that in Austria
itself, where proposals of changes of
any kind do not readily make their
way, schemes and plans for the com-
mutation of labour rents are as popular
as in the more stirring German pro-
vinces of the North. "§

What is wanting in the quality of
the labour itself, is not made up by
any excellence in the direction and

* Etiay on the D'utribuiion of Wealth and
on the Sources cf Taxation. By the Rev.
Richard Jones. Page 50.

t " Schmalz. Economie Politique, French
translation, vol. i. p. G6."

J Vol. ii. p. 107.

§ The Hungarian revolutionary govern-
ment, during its brief existence, bestowed on
that country one of the greatest benefits it
could receive, and one which the tyranny
that succeeded has not dared to take away :

superintendence. As the same writer*
remarks, the landed proprietors " are
necessarily, in their character of cul-
tivators of their own domains, the
only guides and directors of the in-
dustry of the agricultural population,"
since there can bo no intermediate
class of capitalist fanners where the
labourers are the property of the lord.
Great landowners are everywhere an
idle class, or if they labour at all, addict
themselves only to tho more exciting
kinds of exertion ; that lion's share
which superiors always reserve for
themselves. " It would," as Mr. Jones
observes, "be hopeless and irrational
to expect, that a race of noble pro-
prietors, fenced round with privileges
and dignity, and attracted to military
and political pursuits by the advan-
tages and habits of their station, should
ever become attentive cultivators as a
body." Even in England, if the cul-
tivation of every estate depended upon
its proprietor, any one can judge what
would be the result. There would be
a few cases of great science and energy,
and numerous individual instances of
moderate success, but the general state
of agriculture would be contemptible.

§ 3. Whether the proprietors them-
selves would lose by the emancipation
of their slaves, is a different question
from the comparative effectiveness of
free and slave labour to the community.
There has been much discussion of
this question as an abstract thesis ; as
if it could possibly admit of any uni-
versal solution. Whether slavery or
free labour is most profitable to the
employer, depends on the wages of tha
free labourer. These, again, depend
on the numbers of the labouring popu-
lation, compared with the capital and
the land. Hired labour is generally
so much more efficient than slave
labour, that the employer can pay a
considerably greater value in wages,
than the maintenance of his slaves
cost him before, and yet be a gainer

it freed the peasantry from what remained
of the bondage of serfdom, the labour rents ;
decreeing compensation to the landlords at
the expense of the state, and not at that of
the liberated peasants.

* Jones, pp. 53, 54,

154

BOOK II. CHAPTER V. § 9.

uy the change : but he cannot do this
without limit. The decline of serfdom
in Europe, and its extinction in the
Western nations, were doubtless has-
tened by the changes which the growth
•»f population must have made in the
pecuniary interests of the master. As
population pressed harder upon the
land, without any improvement in
agriculture, the maintenance of the
serfs necessarily became more costly,
md their labour less valuable. With
the rate of wages such as it is in Ire-
land, or in England (where, in propor-
tion to its efficiency, labour is quite as
cheap as in Ireland), no one can for a
moment imagine that slavery could
be profitable. If the Irish peasantry
were slaves, their masters would be as
willing, as their landlords now are, to
pay large sums merely to get rid of
them. In the rich and underpeopled
soil of the West India islands, there is
just as little doubt that the balance of
profits between free and slave labour
was greatly on the side of slavery, and
that the compensation granted to the
slaveowners for its abolition was not
more, perhaps even less, than an equi-
valent for their loss.

More needs not be said here on a
cause so completely judged and decided
as that of slavery. Its demerits are
no longer a question requiring argu-
ment ; though the temper of mind
manifested by the larger part of the
influential classes in Great Britain
respecting the struggle now taking
place in America, shows how grievously
the feelings of the present generation
of Englishmen, on this subject, have
fallen behind the positive acts of the
generation which preceded them. That
\ae sons of the deliverers of the West

Indian Negroes should see with com-
placency, and encourage by their sym-
pathies, the foundation of a great and
powerful military commonwealth,
pledged by its principles and driven
by its strongest interests to be the
armed propagator of slavery through
every region of the earth into which its
power can penetrate, discloses a men-
tal state in the leading portion of our
higher and middle classes, which it is
melancholy to see, and will be a lasting
blot in English history. Fortunately
they have stopped short of actually
aiding, otherwise than by words, the
nefaiious enterprise to which they have
not been ashamed of wishing success ;
and it is now probable that at the ex-
pense of the best blood of the Free
States, but to their immeasurable ele-
vation in mental and moral worth, the
curse of slavery will be cast out from
the great American republic, to find its
last temporary refuge in Brazil and
Cuba. No European country, except
Spain alone, any longer participates in
the enormity. Even serfage has now
ceased to have a legal existence in
Europe : Denmark has the honour of
being the first Continental nation which
imitated England in liberating its co-
lonial slaves ; and the abolition of
slavery was one of the earliest acts of
the heroic and calumniated Provisional
Government of France. The Dutch
Government was not long behind, and
its colonies and dependencies are now,
I believe, without exception, free from
actual slavery : though forced labour
for the public authorities is still a re-
cognised institution in Java, soon, wa
may hope, to be exchanged for complete
personal freedom.

PEASANT PROPRIETORS.

155

CHAPTER VL

OF PEASANT FP.'H'UIETOBS.

§ 1. IN the regime of peasant pro-
perties, as in that of slavery, the whole
I.P dace belongs to a single owner, and
tho distinction of rent, profit;*, and
wages, does not exist. In all other
respects, the two states of society are
the extreme opposites of each other.
The one is the state of greatest oppres-
sion and degradation to the labouring
class. The other is that in which they
are the most uncontrolled arbiters of
their own lot.

The advantage, however, of small
properties in land, is one of the most
disputed questions in the range of poli-
tical economy. On the Continent,
though there are some dissentients
from the prevailing opinion, the benefit
of having a numerous proprietary po-
pulation exists in the minds of most
people in the form of an axiom. But
English authorities are either unaware
of the judgment of Continental agricul-
turists, or are content to put it aside,
on the plea of their having no experi-
ence of large properties in favourable
circumstances : the advantage of large
properties being only felt where there
are also large farms ; and as this, in
arable districts, implies a greater accu-
mulation of capital than usually exists
on the Continent, the great Continental
estates, except in the case of grazing
farms, are mostly let out for cultivation
in small portions. There is some truth
in this ; but the argument admits of
being retorted ; for if the Continent
tnows little, by experience, of cultiva-
tion on a large scale and by large capi-
tal, the generality of English writers
are no better acquainted practically
with peasant proprietors, and have al-
most always the most erroneous ideas
of their social condition and mode of
life. Yet the old traditions even of
England are on the same side with the
general opinion of the Continent. The
" yeomanry" who were vaunted as the
glory of England while they existed,

and have been so much mourned over
since they disappeared, were either
small proprietors or small farmers, and
if they were mostly the last, the cha-
racter they bore for sturdy indepen-
dence is the more noticeable. Thero
is a part of England, unfortunately a
very small part, where peasant proprie«
tors are s4ill common ; for such are the
" statesmen" of Cumberland and West-
moreland, though they pay, I believe,
generally if not universally, certain
customary dues, which, being fixed, no
more affect their character of proprie-
tors than the laud-tax does. There io
but one voice, among those acquainted
with the country, on the admirable ef-
fects of this tenure of land in those
counties. No other agricultural popu-
lation in England could have furnished
the originals of Wordsworth's pea-
santry.*

* In Mr. Wordsworth'g little descriptive
work on the scenery of the Lakes, he speaks
of the upper part of the dales as having been
for centuries " a perfect republic of shep-
herds and agriculturists, proprietors, for the
most part, of the lands which they occupied
and cultivated. The plough of each man
was confined to the maintenance of his own
family, or to the occasional accommodation
of his neighbour. Two or three cows fur-
nished each family with milk and cheese.
The chapel was the only edifice that pre-
sided over these dwellings, the supreme head
of this pure commonwealth ; the members
of which existed in the midst of a powerful
empire, like an ideal society, or an organized
community, whose constitution had been
imposed and regulated by the mountains
which protected it. Neither high-born
nobleman, knight, nor esquire was here;
but many of these humble sons of the hills
had a consciousness that the land which
they walked over and tilled had for more
than five hundred years been possessed by
men of their name and blood. . . . Corn
was grown in these vales sufficient upon
each estate to furnish bread for each family,
no more. The storms and moisture of the
climate induced them to sprinkle their up-
land property with outhouses of native stone,
as places of shelter for their sheep, where,
in tempestuous weather, food was distributed
to them. Every family spun from its own
flock the wool with whicn it was clothed ; a

BOOK n. CHAFPER VI. § 2.

The general system, however, of
English cultivation, affording no expe-
rience to render the nature and opera-
tion of peasant properties familiar, and
Englishmen being in general profoundly
ignorant of the agricultural economy of
other countries, the very idea of pea-
sant proprietors is strange to the Eng-
lish mind, and does not easily find
access to it. Even the forms of lan-
guage stand in the way: the familiar
designation for owners of land being
"landlords," a term to which " tenants"
is always understood as a correlative.
When, at the time of the famine, the
suggestion of peasant properties as a
means of Irish improvement found its
way into parliamentary and newspaper
discussions, there were writers of pre-
tension to whom the word "proprietor"
was so far from conveying any distinct
idea, that they mistook the small hold-
ings of Irish cottier tenants for peasant
properties. The subject being so little
understood, I think it important, before
entering into the theory of it, to do
something towards showing how the
case stands as to matter of fact ; by
exhibiting, at greater length than
would otherwise be admissible, some of
the testimony which exists respecting
the state of cultivation, and the com-
fort and happiness of the cultivators, in
those countries and parts of countries,
in which the greater part of the land
has neither landlord nor farmer, other
than the labourer who tills the soil.

§ 2. I lay no stress on the condi-
tion of North America, where, as is
well known, the land, wherever free
from the curse of slavery, is almost
universally owned by the same person
who holds the plough. A country
combining the natural fertility of
America with the knowledge and arts

weaver was here and there found among
them, and the rest of their wants was sup-
plied by the produce of the yarn, which they
larded and spun in their own houses, and
rarried to market either under their arms,
or more frequently on pack horses, a small
train taking their way weekly down the
ralley, or over the mountains, to the most
commodious town." — A Detcription of the
Scenery of the Lake» in the A'orth of England,
3rd edit, pp 50 to 53 and 63 to 65.

of modern Europe, is so peculiarly
circumstanced, that scarcely anything,
except insecurity of property or a ty-
rannical government, could materially
impair the prosperity of the industrious
classes. I might, with Sismondi, in-
sist more strongly on the case of an-
cient Italy, i especially Latiuin, that
Campagna which then swarmed with
inhabitants in the very regions which
under a contrary regime have become
uninhabitable from malaria. But I
prefer taking the evidence of the same
writer on things known to him by per-
sonal observation.

" It is especially Switzerland," says
M. de Sismondi, " which should be tra-
versed and studied to judge of the
happiness of peasant proprietors. It
is from Switzerland we learn that
agriculture practised by the very per-
sons who enjoy its fruits, suffices to
procure great comfort for a very nu-
merous population ; a great indepen-
dence of character, arising from inde-
pendence of position ; a great com-
merce of consumption, the result of the
easy circumstances of all the inhabi-
tants, even in a country whose climate is
rude, whose soil is but moderately fer-
tile, and where late frosts and incon-
stancy of seasons often blight the hopes
of the cultivator. It is impossible to
see without admiration those timber
houses of the poorest peasant, so vast,
so well closed in, so covered with
carvings. In the interior, spacious
corridors separate the different cham-
bers of the numerous family ; each
chamber has but one bed, which ia
abundantly furnished with curtains,
bedclothes, and the whitest linen ;
carefully kept furniture surrounds it ;
the wardrobes are filled with linen ; the
daily is vast, well aired, and of exqui-
site cleanness ; under the same roof
is a great provision of corn, salt meat,
cheese and wood; in the cow-honses
are the finest and most carefully tended
cattle in Europe ; the garden is planted
with flowers, both men and women
are cleanly and warmly clad, the wo-
men preserve with pride their ancient
costume ; all carry in their faces the
impress of health and strength. Let
other nations boast of their opulence,

PEASANT PROPRIETORS.

197

Switzerland may always point with
pride to her peasants."*

The same eminent writer thus ex-
presses his opinions on peasant pro-
prietorship in general.

" Wherever we find peasant proprie-
tors, we also find the comfort, security,
confidence in the future, and indepen-
dence, which assure at once happiness
and virtue. The peasant who with
his children dues all the work of his
little inheritance, who pars no rent to
any one above him, nor wages to any
one below, who regulates his produc-
tion by his consumption, who eats his
own corn, drinks his own wine, is
clothed in his own hemp and wool,
cares little for the prices of the mar-
ket ; for he has little to sell and little
to buy, and is never ruined by revul-
sions of trade. Instead of fearing for
the future, he sees it in the colours of
hope ; for he employs every moment
not required by the labours of the year,
on something profitable to his chil-
dren and to future generations. A
few minutes' work suffices him to
plant the seed which in a hundred
years will be a large tree, to dig the
channel which will conduct to him a
spring of fresh water, to improve by
cares often repeated, but stolen from
odd times, all the species of animals
and vegetables which surround him. His
little patrimony is a true savings bank,
always ready to receive all his little
gains and utilize all his moments of
leisure. The ever-acting power of na-
ture returns them a hundred-fold. The
peasant has a lively sense of the hap-
piness attached to the condition of a
proprietor. Accordingly he is always
eager to buy land at any price. He
pays more for it than its value, more
perhaps than it will bring him in ; but
is he not right in estimating highly
the advantage of having always an
advantageous investment for his labour,
without underbidding in the wages-
market — of being always able to find
bread, without the necessity of buying
it at a scarcity price ?

" The peasant proprietor is of all
cultivators the one who gets most from
the soil, for he is the one who thinks
* Studiet in folitical Economy. Essay III.

most of the future, and who has been
most instructed by experience. He ia
also the one who employs the human
powers to most advantage, because
dividing his occupations among all the
members of his family, he reserves
some for every day of the year, so that
nobody is ever out of work. Of all
cultivators he is the happiest, and at
the same time the land nowhere occu-
pies, and feeds amply without becom-
ing exhausted, so many inhabitants as
where they are proprietors. Finally,
of all cultivators the peasant proprietor
is the one who gives most encourage-
ment to commerce and manufactures,
because he is the richest."*

This picture of unwearied assiduity,
and what may be called affectionate
interest in the land, is borne out in
regard to the more intelligent Cantons
of Switzerland by English observers.
"In walking anywhere in the neigh-
bourhood of Zurich,'' says Mr. Inglis,
" in looking to the right or to the left,
one is struck with the extraordinary
industry of the inhabitants ; and if wo
learn that a proprietor here has a re.
turn of ten per cent, we are inclined
to say, ' ho deserves it.' I speak at
present of country labour, though I

* And in another work (JVew Principlei of
Folitical Economy, book iii. chap. 3) he says,
" When we traverse nearly the whole of
Switzerland, and several provinces of France,
Italy, and Germany, we need never ask, in
looking at any piece of land, if it belongs to
a peasant proprietor or to a farmer. The.
intelligent care, the enjoyments provided
for the labourer, the adornment which the
country has received from hU hands, are
clear indications of the former. It is true
an oppressive government may destroy the
comfort and brutify the intelligence which
should be the result of property; taxation
may abstract the best produce of the fields,
the insolence of government officers maj
disturb the security of the peasant, the im-
possibility of obtaining justice against a
powerful neighbour may sow discourage-
ment in his mind, and in the fine country
which has been given back to the adminis-
tration of the King of Sardinia, the pro-
prirtor, equally with the day-labourer, wears
th«. livery of indigence." He was here
speaking of Savoy, where the peasants were
generally proprietors, and, according to au-
thentic accounts, extremely miserable. But,
as M. de Sismondi continues, " it is in vain
to observe only one of the rules of political
economy ; it cannot by itself suffice to pro.
duce good ; but at least it diminishes evil."

BOOK II. CHAPTER VI. § 2.

believe that in every kind of trade
also, the people of Zurich are remark-
able for their assiduity ; but in the
industry they show in the cultivation
»f their land I may safely say they are
unrivalled. When I used to open my
casement between four and five in the
morning to look out upon the lake
and the distant Alps, I saw the
labourer in the fields ; and when I re-
turned from an evening walk, long
after sunset, as late, perhaps, as half-
past eight, there was the labourer,
mowing his grass, or tying up his
vines. ... It is impossible to look at
a field, a garden, a nedging, scarcely
even a tree, a flower, or a vegetable,
without perceiving proofs of the ex-
treme care and industry that are be-
stowed upon the cultivation of the soil.
If, for example, a path leads through
or by the side of a field of grain, the
corn is not, as in England, permitted
to hang over the' path, exposed to be
pulled or trodden down by every passer-
by; it is everywhere bounded by a
fence, stakes are placed at intervals of
about a yard, and, about two or three
feet from the ground, boughs of trees
are passed longitudinally along. If
you look into a field towards even-
ing, where there are large beds of
cauliflower or cabbage, you will find
that every single plant has been
watered. In the gardens, which around
Zurich are extremely large, the most
punctilious care is evinced in every
production that grows. The vege-
tables are planted with seemingly
mathematical accuracy ; not a single
weed is to be seen, not a single
stone. Plants are not earthed up as
with us, but are planted in a small
hollow, into each of which a little
manure is put, and each plant is
watered daily. Where seeds are sown,
the earth directly above is broken into
the finest powder ; every shrub, every
flower is tied to a stake, and where
there is wall-fruit, a trellice is erected
against the wall, to which the boughs
arc fastened, and there is not a single
thing that has not its appropriate rest-
ing place."*

* Stdtzerland, tJit South of France, and the
Pyrenet* in 1830. By H. D.Inglls. Vol. i. ch. 2.

Of one of the remote valleys of the
High Alps the same writer thus ex-
presses himself:* —

" In the whole of the Engadine the
land belongs to the peasantry, who,
like the inhabitants of every other
place where this state of things exist,
vary greatly in the extent of their pos-
sessions. . . . Generally speaking, an
Engadine peasant lives entirely upon
the produce of his land, with the ex-
ception of the few articles of foreign
growth required in his family, such as
coffee, sugar, and wine. Flax is grown,
prepared, spun, and woven, without
ever leaving his house. He has alsr.
his own wool, which is converted into
a blue coat without passing through
the hands of either the dyer or the
tailor. The country is incapable of
greater cultivation than it has received.
All has been done for it that industry
and an extreme love of gain can de-
vise. There is not a foot of waste
land in the Engadine, the lowest part
of which is not much lower than the
top of Snowdon. Wherever grass will
grow, there it is ; wherever a rock will
bear a blade, verdure is seen upon it ;
wherever an ear of3 rye will ripen,
there it is to be found. Barley and
oats have also their appropriate spots ;
and wherever it is possible to ripen a
little patch of wheat, the cultivation of
it is attempted. In no country in
Europe will be found so few poor as
in the Engadine. In the village of
Suss, which contains about six hun-
dred inhabitants, there is not a single
individual who has not wherewithal to
live comfortably, not a single indi-
vidual who is indebted to others for one
morsel that he eats."

Notwithstanding the general prospe-
rity of the Swiss peasantry, this total
absence of pauperism, and (it may al-
most be said) of poverty, cannot be
predicated of the whole country; the
largest and richest canton, that of
Berne, being an example of the con
trary ; for although, in the parts of it
which are occupied by peasant prtv
prietors, their industry is as remark-
able and their ease and comfort as con-
spicuous as elsewhere, the canton il
* Ibid. cb. 8 and 10.

PEASANT PROPRIETORS.

159

btirthened with a numerous pauper
population, through the operation of
the worst regulated system of poor-law
administration in Europe, except that
of England before the new Poor Law.*
Nor is Switzerland in some other re-
spects a favourable example of all that
peasant properties might effect. There
exists a series of statistical accounts
of the Swiss cantons, drawn up mostly
with great care and intelligence, con-
taining detailed information, of tole-
rably recent date, respecting the con-
dition of the land and of the people.
From these, the subdivision appears
to be often so minute, that it can
hardly be supposed not to be excessive :
and the indebtedness of the proprietors
in the flourishing canton of Zurich
"borders,'1 as the writer expresses it,
"on the incredible;" so that "only
the intensest industry, frugality, tem-
perance, and complete freedom of com-
merce enable them to stand their
ground. ''f Yet the general conclusion
deducible from these books is that since
the beginning of the century, and con-
currently with the subdivision of many
great estates whieh belonged to nobles
or to the cantonal governments, there
has been a striking and rapid improve-
ment in almost every department of
agriculture, as well as in the houses,
the habits, and the food of the people.
The writer of the account of Thiirgau
goes so far as to say, that since the

* There have been considerable changes
in the Poor Law administration and legisla-
tion of the Canton of Berne since the sen-
tence in the text was written. But I am
not sufficiently acquainted with the nature
ando peration of these changes, to speak more
particularly of them here.

t Historical, Geographical, and Statistical
Picture qf Switzerland. 1'art I. Canton of
Zurich. By Gerold Meyer Von Knonau,
1S34, pp. 80-1 . There are villages in Zurich,
he adds, in which there is not a single pro-
perty unmortgaged. It does not, however,
follow that each individual proprietor is
deeply involved because the aggregate mass
of incumbrances is large. In the Canton of
Schaffhausen, for instance, it is stated that
the landed properties are almost all mort-
gaged, but rarely for more than one-half
their registered value (Part XIL Canton
ffSdiaffhautfn, by Edward Im-Thurn, 1840,
p. 52), and the mortgages are often for the
improvement and enlargement of the estate.
(Part XVII. Canton of Thiirgau, by J. A.
Pupikofer, 1837, p. 209.)

subdivision of tha feudal estates into
peasant properties, it is not uncommon
for a third or a fourth part of an estate
to produce as much grain, and support
as many head of cattle, as the whole
estate did before.*

§ 3. One of the countries in which
peasant proprietors are of oldest date,
and most numerous in proportion to
the population, is Norway. Of the
social and economical condition of that
country an interesting account has
been given by Mr. Laing. His testi-
mony in favour of small landed prcv
perties both there and elsewhere, is
given with great decision. I shall
quote a few passages.

" If small proprietors are not good
farmers, it is not from the same cause
here which we are told makes them so
in Scotland — indolence and want of ex-
ertion. The extent to which irrigation
is carried on in these glens and valleys
shows a spirit of exertion and co-
operation " (I request particular atten-
tion to this point), "to which the latter
can show nothing similar. Hay being
the principal winter support of live
stock, and both it and corn, as well as
potatoes, liable, from the shallow soil
and powerful reflection of sunshine
from the rocks, to be burnt and withered
up, the greatest exertions are made to
bring water from the head of each glen,
along such a level as will give the
command of it to each farmer at
the head of his fields. This is done by
leading it in wooden troughs (the half
of a tree roughly scooped) from the
highest perennial stream among the
hills, through woods, across ravines,
along the rocky, often perpendicular,
sides of the glens, and from this main
trough giving a lateral one to each
farmer in passing the head of his farm.
He distributes this supply by moveable
troughs among his fields ; and at this
season waters each rig successively
with scoops like those used by bleachers
in watering cloth, laying his trough
between every two ngs. One would
not believe, without seeing it, how
very large an extent of land is tra-
versed expeditiously by these artificial
• Thiirgau, p. 72.

BOOK II. CHAPTER VI. § 3.

suowcrs. Tho extent of the main
troughs is very great. In one glen I
walked ten miles, and found it troughcd
on both sides : on one, the chain is con-
tinued down the main valley for forty
miles.* Those may be bad farmers
who do such things ; but they are not
indolent, nor ignorant of the principle
of working in concert, and keeping up
establishments for common benefit.
They are undoubtedly, in these respects,
far in advance of any community of
cottars in our Highland glens. They
feel as proprietors, who receive the ad-
vantage of their own exertions. ^ The
excellent state of the roads and bridges
is another proof that the country is in-
habited by people who have a common
interest to keep them under repair.
There are no tolls."t

On the effects of peasant proprietor-
ship on the Continent generally, the
same writer expresses himself as fol-

" If we listen to the large farmer, the
scientific agriculturist, the " [English]
" political economist, good farming
must perish with large farms ; the
very idea that good farming can exist,
unless on large farms cultivated with
great capital, they hold to be _ absurd.
Draining, manuring, economical ar-
rangement, cleaning the land, regular

* Reichensperper (The Land Question)
quoted by Mr. Kay (Social Condition and
Educatinn of fhe People in England and
Europe,) observes, " that the parts of Europe
where the most extensive and costly plans
for watering the meadows and lands have
been carried out in the greatest perfection,
are those whore the lands are very much
subdivided, and are in the hands of small
proprietors. He instances the plain round
Valencia, several of the southern depart-
ments of France, particularly those of Vau-
cluse and Bouches du Rhone, Lombardy,
Tuscany, the districts of Sienna, Lucca, and
Bergamo, Piedmont, many parts of Germany,
&c., in all which parts of Europe the land is
very much subdivided among small proprie-
tors. In all these parts great and expensive
systems and plans of general irrigation have
been carried out , and are nowbeing supported,
by the small proprietors themselves ; thus
ihowing how they are able to accomplish,
by means of combination, work requiring
the expenditure of great quantities of capi-
tal." A'uy, i. 126.

t Laing, Journal of a Residence in Nortcay,
Dp. 36, 37.

t Kotet of a Traveller, pp. 299 ct soqq.

rotations, valuable stock and impla
ments, all belong exclusively to large
farms, worked by large capital, and by
hired labour. This reads very well;
but if we raise our eyes from their
books to their fields, and coolly compare
what we see in the best districts
farmed in large 1'arms, with what we
see in the best districts farmed in
small farms, we see, and there is no
blinking the fact, better crops on the
ground in Flanders, East Friesland,
Holstein, in short, on the whole line of
the arable land of equal quality on the
Continent, from the Sound to Calais,
than we see on the line of British coast
opposite to this line, and in the same
latitudes, from the Frith of Forth all
round to Dover. Minute labour on
small portions of arable ground gives
evidently, in equal soils and climate, a
superior productiveness, where these
small portions belong in property, as
in Flanders, Holland, Friesland, and
Ditmarsch in Holstein, to the farmer.
It is not pretended by our agricultural
writers, that our large farmers, even in
Berwickshire, Roxburghshire, or the
Lothians, approach to the garden-like
cultivation, attention to manures, drain-
age, and clean state of the land, or
in productiveness from a small space of
soil not originally rich, which distin-
guish the small farmers of Flanders, or
their system. In the best farmed parish
in Scotland or England, more land is
wasted in the corners and borders of
the fields of large farms, in the roads
through them, unnecessarily wide be-
cause they are bad, and bad because
they are wide, in neglected commons,
waste spots, useless belts and clumps
of sorry trees, and such unproductive
areas, than would maintain the poor
of the parish, if they were all laid to-
gether and cultivated. But large
capital applied to farming is of course
only applied to the very best of the soils
of a country. It cannot touch the sma il
unproductive spots which require more
time and labour to fertilize them than
is consistent with a quick return of
capital. But although hired time and
labour cannot be applied beneficially
t o such cultivation, the owner's own time
and labour may. He is working for

PEASANT 1'RO'rRrtTORS.

161

no higher terms at fir.-;t from his land
than a bare living. But in the course
of generations fertility and value are
produced ; a better living, and even
very improved processes of husbandry,
arc attained. Furrow draining, stall
feeding all summer, liquid manures, are
universal in the husbandry of the small
farms of Flanders, Lombardy, Switzer-
land. Our most improving districts
under large farms are but beginning to
adopt them. Dairy husbandry even,
and the manufacture of the largest
cheeses by the co-operation of many
small farmers,* the mutual assurance
of property against fire and hail-storms,
by the co-operation of small farmers —
the most scientific and expensive of
all agricultural operations in modern
times, the manufacture of beet-root
sugar — the supply of the European
markets with flax and hemp, by the hus-
bandry of small farmers — the abund-
ance of legumes, fruits, poultry, in the
usual diet even of the lowest classes
abroad, and the total want of such
variety at the tables even of our middle
classes, and this variety and abundance

* The manner in which the Swiss peasants
combine to carry on cheesemaking by their
united capital deserves to be noted. " Each
parish in Switzerland hires a man, generally
from the district of Gruyere in the canton of
Freyburg, to take care of the herd, and make
the cheese. One cheeseman, one pressman
or assistant, and one cowherd, are considered
necessary for every forty cows. The owners
of the cows get credit each of them, in a book
daily, for the quantity of milk given by each
cow. The cheeseman and his assistants milk
the cows, put the milk all together, and make
cheese of it, and at the end of the season each
owner receives the weight of cheese propor-
tionable to the quantity of milk his cows have
delivered. By this co-operative plan, instead
of the small-sized unmarketable cheeses only,
which each could produce out of his three or
four cows' milk, he has the same weight in
large marketable cheese superior in quality,
because made by people who attend to no
other business. The cheeseman and his as-
sistants are paid so much per head of the
cows, in money or in cheese, or sometimes
they hire the cows, and pay the owners in
money or cheese." — Ifotet of a Traveller, p.
861. A similar system exists in the French
Jura. See, for full details, Lavergne, Mural
Economy of France, 2nd ed., pp. 139 et seqq.
One of the most remarkable points in this
Interesting case of combination of labour, is
the confidence which it supposes, and which
experience must justify iu the integrity of
tJ»e persons employe!
KB.

essentially connected with the has-
bandry of small fanners — all these are
features in the occupation of a country
by small proprietor-farmers, which must
make the inquirer pause before he
admits the dogma of our land doctors
at home, that large farms worked by
hired labour and great capital can
alone bring out the greatest produc-
tiveness of the soil and furnish the
greatest supply of the necessaries and
conveniences of life to the inhabitants
of a country."

§ 4. Among the many flourishing
regions of Germany in which peasant
properties prevail, I select the Palati-
nate, for the advantage of quoting,
from an English source, the results of
recent personal observation of its agri-
culture and its people. Mr. Howitt,
a writer whose habit it is to see all
English objects and English socialities
on their brightest side, and who, in
treating of the Rhenish peasantry,
certainly does not underrate the rude-
ness of their implements, and the in-
feriority of their ploughing, neverthe-
less shows that under the invigorating
influence of the feelings of proprietor-
ship, they make up for the imperfec-
tions of their apparatus by the inten-
sity of their application. " The peasant
harrows and clears his land till it is in
the nicest order, and it is admirable to
see the crops which he obtains."*
"The peasants f are the great and
ever-present objects of country life.
They are the great population of tha
country, because they themselves are
the possessors. This country is, in
fact, for the most part, in the hands of
the people. It is parcelled out among

the multitude The peasants are

not, as with us, for the most part,
totally cut off from property in the soil
they cultivate, totally dependent on
the labour afforded by others— they
are themselves the proprietors. It is,
perhaps, from this cause that they are
probably the most industrious pea-
santry in the world. They laboiu
busily, early and late, because they

• Rural and Dotmtio Lift of Germa.iv,
p. 27.
t Ibid. p. 40.

M

162 BOOK II.

feel that they are labouring for thern-

eclvcs The German peasants

work hard, but they have no actual
•want. Every man lias his house, his
orchard, his roadside trees, commonly
BO heavy with fruit, that he is obliged
to prop and secure them all ways, or
they would be torn to pieces. lie has
his corn-plot, his plot for mangel-
wurzel, for hemp, and so on. He is
his own master ; and he, and every
member of his family, have the strongest
motives to labour. You see the effect
of this in that unremitting diligence
which is beyond that of the whole
world besides, and his economy, which
is still greater. The Germans, indeed,
are not so active and lively as the
English. You never see them in a
bustle, or as though they meant to
knock off a vast deal in a little time.
. . . They are, on the contrary, slow,
but for ever doing. They plod on from
day to day, and year to year — the
most patient, untirable, and persever-
ing of animals. The English peasant
is so cut off from the idea of property,
that he comes habitually to look upon
it as a thing from which he is warned
by the laws cf the large proprietors,
and becomes, in consequence, spirit-
less, purposeless The German

bauer, on the contrary, looks on the
country as made for him and his
fellow-men. He feels himself a man;
he has a stake in the country, as good
as that of the bulk of his neighbours ;
no man can threaten him with ejec-
tion, or the workhouse, so long as he
is active and economical. He walks,
therefore, with a bold stop ; he looks
you in the face with the air of a free
man, but of a respectful one."

Of their industry, the same writer
thus further speaks : " There is not an
hour of the year in which they do not
find unceasing occupation. In the
depth of winter, when the weather
permits them by any means to get out
of doors, they are always finding some-
thing to do. They carry out their
manure to their lands while the frost
in in them. If there is not frost, they
are busy cleaning ditches and felling
old fruit trees, or such as do not bear
well. Such of them as are too poor to

Cli AFTER VI. § 3.

lay in a sufficient stock of wood, find
plenty of work in ascending into the
mountainous woods, and bringing
thence fuel. It would astonish the
English common people to see the in-
tense labour with which the Germans
earn their firewood. In the depth of
frost and snow, go into any of their
hills and woods, and there you find
them hacking up stumps, cutting off
branches, and gathering, by all means
which the official wood-police will
allow, boughs, stakes, and pieces of
wood, which they convey home with
the most incredible toil and patience."*
After a description of their careful and
laborious vineyard culture, he con-
tinues, t " In England, with its great
quantity of grass lands, and its large
farms, so soon as the grain is in, and
the fields are shut up for hay grass, the
country seems in a comparative state
of rest and quiet. But here they are
everywhere, and for ever, hoeing and
mowing, planting and cutting, weed-
ing and gathering. They have a
succession of crops like a market-
gardener. They have their carrots,
poppies, hemp, flax, saintfoin, lucerne,
rape, colewort, cabbage, rotabaga,
black turnips, Swedish and white tur-
nips, teazles, Jerusalem artichokes,
mangel-wurzel, parsnips, kidney-beans,
field-beans and peas, vetches, Indian
corn, buckwheat, madder for the manu-
facturer, potatoes, their great crop of
tobacco, millet — all, or the greater part,
under the family management, in their
own family allotments. They have
had these things first to sow, many of
them to transplant, to hoe, to weed, to
clear off insects, to top ; many of them
to mow and gather in successive crops.
They have their water-meadows, of
which kind almost all their meadows
are, to flood, to mow, and reflood ;
watercourses to reopen and to maka
anew ; their early fruits to gather, to
bring to market with their green crops
of vegetables ; their cattle, sheep,
calves, foals, most of them prisoners,
and poultry to look after ; their vines,
as they shoot rampantly in the sum-

* Sural and Domeitic I4fe qf Germany*
p. 44.
+ Tbid. o. 60.

PEASANT PROPRIETORS.

161

mer hc.it, to prune, and thin out tho
leaves when they are too thick : and
any one may imagine what a scene of
incessant labour it is."

This interesting sketch, to the
general truth of which any observant
traveller in that highly cultivated and
populous region can bear witness,
accords with the more elaborate de-
lineation by a distinguished inhabitant,
Professor Rau, in his little treatise
" On the Agriculture of the Palati-
nate."* Dr. Rau bears testimony not
only to the industry, but to the skill
ind intelligence of the peasantry;
their judicious employment of manures,
and excellent rotation of crops ; the
progressive improvement of their agri-
culture for generations past, and the
spirit of further improvement which is
still active. " The indefatigableness
of the country people, who may be seen
in activity all the day and all the year,
and are never idle, because they make
a good distribution of their labours,
and find for every interval of time a
suitable occupation, is as well known
as their zeal is praiseworthy in turning
to use every circumstance which pre-
sents itself, in seizing upon every use-
ful novelty which offers, and even in
searching out new and advantageous
methods. One easily perceives that
the peasant of this district has reflected
much on his occupation : he can give
reasons for his modes of proceeding,
even if those reasons are not always
tenable ; he is as exact an observer of
proportions as it is possible to be from
memory, without the aid of figures : he
attends to such general signs of the
times as appear to augur him either
benefit or harm."f

The experience of all other parts of
Germany is similar. " In Saxony,"
pays Mr. Kay, " it is a notorious fact,
that during the last thirty years, and
since the peasants became the pro-
prietors of the land, there has been a
rapid and continual improvement in the
condition of the houses, in the manner
of living, in the dress of the peasants,

* On the Agriculture of the Palatinate, and
particularly in the territory of Heidelberg.
By Dr. Karl Heinrich Rau. Heidelberg,
1830.

t Rau, pp. 19, 16.

and particularly in tho culture of the
land. I have twice walked through that
part of Saxony called Saxon Switzer-
land, in company with a German guid^
and on purpose to see the state of tha
villages and of the farming, and I can
safely challenge contradiction when I
affirm that there is no farming in all
Europe superior to the laboriously care-
ful cultivation of tho valleys of that
part of Saxony. There, as in the can-
tons of Berne, Vaud, and Zurich, and
in the Rhine provinces, the farms are
singularly flourishing. They are kept
in beautiful condition, and are always
neat and well managed. The ground
is cleared as if it were a garden. No
hedges or brushwood encumber it.
Scarcely a rush or thistle or a bit of
rank grass is to be seen. The meadows
are well watered every spring with
liquid manure, saved from the drain-
ings of the farm yards. The grass is
so free from weeds that the Saxon
meadows reminded me more of English
lawns than of anything else I had seen.
The peasants endeavour to outstrip one
another in the quantity and quality of
the produce, in the preparation of the
giound, and in the general cultivation
of their respective portions. All the
little proprietors are eager to find out
how to farm so as to produce the greatest
results ; they diligently seek after im-
provements ; they send their children
to the agricultural schools in order to
fit them to assist their fathers ; and
each proprietor soon adopts a new im-
provement introduced by any of his
neighbours."* If this be not over-
stated, it denotes a state of intelligence
very different not only from that of
English labourers but of English
farmers.

Mr. Kay's book, published in 1850,
contains a mass of evidence gathered
from observation and inquiries in many
different parts of Europe, together with
attestations from many distinguished
writers, to the beneficial effects of pea-

* The Social Condition and Education of
the People in England and Europe; thoving
the Ite»ult» of the Primary School*, and of
the division of Landed Property in Foreign
Countriei, By Joseph Kay, Esq., M. A. Bar-
rister-at-Law, and late Travelling Bachelor
of the University of Cambridge. Vol. i. pp.

16*

BOOK H. CHAPTER VI. § 5.

earn pioperties. Among the testimonies
which he cites respecting their effect
on agriculture, I select the following.

" Edchensperger, himself an inhabi-
tant of that part of Prussia where theland
is the most subdivided, has published
a long and very elaborate work to show
the admirable consequences of a system
of freeholds in land. He expresses a
very decided opinion that not only are
the gross products of any given number
of acres held and cultivated by small
or peasant proprietors, greater tban the
gross products of an equal number of
acres held by a few great proprietors,
and cultivated by tenant farmers, but
that the net products of the former,
after deducting all the expenses of
cultivation, are also greater than the
net products of the latter. ... He
mentions one fact which seems to prove
that the fertility of the land in countries
where the properties are small, must be
rapidly increasing. He says that the
price of the land which is divided into
email properties in the Prussian Rhine
provinces, is much higher, and has been
rising much more rapidly, than the
price of land on the great estates. He
and Professor Eau both say that this
rise in the price of the small estates
would have ruined the more recent
purchasers, unless the productiveness
of the small estates had increased in
at least an equal proportion ; and as the
small proprietors have been gradually
becoming more and more prosperous
notwithstanding the increasing prices
they have paid for their land, he argues,
with apparent justness, that this would
eeem to show that not only the gross
profits of the small estates, but the njt
profits also, have been gradually in-
creasing, and that the net profits per
acre, of land, when farmed by small
proprietors, are greater than the net
profits per acre of land farmed by a
great proprietor. He says, with seem-
ing truth, that the increasing price of
land in the small estates cannot be the
mere effect of competition, or it would
have diminished the profits and the
prosperity of the small proprietors, and
that this result has not followed the
rise.

" Albrecht TLaer, another celebrated

German writer on the difTeient systems
of agriculture, in one of his later works
(Principles of Rational Agriculture)
expresses his decided conviction, that
the net produce of land is greater when
farmed by small proprietors than when
farmed by great proprietors or their
tenants. . . . This opinion of Thaer is
all the more remarkable, as, during the
early part of his life, he was verj
strongly in favour of the English systeir
of great estates and great farms."

Mr. Kay adds, from his own observa-
tion, " The peasant farming of Prussia,
Saxony, Holland, and Switzerland is
the most perfect and economical farm
ing I have ever witnessed in any
country."*

§ 5. But the most decisive example
in opposition to the English prejudice
against cultivation by peasant pro-
prietors, is the case of Belgium. The
soil is originally one of the worst in
Europe. " The provinces," says Mr.
M'Culloch,t "of West and East
Flanders, and Hainault, form a far-
stretching plain, of which the luxuriant
vegetation indicates the indefatigable
care and labour bestowed upon its cul-
tivation ; for the natural soil consists
almost wholly of barren sand, and its
great fertility is entirely the result of
very skilful management and judicious
application of various manures.' ' There
exists a carefully prepared and compre-
hensive treatise on Flemish Husbandry,
in the Farmer's Series of the Society
for the Diffusion of Useful Knowledge.
The writer observes,! that the Flemish
agriculturists " seem to want nothing
but a space to work upon : whatever be
the quality or texture of the soil, in
time they will make it produce some
thing. The sand in the Campine can
be compared to nothing but the sands
on the sea-shore, which they probably
were originally. It is highly interest-
ing to follow step by step the progress
of improvement. Here you see a cot-
tage and rude cow-shed erected on a
spot of the most unpromising aspect.
The loose white sand blown into irre-

• Kay, 1. 116-8.

t Geographical Dictionary, art. " Belgium,"

J Pp. 11-14.

PEASANT PROPRIETORS.

165

gular mounds is only kept together by
the roots of the heath : a small spot
only is levelled and surrounded by a
ditch: part of this is covered with
young broom, part is planted with po-
tatoes, and perhaps a small patch of
diminutive clover may show itself:" but
manures, botli solid and liquid, are col-
lecting, " and this is the nucleus from
which, in a few years, a little farm will
spread around. ... If there is no
manure at hand, the only thing that
can be sown, on pure sand, at first, is
broom : this grows in the most barren
soils ; in three years it is fit to cut, and
produces some return in fagots for the
bakers and brickraakers. The leaves
which have fallen have somewhat en-
riched the soil, and the fibres of the
roots have given a certain degree of
compactness. It may now be ploughed
and sown with buckwheat, or even with
rye without manure. By the time this
is reaped, some manure may have been
collected, and a regular course of crop-
ping may begin. As soon as clover and
potatoes enable the farmer to keep cows
and make manure, the improvement
goes on rapidly ; in a few years the soil
undergoes a complete change : it be-
comes mellow and retentive of moisture,
and enriched by the vegetable matter
afforded by the decomposition of the
roots of clover and other plants. . . .
After the land has been gradually
brought into a good state, and is culti-
vated in a regular manner, there ap-
pears much less difference between the
soils which have been originally good,
and those which have been made so
by labour and industry. At least the
crops in both appear more nearly alike
at harvest, than is the case in soils of
different qualities in other countries.
This is a great proof of the excellency
of the Flemish system ; for it shows
that the land is in a constant state of
improvement, and that the deficiency
of the soil is compensated by greater
attention to tillage and manuring,
especially the latter."

The people who labour thus intensely,
because labouring for themselves, have
practised for centuries those principles
of rotation of crops and economy of
manures, wl ich in England are counted

among modern discoveries : and even
now the superiority of their agriculture,
as a whole, to that of England, is ad-
mitted by competent judges. "The
cultivation of a poor light soil, or a
moderate soil," says the writer last
quoted,* "is generally superior in
Flanders to that of the most improved
farms of the same kind in Britain. \Ve
surpass the Flemish farmer greatly in
capital, in varied implements of tillage,
in the choice and breeding of cattle and
sheep," (though, according to the same
authority ,f they are much " before us
in the feeding of their cows,") " and
the British fanner is in general a man
of superior education to the Flemish
peasant. But in the minute attention
to the qualities of the soil, in the ma-
nagement and application of manures
of different kinds, in the judirions suc-
cession of crops, and espccia.ly in the
economy of land, so that every part of
it shall be in a constant state of pro-
duction, we have still something to
learn from the Flemings," and not from
an instructed and enterprising Fleming
hero and there, but from the general
practice.

Much of the most highly cultivated
part of the country consists of peasant
properties, managed by the proprietors,
always either wholly or partly by spade
industry 4 "When the land is culti-
vated entirely by the spade, and no
horses are kept, a cow is kept for every
three acres of land, and entirely fed on
artificial grasses and roots. This mode
of cultivation is principally adopted in
the Waes district, where properties are
very small. All the labour is done by
the different members of the family;"
children soon beginning "to assist in
various minute operations, according to
their age and strength, such as weed-
ing, hoeing, feeding the cows. If they
can raise rye and wheat enough to
make their bread, and potatoes, tur-
nips, carrots, and clover, for the cows,
they do well ; and the produce of the
sale of their rape-seed, tneir flax, their
hemp, and their butter, after deducting
the expense of manure purchased, whicu

• Flenith Huilandry, p. 3,

t Ibid. p. 13.

J Ibid., pp. 73 et seq.

166

BOOK II. CHAPTER VI. § 5.

5s always considerable, gives them a
very good profit. Suppose the whole
extent of the land to be six acres, which
is not an uncommon occupation, and
which one man can manage;" then
(after describing the cultivation), " if
a man with his wife and three young
children are considered as equal to
three and a half grown up men, the fa-
mily will require thirty-nine bushels of
grain, forty-nine bushels of potatoes, a
fat hog, and the butter and milk of one
cow : an acre and a half of land will
produce the grain and potatoes, and
allow some corn to finish the fattening
of the hog, which has the extra butter-
milk : another acre in clover, carrots,
and potatoes, together with the stubble
turnips, will more than feed the cow ;
consequently two and a half acres of
land is sufficient to feed this family,
and the produce of the other three and
a half may be sold to pay the rent or
the interest of purchase-money, wear
and tear of implements, extra manure,
and clothes for the family. But these
acres are the most profitable on the
farm, for the hemp, flax, and colza are
included ; and by having another acre
in clover and roots, a second cow can
be kept, and its produce sold. We
have, therefore, a solution of the prob-
lem, how a family can live and thrive
on six acres of moderate land." After
showing by calculation that this extent
of land can be cultivated in the most
perfect manner by the family without
any aid from hired labour, the writer
continues, " In a farm of ten acres en-
tirely cultivated by the spade, the addi-
tion of a man and a woman to the
members of the family will render all
the operations more easy ; and with a
horse and cart to carry out the manure,
and bring home the produce, and occa-
sionally draw the harrows, fifteen acres
may be veiy well cultivated. . . . Thus
it will be seen," (this is the result of
some pages of details and calculations,*)
" that by spade husbandry, an industri-
ous man with a small capital, occupying
only fifteen acres of good light land,
may not only live and bring up a fa-
mily, paying a 'good rent, but may accu-
mulate a considerable sum in the course
* Flemith Husbandry, p. 81.

of his life.1' But the indefatigable in
dustry by which he accomplishes this,
and of which so large a portion is ex-
pended not in the mere cultivation, but
in the improvement, for a distant re-
turn, of the Boil itself — has that indus-
try no connexion with not paving rent?
Could it exist, without presupposing,
at least, a virtually permanent tenure ?

As to their mode of living, "the
Flemish farmers and labourers live
much more economically than the same
class in England: they seldom eat
meat, except on Sundays and in har-
vest: buttermilk and potatoes with
brown bread is their daily food." It
is on this kind of evidence that English
travellers, as they hurry through Eu-
rope, pronounce the peasantry of every
Continental country poor and miserable,
its agricultural and social system a
failure, and the English the only regime
under which labourers are well off. It
is, truly enough, the only regime under
which labourers, whether well off or
not, never attempt to be better. So
little are English labourers accustomed
to consider it possible that a labourer
should not spend all he earns, that they
habitually mistake the signs of eco-
nomy for those of poverty. Observe
the true interpretation of the pheno-
mena.

" Accordingly they are gradually
acquiring capital, and their great am-
bition is to have land of their own.
They eagerly seize every opportunity
of purchasing a small farm, and the
price is so raised by competition, that
land pays little more than two per cent
interest for the purchase money. Large

Sroperties gradually disappear, and are
ivided into small portions, which sell
at a high rate. But the wealth and
industry of the population is continually
increasing, being rather diffused through
the masses than accumulated in indi-
viduals."

'With facts like these, known and
accessible, it is not a little surprising
to find the case of Flanders referred to
not in recommendation of peasant pro-
perties, but as a warning against them ;
on no better ground than a presumptive
excess of population, inferred from the
distress which existed among the pea-

PEASANT PROPRIETORS.

167

Bantry of Brabant and East Flanders
in the disastrous year 1846 47. The
evidence which I have cited from a
writer conversant with the subject, and
having no economical theory to sup-
<>\vs that the distress, whatever
may have been its severity, arose from
no insufficiency in these little properties
to supply abun lantly, in any ordinary
circumstances, the wants of all whom
they have to maintain. It arose from
the essential condition to which those
are subject who employ land of their
own in growing their own food, namely,
that the vicissitudes of the seasons
must be borne by themselves, and can-
not, as in the case of large farmers, be
shifted from them to the consumer.
When we remember the season of 1846,
a partial failure of all kinds of grain,
and an almost total one of the potato,
it is no wonder that in so unusual a
calamity the produce of six acres, half
of them sown with flax, hemp, or oil
seeds, should fall short of a year's pro-
vision for a family. But we are not to
contrast the distressed Flemish peasant
with an English capitalist who farms
several hundred acres of land. If the
peasant were an Englishman, he would
not be that capitalist, but a day-la-
bourer under a capitalist. And is there
no distress, in times of dearth, among
day-labourers ? "Was there none, that
year, in countries where small proprie-
tors and small fanners are unknown ?
I am aware of no reason for believing
that the distress was greater in Bel-
gium, than corresponds to the propor-
tional extent of the failure of crops
compared with other countries.*

§ 6. The evidence of the beneficial
operation of peasant properties in the
Channel Islands is of so decisive a cha-
racter, that I cannot help adding to
the numerous citations already made,

* As much of the distress latelycomplalned
of in Belgium, as partakes in any degree of a
permanent character, appears to be almost
confined to the portion of the population
who carry on manufacturing labour, either
by itself or in conjunction with agricultural ;
and to be occasioned by a diminished demand
for Belgic manufactures.

To the preceding testimonies respecting
Germany, Switzerland, and Belgium, may

part of a description of the economical
condition of those islands, by a writer
who combines personal observation
with an attentive study of the informa-
tion afforded by others. Mr. William
Thornton, in his "Plea for Peasant
Proprietors," a book which by the ex-
cellence both of its materials and of its
execution, deserves to be regarded as
the standard work on that side of the
question, speaks of the island of Guern-
sey in the following terms : " Not even
in England is nearly so large a quan-
tity of produce sent to market from a
tract of such limited extent. This of
itself might prove that the cultivators
must be far removed above poverty, for
being absolute owners of all the pro-
duce raised by them, they of course sell
only what they do not themselves re-
quire. But the satisfactoriness of their
condition is apparent to every observer.
'The happiest community,' says Mr.
Hill, ' which it has ever been my lot
to fall in with, is to be found in this
little island of Guernsey." ' No matter,'
says Sir George Head, 'to what point
the traveller may choose to bend his
way, comfort everywhere prevails.'
What most surprises the English vi-
sitor in his first walk or drive beyond
the bounds of St. Peter's Port, is the
appearance of the habitations with
which the landscape is thickly studded.
Many of them are such as in his own
country would belong to persons of
middle rank ; but he is puzzled to guess
what sort of people live in the others,
which, though in general not large
enough for farmers, are almost invari-
ably much too good in every respect for

day labourers Literally, in the

whole island, with the exception of a
few fishermen's huts, there is not one
so mean as to be likened to the ordinary
habitation of an English farm labourer.
'Look,' says a late Bailiff of

be added the following from Niebuhr, re
specting the Roman Campagna. In a letter
from Tivoli, he says, " Wherever you find
hereditary farmers, or Email proprietors,
there you also find industry and honesty. I
believe that a man who would employ a large
fortune in establishing small freeholds might
put an end to robbery in the mountain
districts." — Life and Letttrt of Niebuhr, tol.
ii.p. 149.

168

BOOK II. CHAPTER VI. § 7.

Guernsey, Mr. De L'Isle Brock, 'at
the hovels of the English, and compare
them with the cottages of our pea-
santry.' .... Beggars are utterly un-
known Pauperism, able-bodied

pauperism at least, is nearly as rare as
mendicancy. The Savings Banks ac-
counts also bear witness to the general
abundance enjoyed by the labouring
classes of Guernsey. In the year 1841,
there were in England, out of a popu-
lation of nearly fifteen millions, less
than 700,000 depositors, or one in every
twenty persons, and the average
amount of the deposits was 301. In
Guernsey, in the same year, out of a
population of 2fi,000 the number of de-
positors was 1920, and the average
amount of the deposits 40?."* The
evidence as to Jersey and Aldemey is
of a similar character.

Of the efficiency and productiveness
of agriculture on the small properties
of the Channel Islands, Mr. Thornton
produces ample evidence, the result of
which he sums up as follows : " Thus
it appears that in the two principal
Channel Islands, the agricultural popu-
lation is, in the one twice, and in the
other, three times, as dense as in Bri-
tain, there being in the latter country
only one cultivator to twenty-two acres
of cultivated land, while in Jersey there
is one to eleven, and in Guernsey one
to seven acres. Yet the agriculture of
these islands maintains, besides culti-
vators, non-agricultural populations,
respectively four and five times as
dense as that of Britain. This differ-
ence does not arise from any superi-
ority of soil or climate possessed by the
Channel Islands, for the former is na-
turally rather poor, and the latter is
not better than in the southern coun-
ties of England. It is owing entirely
to the assiduous care of the farmers,
and to the abundant use of manure."f
" In the year 1837," he says in another
place,! " the average yield of wheat in
the large farms of England was only
twenty-one bushels, and the highest
average for any one county was no
more than twenty-six bushels. The

* A Plea for Peasant Proprietor». By
William Thomas Thornton, pp. 99—104.
t Ibid. p. 38.
J Ibid. p. 0.

highest average since claimed for the
whole of England, is thirty bushels
In Jersey, where the average size of
farms is only sixteen acres, the average
produce of wheat per acre was stated
by Inglis in 1834 to be thidy-six
bushels ; but it is proved by official
tables to have been forty bushels in
the five years ending with 1833. In
Guernsey, where larms are still
smaller, four quarters per acre, ac-
cording to Inglis, is considered a pood,
but still a very common crop." "Thirty
shillings* an acre would be thought in
England a veiy fair rent for middling
land ; but in the Channel Islands, it is
only very inferior land that would not
let for at least 4Z."

§ 7. It is from France, that im-
pressions unfavourable to peasant pro-
perties are generally drawn ; it is in
Erance that the system is so often as-
serted to have brought forth its fruit
in the most wretched possible agricul-
ture, and to be rapidly reducing, if not
to have already reduced, the peasantry,
by subdivision of land, to the verge of
starvation. It is difficult to account
for the general prevalence of impres-
sions so much the reverse of truth.
The agriculture of France was
wretched, and the peasantry in great
indigence, before the Devolution. At
that time they were not, so universally
as at present, landed proprietors. There
were, however, considerable districts of
France where the land, even then, waa
to a great extent the property of the
peasantry, and among these were
many of the most conspicuous excep-
tions to the general bad agriculture
and to the general poverty. An au-
thority, on this point, not to be dis-
puted, is Arthur Young, the inveterate
enemy of small farms, the coryphaeus
of the modern English school of agri-
culturists ; who yet, travelling over
nearly the whole of France in 1787,
1788, and 1789, when he finds remark-
able excellence of cultivation, never
hesitates to ascribe it to peasant pro-
perty. " Leaving Sauve," says he.-f

• A Plea for Peasant Proprietor!, p. 32.
t Arthur Young's Tnirelg in Franoe,
vol. i. p. 10.

ANT PROPRIETORS.

169

'I was much struck with a large
tract of land, seemingly nothing but
huge rocks; yet most of it enclosed
an 1 planted with the most industrious
attention. Every man has an olive, a
mulherry, an almond, or a peach tree,
mill vines scattered among them ; so
that the whole ground is covered with
the oddest mixture of these plants and
buLing rocks, that can he conceived.
The inhabitants of this village deserve
encouragement for their industry ; and
if I were a French minister they should
have it. They would soon turn all the
deserts around them into gardens.
Such a knot of active husbandmen,
who turn their rocks into scenes of
fertility, because I suppose their cncn,
would do the same by the wastes, if
animated by the same omnipotent
principle." Again:* " Walk to 15os-
Bendal," (near Dunkirk) " where M.
le Brun has an improvement on the
Dunes, which he very obligingly showed
me. Between the town and that place
is a great number of neat little houses,
built each with its garden, and one or
two fields enclosed, of most wretched
blowing dune sand, naturally as white
as snow, but improved by industry.
The magic of property turns sand to
gold." And again :f "Going out of
Uange, I was surprised to find by far
the greatest exertion in irrigation
which I had yet seen in France ; and
then passed by some steep mountains,
highly cultivated in terraces. Much
watering at St. Lawrence. The scenery
very interesting to a farmer. From
Gange, to tho mountain of rough
ground which I crossed, ths ride has
been the most interesting which I have
taken in France ; the efforts of in--
dustry the most vigorous ; the anima-
tion the most lively. An activity has
been here, that has swept away all
difficulties before it, and has clothed
the very rocks with verdure. It would
be a disgrace to common sense to ask
the cause ; the enjoyment of property
mi'st have done it. Give a man the
secure possession of a bleak rock, and
he will turn it into a garden ; give him

• Arthur Young's Tr:v*'t in France,
vol. i. p. 88.

t IbiJ.p. 61.

a nine years lease of a gaiden, and he
will convert it into a desert.''

In his description of the country at
the foot of the Western Pyrenees, he
speaks no longer from surmise, but
from knowledge. " Take* the road to
Moneng, and come presently to a scene
which was so new to me in France,
that I could hardly believe my own
eyes. A succession of many well-
built, tight, and comfortable fanning
cottages built of stone and covered
with tiles ; each having its little gar-
den, enclosed by clipt thorn-hedge?,
with plenty of peach and other fruit-
trees, some fine oaks scattered in the
hedges, and young trees nursed up
with so much care, that nothing but
the fostering attention of the owner
could effect anything like it. To
every house belongs a farm, per-
fectly well enclosed, with grass bor-
ders mown and neatly kept around
the corn-fields, with gates to pass
from one enclosure to another. There
are some parts of England (where
small yeomen still remain) that re-
semble this country of Beam ; but
we have very little that is equal to
what I have seen in this ride of twelve
miles from Pau to Moneng. It is all
in the hands of little proprietors, with-
out the farms being so small as to
occasion a vicious and miserable popu-
lation. An air of neatness, warmth,
and comfort breathes over the whole.
It is visible in their new-built houses
and stables ; in their little gardens ; in
their hedges; in the courts before their
doors ; even in the coops for their
poultry, and the sties for their hogs.
A peasant does not think of rendering
his pig comfortable, if his own happi-
ness hang by the thread of a nine
years' lease. We are now in Be"arn,
within a few miles of the cradle of
Henry IV. Do they inherit these
blessings from that good prince ? The
benignant genius of that good monarch
seems to reign still over the country ,
each peasant has the foid in the pot."
He frequently notices the excellence
of the agriculture of French Flanders,
where the farms " are all small, and

* Arthur Young's Tratels in francg,
vol. I.

170

BOOK II. CHAPTER VI. § 7.

much in the hands of little proprietors."*
In the Pays de Caux, also a country of
email properties, the agriculture was
miserable ; of which his explanation
•was, that it " is a manufacturing
country, and fanning is but a secon-
dary pursuit to the cotton fabric, which
spreads over the whole of it."f The
same district is still a scat of manu-
factures, and a country of small pro-
prietors, and is now, whether we judge
from the appearance of the crops or
from the official returns, one of the
best cultivated in France. In " Flan-
ders, Alsace, and part of Artois, as
well as on the banks of the Garonne,
France possesses a husbandry equal to
our own.":): Those countries, and a
considerable part of Quercy, " are cul-
tivated more like gardens than farms.
Perhaps they are too much like gar-
dens, from the smallness of properties. "§
In those districts the admirable rota-
tion of crops, so long practised in Italy,
but at that time generally neglected
in France, was already universal.
" The rapid succession of crops, the
harvest of one being but the signal of
sowing immediately for a second," (the
same fact which strikes all observers
in the valley of the Ehine,) " can
scarcely be carried to greater perfec-
tion : and this is a point, perhaps, of
all others the most essential to good
husbandry, when such crops are so
justly distributed as we generally find
them in these provinces ; cleaning and
ameliorating ones being made the
preparation for such as foul and ex-
haust."

It must not, however, be supposed
that Arthur i'oung's testimony on the
subject of peasant properties is uni-
formly favourable. In Lorraine, Cham-
pagne, and elsewhere, he finds the
agriculture bad, and the small pro-
prietors very miserable, in consequence,
as he says, of the extreme subdivision
of the land. His opinion is thus summed
m> :|| — " Before I travelled, I conceived
that small farms, in property, were
very susceptible of good cultivation ;
and that the occupier of such, having

* Young, pp. 322—4.

t Ibid. p. 325. t Ibid. vol. i. p. 357.

§ Ibid. p. 3d. U Ibid. p. 412.

no rent to pay, might be sufficiently at
his ease to work improvements, and
carry on a vigorous husbandry; but
what I have seen in France, has
greatly lessoned my good opinion of
them. In Flanders, I saw excellent
husbandry on properties of 30 to 100
acres ; but we seldom find here such
small patches of property as arc common
in other provinces. In Alt-ace, and
on the Garonne, that is, on soils of
such exuberant fertility as to demand
no exertions, some small properties
also are well cultivated. In Beam, I
passed through a region of little fanners,
whose appearance, neatness, ease, and
happiness charmed me ; it was what
property alone could, on a small scale,
effect ; but these were by no means
contemptibly small ; they are, as I
judged by the distance from house to
house, from 40 to 80 acres. Except
these, and a very few other instances,
I saw nothing respectable on small
properties, except a most unremitting
industry. Indeed, it is necessary to
impress on the reader's mind, that
though the husbandry I met with, in
a great variety of instances on little
properties, was as bad as can be well
conceived, yet the industry of the pos-
sessors was so conspicuous, and so
meritorious, that no commendations
would be too great for it. It was
sufficient to prove that property in
land is, of all others, the most active
instigator to severe and incessant
labour. And this truth is of such
force and extent, that I know no way
so sure of carrying tillage to a moun-
tain top, as by permitting the adjoin-
ing villagers to acquire it in property ;
in fact, we see that in the mountains
of Languecloc, &c., they -have con-
veyed earth in baskets, on their backs,
to form a soil where nature had denied
it."

The experience, therefore, of this
celebrated agriculturist, and apostle of
the grande culture, may be said to be,
that the effect of small properties, cul-
tivated by peasant proprietors, is ad-
mirable when they are not too small:
so small, namely, as not fully to occupy
the time and attention of the family ;
for he uft«;n complains, with great

PEASANT PROPlUi: .

171

apparent reason, of the quantity of
idle time which the peasantry had on
their hands when the lanil was in
very small portions, notwithstanding
the ardour with which they toiled to
improve their little patrimony, in every
way wbicktheir knowledge or ingenuity
could suggest. He recommends, ac-
cordingly, that a limit of subdivision
should be fixed by law ; and this is
by no means an indefensible proposi-
tion in countries, if such there are,
where division, having already gone
farther than the state of capital and
the nature of the staple articles of cul-
tivation render advisable, still con-
tinues progressive. That each peasant
should have a patch of land, even in
full property, if it is not sufficient to
Bupport him in comfort, is a system
wkh all the disadvantages, and scarcely

any of the benefits, of small properties;
since he must either live ir. indigence
on the produce of his land, or d •["•nd
as habitually as if he had no landed
possessions, on the wages of hired
labour: which, besides, if all the hold-
ings surrounding him are of similar
dimensions, he has little prospect of
finding. The benefits of peasant pro-
perties are conditional on th'-ir not
being too much subdivided; that is,
on their not being required to main-
tain too many persons, in proportion
to the produce that can be raised from
them by those persons. The question
resolves itself, like most questions re-
specting the condition of the labouring
classes, into one of population. Are
small properties a stimulus to undue
multiplication, or a check to it ?

CHAPTER VII.

CONTINUATION OF THE SAME CUBJECT.

§ 1. BEFORE examining the influ-
ence of peasant properties on the ulti-
mate economical interests of the
labouring class, as determined by the
increase of population, let us note the
points respecting the moral and social
influence of that territorial arrange-
ment, which may be looked upon as
established, either by the reason of the
case, or by the facts and authorities
cited in the preceding chapter.

The reader new to the subject must
have been struck with the powerful
impression made upon all the wit-
nesses to whom I have referred, by
what a Swiss statistical writer calls
the " almost superhuman industry'' of
peasant proprietors.* On this point,
at least, authorities are unanimous.
Those who have seen only one country
of peasant properties, always think the
inhabitants of that country the most
industrious in the world. There is as
little doubt among observers, with

• The Canton SchaffJiausen (before quoted),

what feature in the condition of the
peasantry this pre-eminent industry is
connected. It is " the magic of pro-
perty," which, in the words of Arthur
Young, " turns sand into gold." The
idea of property does not, however,
necessarily imply that there should be
no rent, any more than that there
should be no taxes. It merely implies
that the rent should he a fixed charge,
not liable to be raised against the pos-
sessor by his own improvements, or by
the will of a landlord. A tenant at a
quit-rent is, to all intents and purposes,
a proprietor ; a copyholder is not less
so than a freeholder. What is wanted
is permanent possession on fixed terms.
" Give a man the secure possession of
a bleak rock, and he will turn it into
a garden ; give him a nine years' lease
of a garden, and he will convert it
into a desert."

The details which have been cited,
and those, still more minute, to b«
found in the same authorities, con-
cerning the habitually elaborate BVB-

172

COOK II. CHAPTER VII. § 2.

tern of cultivation, and the thousand
devices of the peasant proprietor for
making every superfluous hour and
odd moment instrumental to some in-
crease in the future produce and value
of the land, will explain what has heen
said in a previous chapter* respecting
the far larger gross produce which,
with anything like parity of agricul-
tural knowledge, is obtained, from the
same quality of soil, on small farms,
at least when they are the property of
the cultivator. The treatise on "Flem-
ish Husbandly" is especially instruc-
tive respecting the means by which
untiring industry docs more than out-
weigh inferiority of resources, imper-
fection of implements, and ignorance
of scientific theories. The peasant
cultivation of Flanders and Italy is
affirmed to produce heavier crops, in
equal circumstances of soil, than the
best cultivated districts of Scotland
and England. It produces them, no
doubt, with an amount of labour
whick, if paid for by an employer,
would make the cost to him more than
equivalent to the benefit ; but to the
peasant it is not cost, it is the devotion
of time which he can spare, to a fa-
vourite pursuit, if we should not
rather say a ruling passion.f

* Supra, Book i. ch. ix. § 4.

t Read the graphic description by the his-
torian Michelet, of the feelings of a peasant
proprietor towards his land.

"If we would know the inmost thought,
the passion, of the French peasant, it is very
easy. Let us walk out on Sunday into the
country and follow him. Behold him yonder,
walking in front of us. It is two o'clock ;
his wife is at vespers ; he has on his Sunday
clothes; I perceive that he is going to visit
his mistress.

" What mistress ? His land.

" I do not say he goes straight to it. No, he
is free to-day, and may either go or not. Does
he not go every day in the week ? Accord-
ingly, he turns aside, he goes another way, he
has business elsewhere. And yet— he goes.

" It is true, he was passing close by ; it was
an opportunity. He looks, but apparently
he will not go in ; what for? And yet— he
enters.

"At least it is probable that he will not
work ; he is in his Sunday dress : he has a
clean shirt and blouse. Still, there is no
harm in plucking up this weed and throwing
out that stone. There is a stump, too, which
is in the way ; but he has not his tools with
him, he will do it to-morrow.

" Then he folds his arms and gazes, serious

We have seen, too, that it is not
solely by superior exertion that the
Flemish cultivators succeed in ob-
taining these brilliant results. The
same motive which gives such inten-
sity to their industry, placed them
earlier in possession of an amount of
agricultural knowledge not attained
until much later in countries whore
agriculture was carried on solely by
hired labour. An equally high testi-
mony is borne by M. de Lavergne*
to the agricultural skill of the small
proprietors, in those parts of France
to which the petite culture is really
suitable. " In the rich plains of
Flanders, on the banks of the llhine,
the Garonne, the Charente, the llhone,
all the practices which fertilize the
land and increase the productiveness
of labour are known to the very
smallest cultivators, and practised by
them, however considerable may be the-
advances which they require. In their
hands, abundant manures, collected at
great cost, repair and incessantly in-
crease the fertility of the soil, in spite
of the activity of cultivation. The
races of cattle are superior, the crops
magnificent. Tobacco, flax, colza,
madder, beetroot, in some places ; in
others, the vine, the olive, the plum,
the mulberry, only yield their abun-
dant treasures to a population of in-
dustrious labourers. Is it not also to
the petite culture that we are indebted
for most of the garden produce ob-
tained by dint of great outlay in the
neighbourhood of Paris ?"

§ 2. Another aspect of peasant
properties, in which it is essential that
they should be considered, is that of
an instrument of popular education.
Books and schooling are absolutely
necessary to education ; but not all-
sufficient. The mental faculties will

and careful. He gives a long, a very long
look, and seems lost in thought. At last, if
he thinks himself observed, if he sees a passer-
by, he moves slowly away. Thirty paces
off he stops, turns round, and casts on his
land a last look, sombre and profound, but
to those who can see it, the look is full of
passion, of heart, of devotion." — The People,
by J. Michelet, Part i. ch. 1.

* Eesay on the literal Economy of England
Scotland, and Ireland, 3rd cd. p. 127.

PEASANT PROPRIETORS.

173

be most developed where they are most
exercised ; and what gives more exer-
cise to them than the having a multi-
tude of interests, none of which can
be neglected, and which can bo pro-
vided for only by varied efforts of will
and intelligence ? Some of the dis-
paragers of small properties lay great
stress on the cares and anxieties which
beset the peasant proprietor of the
Rhineland or Flanders. It is precisely
those cares and anxieties which tend
to make him a superior being to an
English day-labourer. It is, to be sure,
rather abusing the privileges of fair
argument to represent the condition of
a day-labourer as not an anxious one.
I can conceive no circumstances in
which he is free from anxiety, where
there is a possibility of being out of
employment ; unless he has access to
a profuse dispensation of parish pay,
and no shame or reluctance in de-
manding it. The day-labourer has, in
the existing state of society and popu-
lation, many of the anxieties which
have not an invigorating effect on the
mind, and none of those which have.
The position of the peasant proprietor
of Flanders is the reverse. From the
anxiety which chills and paralyses —
the uncertainty of having food to eat
— few persons are more exempt: it
requires as rare a concurrence of cir-
cumstances as the potato failure com-
bined with, an universal bad harvest, to
bring him within reach of that danger.
His anxieties are the ordinary vicissi-
tudes of more and less ; his cares are
that he takes his fair share of the
business of life ; that he is a free
human being, and not perpetually a
child, which seems to be the approved
condition of the labouring classes ac-
cording to the prevailing philanthropy.
He is no longer a being of a different
order from the middle classes ; he has
pursuits and objects like those which
occupy them, and give to their intel-
lects the greatest part of such cultiva-
tion as they receive. If there is a
first principle in intellectual education,
it is this — that the discipline which
does good to the mind is that in which
the mind is active, not that in which
it is passive. The secret for develop-

ing the faculties is to give them much
to do, and much inducement to do it.
This detracts nothing from the impor-
tance, and even necessity, of other
kinds of mental cultivation. The pos-
session of property will not prevent the
peasant from being coarse, selfish, and
narrow-minded. These things depend
on other influences, and other kinds ol
instruction. But this great stimulus
to one kind of mental activity, in no
way impedes any other means of in-
tellectual development. On the con-
trary, by cultivating the habit of
turning to practical use every frag-
ment of knowledge acquired, it helps
to render that schooling and reading
fruitful, which without some such aux-
iliary influence are in too many cases
like seed thrown on a rock.

§ 3. It is not on the intelligence
alone that the situation of a peasant
proprietor exercises an improving in-
fluence. It is no less propitious to the
moral virtues of prudence, temperance,
and self-control. Day-labourers, where
the labouring class mainly consists of
them, are usually improvident ; they
spend carelessly to the full extent of
their means .and let the future shift
for itself. This is so notorious, that
many persons strongly interested in
the welfare of the labouring classes,
hold it as a fixed opinion that an in-
crease of wages would do them little
good, unless accompanied by at least
a corresponding improvement in their
tastes and habits. The tendency of
peasant proprietors, and of those who
hope to become proprietors, is to tho
contrary extreme ; to take even too
much thought for the morrow. They
are oftener accused of penuriousness
than of prodigality. They deny them-
selves reasonable indulgences, and live
wretchedly in order to economize. In
Switzerland almost everybody saves,
who has any means of saving ; the
case of the flemish fanners has been
already noticed : among the French,
though a pleasure-loving and reputed
to be a self-indulgent people, the spirit
of thrift is diffused through the rural
population in a manner most gratifying
aa a whole, and which in individual

174

BOOK II. CHAPTER VII. § 4.

instances errs rather on the side of ex-
cess than defect. Among those who,
from the hovels in which they live, and
the herbs and roots which constitute
their diet, are mistaken by travellers
for proofs and specimens of general
indigence, there are numbers who have
hoards in leathern bags, consisting of
sums in five-franc pieces, which they
keep by them perhaps for a whole gene-
ration, unless brought out to be expen-
ded in their mostcherished gratification
— the purchase of land. If there is a
moral inconvenience attached to a
state of society in which the peasantry
have land, it is the danger of their
being too careful of their pecuniary
concerns ; of its making them crafty,
and "calculating'' in the objectionable
sense. The French peasant is no
simple countryman, no downright
"peasant of the Danube:"* both in
fact and in fiction he is now "the
crafty peasant." That is the stage
which he has reached in the progres-
sive development which the constitu-
tion of things has imposed on human
intelligence and human emancipation.
But some excess in this direction is a
small and a passing evil compared
with recklessness and improvidence in
the labouring classes, and a cheap price
to pay for the inestimable worth of the
virtue of self-dependence, as the gene-
ral characteristic of a people : a virtue
•which is one of the first conditions of
excellence in a human character — the
stock on which if the other virtues are
not grafted, they have seldom any firm
root ; a quality indispensable in the
case of a labouring class, even to any
tolerable degree of physical comfort ;
and by which the peasantry of France,
and of most European countries of
peasant proprietors, are distinguished
beyond any other labouring population.

§ 4. Is it likely, that a state of eco-
nomical relations so conducive to fru-
gality and prudence in every other
respect, should be prejudicial to it in
the cardinal point of increase of popu-
lation ? That it is so, is the opinion
expressed by most of those English
political economists who have written
anything about the matter. Mr.
*8«e the celebrated fable of La Fontaine.

M'Culloch's opinion is well known.
Mr. Jones affirms,* that a "peasant
population, raising their own wages
from the soil, and consuming them in
kind, are universally acted upon very
feebly by internal checks, or by mo-
tives disposing them to restraint. The
consequence is, that unless some ex-
ternal cause, quite independent of their
will, forces such peasant cultivators to
slacken their rate of increase, they
will, in a limited territory, very rapidly
approach a state of want and penury,
and will be stopped at last only by
the physical impossibility of procuring
subsistence." He elsewhere f speaks
of such a peasantry as " exactly in the
condition in which the animal dis-
position to increase their numbers is
checked by the fewest of those ba-
lancing motives and desires which
regulate the increase of superior ranks
or more civilized people.'' The
"causes of this peculiarity" Mr.
Jones promised to point out in a sub-
sequent work, which never made its
appearance. I am totally unable to
conjecture from what theory of human
nature, and of the motives which in-
fluence human conduct, he would have
derived them. Arthur Young assumes
the same "peculiarity" as a fact;
but, though not much in the habit
of qualifying his opinions, he does not
push his doctrine to so violent an
extreme as Mr. Jones ; having, as we
have seen, himself testified to various
instances in which peasant populations,
such as Mr. Jones speaks of, were not
tending to "a state of want and
penury," and were in no danger what-
ever of coming in contact with " phy-
sical impossibility of procuring sub-
sistence."

That there should be discrepancy of
experience on this matter, is easily to
be accounted for. Whether the labour-
ing people live by land or by wages,
they have always hitherto multiplied
up to the limit set by their habitual
standard of comfort. When that
standard was low, not exceeding a
scanty subsistence, the size of pro.
perties, as well as the rate of wages,

* Essay on tJie Distribution qf Wealffk,
p. 146.

t Ibid. p. 68.

PEASANT PROPRIETORS.

178

lias been kept down to what would
barely support life. Extremely low
ideas of what is necessary _for sub-
sistence, are perfectly compatible with
peasant properties ; and if a people
nave always been used to poverty,
and habit has reconciled them to it,
there will be over-population, and ex-
cessive subdivision of land. But this
is not to the purpose. The true ques-
tion is, supposing a peasantry to pos-

•>d not insufficient but sufficient
for their comfortable support, are they
more, or less, likely to fall from this
state of comfort through improvident
multiplication, than if they were living
in an equally comfortable manner as
hived labourers? All a priori con-
siderations are in favour of their being
less likely. The dependence of wages
on population is a matter of specu-
lation and discussion. That wages
would fall if population were much in-
civ;u"d is often a matter of real doubt,
and always a thing which requires
some exercise of the thinking faculty
for its intelligent recognition. B'it
every peasant can satisfy himself from
evidence which he can fully appre-
ciate, whether his piece of land can be
made to support several families in the
same comfort in which it supports one.
Few people like to leave to their
children a worse lot in life than their
ov.n. The parent who has land to
leave, is perfectly able to judge whether
the. children can live upon it or not :
but people who are supported by
wages, see no reason why their sons
should be unable to support themselves
in the same way, and trust accordingly
to chance. " In even the most useful
and necessary arts and manufactures,"
says Mr. Laing,* " the demand for
labourers is not a seen, known, steady,
and appreciable demand : but it is so
in husbandry," under small properties.
"The labour to be done, the subsist-
ence that labour will produce out of
his portion of laud, are seen and known
elements in a man's calculation upon
his means of subsistence. Can his
square of land, or can it not, subsist a
family? Can he marry or not? are
questions which every man can answer
without delay, doubt, or speculation.

• Ifotet <tfa Traveller, p. 46.

It is the depending on chance, where
judgment has nothing clearly set before
it, that causes reckless, improvident
marriages in the lower, as in the
higher classes, and produces among us
the evils of over-population ; and chance
necessarily enters into every man's
calculations, when certainty is removed
altogether ; as it is, where certain sub-
sistence is, by our distribution of pro-
perty, the lot of but a small portion
instead of about two-thirds of the
people."

There never has been a writer more
keenly sensible of the evils brought
upon the labouring classes by excess
of population, than Sismondi, and this
is one of the grounds of his earnest
advocacy of peasant properties. He
had ample opportunity, in more coun-
tries than one, for judging of their
effect on population. Let us see hia
testimony. " In the countries in which
cultivation by small proprietors still
continues, population increases regu-
larly and rapidly until it has attained
its natural limits ; that is to say, inhe-
ritances continue to be divided and
subivided among several sons, as long
as, by an increase of labour, each
family can extract an equal income
from a smaller portion of land. A
father who possessed a vast extent of
natural pasture, divides it among his
sons, and they turn it into fields and
meadows; his sons divide it among
their sons, who abolish fallows : each
improvement in agricultural knowledge
admits of another step in the sub-
division of property. But there is no
danger lest the proprietor should bring
up his children to make beggars of
them. He knows exactly what inhe-
ritance he has to leave them ; he
knows that the law will divide it
equally among them ; ho sees tho
limit beyond which this division would
make them descend from the rank
which he has himself filled, and a just
family pride, common to the peasant
and to the nobleman, makes him ab-
stain from summoning into life, children
for whom he cannot properly provide.
If more are born, at least they do not
marry, or they agree among themselves,
which of several brothers shall per-
petuate the family. It is not found

176

BOOK II. CHAPTER VII. § 4.

that in the Swiss Cantons, the patri-
monies of the peasants are ever so
divided as to reduce them below an
honourable competence ; though the
habit of foreign service, by opening to
the children a career indefinite and
[incalculable, sometimes calls forth a
superabundant population." *

There is similar testimony respect
ing Norway. Though there is no law
or custom of primogeniture, and no
manufactures to take off a surplus
population, the subdivision of property
is not carried to an injurious extent.
"The division of the land among
children," says Mr. Laing,f "appears
not, during the thousand years it has
been in operation, to have had the
effect of reducing the landed pro-
perties to the minimum size that will
barely support human existence. I
have counted from five-and-twenty to
forty cows upon farms, and that in
a country in •which the farmer must,
for at least seven months in the year,
have winter provender and houses pro-
vided for all the cattle. It is evident
that some cause or other, operating on
aggregation of landed property, coun-
teracts the dividing effects of partition
among children. That cause can be
no other than what I have long con-
jectured would be effective in such
a social arrangement ; viz. that in
a country where land is held, not in
tenancy merely, as in Ireland, but
in full ownership, its aggregation by
the deaths of co-heirs, and by the
marriages of the female heirs among
the body of landholders, will balance
its subdivision by the equal succession
of children. The whole mass of pro-
perty will, I conceive, be found in such
a state of society to consist of as many
estates of the class of 1000?., as many
of 100Z., as many of Wl, a year, at
one period as at another.'1 That this
should happen, supposes diffused
through society a very efficacious pru-
dential check to population : and it is
reasonable to give part of the credit
of this prudential restraint to the pecu-
liar adaptation of the peasant-proprie-
tary system for fostering it.

* Nonveaux Principee, Book iii. cb.l.
t Ketidence i» Noneay, p. 18.

" In some parts of Switzerland,"
says Mr. Kay,* " as in the canton of
Argovie for instance, a peasant never
marries before he attains the age of
twenty-five years, and generally much
later in life ; and in that canton the
women very seldom many before they
have attained the age of thirty. . . .
Nor do the division of land and the
cheapness of the mode of conveying it
from one man to another, encourage
the providence of the labourers of the
rural districts only. They act in the
same manner, though perhaps in a
less degree, upon the labourers of the
smaller towns. In the smaller pro-
vincial towns it is customary for a
labourer to own a small plot of ground
outside the town. This plot he cul-
tivates in the evening as his kitchen
garden. He raises in it vegetables
and fruits for the use of his family
during the winter. After his day's
work is over, he and his family repair
to the garden for a short time, which
they spend in planting, sowing, weed-
ing, or preparing for sowing, a harvest,
according to the season. The desire
to become possessed of one of these
gardens operates very strongly in
strengthening prudential habits and
in restraining improvident marriages.
Some of the manufacturers in the
canton of Argovie told me that a
townsman was seldom contented until
he had bought a garden, or a garden
and house, and that the town labourers
generally deferred their marriages for
some years, in order to save enough
to purchase either one or both of these
luxuries."

The same writer shows by statistical
evidence f that in Prussia the average
age of marriage is not only much later
than in England, but " is gradually
becoming later than it was formerly, '
while at the same time " fewer illegiti-
mate children are born in Prussia than
in any other of the European coun-
tries." " Wherever I travelled," says
Mr. Kay,J "in North Germany and
Switzerland, I was assured by all that
the desire to obtain land, which was
felt by all the pensants, was acting aa

* Vol. i. pp. 67-9.
t Ibid. pp. 75-?. % Ibid. p. 90,

PEASANT HIOPKIETOHS*

177

the strongest possible check upon
undue increase of population."*

Jn Flanders, according to Mr.
Fauche, the British Consul at Ostend.f
" farmer's sons and those who have the
means to become farmers will delay
their marriage until they get posses-
sion of a farm." Once a farmer, the
next object is to become a proprietor.
"The first thing a Dane does with his
savings," says Mr. Browne, the Consul
at Copenhagen, J " is to purchase a
clock, then a horse and cow, which he
hires out, and which pays a good
interest. Then his ambition is to
become a petty proprietor, and this
class of persons is better off than any
in Denmark. Indeed, I know of no
people in any country who have more
easily within their reach all that is
really necessary for life than this class,
which is very large in comparison with
that of labourers."

But the experience which most de-
cidedly contradicts the asserted ten-
dency of peasant proprietorship to
produce excess of population, is the
case of France. In that country the
experiment is not tried in the most
favourable circumstances, a large pro-
portion of the properties being too
small. The number of landed pro-
prietors in France is not exactly as-
certained, but on no estimate does it
fall much short of five millions ; which,
on the lowest calculation of the number
of persons of a family (and for France

• The Prussian minister of statistics, in a
work (Condition of the People in Prussia)
which I am obliged to quote at second
hand from Mr. Kay, after proving by figures
the great and progressive increase of the
consumption of food and clothing per
head of the population, from which he justly
infers a corresponding increase of the pro-
ductiveness of agriculture, continues : " The
division of estates has, since 1831, proceeded
more and more throughout the country.
There are now many more small independent
proprietors than formerly. Yet, however
many complaints of pauperism are heard
among the dependent labourers, we never
hear it complained that pauperism is in-
creasing among the peasant proprietors."—
Kay, i. 262-6.

t In a communication to the Commission-
ers of Poor Law Enquiry, p. 610 of their
Foreign Communications, Appendix F to
their First Report.

J Ibid. 263.

r. B.

it ought to be a low calculation), shows
much more than half the population
as either possessing, or entitled to in-
herit, landed property. A majority oi
the properties are so small as not to
afford a subsistence to the proprietors,
of whom, according to some compu-
tations, as many as three millions are
obliged to eke out their means of sup-
port either by working for hire, or by
taking additional land, generally on
metayer tenure. When the property
possessed is not sufficient to relieve
the possessor from dependence on
wages, the condition of a proprietor
loses much of its characteristic efficacy
as a check to over-population : and if
the prediction so often made in Eng
land had been realized, and Franco
had become a " pauper warren,'' the
experiment would have proved nothing
against the tendencies of the same
system of agricultural economy in
other circumstances. But what is the
fact? That the rate of increase of
the French population is the slowest
in Europe. During the generation
which the Revolution raised from the
extreme of hopeless wretchedness to
sudden abundance, a great increase of
population took place. But a gene.-'
ration has grown up, which, haMng
been born in improved circumstances,
has not learnt to be miserable; and
upon them the spirit of thri.1t operates
most conspicuously, in Beeping the
increase of population within the in-
crease of national wealth. In a table,
drawn up by Professor Eau,* of the
* The following i j the table (see p. 168 of
the Belgian transition of Mr. Rau's large
work) :

United States 1820-30
Hungary (ar>cor(ung to Rohrer) .
England 1811-21
,, 1821-31

Ji

2-92
2-40
1-78
1-60
1-30
1-54
1-37
1-27
1-23
1-30
1-15
1-13
1-08
0-83
0-63
) 0-55
au da

Austria, (Rohrer)

N. etherlaiuls
Scotland
Saxony .
Baden .

. . 1821-31
. . 1821-28
. . 1821-31
. . 1815-30
1820-30 (Heuni*

Naples .
France .
and more rece
But the nu

itl

ml

. . 1814-24
1817-27 (Mathieu
Y (Morsau de Jonnds
er given by More

178

It CHAPTER VII. § 4.

rate of annual increase of the popula-
tions of various countries, that of
France, from 1817 to 1827, is stated at
T^nr Pcr cen^> *hat of England during
a similar decennial period being 1T67
annually, and that of the United States
nearly 3. According to the official
returns as analyzed by M. Legoyt,*
the increaae of the population, which
from 1801 to 1806 was at the rate of
1*28 per cent annually, averaged only
0-47 per cent from 1806 to 1831 ; from
1831 to 1836 it averaged 0'60 per
cent; from 1836 to 1841, 0'41 per
cent, and from 1841 to 1846, 0'68 per

Jonno?, he adds, is not entitled to implicit
.confidence.

The following table given by M. Q,ue-
•tolet (On Man and the Development of hit
Faeultiet, vol. i. ch. 7), also on the au-
thority of Rau, contains additional matter,
.and differs in some items from the preced-
ing, probably from the author's having
'taken, in those cases, an average of dif-
ferent years :

Per cent.

Ireland 2'45

Hungary 2'40

Spain 1'66

England 1-65

Rhenish Prussia . . . . 1*33

\ Austria 1'30

Bavaria 1'08

Netherlands 0'94

Naples 0-83

France 0'63

e'weden , 0'58

0'45

cent.f At the censns of 1851 the
rate of annual increase shown was
only 1'08 per cent in the five years,
or 0'21 annually; and at the census
of 1856 only 0'71 per cent in fire
years, or 0'14 annually; so, that, in
the words of M. de Lavergne, " popu-
lation has almost ceased to increase
in France "| Even this slow increase
is wholly the effect of a diminution of
deaths ; the number of births not in-
creasing at all, while the proportion
of the births to the population is con-
stantly diminishing.§ This slow growth
of the numbers of the people, while

ceding year 1846, is summed up in the fol-
lowing table :

£ .

M>

III!

§s|

JSS ° >

*S

•*! o

Per cent.

Per cent.

Sweden

0-83

1-14

1-36

1-30

Denmark . . , .

0-95

0-61

0:85

0-90

1-84

1-18

Saxony

1-45

0-90

Hanover ....

0-85

071

Wurtemberg . . .

olo'l

1-00

Holland

0-90

1-03

Belgium ....

076

Sardinia . , . .

1:08

Great Britain (ex-
' elusive of Ireland)

] 1'95

1-00

0-68

0-50

United States . .

3-27

A very ci.rrefI1'ly PrePare(1 statement,
by M. Legoyt, .in. *he ^°«"fz. del -^ono-
mitte, for May I.**7' wmch bnnSs UP the
result* for France I-** tfae censu» of the Pre'

* Jo **r**l let Economittes for March and May 1847.

t M Leeovt is of opinio n **** **le population was understated in 1841. and the inereasa
between that time and 18 «'* eonsequently overstated, and that the real increase during
the whole period was someth.'«?S iatwmediate between the last two averages, or not much

f^Tournal de» Economittet fo y February 1847. In the Journal for January 1865, M.

T i i. .:...,_ snmf* € e numb ^re riightly altered, and, I presume, corrected. The

is 1-28 0-3J 0-69, O'«0, 0-41, 0-68, .0-22, and 0'20. The last census,
" ' ' reaction, the percentage, independently of the newly acquired

ries o
that of
departments, being 0'32.

5

tn Ifm
!
1839 to 84S

lOOy tO lO4d

1844 & 1845

965,444,
972,993,
970,617

-~*t

983,D<3,

ing 1 in m. of the population,
1 in 34'00 ,, ,,

1 in 34-39 „
1 in 35"27 „

1 • or.=Q

1 m 35'58

, „ „

In the last two years th« births, according to M. Legoyt, were swelled by the effects of
•considerable immigration. " This diminution of births "he observes, •• « vjlethere is aco,,-
rtan though not a rapid increase both of population and of marriages, can only be attributed
to ?he process of prudence and forethought in families It was a foreseen consequence of
our civil and social institutions, which, producing a <UUj increasing subdms.on of fortunw,

i ' [•: A H ANT PROPRIETORS.

179

capital increases much morn rapidly,
has caused a noticeable improvement
in the condition of the labouring class.
The circumstances of that portion of
1hi> class who are landed proprietors
are not easily ascertained with preci-
sion, being of course extremely vari-
able : but the mere labourers, who
derived no direct benefit from the
changes in landed property which took
place at the Revolution, have unques-
tionably much improved in condition
since that period.* Dr. Rau testifies

both landed and moveable, call forth in our
people the instincts of conservation and of
comfort."

In four departments, nmong which
are two of the most thriving in Nor-
mandy, the deaths even then exceeded the
births. The census of 1856 exhibits the re-
markable fact of a positive diminution in the
population of 54 out of the 86 departments.
A significant comment on the pauper- warren
theory. See M. do Lavergne's analysis of
the returns.

* " The classes of our population which
have only wages, and are therefore the most
exposed to indigence, are now (1846) much
better provided with the necessaries of food,
lodging, and clothing, than they were at the
beginning of the century. This may be
proved by the testimony of all persons who
can remember the earlier of the two periods
compared. Were there any doubts on the
subject, they might easily be dissipated by
consulting old cultivators and workmen, as
I have myself done in various localities, with-
out meeting with a single contrary testimony;
we may also appeal to the facts collected by
an accurate observer, M. Villerme, in his
Picture of the Moral and Physical Condition
of the Working Classes* book ii. ch. 1."
(Researches on the Causes of Indigence, by A.
Cle'ment, pp. 84-5.) The same writer speaks
(p. 118) of " the considerable rise which has
taken place since 1789 in the wages of agri-
cultural day-labourers;" and adds the fol-
lowing evidence of a higher standard of
habitual requirements, even in that portion
of the town population, the state of which
is usually represented as most deplorable.
'• In the last fifteen or twenty years a con-
siderable change has taken place in the habits
of the operatives in our manufacturing
towns : they now expend'much more than for-
merly on clothing and ornament. . . . Certain
classes of workpeople, such as the canufs of
Lyons," (according to all representations,
like theircounterpart, our handloom weavers,
the very worst paid class of artizans,) " no
longer show themselves, as they did formerly,
covered with filthy rags." (Page 164.)

The preceding statements were given in
former editions of this work, being the best
to which I had at the time access ; but evi-
dence, both of a more recent, and of a more
minute and precise character, will now be

to n similar fact in the case of another
country in which the subdivision of
the land is probably excessiye, the
Palatinate.*

I am not aware of a single authentic
instance which supports the assertion
that rapid multiplication is promoted
by peasant properties. Instances may
undoubtedly be cited of its not being
prevented by them, and one of the
principal of these is Belgium ; th«
prospects of which, in respect to popu-
lation, are at present a matter of con-
found in the important work of M. Leone»
de Lavergne, Mural Economy of France sine*
1789. According to that painstaking, well*
informed, and most impartial enquirer, the
average daily wages of a French labourer
have risen, since the commencement of the
Revolution, in the ratio of 19 to 30, while,
owing to the more constant employment, the
total earnings have increased in a still greater
ratio, not short of double. The following
are the statements of M. de Lavergne (2nd
ed. p. 57) :

" Arthur Young estimates at 19 sous \9\d. ]
the average of a day's wages, which must
now be about 1 franc 50 centimes f_l». Sd.~],
and this increase only represents a part of
the improvement. Though the rural popu-
lation has remained about the same in num-
bers, the addition made to the population
since 1789 having centred in the towns, the
number of actual working diiyshas increased,
first because, the duration of life having
augmented, the number of able-bodied men
is greater, and next, because labour is better
organized, partly through the suppression of
several festival-holidays, partly by the mere
effect of a more active demand. When we
take into account the increased number of
his working days, the annual receipts of the
rural workman must have doubled. This
augmentation of wages answers to at least
an equal augmentation of comforts, since the
prices of the chief necessaries of life have
changed but little, and those of manufac-
tured, for example of woven, articles, have
materially diminished. The lodging of the
labourers has also improved, if not in all,
at least in most of our provinces."

M. de Lavergne's estimate of the average
amount of a day's wages is grounded on a
careful comparison, in this and all other
economical points of view, of all the different
provinces of France.

* In his little book on the Agriculture of
the Palatinate, already cited. He says that
the daily wages of labour, which during tha
last years of the war were unusually high,
and so continued until 1817, afterwards sank
to a lower money-rate, but that the prices
of many commodities having fallen in a still
greater proportion, the condition of the peo-
ple was unequivocally improved. The food
given to farm labourers by their employers
has also greatly improved in quantity and
N 2

ISO

eiderable uncertainty. Belgium has
the most rapidly increasing population
on the Continent ; and when the cir-
cumstances of the country require, as
they must soon do, that this rapidity
should be checked, there will be a con-
siderable strength of existing habit to
be broken through. One of the un-
favourable circumstances is the great
power possessed over the minds of
the people by the Catholic priesthood,
whose influence is everywhere strongly
exerted against restraining population.
As yet, however, it must be remem-
bered that the indefatigable industry
and great agricultural skill of the
people have rendered the existing
rapidity of increase practically inno-
cuous ; the great number of large es-
tates still undivided affording by their
gradual dismemberment, a resource for
the necessary augmentation of the
gross produce ; and there are, besides,
many large manufacturing towns, and
mining and coal districts, which attract
*nd employ a considerable portion of
the annual increase of population.

§ 5. But even where peasant pro-
perties are accompanied by an excess
of numbers, this evil is not necessarily
attended with the additional econo-
mical disadvantage of too great a sub-
division of the land. It does not follow
because landed property is minutely
divided, that farms will be so. As
large properties are perfectly com-
patible with Email farms, so are small
properties with farms of an adequate
size ; and a subdivision of occupancy is
not an inevitable consequence of even
undue multiplication among peasant

quality. " It is now considerably better than
about forty years ago, when the poorer class
obtained less flesh-meat and puddings, and
no cheese, butter, and the like." (p. 20.)
" Such an increase of wages" (adds the Pro-
fessor) "which must be estimated not in
money, but in the quantity of necessaries
and conveniences which the labourer is ena-
bled to procure, is, by universal admission, a
proof that the masa of capital must have in-
creased." It proves not only this, but also
that the labouring population has not in-
creased in an equal degree ; and that, in this
instance as well as in France, the division of
the land, even when excessive, lias been
compatible with a strengthening of the pru-
dential oV«ok» »o population.

BOOK II. CHAPTER VII. § 5.

proprietors. As might be expected
from their admirable intelligence in
things relating to their occupation, the
Flemish peasantry have long learnt
this lesson. " The habit of not divid-
ing properties," says Dr. Ravi,* " and
the opinion that this is advantageous,
have been BO completely preserved in
Flanders, that even now, when a
peasant dies leaving several children,
they do not think of dividing his
patrimony, though it be neither en-
tailed nor settled in trust ; they prefer
selling it entire, and sharing the pro-
ceeds, considering it as a jewel which
loses its value when it is divided."
That the same feeling must prevail
widely even in France, is shown by
the great frequency of sales of land,
amounting in ten years to a fourth
port of the whole soil of the country ;
and M. Passy, in his tract " On the
Changes in the Agricultural Condition
of the Department of the Eure since
the year 1800,"f states other facts
tending to the same conclusion. " The
example," says he, " of this department
attests that there does not exist, as some
writers have imagined, between the
distribution of property and that of
cultivation, a connexion which tends
invincibly to assimilate them. In no
portion of it have changes of owner-
ship had a perceptible influence on
the size of holdings. While, in dis-
tricts of small farming, lands belong-
ing to the same owner are ordinarily
distributed among many tenants, so
neither is it uncommon, in places where
the grande culture prevails, for tho
same farmer to rent the lands of several
proprietors. In the plains of Vexin,
in particular, many active and rich
cultivators do not content themselves
with a single farm ; others add to the
lands of their principal holding, all
those in the neighbourhood which

* Page 33 1 of the Brussels translation. He
cites as an authority, Schwerz, Papert on
Agriculture, i. 185.

t One of the many important papers which
have appeared in the Journal dei i'eono-
mistes, the organ of the principal political
economists of Frances, and doing great and
increasing honour to their knowledge and
ability. AI. Passy's essay has been reprin'.ed
separately as a pamphlet.

PEASANT PROPRIETORS.

131

they are able to hire, and in this
manner make up a total extent which
in Eomo cases reaches or exceeds two
hundred hectares" (five hundred Eng-
lish acres). "The more the estates
are dismemhered, the more frequent
do this sort of arrangements hecome ;
and as they conduce to the interest of
all conci/rned, it is probable that time
will confirm them."

" In some places," says M. de La-
vergne,* " in the neighbourhood of
Paris, for example, where the advan-
tages of the gramle culture become
', the size of farms tends to in-
crease, several farms are thrown to-
gether into one, and farmers enlarge
their holdings by renting parodies
from a number of diflerent proprietors.
Elsewhere farms as well as properties
of too great extent, tend to division.
Cultivation spontaneously finds out the
organization which suits it best." It
is a striking fact, stated by the same
eminent writer, f that the departments
which have tho greatest number of
small separate accounts with the tax-
collector, are the Nord, the Somme,
the Pas de Calais, the Seine Infe-
rieure, the Aisne, and the Oise ; all
af l!;t-;ii among the richest and best
cultivated, and the first-mentioned of
them the very richest and best culti-
vated, in France.

Undue subdivision, and excessive
smallness of holdings, are undoubtedly
a prevalent evil in some countries of
peasant proprietors, and particularly
in parts of Germany and France. The
governments of Bavaria and Nassau
have thought it necessary to impose
a legal limit to subdivision, and the
Prussian Government unsuccessfully
proposed the same measure to the
Estates of its Rhenish Provinces. But
I do not think it will anywhere be
found that the petite culture is the
system of the peasants, and the ff ramie
culture that of the great landlords :

* Rural Economy of France, p. 455.
t P. 117. See, for facts of a similar ten-
dency, pp. 141, 250, an j other passages of the
same important treatise ; which, on the other
hand, equally abounds with evidence of the
mischievous effect of subdivision when too
minute, or when t':o :ia!uro of the soil ami
pf ill products is not suitable to it.

on the contrary, wherever the small
properties are divided among too many
proprietors, I believe it to bo true
that the large properties also are par-
celled out among too many farmers,
and that'the cause is the same in both
cases, a backward state of capital,
skill, and agricultural enterprise. Thera
is reason to believe that the subdivi-
sion in France is not more excessive
than is accounted for by this cause ;
that it is diminishing, not increasing ;
and that the terror expressed in some
quarters at the progress of the mor-
cellement, is one of the most ground-
less of real or pretended panics.*

If peasant properties have any effect
in promoting subdivision beyond tho
degree which corresponds to the agri-

* Mr. La'.ng, in his latest publication,
" Observations on the Social and Political
State of the European People in 1843 and
1849," a book devoted to the glorification of
England, and the disparagement of every-
thing elsewhere which others, or even he
himself in former works, had thought wortfc^
of praise, argues that "although the lanX
itself is not divided and subdivided" on the
death of the proprietor, "the value of the
land i-, and with effects almost as prejudicial
to social progress. The value of each share
becomes a debt or burden upon the land."
Consequently the condition of the agricul-
tural population is retrograde ; " each gene-
ration is worse off than the preceding on«,
although the land is neither less nor more
divided, nor worse cultivated." And this h«
gives as the explanation of thegreat indebted-
ness of the small landed proprietors in
France (pp. 97-9). If these statements were
correct, they would invalidate all which Mr.
Lain? affirmed so positively in other writings,
and repeats in this, respecting the peculiar
efficacy of the possession of land in pre-
venting over-population. But he is entirely
mistaken as to the matter of fact. In the
only country of which ho speaks from actual
residence, Norway, be does not | retond that
the condition of the peasant proprietors i*
deteriorating. The facts already cited prove
that in respect to Belgium, Germany, and
Switzerland, the assertion is equally wide of
the mark ; and what has been shown re-
specting the slow increase of population in
France, demonstrates that if the condition
of the French peasantry was deteriorating,
it could not be from the cause supposed by
Mr. Laing. The truth I believe to be that
in every country without exception, in which
peasant properties prevail, the condition of
the people is improving, the produce of the
land and even its fertility increasing, and
from the larger surplus which remains after
feeding the agricultural classes, the towns
are augmenting both in population and i:>
the well-being of their inhabitants.

ist

BOOK II. CHAPTER VII. § 5.

cultural practices of the country, and
which is customary on its large estates,
the cause must lie in nne of the salu-
tary influences of the' system ; the
eminent degree in which it promotes
providence on the part of those who,
not being yet peasant proprietors, hope
to become so. In England, where the
agricultural labourer has no investment
for his savings but the savings bank,
and no position to which he can rise by
any exercise of economy, except per-
haps that of a petty shopkeeper, with its
chances of bankruptcy, there is nothing
at all resembling the intense spirit of
thrift which takes possession of one
who, from being a day labourer, oan
raise himself by saving to the condi-
tion of a landed proprietor. According
to almost all authorities, the real cause
of the morcellement is the higher price
which can be obtained for land by
selling it to the peasantiy, as an in-
vestment for their small accumulations,
than by disposing of it entire to some
rich purchaser who has no object but
to live on its income without improving
it. The hope of obtaining such an
investment is the most powerful of in-
ducements, to those who are without
land, to practise the industry, fru-
gality, and self-restraint, on which their
success in this object of ambition is
dependent.

As the result of this enquiry into
the direct operation and indirect in-
fluences of peasant properties, I con-
ceive it to be established, that there is
no necessary connexion between this
form of landed property and an im-
perfect state of the arts of production ;
that it is favourable in quite as many
respects as it is unfavourable, to the
most effective use of the powers of the
soil ; that no other existing state of
agricultural economy has EO beneficial
an effect on the industry, the intelli-
gence, the frugality, and prudence of
the population, nor tends on the whole
so much to discourage an improvident
increase of their numbers ; and that
no existing slate, therefore, is on the
whole eo favourable, both to their

moral and their physical welfare.
Compared with the English system of
cultivation by hired labour, it must be
regarded as eminently beneficial to the
labouring class.* We are not on the
present occasion called upon to com-
pare it with the joint ownership of the
land by associations of labourers.

* French history strikingly confirms these
conclusions. Three times during the course
of ages the peasantry have been purchasers
of land; and these times immediately pre-
ceded the three principal eras of French-
agricultural prosperity.

" In the worst times," lays the historian
Michelet (The People, Parti, ch. 1), "the
times of universal poverty^ when even the
rich are poor and obliged to sell, the poor are
enabled to buy : no other purchaser pre-
senting himself, the peasant in rags arrives
with his piece of gold, and acquires a little
bit of land. These moments of disaster in
which the peasant was able to buy land at a
low price, have always been followed by a
sudden gush of prosperity which people could
not account for. Towards 1500, loir example,
when France, exhausted by Louis XI.,
seemed to be completing its ruin in Italy, the
noblesse who went to the wars were obliged
to sell: the land, passing into new hands,
suddenly began to flourish ; men began to
labour and to build. This happy moment,
in the style of courtly historians, was called
the good Louis XII.

" Unhappily it did not last long. Scarcely
had the land recovered itself when the tax-
collector fell upon it; the wars of religion
followed, and seemed to rase everything to
the ground ; with horrible miseries, dreadful
famines, in which mothers devoured tBeir
children. Who would believe that the coun-
try recovered from this? Scarcely is the war
ended, when from the devastated fields, and
the cottages still black with the flames, comes
forth the hoard of the peasant. He buys ;
in ten years, France wears a new face ; in
twenty or thirty, all possessions have doubled
and trebled in value. This moment, again
baptized by a royal name, is called the good
Benry IV. and the great Sichelicu."

Of the third era it is needless again to
speak ; it was that of the Revolution.

Whoever would study the reverse of the
picture, may compare these historic periods,
characterized by the dismemberment of
large and the construction of small proper-
ties, with the wide-spread national suffering
which accompanied, and the permanent de-
terioration of the condition of the labouring
jlasses which followed, the "clearing" away
of small yeomen to make room for large
grazing farms, which was the grand econo-
mical event of .English history during the
sixteenth ccnturv,

METAYERS.

183

CHAPTER Ylll.

OF METAYERS.

§ 1. FROM tho case in which the
produce of land and labour belongs
undividedly to the labourer, we proceed
to the cases in which it is divided, but
between two classes only, the labourers
and the landowners ; the character of
capitalists merging in the one or the
other, as the case may be. It is pos-
sible indeed to conceive that there
might be only two classes of persons
to share the produce, and that a class
of capitalists might be one of them ;
tho character of labourer and that of
landowner being united to form the
other. This might occur in two ways.
The labourers, though owning the
laud, might let it to a tenant, and
work under him as hired servants.
But this arrangement, even in the
very rare cases which could give rise
to if, would not require any particular
discussion, since it would not differ in
any material respect from the three-
fold system of labourers, capitalists,
and landlords. The other case is the
not uncommon one, in which a peasant

Eroprietor owns and cultivates the
md, but raises the little capital re-
quired, by a mortgage upon it.
Neither does this case present any
important peculiarity. Ihere is but
one person, the peasant himself, who
has any right or power of interference
in the management. He pays a fixed
annuity as interest to a capitalist, as
he pays another fixed sum in taxes
to the government. Without dwelling
further on these cases, we pass to those
which present marked features of pecu-
liarity.

"When the two parties sharing in
the produce are the labourer or
labourers and the landowner, it is not
n very material circumstance in the
case, which of the two furnishes the
stock, or whether, as sometimes hap-
pens, they furnish it, in a determinate
proportion, between them. The essen-
tial difference doep not lie in this,

but in another circumstance, namely,
whether the division of the produce
between the two is regulated by
custom or by competition. We will
begin with the former case ; of which
the metayer culture is the principal,
and in Europe almost the sole, example.
The principle of the metayer system
is that the labourer, or peasant, makes
his engagement directly with the land-
owner, and pays, not a fixed rent,
either in money or in kind, but a cer-
tain proportion of the produce, or
rather of what remains of the produce
after deducting what is considered ne-
cessary to keep up the stock. The
proportion is usually, as the name im-
ports, one-half; but in several districts
in Italy it is two-thirds. Respecting
the supply of stock, the custom varies
from place to place ; in some places
the landlord furnishes the whole, in
others half, in others some particular
part, as for instance the cattle and
seed, the labourer providing the im-
plements.* " This connexion," says

* In France, before the Revolution, ac-
cording to Arthur Young (i. 403) there was
great local diversity in this respect. In
Champagne, " the landlord commonly finds
half the cattle and half the seed, and the
metayer, labour, implements, and taxes;
but in some districts the landlord bears a
share of these. In Roussillon, the landlord
pays half the taxes ; and in Guienne, from
Auch to Fleuran, many landlords pay all.
Near Aguillon, on the Garonne, the metayers
furnish half the cattle. At Nangis, in the
Isle of France, I met with an agreement for
the landlord to furnish live stock, implements,
harness, and taxes ; the metayer found labour
and his own capitation tax : the landlord
repaired the house and gates ; the metayer
the windows : the landlord provided sued the
first year, the metayer the last; in the inter-
vening years they supply half and half. In
the Bourbonnois the landlord finds all sorts
of live stock, yet the metayer sells, changes,
and buys at his will; the steward keeping
an account of these mutations, for the land-
lord has half the product of sales, and pays
half the purchases." In Piedmont, he says,
" the landlord commonly pays the taxes and
repairs the buildings, and the tenant provides
cattle, implements; and seed." (II. 151 )

184

BOOK II. CHAFIER VIII. § 2.

Sismondi, speaking chiefly of Tus-
cany,* " is often the subject of a con-
tract, to define certain services and
certain occasional payments to which
the metayer binds himself; neverthe-
less the differences in the obligations
of one such contract and another are
inconsiderable ; usage governs alike all
these engagements, and supplies the
stipulations which have not been ex-
pressed : and the landlord who at-
tempted to depart from usage, who
exacted more than his neighbour, who
took for the basis of the agreement
anything but the equal division of the
crops, would render himself so odious,
be would be so sure of not obtaining a
metayer who was an honest man, that
the contract of all the metayers may
be considered as identical, at least in
each province, and never gives rise to
any competition among peasants in
search of employment, or any offer to
cultivate the soil on cheaper terms
than one another." To the same effect
Chateauvieux,f speaking of the me-
tayers of Piedmont. " They consider
it" (the farm) "as a patrimony, and
never think of renewing the lease, but
go on from generation to generation, on
the same terms, without writings or
registries."!

§ 2. When the partition of the
produce is a matter of fixed usage, not
of varying convention, political eco-
nomy has no laws of distribution to
investigate. It has only to consider,

* Studiei in Political Economy, Essay VI.
On the Condition of the Cultivators in Tus-
cany.

t Letters from Italy. I quote from Dr.
Rigby's translation, (p. 22.)

J This virtual fixity of tenure is not how-
ever universal even in Italy ; and it is to its
absence that Sismondi attributes the inferior
condition of the metayers in some provinces
of Naples, in Lucca, and in the Kiviera of
Genoa ; where the landlords obtain a larger
(though still a fixed) share of the produce.
In those countries the cultivation is splendid,
but the people wretchedly poor. " The same
misfortune would probably have befallen the
people of Tuscany if public opinion did not
protect the cultivator; but a proprietor
would not dare to impose conditions unusual
in the country, and even in changing one
metayer for another, he alters nothing in the
terms of the engagement." JVeio Principle!
qffylitical Economy, book iii. ch. 5.

as in the case of peasant proprietors,
the effects of the system, first, on the
condition of the peasantry, morally
and physically, and secondly, on the
efficiency of the labour. In both these
particulars the metayer system has the
characteristic advantages of peasant
properties, but has them in a less de»
gree. The metayer has less motive
to exertion than the peasant proprietor,
since only half the fruits of his indus-
try, instead of the whole, are his own
But he has a nruch stronger motive
than a day labourer, who has no other
interest in the result than not to be
dismissed. If the metayer cannot be
turned out except for some violation of
his contract, he has a stronger motive
to exertion than any tenant-farmer
who has not a lease. The metayer is
at least his landlord's partner, and a
half-sharer in their joint gains. Where,
too, the permanence of his tenure is
guaranteed by custom, he acquires
local attachments, and much of the
feelings of a proprietor. I am sup-
posing that this half produce is suffi-
cient to yield him a comfortable
support. Whether it is so, depends
(in any given state of agriculture) on
the degree of subdivision of the land ;
which depends on the operation of the
population principle. A multiplication
of people, beyond the number that can
be properly supported on the land or
taken off by manufactures, is indent
even to a peasant proprietary, and '»f
course not less but rather more incidcn.
to a metayer population. The ten-
dency, however, which we noticed Ii:
the proprietary system, to promote
prudence on this point, is in no small
degree common to it with the metayer
system. There, also, it is a matter of
easy and exact calculation whether a
family can be supported or not. If it
is easy to see whether the owner of the
whole produce can increase the pro-
duction so as to maintain a greater
number of persons equally well, it is a
not less simple problem whether the
owner of half the produce can do so.*
* HI. Hastiat affirms that even in
France, incontestably the least favourable
example of the metayer system, its effect
in repressing population is conspicuous.
"It is a well-ascertained fact that th.«

METAYERS.

185

There is ono check which this system
seems to offer, over and above those
held out even by the proprietary
system ; there is a landlord, who may
exert a controlling power, by refusing
his consent to a subdivision. I do not,
however, attach great importance to
this check, because the farm may be
loaded with superfluous hands without
being subdivided ; and because, so long
as the increase of hands increases the
gross produce, which is almost always
the case, the landlord, who receives
half the produce, is an immediate
gainer, the inconvenience falling only
on the labourers. The landlord is no
doubt liable in the end to suffer from
their poverty, by being forced to make
advances to them, especially in bad
seasons ; and a foresight of this ulti-
mate inconvenience may operate bene-
ficially on such landlords as prefer
future security to present profit.

The characteristic disadvantage of
the metayer system is very fairly stated
by Adam Smith. After pointing out
that metayers " have a plain interest
that the whole produce should be as
great as possible, in order that their
own proportion may be so," he con-
tinues,* " it could never, however, be
the interest of this species of culti-
vators to lay out, in the further im-
provement of the land, any part of the
little stock which they might save

tendency to excessive multiplication is
chiefly manifested in the class who live on
wages. Over these the forethought which
retards marriageshas little operation.because
the evils which flow from excessive compe-
tition appear to them only very confusedly,
and at a considerable distance. It is, there-
fore, the most advantageous condition of a
people to be so organized as to contain no
regular class of labourers for hire. In me-
tayer countries, marriages are principally
determined by the demands of cultivation ;
they increase when, from whatever cause,
the metairics ofler vacancies injurious to
production ; they diminish when the places
»re filled up. A faet easily ascertained, the
proportion between the size of the farm and
the number of hands, operates like fore-
thought, and with greater effect. We find,
accordingly, that when nothing occurs to
make an opening for a superfluous population,
numbers remain stationary : as is seen in
our southern departments." Consideration*
on Metai/nye, in the Journal det Economistes
for February 1846.

• Wt-Mh ofXationi. book iii. ch. 2.

from their own share of the produce,
because the lord, who laid out nothing,
was to get ono half of whatever it
produced. The tithe, which is but a
tenth of the produce, is found to be a
very great hindrance to improvement.
A tax, therefore, which amounted to
one-half, must have been an effectual
bar to it. It might be the interest of
a metayer to make the land produce
as much as could be brought out of it
by means of the stock furnished by the
proprietor ; but it could never be his
interest to mix any part of his own
with it. In France, where five parts
out of six of the whole kingdom are
said to be still occupied by this species
of cultivators, the proprietors complain
that their metayers take every oppor-
tunity of employing the master's cattle
rather in carriage than in cultivation ;
because in the one case they get the
whole profits to themselves, in the other
they share them with their landlord."

It is indeed implied in the very na-
ture of the tenure, that all improve-
ments which require expenditure of
capital, must be made with the capital
of the landlord. This, however, is es-
sentially the case even in England,
whenever the fanners are tenants-at-
will: or (if Arthur Young is right)
even on a "nine years lease." If the
landlord is willing to provide capital
for improvements, the metayer has the
strongest interest in promoting them,
since half the benefit of them will ac-
crue to himself. As however the per-
petuity of tenure which, in the case
we are discussing, he enjoys by custom,
renders his consent a necessary condi-
tion ; the spirit of routine, and dislike
of innovation, characteristic of an agri-
cultural people when not corrected by
education, are no doubt, as the advo-
cates of the system seem to admit, a
serious hindrance to improvement.

§ 3. The metayer system has met
with no mercy from English authori-
ties. " There is not one word to be
said in favour of the practice," says
Arthur Young,* "and a thousand ar-
guments that might be used against
it. The hard plea of necessity can
• Travelt, vol i. pp. 404-5.

136

BOOK H. CHAPTER VIII. § 3.

alone be urged in its favour; the po-
verty of the farmers being so great,
that the landlord must stock the farm,
or it could not be stocked at all : this
is a most cruel burthen to a proprietor,
who is thus obliged to run much of the
hazard of farming in the most dan-
gerous of all methods, that of trusting
his property absolutely in the hands
of people who are generally ignorant,
many careless, and some undoubtedly
wicked. ... In this most miserable
of all the modes of letting land, the
defrauded landlord receives a con-
temptible rent; the farmer is in the
lowest state of poverty ; the land is
miserably cultivated ; and the nation
sutlers as severely as the parties them-
selves. . . . Wherever* this system
prevails, it may be taken for granted
that a useless and miserable population
is found. . . . Wherever the country
(that I saw) is poor and unwatered,
in the Milanese, it is in the hands of
metayers:" they are almost always
in debt to their landlord for seed
or food, and "their condition is
more wretched than that of a day
labourer. . . . Theref are but few
districts'' (in Italy) " where lands
are let to the occupying tenant at
a money-rent ; but wherever it is
found, their crops are greater; a clear
proof of the imbecility of the metaying
system." " Wherever it" (the metayer
system) " has been adopted,1' says
Mr. M'Culloch,! "it has put a stop
to all improvement, and has reduced
the cultivators to the most abject po-
verty." Mr. Jones § shares the common
opinion, and quotes Turgot and Destutt-
1 racy in support of it. The impression,
however, of all these writers (notwith-
standing Arthur Young's occasional
references to Italy) seems to be chiefly
derived from France, and France before
the Revolution. || Now the situation of
French metayers under the old regime

* Travels, vol. ii. 151-3.

t Ibid. ii. 217.

t Principles of Political Economy, 3rd ed.
p. 471.

§ Estay on the Distribution of Wealth, pp.
102-4. '

'I M. do Tracy is partially an exception,
Inasmuch as his experience reaches lower
down than the revolutionary period : but ho

by no means represents the typical
form of the contract. It is essential
to that form, that the proprietor pays
all the taxes. But in France the ex-
emption of the noblesse from direct
taxation had led the Government to
throw the whole burthen of their ever-
increasing fiscal exactions upon the
occupiers : and it is to these exactions
that Turgot ascribed the extreme
wretchedness of the metayers : a
wretchedness in some cases so exces-
sive, that in Limousin and An;v>u-
mois (the provinces which he admi-
nistered) they had seldom more, ac-
cording to him, after deducting all
burthens, than from twenty-five to
thirty livres (20 to 24 shillings) per
head for their whole annual consump-
tion : " I do not mean in money, but
including all that they consume in
kind from their own crops."* When
we add that they had not the virtual
fixity of tenure of the metayers of Italy,
(" in Limousin,'' says Arthur Young, f
" the metayers are considered as little
better than menial servants, removable
at pleasure, and obliged to conform in
all tilings to the will of the landlords,")

admits (as Mr. Jones has himself stated in
another place) that he is acquainted only
with a limited district, of great subdivision
and unfertile soil.

M. Passy is of opinion, that a French pea-
santry must be in indigence and the country
badly cultivated on a metayer system, be-
cause the proportion of the produce claim-
able by the landlord is too high ; it being
only in more favourable climates that any
land, not of the most exuberant fertility,
can pay half its gross produce in rent, and
leave enough to peasant farmers to enable
them to grow successfully the more expen-
sive and valuable products of agriculture.
(On System* of Culture, p. 35.) This is an
objection only to a particular numerical pro-
portion, which is indeed the common one,
but is not essential to the system.

* See the " Memoir on the Surcharge of
Taxes suffered by the Generality of Limoges,
addressed to the Council of State in 1786,"
pp. 260-304 of the fourth volume of Turgot's
Works. The occasional engagements of
landlords (as mentioned by Arthur Young)
to pay a part of the taxes, were, according
to Turgot, of recent origin, under the com-
pulsion of actual necessity. " The proprietor
only consents to it when he can find no me-
tayer on other terms ; consequently, even in
that case, the metayer is always reduced to
what is barely sufficient to prevent him from
dying of hunger." (p. 27c),

t Vol, i. p,404.

METAYERS.

187

It is evident that their case affords no
argument against the metayer system
in its better form. A population who
could call nothing their own — who, like
tho Irish cottiers, could not in any
contingency be worse off — had nothing
to restrain them from multiplying, and
subdividing the laud, until stopped by
actual starvation.

We shall find a very different pic-
ture, by the most accurate authorities,
of the metayer cultivation of Italy. In
the first place, as to subdivision. In
Lombardy,accordingtoChateauvieux*,
there are few farms which exceed sixty
acres, and few which have less than ten.
These farms are all occupied by metay-
ers at half profit. They invariably dis-
play " an extentf and arichness in build-
ings rarely known in any other country
in Europe." Their plan "affords the
greatest room with the least extent of
building; is best adapted to arrange
and secure the crop ; and is, at the
same time, the most economical, and
the least exposed to accidents by fire."
The court-yard " exhibits a whole so
regular and commodious, and a system
of such care and good order, that our
dirty and ill-arranged farms can con-
vey no adequate idea of." The same
description applies to Piedmont. The
rotation of crops is excellent. " I
should think} no country can bring so
large a portion of its produce to market
as Piedmont." Though the soil is not
naturally very fertile, " the number of
cities is prodigiously great." The
agriculture must, therefore, be emi-
nently favourable to the net as well
as to the gross produce of the land.
" Each plough works thirty-two acres
in the season. . . . Nothing can be
more perfect or neater than the hoeing
and moulding up the maize, when in
full growth, by a single plough, with
a pair of oxen, without injury to a
single plant, while all the weeds are
effectually destroyed/' So much for
agricultural skill. " Nothing can be
so excellent as the crop which prece/les
i'.nd that which follows it." The
•A heat "is thrashed by a cylinder,

* Lelten front Italy, translated by Kigby,
P. 16.
t Jbi<3. pp. 19, 20. I Ibid. pp. 2*-31.

drawn by ahorse, and guided by a boy,
while the labourers turn over the straw
with forks. This process lasts nearly
a fortnight : it is quick and economical,

and completely gets out the grain

In no part of the world are the economy
and the management of the land better
understood than in Piedmont, and
this explains the phenomenon of its
great population and immense export
of provisions." All this under metayer
cultivation.

Of the valley of the Arno, in its
whole extent, both above and below
Florence, the same writer thus speaks ;*
— "Forests of olive-trees covered the
lower parts of the mountains, and by
their foliage concealed an infinite
number of small farms, which peopled
these parts of the mountains : chest-
nut-trees raised their heads on the
higher slopes, their healthy verdure
contrasting with the pale tint of the
olive-trees, and spreading a brightness
over this amphitheatre. The road was
bordered on each side with village-
houses, not more than a hundred paces

from each other They are

placed at a little distance from tho
road, and separated from it by a wall,
and a ten-ace of some feet in extent. On
the wall are commonly placed many
vases of antique forms, in which
flowers, aloes, and young orange-trees
are growing. The house itself is com-
pletely covered with vines

Before these houses we saw groups of
peasant females dressed in white linen,
silk corsets, and straw hats ornamented

with flowers These houses

being so near each other, it is evident
that the land annexed to them must be
small, and that property, in these
valleys, must be very much divided ;
the extent of these domains being
from three to ten acres. The land lies
round the houses, and is divided into
fields by small canals, or rows of trees,
some of which are mulberry-trees,
but the greatest number poplars, the
leaves of which are eaten by the cattle.

Each tree supports a vine

These divisions, arrayed in oblong
squares, are large enough to be cul-
tivated by a plough without wheel?,
* Pp. 78-3.

189

BOOK H. CHAPTER VIII. S 8-

and a pair of oxen. There is a pair of
oxen between ten or twelve of the
farmers; they employ them succes-
sively in the cultivation of all the farms.
.... Almost every farn/maintnins a
well-looking horse, which goes in a
small two-wheeled cart, neatly made,
and painted red ; they serve for all the
purposes of draught for the farm, and
and also to convey the farmer's daugh-
ters to mass and to balls. Thus, on
holidays, hundreds of these little carts
are seen flying in all directions, carry-
ing the young women, decorated with
flowers and ribbons.'1

This is not a picture of poverty ; and
so far as agriculture is concerned, it
effectually redeems metayer cultiva-
tion, as existing in these countries,
from the reproaches of English writers ;
but with respect to the condition of
the cultivators, Chateauvieux's testi-
mony is, in some points, not so favour-
able. " It is* neither the natural ferti-
lity of the soil, nor the abundance
which strikes the eye of the traveller,
which constitute the well-being of its
inhabitants. It is the number of in-
dividuals among whom the total pro-
duce is divided, which fixes the portion
that each is enabled to enjoy. Here it
is very small. I have thus far, indeed,
exhibited a delightful country, well
watered, fertile, and covered with a
perpetual vegetation ; I have shown it
divided into countless inclosures,
which, like so many beds in a garden,
display a thousand varying produc-
tions ; I have shown, that to all these
inclosures are attached well-built
houses, clothed with vines, and deco-
rated with flowers ; but, on entering
them, we find a total want of all the
conveniences of life, a table more than
frugal, and a general appearance of
privation." Is not Chateauvieux here
unconsciously contrasting the condition
of the metayers with that of the
fanners of other countries, when the
proper standard with which to com-
pare it is that of the agricultural day-
labourers ?

Arthur Young says,f " I was assured
that these metayers are (especially near

* Pp. 73-G.
t Travel, vol. ii. p. 15$.

Florence) much at their ease ; that on
holidays they are dressed remarkably
well, and not without objects of luxury,
as silver, gold, and silk : and live well,
on plenty of bread, wine, and legumes.
In some instances this may possibly be
the case, but the general fact is con-
trary. It is absurd to think that me-
tayers, upon such a farm as is cul-
tivated by a pair of oxen, can live at
their ease ; and a clear proof of their
poverty is this, that the landlord, who
provides half the live stock, is often
obliged to lend the peasant money to
procure his half. The meta-
yers, not in the vicinity of the city, are
so poor, that landlords even lend them
corn to eat : their food is black bread,
made of a mixture with vetches ; and
their drink is very little wine, mixed
with water, and called aqiiarolle; meat
on Sundays only ; their dress very
ordinary." Mr. Jones admits the su-
perior comfort of the metayers near
Florence, and attributes it partly to
straw-plaiting, by which the women of
the peasantry can earn, according to
Chateauvieux,* from fifteen to twenty
pence a-day. But even this fact tells
in favour of the metayer system ; for
in those parts of England in which
either straw-plaiting or lace-making is
carried on by the \vomen and children
of the labouring class, as in Bedford-
shire and Buckinghamshire, the con-
dition of the class is not better, but
rather worse than elsewhere, the wages
of agricultural labour being depressed
by a full equivalent.

In spite of Chateauvieux's state-
ment respecting the poverty of the
metayers, his opinion, in respect to
Italy at least, is given in favour of the
system. " It occupiesf and constantly
interests the proprietors, which is never
the case with great proprietors who
lease their estates at fixed rents. It
establishes a community of interests,
and relations of kindness between the
proprietors and the metayers ; a kind-
ness which I have often witnessed, and
from which result great advantages in
the moral condition of society. The
proprietor, under this system, alwayi

* Itttersfrosn I/cJy, p. 75,
t Ibid. pp. 2W-6.

METAYERS.

189

Interested in the success of the crop,
never refuses to make an advance
upon it, which the land promises to
repay with interest. It is by these
advances, and by the hope thus in-
spired, that the rich proprietors o»
land have gradually perfected the
whole rural economy of Italy. It is
to them that it owes the numerous
systems of irrigation which water its
soil, as also the establishment of the
terrace culture on the hiils: gradual
but permanent improvements, which
common peasants, for want of means,
could never have effected, and which
could never have been accomplished
by the farmers, nor by the great
proprietors who let their estates at
fixed rents, because they are not
sufficiently interested. Thus the in-
terested system forms of itself that
alliance between the rich proprietor,
whose means provide for the improve-
ment of the culture, and the metayer,
whose care and labours are directed,
by a common interest, to make the
most of these advances."

But the testimony most favourable
to the system is that of Sismondi,
which has the advantage of being
specific, and from accurate knowledge ;
his information being not that of a
traveller, but that of a resident pro-
prietor, intimately acquainted with
rural life. His statements apply to
Tuscany generally, and more par-
ticularly to the Val di Nievole, in
which his own property lay, and which
is not within the supposed privileged
circle immediately round Florence. It
is one of the districts in which the
size of farms appears to be the smallest.
The following is his description of the
dwellings and mode of life of the me-
tayers of that district.*

" The house, built of good walls with
lime and mortar, has always at least
one story, sometimes two, above the
ground floor. On the ground floor are
generally the kitchen, a cowhouse for
twohomed cattle, and the storehouse,
which takes its name, tinaia, from the
large vats (tini) in which the wine is
put to ferment, without any pressing :

• From his Sixth Essay, formerly re-
ferred to.

it is there also that the metayer locks
up his casks, his oil, and his grain.
Almost always there is also a shed
supported against the house, where he
can work under cover to mend his
tools, or chop forage for his cattle. On
the first and second stories are two,
three, and often four bedrooms. The
largest and most airy of these is
generally destined by the metayer, in
the months of May and June, tu the
bringing up of silkworms. Great
chests to contain clothes and linen,
and some wooden chairs, are the chief
furniture of the chambers ; but a
newly-married wife always brings with
her a wardrobe of walnut wood. The
beds are uncurtained and unroofed, but
on each of them, besides a good pail-
lasse filled with the elastic straw of
the maize plant, there are one or two
mattresses of wool, or, among the
poorest, of tow, a good blanket, sheets
of strong hempen cloth, and on the
best bed of the family a coverlet of silk
padding, which is spread on festival
days. The only fireplace is in the
kitchen ; and there also is the great
wooden table where the family dines,
and the benches ; the great chest
which serves at once for keeping the
bread and other provisions, and for
kneading ; a tolerably complete though
cheap assortment of pans, dishes, and
earthenware plates : one or two metal
lamps, a steelyard, and at least two
copper pitchers for drawing and hold-
ing water. The linen and the work-
ing clothes of the family have all bsen
spun by the women of the house. The
clothes, both of men and of women,
are of the stuff called mezza lana when
thick, mola when thin, and made of a
coarse thread of hemp or tow, filled up
with cotton or wool ; it is dried by the
same women by whom it was spun. It
would hardly be believed what a quan-
tity of cloth and of mezza lana the
peasant women are able to accumu-
late by assiduous industry ; how many
sheets there are in the store ; what a
number of shirts, jackets, trowsers,
petticoats, and gowns are possessed by
every member of the family. By way
of example I add in a note the inven-
tory of the peasant family best known

190

to me : it is neither one of the richest
nor of the poorest, and lives happily by
its industry on half the produce of less
than ten arpents of land.* The young
women had a marriage portion of fifty
crowns, twenty paid down, and the rest
by instalments of two every year. The
Tuscan crown is worth six francs
[4s. lOdl. The commonest marriage
portion of a peasant girl in the other
parts of Tuscany, where the metairies
are larger, is 100 crowns, 600 francs."
Is this poverty, or consistent with
poverty? When a common, M. de
Sismondi even says the common, mar-
riage portion of a metayer's daughter
is 24Z. English money, equivalent to
at least bOl. in Italy and in that rank
of life ; when one whose dowry is only
half that amount, has the wardrobe
described, which is represented by
Sismondi as a fair average ; the class
must be fully comparable, in general
condition, to a large proportion even of
capitalist fanners in other countries ;
and incomparably above the day-
labourers of any country, except a new
colony, or the United States. Very
little can be inferred, against such evi-
dence, from a traveller's impression of
the poor quality of their food. Its in-
expensive character may be rather the
effect of economy than of necessity.
Costly feeding is not the favourite
luxury of a southern people ; their
diet in all classes is principally vege-
table, and no peasantry on the
Continent has the superstition of the
English labourer respecting white

* Inventory of the troutseau of Jane,
daughter of Valente Papini, on hermarriage
with Giovacchino Landi, the 29th of April
1835, at Porta Vecchla, near Pescia :

"28 shifts, 7 best dresses (of particular
fabrics of silk), 7 dresses of printed cotton,
2 winter working dresses (mezza tena), 3
summer working dresses and petticoats
(mola), 3 white petticoats, 5 aprons of printed
linen, 1 of black silk, 1 of black merinos, 9
coloured working aprons (mola), 4 white, 8
coloured, and 3 silk, handkerchiefs, 2 em-
broidered veils and one of tulle, 3 towels, 14
pairs of stockings, 2 hats (one of felt, the
other of fine straw) ; 2 cameos set in gold, 2
%lden earrings, 1 chaplet with two Roman
liver crowns, 1 coral necklace with its cross
jf gold. . . . All the richer married women
ftf the class have, besides, the i-este di seta,
the great holiday dress, which they only wear
Hour or five times in their lives."

BOOK II. CHAPTER V1I1. § 8.

bread. But the nourishment of the
Tuscan peasants, according to Sis-
mondi, " is wholesome and various :
its basis is an excellent wheaten
bread, brown, but pure from bran and
from all mixture." In the bad
season, they take but two meals a
day: at ten in the morning they
eat their pollentn, at the beginning
of the night their soup, and after
it bread with a relish of some sort
(companatico). In summer they have
three meals, at eight, at one, and in
the evening ; but the fire is lighted
only once a day, for dinner, which
consists of sonp, and a dish of salt meat
or dried fish, or haricots, or greens,
which are eaten with bread. Salt
meat enters in a very email quantity
into this diet, for it is reckoned that
forty poninds of salt pork per head
suffice amply for a year's provision ;
twice a week a small piece of it is put
into the soup. On Sundays they have
always on the table a dish of fresh
meat, but a piece which weighs only a
pound or a pound and a half suffices
for the whole family, however numerous
it may be. It must not be forgotten
that the Tuscan peasants generally
produce olive oil for their own con-
sumption : they use it not only for
lamps, but as seasoning to all the
vegetables prepared for the table,
which it renders both more savoury
and more nutritive. At breakfast
their food is bread, and sometimes
cheese and fruit ; at supper, bread and
salad. Their drink is composed of the
inferior wine of the country, the vinella
or piquette made by fermenting in
water the pressed skins of the grapes.
They always, however, reserve a little
of their best wine for the day when
they thresh their corn, and for some
festivals which are kept in families.
About fifty bottles of vinella per annum,
and five sacks of wheat (about 1000
pounds of bread) are considered as the
supply necessary for a full grown man.''
The remarks of Sismondi on the
moral influences of this state of so-
ciety are not less worthy of attention.
The rights and obligations of the
metayer being fixed by usage, and all
taxes and rates being paid by the pro-

METAYERS.

191

prietor, "the metayer has the ml van-
tages of landed property without the
burthen of defending it. It is the
landlord to whom, with the land, lie-
long all its disputes : the tenant lives
in peace with all his neighbours ; be-
tween him and them there is no motive
tor rival! ty or distrust, he preserves a
good understanding with them, as well
as with his landlord, with the tax-
collector, and with the church : he
sells little, and buys little ; he touches
little money, but he seldom has any to
pay. The gentle and kindly character
of the Tuscans is often spoken of, but
without sufficiently remarking the
cause which has contributed most to
keep up that gentleness ; the tenure,
by which the entire class of farmers,
more than three-fourths of the popula-
tion, are kept free from almost every
occasion for quarrel.'' The fixity of
tenure which the metayer, so long as
he fulfils his own obligations, possesses
by usage, though not by law, gives
him the local attachments, and almost
the strong sense of personal interest,
characteristic of a proprietor. "The
metayer lives on his metairie as on his
inheritance, loving it with affection,
labouring incessantly to improve it,
confiding in the future, and making
sure that his land will be tilled after
him by his children and his children's
children. In fact, the majority of
metayers live from generation to gene-
ration on the same farm ; they know
it in its details with a minuteness
which the feeling of property can
alone give. The plots terrassed up, one
above the other, are often not above
four feet wide ; but there is not one of
them, the qualities of which the me-
tayer has not studied. This one is
dry, that other is cold and damp :
here the soil is deep, there it is a mere
crust which hardly covers the rock;
wheat thrives best on one, rye on ano-
ther: here it would bo labour wasted
to sow Indian corn, elsewhere the soil
is unfit for beans and lupins, further
off flax will grow admirably, the edge
of this brook will be suited for hemp.
In this way one learns with surprise
from the metayer, that in a space of
ten arpents, the soil, the aspect, and

the inclination of the ground
greater variety than a rich farmer is
generally able to distinguish in a farm
of five hundred acres. For the latter
knows that he is only a temporary
occupant ; and moreover, that he must
conduct his operations by general rules,
and neglect details. But the expe-
rienced metayer has had his intelli-
gence so awakened by interest and
affection, as to be the best of observers ;
and with the whole future before him,
he thinks not of himself alone, but of
his children and grandchildren. There-
fore, when he plants an olive, a tree
which lasts for centuries, and exca-
vates at the bottom of the hollow in
which he plants it, a channel to let out
the water by which it would be in-
jured, he studies all the strata of the
earth which he has to dig out."*

§ 4. I do not offer these quota-
tions as evidence of the intrinsic
excellence of the metayer system ; but
they surely suffice to prove that
neither "land miserably cultivated"
nor a people in " the most abject po-
verty," have any necessary connexion
with it, and that the unmeasured vitu-
peration lavished upon the system by
English writers, is grounded on an

* Of the intelligence of this interesting
people, M. de Sismondi speaks in the most
favourable terms. Few of them can read ;
but there is often one member of the family
destined for the priesthood, who reads to
them on winter evenings. Their language
differs little from the purest Italian. The
taste for improvisation in verse is general.
" The peasants of the Vale of Nievole fre-
quent the theatre in summer on festival days,
from ninetn eleven at night: their admission
costs them little more than five French sous
[2|<i]. Their favourite author is Alfieri;
the whole history of the Atridse is familiar
to these people who cannot read, and who
seek from that austere poet a relaxatioR
from their rude labours." Unlike most
rustics, they find pleasure in the beauty of
their country. "In the hills of the vale of
Nievole there is in front of every house a
threshing-ground, seldom of more than 25 or
30 square fathoms ; it is often the only level
space in the whole farm : it is at the same
time a terrace which commands the plains
and the valley, and looksout upon a delight-
ful country, scarcely ever have I stood still
to admire it, without the metayer's coming
out to enjoy my admiration, and point out
with his finger the beauties which bethought
might have escaped my notice."

id*

BOOK II. CHAPTEK Vlil. g 4.

extremely narrow view of the subject.
I look upon the rural economy of Italy
as simply so much additional evidence
iu favour of small occupations with
permanent tenure. It is an example
of what can be accomplished by those
two elements, even under the disad-
vantage of the peculiar nature of the
metayer contract, in which the motives
to exertion on the part of the tenant
are only half as strong as if he farmed
the land on the same footing of per-
petuity at a money-rent, either fixed,
or varying according to some rule
which would leave to the tenant the
whole benefit of his own exertions.
The metayer tenure is not one which
we should be anxious to introduce
where the exigencies of society had
not naturally given birth to it ; but
neither ought we to be eager to abolish
it on a mere a priori view of its dis-
advantages. If the system in Tus-
cany works as well in practice as it is
represented to do, with every appear-
ance of minute knowledge, by so com-
petent an authority as Sismondi ; if
the mode of living of the people, and
the size of farms, have for ages main-
tained and still maintain themselves*
such as they are said to be by him, it
were to be regretted that a state of
rural well-being so much beyond what
is realised in most European countries,
should be put to hazard by an attempt
to introduce, under the guise of agri-
cultural improvement, a system of
money-rents and capitalist farmers.
Even where the metayers are poor,
and the subdivision great, it is not to
be assumed as of course, that the
change would be for the better. The
enlargement of farms, and the intro-
duction of what are called agricultural
improvements, usually diminish the

* " We never," says Sismondi, " find a
family of metayers proposing to their land-
lord to divide the metairie, unless the work
is really more than they can do, and they
feel assured of retaining the same enjoyments
on a smaller piece of ground. We never
find several sons all marrying, and forming
as many new families: only one marries
and undertakes the charge of the household:
none of the others marry unless the first is
childless, or unless some one of them has the
offer of a new metairie." New Principle!
(if Political Economy, book iii. ch.S.

number of labourers employed on the
land ; and unless the growth of capital
in trade and manufactures affords an
opening for the displaced population,
or unless there are reclaimable wastes
on which they can be located, compe-
tition will so reduce wages, that thej
will probably be worse off as day.
labourers than they were as metayers.
Mr. Jones very properly objects
against the French Economists of the
last century, that in pursuing their
favourite object of introducing money-
rents, they turned their minds solely
to putting farmers in the place of
metayers, instead of transforming the
existing metayers into farmers ; which,
as he justly remai'ks, can scarcely be
effected, unless, to enable the metayers
to save and become owners of stock,
the proprietors submit for a conside-
rable time to a diminution of income,
instead of expecting an increase of it,
which has generally been their imme-
diate motive for making the attempt.
If this transformation were effected,
and no other change made in the me-
tayer's condition ; if, preserving all the
other rights which usage ensures to
him, he merely got rid of the land-
lord's claim to half the produce, paying
in lieu of it a moderate fixed rent ; he
would be so far in a better position
than at present, as the whole, instead
of only half the fruits of any improve-
ment he made, would now belong to
himself; but even so, the benefit would
not be without alloy ; for a metayer,
though not himself a capitalist, has a
capitalist for his partner, and has the
use, in Italy at least, of a considerable
capital, as is proved by the excellence
of the farm buildings : and it is not
probable that the landowners would
any longer consent to peril their move-
able property on the hazards of agri-
cultural enterprise, when assured of a
fixed money income without it. Thus
would the question stand, even if the
change left undisturbed the metayer's
virtual fixity of tenure, and converted
him, in fact, into a peasant proprietor
at a quit rent. But if we suppose him
converted into a mere tenant, displace-
able at the landlord's will, and liable
to have his reiit raised by competition

COTTlEES.

103

to any amount which any unfortunate
bcintr in search of subsistence can be
found to offer or promise for it; he
•would lose all the features in his con-
dition which preserve it from being

deteriorated : he would be cast down
from his present position of a kind of
half proprietor of the land, and would
sink into a cottier tenant.

CHAPTER IX.

OF COTTIERS.

§ 1. BY the general appellation of
cottier tenure, 1 shall designate all
cases without exception, in which the
labourer makes his contract for land
without the intervention of a capitalist
farmer, and in which the conditions of
the contract, especially the amctmt of
rent, are determined not by custom but
by competition. The principal European
example of this tenure is Ireland, and
it is from that country that the term
cottier is derived.* By far the greater
part of the agricultural population
of Ireland might until very lately
have been said to be cottier-tenants ;
except so far as the Ulster tfjiant-
right constituted an exception. There
was, indeed, a numerous class of
labourers who (we may presume
through the refusal either of proprie-
tors or of tenants in possession to per-
mit any further subdivision) had been
unable to obtain even the smallest
patch of land as permanent tenants.
J5ut, from the deficiency of capital,
the custom of paying wages in land
was so universal, that even those who
worked as casual labourers for the
cottiers or for such larger farmers as
were found in the country, were
usually paid not in money, but by
permission to cultivate for the season
a piece of ground, which was gene.-ally
delivered to them by the farmer ready
manured, and was known by the name

* In its original acceptation, the word
"cottier" designated a class of sub- tenants,
who rent a cottage and an acre or two of land
from the small farmers. But the usage of
writers has long since stretched the term to
kiclude those small farmers themselves, and
generally all peasant farmers whose rents are
determined hy competition.
P.*.

of conacre. For this they agreed to
pay a money rent, often of several
pounds an acre, but no money actually
passed, the debt being worked out in
labour, at a money valuation.

The produce, on the cottier system,
being divided into two portions, rent,
and the remuneration of the labourer ;
the one is evidently determined by the
other. The labourer has whatever
the landlord does not take : the con-
dition of the labourer depends on the
amount of rent. But rent, being regu-
lated by competition, depends upon the
relation between the demand for land,
and the supply of it. The demand for
land depends on the number of com-
petitors, and the competitors are the
whole rural population. The effect,
therefore, of this tenure, is to bring the
principle of population to act directly
on the land, and not, as in England,
on capital. Rent, in this state of
things, depends on the proportion be-
tween population and land. As the
land is a fixed quantity, while popula-
tion has an unlimited power of in-
crease ; unless something checks that
increase, the competition for land
soon forces up rent to the highest
point consistent with keeping the
population alive. The effects, there-
fore, of cottier tenure depend on the
extent to which the capacity of popu-
lation to increase is controlled, either
by custom, by individual prudence, or
by starvation and disease.

It would be an exaggeration to
affirm, that cottier tenancy is gabso-
lutely incompatible with a prosperous
condition of the labouring class. If
we could suppose it to exist among a

194

BOOK H. CHAPTER IX. § 1.

people tc whom a high standard of
comfort was habitual ; whose require-
ments were such, that they would not
offer a higher rent for land than would
leave them an ample subsistence, and
whose moderate increase of numbers
left no unemployed population to force
up rents by competition, save when
the increasing produce of the land
from increase of skill would enable a
higher rent to be paid without incon-
venience ; the cultivating class might
be as well remunerated, might have as
large a share of the necessaries and
Comforts of life, on this system of tenure
as on any other. They would not,
however, while their rents were arbi-
trary, enjoy any of the peculiar ad-
vantages which metayers on the Tuscan
system derive from their connexion
with the land. They would neither
have the use of a capital belonging to
their landlords, nor would the want of
this be made up by the intense motives
to bodily and mental exertion which
act upon the peasant who has a per-
manent tenure. On the contrary, any
increased value given to the land by
the exertions of the tenant, would have
no effect but to raise the rent against
himself, either the next year, or at
farthest when his lease expired. The
landlords might have justice or good
sense enough not to avail themselves
of the advantage which competition
would give them ; and different land-
lords would do so in different degrees.
But it is never safe to expect that a
class or body of men will act in opposi-
tion to their immediate pecuniary in-
terest; and even a doubt on the
subject would be almost as fatal as a
certainty, for when a person is con-
sidering whether or not to undergo a
present exertion or sacrifice for a com-
paratively remote future, the scale is
turned by a very small probability
that the fruits of the exertion or
of the sacrifice would be taken from
him. The only safeguard against
these uncertainties would be the
grc jrth of a custom, insuring a perma-
nence of tenure in the same occupant,
without liability to any other increase
of rent than might happen to be sanc-
tioned by the general sentiments of the

community. The Ulster tenant-right
is such a custom. The very consider-
able sums which outgoing tenants ob-
tain from their successors, for the good-
will of their farms,* in the first placo
actually limit the competition for land
to persons who have such sums to
ofier : while the same fact also proves
that full advantage is not taken by the
landlord of even that more limited
competition, since the landlord's rent
does not amount to the whole of what
the incoming tenant not only offers but
actually pays. He does so in the full
confidence that the rent will not be
raised ; and for this he has the guaran-
tee of a custom, not recognised by law,
but deriving its binding force from
another sanction, perfectly well under-
stood in Ireland/}- Without one or
other of these supports, a custom limit-
ing the rent of land is not likely to grow
up in any progressive community. If
wealth and population were stationary,
rent also would generally be station-
ary, and after remaining a long time
unaltered, would probably come to bo
considered unalterable. But all pro-
gress in wealth and population tends toa
rise of rents. Under a metayer system
there is an established mode in which
the owner of land is sure of partici-
pating in the increased produce drawn
from it. But on the cottier system he
can only do so by a readjustment of the

* " It is not uncommon for a tenant with-
out a lease to sell the bare privilege of occu-
pancy or possession of his farm, without any
visible sign of improvement having been made
by him, at from ten to sixteen, up to twenty
and even forty years purchase of the rent." —
(Digett of Evidence taken by lord Devon'$
Commitiion, Introductory Chapter.) The
compiler adds, " the comparative tranquillity
of that district" (Ulster) " may perhaps be
mainly attributable to this fai t."

f " It is in the great majority of cases not
a reimbursement for outlay incurred, or im-
provements effected on the land, but a mere
life insurance or purchase of immunity from
outrage." — (Digest, ut tupra.) " The present
tenant-right of Ulster" (the writer judiciously
remarks) "is an embryo copyhold." " Kveii
there, if the tenant-right be disregarded, and
a tenant be ejected w ithout having received
the price of his good-will, outrages are gene-
rally the consequence."— (Ch. viii.) " The
disorganized state of Tipperary, and the
agrarian combination throughout Ireland,
are but a methodized war to obtain th»
Ulster tenant-right."

COTTIERS.

19f.

contract, while that readjustment, in a
progressive community, would almost
always be to his advantage. His
interest, therefore, is decfdedly opposed
to the growth of any custom commuting
rent into a fixed demand.

§ 2. Where the amount of rent is
not limited, either by law or custom, a
cottier system has the disadvantages
of the worst metayer system, with
scarcely any of the advantages by
which, in the best forms of that
tenure, they are compensated. It is
scarcely possible that cottier agricul-
ture should be other than miserable.
There is not the same necessity that
the condition of the cultivators should
be so. Since by a sufficient restraint
on population competition for land
could be kept down, and extreme
poverty prevented ; habits of prudence
and a high standard of comfort, once
established, would have a fair chance of
maintaining themselves : though even
in these favourable circumstances the
motives to prudence would be consider-
ably weaker than in the case of metay-
ers, protected by custom (like those of
Tuscany) from being deprived of their
farms : since a metayer family, thus
protected, could not be impoverished by
any other improvident multiplication
than their own, but a cottier family,
however prudent and self-restraining,
may have the rent raised against it by
the consequences of the multiplication
of other families. Any protection to
the cottiers against this evil could only
be derived from a salutary sentiment of
duty or dignity, pervading the class.
Fr< 'in this source, however, they might
derive considerable protection. If the
habitual standard of requirement
among the class were high, a young
man might not choose to offer a rent
•which would leave him in a worse
condition than the preceding tenant ;
or it might be the general custom, as
it actually is in some countries, not to
marry until a farm is vacant.

But it is not where a high standard
of comfort has rooted itself in the habits
of the labouring classes, that we are
ever called upon to consider the effects
of a cottier system. That system is

found only where the habitual require-
ments of the rural labourers are the
lowest possible ; where, as long as
they are not actually starving, they
will multiply : and population is only
checked by the diseases, and the short-
ness of life, consequent on insufficiency
of merely physical necessaries. This
was the state of the largest portion of
the Irish peasantry. When a people
have sunk into this state, and still
more when they have been in it from
time immemorial, the cottier system is
an almost insuperable obstacle to their
emerging from it. When the habits of
the people are such that their increase
is never checked but by the impossi-
bility of obtaining a bare support, and
when this support can only be obtained
from land, all stipulations and agree-
ments respecting amount of rent are
merely nominal ; the competition for
land makes the tenants undertake to pay
more than it is possible they should pay,
and when they have paid all they can,
more almost always remains due.

" As it may fairly be said of the
Irish peasantry," said Mr. Revans, the
Secretary to the Irish Poor Law En-
quiry Commission,* "that every family
which has not sufficient land to yield
its food has one or more of its members
supported by begging, it will easily be
conceived that every endeavour is made
by the peasantry to obtain small hold-
ings, and that they are not influenced
in their biddings by the fertility of the
land, or by their ability to pay the
rent, but solely by the offer which in
most likely to gain them possession.
The rents which they promise, they
are almost invariably incapable of pay-
ing; and consequently they become
indebted to those under whom they
hold, almost as soon as they take
possession. They give up, in the shape
of rent, the whole produce of the land
with the exception of a sufficiency of
potatoes for a subsistence ; but as this
is rarely equal to the promised rent,

• Evils qffJie State of Ireland, their Cantet
and their Remedy. Page 10. A pamphlet,
containing, among other things, an excellent
digest and selection of evidence from the mass
collected by the Commission presided over by
Archbishop 'VVhately.

0 2

196

BOOK II. CHAPTER IX. § 3.

they constantly Lave against them an
increasing balance. In some cases,
llie largest quantity of produce which
their holdings ever yielded, or which,
under their system of tillage, they
miild in the most favourable seasons
be made to yield, would not be equal
to the rent bid ; consequently, if the
peasant fulfilled his engagement with
his landlord, which he is rarely able to
accomplish, he would till the ground
for nothing, and give his landlord a
premium tor being allowed to till it.
On the sea-coast, fishermen, and in
tlie northern counties those who have
looms, frequently pay more in rent
than the market value of the whole
produce of the land they hold. It
might be supposed that they would be
better without land under such circum-
stances. But fishing might fail during
a week or two, and so might the de-
mand for the produce of the loom,
M-hen, did they not possess the land
upon which their food is grown, they
might starve. The full amount of the
rent bid, however, is rarely paid. The
peasant remains constantly in debt to
his landlord ; his miserable posses-
sions—the wretched clothing of him-
self and of his family, the two or three
stools, and the few pieces of crockery,
which his wretched hovel contains,
would not, if sold, liquidate the stand-
ing and generally accumulating debt.
The peasantiy are mostly a year in
arrear, and their excuse for not paying
more is destitution. Should the pro-
duce of the holding, in any year, be
more than usually abundant, or should
the peasant by any accident become
possessed of any property, his comforts
cannot be increased ; he cannot indulge
in better food, nor in a greater quantity
of it. His furniture cannot be increased,
neithercanhiswife or children be better
clothed. The acquisition must go to
the person under whom he holds. The
accidental addition will enable him to
reduce his arrear of rent, and thus to
defer ejectment. But this must be the
bound of his expectation."

As an extreme instance of the in-
tensity of competition for land, and of
tho monstrous height to which it occa-
sionally forced up the nominal rent;

we may cite from the evidence taken
by Lord Devon's Commission,* a fact
attested by Mr. Ilurly, Clerk of the
Crown for Kerry : " 1 have known a
tenant bid for a farm that I was per-
fectly well acquainted with, worth 501.
a-year : I saw the competition get up
to such an extent, that he was declared
the tenant at 450Z."

§ 3. In such a condition, what can
a tenant gain by any amount of in-
dustry or prudence, and what lose by
any recklessness ? If the landlord at
any time exerted his full legal rights,
the cottier would not be able even to
live. If by extra exertion he doubled
the produce of his bit of land, or if lie
prudently abstained from producing
mouths to eat it up, his only gain would
be to have more left to pay to his land-
lord ; while, if he had twenty children,
they would still be fed first, and the
landlord could only take what was left.
Almost alone amongst mankind the
cottier is in this condition, that he can
scarcely be either better or worse off
by any act of his own. If he were
industrious or prudent, nobody but his
landlord would gain ; if he is lazy or
intemperate, it is at his landlord's ex-
pense. A situation more devoid of
motives to either labour or self-com-
mand, imagination itself cannot con-
ceive. The inducements of free human
beings are taken away, and those of a
slave not substituted. He has nothing
to_ hope, and nothing to fear, except
being dispossessed of his holding, and
against this he protects himself by the
idtima ratio of a defensive civil war.
Rockism and Whiteboyism were the
determination of a people who had
nothing that could be called theirs but
a daily meal of the lowest description
of food, not to submit to being deprived
of that for other people's convenience.

Is it not, then, a bitter satire on the
mode in which opinions are formed on
the most important problems of human
nature and life, to find public instruc-
tors of the greatest pretension, imput-
ing the backwardness of Irish industry,
and the want of energy of the Irish
people in improving their condition, to
* Evidence, p. 851.

COTTIERS.

197

a peculiar indolence and recklessness
in the Celtic race? Of all vulgar
yiodes of escaping from the considera-
tion of the effect of social and moral
influences on the human mind, the
most vulgar is that of attributing the
(liviTsities of conduct and character to
inherent natural differences. What
race would not be indolent and in-
Mim-iant when things are so arranged,
that they derive no advantage from
forethought or exertion? If such are
the arrangements in the midst of which
tlit.-y live and work, what wonder if
the listlessness and indifference so en-
gendered are not shaken off the first
moment an opportunity offers when ex-
ertion would really be of use ? It is
very natural that a pleasure-loving and
sensitively organized people like the
Irish, should be less addicted to steady
routine labour than the English, because
life has more excitements for them inde-
pendent of it ; but they are not less
lit t< J for it than theirCeltic brethren the
French, nor less so than the Tuscans,
or the ancient Greeks. An excitable
organization is precisely that in which,
by adequate inducements, it is easiest
to kindle a spirit of animated exertion.
It speaks nothing against the capaci-
ties of industry in human beings, that
they will not exert themselves without
motive. No labourers work harder, in
England or America, than the Irish ;
but not under a cottier system.

§ 4. The multitudes who till the
soil of India, are in a condition suffi-
ciently analogous to the cottier system,
and at the same time sufficiently dif-
ferent from it, to render the compari-
son of the two a source of some in-
struction. In most parts of India
there are, and perhaps have always
been, only two contracting parties, the
landlord and the peasant : tne landlord
being generally the sovereign, except
where Be has, by a special instrument,
conceded his rights to an individual,
who becomes his representative. The
payments, however, of the peasants, or
ryots, as they are termed, nave seldom
if ever been regulated, as in Ireland,
by competition. Though the customs
locally obtaining were infinitely va-

rious, and though practically no cus-
tom could be maintained against the
sovereign's will, there was always a
rule of some sort common to a neigh-
bourhood : the collector did not make
his separate bargain with the peasanr,
but assessed each according to tho
rule adopted for the rest. The idea
was thus kept up of a right of property
in the tenant, or at all events, of a
right to permanent possession ; and the
anomaly arose of a fixity of tenure in
the peasant-farmer, co-existing with an
arbitrary power of increasing the rent.

When the Mogul government sub-
stituted itself throughout the greater
part of India for the Hindoo rulers, it
proceeded on a different principle. A
minute survey was made of the land,
and upon that survey an assessment
was founded, fixing the specific pay-
ment due to the government from each
field. If this assessment had never
been exceeded, the ryots would have
been in the comparatively advantage-
ous position of peasant-proprietors, sub-
ject to a heavy, but a fixed quit-rent.
The absence, however, of any real pro-
tection against illegal extortions, ren-
dered this improvement in their condi-
tion rather nominal than real ; and,
except during the occasional accident
of a humane and vigorous local admin-
istrator, the exactions had no practical
limit but the inability of the ryot to
pay more.

It was to this state of things that
the English rulers of India succeeded ;
and they were, at an early period,
struck with the importance of putting
an end to this arbitrary character of
the land-revenue, and imposing a fixed
limit to the government demand. They
did not attempt to go back to the
Mogul valuation. It has been in gene-
ral the very rational practice of the
English Government in India, to pay
little regard to what was laid down as
the theory of the native institutions,
but to inquire into the rights which
existed and were respected in practice,
and to protect and enlarge those. For
a long time, however, it blundered
grievously about matters of fact, and
grossly misunderstood the usages and
rights which it found existing. Its

198

BOOK II. CHAPTER IX. § 4.

mistakes arose from the inability of
ordinary minds to imagine a state of so-
cial relations fundamentally different
from those with which they are practi-
tally familiar. England being accus-
tomed to great estates and great land-
lords, the English rulers took it for
granted that India must possess the
like ; and looking round for some set
of people who might Le taken for the
objects of their search, they pitched
upon a sort of tax-gatherers called
zemindars. " The zemindar, "says the
philosophical historian of India,* " had
some of the attributes which belong to
a landowner ; he collected the rents of
a particular district, he governed the
cultivators of that district, lived in
comparative splendour, and his son
succeeded him when he died. The
zemindars, therefore, it was inferred
without delay, were the proprietors of
the soil, the landed nobility and gentry
of India. It was not considered that
the zemindars, though they collected
the rents, did not keep them ; but paid
them all away, with a small deduction,
to the government. It was not con-
bidered that if they governed the ryots,
and in many respects exercised over
them despotic power, they did not
govern them as tenants of theirs, hold-
ing their lands either at will or by con-
tract under them. The possession of
the ryot was an hereditary possession ;
from which it was unlawful for the
zemindar to displace him : for every
farthing which the zemindar drew from
the ryot, he was bound to account;
and it was only by fraud, if, out of all
that he collected, he retained an ana
more than the small proportion which,
as pay for the collection, he was per-
mitted to receive."

' • There was an opportunity in India,"
continues the historian,. " to which the
history of the world presents not a
parallel. Next after the sovereign,
the immediate cultivators had, by far,
the greatest portion of interest in the
soil. For the rights '.(such as they
were) of the zemindars, a complete
compensation might have easily Leen
made. The generous resolution was

* Mill's HMory of British India, book vi.
•1>. 8,

adopted, of sacrificing to the ii
ment of the country, tlje proprietary
rights of the sovereign. The motives
to improvement which property gives,
and ot which the power was so justly
appreciated, might have been bestowed
upon those upon whom they would have
operated with a force incomparably
greater than that with which they
could operate upon any other class of
men : they might have been bestowed
upon those from whom alone, in every
country, the principal improvements
in agriculture must be derived, the
Immediate cultivators of the soil. And
a measure worthy to be ranked among
the noblest that ever were taken for
the, improvement of any country, miirht
have helped to compensate thi-
ef India for the miseries of that mis-
government which they had so lung
endured. But the legislators were
English .aristocrats ; and aristocratical
prejudices prevailed."

The measure proved a total failure,
as to the main effects which its well-
meaning promoters expected from it.
Unaccustomed to estimate the mode in
which the operation of any given insti-
tution is modified even by such variety
of circumstances as exists within a
single kingdom, they flattered them-
selves that they had created, through-
out the Bengal provinces, English
landlords, and it proved that they had
only created Irish ones. The new
landed aristocracy disappointed every
expectation built upon them. They
did nothing for the improvement of
their estates, but everything for their
own ruin. The same pains not being
taken, as had been taken in Ireland, to
enable the landlords to defy the conse-
quences of their improvidence, nearly
the whole land of Bengal had to be
sequestrated and sold, for debts or
arrears of revenue, and in one genera-
tion most of the ancient zemindars had
ceased to exist. Other families, mostly
the descendants of Calcutta money
dealers, or of native officials who had
enriched themselves under the British
government, now occupy their place ;
and live as useless drones on the soil
which has been given up to them4.
Whatever the government has sacri-

MEANS OF ABOLISHING COTTIER TENANCY.

ficed of its pecuniary claims, for the
creation of such a class, has at the best
been wasted.

In the parts of India into which the
British rule has been more recently
introduced, the blunder has been avoided
of endowing a useless body of great
landlords with gifts from the public
revenue. In most parts of the Madras
and in part of the Bombay Presidency,
the rent is paid directly to the govern-
ment by the immediate cultivator.
In the North- Western Provinces, the
government makes its engagement
with the village community collec-
tively, determining the share to be paid
by each individual, but holding them
jointly responsible for each other's de-
fault. But in the greater part of India,
the immediate cultivators have not ob-
tained a perpetuity of tenure at a fixed
rent. The government manages the
land on the principle on which a good
Irish landlord manages his estate :
not putting it up to competition, not
asking the cultivators what they
will promise to pay, but determining
for itself what they can afford to pay,
and defining its demand accordingly.
In many districts a portion of the

cultivators are considered as tenants of
the rest, the government making its
demand from those only (often a
numerous body) who are looked upon
as the successors of the original settlers
or conquerors of the village. Some-
times the rent is fixed only for one
year, sometimes for three or five ; but
the uniform tendency of present policy
is towards long leases, extending, in
the northern provinces of India, to a
term of thirty years. This arrange-
ment has not existed for a sufficient
time to have shown by experience,
how far the motives to improvement
which the long lease creates in the
minds of the cultivators, fall short of
the influence of a perpetual settle-
ment.* But the two plans, of annual
settlements and of short leases, ara
irrevocably condemned. They can only
be said to have succeeded, in compari-
son with the unlimited oppression which
existed before. They are approved by
nobody, and were never looked upon in
any other light than as temporary ar-
rangements, to be abandoned when a
more complete knowledge of the capa-
bilities of the country should afford
| data for something more permanent.

CHAPTER X.

MEANS OF ABOLISHING COTTIER TENANCY.

§ 1. WHEN the first edition of this
work was written and published, the
question, what is to be done with a
cottier population, was to the English
Government the most urgent of prac-
tical questions. The majority of a
population of eight millions, having
long grovelled in helpless inertness and
abject poverty under the cottier sys-
tem, reduced by its operation to mere
food of the cheapest description, and to
an incapacity of either doing or will-
ing anything for the improvement of
their lot, had at last, by the failure
of that lowest quality of food, been
plunged into a state in which the

alternative seemed to be either death,
or to be permanently supported by
other people, or a radical change in the
economical arrangements under which
it had hitherto been their misfortune
to live. Such an emergency had com-
pelled attention to the subject from
the legislature and from the nation, but
it could hardly be said with much re-
sult ; for, the evil having originated in
a system of land tenancy which with-
drew from the people every motive t«
* Since this was written, the resolution has
been adopted by the Indian Government of
converting the long leases of the Northern
Provinces into perpetual tenures at fixed
rents,

200

BOOK II. CHAPTER X. § 1.

industry or thrift except the fear of
starvation, the remedy provided by
Parliament was to take away even
that by conferring on them a legal
claim to eleemosynary support : while,
towards correcting the cause of the
mischief, nothing was done, beyond
vain complaints, though at the price
to the national treasury of ten millions
sterling for the delay.

" It is needless," (I observed) " to
expend any argument in proving that
the very foundation of the economical
evils of Ireland is the cottier system ;
that while peasant rents fixed by com-
petition are the practice of the country,
to expect industry, useful activity, any
restraint on population but death, or
any the smallest diminution of poverty,
is to look for figs on thistles and grapes
on thorns. If our practical statesmen
are not ripe for the recognition of this
fact ; or if while they acknowledge it
in theory, they have not a sufficient
feeling of its reality, to be capable of
founding upon it any course of con-
duct ; there is still another, and a
purely physical consideration, from
which they will find it impossible to
escape. If the one crop on which the
people have hitherto supported them-
selves continues to be precarious, either
some new and great impulse must be
given to agricultural skill and industry,
or the soil of Ireland can no longer feed
anything like its present population.
The whole produce of the western half
of the island, leaving nothing for rent,
will not now keep permanently in ex-
istence the whole of its people : and
they will necessarily remain an annual
charge on the taxation of the empire,
until they are reduced either by emi-
gration or by starvation to a number
corresponding with the low state of
their industry, or unless the means are
found of making that industry much
more productive."

Since these words were written,
events unforeseen by any one have
saved the English rulers of Ireland from
the embarrassments which would have
been the just penalty of their indiffer-
ence and want of foresight. Ireland,
under cottier agriculture, could no
longer supply food to its population :

Parliament, by way of remedy, ap-
plied a stimulus to population, but
none at all to production ; the help,
however, which had not been provided
for the people of Ireland by political
wisdom, came from an unexpected
source. Self-supporting emigration —
the Wakefield system, brought into
effect on the voluntary principle and
on a gigantic scale (the expenses of
those who followed being paid from the
earnings of those who went before)
has, for the present, reduced the popu-
lation down to the number for which
the existing agricultural system can
find employment and support. The
census of 1851, compared with that of
1841, showed in round numbers a
diminution of population of a million
and a half. The subsequent census (of
1861) shows a further diminution of
about half a million. The Irish hav-
ing thus found the way to that
flourishing continent which for genera-
tions will be capable of supporting in
undiminished comfort the increase of
the population of the whole world ; the
peasantry of Ireland having learnt to
fix their eyes on a terrestrial paradise
beyond the ocean, as a sure refuge
both from the oppression of the Saxon
and from the tyranny of nature ; there
can be little doubt that however much
the employment for agricultural labour
may hereafter be diminished by the
general introduction throughout Ire-
land of English farming, or even if like
the county of Sutherland all Ireland
should be turned into a grazing farm,
the superseded people would migrate
to America with the same rapidity, and
as free of cost to the nation, as the
million of Irish who went thither during
the three years previous to 1851.
Those who think that the land of a
country exists for the sake of a few
thousand landowners, and that as long
as rents are paid, society and govern-
ment have fulfilled their function, may
see in this consummation a happy end
to Irish difficulties.

But this is not a time, nor is the
human mind now in a condition, in
which such insolent pretensions can be
maintained. The land of Ireland, the
land of every country, belongs to the

MEANS OF ABOLISHING COTTIER TENANCY.

201

people of that country. The individuals
called landowners have no right, in
morality and justice, to anything hut
the rent, or compensation for its sale-
able value. "With regard to the land
itself, the paramount consideration is,
bv what mode of appropriation and of
cultivation it can be made most useful
to the collective body of its inhabitants.
To the owners of the rent it may be
very convenient that the bulk of the
inhabitants, despairing of justice in the
country where they and their ances-
tors have lived and suffered, should
seek on another continent that property
in land which is denied to them at
home. But the legislature of the em-
pire ought to regard -with other eyes
the forced expatriation of millions of
people. When the inhabitants of a
country quit the country en masse be-
cause its Government will not make it
a place fit for them to live in, the
Government is judged and condemned.
There is no necessity for depriving the
landlords of one farthing of the pecu-
niary value of their legal rights ; but
justice requires that the actual culti-
vators should be enabled to become in
Ireland what they will become in
America — proprietors of the soil which
they cultivate.

Good policy requires it no less. Those
who, knowing neither Ireland nor any
foreign country, take as their sole
standard of social and economical ex-
cellence English practice, propose as
the single remedy for Irish wretched-
ness, the transformation of the cottiers
into hired labourers. But this is rather
a scheme for the improvement of Irish
agriculture, than of the condition of the
Irish people. The status of a day-
labourer has no charm for infusing fore-
thought, frugality, or self-restraint, into
a people devoid of them. If the Irish
peasantry could be universally changed
into receivers of wages, the old habits
and mental characteristics of the people
remaining, we should merely see four
or five millions of people living as day-
labourers in the same wretched manner
in which as cottiers they lived before ;
equally passive in the absence of every
comfort, equally reckless in multipli-
cation, and even, perhaps, equally list-

less at their work ; since they could not
be dismissed in a body, and if they could,
dismissal would now be simply remand-
ing them to the poor-rate. Far other
would be the effect of making them
peasant proprietors. A people who in
industry and providence have every-
thing to learn— who are confessedly
among the most backward of European
populations in the industrial virtues —
require for their regeneration the most
powerful incitements by which those
virtues can be stimulated : and there is
no stimulus as yet comparable to pro-
perty in land. A permanent interest
in the soil to those who till it, is almost
a guarantee for the most unwearied
laboriousness : against over-population,
though not infallible, it is the best
preservative yet known, and where it
failed, any other plan would probably
fail much more egregiously; the evil
would be beyond the reach of merely
economic remedies.

The case of Ireland is similar in its
requirements to that of India. In India,
though great errors have from time to
time been committed, no one ever pro-
posed, under the name of agricultural
improvement, to eject the ryots or pea-
sant farmers from their possession ; the
improvement that has been looked for,
has been through making their tenure
more secure to them, and the sole dif-
ference of opinion is between those who
contend for perpetuity, and those who
think that long leases will suffice. The
same question exists as to Ireland; and
it would be idle to deny that long leases,
under such landlords as are sometimes
to be found, do effect wonders, even in
Ireland. But then, they must be leases
at a low rent. Long leases are in no
way to be relied on for getting rid of
cottierism. During the existence of
cottier tenancy, leases have always been
long ; twenty-one years and three lives
concurrent, was a usual term. But the
rent being fixed by competition, at a
higher amount than could be paid, so
that the tenant neither had, nor could
by any exertion acquire, a beneficial
interest in the land, the advantage of
a lease was merely nominal. In India,
the government, where it has not im-
prudently made over its proprietaiy

202

rights to the zemindars, is able to pre-
vent this evil, because, being itself the
landlord, it can fix the rent according
to its own judgment ; but under indi-
vidual landlords, while rents are fixed
by competition, and the competitors are
a peasantry struggling for subsistence,
nominal rents are inevitable, unless the
population is so thin, that the compe-
tition itself is only nominal. The ma-
jority of landlords will grasp at imme-
diate money and immediate power ;
and so long as they find cottiers eager
to offer them everything, it is useless to
rely on them for tempering the vicious
practice by a considerate self-denial.

A perpetuity is a stronger stimulus
to improvement than a long lease : not
only because the longest lease, before
coming to an end, passes through all
the varieties of short leases down to no
iease at all ; but for more fundamental
reasons. It is very shallow, even in
pure economics, to take no account of
the influence of imagination : there is
a virtue in "for ever" beyond the
longest term of years ; even if the term
is long enough to include children, and
all whom a person individually cares
for, yet until he has reached that high
degree of mental cultivation at which
the public good (which also includes
perpetuity) acquires a paramount as-
cendancy over his feelings and desires,
he will not exert himself with the same
ardour to increase the value of an es-
tate, his interest in which diminishes
in value every year. Besides, while

Eerpetual tenure is the general rule of
mded property, as it is in all the
countries of Europe, a tenure for a
limited period, however long, is sure to
be regarded as something of inferior
consideration and dignity, and inspires
less of ardour to obtain it, and of attach-
ment to it when obtained. But where
a country is under cottier tenure, the
question of perpetuity itiquite secondary
to the more important point, a limita-
tion of the rent. Rent paid by a capi-
talist who farms for profit, and not for
bread, may safely be abandoned to
competition ; rent paid by labourers
cannot, unless the labourers were in a
Btate of civilization and improvement
which labourers have nowhere yet

BOOK n. CHAPTER X. § 1.

reached, and cannot easily reach under
such a tenure. Peasant rents ought
never to be arbitrary, never at the dis-
cretion of the landlord : either by cus-
tom or law, it is imperatively necessary
that they should be fixed ; and where
no mutually advantageous custom, such
as the metayer system of Tuscany, has
established itself, reason and experience
recommend that they should be fixed
by authority : thus changing the rent
into a quit-rent, and the farmer into a
peasant proprietor.

For carrying this change into effect
on a sufficiently large scale to accom-
plish the complete abolition of cottier
tenancy, the mode which most obvi-
ously suggests itself is the direct one,
of doing the thing outright by Act of
Parliament ; making the whole land of
Ireland the property of the tenants,
subject to the rents now really paid
(not the nominal rents), as a fixed rent
charge. This, under the name of
"fixity of tenure," was one of the de-
mands of the Repeal Association dur-
ing the most successful period of their
agitation ; and was better expressed by
Mr. Conner, its earliest, most enthusi-
astic, and most indefatigable apostle,*
by the words, " a valuation and a per-
petuity." In such a measure there
would not have been any injustice, pro-
vided the landlords were compensated
for the present value of the chances of
increase which they were prospectively
required to forego. The rupture of ex-
isting social relations would hardly have
been more violent than that effected by
the ministers Stein and Hardenberg,
when, by a series of edicts, in the early
part of the present century, they revo-
lutionized the state of landed property
in the Prussian monarchy, and lei't their
names to posterity among the greatest
benefactors of their country. To en-
lightened foreigners writing on Ireland,
Von Raumer and Gustavo de Beau-
mont, a remedy of this sort seemed so
exactly and obviously what the disease
required, that they had some difficulty

Author of numerous pamphlets, entitled
" True Political Economy of Ireland,'
'Letter to the Earl of Devon," " T\v«
Letters on the RacUrent oppression of Iro
;and," and others. Mr. Conner has been ae
agitator on the subject since 1832.

MEANS OF ABOLISHING COTTIER

203

in comprehending how it was that the
thing was not yet done.

This, however, would have been, in
the first place, a complete expropriation
of the higher classes of Ireland: which,
if there is any truth in the principles
we have laid clown, would be perfectly
warrantable, but only if it were the sole
means of effecting a great public good.
In the second place, that there should
be none but peasant proprietors, is in
itsi'lt'far from desirable. Large farms,
cultivated by large capital, and owned
by persons of the best education which
the country can give, persons qualified
by instruction to appreciate scientific
: ics, and able to bear the delay
and risk of costly experiments, are an
important part of a good agricultural
system. Many such landlords there
are even in Ireland ; and it would be a
public misfortune to drive them from
their posts. A large proportion also of
the present holdings are probably still
too small to try the proprietary system
under the greatest advantages : nor are
the tenants always the persons one
would desire to select as the first occu-
pants of peasant-properties. There are
numbers of them on whom it would
have a more beneficial effect to give
them the hope of acquiring a landed
property by industry and frugality,
than the property itself in immediate
possession.

There are, however, much milder
measures, not open to similar objec-
tions, and which, if pushed to the
utmost extent of which they are sus-
ceptible, would realize in no incon-
siderable degree the object sought.
One of them would be, to enact that
whoever reclaims waste land becomes
the owner of it, at a fixed quit-rent
equal to a moderate interest on its
mere value as waste. It would of
course be a necessary part of this mea-
sure, to make compulsory on landlords
the surrender of waste lands (not of an
ornamental character) whenever re-
quired for reclamation. Another ex-
pedient, and one in which individuals
could co-operate, would be to buy as
much as possible of the land offered for
sale, and sell it again in small portions
as peasant -properties. A Society for

this purpose was at one time projected
(though the attempt to establish it
proved unsuccessful) on the principles,
so far as applicable, of the Freehold
Land Societies which have been so
successfully established in England,
not primarily for agricultural, but for
electoral purposes.

This is a mode in which private
capital may be employed in renovating
the social and agricultural economy of
Ireland, not only without sacrifice but
with considerable profit to its owners.
The remarkable success of the Wa^-to
Land Improvement Society, which
proceeded on a plan far less advan-
tageous to the tenant, is an instance
of what an Irish peasantry can be
stimulated to do, by a sufficient assur-
ance that what they do will be for
their own advantage. It is not even
indispensable to adopt perpetuity as
the rule ; long leases at moderate rents,
like those of the Waste Land Society,
would suffice, if a prospect were held
out to the farmers of being allowed to
purchase their farms with the capital
which they might acquire, as the
Society's tenants were so rapidly
acquiring under the influence of its
beneficent system.* When the lands

* Though this society, during the years
succeeding the famine, was forced to wind
up its affairs, the memory of what it accom-
plished ought to be preserved. The follow-
ing is an extract in the Proceedings of Lord
Devon's Commission (page 84), from the re-
port made to the society in 1845, by their
intelligent manager, Colonel Robinson : —

" Two hundred and forty -five tenants,
many of whom were a few years since in a
state bordering on pauperism, the occupiers
of small holdings of from ten to twenty
plantation acres each, have, by their own
free labour, with the society's aid, improved
their farms to the value of 439Gi. ; 605A having
been added during the last year, being at the
rate of 17/. 18». per tenant for the whole
term, and 21. &». for the past year ; the benefit
of which improvements each tenant will
enjoy during the unexpired term of a thirty-
one years' lease.

" These 245 tenants and their families have,
by spade industry, reclaimed and brought
into cultivation 1032 plantation acres of land,
previously unproductive mountain waste, upon
which they grew, last year, crops valued by
competent practical persons at 3S96/., being
in the proportion of 157. 18*. each tenant;
and their live stock, consisting of cattle,
horses, sheep, and pigs, now actually upon
the estates, is valued, according to the pre-
sent prices of the neighbouring markets, at

204

BOOK II. CHAPTER X. § •/.

were sold, the funds of the association
would be liberated, and it might re-
commence operations in some other
quarter.

§ 2. Thus far I had written in
1856. Since that time the great crisis
of Irish industry has made further
progress, and it is necessary to con-
sider how its present state affects the
opinions, on prospects or on practical
measures, expressed in the previous
part of this chapter.

The principal change in the situa-
tion consists in the great diminution,
holding out a hope of the entire ex-
tinction, of cottier tenure. The enor-
mous decrease in the number of small
holdings, and increase in those of a
medium size, attested by the statistical
returns, sufficiently proves the general
fact, and all testimonies show that the
tendency still continues.* It is proba-

4162Z., of which 1304/. has been added since
February 1841, being at the rat* of 16/. 19*.
for the whole period, and f>l. 6s. for the last
year; during which time their stock has thus
increased in value a sura equal to their present
annual rent ; and by the statistical tables and
returns referred to in previous reports, it is
proved that the tenants, in general, improve
their little farms, and increase their cultiva-
tion and crops, in nearly direct proportion to
the number of available working persons of
both sexes, of which their families consist."

There cannot be a stronger testimony to
the superior amount of gross, and even of net
produce, raised by small farming under any
tolerable system of landed tenure ; and it
is worthy of attention that the industry
and zeal were greatest among the smaller
holders ; Colonel Robinson noticing, as ex-
ceptions to the remarkable and rapid pro-
gress of improvement, some tenants who
were " occupants of larger farms than twenty
acres, a class too often deficient in the endur-
ing industry indispensable for the successful
prosecution of mountain improvements."

* There is, however, a partial counter-
eurrent, of which I have not seen any public
notice. " A class of men, not very numerous,
but sufficiently so to do much mischief, have,
through the Landed Estates Court, got into
possession of land in Ireland, who, of all
classes, are least likely to recognise the
duties of a landlord's position. These are
f mall traders in towns, who by dint of sheer
parsimony, frequently combined with
money-lending at usurious rates, have suc-
ceeded, in the course of a long life, in scrap-
ing together as much money as will enable
them to buy fifty or a hundred awes of land.
These people never think of turning far-
mers, but, proud of their position as land-
lord*, proceed to turn it to the utmost

ble that the repeal of the com laws?
necessitating a change in the exports
of Ireland from the products of tillage
to those of pasturage, would of itself
have sufficed to bring about this revo-
lution in tenure. A grazing farm can
only be managed by a capitalist farmer,

account. An instance of this kind came
under my notice lately. The tenants on the
property were, at the time of the purchase,
seme twelve years ago, in a tolerably com-
fortable state. Within that period their
rent has been raised three several times; and
it is now, as I am informed by the priest of
the district, nearly double its amount at the
commencement of the present proprietor's
reign. The result is that the people, who
were formerly in tolerable comfort, are
now reduced to poverty : two of them hav»
left the property and squatted near an adja-
cent turf bog, where they exist trusting for
support to occasional jobs. If this man is
not shot, he will injure himself through the
deterioration of his property, but meantime
he lias been getting eight or ten per cent on
his purchase-money. This is by no means a
rare case. The scandal which such occur-
rences! cause, casts its reflection on transac-
tions of a wholly different and perfectly
legitimate kind, where the removal of the
tenants is simply an act of mercy for all
parties.

" The anxiety of landlords to get rid of
cottiers is also to some extent neutralized by
the anxiety of middlemen to get them. About
one-fourth of the whole land of Ireland is
held under long leases ; the rent received
when the lease is of long standing, being
generally greatly under the real value of the
land. It rarely happens that land thus held
is cultivated by the owner of the lease ; in-
stead of this, lit sublets it at a rack rent to
Email men, and lives on the excess of the rent
which he receives over that which he pays.
Some of these leases are always running
out ; and as they draw towards their close,
the middleman has no other interest in the
land than, at any cost of permanent deterio-
ration, to get the utmost out of it during the
unexpired period of the term. For this pur-
pose the small cottier tenants precisely an-
swer his turn. Middlemen in this position
are as anxious to obtain cottiers as tenants,
as the landlords are to be rid of them ; and
the result is a transfer of this sort of tenant
from one class of estates to the other. The
movement is of limited dimensions, but it
does exist, and so far as it exists, neutralizes
the general tendency. Perhaps it may be
thought that this system will reproduce
itself; that the same motives which led to
the existence of middlemen will perpetuate
the class ; but there is no danger of this.
Landowners are now perfectly alive to the
ruinous consequences of this system, how-
ever convenient for a time ; and a chuiso
against sub-letting is now becoming a mattei
of course in every lea»e." — (Private Commu-
nication frotn Profesior Cairnet,)

MEANS OF ABOLISHING COTTIER TENANCY.

205

or by the landlord. But a change in-
volving so great a displacement of the
population, has been immensely facili-
tated and made more rapid by the vast
emigration, as well as by that greatest
boon ever conferred on Ireland by any
Government, the Encumbered Estates
Act; the best provisions of which have
since, through the Landed Estates
Court, been permanently incorporated
into the social system of the country.
The greatest part of the soil of Ireland,
there is reason to believe, is now farmed
either by- the landlords, or by small
capitalist farmers. That these far-
mers are improving in circumstances,
and accumulating capital, there is con-
siderable evidence, in particular the
great increase of deposits in the banks
of which they are the principal cus-
tomers. So far as that class is con-
cerned, the chief thing still wanted is
security of tenure, or assurance of
compensation for improvements. The
means of supplying these wants are
now engaging the attention of the
most competent minds ; Judge Long-
field's address, in the autumn of 1 864,
and the sensation created by it, are an
era in the subject, and a point has now
been reached when we may confidently
expect that within a very few years
something effectual will be done.

But what, meanwhile, is the con-
dition of the displaced cottiers, so far
as they have not emigrated ; and of the
whole class who subsist by agricultural
labour, without the occupation of any
land ? As yet, their state is one of
great poverty, with but slight prospect
of improvement. Money wages, in-
deed, have risen much above the
wretched level of a generation ago : but
the cost of subsistence has also risen
BO much above the old potato standard,
that the real improvement is not equal
to the nominal ; and according to the
best information to which I have access,
there is little appearance of an im-
proved standard of living among the
class. The population, in fact, reduced
though it be, is still iar beyond what
the country can support as a mere
grazing district of England. It may
not, perhaps, be strictly true that, if
ths present number of inhabitants are

to be maintained at home, it can only
be either on the old vicious system of
cottierism, or as small proprietors grow-
ing their own food. The lands which
will remain under tillage would, no
doubt, if sufficient security for outlay
were given, admit of a more extensive
employment of labourers by the small
capitalist farmers; and this, in the
opinion of some competent judges,
might enable the country to support the
present number of its population in
actual existence. But no one will pre-
tend that this resource is sufficient to
maintain them in any condition in
which it is fit that the great body of
the peasantry of a country should
exist. Accordingly the emigration,
which for a time had fallen off, has,
under the additional stimulus of bad
seasons, revived in all its strength. It
is calculated that within the year 1864
not less than 100,000 emigrants left
the Irish shores. As far as regards
the emigrants themselves and their
posterity, or the general interests of
the human race, it would be folly to
regret this result. The children of the
immigrant Irish receive the education
of Americans, and enter, more rapidly
and completely than would have been
possible in the country of their de-
scent, into the benefits of a higher
state of civilization. In twenty or
thirty years they are not mentally dis-
tinguishable from other Americans.
The loss, and the disgrace, are
England's : and it is the English
people and government whom it chiefly
concerns to ask themselves, how far
it will be to their honour and advan-
tage to retain the mere soil of Ire-
land, but to lose its inhabitants. With
the present feelings of the Irish people,
and the direction which their hope off
improving their condition seems to be
permanently taking, England, it is pro-
bable, has only the choice between the
depopulation of Ireland, and the con-
version of a part of the labouring
population into peasant proprietors.
The truly insular ignorance of her
public men respecting a form of agri-
cultural economy which predominates
in nearly every other civilized country,
makes it only too probable that sh«

206

BOOK II. CHAPTER X. § 2.

will choose the worse side of the alter-
native. Yet there are germs of a ten-
dency to the formation of peasant pro-
prietors on Irish soil, which require
only the aid of a friendly legislator to
foster them ; as is shown in the follow-
ing extract from a private communica-
tion by my eminent and valued friend,
Professor Cairnes : —

" On the sale, some eight or ten
years ago, of the Thomond, Portar-
lington, and Kingston estates, in the
Encumbered Estates Court, it was ob-
served that a considerable number of
occupying tenants purchased the fee
of their farms. I have not been able
to obtain any information as to what
followed that proceeding — whether the
purchasers continued to farm their
small properties, or under the mania of
landlordism tried to escape from their
former mode of life. But there are
other facts which have a bearing on
this question. In those parts of the
country where tenant-right prevails,
the prices given for the goodwill of a
farm are enormous. The following
figures, taken from the schedule of an
estate in the neighbourhood of Newry,
now passing through the Landed
Estates Court, will give an idea, but
a very inadequate one, of the prices
which this mere customary right gene-
rally fetches.

" Statement showing the prices at
which the tenant-right of certain farms
near Newry was sold : —

Lot

Acri>s Rpnt Purchase-money
Acres. itcnr. of tenant-right.

1 23

£71

£33

2 21

77

240

3 13

39

110

4 14

3J

85

S 10

33

172

G 5

. 13

75

7 8

. 2>

130

8 11

. 33

130

9 2

. 5

5

110 £334

.£980

" The prices here represent on the
whole about three years' purchase of
the rental : but this, as I have said,
gives but an inadequate idea of that
which is' frequently, indeed of that
which is ordinarily, paid. The right,
being purely customary, will vary in
value with the confidence generally re-

posed in the good faith of the land-
lord. In the present instance, circum-
stances have come to light in the course
of the proceedings connected with the
sale of the estate, which give reason to
believe that the confidence in this casa
was not high ; consequently, the rates
above given may be taken as consider-
ably under those which ordinarily pre-
vail. Cases, as I am informed on the
highest authority, have in other parts
of the country come to light, also in the
Landed Estates Court, in which the
price given for the tenant-right was
equal to that of the whole fee of the
land. It is a remarkable fact that
people should be found to give, say
twenty or twenty-five years' purchase,
for land which is still subject to a good
round rent. Why, it will be asked, do
they not purchase land out and out for
the same, or a slightly larger, sum ?
The answer to this question, I believe,
is to be found in the state of our land
laws. The cost of transferring land in
small portions is, relatively to the pur-
chase money, very considerable, even
in the Landed Estates Court ; while
the goodwill of a farm may be trans-
ferred without any cost ut all. The
cheapest conveyance that could be
drawn in that Court, where the utmost
economy, consistent with the present
mode of remunerating legal services,
is strictly enforced, would, irrespective
of stamp duties, cost 101. — a very
sensible addition to the purchase of a
small peasant estate : a conveyance to
transfer a thousand acres might not
cost more, and would probably not cost
much more. But in truth, the mere
cost of conveyance represents but the
least part of the obstacles which exist
to obtaining land in small portions. A
far more serious impediment is tho
complicated state of the ownership of
land, which renders it frequently im-
practicable to subdivide a property into
such portions as would bring the land
within the reach of small bidders. The
remedy for this state of things, how-
ever, lies in measures of a more radical
sort than I fear it is at all probablo
that any House of Common!! we are
soon likely to see would even witfi
patience consider. A registry of titles

WAGES.

207

toay succeed in reducing this complex
condition of ownership to its simplest
expression ; but where real complica-
tion exists, the difficulty is not to be
£<>t rid of by mere simplicity of form ;
and a registry of titles — while the
powers of disposition at present enjoyed
by landowners remirin undiminished,
while every settlor and testator has
on almost unbounded licence to multi-
ply interests in land, as pride, the
passion For dictation, or mere whim
may suggest — will, in my opinion, fail
to reach the root of the evil. The
effect of these circumstances is to place
an immense premium upon large deal-
ings in land — indeed in most cases
E ractically to preclude all other than
irge dealings ; and while this is the
state of the law, the experiment of
peasant proprietorship, it is plain,

cannot be fairly tried. The facts, how-
ever, which I have stated show, I
think, conclusively, that there is no
obstacle in the disposition of the people
to the introduction of this system."

I have concluded a discussion, which
has occupied a space almost dispro-
portioned to the dimensions of this
work ; and I here close the examina-
tion of those simpler forms of social
economy in which the produce of tho
land either belongs undividedly to ono
class, or is shared only between two
classes. We now proceed to the hypo-
thesis of a threefold division of the pro-
duce, among labourers, landlords, and
capitalists ; and in order to connect tho
coming discussion as closely as possible
with those which have now for some
time occupied us, I shall commence
with the subject of Wages.

CHAPTER XL

OF WAGES.

§ 1. UNDER the head of Wages are
to be considered, first, the causes which
determine or influence the wages of
labour generally, and secondly, the
differences that exist between the
wages of different employments. It
is convenient to keep these two classes
of consideration separate ; and in dis-
cussing the law of wages, to proceed
in the first instance as if there were no
other kind of labour than common un-
skilled labour, of the average degree of
hardness and disagreeableness.

Wages, like other things, may be re-
gulated either by competition or by
custom. In this country there are few
kinds of labour of which the remunera-
tion would not be lower than it is, if the
employer took the full ad vantage of com-
petition. Competition, however, must be
regarded, in the present state of society,
as the principal regulator of wages, and
custom or individual character only as
a modifying circumstance, and that in
a comparatively slight degree.

Wages, then, depend mainly upon

the demand and supply of labour ; or
as it is often expressed, on the propor-
tion between population and capital.
By population is nere meant the num-
ber only of the labouring class, or
rather of those who work for hire ; and
by capital, only circulating capital, and
not even the whole of that, but the part
which is expended in the direct pur-
chase of labour. To this, however,
must be added all funds which, with-
out forming a part of capital, are paid
in exchange for labour, such as the
wages of soldiers, domestic servants,
and all other unproductive labourers.
There is unfortunately no mode if ex-
pressing by one familiar term, the ag-
gregate of what may be called the
wages-fund of a country : and as the
wages of productive labour form nearly
the whole of that fund, it is usual to
overlook the smaller and less important
part, and to say that wages depend on
population and capital. It will be con-
venient to employ this expression, re-
mrmbering, however, to consider it as

!>03

BOOK II. CHAPTER XL § 2.

elliptical, and not as a literal statement
of the entire truth.

With these limitations of the terms,
wages not only depend upon the relative
amount of capital and population, but
cannot, under the rule of competition,
be affected by anything else. Wages
(meaning, of course, the general rate)
cannot rise, but by an increase of the
aggregate funds employed in hiring
labourers, or a diminution in the num-
ber of the competitors for hire ; nor fall,
except either by a diminution of the
funds devoted to paying labour, or by
an increase in the number of labourers
to be paid.

§ 2. There are, however, some
facts in apparent contradiction to this
doctrine, which it is incumbent on us
to consider and explain.

For instance, it is a common saying
that wages are high when trade is
good. The demand for labour in any
particular employment is more press-
ing, and higher wages are paid, when
there is a brisk demand for the com-
modity produced; and the contrary
when there is what is called a stagna-
tion: then workpeople are dismissed,
and those who are retained must sub-
mit to a reduction of wages : though in
these cases there is neither more nor
less capital than before. This is true ;
and is one of those complications in the
concrete phenomena, which obscure
and disguise, the operation of general
causes ; but it is not really inconsistent
with the principles laid down. Capi-
tal which the owner does not employ
in purchasing labour, but keeps idle
in his hands, is the same thing to the
labourers, for the time being, as if it
did not exist. All capital is, from the
variations of trade, occasionally in
this state. A manufacturer, finding
a slack demand for his commodity,
forbears to employ labourers in in-
creasing a stock which he finds it diffi-
cult to dispose of ; or if he goes on un-
til all his capital is locked up in unsold
goods, then at least he must of neces-
sity pause untii he can get paid for
eome of them. But no one expects
either of these states to be permanent ;
if he did. he would at the first oppor-

tunity remove his capital to some
other occupation, in which it woulJ
still continue to employ labour. The
capital remains unemployed for a
time, during which the labour market
is overstocked, and wages fall. After-
wards the demand revives, and per-
haps becomes unusually brisk, en-
abling the manufacturer to sell his
commodity even faster than he caa
produce it : his whole capital is then
brought into complete efficiency, and if
he is able, he borrows capital in addi-
tion, which would otherwise have gone
into some other employment. At such
times wages, in his particular occupa-
tion, rise. If we suppose, what in strict-
ness is not absolutely impossible, that
one of these fits of briskness or of stag-
nation should affect all occupations at
the same time, wages altogether might
undergo a rise or a fall. These, however,
are but temporary fluctuations : the
capital now lying idle will next year be
in active employment, that which is this
year unable to keep up with the de-
mand will in its turn be locked up in
crowded warehouses ; and wages in
these several departments will ebb and
flow accordingly : but nothing can per-
manently alter general wages, except
an increase or a diminution of capital
itself (always meaning by the term, the
funds of all sorts, destined for the pay-
ment of labour) compared with the quan-
tity of labour offering itself to be hired.
Again, it is another common notion
that high prices make high wages ;
because the producers and dealers,
being better off, can afford to pay more
to their labourers. 1 have already said
that a brisk demand, which causes
temporary high prices, causes also tem-
porary high wages. But high prices,
in themselves, can only raise wagea
if the dealers, receiving more, are
induced to save more, and make an
addition to their capital, or at least
to their purchases of labour. This
is indeed likely enough to be the
case ; and if the high prices came di-
rect from heaven, or even from abroad,
the labouring class might be benefited,
not by the high prices themselves, but
by the increase of capital occasioned
by them. The same effect, however,

WAGES.

209

Is often attributed to a high price which
is the result of restrictive laws, or
which is in some way or o tiier to be
paid by the remaining mem\»ers of the
community ; they having no greater
means than before to pay it with.
High prices of this sort, it' they beneh't
one class of labourers, can only do so
at the expense of others ; since if the
dealers by receiving high prices are
enabled to make greater savings, or
otherwise increase their purchases of
labour, all other people by paying those
high prices, have their means of saving,
or of purchasing labour, reduced in an
equal degree ; and it is a matter of
accident whether the one alteration or
the other will have the greatest effect
on the labour market. Wages will
probably be temporarily higher in the
employment in which prices have
risen, and somewhat lower in other
employments : in which case, while the
first half of the phenomenon excites
notice, the other is generally over-
looked, or if observed, is not ascribed
to the cause which really produced it.
Nor will the partial rise of wages last
long : for though the dealers in that
one employment gain more, it does not
follow that there is room to employ a
greater amount of savings in their own
business : their increasing capital will
probably flow over into other employ-
ments, and there counterbalance the
diminution previously made in the de-
mand for labour by the diminished
savings of other classes.

Another opinion often maintained is,
that wages (meaning of course money
wages) vary with the price of food;
rising when it rises, and falling when it
falls. This opinion is, I conceive, only
partially true : and in so far as true,
in no way affects the dependence of
wages on the proportion between
capital and labour : since the price of
food, when it affects wages at all, affects
them through that Taw. Dear or
cheap food caused by variety of seasons
does not affect wages (unless they are
artificially adjusted to it by law or
charity) : or rather, it has some ten-
dency to affect them in the contrary
way to that supposed ; since in times of
scarcity people generally compete more

violently for employment, and lower
the labour market against themselves.
But dearness or cheapness of food,
when of a permanent character, and
capable of being calculated on before-
hand, may afl'ect wages. In the first
place, if the labourers have, as is oftep
the case, no more than enough to keep
them in working condition, and enable
them barely to support the ordinary
number of children, it follows that if
food grows permanently dearer without
a rise of wages, a greater number of
the children will prematurely die ; and
thus wages will ultimately be higher,
but only because the number of people
will be smaller, than if food had re-
mained cheap. But, secondly, even
though wages were high enough to
admit of food's becoming more costly
without depriving the labourers and
their families of necessaries ; though
they could bear, physically speaking,
to be worse of£ perhapi they would
not consent to be so. They might
have habits of comfort which were to
them as necessaries, and sooner than
forego which, they would put an addi-
tional restraint on their power of multi-
plication ; so that wages would rise,
not by increase of deaths but by dimi-
nution of births. In these cases, then,
wages do adapt themselves to the price
of food, though after an interval of
almost a generation. Mr. Ricardo
considers these two cases to compre-
hend all cases. He assumes, that there
is everywhere a minimum rate of
wages : either the lowest with which
it is physically possible to keep up the
population, or the lowest with which
the people will choose to do so. To
this minimum he assumes that tho
general rate of wages always tends ;
that they can never be lower, beyond
the length of time required for a
diminished rate of increase to make
itself felt, and can never long continue
higher. This assumption contains
sufficient truth to render it admissible
for the purposes of abstract science;
and the conclusion which Mr. Kicardo
draws from it, namely, that wages in
the long run rise and fall with the per-
manent rise of food, is, like almost all
bis conclusions, true hypothetical!^.

210

BOOK n. CHAPTER XI. § 2.

that is, granting the suppositions from
which he sets out. But in the appli-
cation to practice, it is necessary to
consider that the minimum of which
he speaks, especially when it is not a
physical, but what may he termed a
moral minimum, is itself liable to vary.
If wages were previously so high that
they could bear reduction, to which the
obstacle was a high standard of com-
fort habitual among the labourers, a
rise of the price of food, or any other
disadvantageous change in their cir-
cvBstanc*, may operate in two ways :
it may correct itself by a rise of wages,
brought about through a gradual effect
on the prudtential check to population ;
or it may permanently lower the
etandard of living of the class, in case
their previous habits in respect of popu-
lation prove stronger than their pre-
vious habits in respect of comfort. In
that case the injury done to them will
be permanent, and their deteriorated
condition will become a new minimum,
tending to perpetuate itself as the more
ample minimum did before. It is to be
feared that of the two modes in which the
cause may operate, the last is the most
frequent, or at all events sufficiently
BO, to render all propositions ascribing a
self-repairing quality to the calamities
which befal the labouring classes, prac-
tically of no validity. There is con-
siderable evidence that the circum-
stances of the agricultural labourers in
England have more than once in our
history sustained great permanent de-
terioration, from causes which operated
by diminishing the demand for labour,
and which, if population had exercised
its power of self-adjustmeat in obedi-
ence to the previous standard of com-
fort, could only have had a temporary
effect : but unhappily the poverty in
which the class was plunged during a
long series of years, brought that pre-
vious standard into disuse ; and the
next generation, growing up without
having possessed those pristine com-
forts, multiplied in turn without any
attempt to retrieve them.*

* See the historical sketch of the condition
of the English peasantry, prepared from the
best authorities by Mr. William Thornton,

The converse case occurs when, by
improvements in agriculture, the repeal
of com laws, or other such causes,
the necessaries of the labourers are
cheapened, and they are enabled with
the same wages, to command greater
comforts than before. Wages will not
fall immediately; it is even possible
that they may rise : but they will fall
at last, so as to leave the labourers no
better off than before, unless, during
this interval of prosperity, the standard
of comfort regarded as indispensable by
the class, is permanently raised. Un-
fortunately this salutary effect is by no
means to be counted upon : it is a much
more difficult thing to raise, than to
lower, the scale of living which the
labourers will consider as more indis-

Eensable than marrying and having a
imily. If they content themselves
with enjoying the greater comfort while
it lasts, but do not learn to require it,
they will people down to their old scale
of living. If from poverty their children
had previously been insufficiently led
or improperly nursed, a greater number
will now b& reared, and the competi-
tion of thesev when they grow up, will
depress wages, probably in full pro-
portion to the greater cheapness of
food. If the effect is not produced in
ibis mode, it will be produced by earlier
•Mid more numerous marriages, or by
an ''ncreased number of births to a
marriage. According to all experi-
ence, a great increase invariably takes
place in the number of marriages, in
seasons of cheap food and full employ-
ment. I cannot, therefore, agree in
the importance so often attached to the
repeal of the corn laws, considered
merely as a labourer's question, or to
any of' the schemes, of which some ono
or other is at all times in vogue, for
making the labourers a very little better
off. Things which only affect them a very
little, make no permanent impression
upon their habits and requirements,
and they soon slide back into their

in his work entitled Over-Population a»d id
Remedy: a work honourably distinguished
from most others which have been published
in the present generation, by its rational
treatment of questions affecting the ecoiii>
micol condition of the labouring classes.

WAGES.

211

former state. To produce permanent
advantage, the temporary cause operat-
ing upon them must be sufficient to
make a great change in their condi-
tion— a change such as will he felt
for many years, notwithstanding any
stimulus which it may give during one
generation to the increase of people.
When, indeed, the improvement is of
this signal character, and a generation
grows up which has always been used
to an improved scale of comfort, the
habits of this new generation in respect
to population become formed upon a
higher minimum, and the improvement
in their condition becomes permanent.
Of cases in point, the most remark-
able is France after the Revolution.
The majority of the population being
suddenly raised from misery, to inde-
pendence and comparative comfort ;
the immediate effect was that popula-
tion, notwithstanding the destructive
wars of the period, started forward
with unexampled rapidity, partly be-
cause improved circumstances enabled
many children to be reared who would
otherwise have died, and partly from
increase of births. The succeeding
generation howevergrew up with habits
considerably altered ; and though the
country was never before in so pros-
perous a state, the annual number of
births is now nearly stationary,* and
the increase of population extremely
slow.f

» Supra, pp. 177, 178.

t A similar, though not an equal improve-
ment in the standard of living took place
among the labourers of England during the
remarkable fifty years from 1715 to 1765,
which were distinguished by such an extra-
ordinary succession of fine harvests (the
years of decided deficiency not exceeding
five in all that period) that the average
price of wheat during those years was much
lower than during the previous half century.
Mr. Malthus computes that on the average
of sixty years preceding 1720, the labourer
could purchase with a day's earnings only
two-thirds of a peck of wheat, while from
1720 to 1750 he could purchase a whole peck.
The average price of wheat according to the
Kton tables, for fifty years ending with 17 IS,
was 41s. 7}d. the quarter, and for the last
twenty-three of these, 45s. 8d., while for the
fifty years following, it was no more than
&e. lid. So considerable an improvement
in the condition of the labouring class,
though arising from the accidents of seasons,
yet continuing for more than a generation,

§ 3. Wages depend, then, on the
proportion between the number of the
labouring population, and the capita)
or other funds devoted to the purchase
of labour ; we will say, for shortness,
the capital. If wages are higher at
one time or place than at another, if
the subsistence and comfort of the class
of hired labourers are more ample, it
is for no other reason than because
capital bears a greater proportion to
population. It is not the absolute
amount of accumulation or of produc-
tion, that is of importance to the
labouring class ; it is not the amount
even of the funds destined for distri-
bution among the laborers : it is the
proportion between those funds and the
numbers among whom they arc shared.
The condition of the class can be bet-
tered in no other way than by altering
that proportion to their advantage :
and every scheme for their benefit,
which does not proceed on this as its
foundation, is, for all permanent pur-
poses, a delusion.

In countries like North America and
the Australian colonies, where the
knowledge and arts of civilized life,
and a high effective desire of accumu-
lation, co-exist with a boundless extent
of unoccupied land; the growth of
capital easily keeps pace with the
utmost possible increase of population,
and is chiefly retarded by the im-
practicability of obtaining labourers
enough. All, therefore, who can pos-
sibly be born, can find employment
without overstocking the market :
every labouring family enjoys in abun-
dance the necessaries, many of the
comforts, and some of the luxuries of
life ; and, unless in case of individual
misconduct, or actual inability to work,
poverty does not, and dependence needs
not, exist. A similar advantage,
though in a less degree, is occasionally

had time to work a change in the habitual
requirements of the labouring class; and
this period is always noted as the date of " a
marked improvement of the quality of the
food consumed, and a decided elevation in
the standard of their comforts and conve-
niences."—(Malthus, Principle! of Political
Economy, p. 225.) For the character of the
period, see Mr. Tooke's excellent History of
Price*, vol. i. pp. 33 to 61, and for the price*
of corn, the Appendix to that work.
PZ

212

BOOK n. CHAPTER XL § S.

enjoyed by some special class of la-
bourers in old countries, from an extra-
ordinarily rapid growth, not of capital
generally, but of the capital employed
in a particular occupation. So gigantic
has been the progress of the cotton
manufacture since the inventions of
Watt and Arkwright, that the capital
engaged in it has probably quadrupled
in the time which population requires
for doubling. While, therefore, it has
attracted from other employments
nearly all the hands which geogra-
phical circumstances and the habits or
inclinations of the people rendered
available ; and while the demand it
created for infant labour has enlisted
the immediate pecuniary interest of
the operatives in favour of promoting,
instead of restraining, the increase of
population ; nevertheless wages in the
great seats of the manufacture are
generally so high, that the collective
earnings of a family amount, on an
average of years, to a very satisfactory
sum ; and there is, as yet, no sign of
permanent decrease, while the effect
nap ilso been felt in raising the general
standard of agricultural wages in the
counties adjoining.

fiiii those circumstances of a country,
or oi an occupation, in which popula-
tion can with impunity increase at its
utmost rate, are rare, and transitory.
Very few are the countries presenting
the needful union of conditions. Kither
the industrial arts are backward and
stationary, and capital therefore in-
creases slowly ; or the effective desire
of accumulation being low, the increase
soon reaches its limit ; or, even though
both these elements are at their highest
known degree, the increase of capital
is checked, because there is not fresh
Lui'l U» be resorted to, of as good
quality as that already occupied.
Though capital should for a time
double itself simultaneously with popu-
lation, if all this capital and popula-
tion are to find employment on the
same land, they cannot without an un-
exampled succession of agricultural
inventions continue doubling the pro-
duce ; therefore, if wages do not fall,
p-ofits must ; and when profits fall,
Increase of capital is slackened. Be-

sides, even if wages did not fall, the
price of food (as will be shown more
fully hereafter) would in these circunv
stances necessarily rise ; which is equi-
valent to a fall of wages.

Except, therefore, in the very pecu-
liar cases which I have just noticed,
of which the only one of any practical
importance is that of a new colony, or
a country in circumstances equivalent
to it ; it is impossible that population
should increase at its utmost rate
without lowering wages. Nor will the
fall be stopped at any point, short of
that which either by its physical or its
moral operation, checks the increase of
population. In no old country, there-
fore, does population increase at any-
thing like its utmost rate ; in most, at
a very moderate rate : in some countries
not at all. These facts are only to be
accounted for in two ways. Either
the whole number of births which
nature admits of, and which happen
in some circumstances, do not take
place ; or if they do, a large proportion
of those who are born, die. The re-
tardation of increase results either from
mortality or prudence ; from Mr. Mal-
thus's positive, or from his preventive
check : and one or the other of these
must and does exist, and very power-
fully too, in all old societies. Wherever
population is not kept down by the pru-
dence either of individuals or of the state,
it is kept down by starvation or disease.

Mr. Malthus has taken great pains
to ascertain, for almost every country
in the world, which of these checks it
is that operates : and the evidence
which he collected on the subject, in
his Essay on Population, may ever
now be read with advantage. Through
out Asia, and formerly in most Euro
pean countries in which the labouring
classes were not in personal bondage,
there is, or was, no restrainer of popu-
lation but death. The mortality was
not always the result of poverty : much
of it proceeded from unskilful and care-
less management of children, from un-
cleanly and otherwise unhealthy habits
of life among the adult population, and
from the almost periodical occurrenca
of destructive epidemics. Throughout
Europe these causes of shortened life

WAGES.

213

have much diminished, tut they have
not ceased to exist. Until a period
not very remote, hardly any of our
large towns kept up its population, in-
di-| rndently of the stream always
flowing into them from the rural dis-
tricts : this was still true of Liverpool
until very recently; and even in Lon-
don, the mortality is larger, and the
average duration of life shorter, than
in rural districts where there is much
creator poverty. In Ireland, epidemic
fevers, and deaths from the exhaustion
of the constitution by insufficient
nutriment, have always accompanied
even the most moderate deficiency of
the potato crop. Nevertheless, it cannot
now be said that in any part of Europe,
population is principally kept down by
disease, still less by starvation, either
in a direct or in an indirect form. The
agency by which it is limited is chiefly

Geventive, not (in the language of
r. Malthus) positive. But the pre-
ventive remedy seldom, I believe, con-
sists in the unaided operation of
prudential motives on a class wholly
or mainly composed of labourers for
hire, and looking forward to no other
lot. In England, for example, I much
doubt if the generality of agricultural
labourers practise any prudential re-
straint whatever. They generally
marry as early, and have as many
children to a marriage, as they would
or could do if they were settlers in the
United States. During the geneiation
which preceded the enactment of the
present Poor Law, they received the
most direct encouragement to this sort
of improvidence : being not only as-
sured of support, on easy terms, when-
ever out of employment, but even when
in employment, very commonly re-
ceiving from the parish a weekly allow-
ance proportioned to their number of
children ; and the married with large
families being always, from a short-
sighted economy, employed in prefe-
rence to the unmarried ; which last
premium on population still exists.
Under such prompting, the rural
labourers acquired habits of reckless-
ness, which are so congenial to the un-
cultivated mind, that in whatever
manner produced, they in general long

survive their immediate causes. There
are so many new elements at work in
society, even in those deeper strata
which are inaccessible to the mere
movements on the surface, that it is
hazardous to affirm anything positive
on the mental state or practical im-
pulses of classes and bodies of men,
when the same assertion may be true
to-day, and may require great modifi-
cation in a few years time. It docs,
however, seem, that if the rate of in-
crease of population depended solely
on the agricultural labourers, it would,
as far as dependent on births, and un-
less repressed by deaths, be as rapid
in the southern counties of England
as in America. The restraining prin-
ciple lies in the very great proportion
of the population composed of the
middle classes and the skilled artizans,
who in this country almost equal in
number the common labourers, and on
whom prudential motives do, in a con-
siderable degree, operate.

§ 4. Where a labouring class who
have no property but their daily wages,
and no hope of acquiring it, refrain
from over-rapid multiplication, the
cause, I believe, has always hitherto
been, either actual legal restraint, or a
custom of some sort which, without
intention on their part, insensibly
moulds their conduct, or affords imme-
diate inducements not to marry. It is
not generally known in how many
countries of Europe direct legal ob-
stacles are opposed to improvident
marriages. The communications made
to the original Poor Law Commission
by our foreign ministers and consuls in
different parts of Europe, contain a
considerable amount of information on
this subject. Mr. Senior, in his pre-
face to those communications,* says
that in the countries which recognise a
legal right to relief, " marriage on the
part of persons in the actual receipt of
relief appears to be everywhere prohi-
bited, and the marriage of those who
are not likely to possess the means of
independent support is allowed by very

* Forming an Appendix (F) to the General
Report of the Commissioners, and also pub-
lished by authority as a separate volume.

214

BOOK IL CHAPTER XI. § 5.

fow. Thus we are told that in Norway
no one can many without ' showing,
to the satisfaction of the clergyman,
that he is permanently settled in such
a manner as to offer a fair prospect
that he can maintain a family.'

" In Mecklenburg, that ' marriages
lire delayed by conscription in the
twenty-second year, and military ser-
vice for six years ; besides, the parties
must have a dwelling, without which
a clergyman is not permitted to marry
them. The men marry at from twenty-
five to thirty, the women not much
earlier, as both must first gain by ser-
vice enough to establish themselves."

" In Saxony, that ' a man may not
marry before he is twenty-one years
old, if liable to serve in the army. In
Dresden, professionists (by which word
artizans are probably meant) may not
many until they become masters in
their trade.'

" In Wurtemberg, that ' no man is
allowed to marry till his twenty-fifth
year, on account of his military duties,
unless permission be especially ob-
tained or purchased: at that age he
must also obtain permission, which is
granted on proving that he and his
wife would have together sufficient to
maintain a family or to establish them-
selves ; in large towns, say from 800
to 1000 florins (from 661. IBs. 4d. to
Ml. 3*. 4d.) ; in smaller, from 400 to
500 florins : in villages, 200 florins
(IfiZ. 13s. 4d.y*

The minister at Munich says, " The
great cause why the number of the
poor is kept so low in this country
arises from the prevention by law of
marriages in cases in which it cannot
he proved that the parties have reason-
able means of subsistence ; and this
regulation is in all places and at all
times strictly adhered to. The effect
of a constant and firm observance of
this rule has, it is true, a considerable
influence in keeping down the popula-
tion of Bavaria, which is at present low
for the extent of country, but it has a
most salutary effect in averting extreme
poverty and consequent misery. "f

* Preface, p. xxxix.

t Preface, p. xxxiii., or p. 554 of the Ap-
pendix itself.

At Lubeck, " marriages among tho
poor are delayed by the necensity a
man is under, first, of previously prov-
ing that he is in a regular employ,
work, or profession, that will enable
him to maintain a wife : and secondly,
of becoming a burgher, and equipping
himself in the uniform of the burgher
guard, which together may cost him
nearly 41."* At Frankfort, " the go-
vernment prescribes no age for marry-
ing, but the permission to marry is
only granted on proving alivelihood."f

The allusion, in some of these state-
ments, to military duties, points out
an indirect obstacle to marriage, in-
terposed by the laws of some countries
in which there is no direct legal re-
straint. In Prussia, for instance, the
institutions which compel every able-
bodied man to serve for several years
in the army, at the time of life at
which imprudent marriages are most
likely to take place, are probably a full
equivalent, in effect on population, for
the legal restrictions of the smaller
German states.

"So strongly," says Mr. Kay, "do
the people of Switzerland understand
from experience the expediency of their
sons and daughters postponing the
time of their marriages, that the coun-
cils of state of four or five of the most
democratic of the cantons, elected, be
it remembered, by universal suffrage,
have passed laws by which all young
persons who marry before they have
proved to the magistrate of their dis-
trict that they are able to support a
family, are rendered liable to a heavy
fine. In Lucerne, Argovie, Unterwal-
den, and I believe, St. Gall, Schweitz,
and Uri, laws of this character have
been in force for many years."|

§ 5. Where there is no general law
restrictive of marriage, there are often
customs equivalent to it. When the

fnilds or trade corporations of the
liddle Ages were in vigour, their bye-
laws or regulations were conceived
with a very vigilant eye to the advan-
tage which the trade derived from
limiting competition : and they made

« Appendix, p. 419. t Ibid. p. 567.

t Kay, as before cited, i. 68.

WAGES.

216

It very effectually the interest of arti-
xans not to marry until after passing
through the two stages of apprentice
and journeyman, and attaining the
rank of master.* In'. Norway, where
the labour is chiefly agricultural, it is
forbidden to engage a farm-servant for
less than a year ; which was the
general English practice until the
poor laws destroyed it, by enabling
the farmer to cast his labourers on
parish pay whenever he did not imme-
diately require their labour. In con-
sequence of this custom, and of its
enforcement by law, the whole of the
rather limited class of agricultural
labourers in Norway have an engage-
ment for a year at least, which if the
parties are content with one another,
naturally becomes a permanent engage-
ment : hence it is known in every
neighbourhood whether there is, or is
likely to be, a vacancy, and unless
there is, a young man does not many,
knowing that he could not obtain em-
ployment. The custom still exists in

* " In general," says Sismondi, " the num-
ber of masters in each corporation was fixed,
and no one but a master could keep a shop,
or buy and sell on his own account. Each
master could only train a certain number of
apprentices, whom he instructed in his trade ;
in some corporations he was only allowed
one. Each master could also employ only a
limited number of workmen, who were called
companions, or journeymen ; and in the
trades in which he could only take one ap-
prentice, he was only allowed to have one, or
at most two journeymen. No one was al-
lowed to buy, sell, or work at a trade, unless
he was either an apprentice, a journeyman,
or a master ; no one could become a journey-
man without having served a given number
of years as an apprentice, nor a master, un-
less he had served the same number of years
as a journeyman, and unless he had also
executed what was called his chefd'aeuvre,
(masterpiece) a piece of work appointed in
liis trade, and which was to be judged of by
the corporation. It is seen that this organi-
zation threw entirely into the hands of the
masters the recruiting of the trade. They
alone could take apprentices ; but they were
not ;ompelled to take any; accordingly they
required to be paid, often at a very high
rate, for the favour ; and a young man could
not enter into a trade if he had not, at start-
ing, the sum required to be paid for his ap-
prenticeship, and the means necessary for his
support during that apprenticeship; since
for four, five, or seven years, all his work
Delonged to his master. His dependence on
the master during that time was complete ;
for the master's will, or even caprice, could

Cumberland and WeatniO.-eland, except
that the term is half a year instead of
a year ; and seems to be still attended
with the same consequences. The
farm-servants are " lodged and boarded
in their masters' houses, which thel
seldom leave until, through the death
of some relation or neighbour, they
succeed to the ownership or lease of a
cottage farm. What is called surplus
labour does not here exist."* I have
mentioned in another chapter the
check to population in England during
the last century, from the difficulty of
obtaining a separate dwelling place.f
Other customs restrictive of popula-
tion might be specified : in some parts
of Italy, it is the practice, according to
Sismondi, among the poor, as it is well
known to be in the higher ranks, that
all but one of the sons remain unmar
ried. But such family arrangements are
not likely to exist among day-labourers.
They are the resource of small proprie-
tors and metayers, for preventing too
minute a subdivision of the land.

close the door of a lucrative profession upon
.him. After the apprentice became a journey-
man he had a little more freedom ; he could
engage with any master he chose, or pass
from one to another ; and as the condition of
a journeyman was only accessible through
apprenticeship, he now began to profit by the
monopoly from which he had previously suf-
fered, and was almost sure of getting well
paid for a work which no one else was
allowed to .perform. He depended, however,
on the corporation for becoming a master,
and did not, therefore, regard himself as
being yet assured of his lot, or as having
a permanent position. In general he did
not marry until he had passed as a mas-
ter.

" It is certain both in fact and in theory
that the existence of trade corporations hin-
dered, and could not but hinder, the birth of
a superabundant population. By the sta-
tutes of almost all the guilds, a man could not
pass as amaster before the ageof twenty-five :
but if he had no capital of his own, if he had
not made sufficient savings, he continued to
work as a journeyman much longer ; some,
perhaps the majority of artisans, remained
journeymen all their lives. There was,
however, scarcely an instance of their marry-
ing before they were received as masters :
had they been so imprudent as to desire it,
no father would have given' his daughter to a
man without a position."— -Nete Priacipltt of
Political Economy, book iv.^ch. 10. See also
Adam Smith, book i., ch. 10, part 2.

* See Thornton on Over-Population, pa(f«
18, and the authorities there cited.
t Supra, p. 99.

218

BOOK IL CHAPTER XI. § 6.

Jn England generally there is now
scarcely a relic of these indirect checks
to population ; except that in parishes
owned by one or a very small number
of landowners, the increase of resident
labourers is still occasionally obstructed,
by preventing cottages from being
built, or by pulling down those which
exist ; thus restraining the population
liable to become locally chargeable,
•without any material effect on popula-
tion generally, the work required in
those parishes being performed by
labourers settled elsewhere. The sur-
rounding districts always feel them-
selves much aggrieved by this practice,
against which they cannot defend
themselves by similar means, since a
single acre of land owned by any one
who does not enter into the combina-
tion, enables him to defeat the attempt,
very profitably to himself, by covering
that acre with cottages. To meet
these complaints it has already been
under the consideration of Parliament
to abolish parochial settlements, and
make the poor rate a charge not on
the parish, but on the whole union.
If this proposition be adopted, which
for other reasons is very desirable,
it will remove the small remnant of
what was once a check to population :
the value of which, however, from the
narrow limits of its operation, must
now be considered very trifling.

§ 6. In the case, therefore, of the
common agricultural labourer, the
checks to population may almost be
considered as non-existent. If the
growth of the towns, and of the capital
there employed, by which the factory
operatives are maintained at their
present average rate of wages notwith-
standing their rapid increase, did not
also absorb a great part of the annual
addition to the rural population, there
seems no reason in the present habits
of the people why they should not fall
into as miserable a condition as the
Irish previous to 1846; and if the
market for our manufactures should, I
do not say fall off, but even cease to
expand at the rapid rate of the last
fifty yeais, there is no certainty that
tbis fate may not be reserved for us.

Without carrying our anticipations
forward to such a calamity, which tho
great and growing intelligence of the
factory population would, it may be
hoped, avert, by an adaptation of their
habits to their circumstances ; the
existing condition of the labourers of
some of the most exclusively agricul-
tural comities, Wiltshire, Somerset-
shire, Dorsetshire, Bedfordshire, Buck-
inghamshire, is sufficiently painful to
contemplate. The labourers of these
counties, with large families, and eight
or perhaps nine shillings for their
weekly wages when in full employment,
have for some time been one of the
stock objects of popular compassion :
it is time that they had the benefit
also of some application of common
sense.

Unhappily, sentimentality rather
than common sense usually presides
over the discussion of these subjects ;
and while there is a growing sensitive-
ness to the hardships of the poor, and
a ready disposition to admit claims in
them upon the good offices of other
people, there is an all but universal
unwillingness to face the real difficulty
of their position, or advert at all to the
conditions which nature has made in-
dispensable to the improvement of
their physical lot. Discussions on the
condition of 'the labourers, lamenta-
tions over its wretchedness, denuncia-
tions of all who are supposed to be in-
different to it, projects of one kind or
another for improving it, were in no
country and in no time of the world so
rife as in the present generation ; but
there is a tacit agreement to ignore
totally the law of wages, or to dismiss
it in a parenthesis, with such terms as
" hard-hearted Malthusianism ;" as if
it were not a thousand times more
hard-hearted to tell human beings that
they may, than that they may not, call
into existence swarms of creatures who
are sure to be miserable, and most
likely to be depraved ; and forgetting
that the conduct, which it is reckoned
so cruel to disapprove, is a degrading
slavery to a brute instinct in one of
the persons concerned, and most com-
monly, in the other, helpless submis-
sion to a revolting abuse of power.

WAGES.

217

So long as mankind remained in a
semi-barbarous state, with the indolence
and the few wants of the savage, it

|>robably was not desirable that popu-
ation should be restrained : the pres-
sure of physical want may have been a
necefisary stimulus, in that stage of
the human mind, to the exertion of
labour and ingenuity required for ac-
complishing that greatest of all past
changes in human modes of existence,
by which industrial life attained pre-
dominance over the hunting, the pas-
toral, and the military or predatory
state. Want, in that age of the world,
had its uses, as even slavery had ; and
there may be corners of the earth
where those uses are not yet super-
seded, though they might easily be so
were a helping hand held out by more
civilized communities. But in Europe
the time, if it ever existed, is long
past, when a life of privation had the
smallest tendency to make men either
better workmen or more civilized beings.
It is, on the contrary, evident, that if
the agricultural labourers were better
oft', they would both work more effi-
ciently, and be better citizens. I ask,
then, is it true, or not, that if their
numbers were fewer they would obtain
higher wages ? This is the question,
and no other : and it is idle to divert
attention from it, by attacking any
incidental position of Malthus or some
other writer, and pretending that to
refute that, is to disprove the prin-
ciple of population. Some, for instance,
have achieved an easy victory over a
passing remark of Mr. Malthus, ha-
zarded chiefly by way of illustration,
that the increase of food may perhaps
be assumed to take place in an arith-
metical ratio, while population in-
creases in a geometrical : when every
candid reader knows that Mr. Malthus
laid no stress on this unlucky attempt
to give numerical precision to things
which do not admit of it, aiid every
person capable of reasoning must see
that it is wholly superfluous to his
argument. Others have attached im-
mense importance to a correction which
more recent political economists have
made in the mere language of the
earlier followers of Mr. Malthus. Seve-

ral writers have said that it is the
tendency of population to increase
faster than the means of subsistence.
The assertion was true in the sense in
which they meant it, namely that
population would in most circumstances
increase faster than the means of sub-
sistence, if it were not checked either
by mortality or by prudence. But in-
asmuch as these checks act with un-
equal force at different times and
places, it was possible to interpret the
language of these writers as if they
had meant that population is usually
gaining ground upon subsistence, and
the poverty of the people becoming
greater. Under this interpretation of
their meaning, it was urged that the
reverse is the truth : that as civiliza-
tion advances, the prudential check
tends to become stronger, and popula-
tion to slacken its rate of increase,
relatively to subsistence; and that
it is an error to maintain that popula-
tion, in any improving community,
tends to increase faster than, or even
so fast as, subsistence. The word
tendency is here used in a totally dif-
ferent sense from that of the writers
who affirmed the proposition: but
waving the verbal question, is it not
allowed on both sides, that in old
countries, population presses too closely
upon the means of subsistence ? And
though its pressure diminishes, the
more the id ^as and habits of the poorest
class of labourers can be improved, to
which it is to be hoped that there is
always some tendency in a progressive
country, yet since that tendency has
hitherto been, and still is, extremely
faint, and (to descend to particulars)
has not yet extended to giving to
the Wiltshire labourers higher wages
than eight shillings a week, the only
thing which it is necessary to consider
is, whether that is a sufficient and
suitable provision for a labourer ? for if
not, population does, as an existing
fact, bear too great a proportion to the
wages fund ; and whether it pressed
still harder or not quite so hard at
some former period, is practically of
no moment, except that, if the ratio
is an improving one, there is the better
hope that by proper aida aivj eu

218

BOOK II. CHAPTER XII. § 1.

courage-mania it ma}- bo made to im-
prove more and fester.

It is not, however, against reason,
that the argument on this subject has
to struggle ; but against a feeling of
dislike, which will only reconcile itself
to the unwelcome truth, when every
device is exhausted by which the
recognition of that truth can be evaded.
1 1 is necessary, therefore, to enter into
a detailed examination of these devices,

and to force every position which is
taken up by the enemies of the popula-
tion principle, in their determination
to find some refuge for the labourers,
some plausible means of improving
their condition, without requiring the
exercise, either enforced or voluntary,
of any self-restraint, or any greater
control than at present over the animal
power of multiplication. This will be
the object of the next chapter.

CHAPTEE XII.

OP POPULAR REMEDIES FOB LOW WAGES.

§ 1. THE simplest expedient which
can be imagined for keeping the wages
of labour up to the desirable point,
would be to fix them by law : and this
is virtually the object aimed at in a
variety of plans which have at different
times been, or still are, current, for
remodelling the relation between la-
bourers and employers. No one pro-
bably ever suggested that wages should
be absolutely fixed ; since the interests
of all concerned, often require that they
should be variable ; but some have
proposed to fix a minimum of wages,
leaving the variations above that point
to be adjusted by competition. Another
plan, which has found many advocates
among the leaders of the operatives, is
that councils should be formed, which
in Englandhave been calledlocal boards
of trade, in France " conseils de prud'-
hommes," and of her names ; consisting
of delegates from the workpeople and
from the employers, who, meeting in
conference, should agree upon a rate
of wages, and promulgate it from
authority, to be binding generally on
employers and workmen ; the ground
of decision being, not the state of the
labour-market, but natural equity ; to
provide that the workmen shall have
reasonable wages, and the capitalist
reasonable profits.

Others again (but these are rather
philanthropists interesting themselves
for the labouring classes, than the

labouring people themselves) are shy
of admitting the interference of au-
thority in contracts for labour: they
fear that if law intervened, it would
intervene rashly and ignorantly ; they
are convinced that two parties, with
opposite interests, attempting to adjust
those interests by negotiation through
their representatives on principles of
equity, when no rule could be laid
down to determine what was equitable,
would merely exasperate their dif-
ferences instead of healing them ; but
what it is useless to attempt by the
legal sanction, these persons desire to
compass by the moral. Every em-
ployer, they think, ought to give suffi-
cient wages ; and if he does it not wil-
lingly, should be compelled to it by
general opinion ; the test of sufficient
wages being their own feelings, or what
they suppose to be those of the public.
This is, I think, a fair representation
of a considerable body of existing opi.
nion on the subject.

I desire to confine my remarks iff
the principle involved in all these sug-
gestions, without taking into accoun',
practical difficulties, serious as these
must at once be seen to be. I shall
suppose that by one or other of these
contrivances, wages could be kept
above the point to whi<'h they wouM
be brought by competition. This is
as much as to say, above the highest
rate which can be afforded by thi

POPULAR REMEDIES FOR LOW WAGES.

219

existing capital consistently with em-
ploying all the labourers. For it, is a
mistake to suppose that competition
merely keeps down wages. It is
equally the means by which they are
kept up. When there are any labour-
ers unemployed, these, unless main-
tained by charity, become competitors
for hire, and wages fall ; but when all
who were out of work have found em-
ployment, wages will not, under the
freest system of competition, fall lower.
There are strange notions afloat con-
cerning the nature of competition.
Some people seem to imagine that
its effect is something indefinite ;
that the competition of sellers may
lower prices, and the competition of la-
bourers may lower wages, down to
zero, or some unassignable minimum.
Nothing can be more unfounded.
Goods can only be lowered in price by
competition, to the point which calls
forth buyers sufficient to take them
off; and wages can only be lowered
by competition until room is made
to admit all the labourers to a share
in the distribution of the wages-
fund. If they fell below this point, a
portion of capital would remain un-
employed for want of labourers ; a
counter-competition would commence
on the side of capitalists, and wages
would rise.

Since, therefore, the rate of wages
which results from competition distri-
butes the whole wages-fund among the
whole labouring population ; if law or
opinion succeeds in fixing wages above
this rate, some labourers are kept out
of employment ; and as it is not the
intention of the philanthropists that
these should starve, they must be pro-
vided for by a forced increase of the
wages-fund ; by a compulsory saving.
It is nothing to fix a minimum of
wages, unless there b« a provision that
work, or wages at least, be found for
all who apply for it. This, accordingly,
is always part of the scheme ; and is
consistent with the ideas of more people
than would approve of either a legal
or a moral minimum of wages. Popular
sentiment looks upon it as the duty of
the rich, or of the state, to find employ-
ment for all the poor. If the moral

influence of opinion does not induce
the rich to spare fiom their consump-
tion enough to set all the poor to work
at " reasonable wages," it is supposed
to be incumbent on the state to lay on
taxes for the purpose, either by local
rates or votes of public money. The
proportion between labour and the
wages-fund would thus be modified to
the advantage of the labourers, not by
restriction of population, but by an
increase of capital.

§ 2. If this claim on society could
be limited to the existing generation ;
if nothing more were necessary than a
compulsory accumulation, sufficient to
provide permanent employment at am-
ple wages for the existing numbers of
the people ; such a proposition would
have no more strenuous supporter than
myself. Society mainly consists of
those who live by bodily labour ; and
if society, that is, if the labourers, lend
their physical force to protect indivi-
duals in the enjoyment of superfluities,
they are entitled to do so, and have
always done so, with the reservation
of a power to tax those superfluities
for purposes of public utility ; among
whii.-h purposes the subsistence of the
people is the foremost. Since no one
is responsible for having been born,
no pecuniary sacrifice is too great to
be made by those who have more than
enough, for the purpose of securing
enough to all persons already in ex-
istence.

But it is another thing altogether,
when those who have produced and
accumulated are called upon to abstain
from consuming, until they have given
food and clothing, not only to all who
now exist, but to all whom these or
their descendants may think fit to call
into existence. Such an obligation ac-
knowledged and acted upon, would sus-
pend all checks, both positive and pre-
ventive ; there would be nothing to
hinder population from starting for-
ward at its rapidest rate ; and as the
natural increase of capital would, at
the best, not be more rapid than before,
taxation, to make up the growing de-
ficiency, must advance with the same
gigantic strides. The attempt would

220

of coarse be made to exact labour in
exchange for support. But experience
lias shown the sort of work to be ex-
pected from recipients of public charity.
When the pay is not given for the sake
of the work, but the work found for the
sake of the pay, inefficiency is a matter
of certainty : to extract real work from
day-labourers Avithout the power of
dismissal, is only practicable l>y the
power of the lash. It is conceivable,
doubtless, that this objection might
be got over. The fund raised by tax-
ation might be spread over the labour-
market generally, as seems to be in-
tended by the supporters of the "right
to employment" in France ; without giv-
ing to any unemployed labourer a right
to demand support in a particular place
or from a particular functionary. The
power of dismissal, as regards indi-
vidual labourers, would then remain ;
the government only undertaking to
create additional employment when
there was a deficiency, and reserving,
like other employers, the choice of its
own workpeople. But let them -work
ever so efficiently, the increasing po-
pulation could not, as we have so often
shown, increase the produce propor-
tionally : the surplus, after all were
fed, would bear a less and less propor-
tion to the whole produce and to the
population : and the increase of people
going on in a constant ratio, while the
Increase of produce went on in a di-
minishing ratio, the surplus would in
time be wholly absorbed ; taxation for
the support of the poor would engross
the whole income of the country ; the
payers and the receivers would be
melted down into one mass. The
check to population either by death or
prudence, could not then be staved off
any longer, but must come into opera-
tion suddenly and at once ; everything
which places mankind above a nest of
ants or a colony of beavers, having
perished in the interval.

These consequences have been so
often and so clearly pointed out by au-
thors of reputation, in writings known
and accessible, that ignorance of them
on the part of educated persons is no
longer pardonable. It is doubly dis-
creditable in any person setting up for

BOOK II. CHAPTER XII. g 2.

a public teacher, to ignore these con-
siderations; to dismiss them silently,
and discuss or declaim on wages and
poor-laws, not as if these arguments
could be refuted, but as if they did not
exist.

Every one has a right to live. We
will suppose this granted. But no one
has a right to bring creatures into life,
to be supported by other people. Who-
ever means to stand upon the first of
these rights must renounce all preten-
sion to the last. If a man cannot sup-
port even himself unless others help
him, those others are entitled to say
that they do not also undertake the
support of any offspring which it is
physically possible for him to summon
into the world. Yet there are abun-
dance of writers and public speakers,
including many of most ostentatious
pretensions to high feeling, whose views
of life are so truly brutish, that they
see hardship in preventing paupers
from breeding hereditary paupers in
the workhouse itself. Posterity will
one day ask with astonishment, what
sort of people it could be among whom
such preachers could find proselytes.

It would be possible for the state to
guarantee employment at ample wages
to all who are born. But if it does
this, it is bound in self-protection, and
for the sake of every purpose for which
government exists, to provide that no
person shall be born without its consent.
If the ordinary and spontaneous mo-
tives to self-restraint are removed,
others must be substituted. Kestric-
tions on marriage, at least equivalent
to those existing in some of the German
States, or severe penalties on those
who have children when unable to sup-
port them, would then be indispensable.
Society can feed the necessitous, if it
takes their multiplication under its
control ; or (if destitute of all moral
feeling for the wretched offspring) it
can leave the last to their discretion,
abandoning the first to their own care.
But it cannot with impunity take the
feeding upon itself, and leave the mul-
tiplying free.

To give profusely to the people, whe-
ther under the name of charity or of
employment, without placing them

POPULAR REMEDIES FOR LOW WAGES.

221

under such influences that prudential
motives shall act powerfully upon them,
is to lavish the means of benefiting
mankind, without attaining the object.
Leave the people in a situation in
which their condition manifestly de-
pends upon their numbers, and the
greatest permanent benefit may be
derived from any sacrifice made to im-
prove the physical well-being of the
present generation, and raise, by that
means, the habits of their children.
But remove the regulation of their
wages from their own control; gua-
rantee to them a certain payment,
either by law, cr by the feeling of the
community ; and no amount of comfort
that you can give them will make
either them or their descendants look
to their own self-restraint as the proper
means for preserving them in that
state. You will only make them in-
dignantly claim the continuance of your
guarantee, to themselves and their full
complement of possible posterity.

On these grounds some writers have
altogether condemned the English
poor-Law, and any system of relief to
the able-bodied, at least when uncom-
bined with systematic legalprecautions
against over-population. The famous
Act of the 43d of Elizabeth undertook,
on the part of the public, to provide
work and wages for all the destitute
able-bodied : and there is little doubt
that if the intent of that Act had been
fully carried out, and no means had
been adopted by the administrators of
relief to neutralize its natural tenden-
cies, the poor-rate would by this time
have absorbed the whole net produce
of the land and labour of the country.
It is not at all surprising, therefore,
that Mr. Malthus and otheis should at
first have concluded against all poor-
laws whatever. It required much ex-
perience, and careful examination of
different modes of poor-law manage-
ment, to give assurance that the ad-
mission of an absolute right to be sup-
ported at the cost of other people, could
exist in law and in fact, without fatally
relaxing the springs of industry and
the restraints of prudence. This, how-
ever, was fully substantiated, by the
investigations of the oritjinal Poor Law

Commissioners. Hostile as they are
unjustly accused of being to the
principle of legal relief, they are tho
first who fully proved the compatibility
of any Poor Law in which a right to
relief was recognised, with the perma-
nent interests of the labouring class
and of posterity. By a collection of
facts, experimentally ascertained in
parishes scattered throughout England,
it was shown that the guarantee of
support could be freed from its injurious
effects upon the minds and habits of
the people, if the relief, though ample
in respect to necessaries, was accom-
panied with conditions which they dis-
liked, consisting of some restraints on
their freedom, and the privation of some
indulgences. Under this proviso, it
may be regarded as irrevocably esta-
blished, that the fate of no member of
the community needs be abandoned to
chance ; that society can, and therefore
ought to ensure every individual be-
longing to it against the extreme of
want ; that the condition even of those
who are unable to find their own sup-
port, needs not be one of physical suf-
fering, or the dread of it, but only of
restricted indulgence, and enforced
rigidity of discipline. This is surely
something gained for humanity, impor-
tant in itself, and still more so as a
step to something beyond; and hu-
manity has no worse enemies than
those who lend themselves, either
knowingly or unintentionally, to bring
odium on this law, or on the principles
in which it originated.

§ 3. Next to the attempts to regu-
late wages, and provide artificially
that all who are willing to work shall
receive an adequate price for their
labour, we have to consider another
class of popular remedies, which do
not profess to interfere with freedom of
contract ; which leave wages to be
fixed by the competition of the market,
but, when they are considered insuffi-
cient, endeavour by some subsidiary
resource to make up to the labourers
for the insufficiency. Of this nature
was the expedient resorted to by
parish authorities during thirty or
forty years previous to 1834, generally

222

BOOK II. CHAPTER XII. § 8.

known as the Allowance System. This
was first introduced, when, through a
succession of bad seasons, and conse-
quent high prices of food, the wages of
labour had become inadequate to afford
to the families of the agricultural
labourers the amount of support to
which they had been accustomed.
Sentiments of humanity, joined with
the idea then inculcated in high
quarters, that people ought not to be
allowed to suffer for having enriched
their country with a multitude of inha-
bitants, induced the magistrates of the
rural districts to commence giving
parish relief to persons already in
private employment ; and when the
practice had once been sanctioned, the
immediate interest of the farmers,
•whom it enabled to throw part of the
support of their labourers upon the
other inhabitants of the parish, led to a
great and rapid extension of it. The
principle of this scheme being avowedly
that of adapting the means of every
family to its necessities, it was a natu-
ral consequence that more should be
given to the married than to the single,
and to those who had large families
than to those who had not: in fact,
an allowance was usually granted for
every child. So direct and positive an
encouragement to population is not,
however, inseparable from the scheme :
the allowance in aid of wages might
be a fixed thing, given to all labourers
alike, and as this is the least objec-
tionable form which the system can
assume, we will give it the benefit of
the supposition.

It is obvious that this is merely
another mode of fixing a minimum of
wages ; no otherwise differing from
the direct mode, than in allowing the
employer to buy the labour at its
market price, the difference being
made up to the labourer from a public
fund. The one kind of guarantee is
open to all the objections which have
been urged against the other. It pro-
mises to the labourers that they shall
all have a certain amount of wages,
however numerous they may be : and
removes, therefore, alike the positive
and the prudential obstacles to an un-
limited increase. But besides the

objections common to all attempts to
regulate wages without regulating
population, the allowance system has
a peculiar absurdity of its own. This
is, that it inevitably takes from wages
with one hand what it adds to them
with the other. There is a rate of
wages, either the lowest on which the
people can, or the lowest on which they
will consent, to live. \\re will suppose
this to be seven shillings a-week.
Shocked at the wretchedness of this
pittance, the parish authorities hu-
manely make it up to ten. But the
labourers are accustomed to seven, and
though they would gladly have more,
will live on that (as the fact proves)
rather than restrain the instinct of
multiplication. Their habits will not
be altered for the better by giving
them parish pay. Keceiving three
shillings from the parish, they will be
as well off as before though they
should increase sufficiently to bring
down wages to four shillings. They
will accordingly people down to that
point ; or perhaps, without waiting for
an increase of numbers, there are un-
employed labourers enough in the
workhouse to produce the effect at
once. It is well known that the allow-
ance system did practically operate in
the mode described, and that under
its influence wages sank to a lower
rate than had been known in England
before. During the last century, under
a rather rigid administration of the
poor-laws, population increased slowly,
and agricultural wages were conside-
rably above the starvation point.
Under the allowance system the
people increased so fast, and \vagvg
sank so low, that with wages and
allowance together, families were
worse off than they had been before
with wages alone. When the labourer
depends solely on wages, there is a
virtual minimum. If wages fall below
the lowest rate which will enable th*
population to be kept up, depopulation
at least restores them to that lowest
rate. But if the deficiency is to be
made up by a forced contribution from
all who have anything to give, wages
may fall below starvation point ; they
may fall almost to zero. This deplor-

POPULAR REMEDIES FOR LOW WAGES.

223

able system, worse than any other
form of poor-law abuse yet invented,
inasmuch as it pauperizes not merely
the unemployed part of the population
but the whole, has been abolished, and
of this one abuse at least it may be
said that nobody professes to wish for
ite revival.

§ 4. But while this is (it is to be
hoped) exploded, there is another mode
of relief in aid of wages, which is still
highly popular ; a mode greatly pre-
ferable, morally and socially, to parish
allowance, but tending, it is to be
feared, to a very similar economical
result : I mean the much - boasted
Allotment System. This, too, is a con-
trivance to compensate the labourer
tot the insufficiency of his wages, by
giving him something else as a supple-
ment to them : but instead of having
them made up from the poor-rate, he is
enabled to make them up for himself,
by renting a small piece of ground,
which he cultivates like a garden by
spade labour, raising potatoes and
other vegetables for home consump-
tion, with perhaps some additional
quantity for sale. If he hires the
ground ready manured, he sometimes
pays for it at as high a rate as eight
pounds an acre : but getting his own
labour and that of his family for no-
thing, he is able to gain several pounds
by it even at so high a rent.* The
patrons of the system make it a great
point that the allotment shall be in aid
of wages, and not a substitute for
them ; that it shall not be such as a
labourer can live on, but only sufficient
to occupy the spare hours and days of
a man in tolerably regular agricultural
employment, with assistance from his
wife and children. They usually limit
the extent of a single allotment to a
quarter, or something between a quar-
ter and half an acre. If it exceeds
this, without being enough to occupy
him entirely, it will make him, they
Bay, a bad and uncertain workman for
hire : if it is sufficient to take him
entirely out of the class of hired

* Bee the Evidence on the subject of
Allotments, collected by the Commissioners
of Poor Law Enquiry.

labourers, and to become Iris sole
means of subsistence, it will make him
an Irish cottier : for which assertion,
at the enormous rents usually de-
manded, there is some foundation.
But in their precautions against cot-
tierism, these well-meaning persons df
not perceive, that if the system thc3
patronize is not a cottier system, it is,
in essentials, neither more nor less
than a system of conacre.

There is no doubt a material diffe-
rence between eking out insufficient
wages by a fund raised by taxation,
and doing the same thing by means
which make a clear addition to the
gross produce of the country. There
is also a difference between helping a
labourer by means of his own industry,
and subsidizing him in a mode which
tends to make him careless and idle.
On both these points, allotments have
an unquestionable advantage over
parish allowances. But in their effect
on wages and population, I see no
reason why the two plans should sub-
stantially differ. All subsidies in aid
of wages enable the labourer to do
with less remuneration, and therefore
ultimately bring down the price of
labour by the full amount, unless a
change bo wrought in the ideas and
requirements of the labouring class ;
an alteration in the relative value
which they set upon the gratification
of their instincts, and upon the increase
ot their comforts and the comforts of
those connected with them. That any
such change in their character should
be produced by the allotment system,
appears to me a thing not to be
expected. The possession of land, we
are sometimes told, renders the la-
bourer provident. Property in land
does so; or what is equivalent to pro-
perty, occupation on fixed terms ami
on a permanent tenure. But mere
hiring from year to year was never
found to have any such effect. Did
possession of land render the Irishman
provident ? Testimonies, it is true,
abound, and I do not seek to discredit
them, of the beneficial change pro-
duced in the conduct and condition of
labourers, by receiving allotments.
Such an effect is to be expected whii*

BOOK H. CHAPTER XII. § 4.

those who hold them are a small num-
ber ; a privileged class, having a status
above the common level, which they
are unwilling to lose. They are also,
no doubt, almost always, originally a
select class, composed of the most
favourable specimens of the labouring
people : which, however, is attended
•with the inconvenience, that the per-
sons to whom the system facilitates
marrying and having children, are pre-
cisely those who would otherwise be
the most likely to practise prudential
restraint. As affecting the general
condition of the labouring class, the
scheme, as it seems to me, must be
either nugatory or mischievous. If only
a few labourers have allotments, they
are naturally those who could do best
without them, and no good is done to
the class : while, if the system were
general, and every or almost every
labourer had an allotment, I believe the
effect would be much the same as when
every or almost every labourer had an
allowance in aid of wages. I think
there can be no doubt that if, at the
end of the last century, the Allotment
instead of the Allowance system had
been generally adopted in England, it
would equally have broken down the
practical restraints on population which
at that time did really exist ; popula-
tion would have started forward ex-
actly as in fact it did ; and in twenty
years, wages plus the allotment would
have been, as wages plus the allow-
ance actually were, no more than equal
to the former wages without any allot-
ment. The only difference in favour
of allotments would have been, that
they make the people grow their own
poor-rates.

I am at the same time quite ready
to allow, that in some circumstances,
the possession of land at a fair rent,
even without ownership, by the gene-
rality of labourers for hire, operates as
a cause not of low, but of high wages.
This, however, is when their land ren-
ders them, to the extent of actual
necessaries, independent of the market
for labour. There is the greatest diffe-
rence between the position of people
who live by wages, with land as an
extra resource, and of people who can.

in case of necessity, subsist entirely
on their land, and only work for hire
to add to their comforts. Wages are
likely to be high where none are com-
pelled by necessity to sell their labour.
" People who have at home some kind
of property to apply their labour to,
will not sell their labour for wages
that do not afford them a better diet
than potatoes and maize, although in
saving for themselves, they may live
veiy much on potatoes and maize. We
are often surprised in travelling on
the Continent, to hear of a rate of
day's wages very high, considering the
abundance and cheapness of food. It
is want of the necessity or inclina-
tion to take work, that makes day-
labour scarce, and, considering the
price of provisions, dear, in many parts
of the Continent, where property in
land is widely diffused among the
people."* There are parts of the Con-
tinent where, even of the inhabitants
of the towns, scarcely one seems to be
exclusively dependent on his ostensible
employment ; and nothing else can ex-
plain the high price they put on their
services, and the carelessness they
evince as to whether they are em-
ployed at all. But the effect would be
far different if their land or other
resources gave them only a fraction of
a subsistence, leaving them under an
undiminished necessity of selling their
labour for wages in an overstocked
market. Their land would then merely
enable them to exist on smaller wages,
and to carry their multiplication so
much the further before reaching the
point below which they either could
not, or would not, descend.

To the view I have taken of tho
effect of allotments, I see no argument
which can be opposed, but that em-
ployed by Mr. Thornton,-f- with whom
on this subject I am at issue. His
defence of allotments is grounded on
the general doctrine, that it is only the
very poor who multiply without regard
to consequences, and that if the con-
dition of the existing generation could
be greatly improved, which he thinks

* Laing's Note* of a Traveller, p. 456.
t See Thornton on Over-Populatio»,f&\.
viii

REMEDIES FOR LOW WAGES.

225

might be done by the allotment system,
their successors would grownup with
an increased standard of requirements,
ami would not have families until they
could keep them in as much comfort as
that in which they had been brought
up themselves. I agree in as much of
this argument as goes to prove that a
Biiddeu and very great improvement in
the condition of the poor, has always,
through its effect on their habits of
life, a chance of becoming permanent.
What happened at the time of the
French Revolution is an example. But
I cannot think that the addition of a
quarter or even half an acre to every
labourer's cottage, and that too at a
rack rent, would (after the fall of wages
which would be necessary to absorb
the already existing mass of pauper
labour) make so great a difference in
the comforts of the family for a gene-
ration to come, as to raise up from
childhood a labouring population with
a really higher permanent standard of
requirements and habits. So small a
portion of land could only be made a
permanent benefit, by holding out en-
couragement to acquire by industry
nnd saving, the means of buying it out-
right : a permission which, if exten-
sively made use of, would be a kind of

education in forethought and frugality
to the entire class, the effects of which
might not cease with the occasion .
The benefit would however arise, not
from what was given them, but from
what they were stimulated to acquire
No remedies for low wages have the
smallest chance of being efficacious,
which do not operate on and through
the minds and habits of the people.
While these are unaffected, any con-
trivance, even if successful, for terupo-
rarily improving the condition of tlio
very poor, would but let slip the reins
by which population was previously
curbed ; and could only, therefore, con
tinue to produce its effect, if, by the
whip and spur of taxation, capital
were compelled to follow at an equally
accelerated pace. But this process
could not possibly continue for long
together, and whenever it stopped, it
would leave the country with an in-
creased number of the poorest class,
and a diminished proportion of all ex-
cept the poorest, or, if it continued
long enough, with none at all. For
"to this complexion must come at
last" all social arrangements, which
remove the natural checks to popula-
tion without substituting any others.

CHAPTER XIII.

THE REMEDIES FOR LOW WAGES FURTHER CONSIDERED.

§ 1. BY what means, then, is po-
verty to be contended against? How
is the evil of low wages to be reme-
died ? It' the expedients usually
recommended for the purpose are not
adapted to it, can no others be thought
of y Is the problem incapable of solu-
tion? Can political economy do
nothing, but only object to everything,
and demonstrate that nothing can be
dm ie y

It' tli is were so, political economy
might have a needful, but would have
a melancholy, and a thankless task.
If the bulk of the human race are

always to remain as at present, slaves
to toil in which they have no interest,
and therefore feel no interest — d nidg-
ing from early morning till late at
night for bare necessaries, and with all
the intellectual and moral deficiencies
which that implies — without resources
either in mind or feelings — untaught,
for they cannot be better taught than
fed ; selfish, for all their thoughts are
required for themselves ; without inte-
rests or sentiments as citizens and
members of society, and with a sense
of injustice rankling in their minds,
equally for what they have not, and

226

BOOK II. CHAPTER XHI. § 1.

for what others have ; I know not
what there is which should make a
person with any capacity of reason,
concern himself about the destinies of
the human race. There would be no
wisdom for any one but in extracting
from life, with Epicurean indifference,
as much personal satisfaction to him-
self and those with whom he sympa-
thizes, as it can yield without injury
to any one, and letting the unmeaning
bustle of so-called civilized existence
roll by unheeded. But there is no
ground for such a view of human
affairs. Poverty, like most social evils,
exists because men follow their brute
instincts .without due consideration.
But society is possible, precisely be-
cause man is not necessarily a brute.
Civilization in every one of its aspects
is a struggle against the animal in-
stincts. Over some even of the strongest
of them, it has shown itself capable of
acquiring abundant control. It has
artificiulized large portions of mankind
to such an extent, that of many of
their most natural inclinations they
have scarcely a vestige or a remem-
brance left. If it has not brought the
instinct of population under as much
restraint as is needful, we must
remember that it has never seriously
tried. What efforts it has made, have
mostly been in the contrary direction.
Religion, morality, and statesmanship
have vied with one another in incite-
ments to marriage, and to the multi-
plication of the species, so it be but in
wedlock. Religion has not even yet
discontinued its encouragements. The
Roman Catholic clergy (of any other
clergy it is unnecessary to speak, since
no other have any considerable influ-
ence over the poorer classes) every-
where think it their duty to promote
marriage, in order to prevent fornica-
tion. There is still in many minds a
strong religious prejudice against the
true doctrine. The rich, provided the
consequences do not touch themselves,
think it impugns the wisdom of Provi-
dence to suppose that misery can result
from the operation of a natural pro-
pensity : the poor think that " God
never sends mouths but he sends meat."
No one would guess from the language

of either, that man had any voice or
choice in the matter. So complete is
the confusion of ideas on the whole
subject : owing in a great degree to
the mystery in which it is shrouded by
a spurious delicacy, which prefers that
right and wrong should be mismea-
sured and confounded on one of the
subjects most momentous to human
welfare, rather than that the subject
should be freely spoken of and dis-
cussed. People are little aware of the
cost to mankind of this scrupulosity of
speech. The diseases of society can,
no more than corporal maladies, be
prevented or cured without being
spoken about in plain language. All
experience shows that the mass of
mankind never judge of moral ques-
tions for themselves, never see any-
thing to be right or wrong until they
have been frequently told it ; and who
tells them that they have any duties
in the matter in question, while they
keep within matrimonial limits ? Who
meets with the smallest condemnation,
or rather, who does not meet with sym-
pathy and benevolence, for any amount
of evil which he may have brought
upon himself and those dependent on
him, by this species of incontinence ?
While a man who is intemperate in
drink, is discountenanced and despised
by all who profess to be moral people,
it is one of the chief grounds mado
use of in appeals to the benevolent,
that the applicant has a large family
and is unable to maintain them.*

One cannot wonder that silence on
this great department of human duty
should produce unconsciousness of moral
obligations, when it produces oblivion
of physical facts. That it is possible
to delay marriage, and to live in ab-
stinence while unmarried, most people
are willing to allow : but when persons
are once married, the idea, in this
country, never seems to enter any one's
mind that having or not having a
family, or the number of which it shall

* Little improvement can be expected in
morality until the producing large families
is regarded with the same feelings as drunken-
ness or any other physical excess. But while
the aristocracy and clergy are foremost to set
the example of this kind of incontinence,
what can be expected from the poor ?

RKMKDIES FOR LOW WAGES.

227

consist, is amenable to their own control.
One would imagine that children were
rained down upon married people,
direct from heaven, without their being
art or part in the matter ; that it was
really, as the common phrases have it,
God's will, and not their own, which
decided the numbers of their offspring.
Let us see what is a Continental philo-
sopher's opinion on this point ; a man
among the most benevolent of his time,
and the happiness of whose married
life has been celebrated.

" NVhen dangerous prejudices," says
Sismondi,* " have not become accre-
dited, when a morality contrary to our
true duties towards others,and especially
towards those to whom we have given
life, is not inculcated in the name of
the most sacred authority ; no prudent
man contracts matrimony before he is
in a condition which gives him an
assured means of living, and no married
man has a greater number of children
than he can properly bring up. The
head of a family thinks, with reason,
that his children may be contented
with the condition in which he himself
has lived ; and his desire will be that
the rising generation should represent
exactly the departing one: that one
son and one daughter arrived at the
marriageable age should replace his
own father and mother ; that the
children of his children should in their
turn replace himself and his wife ; that
his daughter should find in another
family the precise equivalent of the lot
which will be given in his own family
to the daughter of another, and that
the income which sufficed for the
parents will suffice for the children."
In a country increasing in wealth,
some increase of numbers would be
admissible, but that is a question of
detail, not of principle. "Whenever
this family has been formed, justice and
humanity require that he should im-
pose on himself the same restraint
which is submitted to by the unmarried.
When we consider how small, in every
country, is the number of natural
children, we must admit that this re-
straint is on the whole sufficiently efiec-

* NtK Prineiflet <jf Political Economy,
book vii., ch. 5.

tual. In a country where population
has no room to increase, or in which
its progress must be so slow as to be
hardly perceptible, when there are no
places vacant for new establishments,
a father who has eight children must
expect, either that six of them will die
in childhood, or that three men and
three women among his cotemporaries,
and in the next generation three of
his sons and three of his daughters,
will remain unmarried on his account."

§ 2. Those who think it hopeless
that the labouring classes should be
Induced to practise a sufficient degree
of prudence in regard to the increase
of their families, because they have
hitherto stopt short of that point, show
an inability to estimate the ordinary
principles of human action. Nothing
more would probably be necessary to
secure that result, than an opinion
generally diffused that it was desir-
able. As a moral principle, such an
opinion has never yet existed in any
country : it is curious that it does not
so exist in countries in which, from the
spontaneous operation of individual
forethought, population is, compara-
tively speaking, efficiently repressed.
Wrhat is practised as prudence, is still
not recognised as duty ; the talkers
and writers are mostly on the other
side, even in France, where a senti-
mental horror of Malthus is almost as
rife as in this country. Many causes
may be assigned, besides the modern
date of the doctrine, for its not having
yet gained possession of the general
mind. Its truth has, in some respects,
been its detriment. One may be per-
mitted to doubt whether, except among
the poor themselves (for whose pre-
judices on this subject there is no diffi-
culty in accounting) there has ever
yet been, in any class of society, a
sincere and earnest desire that wages
should be high. There has been plenty
of desire to keep down the poor-rate
but, that done, people have been very
willing that the working classes should
be ill off. Nearly all who are not
labourers themselves, are employers
of labour, and are not sorry to get tho
commodity cheap. It is a fact, that
Q2

228

BOOK II. CHAPTER XIII. § 2.

even Boards of Guardians, who are sup-
posed to be official apostles of anti-
population doctrines, will seldom hear
patiently of anything which they are
pleased to designate as Malthusianism.
Boards of Guardians in rural districts,
principally consist of farmers, and
farmers, it is well known, in general
dislike even allotments, as making
the labourers " too independent." From
the gentry, who are in less immediate
contact and collision of interest with
the labourers, better things might be
expected, and the gentry of England
are usually charitable. But charitable
people have human infirmities, and
would, very often, be secretly not a
little dissatisfied if no one needed their
charity : it is from them one oftenest
hears the base doctrine, that God has
decreed there shall always be poor.
When one adds to this, that nearly
every person who has had in him any
active spring of exertion for a social
object, has had some favourite reform
to effect, which he thought the admis-
sion of this great principle would throw
into the shade ; has had corn laws to
repeal, or taxation to reduce, or small
notes to issue, or the charter to carry,
or the church to revive or abolish, or
the aristocracy to pull down , and looked
upon every one as an enemy who
thought anything important except
his object ; it is scarcely wonderful
that since the population doctrine was
first promulgated, nine-tenths of the
talk has always been against it, and
the remaining tenth only audible at
intervals ; and that it has not yet
penetrated far among those who might
be expected to be the least willing re-
cipients of it, the labourers themselves.
But let us try to imagine what
would happen if the idea became
general among the labouring class,
that the competition of too great
numbers was the principal cause of
their poverty; so that every labourer
looked (with Sismondi) upon every
other who had more than the number
of children which the circumstances of
society allowed to each, as doing him
a wrong — as filling up the place which
he was entitled to share. Any one
who supposes that this state of opinion

would not have a great effect on con-
duct, must be profoundly ignorant of
human nature ; can never have con-
sidered how large a portion of tlio
motives which induce the generality
of men to take care even of their own
interests, is derived from regard for
opinion — from the expectation of being
disliked or despised for not doing it.
In the particular case in question, it is
not too much to say that over-indul-
gence is as much caused by the sti-
mulus of opinion as by the mere animal
propensity ; since opinion universally,
and especially among the most un-
educated classes, has connected ideas
of spirit and power with the strength
of the instinct, and of inferiority with
its moderation or absence ; a perver-
sion of sentiment caused by its being
the means, and the stamp, of a do-
minion exercised over other human
beings. The effect would be great
of merely removing this factitious
stimulus ; and when once opinion shall
have turned itself into an adverse
direction, a revolution will soon take
place in this department of human
conduct. We are often told that the
most thorough perception of the depen-
dence of wages on population will not
influence the conduct of a labouring
man, because it is not the children he
himself can have that will produce any
effect in generally depressing the
labour market. True : and it is also
true, that one soldier's running away
will not lose the battle ; accordingly it
is not that consideration which keeps
each soldier in his rank : it is the dis-
grace which naturally and inevitably
attends on conduct by any one indi-
vidual, which if pursued by a majority,
everybody can see would be fatal.
Men are seldom found to brave the
general opinion of their class, unless
supported either by some principle
higher than regard for opinion, or by
some strong body of opinion elsewhere.
It must be borne in mind also, that
the opinion here in question, as soon as
it attained any prevalence, would have
powerful auxiliaries in the great ma-
jority of women. It is seldom by the
choice of the wife that families are too
numerous ; on her devolves (along

REMEDIES FOR LOW WAGES.

229

urith all the physical suffering and at
lra>t a. full share of the privations) the
•whole of the intolerahle domestic drud-
gery resulting from the excess. To be
relieved from it would be hailed as a
blessing by multitudes of women who
now never venture to urge such a
claim, but who would urge it, if sup-
ported by the moral feelings of the
community. Among the barbarisms
which law and morals have not yet
ceased to sanction, the most disgusting
Burcly is, that any human being should
be permitted to consider himself as
having a riyht to the person of another.

If the opinion were once generally
established among the labouring class
that their welfare required a due regu-
lation of the numbers of families, the
respectable and well-conducted of the
body would conform to the prescrip-
tion, and only those would exempt
themselves from it, who were in the
habit of making light of social obliga-
tions generally ; and there would be
then an evident justification for con-
verting the moral obligation against
bringing children into the world who
are a burthen to the community, into
a legal one; just as in many other
cases of the progress of opinion, the
law ends by enforcing against recal-
citrant minorities, obligations which to
be useful must be general, and which,
from a sense of their utility, a large
majority have voluntarily consented
to take upon themselves. There would
be no need, however, of legal sanctions,
if women were admitted, as on all
other grounds they have the clearest
title to be, to the same rights of
citizenship with men. Let them cease
to be confined by custom to one phy-
sical function as their means of living
and their source of influence, and they
would have for the first time an equal
voice with men in .what concerns that
function : and of all the improvements
in reserve for mankind whicn it is now
possible to foresee, none might be
expected to be so fertile as this in
almost every kind of moral and social
benefit.

It remains to consider what chance
there is that opinions and feelings,
grounded on the law of the dependence

of wages on population, will arise
among the labouring classes ; and by
what means such opinions and feelings
can be called forth. Before consider-
ing the grounds of hope on this subject,
a hope which many persons, no doubt,
will be ready, without consideration, to
pronounce chimerical, I will remark,
that unless a satisfactory answer can
be made to these two questions, the
industrial system prevailing in this
country, and regarded by many writers
as the ne plus ultra of civilization — •
the dependence of the whole labouring
class of the community on the wages
of hired labour — is irrevocably con-
demned. The question we are con-
sidering is, whether, of this state of
things, over-population and a degraded
condition of the labouring class arc
the inevitable consequence. If a
prudent regulation of population be
not reconcilable with the system of
hired labour, the system is a nuisance,
and the grand object of economical
statesmanship should be (by whatever
arrangements of property, and altera-
tions in the modes of applying industry),
to bring the labouring people under the
influence of stronger and more obvious
inducements to this kind of prudence,
than the relation of workmen and
employers can afford.

But there exists no such incom-
patibility. The causes of poverty are
not so obvious at first sight to a popu-
lation of hired labourers, as they are
to one of proprietors, or as they would
be to a socialist community. They
are, however, in no way mysterious.
The dependence of wages on the num-
ber of the competitors for employment,
is so far from hard of comprehension, or
unintelligible to the labouring classes,
that by great bodies of them it is
already recognised and habitually acted
on. It is familiar to all Trades Unions ;
every successful combination to keep
up wages, owes its success to contri-
vances for restricting the number of
the competitors ; all skilled trades are
anxious to keep down their own num-
bers, and many impose, or endeavour
to impose, as a condition upon em-
ployers, that they shall not take more
than a prescribed number of appreo

230

BOOK II. CHAPTER XIII. § 3.

tices. There is, of course, a great
difference between limiting their num-
bers by excluding other people, and
doing the same thing by a restraint
imposed on themselves : but the one
as much as the other shows a clear
perception of the relation between
their numbers and their remuneration.
The principle is understood in its ap-
plication to any one employment, but
not to the general mass of employment.
For this there are several reasons :
first, the operation of causes is more
easily and distinctly seen in the more
circumscribed field: secondly, skilled
utizana are a more intelligent class
than ordinary manual labourers ; and
the habit of concert, and of passing in
review their general condition as a
trade, keeps up a better understanding
of their collective interests : thirdly and
lastly, they are the most provident,
because they are the best off, and have
the most to preserve. What, how-
ever, is clearly perceived and admitted
in particular instances, it cannot be
hopeless to see understood and acknow-
ledged as a general truth. Its recog-
nition, at least in theory,' seems a
thing which must necessarily and
immediately come to pass, when the
minds of the labouring classes become
capable of taking any rational view of
their own aggregate condition. Of
this the great majority of them have
until now been incapable, either from
the uncultivated state of their intelli-
gence, or from poverty, which leaving
them neither the fear of worse, nor the
smallest hope of better, makes them
careless of the consequences of their
actions, and without thought for the
future.

§ 3. For the purpose therefore of
altering the habits of the labouring
people, there is need of a twofold action,
directed simultaneously upon their in-
telligence and their poverty. An effec-
tive national education of the children
of the labouring class, is the first thing
needful: and, coincidently with this,
a system of measures which shall (as
the Revolution did in France) ex-
tinguish extreme poverty for one whole
generation.

This is not the place for discussing,
even in the most general manner,
either the principles or the machinery
of national education. But it is to be
hoped that opinion on the subject is
advancing, and that an education of
mere words would not now be deemed
sufficient, slow as our progress is to-
wards providing anything better even
for the classes to whom society pro-
fesses to give the very best education
it can devise. Without entering into
disputable points, it may be asserted
witnout scruple, that the aim of all in-
tellectual training for the mass of the
people, should be to cultivate common
sense ; to qualify them for forming a
sound practical judgment of the cir-
cumstances by which they are sur-
rounded. Whatever, in the intellectual
department, can be superadded to
this, is chiefly ornamental ; while this
is the indispensable groundwork on
which education must rest. Let this
object be acknowledged and kept in
view as the thing to be first aimed at,
and there will be little difficulty in de-
ciding either what to teach, or in what
manner to teach it.

An education directed to diffuse good
sense among the people, with such
knowledge as would qualify them to
judge of the tendencies of their actions,
would be certain, even without any
direct inculcation, to raise up a public
opinion by which intemperance and
improvidence of every kind would be
held discreditable, and the improvi-
dence which overstocks the labour
market would be severely condemned,
as an offence against the commou
weal. But though the sufficiency oi
such a state of opinion, supposing it
formed, to keep the increase of popu-
lation within proper limits, cannot, I
think, be doubted ; yet, for the forma-
tion of the opinion, it would not do to
trust to education alone. Education
is not compatible with extreme poverty.
It is impossible effectually to teach an
indigent population. And it is diffi-
cult to make those feel the value of
comfort who have never enjoyed it, or
those appreciate the wretchedness of
a precarious subsistence, who have
be«'n made reckless by alwaya living

REMEDIES FOR LOW WAGES.

231

from hand to mouth. Individuals often
struggle upwards into a condition of
ease ; but the utmost that can be ex-
pected from a whole people is to main-
tain themselves in it ; and improvement
in the habits and requirements of the
mass of unskilled day-labourers will
be difficult and tardy, unless means
can be contrived of raising the entire
b< nly to a state of tolerable comfort, and
maintaining them in it until a new
generation grows up.

Towards effecting this object there
are two resources available, without
wrong to any one, without any of the
liabilities of mischief attendant on
voluntary or legal charity, and not
only without weakening, but on the
contrary strengthening, every incen-
tive to industry, and every motive to
forethought.

§ 4. The first is, a great national
measure of colonization. I mean, a
grant of public money, sufficient to
remove at once, and establish in the
colonies, a considerable fraction of the
youthful agricultural population. By
giving the preference, as Mr. Wake-
tipld proposes, to young couples, or
•when these cannot be obtained, to
families with children nearly grown
up, the expenditure would be made to
go the farthest possible towards accom-
plishing the end, while the colonies
would be supplied with the greatest
amount of what is there in deficiency
and here in superfluity, present and
prospective labour. It has been shown
by others, and the grounds of the opi-
nion will be exhibited in a subsequent
part of the present work, that coloni-
zation on an adequate scale might be
so conducted as to cost the country
nothing, or nothing that would not
be certainly repaid ; and that the funds
required, even by way of advance,
would not be drawn from the capital
employed in maintaining labour, but
from that surplus which cannot find
employment at such profit as consti-
tutes an adequate remuneration for
the abstinence of the possessor, and
which is therefore sent abroad for in-
vestment, or wasted at home in reck-
less speculations. That portion of the

income of the country which is habi-
tually ineffective for any purpose of
benefit to the labouring class, would
bear any draught which it could ba
necessary to make on it for the amount
of emigration which is here in view.

The second resource would be, to
devote all common land, hereafter
brought into cultivation, to raising a
class of small proprietors. It has long
enough been the practice to take these
lands from public use, for the mere
purpose of adding to the domains of
the rich. It is time that what is left
of them should be retained as an estate
sacred to the benefit of the poor. The
machinery for administering it already
exists, having been created by the
General Inclosure Act. What I would
propose (though, I confess, with small
hope of its being soon adopted) is, that
in all future cases in which common
land is permitted to be enclosed, such
portion should first be sold or assigned
as is sufficient to compensate the
owners of manorial or common rights,
and that the remainder should be
divided into sections of five acres or
thereabouts, to be conferred in abso-
lute property on individuals of the
labouring class who would reclaim and
bring them into cultivation by their
own labour. The preference should
be given to such labourers, and there
are many of them, as had saved enough
to maintain them until their first crop
was got in, or whose character was
such as to induce some responsible
person to advance to them the requisite
amount on their personal security.
The tools, the manure, and in some
cases the subsistence also, might be
supplied by the parish, or by the state ;
interest for the advance, at the rate
yielded by the public funds, being laid
on as a perpetual quit-rent, with power
to the peasant to redeem it at any time
for a moderate number of years pur-
chase. These little landed estates
might, if it were thought necessary, be
made indirisible by law ; though, if tha

?lan worked in the manner designed,
should not apprehend any objection-
able degree of subdivision. In case of
intestacy, and in default of amicable
arrangement among the heirs, they

232 BOOK II.

might be bought by government at
their value, and regranted to some
other labourer who could give security
for the price. The desire to possess
one of these small properties would
probably become, as on the Continent,
;in inducement to prudence and eco-
ii:>my pervading the whole labouring
population ; and that great desideratum
among a people of hired labourers
would be provided, an intermediate
class between them and their em-
ployers ; affording them the double
advantage, of an object for their hopes,
and, as there would be good reason to
anticipate, an example for their imi-
tation.

It would, however, be of little avail
that either or both of these measures
of relief should be adopted, unless on
such a scale, as would enable the
whole body of hired labourers remain-
ing on the soil to obtain not merely
employment, but a large addition to
the present wages — such an addition
as would enable them to live and bring
up their children in a degree of com-
fort and independence to which they
have hitherto been strangers. When
the object is to raise the permanent
condition of a people, small means do
not merely produce small effects, they
produce no effect at all. Unless com-
fort can be made as habitual to a
whole generation as indigence is now,
nothing is accomplished; and feeble
half-measures do but fritter away re-
sources, far better reserved until the
improvement of public opinion and of
education shall raise up politicians
who will not think that merely because
a scheme promises much, the part of
statesmanship is to have nothing to do
with it.

I have left the preceding paragraphs
RS they were written, since they remain
true in principle, though it is no
longer urgent to apply their specific
recommendations to the present state
of tliis country. The extraordinary

CHAPTER XIII. § 4.

cheapening of the means of transport,
which is one of the great scientific
achievements of the age, and the know-
ledge which nearly all classes of tho
people have now acquired, or are in the
way of acquiring, of the condition of
the labour market in remote parts of
the world, have opened up a spon-
taneous emigration from these islands
to the new countries beyond the ocean,
which does not tend to diminish, but
to increase ; and which, without any
national measure of systematic colo-
nization, may prove sufficient to
effect a material rise of wages in
Great Britain, as it has already done
in Ireland, and to maintain that rise
unimpaired for one or more generations.
Emigration, instead of an occasional
vent, is becoming a steady outlet for
superfluous numbers ; and this new
fact in modern history, together with
the flush of prosperity occasioned by
free trade, have granted to this over-
crowded country a temporary breathing
time, capable of being employed in
accomplishing those moral and intel-
lectual improvements in all classes of
the people, the very poorest included,
which would render improbable any
relapse into the overpeopled state.
'Whether this golden opportunity will
be properly used, depends on the
wisdom of our councils ; and whatever
depends on that, is always in a high
degree precarious. The grounds of
hope are, that there has been no time
in our history when mental progress
has depended so little on governments,
and so much on the general disposition
of the people ; none in which the spirit
of improvement has extended to so
many branches of human affairs at
once, nor in which all kinds of sugges-
tions tending to the public good, in
every department, from the humblest
physical to the highest moral or intel-
lectual, were heard with so little pre-
judice, and had so good a chance of
becoming known and being fairly con
sidered.

CES OF WAGES.

283

CHAPTER XIV.

OF THE DIFFERENCES OP WAGES IN DIFFERENT EMPLOYMENTS.

5 1. IN treating of wages, wo have
liithcrto confined ourselves to the
causes wbicli operate on them gene-
rally, and en masse; the laws which
govern the remuneration of ordinary
or average labour: without reference
to the existence of different kinds of
work which are habitually paid at
different rates, depending in some de-
gree on different laws. We will now
take into consideration these diffe-
rences, and examine in what manner
they affect or are affected by the con-
clusions already established.

A well-known and very popular
chapter of Adam Smith* contains the
best exposition yet given of this por-
tion of the subject. I cannot indeed
think his treatment so complete and
exhaustive as it has sometimes been
considered; but as far as it goes, his
analysis is tolerably successful.

The differences, he says, arise partly
from the policy of Europe, which no-
where leaves things at perfect liberty,
and partly " from certain circumstances
in the employments themselves, which
either really, or at least in the imagi-
nations of men, make up for a small
pecuniary gain in some, and counter-
balance a great one in others." These
circumstances he considers to be :
" First, the agreeableness or disagree-
ableness of the employments them-
selves ; secondly, the "easiness and
cheapness, or the difficulty and expense
of learning them ; thirdly, the con-
stancy or inconstancy of employment
in them ; fourthly, the small or great
trust which must be reposed in those
who exercise them ; and fifthly, the
probability or improbability of success
in them."

Several of these points he has very
copiously illustrated : though his exam-
ples are sometimes drawn from a state
of facts now no longer existing. " The
wages of labour vary with the ease or

• Wealth of Nation*, book i. ch. 10.

hardship, the cleanliness or dirtiness,
the honourableness or dishonourable-
ness of the employment. Thus, in
most places, tako the year round, a
journeyman tailor earns less than »
journeyman weaver. His work v
much easier." Things have muclv
altered, as to a weaver's remuneration,
since Adam Smith's time ; and the
artizan whose work was more difficult
than that of a tailor, can never, I
think, have been the common weaver.
" A journeyman weaver earns less
than a journeyman smith. His work
is not always easier, but it is much
cleanlier.1' A more probable explana-
tion is, that it requires less bodily
strength. "A journeyman black-
smith, though an artificer, seldom earns
so much in twelve hours as a collier,
who is only a labourer, does in eight.
His work is not quite so dirty, is less
dangerous, and is carried on in day-
light, and above ground. Honour
makes a great part of the reward of
all honourable professions. In point
of pecuniary gain, all things consi-
dered," their recompense is, in his opi-
nion, below the average. "Disgrace
has the contrary effect. The trade of
a butcher is a brutal and an odious
business ; but it is in most places more
profitable than the greater part of
common trades. The most detestable
of all employments, that of public exe-
cutioner, is, in proportion to the quan-
tity of work done, better paid than any
common trade whatever.1'

One of the causes which make
hand-loom weavers cb'ng to their occu-
pation in spite of the scanty remunera-
tion which it now yields, is said to be
a peculiar attractiveness, arising from
the freedom of action which it allows
to the workman. "He can play or
idle," says a recent authority,* "as
feeling or inclination lead him ; rise

* Mr. Muggeridge's Report to the Hand-
loom Weavers Inquiry Commission.

234

BOOK II. CHAPTER XIV. § 1.

early or late, apply himself assiduously
or carelessly, as be pleases, and work
up at any time, by increased exertion,
hours previously sacrificed to indul-
gence or recreation. Tbere is scarcely
another condition of any portion of
our working population thus free from
external control. The factory opera-
tive is not only mulcted of his wages
for absence, but, if of frequent occur-
rence, discharged altogether from his
employment. The bricklayer, the car-
penter, the painter, the joiner, the
stonemason, the outdoor labourer, have
each their appointed daily hours of
labour, a disregard of which would lead
to the same result." Accordingly,
" the weaver will stand by his loom
while it will enable him to exist, how-
ever miserably ; and many, induced
temporarily to quit it, have returned
to it again, when work was to be
had."

"Employment is much more con-
stant," continues Adam Smith, "in
some trades than in others. In the
greater part of manufactures, a jour-
neyman may be pretty sure of employ-
ment almost every day in the year
that he is able to work" (the interrup-
tions of business arising from over-
stocked markets, or from a suspension
of demand, or from a commercial crisis,
must be excepted). " A mason or
bricklayer, on the contrary, can work
neither in hard frost nor in foul weather,
and his employment at all other times
depends upon the occasional calls of
his customers. He is liable, in conse-
quence, to be frequently without any.
What he earns, therefore, while he is
employed, must not only maintain him
while he is idle, but make him some
compensation for those anxious and
desponding moments which the thought
of so precarious a situation must some-
times occasion. When the computed
earnings of the greater part of manu-
facturers, accordingly, are nearly upon
a level with the day wages of common
labourers, those of masons and brick-
layers are generally from one-half
more to double those wages. No
species of skilled labour, however,
seems more easy to learn than that of
masons and bricklayers. The high

wages of those workmen, tlicrefore,
are not so much the recompense of
their skill, as the compensation
for the inconstancy of their employ-
ment.

" When the inconstancy of the
employment is combined with the
hardship, disagreeableness, and dirti-
ness of the work, it sometimes raises
the wages of the most common labour
above those of the most skilful artificers.
A collier working by the piece is
supposed, at Newcastle, to earn com-
monly about double, and in m.iny
parts of Scotland about three times,
the wages of common labour. His
high wages arise altogether from the
hardship, disagreeablcness, and dirti-
ness of his work. His employment
may, upon most occasions, be as con-
stant as he pleases. The coal-heavere
in London exercise a trade which in
hardship, dirtiness, and disagreeable-
ness, almost equals that of colliers ;
and from the unavoidable irregularity
in the arrivals of coalships, the employ-
ment of the greater part of them is
necessarily very inconstant. If col-
liers, therefore, commonly earn double
and triple the wages of common labour,
it ought not to seem unreasonable that
coal-heavers should sometimes earn
four or five times those wages. In the
inquiry made into their condition a few
years ago, it was found that at the
rate at which they were then paid,
they could earn about four times the
wages of common labour in London.
How extravagant soever these earn-
ings may appear, if they were more
than sufficient to compensate all the
disagreeable circumstances of the
business, there would soon be so great
a number of competitors as, in a trade
which has no exclusive privilege, would
quickly reduce them to a lower rate."

These inequalities of remuneration,
which are supposed to compensate for
the disagreeable circumstances of par-
ticular employments, would, under cer-
tain conditions, be natural conse-
quences of perfectly free competition :
and as between employments of about
the same grade, and filled by nearly
the same description of people, they
are, no doubt, for the most part,

DIFFERENCES OP WAGES.

235

reali'/ed in practice. But it is alto-
gether a false view of the state of
facts, to present this as the relation
which generally exists between agree-
able and disagreeable employments.
The really exhausting and the really
repulsive labours, instead of being
better paid than others, are almost in-
variably paid the worst of all, because
ferformed by those who have no choice.
t would be otherwise in a favourable
state of the general labour market. If
the labourers in the aggregate, instead
of exceeding, fell short of the amount
of employment, work which was gene-
rally disliked would not be undertaken,
except for more than ordinary wages.
But when the supply of labour so far
exceeds the demand that to find em-
ployment at all is an uncertainty, and
to be offered it on any terms a favour,
the case is totally the reverse. Desi-
rable labourers, those whom every one
is anxious to have, can still exercise a
chnia'. The undesirable must take
what they can get. The more revolt-
ing the occupation, the more certain it
is to receive the minimum of remunera-
tion, because it devolves on the most
helpless and degraded, on those who
from squalid poverty, or from want of
skill and education, are rejected from
all other employments. Partly from
this cause, and partly from the natural
and artificial monopolies which will be
spoken of presently, the inequalities of
wages are generally in an opposite
direction to the equitable principle of
compensation erroneously represented
by Adam Smith as the general law of
the remuneration of labour. The hard-
ships and the earnings, instead of being
directly proportional, as in any just
arrangements of society they would be,
are generally in an inverse ratio to one
another.

One of the points best illustrated by
Adam Smith, is the influence exercised
on the remuneration of an employment
by the uncertainty of success in it. If
the chances are great of total failure,
the reward in case of success must be
sufficient to make up, in the general
estimation, for those adverse chances.
But, owing to another principle of
human nature, if the reward comes in

the shape of a few great priz«s, it
usually attracts competitors in such
numbers, that the average remunera-
tion may be reduced not only to zero,
but even to a negative quantity. The
success of lotteries proves that this is
possible : since the aggregate body of
adventurers in lotteries necessarily
lose, otherwise the undertakers could
not gain. The case of certain pro-
fessions is considered by Adam Smith
to be similar. " The probability that
any particular person shall ever be
qualified for the employment to which
He is educated, is very different in
different occupations. In the greater
part of mechanic trades, success is
almost certain, but very uncertain in
the liberal professions. Put your son
apprentice to a shoemaker, there is
little doubt of his learning to mak*
a pair of shoes ; but send him tc
study the law, it is at least twenty to
one if ever he makes such proficiency
as will enable him to live by the busi-
ness. In a perfectly fair lottery, those
who draw the prizes ought to gain all
that is lost by those who draw the
blanks. In a profession where twenty
fail for one that succeeds, that one
ought to gain all that should have
been gained by the unsuccessful twenty.
The counsellor-at-law, who, perhaps, at
near forty years of age, begins to make
something by his profession, ought to
receive the retribution, not only of his
own so tedious and expensive educa-
tion, but of that of more than twenty
others who are never likely to make
anything by it. How extravagant
soever the fees of counsellors-at-law
may sometimes appear, their real retri-
bution is never equal to this. Com-
pute in any particular place what is
likely to be annually gained, and what
is likely to be annually spent, by all
the different workmen in any common
trade, such as that of shoemakers or
weavers, and you will find that th»
former sum will generally exceed the
latter. But make the same computf.-
tion with regard to all the counsellor
and students of law, in all the different
inns of court, and you will find that
their annual gains bear but a small
proportion to their annual expense,

fcOOK 11. CHAPTER XIV. § 2.

even though you rate the former as
high, and the latter as low, as can
well be done."

Whether this is true in our own day,
when the gains of the few are incom-
parably greater than in the time of
Adam Smith, but also the unsuccessful
aspirants much more numerous, those
who have the appropriate information
must decide. It does not, however,
seem to be sufficiently considered by
Adam Smith, that the prizes which he
speaks of comprise not the fees of
counsel only, but the places of emolu-
ment and honour to which their pro-
fession gives access, together with the
coveted distinction of a conspicuous
position in the public eye.

Even where there are no great
prizes, the mere love of excitement is
sometimes enough to cause an adven-
turous employment to be overstocked.
This is apparent " in the readiness of
the common people to enlist as soldiers,
or to go to sea. . . . The dangers and
hair-breadth escapes of a life of adven-
tures, instead of disheartening young
people, seem frequently to recommend
a trade to them. A tender mother,
among the inferior ranks of people, is
often afraid to send her son to school
at a sea-port town, lest the sight of the
ships and the conversation and adven-
tures of the sailors should entice him
to go to sea. The distant prospect of
hazards, from which we can hope to
extricate ourselves by courage and
address, is not disagreeable to us, and
does not raise the wages of labour
in any employment. It is otherwise
with those in which courage and
address can be of no avail. In trades
which are known to be very unwhole-
some, the wages of labour are always
remarkably high. Unwholesomeness
is a species of disagreeableness, and
its effects upon the wages of labour
are to be ranked under that general
head."

§ 2. The preceding are cases in
which inequality of remuneration is
necessary to produce equality of attrac-
tiveness, and are examples of the
equalizing effect of free competition.
The following are cases of real in-

equality, and arise from a different
principle. "The wages of labour
vary according to the small or great
trust which must be reposed in the
workmen. The wages of goldsmiths
and jewellers are everywhere superior
to those of many other workmen, not
only of equal, but of much superior
ingenuity ; on account of the precious
materials with which they arc intrusted.
We trust our health to the physician,
our fortune and sometimes our life and
reputation to the lawyer and attorney.
Such confidence could not safely be
reposed in people of a very mean or
low condition. Their reward must be
such, therefore, as may give them that
rank in society which so important
a trust requires."

The superiority of reward is not
here the consequence of competition,
but of its absence; not a compensation
for disadvantages inherent in the em-

Eloyment, but an extra advantage ; a
ind of monopoly price, the effect not
of a legal, but of what has been termed
a natural monopoly. If all labourers
were trustworthy it would not be
necessary to give extra pay to working
goldsmiths on account of the trust.
The degree of integrity required being
supposed to be uncommon, those who
can make it appear that they possess it
are able to take advantage of the
peculiarity, and obtain higher pay in
proportion to its rarity. This opens a
class of considerations which Adam
Smith, and most other political econo-
mists, have taken into far too little
account, and from inattention to which,
he has given a most imperfect exposi-
tion of the wide difference between the
remuneration of common labour and
that of skilled employments.

Some employments require a much
longer time to learn, and a much more
expensive course of instruction thau
others ; and to this extent there is, as
explained by Adam Smith, an inherent
reason for their being more highly
remunerated. If an artizan must
work several years at learning his trade
before he can earn anything, and seve-
ral years more before becoming suffi-
ciently skilful for its finer operations,
he must have a prospect of at last

DIFFERENCES OF WAGES.

23;

earning enough to pay the wages of all
this past labour, with compensation
for the delay of payment, and an
indemnity for the expenses of his
education. His wages, consequently,
must yield, over and above the ordi-
nary amount, an annuity sufficient to
repay these sums, with the common
rate of profit, within the number of
years he can expect to live and be in
working condition. This, which is
necessary to place the skilled employ-
ments, all circumstances taken to-
gether, on the same level of advantage
with the unskilled, is the smallest
difference which can exist for any
length of time between the two remu-
nerations, since otherwise no one would
learn the skilled employments. And
this amount of difference is all which
Adam Smith's principles account for.
When the disparity is greater, he
seems to think that it must be ex-
plained by apprentice laws, and the
rules of corporations, which restrict
admission into many of the skilled
employments. But, independently of
these or any other artificial monopolies,
there is a natural monopoly in favour
c*f skilled labourers against the un-
skilled, which makes the difference of
reward exceed, sometimes in a manifold
proportion, what is sufficient merely to
equalize their advantages. If un-
skilled labourers had it in their power
to compete with skilled, by merely
taking the trouble of learning the
trade, the difference of wages might not
exceed what would compensate them
for that trouble, at the ordinary rate at
which labour is remunerated. But the
fact that a course of instruction is
required, of even a low degree of cost-
liness, or that the labourer must be
maintained for a considerable time
from other sources, suffices everywhere
to exclude the great body of the labour-
ing people from the possibility of any
such competition. Until lately, all
employments which required even the
humble education of reading and
writing, could be recruited only from_a
select class, the majority having had
no opportunity of acquiring those
attainments. All such employments,
accordingly, wore immensely overpaid,

as measured by the ordinary remune-
ration of labour. Since reading and
writing have been brought within the
reach of a multitude, the monopoly
price of the lower grade of educated
employments has greatly fallen, the
competition for them having increased
in an almost incredible degree. There
is still, however, a much greater dis-
parity than can be accounted for on
the principle of competition. A clerk
from whom nothing is required but the
mechanical labour of copying, gains
more than an equivalent for his mere
exertion if he receives the wages of a
bricklayer's labourer. His work is not
a tenth part as hard, it is quite as easy
to learn, and his condition is less pre-
carious, a clerk's place being generally
a place for life. The higher rate of
his remuneration, therefore, must be
partly ascribed to monopoly, the small
degree of education required being not
even yet so generally diffused as to
call forth the natural number of com-
petitors ; and partly to the remaining
influence of an ancient custom, which
requires that clerks should maintain
the dress and appearance of a more
highly paid class. In some manual
employments, requiring a nicety of
hand which can only be acquired by
long practice, it is difficult to obtain at
any cost workmen in sufficient num-
bers, who are capable of the most
delicate kind of work ; and the wages
paid to them are only limited by the
price which purchasers are willing to
give for the commodity they produce.
This is the case with some working
watchmakers, and with the makers of
some astronomical and optical instru-
ments. If workmen competent to such
employments were ten times as nume-
rous as they are, there would be pur-
chasers for all which they could make,
not indeed at the present prices, but at
those lower prices which would be tha
natural consequence of lower wages.
Similar considerations apply in a still
greater degree to employments which
it is attempted to confine to persons of
a certain social rank, such as what are
called the liberal professions ; into
which a person of what is considered
too low a class, of society, is not easily

238

BOOK H. CHAPTER XIV. § 3.

admitted, and if admitted, does not
easily succeed.

So complete, indeed, has hitherto
been the separation, so strongly marked
the line of demarcation, between the
different grades of labourers, as to be
almost equivalent to an hereditary dis-
tinction of caste ; each employment
being chiefly recruited from the chil-
dren of those already employed in it,
or in employments of the same rank
with it in social estimation, or from
the children of persons who, if origi-
nally of a lower rank, have succeeded
in raising themselvesby their exertions.
The liberal professions are mostly sup-
plied by the sons of either the profes-
sional, or the idle classes : the more
highly .skilled manual employments are
filled up from the sons of skilled arti-
zans, or the claes of tradesmen who
rank with them : the lower classes of
skilled employments are in a similar
case ; and unskilled labourers, with
occasional exceptions, remain from
father to son in their pristine condition.
Consequently the wages of each class
have hitherto been regulated by the
increase of its own population, rather
than of the general population of the
country. If the professions are over-
stocked, it is because the class of so-
ciety from which they have always
mainly been supplied, has greatly in-
creased in number, and because most
of that class have numerous families,
and bring up some at least of their sons
to professions. If the wages of artizans
remain so much higher than those of
common labourers, it is because arti-
zans are a more prudent class, and do
not marry so early or so inconsiderately.
The changes, however, now so rapidly
taking place in usages and ideas, are
undermining all these distinctions ; the
habits or disabilities which chained
people to their hereditary condition are
fast wearing away, and every class is
exposed to increased and increasing
competition from at least the class im-
mediately below it. The general re-
laxation of conventional barriers, and
the increased facilities of education
which already are, and will be in a
much greater degree, brought within
the reach of all, ien d to produce, among

many excellent effects, one which is
the reverse ; they tend to bring down
the wages of skilled labour. The in-
equality of remuneration between the
skilled and the unskilled is, without
doubt, very much greater than is justi-
fiable ; but it is desirable that this
should be corrected by raising the un-
skilled, not by lowering the skilled. If,
however, the other changes taking
place in society are not accompanied
by a strengthening of the checks to
population on the part of labourers
generally, there will be a tendency to
bring the lower grades of skilled la-
bourers under the influence of a rate of
increase regulated by a lower standard
of living than their own, and thus to de-
teriorate their condition without raising
that of the general mass ; the stimulus
given to the multiplication of the lowest
class being sufficient to fill up without
difficulty the additional space gained
by them from those immediately above.

§ 3. A modifying circumstance still
remains to be noticed, which interferes
to some extent with the operation of
the principles thus far brought to view.
While it is true, as a general rule, that
the earnings of skilled labour, and es-
pecially of any labour which requires
school education, are at a monopoly
rate, from the impossibility, to the mass
of the people, of obtaining that educa-
tion ; it is also true that the policy of
nations, or the bounty of individuals,
formerly did much to counteract the
effect of this limitation of competition,
by offering eleemosynary instruction
to a much larger class of persons than
could have obtained the same advan-
tages by paying their price. Adam
Smith has pointed out the operation
of this cause in keeping down the re-
muneration of scholarly or bookish oc-
cupations generally, and in particular
of clergymen, literary men, and school-
masters, or other teachers of youth. I
cannot better set forth this part of tho
subject than in his words.

" It has been considered as of so
much importance that a proper number
of young people should be educated for
certain professions, that sometimes the
public, and sometimes the piety 01

DIFFERENCES OF WAGES.

239

private founders, have established
many pensions, scholarships, exhibi-
tions, bursaries, &c. for this purpose,
which draw many more people into
those trades than could otherwise pre-
tend to follow them. In all Christian
countries, I believe, the education of the
part of churchmen is paid for in
this manner. Very few of them are edu-
cated altogether at their own expense.
The long, tedious, and expensive edu-
cation, therefore, of those who are, will
not always procure them a suitable re-
ward, the church beingcrowded with peo-
ple who, in order to get employment, are
willing to accept of a much smaller re-
compense than what such an education
would otherwise have entitled them to ;
and in this manner the competition of
the poor takes away the reward of the
rich. It would be indecent, no doubt,
to compare either a curate or a chap-
lain with a journeyman in any common
trade. The pay of a curate or a chap-
lain, however, may very properly be
considered as of the same nature with
the wages of a journeyman. They
are, all three, paid for their work ac-
cording to the contract which they may
happen to make with their respective
superiors. Till after the middle of the
fourteenth century, five marks, con-
taining as much silver as ten pounds
of our present money, was in England
the usual pay of a curate or a stipen-
diary parish priest, as we find it regu-
lated by the decrees of several different
national councils. At the same period
fourpence a day, containing the same
quantity of silver as a shilling of our
present money, was declared to be the
pay of a master-mason, and threepence
a day, equal to ninepence of our present
money, that of a journeyman mason.*
The wages of both these labourers,
therefore, supposing them to have been
constantly employed, were much supe-
rior to those of the curate. The wages
of the master-mason, supposing him to
have been without employment one-
third of the year, would have fully
equalled them. By the 12th of Queen
Arme, c. 1 2, it is declared ' That
wiuereaa for want of sufficient mainte-

* " 8e<i the Statute of Labourers, 25 Edw.
IU."

nance and encouragement to curates,
the cures have in several places been
meanly supplied, the bishop is there-
fore empowered to appoint by writing
under his hand and seal a sufficient
certain stipend or allowance, not ex-
ceeding fifty, and not less than twenty
pounds a year.' Forty pounds a year
is reckoned at present very good pay
for a curate, and notwithstanding this
act of parliament, there are many cura-
cies under twenty pounds a year. This
last sum does not exceed what is fre-
quently earned by common labourers
in many country parishes. Whenever
the law has attempted to regulate the
wages of workmen, it has always been
rather to lower them than to raise
them. But the law has upon many
occasions attempted to raise the wages
of curates, and for the dignity of the
Church, to oblige the rectors of parishes
to give them more than the wretched
maintenance which they themselves
might be willing to accept of. And
in both cases the law seems to have
been equally ineffectual, and has never
been either able to raise the wages of
curates or to sink those of labourers
to the degree that was intended, be-
cause it has never been able to hinder
either the one from being willing to
accept of less than the legal allowance,
on account of the indigence of their
situation and the multitude of their
competitors ; or the other from re-
ceiving more, on account of the con-
trary competition of those who expected
to derive either profit or pleasure from
employing them."

" In professions in which there are
no benefices, such as law (?) and physic,
if an equal proportion of people were
educated at the public expense, the
competition would soon be so great as
to sink very much their pecuniary
reward. It might then not be worth
any man's while to educate his son to
either of those professions at his own
expense. They would be entirely
abandoned to such as had been edu-
cated by those public charities ; whoso
numbers and necessities would oblige
them in general to content them-
selves with a very miserable recom-
pense.

240

BOOK II. CHAPTER XIV. § 4.

" That unprosperous race of men,
commonly called men of letters, are
pretty much in the situation which
lawyers and physicians probably would
be in upon the foregoing supposition.
In every part of Europe, the greater
part of them have been educated for
the church, but have been hindered
by different reasons from entering into
holy orders. They have generally,
therefore, been educated at the public
expense, and their numbers are every-
where so great as to reduce the price
of their labour to a very paltry recom-
pense.

" Before the invention of the art of
printing, the only employment by
which a man of letters could make
anything by his talents, was that of a
public or private teacher, or by com-
municating to other people the curious
and useful knowledge which he had
acquired himself: and this is still
surely a more honourable, a more use-
ful, and in general even a more pro-
fitable employment than that other of
writing for a bookseller, to which the
art of printing has given occasion.
The time and study, the genius, know-
ledge, and application requisite to
([ualify an eminent teacher of the
sciences, are at least equal to what is
necessary for the greatest practitioners
in law and physic. But the usual re-
ward of the eminent teacher bears no
proportion to that of the lawyer or
physician ; because the trade of the
one is crowded with indigent people
who have been brought up to it at
the public expense, whereas those of
the other two are encumbered with
very few who have not been educated
at their own. The usual recompense,
however, of public and private teachers,
small as it may appear, would un-
doubtedly be less than it is, if the
competition of those yet more indigent
men of letters who write for bread was
not taken out of the market. Before
the invention of the art of printing, a
scholar and a beggar seem to have
been terms very nearly synonymous.
The different governors of the univer-
sities before that time appear to have
often granted licenses to their scholars
to beg."

§ 4. The demand for literary la-
hour has so greatly increased since
Adam Smith wrote, while the provi-
sions for eleemosynary education have
nowhere been much added to, and in
the countries which have undergone
revolutions have been much dimi-
nished, that little effect in keeping
down the recompense of literary labour
can now be ascribed to the influence of
those institutions. But an effect nearly
equivalent is now produced by a cause
somewhat similar — the competition of
persons who, by analogy with other
arts, may be called amateurs. Lite-
rary occupation is one of those pursuits
in which success may be attained by
persons the greater part of whose time
is taken up by other employments ; and
the education necessary for it, is the
common education of all cultivated
persons. The inducements to it, inde-
pendently of money, in the present
state of the world, to all who have
either vanity to gratify, or personal of
public objects to promote, are strong.
These motives now attract into this
career a great and increasing number
of persons who do not need its pecu-
niary fruits, and who would equally re-
sort to it if it afforded no remuneration
at all. In our own country (to cite
known examples), the most influential,
and on the whole most eminent philo-
sophical writer of recent times (Ben-
tham), the greatest political economist
(Ricardo), the most ephemerally cele-
brated, and the really greatest poets
(Byron and Shelley), and the most suc-
cessful writer of prose fiction (Scott),
were none of them authors by profes-
sion ; and only two of the five, Scott
and Byron, could have supported them-
selves by the works which they wrote.
Nearly all the high departments of
authorship are, to a great extent, simi-
larly filled. In consequence, although
the highest pecuniary prizes of suc-
cessful authorship are incomparably
greater than at any former period, yet
on any rational calculation of the
chances, in the existing competition,
scarcely any writer can hope to gain a
living by books, and to do so by maga-
zines and reviews becomes daily more
difficult. It is only the more trouble-

DIFFERENCES OF WAGES.

241

some and disagreeable kinds of literary
labour, and those which confer no per-
sonal celebrity, such as most of those
connected with newspapers, or with the
smaller periodicals, on which an edu-
cated person can now rely for subsist-
ence. Of these, the remuneration is,
on the whole, decidedly high ; because,
though exposed to the competition of
what used to be called " poor scholars"
(persons who have received a learned
education from some public or private
charity), they are exempt from that of
amateurs, those who have other means
of support being seldom candidates for
such employments. Whether these
considerations are not connected with
something radically amiss in the idea
of authorship as a profession, and whe-
ther any social arrangement under
which the teachers of mankind consist
of persons giving out doctrines for
bread, is suited to be, or can possibly
be, a permanent thing — would be a
subject well worthy of the attention of
thinkers.

The clerical, like the literary profes-
nion, is frequently adopted by persons
of independent means, either from reli-
gious zeal, or for the sake of the honour
or usefulness which may belong to it,
or for a chance of the high prizes which
it holds out ; and it is now principally
for this reason that the salaries of
curates are so low ; those salaries,
though considerably raised by the in-
fluence of public opinion, being still
generally insufficient as the sole means
of support for one who has to maintain
the externals expected from a clergy
man of the established church.

When an occupation is carried on
chiefly by persons who derive the main
portion of their subsistence from other
sources, its remuneration may be lower
almost to any extent, than the wages
of equally severe labour in other em-
ployments. The principal example of
the kind is domestic manufactures.
When spinning and knitting were car-
ried on in every cottage, by families
deriving their principal support from
agriculture, the price at which their
produce was sold (which constituted
the remuneration of the labour) was
often so low, that there would have

been required great perfection of ma-
chinery to undersell it. The amount
of the remuneration in such a case,
depends chiefly upon whether the quan-
tity of the commodity, produced by this
description of labour, suffices to supply
the whole of the demand. If it does
not, and there is consequently a neces-
sity for some labourers who devote
themselves entirely to the employment,
the price of the article must be suffi-
cient to pay those labourers at the
ordinary rate, and to reward therefore
very handsomely the domestic pro-
ducers. But if the demand is so h'mited
that the domestic manufacture can do
more than satisfy it, the price is natu-
rally kept down to the lowest rate at
which peasant families think it worth
while to continue the production. It
is, no doubt, because the Swiss artizans
do not depend for the whole of their
subsistence upon their looms, that Zu-
rich is able to maintain a competition
in the European market with English
capital, and English fuel and ma-
chinery.* Thus far, as to the remu-
neration of the subsidiary employment ;
but the effect to the labourers of hav-
ing this additional resource, is almost
certain to be (unless peculiar counter-
acting causes intervene) a propor-
tional diminution of the wages of their
main occupation. The habits of the
people (as has already been so often
remarked) everywhere require some
particular scale of living, and no more,
as the condition without which they
will not bring up a family. Whether
the income which maintains them in
this condition comes from one source
or from two, makes no difference : if
there is a second source of income, they
require less from the first ; and multi-
ply (at least this has always hitherto
been the case) to a point which leaves
them no more from both employments,

* Four-fifths of the manufacturers of the
Canton of Zurich are small farmers, gene-
rally proprietors of their farms. The cotton
manufacture occupies either wholly or par-
tially 23,000 people, nearly a tenth part of the
population; and they consume » greater
quantity of cotton per inhabitant than either
France or England. See the Statistical Ac-
count of Zurich, formerly cited, pp. 105, 103,
110.

B

242

BOOK IT. CHAPTER XIV. § 5.

thaii they would probably have had
from either if it had been their sole
occupation.

For the same reason it is found that,
cceteris paribus, those trades are gene-
rally the worst paid, in which the
wife and children of the artizan aid in
the work. The income which the
habits of the class demand, and down
to which they are almost sure to mul-
tiply, is made up, in those trades, by
the earnings of the whole family, while
in others the same income must be ob-
tained by the labour of the man alone.
It is even probable that their collective
earnings will amount to a smaller sum
than those of the man alone in other
trade < ; because the prudential re-
straint on marriage is unusually weak
when the only consequence imme-
diately felt is an improvement of cir-
cumstances, the joint earnings of the
two going further in their domestic
economy after marriage than before.
Such accordingly is the fact, in the
case of hand-loom weavers. In most
kinds of weaving, women can and do
earn as much as men, and children are
employed at a very early age ; but the
aggregate earnings of a family are
lower than in almost any other kind of
industry, and the marriages earlier. It
is noticeable also that there are cer-
tain branches of hand-loom weaving in
which wages are much above the rate
common in the trade, and that these
are the branches in which neither
women nor young persons are em-
ployed. These facts were authenti-
cated by the inquiries of the Hand-
loom Weavers Commission, which made
its report in 1841. No argument can
be hence derived for the exclusion of
women from the liberty of competing
in the labour market ; since even
when no more is earned by the labour
of a man and a woman than would
have been earned by the man alone,
the advantage to the woman of not de-
pending on a master for subsistence
may be more than an equivalent. It
cannot, however, be considered desir-
able as a permanent element in the
condition of a labouring class, that the
mother of the family (the case of sin-
gle women is totally different) should

be under the necessity of working for
subsistence, at least elsewhere than in
their place of abode. In the case of
children, who are necessarily depend-
ent, the influence of their competition
in depressing the labour market is an
important element in the question of
limiting their labour, in order to pro-
vide better for their education.

§ 5. It deserves consideration, why
the wages of women are generally
lower, and very much lower, than those
of men. They are not universally so.
Where men and women work at the
same employment, if it be one for
which they are equally fitted in point
of physical power, they are not always
unequally paid. Women, in factories,
sometimes earn as much as men ; and
so they do in hand-loom weaving,
which, being paid by the piece, brings
their efficiency to a sure test. When
the efficiency is equal, "but the pay un-
equal, the only explanation that can
be given is custom ; grounded either
in a prejudice, or in the present con-
stitution of society, which, making
almost every woman, socially speak-
ing, an appendage of some man, en-
ables men to take systematically the
lion's share of whatever belongs to
both. But the principal question re-
lates to the peculiar employments of
women. The remuneration of these is
always, I believe, greatly below that of
employments of equal skill and equal
disagreeableness, carried on by men.
In some of these cases the explanation
is evidently that already given : as in
the case of domestic servants, whoso
wages, speaking generally, are not
determined by competition, but. are
greatly in excess of the market value
of the labour, and in this excess, as in
almost all things which are regulated
by custom, the male sex obtains by faf
the largest share. In the occupations
in which employers take full advantage
of competition, the low wages of women
as compared with the ordinary earn-
ings of men, are a proof that the em-
ployments are overstocked: that al-
though so much smaller a number of
women, than of men, support them-
selves by wages, the occupations which

DIFFERENCES OF WAGES.

243

id usage make accessible to them
are comparatively so few, that the field
of their employment is still more over-
crowded. It must be observed, that as
manors now stand, a sufficient degree
of overcrowding may depress the wages
of women to a much lower minimum
than those of men. The wages, at
least of single women, must fce equal
to their support ; but need not be more
than equal to it ; the minimum, in their
case, is the pittance absolutely requi-
site fur the sustenance of one human
being. Now the lowest point to which
the most superabundant competition
can permanently depress the wages of
a man, is always somewhat more than
this. Where the wife of a labouring
man does not by general custom con-
tribute to his earnings, the man's wages
must be at least sufficient to support
himself, a wife, and a number of chil-
dren adequate to keep up the popula-
tion, since if it were less, the population
would not be kept up. And even if
the wife earns something, their joint
wages must be sufficient to support,
not only themselves, but (at least for
some years) their children also. The
ne plus ultra of low wages, therefore,
(except during some transitory crisis,
or in some decaying employment,) can
hardly occur in any occupation which
the person employed has to live by,
except the occupations of women.

§ 6. Thus far, we have, through
this discussion, proceeded on the sup-
position that competition is free, so far
as regards human interference ; being
limited only by natural causes, or by
the unintended effect of general social
circumstances. But law or custom
may interfere to limit competition.
If apprentice laws, or the regulations
of corporate bodies, make the access
to a particular employment slow,
costly, or difficult, the wages of that
employment may be kept much above
their natural proportion to the wages
of common labour. They might be so
kept without any assignable limit,
were it not that wages which exceed
the usual rate require corresponding
prices, and that there is a limit to the
price at which even a restricted num-

ber of producers can dispose of all they
produce. In most civilized countries,
the restrictions of this kind which,
once existed have been either abo-
lished or very much relaxed, and will,
no doubt, soon disappear entirely. In
some trades, however, and to some ex-
tent, the combinations of workmen
produce a similar effect. Those com-
binations always fail to uphold wages
at an artificial rate, unless they also
limit the number of competitors. But
they do occasionally succeed in accom-
plishing this. In several trades the
workmen have been able to make it
almost impracticable for strangers to ob-
tain admission either as journeymen or
as apprentices, except in limited num-
bers, and under such restrictions as
they choose to impose. It was given
in evidence to the Hand-loom Weavers
Commission, that this is one of the
hardships which aggravate the grievous
condition of that depressed class. Their
own employment is overstocked and
almost ruined ; but there are many
other trades which it would not be dif-
ficult for them to learn : to this, how-
ever, the combinations of workmen in
those other trades are said to interpose
an obstacle hitherto insurmountable.

Notwithstanding, however, the cruel
manner in which the exclusive prin-
ciple of these combinations operates in
a case of this peculiar nature, the
question, whether they are on the
whole more useful or mischievous, re-
quires to be decided on an enlarged
consideration of consequences, among
which such a fact as this is not one of
the most important items. Putting
aside the atrocities sometimes com-
mitted by workmen in the way of per-
sonal outrage or intimidation, which
cannot be too rigidly repressed ; if the
present state of the general habits of
the people were to remain for ever un-
improved, these partial combinations,
in so far as they do succeed in keeping
up the wages of any trade by limiting
its numbers, might be looked upon aa
simply intrenching'- round a particular
spot against the inroads of over-popu-
lation, and making the wages of the
class depend upon their own rate of
increase, instead of depending on that

Ba

244

of a more reckless and improvident
class than themselves. What at first
eight seems the injustice of excluding
the more numerous body from sharing
ihe gains of a comparatively few, dis-
appears when we consider that by
being admitted, they would not be
made better off, for more than a short
time ; the only permanent effect which
their admission would produce, would
be to lower the others to their own
level. To what extent the force of
this consideration is annulled when a
tendency commences towards dimi-
nished over-crowding in the labouring
classes generally, and what grounds of
a different nature there may be for re-
garding the existence of trade combi-
nations as rather to be desired than
deprecated, will be considered in a
subsequent chapter of this work, with
the subject of Combination Laws.

§ 7. To conclude this subject, I
must repeat an observation already
made, that there are kinds of labour of
which the wages are fixed by custom,
and not by competition. Such are the
fees or charges of professional persons :
of physicians, surgeons, barristers, and
even attorneys. These, as a general
rule, do not vary, and though competi-
tion operates upon those classes as
much as upon any others, it is by di-
viding the business, not, in general, by
diminishing the rate at which it is
paid. The cause of this, perhaps, has
been the prevalence of an opinion that
such persons are more trustworthy if
paid highly in proportion to the work
they perform ; insomuch that if a lawyer
or a physician offered his services at
less than the ordinary rate, instead of
gaining more practice, he would pro-
luibly lose that which he already had.
For analogous reasons it is usual to

BOOK II. CHAPTER XIV. § 7.

pay greatly beyond the market price of
their labour, all persons in whom the
employer wishes to place peculiar trust,
or from whom he requires something
besides their mere services. For ex-
ample, most persons who can afford it,
pay to their domestic servants higher
wages than would purchase in tho
market the labour of persons fully aa
competent to the work required. They
do this, not merely from ostentation,
but also from more reasonable motives ;
either because they desire that those
they employ should serve them cheer-
fully, and be anxious to remain in their
service ; or because they do not like to
drive a hard bargain with people whom
they are in constant intercourse with ;
or because they dislike to have near
their persons, and continually in their
sight, people with the appearance and
habits which are the usual accompani-
ments of a mean remuneration. Simi-
lar feelings operate in the minds of
persons in business, with respect to
their clerks and other employes. Li-
berality, generosity, and the credit of
the employer, are motives which, to
whatever extent they operate, preclude
taking the utmost advantage of compe-
tition : and doubtless such motives
might, and even now do, operate on
employers of labour in all the great
departments of industry ; and most de-
sirable is it that they should. But
they can never raise the average wages
of labour beyond the ratio of population
to capital. By giving more to each
person employed, they limit the power
of giving employment to numbers; and
however excellent their moral effect,
they do little good economically, unless
the pauperism of those who are shut
out, leads indirectly to a readjustment
by means of an increased restraint on
population.

PROFITS.

245

CHAPTER XV.

OP PROFITS.

§ 1. HAVING treated of the la-
bourer's share of the produce, we next
proceed to the share of the capitalist ;
the profits of capital or stock ; the gains
of the person who advances the ex-
penses of production — who, from funds
in his possession, pays the wages of
the labourers, or supports them during
the work ; who supplies the requisite
buildings, materials, and tools or ma-
chinery; and to whom, by the usual
terms of the contract, the produce be-
longs, to be disposed of at his pleasure.
After indemnifying him for his outlay,
there commonly remains a surplus,
which is his profit ; the net income
from his capital: the amount which
he can afford to expend in necessaries
or pleasures, or from which by further
saving he can add to his wealth.

As the wages of the labourer are the
remuneration of labour, so the profits
of the capitalist are properly, according
to Mr. Senior's well-chosen expression,
the remuneration of abstinence. They
ure what he gains by forbearing to
consume his capital for hia own uses,
and allowing it to be consumed by
productive labourers for their uses.
For this forbearance he requires a
recompense. Very often in personal
enjoyment he would be a gainer by
squandering his capital, the capital
amounting to more than the sum of the
profits which it will yield during the
years he can expect to live. But while
he retains it undiminished, he has al-
ways the power of consuming it if he
wishes or needs ; he can bestow it upon
others at his death ; and in the mean-
time he derives from it an income,
which he can without impoverishment
apply to the satisfaction of his own
wants or inclinations.

Of the gains, however, which the
possession of a capital enables a person
to make, a part only is properly an
equivalent for the use of the capital
itself; namely, as much as a solvent

person would be willing to pay fur the
loan of it. This, which as everybody
knows is called interest, is all that a
person is enabled to get by merely ab-
staining from the immediate consump-
tion of his capital, and allowing it to
be used for productive purposes by
others. The remuneration which is
obtained in any country for mere ab-
stinence, is measured by the current
rate of interest on the best security;
such security as precludes any appre-
ciable chance of losing the principal.
What a person expects to gain, who
superintends the employment of his
own capital, is always more, and gene-
rally much more, than this. The rate
of profit greatly exceeds the rate of in-
terest. The surplus is partly compensa-
tion for risk. By lending his capital, on
unexceptionable security, he runs little
or no risk. But if he embarks in busi-
ness on his own account, he always
exposes his capital to some, and in
many cases to very great, danger of
partial or total loss. For this danger
he must be compensated, otherwise he
will not incur it. He must likewise be
remunerated for the devotion of his
time and labour. The control of the
operations of industry usually belongs
to the person who supplies the whole
or the greatest part of the funds by
which they are carried on, and who,
according to the ordinary arrangement,
is either alone interested, or is the per-
son most interested (at least directly),
in the result. To exercise this control
with efficiency, if the concern is large
and complicated, requires great assi-
duity, and often, no ordinary skill. This
assiduity and skill must be remune-
rated.

The gross profits from capital, the
gains returned to those who supply the
funds for production, must suffice for
these three purposes. They must
afford a sufficient equivalent for absti-
nence, indemnity for risk, and retnu-

240

BOOK II. CHAPTER XV. * 2.

Deration for the labour and skill re-
quired for superintendence. These
different compensations may be either
paid to the same, or to different per-
sons. The capital, or some part of it,
may be borrowed : may belong to some
one who does not undertake the risks
or the trouble of business. In that
case, the lender, or owner, is the pei-
son who practises the abstinence ; and
is remunerated for it by the interest
paid to him, while the difference be-
tween the interest and the gross profit
remunerates the exertions and risks of
the undertaker.* Sometimes, again,
the capital, or a part of it, is supplied
by what is called a sleeping partner ;
who shares the risks of the employ-
ment, but not the trouble, and who, in
consideration of those risks, receives
not a mere interest, but a stipulated
share of the gross profits. Sometimes
the capital is supplied and the risk
incurred by one person, and the busi-
ness carried on exclusively in his name,
while the trouble of management is
made over to another, who is engaged
for that purpose at a fixed salary.
Management, however, by hired ser-
vants, who have no interest in the
result but that of preserving their
salaries, is proverbially inefficient, un-
iess they act under the inspecting eye,
if not the controlling hand, of the per-
pott chiefly interested : and prudence
almost always recommends giving to
a manager not thus controlled, a re-
muneration partly dependent on the
profits ; which virtually reduces the
case to that of a sleeping partner. Or
finally, the same person may own the
capital, and conduct the business;
adding, if he will and can, to the man-
agement of his own capital, that of as
much more as the owners may be will-
ing to trust him with. But under
any and all of these arrangements, the
same three things require their remu-
neration, and must obtain it from the
gross profit : abstinence, risk, exertion.
And the three parts into which profit
may be considered as resolving itself,
* It is to be regretted that this word, in
this sense, is not familiar to an English ear.
French political economists enjoy a great
advantage in being able to speak currently
Of let prnfitt de I' entrepreneur.

may be described respectively as inte-
rest, insurance, and wages of superin-
tendence.

§ 2. The lowest rate of profit which
can permanently exist, is that which
is barely adequate, at the given place
and time, to afford an equivalent for
the abstinence, risk, and exertion im-
plied in the employment of capital.
From the gross profit, has first to be
deducted as much as will form a fund
sufficient on the average to cover all
losses incident to the employment.
Next, it must afford such an equivalent
to the owner of the capital for forbear-
ing to consume it, as is then and
there a sufficient motive to him to per-
sist in his abstinence. How much
will be required to form this equiva-
lent, depends on the comparative value
placed, in the given society, upon the
present and the future : (in the words
formerly used) on the strength of the
effective desire of accumulation. Fur-
ther, after covering all losses, and re-
munerating the owner for forbearing to
consume, there must be something left
to recompense the labour and skill of
the person who devotes his time to the
business. This recompense too must
be sufficient to enable at least the
owners of the larger capitals to receive
for their trouble, or to pay to some
manager for his, what to them or him
will be a sufficient inducement for un-
dergoing it. If the surplus is no more
than this, none but large masses of
capital will be employed productively ,
and if it did not even amount to this,
capital would be withdrawn from pro-
duction, and unproductively consumed,
until, by an indirect consequence of its
diminished amount, to be explained
hereafter, the rate of profit was raised.

Such, then, is the minimum of
profits : but that minimum is exceed-
ingly variable, and at some times and
places extremely low; on account of
the great variableness of two out of
its three elements. That the rate of
necessary remuneration for abstinence,
or in other words the effective desire
of accumulation, differs widely in dif-
ferent states of society and civilization,
lias been seen in a former chapter.

PROFITS.

247

There is a still vrider difference in the
element which consists in compensa-
tion for risk. I am not now speaking
of the differences in point of risk be-
tween different employments of capital
in the same society, but of the very
diflerent degrees of security of property
in diflerent states of society. Wnere,
as in many of the governments of
Asia, property is in perpetual danger
of spoliation from a tyrannical govern-
ment, or from its rapacious and ill-
controlled officers ; where to possess or
to be suspected of possessing wealth, is
to be a mark not only for plunder, but
perhaps for personal ill-treatment to
extort the disclosure and surrender of
hidden valuables ; or where, as in the
European middle ages, the weakness
of the government, even when not it-
self inclined to oppress, leaves its sub-
jects exposed without protection or
redress to active spoliation, or auda-
cious withholding of just rights, by any
powerful individual ; the rate of profit
which persons of average dispositions
will require, to make them forego the
immediate enjoyment of what they
happen to possess, for the purpose of
exposing it and themselves to these
perils, must be something very con-
siderable. And these contingencies
affect those who live on the mere inte-
rest of their capital, in common with
those who personally engage in pro-
duction. In a generally secure state
of society, the risks which may be
attendant on the nature of particular
employments seldom fall on the person
who lends his capital, if he lends on
good security ; but in a state of society
like that of many parts of Asia, no
security (except perhaps the actual
pledge of gold or jewels) is good : and
the mere possession of a hoard, when
known or suspected, exposes it and the
possessor to risks, for which scarcely
any profit he could expect to obtain
would be an equivalent ; so that there
would be still less accumulation than
there is, if a state of insecurity did not
also multiply the occasions on which
the possession of a treasure may be the
means of saving life, or averting serious
calamities. Those who lend, under
these wretched gOTernments, do it at

the utmost peril of never being paid.
In most of the native states of India,
the lowest terms on which any one
will lend money, even to the govern-
ment, are such, that if the interest ia
paid only for a few years, and the
principal not at all, the lender is toler.
ably well indemnified. If the accumu-
lation of principal and compound inte-
rest is ultimately compromised at a
few shillings in the pound, he has
generally made an advantageous bar-
gain.

§ 3. The remuneration of capital in
diflerent employments, much more than
tie remuneration of labour, varies ac-
cording to the circumstances which
render one employment more attrac-
tive, or more repulsive, than another.
The profits, for example, of retail
trade, in proportion to the capital em-
ployed, exceed those of wholesale
dealers or manufacturers, for this rea-
son among others, that there is less
consideration attached to the employ-
ment. The greatest, however, of these
differences, is that caused by difference
of risk. The profits of a gunpowder
manufacturer must be considerably
greater than the average, to make up
for the peculiar risks to which he and
his property are constantly exposed.
When, however, as in the case of
marine adventure, the peculiar risks
are capable of being, and commonly
are, commuted for a fixed payment,
the premium of insurance takes its
regular place among the charges of
production ; and the compensation
which the owner of the ship or cargo
receives for that payment, does not ap-
pear in the estimate of his profits, but
is included in the replacement of his
capital.

The portion, too, of the gross profit,
which forms the remuneration for the
labour and skill of the dealer or pro-
ducer, is very different in different em-
ployments. This is the explanation
always given of the extraordinary rate
of apothecaries' profit ; the greatest
part, as Adam Smith observes, being
frequently no more than the reasonable
wages of professional attendance ; for
which, until a late alteration of thn

248

BOOK II. CHAFFER XV. § 4.

law, the apothecary could not demand
any remuneration, except in the prices
of his drugs. Some occupations require
a considerable amount of scientific or
technical education, and can only be
carried on by persons who combine with
that education a considerable capital.
Such is the business of an engineer,
both in the original sense of the term,
a machine-maker, and in its popular
or derivative sense, an undertaker of
public works. These are always the
most profitable employments. There
are cases, again, in which a consider-
able amount of labour and skill is re-
quired to conduct a business necessarily
of limited extent. In such cases a
higher than common rate of profit is
necessary to yield only the common
rate of remuneration. " In a small sea-
port town," says Adam Smith, " a
little grocer will make forty or fifty per
cent upon a stock of a single hundred
pounds, while a considerable wholesale
merchant in the same place will scarce
make eight or ten per cent upon a stock
of ten thousand. The trade of the
grocer may be necessary for the con-
veniency of the inhabitants, and the
narrowness of the market may not
admit the employment of a larger
capital in the business. The man,
however, must not only live by his
trade, but live by it suitably to
the qualifications which it requires.
Besides possessing a little capital, he
must be able to read, write, and ac-
count, and must be a tolerable judge,
too, of perhaps fifty or sixty different
sorts of goods, their prices, qualities,
and the markets where they are to
be had cheapest. Thirty or forty
pounds a year cannot be considered as
too great a recompense for the labour
of a person so accomplished. Deduct
this from the seemingly great profits of
his capital, and little more will remain,
perhaps, than the ordinary profits of
stock. The greater part of the apparent
profit is, in this case, too, real wages."
All the natural monopolies (meaning
thereby those which are created by
circumstances, and not by law) which
produce or aggravate the disparities in
the remuneration of different kinds of
labour, operate similarly between dif-

ferent employments of capital. If &
business can only be advantageously
carried on by a large capital, this in
most countries limits so narrowly the
class of persons who can enter into the
employment, that they are enabled to
keep their rate of profit above the
general level. A trade may also, from
the nature of the case, be confined to
so few hands, that profits may admit
of being kept up by a combination
among the dealers. It is well known
that even among so numerous a body
as the London booksellers, this sort of
combination long continued to exist.
I have already mentioned the case of
the gas and water companies.

§ 4. After due allowance is made
for these various causes of inequality,
namely, differences in the risk or
agreeableness of different employments,
and natural or artificial monopolies;
the rate of profit on capital in all em-
ployments tends to an equality. Such
is the proposition usually laid down by
political economists, and under proper
explanations it is true.

That portion of profit which is
properly interest, and which forms the
real remuneration for abstinence, is
strictly the same, at the same time and
place, whatever be the employment.
The rate of interest on equally good
security, does not vary according to
the destination of the principal, though
it does vary from time to time very
much, according to the circumstances
of the market. There is no employ-
ment in which, in the present state of
industry, competition is so active and
incessant as in the lending and borrow-
ing of money. All persons in business
are occasionally, and most of them
constantly, borrowers: while all persons
not in business, who possess monied
property, are lenders. Between these
two great bodies, there is a numerous,
keen, and intelligent class of middle-
men, composed of bankers, stockbrokers,
discount brokers, and others, alive to
the slightest breath of probable gain.
The smallest circumstance, or the most
transient impression on the public
mind, which tends to an increase or
diminution of the demand for leant;

run FITS.

249

either at the time or prospectively,
operates immediately on the rate of
interest : and circumstances in the
general state of trade, really tending
to cause this difference of demand, are
continually occurring, sometimes to
such an extent, that the rate of inte-
rest on the best mercantile bills has
been known to vary in little more than
a year (even without the occurrence of
the great derangement called a com-
mercial crisis) from four or less, to eight
or nine per cent. But, at the same
time and place, the rate of interest is
the same, to all who can give equally
good security. The market rate of
interest is at all times a known and
definite thing.

It is far otherwise with gross profit ;
•which, though (as will presently be seen)
it tl< ii s not vary much from employ-
ment to employment, varies very greatly
from individual to individual, and can
scarcely be in any two cases the same.
It depends on the knowledge, talents,
economy, and energy of the capitalist
himself, or of the agents whom ne em-
ploys ; on the accidents of personal con-
nexion ; and even on chance. Hardly
any two dealers in the same trade,
even if their commodities are equally
good and equally cheap, carry on their
business at the same expense, or turn
over their capital in the same time.
That equal capitals give equal profits,
as a general maxim of trade, would be
as false as that equal age or size gives
equal bodily strength, or that equal
reading or experience gives equal
knowledge. The effect depends as
much upon twenty other things, as
upon the single cause specified.

But though profits thus vary, the
parity, on the whole, of different modes
of employing capital (in the absence
of any natural or artificial monopoly)
is, in a certain, and a very important
sense, maintained. On an average
(whatever may be the occasional
fluctuations) the various employments
of capital are on such a footing, as to
hold out, not equal profits, but equal
expectations of profit, to persons of
average abilities and advantages. By
equal, I mean after making compensa-
tion for any inferiority iu the agree-

ableness or safety of an employment.
If the case were not so ; if there were
evidently, and to common experience,
more favourable chances of pecuniary
success in one business than in others,
more persons would engage their capi-
tal in the business, or would bring up
their sons to it ; which in fact always
happens when a business, like that of
an engineer at present, or like any
newly established and prosperous manu-
facture, is seen to be a growing and
thriving one. If, on the contrary, a
business is not considered thriving ; if
the chances of profit in it are thought
to be inferior to those in other employ-
ments ; capital gradually leaves it, or
at least new capital is not attracted to
it ; and by this change in the distribu-
tion of capital between the less profit-
able and the more profitable employ-
ments, a sort of balance is restored.
The expectations of profit, therefore, in
different employments, cannot long con-
tinue very different: they tend to a
common average, though they are
generally oscillating from one side to
the other side of the medium.

This equalizing process, commonly
described as the transfer of capital from
one employment to another, is not
necessarily the onerous, slow, and
almost impracticable operation which
it is very often represented to be. In
the first place, it does not always im-
ply the actual removal of capital
already embarked in an employment.
In a rapidly progressive state of capital,
the adjustment often takes place by
means of the new accumulations of each
year, which direct themselves in prefer-
ence towards the more thriving trades.
Even when a real transfer of capital is
necessary, it is by no means implied
that any of those who are engaged in
the unprofitable employment, relinquish
business and break up their establish-
ments. The numerous and multifarious
channels of credit, through which, iu
commercial nations, unemployed capital
diffuses itself over the field of employ-
ment, flowing over in greater abund-
ance to the lower levels, are the means
by which the equalization is accom-
plished. The process consists in a
limitation by one class of dealers or

250

BOOK II. CHAPTER XV. $ 4.

producers, and an extension by the
other, of that portion of their business
which is carried on with borrowed
capital. There is scarcely any dealer
or producer on a considerable scale,
who confines his business to what can
be carried on by his own funds. When
trade is good, he not only uses to the
utmost his own capital, but employs,
in addition, much of the credit which
that capital obtains for him. When,
either from over-supply or from some
slackening in the demand for his com-
modity, he finds that it sells more
slowly or obtains a lower price, he con-
tracts his operations, and does not
apply to bankers or other money
dealers for a renewal of their advances
to the same extent as before. A busi-
ness which is increasing holds out, on
the contrary, a prospect of profitable
employment for a larger amount of this
floating capital than previously, and
those engaged in it become applicants
to the money dealers for larger ad-
vances, which, from their improving
circumstances, they have no difficulty
in obtaining. A different distribution
of floating capital between two em-
ployments has as much effect in re-
storing their profits to an equilibrium,
as if the owners of an equal amount of
capital were to abandon the one trade
and carry their capital into the other.
This easy, and as it were spontaneous,
method of accommodating production
to demand, is quite sufficient to correct
any inequalities arising from the fluc-
tuations of trade, or other causes of
ordinary occurrence. In the case of
ar altogether declining trade, in which
i . is necessary that the production
should be, not occasionally varied, but
greatly and permanently diminished,
or perhaps stopped altogether, the pro-
cess of extricating the capital is, no
doubt, tardy and difficult, and almost
always attended with considerable
loss ; much of the capital fixed in ma-
chinery, buildings, permanent works,
&c. being either not applicable to any
other purpose, or only applicable after
expensive alterations ; and time being
seldom given for effecting the change
in the mode in which it would be
effected with least loss, namely, by

not replacing the fixed capital as it
wears out. There is besides, in totally
changing the destination of a capital,
so great a sacrifice of established con-
nexion, and of acquired skill and ex-
perience, that people are always very
slow in resolving upon it, and hardly
ever do so until long after a change of
fortune has become hopeless. These,
however, are distinctly exceptional
cases, and even in these the equaliza-
tion is at last effected. It may also
happen that the return to equilibrium
is considerably protracted, when, before
one inequality has been corrected,
another cause of inequality arises ;
which is said to have been continually
the case during a long series of years,
with the production of cotton in the
Southern States of North America ; the
commodity having been upheld at
what was virtually a monopoly price,
because the increase of demand, from
successive improvements in the manu-
facture, went on with a rapidity so
much beyond expectation, that for many
years the supply never completely
overtook it. But it is not often that a
succession of disturbing causes, all
acting in the same direction, are known
to follow one another with hardly any
interval. Where there is no monopoly,
the profits of a trade are likely to range
sometimes above and sometimes below
the general level, but tending always to
return to it ; like the oscillations of the
pendulum.

In general, then, although profits are
very different to different individuals,
and to the same individual in different
years, there cannot be much diversity
at the same time and place in the
average profits of different employ-
ments, (other than the standing differ-
ences necessary to compensate for
difference of attractiveness), except for
short periods, or when some great per-
manent revulsion has overtaken a par-
ticular trade. If any popular impres-
sion exists that some trades are more
profitable than others, independently of
monopoly, or of such rare accidents as
have been noticed in regard to the
cotton trade, the impression is in all
probability fallacious, since if it •were
shared by those who have greatest

PROFITS.

251

means of knowledge and motives to
accurate examination, there would take
place such an influx of capital as would
soon lower the profits to the common
level. It is true that, to persons with
the same amount of original means,
there ia more chance of making a large
fortune in some employments than in
oilirrs. But it would be found that in
those same employments bankruptcies
also are more frequent, and that the
chance of greater success is balanced
by a greater probability of complete
failure. Very often it is more than
balanced : for. as was remarked in
another case, the chance of great prizes
operates with a greater degree of
strength than arithmetic will warrant,
in attracting competitors ; and I doubt
not that the average gains, in a trade
in which large fortunes may be made,
are lower than in those in which gains
are slow, though comparatively sure,
and in which nothing is to be ulti-
mately hoped for beyond a competency.
The timber trade of Canada is one ex-
ample of an employment of capital,
partaking so much of the nature of a
lottery, as to make it an accredited
opinion that, taking the adventurers in
the aggregate, there is more money
lost by the trade than gained by it ; in
other words, that the average rate of
profit is less than nothing. In such
points as this, much depends on the
characters of nations, according as they
partake more or less of the adventur-
ous, or, as it is called when the inten-
tion is to blame it, the gambling spirit.
This spirit is much stronger in the
United States than in Great Britain ;
and in Great Britain than in any
country of the Continent. In some
Continental countries the tendency is
so much the reverse, that safe and quiet
employments probably yield a less
average profit to the capital engaged
in them, than those which offer greater
gains at the price of greater hazards.

It must not however be forgotten,
that even in the countries of most
active competition, custom also has a
considerable share in determining the
profits of trade. There is sometimes
an idea afloat as to what the profit of
an employment should be, which though

not adhered to by all the dealer, nor
perhaps rigidly by any, still exercises a
certain influence over their operations.
There has been in England a kind of
notion, how widely prevailing 1 1 now
not, that fifty per cent is a proper am\
suitable rate of profit in retail trans-
actions : understand, not fifty per cent
on the whole capital, but an advance
of fifty per cent on the wholesale
prices ; from which have to be defrayed
bad debts, shop rent, the pay of clerks,
shopmen, and agents of all descrip-
tions, in short all the expenses of the
retail business. If this custom were
universal, and strictly adhered to, com-
petition indeed would still operate, but
the consumer would not derive any
benefit from it, at least as to price ; the
way in which it would diminish the ad-
vantages of those engaged in retail
trade, would be by a greater subdivision
of the business. In some parts of the
Continent the standard is as high as a
hundred per cent. The increase of
competition however, in England at
least, is rapidly tending to break down
customs of this description. In the
majority of trades, (at least in the great
emporia of trade,) there are numerous
dealers whose motto is "small gains
and frequent" — a great business at low
prices, rather than high prices and few
transactions ; and by turning over. their
capital more rapidly, and adding to
it by borrowed capital when needed,
the dealers often obtain individually
higher profits ; though they necessarily
lower the profits of those among their
competitors, who do not adopt the
same principle. Nevertheless, com
petition, as remarked* in a previous
chapter, has, as yet, but a limited
dominion over retail prices; and con-
sequently the share of the whole pro-
duce of land and labour which is ab-
sorbed in the remuneration of mere
distributors, continues exorbitant ; and
there is no function in the economy of
society which supports a number of
persons so disproportionate to the
amount of work to be performed.

§ 5. The preceding remarks have,
I hope, sufficiently elucidated what ia
* Vide supra, book ii. ch. iv. § 3,

252

BOOK II. CHAPTER XV. § 6.

meant by the common phrase, " the
ordinary rate of profit ;'' and the sense
in which, and the limitations under
which, this ordinary rate has a real
existence. It now remains to con-
sider, what causes determine its
amount.

To popular apprehension it seems as
if the profits of business depended upon
prices. A producer or dealer seems to
obtain his profits by selling his com-
modity for more than it cost him.
Profit altogether, people are apt to
think, is a consequence of purchase and
sale. It is only (they suppose) because
there are purchasers for a commodity,
that the producer of it is able to make
any profit. Demand — customers — a
market for the commodity, are the
cause of the gains of capitalists. It is
by the sale of their goods, that they
replace their capital, and add to its
amount.

This, however, is looking only at the
outside surface of the economical ma-
chinery of society. In no case, we find,
is the mere money which passes from
one person to another, the fundamental
matter in any economical phenomenon.
If we look more narrowly into the
operations of the producer, we shall
perceive that the money he obtains for
his commodity is not the cause of his
having a profit, but only the mode in
which his profit is paid to him.

The cause of profit is, that labour
produces more than is required for its
support. The reason why agricultural
capital yields a profit, is because
human beings can grow more food,
than is necessary to feed them while it
is being grown, including the time oc-
cupied in constructing the tools, and
making all other needful preparations ;
from which it is a consequence, that if
a capitalist undertakes to feed the la-
bourers on condition of receiving the
produce, he has some of it remaining
ibr himself after replacing his advances.
To vary the form of the theorem : the
reason why capital yields a profit, is
because food, clothing, materials and
tools, last longer than the time which
was required to produce them ; so that
if a capitalist supplies a party of la-
bourers with these things, on con-

dition of receiving all they produce,
they will, in addition to reproducing
their own necessaries and instruments,
have a portion of their time remaining,
to work for the capitalist. AVe thus
see that profit arises, not from the in-
cident of exchange, but from the pro-
ductive power of labour ; and the gene-
ral profit of the country is always what
the productive power of labour makes
it, whether any exchange takes place
or not. If there were no division of
employments, there would be no buy-
ing or selling, but there would still be
profit. If the labourers of the conntry
collectively produce twenty per cent
more than their wages, profits will be
twenty per cent, whatever prices
may or may not be. The accidents of
price may for a time make one set of
producers get more than twenty per
cent, and another less, the one commo-
dity being rated above its natural value
in relation to other commodities, and
the other below, until prices have again
adjusted themselves ; but there will
always be just twenty per cent divided
among them all.

I proceed, in expansion of the consi-
derations thus briefly indicated, to ex-
hibit more minutely the mode in which
the rate of profit is determined.

§ 3. I assume, throughout, the
state of things, which, where the la-
bourers and capitalists are separata
classes, prevails, with few exceptions,
universally ; namely, that the capitalist
advances the whole expenses, including
the entire remuneration of the labourer.
That he should do so, is not a matter
of inherent necessity; the labourer
might wait until the production ia
complete, for all that part of his wages
which exceeds mere necessaries ; and
even for the whole, if he has funds in
hand, sufficient for his temporary sup-
port. But in the latter case, the la-
bourer is to that extent really a capi-
talist, investing capital in the concern,
by supplyingaportionof the funds neces-
sary for carrying, it on ; and even in the
former case he may be looked upon in
the same light, since, contributing his
labour at less than the market price,
he may be regarded as lending the dif-

PROFITS.

258

ference to his employer, and receiving
it back with interest (on whatever
principle computed) from the proceeds
of the enterprise.

The capitalist, then, may he assumed
to make all the advances, and receive
nil the produce. His profit consists of
the excess of the produce ahove the
advances ; his rate of profit is the ratio
which that excess hears to the amount
advanced. But what do the advances
consist of?

It is, for the present, necessary to
suppose, that the capitalist does not
pay any rent ; has not to purchase the
use of any appropriated natural agent.
This indeed is scarcely ever the exact
truth. The agricultural capitalist,
except when he is the owner of the
soil he cultivates, always, or almost
always, pays rent : and even in manu-
factures, (not to mention ground-rent,)
the materials of the manufacture have
generally paid rent, in some stage of
their production. The nature of rent
however, we have not yet taken into
consideration ; and it will hereafter
appear, that no practical error, on the
question we are now examining, is
produced hy disregarding it.

If, then, leaving rent out of the
question, we inquire in what it is that
the advances of the capitalists, for pur-
poses of production, consists, we shall
find that they consist of wages of
labour.

A large portion of the expenditure of
every capitalist consists in the direct
payment of wages. What does not
consist of this, is composed of materials
and implements, including buildings.
But materials and implements are pro-
duced by labour ; and as our supposed
capitalist is not meant to represent
a single employment, but to be a type
of the productive industry of the whole
country, we may suppose that he
makes his own tools, and raises his
own materials. He does this by means
of previous advances, which, again,
consist wholly of wages. If we sup-
pose him to buy the materials and
tools instead of producing them, the
case is not altered : he then repays to
a previous producer the wages which
that previous producer has paid. It is

true, he repays it to him with a profit ;
and if he had produced the things
himself, he himself must have had that
profit, on this part of his outlay, as
well as on every other part. The fact,
however, remains, that in the whole
process of production, beginning with
the materials and tools, and ending
with the finished product, all the ad-
vances have consisted of nothing but
wages ; except that certain of the capi-
talists concerned have, for the sake of
general convenience, had their share
of profit paid to them before the opera-
tion was completed. Whatever, of the
ultimate product, is not profit, is re-
payment of wages.

§ 7. It thus appears that the two
elements on which, and which alone,
the gains of the capitalists depend, are,
first, the magnitude of the produce, in
other words, the productive power of
labour ; and secondly, the proportion of
that produce obtained by the labourers
themselves ; the ratio, which the remu-
neration of the labourers bears to the
amount they produce. These two things
form the data for determining the
gross amount divided as profit among
all the capitalists of the country ; but
the rate of profit, the percentage on the
capital, depends only on the second of
the two elements, the labourer's pro-
portional share, and not on the amount
to be shared. If the produce of labour
were doubled, and the labourers ob-
tained the same proportional share as
before, that is, if their remuneration
was also doubled, the capitalists, it
is true, would gain twice as much;
but as they would also have had to ad-
vance twice as much, the rate of their
profit would be only the same as be-
fore.

We thus arrive at the conclusion of
Eicardo and others, that the rate of
profits depends on wages ; rising as
wages fall, and falling as wages rise.
In adopting, however, this doctrine,
I must insist upon making a most ne-
cessary alteration in its wording. In-
stead of saying that profits depend on
wages, let us say (what Ilicardo really
meant) that they depend on the cost of
labour.

BOOK II. CHAPTER XV. § 7.

Wages, and the cost of labour; what
labour brings in to the labourer, and
what it costs to the capitalist ; are
ideas quite distinct, and which it is of
the utmost importance to keep so. For
this purpose it is essential not to desig-
nate them, as is almost always done, by
Ihe same name. Wages, in public dis-
cussions, both oral and printed, being
looked upon from the point of view of
the payers, much oftener than from that
of the receivers, nothing is more com-
mon than to say that wages are high
or low, meaning only that the cost of
labour is high or low. The reverse of
this would be oftener the truth : the
cost of labour is frequently at its highest
where wages are lowest. This may
arise from two causes. In the first
place, the labour, though cheap, may be
inefficient. In no European country
are wages so low as they are (or at
least were) in Ireland ; the remunera-
tion of an agricultural labourer in the
west of Ireland not being more than
half the wages of even the lowest-paid
Englishman, the Dorsetshire labourer.
But if, from inferior skill and industry,
two days' labour of an Irishman accom-
plished no more work than an English
labourer performed in one, the Irish-
man's labour cost as much as the
Englishman's, though it brought in so
much less to himself. The capitalist's
profit is determined by the former of
these two things, not by the latter.
That a difference to this extent really
existed in the efficiency of the labour,
is proved not only by abundant testi-
mony, but by the fact, that notwith-
standing the lowness of wages, profits
of capital are not understood to have
been higher in Ireland than in Eng-
land.

The other cause which renders wages,
and the cost of labour, no real criteria
of one another, is the varying costliness
of the articles which the labourer con-
sumes. If these are cheap, wages, in
the sense which is of importance to the
labourer, maybe high, and yet the cost
of labour may be low ; if dear, the la-
bourer may bo wretchedly off, though
his labour may cost much to the capi-
talist. This last is the condition of a
country over-peopled in relation to its

land ; in which, food being dear, tho

Soorness of the labourer's real reward
oes not prevent labour from costing
much to the purchaser, and low wages
and low profits co-exist. The opposite
case is exemplified in the United States
of America. The labourer there enjoys
a greater abundance of comforts than
in any other country of the world, ex-
cept some of the newest colonies ; but,
owing to the cheap price at which
these comforts can be obtained (com-
bined with the great efficiency of the
labour,) the cost of labour is at least
not higher, nor the rate of profit lower,
than in Europe.

The cost of labour, then, is, in the
language of mathematics, a function of
three variables : the efficiency of la-
bour ; the wages of labour (meaning
thereby the real reward of the labourer) ;
and the greater or less cost at which
the articles composing that real reward
can be produced or procured. It is
plain that the cost of labour to the
capitalist must be influenced by each of
these three circumstances, and by no
others. These, therefore, are also the
circumstances which determine the rate
of profit ; and it cannot be in any way
affected except through one or other of
them. If labour generally became more
efficient, without being more highly re-
warded ; if, without its becoming less
efficient, its remuneration fell, no in-
crease taking nlace in the cost of the
articles composing that remuneration ;
or if those articles became less costly,
without the labourer's obtaining more
of them ; in any one of these three
cases, profits would rise. If, on the
contrary, labour became less efficient
(as it might do from diminished bodily
vigour in the people, destruction of fixed '
capital, or deteriorated education) ; or
if the labourer obtained a higher remu-
neration, without any increased cheap-
ness in the things composing it ; or if,
without his obtaining more, that which
he did obtain became more costly; pro-
fits, in all these cases, would suffer a
diminution. And there is no other
combination of circumstances, in which
the general rate of profit of a country,
in all employments indifferently, can
either fall or rise.

KENT.

255

The evidence of these propositions
can only be stated generally, though,
it is hoped, conclusively, in this stage
of our suhject. It will come out m
greater fulness and force when, having
taken into consideration the theory Q£
Value and Price, we shall be enabled
to exhibit the law of profits in the con-
crete— in the complex entanglement

of circumstances in which it actually
works. This can only be done in the
ensuing Book. One topic still remains
to be discussed in the present one, so
far as it admits of being treated inde-
pendently of considerations of Value ;
the subject of Rent ; to which we now
proceed.

CHAPTER XVL

OP BENT.

§ 1. THE rcquisitesof production being
labour, capital, and natural agents ;
the only person, besides the labourer
and the capitalist, whose consent is
necessary to production, and who can
claim a share of the produce as the
price of that consent, is the person who,
by the arrangements of society, pos-
sesses exclusive power over some na-
tural agcut. The land is the principal
of the natural agents which are capable
of being appropriated, and the consi-
deration paid for its use is called rent.
Landed proprietors are the only class,
of any numbers or importance, who have
a claim to a share in the distribution
of the produce, through their ownership
of something which neither they nor
any one else have produced. If there
be any other cases of a similar nature,
they will be easily understood, when
the nature and laws of rent are com-
prehended.

It is at once evident, that rent is the
effect of a monopoly ; though the mono-
poly is a natural one, which may be
regulated, which may even be held as
a trust for the community generally,
but which cannot be prevented from
existing. The reason why landowners
are able to require rent for their land,
is that it is a commodity which many
want, and which no one can obtain
but from them. If all the land of the
country belonged to one person, he
could fix the rent at his pleasure. The
whole people would be dependent on
bis will for the necessaries of life, and

he might make what conditions he
chose. This is the actual state of things
in those Oriental kingdoms in which
the land is considered the property of
the state. Rent is then confounded
with taxation, and the despot may exact
the utmost which the unfortunate cul-
tivators have to give. Indeed, the ex-
clusive possessor of the land of a country
could not well be other than despot of
it. The effect would be much the same
if the land belonged to so few people
that they could, and did, act together
as one man, and fix the rent by agree-
ment among themselves. This case,
however, is nowhere known to exist :
and the only remaining supposition is
that of free competition ; the land-
owners being supposed to be, as in fact
they are, too numerous to combine.

§ 2. A thing which is limited in
quantity, even though its possessors do
not act in concert, is still a monopo-
lized article. But even when monopo-
lized, a thing which is the gift of
nature, and requires no labour or out-
lay as the condition of its existence,
will, if there be competition among the
holders of it, command a price, only if
it exists in less quantity than the de-
mand. If the whole land of a country
were required for cultivation, all of it
might "yield a rent. But in no country
of any extent do the wants of the
population require that all the land,
which is capable of cultivation, should
be cultivated. The food and othet

25S

agricultural produce which the people
need, and which they are willing and
able to pay for at a price which re-
munerates the grower, may always be
obtained without cultivating all the
laud; sometimes without cultivating
more than a small part of it ; the
lands most easily cultivated being pre-
ferred in a very early stage of society,
the more fertile, or those in the more
convenient situations, in a more ad-
vanced state. There is always, there-
fore, some land which cannot, in exist-
ing circumstances, pay any rent ; and
no land ever pays rent, unless, in point
of fertility or situation, it belongs to
those superior kinds which exist in
less quantity than the demand — which
cannot be made to yield all the pro-
luce required for the community, un-
ess on terms still less advantageous
•han the resort to less favoured soils.

There is land, such as the deserts of
Arabia, which will yield nothing to any
amount of labour ; and there is land,
like some of our hard sandy heaths,
which would produce something, but, in
ihe present state of the soil, not enough
to defray the expenses of production.
Such lands, unless by some application
of chemistry to agriculture still remain-
ing to be invented, cannot be cultivated
for profit, nnless some one actually
creates a soil, by spreading new in-
gredients over the surface, or mixing
them with the existing materials. If
ingredients fitted for this purpose exist
in the subsoil, or close at hand, the
improvement even of the most unpromis-
ing spots may answer as a speculation :
but if those ingredients are costly, and
must be brought from a distance, it
will seldom answer to do this for the
sake of profit, though the " magic of
property " will sometimes effect it.
Land which cannot possibly yield a
profit, is sometimes cultivated at a loss,
the cultivators having their wants
partially supplied from other sources ;
as in the case of paupers, and some
monasteries or charitable institutions,
among which may be reckoned the
Poor Colonies of Belgium. The worst
land which can be cultivated as a
means of subsistence, is that which
will just replace the seed, and the food

BOOK II. CHAPTER XVI. § 2.

of the labourers employed on it
together with what Dr. Chalmers
calls their secondaries ; that is, tbe
labonrers required for supplying them
with tools, and with the remaining
necessaries of life. Whether any given
land is capable of doing more than this,
is not a question of political economy,
but of physical fact. The supposition
leaves nothing for profits, nor anything
for the labourers except necessaries : the
land, therefore, can only be cultivated
by the labourers themselves, or else
at a pecuniary loss : and a fortiori,
cannot in any contingency afford a
rent. The worst land which can be
cultivated as an investment for capital,
is that which, after replacing the seed,
not only feeds the agricultural labourers
and their secondaries, but affords them
the current rate of wages, which may
extend to much more than mere neces-
saries; and leaves for those who have
advanced the wages of these two classes
of labourers, a surplus equal to the
profit they could have expected from
any other employment of their capital.
Whether any given land can do more
than this, is not merely a physical
question, but depends partly on the
market value of agricultural produce.
What the land can do for the labourers
and for the capitalist, beyond feeding
all whom it directly or indirectly em-
ploys, of course depends upon what the
remainder of the produce can be sold
for. The higher the market value of
produce, the lower are the soils tc
which cultivation can descend, con-
sistently with affording to the capital
employed, the ordinary rate of profit.

As, however, differences of fertility
slide into one another by insensible
gradations; and differences of accessi-
bility, that is, of distance from markets,
do the same ; and since there is land
so barren that it could not pay for its
cultivation at any price ; it is evident
that, whatever the price may be, there
must in any extensive region be some
land which at that price will just pay
the wages of the cultivators, and yield
to the capital employed the ordinary
profit, and no more. Until, therefore,
the price rises higher, or until some
improvement raises that particular

KENT.

157

land to a higher place in the scale of
fertility, it cannot pay any rent. It is
evident, however, that the community
needs the produce of this quality of
land : since if the lands more fertile or
better situated than it, could have
sufficed to supply the wants of society,
the price would not have risen so high
as to render its cultivation profitahle.
This land, therefore, will be cultivated ;
and we may lay it down as a principle,
that so long as any of the land of a
country which is fit for cultivation, and
not withheld from it by legal or other
factitious obstacles, is not cultivated, the
worst land in actual cultivation (in
point of fertility and situation together)
pays no rent.

§ 3. If, then, of the land in culti-
vation, the part which yields least re-
turn to the labour and capital employed
on it gives only the ordinary profit of
capital, without leaving anything for
rent ; a standard is afforded for esti-
mating the amount of rent which will
be yielded by all other land. Any
land yields just as much more than
the ordinary profits of stock, as it
yields more than what is returned by
the worst land in cultivation. The
surplus is what the farmer can aflord
to pay as rent to the landlord ; and
since, if he did not so pay it, he would
receive more than the ordinary rate
of profit, the competition of other
capitalists, that competition which
equalizes the profits of different capi-
tals, will enable the landlord to appro-
priate it. The rent, therefore, which
any land will yield, is the excess of its
produce, beyond what would be re-
turned to the same capital if employed
on the worst land in cultivation. T? his
is not, and never was pretended to be,
the limit of metayer rents, or of cottier
rents; but it is the limit of farmers'
rents. No land rented to a capitalist
farmer will permanently yield more
than this ; and when it yields less, it
is because the landlord foregoes a part
of what, if he chose, he could obtain.

This is the theory of rent, first pro-
pounded at the end of the last century
by Dr. Anderson, and which, neglected
At the time, was alow^t simultaneously

rediscovered, twenty years later, by
Sir Edward West, Mr. Malthus, and
Mr. Ricardo. It is one of the cardinal
doctrines of political economy ; and
until it was understood, no consistent
explanation could be given of many ol
the more complicated industrial pheno
mena. The evidence of its truth wih
be manifested with a great increase of
clearness, when we come to trace th»
laws of the phenomena of Value and
Price. Until that is done, it is not
possible to free the doctrine from every
difficulty which may present itself, nor
perhaps to convey, to those previously
unacquainted with the subject, more
than a general apprehension of the
reasoning by which the theorem is
arrived at. Some, however, of the ob •
jections commonly made to it, admit
of a complete answer even in the pre-
sent stage of our inquiries.

It has been denied that there can be
any land in cultivation which pays no
rent ; because landlords (it is con-
tended) would not allow their land to
be occupied without payment. Those
who lay any stress on this as an objec-
tion, must think that land of the
quality which can but just pay for its
cultivation, lies together in large
masses, detached from any land of
better quality. If an estate consisted
wholly of this land, or of this and still
worse, it is likely enough that the
owner would not give the use of it for
nothing ; he would probably (if a rich
man) prefer keeping it for other pur-
poses, as for exercise, or ornament, or
perhaps as a game preserve. No
farmer could afford to offer him any-
thing for it, for purposes of culture ,
though something would probably be
obtained for the use of its natural pas-
ture, or other spontaneous produce.
Even such land, however, would not
necessarily remain uncultivated. It
might be farmed by the proprietor ; no
unfrequent case even in England. Por-
tions of it might be granted as tem-
porary allotments to labouring families,
either from philanthropic motives, or
to save the poor-rate; or occupation
might be allowed to squatters, free of
rent, in the hope that their labour
might give it »alue at some future
§

258

BOOK II. CHAPTER XVI. § 4.

period. Both these cases are of quite
ordinary occurrence. So that even if an
estate were wholly composed of the worst
land capahle of profitable cultivation, it
would not necessarily lie uncultivated
because it could pay no rent. Inferior
land, however, does not usually occupy,
without interruption, many square
miles of ground ; it is dispersed here
and there, with patches of better land
intermixed, and the same person who
rents the better land, obtains along
with it the inferior soils which alter-
nate with it. He pays a rent, nomi-
nally for the whole farm, but calculated
on the produce of those parts alone
(however small a portion of the whole)
which are capable of returning more
than the common rate of profit. It is
thus scientifically true, that the re-
maining parts pay no rent.

§ 4. L«t us, however, suppose that
there were a validity in this objection,
which can by no means be conceded to
it ; that when the demand of the com-
munity had forced up food to such a
price as would remunerate the expense
of producing it from a certain quality
of soil, it happened nevertheless that
all the soil of that quality was with-
held from cultivation, by the obstinacy
of the owners in demanding a rent for
it, not nominal, nor trifling, but suffi-
ciently onerous to be a material item
in the calculations of a farmer. What
would then happen ? Merely that the
increase of produce, which the wants
of society required, would for the time
be obtained wholly (as it always is par-
tially), not by an extension of cultiva-
tion, but by an increased application
of labour and capital to land already
cultivated.

Now we have already seen that this
increased application of capital, other
things being unaltered, is always at-
tended with a smaller proportional re-
turn. We are not to suppose some new
agricultural invention made precisely
*t this juncture ; nor a sudden exten-
sion of agricultural skill and knowledge,
bringing into more general practice,
just then, inventions already in partial
me. We are to suppose no change,
txcept a demand for more corn, and a

consequent rise of its price. The rise
of price enables measures to be taken
for increasing the produce, which could
not have been taken with profit at the
previous price. The farmer uses more
expensive manures; or manures land
which he formerly left to natsre ; or
procures lime or marl from a distance,
as a dressing for the soil ; or pulverizes
or weeds it more thoroughly ; or drains,
irrigates, or subsoils portions of it,
which at former prices would not have
paid the cost of the operation ; and so
forth. These things, or some of them,
are done, when, more food being wanted,
cultivation has no means of expanding
itself upon new lands. And when the
impulse is given to extract an increased
amount of produce from the soil, the
farmer or improver will only consider
whether the outlay he makes for the
purpose will be returned to him with
the ordinary profit, and not whether
any surplus will remain for rent. Even,
therefore, if it were the fact, that there
is never any land taken into cultivation,
for which rent, and that too of an
amount worth taking into considera-
tion, was not paid ; it would be true,
nevertheless, that there is always some
agricultural capital which pays no
rent, because it returns nothing beyond
the ordinary rate of profit : this capital
being the portion of capital last applied
— that to which the last addition to the
produce was due ; or (to express the es-
sentials of the case in one phrase), that
which is applied in the least favourable
circumstances. But the same amount
of demand, and the same price, which
enable this least productive portion of
capital barely to replace itself with the
ordinary profit, enable every other por-
tion to yield a surplus proportioned to
the advantage it possesses. And this
surplus it is, which competition enables
the landlord to appropriate. The rent
of all land is measured by the excess of
the return to the whole capital em-
ployed on it, above what is necessary
to replace the capital with the ordinary
rate of profit, or in other words, above
what the same capital would yield if it
were all employed in as disadvan-
tageous circumstances as the least pro-
ductive portion of it : whether that least

KENT.

259

productive portion of capital is rendered
so by being employed on the worst soil,
or by being expended in extorting more
produce from land which already yielded
as much as it could be made to part
with on easier terms.

It is not pretended that the facts of
any concrete case conform with abso-
lute precision to this or any other sci-
entific principle. We must never forget
that the truths of political economy
are truths only in the rough. They
have the certainty, but not the pre-
cision of exact science. It is not
for example, strictly true that a farmer
will cultivate no land, and apply no
capital, which returns less than the or-
dinary profit. He will expect the ordi-
nary profit on the bulk of his capital.
But when he has cast in his lot
with his farm, and bartered his skill
and exertions, once for all, against what
the farm will yield to him, he will pro-
bably be willing to expend capital on it
(for an immediate return) in any man
ner which will afford him a surplus
profit, however small, beyond the value
of the risk, and the interest which he
must pay for the capital if borrowed, or
can get for it elsewhere if it is his own.
But a new farmer, entering on the land,
would make his calculations differently,
and would not commence unless he
could expect the full rate of ordinary
profit on all the capital which he in-
tended embarking in the enterprise.
Again, prices may range higher or
lower during the currency of a lease,
than was expected when the contract
was made, and the land, therefore, may
be over or under-rented : and even
•when the lease expires, the landlord
may be unwilling to grant a necessary
diminution of rent, and the farmer,
rather than relinquish his occupation,
or seek a farm elsewhere when all are
occupied, may consent to go on paying
too high a rent. Irregularities like
these we must always expect ; it is im-
possible in political economy to obtain
general theorems embracing the com-
plications of circumstances which may
affect the result in an individual case.
\Vhen, too, the farmer class, having
but little capital, cultivate for subsis-
tence rather than for profit, and do not

think of quitting their farm while they
are able to live by it, their rents ap-
proximate to the character of cottier
rents, and may be forced up by compe-
tition (if the number of competitors
exceeds the number of farms) beyond
the amount which will leave to the
farmer the ordinary rate of profit. The
laws which we are enabled to lay down
respecting rents, profits, wages, prices,
are only true in so far as the persons
concerned are free from the influence of
any other motives than those arising
from the general circumstances of the
case, and are guided, as to those, by
the ordinary mercantile estimate of
profit and loss. Applying this twofold
supposition to the case of farmers and
landlords, it will be true that the far-
mer requires the ordinary rate of profit
on the whole of his capital ; that what-
ever it returns to him beyond this he is
obliged to pay to the landlord, but will
not consent to pay more ; that there is
a portion of capital applied to agricul-
ture in such circumstances of produc-
tiveness as to yield only the ordinary
profits ; and that the difference between
the produce of this, and of any other
capital of similar amount, is the mea-
sure of the tribute which that other
capital can and will pay, under the
name of rent, to the landlord. This
constitutes a law of rent, as near the
truth as such a law can possibly be :
though of course modified or disturbed
in individual cases, by pending con-
tracts, individual miscalculations, the
influence of habit, and even the parti-
cular feelings and dispositions of the
persons concerned.

§ 5. A remark is often made, which
must not hero be omitted, thoug'j, I
think, more importance has been at-
tached to it than it merits. Under the
name of rent, many payments are com-
monly included, which are not a remu-
neration for the original powers of the
land itself, but for capital expended on
it. The additional rent which land
yields in consequence of this outlay of
capital, should, in the opinion of some
writers, be regarded as profit, not rent.
But before this can be admitted, a dis-
tinction must be made. The annual
S ?

260

BOOK II. CHAPTER XVI. § 5.

payment by a tenant almost always
includes a consideration for the use of
the buildings on the farm; not only
barns, stables, and other outhouses,
but a house to live in, not to speak of
fences and the like. The landlord will
ask, and the tenant give, for these,
whatever is considered sufficient to
yield the ordinary profit, or rather
(risk and trouble being here out of the
question) the ordinary interest, on the
vnlue of the buildings ; that is, not on
what it has cost to erect them, but on
what it would now cost to erect others
as good: the tenant being bound, in
addition, to leave them in as good re-
pair as he found them, for otherwise a
much larger payment than simple in-
terest would of course be required
from him. These buildings are as
distinct a thing from the farm, as the
stock or the timber on it ; and what is
paid for them can no more be called
rent of land, than a payment for cattle
would be, if it were the custom that
the landlord should stock the farm for
the tenant. The buildings, like the
cattle, are not land, but capital, regu-
larly consumed and reproduced ; and
all payments made in consideration for
them are properly interest.

But with regard to capital actually
sunk in improvements, and not requir-
ing periodical renewal, but spent once
for all in giving the land a permanent
increase of productiveness, it appears
to me that the return made to such
capital loses altogether the character
of profits, and is governed by the prin-
ciples of rent. It is true that a land-
lord will not expend capital in improv-
ing his estate, unless he expects from
the improvement an increase of income,
surpassing the interest of his outlay.
Prospectively, this increase of income
may be regarded as profit ; but when
the expense has been incurred, and
the improvement made, the rent of
the improved land is governed by the
same rules as that of the unimproved.
Equally fertile land commands an equal
rent, whether its fertility is natural or
acquired ; and I cannot think that the
incomes of those who own the Bedford
I^evel or the Lincolnshire wolds, ought
to be called profit and not rent, because

j those lands would have been worth
next to nothing unless capital had been
expended on them. The owners are
not capitalists, but landlords ; they
have parted with their capital ; it is
consumed, destroyed ; and neither is,
nor is to be, returned to them, like the
capital of a fanner or manufacturer,
from what it produces. In lieu of it
they now have land, of a certain rich-
ness, which yields the same rent, and
by the operation of the same causes,
as if it had possessed from the begin-
ning the degree of fertility which has
been artificially given to it.

Some writers, in particular Mr. H.
C. Carey, take away, still more com-
pletely than I have attempted to do,
the distinction between these two
sources of rent, by rejecting one of
them altogether, and considering all
rent as the effect of capital expended.
In proof of this, Mr. Carey contends
that the whole pecuniary value of all
the land in any country, in England
for instance, or in the United States,
does not amount to anything approach-
ing to the sum which has been laid
out, or which it would even now bo
necessary to lay out, in order to bring
the country to its present condition
from a state of primaeval forest. This
startling statement has been seized on
by M. Bastiat and others, as a means
of making out a stronger case than
could otherwise be made in defence of
property in land. Mr. Carey's proposi-
tion, in its most obvious meaning,
is equivalent to saying, that if there
were suddenly added to the lands of
England an unreclaimed territory of
equal natural fertility, it would not bo
worth the while of the inhabitants of
England to reclaim it : because the
profits of the operation would not be
equal to the ordinary interest on the
capital expended. To which assertion
if any answer could be supposed to ba
required, it would suffice to remark,
that land not of equal but of greatly
inferior quality to that previously cul-
tivated, is continually reclaimed in
England, at an expense which the
subsequently accruing rent is sufficient
to replace completely in a small number
of years. The doctrine, moreover, is

RENT.

261

totally opposed to Mr. Carey's own
economical opinions. No one main-
tains more strenuously than Mr. Carey
the undoubted truth, that as society
advances in population, wealth, and
combination of labour, land constantly
rises in value and price. This, how-
ever, could not possibly be true ii' the
present value of land were less than
the expense of clearing it and making
it fit for cultivation ; for it must have
been worth this immediately after it
was cleared, and according to Mr.
Carey it has been rising in value ever
since. When, however, Mr. Carey as-
serts that the whole land of any
country is not now worth the capital
which has been expended on it, he does
not mean that »ach particular estate is
worth less than what has been laid
out in improving it, and that, to the
proprietors, the improvement of the
laud has been, on the final result, a mis-
calculation. He means, not that the
land of Great Britain would not now
sell for what has been laid out upon it,
but that it would not sell for that
amount, plus the expense of making
all the roads, canals, and railways.
This is probably true, but is no more
to the purpose, and no more important
in political economy, than if the state-
ment had been that it would not sell
for the sums laid out upon it plus the
national debt, or plus the cost of the
French Revolutionary war, or any
other expense incurred for a real or
imaginary public advantage. The
roads, railways, and canals, were not
constructed to give value to land: on
the contrary, their natural effect was
to lower its value, by rendering other
and rival lands accessible : and the
landholders of the southern counties
actually petitioned Parliament against
the turnpike roads on this very ac-
count. The tendency of improved com-
munications is to lower existing rents,
by trenching on the monopoly of the
land nearest to the places where large
numbers of consumers are assembled.
Roads and canals are not intended to
raise the value of the land which
already supplies the markets, but
(among other purposes) to cheapen the
supply, by letting in the produce of

other and more distant lands : and the
more effectually this purpose is at-
tained, the lower rent will be. If wo
could imagine that the railways and
canals of the United States, instead of
only cheapening communication, did
their business so effectually as to
annihilate cost of carriage altogether,
and enable the produce of Michigan to
reach the market of New York as
quickly and as cheaply as the produce
of Long Island — the whole value of
all the land of the United States
(except such as lies convenient for
building) would be annihilated ; or
rather, the best would only sell for tho
expense of clearing, and the govern-
ment tax of a dollar and a quarter per
acre ; since land in Michigan, equal to
the best in the United States, may bo
had in unlimited abundance by that
amount of outlay. But it is strange
that Mr. Carey should think this fact
inconsistent with the Ricardo theory
of rent. Admitting all that he as-
serts, it is still true that as long as
there is land which yields no rent, tho
land which does yield rent, does so
in consequence of some advantage
which it enjoys, in fertility or vicinity
to markets, over the other ; and the
measure of its advantage is also the
measure of its rent. And the cause of
its yielding rent, is that it possesses a
natural monopoly ; the quantity of
land, as favourably circumstanced as
itself, not being sufficient to supply
the market. These propositions con-
stitute the theory of rent, laid down
by Ricardo; and if they are true,
I cannot see that it signifies much
whether the rent which the land yields
at the present time, is greater or less
than the interest of the capital which
has been laid out to raise its value,
together with the interest of the capital
which has been laid out to lower its
value.

Mr. Carey's objection, however, has
somewhat more of ingenuity than the
arguments commonly met with against
the theory of rent : a theorem which
may be called the pons asinorum of
political economy, for there are, I am
inclined to think, few persons who
have refused their assent to it except

262

BOOK II. CHAPTEJR XVI. § 6.

from not having thoroughly under-
stood it. The loose and inaccurate
way in which it is often apprehended
by those who affect to refute it, is very
remarkable. Many, for instance, have
imputed absurdity to Mr. Ricardo's
theory, because it is absurd to say that
the cultivation of inferior land is the
cause of rent on the superior. Mr.
Kicardo docs not say that it is the cul-
tivation of inferior land, but the neces-
sity of cultivating it, from the insuffi-
ciency of the superior land to feed a
growing population : between which
and the proposition imputed to him
there is no less a difference than that
between demand and supply. Others
again allege as an objection against
Kicardo, that if all land were of equal
fertility, it might still yield a rent.
But Ricardo says precisely the same.
He says that if all lands were equally
fertile, those which are nearer to their
market than others, and are there-
fore less burthened with cost of car-
riage, would yield a rent equivalent to
the advantage ; and that the land
yielding no rent would then be, not
the least fertile, but the least advan-
tageously situated, which the wants of
the community required to be brought
into cultivation. It is also distinctly a
portion of Kicardo's doctrine, that even
apart from differences of situation, the
land of a country supposed to be. of
uniform fertility would, all of it, on a
certain supposition, pay rent : namely,
if the demand of the community re-
quired that it should all be cultivated,
and cultivated beyond the point at
which a further application of capital
begins to be attended with a smaller
proportional return. It would be im-
possible to show that, except by for-
cible exaction, the whole land of a
country can yield a rent on any other
supposition.

§ 6. After this view of the nature
and causes of rent, let us turn back to
the subject of profits, and bring up for
reconsideration one of the propositions
laid down in the last chapter. We
there stated, that the advances of the
capitalist, or in other words, the ex-
penses of production, consist solely in

wages of labour ; that whatever por-
tion of the outlay is not wages, is pre-
vious profit, and whatever is not pre-
vious profit, is wages. Kent, however,
being an element which it is impossible
to resolve into either profit or wages,
we were obliged, for the moment, to
assume that the capitalist is not re-
quired to pay rent — to give an equiva-
lent for the use of an appropriated
natural agent : and I undertook to
show in the proper place, that this is
an allowable supposition, and that rent
does not really form any part of the ex-
penses of production, or of the advances
of the capitalist. The grounds on which
this assertion was made are now appa-
rent. It is true that all tenant far-
mers, and many other classes of pro-
ducers, pay rent. But we have now
seen, that whoever cultivates land,

Eaying a rent for it, gets in return for
is rent an instrument of superior
power to other instruments of the
same kind for which no rent is paid.
The superiority of the instrument is
in exact proportion to the rent paid
for it. If a few persons had steam-
engines of superior power to all others
in existence, but limited by physical
laws to a number short of the demand,
the rent which a manufacturer would
be willing to pay for one of these
steam-engines could not be looked
upon as an addition to his outlay,
because by the use of it he would save
in his other expenses the equivalent of
what it cost him : without it he could
not do the same quantity of work,
unless at an additional expense equal
to the rent. The same thing is true
of land. The real expenses of pro-
duction are those incurred on the
worst land, or by the capital employed
in the least favourable circumstances.
This land or capital pays, as we have
seen, no rent : but the expenses to
which it is subject, cause all other land
or agricultural capital to be subjected
to an equivalent expense in the form
of rent. Whoever does pay rent, gets
back its full value in extra advantages,
and the rent which he pays dees
not place him in a worse position
than, but only in the same position as,
his fellow-producer who pays no rent,

RENT.

263

but whose instrument is one of inferior
efficiency.

We have now completed the exposi-
tion of the laws which regulate the
distribution of the produce of land,
labour, and capital, as far as it is
possible to discuss those laws indepen-
dently of the instrumentality by which
in a civilized society the distribution is
affected ; the machinery of Exchange

and Price. The more complete eluci-
dation and final confirmation of the
laws which we have laid down, and the
deduction of their most important con-
sequences, must be preceded by an ex-
planation of the nature and working of
that machinery — a subject so extensive
and complicated as to require a sepa-
rate BOOK.

BOOK III.

EXCHANGE.

CHAPTER L

OF VALDE.

§ 1. THE subject on which we are
now about to enter fills so important
and conspicuous a position in political
economy, that in the apprehension of
some thinkers its boundaries confound
themselves with those of the science
itself. One eminent writer has pro-
posed as a name for Political Economy,

Catallactics," or the science of ex-
changes : by others it has been called
the Science of Values. If these deno-
minations had appeared to me logically
correct, I must have placed the discus-
sion of the elementary laws of value at
the commencement of our enquiry,
instead of postponing it to the Third
Pail; and the possibility of so long
deferring it is alone a sufficient proof
that this view of the nature of Political
Economy is too confined. It is time
that in the preceding Books we have
not escaped the necessity of anticipat-
ing some small portion of the theory
of Value, especially as to the value of
labour and of land. It is nevertheless
evident, that of the two great depart-
ments of Political Economy, the pro-
duction of wealth and its distribution,
the consideration of Value has to do
with the latter alone ; and with that
only so far as competition, and not
usage or custom, is the distributing
agency. The conditions and laws of
Production would be the same as they
are, if the arrangements of society did
not depend on exchange, or did not
admit ef it. Even in the present
system of industrial life, in which em-
ployments are minutely subdivided,
and all concerned in production de-

pend for their remuneration on the
price of a particular commodity, ex-
change is not the fundamental law of
the distribution of the produce, no
more than roads and carriages are the
essential laws of motion, but merely a
part of the machinery for effecting it.
To confound these ideas, seems to me
not only a logical, but a practical
blunder. It is a case of the error too
I common in political economy, of not
distinguishing between necessities
arising from the nature of things, and
those created by social arrangements :
an error, which appears to me to be at all
times producing two opposite mischiefs ;
on the one hand, causing political
economists to class the merely tem-
porary truths of their subject among
its permanent and universal laws ; and
on the other, leading many persons to
mistake the permanent laws of Pro-
duction (such as those on which the
necessity is grounded of restraining
population) for temporary accidents
arising from the existing constitution
of society — which those who would
frame a new system of social arrange-
ments, are at liberty to disregard.

In a state of society, however, in
which the industrial system is entirely
founded on purchase and sale, each
individual, for the most part, living
not on things in the production of
which he himself bears a part, but on
things obtained by a double exchange,
a sale followed by a purchase — the
question of Value is fundamental.
Almost every speculation respecting
the economical interests of a society

VALUE.

266

thus constituted, implies some theory
of Value : the smallest error on that
subject infects with corresponding
error all our other conclusions ; and
anything vague or misty in our con-
ception of it, creates confusion and
uncertainty in everything else. Hap-
pily, there is nothing in the laws of
Value which remains for the present or
any future writer to clear up ; the
theory of the subject is complete : the
only difficulty to be overcome is that
of so stating it as to solve by anticipa-
tion the chief perplexities which occur
in applying it : and to do this, some
minuteness of exposition, and consider-
able demands on the patience of the
reader, are unavoidable. He will be
amply repaid, however, (if a stranger to
these inquiries) by the ease and rapidity
with which a thorough understanding
of this subject will enable him to
fathom most of the remaining ques-
tions of political economy.

§ 2. We must begin by settling our
phraseology. Adam Smith, in a pas-
sage often quoted, has touched upon
the most obvious ambiguity of the
word value ; which, in one of its senses,
signifies usefulness, in another, power
of purchasing ; in his own language,
value in use, and value in exchange. But
(as Mr. De Quincey has remarked) in
illustrating this double meaning, Adam
Smith has himself fallen into another
ambiguity. Things (he says) which
have the greatest value in use have
often little or no value in exchange ;
which is true, since that which can be
obtained without labour or sacrifice
will command no price, however useful
or needful it may be. But he proceeds
to add, that things which have the
un at- st value in exchange, as a dia-
mond for example, may have little or
no value in use. This is employing
the word use, not in the sense in which
political economy is concerned with it,
but in that other sense in which use is
opposed to pleasure. Political economy
has nothing to do with the comparative
estimation of different uses in the judg-
ment of a philosopher or of a moralist.
The use of a thing, in political economy,
means its capacity to satisfy a desire,

or serve a purpos*. Diamonds luivo
this capacity in a high degree, and
unless they had it, would not bear any
price. Value in use, or as Mr. De
Quincey calls it, teleologic value, is
the extreme limit of value in exchange.
The exchange value of a thing may
fall short, to any amount, of its value
in use ; but that it can ever exceed
the value in use, implies a contradic-
tion; it supposes that persons will
give, to possess a thing, moie than
the utmost value which they them-
selves put upon it, as a means of grati-
fying tneir inclinations.

The word Value, when used without
adjunct, always means, in political
economy, value in exchange ; or as it
has been called by Adam Smith and
his successors, exchangeable value, a
phrase which no amount of authority
that can be quoted for it can make
other than bad English. Mr. De
Quincey substitutes the term Exchange
Value, which is unexceptionable.

Exchange value requires to be dis.
tinguished from Price. The words
Value and Price were used as synony-
mous by the early political economists,
and are not always discriminated even
by Eicardo. But the most accurate
modern writers, to avoid the wasteful
expenditure of two good scientific
terms on a single idea, have employed
Price to express the value of a thing
in relation to money ; the quantity of
money for which it will exchange. By
the price of a thing, therefore, we shall
henceforth understand its value in
money ; by the value, or exchange
value of a thing, its general power of
purchasing; the command which its
possession gives over purchaseabie
commodities in general

§ 3. But here a fresh demand for
explanation presents itself. What is
meant by command over commodities
in general ? The same thing exchanges
for a great quantity of some commo-
dities, and for a very small quantity of
others. A suit of clothes exchanges
for a great quantity of bread, and for a
very small quantity of precious stones.
The value of a thing in exchange for
some commodities may be rising, for

266

BOOK III. CHAPTER I. § 4.

others falling. A coat may exchange
for less bread this year than last, if the
harvest has been bad, but for more
glass or iron, if a tax has been taken
off those commodities, or an improve-
ment made in their manufacture. Has
the value of the coat, under these cir-
cumstances, fallen or risen ? It is im-
possible to say : all that can be said
is, that it has fallen in relation to one
thing, and risen in respect to another.
But there is another case, in which no
one would have any hesitation in
saying what sort of change had taken
place in the value of the coat : namely,
if the cause in which the disturbance
of exchange values originated, was
something directly affecting the coat
itself, and not the bread, or the glass.
Suppose, for example, that an inven-
tion had been made in machinery, by
which broadcloth could be woven at
half the former cost. The effect of
this would be to lower the value of a
coat, and if lowered by this cause, it
would be lowered not in relation to
bread only or to glass only, but to all
purchaseable things, except such as
happened to be affected at the very
time by a similar depressing cause.
AVe should therefore say, that there
i>ad been a fall in the exchange
value or general purchasing power
of a coat. The idea of general ex-
change value originates in the fact,
that there really are causes which
tend to alter the value of a thing in
exchange for things generally, that
is, for all things which are not them-
selves acted upon by causes of similar
tendency.

In considering exchange value scien-
tifically, it is expedient to abstract
from it all causes except those which
originate in the very commodity under
consideration. Those which originate
in the commodities with which we
compare it, affect its value in relation
to those commodities ; but those which
originate in itself, affect its value in
relation to all commodities. In order
the more completely to confine our
attention to these last, it is convenient
to assume that all commodities but
the one in question remain invariable
in their relative values. When we are

considering the causes which raise or
lower the value of corn, we suppose
that woollens, silks, cutlery, sugar,
timber, &c., while varying in their
power of purchasing corn, remain
constant in the proportions in which
they exchange for one another. On
this assumption, any one of them may
be taken as a representative of all the
rest : since in whatever manner corn
varies in value with respect to any one
commodity, it varies in the same
manner and degree with respect to
every other ; and the upward or down-
ward movement of its value estimated
in some one thing, is all that needs be
considered. Its money value, there-
fore, or price, will represent as well as
anything else its general exchange
value, or purchasing power ; and from
an obvious convenience, will often be
employed by us in that representative
character; with the proviso that money
itself do not vary in its general pur-
chasing power, but that the prices o"
all things, other than that which we
happen to be considering, remain un-
altered.

§ 4. The distinction between Value
and Price, as we have now defined
them, is so obvious, as scarcely to seem
in need of any illustration. But in
political economy the greatest errors
arise from overlooking the most obvious
truths. Simple as this distinction is,
it has consequences with which a reader
unacquainted with the subject would
do well to begin early by making him-
self thoroughly familiar. The follow-
ing is one of the principal. There
is such a thing as a general rise of
prices. All commodities may rise in
their money price. But there cannot
be a general rise of values. It is a
contradiction in terms. A can only
rise in value by exchanging for a
greater quantity of B and C ; in which
case these must exchange for a smaller
quantity of A. All things cannot rise
relatively to one another. If one-half
of the commodities in the market rise
in exchange value, the very terms imply
a fall of the other half; and reciprocally,
the fall implies a rise. Things which
are exchanged for one another can no

VALUE.

267

more all fall, or all rise, than a dozen
runners can each outran all the rest,
or a hundred trees all overtop one
another. Simple as this truth is, we
shall presently see that it is lost sight
of in some of the most accredited
doctrines hoth of theorists and of what
are called practical men. And as a
first specimen, we may instance the
great importance attached in the ima-
gination of most people to a rise or fall
of general prices. Because when the
price of any one commodity rises, the
circumstance usually indicates a rise
of its value, people have an indistinct
feeling when all prices rise, as if all
things simultaneously had risen in
value, and all the possessors had be-
come enriched. That the money prices
of all things should rise or fall, pro-
vided they all rise or fall equally, is, in
itself, and apart from existing con-
tracts, of no consequence. It affects
nobody's wages, profits, or rent. Every
one gets more money in the one case
and less in the other ; but of all that
is to be bought with money they get
neither more nor less than before. It
makes no other difference than that of
using more or fewer counters to reckon
by. The only thing which in this case
is really altered in value, is money ;
and the only persons who either gain
or lose are the holders of money, or
those who have to receive or to pay
fixed sums of it. There is a difference
to annuitants and to creditors the one
way, and to those who are burthened
with annuities, or with debts, the con-
trary way. There is a disturbance, in
short, of fixed money contracts ; and
this is an evil, whether it takes place
in the debtor's favour or in the cre-
ditor's. But as to future transactions
there is no difference to any one. Let
it therefore be remembered (and occa-
sions will often rise of calling it to
mind) that a general rise or a general
fall of values is a contradiction ; and
that a general rise or a general fall of
prices is merely tantamount to an
alteration in the value of money, and
is a matter of complete indifference,
save in so far as it affects existing
contracts for receiving and paying fixed
pecuniary amounts, and (it must be

added) as it affects *he interests of the
producers of money.

§ 5. Before commencing the inquiry
into the laws of value and price, 1 have
one further observation to make. I
must give warning, once for all, that
the_ cases I contemplate are those in
which values and prices are determined
by competition alone. In so far only
as they are thus determined, can they
be reduced to any assignable law. The
buyers must be supposed as studious
to buy cheap, as the sellers to sell dear.
The values and prices, therefore, to
which our conclusions apply, are mer-
cantile values and prices ; such prices
as are quoted in price-currents ; prices
in the wholesale markets, in which
buying as well as selling is a matter of
business ; in which the buyers take
pains to know, and generally do know,
the lowest price at which an article of
a given quality can be obtained ; and
in which, therefore, the axiom is true,
that there cannot be for the same
article, of the same quality, two prices
in the same market. Our propositions
will be true in a much more qualified
sense, of retail prices ; the prices paid
in shops for articles of personal con-
sumption. For such things there often
are not merely two, but many prices,
in different shops, or even in the same
shop ; habit and accident having as
much to do i» 4fhe matter as general
causes. Purchases for private use,
even by people in business, are not
always made on business principles :
the feelings which come into play in
the operation of getting, and in that of
spending their income, are often ex-
tremely different. Either from indo-
lence, or carelessness, or because people
think it fine to pay and ask no ques-
tions, three-fourths of those who can
afford it give much higher prices than
necessary for the things they consume ;
while the poor often do the same from
ignorance and defect of judgment,
want of time for searching and making
inquiry, and not unfrequently from
coercion, open or disguised. For these
reasons, retail prices do not follow with
all the regularity which might be ex-
pected, the action of the causes which

2G8

BOOK III. CHAPTER II. § 1.

determine wholesale prices. Tlio in-
fluence of those causes is ultimately
full in the retail markets, and is the
real source of such variations in retail
prices as are of a general and per-
manent character. But there is no
regular or exact correspondence. Shoes
of equally good quality are sold in
different shops at prices which differ
considerably ; and the price of leather
may fall without causing the richer
class of buyers to pay less for shoes.
Nevertheless, shoes do sometimes fall
in price ; and when they do, the cause
is always some such general circum-
stance as the cheapening of leather :
and when leather is cheapened, even if
no difference shows itself in shops

frequented by rich people, the artisan
and the labourer generally get their
shoes cheaper, and there is a visible
diminution in the contract prices at
which shoes are delivered for the
supply of a workhouse or of a regiment.
In all reasoning about prices, the pro-
viso must bo understood, " supposing
all parties to take care of their own
interest.'' Inattention to these distinc-
tions has led to improper applications
of the abstract principles of political
economy, and still oftener to an undue
discrediting of those principles, through
their being compared with a different
sort of facts from those which they
contemplate, or which can fairly be
expected to accord with them.

CHAPTER

OP DEMAND AND SUPPLY, IN THEIR RELATION TO VALUE.

§ 1 . THAT a thing may have any
value in exchange, two conditions are
necessary. It must be of some use ;
that is (as already explained) it must
conduce to some purpose, satisfy some
desire. No one will pay a price, or
pail with anything which serves some
of his purposes, to obtain a thing which
serves none of them. But, secondly,
the thing must not only have some
utility, there must also be some diffi-
culty in its attainment. " Any article
whatever,'' says Mr. De Quincey,* " to
obtain that artificial sort of value
which is meant by exchange value, must
begin by offering itself as a means to
some desirable purpose ; and secondly,
even though possessing incontestably
this preliminary advantage, it will
never ascend to an exchange value in
cases where it can be obtained gra-
tuitously and without effort ; of which
last terms both are necessary as limi-
tations. For often it will happen that
some desirable object may be obtained
gratuitously ; stoop, and you gather it
at your feet ; but still, because the con-
tinued iteration of this stooping exacts
* Logic of Political Economy, p. 13.

a laborious effort, very soon it is found,
that to gather for yourself virtually is
not gratuitous. In the vast forests of
the Canadas, at intervals, wild straw-
berries may be gratuitously gathered
by shiploads : yet such is the exhaus-
tion of a stooping posture, and of a
labour so monotonous, that everybody
is soon glad to resign the service into
mercenary hands."

As was pointed out in the last chap-
ter, the utility of a thing in the esti-
mation of a purchaser, is the extreme
limit of its exchange value : higher
the value cannot ascend ; peculiar cir-
cumstances are required to raise it so
high. This topic is happily illustrated
by Mr. De Quincey. " Walk into
almost any possible shop, buy the first
article you see : what will determine
its price? In the ninety-nine cases
out of a hundred, simply the element
D — difficulty of attainment. The other
element U, or intrinsic utility, will be
perfectly inoperative. Let the thing
(measured by its uses) be, for your
purposes, worth ten guineas, so that
you would rather give ten guineas
than lose it ; yet, if the difficulty of

DEMAND AND SUPPLY.

269

producing it be only worth one guinea,
one guinea is the price which it will
bear. But still not the less, though
U is inoperative, can IT be supposed
absent? By no possibility; for, if it
hail been absent, assuredly you would
not have bought the article even at
the lowest price. U acts upon you,
though it does not act upon the price.
On the other hand, in the hundredth
case, we will suppose .the circumstances
reversed ; you are on Lake Superior in
a steam-boat, making your way to an
unsettled region 800 miles a-head of
civilization, and consciously with no
chance at all of purchasing any luxury
.vhatsoever, little luxury or big luxury,
for the space of ten years to come.
One fellow passenger, whom you will
part with before sunset, has a powerful
musical snuff-box ; knowing by experi-
ence the power of such a toy over your
own feelings, the magic with which at
times it lulls your agitations of mind,
you are vehemently desirous to pur-
chase it. In the hour of leaving Lon-
don you had forgot to do so ; here is a
final chance. But the owner, aware of
your situation not less than yourself,
is determined to operate by a strain
pushed to the very uttermost upon U,
upon the intrinsic worth of the article
in your individual estimate for your
individual purposes. He will not near
of D as any controlling power or
mitigating agency in the case ; and
finally, although at six guineas a-piece
in London or Paris you might have
loaded a waggon with such boxes, you
pay sixty rather than lose it when the
last knell of the clock has sounded,
which summons you to buy now or to
forfeit for ever. Here, as before, only
one element is operative : before it was
D, now it is U. But after all, D was
not absent, though inoperative. The
inertness of D allowed U to put forth
its total effect. The practical com-
pression of D being withdrawn, U
springs up like water in a pump when
jvl''u»-d *'rom the pressure of air. Vet
still that D was present to your
thoughts, though the price was other-
•wise regulated, is evident ; both be-
cause U and D must coexist in order to
found any case of exchange value what-

ever, and because undeniably you t;ike
into very particular consideration this
D, the extreme difficulty of attainment
(which here is the greatest possible,
viz. an impossibility) before you oon-
sent to have the price racked up to U.
The special D has vanished ; but it is
replaced in your thoughts by an un-
limited D. Undoubtedly you havo
submitted to U in extremity as the
regulating force of the price ; but it
was under a sense of D's latent pre-
sence. Yet D is so far from exerting
any positive force, that the retirement
of I > from all agency whatever on the
price — this it is which creates as it
were a perfect vacuum, and through
that vacuum U rushes up to its highest
and ultimate gradation."

This case, in which the value is
wholly regulated by the necessities or
desires of the purchaser, is the case of
strict and absolute monopoly ; in
which, the article desired being only
obtainable from one person, he can
exact any equivalent, short of the
point at which no purchaser could
be found. But it is not a necessary
consequence, even of complete mono-
poly, that the value should be forced
up to this ultimate limit : as will be
seen when we have considered the la«v
of value in so far as depending on the
other element, difficulty of attainment.

§ 2. The difficulty of attainment
which determines value, is not always
the same kind of difficulty. It some-
times consists in an absolute limita-
tion of the supply. There are things
of which it is physically impossible to
increase the quantity beyond certain
narrow limits. Such are those wines
which can be grown only in peculiar
circumstances of soil, climate, and
exposure. Such also are ancient
sculptures ; pictures by old masters ;
rare books or coins, or other articles of
antiquarian curiosity. Among such
may also be reckoned houses and
building-ground, in a town of definite
extent (such as Venice, or any fortified
town where fortifications are necessary
to security) ; the most desirable sites
in any town whatever ; houses and
parks peculiarly favoured by natural

270

BOOK III. CHAPTER II. § 3.

beauty, in places where that advantage
is uncommon. Potentially, all land
whatever is a commodity of this class ;
and might be practically so, in coun-
tries fully occupied and cultivated.

But there is another category, (em-
bracing the majority of all things that
are bought and sold,) in which the
obstacle to attainment consists only in
the labour and expense requisite to
produce the commodity. Without a
certain labour and expense it cannot
be had : but when any one is willing
to incur these, there needs be no limit
to the multiplication of the product.
If there were labourers enough and
machinery enough, cottons, woollens,
or linens might be produced by thou-
sands of yards for every single yard
now manufactured. There would be a
point, no doubt, where further increase
would be stopped by the incapacity of
the earth to afford more of the ma-
terial. But there is no need, for any
purpose of political economy, to con-
template a time when this ideal limit
could become a practical one.

There is a third case, intermediate
between the two preceding, and rather
more complex, which I shall at present
merely indicate, but the importance of
which in political economy is extremely
great. There are commodities which
san be multiplied to an indefinite ex-
tent by labour and expenditure, but
not by a fixed amount of labour and
expenditure. Only a limited quantity
can be produced at a given cost ; if
more is wanted, it must be produced at
a greater cost. To this class, as has
been often repeated, agricultural pro-
duce belongs ; and generally all the
rude produce of the earth ; and this
peculiarity is a source of very import-
ant consequences ; one of which is the
necessity of a limit to population ; and
another, the payment of rent.

§ 3. These being the three classes,
in one or other of which all things
that are bought and sold must take
their place, we shall consider them in
their order. And first, of things abso-
lutely limited in quantity, such as
ancient sculptures or pictures.

Of such things it is commonly said,

that their value depends upon their
scarcity : but the expression is not
sufficiently definite to serve our pur-
pose. Others say, with somewhat
greater precision, that the value de-
pends on the demand and the supply.
But even this statement requires much
explanation, to make it a clear expo-
nent of the relation between the value
of a tiling, and the causes of which
that value is an effect.

The supply of a commodity is an
intelligible expression : it means the
quantity offered for sale ; the quantity
that is to be had, at a given time and
place, by those who wish to purchase
it. But what is meant by the de-
mand ? Not the mere desire for the
commodity. A beggar may desire a
diamond ; but his desire, however
great, will have no influence on the
price. Writers have therefore given a
more limited sense to demand, and
have defined it, the wish to possess,
combined with the power of pur-
chasing. To distinguish demand in
this technical sense, from the demand
which is synonymous with desire, they
call the former effectual demand.*
After this explanation, it is usually
supposed that there remains no further
difficulty, and that the value depends
upon the ratio between the effectual
demand, as thus defined, and the
supply.

These phrases, however, fail to
satisfy any one who requires clear
ideas, and a perfectly precise expres-
sion of them. Some confusion must
always attach to a phrase so inappro-
priate as that of a ratio between two
things not of the same denomination.
What ratio can there be between a
quantity and a desire, or even a desire
combined with a power ? A ratio
between demand and supply is only
intelligible if by demand we mean
the quantity demanded, and if the

* Adam Smith, who introduced the ex-
pression " effectual demand," employed it to
denote the demand of those who are willing
and able to give for the commodity what he
calls its natural price, that is, the price
which will enable it to be permanently pro-
duced and brought to market. — See his
chapter on Natural and Market Pric*
(book i. ch. 7.)

DEMAND AND SUPPLY.

871

ratio intended is that between the
quantity demanded and the quantity
supplied. But again, the quantity
demanded is not a fixed quantity, even
at the same time and place ; it varies
according to the value : if the thing is
cheap, there is usually a demand for
more of it than when it is dear. The
demand, therefore, partly depends on
the value. But it was before laid
down that the value depends on the
demand. From this contradiction how
shall we extricate ourselves? How
solve the paradox, of two things, each
depending upon the other ?

Though the solution of these diffi-
culties is obvious enough, the diffi-
culties themselves are not fanciful ; and
I bring them forward thus prominently,
because I am certain that they ob-
scurely haunt every inquirer 'into the
subject who has not openly faced and
distinctly realized them. Undoubt-
edly the true solution must have been
frequently given, though I cannot call
to mind any one who had given it
before myself, except the eminently
clear thinker and skilful expositor,
J. B. Say. I should have imagined,
however, that it must be familiar to all
political economists, if the writings of
several did not give evidence of some
want of clearness on the point, and if
the instance of Mr. De Quincey did
not prove that the complete non-
recognition and implied denial of it are
compatible with great intellectual in-
genuity, and close intimacy with the
subject matter.

§ 4. Meaning, by the word demand,
the quantity demanded, and remember-
ing that this is not a fixed quantity,
but in general varies according to the
value, let us suppose that the demand
at some particular time exceeds the
supply, that is, there are persons ready
to buy, at the market value, a greater
quantity than is offered for sale. Com-
petition takes place on the side of the
buyers, and the value rises : but how
much ? In the ratio (some may sup-
pose) of the deficiency : if the demand
exceeds the supply by one-third, the
value rises one-third. By no means :
fci when the value has risen one-third,

the demand may still exceed the sup
ply ; there may, even at that higher
value, bo a greater quantity wanted
than is to be had ; and the competi-
tion of buyers may still continue. If
the article is a necessary of life, which,
rather than resign, people are willing
to pay for at any price, a deficiency of
one-third may raise the price to double,
triple, or quadruple.* Or, on the con-
trary, the competition may cease before
the value has risen in even the pro-
portion of the deficiency. A rise,
short of one-third, may place the article
beyond the means, or beyond the in-
clinations, of purchasers to the full
amount. At what point, then, will
the rise be arrested? At the point,
whatever it be, which equalizes the
demand and the supply : at the price
which cuts off the extra third from the
demand, or brings forward additional
sellers sufficient to supply it. When,
in either of these ways, or by a com-
bination of both, the demand becomes
equal and no more than equal to the
supply, the rise of value will stop.

The converse case is equally simple.
Instead of a demand beyond the sup-
ply, let us suppose a supply exceeding
the demand. The competition will
now be on the side of the sellers : the
extra quantity can onlv find a market
by calling forth an additional demand
equal to. itself. This is accomplished
by means of cheapness ; the value
falls, and brings the article within the
reach of more numerous customers, or
induces those who were already con-
sumers to make increased purchases.
The fall of value required to re-estab-
lish equality, is different in different
cases. The kinds of things in which
it is commonly greatest are at the two
extremities of the scale ; absolute

* " The price of corn in this country has
risen from 100 to 200 per cent and upwards,
when the utmost computed deficiency of the
crops has not been more than between one-
sixth and one-third below an average, and
when that deficiency has been relieved by
foreign supplies. If there should be a defi-
ciency of the crops amounting to one-third,
without any surplus from a former year, and
without any chance of relief by importation,
the price might rise $ ve, six, or even ten-
fold."—Tooke'§ Hittory of Prictt vol. i.
pp. 13 — 5.

272

BOOK III. CHAPTER II. § 5.

necessaries, or those peculiar luxuries,
the taste for which is confined to a
small class. In the case of food, as
those who have already enough do not
require more on account of its cheap-
ness, but rather expend in other things
what they save in food, the increased
consumption occasioned by cheapness,
carries off, as experience snows, only a
small part of the extra supply caused
by an abundant harvest ;* and the fall
is practically arrested only when the
farmers withdraw their corn, and hold
it back in hopes of ahigher price ; or by
the operations of speculators who buy
com when it is cheap, and store it up
to be brought out when more urgently
wanted. Whether the demand and
supply are equalized by an increased
demand, the result of cheapness, or by
withdrawing a part of the supply,
equalized they are in either case.

Thus we see that the idea of a ratio,
as between demand and supply, is out
of place, and has no concern in the
matter : the proper mathematical ana-
logy is that of an equation. Demand
and supply, the quantity demanded
and the quantity supplied, will be made
equal. If unequal at any moment,
competition equalizes them, and the
manner in which this is done is by an
adjustment of the value. If the de-
mand increases, the value rises ; if the
demand diminishes, the value falls :
again, if the supply falls off, the value
rises ; and falls, if the supply is in-
creased. The rise or the fall continues
until the demand and supply are again
equal to one another : and the value
which a commodity will bring in any
market, is no other than the value
which, in that market, gives a demand
just sufficient to carry off the existing
or expected supply.

This, then, is the Law of Value,
with respect to all commodities not
susceptible of being multiplied at plea-
sure. Such commodities, no doubt,
are exceptions. There is another law
for that much larger class of things,
which admit of indefinite multiplica-
tion. But it is not the less necessary
to conceive distinctly and grasp firmly

* See Tooke, and the Report of the Agri-
cultural Committee of 1821.

the theory of this exceptional case.
In the first place, it will be found to
be of great assistance in rendering the
more common case intelligible. And
in the next place, the principle of the
exception stretches wider, and embraces
more cases, than might at first be sup-
posed.

§ 5. There are but few commodities
which are naturally and necessarily
limited in supply. But any commodity
whatever may be artificially so. Any
commodity may be the subject of a
monopoly: like tea, in this country,
up to 1834; tobacco in France, opium
in British India, at present. The price
of a monopolized commodity is com-
monly supposed to be arbitrary ; de-
pending on the will of the monopolist,
and limited only (asin Mr. De Quincey's
case of the musical box in the wilds of
America) by the buyer's extreme esti-
mate of its worth to himself. This is
in one sense true, but forms no excep-
tion, nevertheless, to the dependence
of the value on supply and demand.
The monopolist can fix the value as
high as he pleases, short of what the
consumer either could not or would not
pay ; but he can only do so by limiting
the supply. The Dutch East India Com-
pany obtained a monopoly price for
the produce of the Spice Islands, but
to do so they were obliged, in good
seasons, to destroy a portion of the
crop. Had they persisted in selling
all that they produced, they must have
forced a market by reducing the price,
so low, perhaps, that they would have
received for the larger quantity a less
total return than for the smaller : at
least they showed that such was their
opinion by destroying the surplus.
Even on Lake Superior, Mr. De
Quincey's huckster could not have sold
his box for sixty guineas, if ho had
possessed two musical boxes and de-
sired to sell them both. Supposing
the cost price of each to be six guineas,
he would have taken seventy for the
two in preference to sixty for one ; that
is, although his monopoly was the
closest possible, he would have sold
the boxes at thirty-five guineas each,
notwithstanding that sixty was not

DEMAND AND SUPPLY.

273

beyond the buyer's «.«timate of the
article for his purposes. Monopoly
value, therefore, does not depend on any
peculiar principle, but is a mere variety
of the ordinary case of demand and
supply.

Again, though there are few commo-
dities which are at all times and for
ever unsusceptible of increase of supply,
any commodity whatever may be tem-
porarily KO ; and with some commo-
dities this is habitually the case.
Agricultural produce, for example,
cannot be increased in quantity before
the next harvest ; the quantity of corn
already existing in the world, is all
thai can be had for sometimes a year
to come. During that interval, corn
is practically assimilated to things of
which the quantity cannot be in-
creased. In the case of most commo-
dities, it requires a certain time to in-
crease their quantity ; and if the
demand increases, then until a corre-
sponding supply can be brought for-
ward, that is, until the supply can
accommodate itself to the demand, the
value will so rise as to accommodate
the demand to the supply.

There is another case, the exact
converse of this. There are some
articles of which the supply may be
indefinitely increased, but cannot be
rapidly diminished. There are things
BO durable that the quantity in exist-
ence is at all times very great in
comparison with the annual produce.
Gold, and the more durable metals,
are things of this sort ; and also
houses. The supply of such things
muht be at once diminished by de-
stroying them ; but to do this could
only be the interest of the possessor if
he had a monopoly of the article, and
c< ulil repay himself for the destruction
of a part by the increased value of the

remainder. The value, therefore, of
such things may continue for a long
time so low, either from excess of
supply or falling off in the demand, as
to put a complete stop to further pro-
duction : the diminution of supply by
wearing out being so slow a process,
that a long time is requisite, even
under a total suspension of production,
to restore the original value. During
that interval the value will be regu-
lated solely by supply and demand,
and will rise very gradually as the
existing stock wears out, until there is
again a remunerating value, and pro-
duction resumes its course.

Finally, there are commodities of
which, though capable of being in-
creased or diminished to a great, and
even an unlimited extent, the value
never depends upon anything but de-
mand and supply. This is the case,
in particular, with the commodity
Labour: of the value of which we
have treated copiously in the preceding
Book : and there are many cases be-
sides, in which we shall find it neces-
sary to call in this principle to solve
difficult questions of exchange value.
This will be particularly exemplified
when we treat of International Values ;
that is, of the terms of interchange
between things produced in different
countries, or, to speak more generally
in distant places. But into these
questions we cannot enter until we
shall have examined the case of com-
modities which can be increased in
quantity indefinitely and at pleasure ;
and shall have determined by what
law, other than that of Demand and
Supply, the permanent or average
values of such commodities are regu-
lated. This we shall do in the next
chapter.

Ms.

274

BOOK m. CHAPTER IH. § 1.

CHAPTER

OF COST OP PRODUCTION, IN ITS RELATION TO VALUE.

§ 1. WHEN the production of a
commodity is the effect of labour and
expenditure, whether the commodity
is susceptible of unlimited multiplica-
tion or not, there is a minimum value
•which is the essential condition of its
being permanently produced. The
value at any particular time is the
result of supply and demand ; and is
always that which is necessary to
create a market for the existing supply.
But unless that value is sufficient to
repay the Cost of Production, and to
afford, besides, the ordinary expecta-
tion of profit, the commodity will not
continue to be produced. Capitalists
will not go on permanently producing
at a loss. They will not even go on
producing at a profit less than they can
live upon. Persons whose capital is
already embarked, and cannot be easily
extricated, will persevere for a con-
siderable time without profit, and have
been known to persevere even at a
loss, in hope of better times. But
they will not do so indefinitely, or
when there is nothing to indicate that
times are likely to improve. No new
capital will be invested in an employ-
ment, unless there be an expectation
not only of some profit, but of a profit
as great (regard being had to the de-
gree of eligibility of the employment
in other respects) as can be hoped for
in any other occupation at that time
and place. When such profit is evi-
dently not to be had, if people do not
actually withdraw their capital, they
at least abstain from replacing it when
consumed. The cost of production,
together with the ordinary profit, may,
therefore be called the necessary price
or value, of all things made by labour
and capital. Nobody willingly pro-
duces in the prospect of loss. Who-
ever does so, does it under a miscalcu-
lation, which he corrects as fast as he
is able.

When a commodity is not only made

by labour and capital, but can be made
by them in indefinite quantity, this
Necessary Value, the minimum with
which the producers will be content, is
also, if competition is free and active,
the maximum which they can expect.
If the value of a commodity is such
that it replays the cost of production
not only with the customary, but with
a higher rate of profit, capital rushes
to share in this extra gain, and by in-
creasing the supply of the article,
reduces its value. This is not a mere
supposition or surmise, but a fact
familiar to those conversant with com-
mercial operations. Whenever a new
line of business presents itself, offering
a hope of unusual profits, and when-
ever any established trade or manu-
facture is believed to be yielding a
greater profit than customary, there is
sure to be in a short time so large a
production or importation of the com-
modity, as not only destroys the extra
profit, but generally goes beyond the
mark, and sinks the value as much too
low as it had before been raised too
high ; until the over-supply is corrected
by a total or partial suspension of fur-
ther production. As already inti-
mated,* these variations in the
quantity produced do not presuppose
or require that any person should
change his employment. Those whose
business is thriving, increase their pro-
duce by availing themselves more
largely of their credit, while those who
are not making the ordinary profit,
restrict their operations, and (in manu-
facturing phrase) work short time. In
this mode is surely and speedily effected
the equalization, not of profits perhaps,
but of the expectations of profit, in
different occupations.

As a general rule, then, things tend to
exchange for one another at such values
as will enable each producer to be re-
paid the cost of production with tha
* Supra, p. 249.

COST OF PRODUCTION.

275

prcliuary profit ; in other words, such
as will give to all producers the same
ratit of [irolit on their outlay. But in
order that the profit may be equal
•ft here the outlay, that is, the cost of
production, is equal, things must on
the, average exchange for one another
in the ratio of their cost of production ;
things of which the cost of production
is the same, must be of the same value.
For only thus will an equal outlay
yield an equal return. If a farmer
with a capital equal to 1000 quarters
of corn, can produce 1200 quarters,
yielding him a profit of 20 per cent ;
whatever else can be produced in the
same time by a capital of 1000 quar-
ters, must be worth, that is, must ex-
change for, 1200 quarters, otherwise
the producer would gain either more
or less than 20 per cent.

Adam Smith and Ricardo have
called that value of a thing which is
proportional to its cost of production,
its Natural Value (or its Natural
Price). They meant by this, the point
about which, the value oscillates, and
to which it always tends to return ; the
centre value, towards which, as Adam
Smith expresses it, the market value
of a thing is constantly gravitating;
and any deviation from which is but a
temporary irregularity, which, the
moment it exists, sets forces in motion
tending to correct it. On an average
of years sufficient to enable the oscil-
lations on one side of the central line
to be compensated by those on the
other, the market value agrees with
the natural value ; but it' very seldom
coincides exactly with it at any par-
ticular time. The sea everywhere
tends to a level ; but it never is at an
exact level ; its surface is always ruf-
fled by waves, and often agitated by
storms. It is enough that no point, at
least in the open sea, is permanently
higher than another. Each place is
alternately elevated and depressed ;
but the ocean preserves its level.

§ 2. The latent influence by which
the values of things are made to con-
form in the long run to the cost of
production, is the variation that would
otherwise take place in the supply of

the commodity. The supply would bo
increased if the thing continued to sell
above the ratio of its cost of produc-
tion, and would be diminished if it
fell below that ratio. But we must not
therefore suppose it to be necessary
that the supply should actually b«
either diminished or increased. Sup-
pose that the cost of production of a
thing is cheapened by some mecha.
nical invention, or increased by a tax.
The value of a thing would in a little
time, if not immediately, fall in tha
one case, and rise in the other ; and it
would do so, because if it did not, tho
supply would in the one case be in-
creased, until the price fell, in the other
diminished, until it rose. For this
reason, and from the erroneous notion
that value depends on the proportion
between the demand and the supply,
many persons suppose that this pro-
portion must be altered whenever there
is any change in the value of the com-
modity ; that the value cannot fall
through a diminution of the cost of
production, unless the supply is perma-
nently increased ; nor rise, unless the
supply is permanently diminished. But
this is not the fact : there is no need
that there should be any actual altera-
tion of supply ; and when there is, the
alteration, it permanent, is not the
cause but the consequence of the altera-
tion in value. If, indeed, the supply
could nof be increased, no diminution
in the cost of production would lower
the value : but there is by no means
any necessity that it should. The
mere possibility often suffices ; the
dealers are aware of what would hap-
pen, and their mutual competition
makes them anticipate the result by
lowering the price. Whether there
will be a greater permanent supply of
the commodity, after its production
has been cheapened, depends on quite
another question, namely, on whether
a greater quantity is wanted at tho
reduced value. Most commonly a
greater quantity is wanted, but not
necessarily. " A man,'' says Mr.
De Quincey,* "buys an article of in-
stant applicability to his own purposes
the more readily and the more largely
• Logic of Political Economy, pp. 230—1.
T2

276

BOOK m. CHAPTER III. § 2.

as it happens to be cheaper. Silk
handkerchiefs having fallen to half-
price, he will huy, perhaps, in three-
fold quantity ; but he does not buy
more steam-engines because the price
is lowered. His demand for steam-
engines is almost always predetermined
by the circumstances of his situation.
So far as he considers the cost at all,
it is much more the cost of working
this engine than the cost upon its
purchase. But there are many articles
lor which the market is absolutely
and merely limited by a pre-existing
system, to which those articles are
attached as subordinate parts or mem-
bers. How could we force the dials or
faces of timepieces by artificial cheap-
ness to sell more plentifully than the
inner works or movements of such
timepieces ? Could the sale of
wine-vaults be increased without in-
creasing the sale of wine? Or the
tools of shipwrights find an enlarged
market whilst shipbuilding was sta-
tionary? .... Offer to a town of
3000 inhabitants a stock of hearses,
no cheapness will tempt that town into
buying more than one. Offer a stock of
yachts, the chief cost lies in manning,
victualling, repairing ; no diminution
upon the mere price to a purchaser
will tempt into the market any man
whose habits and propensities had not
already disposed him to such • a pur-
chase. So of professional costume for
bishops, lawyers, students at Oxford.1'
Nobody doubts, however, that the price
and value of all these things would be
eventually lowered by any diminution
of their cost of production ; and
lowered through the apprehension
entertained of new competitors, and
an increased supply : though the great
hazard to which a new competitor
would expose himself, in an article
not susceptible of any considerable ex-
tension of its market, would enable
the established dealers to maintain
their original pi-ices much longer than
they could do in an article offering
more encouragement to competition.

Again, reverse the case, and sup-
pose the cost of production increased,
as for example by laying a tax on the
commodity. The value would rise ;
and that, probably, immediately.

Would the supply be diminished? Only
if the increase of value diminished
the demand. Whether this effect fol-
lowed, would soon appear, and if it did,
the value would recede somewhat,
from excess of supply, until the pro-
duction was reduced, and would then
rise again. There are many articles
for which it requires a very consider-
able rise of price, materially to reduce
tho demand ; in particular, articles of
necessity, such as the habitual food of
the people ; in England, wheaten
bread : of which there is probably
almost as much consumed, at the pre-
sent cost price, as there would be with
the present population at a price con-
siderably lower. Yet it is especially
in such things that deamess or high
price is popularly confounded with
scarcity. Food may be dear from
scarcity, as after a bad harvest ; but
the dearness (for example) which is the
effect of taxation, or of corn la\\ a. has
nothing whatever to do with insuf-
ficient supply: such causes do not
much diminish the quantity of food in
a country : it is other things rather
than food that are diminished in quan-
tity by them, since, those who pay
more for food not having so much to
expend otherwise, the production of
other things contracts itself to the
limits of a smaller demand.

It is, therefore, strictly correct to
say, that the value of things which
can be increased in quantity at plea-
sure, does not depend (except acci-
dentally, and during the time necessary
for production to adjust itself,) upon
demand and supply ; on the contrary,
demand and supply depend upon it.
There is a demand for a certain quan-
tity of the commodity at its natural or
cost value, and to that the supply in
the long run endeavours to conform.
When at any time it fails of so con-
forming, it is either from miscalcula-
tion, or from a change in some of the
elements of the problem : either in the
natural value, that is, in the cost of
production ; or in the demand, from
an alteration in public taste or in the
number or wealth of the consumers.
These causes of disturbance are very
liable to occur, and when any one of
them does occur, the market value of

ULTIMATE ANALYSIS OF COST OF PRODUCTION. 277

the article ceases to agree with the
natural value. The real law of de-
mand and supply, the equation between
them, holds good in all cases : if a
value different from the natural value
be necessary to make the demand
equal to the supply, the market value
will deviate from the natural value ;
but omy for a time ; for the permanent
tendency of supply is to conform itself
to the demand which is found by expe-
rience to exist for the commodity when
selling at its natural value. If the
supply is either more or less than this,
it is so accidentally, and affords either
more or less than the ordinary rate of
profit ; which, under free and active
competition, cannot long continue to
be the case.

To recapitulate : demand and supply
govern the value of all things which
cannot be indefinitely increased; ex-
cept that even for them, when produced

by industry, there is a minimum value,
determined by the cost of production,
But in all things which admit of inde-
finite multiplication, demand and supply
only determine the perturbations of
value, during a period which cannot
exceed the length of time necessary
for altering the supply. While thus
ruling the oscillations of value, they
themselves obey a superior force, which
makes value gravitate towards Cost of
Production, and which would settle it
and keep it there, if fresh disturbing
influences were not continually arising
to make it again deviate. To pursue
the same strain of metaphor, demand
and supply always rush to an equili-
brium, but the condition of stable
equilibrium is when things exchange
for each other according to their cost
of production, or, in the expression we
have used, when things are at their
Natural Value.

CHAPTER IV.

ULTIMATE ANALYSIS OF COST OF PRODUCT105.

§ 1. THE component elements of
Cost of Production have been set forth
in the First Part of this enquiry.*
The principal of them, and so much
the principal as to be nearly the sole,
we found to be Labour. What the
production of a thing costs to its pro-
ducer, or its series of producers, is the
labour expended in producing it. If
we consider as the producer the capi-
talist who makes the advances, the
word Labour may be replaced by the
•word Wages : what the produce costs
to him, is the wages which he has had
to pay. At the first glance indeed
this seems to be only a part of his out-
lay, since he has not only paid wages
to labourers, but has likewise provided
them with tools, materials, and per-
haps buildings. These tools, materials,
and buildings, however, were produced
by labour and capital ; and their value,
like that of the article to the produc-
tion of which they are subservient,

* Supra, pp. 19, 20.

depends on cost of production, which
again is resolvable into labour. The
cost of production of broadcloth does
not wholly consist in the wages of
weavers ; which alone are directly paid
by the cloth manufacturer. It consists
also of the wages of spinners and
woolcombers, and it may b« added, of
shepherds, all of which the clothier
has paid for in the price of yarn. It
consists too of the wages of builders
and brickmakers, which he has reim-
bursed in the contract price of erecting
his factory. It partly consists of the
wages of machine-makers, iron-founders,
and miners. And to these must be
added the wages of the carriers who
transported any of the means and
appliances of the production to the
place where they were to be used,
and the product itself to the place
where it is to be sold.

The value of commodities, there-
fore, depends principally (we shall pre-
sently Bee whether it depends solely)

2«.rt
10

BOOK m. CHAPTER IV. § 2.

on the quantity of labour required for
their production ; including in the idea
of production, that of conveyance to
the market. "In estimating," says
Eicardo,* " the exchangeable value of
stockings, for example, we shall find
that their value, comparatively with
other things, depends on the total
quantity of labour necessary to manu-
facture them and bring them to
market. First, there is the labour
necessary to cultivate the land on
which the raw cotton is grown ;
secondly, the labour of conveying the
cotton to the country where the stock-
ings are to be manufactured, which
includes a portion of the labour be-
stowed in building the ship in which it
is conveyed, and which is charged in
the freight of the goods ; thirdly, the
labour of the spinner and weaver ;
fourthly, a portion of the labour of the
engineer, smith, and carpenter, who
erected the buildings and machinery
by the help of which they are made ;
fifthly, the labour of the retail dealer,
and of many others, whom it is un-
necessary further to particularize. The
aggregate sum of these various kinds
of labour, determines the quantity of
other things for which these stockings
will exchange, while the same con-
sideration of the various quantities of
labour which have been bestowed on
those other things, will equally govern
the portion of them which will be given
for the stockings.

" To convince ourselves that this is
the real foundation of exchangeable
value, let us suppose any improvement
to be made in the means of abridging
labour in any one of the various pro-
cesses through which the raw cotton
must pass before the manufactured
stockings come to the market to be
exchanged for other things ; and ob-
serve the effects which will follow. If
fewer men were required to cultivate
the raw cotton, or if fewer sailors were
employed in navigating, or shipwrights
in constructing, the ship in which it
was conveyed to us ; if fewer hands
were employed in raising the buildings
and machinery, or if these, when raised,

* Principles of Political Economy and
3'vxuiit* ch.i. sect. 3.

were rendered more efficient ; the
stockings would inevitably fall in value,
and command less of other things.
They would fall, because a less quan-
tity of labour was necessary to their
production, and would therefore ex-
change for a smaller quantity of those
things in which no such abridgment of
labour had been made.

"Economy in the use of labour
never fails to reduce the relative value
of a commodity, whether the saving be
in the labour necessary to the manu-
facture of the commodity itself, or in
that necessary to the formation of the
capital, by the aid of which it is pro-
duced. In either case the price of
stockings would fall, whether there
were fewer men employed as bleachers,
spinners, and weavers, persons imme-
diately necessary to their manufacture ;
or as sailors, carriers, engineers, and
smiths, persons more indirectly con-
cerned. In the one case, the whole
saving of labour would fall on the
stockings, because that portion of
labour was wholly confined to the
stockings ; in the other, a portion only
would fall on the stockings, the re-
mainder being applied to all those
other commodities, to the production
of which the buildings, machinery,
and carriage, were subservient."

§ 2. It will have been observed that
Eicardo expresses himself as if the
quantity of labour which it costs to
produce a commodity and bring it to
market, were the only thing on whidi
its value depended. But since the
cost of production to the capitalist is
not labour but wages, and since wages
may be either greater or less, the quan-
tity of labour being the same ; it would
seem that the value of the product
cannot be determined solely by the
quantity of labour, but by the quantity
together with the remuneration ; and
that values must partly depend on

In order to decide this point, it must
be considered, that value is a relative
term ; that the value of a commodity is
not a name for an inherent and sub-
stantive quality of the thing itself, but
means the quantity of other thing*

ULTIMATE ANALYSIS OF COST OF PRODUCTION. 279

which can bo obtained in exchange
for it. The value of one thing, must
always be understood relatively to
some other thing, or to things in general.
Now the relation of one thing to another
cannot be altered by any cause which
afll-cts them both alike. A rise or fall
of general wages is a fact which affects
all commodities in the same manner,
and therefore affords no reason why
they should exchange for each other
in one rather than in another propor-
tion. To suppose that high wages
make high values, is to suppose that
there can be such a thing as general
high values. But this is a contradic-
tion in terms : the high value of some
things is synonymous with the low
value of others. The mistake arises
from not attending to values, but only
to prices. Though there is no such
thing as a general rise of values, there
is such a thing as a general rise of
prices. As soon as we form distinctly
the idea of values, we see that high or
low wages can have nothing to do with
them : but that high wages make high
prices, is a popular and wide-spread
opinion. The whole amount of error
involved in this proposition can only
be seen thoroughly when we come to
the theory of money ; at present we
need only say that if it be true, there
can be no such thing as a real rise of
wages ; for if wages could not rise
without a proportional rise of the price
of everything, they could not, for any
substantial purpose, rise at all. This
surely is a sufficient reductio ad ab-
surdum, and shows the amazing folly
of the propositions which may and do
become, and long remain, accredited
doctrines of popular political economy.
It must be remembered, too, that
general high prices, even supposing
them to exist, can be of no use to a
producer or dealer, considered as such ;
for if they increase his money returns,
they increase in the same degree all
his expenses. There is no mode in
which capitalists can compensate them-
selves for a high cost of labour, through
any action on values or prices. It
cannot be prevented from taking its
effect in low profits. If the labourers
really get more, that is, get the pro-

duce of more labour, a smaller per-
centage must remain for profit. From
this Law of Distribution, resting as it
does on a law of arithmetic, there is no
escape. The mechanism of Exchange
and Price may hide it from us, but is
quite powerless to alter it.

§ 3. Although, however, general
wages, whether high or low, do not
affect values, yet if wages are higher
in one employment than another, or if
they rise or fall permanently in one
employment without doing so in others,
these inequalities do really operate
upon values. The causes which make
wages vary from one employment to
another, have been considered in a
former chapter. When the wages of
an employment permanently exceed
the average rate, the value of the
thing produced will, in the same degree,
exceed the standard determined by
mere quantity of labour. Things, for
example, which are made by skilled
labour, exchange for the produce of a
much greater quantity of unskilled
labour ; for no reason but because the

! labour is more highly paid. If, through
the extension of education, the labourers

I competent to skilled employments were
so increased in number as to diminish
the difference between their wages
and those of common labour, all things
produced by labour of the superior
kind would fall in value, compared with
things produced by common labour,
and these might be said therefore to
rise in value. We have before re-
marked that the difficulty of passing
from one class of employments to a
class greatly superior, has hitherto
caused the wages of all those classes
of labourers who are separated from
one another by any very marked barrier,
to depend more than might be sup-
posed upon the increase of the popu-
lation of each class, considered sepa-
rately ; and that the inequalities in
the remuneration of labour are much
greater than could exist if the com-
petition of the labouring people gene-
rally, could be brought practically to
bear on each particular employment.
It follows from this, that wages in
different employments do not rise or

280

BOOK III. CHAPTER IV. § 4.

fall simultaneously, but are, for short
and sometimes even for long periods,
nearly independent of one another.
All such disparities evidently alter the
relative cost of production of different
comn.?ditics, and will therefore be
completely represented in their natural
or average value.

It thus appears that the maxim
laid down by some of the best political
economists, that wages do not enter
into value, is expressed with greater
latitude than the truth warrants, or
than accords with their own meaning.
Wages do enter into value. The
relative wages of the labour necessary
for producing different commodities,
affect their value just as much as the
relative quantities of labour. It is
true, the absolute wages paid have no
effect upon values ; but neither has
the absolute quantity of labour. If
that were to vary simultaneously and
equally in all commodities, values
would not be affected. If, for in-
stance, the general efficiency of all
labour were increased, so that all
things without exception could be pro-
duced in the same quantity as before
with a smaller amount of labour, no
trace of this general diminution of cost
of production would show itself in the
values of commodities. Any change
which might take place in them would
only represent the unequal degrees in
which the improvement affected dif-
ferent things ; and would consist in
cheapening those in which the saving
of labour had been the greatest, while
those in which there had been some,
but a less saving of labour, would ac-
tually rise in value. In strictness,
therefore, wages of Labour have as
much to do with value as quantity of
labour : and neither Eicardo nor any
one else has denied the fact. In con-
sidering, however, the causes of varia-
tions in value, quantity of labour is
the thing of chief importance ; for
when that varies, it is generally in
one or a few commodities at a time,
but the variations of wages (except
passing fluctuations) are usually ge-
neral, and have no considerable effect
on value.

§ 4. Thus far of labour, or wages,
as an element in cost of production.
But in our analysis, in the First Book,
of the requisites of production, we found
that there is another necessary clement
in it besides labour. There is also
capital ; and this being the result of
abstinence, the produce, or its value,
must be sufficient to remunerate, not
only all the labour required, but the
abstinence of all the persons by whom
the remuneration of the different
classes of labourers was advanced.
The return for abstinence is Profit.
And profit, we have also seen, is not
exclusively the surplus remaining to
the capitalist after he has been com-
pensated for his outlay, but forms, in
most cases, no unimportant part of
the outlay itself. The flax-spinner,
part of whose expenses consists of the
purchase of flax and of machinery, has
had to pay, in their price, not only the
wages of the labour by which the flax
was grown and the machinery made,
bnt the profits of the grower, the flax-
dresser, the miner, the iron-founder,
and the machine-maker. All these
profits, together with those of the spin-
ner himself, were again advanced by
the weaver, in the price of his material,
linen yam : and along with them the
profits of a fresh set of machine-makers,
and of the miners and iron-workera
who supplied them with their metallic
material. All these advances form
part of the cost of production of linen.
Profits, therefore, as well as wages,
enter into the cost of production which
determines the value of the produce.

Value, however, being purely re-
lative, cannot depend upon absolute
profits, no more than upon absolute
wages, but upon relative profits only.
High general profits cannot, any more
than high general wages, be a cause of
high values, because high general values
arc an absurdity and a contradiction.
In so far as profits enter into the cost
of production of all things, they cannot
affect the value of any. It is only
by entering in a greater degree into
the cost of production of some things
than of others, that they can have any
influence on value.

For example, we have seen that

ULTIMATE ANALYSIS OF COST OF PKODUCTION. 281

there arc causes which necessitate a
permanently higher rate of profit in
certain employments than in others.
There must be a compensation for
superior risk, trouble, and disagreeable-
iivss. This can only be obtained by
selling the commodity at a value above
that which is due to the quantity of
labour necessary for its production.
If gunpowder exchanged for other
things in no higher ratio than that of
the labour required from first to last
for producing it, no one would set up
a powder-mill. Butchers are certainly
a more prosperous class than bakers,
and do not seem to be exposed to
greater risks, since it is not remarked
that they are oftener bankrupts. They
seem, therefore, to obtain higher pro-
fits, which can only arise from the
more limited competition caused by
the unpleasantness, and to a certain
degree, the unpopularity of their trade.
But this higher profit implies that they
sell Aeir commodity at a higher value
than that due to their labour and out-
lay. All inequalities of profit which
are necessary and permanent, are re-
presented in the relative values of the
commodities.

§ 5. Profits, however, may enter
more largely into the conditions of
production of one commodity than of
another, even though there be no dif-
ference in the rate of profit between
the two employments. The one com-
modity may be called upon to yield
profit during a longer period of time
than the other. The example by which
this cass is usually illustrated is that
of wine. Suppose a quantity of wine,
and a quantity of cloth, made by equal
amounts of labour, and that labour
paid at the same rate. The cloth
does not improve by keeping; the
wine does. Suppose that, to attain
the desired quality, the wine requires
to be kept five years. The producer
or dealer will not keep it, unless at
the end of five years he can sell it for
as much more than the cloth, as
amounts to five years profit, accumu-
lated at compound interest. The wine
and the cloth were made by the same
original outlay. Here then is a case

in which the natural values, relatively
to one another, of two commodities, do
not conform to their cost of production
alone, but to their cost of production
plus something else. Unless, indeed,
for the sake of generality in the ex-
pression, we include the profit which
the wine-merchant foregoes during the
five years, in the cost of production of
the wine : looking upon it as a kind of
additional outlay, over and above his
other advances, for which outlay he
must be indemnified at last.

All commodities made by machinery
are assimilated, at least approximately,
to the wine in the preceding example.
In comparison with things made
wholly by immediate labour, profits
enter more largely into their cost of
production. Suppose two commodities,
A ami B, each requiring a year for its
production, by means of a capita]
which we will on this occasion denote
by money, and suppose to be 1000?.
A is made wholly by immediate labour,
the whole 1QOOI. being expended di-
rectly in wages. B is made by means
of labour which costs 5001. and a ma-
chine which costs 5001., and the ma-
chine is worn out by one year's use.
The two commodities will be exactly
of the same value ; which, if computed
in money, and if profits are 20 per
cent, per annum, will be 12001. But
of this 12001., in the case of A, only
200Z., or one-sixth, is profit: while in
the case of B there is not only the
2001., but as much of 5001. (the price
of the machine) as consisted of the
profits of the machine-maker; which,
it' we suppose the machine also to have
taken a year for its production, is again
one-sixth. So that in the case of A
only one-sixth of the entire return is
profit, whilst in B the element of profit
comprises not only a sixth of the
whole, but an additional sixth of a
large part.

The greater the proportion of the
whole capital which consists of ma-
chinery, or buildings, or material, or
anything else which must be provided
before the immediate labour can com-
mence, the more largely will profits
enter into the cost of production. It
is equally true, though not so obvioua

282

at first sight, that greater durability
IB the portion of capital which consists
of machinery or buildings, has precisely
the same effect as a greater amount
of it. As we just supposed one ex-
treme case, of a machine entirely worn
out by a year's use, let us now suppose
the opposite and still more extreme
case, of a machine which lasts for ever,
and requires no repairs. In this case,
which is as well suited for the purpose
of illustration as if it were a possible
one, it will be unnecessary that the
manufacturer should ever be repaid
the 5001. which he gave for the ma-
chine, since he has always the machine
itself, worth 5001. ; but he must be
paid, as before, a profit on it. The
commodity B, therefore, which in the
case previously supposed was sold for
1200Z., of which sum 1000Z. were to
replace the capital and 200Z. were
profit, can now be sold for TOOL, being
500Z. to replace wages, and 200Z. profit
on the entire capital. Profit, there-
fore, enters into the value of B in the
ratio of 2001. out of 7001, being two-
sevenths of the whole, or 28f per cent,
while in the case of A, as before, it
enters only in the ratio of one-sixth,
or 1 Of per cent. The case is of course
purely ideal, since no machinery or
other fixed capital lasts for ever ; but
the more durable it is, the nearer it
approaches to this ideal case, and the
more largely does profit enter into the
return. If, for instance, a machine
worth 500Z. loses one fifth of its value
by each year's use, 100Z. must be added
to the return to make up this loss, and
the price of the commodity will be
8001. Profit therefore will enter into
it in the ratio of 2001. to 800Z., or one-
fourth, which is still a much higher
proportion than one-sixth, or 2001. in
1200Z., as in case A.

From the unequal proportion in
which, in different employments, profits
enter into the advances of the capi-
talist, and therefore into the returns
required by him, two consequences
follow in regard to value. One is,
that commodities do not exchange in the
ratio simply of the quantities of labour
required to produce them ; not even if
Ve allow for the unequal rates at which

BOOK III. CHAPTER IV. § 5.

different kinds of labour are perma-
nently remunerated. We have already
illust rated this by the example of wine :
we shall now further exemplify it by
the case of commodities made by ma-
chinery. Suppose, as before, an article

A, made by a thousand pounds' worth
of immediate labour. But instead of

B, made by 500Z. worth of immediate
labour and a machine worth 500Z., let
us suppose C, made by 500Z. worth of
immediate labour with the aid of a
machine which has been produced by
another 500Z. worth of immediate la-
bour: the machine requiring a year
for making, and worn out by a year's
use ; profits being as before 20 per cent.
A and C are made by equal quantities
of labour, paid at the same rate : A costs
1000Z. worth of direct labour ; C, only
500Z. worth, which however is made
up to 1000Z. by the labour expended
in the construction of the machine. If
labour, or its remuneration, were tho
sole ingredient of cost of production,
these two things would exchange for
one another. But will they do so?
Certainly not. The machine having
been made in a year by an outlay of
500Z., and profits being 20 per cent,
the natural price of the machine is
600Z. : making an additional 100Z.
which must be advanced, over and
above his other expenses, by the
manufacturer of C, and repaid to him
with a profit of 20 per cent. "While,
therefore, the commodity A is sold for
1200Z., C cannot be permanently sold
for less than 1320Z.

A second consequence is, that every
rise or fall of general profits will have
an effect on values. Not indeed by
raising or lowering them generally,
(which, as we have so often said, is a
contradiction and an impossibility) :
but by altering the proportion in which
the values of things are affected by
the unequal lengths of time for which
profit is due. When two things,
though made by equal labour, are of
unequal value because the one is called
upon to yield profit for a greater num-
ber of years or months than the other;
this difference of value will be greater
when profits are greater, and less when
they are less. The wine which has to

ULTIMATE ANALYSIS OF COST OF PRODUCTION. 283

yield five years profit more than the
cloth, will surpass it in value much more
if profits are 40 per cent, thun if they
are only 20. The commodities A and
C, which, though made hy equal quan-
tities of labour, were sold for 12001.
and 1320Z., a difference of 10 per cent,
would, if profits had been only half as
much, have been sold for 1 1 001. and
11551., a difference of only 5 per cent.

It follows from this, that even a
general rise of wages, when it involves
a real increase in the cost of labour,
does in some degree influence values.
It does not affect them in the manner
vulgarly supposed, by raising them
universally. But an increase in the
cost of labour, lowers profits; and
therefore lowers in natural value the
things into which profits enter in a
greater proportion than the average,
and raises those into which they enter
in a less proportion than the average.
All commodities in the production of
which machinery hears a large part,
especially if the machinery is very
durable, are lowered in their relative
value when profits fall ; or, what is
equivalent, other things are raised in
value relatively to them. This truth
is sometimes expressed in a phrase-
ology more plausible than sound, by
saying that a rise of wages raises the
value of things made by labour, in
comparison with those made by ma-
chinery. But things made by ma-
chinery, just as much as any other
things, are made by labour, namely
the labour which made the machinery
itself: the only difference being that
profits enter somewhat more largely
into the production of things fur which
machinery is used, though the prin-
cipal item of the outlay is still labour.
It is better, therefore, to associate the
effect with fall of profits than with rise
of wages ; especially as this last ex-
pression is extremely ambiguous, sug-
gesting the idea of an increase of the
labourer's real remuneration, rather
than of what is alone to the purpose
here, namely, the cost of labour to its
em )loyer.

§ 6. Besides the natural and ne-
cessary elements in cost of production

— labour and profits — there are others
which are artificial and casual, as for
instance a tax. The tax on malt is
as much a part of the cost of produc-
tion of that article, as the wages of
the labourers. The expenses which
the law imposes, as well as those which
the nature of tilings imposes, must be
reimbursed with the ordinary profit
from tho value of the produce, or the
things will not continue to be produced.
But the influence of taxation on value
is subject to the same conditions as
the influence of wages and of profits.
It is not general taxation, but differ-
ential taxation, that produces the
effect. If all productions were taxed
so as to take an equal percentage from
all profits, relative values would be in
no way disturbed. If only a few com-
modities were taxed, their value would
rise : and if only a few were left un-
taxed, their value would fall. If half
were taxed and the remainder untaxed,
the first half would rise and the last
would fall relatively to each other.
This would be necessary in order to
equalize the expectation of profit in
all employments, without which the
taxed employments would ultimately,
if not immediately, he abandoned.
But general taxation, when equally
imposed, and not disturbing the re-
lations of different productions to one
another, cannot produce any effect on
values.

^Ye have thus far supposed that all
the means and appliances which enter
into the cost of production of com-
modities, are things whose own value
depends on their cost of production.
Some of them, however, may belong to
the class of things which cannot be
increased ad libitum in quantity, and
which therefore, if the demand goes
beyond a certain amount, command a
scarcity value. The materials of many
of the ornamental articles manufac-
tured in Italy are the substances called
rosso, giallo, and verde antico, which,
wUether truly or falsely I know not,
are> asserted to be solely derived from
the destruction of ancient columns
and other ornamental structures: the
quarries from which the stone was
originally cut being exhausted, or their

284

BOOR IIL CHAFIER IV. § 8.

locality forgotten.* A material of
such a nature, if in much demand,
must be at a scarcity value ; and this
value enters into the cost of produc-
tion, and, consequently, into the value,
of the finished article. The time seems
to be approaching when the more
valuable furs will come under the
influence of a scarcity value of the
material. Hitherto the diminishing
number of the animals which produce
them, in the wildernesses of Siberia and
on the coasts of the Esquimaux Pea,
has operated on the value only through
the greater labour which has become
necessary for securing any given quan-
tity of the article ; since, without
doubt, by employing labour enough, it
might still be obtained in much greater
abundance for some time longer.

But the case in which scarcity value
chiefly operates in adding to cost of
production, is the case of natural
agents. These, when unappropriated,
and to be had for the taking, do not
enter into cost of production, save to
the extent of the labour which maybe
necessary to fit them for use. Even
when appropriated, they do not (as we
have already seen) bear a value from
the mere fuct of the appropriation, but
only from scarcity, that is, from limi-
tation of supply. But it is equally
certain that they often do bear a scar-
city value. Suppose a fall of water,
in a place where there are more mills
wanted than there is water-power to
supply them ; the use of the fall of
water will have a fcarcity value, suffi-
cient either to bring the demand down
to the supply, or to pay for the creation
of an artificial power, by steam or
otherwise, equal in efficiency to the
water-power.

* Some of these quarries, I believe, have
been rediscovered, and arc again worked.

A natural agent being a possession
in perpetuity, and being only service-
able by the products resulting from its
continued employment, the ordinary
mode of deriving benefit from its
ownership is by an annual equivalent,
paid by the person who uses it, from
the proceeds of its use. This equiva-
lent always might be, and generally is>,
termed rent. The question therelbre,
icspecting the influence which the ap-
propriation of natural agents produces
on values, is often stated in this form :
Does Kent enter into Cost of Produc-
tion ? and the answer of the best poli-
tical economists is in the negative.
The temptation is strong to the adop-
tion of these sweeping expressions,
even by those who are aware of the
restrictions with which they must be
taken ; for there is no denying that
they stamp a general principle more
firmly on the mind, than if it were
hedged round in theory with all its
practical limitations. But they also
puzzle and mislead, and create an im-
pression unfavourable to political eco-
nomy, as if it disregarded the evidence
of facts. No one can deny that rent
sometimes enters into cost of produc-
tion. If I buy or rent a piece of ground,
and build a cloth manufactory on it,
the ground-rent forms legitimately a
part of my expenses of production,
which must be repaid by the product.
And since all factories are built on
ground, and most of them in places
where ground is peculiarly valuable,
the rent paid for it must, on the ave-
rage, be compensated in the values of
all things made in factories. In what
sense it is true that rent does not enter
into the cost of production or afi'ect the
value of agricultural produce, will be
shown in the succeeding chapter.

RENT IN ITS RELATION TO VALUE.

CHAPTER V.

OF RENT, IN ITS RELATION TO VALUE.

§ 1. WE have investigated the
laws which determine the value of two
classes of commodities : the small
class which, being limited to a definite
quantity, have their value entirely de-
termined by demand and supply, save
that their cost of production (if they
have any) constitutes a minimum below
which they cannot permanently fall ;
and the large class, which can be mul-
tiplied ad libitum by labour and capital,
and of which the cost of production
fixes the maximum as well as the
minimum at which they can perma-
nently exchange. But there is still a
third kind of commodities to be con-
sidered : those which have, not one,
but several costs of production ; which
can always be increased in quantity by
labour and capital, but not by the
same amount of labour and capital ; of
••vhich so much may be produced at a
given cost, but a further quantity not
without a greater cost. These com-
modities form an intermediate class,
partaking of the character of both the
others. The principal of them is agri-
cultural produce. We have already
made abundant reference to the funda-
mental truth, that in agriculture, the
state of the art being given, doubling
the labour does not double the produce ;
that if an increased quantity of produce
is required, the additional supply is
obtained at a greater cost than the
first. Where a hundred quarters of
corn are all that is at present required
from the lands of a given village, if
the growth of population made it ne-
cessary to raise a nundred more, either
by breaking up worse land now uncul-
tivated, or by a more elaborate cultiva-
tion of the land already under the
plough, the additional hundred, or
some part of them at least, might cost
double or treble as much per quarter
as the former supply.

If the first hundred quarters were
•11 raised at the same expense (only

the best land being cultivated) : and if
that expense would be remunerated
with the ordinary profit by a price of
20s. the quarter ; the natural price of
wheat, so long as no more than that
quantity was required, would be 20s. ;
and it could only rise above, or fall
below that price, from vicissitudes of
seasons, or other casual variations in
supply. But if the population of the
district advanced, a time would arrive
when more than a hundred quarters
would be necessary to feed it. We
must suppose that there is no access
to any foreign supply. By the hypo-
thesis, no more than a hundred quarters
can be produced in the district, unless
by either bringing worse land into cul-
tivation, or altering the system of
culture to a more expensive one.
Neither of these things will be done
without a rise in price. This rise o'
price will gradually be brought about
by the increasing demand. So long
as the price has risen, but not risen
enough to repay with the ordinary
profit the cost of producing an addi-
tional quantity, the increased value of
the limited supply partakes of the
nature of a scarcity value. Suppose
that it will not answer to cultivate the
second best land, or land of the second
degree of remoteness, for a less return
than 25s. the quarter ; and that this
price is also necessary to remunerate
the expensive operations by which an
increased produce might be raised
from land of the first quality. If BO,
the price will rise, through the increased
demand, until it reaches 25s. That
will now be the natural price ; being
the price without which the quantity,
for which society has a demand at
that price, will not be produced. At
that price, however, society can go on
for some time longer ; could go on
perhaps for ever, if population did not
increase. The price, having attained
that point, will not again permanently

28B

BOOK III. CHAPTER V. § 2.

recede (though it may fall temporarily
from accidental abundance) ; nor will
it advance further, so long as society
can obtain the supply it requires with-
out a second increase of the cost of
production.

I have made use of Price in this
reasoning, as a convenient symbol of
Value, from the greater familiarity of
the idea ; and I shall continue to do
BO as far as may appear to be necessary.

In the case supposed, different por-
tions of the supply of corn have dif-
ferent costs of production. Though
the 20, or 50, or 150 quarters addi-
tional have been produced at a cost
proportional to 25s., the original hun-
dred quarters per annum are still pro-
duced at a cost only proportional to
20s. This is self-evident, if the original
and the additional supply are produced
on different qualities of land. It is
equally true if they are produced on
the same land. Suppose that land of
the best quality, which produced 100
quarters at 20s., has been made to
produce 150 by an expensive process,
which it would not answer to under-
take without a price of 25s. The cost
which requires 25s. is incurred for the
sake of 50 quarters alone : the first
hundred might have continued for ever
to be produced at the original cost,
and with the benefit, on that quantity,
of the whole rise of price caused by
the increased demand : no one, there-
fore, will incur the additional expense
for the sake of the additional fifty,
unless they alone will pay for the
whole of it. The fifty, therefore, will
be produced at their natural price,
proportioned to the cost of their pro-
duction : while the other hundred will
now bring in 5s. a quarter more than
their natural price — than the price
corresponding to, and sufficing to re-
munerate, their lower cost of pro-
duction.

If the production of any, even the
smallest, portion of the supply, re-
quires as a necessary condition a
certain price, that price will be ob-
tained for all the rest. We are not
able to buy one loaf cheaper than
another because the corn from which
it was made, being grown* on a richer

soil, has cost less to the grower. The
value, therefore, of an article (meaning
its natural, which is the same with its
average value) is determined by the
cost of that portion of the supply
which is produced and brought to
market at the greatest expense. This
is the Law of Value of the third of
the three classes into which all com-
modities are divided.

§ 2. If the portion of produce raised
in the most unfavourable circumstances,
obtains a value proportioned to its cost
of production ; all the portions raised
in more favourable circumstances, sell-
ing as they must do at the same value,
obtain a value more than proportioned
to their cost of production. Their value
is not, correctly speaking, a scarcity
value, for it is determined by the cir-
cumstances of the production of the
commodity, and not by the degree of
dearness necessary for keeping down
the demand to the level of a limited
supply. The owners, however, of those
portions of the produce enjoy a pri-
vilege ; they obtain a value which
yields them more than the ordinary
profit. If this advantage depends upon
any special exemption, such as being
free 1'rom a tax, or upon any personal
advantages, physical or mental, or
any peculiar process only known to
themselves, or upon the possession of
a greater capital than other people,
or upon various other things which
might be enumerated, they retain it to
themselves as an extra gain, over and
above the general profits of capital, of
the nature, in some sort, of a monopoly
profit. But when, as in the case
which we are more particularly con-
sidering, the advantage depends on
the possession of a natural agent of
peculiar quality, as, for instance, of
more fertile land than that which
determines the general value of the
commodity; and when this natural
agent is not owned by themselves ;
the person who does own it, is able to
exact from them, in the form of rent,
the whole extra gain derived from its
use. We are thus brought by another
road to the Law of Bent, investigated
in the concluding chapter of the Second

RENT IN ITS RELATION TO VALUE.

287

Book. Rent, we again see, is the
difference between the unequal returns
to different parts of the capital em-
ployed on the soil. Whatever surplus
any portion of agricultural capital
produces, beyond what is produced by
the same amount of capital on the
worst soil, or under the most expensive
mode of cultivation, which the existing
demands of society compel a recourse
to ; that surplus will naturally be paid
as rent from that capital, to the owner
of the land on which it is employed.

It was long thought by political
economists, among the rest even by
Adam Smith, that the produce of land
is always at a monopoly value, because
(they said) in addition to the ordinary
rate of profit, it always yields some-
thing further for rent. This we now
see to be erroneous. A thing cannot
be at a monopoly value, when its supply
can be increased to an indefinite ex-
tent if we are only willing to incur the
cost. If no more corn than the exist-
ing quantity is grown, it is because
the value has not risen high enough to
remunerate any one for growing it.
Any land (not reserved for other uses,
or for pleasure) which at the existing
price, and by the existing processes,
will yield the ordinary profit, is tole-
rably certain, unless some artificial
hindrance intervenes, to be cultivated,
although nothing may be left for rent.
As long as there is any land fit for
cultivation, which at the existing price
cannot be profitably cultivated at all,
there must be some land a little better,
which will yield the ordinary profit,
but allow nothing for rent : and that
land, if within the boundary of a farm,
will be cultivated by the farmer ; if
not so, probably by the proprietor, or
by some other person on sufferance.
Some such land at least, under culti-
vation, there can scarcely fail to be.

Rent, therefore, forms no part of the
cost of production which determines
the value of agricultural produce.
Circumstances no doubt may be con-
ceived in which it might do so, and
very largely too. We can imagine
a country so fully peopled, and with all
its cultivable soil so completely occu-
pied, that to produce any additional

quantity would require more labour
than the produce would feed : and if
we suppose this to be the condition of
the whole world, or of a country de-
barred from foreign supply, then, if
population continued increasing, both
the land and its produce would really
rise to a monopoly or scarcity price.
But this state of things never can have
really existed anywhere, unless pos-
sibly in some small island cut off from
the rest of the world ; nor is there any
danger whatever that it should exist
It certainly exists in no known region
at present. Monopoly, we have seen,
can take effect on value, only through
limitation of supply. In all countries
of any extent there is more cultivable
land than is yet cultivated : and while
there is any such surplus, it is th^
same thing, so far as that quality of
land is concerned, as if there wTere an
indefinite quantity. What is prac-
tically limited in supply is only the
better qualities ; and even for those, so
much rent cannot be demanded as
would bring in the competition of the
lands not yet in cultivation ; the rent
of a piece of land must be somewhat
less than the whole excess of its pro-
ductiveness over that of the best land
which it is not yet profitable to cul-
tivate ; that is, it must be about equal
to the excess above the worst land
which it is profitable to cultivate. The
land or the capital most unfavourably
circumstanced among those actually
employed, pays no rent ; and that land
or capital determines the cost of pro-
duction which regulates the value of
the whole produce. Thus rent is, as
we have already seen, no cause of value,
but the price of the privilege which
the inequality of the returns to different
portions of agricultural produce confers
on all except the least favoured portion.
Rent, in short, merely equalizes the
profits of different farming capitals, by
enabling the landlord to appropriate
all extra gains occasioned by supe-
riority of natural advantages. If all
landlords were unanimously to forego
their rent, they would but transfer it
to the farmers, without benefiting the
consumer; for the existing price of
corn would still be an indispensable

BOOK III. CHAPTER

condition of the production of part of
the existing supply, and if a part
obtained that price the whole would
obtain it. Rent, therefore, unless
artificially increased by restrictive
laws, is no burthen on the consumer ;
it does not raise the price of corn, and
is no otherwise a detriment to the
public, than inasmuch as if the state had
retained it, or imposed an equivalent
in the shape of a land-tax, it would
then have been a fund applicable to
general instead of private advantage.

§ 3. Agricultural productions are
not the only commodities which have
several different costs of production at
once, and which, in consequence of
that difference, and in proportion to it,
afford a rent. Mines are also an in-
stance. Almost all kinds of raw material
extracted from the interior of the earth
— metals, coals, precious stones, &c.,
are obtained from mines differing con-
siderably in fertility, that is, yielding
very different quantities of the product
to the same quantity of labour and
capital. This being the case, it is an
obvious question, why are not the most
fertile mines so worked as to supply
the whole market ? No such question
can arise as to land ; it being self-
evident, that the most fertile lands
could not possibly be made to supply
the whole demand of a fully-peopled
country ; and even of what they do
yield, a part is extorted from them by
a labour and outlay as great as that
required to grow the same amount on
worse land. But it is not so with
mines ; at least, not universally. There
are, perhaps, cases in which it is im-
possible to extract from a particular
vein, in a given time, more than a
certain quantity of ore, because there
is only a limited surface of the vein
exposed, on which more than a certain
number of labourers cannot be simul-
taneously employed. But this is not
true of all mines. In collieries, for
example, some other cause of limita-
tion must be sought for. In some
instances the owners limit the quan-
tity raised, in order not too rapidly to
exhaust the mine : in others there are
said to be combinations of owners, to

V. § 3.

keep up a monopoly price bj limiting
the production. Whatever be the
causes, it is a fact that mines of dif-
ferent degrees of richness are in opera-
tion, and since the value of the pro-
duce must be proportional to the cost
of production at the worst mine (fer-
tility and situation taken together), it.
is nrre than proportional to that of
the oest. All mines superior in pro-
duce to the worst actually worked, will
yield, therefore, a rent equal to the
excess. They may yield more ; and
the worst miue may itself yield a runt.
Mines being comparatively few, their
qualities do not graduate gently into
one another, as the qualities of land
do ; and the demand may be such as to
keep the value of the produce con-
siderably above the cost of production
at the worst mine now worked, with-
out being sufficient to bring into opera-
tion a still worse. During the interval,
the produce is really at a scarcity
value.

Fisheries are another example. Fish-
eries in the open sea are not appro-
priated, but fisheries in lakes or rivers
almost always are so, and likewise
oyster-beds or other particular fishing
grounds on coasts. We may take
salmon fisheries as an example of the
whole class. Some rivers are far more
productive in salmon than others.
None, however, without being ex-
hausted, can supply more than a very
limited demand. The demand of a
country like England can only be sup-
plied by taking salmon from many
different rivers of unequal productive-
ness, and the value must be sufficient
to repay the cost of obtaining the fish
from the least productive of these. All
others, therefore, will if appropriated
afford a rent equal to the value of their
superiority. Much higher than this it
cannot be, if there are salmon rivers
accessible which from distance or in-
ferior productiveness have not yet con-
tributed to supply the market. If
there are not, the value, doubtless, may
rise to a scarcity rate, and the worst
fisheries in use may then yield a con-
siderable rent.

Both in the case of aines and of
fisheries, the natural order of events i*

RENT IN ITS RELATION TO VALUE.

289

Kable to be interrupted by the opening
of a new mine, or a new fishery, of
superior quality to some of those
already in use. The first effect of such
an incident is an increase of the supply;
which of course lowers the value to
call forth an increased demand. This,
reduced value may be no longer suf-
ficient to remunerate the worst of the
existing mines or fisheries, and these
may consequently be abandoned. If
the superior mines or fisheries, with
the addition of the one newly opened,
produce as much of the commodity as
is required at the lower value corre-
eponding to their lower cost of produc-
tion, the fall of value will be permanent,
and there will be a corresponding fa41
in the rents of those mines or fisheries
which are not abandoned. In this
case, when things have permanently
adjusted themselves, 5the result will be,
that the scale of qualities which supply
the market will have been cut short at
the lower end, while a new insertion
will have been made in the scale at
some point higher up ; and the worst
mine or fishery in use — the one which
regulates the rents of the superior
qualities and the value of the com-
modity — will be a mine or fishery of
better quality than that by which
they were previously regulated.

Land is used for other purposes
than agriculture, especially for resi-
dence ; and when so used, yields a
rent, determined by principles similar
to those already laid down. The
ground rent of a building, and the rent
of a garden or park attached to it, will
not be less than the rent which the
same land would afford in agriculture :
but may be greater than this to an
indefinite amount : the surplus being
either in consideration of beauty or of
convenience, the convenience often
consisting in superior facilities for
pecuniary gain. Sites of remarkable
beauty are generally limited in supply,
and therefore, if in great demand, are
at a scarcity value. Sites superior
only in convenience, are governed as to
their value by the ordinary principles
of rent. The ground rent of a house
in a small village is but little higher
than the rent of a similar paten of
P.E.

ground in the open fields : but that of
a shop in Cheapside will exceed these,
by the whole amount at which people
estimate the superior facilities of money-
making in the more crowded place.
The rents of wharfage, dock and
harbour room, water-power, and many
other privileges, may be analysed on
similar principles.

§ 4. Cases of extra profit analogous
to rent, are more frequent in the trans-
actions of industry than is sometimes
supposed. Take the case, for example,
of a patent, or exclusive privilege for
the use of a process by which cost of
production is lessened. If the value of
the product continues to be regulated
by what it costs to those who are
obliged to persist in the old process,
the patentee will make an extra profit
equal to the advantage which his pro-
cess possesses over theirs. This extra
profit is essentially similar to rent, and
sometimes even assumes the form of
it ; the patentee allowing to other pro-
ducers the use of his privilege, in con-
sideration of an annual payment. So
long as he, and those whom he asso-
ciates in the privilege, do not produce
enough to supply the whole market, so
long the original cost of production,
being the necessary condition of pro-
ducing a part, will regulate the value
of the whole ; and the patentee will be
enabled to keej) up his rent to a full
equivalent for the advantage which
his process gives him. In the com-
mencement indeed he will probably
forego a pail of this advantage for the
sake of underselling others : the in-
creased supply which he brings for-
ward will lower the value, and make
the trade a bad one for those who do
not share in the privilege: many of
whom therefore will gradually retire,
or restrict their operations, or enter
into arrangements with the patentee.
As his supply increases theirs wil
diminish, the value meanwhile con-
tinuing slightly depressed. But if he
stops short in his operations before the
market is wholly supplied by the nev
process, things will again adjust them
selves to what was the natural valuo
before the invention was made, and
U

BOOK III. CHAPTER VI. § 1.

the benefit of the improvement will
accrue solely to tho patentee.

The extra gains which any producer
or dealer obtains through superior ta-
lents for business, or superior business
arrangements, are very much of a
similar kind. If all his competitors
had the same advantages, and used
them, the benefit would be transferred
to their customers, through the dirni-

rent unless paid periodically by on«
person to another, is governed by laws
entirely the same with it. The prica
paid for a differential advantage in
producing a commodity, cannot enter
into the general cost of production of
the commodity.

A commodity may, no doubt, in
some contingencies, yield a rent even
under the most disadvantageous cir-

nished value of the article : he only cumstances of its production ; but only
retains it for himself because he is when it is, for the time, in the condi-
able to bring his commodity to market tion of those commodities which are

at a lower cost, while its value is deter-
mined by a higher. All advantages,
in fact, which one competitor has over
another, whether natural or acquired,
whether personal or the result of social

absolutely limited in supply, and is
therefore selling at a scarcity value ;
which never is, nor has been, nor can
be, a permanent condition of any of the
great rent-yielding commodities : un-

arrangements, bring the commodity, so less through their approaching exhaus-
far. into the Third Class, and assimilate tion, if they are mineral products (coal,
the possessor of the advantage to a' for example), or through an increase of
receiver of rent. Wages and profits' population, continuing after a further
represent the universal elements in! increase of production becomes im-

production, while rent may be taken
to represent the differential and pecu-
liar : any difference in favour of certain
producers, or in favour of production in
certain circumstances, being the source
of a gain, which, though not called

possible ; a contingency, which the
almost inevitable progress of human
culture and improvement in the long
interval which has first to elapse, for-
bids us to consider as probable.

CHAPTER VL

SUMMARY OF THE THEORY OF VALtJE.

§ 1. WE have now attained a favour-
able point for looking back, and taking
a simultaneous view of the space which
we have traversed since the commence-
ment of the present Book. The
following are the principles of the
theory of Value, so far as we have yet
ascertained them.

I. Value is a relative term. The
value of a thing means the quantity of
some other thing, or of things in
general, which it exchanges for. The
values of all things can never, there-
fore, rise or fall simultaneously. There
is no such thing as a general rise or a
general fall of values. Every rise of va-
lue supposes a fall, and every fall a rise.

1L The temporary or market value

of a thing depends on the demand and
supply; rising as the demand rises,
and falling as the supply rises. The
demand, however, varies with the
value, being generally greater when
the thing is cheap than when it is
dear; and the value always adjusts
itself in such a manner, that the demand
is equal to the supply.

III. Besides their temporary value,
things have also a permanent, or as it
may be called, a Natural Value, to
which the market value, after every
variation, always tends to return ; and
the oscillations compensate for one
another, so that, on the average, com-
modities exchange at about their natural
value.

SUMMARY OF THE THEORY OF VALUE.

291

IV. The natural value of some things
is a scarcity value : but most things
naturally exchange for one another in
the ratio of their cost of production, or at
what may be termed their Cost Value.

V. The things which are naturally
and permanently at a scarcity value,
are those of which the supply cannot
be increased at all, or not sufficiently
to satisfy the whole of the demand
which would exist for them at their
cost value.

VI. A monopoly value means a
scarcity value. .Monopoly cannot give
a value to anything, except through a
limitation of the supply.

VII. Every commodity of which the
supply can be indefinitely increased by
labour and capital, exchanges for other
things proportionally to the cost neces-
sary for producing and bringing to
market the most costly portion of the
supply required. The natural value is
synonymous with the Cost Value, and
the cost value of a thing, means the cost
value of the most costly portion of it.

VIII. Cost of Production consists of
several elements, some of which are
constant and universal, others occa-
sional. The universal elements of
cost of production are, the wages of the
labour, and the profits of the capital.
The occasional elements are, taxes,
and any extra cost occasioned by a
scarcity value of some of the requisites.

IX. Rent is not an clement in the
cost of production of the commodity
•which yields it : except in the cases,
(rather conceivable than actually exist-
ing) in which it results from, and repre-
sents, a scarcity value. But when
laud capable of yielding rent in agri-
culture is applied to some other pur-
pose, the rent which it would hare
yielded is an element in the cost of pro-
duction of the commodity which it is
employed to produce.

X. Omittingthe occasional elements;
things which admit of indefinite in-
crease, naturally and permanently ex-
change for each other according to the
comparative amount of wages which
must be paid for producing them, and
the comparative amount of profits
which must be obtained by the capi-
talists who pay those wages.

XI. Tlio comparative amount of
wages does not depend on what wages
are in themselves. High wages do
not make high values, nor low wages
low values. The comparative amount
of wages depends partly on the com-
parative quantities of labour required,
and partly on the comparative rates of
its remuneration.

XII. So, the comparative rate of
profits does not depend on what profita
are in themselves ; nor do high or low
profits make high or low values. It
depends partly on the comparative
lengths of time during which the capital
is employed, and partly on the com-
parative rate of profits in different ei&
ployments.

XIII. If two things are made by the
same quantity of labour, and that labour
paid at the same rate, and if the wages
of the labourer have to be advanced
for the same space of time, and the
nature of the employment does not
require that there be a permanent
difference in their rate of profit ; then,
whether wages and profits be high or
low, and whether the quantity of labour
expended be much or little, these two
things will, on the average, exchange
for one another.

XIV. If one of the two things com-
mands, on the average, a greater value
than the other, the cause must be that
it requires for its production either a
greater quantity of labour, or a kind of
labour permanently paid at a highef
rate ; or that the capital, or part of the
capital, which supports that labour,
must be advanced for a longer period ;
or lastly, that the production is attended
with some circumstance which requires
to be compensated by a permanently
higher rate of profit.

XV. Of these elements, the quantity
of labour required for the production is
the most important : the effect of the
others is smaller, though none of them
are insignificant.

XVI. The lower profits are, the less
important becorno the minor elements
of cost of production, and the less do
commodities deviate from a value pro-
portioned to the quantity and quality
of the labour required for their pro-
duction.

12

292

BOOK lU. CHAPTER VI. § 2.

XVII. But eve/y fall of profits lowers,
in some degree, the cost value of things
made with much or durable machinery,
and raises that of things made by
hand ; and every rise of profits does
the reverse.

§ 2. Such is the general theory of
Exchange Value. It is necessary,
however, to remark that this theory
contemplates a system of production
carried on by capitalists for profit,
and not by labourers for subsistence.
In proportion as we admit this last
supposition — and in most countries
we must admit it, at least in re-
spect of agricultural produce, to a
very great extent — such of the pre-
ceding theorems as relate to the de-
pendence of value on cost of produc-
tion will require modification. Those
theorems are all grounded on the sup-
position, that the producer's object
and aim is to derive a profit from
his capital. This granted, it follows
that he must sell his commodity at
the price which will afford the ordi-
nary rate of profit, that is to say, it
must exchange for other commodities
at its cost value. But the peasant
proprietor, the metayer, and even the
peasant-fanner or allotment-holder —
the labourer, under whatever name, pro-
ducing on his own account — is seeking,
not an investment for his little capital,
but an advantageous employment for
his time and labour. His disburse-
ments, beyond his own maintenance
and that of his family, are so small,
that nearly the whole proceeds of the
sale of the produce are wages of labour.
When he and his family have been
fed from the produce of the farm (and
perhaps clothed with materials grown
thereon, and manufactured in the
family) he may, in respect of the sup-
plementary remuneration derived from
the sale of the surplus produce, be
Jompared to those labourers who, de-
riving their subsistence from an in-
dependent source, can afford to sell
their labour at any price which is to
their minds -worth the exertion. A
peasant, who supports himself and his
family with one portion of his produce,
will often sell the remainder very much

below what would be its cost value to
the capitalist.

There is, however, even in this case,
a minimum, or inferior limit, of value.
The produce which he carries to market,
must bring in to him the value of
all necessaries which he is compelled
to purchase ; and it must enable him
to pay his rent. Eent, under peasant
cultivation, is not governed by the
principles set forth in the chapters
immediately preceding, but is either
determined by custom, as in the caso
of metayers, or, if fixed by competition,
depends on the ratio of population to
land. Eent, therefore, in this case, is
an element of cost of production. The

Eeasant must work until he has cleared
is rent and the price of all purchased
necessaries. After this, he will go on
working only if he can sell the produce
for such a price as will overcome his
aversion to labour.

The minimum just mentioned is
what the peasant must obtain in ex-
change for the whole of his surplus
produce. But inasmuch as this surplus
is not a fixed quantity, but may be
either greater or less according to the
degree of his industry, a minimum
value for the whole of it does not give
any minimum value for a definite
quantity of the commodity. In this
state of things, therefore, it can hardly
be said, that the value depends at all
on cost of production. It depends
entirely on demand and supply, that is,
on the proportion between the quantity
of surplus food which the peasants
choose to produce, and the numbers of
the non-agricultural, or rather of the
non-peasant population. If the buying
class were numerous and the growing
class lazy, food might be permanently
at a scarcity price. I am not aware
that this case has anywhere a real
existence. If the growing class is
energetic and industrious, and the
buyers few, food will bo extremely
cheap. This also is a rare case, though
some parts of France perhaps approxi-
mate to it. The common cases are,
either that, as in Ireland until lately,
the peasant class is indolent and the
buyers few, or the peasants industrious
and the town population numerous and

opulent, as in Belgium, the north of
Italy, and parts of Germany. The
price of the produce will adjust itself
to these varieties of circumstances, un-
less modified, as in many cases it is,
by the competition of producers who
are not peasants, or hy the prices of
foreign markets.

§ 3. Another anomalous case is that
of <slave-grown produce : which pre-
sents, however, hy no means the same
degree of complication. The slave-
owner is a capitalist, and his induce-
ment to production consists in a profit
on his capital. This profit must amount
to the ordinary rate. In respect to his
expenses, he is in the same position as
if his slaves were free labourers working
with their present efficiency, and were
hired with wages equal to their present
cost. If the cost is less in proportion
to the work done, than the wages of
free lahour would he, so much the
greater are his profits : hut if all other
producers in the country possess the
same advantage, the values of com-

modities will not be at all affected hy
it. The only case in which they can
be affected, is when the privilege of
cheap labour is confined to particular
branches of production, free labourers
at proportionally higher wages being
employed in the remainder. In this
case, as in all cases of permanent in-
equality between the wages of different
employments, prices and values receive
the impress of the inequality. Slave-
grown will exchange for non-slave-
grown commodities in a less ratio than
that of the quantity of labour required
for their production ; the value of the
former will be less, of the latter greater,
than if slavery did not exist.

The further adaptation of the theory
of value lo the varieties of existing or
possible industrial systems may be left
with great advantage to the intelligent
reader. It is well said by Montesquieu,
" It is not always advisable so com-
pletely to exhaust a subject, as to leave
nothing to be done by the reader. The
important thing is not to be read, but
to excite the reader to thought.1'*

CHAPTER VH.

OP MONET.

§ 1 . HAVING proceeded thus far in
ascertaining the general laws of Value,
without introducing the idea of money
(except occasionally for illustration),
it is time that we should now superadd
that idea, and consider in what man-
ner the principles of the mutual inter-
change of commodities are affected by
the use of what is termed a Medium of
Exchange.

In order to understand the manifold
functions of a Circulating Medium,
there is no better way than to con-
Bider what are the principal incon-
veniences which we should experience
if we had not such a medium. The
first and most obvious would be the
want of a common measure for values
of different sorts. If a tailor had only
coats, and wanted to buy bread or a

horse, it would be very troublesome to
ascertain how much bread he ought to
obtain for a coat, or how many coats
he should give for a horse. The calcu-
lation must be recommenced on dif-
ferent data, every time he bartered his
coat for a different kind of article ;
and there could be no current price, or
regular quotations of value. Whereas
now each thing has a current price in
money, and he gets over all difficulties
by reckoning his coat at 41. or 5l., and
a four -pound loaf at 6d. or Id. As it
is much easier to compare different
lengths by expressing them in a com-
mon language of feet and inches, so it
is much easier to compare values by
means of a common language of
pounds, shillings, and pence. In no
* Spirit <jfLaKi, conclusion of book xi.

294

BOOK III. CHAPTER VII. § 2.

other way CAII values be arranged one
above another in a scale ; in no other
can a person conveniently calculate
the sum of his possessions ; and it is
easier to ascertain and remember the
relations of many things to one thing,
than their innumerable cross relations
with one another. This advantage of
having a common language in •which
values may be expressed, is, even by
itself, so important, that some such
mode of expressing and computing
them would probably be used even if a
pound or a shilling did not express
any real thing, but a mere unit of cal-
culation. It is said that there are
African tribes in which this somewhat
artificial contrivance actually prevails.
They calculate the value of things in
a sort of money of account, called ma-
cutes. They say, one thing is worth
ten macutes, another fifteen, another
twenty.* There is no real thing
called a macute : it is a conventional
unit, for the more convenient com-
parison of things with one another.

This advantage, however, forms but
an inconsiderable part of the econo-
mical benefits derived from the use of
money. The inconveniences of barter
are so great, that without some more
commodious means of effecting ex-
changes, the division of employments
could hardly have been earned to any
considerable extent. A tailor, who
had nothing but coats, might starve
before he could find any person having
bread to sell who wanted a coat : be-
sides, he would not want as much
bread at a time as would be worth a
coat, and the coat could not be divided.
Every person, therefore, would at all
times hasten to dispose of his com-
modity in exchange for anything which,
though it might not be fitted to his
own immediate wants, was in great and
general demand, and easily divisible,
so that he might be sure of being
able to purchase with it whatever was
offered for sale. The primary neces-
saries of life possess these properties
in a high degree. Bread is extremely
divisible, and an object of universal
desire. Still, this is not the sort of

* Montesquieu, Spirit of Lavs, book xxii.
cli, 6.

thing require 1; for, of food, unless
in expectation of a scarcity, no one
wishes to possess more at once, than
is wanted for immediate consumption ;
so that a person is never sure of find-
ing an immediate purchaser for articles
of food : and unless soon disposed of,
most of them perish. The thing which
people would select to keep by them for
making purchases, must be one which,
besides being divisible, and generally
desired, does not deteriorate by keep-
ing. This reduces the choice to a
small number of articles.

§ 2. By a tacit concurrence, almost
all nations, at a very early period,
fixed upon certain metals, and espe-
cially gold and silver, to serve this
purpose. No other substances unite the
necessary qualities in so great a degree,
with so many subordinate advantages.
Xext to food and clothing, and in
some climates even before clothing, the
strongest inclination in a rude state of
society is for personal ornament, and
for the kind of distinction which is
obtained by rarity or costliness in such
ornaments. After the immediate neces-
sities of life were satisfied, every one
was eager to accumulate as great a store
as possible of things at once costly and
ornamental ; which were chiefly geld,
silver, and jewels. These were the
things which it most pleased every
one to possess, and which there was
most certainty of finding others willing
to receive in exchange for any kind of
produce. They were among the most
imperishable of all substances. They
were also portable, and containing great
value in small bulk, were easily hid :
a consideration of much importance in
an age of insecurity. Jewels are infe-
rior to gold and silver in the quality of
divisibility; and are of very various
qualities, not to be accurately discri-
minated without great trouble. Gold
and silver are eminently divisible, and
when pure, always of the same quality ;
and their purity may be ascertained
and certified by a public authority.

Accordingly, though furs have been
employed as money in some countries,
cattle in others, in Chinese Tartary
cubes of tea closely pressed together,

MONEY.

295

the shells called cowries on the coast
of Western Africa, and in Abyssinia
at this day blocks of rock salt ; though
even of metals, the less costly have
sometimes been chosen, as iron in Lace-
dzemon from an ascetic policy, copper
in the early Roman republic from the
poverty of the people ; gold and silver
Lave been generally preferred by na-
tions which were able to obtain them,
either by industry, commerce, or con-
quest. To the qualities which ori-
ginally recommended them, another
came to be added, the importance of
which only unfolded itself by degrees.
Of all commodities, they are among
the least influenced by any of the
causes which produce fluctuations of
value. No commodity is quite free
from such fluctuations. Gold and silver
have sustained, since the beginning of
history, one great permanent altera-
tion of value, from the discovery of
the American mines; and some tem-
porary variations, such as that which,
in the last great war, was produced by
the absorption of the metals in hoards,
and in the military chests of the im-
mense armies constantly in the field.
In the present age the opening of new
sources of supply, so abundant as the
Ural Mountains, California, and Aus-
tralia, may be the commencement of
another period of decline, on the limits
of which it would be useless at present
to speculate. But on the whole, no com-
modities are so little exposed to causes
of variation. They fluctuate less than
almost any other things in their cost
of production. And from their dura-
bility, the total quantity in existence
is at all times so great in proportion to
the annual supply, that the effect on
value even of a change in the cost of
production is not sudden : a very long
time being required to diminish mate-
rially the quantity in existence, and
even to increase it very greatly not
being a rapid process. Gold and silver,
therefore, are more fit than any other
commodity to be the subject of engage-
ments for receiving or paying a given
quantity at some distant period. If
the engagement were made in corn,
a failure of crops might increase the
burthen of the payment in one year

to fourfold what was intended, or an
exuberant harvest sink it in another
to one-fourth. If stipulated in cloth,
some manufacturing invention might
permanently reduce the payment to a
tenth of its original value. iSuch things
have occurred even in the case of pay-
ments stipulated in gold and silver ; but
the great fall of their value after the dis-
covery of America, is, as yet, the only
authenticated instance ; and in this
case the change was extremely gra-
dual, being spread over a period of
many years.

A\ hen gold and silver had become
virtually a medium of exchange, by
becoming the things lor which people
generally sold, and with which they
generally bought, whatever they had
to sell or buy ; the contrivance of coin-
ing obviously suggested itself. By this
process the metal was divided into con-
venient portions, of any degree of small-
ness, and bearing a recognised propor-
tion to one another; and the trouble
was saved of weighing and assaying
at every change of possessors, an in-
convenience which on the occasion of
small purchases would soon have
become insupportable. Governments
found it their interest to take the
operation into their own hands, and to
interdict all coining by private persons ;
indeed, their guarantee was often the
only one which would have been re-
lied on, a reliance however which very
often it ill deserved ; profligate govern-
ments having until a very modern
period seldom scrupled, for the sake of
robbing their creditors, to confer on
all other debtors a licence to rob theirs,
by the shallow and impudent artifice
of lowering the standard ; that least
covert of all modes of knavery, which
consists in calling a shilling a pound,
that a debt of a hundred pounds may
be cancelled by the payment of a hun-
dred shillings. It would have been as
simple a plan, and would have answered
the purpose as well, to have enacted
that " a hundred" should always be in-
terpreted to nisan five, which would
have effected the same reduction in all
pecuniary contracts, and would not
have been at all more shameless. Such
strokes of policy have not wlwliy

296

BOOK III. CHAPTER VII. $ 3.

ceased to be recommended, but tbey
have ceased to be practised ; except
occasionally through the medium of
paper money, in which case the cha-
racter of the transaction, from the
greater obscurity of the subject, is a
little less barefaced.

§ 3. Money, when its use has grown
habitual, is the medium through which
the incomes of the different members
of the community are distributed to
them, and the measure by which they
estimate their possessions. As it is
always by means of money that people
provide for their different necessities,
there grows up in their minds a power-
ful association leading them to regard
money as wealth in a more peculiar
sense than any other article ; and even
those who pass their lives in the pro-
duction of the most useful objects, ac-
quire the habit of regarding those ob-
jects as chiefly important by their
capacity of being exchanged for money.
A person who parts with money to
obtain commodities, unless he intends
to sell them, appears to the imagina-
tion to be making a worse bargain than
a person who parts with commodities
to get money; the one seems to be
spending his means, the other adding
to them. Illusions which, though now
in some measure dispelled, were long
powerful enough to overmaster the
mind of every politician, both specula-
tive and practical, in Europe.

It must be evident, however, that
the mere introduction of a particular
mode of exchanging things for one
another, by first exchanging a thing
for money, and then exchanging the
money for something else, makes no
difference in the essential character of
transactions. It is not with money
that things are really purchased. No-
body's income (except that of the gold
or silver miner) is derived from the
precious metals. The pounds or shil-
lings which a person receives weekly
or yearly, are not what constitutes his
income ; they are a sort of tickets or
orders which he can present for pay-
ment at any shop he pleases, and which
sntitle him to receive a certain value
»f any commodity that he makes choice

of. The farmer pays his labourers arid
his landlord in these tickets, as the
most convenient plan for himself and
them; but their real income is their
share of his corn, cattle, and hay. and
it makes no essential difference whether
ho distributes it to them directly, or
sells it for them and gives them the
price ; but as they would have to sell
it for money if he did not, and as he
is a seller at any rate, it best suits the
purposes of all, that he should sell their
share along with his own, and leave
the labourers more leisure for work and
the landlord for being idle. The capi-
talists, except those who are producers
of the precious metals, derive no part
of their income from those metals, since
they only get them by buying them
with their own produce : while all other
persons have their incomes paid to them
by the capitalists, or by those who have
received payment from the capitalists,
and as the capitalists have nothing,
from the first, except their produce, it
is that and nothing else which supplies
all incomes furnished by them. There
cannot, in short, be intrinsically a more
insignificant thing, in the economy of
society, than money; except in the
character of a contrivance for sparing
time and labour. It is a machine for
doing quickly and commodiously, what
would be done, though less quickly and
commodiously, without it : and like
many other kinds of machinery, it
only exerts a distinct and independent
influence of its own when it gets out
of order.

The introduction of money does not
interfere with the operation of any ot
the Laws of Value laid down in the
preceding chapters. The reasons which
make the temporary or market value
of things depend on the demand and
supply, and their average and perma-
nent values upon their cost of pro-
duction, are as applicable to a money
system as to a system of barter. Things
which by barter would exchange for
one another, will, if sold for money,
sell for an equal amount of it, and so
will exchange for one another still,
though the process of exchanging them
will consist of two operations instead
of only one. The relations of com-

VALUE OF MONEY.

facilities to one another remain unal-
tered by money : the only new relation
introduced, is their relation to money
itself; how much or how little money
they will exchange for ; in other words,
bow the Exchange Value of money

itself is determined. And this is not
a question of any difficulty, when the
illusion is dispelled, which caused
money to be looked upon as a peculiar
thing, not governed by the same laws
as other things. Money is a commodity,
and its value is determined like that
of other commodities, temporarily by
demand and supply, permanently and

297

on the average by cost of production.
The illustration of these principles, con-
sidered in their application to money,
must be given in some detail, on ao
count of tiie confusion which, in mind*
not scientifically instructed on the sub-

ject, envelopes the whole matter; partly
from a lingering remnant of the old
misleading associations, and partly from
the mass of vapoury and baseless spe-
culation with which this, more than
any other topic of political economy,
has in latter times become surrounded.
I shall therefore treat of the Value of
Money in a chapter apart.

CHAPTER VIII

OP THE VALUE OF MONEY, A3 DEPENDENT ON DEMAND AND SUPPLY.

§ 1. IT is unfortunate that in the
very outset of the subject we have to
clear from our path a formidable am-
biguity of language. The Value of
Money is to appearance an expression
as precise, as free from possibility of
misunderstanding, as any in science.
The value of a thing, is what it will
exchange for : the value of money, is
•what money will exchange for ; the
purchasing power of money. If prices
are low, money will buy much of other
things, ar.d is of high value ; if prices
are high, it will buy little of other
things, and is of low value. The value
of money is inversely as general prices :
falling as they rise, and rising as they
fall.

But unhappily the same phrase is
also employed, in the current language
of commerce, in a very different sense.
Money, \vhich is so commonly under-
stood as the synonyme of wealth, is
more especially the term in use to
denote it when it is the subject of bor-
rowing. When one person lends to
nnother, as well as when he pays wages
or rent to another, what he transfers is
not the mere money, but a right to a
certain value of the produce of the
conntiy, to be selected at pleasure ; the
lender having first bought this right,

by giving for it a portion of his capital.
What he really lends is so much
capital ; the money is the mere instru-
ment of transfer. But the capital
usually passes from the lender to the
receiver through the means either of
money, or of an order to receive money,
and at any rate it is in money that
the capital is computed and estimated.
Hence, borrowing capital is universally
called borrowing money; the loan
market is called the money market :
those who have their capital disposable
for investment on loan are called the
monied class : and the equivalent given
for the use of capital, or in other words,
interest, is not only called the interest
of money, but, by a grosser perversion
of terms, the value of money. This
misapplication of language, assisted by
some fallacious appearances which we
shall notice and clear up hereafter,*
has created a general notion among
persons in business, that the Value of
Money, meaning the rate of interest,
has an intimate connexion with tho
Value of Money in its proper sense, the
value or purchasing power of the cir-
culating medium. We shall return to
this subject before long : at present it
is enough to say, that by Value I shall
* Tnfnx, ch. sjciii.

298

BOOK III. CHAPTER VIII. § 2.

always mean Exchange Value, and by
money the medium of exchange, not
the capital which is passed from hand
to hand through that medium.

§ 2. The value or purchasing power
of money depends, in the first instance,
on demand and supply. But demand
and supply, in relation to money, present
themselves in a somewhat different
shape from the demand and supply of
other things.

The supply of a commodity means
the quantity offered for sale. But it
is not usual to speak of offering money
for sale. People are not usually said
to buy or sell money. This, however,
is merely an accident of language.
In point of fact, money is bought and
sold like other things, whenever other
things are bought and sold for money.
Whoever sells corn, or tallow, or cotton,
buys money. "Whoever buys bread, or
wine, or clothes, sells money to the
dealer in those articles. The money
with which people are offering to buy,
is money offered for sale. The supply
of money, then, is the quantity of it
which people are wanting to lay out ;
that is, all the money they have in
their possession, except what they are
hoarding, or at least keeping by them
as a reserve for future contingencies.
The supply of money, in short, is all
the money in circulation at the
time.

The demand for money, again, con-
sists of all the goods offered for sale.
Every seller of goods is a buyer of
money, and the goods he brings with
him constitute hi? demand. The de-
mand for money differs from the demand
for other things in this, that it is
limited only bv the means of the pur-
chaser. The demand for other things
is for so much and no more ; but there
is always a demand for as much money
as can be got. Persons may indeed
refuse to sell, and withdraw their goods
from the market, if they cannot got for
them what they consider a sufficient
price. But this is only when they think
that the price will rise, and that they
shall get more money by waiting. If
they thought the low price likely to bo
permanent, they would take what they

could get. It is always a sine qua non
with a dealer to dispose of his goods.

As the whole of the goods in the
market compose the demand for money,
so the whole of the money constitutes
the demand for goods. The money and
the goods are seeking each other for
the purpose of being exchanged. They
are reciprocally supply and demand to
one another. It is indifferent whether,
in characterizing the phenomena, we
speak of the demand and supply of
goods, or the supply and the demand
of money. They are equivalent ex-
pressions.

We shall proceed to illustrate this
proposition more fully. And in doing
this, the reader will remark a great dif-
ference between the class of questions
which now occupy us, and those which
we previously had under discussion re-
specting Values. In considering Value,
we were only concerned with causes
which acted upon particular commo-
dities apart from the rest. Causes
which affect all commodities alike, do
not act upon values. But in consider-
ing the relation between goods and
money, it is with the causes that ope-
rate upon all goods whatever, that
we are especially concerned. We are
comparing goods of all sorts on one
side, with money on the other side, as
things to be exchanged against each
other.

Suppose, everything else being the
same, that there is an increase in the
quantity of money, say by the arrival
of a foreigner in a place, with a treasure
of gold and silver. When he commences
expending it (for this question it mat-
ters not whether productively or unpro-
ductively), he adds to thr supply of
money, and by the same act, to the
demand for goods. Doubtless he adds,
in the first instance, to the demand
only for certain kinds of goods, namely,
those which he selects for purchase ; he
will immediately raise the price of
those, and so far as he is individually
concerned, of those only. If he spends
his funds in giving entertainments, he
will raise the prices of food and wine.
If he expends thenf-in establishing a
manufactory, he will raise the prices
of labour and materials. But at the

VALUE OF MONEY.

299

higher prices, more money will pass
into the hamls of the sellers of these
different articles ; and they, whether
labourers or dealers, having more money
to lay out, will create an increased de-
mand for all the things which they are
accustomed to purchase : these accord-
ingly will rise in price, and so on until
the rise has reached everything. I say
everything, though it is of course pos-
sible that the influx of money might
take place through the medium of some
new class of consumers, or in such a
manner as to alter the proportions of
;.i classes of consumers to one
another, so that a greater share of
the national income than before would
thenceforth be expended in some ar-
ticles, and a smaller in others ; exactly
as if a change had taken place in the
tastes and wants of the community. If
this were the case, then until production
had accommodated itself to this change
in the comparative demand for different
things, there would be a real alteration
in values, and some things would rise
in price more than others, while some
perhaps would not rise at all. These
effects, however, would evidently pro-
ceed, not from the mere increase of
money, but from accessory circum-
stances attending it. \Ye are now only
called upon to consider what would be
the effect of an increase of money, con-
sidered by itself. Supposing the money
in the hands of individuals to be in-
creased, the wants and inclinations of
the community collectively in respect
to consumption remaining exactly the
same ; the increase of demand would
reach all things equally, and there
would be an universal rise of prices.
We might suppose with Hume, that
some morning, every person in the
nation should wake and find a gold
coin in his pocket : this example, how-
ever, would involve an alteration of the
proportions in the demand for different
commodities ; the luxuries of the poor
would, in the first instance, be raised in
price, in a much greater degree than
other things. Let us rather suppose,
therefore; that to every pound, or shil-
ling, or penny, in the possession of any
one, another pound, shilling, or penny,
were suddenly added. There would be

an increased money d</mand, and con-
sequently an increased money value, or
price, for things of all sorts. This in-
creased value would do no good to any
one ; would make no difference, except
that of having to reckon pounds, shil-
lings, and pence, in higher numbers.
It would be an increase of values only
as estimated in money, a thing only
wanted to buy other things with ; and
would not enable any one to buy more
of them than before. Prices would have
risen in a certain ratio, and the value
of money would have fallen in the same
ratio.

It is to be remarked that this ratio
would be precisely that in which the

Juantity of money had been increased,
f the whole money in circulation was
doubled, prices would be doubled. If it
was only increased one-fourth, prices
would rise one-fourth. There would be
one-fourth more money, all of which
would be used to purchase goods of
some description. AYhen there had
been time for the increased supply of
money to reach all markets, or (accord-
ing to the conventional metaphor) to
permeate all the channels of circulation,
all prices would have risen one-fourth.
But the general rise of price is inde-
pendent of this diffusing and equaliz-
ing process. Even if some prices were
raised more, and others less, the ave-
rage rise would be one-fourth. This is
a necessary consequence of the fact,
that a fourth more money would have
been given for only the same quantity
of goods. General prices, therefore,
would in any case be a fourth higher.

The very same effect would be pro-
duced on prices if we suppose the goods
diminished, instead of the money in-
creased : and the contrary effect if the
goods were increased, or the money
diminished. If there were less money
in the hands of the community, and the
same amount of goods to be sold, less
money altogether would be given for
them, and they would be sold at lower
prices ; lower, too, in the precise ratio
in which the money was diminished.
So that the value of money, other
things being the same, varies inversely
as its quantity ; every increase of quan-
tity lowering the value, and every

so v

BOOK III. CHAPTER Vltl. § 3.

diminution raising it, in a ratio exactly
equivalent.

This, it must be observed, is a pro-
perty peculiar to money. We did not
lincl it to be true of commodities gene-
rally, that every diminution of supply
raised the value exactly in proportion
to the deficiency, or that every increase
lowered it in the precise ratio of the
excess. Some things are usually
affected in a greater ratio than that of
tho excess or deficiency, others usually
in a less : because, in ordinary cases of
demand, the desire, being for the thing
itself, may be stronger or weaker ; and
the amount of what people are willing
to expend on it, being in any case a
limited quantity, may be affected in
very unequal degrees by difficulty or
facility of attainment. But in the case
of money, which is desired as the
means of universal purchase, the de-
mand consists of everything which
people have to sell ; and the only limit
to what they are willing to give, is the
limit set by their having nothing more
to offer. The whole of the goods being
in any case exchanged for the whole of
the money which comes into the market
to be laid out, they will sell for less or
more of it, exactly according as less or
more is brought.

§ 3. From what precedes, it might
for a moment be supposed, that all the
goods on sale in a country at any one
time, are exchanged for all the money
existing and in circulation at that same
time : or, in other words, that there is
always in circulation in a country, a
quantity of money equal in value to
the whole of the goods then and there
on sale. But this would be a complete
misapprehension. The money laid out
is equal in value to the goods it pur-
chases ; but the quantity of money laid
out is not the same thing with the
quantity in circulation. As the money
passes from hand to hand, the same
piece of money is laid out many times,
before all the things on sale at one
time are purchased and finally removed
from the market : and each pound or
dollar must be counted for as many
pounds or dollars, as the number of
times it changes hands in order to

effect this object. The greater part-
of the goods must also be counted more
than once, not only because most things
pass through the hands of several sets
of manufacturers and dealers before
they assume the form in which they
are finally consumed, but because in
times of speculation (and all times are
so, more or less) the same goods are
often bought repeatedly, to be resold
for a profit, before they are bought
for the purpose of consumption at all.

If we assume the quantity of goods
on sale, and the number of times those
goods are resold, to be fixed quantities,
the value of money will depend upon
its quantity, together with the average
number of times that each piece changes
hands in the process. The whole of the
goods sold (counting each resale of
the same goods as so much added to
the goods) have been exchanged for the
whole of the money, multiplied by the
number of purchases made on the aver-
age by each piece. Consequently, the
amount of goods and of transactions
being the same, the value of money is
inversely as its quantity multiplied by
what is called the rapidity of circula-
tion. And the quantity of money in
circulation, is equal to the money value
of all the goods sold, divided by the
number which expresses the rapidity of
circulation.

The phrase, rapidity of circulation,
requires some comment. It must not
be understood to mean, the number of
purchases made by each piece of money
in a given time. Time is not the thing
to be considered. The state of society
may be such, that each piece of money
hardly performs more than one pur-
chase in a year ; but if this arise from
the small number of transactions — from
the small amount of business done, the
want of activity in traffic, or because
what traffic there is, mostly takes place
by barter — it constitutes no reason why
prices should be lower, or the value of
money higher. The essential point is,
not how often the same money changes
hands in a given time, but how often
it changes hands in order to perform a
given amount of traffic. 'We must com-
pare the number of purchases made by
the money in a given time, not witft

VALUE OF MONEY.

301

the time itself, but with the goods sold
in that same time, if each piece of
money changes hands on an average
ten times while go^ds are sold to the
value of a million sterling, it is evident
that the money required to circulate
those goods is" 100,0002. And con-
versely, if the money in circulation is
100,0002., and each piece changes
hands by the purchase of goods ten
times in a month, the sales of goods
for money which take place every
month must amount on the average to
1,000,0002.

Eapidity of circulation being a phrase
BO ill adapted to express the only thing
which it is of any importance to express
by it, and having a tendency to con-
fuse the subject by suggesting a mean-
ing extremely different from the one
intended, it would be a good thing if
the phrase could be got rid of, and
another substituted, more directly
significant of the idea meant to be con-
veyed. Some such expression as " the
efficiency of money," though not un-
sxceptionable, would do better : as it
would point attention to the quantity
of work done, without suggesting the
idea of estimating it by time. Until
»n appropriate term can be devised, we
must be content, when ambiguity is to
be apprehended, to express the idea by
the circumlocution which alone conveys
it adequately, namely, the average
number of purchases made by each
piece in order to effect a given pecu-
niary amount of transactions.

§ 4. The proposition which we have
laid down respecting the dependence
of general prices upon the quantity of
money in circulation, must be under-
stood as applying only to a state of
things in which money, that is, gold or
silver, is the exclusive instrument of
exchange, and actually passes from
hand to hand at every purchase, credit
in any of its shapes being unknown.
When credit comes into play as a means
of purchasing, distinct from money in
hand, we shall hereafter find that the
connexion between prices and the
amount of the circulating medium is
much less direct and intimate, and that
each connexion as does exist, no longer

admits of so simple a mode of expres-
sion. But on a subject so full of com-
plexity as that of currency and prices,
it is necessary to lay the foundation of
our theory in a thorough understanding
of the most simple cases, winch wo
shall always find lying as a ground-
work or substratum under those which
arise in practice. That an increase of
the quantity of money raises prices, and
a diminution lowers them, is the most
elementary proposition in the theory of
currency, and without it we should
have no key to any of the others. In
any state of things, however, except
the simple and primitive one which we
have supposed, the proposition is only
true other things being the same : and
what those other things are, which
must be the same, we are not yet ready
to pronounce. We can, however, point
out, even now, one or two of the cau-
tions with which the principle must bo
guarded in attempting to make use of
it for the practical explanation of phe-
nomena ; cautions the more indispensa-
ble, as the doctrine, though a scientific
truth, has of late years been the foun-
dation of a greater mass of false theory,
and erroneous interpretation of facts,
than any other proposition relating to
interchange. From the time of tho
resumption of cash payments by tho
Act of 1819, and especially since tha
commercial crisis of 1825, the favourite
explanation of every rise or fall of prices
has been "the currency;" and like
most popular theories, the doctrine has
been applied with little regard to the
conditions necessary for making it cor-
rect.

For example, it is habitually assumed
that whenever there is a greater
amount of money in the country, or in
existence, a rise of prices must neces-
sarily follow. But this is by no means
an inevitable consequence. In no com-
modity is it the quantity in existence,
but the quantity offered for sale, that
determines the value. Whatever maj
be the quantity of money in the country,
only that part of it will affect prices,
which goes into the market of commo-
dities, and is there actually exchanged
against goods. Whatever increases the
amount <»f this portion of the money in

302

BOOK III. CHAPTEK VIII. § 4.

•ho country, terms to raise prices. But
•money hoarded does not act on prices.
Jloney kept in reserve by individuals
M meet contingencies which do not
occur, does not act on prices. The
money in the coffers of the Bank, or
retained as a reserve by private bank-
ers, does not act on prices until drawn
out, nor even then unless drawn out to
be expended in commodities.

It frequently happens that money, to
a considerable amount, is brought into
the country, is there actually invested
as capital, and again flows out, without
having ever once acted upon the mar-
kets of commodities, but only upon the
market of securities, or, as it is com-
monly though improperly called, the
money market. Let us return to the
case already put for illustration, that
of a foreigner lauding in the country
with a treasure. We supposed him to
employ his treasure in the purchase of
goods for his own use, or in setting up a
manufactory and employing labourers ;
and in either case he would, cceteris
paribus, raise prices. But instead of
doing either of these things, he might
very probably prefer to invest his for-
tune at interest ; which we shall sup-
pose him to do in the most obvious way,
by becoming a competitor for a portion
of the stock, exchequer bills, railway
debentures, mercantile bills, mortgages,
&c., which are at all times in the hands
of the public. By doing this he would
raise the prices of those different secu-
rities, or in other words would lower
the rate of interest ; and since this
would disturb the relation previously
existing between the rate of interest
on capital in the country itself, and
that in foreign countries, it would pro-
bably induce some of those who had
floating capital seeking employment, to
send it abroad for foreign investment,
rather than buy securities at home at
the advanced price. As much money
might thus go out as had previously
come in, while the prices of commodities
would have shown no trace of its tem-
porary presence. This is a case highly
deserving of attention : and it is a fact
now beginning to be recognised, that
the passage of the precious metals from
country to country is determined much

more than was formerly supposed, by
the state of the loan market in different
countries, and much less by the state
of prices.

Another point must be adverted to,
in order to avoid serious error in the in-
terpretation of mercantile phenomena.
If there be, at any time, an increase in
the number of money transactions, a
thing continually liable to happen from
differences in the activity of specula-
tion, and even in the lime of year (since
certain kinds of business are transacted
only at particular seasons); an increase
of the currency which is only propor-
tional to this increase of transactions,
and is of no longer duration, has no
tendency to raise prices. At the
quarterly periods when the public
dividends are paid at the Bank, a sud-
den increase takes place of the money
in the hands of the public ; an increase
estimated at from a fifth to two-fifths
of the whole issues of the Bank of Eng-
land. Yet this never has any effect on
prices ; and in a very few weeks, the
currency has again shrunk into its
usual dimensions, by a mere reduction
in the demands of the public (after so
copious a supply of ready money) for
accommodation from the Bank in the
way of discount or loan. In like manner
the currency of the agricultural dis-
tricts fluctuates in amount at different
seasons of the year. It is always low-
est in August : " it rises generally
towards Christmas, and obtains its
greatest elevation about Lady-day,
when the farmer commonly lays in his
stock, and has to pay his rent and
summer-taxes,'' and when he therefore
makes his principal applications to
country bankers for loans. "Those
variations occur with the same regu-
larity as the season, and with just as
little disturbance of the markets as the
quarterly fluctuations of the notes of
the Bank of England. As soon as the
extra payments have been completed,
the superfluous'1 currency, which is
estimated at half a million, "as cer-
tainly and immediately is reabsorbed
and disappears."*

If extra currency were not forth-

* Ful!arton on the Regulation of Curreif
ties, 2nd edit, pp. 87—9.

VALUE OF MONEY.

303

crnnnpf to make these extra payments,
ore of three things must happen. Either
the payments must be made without
money, by a resort to some of those
contrivances by which its use is dis-
pensed with ; or there must be an in-
crease in the rapidity of circulation, the
same sum of money being made to per-
form more payments ; or if neither of
these things took place, money to make
the extra payments must be withdrawn
from the market for commodities, and
prices, consequently, must fall. An
increase of the circulating medium,
conformable in extent and duration to

the temporary stress of business, does
not raise prices, but merely prevents
this fall.

The sequel of our investigation will
point out many other qualifications with
which the proposition must be received,
that the value of the circulating medium
depends on the demand and supply, and
is in the inverse ratio of the quantity;
qualifications which, under a complex
system of credit like that existing in
England, render the proposition an
extremely incorrect expression of the
fact.

CHAPTER IX.

OF TF1E VALUE OF MONEY, AS DEPENDENT OX COST OF PRODUCTION.

§ 1. 13 LT money, no more than
commodities in general, has its value
definitively determined by demand and
supply. The ultimate regulator of its
value is Cost of Production.

Wo are supposing, of course, that
things are left to themselves. Govern-
ments have not always left things to
themselves. They have undertaken to
prevent the quantity of money from
adjusting itself according to sponta-
neous laws, and have endeavoured to
regulate it at their pleasure ; generally
with a view of keeping a greater quan-
tity of money in the country, than
would otherwise have remained there.
It was, until lately, the policy of all
governments to interdict the exporta-
tion and the melting of money ; while,
by encouraging the exportation and
impeding the importation of other
things, they endeavoured to have a
stream of money constantly flowing in.
By this course they gratified two pre-
judices ; they drew, or thought that
they drew, more money into the country,
which they believed to be tantamount
to more wealth ; and they gave, or
thought they gave, to all producers and
dealers, high prices, which, though no
real advantage, people are always in-
clined to suppose to be one.

la this attempt to regulate the value

of money artificially by means of the
supply, governments have never suc-
ceeded in the degree, or even in the
manner, which they intended. Their
prohibitions against exporting or melt-
ing the coin have never been effectual.
A commodity of such small bulk in
proportion to its value is so easily
smuggled, and still more easily melted,
that it has been impossible by the
most stringent measures to prevent
these operations. All the risk which
it was in the power of governments to
attach to them, was outweighed by a
very moderate profit.* In the more
indirect mode of aiming at the same
purpose, by throwing difficulties in tlio
way of making the returns for exported
goods in any other commodity than
money, they have not been quite so
unsuccessful. They have not, indeed,
succeeded in making money flow con-
tinuously into the country ; but they
have to a certain extent been able to
keep it at a higher than its natural

* The effect of the prohibition cannot,
however, have been so entirely insignificant
as it has been supposed to be by writers on
the subject. The facts adduced by Mr. Ful-
larton, in the note to page 7 of his work on
the Regulation qf Currenciet, show that it
required a greater percentage of difference
in ralue between coin and bullion than has
commonly been imagined, to bring th« coin
to the melting-pot.

304

level ; and have, thus far, removed the
value of money from exclusive depen-
dence on the causes which fix the
values of things not artificially inter-
fered with.

We are, however, to suppose a state,
not of artificial regulation, but of free-
dom. In that state, and assuming no
charge to be made for coinage, the
value of money will conform to the
value of the bullion of which it is made.
A pound weight of gold or silver in
coin, and the same weight in an ingot,
will precisely exchange for one another.
On the supposition of freedom, the
metal cannot be worth more in the
state of bullion than of coin ; for as it
can be melted without any loss of time,
and with hardly any expense, this
would of course be done, until the
quantity in circulation was so much
diminished as to equalize its value with
that of the same weight in bullion. It
may be thought however that the coin,
though it cannot be of less, may be,
and being a manufactured article will
naturally be, of greater value than the
bullion contained in it, on the same
principle on which linen cloth is of
more value than an equal weight of
linen yarn. This would be true, were
it not that Government, in this country
and in some others, coins money gratis
for any one who furnishes the metal.
The labour and expense of coinage,
when not charged to the possessor, do
not raise the value of the article. If
Government opened an office where, on
delivery of a given weight of yarn, it
returned the same weight of cloth to
any one who asked for it, cloth would
be worth no m? re in the market than
the yarn it contained. As soon as coin
is worth a fraction more than the value
of the bullion, it becomes the interest
of the holders of bullion to send it to be
coined. If Government, however, throws
the expense of coinage, as is reason-
able, upon the holder, by making a
charge to cover the expense, (winch is
done by giving back rather less in coin
than has been received in bullion, and
is called levying a seignorage), the coin
will rise, to the extent of the seignorage,
above the value of the bullion. If the
Mint kept back one per cent, to pay

BOOK III. CHAPTER IX. § 2.

the expense of coinage, it would be
against the interest of the holders of
bullion to have it coined, until the coin
was more valuable than the bullion by
at least that fraction. The coin, there-
fore, would be kept one per cent higher
in value, which could only be by
keeping it one per cent less in
quantity, than if its coinage were
gratuitous.

The Government might attempt to
obtain a profit by the transaction, and
might lay on a seignorage calculated
for that purpose ; but whatever they
took for coinage beyond its expenses,
would be so much profit on private
coining. Coining, though not so easy
an operation as melting, is far from a
difficult one, and, when the coin pro-
duced is of full weight and standard
fineness, is very difficult to detect. If,
therefore, a profit could be made by
coining good money, it would certainly
be done : and the attempt to make
seignorage a source of revenue would
be defeated. Any attempt to keep the
value of the coin at an artificial eleva-
tion, not by a seignorage, but by re-
fusing to coin, would be frustrated in
the same manner.*

§ 2. The value of money, then,
conforms, permanently, and, in a state
of freedom, almost immediately, to the
value of the metal of which it is made ;
with the addition, or not, of the ex-
penses of coinage, according as those
expenses are borne by the individual at
by the state. This simplifies extremely
the question which we have here to
consider: since gold and silver bullion
are commodities like any others, and

* In England, though there is no seignor-
age on gold coin, (the Mint returning in coin
the same weight of pure metal which it re-
ceives in bullion) there is a delay of a few
weeks after the bullion is deposited, before
the coin can be obtained, occasioning a loss of
interest, which, to the holder, is equivalent
to a trifling seignorage. From this cause,
the value of coin is in general slightly abore
that of the bullion it contains. An ounce of
gold, according to ;he quantity of metal in a
sovereign, should be worth 31. 17s. 10J<i. ;
but it was usually quoted at 31. 17*. 6d.,
until the Bank Charter Act of 1844 made it
imperative on the Bank to give its notes for
all bullion offered w it at the rate of
3/. 17*. 9<f

VALUE OF MONEY.

305

their value depends, like that of other
things, on their cost of production.

To the majority of civilized countries,
gold and silver are foreign products :
and the circumstances which govern
the values of foreign products, present
some questions which we are not yet
ready to examine. For the present,
therefore, we must suppose the country
which is the subject of our inquiries, to
be supplied with gold and silver by its
own mines, reserving for future consi-
deration how far our conclusions require
modification to adapt them to the more
usual case.

Of the three classes into which com-
modities are divided — those absolutely
limited in supply, those which may be
had in unlimited quantity at ... given
cost of production, and those which
may be had in unlimited quantity, but
at an increasing cost of production —
the precious metals, being the produce
of mines, belong io the third class.
Their natural value, therefore, is in the
long run proportional to their cost of
production in the most unfavourable
existing circumstances, that is, at the
worst mine which it is necessary to
work in order to obtain the required
supply. A pound weight of gold will,
in the gold-producing countries, ulti-
mately tend to exchange for as much
of every other commodity, as is pro-
duced at a cost equal to its own ; mean-
ing by its own cost the cost in labour
and expense, at the least productive
souices of supply which the then exist-
ing demand makes it necessary to
work. The average value of gold is
made to conform to its natural value in
the same manner as the values of other
things are made to conform to their
natural value. Suppose that it were
selling above its natural value ; that is,
xbove the value which is an equivalent
i'jr the labour and expense of mining,
and for the risks attending a branch of
industry in which nine out of ten expe-
riments have usually been failures. A
pavt of the mass of floating capital
which is on the look-out for investment,
would take the direction of mining
enterpiise ; the supply would thus be
increased, and the value would fall. If,
no the contrary, it were selling below

its natural value, miners would not be
obtaining the ordinary profit; they
would slacken their works; if the de-
preciation was great, some of the infe-
rior mines would perhaps stop working
altogether: and a falling off in the
annual supply, preventing the annual
wear and tear from being completely
compensated, would by decrees reduce
the quantity, and restore the value.

When examined more closely, the
following are the details of the process.
If gold is above its natural or cost
value — the coin, as we have seen, con-
forming in its value to the bullion —
money will be of high value, and the
prices of all things, labour included,
will be low. These low prices will
lower the expenses of all producers ;
but as their returns will also be lowered,
no advantage will be obtained by any
producer, except the producer of gold :
whose returns from his mine, not de-
pending on price, will be the same aa
before, and his expenses being less, he
will obtain extra profits, and will bo sti-
mulated to increase his production. The
reverse is the case if the metal is below
its natural value : since this is as much
as to say that prices are high, and the
money expenses of ail producers un-
usually great: for this, however, all
other producers will be compensated
by increased money returns : the miner
alone will extract from his mine no
more metal than before, while his ex-
penses will be greater: his profits
therefore being diminished or annihi-
lated, he will diminish his production,
if not abandon his employment.

In this manner it is that the valuf
of money is made to conform to the
cost of production of the metal of which
it is made. It may be well, however,
to repeat (what has been said before)
that the adjustment takes a long timo
to effect, in the case of a commodity
so generally desired and at the same
time so durable as the precious metals.
Being so largely used not only aa
money but for plate and ornament,
there is at all times a very large quan-
tity of these metals in existence : while
they are so slowly worn out, that a
comparatively small annual production
is suflicient to keep up the supply, and

306

BOOK IH. CHAPTER IX. § 3.

to make any addition to it which imvy
be required by the increase of goods to
be circulated, or by the increased de-
mand for gold and silver articles by
wealthy consumers. Even if this small
annual supply -were stopt entirely, it
would require many years to reduce
the quantity so much as to make any
very material difference in prices. The
quantity may be increased, much more
rapidly than it can be diminished ; but
the increase must be very great before
it can make itself much felt over such
a mass of the precious metals as exists
in the whole commercial world. And
hence the effects of all changes in the
conditions of production of the precious
metals are at first, and continue to be
for many years, questions of quantity
only, with little reference to cost of
production. More especially is this
the case when, as at the present time,
many new sources of supply have been
simultaneously opened, most of them
practicable by labour alone, without
any capital in advance beyond a pickaxe
and a week's food, and when the opera-
tions are as yet wholly experimental, the
comparative permanent productiveness
of the different sources being entirely
unascertained.

§ 3. Since, however, the value of
money really conforms, like that of
other things, though more slowly, to its
cost of production, some political econo-
mists have objected altogether to the
statement that the value of money de-
pends on its quantity combined with
the rapidity of circulation ; which, they
think, is assuming a law for money that
does ->ot exist for any other commodity,
when, the truth is that it is governed by
the very same laws. To this we may
answer, in the first place, that the state-
ment in question assumes no peculiar
law. It is simply the law of demand
and supply, which is acknowledged to
be applicable to all commodities, and
which in the case of money as of most
other things, is controlled, but not set
aside, by the law of cost of production,
eince cost of production would have no
effect on value if it could have none on
supply. But, secondly, there really is,
in coie respect a closer connexion be-

tween the value of money and its quan-
tity, than between the values of other
things and their quantity. The value
of other things conforms to the changes
in the cost of production, without r<*
quiring, as a condition, that there shoulu
be any actual alteration of the supply f
the potential alteration is sufficient:'
and if there even be an actual altera-
tion, it is but a temporary one, except
in so far as the altered value may make
a difference in the demand, and so re-
quire an increase or diminution of
supply, as a consequence, not a cause,
of the alteration in value. Now this is
also true of gold and silver, considered
as articles of expenditure for ornament
and luxury ; but it is not true of money.
If the permanent cost of production of

fold were reduced one-fourth, it might
appen that there would not be more
of it bought for plate, gilding, or jewel-
lery, than before ; and if so, though the
value would fall, the quantity extracted
from the mines for these purposes would
be no greater than previously. Not so
with the portion used as money ; that
portion could not fall in value one-
fourth, unless actually increased one-
fourth ; for, at prices one-fourth higher,
one-fourth more money would be re-
quired to make the accustomed pur-
chases ; and if this were not forth-
coming, some of the commodities would
be without purchasers, and prices could
not be kept up. Alterations, therefore,
in the cost of production of the precioua
metals, do not act upon the value of
money except just in proportion- as they
increase or diminish its quantity; which
cannot be said of any other commodity.
It would therefore, I conceive, be an
error, both scientifically and practi-
cally, to discard the proposition which
asserts a connexion between the value
of money and its quantity.

It is evident, however, that the cost
of production, in the long run, regulates
the quantity ; and that every country
(temporary fluctuations excepted) will
possess, and have in circulation, just
that quantity of money, which will per-
form all the exchanges required of it,
consistently with maintaining a value
conformable to its cost of production.
The prices of things will, on the ave-

DOUBLE STANDARD, AND SUBSDDIARY COINS.

36?

rage, be such that money will exchange
for its own cost in all other goods : and,
precisely luTausc the quantity cannot
be prevented from affecting the value,
the quantity itself will (by a sort of
self-acting machinery) he kept at tho
amount consistent with that standard
of prices — at the amount necessary for
performing, at those prices, all the
business required of it.

" The quantity wanted will depend
partly on the cost of producing gold,
and partly on the rapidity of its circu-
lation. The rapidity of circulation
Leing given, it would depend on the
cost of production : and the cost of pro-
duction heing given, the quantity of
money would depend on the rapidity of
its circulation."* After what has
been already said, I hope that neither
of these p:v]-ositiuns stands in need of
any further illustration.

Money, then, like commodities in
general, having a value dependent on,
and proportional to, its cost of produc-
tion ; the theory of money is, by the
admission of this principle, strict of a
great part of the mystery which appa-
rently surrounded it. We must not
forget, however, that this doctrine only
applies to the places in which the pre-
cious metals are actually produced ; and

that we have yet to enquiie whether the
law of the dependence of value on cost
of production applies to the exchange
of things produced at distant places.
But however this may be, our proposi-
tions with respect to value will require
no other alteration, where money is an
imported commodity, than that of sub-
stituting for the cost of its production,
the cost of obtaining it in the country.
Every foreign commodity is bought by
giving for it some domestic production ;
and the labour and capital which a
foreign commodity costs to us, is the
labour and capital expended in pro-
ducing the quantity of our own goods
which we give in exchange for it.
What this quantity depends upon, —
what determines the proportions of in-
terchange between the productions of
one country and those of another, — is
indeed a question of somewhat greater
complexity than those we have hitherto
considered. But this at least is indis-
putable, that within the country itself
the value of imported commod'ities is
determined by the value, and conse
quently by the cost of production, ot
tne equivalent given for them ; and
money, where it is an imported com-
modity, is subject to the same law.

CHAPTER X.

OF A DOUBLE STANDARD, AND SUBSIDIARY COINS.

§ 1. "Iftouon the qualities neces-
sary to fit any commodity for being
used as money are rarely united in any
considerable perfection, there are two
commodities which possess them in an
eminent, and nearly an equal degree ; the
two precious metals, as they are called;
gold and silver. Some nations have ac-
cordingly attempted to compose their
emulating medium of these two metals
indiscriminately.

* From some printed, but not published,
Lectures of Mr. Senior : in wliich the great
differences in the business done by money,
as well as in the rapidity of its circulation,
in different states of society and civilization,
are interestingly illustrated.

There is an obvious convenience in
making use of the more costly metal for
larger payments, and the cheaper one
for smaller ; and the only question re-
lates to the mode in which this can
best be done. The mode most fre-
quently adopted has been to establish
between the two metals a fixed propor-
tion ; to decide, for example, that a gold
coin called a sovereign should be equiva-
lent to twenty of the silver coins called
shillings : boffi the one and the other
being called, in the ordinary money of
account of the country, by the same
denomination, a pound: and it being
left free to every one who has a pound
X2

608

to pay, either to pay it in the one metal

or in the other.

At the time when the valuation of
the two metals relatively to each other,
say twenty shillings to the sovereign,
or twenty-one shillings to the guinea,
was first made, the proportion probably
corresponded, as nearly as it could be
made to do, with the ordinary relative
values of the two metals, grounded on
their cost of production ; and if those
natural or cost values always continued
to bear the same ratio to one another,
the arrangement would be unobjection-
able. This, however, is far from being
the fact. Gold and silver, though the
least variable in value of all commo-
dities, are not invariable, and do not
always vary simultaneously. Silver,
for example, was lowered in permanent
value more than gold, by the discovery
of the American mines ; and those
small variations of value which take
place occasionally, do not affect both
metals alike. Suppose such a variation
to take place : the value of the two
metals relatively to one another no
longer agreeing with their rated pro-
portion, one or other of them will now
be rated below its bullion value, and
there will be a profit to be made by
melting it.

Suppose, for example, that gold rises
in value relatively to silver, so that the
quantity of gold in a sovereign is now
•worth more than the quantity of silver
in twenty shillings. Two consequences
will ensue. No debtor will any longer
find it his interest to pay in gold. He
will always pay in silver, because twenty
shillings are a legal tender for a debt of
one pound, and he can procure silver
convertible into twenty shillings, for less
gold than that contained in a sovereign.
The other consequence will be, that
unless a sovereign can be sold for more
than twenty shillings, all the sovereigns
will be melted, since as bullion they will
purchase a greater number of shillings
than they exchange for as coin. The
converse of all this would happen if
silver, instead of gold, were the metal
which had risen in comparative value.
A sovereign would not now be worth so
much as twenty shillings, and whoever
nad a pound to pay would prefer paying

fiOOK III. CHAPTER X. § 2.

it by a sovereign ; while the silver coins
would be collected for the purpose of
being melted, and sold as bullion for
gold at their real value, that is, above
the legal valuation. The money of the
community, therefore, would never
really consist of both metals, but of the
one only which, at the particular time,
best suited the interest of debtors ; and
the standard of the currency would be
constantly liable to change from the
one metal to the other, at a loss, on
each change, of the expense of coin-
age on the metal which fell out of
use.

It appears, therefore, that the value
of money is liable to more frequent
fluctuations when both metals are a
legal tender at a fixed valuation, than
when the exclusive standard of the cur-
rency is either gold or silver. Instead
of being only affected by variations in
the cost of production of one metal, it
is subject to derangement from those of
two. The particular kind of variation
to which a currency is rendered more
liable by having two legal standards,
is a fall of value, or what is commonly
called a depreciation ; since practically
that one of the two metals will always
be the standard, of which the real
has fallen below the rated value. If
the tendency of the metals be to rise in
value, all payments will be made in the
one which has risen least ; and if to
fall, then in that which has fallen
most.

§ 2. The plan of a double standard
is still occasionally brought forward by
here and there a writer or orator as a
great improvement in currency. It is
probable that, with most of its ad-
herents, its chief merit is its tendency
to a sort of depreciation, there being at
all times abundance of supporters for
any mode, either open or covert, of
lowering the standard. Some, how-
ever, are influenced by an exaggerated
estimate of an advantage which to a
certain extent is real, that of being able
to have recourse, for replenishing the
circulation, to the united stock of gold
and silver in the commercial world, in-
stead of being confined to one of them,
which, from accidental absorption, may

CREDIT AS A SUBSTITUTE FOR MONEY.

300

not be obtainable with sufficient ra-
pidity. The advantage without the
disadvantages of a double standard,
seems to be best obtained by those na-
tions with whom only one of the two
metals is a legal tender, but the other
also is coined, and allowed to pass for
whatever value the market assigns to
it.

When this plan is adopted, it is na-
turally the more costly metal which is
left to be bought and sold as an article
of commerce. But nations which, like
England, adopt the more costly of the
two as their standard, resort to a dif-
ferent expedient for retaining them
both in circulation, namely, to make
silver a legal tender, but only for small
payments. In England no one can be
compelled to receive silver in payment
for a larger amount than forty shillings.
With this regulation there is necessa-
rily combined another, namely, that
silver coin should be rated, in compa-

rison with gold, somewhat above its
intrinsic value ; that there should not
be, in twenty shillings, as much silver
as is worth a sovereign : for if there
were, a very slight turn of the market
in its favour would make it worth more
than a sovereign, and it would be pro-
fitable to melt the silver coin. The
over-valuation of the silver coin creates
an inducement to buy silver and send
it to the Mint to be coined, since it is
given back at a higher value than pro-
perly belongs to it : this, however, has
been guarded against, by limiting the
quantity of the silver coinage, which
is not left, like that of gold, to the dis-
cretion of individuals, but is determined
by the government, and restricted to
the amount supposed to be required for
small payments. The only precaution
necessary is, not to put so nigh a va-
luation upon the silver, as to hold out
a strong temptation to private coining.

CHAPTER XI.

OF CREDIT, AS A SUBSTITUTE FOB MONEY.

§ 1. THE functions of credit have
been a subject of as much misunder-
standing and as much confusion of ideas
as any single topic in Political Eco-
nomy. This is not owing to any pe-
culiar difficulty in the theory of the
subject, but to the complex nature of
some of the mercantile phenomena
arising from the forms in which credit
clothes itself; by which attention is
diverted from the properties of credit
in general, to the peculiarities of its
particular ibrms.

As a specimen of the confused no-
tions entertained respecting the nature
of credit, we may advert to the exag-
gerated language so often used respect-
ing its national importance. Credit has
a great, but not, as many people seem to
suppose, a magical power; it cannot
make something out of nothing. How
often is an extension of credit talked of
as equivalent to a creation of capital,

or as if credit actually were capital.
It seems strange that there should be
any need to point out, that credit being
only permission to use the capital of
another person, the means of produc-
tion cannot be increased by it, but only
transferred. If the borrower's means
of production and of employing labour
are increased by the credit given him,
the lender's are as much diminished.
The same sum cannot be used as capital
both by the owner and also by the
person to whom it is lent : it cannot
supply its entire value in wages, tools,
and materials, to two sets of labourers
at once. It is true that the capital
which A has borrowed from B, and
makes use of in his business, still forms
part of the wealth of B for other pur-
poses : he can enter into arrangement*
in reliance on it, and can borrow, when
needful, an equivalent sum on the se-
curity of it : so that to a superficial

310

BOOK III. CHAPTER XI. § 2.

eye it might seem as if both B and A
had the use of it at once. But the
smallest consideration will show that
when B has parted with his capital to
A, the use of it as capital rests with
A alone, and that B has no other ser-
vice from it than in so far as his ulti-
mate claim upon it serves him to obtain
the use of another capital from a third
person C. All capital (not his own)
of which any person has really the use,
is, and must be, so much subtracted
from the capital of some one else.*

§ 2. But though credit is but a
transfer of capital from hand to hand,
it is generally, and naturally, a transfer
to hands more competent to employ the
capital efficiently in production. If
there were no such thing as credit,
or if, from general insecurity and want
of confidence, it were scantily prac-
tised, many persons who possess more

* To make the proposition in the text
strictly true, a correction, though a very
slight one, requires to be made. The circu-
lating medium existing in a country, at a
given time, is partly employed in purchases
for productive, and partly for unproductive
consumption. According as a larger propor-
tion of it is employed in the one way or in
the other, the real capital of the country is
greater or less. If, then, an addition were
made to the circulating medium in the hands
of unproductive consumers exclusively, a
larger portion of the existing stock of com-
modities would be bought for unproductive
consumption, and a smaller for productive,
which state of things, while it lasted, would
be equivalent to a diminution of capital.
And on the contrary, if the addition made
be to the portion of the circulating medium
which is in the hands of producers, and des-
tined for their business, a greater portion of
the commodities in the country will for the
present be employed as capital, and a less
portion unproductively. Now, an effect of
this latter character naturally attends some
extensions of credit, especially when taking
place in the form of bank notes, or other
instruments of exchange. The additional
bank notes are, in ordinary course, first
issued to producers or dealers, to be em-
ployed as capital ; and though the stock of
commodities in the country is no greater
than before, yet as a greater share of that
stock now comes by purchase into the hands
of producers and dealers, to that extent
what would have been unproductively con-
sumed is applied to production, and there is
a real increase of capital. The effect ceases,
»nd a counter-process takes place, when the
additional credit is stopped and the notes
colled in.

or less of capital, but who from their
occupations, or for want of the ne-
cessary skill and knowledge, cannot
personally superintend its employment,
would derive no benefit from it: their
funds would either lie idle, or would
be, perhaps, wasted and annihilated in
unskilful attempts to make them yield
a profit. All this capital is now lent
at interest, and made available for
production. Capital thus circum-
stanced forms a large portion of the
productive resources of any commercial
country ; and is naturally attracted to
those producers or traders \iho, being
in the greatest business, have the
means of employing it to most advan-
tage ; because such are both the most
desirous to obtain it, and able to give
the best security. Although, therefore,
the productive funds of the country are
not increased by credit, they are called
into a more complete state of produc-
tive activity. As the confidence on
which credit is grounded extends itself,
means are developed by which even
the smallest portions of capital, the
sums which each person keeps by him
to meet contingencies, are made avail-
able for productive uses. The principal
instruments for this purpose are banks
of deposit. Where these do not exist,
a prudent person must keep a sufficient
sum unemployed in his own possession,
to meet every demand which he has
even a slight reason for thinking him-
self liable to. When the practice,
however, has grown up of keeping this
reserve not in his own custody but
with a banker, many small sums, pre-
viously lying idle, become aggregated in
the banker's hands ; and the banker,
being taught by experience what pro-
portion of the amount is likely to be
wanted in a given time, and knowing
that if one depositor happens to require
more than the average, another will
require less, is able to lend the re-
mainder, that is, the far greater part,
to producers and dealers : thereby
adding the amount, not indeed to tho
capital in existence, but to that in em-
ployment, and making a corresponding
addition to the aggregate production
of the community.

While credit is thus indispensable

CREDIT AS A SUBSTITUTE FOR MONEY.

311

foi rendering the whole capital of the
country productive, it is also a means
by which the industrial talent of the
country is turned to better account for
purposes of production. Many a person
who has either no capital of his own,
or very little, but who has qualifica-
tions for business which are known and
appreciated by some possessors of ca-
pital, is enabled to obtain either ad-
vances in money, or more frequently
goods on credit, by which his indus-
trial capacities are made instrumental
to the increase of the public wealth ;
and this benefit will be reaped far more
lar^rly, whenever, through better laws
and better education, the community
shall have made such progress in in-
tegrity, that personal character can be
accepted as a sufficient guarantee not
only against dishonestly appropriating,
but against dishonestly risking, what
belongs to another.

Such are, in the most general point
of view, the uses of credit to the
productive resources of the world.
But these considerations only apply to
the credit given to the industrious
classes — to producers aiid dealers.
Credit given by dealers to unproduc-
tive consumers is never an addition,
but always a detriment, to the sources
of public wealth. It makes over in
temporary use, not the capital of the
nnproductive classes to the productive,
but that of the productive to the un-
productive. If A, a dealer, supplies
goods to B, a landowner or annuitant,
to be paid for at the end of five years,
as much of the capital of A as is equal
to the value of these goods, remains
for five years unproductive. During
such a period, if payment had been
made at once, the sum might have been
several times expended and replaced,
and goods to the amount might have
been several times produced, consumed,
and reproduced : consequently B's
withholding IQQl. for five years, even if
he pays at last, has cost to the labour-
ing classes of the community during
that period an absolute loss of probably
several times that amount. A, indi-
vidually, is compensated, by putting a
higher price upon his goods, which is
ultimately paid by B : but there in no

compensation made to the labouring
classes, the chief sufferers by every
diversion of capital, whether perma-
nently or temporarily, to unproductive
uses. The country has had WOl. less
of capital during those five years, B
having taken that amount from A's
capital, and spent it unproductively, in
anticipation of his own means, and
having only after five years set apart
a sum from his income and converted
it into capital for the purpose of indem-
nifying A.

§ 3. Thus far of the general func-
tion of Credit in production. It is not
a productive power in itself, though,
without it, the productive powers al-
ready existing could not be brought
into complete employment. But a more
intricate portion of the theory of
Credit is its influence on prices ; the
chief cause of most of the mercantile
phenomena which perplex observers.
In a state of commerce in which much
credit is habitually given, general
prices at any moment depend much
more upon the state of credit than upon
the quantity of money. For credit,
though it is not productive power, is

Eurchasing power ; and a person who,
aving credit, avails himself of it in
the purchase of goods, creates just as
much demand for the goods, and tends
quite as much to raise their price, as
if he made an equal amount of pur*
chases with ready money.

The credit which we are now called
upon to consider, as a distinct pur-
chasing power, independent of money,
is of course not credit in its simplest
form, that of money lent by one person
to another, and paid directly into his
hands ; for when the borrower expends
this in purchases, he makes the pur-
chases with money, not credit, and ex-
erts no purchasing power over and
above that conferred by the money.
The forms of credit which create pur-
chasing power, are those in which no
money passes at the time, and very
often none passes at all, the transac-
tions being included with a mass of
other transactions in an account, and
nothing paid but a balance. This
takes place in a variety of ways,

612

BOOK in. CHAPTER XI. § 4.

which we shall proceed to examine,
beginning, as is our custom, with the
nippiest.

z('irst : Suppose A and B to be two
dealers, who have transactions with
each other both as buyers and as
sellers. A buys from B on credit. B
does the like with respect to A. At
the end of the year, the sum of A's
debts to B is set against the sum of
B's debts to A, and it is ascertained
to which side a balance is due. This
balance, which may be less than the
amount of many of the transactions
singly, and is necessarily less than the
sum of the transactions, is all that is
paid in money : and perhaps even
this is not paid, but carried over in an
account current to the next year. A
single payment of a hundred pounds
may in this manner suffice to liquidate
a long series of transactions, some of
them to the value of thousands.

But secondly : The debts of A to B
may be paid without the intervention
of money, even though there be no
reciprocal debts of B to A. A may
satisfy B by making over to him a debt
due to himself from a third person, C.
This is conveniently done by means of
a written instrument, called a bill of
exchange, which is, in fact, a transfer-
able order by a creditor upon his debtor,
and when accepted by the debtor, that
is, authenticated by his signature, be-
comes an acknowledgment of debt.

§ 4. Bills of exchange were first in-
troduced to save the expense and risk
of transporting the precious metals
from place to place. " Let it be sup-
posed," says Mr. Henry Thornton,*
" that there are in London ten manufac-
turers who fell their article to ten shop-
keepers in York, by whom it is retailed ;
and that there are in York ten manu-
facturers of another commodity, who
pell it to ten shopkeepers in London.
There would be no occasion for the ten
shopkeepers in London to send yearly

* Enquiry into the Nature and, Effects of
the Paper 'Credit of Great Britain, p. 24.
This work, published in 1802, is even now
the clearest exposition that I am acquainted
with, in the English language, of the modes
in which credit is given and taken in a mer-
cantile community.

to York guineas for the payment of the
York manufacturers, and for the ten
York shopkeepers to send yearly as
many guineas to London. It would
only be necessary for the York manu-
facturers to receive from each of the
shopkeepers at their own door the
money in question, giving in return
letters which should acknowledge the
receipt of it ; and which should also
direct the money, lying ready in the
hands of their debtors in London, to
be paid to the London manufacturers,
so as to cancel the debt in London in
the same manner as that at York. The
expense and the risk of all transmission
of money would thus be saved. Letters
ordering the transfer of the debt are
termed, in the language of the present
day, bills of exchange. They are bills
by which the debt of one person is ex-
changed for the debt of another ; and
the debt, perhaps, which is due in one
place, for the debt due in another."

Bills of exchange having been found
convenient as means of paying debts at
distant places without the expense of
transporting the precious metals, their
use was afterwards greatly extended
from another motive. It is usual in
every trade to give a certain length of
credit for goods bought : three months,
six months, a year, even two years,
according to the convenience or custom
of the particular trade. A dealer who
has sold goods, for which he is to be
paid in six months, but who desires to
receive payment sooner, draws a bill
on his debtor payable in six months,
and gets the bill discounted by a banker
or other money-lender, that is, transfers
the bill to him, receiving the amount,
minus interest for the time it has still
to run. It has become one of the chief
functions of bills of exchange to serve
as a means by which a debt due from
one person can thus be made available
for obtaining credit from another. The
convenience of the expedient has led
to the frequent creation of bills of ex-
change not grounded on any debt pre-
viously due to the drawer of the bill by
the person on whom it is drawn. These
are called accommodation bills ; and
sometimes, with a tinge of disapproba-
tion, fictitious bills. Their nature is so

CREDIT AS A SUBSTITUTE FOR MONEY.

313

clearly stated, and with such judicious
remarks, by the author whom I have
just quoted, that I shall transcribe the
entire passage.*

"A, being in want of 100?., requests
B to accept a note or bill drawn at two
months, which 1!, therefore, on the face
of it, is bound to pay ; it is understood,
however, that A will take care either to
discharge the bill himself, or to furnish
Li with the means of paying it. A
obtains ready money for the bill on the
joint credit of the two parties. A ful-
tils his promise of paying it when due,
and thus concludes the transaction.
This service rendered by B to A is,
however, not unlikely to be requited,
hi a more or less distant period, by a
Himilar acceptance of a bill on A, drawn
and discounted for B's convenience.

" Let us now compare such a bill
with a real bill. Let us consider in
what points they differ or seem to
differ ; and in what they agree.

" They agree, inasmuch as each is a
discountable article ; each has also been
created for the purpose of being dis-
counted ; and each is, perhaps, dis-
counted in fact. Each, therefore, serves
equally to supply means of speculation
to the merchant. So far, moreover, as
bills and notes constitute what is called
the circulating medium, or paper cur-
rency of the country, and prevent the
use of guineas, the fictitious and the
real bill are upon an equality; and if
the price of commodities be raised in
proportion to the quantity of paper
currency, the one contributes to that
rise exactly in the same manner as the
other.

" Before we come to the points in
which they differ, let us advert to one
point in which they are commonly sup-
posed to be unlike ; but in which they
cannot be said always or necessarily to
differ.

"Real notes (it is sometimes said)
represent actual property. There are
actual goods in existence, which are the
counterpart to every real note. Notes
which are not drawn in consequence of
a sale of goods, are a species of false
wealth, "by which a nation is deceived.

* Pp. 29-33.

These supply only an imaginary capital;
the others indicate one that is real.

" In answer to this statement it may
be observed, first, that the notes given
in consequence of a real sale of goods
cannot be considered as on that account
certainly representing any actual pro-
perty. Suppose that A sells IQQl. worth
of goods to B at six months credit, and
takes a bill at six months for it ; and
that B, within a month after, sells the
same goods, at a like credit, to C, taking
a like bill ; and again, that C, after
another month, sells them to D, taking
a like bill, and so on. There may then,
at the end of six months, be six bills of
100Z. each, existing at the same time;
and every one of these may possibly
have been discounted. Of all these
bills, then, only one represents any
actual property.

" In order to justify the supposition
that a real bill (as it is called) repre-
sents actual property, there ought to be
some power in the bill-holder to prevent
the property which the bill represents,
from being turned to other purposes
than that of paying the bill in question.
No such power exists ; neither the man
who holds the real bill, nor the man
who discounts it, has any property in
the specific goods for which it was
given : he as much trusts to the general
ability to pay of the giver of the bill, as
the holder of any fictitious bill does.
The fictitious bill may, in many cases,
be a bill given by a person having a
large and known capital, a part of
which the fictitious bill may be said in
that case to represent. The supposition
that real bills represent property, and
that fictitious bills do not, seems, there-
fore, to be one by which more than
justice is done to one of these species
of bills, and something less than justice
to the other.

" We come next to some points in
which they differ.

" First, the fictitious note, or note of
accommodation, is liable to the ob-
jection that it professes to be what it
is not. This objection, however, lies
only against those fictitious bills which
are passed as real. In many cases, it
is sufficiently obvious what they are.
Secondly, the fictitious bill is, in gene-

314

rul, less likely to be punctually paid
than the real one. There is a general
presumption, that the dealer in fictitious
bills is a man who is a more adven-
turous speculator than he who carefully
abstains from them. It follows, thirdly,
that fictitious bills, besides being less
safe, are less subject to limitation as to
tlieir quantity. The extent of a man's
actual sales forms some limit to the
amount of his real notes ; and as it is
highly desirable in commerce that
credit should be dealt out to all per-
sons in some sort of regular and due
proportion, the measure of a man's
actual sales, certified by the appear-
ance of his bills drawn in virtue of
those sales, is some rule in the case,
though a very imperfect one in many
respects.

" A fictitious bill, or bill of accom-
modation, is evidently, in substance, the
same as any common promissory note ;
and even better in this respect, that
there is but one security to the pro-
missory note, whereas in the case of
the bill of accommodation there are
two. So much jealousy subsists lest
traders should push their means of
raising money too far, that paper, the
same in its general nature with that
which is given, being the only paper
which can be given, by men out of
business, is deemed somewhat discre-
ditable when coming from a merchant.
And because such paper, when in the
merchant's hand, necessarily imitates
the paper which passes on the occasion
of a sale of goods, the epithet fictitious
has been cast upon it; an epithet
which has seemed to countenance the
confused and mistaken notion, that
there is something altogether false and
delusive in the nature of a certain part
Doth of the paper and of the apparent
wealth of the country."

A bill of exchange, when merely
discounted, and kept in the portfolio
of the discounter until it falls due, does
not perform the functions or supply the
place of money, but is itself bought and
sold for money. It is no more currency
than the public funds, or any other
securities. But when a bill drawn
upon one person is paid to another (or
tven. to the same person) in discharge

BOOK HI. CHAPTER XI. § 5.

of a debt or a pecuniary claim, it does
something for which, if the bill did not
exist, money would be required : it
performs the functions of currency.
This is a use to which bills of exchange
are often applied. " They not only,"
continues Mr. Thornton,* " spare the
use of ready money ; they also occupy
its place in many cases. Let us
imagine a farmer in the country to dis-
charge a debt of 101. to his neighbour-
ing grocer, by giving him a bill for
that sum, drawn on his cornfactor in
London for grain sold in the metro-
polis ; and the grocer to transmit the
bill, he having previously indorsed it,
to a neighbouring sugar-baker, in dis-
charge of a like debt; and the sugar-
baker to send it, when again indorsed,
to a West India merchant in an out-

§ort, and the West India merchant to
eliver it to his country banker, who
also indorses it, and sends it into further
circulation. The bill in this case will
have effected five payments, exactly as
if it were a 101. note payable to bearer
on demand. A multitude of bills pasa
between trader and trader in the
country, in the manner which has been
described ; and they evidently form, in
the strictest sense, a part of the circu-
lating medium of the kingdom."

Many bills, both domestic and
foreign, are at last presented for pay-
ment quite covered with indorsements,
each of which represents either a fresh
discounting, or a pecuniary transaction
in which the bill has performed the
functions of money. Within the pre-
sent generation, the circulating medium
of Lancashire for sums above five
pounds, was almost entirely composed
of such bills.

§ 5. A third form in which credit
is employed as a substitute for cur
rency, is that of promissory notes. A
bill drawn upon any one and accepted
by him, and a note of hand by him
promising to pay the same sum, are, as
far as he is concerned, exactly equiva-
lent, except that the former commonly
bears interest and the latter generally
does not ; and that the former is com-
monly payable only after a certain
• ?• 10.

r I {EDIT AS A SUBSTITUTE FOR MONEY.

315

lapse of time, ami the latlrr [>;iyaliln
at sight. But it is chiefly in the latter
form that it has become, in commercial
countries, an express occupation to
issue such substitutes for money.
Dealers in money (as lenders by pro-
l'"-sion are improperly called) desire,
like other dealers, to stretch their
operations beyond what can be carried
on by their own means : they wish to
lend, not their capital merely, but their
credit, and not only such portion of
their credit as consists of funds actually
deposited with them, but their power
of obtaining credit from the public
generally, so far as they think they
can safely employ it. This is done in
a very convenient manner by lending
their own promissory notes payable to
bearer on demand : the borrower being
willing to accept these as so much
money, because the credit of the lender
makes other people willingly receive
them on the same footing, in purchases
or other payments. These notes, there-
fore, perform all the functions of cur-
rency, and render an equivalent amount
of money which was previously in cir-
culation, unnecessary. As, however,
being payable on demand, they may
be at any time returned on the issuer,
and money demanded for them, he
must, on pain of bankruptcy, keep by
him as much money as will enable
him to meet any claims of that sort
•which can be expected to occur within
the time necessary for providing him-
self with more : and prudence also re-
quires that he should not attempt to
issue notes beyond the amount which
experience shows can remain in circu-
lation without being presented for
payment.

The convenience of this mode of (as
it were) coining credit, having once
been discovered, governments have
availed themselves of the same expe-
dient, and have issued their own pro-
missory notes in payment of their
expenses ; a resource the more useful,
because it is the only mode in which
they arc able to borrow money without
paying interest, their promises to pay
on demand being, in the estimation of
the holders, equivalent to money in
hand. The practical differences be-

tween such government notes and the
issues of private bankers, and the
further diversities of which this class
of substitutes for money are suscepti-
ble, will be considered presently.

§ 6. A fourth mode of making
credit answer the purposes of money,
by which, when carried far enough,
money may be very completely super-
seded, consists in making payments by
cheques. The custom of keeping tho
spare rash reserved for immediate use
or against contingent demands, in the
hands of a banker, and making all
payments, except small ones, by
orders on bankers, is in this country
spreading to a continually larger por-
tion of the public. If the person
making the payment, and the person
receiving it, keep their money with
the same banker, the payment takes
place without any intervention of
money, by the mere transfer of its
amount in the banker's books from the
credit of the payer to that of the re-
ceiver. If all persons in London kept
their cash at the same banker's, and
made all their payments by means of
cheques, no money would be required
or used for any transactions beginning
and terminating in London. This ideal
limit is almost attained in fact, so far
as regards transactions between dealers.
It is chiefly in the retail transactions
between dealers and consumers, and in
the payment of wages, that money or
bank notes now pass, and then only
when the amounts are small. In
London, even shopkeepers of any
amount of capital or extent of business
have generally an account with a
banker ; which, besides the safety and
convenience of the practice, is to theil
advantage in another respect, by giving
them an understood claim to have
their bills discounted in cases when
they could not otherwise expect it. As
for the merchants and larger dealers,
they habitually make all payments in
the course of their business by cheques.
They do not, however, all deal with the
same banker, and when A gives a
cheque to B, B usually pays it not
into the same but into some other
bank. But the convenient"' of bu^i-

316

BOOK m. CHAPTER XII. § 1.

ness has given birth to an arrangement
•which makes all the banking houses of
the City of London, for certain pur-
poses, virtually one establishment. A
ranker does not send the cheques
which are paid into his banking house,
to the banks on which they are drawn,
and demand money for them. There
is a building called the Clearing house,
to which every City banker send-, ca< -li
afternoon, all the cheques on other
bankers which he has received during
the day, and they are there exchanged
for the cheques on him which have
come into the hands of other bankers,
the balances only being paid in money ;
or even these not in money, but in
cheques on the Bank of England. By
this contrivance, all the business trans-
actions of the City of London during
that day, amounting often to millions
of pounds, and a vast amount besides
of country transactions, represented by
bills which country bankers have

drawn upon their London correspnn
dents, are liquidated by payments not
exceeding on the average 200,000/.*

By means of the various instruments
of credit which have now been ex-
plained, the immense business of a
country like Great Britain is trans-
acted with an amount of the precious
metals surprisingly small ; many times
smaller, in proportion to the pecuniary
value of the commodities bought and
sold, than is found necessary in France,
or any other country in which, the
habit and the disposition to give credit
not being so generally diffused, those
" economizing expedients," as they
have been called, are not practised to
the same extent. What becomes of
the money thus superseded in its f«nc-
tions, and by what process it is made
to disappear from circulation, are
questions the discussion of which must
be for a short time postponed.

CHAPTER XH.

INFLUENCE OF CREDIT ON PRICES.

§ 1 . HAVING now formed a general
idea of the modes in which credit is
made available as a substitute for
money, we have to consider in what
manner the use of these substitutes
affects the value of money, or, what is
equivalent, the prices of commodities.
It is hardly necessary to say that the
permanent value of money — the natural
and average prices of commodities —
are not in question here. These are
determined by the cost of producing or
of obtaining the precious metals. An
ounce of gold or silver will in the long
run exchange for as much of every
other commodity, as can be produced
or imported at the same cost with
itself. And an order, or note of hand,
or bill payable at sight, for an ounce of
gold, while the credit of the giver is
unimpaired, is worth neither more nor
less than the gold itself.

It is not, however, with ultimate or

average, but with immediate and tem-
porary prices, that we are now con-
cerned. These, as we have seen, may
deviate very widely from the standard
of cost of production. Among other
causes of fluctuation, one we have
found to be, the quantity of money in
circulation. Other things being the
same, an increase of the money in cir-
culation raises prices, a diminution
lowers them. If more money is thrown
into circulation than the quantity
which can circulate at a value con-

* According to Mr. Tooke ("Enquiry in!a
the Currency Principle, p. 27) the adjustments
at the clearing hou.'e "in the year 1839
amounted to 954,401,600?., making an ave-
rage amount of payments of upwards of
3,000,0007,. of bills of exchange and cheques
daily effected through the medium of little
inure than 200, 00(11. of bank notes." At pre-
sent a very much greater amount of trans-
actions is daily liquidated, without bank
notes at all, cheques on the Bank of
Englan4 supplying their place.

INFLUENCE OF CREDIT ON PRICES.

317

formable to its cost of production, the
value of money, so long as the excess
lasts, will remain below the standard
of cost of production, and general
prices will be sustained above the
natural rate.

But we have now found that there
are other things, such as bank notes,
bills of exchange, and cheques, which
circulate as money, and perform all
functions of it: and the question
arises, Do these various substitutes
operate on prices in the same manner
as money itself? Does an increase in
the quantity of transferable paper tend
to raise pi-ices, in the same manner
and degree as an increase in the
quantity of money ? There has been
no small amount of discussion on this
point among writers on currency, with-
out any result so conclusive as to have
yet obtained general assent.

I apprehend that bank notes, bills,
or cheques, as such, do not act on
prices at all. What does act on prices
is Credit, in whatever shape given,
and whether it gives rise to any trans-
ferable instruments capable of passing
into circulation, or not.

I proceed to explain and substantiate
this opinion.

§ 2. Money acts upon prices in no
other way than by being tendered in
exchange for commodities. The de-
mand which influences the prices of
commodities consists of the money
offered for them. But the money
offered, is not the same thing with the
money possessed. It is sometimes less,
sometimes very much more. In the
long run indeed, the money which
people lay out will be neither more nor
less than the money which they have
to lay out : but this is far from being
the case at any given time. Sometimes
they keep money by them for fear of
an emergency, or in expectation of a
more advantageous opportunity for
expending it. In that case the money
is said not to be in circulation : in
plainer language, it is not offered, nor
about to be offered, for commodities.
Money not in circulation has no effect
on prices. The converse, however, is
a much commoner case ; people make

purchases with money not in their
possession. An article, for instance,
which is paid for by a cheque on n
banker, is bought with money which
not only is not in the payer's posses-
sion, but generally not even in the
banker's, having been lent by him (all
but the usual reserve) to other persons.
We just now made the imaginary sup-
position that all persons dealt with a
bank, and all with the same bank,
payments being universally made by
cheques. In this ideal case, there
would be no money anywhere except
in the hands of the banker ; who might
then safely part with all of it, by sell-
ing it as bullion, or lending it, to be
sent out of the country in exchange
for goods or foreign securities. But
though there would then be no money
in possession, or ultimately perhaps
even in existence, money would be
offered, and commodities bought with
it, just as at present. People would
continue to reckon their incomes and
their capitals in money, and to make
their usual purchases with orders for
the receipt of a thing which would
have literally ceased to exist. There
would be in all this nothing to com-
plain of, so long as the money, in dis-
appearing, left an equivalent value in
other things, applicable when required
to the reimbursement of those to whom
the money originally belonged.

In the case however of payment by
cheques, the purchases are at any rate
made, thougn not with money in the
buyer's possession, yet with money to
which he has a right. But he may
make purchases with money which he
only expects to have, or even only
pretends to expect. He may obtain
goods in return for his acceptances
payable at a future time ; or on his
note of hand ; or on a simple book
credit, that is, on a mere promise to
pay. All these purchases have exactly
the same effect on price, as if they
were made with ready money. The
amount of purchasing power which a
person can exercise is composed of all
the money in his possession or due to
him, and of all his credit. For exer-
cising the whole of this power he finds
a sufficient motive only under peculiar

318

circumstances ; but he always pos-
sesses it ; and the portion of it which
he at any time does exercise, is the
measure of the effect which he produces
on price.

Suppose that, in the expectation
that some commodity will rise in price,
he determines, not only to invest in it
all his ready money, but to take up on
credit, from the producers or importers,
as much of it as their opinion of his
resources will enable him to obtain.
Every one must see that by thus acting
he produces a greater effect on price,
than if he limited his purchases to the
money he has actually in hand. He
creates a demand for the article to the
full amount of his money and credit
taken together, and raises the price
proportionally to both. And this effect
is produced, though none of the written
instruments called substitutes for cur-
rency may be called into existence ;
though the transaction may give rise
to no bill of exchange, nor to the issue
of a single bank note. The buyer,
instead of taking a mere book credit,
might have given a bill for the amount ;
or might have paid for the goods with
bank notes borrowed for that purpose
from a banker, thus making the pur-
chase not on his own credit with the
seller, but on the banker's credit with
the seller, and his own with the banker.
Had he done so, he would have pro-
duced as great an effect on price as by
a simple purchase to the same amount
on a book credit, but no greater effect.
The credit itself, not the form and
mode in which it is given, is the
operating cause.

§ 3. The inclination of the mercan-
tile public to increase their demand for
commodities by making use of all or
much of their credit as a purchasing
power, depends on their expectation of
profit. When there is a general im-
pression that the price of some com-
modity is likely to rise, from an extra
demand, a short crop, obstructions to
importation, or any other cause, there
is a disposition among dealers to in-
crease their stocks, in order to profit
by the expected rise. This disposition
tends in itself to produce the effect

BOOK III. CHAPTER XII. §3.

which it looks forward to, a rise of
price: and if the rise is considerable
and progressive, other speculators are
attracted, who, so long as the price has
not begun to fall, are willing to believe
that it will continue rising. These, by
further purchases, produce a further
advance : and thus a rise of price for
which there were originally some ra-
tional grounds, is often heightened by
merely speculative purchases, until it
greatly exceeds what the original
grounds will justify. After a time
this begins to be perceived ; the price
ceases to rise, and the holders, think-
ing it time to realize their gains, are
anxious to sell. Then the price begins
to decline : the holders rush into the
market to avoid a still greater loss,
and, few being willing to buy in a
falling market, the price falls much
more suddenly than it rose. Those
who have bought at a higher price
than reasonable calculation justified,
and who have been overtaken by the
revulsion before they had realized, are
losers in proportion to the greatness of
the fall, and to the quantity of the
commodity which they hold, or have
bound themselves to pay for.

Now all these effects might take
place in a community to which credit
was unknown : the prices of some com-
modities might rise from speculation,
to an extravagant height, and then
fall rapidly back. But if there were
no such thing as credit, this could
hardly happen with respect to com-
modities generally. If all purchases
were made with ready money, the
payment of increased prices for some
articles would draw an unusual pro-
portion of the money of the community
into the markets for those articles, and
must therefore draw it away from some
other class of commodities, and thus
lower their prices. The vacuum might,
it is true, be partly filled up by increased
rapidity of circulation; and in this
manner the money of the community
is virtually increased in a time of spe-
culative activity, because people keep
little of it by them, but hasten to lay
it out in some tempting adventure aa
soon as possible after they receive it.
This resource, however, is limited : on

INFLUENCE OF CREDIT ON PRICES.

819

ihe whole, people cannot, while the
quantity of money remains the same,
lay out much more of it in some things,
without laying out less in others. But
what they cannot do by ready money,
they can do by an extension of credit.
When people go into the market and
purchase with money which they hope
to receive hereafter, they are drawing
upon an unlimited, not a limited fund.
Speculation, thus supported, may be
going on in any number of commodi-
ties, without disturbing the regular
course of business in others. It might
even be going on in all commodities at
once. We could imagine that in an
epidemic fit of the passion of gambling,
all dealers, instead of giving only their
accustomed orders to the manufac-
turers or growers of their commodity,
commenced buying up all of it which
they could procure, as far as their
capital and credit would go. All prices
would rise enormously, even if there
•were no increase of money, and no
paper credit, but a mere extension of
purchases on book credits. After a
time those who had bought would
wish to sell, and prices would collapse.
This is the ideal extreme case of
what is called a commercial crisis.
There is said to be a commercial crisis,
when a great number of merchants and
traders at once, either have, or appre-
hend that they shall have, a difficulty
in meeting their engagements. The
most usual cause of this general em-
barrassment, is the recoil of prices
after they have been raised by a spirit
of speculation, intense in degree, and
extending to many commodities. Some
accident, which excites expectations of
rising prices, such as the opening of a
new foreign market, or simultaneous
indications of a short supply of several
great articles of commerce, sets specu-
lation at work in several leading de-
partments at once. The prices rise,
and the holders realize, or appear to
have the power of realizing, great
gains. In certain states of the public
mind, such examples of rapid increase
of fortune call forth numerous imita-
tors, and speculation not only goes
much beyond what is justified by the
original grounds for expecting rise of

price, but extends itself to articles in
which there never was any such ground:
these, however, rise like the rest as
soon as speculation sets in. At periods
of this kind, a great extension of credit
takes place. Not only do all whom
the contagion reaches, employ their
credit much more freely than usual ;
but they really have more credit, be-
cause they seem to be making unusual
gains, and because a generally reckless
and adventurous feeling prevails, which
disposes people to give as well as take
credit more largely than at other timea,
and give it to persons not entitled to
it. In this manner, in the celebrated
speculative year 1825, and at various
other periods during the present cen-
tury, the prices of many of the principal
articles of commerce rose greatly, with-
out any fall in others, so that general
prices might, without incorrectness, be
said to have risen. When, after such
a rise, the reaction comes, and prices
begin to fall, though at first perhaps
only through the desire of the holders
to realize, speculative purchases cease :
but were this all, prices would only
fall to the level from which they rose,
or to that which is justified by the state
of the consumption and of the supply.
They fall, however, much lower; for
as, when prices were rising, and every-
body apparently making a fortune, it
was easy to obtain almost any amount
of credit, so now, when everybody
seems to be losing, and many fail en-
tirely, it is with difficulty that firms of
known solidity can obtain even the
credit to which they are accustomed,
and which it is the greatest inconve-
nience to them to be without ; because
all dealers have engagements to fulfi\.
and nobody feeling sure that the pos
tion of his means which he has en-
trusted to others will be available in
time, no one likes to part with ready
money, or to postpone his claim to it.
To these rational considerations there
is superadded, in extreme cases, a
panic as unreasoning as the previous
over-confidence ; money is borrowed fof
short periods at almost any rate of in-
terest, and sales of goods for immediate
payment are made at almost any sacri-
fice. Thus general prices, during a con*-

320

BOOK 111. CHAPTER XII. § 4.

mercial revulsion, fall as much below
the usual le.vel, as during the previous
period of speculation they have risen
above it : the fall, as well as the rise,
originating not in anything affecting
money, but in the state of credit;
an unusually extended employment of
credit during the earlier period, fol-
lowed by a great diminution, never
amounting however to an entire cessa-
tion of it, in the later.

It is not, however, universally true
that the contraction of credit, charac-
teristic of a commercial crisis, must
have been preceded by anextraordinary
and irrational extension of it. There
are other causes ; and one of the most
recent crises, that of 1847, is an in
stance, having been preceded by no
particular extension of credit, and by
no speculations ; except those in rail-
way shares, which, though in many
cases extravagant enough, yet being
carried on mostly with that portion of
means which the speculators could afford
to lose, were not calculated to produce
the wide-spread ruin which arises from
vicissitudes of price in the commodi-
ties in which men habitually deal, and
in which the bulk of their capital is
invested. The crisis of J847 belonged
to another class of mercantile pheno-
mena. There occasionally happens a
concurrence of circumstances tending
to withdraw from the loan market a
considerable portion of the capital
which usually supplies it. These cir-
cumstances, in the present case, were
great foreign payments, (occasioned by
a high price of cotton and an unpre-
cedented importation of food,) together
with the continual demands on the cir-
culating capital of the country by rail-
way calls and the loan transactions of
railway companies, for the purpose of
being converted into fixed capital and
made unavailable for future lending.
These various demands fell princi-
pally, as such demands always do, on
the loan market. A great, though not
the greatest part of the imported food,
was actually paid for by the proceeds
of a government loan. The extra pay-
ments which purchasers of corn and
cotton, and railway shareholders, found
themselves obliged to make, were either

made with their own spare cash, or with
money raised for the occasion. On the
first supposition, they were made by
withdrawing deposits from bankers,
and thus cutting off a part of the
streams which fed the loan market;
on the second supposition, they were
made by actual drafts on the loan
market, either by the sale of securities,
or by taking up money at interest. This
combination of a fresh demand for
loans, with a curtailment of the capital
disposable for them, raised the rate of
interest, and made it impossible to
borrow except on the very best se-
curity. Some firms, therefore, which,
by an improvident and unmercantilo
mode of conducting business had al-
lowed their capital to become eithei
temporarily or permanently unavail-
able, became unable to command that
perpetual renewal of credit which had
previously enabled them to struggle
on. These firms stopped payment :
their failure involved more or less
deeply many other firms which had
trusted them ; and, as usual in such
cases, the general distrust, commonly
called a panic, began to set in, and
might have produced a destruction of
credit equal to that of 1825, had not
circumstances which may almost bo
called accidental, given to a very
simple measure of tin government
(the suspension of the Bank Charter
Act of 1844) a fortunate power of
allaying panic, to which, when con-
sidered in itself, it had no sort of
claim.*

§ 4. The general operation of credit
upon prices being such as we have
described, it is evident that if any par-
ticular mode or form of credit is cal-
culated to have a greater operation on
prices than others, it can only be by
giving greater facility, or greater en-
couragement, to the multiplication of
* The commercial difficulties, not how-
ever amounting to a commercial crisis, o(
1861, had essentially the same origin.
Heavy payments for cotton imported at high
prices, and large investments in banking and
other joint-stock projects, combined with
the loan operations of foreign governments,
made such large drafts upon the loan market
as to raise the rate of discount on mercantile
bills *• high as nine per cent.

INFLUENCE OF CREDIT ON PRICES.

321

credit transactions generally. If bank
notes, for instance, or bills, have a
greater effect on prices than book
credits, it is not by any difference in
the transactions themselves, which are
essentially the same, whether taking
place in the one way or in the other :
it must be that there are likely to bo
more of them. If credit is likely to
be more extensively used as a pur-
chasing power when bank notes or
bills are the instruments used, than
when the credit is given by mere
entries in an account, to that extent
and no more there is ground for as-
cribing to the former a greater power
over the markets than belongs to the
latter.

Now it appears that there is some
such distinction. As far as respects
the particular transaction, it makes no
difference in the effect on price whether
A buys goods of B on simple credit, or
gives a bill for them, or pays for them
with bank notes lent to him by a banker
C. The difference is in a subsequent
stage. If A has bought the goods on
ft book credit, there is no obvious or
convenient mode by which B can make
A's debt to him a means of extending
his own credit. Whatever credit he
has, will be due to the general opinion
entertained of his solvency : he cannot
specifically pledge A's debt to a third
person, as a security for money lent or
goods bought. But if A has given him
a bill for the amount, he can get this
discounted, which is the same thing as
borrowing money on the joint credit of
A and himself: or he may pay away
the bill in exchange for goods, which
is obtaining goods on the same joint
credit. In either case, here is a second
credit transaction, grounded on the
first, and which would not have taken
place if the first had been transacted
without the intervention of a bill. Nor
need the transactions end here. The
bill may be again discounted, or again
paid away for goods, several times be-
fore it is itself presented for payment.
Nor would it be correct to say that
these successive holders, if they had
not had the bill, might have attained
their purpose by purchasing goods on
thoir own credit with the dealers.

They may not all of thorn be persons
of credit, or they may already have
stretched their credit as fnr as it will
go. And at all events, either money
or goods are more readily obtained ou
the credit of two persons than of one.
Nobody will pretend that it is as easy
a thing for a merchant to borrow a
thousand pounds on his own credit, as to
get a billdiscounted to the same amount,
when the drawee is of known solvency.
If we now suppose that A, instead of
giving a bill, obtains a loan of bank
notes from a banker C, and with them
pays B for his goods, we shall find the
difference to be still greater. B is now
independent even of a discounter : A'g
bill would have been takeu in payment
only by those who were acquainted
with his reputation for solvency, but a
banker is a person who has credit with
the public generally, and whose notes
are taken in payment by every one, at
least in his own neighbourhood : inso-
much that, by a custom which has
grown into law, payment in bank notea
is a complete acquittance to the payer,
whereas if he has paid by a bill, he
still remains liable to the debt, if the
person on whom the bill is drawn fails
to pay it when due. B therefore can
expend the whole of the bank notes
without at all involving his own credit :
and whatever power he had before of
obtaining goods on book credit, remains
to him unimpaired, in addition to tho
purchasing power he derives from the
possession of the notes. The same re-
mark applies to every person in suc-
cession, into whose hands the notes
may come. It is only A, the first
holder, (who used his credit to obtain
the notes as a loan from the issuer,)
who can possibly find the credit he
possesses in other quarters abated by
it ; and even in his case that result ia
not probable; for though, in reason,
and if all his circumstances were
known, every draft already made upon
his credit ought to diminish by so much
his power of obtaining more, yet in
practice the reverse more frequently
happens, and his having been trusted
by one person is supposed to be evi-
dence that he may safely be trusted by
others also.

322

BOOK III. CHAPTER XII. § 5.

It appears, therefore, that bank
notes are a more powerful instrument
for raising prices than bills, and bills
than book credit. It does not, indeed,
follow that credit will be more used
because it can be. When the state of
trade holds out no particular tempta-
tion to make large purchases on credit,
dealers will use only a small portion of
the credit-power, and it will depend only
on convenience whether the portion
which they use will be taken in one
form or in another. It is not until the
circumstances of the markets, and the
itate of the mercantile mind, render
many persons desirous of stretching
their credit to an unusual extent, that
the distinctive properties of the dif-
ferent forms of credit display them-
selves. Credit already stretched to
the utmost in the form of book debts,
would be susceptible of a great addi-
tional extension by means of bills, and
of a still greater by means of bank
notes. The first, because each dealer,
in addition to his own credit, would be
enabled to create a further purchasing
power out of the credit which he had
himself given to others : the second,
because the banker's credit with the
public at large, coined into notes, as
bullion is coined into pieces of money
to make it portable and divisible, is so
much purchasing power supcradded,
in the hands of every successive holder,
to that which he may derive from his
own credit. To state the matter other-
wise ; one single exertion of the credit-
power in the form of book credit, is
only the foundation of a single pur-
chase : but if a bill is drawn, that
same portion of credit may serve for
as many purchases as the number of
times the bill changes hands : while
every bank note issued, renders the
credit of the banker a purchasing
power to that amount in the hands of
all the successive holders, without im-
pairing any power they may possess of
effecting purchases on their own credit.
Credit, in short, has exactly the same
purchasing power with money ; and as
money tells upon prices not simply in
proportion to its amount, but to its
amount multiplied by the number of
times it changes hands, so also does

credit ; and credit transferable from
hand to hand is in that proportion
more potent than credit which only
performs one purchase.

§ 5. All this purchasing power, how-
ever, is operative upon prices, only
according to the proportion of it which
is used : and the effect, therefore, is
only felt in a state of circumstances
calculated to lead to an unusually ex-
tended use of credit. In such a state
of circumstances, that is, in speculative
times, it cannot, I think, be denied,
that prices arc likely to rise higher if
the speculative purchases are made
with bank notes, than when they are
made with bills, and when made by
bills than when made by book credits.
This, however, is of far less practical
importance than might at first be
imagined ; because, in point of fact,
speculative purchases are not in tho
great majority of cases, made either
with bank notes or with bills, but
are made almost exclusively on book
credits. "Applications to the Bank for
extended discount," says the highest
authority on such subjects, * (and the
same thing must be true of applications
to other banks) " occur rarely if ever
in the origin or progress of extensive
speculations in commodities. These are
entered into, for the most part if not
entirely, in the first instance, on credit
for the length of term usual in the
several trades ; thus entailing on the
parties no immediate necessity for bor-
rowing so much as may be wanted for
the purpose beyond their own available
capital. This applies particularly to
speculative purchases of commodities
on the spot, with a view to resale. But
these generally form the smaller pro-
portion of engagements on credit. By
far the largest of those entered into on
the prospect of a rise of prices, are
such as have in view importations from
abroad. The same remark, too, is ap-
plicable to the export of commodities,
when a large proportion is on the credit
of the shippers or their consignees. As
long as circumstances hold out the
prospect of a favourable result, the

* Tooke's History of Pricet, voL iv. pp.
125—6.

INFLUENCE OF CREDIT ON PRICES.

323

credit of the parties is generally sus-
tained. If some of them wish to realize,
there are others with capital and credit
re:,-dy to replace them ; and if the events
fully justify the grounds on which the
speculative transactions were entered
into (thus admitting of sales for con-
sumption in time to replace the capital
embarked) there is no unusual demand
for borrowed capital to sustain them.
It is only when by the vicissitudes of
political events, or of the seasons, or
other adventitious circumstances, the
forthcoming supplies are found to ex-
ceed the computed rate of consumption,
and a fall of prices ensues, that an
increased demand for capital takes
place ; the market rate of interest
then rises, and increased applications
are made to the Bank of England for
discount." So that the multiplication
of bank notes and other transferable
paper does not, for the most part, ac-
company and facilitate the speculation ;
but comes into play chiefly when the
tide is turning, and difficulties begin to
be felt.

Of the extraordinary height to
which speculative transactions can be
carried upon mere book credits, without
the smallest addition to what is com-
monly called the currency, very few
persons are at all aware. " The power
of purchase," says Mr. Tooke,* "by
persons having capital and credit, is
much beyond anything that those who
an1 unacquainted practically with spe-
culative markets have any idea of. ...
A person having the reputation of
capital enough for his regular business,
and enjoying good credit in his trade,
if he takes a sanguine view of the
prospect of a rise of price of the article
in which he deals, and is favoured by
circumstances in the outset and pro-
gress of his speculation, may effect pur-
chases to an extent perfectly enormous,
compared with his capital." Mr.
Tooke confirms this statement by some
remarkable instances, exemplifying the
immense purchasing power which may
be exercised, and rise of price which
may be produced, by credit not repre-

* Inquiry into the Cumncy Principle, pp.
T» and 136—8.

sented by either bank notes or bills of
exchange.

" Amongst the earlier speculators
for an advance in the price of tea, in
consequence of o>:r dispute with China
in 1839, were several retail grocers and
tea-dealers. There was a general dis-
gosition among the trade to get into
stock : that is, to lay in at once a quan-
tity , which would meet the probable
demand from their customers for seve-
ral months to come. Some, however,
among them, more sanguine and ad-
venturous than the rest, availed them-
selves of their credit with the importers
and wholesale dealers, for purchasing

Quantities much beyond the estimated
emand in their own business. As the
purchases were made in the first instance
ostensibly, and perhaps really, for the
legitimate purposes and within the
limits of their regular business, the
parties were enabled to buy without
the condition of any deposit ; whereas
speculators, known to be such, are
required to pay 21. per chest, to cover
any probable difference of price which
might arise before the expiration of the
prompt, which, for this article, is three
months. Without, therefore, the outlay
of a single farthing of actual capital or
currency in any shape, they made pur-
chases to a considerable extent; and
with the profit realized on the resale of
a part of these purchases, they were
enabled to pay the deposit on further
quantities when required, as was the
case when the extent of the purchases
attracted attention. In this way, the
speculation went on at advancing
prices (100 per cent and upwards) till
nearly the expiration of the prompt,
and if at that time circumstances had
been such as to justify the appre-
hension which at one time prevailed,
that all future supplies would be cut
off, the prices might have still further
advanced, and at any rate not have
retrograded. In this case, the specu-
lators might have realized, if not all
the profit they had anticipated, a very
handsome sum, upon which they might
have been enabled to extend their
business greatly, or to retire from it
altogether, with a reputation for great
sagacity in thn making their fortune
Y 2

324

I Jut, instead of this favourable result, it
.«<> happened that two or three cargoes
of tea which had been transhipped
were admitted, contrary to expectation,
to entry on their arrival here, and it
was found that further indirect ship-
ments were in progress. Thus the
r.ipply was increased beyond the cal-
culation of the speculators : and at the
same time, the consumption had been
diminished by the high price. There
was, consequently, a violent reaction
on the market ; the speculators were
unable to sell without such a sacrifice
as disabled them from fulfilling their
engagements, and several of them con-
sequently failed. Among these, one
was mentioned, who having a capital
not exceeding 1200Z., which was locked
up in his business, had contrived to
buy 4000 chests, value above 80,OOOZ.,
the loss upon which was about 1G,OOOZ.

" The other example which I have to
give, is that of the operation on the
corn market between 1838 and 1842.
There was an instance of a person who,
when he entered on his extensive spe-
culations, was, as it appeared by the
subsequent examination of his affairs,
possessed of a capital not exceeding
5000Z., but being successful in the out-
set, and favoured by circumstances in
the progress of his operations, he con-
trived to make purchases to such an
extent, that when he stopped payment
his engagements were found to amount
to between 500.000Z. and 600,OOOZ.
Other instances might be cited of
parties without any capital at all, who,
liy dint of mere credit, were enabled,
while the aspect of the market favoured
their views, to make purchases to a
very great extent.

"And be it observed, that these
speculations, involving enormous pur-
chases on little or no capital, were
carried on in 1839 and 1840, when the
money market was in its most con-
tracted state ; or when, according to
modern phraseology, there was the
greatest scarcity of money."

But though the great instrument of
{speculative purchases is book credits, it
cannot be contested that in speculative
periods an increase does take place in
the quantity both of bills of exchange

BOOK III. CHAPTER Xll. § 5,

and of bank notes. This increase, iu-
deed, so far as bank notes are concerned,
hardly ever takes place in the earliest
stage of the speculations ; advances
from bankers (as Mr. Tooke observes)
not being applied for in order to pur-
chase, but in order to hold on without
selling, when the usual term of credit
has expired, and the high price which
was calculated on has not arrived. But
the tea speculators mentioned by Mr.
Tooke could not have carried their
speculations beyond the three months
which are the usual term of credit in
their trade, unless they had been able
to obtain advances from bankers, which,
if the expectation of a rise of price had
still continued, they probably could
have done.

Since, then, credit in the form of
bank notes is a more potent instrument
for raising prices than book credits, au
unrestrained power of resorting to this
instrument may contribute to prolong
and heighten the speculative rise jf
prices, and hence to aggravate the sub-
sequent recoil. But in what degree ?
and what importance ought we to
ascribe to this possibility ? It may help
us to form some judgment on this point,
if we consider the proportion which the
utmost increase of bank notes in a
period of speculation, bears, I do not
say to the whole mass of credit in the
country, but to the bills of exchange
alone. The average amount of bills in
existence at any one time is supposed
greatly to exceed a hundred millions
sterling.* The bank note circulation
of Great Britain and Ireland seldom
exceeds forty millions, and the increase
in speculative periods at most two or
three. And even this, as we have seen,
hardly ever comes into play until that
advanced period of the speculation at
which the tide shows signs of turning,
and the dealers generally are rather
thinking of the means of fulfilling their
existing engagements, than meditating
an extension of them : while the quan-
tity of bills in existence is largely in-
creased from the very commencement
of the speculations.

§ 6. It is well known that of late
* The most approved estimate is that of

INFLUENCE OF Cl.'EDIT ON P1UCES.

325

years, an artificial limitation of the
issue of bank notes has been regarded
by many political economists, and by a
pv.-u portion of the public, as an ex-
ni'ilinit of supreme efficacy for prevent-
in _;-. and when it cannot prevent, for
in.', Crating, the fever of speculation ;
and this opinion received the recog-
nition and sanction of the legislature
by the Currency Act of 1844. At the
point, however, which our inquiries
have reached, though we have con-
ceded to bank notes a greater power
over prices than is possessed by bills or
book credits, we have not found reason
to think that this superior efficacy has
much share in producing the rise of
prices which accompanies a period of
speculation, nor consequently that any
restraint applied to this one instru-
ment, can be efficacious to the degree
which is often supposed, in moderating
either that rise, or the recoil which
follows it. We shall be still less in-
clined to think so, when we consider
that there is a fourth form of credit

Mr. Leatham, grounded on the official
returns of bill stamps issued. The following
are the results : —

Bills created in

Great Britain

and Ireland,

Average amount

Year.

founded on re-

in circulation

turns of Bill

at one time in

Stamps issued

each year.

from the Stamp

Office.

im

£356,153,409

^89,033,352

1833

383,659,585

95,914,896

1834

379,155,052

94,788,763

IS* 35

405,403,051

101,350,762

l-.'.'i

485,943,473

121,185,868

1837

455,084,445

113,771,111

1833

465,504,041

116,376,010

1839

528,493,842

132,123,460

" Mr. Leatham," says Mr. Tooke, " gives
.he process by which, upon the data fur-
nished by the returns of stamps, he arrives
at these results; and I am disposed to think
that they are as near an approximation to
the truth as the nature of the materials ad-
mits of arriving at." — Inquiry into the Cur-
rency Principle, p. 26. Mr. Newmarch (Ap-
pendix No. 39 to Report of the Committee on
the Sank Acts in 1857, and History of Prices,
vol. vi. p. 587) shows grounds for the opinion
that the total bill circulation in 1857 was
not much less than 180 millions sterling, and
that it sometimes rises to 200 millions.

transactions, by cheques on bankers,
and transfers in a banker's books, which
is exactly parallel in every respect to
bank notes, giving equal facilitii-s ;.;
an extension of credit, and capable of
acting on prices quite as posverfully.
In the words of Mr. Fullarton,* " there
is not a single object at present at-
tained through the agency of Bank of
England notes, which might not be as
effectually accomplished by each indi-
vidual keeping an account with thu
bank, and transacting all his payments
of five pounds and upwards by cheque."
A bank, instead of lending its notes lo
a merchant or dealer, might open an
account with him, and credit the ac-
count with the sum it had agreed to
advance : on an understanding that he
should not draw out that sum in any
other mode than by drawing cheques
against it in favour of those to whom
he had occasion to make payments.
These cheques might possibly even
pass from hand to hand like bank
notes ; more commonly however the
receiver would pay them into the
hands of his own banker, and when he
wanted the money, would draw a fresh
cheque against it: and hence an ob-
jector may urge that as the original
cheque would very soon be presented
for payment, when it must be paid
either in notes or in coin, notes or coin
to an equal amount must be provided
as the ultimate means of liquidation.
It is not so, however. The person to
•whom the cheque is transferred, may
perhaps deal with the same banker,
and the cheque may return to the very
bank on which it was drawn : this is
very often the case in country districts ;
if so, no payment will be called for, but
a simple transfer in the banker's books
will settle the transaction. If the
cheque is paid into a different bank, it
will not be presented for payment,
but liquidated by set-off against other
cheques ; and in a state of circum-
stances favourable to a general exten-
sion of banking credits, a banker who
has granted more credit, and has there-
fore more cheques drawn on him, will
also have more cheques on other
bankers paid to him, and will only have
* On the Regulation of Currencies, p. 41.

326

BOOK in. CHAPTER XII. § 7.

to provide notes or cash for the pay-
ment of balances ; for which purpose
the ordinary reserve of prudent bankers,
one-third of their liabilities, will abun-
dantly suffice. Now, if he had granted
the extension of credit by means of an
issue of his own notes, he must equally
have retained, in coin or Bank of
England notes, the usual reserve : so
that he can, as Mr. Fullarton says, give
every facility of credit by what may be
termed a cheque circulation, which he
could give by a note circulation.

This extension of credit by entries in
a banker's books, has all that superior
efficiency in acting on prices, which we
ascribed to an extension by means of
bank notes. As a bank note of 20Z.,
paid to any one, gives him 201. of pur-
chasing-power based on credit, over
and above whatever credit he had of
his own, so does a cheque paid to him
do the same : for, although he may
make no purchase with the cheque
itself, he deposits it with his banker,
and can draw against it. As this act
of drawing a cheque against another
which has been exchanged and can-
celled, can be repeated as often as a
purchase with a bank note, it effects
ihe same increase of purchasing power.
The original loan, or credit, given by
the banker to his customer, is po-
tentially multiplied as a means of pur-
chase, in the hands of the successive
persons to whom portions of the credit
are paid away, just as the purchasing
power of a bank note is multiplied by
the number of persons through whose
hands it passes before it is returned to
the issuer.

These considerations abate very
much from the importance of any
effect which can be produced in allay-
ing the vicissitudes of commerce, by
so superficial a contrivance as the one
so much relied on of late, the restric-
tion of the issue of bank notes by an
artificial rule. An examination of all
the consequences of that restriction,
and an estimate of the reasons for and
against it, must be deferred until we
have treated of the foreign exchanges,
and the international movements of
bullion. At present we are only con-
cerned with the general theory of

prices, of which the different influence

of different kinds of credit is an essen-
tial part.

§ 7. There has been a great amount
of discussion and argument on the ques-
tion whether several of these forms of
credit, and in particular whether bank
notes, ought to be considered as money.
The question is so purely verbal as to
be scarcely worth raising, and one
would have some difficulty in compre-
hending why BO much importance is
attached to it, if there were not some
authorities who, still adhering to the
doctrine of the infancy of society and
of political economy, that the quantity
of money, compared with that of com-
modities, determines general prices,
think it important to prove that bank
notes and no other forms of credit are
money, in order to support the infer-
ence that bank notes and no other forms
of credit influence prices. It is obvious,
however, that prices do not depend on
money, but on purchases. Money left
with a banker, and not drawn against,
or drawn against for other purposes
than buying commodities, has no effect
on prices, any more than credit which
is not used. Credit which is used to
purchase commodities, affects prices in
the same manner as money. Money
and credit are thus exactly on a par,
in their effect on prices ; and whether
we choose to class bank notes with the
one or the other, is in this respect en-
tirely immaterial.

Since, however, this question ol
nomenclature has been raised, it seems
desirable that it should be answered.
The reason given for considering bank
notes as money, is, that by law and
usage they have the property, in com-
mon with metallic money, of finally
closing the transactions in which they
are employed : while no other mode
of paying .one debt by transferring
another has that privilege. The first
remark which here suggests itself is,
that on this showing, the notes at
least of private banks are not money ;
for a creditor cannot be forced to accept
them in payment of a debt. They cer-
tainly close the transaction if he does
accept them ; but so, on the same sup-

HXCE OF CREDIT ON PKICES

327

position, would a bale of cloth, or a
pipu of wine ; which are not for that
ivason regarded as money. It seems
to be an essential part of the idea of
money, that it be legal tender. An in-
convertible paper which is legal tender
is universally admitted to be money ;
in the French language the phrase
papier-monnaie actually means incon-
vertibility, convertible notes being
merely billets d porteur. It is only in
the case of Bank of England notes under
the law of convertibility, that any diffi-
culty arises ; those notes not being a
logU tender from the Bank itself,
though a legal tender from all other
persons. Bank of England notes un-
doubtedly do close transactions, so far
as respects the buyer. 'When he has
once paid in Bank of England notes,
he can in no case be required to pay
over again. But I confess I cannot
see how the transaction can be deemed
complete as regards the seller, when
lie will only be found to have received
the price of his commodity provided
the bank keeps its promise to pay. An
instrument which would be deprived
of all value by the insolvency of a cor-
poration, cannot be money in any
sense in which money is opposed to
credit. It either is not money, or it
is money and credit too. It may be
most suitably described as coined cre-
dit. The other forms of credit may
be distinguished from it as credit in
ingots.

§ 8. Some high authorities have
claimed for bank notes, as compared
with other modes of credit, a greater
distinction in respect to influence on
price than we have seen reason to allow ;
a difference, not in degree, but in kind.
They ground this distinction on the
fact, that all bills and cheques, as well
as all book-debts, are from the first in-
tended to be, and actually are, ulti-
mately liquidated either in coin or in
notes. The bank notes in circulation,
jointly with the coin, are therefore,
according to these authorities, the
basis on which all the other expedients
of credit rest ; and in proportion to
the basis will be the superstructure ;
insomuch that the quantity of bank

notes determines that of all the other
forms of credit. If bank notes are
multiplied, there will, they sei
think, be more bills, more payments
by cheque, and, i presume, more
book credits ; and, by regulating and
limiting the insue of bank notes, they
think that all other forms of credit are,
by an indirect consequence, brought
under a similar limitation. I believe
I have stated the opinion of these
authorities correctly, though I have
nowhere seen the grounds of it set
forth with such distinctness as to mako
me feel quite certain that I understand
them. It may be true, that according
as there are more or fewer bank notes,
there is also, in general (though not
invariably), more or less of other de-
scriptions of credit ; for the same state
of affairs which leads to an increase of
credit in one shape, leads to an increase
of it in other shapes. But I see no
reason for believing that the one is the
cause of the other. If indeed we begin
by assuming, as I suspect is tacitly
done, that prices are regulated by c -in
and bank notes, the proposition main-
tained will certainly follow : for, accord-
ing as prices are higher or lower, the
same purchases will give rise to bills,
cheques, and book credits of a larger
or a smaller amount. But the premise
in this reasoning is the very proposi-
tion to be proved. Setting this assump-
tion aside, I know not how the conclu-
sion can be substantiated. The credit
given to any one by those with whom
he deals, does not depend on the quan-
tity of bank notes or coin in circulation
at the time, but on their opinion of hia
solvency : if any consideration of a more
general character enters into their cal-
culation, it is only in a time of pressure
on the loan market, when they are not
certain of being themselves able to ob-
tain the credit on which they have been
accustomed to rely ; and even then,
what they look to is the general state
of the loan market, and not (precon-
ceived theory apart) the amount of
bank notes. So far, as to the willing-
ness to give credit. And the willing-
ness of a dealer to use his credit, de-
pends on his expectations of gain, that
is, on his opinion of the probable future

328

COOK III. CHAPTER XIII. § 1.

price of bis commodity ; an opinion
grounded either on the rise or fall
already going on, or on his prospective
judgment respecting the supply and Ihe
rate of consumption. "When a dealer
extends his purchases beyond his im-
mediate means of payment, engaging
to pay at a specified time, he does so
in the expectation cither that the trans-
action will have terminated favourably
before that time arrives, or that he
shall then be in possession of sufficient
funds from the proceeds of his other
transactions. The fulfilment of these
expectations depends upon prices, but
not specially upon the amount of bank
notes. He may, doubtless, also ask him-
self, in case he should be disappointed
in these expectations, to what quarter
he can look for a temporary advance,
to enable him, at the worst, to keep
his engagements. But in the first
place, this prospective reflection on the
somewhat more or less of difficulty
which he may have in tiding over his
embarrassments, seems too slender an

inducement to be much of a restraint
in a period supposed to be one of rash ad-
venture, and upon persons so confident
of success as to involve themselves be-
yond their certain means of extrication.
And further, I apprehend that their con-
fidence of being helped out in the event
of iFI-fortune, will mainly depend on
their opinion of their own individual
credit, with, perhaps, some considera-
tion, not of the quantity of the currency,
but of the general state of the loan
market. They are aware that, in case
of a commercial crisis, they shall have
difficulty in obtaining advances. But
if they thought it likely that a com-
mercial crisis would occur before they
had realized, they would not speculate.
If no great contraction of general cre-
dit occurs, they will feel no doubt of
obtaining any advances which they
absolutely require, provided the state
of their own affairs at the time affords
in the estimation of lenders a sufficient
prospect that those advances will be
repaid.

CHAPTER XIII.

OF AN INCONVERTIBLE PAPER CURRENCY.

§ 1. AFTER experience had shown
that pieces of paper, of no intrinsic
value, by merely bearing upon them
the written profession of being equiva-
lent to a certain number of francs, dol-
lars, or pounds, could be made to circu-
late as such, and to produce all the
benefit to the issuers which could have
been produced by the coins which they
purported to represent; governments
began to think that it would be a happy
device if they could appropriate to them-
selves this benefit, free from the con-
dition to which individuals issuing such
paper substitutes for money were sub-
ject, of giving, when required, for the
sign, the thing signified. They deter-
mined to try whether they could not
emancipate themselves from this un-
pleasant obligation, and make a piece
of paper issued by them pass for a
pound, by merely calling it a pound,

and consenting to receive it in payment
of the taxes. And such is the influence
of almost all established governments,
that they have generally succeeded in
attaining this object : I believe 1 might
say they have always succeeded for a
time, and the power has only been lost
to them after they had compromised it
by the most flagrant abuse.

In the case supposed, the functions
of money are performed by a thing
which derives its power of performing
them solely from convention ; but con-
vention is quite sufficient to confer the
power ; since nothing more is needful
to make a person accept anything as
money, and even at any arbitrary value,
than the persuasion that it will bo
taken from him on the same terms by
others. The only question is, what de-
termines the value of such a currency ;
since it cannot be, as in the case of gclcj

INCONVERTIBLE PAPER CURRENCY.

329

and silver (or paper exchangeable for
them at pleasure), the cost of produc-
tion.

We have seen, however, that even in
the case of a metallic currency, the im-
mediate agency in determining its value
is its quantity. If the quantity, in-
stead of depending on the ordinary mer-
cantile motives ot profit and loss, could
Le arbitrarily fixed by authority, the
value would depend on the fiat of that
authority, not on cost of production.
The quantity of a paper currency not
convertible into the metals at the option
of the holder, can be arbitrarily fixed ;
especially if the issuer is the sovereign
power of the state. The value, there-
fore, of such a currency, is entirely
arbitrary.

Suppose that, in a country of which
the currency is wholly metallic, a paper
currency is suddenly issued, to the
amount of half the metallic circulation :
not by a banking establishment, or in
the form of loans, but by the govern-
ment, in payment of salaries and pur-
chase of commodities. The currency
being suddenly increased by one-half,
all prices will rise, and among the
rest, the prices of all things made of
gold and silver. An ounce of manu-
factured gold will become more valu-
able than an ounce of gold coin, by
more than that customary difference
which compensates for the value of the
workmanship ; and it will be profitable
to melt the coin for the purpose of
being manufactured, until as much has
been taken from the currency by the
subtraction of gold, as had been added
to it by the issue of paper. Then prices
.will relapse to what they were at first,
and there will be nothing changed ex-
cept that a paper currency has been
substituted for half of the metallic cur-
rency which existed before. Suppose,
now, a second emission of paper ; the
game series of effects will be renewed ;
and so on, until the whole of the me-
tallic money has disappeared : that is,
if paper be issued of as low a denomi-
nation as the lowest coin ; if not, as
much will remain, as convenience re-
quires for the smaller payments. The
audition made to the quantity of gold
and silver disposable for ornamental

purposes, will somewhat reduce, for a
time, the value of the article ; and as
long as this is the case, even though
paper lias been issued to the original
amount of the metallic circulation, as
much coin will remain in circulation
along .with it, as will keep the value of
the currency down to the reduced value
of the metallic material ; but the value
having fallen below the cost of produc-
tion, a stoppage or diminution of the
supply from the mines will enable the
surplus to be carried off by the ordinary
agents of destruction, alter which, the
metals and the currency will recover
their natural value. We are here sup-
posing, as we have supposed through-
out, that the country has mines of its
own, and no commercial intercourse
with other countries: for, in a country
having foreign trade, the coin which is
rendered superfluous by an issue of
paper is carried off by a much prompter
method.

Up to this point, the effects of a
paper currency are substantially the
same, whether it is convertible into
specie or not. It is when the metals
have been completely superseded and
driven from circulation, that the diffe-
rence between convertible and incon-
vertible paper begins to be operative.
When the gold or silver has all gone
from circulation, and an equal quantity
of paper has taken its place, suppose
that a still further issue is superadded.
The same series of phenomena recom-
mences : prices rise, among the rest
the prices of gold and silver articles,
and it becomes an object as before to
procure coin in order to convert it into
bullion. There is no longer any coin
in circulation ; but if the paper cur-
rency is convertible, coin may still be
obtained from the issuers, in exchange
for notes. All additional notes, there-
fore, which are attempted to be forced
into circulation after the metals have
been completely superseded, will return
upon the issuers in exchange for coin ;
and they will not be able to maintain
in circulation such a quantity of con-
vertible paper, as to sink its value below
the metal which it represents. It is
not so, however, with an inconvertible
currency. To the increase of that (as

BOOK III. CHAPTER XIII. § 2.

permitted by law) there is no check.
The issuers may add to it indefinitely,
lowering its value and r;ii.-ing prices in
proportion ; they may, in other words,
depreciate the currency without limit.
Such a power, in whomsoever vc-t' d,
is an intolerable evil. All variations
in the value of the circulating medium
are mischievous : they disturb existing
contracts and expectations, and tho
liability to such changes renders every
pecuniary engagement of long date
entirely precarious. The person who
buys for himself, or gives to another,
nn annuity of lOOi., does not know
whether it will be equivalent to 200Z.
or to 501. a few years hence. Great
as ';this evil would be if it depended
only on accident, it is still greater
when placed at the arbitrary disposal
of an individual or a body of indi-
viduals; who may have any kind or
degree of interest to be served by an
artificial fluctuation in fortunes; and
who have at any rate a strong interest
in issuing as much as possible, each
issue being in itself a source of profit.
Not to add, that the issuers may have,
and in the case of a government paper
always have, a direct interest in lower-
ing tho value of the currency, because
it is the medium in which their own
debts are computed.

§ 2. In order that the value of the
currency may be secure from being
altered by design, and may be as little
as possible liable to fluctuation from
accident, the articles least liable of all
known commodities to vary in their
value, the precious metals, have been
made in all civilized countries the
standard of value for the circulating
medium ; and no paper currency ought
to exist of which the value cannot be
made to conform to theirs. Nor has
this fundamental maxim ever been en-
tirely lost sight of even by the govern-
ments which have most abused the
tiower of creating inconvertible paper,
f they have not (as they generally
have) professed an intention of paying
in specie at some indefinite future time,
i.!;ey have at least, by giving to their
paper issues the names of their coins,
Uiade a virtual, though generally a

false, profession of intending to keep
them at a value corresponding to that
of the coins. This is not impracticable,
even with an inconvertible paper.
There is not indeed the self-acting
check which convertibility brings with
it. But there is a clear and unequi-
vocal indication by which to judge
whether the currency is depreciated,
and to what extent. That indication
is, the price of the precious metals.
When holders of paper canm.t demand
coin to be converted into bullion, and
when there is none left in circulation,
bullion rises and falls in price like other
things ; and if it is above the Mint
price, if an ounce of gold, which would
be coined into the equivalent oi
3Z. 175. IQ^d., is sold for 4l. or 51. in
paper, the value of the currency has
sunk just that much below what the
value of a metallic currency would be.
If, therefore, the issue of inconvertible
paper were subjected to strict rules,
one rule being that whenever bullion
rose above the Mint price, the issues
should be contracted until the market
price of bullion and the Mint price were
again in accordance, such a currency
would not be subject to any of the evils
usually deemed inherent in an incon-
vertible paper.

But also such a system of currency
would have no advantages sufficient to
recommend it to adoption. An incon-
vertible currency, regulated by tho
price of bullion, would conform exactly,
in all i(.3 variations, to a convertible
one ; and the only advantage gained,
would be that of exemption from the
necessity of keeping any reserve of the
precious metals ; which is not avuy
important consideration, especially as
a government, so long as its good faith
is not suspected, needs not keep so
large a reserve as private issuers, being
not so liable to great and sudden de-
mands, since there never can be any
real doubt of its solvency. Again -t
this small advantage is to be set, in the
first place, the possibility of fraudulent
tampering with the price of bullion for
the sake of acting on the currency ; in
the manner of the fictitious sales of
corn, to influence the averages, so
much and so justly complained of while

INCONVERTIBLE PAPER CURRENCY.

331

tl/e com laws were in force. But a
still stronger consideration is the im-

i of adhering to a simple prin-
ciple, intelligible to the most untaught
capacity. Everybody can understand
convertibility; every one sees that
wiiat can be at any moment exchanged
for five pounds, is worth five pounds.
Regulation by the price of bullion is
a more complex idea, and does -not re-

1 itself through the same fa-
miliar associations. There would be
nothing like the same confidence, l>y
the public generally, in an inconver-
tible currency so regulated, as in a con-
vertible one : and the most instructed
person might reasonably doubt wL -thcr
i IK h a rale would be as likely to be in-
ik-xibly adhered to. The grounds of
the rule not being so well understood
hy the public, opinion would probably
not enforce it with as much rigidity,
and, in any circumstances of difficulty,
would he likely to turn against it,
while to the government itself a sus-
pension of convertibility would appear
a much stronger and more extreme
measure, than a relaxation of what
might possibly be considered a some-
what artificial rule. There is therefore
a great preponderance of reasons in
favour of a convertible, in preference to
even the best regulated inconvertible
currency. The temptation to over-
issue, in certain financial emergencies,
is so strong, that nothing is admissible
which can tend, in however slight a
degree, to weaken the barriers that
restrain it.

§ 3. Although no doctrine in poli-
tical economy rests on more obvious
grounds than the mischief of a paper
currency not maintained at the same
value with a metallic, either by con-
vertibility, or by some principle of limi-
tation equivalent to it ; and although,
accordingly, this doctrine has, though
not till after the discussions of many
years, been tolerably effectually
drummed into the public mind ; yet
!onts are still numerous, and
projectors every now and then start
up, with plans for curing all the econo-
vils of society by means of an
unlimited hsne of inconvertible paper.

There is, in truth, a great charm in the
idea. To be able to pay off the na-
tional debt, defray the expenses of go-
vernment without taxation, and in fine,
to make the fortunes of the whole com-
munity, is a brilliant prospect, when
once a man is capable of believing that
printing a few characters on bits of
paper will do it. The philosopher's
stone could not be expected to do
more.

As these projects, however often
slain, always resuscitate, it is not su-
perfluous to examine one or two of the
fallacies by which the schemers impose
upon themselves. One, of the com-
monest is, that a paper currency can-
not be issued in excess so long as every
note issued represents property, or has
a foundation of actual property to
rest on. These phrases, of represent-
ing and resting, seldom convey any
distinct or well-defined idea : when
they do, their meaning is no more than
this — that the issuers of the paper
must Jiave property, either of their
own or entrusted to them, to the value
of all the notes they issue; though
for what purpose does not very clearly
appear ; lor if the property cannot be
claimed in exchange for the notes, it is
difficult to divine in what manner its
mere existence can serve to uphold
their value. I presume, however, it is
intended as a guarantee that the
holders would be finally reimbursed, in
case any untoward event should cause
the whole concern to be wound up. On
this theory there have been many
schemes for " coining the whole land of
the country into money" and the like.

In so far as this notion has any con-
nexion at all with reason, it seems to
originate in confounding two entirely
distinct evils, to which a paper cur-
rency is liable. One is, the insolvency
of the issuers ; which, if the paper is
grounded on their credit — if it makes
any promise of payment in cash, either
on demand or at any future time — of
course deprives the paper of any value
which it derives from tue promise. To
this evil paper credit is equally liable,
however moderately used ; and against
it, a proviso that all issues should be
" founded on property," as for instance

532

BOOK III. CHAPTER XIII. § 4.

that notes should only be issued on the
Mvurity of some valuable thing ex-
pressly pledged for their redemption,
would really be efficacious as a pre-
caution, liut the theory takes no ac-
count of another evil, which is incident
to the notes of the most solvent firm,
company, or government : that of being
depreciated in value from being issued
in excessive quantity. The assignats,
during the French Revolution, were an
example of a currency grounded on
tl ese principles. The assignats " re-
presented'' an immense amount of
highly valuable property, namely the
lands of the crown, the church, the
monasteries, and the emigrants ;
amounting possibly to half the terri-
tory of France. They were, in fact,
orders or assignments on this mass of
land. The revolutionary government
had the idea of " coining" these lands
into money; but, to do them justice,
they did not originally contemplate the
immense multiplication of issues to
which they were eventually driven by
the failure of all other financial re-
sources. They imagined that the as-
signats would come rapidly back to the
issuers in exchange for land, and that
they should be able to reissue them
continually until the lands were all
disposed of, without having at any
time more than a very moderate quan-
tity in circulation. Their hope was
frustrated: the land did not sell so
quickly as they expected ; buyers were
not inclined to invest their money in
possessions which were likely to be re-
sumed without compensation if the
Revolution succumbed : the bits of
paper which represented land, becom-
ing prodigiously multiplied, could no
more keep up their value than the
land itself would have done if it had
all been brought to market at once :
and the result was that it at last re-
quired an assignat of six hundred
francs to pay for a pound of butter.

The example of the assignats has
been said not to be conclusive, because
an assignat only represented laud in
general, but not a definite quantity of
land. To have prevented their depre-
ciation, the proper course, it is affirmed,
would have been to have made a valua*

tion of all the confiscated property at
its metallic value, and to have issued
assignats up to, but not beyond, that
limit ; giving to the holders a right tc
demand any piece of land, at its re-
gistered valuation, in exchange for
assignats to the same amount. There
can be no question about the superiority
of this plan over the one actually
adopted. Had this course been fol-
lowed, the assignats could never have
been depreciated to the inordinate de-
gree they were ; for — as they would have
retained all their purchasing power in
relation to land, however much they
might have fallen in respect to other
things — before they had lost very much
of their market value, they would pro-
bably have been brought in to be ex-
changed for land. It must be remem-
bered, however, that their not being
depreciated would presuppose that no
greater number of them continued in
circulation than would have circulated
if they had been convertible into cash.
However convenient, therefore, in a
time of revolution, this currency con-
vertible into land on demand might
have been, as a contrivance for selling
rapidly a great quantity of laud with
the least possible sacrifice ; it is diffi-
cult to see what advantage it would
have, as the permanent system of a
country, over a currency convertible
into coin : while it is not at all difficult
to see what would be its disadvantages ;
since land is far more variable in value
than gold and silver ; and besides, land,
to most persons, being rather an in-
cumbrance than a desirable possession,
except to be converted into money,
people would submit to a much .greater
depreciation before demanding land,
than they will before demanding gold
or silver.*

§ 4. Another of the fallacies from
which the advocates of an inconvertible

* Among the schemes of currency to which,
strange to say, intelligent writers have been
found to give their sanction, one is as fol-
lows: that the state should receive in pledge
or mortgage, any kind or amount of property,
such as land, stock, &c., and should advance
to the owners inconvertible paper money to
the estimated value. Such a currency would
net even have the recommendations of the

INCONVERTIBLE PAPER CtJBBENCY.

333

currency derive support, is the notion
lli. -it an increase of the currency
quickens industry. This idea was set
*float by Hume, in his Essay on
Money, and has had many devoted ad-
iercnts since ; witness the Birmingham
currency school, of whom Mr. Attwood
was at one time the most conspicuous
representative. Mr. Attwood main-
tained lhat a rise of prices produced by
an increase of paper currency, stimu-
lates every producer to his utmost ex-
ertions, and brings all the capital and
labour of the country into complete
employment : and that this has inva-
riably happened in all periods of rising
prices, when the rise was on a suffi-
ciently great scale. I presume, how-
ever, that the inducement which, ac-
cording to Mr. Attwood, excited this
unusual ardour in all persons engaged
in production, must have been the ex-
pectation of getting more of commo-
dities generally, more real wealth, in
exchange for the produce of their
labour, and not merely more pieces of
paper. This expectation, however,
must have been, by the very terms of
the supposition, disappointed, since, all
prices being supposed to rise equally,
no one was really better paid for his
goods than before. Those who agree
with Mr. Attwood could only succeed
in winning people on to these unwonted
exertions, by a prolongation of what
would in fact be a delusion ; contriving
matters so, that by a progressive rise
of money prices, every producer shall
always seem to be in the very act of
obtaining an increased remuneration
which he never, in reality, does obtain.
It is unnecessary to advert to any
other of the objections to this plan,
than that of its total impracticability.
It calculates on finding the whole world
persisting for ever in the belief that
more pieces of paper are more riches,
and never discovering that, with all
their paper, they cannot buy more of

Imaginary assignata supposed in the text;
since those into whose hands the notes were
paid by the persons who received them, could
not return them to the Government, and de-
mand in exchange land or stock which was
only pledged, not alienated. There would
be no reflux of such as.sipiats as those, and
their depreciation would be indefinite.

anything than they could before. No
siK-li mistake was made during any of
the periods of high prices, on the ex-
perience of which this school lays so
much stress. At the periods which
Mr. Attwood mistook for times of
prosperity, and which were simply (as
all periods of high prices, under a
convertible currency, must be) times
of speculation, the speculators did not
think they were growing rich because
the high prices would last, but because
they would not last, and because who-
ever contrived to realize while they did
last, would find himself, after the re-
coil, in possession of a greater number
of pounds sterling, without their hav-
ing become of less value. If, at the
close of the speculation, an issue of
paper had been made, sufficient to keep
prices up to the point which they at-
tained when at the highest, no one
would have been more disappointed
than the speculators ; since the gain
which they thought to have reaped by
realizing in time (at the expense of
their competitors, who bought when
they sold, and had to sell after the revul-
sion) would have faded away in their
hands, and instead of it they would
have got nothing except a few more
paper tickets to count by.

Hume's version of the doctrine dif-
fered in a slight degree from Mr.
Attwood's. He thought that all com-
modities would not rise in price simul-
taneously, and that some persons
therefore would obtain a real gain, by
gettir.g more money for what they had
to sell, while the things which they
wished to buy might not yet have
risen. And those who would reap this
gain wonld always be (he seems to
think) the first comers. It seems
obvious, however, that for every person
who thus gains more than usual, there
is necessarily some other person who
gains less. The loser, if things took
place as Hume supposes, would be the
seller of the commodities which are
slowest to rise ; who, by the supposi-
tion, parts with his goods at the old
prices, to purchasers who have already
benefited by the new. This seller has
obtained for his commodity only the
accustomed quantity of money, while

334

there are already some things of which
that money will no longer purchase as
much as before. If, therefore, he
knows what is going on, he will raise
his price, and then the buyer will not
have the gain, which is supposed to
stimulate his industry. But if, on the
contrary, the seller does not know the
state of the case, and only discovers it
when he finds, in laying his money out,
that it does not go so far, he then ob-
tains less than the ordinary remunera-
tion for his labour and capital ; and if
the other dealer's industry is encou-
raged, it should seem that his' must,
from the opposite cause, be inpaired.

§ 5. There is no way in which a
general and permanent rise of prices,
or in other words, depreciation of money,
can benefit anybody, except at the ex-
pense of somebody else. The substitu-
tion of paper for metallic currency is
a national gain : any further increase
of paper beyond this is but a form of
robbery.

An issue of notes is a manifest gain
to the issuers, who, until the notes are
returned for payment, obtain the use of
them as if they were a real capital :
and so long as the notes are no perma-
nent addition to the currency, but
merely supersede gold or silver to the
same amount, the gain of the issuer is
a loss to no one : it is obtained by
saving to the community the expense
of the more costly material. But if
there is no gold or silver to be super-
seded— if the notes are added to the
currency, instead of being substituted
for the metallic part of it — all holders
of currency lose, by the depreciation of
its value, the exact equivalent of what
the issuer gains. A tax is virtually
levied on them for his benefit. It will
Ve objected by some, that gains are
also made by the producers and dealers
who, by means of the increased issue,
are accommodated with loans. Theirs,
however, is not an additional gain, but
a portion of that which is reaped by the
issuer at the expense of all possessors
of money. The profits arising from the
contribution levied upon the public, he
does not keep to himself, but divides
with his cust oners.

BOOK III. CHAPTER XIII. § 6.

But besides the benefit reaped by
the issuers, or by others through them
at the expense of the public generally,
there is another unjust gain obtained
by a larger class, namely by those who
are under fixed pecuniary obligations.
All such persons are freed, by a depre-
ciation of the currency, from a portion
of the burthen of their debts or other
engagements : in other words, part of
the property of their creditors is gra-
tuitously transferred to them. On a
superficial view it may be imagined
that this is an advantage to industry ;
since the productive classes are great
borrowers, and generally owe larger
debts to the unproductive (if we include
among the latter all persons not actually
in business) than the unproductive
classes owe to them ; especially if the
national debt be included. It is only
thus that a general rise of prices can
be a source of benefit to producers and
dealers ; by diminishing the pressure
of their fixed burthens. And this might
be accounted an advantage, if integrity
and good faith were of no importance
to the world, and to industry and com-
merce in particular. Not many, how-
ever, have been found to say that the
currency ought to be depreciated on the
simple ground of its being desirable to
rob the national creditor and private cre-
ditors of a part of what is in their bond.
The schemes which have tended that
way have almost always had some ap-
pearance of special and circumstantial
justification, such as the necessity of
compensating for a prior injustice com-
mitted in the contrary direction.

• § 6. Thus in England, for many
years subsequent to 1819, it was perti-
naciously contended, that a large portion ;
of the national debt, and a multitude
of private debts still in existence, wero
contracted between 1797 and 1819,
when the Bank of England was ex-
empted from giving cash for its notes ,
and that it is grossly unjust to bor-
rowers, (that is, in the case of the na-
tional debt, to all tax-payers) that they
should be paying interest on the sama
nominal sums in a currency of fu8,
value, which were borrowed in a depnv
ciated one. The depreciation, accord*

INCONVERTIBLE PAPEE CURRENCY.

335

ing to the views and objects of the par-
ticular writer, was represented to have
averaged thirty, fifty, or even more than
fi'iy ji'/r cent: and the conclusion was,
that cither we ought to return to this
:.ited currency, or to strike oft'
iioia the national debt, and from mort-
r other private debts of old stand-
ing, a percentage corresponding to the
estimated amount of the depreciation.

To this doctrine, the following was
(he answer usually made. Granting
that, by returning to cash payments
without lowering the standard, an in-
was done to debtors, in holding
them liable for the same amount of a
currency enhanced in value, which they
had boiTowed while it was depreciated ;
it is now too late to make reparation
for this injury. The debtors and cre-
ditors of to-day are not the debtors and
creditors of 1819: the lapse of years
has entirely altered the pecuniary rela-
tions of the community ; and it being
impossible now to ascertain the par-
ticular persons who were cither bene-
fited or injured, to attempt to retrace
our steps would be not redressing a
wrong, but suporadding a second act
of wide-spread injustice to the one al-
ready committed. This argument is
certainly conclusive on the practical
question ; but it places the honest con-
clusion on too narrow and too low a
ground. It concedes that the measure
of 1819, called Peel's Bill, by which
cash payments were resumed at the
original standard of 3l. Us. lO^d., was
really the injustice it was said to be.
This is an admission wholly opposed
to the truth. Parliament had no alter-
native ; it was absolutely bound to ad-
here to the acknowledged standard ; as
may be shown on three distinct grounds,
two of fact, and one of principle.

The reasons of fact are these. In
the first place, it is not true that the
debts, private or public, incurred during
the Bank restriction, were contracted
in a currency of lower value than that
in which the interest is now paid. It
is indeed true that the suspension of
the obligation to pay in specie, did put
it in the power of the Bank to depre-
ciate the currency. It is true also that
U.t Funk really exercised that power,

though to a far less extent than is often
pretended; since the difference between
the market price of gold and the Mint
valuation, during the greater part of
the interval, was very trilling, and when
it was greatest, during the last five
years of the war, did not much exceed
thirty per cent. To the extent of that
difference, the currency was depre-
ciated, that is, its value was below
that of the standard to which it pro-
fessed to adhere. But the state of
Europe at that time was such — there
was so unusual an absorption of the
precious metals, by hoarding, and in
the military chests of the vast armies
which then desolated the Continent,
that the value of the standard itself
was very considerably raised : and the
best authorities, among whom it is suf-
ficient to name Mr. Tooke, have, after
an elaborate investigation, satisfied
themselves that the difference between
paper and bullion was not greater than
the enhancement in value of gold itself,
and that the paper, though depreciated
relatively to the then value of gold, did
not sink below the ordinary value, at
other times, either of gold or of a con-
vertible paper. If this be true (and
the evidences of the fact are conclu-
sively stated in Mr. Tooke's History
of Prices) the foundation of the whole
case against the fundholder and other
creditors on the ground of depreciation
is subverted.

But, secondly, even if the currency
had really been lowered in value at
each period of the Bank restriction, in
the same degree in which it was de-
preciated in relation to its standard,
we must remember that a part only of
the national debt, or of other perma-
nent engagements, was incurred during
the Bank restriction. A large part
had been contracted before 1797 ; a
still larger during the early years of
the restriction, when the difference be-
tween paper and gold was yet small.
To the holders of the former part, an
injury was done, by paying the interest
for twenty-two years in a depreciated
currency : those of the second, suffered
an injury during the years in which tho
interest was paid in a currency more
depreciated than that in which the

336

BOOK in. CHAPTER xiv. § i.

loans were contracted. To have re-
sumed cash payments at a lower
standard would have been to perpe-
tuate the injury to these two classes
of creditors, in order to avoid giving an
undue benefit to a third class, who had
lent their money during the lew years
of greatest depreciation. As it is, there
was an underpayment to one set of per-
sons, and an overpayment to another.
The late Mr. Mushet took the trouble
to make an arithmetical comparison
between the two amounts. He ascer-
tained by calculation, that if an ac-
count had been made out in 1819, of
what the fundholders had gained and
lost by the variation of the paper cur-
rency from its standard, they would
have been found as a body to have been
losers; so that if any compensation
was due on the ground of depreciation,
it would not be from the fundholders
collectively, but to them.

Thus it is with the facts of the case.
But these reasons of fact are not the
strongest. There is a reason ot prin-
ciple, still more powerful. Suppose
that, not a part of the debt merely, but
the whole, had been contracted in a
depreciated currency, depreciated not
only in comparison with its standard,
but with its own value before and
after ; and that we were now paying
the interest of this debt in a currency
of fifty or even a hundred per cent
more valuable than that in which it
was contracted. What difference
would this make in the obligation of
paying it, if the condition that it should
be so paid was part of the original com-
pact ? Now this is not only truth, but
less than the truth. The compact
stipulated better terms for the fund-
holder than he has received. During
the whole continuance of the Bank re-

striction, there was a parliamentary
pledge, by which the legislature was
as much bound as any legislature is
capable of binding itself, that cash
payments should be resumed on the
original footing, at farthest in six
months after the conclusion of a ge-
neral peace. This was therefore an
actual condition of every loan ; and the
terms of the loan were more favourable
in consideration of it. Without some
such stipulation, the Government could
not have expected to borrow unless on
the terms on which loans are made to
the native princes of India. If it had
been understood and avowed that,
after borrowing the money, the
standard at which it was computed
might be permanently lowered, to any
extent which to the "collective wis-
dom" of a legislature of borrowers
might seem fit — who can say what
rate of interest would have been a suffi-
cient inducement to persons of common
sense to risk their savings in such an
adventure ? However mucti the fund-
holders had gained by the resumption
of cash payments, the terms of the con-
tract insured their giving ample value
for it. They gave value for more than
they received ; since cash payments
were not resumed in six months, but in
as many years, after the peace. So
that waving all our arguments except
the last, and conceding all the facts as-
serted on the other side of the question,
the fundholders, instead of being unduly
benefited, are the injured party ; and
would have a claim to compensation, if
such claims were not very properly
barred by the impossibility of adjudica-
tion, and by the salutary general maxim
of law and policy, that questions should
at some time or another come to an,
end.

CHAPTER XIV.

OF EXCESS OP SUPPLY.

§ 1. AFTER the elementary exposi-
tion of the theory of money contained
in the last few chapters, we shall re-

turn to a question in the general theory
of Value, which could not be satisfac-
torily discussed until the uuturo ?5d

EXCESS OF SUPPLY.

837

Operations of Money were in some
measure understood, because the errors
against which we have to contend
mainly originate in a misunderstand-
ing of those operations.

We have seen that the value of
everything gravitates towards a cer-
tain medium point (which has been
called the Natural Value), namely,
that at which it exchanges for every
other thing in the ratio of their cost
of production. We have seen, too,
that the actual or market value coin-
cides, or nearly so, with the natural
value, only on an average of years ;
and is continually either rising above,
or falling below it, from alterations in
the demand, or casual fluctuations in
the supply : but that these variations
correct themselves, through the ten-
dency of the supply to accommodate
itself to the demand which exists for
the commodity at its natural value. A
general convergence thus results from
the balance of opposite divergences.
Dearth, or scarcity, on the one hand,
and over-supply, or, in mercantile lan-
guage, glut, on the other, arc incident
to all commodities. In the first case,
the commodity affords to the producers
or sellers, while the deficiency lasts, an
unusually high rate of profit: in the
second, the supply being in excess of
that for which a demand exists, at such
a value as will afford the ordinary profit,
the sellers must be content with less,
and must, in extreme cases, submit to
a loss.

Because this phenomenon of over-
eupply, and consequent inconvenience
or loss to the producer or dealer,
may exist in the case of any one
commodity whatever, many per-
sons, including some distinguished
political economists, have thought
that it may exist with regard to
all commodities; that there may be
R general over-production of wealth ;
a supply of commodities in th'1
gate, surpassing the demand ; and a
consequent depressed condition of all
classes of producers. Against this doc-
trine, of which Mr. Malthus and Dr.
Chalmers in this country, and M. «!•:
Sismondi on the Continent, were the
chief apostles, I have already con-
».*.

tended in the First Book ;* but it was
not possible, in that stage of our in-
quiry, to enter into a complete exami-
nation of an error (as I conceive) essen-
tially grounded on a misunderstanding
of the phenomena of Value and Price.
The doctrine appears to me to in-
volve so much inconsistency in its very
conception, that I feel considerable
difficulty in giving any statement of it
which shall be at once clear, and satis-
factory to its supporters. They agree
in maintaining that there may be, and
sometimes is, an excess of productions
in general beyond the demand for
them ; that when this happens, pur-
chasers cannot be found at prices which
will repay the cost of production with
a profit ; that there ensues a general
depression of prices or values (they are
seldom accurate in discriminating be-
tween the two), so that producers, the
more they produce, find themselves
the poorer, instead of richer : and Dr.
Chalmers accordingly inculcates on
capitalists the practice of a aoral re-
straint in reference to the pursuit of
gain ; while Sismondi deprecates ma-
chinery, and the various inventions
which increase productive power. They
both maintain that accumulation of
capital may proceed too fast, not merely
for the moral, but for the material in-
terests of those who produce and accu-
mulate ; and they enjoin the rich to
guard against this evil by an ample
unproductive consumption.

§ 2. When these writers speak of
the supply of commodities as out-
running the demand, it is not clear
which of the two elements of demand
they have in view — the desire to pos-
sess, or the means of purchase : whether
their meaning is that there are, in such
cases, more consumable products in
existence than the public desires to
consume, or merely more than it is
able to pay for. In this uncertainty,
it is necessary to examine both sup-
positions.

First, let us suppose that the quan-
tity of commodities produced is not
greater than the community would be
glad to consume : is it, in that case,
• Supra, pp. 41-43,

838

BOOK III. CHAPTER XIV. § 3.

possible that there should be a defi-
ciency of demand for all commodities,
for want of the means of payment?
Those who think so, cannot have con-
sidered what it is which constitutes
the means of payment for commodities.
It is, simply, commodities. Each per-
son's means of paying for the produc-
tions of other people consists of those
which he himself possesses. All sellers
are inevitably, and by the meaning of
the word, buyers. Could we suddenly
double the productive powers of the
country, we should double the supply
of commodities in every market; but
we should, by the same stroke, double
the purchasing power. Everybody
would bring a double demand as
well as supply : everybody would be
able to buy twice as much, because
every one would have twice as much
to offer in exchange. It is probable,
indeed, that there would now be a super-
fluity of certain things. Although the
community would willingly double its
aggregate consumption, it may already
have as much as it desires of some
commodities, and it may prefer to do
more than double its consumption of
others, or to exercise its increased pur-
chasing power on some new thing. If
so, the supply will adapt itself accord-
ingly, and the values of things will
continue to conform to their cost of
production. At any rate, it is a sheer
absurdity that all things should fall in
value, and that all producers should,
in consequence, be insufficiently remu-
nerated. If values remain the same,
what becomes of prices is immaterial,
since the remuneration of producers
does not depend on how much money,
but on how much of consumable arti-
cles, they obtain for their goods. Be-
sides, money is a commodity ; and if all
commodities are supposed to be doubled
in quantity, we must suppose money
to be doubled too, and then prices
would no more fall than values would.

§ 3. A general over-supply, or ex-
cess of all commodities above the de-
mand, so far as demand consists in
means of payment, is thus shown to
be an impossibility. But it may, per-
haps, be supposed that it is not the

ability to purchase, but the desire to
possess, that falls short, and that the
general produce of industry may be
greater than the community desires to
consume — the part, at least, of the
community which has an equivalent
to give. It is evident enough, that
produce makes a market for produce,
and that there is wealth in the country
witli which to purchase all the wealth
in the country; but those who have
the means, may not have the wants,
and those who have the wants may be
without the means. A portion, there-
fore, of the commodities produced may
be unable to find a market, from the
absence of means in those who have
the desire to consume, and the want
of desire in those who have the means.
This is much the most plausible form
of the doctrine, and does not, like that
which we first examined, involve a
contradiction. There may easily be a
greater quantity of any particular com-
modity than is desired by those who
have the ability to purchase, and it
is abstractedly conceivable that this
might be the case with all commodi-
ties. The error is in not perceiving
that though all who have an equivalent
to give, might be fully provided with
every consumable article which they
desire, the fact that they go on adding
to the production proves that this is
not actually the case. Assume the
most favourable hypothesis for the pur-
pose, that of a limited community,
every member of which possesses as
much of necessaries and of all known
luxuries as he desires : and since it is
not conceivable that persons whose
wants were completely satisfied would
labour and economize to obtain what
they did not desire, suppose that a
foreigner arrives, and produces an ad-
ditional quantity of something of which
there was already enough. Here, it
will be said, is over-production : true,
I reply ; over-production of that par
ticular article : the community wanted
no more of that, but it wanted some-
thing. The old inhabitants, indeed,
wanted nothing; but did not the
foreigner himself want something?
When he produced the superfluous
article, was he labouring without a

EXCESS OF SUPPLY.

339

motive? He has produced, but the
•wrong thing instead of the right. 1 Iu
wanted, perhaps, food, and has pro-
duced watches, with which everybody
was sufficiently supplied. The new
coiner brought with him into the
country a demand for commodities,
equal to all that he could produce by
his industry, and it was his business
to see that the supply he brought
should be suitable to that demand. If
he could not produce something capa-
ble of exciting a new want or desire in
the community, for the satisfaction of
which some one would grow more food
and give it to him in exchange, he had
the alternative of growing food for
himself; either on fresh land, if there
was any unoccupied, or as a tenant, or
partner, or servant, of some former
occupier, willing to be partially re-
lieved from labour. He has produced
a thing not wanted, instead of what
was wanted ; and he himself, perhaps,
is not the kind of producer who is
wanted; but there is no over-pro-
duction ; production is not excessive,
but merely ill assorted. We saw be-
fore, that whoever brings additional
commodities to the market, brings an
additional power of purchase ; we now
see that he brings also an additional
desire to consume ; since if he had not
that desire, he would not have troubled
himself to produce. Neither of the
elements of demand, therefore, can be
wanting, when there is an additional
supply ; though it is perfectly possible
that the demand may be for one thing,
and the supply may unfortunately con-
sist of another.

Driven to his last retreat, an oppo-
nent may perhaps allege, that there
are persons who produce and accu-
mulate from mere habit ; not because
they have any object in growing richer,
or desire to add iu any respect to their
consumption, but from vis inertice.
They continue producing because the
machine is ready mounted, and save
and re-invest their savings because
they have nothing on which they care
to expend them. I grant that this is
possible, and in some few instances
probably happens ; but these do not
iu the smallest degree affect our con-

clusion. For, what do these persons
do with their savings? They invest
them productively; that is, expend
them in employing labour. In other
words, having a purchasing power be-
longing to them, more than they know
what to do with, they make over the
surplus of it for the general benefit of
the labouring class. Now, will that
class also not know what to do with
it? Are we to suppose that they too
have their wants perfectly satisfied,
and go on labouring from mere habit ?
Until this is the case ; until the work-
ing classes have also reached the point
of satiety — there will be no want of
demand for the produce of capital,
however rapidly it may accumulate :
since, if there is nothing else for it to
do, it can always find employment in
producing the necessaries or luxuries
of the labouring class. And when they
too had no further desire for necessa-
ries or luxuries, they would take the
benefit of any further increase of wages
by 'diminishing their work ; so that the
over-production which then for the first
time would be possible in idea, could
not even then take place in fact, for
want of labourers. Thus, in whatever
manner the question is looked at, even
though we go to the extreme verge
of possibility to invent a supposition
favourable to it, the theory of general
over-production implies an absurdity.

§ 4. What then is it by which men
who have reflected much on economical
phenomena, and have even contributed
to throw new light upon them by ori-
ginal speculations, have been led to
embrace so irrational a doctrine? I
conceive them to have been deceived
by a mistaken interpretation of cer-
tain mercantile facts. They imagined
that the possibility of a general over-
supply of commodities was proved by
experience. They believed that they
saw this phenomenon in certain con»
ditions of the markets, the true ex-
planation of which is totally different.

I have already described the stnto
of the markets for commodities which
accompanies what is termed a com-
mercial crisis. At such times there is
really an excess of all commodities
Z 2

340

BOOK III. CHAPTER XIV. § 4.

above the money demand : in other
words, there is an under-supply of
money. From the sudden annihilation
of a great mass of credit, every one
dislikes to part with ready money, and
many are anxious to procure it at any
sacrifice. Almost everybody therefore
is a seller, and there are scarcely any
buyers: so that there may really be,
though only while the crisis lasts, an
extreme depression of general prices,
from what may be indiscriminately
called a glut of commodities or a dearth
of money. But it is a great error to
suppose, with Sismoncli, that a com-
mercial crisis is the effect of a general
excess of production. It is simply the
consequence of an excess of speculative
purchases. It is not a gradual advent
of low prices, but a sudden recoil from
prices extravagantly high: its imme-
diate cause is a contraction of credit,
and the remedy is, not a diminution of
supply, but the restoration of confi-
dence. It is also evident that this
temporary derangement of markets is
an evil only because it is temporary.
The fall being solely of money prices,
if prices did not rise again no dealer
would lose, since the smaller priee
would be worth as much to him as the
larger price was before. In no manner
does this phenomenon answer to the
description which these celebrated
economists have given of the evil of
over-production. That permanent de-
cline id the circumstances of producers,
for want of markets, which those
writers contemplate, is a conception to
which the nature of a commercial
crisis gives no support.

The other phenomenon from which
the notion of a general excess of wealth
and superfluity of accumulation seems
to derive countenance, is one of a more
permanent nature, namely, the fall of
profits and interest which naturally
takes place with the progress of popu-
lation and production. The cause of
this decline of profit is the increased
cost of maintaining labour, which re-
sults from an increase of population
and of the demand for food, outstrip-
ping the advance of agricultural im-
provement. This important feature in
the economical progress of nations will

receive full consideration and discTiS-
sion in the succeeding Book.* It is
obviously a totally different thing from
a want of market for commodities,
though often confounded with it in the
complaints of the producing and trading
classes. The true interpretation of the
modern or present state of industrial
economy is, that there is hardly any
amount of business which may not be
done, if people will be content to do it
on small profits ; and this, all active
and intelligent persons in business
perfectly well know : but even those
who comply with the necessities of
their time, grumble at what they
comply with, and wish that there were
less capital, or as they express it, less
competition, in order that there might
be greater profits. Low profits, how-
ever, are a different thing from defi-
ciency of demand ; and the production
and accumulation which merely reduce
profits, cannot be called excess of
supply or of production. What the
phenomenon really is, and its effects
and necessary limits, will be seen when
we treat of that express subject.

I know not of any economical facts,
except the two 1 have specified, which
can have given occasion to the opinion
that a general over-production of com-
modities ever presented itself in actual
experience. I am convinced that there
is no fact in commercial affairs, which,
in order to its explanation, stands iu
need of that chimerical supposition.

The point is fundamental ; any dif-
ference of opinion on it involves radi-
cally different conceptions of political
economy, especially in its practical
aspect. On the one view, we have
only to consider how a sufficient pro-
duction may be combined with the best
possible distribution ; but on the other
there is a third thing to be considered
— how a market can be created for
produce, or how production can be
limited to the capabilities of the
market. Besides; a theory so essen-
tially self-contradictory cannot intrude
itself without carrying confusion into
the very heart of the subject, and
making it impossible even to conceive
with any distinctness many of the
* Infra, book iy. ch. 4.

MEASURE OF VALUE.

341

more complicated economical workings
of society. This error has been, I con-
ceive, fatal to the systems, as systems,
of the three distinguished economists
to whom I before referred, Malthas,
Chalmers, and Sismondi ; all of whom
have admirably conceived and ex-
plained several of the elementary
theorems of political economy, but
this fatal misconception has spread
itself like a veil between them aud the
more difficult portions of the subject,
not suffering one ray of light to pene-
trate. Still more is this same contused
idea constantly crossing and bewilder-
ing the speculations of minds inferior
to theirs. It is but justice to two emi-
nent names, to call attention to the

fact, that the merit of having placed
this most important point in its true
light, belongs principally, on the Con-
tinent, to the judicious J. B. Say, and
in this country to Mr. Mill ; who (be-
sides the conclusive exposition which
lie gave of the subject in his Elements
of Political Economy) had set forth the
correct doctrine with great force and
clearness in an early pamphlet, called
forth by a temporary controversy, and
entitled, "Commerce Defended;" the
first of his writings which attained any
celebrity, and which he prized more as
having been his first introduction to
tfie friendship of David Ricardo, the
most valued and most intimate friend-
ship of his life.

CHAPTER XV.

OF A MEASURE OF VALUE.

§ 1. THERE has been much discus-
sion among political economists re-
specting a Measure of Value. An
importance has been attached to the
subject greater than it deserved, and
what has been written respecting it
has contributed not a little to the re-
proach of logomachy, which is brought,
with much exaggeration, but not alto-
gether without ground, against the
speculations of political economists. It
is necessary, however, to touch upon the
subject, if only to show how little there
is to be said on it.

A Measure of Value, in the ordinary
sense of the word measure, would mean,
something, by comparison with which
we may ascertain what is the value of
any other thing. When we consider
farther, that value itself is relative, and
that two things are necessary to con-
stitute it, independently of the third
thing which is to measure it ; we may
define a Measure of Value to be some-
thing, by comparing with which any
two other things, we may infer their
value in relation to one another.

In this sense, any commodity will
serve as a measure of •value at a given
time aud place ; since we can always

infer the proportion in which things
exchange for one another, when we
know the proportion in which each ex-
changes for any third thing. To serve
as a convenient measure of value is
one of the functions of the commodity
selected as a medium of exchange. It
is in that commodity that the values of
all other things are habitually esti-
mated. We say that one thing is
worth 21., another 31. ; and it is then
known without express statement, that
one is worth two-tnirds of the other, or
that the things exchange for one an-
other in the proportion of 2 to 3. Money
is a complete measure of their value.

But the desideratum sought by poli-
tical economists is not a measure of
the value of things at the same time
and place, but a measure of the value
of the same thing at different times
and places : something by comparison
with which it may be known whether
any given thing is of greater or less
value now than a century ago, or ia
this country than in America or China.
And for this also, money, or any othol
commodity, will serve quite as well as
at the same time and place, provided
we can obtain the same data ; provide^

842

BOOK III. CHAPTER XV. § 2.

we are able to compare with the mea-
ure not one commodity only, but the
two or more which are necessary to the
idea of value. If wheat is now 40s.
the quarter, and a fat sheep the same,
and if in the time of Henry the Second
wheat was 20s., and a sheep 10s., we
know that a quarter of wheat was then
worth two sheep, and is now only worth
one, and that the value therefore of a
sheep, estimated in wheat, is twice as
great as it was then ; quite indepen-
dently of the value of money at the
two periods, either in relation to those
two articles (in respect to both of which
we sxippose it to have fallen), or to
other commodities, in respect to which
we need not make any supposition.

What seems to be desired, however,
by writers on the subject, is some means
of ascertaining the value of a commodity
by merely comparing it with the mea-
sure, without referring it specially to
any other given commodity. They
would wish to be able, from the mere
fact that wheat is now 40s. the quarter,
and was formerly 20s., to decide whe-
ther wheat has varied in its value, and
in -what degree, without selecting a
second commodity, such as a sheep, to
compare it with ; because they are de-
sirous of knowing, not how much wheat
has varied in value relatively to sheep,
but how much it has varied relatively
to things in general.

The first obstacle arises from the
necessary indefiniteness of the idea of
general exchange value — value in rela-
tion not to some one commodity, but
to commodities at large. Even if we
knew exactly how much a quarter of
wheat would have purchased at the
earlier period, of every marketable
article considered separately, and that
it will now purchase more of some
things and less of others, we should
often find it impossible to say whether
it had risen or fallen in relation to
things in general. How much more
impossible when we only know how it
has varied in relation to the measure.
To enable the money price of a thing
at two different periods to measure the
quantity of things in general which it
will exchange for, the same sum of
money must correspond at both periods

to the same quantity of things in
general, that is, money must always
have the same exchange value, the
same general purchasing powei . Now,
not only is this not true of money, or
of any other commodity, but we canuot
even suppose any state of circumstances
in which it would be true.

§ 2. A measure of exchange value,
therefore, being impossible, writers
have formed a notion of something,
under the name of a measure of value.,
which would be more properly termed
a measure of cost of production. They
have imagined a commodity invariably
produced by the same quantity of
labour: to which supposition it is
necessary to add, that the fixed capital
employed in the production must bear
always the same proportion to tho
wages of the immediate labour, and
must be always of the same durability :
in short, the same capital must be ad-
vanced for the same length of time, so
that the element of value which con-
sists of profits, as well as that which
consists of wages, may be unchange-
able. We should then have a com-
modity always produced under one and
the same combination of all the cir-
cumstances which affect permanent
value. Such a commodity would be by
no means constant in its exchange
value ; for (even without reckoning the
temporary fluctuations arising from
supply and demand) its exchange
value would be altered by every change
in the circumstances of production ^of
the things against which it was ex-
changed. But if there existed such a
commodity, we should derive this ad-
vantage from it, that whenever any
other thing varied permanently in re-
lation to it, we should know that the
cause of variation was not in it, but
in the other thing. It would thus be
fitted to serve as a measure, not indeed
of the value of other things, but of
their cost of production. If a com-
modity acquired a greater permanent
purchasing power in relation to the
invariable commodity, its cost of pro-
duction must have become greater;
and in the contrary case, less. This
measure of cost, is what political

MEASURE OF VALUE.

843

economists have generally meant by a
measure of value.

But a measure of cost, though per-
fectly conceivable, can no more exist
in fact, than a measure of exchange
value. There is no commodity which
is invariable in its cost of production.
Gold and silver are the least variable,
but even these are liable to changes in
their cost of production, from the ex-
haustion of old sources of supply, the
discovciy of new, and improvements
in the mode of working. If we attempt
to ascertain the changes in the cost of
production of any commodity from the
changes in its money price, the conclu-
sion will require to be corrected by the
best allowance we can mako for the
intermediate changes in the cost of
the production of money itself.

Adam Smith fancied that there were
two commodities peculiarly fitted to
serve as a measure of value : corn, and
labour. Of corn, he said that although
its value fluctuates much from year to
year, it does not vary greatly from cen-
tury to century. This we now know
to be an error : corn tends to rise in
cost of production with every increase
of population, and to fall with every
improvement in agriculture, either in
the country itself, or in any foreign
country from which it draws a portion
of its supplies. The supposed con-
stancy of the cost of the production of
corn depends on the maintenance of a
complete equipoise between these an-
tagonizing forces, an equipoise which,
if ever realized, can only be accidental.
With respect to (about as a measure of
value, the language c/ Adam Smith is
not uniform. He sometimes speaks of
:t as a good measure only for short
periods, saying that the value of la-
bour (or wages) does not vary much
from year to year, though it does from
generation to generation. On other
occasions he speaks as if labour were
intrinsically the most proper measure
of value, on the ground that one day's
irdinary muscular exertion of one man,
•nay be looked upon as always, to him,
'.he same amount of effort or sacrifice.
Xut this proposition, whether in itself
admissible or not, discards the idea of
exchange value altogether, substituting

a totally different idea, more analogous
to value in use. If a day's labour will
purchase in America twice as much of
ordinary consumable articles as in Eng«
land, it seems a vain subtlety to insist
on saying that labour is of the same
value in both countries, and that it is
the value of the other things which is
different. Labour, in this case, may be
correctly said to be twice as valuable,
both in the market and to the labourer
himself, in America as in England.

If the object were to obtain an
approximate measure by which to esti-
mate value in use, perhaps nothing
better could be chosen than one day's
subsistence of an average man, reckoned
in the ordinary food consumed by the
class of unskilled labourers. If in any
country a pound of maize flour will sup-
port a labouring man for a day, a thing
might be deemed more or less valuable
in proportion to the number of pounds
of maize flour it exchanged for. If
one thing, either by itself or by what
it would purchase, could maintain a
labouring man for a day, and another
could maintain him for a week, there
would be some reason in saying that
the one was worth, for ordinary human
uses, seven times as much as the other.
But this would not measure the worth
of the thing to its possessor for his own
purposes, which might be greater to
any amount, though it could not be less,
than the worth of the food which the
thing would purchase.

The idea of a Measure of Value must
not be confounded with the idea of the
regulator, or determining principle, of
value. When it is said by Eicardo and
others, that the value of a thing is
regulated by quantity of labour, they
do not mean the quantity of labour for
which the thing will exchange, but the
quantity required for producing it.
This, they mean to affirm, determines
its value ; causes it be of the value it is,
and of no other. But when Adam
Smith and Malthas say that labour ia
a measure of value, they do not mean
the labour by which the thing was or
can be made, but the quantity of labour
which it will exchange for, or purchase j
in other words, the value of the thing,
estimated in labour. And they do not

844

BOOK 111.

mean that this regulates the general
exchange value of the thing, or has any
effect in determining ..hat that value
shall be, but only ascertains what it is,
and whether and how much it varies

CHAPTEK XVI. § I.

from time to time and from place tc
place. To confound these two ideas,
would be much the same thing as to
overlook the distinction between the
thermometer and the fire.

CHAPTER XVI.

OF SOME PECULIAR CASES OF VALUE.

§ 1. THE general laws of value,
in all the more important cases of
the interchange of commodities in
Hie same country, have now been
investigated. We examined, first, the
case of monopoly, in which the value
is determined by either a natural or
an artificial limitation of quantity,
that is, by demand and supply :
secondly, the case of free competition,
when the article can be produced in
indefinite quantity at the same cost ;
in which case the permanent value is
determined by the cost of production,
and only the fluctuations by supply and
demand : thirdly, a mixed case, that of
the articles which can be produced in
indefinite quantity, but not at the same
cost ; in which case the permanent
value is determined by the greatest cost
which it is necessary to incur in order
to obtain the required supply. And
lastly, we have found that money itself
is a commodity of the third class ; that
its value, in a state of freedom, is
governed by the same laws as the values
of other commodities of its class : and
that prices, therefore, follow the same
laws as values.

From this it appears that demand
and supply govern the fluctuations
of values and prices in all cases,
and the permanent values and prices
of all things of which the supply is
determined by any agency other than
that of free competition : but that, under
the regime of competition, things are,
on the average, exchanged for each
other at such values, and sold at such
prices, as afford equal expectation of
advantage to all classes of producers ;
which can only be when things ex-

change for one another in the ratio of
their cost of production.

It is now, however, necessary to take
notice of certain cases, to which, from,
their peculiar nature, this law of ex-
change value is inapplicable.

It sometimes happens that two diffe-
rent commodities have what may be
termed a joint cost of production. They
are both products of the same operation,
or set of operations, and the outlay is
incurred for the sake of both together,
not part for one and part for the other.
The same outlay would have to be in-
curred for either of the two, if the other
were not wanted or used at all. There
are not a few instances of commodities
thus associated in their production.
For example, coke and coal-gas are-
both produced from the same material,
and by the same operation. In a more
partial sense, mutton and wool are an
example : beef, hides, and tallow: calves
and dairy produce : chickens and eggs.
Cost of production can have nothing to
do with deciding the value of the asso-
ciated commodities relatively to each
other. It only decides their.joint value.
The gas and the coke together have to
repay the expenses of their production,
with the ordinary profit. To do this, a
given quantity of gas, together with
the coke which is the residuum of its
manufacture, must exchange for other
things in the ratio of their joint cost of
production. But how much of the re-
muneration of the producer shall be
derived from the coke, and how much
from the gas, remains to be decided.
Cost of production does not determine
their prices, but the sum of their prices,
A principle is wanting to apportiog

SOME PECULIAR CASES OF VALUE.

345

the expenses of production between the
two.

Since cost of production here fails us,
•we must revert to a law of value ante-
rior to cost of production, and more
fundamental, the law of demand and
(supply. The law is, that the demand
for a commodity varies with its value,
and that the value adjusts itself so that
the demand shall be equal to the supply.
This supplies the principle of reparti-
tion whicu we are in quest of.

Suppose that a certain quantity of
gas is produced and sold at a certain
price, and that the residuum of coke is
offered at a price wkich, together with
that of the gas, repays the expenses
with the ordinary rate of profit. Sup-
pose, too, that at the price put upon the
gas and coke respectively, the whole of
the gas finds an easy market, without
either surplus or deficiency, but that
purchasers cannot be found for all the
coke corresponding to it. The coke
will be offered at a lower price in order
to force a market. But this lower price,
together with the price of gas, will not
be remunerating : the manufacture, as
a whole, will not pay its expenses with
the ordinary profit, and will not, on
these terms, continue to be carried on.
The gas, therefore, must be sold at a
higher price, to make up for the defi-
ciency on the coke. The demand con-
sequently contracting, the production
will be somewhat reduced ; and prices
will become stationary when, by the
joint cftect of the rise of gas and the
fall of coke, so much less of the first is
sold, and so much more of the second,
that there is now a market for all the
coke which results from the existing
extent of the gas manufacture.

Or suppose the reverse case ; that
moro coke is wanted at the present
prices than can be supplied by the
operations required by the existing de-
mand for gas. Coke, being now in de-
ficiency, will rise in price. The whole
operation will yield more than the
usual rate of profit, and additional capi-
tal will be attracted to the manufacture.
The unsatisfied demand for coke will
be supplied ; but this cannot be done
•without increasing the supply of gas too;
»nd as the existing demand was fully

supplied already, an increased quantity
can only find a market by lowering
the price. The result will be that the
two together will yield the return re-
quired by their joint cost of production,
but that more of this return than before
will be furnished by the coke, and
less by the gas. Equilibrium will be
attained when the demand for each
article fits so well with the demand for
the other, that the quantity required
of each is exactly as much as is gene-
rated in producing the quantity re-
quired of the other. If there is any
surplus or deficiency on either side ; if
there is a demand for coke, and not a
demand for all the gas produced along
with it, or vice versa; the values and
prices of the two things will so readjust
themselves that both shall find a
market.

When, therefore, two or more com-
modities have a joint cost of production,
their natural values relatively to each
other are those which will create a
demand for each, in the ratio of the
quantities in which they are sent
forth by the productive process. This
theorem is not in itself of any great
importance : but the illustration it
affords of the law of demand, and of
the mode in which, when cost of pro-
duction fails to be applicable, the other
principle steps in to supply the vacancy,
is worthy of particular attention, as
we shall find in the next chapter but
one that something very similar takes
place in cases of much greater moment.

§ 2. Another case of value which
merits attention, is that of the different
kinds of agricultural produce. This is
rather a more complex question than
the last, and requires that attention
should be paid to a greater number of
influencing circumstances.

The case would present nothing pe-
culiar, if different agricultural products
were either grown indiscriminately and
with equal advantage on the same
soils, or wholly on different soils. The
difficulty arises from two things : first,
that most soils are fitter for one kind
of produce than another, without being
absolutely unfit for any ; and secondly,
the rotation of crops,.

846

BOOK III. CHAPTER XVI. § 2.

For simplicity, we will confine our
supposition to two kinds of agricultural
produce ; for instance, wheat and oats.
If all soils were equally adapted for
tvheat and for oats, both would be
grown indiscriminately on all soils, and
their relative cost of production, being
the same everywhere, would govern
their relative value. If the same labour
which grows three quarters of wheat
on any given soil, would always grow
on that soil five quarters of oats, the
three and the five quarters would be of
the same value. If, again, wheat and
oats could not be grown on the same
soil at all, the value of each would be
determined by its peculiar cost of pro-
duction on the least favourable of' the
soils adapted for it which the existing
demand required a recourse to. The
fact, however, is that both wheat and
nats can be grown on almost any soil
tvhich is capable of producing either :
but some soils, such as the stiff clays,
are better adapted for wheat, while
others (the light sandy soils) are more
suitable for oats. There might be some
soils which would yield, to the same
quantity of labour, only four quarters of
oats to three of wheat ; others perhaps
less than three of wheat to five quarters
of oats. Among these diversities, what
determines the relative value of the
two things ?

It is evident that each grain will be
cultivated in preference, on the soils
which are better adapted for it than
for the other ; and if the demand is
supplied from these alone, the values of
the two grains will have no reference
to one another. But when the demand
for both is such as to require that each
should be grown not only on the soils
peculiarly fitted for it, but on the
medium soils which, without being spe-
cifically adapted to either, are about
equally suited for both, the cost of
production on those medium soils will
determine the relative value of the two
grains ; while the rent of the soils
specifically adapted to each, will be
regulated by their productive power,
considered with reference to that one
alone to which they are peculiarly
applicable. Thus far the question pre-
sents no difficulty, to any one to whom

the general principles of value are
familiar.

It may happen, however, that the
demand for one of the two, as for
example wheat, may so outstrip the
demand for the other, as not only to
occupy the soils specially suited for
wheat, but to engross entirely those
equally suitable to both, and even en-
croach upon those which are better
adapted to oats. To create an induce-
ment for this unequal apportionment of
the cultivation, wheat must be rela-
tively dearer, and oats cheaper, than
according to the cost of their production
on the medium land. Their relative
value must be in proportion to the cost
on that quality of land, whatever it
may be, on which the comparative de-
mand for the two grains requires that
both of them should be grown. If, from
the state of the demand, the two culti-
vations meet on land more favourable
to one than to the other, that one will
be cheaper and the other dearer, in
relation to each other and to things in
general, than if the proportional de-
mand were as we at first supposed.

Here, then, we obtain a fresh illus-
tration, in a somewhat different manner,
of the operation of demand, not as an
occasional disturber of value, but as a
permanent regulator of it, conjoined
with, or supplementary to, cost of
production.

The case of rotation of crops does
not require separate analysis, being a
case of joint cost of production, like
that of gas and coke. If it were the
practice to grow white and green crops
on all lands in alternate years, the one
being necessary as much for the sako
of the other as for its own sake ; the
farmer would derive his remuneration
for two years' expenses from one white
and one green crop, and the prices of
the two would so adjust themselves as
to create a demand which would carry
off an equal breadth of white and of
green crops.

There would be little difficulty in
finding other anomalous cases of value,
which it might be a useful exercise to
resolve : but it is neither desirable nor
possible, in a work like the present, to
enter more int» details than is neces-

INTERNATIONAL TRADE.

347

gary for the elucidation of principles.
I now therefore proceed to the only
part of the general theory of exchange
which has not yet been touched upon,

that of International Exchanges, or to
speak more generally, exchanges be-
tween distant places.

CHAFrER XVII.

0* INTERNATIONAL TRADK.

§ 1. THE causes which occasion a
tommodity to be brought from a dis-
tance, instead of being produced, as
convenience would seem to dictate, as
near as possible to the market where
it is to be sold for consumption, are
usually conceived in a rather superficial
manner. Some things it is physically
impossible to produce, except in par-
ticular circumstances of heat, soil,
water, or atmosphere. But there are
many things which, .though they could
be produced at home without difficulty
and in any quantity, are yet imported
from a distance. The explanation
which would be popularly given of this
would be, that it is cheaper to import
than to produce them : and this is the
true reason. But this reason itself
requires that a reason be given for it.
Of two things produced in the same
place, if one is cheaper than the other,
the reason is that it can be produced
with less labour and capital, or, in a
word, at less cost. Is this also the
reason as between things produced in
different places? Are things never
imported but from places where they
can be produced with less labour (or
loss of the other element of cost, time)
than in the place to which they are
brought? Does the law, that perma-
nent value is proportioned to cost of
production, hold good between com-
modities produced in distant places, as
it does between those produced in ad-
jacent places ?

We shall find that it does not. A
thing may sometimes be sold cheapest,
by being produced in some other place
than that at which it can be produced
•with the smallest amount of labour
and abstinence. England might import

corn from Poland and pay for it in cloth,
even though England had a decided
advantage over Poland in the produc-
tion of both the one and the other.
England might send cottons to Por-
tugal in exchange for wine, although
Portugal might be able to produce
cottons with a less amount of labour
and capital than England could.

This could not happen between ad-
jacent places. If the north bank of the
Thames possessed an advantage over
the south bank in the production of
shoes, no shoes would be produced on
the south side ; the shoemakers would
remove themselves and their capitals
to the north bank, or would have esta-
blished themselves there originally;
for, being competitors in the same
market with those on the north side,
they could not compensate themselves
for their disadvantage at the expense
of the consumer : the amount of it
would fall entirely on their profits ;
and they would not long content them-
selves with a smaller profit, when, by
simply crossing a river, they could
increase it. But between distant
places, and especially between differ-
ent countries, profits may continue dif-
ferent : because persons do not usually
remove themselves or their capitals to
a distant place without a very strong
motive. If capital removed to remote
parts of the world as readily, and for as
small an inducement, as it moves to
another quarter of the same town ; if
people would transport their manufac-
tories to America or China whenever
they could save a small percentage in
their expenses by it ; profits would be
alike (or equivalent) all over the world,
and all things would be produced in

248

BOOK III. CHAPTER XVII. § 1.

the places where the same labour and
capital would produce them in greatest

Quantity and of best quality. A ten-
ency may, even now, be observed
towards such a state of things ; capital
is becoming more and more cosmopoli-
tan ; there is so much greater similarity
of manners and institutions than for-
merly, and so much less alienation of feel-
ing, among the more civilized countries,
that both population and capital now
vnove from one of those countries to
another on much less temptation than
heretofore. But there are still extra-
ordinary differences, both of wages and
of profits, between different parts of
the world. It needs but a small motive
to transplant capital, or even persons,
from Warwickshire to Yorkshire : but
a much greater to make them remove
to India, the colonies, or Ireland. To
France, Germany, or Switzerland, ca-
pital moves perhaps almost as readily as
to the colonies ; the differences of lan-
guage and government being scarcely
so great a hindrance as climate and
distance. To countries still barbarous,
or, like Russia or Turkey, only be-
ginning to be civilized, capital will not
migrate, unless under the inducement
of a very great extra profit.

Between all distant places therefore
in some degree, but especially between
different countries (whether under the
same supreme government or not),
there may exist great inequalities in
the return to labour and capital, with-
out causing them to move from one
place to the other in such quantity as
to level those inequalities. The capital
belonging to a country will, to a great
extent, remain in the country, even if
there be no mode of employing it in
which it would not be more productive
elsewhere. Yet even a country thus cir-
cumstanced might, and probably would,
carry on trade with other countries. It
•would export articles of some sort, even
to places which could make them with
less labour than itself; because those
countries, supposing them to have au
advantage over it in all productions,
would have a greater advantage in
•some things than in others, and would
find it their interest to import the
articles in which their advantage was

smallest, that they might employ more
of their labour and capital on those in
which it was greatest.

§2. As I have said elsewhere* after
Ricardo (the thinker who has done
most towards clearing up this subject), •)•
" it is not a difference in the absolute
cost of production, which determines
the interchange, but a difference in the
comparative cost. It may be to our
advantage to procure iron from Sweden,
in exchange for cottons, even although
the mines of England as well as her
manufactories should be more produc- •
tive than those of Sweden ; for if we
have an advantage of one-half in cot-
tons, and only an advantage of a
quarter in iron, and could sell our
cottons to Sweden at the price which
Sweden must pay for them if she pro-
duced them herself, we should obtain
our iron with an advantage of one-half,
as well as our cottons. We may often,
by trading with foreigners, obtain their
commodities at a smaller expense of
labour and capital than they cost to
the foreigners themselves. The bargain
is still advantageous to the foreigner,
because the commodity which he re-
ceives in exchange, though it has cost
us less, would have cost him more."

To illustrate the cases in which in-
terchange of commodities will not, and
those in which it will, take place be-
tween two countries, Mr. Mill, in his
Elements of Political Economy,^ makes
the supposition, that Poland has an
advantage over England in the produc-
tion both of cloth and of corn. He first
supposes the advantage to be of equal
amount in both commodities : the cloth
and the corn, each of which required
100 days labour in Poland, requiring

* ]3»say» on tomt Umettled Question* of
Political Economy, Essay 1.

t I at one time believed Mr. Ricardo to
have been the sole author of the doctrine
now universally received by political econo-
mists, on the nature and measure of the be-
nefit which a country derives from foreign
trade. But Colonel Torrens, by the repub-
lication of one of his early writings, The
Economists Refuted, has established at least
a joint claim with Mr. Kicardo to the origi-
nation of the doctrine, and an exclusive oi)9
to its earliest publication.

J Third ed. p. 120,

INTERNATIONAL TRADE.

349

er.cli laO clays labour in England. "It
would follow that the cloth of 150 days
labour iu England, if sent to Poland,
would be equal to the cloth of 100 days
labour in Poland ; if exchanged for corn,
therefore, it would exchange for the
corn of only 1 00 days labour. But the
corn of 100 days labour in Poland, was
supposed to be the same quantity with
that of 150 days labour in England.
\\ith 150 days labour in cloth, there-
fore, England would only get as much
corn in Poland as she could raise with
150 days labour at home; and she
would, in importing it, have the cost
of carriage besides. In these circum-
stances no exchange would take place."
In this case the comparative costs of
the two articles in England and in
Poland were supposed to be the same,
though the absolute costs were differ-
ent ; on which supposition we see that
there would be no labour saved to
cither country by confining its industry
to one of the two productions, and im-
porting the other.

It is otherwise when the comparative,
and not merely the absolute costs of the
two articles are different in the two
countries. "If," continues the same
author, " while the cloth produced with
100 days labour in Poland was pro-
duced with 150 days labour in England,
the corn which was produced in Poland
with 100 days labour could not be pro-
duced in England with less than 200
days labour ; an adequate motive to ex-
change would immediately arise, ^"ith
a quantity of cloth which England pro-
duced with 150 days labour, she would
l:'e able to purchase as much corn in
Poland as was there produced with 1 00
days labour; but the quantity which
was there produced with 100 days
labour, would be as great as the quan-
tity produced in England with 200 days
labour." By importing corn, therefore,
from Poland, and paying for it with
cloth, England would obtain for 150
days labour what would otherwise cost
her 200 ; being a saving of 50 days
labour on each repetition of the trans-
action : and not merely a saving to
England, but a saving absolutely; for
it is not obtained at the expense of
Poland, who, with com that costs her

100 days labour, has purchased cloth
which, if produced at home, would have
cost her the same. Poland, therefore,
on this supposition, loses nothing ; but
also she derives no advantage from the
trade, the imported cloth costing her as
much as if it were made at home. To
enable Poland to gain anything by the
interchange, something must be abated
from the gain of England : the corn pro-
duced in Poland by 100 days labour,
must be able to purchase from England
more cloth than Poland could produce
by that amount of labour ; more there-
fore than England could produce by
150 days labour, England thus obtain-
ing the corn which would have cost
her 200 days, at a cost exceeding 150,
though short of 200. England there-
fore no longer gains the whole of the
labour which is saved to the two jointly
by trading with one another.

§ 3. From this exposition we per-
ceive in what consists the benefit o*
international exchange, or in other
words, foreign commerce. Setting aside
its enabling countries to obtain com-
modities which they could not them-
selves produce at all ; its advantage
consists in a more efficient employ-
ment of the productive forces of the
world. If two countries which trade
together attempted, as far as was phy-
sically possible, to produce for them-
selves what they now import from one
another, the labour and capital of the
two countries would not be so pro-
ductive, the two together would not
obtain from their industry so great a
quantity of commodities, as when each
employs itself in producing, both for
itself and for the other, the things in
which its labour is relatively most
efficient. The addition thus made to
the produce of the two combined, con-
stitutes the advantage of the trade.
It is possible that one of the two
countries may be altogether inferior
to the other in productive capacities,
and that its labour and capital could
be employed to greatest advantage by
being removed bodily to the other.
The labour and capital which have
been sunk in rendering Holland habit-
able, would have produced a much

350

greater return if transported to Ame-
rica cr Ireland. The produce of the
•whole world would be greater, or the
labour less, than it is, if everything
were produced where there is the
greatest absolute facility for its pro-
duction. But nations do not, at least
in modern times, emigrate en masse;
and while the labour and capital of a
country remain in the country, they
are most beneficially employed in pro-
ducing for foreign markets as well as
for its own, the things in which it lies
under the least disadvantage, if there
be none in which it possesses an ad-
vantage.

§ 4. Before proceeding further, let
us contrast this view of the benefits
of international commerce with other
theories which have prevailed, and
which to a certain extent still prevail,
on the 'same subject.

According to the doctrine now stated,
the only direct advantage of foreign
commerce consists in the imports. A
country obtains things which it either
could not have produced at all, or which
it must have produced at a greater ex-
pense of capital and labour than the
cost of the things which it exports to
pay for them. It thus obtains a more
ample supply of the commodities it
wants, for the same labour and capital ;
or the same supply, for less labour and
capital, leaving the surplus disposable
to produce other things. The vulgar
theory disregards this benefit, and
deems the advantage of commerce to
reside in the exports : as if not what a
country obtains, but what it parts with,
by its foreign trade, was supposed to
constitute the gain to it. An extended
market for its produce — an abundant
consumption for its goods — a vent for
its surplus — are the phrases by which
it has been customary to designate the
uses and recommendations of commerce
with foreign countries. This notion is
intelligible, when we consider that the
authors and leaders of opinion on mer-
cantile questions have always hitherto
been the selling class. It is in truth
a surviving relic of the Mercantile
Theory, according to which, money
being the only wealth, selling, or in

BOOK m. CHAPTER XVII. §4.

other words, exchanging goods for
money, was (to countries without
mines of their own) the only way of
growing rich — and importation of
goods, that is to say, parting with
money, was so much subtracted from
the benefit.

The notion that money alone is
wealth, has been long defunct, but ii
has left many of its progeny Behind
it ; and even its destroyer, Adam Smith,
retained some opinions which it is im-
possible to trace to any other origin.
Adam Smith's theory of the benefit of
foreign trade, was that it afforded an out-
let for the surplus produce of a country,
and enabled a portion of the capital
of the country to replace itself with a
profit. These expressions suggest ideas
inconsistent with a clear conception of
the phenomena. The expression, sur-
plus produce, seems to imply that a
country is under some kind of neces-
sity of producing the corn or cloth
which it exports ; so that the portion
which it docs not itself consume, if
not wanted and consumed elsewhere;
would either be produced in sheer
waste, or if it were not produced, the
corresponding portion of capital would
remain idle, and the mass of productions
in the country would be diminished by
so much. Either of these suppositions
would be entirely erroneous. The
country produces an exportable article
in excess of its own wants, from no in-
herent necessity, but as the cheapest
mode of supplying itself with other
things. If prevented from exporting this
surplus, it would cease to produce it, and
would no longer import anything, being
unable to give an equivalent ; but the
labour and capital which had been
employed in producing with a view to
exportation, would find employment in
producing those desirable objects which
were previously brought from abroad :
or, if some of them could not be pro-
duced, in producing substitutes for
them. These articles would of course
be produced at a greater cost than that
of the things with which they had pre-
viously been purchased from foreign
countries. But the value and price of
the articles would rise in proportion;
and the capital would just as much bf

INTERNATIONAL TRADE.

replaced, with the ordinary profit, from
the returns, as it was when employed
in producing for the foreign market.
The only losers (after the temporary
inconvenience of the change) would be
the consumers of the heretofore im-
ported articles ; who would be obliged
either to do without them, consuming
in lieu of them something which they
did not like as well, or to pay a higher
price for them than before.

There is much misconception in the
common notion of what commerce does
for a country. When commerce is
spoken of as a source of national
•wealth, the imagination fixes itself
upon the large fortunes acquired by
merchants, rather than upon the saving
of price to consumers. But the gains
of merchants, when they enjoy no ex-
clusive privilege, are no greater than
the profits obtained by the employment
of capital in the country itself. If it
be said that the capital now employed
in foreign trade could not find employ-
ment in supplying the home market, I
might reply, that this is the fallacy of
general over-production, discussed in a
former chapter : but the thing is in this
particular case too evident, to require
an appeal to any general theory. We
not only see that the capital of the
merchant would find employment, but
we see what employment. There would
be employment created, equal to that
which would be taken away. Exporta-
tion ceasing, importation to an equal
value would cease also, and all that
part of the income of the country
which had been expended in imported
commodities, would be ready to expend
itself on the same things produced at
home, or on others instead of them.
Commerce is virtually a mode of cheap-
ening production ; and in all such cases
the consumer is the person ultimately
benefited; the dealer, in the end, is
sure to get his profit, whether the buyer
obtains much or little for his money.
This is said without prejudice to the
effect (already touched upon, and to
be hereafter fully discussed) which the
cheapening of commodities may have
in raising profits; in the case when
the commodity cheapened, being one
of those consumed by labourers, enters

into the cost of labour, by which tho
rate of profits is determined.

§ 5. Such, then, is the direct eco-
nomical advantage of foreign trade.
But th-jre are, besides, indirect eft'ecta,
which must be counted as benefits of
a high order. One is, the tendency of
every extension of the market to im-
prove the processes of production. A
country which produces for a larger
market than its own, can introduce a
more extended division of labour, can
make greater use of machinery, and is
more likely to make inventions and
improvements in the processes of pro-
duction. Whatever causes a greater
quantity of anything to be produced
in the same place, tends to the general
increase of the productive powers of
the world.* There is another con-
sideration, principally applicable to an
early stage of industrial advancement.
A people may be in a quiescent, in-
dolent, uncultivated state, with all
their tastes either fully satisfied or
entirely undeveloped, and they may
fail to put forth the whole of their pro-
ductive energies for want of any suffi-
cient object of desire. The opening of
a foreign trade, by making them ac-
quainted with new objects, or tempting
them by the easier acquisition of things
which they had not previously thought
attainable, sometimes works a sort of
industrial revolution in a country whose
resources were previously undeveloped
for want of energy and ambition in
the people : inducing those who were
satisfied with scanty comforts and little
work, to work harder for the gratifica-
tion of their new tastes, and even to
save, and accumulate capital, for tho
still more complete satisfaction of those
tastes at a future time.

But the economical advantages of
commerce are surpassed in importance
by those of its effects, which are in-
tellectual and moral. It is hardly pos-
sible to overrate the value, in the pre-
sent low state of human improvement,
of placing human beings in contact
with persons dissimilar to themselves,
and with modes of thought

* Vide supra, book i. ch. ix. $ 1,

BOOK III. CHAPTER XVIII. § 1.

unlike those with which they are fami-
liar. Commerce is now, what war once
was, the principal source of this con-
tact. Commercial adventurers from
more advanced countries have gene-
rally been the first civilizers of bar-
barians. And commerce is the purpose
of the far greater part of the communi-
cation which takes place between civi-
lized nations. Such communication
has always been, and is peculiarly in
the present age, one of the primary
sources of progress. To human beings,
•who, as hitherto educated, can scarcely
cultivate even a good quality without
running it into a fault, it is indispen-
sable to be perpetually comparing their
own notions and customs with the expe-
rience and example of persons in dif-
ferent circumstances from themselves :
and there is no nation which does not
need to borrow from others, not merely
particular arts or practices, but essen-

tial points of character in which it«
own type is inferior. Finally, com-
merce first taught nations to see with
good-will the wealth and prosperity of
one another. Before, the patriot, un-
less sufficiently advanced in culture to
feel the world his country, wished all
countries weak, poor, and ill-governed,
but his own: he now sees in their
wealth and progress a direct source of
wealth and progress to his own country.
It is commerce which is rapidly ren-
dering war obsolete, by strengthening
and*multiplying the personal interests
which are in natural opposition to it.
And it may be said without exaggera-
tion, that the great extent and rapid
increase of international trade, in being
the principal guarantee of the peace of
the world, is the great permanent se-
curity for the uninterrupted progress of
the ideas, the institutions, and the cha-
racter of the human race.

CHAPTER XVIII.

OF INTERNATIONAL VALUES.

§ 1. THE values of commodities
produced at the same place, or in
places sufficiently adjacent for capital
to move freely between them — let us
say, for simplicity, of commodities
produced in the same country — depend
(temporary fluctuations apart) upon
iheir cost of production. But the value
of a commodity brought from a distant
nlace, especially from a foreign country,
uoes not depend on its cost of produc-
tion in the place from whence it conies.
On what, then, does it depend? The
value of a thing in any place, depends
on the cost of its acquisition in that
place ; which in the case of an imported
article, means the cost of production of
the thing which is exported to pay
for it.

Since all trade is in reality barter,
money being a mere instrument for
exchanging things against one another,
w» will, for simplicity, begin by sup-
posing the international trade to be in

form, what it always is in reality, an
actual trucking of one commodity
against another. As far as we have
hitherto proceeded, we have found all
the laws of interchange to be essen-
tially the same, whether money is used
or not; money never governing, but
always obeying, those general laws.

If, then, England imports wine from
Spain, giving for every pipe oi' wine
a bale of cloth, the exchange value
of a pipe of wine in England will
not depend upon what the produc-
tion of the wine may have cost in
Spain, but upon what the production
of the cloth has cost in England.
Though the wine may have cost
in Spain the equivalent of only tea
days labour, yet, if the cloth costs in
England twenty days labour, the wine,
when brought to England, will ex-
change for the produce of twenty days
English labour, plus the cost of car-
riage; including the usual profit on th»

INTERNATIONAL VALUES.

85.1

importer's capital during the time it is
locked up, and withheld from other
employment.

The value, then, in any country, of
a foreign commodity, depends on the
quantity of home produce which must
be given to the foreign country in ex-
change for it. In other words, the
values of foreign commodities depend
on the terms of international exchange.
AY hat, then, do these depend upon?
\Vhat is it, -which, in the case sup-
posed, causes a pipe of wine from Spam
to bo exchanged with England for
exactly that quantity of cloth? Wo
have seen that it is not their cost of
production. If the cloth and the wine
were both made in Spain, they would
exchange at their cost of production in
Hp.-iin ; if they were both made in
England, they would exchange at their
cost of production in England : but all
the cloth being made in England, and
all the wine in Spain, they are in cir-
cumstances to which we have already
determined that the law of cost of pro-
duction is not applicable. We must
accordingly, as we have done before in
a similar embarrassment, fall back
upon an antecedent law, that of supply
and demand: and in this we shall
iigain find the solution of our difficulty.

I have discussed this question in a
separate Essay, already once referred
to ; and a quotation of part of the
exposition then given, will be the best
introduction to my present view of the
subject. I must give notice that we
are now in the region of the most
complicated questions which political
economy affords ; that the subject is
OHO which cannot possibly bo made
elementary ; and that a more continu-
ous effort of attention than has yet
been required, will be necessary to
follow the series of deductions. The
thread, however, which we are about
to take in hand, is in itself very simple
and manageable ; the only difficulty is
in following it through the windings
and entanglements of complex interna-
tional transactions.

§ 2. "When the trade is csta-
1'li-hril between the two countries, the
two commodities will exchange for

each other at the same rate of inter-
change in both countries — bating the
cost of carriage, of which, for the pre-
sent, it will be more convenient to omit
the consideration. Supposing, there-
fore, for the sake of argument, that the
carriage of the commodities from one
country to the other could be effected
without labour and without cost, no
sooner would the trade be opened than
the value of the two commodities, esti-
mated in each other, would come to a
level in both countries.

" Suppose that 10 yards cf broad-
cloth cost in England as much labour
as 15 yards of linen, and in Germany
as much as 20." In common with
most of my predecessors, I find it ad-
visable, in these intricate investiga-
tions, to give distinctness and fixity to
the conception by numerical examples.
These examples must sometimes, as in
the present case, be purely suppositi-
tious. I should have preferred real
ones ; but all that is essential is, that
the numbers should be such as admit
of being easily followed through the
subsequent combinations into which
they enter.

This supposition then being made,
it would be the interest of England to
import linen from Germany, and of
Gei-many to import cloth from England.
"When each country produced both
commodities for itself, 10 yards of cloth
exchanged for 15 yards of linen in
England, and for 20 in Germany. They
will now exchange for the same number
of yards of linen in both. For what
number ? If for 15 yards, England
will be just as she was, and Germany
will gain all. If for 20 yards, Germany
will be as before, and England will
derive the whole of the benefit. If for
any number intermediate between 15
and 20, the advantage will be shared
between the two countries. If, for
example, 10 yards of cloth exchange
for 18 of linen, England will gain an
advantage of 3 yards on every 15,
Germany will save 2 out of every 20.
The problem is, what are tho causes
which determine the proportion in
which the cloth of England and thu
linen of Germany wi 1 exchange for
each other.

AA

3.54

" As exchange value, in this case as
in every other, is proverbially fluctu-
ating, it does not matter \vhat we
tuppose it to be when we begin : we
shall soon see whether there be any
fixed point about which it oscillates,
which it has a tendency always to
approach to, and to remain at. Let
us suppose, then, that by the effect of
what Adam Smith calls the higgling
of the market, 10 yards of cloth, in
both countries, exchange for 17 yards
of linen.

" The demand for a commodity, that
is, the quantity of it which can find a
purchaser, varies, as we have before
remarked, according to the price. In
Germany the price of 10 yards of cloth
is now 17 yards of linen, or whatever
quantity of money is equivalent in
Germany to 17 yards of linen. Now,
that being the price, there is some
particular number of yards of cloth,
which will be in demand, or will find
purchasers, at that price. There is some
given quantity of cloth, more than
which could not be disposed of at that
price ; less than which, at that price,
would not fully satisfy the demand.
Let us suppose this quantity to be 1000
times 10 yards.

"Let us now turn our attention to
England. There, the price of 1 7 yards
of linen is 10 yards of cloth, or what-
ever quantity of money is equivalent
in England to 10 yards of cloth.
There is some particular number
of yards of linen which, at that
price, will exactly satisfy the de-
mand, and no more. Let us suppose
that this number is 1000 times 17
yards.

" As 1 7 yards of linen are to 1 0 yards
of cloth, so are 1000 times 17 yards to
1000 times 10 yards. At the existing
exchange value, the linen which Eng-
land requires will exactly pay for the
quantity of cloth which, on the same
terms of interchange, Germany re-
quires. The demand on each side is
precisely sufficient to carry off the
supply on the other. The conditions
required by the principle of demand
and supply are fulfilled, and the two
commodities will continue to be inter-
changed, as we supposed them to be,

BOOK III. CHAPTER XV11I. g 2.

in the ratio of 17 yards of linen for 10
yards of cloth.

" But our suppositions might have
been different. Suppose that, at the
assumed rate of interchange, England
had been disposed to consiime no
greater quantity of linen than 800
times 17 yards : it is evident that, at
the rate supposed, this would not have
sufficed to pay for the 1000 times 10
yards of cloth which we have supposed
Germany to require at the assumed
value. Germany would be able to
procure no more than 800 times 10
yards at that price. To procure the
remaining 200, which she would have
no means of doing but by bidding
higher for them, she would offer more
than 17 yards of linen in exchange for
10 yards of cloth : let us suppose her
to offer 18. At this price, perhaps,
England would be inclined to purchase
a greater quantity of linen. She would
consume, possibly, at that price, 900
times 18 yards. On the other hand,
cloth having risen in price, the demand
of Germany for it would probably have
diminished. If, instead of 1000 times
10 yards, she is now contented with
900 times 10 yards, these will exactly
pay for the 900 times 18 yards of linen
which England is willing to take at
the altered price : the demand on each
side will again exactly suffice to take
off the corresponding supply; and 10
yards for 18 will be the rate at which,
in both countries, cloth will exchange
for linen.

" The converse of all this would have
happened, if, instead of 800 times 17
yards, we had supposed that England,
at the rate of 10 for 17, would havo
taken 1200 times 17 yards of linen. In
this case, it is England whose demand
is not fully supplied; it is England
who, by bidding for more linen, will
alter the rate of interchange to her
own disadvantage; and 10 yards of
cloth will fall, in both countries, below
the value of 17 yards of linen. By tln.s
fall of cloth, or what is the same thing,
this rise of linen, the demand of Ger-
many for cloth will increase, and the
demand of England for linen will
diminish, till the rate of interchange
has so adjusted itself that the cloTli

INTERNATIONAL VALUES.

865

and tlio linen will exactly pay for one
another; and when once this point is
attained, values will remain without
limber alteration.

"It may be considered, therefore, as
established, that when two countries
trade together in two commodities, the
exchange value of these commodities
relatively to each other will adjust
itself to the inclinations and circum-
stances of the consumers on both sides,
in such manner that the quantities
required by each country, of the articles
which it imports from its neighbour,
shall be exactly sufficient to pay for
one another. As the inclinations and
circumstances of consumers cannot be
reduced to any rule, so neither can the
proportions in which the two commo-
dities will be interchanged. We know
that the limits within which the varia-
tion is confined, are the ratio between
their costs of production in the one
country, and the ratio between their
costs of production in the other. Ten
yards of cloth cannot exchange for
more than 20 yards of linen, nor for
less than 15. But they may exchange
for any intermediate number. The
ratios, therefore, in which the advan-
tage of the trade may be divided be-
tween the two nations, are various.
The circumstances on which the pro-
portionate share of each country more
remotely dependa, admit only of a very
general indication.

"It is even possible to conceive an
extreme case, in which the whole of
the advantage resulting from the inter-
change would be reaped by one party,
the other country gaining nothing at
all. There is no absurdity in the
hypothesis that, of some given com-
modity, a certain quantity is all that
is wanted at any price ; and that, when
that quantity is obtained, no fall in the
exchange value would induce other
consumers to come forward, or those
who are already supplied, to take more.
Let us suppose that this is the case in
Germany with cloth. Before her trade
with England commenced, when 10
yards of cloth cost her as much labour
as 20 yards of linen, she nevertheless
consumed as much, cloth as she wanted
under any circumstances, and, if she

could obtain it at the rate of 10 yards
of cloth for 15 of linen, she would not
consume more. Let this fixed quantity
be 1000 times 10 yards. At the rate,
however, of 10 for 20, England would
want more linen than would be equi-
valent to this quantity of cloth. Sho
would, consequently, offer a higher
value for linen ; or, what is the- samo
thing, she would offer her cloth at a
cheaper rate. But, as by no lowering
of the value could she prevail on Ger-
many to take a greater quantity of
cloth, there would be no limit to the
rise of linen or fall of cloth, until the
demand of England for linen was re-
duced by the rise of its value, to the
quantity which 1000 times 10 yards of
cloth would purchase. It might be,
that to produce this diminution of the
demand a less fall would not suffice
than that which would make 10 yards
of cloth exchange for 15 of linen.
Germany would then gain the whole of
the advantage, and England would be
exactly as she was before the trade
commenced. It would be for the in-
terest, however, of Germany herself to
keep her linen a little below the value
at which it could be produced in Eng-
land, in order to keep herself from
being supplanted by the home pro-
ducer. England, therefore, would
always benefit in some degree by the
existence of the trade, though it might
be a very trifling one."

In this statement, I conceive, is con-
tained the first elementary principle of
International Values. 1 have, as is
indispensable in such abstract and hy-
pothetical cases, supposed the circum-
stances to be much less complex than
they really are : in the first place by
suppressing the cost of carriage : next,
by supposing that there are only two
countries trading together ; and lastly,
that they trade only in t\vo commodi-
ties. To render the exposition of the
principle complete, it is necessnrv to
restore the various circumstances, thus
temporarily left out to simplify the
argument. Those who are accustomed
to any kind of scientific investigation
will probably see, without formal proof,
that the introduction of these circum-
stances cannot alter the theory of the
A A 2

856

BOOK III. CHAPTER XV1T1. § 4.

subject. Trade among any number of
countries, and in any number of com-
modities, must take place on the same
essential principles as trade between
two countries and in two commodities.
Introducing a greater number of agents
precisely similar, cannot change the
law of their action, no more than
putting additional weights into the
two scales of a balance alters the law
of gravitation. It alters nothing but
the numerical results. For more com-
plete satisfaction, however, we will
enter into the complex cases with the
«ame particularity with which, vre have
stated the simpler one.

§ 3. First, let us introduce the ele-
ment of cost of carriage. The chief
difference will then be, that the clo^h
and the linen will no longer exchange
for each other at precisely the same
rate in both countries. Linen, having
to be carried to England, will be dearer
there by its cost of carriage ; and cloth
will be dearer in Germany by the cost
of carrying it from England. Linen,
estimated in cloth, will be dearer in
England than in Germany, by the cost
ot carnage of both articles . and so will
cloth in Germany, estimated in linen.
Suppose that the cost of carriage of
each is equivalent to one yard of linen ;
and suppose that, if they could have
been carried without cost, the terms of
interchange would have been 10 yards
of cloth for 17 of linen. It may seem
at first that each country will pay its
own cost of carriage ; that is, the car-
riage of the article it imports ; that in
Germany 10 yards" of cloth will ex-
change for 18 of linen, namely, the
original 17, and 1 to cover the cost of
carriage of the cloth ; while in Eng-
land, 10 yards of cloth will only pur-
; chase 16 of linen, 1 yard being de-
, ducted for the cost of carnage of the
' linen. This, however, cannot be af-
lirmed with certainty ; it will only be
true, if the linen which the English
consumers would take at the price of
10 for 16, exactly pays for the cloth
which the German consumers would
take at 10 for 18. The values, what-
ever they are, must establish this equi-
librium. No absolute rule, therefore,

can be laid down for the division of the
cost, no more than for the division of
the advantage : and.it does not follow
that in whatever ratio the one is di-
vided, the other will be divided in the
same. It is impossible to say, if the
cost of carriage could be annihilated,
whether the producing or the importing
country would be most benefited. This
would depend on the play of interna-
tional demand.

Cost of carriage has one effect more.
But for it, every commodity would (if
trade be supposed free) be either regu-
larly imported or regularly exported.
A country would make nothing for
itself which it did not also make for
other countries. But in consequence
of cost of carriage there are many
things, especially bulky articles, which
every, or almost every country pro-
duces within itself. After exporting
the things in which it can employ itself
most advantageously, and importing
those in which it is under the greatest
disadvantage, there are many lying
between, of which the relative cost of
production in that and in other countries
differs so little, that the cost of carriage
would absorb more than the whole
saving in cost of production which
would be obtained by importing one
and exporting another. This is the
case with numerous commodities of
common consumption ; including the
coarser qualities of many articles of
food and manufacture, of which the
finer kinds are the subject of extensive
international traffic.

§ 4. Let us now introduce a greater
number of commodities than the two
we have hitherto supposed. Let cloth
and linen, however, be still the articles
of which the comparative cost of pro-
duction in England and in Germany
dill'ers the most ; so that if they wero
confined to two commodities, these
would be the two which it would be
most their interest to exchange. We
will now again omit cost of carriage,
which, having been shown not to affect
the essentials of the question, does but
embarrass unnecessarily the statement
of it. Let us suppose, then, that the
demand of England for linen, is either

INTERNATIONAL VAiA'ES.

357

§o mncli greater than that of Germany
for cloth, or BO much more extensible hy
cheapness, that if England had no com-
modity but cloth which Germany would
take, the demand of England would
force up the terms of interchange to 10
yards of cloth for only 1 6 of linen, so
that England would gain only the dif-
ference between 15 and 16, Germany
the difference between 16 and 20. But
let us now suppose that England has
also another commodity, say iron,
which is in demand in Germany, and
that the quantity of iron which is of
equal value in England with 10 yards
of cloth, (let us call this quantity a
hundred weight) will, if produced in
Germany, cost as much labour as 18
vards of linen, so that if offered by Eng-
land for 17, it will undersell the Ger-
man producer. In these circumstances,
linen will not be forced up to the rate
of 16 yards for 10 of cloth, hut will stop,
suppose at 17; for although at that
rate of interchange, Germany will not
take enough cloth to pay for all the
linen required by England, she will
take iron for the remainder, and it is
the same thing to England whether she
gives a hundred weight of iron or 10
yards of cloth, both being made at the
same cost. If we now superadd coals
or cottons on the side of England, and
wine, or corn, or timber, on the side of
Germany; it will make no difference in
the principle. The exports of each
country must exactly pay for the im-
ports ; meaning now the aggregate ex-
ports and imports, not those of par-
ticular commodities taken singly. The
produce of fifty days English labour,
whether in cloth, coals, iron, or any
other exports, will exchange for the
produce of forty, or fifty, or sixty days
German labour, in linen, wine, corn, or
timber, according to the international
demand. There is some proportion at
which the demand of the two countries
for each other's products will exactly
correspond ; so that the things
supplied by England to Germany
will be completely paid for, and
no more, by those supplied by Ger-
many to England. This accordingly
will be the ratio in which the pro-
duce of English and the produce of

German labour will exchange for one
another.

If, therefore, it be asked what country
draws to itself the greatest share of the
advantage of any trade it carries on,
the answer is, the country for whose
productions there is in other countries
the greatest demand, and a demand
the most susceptible of increase from
additional cheapness. In so far as the
productions of any country possess this
property, the country obtains all foreign
commodities at less cost. It gets its im-
ports cheaper, the greater the intensity
of the demand in foreign countries for
its exports. It also gets its imports
cheaper, the less the extent and in.
tensity of its own demand for them.
The market is cheapest to those whoso
demand is small. A country which
desires few foreign productions, and
only a limited quantity of them, whila
its own commodities are in great re-
quest iniforeign countries, will obtain
its limited imports at extremely small
cost, that is, in exchange for the pro-
duce of a very small quantity of its
labour and capital.

Lastly, having introduced more than
the original two commodities into the
hypothesis, let us also introduce more
than the original two countries. After
the demand of England for the linen of
Germany has raised the rate of inter-
change to 10 yards of cloth 'for 16 of
linen, suppose a trade opened between
England and some other country which
also exports linen. And let us suppose
that if England had no trade but with
this third country, the play of interna-
tional demand would enable her to ob-
tain from it, for 10 yards of cloth or its
equivalent, 17 yards of linen. She
evidently would not go on buying linen
from Germany at the former rate : Ger-
many would be undersold, and must
consent to give 1 7 yards, like the other
country. In this case, the circum-
stances of production and of demand in
the third country are supposed to he in
themselves more advantageous to Eng-
land than the circumstances of Ger-
many ; but this supposition is not ne-
cessary : we might suppose that if the
trade with Germany did not exist, Eng-
land would be obliged to give to tlip

BOOK III. CHAPTER XVIII. § 5.

other country the same advantageous
terms which she gives to Germany; 10
yards of cloth for 1 6, or even less than
1 6, of linen. Even so, the opening of the
third country makes a great difference
hi favour of England. There is now a
double market for English exports,
while the demand of England for linen
is only what it was before. This
necessarily obtains for England more
advantageous terms of interchange.
The two countries, requiring much
more of her produce than was required
by either alone, must, in order to ob-
tain it, force an increased demand for
their exports, by offering them at a
lower value.

It deserves notice, that this effect in
favour of England from the opening of
another market for her exports, will
equally be produced even though the
country from which the demand comes
should have nothing to sell which Eng-
land is willing to take. Suppose that
the third country, though requiring
cloth or iron from England, produces
no linen, nor any other article which
is in demand there. She however pro-
duces exportable articles, or she would
have no means of paying for imports :
her exports, though not suitable to the
English consumer, can find a market
somewhere. As we are only supposing
three countries, we must assume her to
find this market in Germany, and to
pay for what she imports from England
by orders on her German customers.
Germany, therefore, besides having to
pay for her own imports, now owes a
debt to England on account of the
third country, and the means for both
purposes must be derived from her ex-
portable produce. She must therefore
tender that produce to England on
terms sufficiently favourable to force a
demand equivalent to this double debt.
Everything will take place precisely as
if the third country had bought Ger-
man produce with her own goods, and
offered that produce to England in ex-
change for hers. There is an increased
demand for English goods, for which
German goods have to furnish the pay-
ment ; and this can only be done by
forcing an increased demand for them
vn England, that is, by lowering their

value. Thus an increase of demand
for a country's exports in any foreign
country, enables her to obtain more
cheaply even those imports which sho
procures from other quarters. And
conversely, an increase of her own de-
mand for any foreign commodity com-
pels her, cceteris parfais, to pay dearer
for all foreign commodities.

The law which we have now illus-
trated, may be appropriately named,
the Equation of International Demand*
It may be concisely stated as follows.
The produce of a country exchanges for
the produce of other countries, at such
values as are required in order that the
whole of her exports may exactly pay
for the whole of her imports. This law
of International Values is but an ex-
tension of the more general law of
Value, which we called the Equation of
Supply and Demand.* We have seen
that the value of a commodity always
so adjusts itself as to bring the demand
to the exact level of the supply. But
all trade, either between nations or
individuals, is an interchange of com-
modities, in which the things that they
respectively have to sell, constitute
also their means of purchase : the supply
brought by the one constitutes kis de-
mand for what is brought by the other.
So that supply and demand are but
another expression for reciprocal de-
mand : and to say that value will adjust
itself so as to equalize demand with
supply, is in fact to say that it will ad-
just itself so as to equalize the demand
on one side with the demand on the
other.

§ 5. To twee the consequences of
this law of InternationalValues through
their wide ramifications, would occupy
more space than can be here devoted
to such a purpose. But there is one-
of its applications which I will notice,
as being in 'itself not unimportant, as
bearing on the question which will
occupy us in the next chapter, and
especially as conducing to the more
full and clear understanding of the la\7
itself.

AVe have seen that the value at which
a country purchases a foreign comuio
• Supra, book Hi. ch. ii, | 4

INTERNATIONAL VALUES.

859

dity, docs not conform to the cost of
production in the country from which
the commodity comes. Suppose now a
change in that cost of production ; an
improvement, for example, in the pro-
cess of manufacture. Will the benefit of
the improvement be fully participated
in by other countries ? "\\ ill the com-
modity be sold as much cheaper to
foreigners, as it is produced cheaper at
htrue ? This question, and the consi-
derations which must be entered into
in order to resolve it, are well adapted
to try the worth of the theory.

Let us first suppose, that the im-
provement is of a nature to create a new
branch of export : to make foreigners
resort to the country for a commodity
which they had previously produced at
home. On this supposition, the foreign
demand for the productions of the
country is increased ; which necessarily
alters the international values to its
advantage, and to the disadvantage of
foreign countries, who, therefore, though
they participate in the benefit of the
new product, must purchase that benefit
by paying for all the other productions
of the country at a dearer rate than be-
fore. How much dearer, will depend
on the degree necessary for re-establish-
ing, under these new conditions, the
Equation of International Demand.
Those consequences follow in a very
obvious manner from the law of inter-
national values, and I shall not occupy
space in illustrating them, but shall
pass to the more frequent case, of an
improvement which does not create a
new article of export, but lowers the
cost of production of something which
the country already exported.

It being advantageous, in discussions
of this complicated nature, to employ
definite numerical amounts, we shall
return to our original example. Ten
yards of cloth, if produced in Germany,
would require the same amount of
labour and capital as twenty yards of
linen ; but, by the play of international
demand, they can be obtained from
England for seventeen. Suppose now,
that by a mechanical improvement
made in Germany, and not capable of
being transferred to England, the same
quantity of labour and capital >vhich

produced twenty yards of linen, is
enabled to produce thirty. Linen falls
one-third in value in the German mar-
ket, as compared with other commodi-
ties produced in Germany. Will it
also fall one-third as compared with.
English cloth, thus giving to England,
in common with Germany, the full
benefit of the improvement ? Or (ought
we not rather to say), since the cost
to England of obtaining linen was not
regulated by the cost to Germany of
producing it, and since England,
accordingly, did not get the entire
benefit even of the twenty yards which
Germany could have given for ten
yards of cloth, but only obtained seven-
teen— why should she now obtain more,
merely because this theoretical limit is
removed ten degrees further off?

It is evident that in the outset, the
improvement will lower the value of
linen in Germany, in relation to all
other commodities in the German mar-
ket, including, among the rest, even
the imported commodity, cloth. If 10
yards of cloth previously exchanged for
17 yards of linen, they will now ex«
change for half as much more, or 25i
yards. But whether they will continue
to do so, will depend on the effect which
this increased cheapness of linen pro-
duces on the international demand.
The demand for linen in England could
scarcely fail to be increased. But it
might be increased either in proportion
to the cheapness, or in a greater pro-
portion than the cheapness, or in a less
proportion.

If the demand was increased in the
same proportion with the cheapness,
England would take as many times 25 J
yards of linen, as the number of times
17 yards which she took previously.
She would expend in linen exactly as
much of cloth, or of the equivalents of
cloth, as much in short of the collective
income of her people, as she did before.
Germany, on her part, would probably
require, at that rate of interchange, the
same quantity of cloth as before, be-
cause it would in reality cost her ex
actly as much ; 25£ yards of linen being
now of the same value in her market,
as 17 yards were before. In this case,
therefore, 10 yards of cloth for 25$ of

360

BOOK m. CHAPTER XVIII. § 6.

linen is the rate of interchange which
under these new conditions would re-
etore the equation of international de-
mand ; and England would ohtain linen
one-third cheaper than before, being
the same advantage as was obtained by
Germany.

It might happen, however, that this
great cheapening of linen would in-
crease the demand foi it in England in
a greater ratio than tlie increase of
cheapness ; and that if she before
•wanted 1000 times 17 yards, she would
now require more than 1000 times 25|
yards to satisfy her demand. If so,
the equation of international demand
cannot establish itself at that rate of
interchange ; to pay for the linen Eng-
land must offer cloth on more advan-
tageous terms : say, for example, 10
yards for 21 of linen ; so that England
will not have the full benefit of the
improvement in the production of linen,
while Germany, in addition to that
benefit, will also pay less for cloth.
tut again, it is possible that England
might not desire to increase her con-
sumption of linen in even so great a
proportion as that of the increased
cheapness ; she might not desire so
great a quantity as 1000 times 25i
yards : and in that case Germany must
force a demand, by offering more than
25£ yards of linen for 10 of cloth ;
linen will be cheapened in England in
a still greater degree than in Germany;
while Germany will obtain cloth on
more unfavourable terms, and at a
higher exchange value than before.

After what has already been said, it
is not necessary to particularize the
manner in which these results might
be modified by introducing into the
hypothesis other countries and other
commodities. There is a further cir-
rumstance by which they may also be
modified. In the case supposed, the
consumers of Germany have had a part
of their incomes set at liberty by the
increased eheapness of linen, which
they may indeed expend in increasing
their consumption of that article, but
which they may, likewise, expend in
other articles, and among others, in
cloth or other imported commodities.
This would be an additional demerit in

the international demand, and would
modify more or less the terms of inter-
change.

Of the three possible varieties in tho
influence of cheapness on demand,
which is the more probable — that the
demand would be increased more than
the cheapness, as much as the cheap-
ness, or less than the cheapness? This
depends on the nature of the particular
commodity, and on the tastes of pur-
chasers. When the commodity is ono
in general request, and the fall of its.
price brings it within the reach of a
much larger class of incomes than be-
fore, the demand is often increased in
a greater ratio than the fall of price,
and a larger sum of money is on the
whole expended in the article. Such
was the case with coffee, when its price
was lowered by successive reductions
of taxation ; and such would probably
be the case' with sugar, wine, and a
large class of commodities which,
though not necessaries, are largely con-
sumed, and in which many consumers
indulge when the articles are cheap
and economize when they are dear.
But it more frequently happens that
when a commodity falls in price, less
money is spent -in it than before : a
greater quantity is consumed, but not
so great a value. The consumer who
saves money by the cheapness of tho
article, will be likely to expend part of
the saving in increasing his consump-
tion of other things : and unless the
low price attracts a large class of new
purchasers who were either not consu-
mers of the article at all, or only in
small quantity and occasionally, a less
aggregate sum will be expended on it.
Speaking generally, therefore, the third
of our three cases is the most probable :
and an improvement in an exportable
article is likely to be as beneficial (if nob
more beneficial) to foreign countries,
as to the country where the article is
produced.

§ G. Thus far had the theory of in-
ternational values been carried in the
first and second editions of this work.
But intelligent criticisms (chiefly those
of my friend Mr. 'William ThnrntonJ
and subsequent further investigation,

INTERNATIONAL VALUES.

361

have shewn that the doctrine stated in
the preceding pages, though correct as
far as it goes, is not yet the complete
theory of the subject matter.

It has been shown that the exports
and imports between the two countries
(or, if we suppose more than two, be-
tween each country and the world)
must in the aggregate pay for each
other, and must therefore be exchanged
for one another at such values as will
be compatible with the equation of in-
ternational demand. That this, how-
ever, does not furnish the complete law
of the phenomenon, appears from the
following consideration : that several
different rates of international value
may all equally fulfil the conditions of
this law.

The supposition was, that England
could produce 10 yards of cloth with
the same labour as 15 of linen, and
Germany with the same labour as 20
of linen ; that a trade was opened be-
tween the two countries ; that England
thenceforth confined her production to
cloth, and Germany to linen ; and, that
if 1 0 yards of cloth should thenceforth
exchange for 17 of linen, England and
Germany would exactly supply each
other's demand : that, for instance, if
England wanted at that price 17,000
yards of linen, Germany would want
exactly the 10,000 yards of cloth,
which, at that price, England would
be required to give for the linen.
Under these suppositions it appeared,
that 10 cloth for 17 linen, would be, in
point of fact, the international values.

But it is quite possible that some
other rate, such as 10 cloth for 18 linen,
might also fulfil the conditions of the
equation of international demand. Sup-
pose that at this last rate, England
would want more linen than at the
rate of 10 for 17, but not in the ratio of
the cheapness ; that she would not want
the 18,000 which she could now buy
with 10,000 yards of cloth, but would
be content with 17,500, for which she
wouLl pay (at the new rate of 10 for
18) 9722 yards of cloth. Germany,
again, having to pay dearer for cloth
than when it could be bought at 10
for 17, would probably reduce her con-
sumption to an amount below 10,000

yards, perhaps to the very same num-
l"r. ',>722. Under these conditions tho
Equation of International Demand
would still exist. Thus, the rate of
10 for 17, and that of 10 for 18, would
equally satisfy the Equation of De-
mand : and many other rates of inter-
change might satisfy it in like manner.
It is conceivable that the conditions
might be equally satisfied by every nu-
merical rate which could be supposed.
There is still, therefore, a portion of
indeterminateness in the rate at which
the international values would adjust
themselves, showing that the whole
of the influencing circumstances can-
not yet have been taken into the
account.

§ 7. It will be found that to supply
this deficiency, we must take into con-
sideration not only, as we have already
done, the quantities demanded in each
country, of the imported commodities ;
but also the extent of the means of
supplying that demand, which are set
at liberty in each country by the
change in the direction of its industry.

To illustrate this point it will be
necessary to choose more convenient
numbers than those which we have
hitherto employed. Let it be supposed
that in England 100 yards of cloth,
previously to the trade, exchanged for
100 of linen, but that in Germany 100
of cloth exchanged for 200 of linen.
When the trade was opened, England
would supply cloth to Germany, Ger-
many linen to England, at an exchange
value which would depend partly on
the element already discussed, viz. tha
comparative degree in which, in the
two countries, increased cheapness
operates in increasing the demand ;
and partly on some other element not
yet taken into account. In order to
isolate this unknown element, it will
be necessary to make some definite and
invariable supposition in regard to the
known element. Let us therefore as-
sume, that the influence of cheapness
on demand conforms to some simple
law, common to both countries and
to both commodities. As the simplest
and most convenient, let us suppose
that in both countries any giveu in-

S62

BOOK III. CHAPTER XVTlIi. § f.

crease of cheapness produces an ex-
actly proportional increase of consump-
tion : or, in other words, that the value
expended in the commodity, the cost
incurred for the sake of obtaining it,
is always the same, whether that cost
affords a greater or a smaller quantity
/)f the commodity.

Let us now suppose that England,
previously to the trade, required a
million of yards of linen, which were
worth," at the English cost of produc-
tion, a million yards of cloth. By
turning all the labour and capital with
which that linen was produced, to the
production of cloth, she would produce
for exportation a million yards of
cloth. Suppose that this is the ex-
act quantity which Germany is accus-
tomed to consume. England can dis-
pose of all this cloth in Germany at
the German price ; she must consent
indeed to take a little less until she has
driven the German producer from the
market, but as soon as this is effected,
she can sell her million of cloth for two
millions of linen ; being the quantity
that the German clothiers are enabled
to make, by transferring their whole
labour and capital from cloth to linen.
Thus England would gain the whole
benefit of the trade, and Germany
nothing. This would be perfectly con-
sistent with the equation of interna-
tional demand : since England (ac-
cording to the hypothesis in the pre-
ceding paragraph) now requires two
millions of linen (being able to get
them at the same cost at which she
previously obtained only one), while
the prices in Germany not being
altered, Germany requires as before
exactly a million of cloth, and can ob-
tain it by employing the labour and
capital set at liberty from the pro-
duction of cloth, in producing the
two millions of linen required by
England.

Thus far, we have supposed that the
additional cloth which England could
make, by transferring to cloth the
whole of the capital previously em-
ployed in making linen, was exactly
sufficient to supply the whole of Ger-
many's existing demand. But suppose
next that rl ia auore than sufficient.

Suppose that while England could
make with her liberated capital a
million yards of cloth for exportation,
the cloth which Germany had hereto-
fore required was 800,000 yards only,
equivalent at the German cost of pro-
duction to 1,600,000 yards of linen.
England therefore could not dispose
of a whole million of cloth in Germany
at the German prices. Yet she wants,
whether cheap or dear (by our suppo-
sition), as much linen as can be bought
for a million of cloth : and since this
can only be obtained from Germany, or
by the more expensive process of
production at home, the holders of the
million of cloth will be forced by each
other's competition to offer it to Ger-
many on any terms (short of the
English cost of production) which will
induce Germany to take the whole.
What terms these would be, the sup-
position we have made enables us
exactly to define. The 800,000 yard.s
of cloth which Germany consumed,
cost her the equivalent of 1,600,000
linen, and that invariable cost is what
she is willing to expend in cloth,
whether the quantity it obtains for
her be more or less. England, there-
fore, to induce Germany to take a mil-
lion of cloth, must offer it for 1,600.000
of linen. The international values
will thus be 100 cloth for 160 linen,
intermediate between the ratio of the
costs of production in England and
that of the costs of production in
Germany : and the two countries will
divide the benefit of the trade, England
gaining in the aggregate 600,000
yards of linen, and Germany being
richer by 200,000 additional yards of
cloth.

Let us now stretch the last supposi-
tion still farther, and suppose that the
cloth previously consumed by Germany
was not only less than the million
yards which England is enabled ta
furnish by discontinuing her production
of linen, but less in the full proportion
of England's advantage in the produc-
tion, that is, that Germany only re-
quired half a million. In this case,
by ceasing altogether to produce cloth,
Germany can add a million, but a
million only, to her production of linen,

IN T I • RNATIONAL VALUES.

363

and this million being the equivalent
of what the half million previously
cost her, is all that she can be induced
by any degree of cheapness to expend
in cloth. England will be forced by
IHT own competition to give a whole
million of cloth for this million of linen,
.-lie was forced in the preceding
case to give it for 1,600,000. But
England could have produced at the
same cost a million yards of linen for
hermit'. England therefore derives, in
this case, no advantage from the inter-
national trade. Germany gains the
whole ; obtaining a million of cloth
instead of half a million, at what the
half million previously cost her. Ger-
many, in short, is, in this third case,
exactly in the same situation as Eng-
land was in the first case ; which may
be verified by reversing the
figures.

As the general result of the three
cases, it maybe laid down as a theorem,
that under the supposition we Lave
made of a demand exactly in propor-
tion to the cheapness, the law of
international value will be as fol-
lows : —

The whole of the cloth which Eng-
land can make with the capital pre-
viously devoted to linen, will exchange
for the whole of the linen which Ger-
many can make with the capital pre-
viously devoted to cloth.

Or, still more generally,

The whole of the commodities which
the two countries can respectively make
for exportation, with the labour and
capital thrown out of employment by
importation, will exchange against one
another.

This law, and the three different
possibilities arising from it in respect
to the division of the advantage, may
be conveniently generalized by means
of algebraical symbols, as follows: —

Let the quantity of cloth which
England can make with the labour and
capital withdrawn from the production
of linen, be = n.

Let the cloth previously required
by Germany (at the German cost of
production) be = m.

Then n of cloth will always ex-
change for exactly "2m of linen.

Consequently if n — m, the whole
advantage will be on the side of Eng-
land.

If n = 2m, the whole advantage will
be on the side of Germany.

If n be gi eater than m, but less than
2m, the two countries will share the
advantage ; England getting 2m of
linen where she before got only n;
Germany getting n of cloth where she
before got only m.

It is almost superfluous to observe
that the figure 2 stands where it does,
only because it is the figure which ex-
presses the advantage of Germany over
England in linen as estimated in cloth,
and (what is the same thing) of Eng-
land over Germany in cloth as esti-
mated in linen. If we had supposed
that in Germany, before the trade, 100
of cloth exchanged for 1000 instead of
200 of linen, then n (after the trade
commenced) would have exchanged for
IQm instead of 2m. If instead of 1000
or 200 we had supposed only 150, n

would have exchanged

for only -m.

If (in fine) the cost value of cloth (as
estimated in linen) in Germany, ex-
ceeds the cost value similarly estimated
in England, in the ratio of p to q, then
will n, after the opening of the trade,

exchange for -
2

§ 8. We have now arrived at what
seems a law of International Values, of
great simplicity and generality. But
we have done so by setting out from »

* It may be asked, why we have supposed
the number n to have as its extreme limits,

m and 2n> (or 2-m) ? why may not n be less

1

than m, or greater than 2m ; and if so, wh&l
will be the result ?

This we shall now examine, and when we
do so it will appear that n is always, practi-
cally speaking, confined within these limits.

Suppose for example that n is less than m ;
or, reverting to our former figures, that the
million yards of cloth, which England can
make, will not satisfy the whole of Germany's
pre-existing demand; that demand being (let
us suppose) for 1,200,000 yards. It would
then, at first sight, appear that England
would supply Germany with cloth up to the
extent of a million; that Germany would
continue to supply herself with the remain-
ing 200,000 bj home production; tr»t tliit

S64

LOOK III. CHAPTER XVIII. § 8.

purely arbitrary hypothesis respecting
the relation between demand and
cheapness. We have assumed their
relation to be fixed, though it is essen-
tially variable. We have supposed
that every increase of cheapness pro-
duces an exactly proportional extension
of demand ; in other words, that the
same invariable value is laid out in a
commodity whether it be cheap or dear ;
and the law which we have investi-
gated holds good only on this hypo-
thesis, or gome other practically equi-
valent to it. Let us now, therefore,
combine the two variable elements of
the question, the variations of each
of which we have considered sepa-
rately. Let us suppose the relation
between demand and cheapness to
vary, and to become such as would
prevent the rule of interchange laid
down in the last theorem from satis-
fying the conditions of the Equation
of International Demand. Let it be
supposed, for instance, that the demand

portion of the supply would regulate the price
of the whole ; that England therefore would
be able permanently to sell her million of
cloth at the German cost of production (viz.
for two millions of linen) and would gain the
wl-ole advantage of the trade, Germany being
no better off than before.

That such, however, would not be the
practical result, will soon be evident. The
residuary demand of Germany for 200,000
yards of cloth furnishes a resource to Eng-
land for purposes of foreign trade of which it
is still her interest to avail herself; and
though she has no n:ore labour and capital
which she can withdraw from linen for the
production of this extra quantity of cloth,
there must be some other commodities in
which Germany has a relative advantage
over her (though perhaps not so great as in
linen) : these she will now import, instead of
producing, and the labour and capital for-
merly employed in producing them will be
transferred to cloth, until the required
amount is made up. If this transfer just
makes up the 200,000 and no more, this aug-
mented n will now be equal to m ; England
will sell the whole 1,200,000 at the German
values; and will still gain the whole advan-
tage of the trade. But if the transfer makes
up more than the 200,000, England will have
more cloth than 1,200,000 yards to offer; M will
become greater than m, and England must
part with enough of the advantage to induce
Germany to take the surplus. Thus, the case
which seemed at first sight to be beyond the
limits, is transformed practically into a case
either coinciding with one of the limits, or
between them. And so with every other
c«*e which can be supposed.

of England for linen is exactly propor-
tional to the cheapness, but that of
Germany for cloth, not proportional.
To revert to the second of our three
cases, the case in which England by
discontinuing the production of linen
could produce for exportation a million
yards of cloth, and Germany by ceas-
ing to produce cloth could produce an
additional 1,600,000 yards of linen.
If the one of these quantities exactly
exchanged for the other, the demand
of England would on our present sup-
position be exactly satisfied, for sho
requires all the linen which can be got
for a million yardp of cloth : but Ger-
many perhaps, though she required
800,000 cloth at a cost equivalent to
1,600,000 linen, yet when she can get
a million of cloth at the same cost, may
not require the whole million ; or may
require more than a million. First,
let her not require so much ; but only
as much as she can now buy for
1,500,000 linen. England will still
offer a million for these 1,500,000;
but even this may not induce Germany
to take so much as a million ; and if
England continues to expend exactly
the same aggregate cost on linen
whatever be the price, she will have to
submit to take for her million of cloth
any quantity of linen (not less than a
million) which may be requisite to in-
duce Germany to take a million of
cloth. Suppose this to be 1,400,000
yards. England has now reaped from
the trade a gain not of 600,000 but
only of 400,000 yards ; while German}',
besides having obtained an extra
200,000 yards of cloth, has obtained it
with only seven-eighths of the labour
and capital which she previously ex-
pended in supplying herself with cloth,
and may expend the remainder in in-
creasing her own consumption of linen,
or of any other commodity.

Suppose on the contrary that Ger-
many, at the rate of a million cloth
for 1,600,000 linen, requires more than
a million yards of cloth. England
having only a million which she can
give without trenching upon the quan-
tity she previously reserved for herself.
Germany must bid for the extra cloth
at a higher rate than ICO for 100,

INTERNATIONAL VALUES.

365

tintil she readies a rate (say 170 for
1 00) which will cither bring down her
own demand for cloth to the limit of a
million, or else tempt England to part
with some of the cloth she previously
consumed at home.

Let us next suppose that the pro-
portionality of demand to cheapness,
iistcad of holding good in one country
but not in the other, does not hold
good in either country, and that the
deviation is of the same kind in both ;
that, for instance, neither of the two
increases its demand in a degree equi-
valent to the increase of cheapness.
On this supposition, at the rate of one
million cloth for 1,600,000 linen, Eng-
land will not want so much as 1,600,000
linen, nor Germany so much as a
million cloth : and if they fall short of
that amount in exactly the same
degree ; if England only wants linen
to the amount of nine-tenths of
1,600,000 (1,440,000), and Germany
only nine hundred thousand of cloth,
the interchange will continue to take
place at the same r^te. And so if
England wants a tenth more than
1,600,000, and Germany a tenth more
than a million. This coincidence
(which, it is to be observed, supposes
demand to extend cheapness in a cor-
responding, but not in an equal de-
gree*) evidently could not exist unless
by mere accident : and in any other
case, the equation of international de-
mand would require a different adjust-
ment of international values.

The only general law, then, which
can be laid down, is this. The values
at which a country exchanges its pro-
duce with foreign countries depend on
two things : first, on the amount and
extensibility of their demand for its
commodities, compared with its de-
mand for theirs ; and secondly, on the
capital which it has to spare, from the
production of domestic commodities

* The increase of demand from 800,000 to
iJOO.OOO, and that from a million to 1,440,000,
are neither equal in themselves, nor bear an
equal proportion to the increase of cheapness.
Germany's demand for cloth has increased
one-eighth, while the cheapness is increased
one-fourth. England's demand for linen is
increased 44 per cent, while the cheapness is
increased 60 per cent.

for its own consumption. The more
the foreign demand for its commodities
exceeds its demand for foreign commo
dities, and the less capital it can spare
to produce for foreign markets, com-
pared with what foreigners spare to
produce for its markets, the more fa-
vourable to it will be the terms of
interchange: that is, the more it
will obtain of foreign commodities
in return for a given quantity of its
own.

But these two influencing circum-
stances are in reality reducible to one :
for the capital which a country has to
spare from the production of domestic
commodities for its own use, is in pro-
portion to its own demand for foreign
commodities: whatever proportion of
its collective income it expends in pur-
chases from abroad, that same propor-
tion of its capital is left without a home
market for its productions. The new
element, therefore, which for the sake
of scientific correctness we have intro-
duced into the theory of international
values, does not seem to make any
very material difference in the practical
result. It still appears, that the coun-
tries which carry on their foreign trade
on the most advantageous terms, are
those whose commodities are most in
demand by foreign countries, and \vlu.-h
have themselves the least demand for
foreign commodities. From which,
among other consequences, it follows,
that the richest countries, cceteris pari-
bus, gain the least by a given amount
of foreign commerce : since, having a
greater demand for commodities gene-
rally, they are likely to have a greater
demand for foreign commodities, and
thus modify the terms of interchange
to their own disadvantage. Their ag-
gregate gains by foreign trade, doubt-
less, are generally greater than those
of poorer countries, since they carry
on a greater amount of such trade, and
gain the benefit of cheapness oa a
larger consumption : but their gain ii
less on each individual article cou-
sumcd.

_ § 9. We now pass to another essen-
tial part of the theory of the subject
There are two senses "in "-bi;'h

BOOK III. CHAPTER XVIII. § 9.

S66

try obtain* commodities cheaper by
foreign trade ; in the sense of Value,
and in the sense of Cost. It gets them
cheaper in the first sense, by their
falling in value relatively to other
things: the same quantity of them
exchanging, in the country, for a
smaller quantity than before of the
other produce of the country. To re-
vert to our original figures ; in England,
all consumers of linen obtained, after
the trade was opened, 17 or some
greater number of yards for the same
quantity of all other things for which
they before obtained only 15. The
degree of cheapness, in this sense of
the term, depends on the laws of Inter-
national Demand, so copiously illus-
trated in the preceding sections. But
in the other sense, that of Cost, a
country gets a commodity cheaper,
•when it obtains a greater quantity of
the commodity with the same expen-
diture of labour and capital. In this
sense of the term, cheapness in a great
measure depends upon a cause of a
different nature : a country gets its im-
ports cheaper, in proportion to the gene-
ral productiveness of its domestic in-
dustry ; to the general efficiency of its
labour. The labour of one country
may be, as a whole, much more effi-
cient than that of another : all or most
of the commodities capable of being
produced in both, may be produced in
one at less absolute cost than in the
other; which, as we have seen, will
not necessarily prevent the two coun-
tries from exchanging commodities.
The things which the more favoured
country will import from others, are
of course those in which it is least
superior; but by importing them it
acquires, even in those commodities,
the same advantage which it possesses
in the articles it gives in exchange for
them. Thus the countries which ob-
tain their own productions at least
cost, also get tleir imports at least
cost.

This will be made still more obvious
if we suppose two competing countries.
England sends cloth to Germany, and
gives 10 yards of it for 17 yards of
linen, or for something else which in
Germany is the equivalent of those

17 yards. Another country, as for ex-
ample France, does the same. The one
giving 10 yards of cloth for a certain
quantity of German commodities, so
must the other : if, therefore, in Eng-
land, these 10 yards are produced by
only half as much labour as that by
which they are produced in France,
the linen or other commodities of Ger-
many will cost to England only half
the amount of labour which they will
cost to France. England would thus
obtain her imports at less cost than
France, in the ratio of the greater effi-
ciency of her labour in the production
of cloth : which might be taken, in
the case supposed, as an approximate
estimate of the efficiency of her labour
generally; since France, as well as
England, by selecting cloth as her
article of export, would have shown
that with her also it was the commo-
dity in which labour was relatively the
most efficient. It follows, therefore,
that every country gets its imports at
less cost, in proportion to the general
efficiency of its labour.

This proposition was first clearly
seen and expounded by Mr. Senior,*
but only as applicable to the importa-
tion of the precious metals. I think it
important to point out that the proposi-
tion holds equally true of all other im-
ported commodities ; and further, that
it is only a portion of the truth. For,
in the case supposed, the cost to Eng-
land of the linen which she pays for
with ten yards of cloth, does not depend
solely upon the cost to herself of ten
yards of cloth, but partly also upon
how many yards of linen she obtains
in exchange for them. What her im-
ports cost to her is a function of two
variables ; the quantity of her own
commodities which she gives for them,
and the cost of those commodities. Of
these, the last alone depends on the
efficiency of her labour: the first de-
pends on the law of international
values ; that is, on the intensity and
extensibility of the foreign demand for
her commodities, compared with her
demand for foreign commodities.

In the case just now supposed, of

• Three Lectures on the Cost of Obt.iimngj
Money.

;Y AS AN IMPORTED COMMODITY.

A competition between England ami
France, the state of international
values affected both competitors alike,
since they were supposed to trade with
the same country, and to export and
import the same commodities. The
difference, therefore, in what their im-
ports cost them, depended solely on
the other cause, the unequal efficiency
of their labour. They gave the same
quantities; the difference could only
be in the cost of production. But if
England traded to Germany with cloth,
and France with iron, the comparative
demand in Germany for those two com-
modities would bear a share in deter-

mining the comparative cost, in labour
and capital, with which England an<i
France would obtain German product*
If iron were more in demand in Gc»
many than cloth, France would recover,
through that channel, part of her dis
advantage; if less, her disadvantage
would be increased. The efficiency,
therefore, of a country's labour, is not
the only thing which determines even
the cost at which that country obtains
imported commodities — while it has no
share whatever in determining either
their exchange value, or, as we shall
presently see, their price.

CHAPTER XIX.

OP MONEY, CONSIDERED A3 AN IMPORTED COMMODITY

§ 1. THE degree of progress which
we have now made in the theory of
Foreign Trade, puts it in our power to
supply what was previously deficient
in our view of the theory of Money ;
and this, when completed, will in its
turn enable us to conclude the subject
of Foreign Trade.

Money, or the material of which it
is composed, is, in Great Britain, and
in most other countries, a foreign com-
modity. Its value and distribution
must therefore be regulated, not by
the law of vilue which obtains in ad-
jacent places, but by that which is ap-
plicable to imported commodities — the
.aw of International Values.

In the discussion into which we are
now about to enter, I shall use the
terms Money and the Precious Metals
indiscriminately. This may be done
without leading to any error ; it having
been shown that the value of money,
when it consists of the precious metals,
or of a paper currency convertible into
them on demand, is entirely governed
by the value of the metals themselves :
from which it never permanently differs,
except by the expense of coinage when
this is paid by the individual and not by
the state.

L

Money is brought into a country in
two different ways. It is imported
(chiefly in the form of bullion) like any
other merchandize, as being an advan-
tageous article of commerce. It is also
imported in its other character of a
medium of exchange, to pay some debt
due to the country, either for goods ex-
ported or on any other account. Thero
are other ways in which it may be in-
troduced casually ; these are the two
in which it is received in the ordinary
course of business, and which deter-
mine its value. The existence of these
two distinct modes in which money
flows into a country, while other com-
modities are habitually introduced only
in the first of these modes, occasions
somewhat more of complexity and ob-
scurity than exists iu the case of other
commodities, and for this reason only
is any special and aiinute exposition
necessary.

§ 2. In so far as the precious metals
aro imported in the ordinary way of
commerce, their value must depend on
the same causes, and conform to the
same laws, as the value of any other
foreign production. It is in this mode
chiefly that gold and silver diffuse them

868

COOK III. CHAPTER XIX. § 2.

selves from tile mining countries into
all other parts of the commercial world.
They are the staple commodities of
those countries, or at least are among
their great articles of regular export ;
and are shipped on speculation, in the
same manner as other exportable com-
modities. The quantity, therefore,
which a country (say England) will
give of its own produce, for a certain
quantity of bullion, will depend, if we
suppose only two countries and two
commodities, upon the demand in Eng-
land for bullion, compared with the
demand in the mining country (which
we will call Brazil) for what England
has to give. They must exchange in
such proportions as will leave no un-
satisfied demand on either side, to alter
values by its competition. The bullion
required by England must exactly pay
for the cottons or other English com-
modities required by Brazil. If, how-
ever, we substitute for this simplicity
the degree of complication which really
exists, the equation of international
demand must be established not be-
tween the bullion wanted in England
and the cottons or broadcloth wanted
in Brazil, but between the whole of the
imports of England and the whole of
her exports. The demand in foreign
countries for English products, must
be brought into equilibrium with the
demand in England for the products
of foreign countries ; and all foreign
commodities, bullion among the rest,
must be exchanged against English
products in such proportions, as will,
by the effect they produce on the de-
mand, establish this equilibrium.

There is nothing in the peculiar
nature or uses of the precious metals,
which should make them an exception
to the general principles of demand.
So far as they are wanted for purposes
of luxury or the arts, the demand in-
creases with the cheapness, in the
earne irregular way as the demand for
any other commodity. So far as they
are required for money, the demand
increases with the cheapness in a per-
fectly regular way, the quantity needed
being always in inverse proportion to
the value. This is the only real dif-
ference, in respect to demand, bet \veeu

money and other things ; and for the
present purpose it is a difference alto-
gether immaterial.

Money, then, if imported solely aa a
merchandize, will, like other imported
commodities, be of lowest value in the
countries for whose exports there is the
greatest foreign demand, and which
have themselves the least demand for
foreign commodities. To these two cir-
cumstances it is however necessary to
add two others, which produce their
effect through cost of carriage. The
cost of obtaining bullion is compounded
of two elements ; the goods given to pur-
chase it, and the expense of transport :
of which last, the bullion countries will
bear a part (though an uncertain
part) in the adjustment of international!
values. The expense of transport is
partly that of carrying the goods to the
bullion countries, and partly that of
bringing back the bullion : both these
items are influenced by the distance
from the mines ; and the former is also
much affected by the bulkiness of the
goods. Countries whose exportable
produce consists of the finer manufac-
tures, obtain bullion, as well as all
other foreign articles, cceteris paribus,
at less expense than countries which
export nothing but bulky raw produce.

To be quite accurate, therefore, we
must say — The countries whose ex-
portable productions are most in de-
mand abroad, and contain greatest
value in smallest bulk, which aro
nearest to the mines, and which have
least demand for foreign productions,
are those in which money will be of
lowest value, or in other words, in
which prices will habitually range the
highest. If we are speaking not of the
value of money, but of its cost (that is,
the quantity of the country's labour
which must be expended to obtain it),
we must add to these four conditions
of cheapness a fifth condition, namely,
" whose productive industry is the most
efficient." This last, however, does
not at all affect the value of money,
estimated in commodities : it affects
the general abundance and facility
with which all things, money and com-
modities togelher, can be obtained.

Although, therefore, Mr. Senior ifl

MONEY AS AN IMPORTED COMMODITY. 369

in error who contend that the value
of money, in countries where it is an
imported commodity, must be entirely
regulate J by it:; value in the countries
which produce it ; and cannot be raised
or lowered in any permanent manner

right in pointing out the groat efliciency
of English labour as the chief cause
whv the precious metals lire obtained
at less cost by England than by most
other countries, I cannot admit that it
at all accounts for their bcin^ of less

value; for their going less far in the
purchase of commodities. This, in so
lar as it is a fact, and not ail illusion,
must be occasioned by the great de-
mand in foreign countries for the
staple commodities of England, and the
generally unbulky character of those
commodities, compared with the com,
wine, timber, sugar, wool, hides, tallow,
hemp, ilax, tobacco, raw cotton, &c.,
which form the exports of other com-
mercial countries. These two causes
will account for a somewhat higher
range of general prices in England
than elsewhere, notwithstanding the
counteracting influence of her own
great demand for foreign commodities.
1 am, however, strongly of opinion that
the high prices of commodities and
low purchasing power of money in
England, are more apparent than real.
Food, indeed, is somewhat dearer ; and
food composes so large a portion of the
expenditure when the income is small
and the family large, that to such
families England is a dear country.
Services, also, of most descriptions
are dearer than in the other countries of
Europe, from the less costly mode of
living of the poorer classes on the
Continent. But manufactured commo-
dities (except most of those in which
good taste is required) are decidedly
cheaper ; or would bo so, if buyers
t. ould be content with the same quality
ef material and of workmanship. What
is called the dcarncss of living in
England, is mainly an affair not of
ii'-'->'Ssity but of foolish custom ; it being
thought imperative by all classes in
England above the condition of a day-
labourer, that the things they consume
should either le of the same quality
with those used by much richer people,
or at least should be as nearly as pos-
sible undistinguishable from them in
outward appearance.

§ 3. From the preceding considera-
tions, it appears that those are greatly

F.K.

unless some change has taken p'ace in
the cost of production at the mines.
On the contrary, any circumstance
which disturbs the equation of inter-
national demand with respect to a
particular country, not only may, but
must, affect the value of money in that
country — its value at the mines re-
maining the same. The opening of
a new branch of export trade from
England ; an increase in the foreign
demand for English products, either by
the natural course of events or by the
abrogation of duties ; a check to the
demand in England for foreign com-
modities, by the laying on of import
duties in England or of export duties
elsewhere ; these and all other events
of similar tendency, would make tho
imports of England (bullion and other
things taken together) no longer an
equivalent for the exports ; and tho
countries which take her exports would
be obliged to offer their commodities,
and bullion among the rest, on cheaper
terms, in order to re-establish the
equation of demand : and thus England
would obtain money cheaper, and would
acquire a generally higher range of
prices. Incidents the reverse of these
would produce effects the reverse —
would reduce prices ; or, in other words,
raise the value of the precious metals.
It must be observed, however, that
money would be thus raised in value
only with respect to home commodities :
in relation to (ill imported articles it
would remain as before, since their
values would be affected in the same
way and in the samo degree with its
own. A country which, from any of the
causes mentioned, gets money cheaper,
obtains all its other imports -cheaper
likewise.

It is by no means necessary that the

increased demand for English comnio

I dities, which enables England to sup.

; ply herself with bullion at a cheaper

1 rate, should be a demand in the mining

i countries. England might export no-

B li

370

thing whatever to those countries, and
yet might he the country which ob-
tained bullion from them on the lowest
term?, provided there were a sufficient
intensity of demand in other foreign
countries for English goods, which
would he paid for circuitously,with gold
and silver from the mining countries.
The whole of its exports are what a
country exchanges against the whole of

BOOK Hi. CilArt'Eft XX. § 2.

its imports, and not its exports and
imports to and from any one country ;
and the general foreign demand for its
productions will determine what equi-
valent it must give for imported goods,
in order to establish an equilibrium
between its sales and purchases gene-
rally ; without regard to the mainte-
nance of a similar equilibrium between
it and any country singly.

CHAPTER XX.

OF THE FOREIGN EXCHANGE?.

§ 1. WE have thus far considered
the precious metals as a commodity,
imported like other commodities in the
common course of trade, and have ex-
amined what are the circumstances
which would in that case determine
their value. But those metals are also
imported in another character, that
which belongs to them as a medium of
exchange ; not as an article of com-
merce, to be sold for money, but as
themselves money, to pay a debt, or
efl'ect a transfer of property. It re-
mains to consider whether the liability
of gold and silver to be transported
from country to country for such pur-
poses, in any way modifies the con-
clusions we have already arrived at ; or
E laces those metals under a different
iw of value from that to which, in
common with all other imported com-
modities, they would be subject if in-
ternational trade were an affair of
direct barter.

Money is sent from one country to
another for various purposes : such as
the payment of tributes or subsidies ;
remittances of revenue to or from de-
pendencies, or of rents or other incomes
to their absent owners; emigration of
capital, or transmission of it for foreign
investment. The most usual pin-pose,
however, is that of payment for goods.
To show in what circumstances money
actually passes from country to country
for this or any of the other purposes
mentioned, it is necessary briefly to
itate the nature of the mechanism by

which international trade is carried on,
when it takes place not by barter but
through the medium of money.

§ 2. In practice, the exports and im-
ports of a country not only are not
exchanged directly against each other,
but often do not even pass through the
same hands. Each is separately bought
and paid for with money. We have
seen, however, that, even in the same
country, money does not actually pass
from hand to hand each time that pur-
chases are made with it, and still less
does this happen between different
countries. The habitual mode of pay-
ing and receiving payment for com-
modities, between country and country,
is by bills of exchange.

A merchant in England, A, has ex-
ported English commodities, consign-
ing them to his correspondent B in
France. Another merchant in France,
C, has exported French commodities,
suppose of equivalent value, to a mer-
chant D in England. It is evidently
unnecessary that B in France should
send money to A in England, and that
D in England should send an equal
sum of money to C in France. The one
debt may be applied to the payment of
the other, and the double cost and risk
of carriage be thus saved. A draws a
bill on B for the amount which B owes
to him : D, having an equal amount to
pay in France, buys this bill from A,
and sends it to C, who, at the expira-
tion of the number of d-ivs which *.h«

THE FOREIGN EXCHANGES.

bill has to run, presents it to B for
payment. Thus the-^lebt-diie .from
France to England, and the debt due
from England to France, are both paid
without sending an ounce of gold or
silver from one country to the other.

In this statement, however, it is
supposed that the sum of the debts due
from France to England, and the sum
of those due from England to France,
are equal; that each country has
exactly the same number of ounces of
gold or silver to pay and to receive.
This implies (if we exclude for the
present any other international pay-
ments than those occurring in the
course of commerce,) that the exports
and imports exactly pay for one an-
other, or in other words, that the equa-
tion of international demand is esta-
blished. When such is the fact, the
international transactions are liqui-
dated without the passage of any
money from one country to the other.
But if there is a greater sum due from
England to France, than is due from
France to England, or vice versa, the
debts cannot be simply written off
against one another. After the one
has been applied, as far as it will go,
towards covering the other, the balance
must be transmitted in the precious
metals. In point of fact, the merchant
who has the amount to pay, will even
then pay for it by a bill. When a
person has a remittance to make to a
foreign country, he does not himself
search for some one who has money to
receive from that country, and ask him
for a bill of exchange. In this as in
other branches of business, there is a
class of middlemen or brokers, who
bring buyers and sellers together, or
stand between them, buying bills from
those who have money to receive,
and selling bills to those who have
money to pay. When a customer
comes to a broker for a bill on
Paris or Amsterdam, the broker sells
to him, perhaps the bill he may him-
self have bought that morning from
a merchant, perhaps a bill on his own
correspondent in the foreign city : and
to enable his correspondent to pay,
when due, all the bills he has granted,
be remits to him all those which he has

bought and has not resold. In this
manner these brokers take upon them-
selves the whole settlement of the
pecuniary transactions between distant
places, being remunerated by a email
commission or percentage on the
amount of each bill which they eithpr
sell or buy. Now, if the brokers find
that they are askedTor bills on the one
part, to a greater amount than bills
are offered to them on the other, they
do not on this account refuse to give
them ; but since, in that case, they
have no means of enabling the corre-
spondents on whom their bills are
drawn, to pay them when due, except
by transmitting part of the amount m
gold or silver, they require from those
to whom they sell bills an additional
price, sufficient to cover the freight and
insurance of the gold and silver, with a
profit sufficient to compensate them for
their trouble and for the temporary
occupation of a portion of their capital.
This premium (as it is called) the
buyers are willing to pay, because they
must otherwise go to the expense of
remitting the precious metals them
selves, and it is done cheaper by those
who make doing it a part of their es
pecial business. But though only some
of those who have a debt to pay would
have actually to remit money, all will
be obliged, by each other's competition,
to pay the premium ; and the brokers
are for the same reason obliged to pay
it to those whose bills they buy. The
reverse of all this happens, if on the
comparison of exports and imports, the
country, instead of having a balance to
pay, has a balance to receive. The
brokers find more bills offered to them,
than are sufficient to cover those which
they are required to grant. Bills on
foreign countries consequently fall to a.
discount ; and the competition among
the brokers, which is exceedingly ac-
tive, prevents them from retaining this
discount as a profit for themselves, and
obliges them to give the benefit of it to
those who buy the bills for the purposes
of remittance.

Let us suppose that all countries had
the same curreury, as in the progress
of political improvement they one day
will have : ami, as the most familiar to

B B a

572

BOOK m. CHAPTER XX. § 2.

the reader, though not the best, let us
suppose this currency to be the English.
\Vhen England had the same number
of pounds sterling to pay to France,
winch France had to pay to her, one
set of merchant1* in England would
wnnt bills, and another set would have
bijls to dispose of, for the very same
number of pounds sterling; and conse-
quently a bill on France for 100Z.
would sell for exactly IQOL, or, in the
phraseologyof merchants, the exchange
would be at par. As France also, on
this supposition, would have an equal
number of pounds sterling to pay and
to receive, bills on England would be
nt par in France, whenever bills on
France were at par in England.

If, however, England had a larger
sum to pay to France than to receive
from her, there would be persons re-
quiring bills on France for a greater
iiumber of pounds sterling than there
were bills drawn by persons to whom
money was due. A bill on France for
100J. would then sell for more than
100Z., and bills would be said to be at
a premium. The premium, however,
could not exceed the cost and risk of
making the remittance in gold, toge-
ther with a trifling profit ; because if
it did, the debtor would send the gold
itself, in preference to buying the bill.

If, on the contrary, England had
more money to receive from France
than to pay, there would be bills offered
for a greater number of pounds than
were wanted for remittance, and the
price of bills would fall below par : a
bill for 100Z. might be bought for some-
what less than lOQl., and bills would be
said to be at a discount.

When England has more to pay than
to receive, France has more to receive
than to pay, and vice versa. When,
therefore, in England, bills on France
bear a premium, then, in France, bills
on England are at a discount: and
when bills on France are at a discount
in England, bills on England are at a
premium in France. If they are at
5>ap in either country, they are so, as
ive have already seen, in both.

Thus do matters stand between
countries, or places, which have the
8$ine currency. So much of barbarism,

however, still remains in the transao
tions of the most civilized nations, that
almost all independent countries choose
to assert their nationality by having,
to their own inconvenience and that of
their neighbours, a peculiar currencj
of their own. To our present purpos*
this makes no other difference, than
that instead of speaking of equal sums
of money, we have to speak of equivar
lent sums. By equivalent sums, when
both currencies are composed of the
same metal, are meant sums which
contain exactly the same quantity of
the metal, in weight and fineness ; but
when, as in the case of France and
England, the metals are different, what
is meant is that the quantity of gold in
the one sum, and the quantity of silver
in the other, are of the same value in
the general market of the world : there
being no material difference between
one place and another in the relative
value of these metals. Suppose 25
francs to be (as within a trifling frac
tion it is) the equivalent of a pound
sterling. The debts and credits of the
two countries would be equal, when the
one owed as many times 25 francs, aa
the other owed pounds. When this
was the case, a bill on France for 2500
francs would be worth in England
WOl., and a bill on England for 100J.
would be worth in France 2500 francs.
The exchange is then said to be at
par : and 25 francs (in reality 25 francs
and a trifle more)* is called the par of
exchange with France. When England
cwed to France more than the equiva-
lent of what France owed to her, a bill
for 2500 francs would be at a premium,
that is, would be worth more than 1 OOL
When France owed to England more
than the equivalent of what England
owed to France, a bill for 2500 francs
would be worth less than 100/., or
would be at a discount.

When bills on foreign countries are
at a premium, it is customary to say
that the exchanges are against the
country, or unfavourable to it. In order

* Written before the change in the rel»
live value of the two metals produced by th»
gold discoveries. The par of exchange be«
tween gold and silver currencies is now va»
riable, and no one can foresee at what point
it will ultimately rest.

THE FOKEIGN EXCHANGES.

373

to understand these phrases, we must
take notice of what "the exchange,"
in the language of merchants, really
means. It means the power which the
money of the country has of purchasing
the money of other countries. Sup-
posing 25 francs to be the exact par of
exchange, then when it requires more
than 100Z. to buy a bill for 2500 francs,
100/. of English money are worth less
than their real equivalent of French
money : and this is called, an exchange
unfavourable to England. The only
persons in England, however, to whom
it is really unfavourable, are those who
have money to pay in France ; for they
come into the bill market as buyers,
and have to pay a premium : but to
those who have money to receive in
France, the same state of things is
favourable ; for they come as sellers,
and receive the premium. The pre-
mium, however,indicates that a balance
is due by England, which might have to
be eventually liquidated in the precious
metals : and since, according to the old
theory, the benefit of a trade consisted
in bringing money into the country,
this prejudice introduced the practice
of calling the exchange favourable
when it indicated a balance to receive,
and unfavourable when it indicated
one to pay : and the phrases in turn
tended to maintain the prejudice.

§ 3. It might be supposed at first
sight that when the exchange is un-
favourable, or in other words, when
bills are at a premium, the premium
must always amount to a full equi-
valent for the cost of transmitting
money: since, as there is really a
balance to pay, and as the full cost
must therefore be incurred by some of
those who have remittances to make,
their competition will compel all to
submit to an equivalent sacrifice. And
such would certainly be the case, if it
were always necessary that whatever
is destined to be paid should be paid
immediately. The expectation of great
and immediate foreign payments some-
times produces a most startling effect
on the exchanges.* But a small excess

• On the news of Bonaparte's landing from
Elba, the price of bills advanced in one day

of imports above exports, or any other
small amount of debt to be paid to
foreign countries, does not usually affect
the exchanges to the full extent of the
cost and risk of transporting bullion.
The length of credit allowed, generally
permits, on the part of some of the
debtors, a postponement of payment,
and in the mean time the balance may
turn the other way, and restore the
equality of debts and credits without
any actual transmission of the metals.
And this is the more likely to happen,
as there is a self-adjusting power in
the variations of the exchange itself.
Bills are at a premium because a
greater money value has been im-
ported than exported. But the pre-
mium is itself an extra profit to those
who export. Besides the price they
obtain for their goods, they draw for
the amount and gain the premium. It
is, on the other hand, a diminution of
profit to those who import. Besides
the price of the goods, they have to
pay a premium for remittance. So
that what is called an unfavourable
exchange is an encouragement to ex-
port, and a discouragement to import.
And if the balance due is of small
amount, and is the consequence of
some merely casual disturbance in the
ordinary course of trade, it is soon
liquidated in commodities, and the ac-
count adjusted by means of bills, with-
out the transmission of any bullion.
Not so, however, when the excess of
imports above exports, which has made

03 much as ten per cent. Of course this pre-
mium was not a mere equivalent for cost ol
carriage, since the freight of such an article
as gold, even with the addition of war in-
surance, could never have amounted to so
much. This great price was an equivalent
not for the difficulty of sending gold, but for
the anticipated difficulty of procuring it to
send; the expectation being that there would
be such immense remittances to the Conti-
nent in subsidies and for the support of
armies, as would press hard on the stock of
bullion in the country (which was then en-
tirely denuded of specie), and this, too, in a
shorter time than would allow of its being
replenished. Accordingly the price of bul-
lion rose likewise, with the same suddenness.
It is hardly necessary to say that this took
place during the Bank restriction. In a con-
vertible state of the currency, no such thing
could have occurred until the Bank stopped
payment.

374

BOOK III. CHAPTER XXI. § 1.

the exchange unfavourable, arises from
a permanent cause. In that case, •what
disturbed the equilibrium must have
been the state of prices, and it can
only be restored by acting on prices.
It is impossible that prices should be
such as to invite to an excess of im-
ports, and yet the exports should be
kept permanently up to the imports by
the extra profit on exportation derived
from the premium on bills ; for if the
exports were kept up to the imports,
bills would not be at a premium,
and the extra profit would not exist.
It is through the prices of commodities
that the correction must be adminis-
tered.

Disturbances, therefore, of the equi-
librium of imports and exports, and
consequent disturbances of the ex-
change, may be considered as of two
classes ; the one casual or accidental,
which, if not on too large a scale, cor-
rect themselves through the premium
on bills, without any transmission of
the precious metals : the other arising
from the general state of prices, which
cannot be corrected without the sub-
traction of actual money from the cir-
culation of one of the countries, or an
annihilation of credit equivalent to it ;

since the mere transmission of bullion
(as distinguished from money), not
having any effect on prices, is of no
avail to abate the cause from which
the disturbance proceeded.

It remains to observe, that the ex-
changes do not depend on the balance
of debts and credits with each country
separately, but with all countries taken
together. England may owe a balance
of payments to France ; but it does not
follow that the exchange with France
will be against England, and that bills
on France will be at a premium ; be-
cause a balance may be due to England
from Holland or Hamburgh, and she
may pay her debts to France with bills
on those places ; which is technically
called arbitration of exchange. There
is some little additional expense, partly
commission and partly loss of interest,
in settling debts in this circuitous
manner, and to the extent of that
small difference the exchange with
one country may vary apart from that
with others ; but in the main, the ex-
changes with all foreign countries vary
together, according as the country has
a balance to receive or to pay on the
general result of its foreign transac-
tions.

CHAPTER XXI.

OP THE DISTRIBUTION OF THE PRECIOUS METALS THROUGH THE
COMMERCIAL WORLD.

§ 1. HAVING now examined the
mechanism by which the commercial
transactions between nations are ac-
tually conducted, we have next to in-
quire whether this mode of conduct-
ing them makes any difference in the
conclusions respecting international
values, -which we previously arrived at
on the hypothesis of barter.

The nearest analogy would lead us
to presume the negative. We did not
find that the intervention of money and
its substitutes made any difference in
the law of value as applied to adjacent
places. Things which would have been

equal in value if the mode of exchange
had been by barter, are worth equal
sums of money. The introduction of
money is a mere addition of one more
commodity, of which the value is regu-
lated by the same laws as that of all
other commodities. We shall not be
surprised, therefore, if we find that in-
ternational values also are determined
by the same causes under a money and
bill system, as they would be under
a system of barter; and that money
has little to do in the matter, except
to furnish a convenient mode of com •
paring values.

DISTRIBUTION OF THE PRECIOUS METALS.

37.5

All interchange is, in substance and
effect, barter : whoever sells commodi-
ties for money, rind with that money
buys other poods, really buys those
goods with his own commodities. And
so of nations: their trade is a mere
exchange of exports for imports ; and
whether money is employed or not,
things are only in their permanent
state when the exports and imports
exactly pay for each other. "When
this is the case, equal sums of money
are due from each country to the other,
the debts are settled by bills, and there
is no balance to be paid in the precious
metals. The trade is in a state like
that which is called in mechanics a
condition of stable equilibrium.

But the process by which things are
brought back to this state when they
happen to deviate from it, is, at least
outwardly, not the same in a barter
system and in a money system. Under
the first, the country which wants more
imports than its exports will pay for,
must offer its exports at a cheaper rate,
as the sole means of creating a demand
for them sufficient to re-establish the
equilibrium. When money is used, the
country seems to do a thing totally dif-
ferent. She takes the additional im-
ports at the same price as before, and
as she exports no equivalent, the
bilance of payments turns against
her; the exchange becomes unfavour-
able, and the difference has to be paid
in money. This is in appearance a
very distinct operation from the former.
Let us see if it differs in its essence,
or only in its mechanism.

Let the country which has the
balance to pay be England, and the
country which receives it, France. By
this transmission of the precious metals,
the quantity of the currency is dimi-
nished in England, and increased in
France. This I am at liberty to as-
sume. As wo shall sec hereafter, it
would be a very erroneous assumption
if made in regard to all payments of
international balances. A balance which
has only to be paid once, such as the
payment made for an extra importation
of corn in a season of dearth, may be
paid from hoards, or from the reserves
of bankers, without acting on the cir-

culation. But we are now ttipposing
that there is an excess of imports over
exports, arising from the fact that the
equation of international demand is not
yet established : that there is at the
ordinary prices a permanent demand
in England for more French goods than
the English goods required in France
at the ordinary prices will pay for.
When this is the case, if a change were
not made in the prices, there would be
a perpetually renewed balance to be
paid in money. The imports require
to be permanently diminished, or the
exports to be increased ; which can
only be accomplished through prices ;
and hence, even if the balances are at
first paid from hoards, or by the ex-
portation of bullion, they will reach
the circulation at last, for until they
do, nothing can stop the drain.

When, therefore, the state of prices
is such that the equation of inter-
national demand cannot establish it-
self, the country requiring more im-
ports than can be paid for by the
exports ; it is a sign that the country
has more of the precious metals or
their substitutes, in circulation, than
can permanently circulate, and must
necessarily part with some of them
before the balance can bo restored.
The currency is accordingly contracted :
prices fall, and among the rest, the
prices of exportable articles ; for which,
accordingly, there arises, in foreign
countries, a greater demand: while
imported commodities have possibly
risen in price, from the influx of money
into foreign countries, and at all events
have not participated in the general
fall. But until the increased cheapness
of English goods induces foreign coun-
tries to take a greater pecuniary value,
or until the increased dearness (positive
or comparative) of foreign goods makes
England take a less pecuniary value,
the exports of England will be no
nearer to paying for the imports than
before, and the stream of the preciuiia
metals which had begun to flow out of
England, will still flow on. This ef-
flux will continue, until the fall of prices
in England brings within reach of
the foreign market some commodity
which England did not previously send

ste

III. CHAPTER XXI. $ 2.

thither; or until the reduced price of
the things which she did send, lias
forced a demand abroad for a sulii'-i' -nt
quantity to pay for the imports, aided,
perhaps, by a reduction of the English
demand for foreign goods, through
their enhanced price, either positive
or comparative.

Now this is the very process which
took place on our original supposition
of barter. Not only, therefore, docs
the trade between nations tend to the
same equilibrium between exports and
:<nports, whether money is employed
or not, but the means by which this
equilibrium is established are essen-
tially the same. The country whose
exports are not sufficient to pay for
her imports, offers them on cheaper
terms, until she succeeds in forcing the
necessary demand : in other words, the
Equation of International Demand,
under a money system as well as
under a barter system, is the law of
international trade. Every country
exports and imports the very same
things, and in the very same quantity,
under the one system as under the
other. In a barter system, the trade
gravitates to the point at which the
sum of the imports exactly exchanges
for the sum of the exports : in a money
system, it gravitates to the point at
which the sum of the imports and the
Bum of the exports exchange for the
Game quantity of money. And since
things which are equal to the same
thing are equal to one another, the
exports and imports which are equal
in money price, would, if money were
not used, precisely exchange for one
another.*

* The subjoined extract from the separate
Essay previously referred to, will give some
assistance in following the course of the phe-
nomena. It is adapted to the imaginary case
used for illustration throughout that Essay,
the case of a trade between England and
Germany in cloth and linen.

" We may at first make whatever supposi-
tion we will with respect to the value of
money. Let us suppose, therefore, that be-
fore the opening of the trade, the price of
iloth is the same in both countries, namely,
six shillings per yard. As 10 yards of cloth
were supposed to exchange in England for
15 yards of linen, in Germany for 20, we must
suppose that linen is sold in England at four
shilling* per yard, in Germany at three.

§ 2. It thus appears that the law1 of
international values, and, consequently,
the division of the advantages of trade
among the nations which carry it on,
are the same on the supposition of
money, as they would be in a state of
barter. In international, as in ordinary
domestic interchanges, money is to
commerce only what oil is to ma-
chinery, or railways to locomotion, a
contrivance to diminish friction. In
order still further to test these con-
clusions, let us proceed to re-examine,
on the supposition of money, a question
which we have already investigated on
the hypothesis of barter, namely, to
what extent the benefit of an improve-
ment in the production of an exportable
article, is participated in by the coun-
tries importing it.

The improvement may cither consist
in the cheapening of some article which
was already a staple production of the
country, or in the establishment of
some new branch of industry, or of
some process rendering an article ex-
portable which had not till then been
exported at all. It will be convenient
to begin with the case ofanewexport,as
being somewhat the simpler of the two.

The first effect is that the article
falls in price, and a demand arises for
it abroad. This new exportation dis-
turbs the balance, turns the exchanges,
money flows into the country (which
we shall suppose to be England), and
continues to flow until prices rise. This
higher range of prices will somewhat
check the demand in foreign countries
for the new article of export ; and will
diminish the demand which existed
abroad for the other things which

Cost of carriage and importer's profit aro
left, as before, out of consideration.

" In this state of prices, cloth, it is evident,
cannot yet be exported from England into
Germany: but linen can be imported from
Germany into England. It will be so : and,
in the first instance, the linen will be paid
for in money.

" The efflux of money from England, and
its influx into Germany, will raise money
prices in the latter country, and lower them
in the former, Linen will rise in Germany
above three shillings per yard, and cloth
above six shillings. Linen in Kigland, being
imported from Germany, will (since cost of
carriage is not reckoned) sink to the same
price as in that country, while cloth will fall

DISTRIBUTION OF THE PRECIOUS METALS.

37?

England was in the habit of exporting.
The exports will thus be diminished ;
while at the same time the English
public, having more money, will have
a greater power of purchasing foreign
commodities. If they make use of this

below six shillings. As soon as the price of
cloth is lower in England than in Germany,
it will begin to be exported, and the price of
cloth in Germany will fall to what it is in
Kngland. As long as the cloth exported Joes
not suffice to pay for the linen imported,
money will continue to flow from Kngland
into Germany, and prices generally will con-
tinue to fall in England and rise in Ger-
many. By the fall, however, of cloth in
England, cloth will fall in Germany also,
and the demand for it will increase. By
the rise of linen in Germany, linen must
rise in England also, and the demand for it
will diminish. As cloth fell in price and
linen rose, there would be some particular
price of both articles, at'which the cloth ex-
ported and the linen imported would exactly
pay for each other. At this point prices
would remain, because money would then
cease to move out of England into Germany.
What this point might be, would entirely
depend upon the circumstances and inclina-
tions of the purchasers on both sides. If
the fall of cloth did not much increase the
demand for it in Germany, and the rise of
linen did not diminish very rapidly the de-
mand for it in England, much money must
pass before the equilibrium is restored ; cloth
would fall very much, and linen would rise,
until England, perhaps, had to pay nearly as
much for it as when she produced it for her-
self. But if, on the contrary, the fall of
cloth caused a very rapid increase of the de-
mand for it in G ermany, and the rise of linen
in Germany reduced very rapidly the de-
mand in England from what it was under
the influence of the first cheapness produced
by the opening of the trade ; the cloth would
very soon suffice to pay for the linen, little
money would pass between the two countries,
and England would derive a large portion of
the benefit of the trade. We have thus ar-
rived at precisely the same conclusion, in sup-
posing the employment of money, which we
found to hold under the supposition of barter.
" In what shape the benefit accrues to the
two nations from the trade is clear enough.
Germany, before the commencement of the
trade, paid six shillings per yard for broad-
cloth : she now obtains it at a lower price.
This, however, is not the whole of her ad-
vantage. As the money-prices of all her
other commodities have risen, the money-
incomes of all her producers have increased.
This is no advantage to them in buying from
each ether, because the price of what they
buy has risen in the same ratio with their
weans of paying for it : but it is an advan-
tage to them in buying anything which has
not risen, and, still more, anything which
has fallen. They, therefore, benefit as con-
sumers of cloth, not merely to the extent to

increased power of purchase, there will
be an increase of imports ; and by this,
and the check to exportation, the
equilibrium oi' imports and exports will
be restored. The result to foreign
countries will be, that they have to

which cloth has fallen, but also to the extent
to which other prices have risen. Suppose
that this is one-tenth. The same proportion
of their money-incomes as before, will suffice
to supply their other wants ; and the re-
mainder, being increased one-tenth in
amount, will enable them to purchase one-
tenth more cloth than before, even though
cloth had not fallen : but it has fallen ; so that
they are doubly gainers. They purchase
the same quantity with less money, and have
more to expend upon their other wants.

"In England, on the contrary, general
money-prices have fallen. Linen, however,
has fallen more than the rest, having been
lowered in price by importation from a
country where it was cheaper; whereas the
others have fallen only from the consequent
efflux of money. Notwithstanding, there-
fore, the general fall of money-prices, the
English producers will be exactly as they
were in all ;other respects, while they will
gain as purchasers of linen.

" The greater the efflux of money required
to restore the equilibrium, the greater will
be the gain of Germany, both by the fall of
cloth and by the rise of her general prices.
The less the efflux of money requisite, the
greater will be the gain of England ; because
the price of linen will continue lower, and
her general prices will not be reduced so
much. It must not, however, be imagined
that high money-prices are a good, and low
money-prices an evil, in themselves. But
the higher the general money-prices in any
country, the greater will be that country's
means of purchasing those commodities,
which, being imported from abroad, are in-
dependent of the causes which keep prices
high at home."

In practice, the cloth and the linen would
not, as here supposed, be at the same price
in England and in Germany : each would be
dearer in money-price in the country which
imported than in that which produced it, by
the amount of the cost of carriage, together
with the ordinary profit on the importer's
capital for the average length of time which
elapsed before the commodity could be dis-
posed of. But it does not follow that each
country pays the cost of carriage of the com-
modity it imports ; for the addition of this
item to the price may operate as a greater
check to demand on one side than on the
other; and the equation of international
demand, and consequent equilibrium of pay-
ments, may not be maintained. Money
would then flow out of one country into the
other, until, in the manner already illus-
trated, the equilibrium w.is restore!: and,
when this was effected, one country would
be paying more than its own cost of carriage)
and the other less.

878

pay dearer than before for their other
imports, and obtain the new commodity
cheaper than before, but not so much
theaper as England herself does. I say
this, being well aware that the article
•would be actually at the very same
nrice (cost of carnage excepted) in
England and in other countries. The
cheapness, however, of the article is
not measured solely by the money-
price, but by that price compared with
1he money incomes of the consumers.
The price is the same to the English
find to the foreign consumers ; but the
former pay that price from money in-
comes which have been increased by
the new distribution of the precious
inetals ; while the latter have had their
money incomes probably diminished by
the same cause. The trade, therefore,
has not imparted to the foreign con-
sumer the whole, but only a portion, of
the benefit which the English con-
sumer has derived from the improve-
ment; while England has also benefited
in the prices of foreign commodities.
Thus, then, any industrial improve-
ment which leads to the opening of a
new branch of export trade, benefits a
country not only by the cheapness of
the article in which the improvement
has taken place, but by a general
cheapening of all imported products.

Let us now change the hypothesis,
and suppose that the improvement,
instead of creating a new export from
England, cheapens an existing one.
When we examined this case on the
supposition of barter, it appeared to
us that the foreign consumers might
either obtain the same benefit from the
improvement as England herself, or a
lesa benefit, or even a greater benefit,
according to the degree in which tho
consumption of the cheapened article is
calculated to extend itself as the article
diminishes in price. The same con-
clusions will be found true on the sup-
position of money.

Let the commodity in which there is
an improvement, be cloth. The first
effect of the improvement is that its
price falls, and there is an increased de-
mand for it in the foreign market. But
this demand is of uncertain amount.
Suppose the foreign consumers to hi-

BOOK III. CHAPTER XXI. § 2.

crease their purchases in the exact
ratio of the cheapness, or in other
words, to lay out in cloth the same
sum of money as before ; the same
aggregate payment as before will be
due from foreign countries to England ;
the equilibrium of exports and imports
will remain undisturbed, and foreigners
will obtain the full advantage of the
increased cheapness of cloth. But if
the foreign demand for cloth is of such
a character as to increase in a greater
ratio than the cheapness, a larger sum
than formerly will be due to England
for cloth, and when paid will raise
English prices, the price of cloth ir-
cluded; this rise, however, will affect
only the foreign purchaser, English
incomes being raised in a corresponding
proportion ; and the foreign consumer
will thus derive a less advantage than
England from the improvement. If, on
the contrary, the cheapening of cloth
does not extend the foreign demand for
it in a proportional degree, a less sum
of debts than before will be due to
England for cloth, while there will be
the usual sum of debts due from Eng-
land to foreign countries ; the balanco
of trade will turn against England,
money will be exported, prices (that of
cloth included) will fall, and cloth will
eventually be cheapened to the foreign
purchaser in a still greater ratio than
the improvement has cheapened it to
England. These are the very conclu-
sions which we deduced on tho hypo-
thesis of barter.

The result of the preceding discussion
cannot be better summed up than in
the words of Eicardo.* " Gold and
silver having been chosen for the gene-
ral medium of circulation, they are,
by the competition of commerce, dis-
tributed in such proportions amongst
the different countries of the world as
to accommodate themselves to the
natural traffic which would take place
if no such metals existed, and the trade
between countries were purely a trade
of barter." Of this principle, so fertile
in consequences, previous to which the
theory of foreign trade was an unintel-
ligible chaos, Mr. Eicardo, though he

* Principles of Political Economy and Taxa-
tion, 3rd ed. p. 143.

DISTRIBUTION OF THE PREClOl'S METALS.

379

did not pursue it into its ramifications,
was the renl originator. No writer who
preceded him appears to have had a
glimpse of it : and few are those who
even since his time have had an ade-
quate conception of its scientific value.

§ 3. [t is now necessary to inquire,
in what manner this law of the distri-
bution of the precious metals by means
of the exchanges, affects the exchange
value of money itself; and how it
tallies with the law by which we found
that the value of money is regulated
when imported as a mere article of
merchandize. For there is here a
semblance of contradiction, which has,
1 think, contributed more than any-
thing else to make some distinguished
political economists resist the evidence
of the preceding doctrines. Monej7,
they justly think, is no exception to
the general laws of value ; it is a com-
modity like any other, and its average
or natural value must depend on the
cost of producing, or at least of obtain-
ing it. That its distribution through
the world therefore, and its different
value in different places, should be
liable to be altered, not by causes
affecting itself, but by a hundred
causes unconnected with it ; by every-
thing which affects the trade in other
commodities, so as to derange the
equilibrium of exports and imports ;
appears to these thinkers a doctrine
altogether inadmissible.

But the supposed anomaly exists
only in semblance. The causes which
bring money into or carry it out of a
country through the exchanges, to re-
store the equilibrium of trade, and
which thereby raise its value in some
countries and lower it in others, are
the very same causes on which the
local value of money would depend, if
it were never imported except as a
merchandize, and never except directly
from the mines. When the value of
money in a country [9 permanently
lowered by an influx of it through the
balance ot' trade, the cause, if it is not
diminished cost of production, must be
one of those causes which compel a
new adjustment, more favourable to
the country, of the equation of inter-

national demand : namely, either an
increased demand abroad for her com-
modities, or a diminished demand on
her part for those of foreign countries.
Now an increased foreign demand for
the commodities of a country, or a
diminished demand in the country for
imported commodities, are the very
causes which, on the general principles
of trade, enable a country to purchase
all imports, and consequently the pre-
cious metals, at a lower value. There
is therefore no contradiction, but the
most perfect accordance, in the results
of the two different modes in which
the precious metals may be obtained.
When money flows from country to
country in consequence of changes in
the international demand for commodi-
ties, and by so doing alters its own
local value, it merely realizes, by a
more rapid process, the effect which
would otherwise take place more
slowly, by an alteration in the relative
breadth of the streams by which the
precious metals flow into different re-
gions of the earth from the mining
countries. As therefore we before saw
that the use of money as a medium of
exchange does not in the least alter
the law on which the values of other
things, either in the same country or
internationally, depend, so neither does
it alter the law of the value of tho
precious metal itself: and there is in
the whole doctrine of international
values as now laid down, a unity and
harmony which is a strong collateral
presumption of truth.

§ 4. Before closing this discussion,
it is fitting to point out in what
manner and degree the preceding con-
elusions arc affected by the existence
of international payments not originat-
ing in commerce, and for which no
equivalent in either money or com-
modities is expected or received ; such
as a tribute, or remittances of rent to
absentee landlords or of interest to
foreign creditors, or a government ex-
penditure abroad, such as England
incurs in the management of some of
her colonial dependencies.

To begin with the case of barter.
The supposedannual remittances being

880

BOOK in. CHAPTER XXII. § 1.

made in commodities, and being ex-
ports for which there is to be no return,
it is no longer requisite that the im-
ports and exports should pay for one
another : on the contrary, there must
be an annual excess of exports over
imports, equal to the value of the re-
mittance. If, before the country be-
came liable to the annual payment,
foreign commerce was in its natural
state of equilibrium, it will now be
necessary for the purpose of effecting
the remittance, that foreign countries
should be induced to take a greater
quantity of exports than before : which
can only be done by offering those ex-
ports on cheaper terms, or in other
words, by paying dearer for foreign
commodities. The international values
will so adjust themselves that either by
greater exports, or smaller imports, or
both, the requisite excess on the side
of exports will be brought about ; and
this excess will become the permanent
state. The result is, that a country
which makes regular payments to
foreign countries, besides losing what
it pays, loses also something more, by
the less advantageous terms on which
it is forced to exchange its productions
for foreign commodities.

The same results follow on the sup-

position of money. Commerce beit.g
supposed to be in a state of equilibrium
when the obligatory remittances begin,
the first remittance is necessarily made
in money. This lowers prices in the
remitting country, and raises them in
the receiving. The natural effect is
that more commodities are exported
than before, and fewer imported, and
that, on the score of commerce alone, a
balance of money will be constantly
due from the receiving to tho paying
country. When the debt thus annually
due to the tributary country becomes
equal to the annual tribute or other
regular payment due from it, no further
transmission of money takes place ;
the equilibrium of exports and imports
will no longer exist, but that of pay-
ments will; the exchange will be at
par, the two debts will be set off
against one another, and the tribute or
remittance will be virtually paid in
goods. The result to the interests of
the two countries will be as already
pointed out : the paying country will
give a higher price for all that it buys
from the receiving country, while the
latter, besides receiving the tribute,
obtains the exportable produce of the
tributary country at a lower price.

CHAPTER XX1L

INFLtEXCE OF THE CDltr.EXCY OS THE EXCHANGES AKD OK FOREIGS TRADE

§ 1. Is our inquiry into the laws
of international trade, we commenced
with the principles which determine
international exchanges and inter-
national values on the hypothesis of
barter. We next showed that the in-
troduction of money as a medium of
exchange, makes no difference in the
laws of exchanges and of values be-
tween country and country, no more
than between individual and indi-
vidual : since the precious netals,
under the influence of those same laws,
distribute themselves in such propor-

tions among the different countries of
the world, as to allow the very same
exchanges to go on, and at the same
values, as would be the case under a
system of barter. We lastly considered
how the value of money itself is
affected, by those alterations in the
state of trade which arise from altera-
tions either in the demand and supply
of commodities or in their cost of pro-
duction. It remains to consider the
alterations in the state of trade which
originate not in commodities but in
money.

INFLUENCE OF CURRENCY ON FOREIGN TRADE. 381

Gold and silver may vary like other
things, though they are not so likely
to vary as other things, in their cost of
production. The demand for them in
foreign countries may also vary. It
may increase, by augmented employ-
ment of the metals for purposes of art
and ornament, or because the increase
of production and of transactions has
created a greater amount of business
to be done by the circulating medium.
}t may diminish, for the opposite
leasons ; or from the extension of the
economizing expedients by which the
use of metallic money is partially dis-
pensed with. These changes act upon
the trade between other countries and
the mining countries, and upon the
value of the precious metals, according
to the general laws of the value of im-
ported commodities : which have been
Bet forth in the previous chapters with
sufficient fulness.

What I propose to examine in the
present chapter, is not those circum-
stances affecting money, which alter
the permanent conditions of its value ;
but the effects produced on interna-
tional trade by casual or temporary
variations in the value of money,
which have no connexion with any
causes affecting its permanent value.
This is a subject of importance, on
account of its bearing upon the prac-
tical problem which has excited so
much discussion for sixty years past,
the regulation of the currency.

§ 2. Let us suppose in any country
a circulating medium purely metallic,
and a sudden casual increase made to
it ; for example, by bringing into cir-
culation hoards of treasure, which had
been concealed in a previous period of
foreign invasion or internal disorder.
The natural effect would be a rise of
prices. This would check exports, and
encourage imports ; the imports would
exceed the exports, the exchanges
would become unfavourable, and the
newly-acquired stock of money would
diffuse itself over all countries with
which the supposed country carried on
trade, and from them, progressively,
through all parts of the commercial
world. The money which thus over-

flowed would spread itself to an equal
depth over all commercial countries.
For it would go on flowing until the
exports and imports again balanced
one another : and this (as no change
is supposed in the permanent circum-
stances of international demand) could
only be, when the money had diffused
itself so equally that prices had risen
in the same ratio in all countries, so
that the alteration of price would be
for all practical purposes ineffective,
and the exports and imports, though
at a higher money valuation, woidd be
exactly the same as they were ori-
ginally. This diminished value of
money throughout the world, (at least
if the diminution was considerable)
would cause a suspension, or at least
a diminution, of the annual supply
from the mines : since the metal
would no longer command a value
equivalent to its highest <jost of pro-
duction. The -annual waste would,
therefore, not be fully made up, and
the usual causes of destruction would
gradually reduce the aggregate quan-
tity of the precious metals to its
former amount ; after which their pro-
duction would recommence on its
former scale. The discovery of the
treasure would thus produce only tem-
porary effects ; namely, a brief dis-
turbance of international trade until
the treasure had disseminated itself
through the world, and then a tem-
porary depression in the value of the
metal, below that which corresponds
to the cost of producing or of obtain-
ing it ; which depression would gra-
dually be corrected, by a temporarily
diminished production in the producing
countries, and importation in the im-
porting countries.

The same effects which would thus
arise from the discovery of a treasure,
accompany the process by which bank
notes, or any of the other substitutes
for money, take the place of the pre-
cious metals. Suppose that England
possessed a currency wholly metallic,
of twenty millions sterling, and that
suddenly twenty millions of bank notes
were sent into circulation. If these were
issued by bankers, they would be em-
ployed in loans, or in the purchase of

382

BOOK III. CHAPTER XXII. § 2.

securities, and would therefore create
a sudden fall in the rate of interest,
which would probably send a great
part of the twenty millions of gold out
of the country as capital, to seek a
higher rate of interest elsewhere, be-
forc there had been time for any
action on prices. But we will suppose
that the notes are not issued by
bankers, or money-lenders of any
kind, but by manufacturers, in the
payment of wages and purchase of
materials, or by the government in its
ordinary expenses, so that the whole
amount would be rapidly carried into
the markets for commodities. The
following would be the natural order
of consequences. All prices would
rise greatly. Exportation would almost
cease ; importation would be prodi-
giously stimulated. A great balance
of payments would become due ; the
exchanges would turn against England,
to the full extent of the cost of ex-
porting money ; and the surplus coin
would pour itself rapidly forth, over
the various countries of the world, in
the order of their proximity, geogra-
phically and commercially, to England.
The efflux would continue until the
currencies of all countries had come
to a level ; by which I do not mean,
until money became of the same value
everywhere, but until the differences
were only those which existed before,
and which corresponded to permanent
differences in the cost of obtaining it.
When the .rise of prices had extended
itself in an equal degree to all coun-
tries, exports and imports would every-
where revert to what they were at
first, would balance one another, and
tie exchanges would return to par.
If such a sum of money as twenty
millions, when spread over the whole
(surface of the commercial world, were
sufficient to raise the general level in
a perceptible degree, the effect would
be of no long duration. No alteration
Laving occurred in the general condi-
tions under which the metals were
procured, either in the world at large
or in any part of it, the reduced value
would no longer be remunerating, and
the supply from the mines would
ceaso partially or wholly, until the

twenty millions were absorbed ;* after
which absorption, the currencies of all
countries would be, in quantity and in
value, nearly at their original level.
I say nearly, for in strict accuracy
there would be a slight difference. A
somewhat smaller annual supply of
the precious metals would now he re-
quired, there being in the world twenty
millions less of metallic money under-
going waste. The equilibrium of pay-
ments, consequently, between the
mining countries and the rest of the
world, would thenceforth require that
the mining countries should either
export rather more of something else,
or import rather less of foreign com •
modities ; which implies a somewhat
lower range of prices than previously
in the mining countries, and a some-
what higher in all others ; a scantier
currency in the former, and rather
fuller currencies in the latter. This
effect, which would be too trifling to
require notice except for the illustra-
tion of a principle, is the only perma-
nent change which would be produced
on international trade, or on the value
or quantity of the currency of any
country.

Effects of another kind, however,
will have been produced. Twenty
millions which formerly existed in the
unproductive form of metallic money,
have been converted into what is, or
is capable of becoming, productive
capital. This gain is at first made by
England at the expense of othef
countries, who have taken her super-
fluity of this costly and unproductive
article off her hands, giving for it an
equivalent value in other commodities.
By degrees the loss is made up to
those countries by diminished influx
from the mines, and finally the world
has gained a virtual addition of twenty
millions to its productive resources.
Adam Smith's illustration, though so
well known, deserves for its extreme

* I am here supposing a state of thing
in which gold and silver mining are a per-
manent branch of industry, carried on under
known conditions; and not the present stats
of uncertainty, in which gold-gathering is a
game of chance, prosecuted (for the present)
in the spirit of an adventure, ivjt in that of •
regular industrial pursuit,

INFLUENCE OF CURRENCY ON FOREIGN TRADE.

583

aptness to be onco more repeated.
He compares the substitution of paper
iu the room of the precious metals, to
the construction of a highway through
the air, by which the ground now
occupied by roads would become avail-
able for agriculture. As in that case
a portion of the soil, so in this a part
of tho accumulated wealth of the
country, would be relieved from a
function in which it was only em-
ployed in rendering other foils and
capitals productive, and would itself
become applicable to production ; the
office it previously fulfilled being equally
well discharged by a medium which
costs nothing.

The value saved to the community
by thus dispensing with metallic
money, is a clear gain to those who
provide the substitute. They have the
use of twenty millions of circulating
medium which have cost them only the
expense of an engraver's plate. If
they employ this accession to their
fortunes as productive capital, the pro-
duce of the country is increased and
the community benefited, as much as
by any other capital of equal amount.
Whether it is so employed or not, de-
pends, in some degree, upon the mode
of issuing it. If issued by the govern-
ment, and employed in pay ing oif debt,
it would probably become productive
capital. The government, however,
may prefer employing this extraor-
dinary resource in its ordinary ex-
penses ; may squander it uselessly, or
make it a mere temporary substitute
for taxation to an equivalent amount ;
in which last case the amount is saved
by the taxpayers at large, who either
add it to their capital or spend it as
income. When paper currency is sup-

Clied, as in our own country, by
ankers and banking companies, the
amount is almost wholly turned into
productive capital : for the issuers,
being at all times liable to be called
apon to refund the value, are under
the strongest inducements not to
squander it, and the only cases in
which it is not forthcoming are cases
of fraud or mismanagement. A
banker's profession being that of a
money-lender, his issue of notes ia a

simple extension of his ordinary occu-
pation. He lends the amount to
farmers, manufacturers, or dealers, who
employ it in their several businesses.
So employed, it yields, like any other
capital, wages of labour and profits of
stock. The profit is shared between
the banker, who receives interest, and
a succession of borrowers, mostly for
short periods, who after paying the
interest, gain a profit in addition, or a
convenience equivalent to profit. The
capital itself in the long run becomes
entirely wages, and when replaced by
the sale of the produce, becomes wages
again; thus affording a perpetual fund,
of the value of twenty millions, for the
maintenance of productive labour, and
increasing the annual produce of the
country by all that can be produced
through the means of a capital of that
value. To this gain must be added a
further saving to the country, of the
annual supply of the precious metals
necessary for repairing the wear and
tear, and other waste, of a metallic
currency.

The substitution, therefore, of paper
for the precious metals, should always
be carried as far as is consistent with
safety ; no greater amount of metallic
currency being retained, than is ne-
cessary to maintain, both in fact and in
public belief, the convertibility of the
paper. A country with the extensive
commercial relations of England, is
liable to be suddenly called upon for
large foreign payments, sometimes in
loans, or other investments of capital
abroad, sometimes as the price of some
unusual importation of goods, the most
frequent case being that of large im-

Eortations of food consequent on a bad
arvest. To meet such demands it is
necessary that there should be, either
in circulation or in the coffers of the
banks, coin or bullion to a very consi-
derable amount, and that this, when
drawn out by any emergency, should
be allowed to return after the emer-
gency is past. But since gold wanted
for exportation is almost invariably
drawn from the reserves of the banks,
and is never likely to be taken directly
from tho circulation while tho banks
remain solvent, the oulv advantaga

8S4

BOOK III. CHAPTER XXII. § 3.

which can l>e obtained from retaining
partially a metallic currency for daily
purposes is, that the banks may oc-
casionally replenish their reserves
from it.

§ 3. "When metallic money had
been entirely superseded and expelled
from circulation, by the substitution of
an equal amount of banknotes, any at-
tempt to keep a still further quantity
of paper in circulation must, if the
notes are convertible, be a complete
failure. The new issue would again
set in motion the same train of conse-
quences by which the gold coin had
already been expelled. The metals
would, as before, be required for ex-
portation, and would be for that pur-
pose demanded from the banks, to the
full extent of the superfluous notes ;
which thus could not possibly be re-
tained in circulation. If, indeed, the
notes were inconvertible, there would
be no such obstacle to the increase
of their quantity. An inconvertible
paper acts in the same way as a con-
vertible, while there remains any coin
for it to supersede : the difference
begins to manifest itself when all the
coin is driven from circulation (except
what may be retained for the con-
venience of small change), and the
issues still go on increasing. When
the paper begins to exceed in quantity
the metallic currency which it super-
seded, prices of course rise ; things
which were worth 51. in metallic
money, become worth Ql. in inconver-
tible paper, or more as the case may
be. But this rise of price will not, as
in the cases before examined, stimulate
import, and discourage export. The
imports and exports are determined by
the metallic prices of things, not by
the paper prices : and it is only when
the paper is exchangeable at pleasure
for the metals, that paper prices and
metallic prices must correspond.

Let us suppose that England is the
country which has the depreciated
paper. Suppose that some English
production could be bought, while the
currency was still metallic, for 5L, and
sold in France for 51. 10s., the differ-
ence covering the expense and risk.

and affording a profit to the merchant.
On account of the depreciation, this
commodity will now cost in England
Gl., and cannot be sold in France for
more than 51. 10s., and yet it will be
exported as before. AVliy? Because
the 51. 10s. which the exporter can get
for it in France, is not depreciated
paper, but gold or silver : and since in
England bullion has risen, in the same
proportion with other things — if the
merchant brings the gold or silver to
England, he can sell his 51. 10s. for
Ql. 12s , and obtain as before 10 per
cent for profit and expenses.

It thus appears, that a. depreciation
of the currency does not affect the
foreign trade of the country : this is
carried on precisely as if the currency
maintained its value. But though the
trade is not affected, the exchanges
are. AVhen the imports and exports
are in equilibrium, the exchange, in a
metallic currency, would be at par ; a
bill on France for the equivalent of
five sovereigns, would be worth five
sovereigns. But five sovereigns, or the
quantity of gold contained in them,
having come to be worth in England
6£., it follows that a bill on France for
51., will be worth Gl. When, therefore,
the real exchange is at par, there will
be a nominal exchange against the
country, of as much per cent as the
amount of the depreciation. If the
currency is depreciated 10, 15, or 20
per cent, then in whatever way the
real exchange, arising from the varia-
tions of international debts and credits,
may vary, the quoted exchange will
always d'iffcr 10, 15, or 20 per cent
from it. However high this nominal
premium may be, it has no tendency to
send gold out of the country, for the
purpose of drawing a bill against it
and profiting by the premium; be-
cause the gold so sent must be pro-
cured, not from the banks and at par,
as in the cass of a convertible cur-
rency, but in the market, at an ad-
vance of price equal to the premium.
In such cases, instead of saying that
the exchange is unfavourable, it would
be a more correct representation to say
that the par has altered, since there is
now required a larger quantity of

RATE OF INTEREST.

385

English currency to be equivalent to
the same quantity of foreign. The
exchanges, however, continue to be
computed according to the metallic par.
The quoted exchanges, therefore, when
there is a depreciated currency, are
compounded of two elements or factors ;
the real exchange, which follows the
variations of international payments,
and the nominal exchange, which
varies with the depreciation of the cur-
rency, but which, while there is any
depreciation at all, must always be un-
favourable. Since the amount of de-
preciation is exactly measured by the
degree in which the market price of
bullion exceeds the Mint valuation, we
have a sure criterion to determine what
portion of the quoted exchange, being
referable to depreciation, may be struck
oft' as nominal ; the result so corrected
expressing the real exchange.

The same disturbance of the ex-
changes and of international trade,
which is produced by an increased
issue of convertible bank notes, is in
like manner produced by those exten-
sions of credit, which, as was so fully
shown in a preceding chapter, have the
game effect on prices as an increase of
the currency. Whenever circumstances
have given such an impulse to the
spirit of speculation as to occasion a
great increase of purchases on credit,
money prices rise, just as much as they
would have risen if each person who so
buys on credit had bought with money.
All the effects, therefore, must be simi-
lar. As a consequence of high prices,

exportation is checked and importation
stimulated ; though in fact the increase
of importation seldom waits for tho
rise of prices which is the consequence
of speculation, inasmuch as some of
the great articles of import are usually
among the things in which speculative
overtrading first shows itself. There
is, therefore, in such periods, usually a
great excess of imports over exports ;
and when the time comes at which
these must be paid for, the exchangea
become unfavourable, and gold flow
out of the country. In what precise
manner this efflux of gold takes effect
on prices, depends on circumstances of
which we shall presently speak more
fully; but that its effect is to make
them recoil downwards, is certain and
evident. The recoil, once begun, gene-
rally becomes a total rout, and the
unusual extension of credit is rapidly
exchanged for an unusual contraction
of it. Accordingly, when credit has
been imprudently stretched, and the
speculative spirit carried to excess, the
turn of the exchanges, and consequent
pressure on the banks to obtain gold
for exportation, are generally the
proximate cause of the catastrophe.
But these phenomena, though a con-
spicuous accompaniment, are no essen-
tial part, of the collapse of credit called
a commercial crisis; which, as we
formerly showed,* might happen to as
great an extent, and is quite as likely
to happen, in a country, if any such
there were, altogether destitute of
foreign trade.

CHAPTER XXIII.

OP THE RATE OF INTEREST.

§ 1. THE present seems the most
proper place for discussing the circum-
stances which determine the rate of
interest. The interest of loans, being
really a question of exchange value,
falls naturally into the present division

of our subject : and the two topics of
Currency and Loans, though in them-
selves distinct, are so intimately
blended in the phenomena of what in
called the money market, that it is in>
* Supra, pp. 318—9.

G Q

386

BOOK III. CHAPTER XXlil. § 2.

possible to understand the one without
the other, and in many minds the two
Bubjects arc mixed up in the most in-
extricable confusion.

In the preceding Book* we defined
the relation in which interest stands to
profit. We found that the gross profit
of capital might be distinguished into
three parts, which are respectively the
remuneration for risk, for trouble, and
for the capital itself, and may be
termed insurance, wages of superin-
tendence, and interest. After making
compensation for risk, that is, after
covering the average losses to which
capital is exposed either by the general
circumstances of society or by the
hazards of the particular employment,
there remains a -.purplus, which partly
goes to repay the owner of the capital
for his abstinence, and partly the em-
ployer of it for his time and trouble.
How much goes to the one and how
much to the other, is shown by the
amount of the remuneration which,
when the two functions are separated,
the owner of capital can obtain from
the employer for its use. This is evi-
dently a question of demand and
supply. Nor have demand and supply
any different meaning or effect in this
case from what they have in all others.
The rate of interest will be such as to
equalize the demand for loans with the
supply of them. It will be such, that
exactly as much as some people are
desirous to borrow at that rate, others
shall be willing to lend. If there is
more offered than demanded, interest
will fall; if more is demanded than
offered, it will rise ; and in both cases,
to the point at which the equation of
supply and demand is re-established.

Both the demand and supply of
loans fluctuate more incessantly than
any other demand or supply whatso-
ever. The fluctuations in other things
depend on a limited number of influ-
encing circumstances ; but the desire
to borrow, and the willingness to lend,
are more or less influenced by every
circumstance which affects the state or
prospects of industry or commerce,
either generally or in any of their
branches. The rate of interest, there-
* Supra, book ii. ch. XT. § 1,

fore, on good security, which alone we
have here to consider (for interest in
which considerations of risk bear a part
may swell to any amount) is seldom,
in the great centres of money transac-
tions, precisely the same for two days
together ; as is shown by the never-
ceasing variations in the quoted prices
of the funds and other negotiable secu-
rities. Nevertheless, there must be, as
in other cases of value, some rate
which (in the language of Adam Smith
and Eicardo) may be called the natural
rate ; some rate about which the mar-
ket rate oscillates, and to which it
always tends to return. This rate
partly depends on the amount of accu-
mulation going on in the hands of
persons who cannot themselves attend
to the employment of their savings,
and partly on the comparative taste
existing in the community for the
active pursuits of industry, or for the
leisure, ease, and independence of an
annuitant.

§ 2. To exclude casual fluctuations,
we will suppose commerce to b« in a
quiescent condition, no employment
being unusually prosperous, and none
particularly distressed. In these cir-
cumstances, the more thriving pro-
ducers and traders have their capital
fully employed, and many are able to
transact business to a considerably
greater extent than they have capital
for. These are naturally borrowers :
and the amount which they desire to
borrow, and can give security for, con-
stitutes the demand for loans on ac-
count of productive employment. To
these must be added the loans required
by Government, and by landowners, or
other unproductive consumers who have
good security to give. This constitutes
the mass of loans for which there is an
habitual demand.

Now it is conceivable that there
might exist, in the hands of persons
disinclined or disqualified for engaging
personally in business, a mass of capi-
tal equal to, and even exceeding, this
demand. In that case there would be
an habitual excess of competition on.
the part of lenders, and the rate of in-
terest would bear a low proportion to

RATE OF INTEREST.

387

the rate of pinfit. Interest would bo
forced down to the point which would
either tempt borrowers to take a greater
amount of loans than they had a
reasonable expectation of being able to
employ in their business, or would so
discourage a portion of the lenders, as
to make them either forbear to accu-
mulate, or endeavour to increase their
income by engaging in business on
their own account, and incurring the
risks, it' not the labours, of industrial
employment.

On the other hand, the capital owned
by persons who prefer lending it at
interest, or whose avocations prevent
them from personally superintending
its employment, may be short of the
habitual demand for loans. It may be
in great part absorbed by the invest-
ments afforded by the public debt and
by mortgages, and the remainder may
not be sufficient to supply the wants of
commerce. If so, the rate of interest
will be raised so high as in some way
to re-establish the equilibrium. When
there is only a small difference between
interest and profit, many borrowers
may no longer be willing to increase
their responsibilities and involve their
credit for so small a remuneration : or
some who would otherwise have en-
gaged in business, may prefer leisure,
and become lenders instead of bor-
rowers : or others, under the induce-
ment of high interest and easy in-
vestment for their capital, may re-
tire from business earlier, and with
smaller fortunes, than they otherwise
would have done. Or, lastly, there is
another process by which, in England
and other commercial countries, a
large portion of the requisite supply
of loans is obtained. Instead of its
being afforded by persons not in busi-
ness, the affording it may itself become
a business. A portion of the capital
employed in trade may be supplied by
a class of professional moneylenders.
These money lenders, however, must
have more than a mere interest ; they
must have the ordinary rate of profit
on their capital, risk and all other
circumstances being allowed for. But
it can never answer to any one who
borrows for the purposes of his busi-

ness, to pay a full profit for capita."
from which, he will only derive a full
profit : and money-lending, as an em-
ployment, for the regular supply 0}
trade, cannot, therefore, be earned on
except by persons who, in addition to
their own capital, can lend their credit,
or, in other words, the capital of othe?
people : that is, bankers, and persons
(such as bill-brokers) who are virtually
bankers, since they receive money in
deposit. A bank which lends its notes
lends capital which it borrows from
the community, and for which it pays
no interest. A bank of deposit lends
capital which it collects from the com-
munity in small parcels ; sometimes
without paying any interest, as is the
case with the London private bankers ;
and if, like the Scotch, the joint stock,
and most of the country banks, it docs
pay interest, it still pays much less
than it receives ; for the depositors,
who in any other way could mostly
obtain for such small balances no
interest worth taking any trouble for,
are glad to receive even a little.
Having this subsidiary resource,
bankers are enabled to obtain, by
lending at interest, the ordinary rate
of profit on their own capital. In any
other manner, money-lending could not
be carried on as a regular mode of
business, except upon terms on which
none would consent to borrow but
persons either counting on extraor-
dinary profits, or in urgent need : un-
productive consumers who have ex-
ceeded their means, or merchants in
fear of bankruptcy. The disposable
capital deposited in banks; that re-
presented by bank notes ; the capital
of bankers themselves, and that which
their credit, in any way in which they
use it, enables them to dispose of;
these, together with the funds belong-
ing to those who, either from necessity
or preference, live upon tho interest of
their property, constitute the general
loan fund of the country: and the
amount of this aggregate fund, when
set against the habitual demands of
producers and dealers, and those of
the Government and of unproductive
consumers, determines the permanent
or average rate of interest; which
C C 2

388

BOOK III. CHAPTER XXIII. § 3.

must always be such as to adjust
these twoamounts to one another/* But
while the whole of this mass of lent
capital takes effect upon the permanent
rate of interest, the fluctuations de-
pend almost entirely upon the portion
which is in the hands of bankers ; for
it is that portion almost exclusively,
which, being lent for short times only,
is continually in the market seeking
an investment. The capital of those
who live on the interest of their own
fortunes, has generally sought and
found some fixed investment, such as
the public funds, mortgages, or the
bonds of public companies, which in-
vestment, except under peculiar temp-
tations or necessities, is not changed.

§ 3. fluctuations in the rate of
interest arise from variations either in
demand for loans, or in the supply.
The supply is liable to variation,
tin mgh less so than the demand. The
willingness to lend is greater than
usual at the commencement of a
period of speculation, and much less
than usual during the revulsion which
• follows. In speculative times, money-
lenders as well as other people are in-
clined to extend their business by
stretching their credit; they lend
more than usual (just as other classes
of dealers and producers employ more
than usual) of capital which docs not
belong to them. Accordingly, these
are the times when the rate of interest
is low; though for this too (as we
shall hereafter see) there are other
causes. During the revulsion, on the
contrary, interest always rises inor-

* I do not include in the general loan fund
of the country the capitals, large as they
sometimes are, which are habitually em-
ployed in speculatively buying and selling
the public funds and other securities. It is
true that all who buy securities add, for the
time, to the general amount of money on loan,
and lower, to that extent, the rate of interest.
But as the persons I speak of buy only to sell
Again at a higher price, they are alternately
in the position of lenders and of borrowers:
their operations raise the rate of interest at
one time, exactly as much as they lower it at
another. Like all persons who buy and sell
on speculation, their function is to equalize,
not to raise or lower, the value of the com-
modity. When they speculate prudently,
they temper the fluctuations of price ; when
Imprudently, they often aggravate them.

dinately, because, while thci« is a
most pressing need on the part of
many persons to borrow, there is a
general disinclination to lend. This
disinclination, when at its extreme
point, is called a panic. It occurs
when a succession of unexpected fai-
lures has created in the mercantile,
and sometimes also in the non-mer-
cantile public, a general distrust in
each other's solvency; disposing every
one not only to refuse fresh credit,
except on very onerous terms, but to
call in, if possible, all credit which ho
has already given. Deposits are with-
drawn from banks ; notes are re-
turned on the issuers in exchange for
specie ; bankers raise their rate of
discount, and withhold their customary
advances ; merchants refuse to renew
mercantile bills. At such times the
most calamitous consequences were
formerly experienced from the attempt
of the law to prevent more than a
certain limited rate of interest from
being given or taken. Persons who
could not borrow at five per cent, had
to pay, not six or seven, but ten or
fifteen per cent, to compensate the
lender for risking the penalties of the
law : or had to sell securities or goods
for ready money at a still greater
sacrifice.

In the intervals between commercial
crises, there is usually a tendency in
the rate of interest to a progressive
decline, from the gradual process of
accumulation ; which process, in the
great commercial countries, is suffi-
ciently rapid to account for the almost
periodical recurrence of these fits of
speculation ; since, when a few years
have elapsed without a crisis, and
no new and tempting channel for in-
vestment has been opened in the
meantime, there is always found to
have occurred in those few years so
large an increase of capital seeking
investment, as to have lowered con-
siderably the rate of interest, whether
indicated by the prices of securities or
by the rate of discount on bills ; and
this diminution of interest tempts the
possessors to incur hazards in hopes of
a more considerable return.
The rate of interest is, at times,

RATE OF INTEREST.

389

affected more or less permanently by
circumstances, though not of frequent,
yet of occasional occurrence, which
tend to alter the proportion between
the class of interest-receiving and that
of profit-receiving capitalists. Two
causes of this description, operating in
contrary ways, have manifested them-
selves of late years, and are now pro-
ducing considerable effects in England.
One is, the gold discoveries. The
masses of the precious metals which
are constantly arriving from the gold
countries, are, it may safely be said,
wholly added to the funds that supply
the loan market. So great an addi-
tional capital, not divided between the
two classes of capitalists, but aggre-
gated bodily to the capital of the
interest-receiving class, disturbs the
pre-existing ratio between the two,
and tends to depress interest, relatively
to profit. Another circumstance of still
more recent date, but tending to the
contrary effect, is the legalization of
joint-stock associations with limited
liability. The shareholders in these
associations, now so rapidly multiply-
ing, are drawn almost exclusively from
the lending class ; from those who
either left their disposable funds in
deposit, to be lent out by hankers, or
invested them in public or private secu-
rities, and received the interest. To
the extent of their shares in any of
these companies (with the single ex-
ception of banking companies) they
have become traders on their own
capital ; they have ceased to be lenders,
and have even, in most cases, passed
over to the class of borrowers. Their
subscriptions have been abstracted
from the funds which feed the loan
market, and they themselves have be-
come competitors for a share of the
remainder of those funds : of all which,
the natural effect is a rise of interest.
And it would not be surprising if, for
a considerable time to come, the ordi-
nary rate of interest in England should
bear a higher proportion to the common
rate of mercantile profit, than it has
borne at any time since the influx of
new gold set in.*

* To the cause of augmentation in the rate
of interest, mentioned in the text, must be

The demand for loans varies mnch
more largely than the supply, and em-
braces longer cycles of years in its
aberrations. A time of war, for ex-
ample, is a period of unusual drafts on
the loan market. The Government, at
such times, generally incurs new loans,
and as these usually succeed each other
rapidly as long as the war lasts, thn
general rate of interest is kept higher
in war than in peace, without reference
to the rate of profit, and productive
industry is stinted of its usual supplies.
During part of the last French war,
the Government could not borrow under
six per cent, and of course all other
borrowers had to pay at least as much.
Nor does the influence of these loans
altogether cease when the Government
ceases to contract others ; for those
already contracted continue to afford
an investment for a greatly increased
amount of the disposable capital of the
country, which if the national debt
were paid off, would be added to tho
mass of capital seeking investment, and
(independently of temporary disturb-
ance) could not but, to some extent,
permanently lower the rate of interest.
The same effect on interest which is
produced by Government loans for war
expenditure, is produced by the sudden
opening of any new and generally
attractive mode of permanent invest-
ment. The only instance of the kind
in recent history on a scale comparable
to that of the war loans, is the absorp-
tion of capital in the construction of
railways. This capital must have been
principally drawn from the deposits in
banks, or from savings which would
have gone into deposit, and which were
added another, forcibly insisted on by the
author of an able article in the Edixbwgk
Bei-icip for January 1805 ; the increased and
increasing willingness to send capital abroad
for investment. Owing to the vastly aug-
mented facilities of access to foreign coun-
tries, and the abundant information inces-
santly received from them, foreign invest-
ments have ceased to inspire the terror that
belongs to the unknown ; capital flows, with-
out misgiving, to any place which affords an
expectation of high profit ; and the loan
market of the whole commercial world is
becoming rapidly one. The rate of intereat,
therefore, in the part of the world out of
which capital most freely flows, cannot any
longer remain so much inferior to the rate
elsewhere, as it has hitherto been.

890

BOOK III. CHAFIEll XXH1. § 4.

destined to be ultimately employed in
buying securities from persons \vlio
would have employed the purchase
money in discounts or other loans at
interest : in either case, it was a draft
on the general loan fund. It is, in
fact, evident, that unless savings were
made expressly to be employed in rail-
way adventure, the amount thus em-
ployed must have been derived either
from the actual capital of persons in
business, or from capital which would
have been lent to persons in business.
In the first case, the subtraction, by
crippling their means, obliges them to
be larger borrowers ; in the second, it
leaves less for them to borrow ; in either
case it equally tends to raise the rate
of interest.

§ 4. I have, thus far, considered
Joans, and the rate of interest, as a
matter which concerns capital in gene-
ral, in direct opposition to the popular
notion, according to which it only con-
cerns money. In loans, as in all other
money transactions, I have regarded
the money which passes, only as the
medium, and commodities as the thing
teally transferred — the real subject of
the transaction. And this is, in the
main, correct : because the purpose for
which, in the ordinary course of affairs,
money is borrowed, is to acquire a pur-
chasing power over commodities. In
an industrious and commercial country,
the ulterior intention commonly is, to
employ the commodities as capital:
but even in the case of loans for un-
productive consumption, as those of
spendthrifts, or of the Government, the
amount borrowed is taken from a pre-
vious accumulation, which would other-
wise have been lent to carry on produc-
tive industry ; it is, therefore, so much
subtracted from what may correctly be
called the amount of loanable capital.

There is, however, a not unfrequent
case, in which the purpose of the bor-
rower is different from what I have
here supposed. He may borrow money,
neither to employ it as capital nor to
gpend it unproductively, but to pay a
previous debt. In this case, what he
wants is not purchasing power, but
legal tender, or something which a

creditor will accept as equivalent to it.
His need is specifically for money, not
for commodities or capital. It is the
demand arising from this cause, which
produces almost all the great and sud •
den variations of the rate of interest.
Such a demand forms one of the ear-
liest features of a commercial crisis.
At such a period, many persons in
business who have contracted engage-
ments, have been prevented by a change
of circumstances from obtaining in time
the means on which they calculated for
fulfilling them. These means they
must obtain at any sacrifice, or submit
to bankruptcy; and what they must
have is money. Other capital, how-
ever much of it they may possess, can-
not answer the purpose unless money
can first be obtained for it; while, on
the contrary, without any increase of
the capital of the country, a mere in-
crease of circulating instruments of
credit, (be they of as little worth for
any other purpose as the box of one
pound notes discovered in the vaults of
the Bank of England during the panic
of 1825) will effectually serve their
turn, if only they are allowed to make
use of it. An increased issue of notes,
in the form of loans, is all that is re-
quired to satisfy the demand, and put
an end to the accompanying panic.
But although, in this case, it is not
capital, or purchasing power, that the
borrower needs, but money as money,
it is not only money that is transferred
to him. The money carries its pur-
chasing power with it wherever it goes ;
and money thrown into the loan market
really does, through its purchasing
power, turn over an increased portion
of the capital of the country into the
direction of loans. Though money
alon$> was wanted, capital passes ; and
it may still be said with truth that it
is by an addition to loanable capital
that the rise of the rate of interest is
met and corrected.

Independently of this, however,
there is a real relation, which it is
indispensable to recognise, between
loans and money. Loanable capital
is all of it in the form of money.
Capital destined directly for produc-
tion exists in many forms ; but capital

RATE OF INTEREST.

391

destined for lending exists normally
m that form alone. Owing to this
circumstance, we should naturally ex-
pect that among the causes which
affect more or less the rate of interest,
would be found not only causes which
act through capital, but gome causes
which act, directly at least, only
through money.

The rate of interest bears no neces-
sary relation to the quantity or value of
the money in circulation. The perma-
nent amount of the circulating medium,
whether great or small, affects only
prices ; not the rate of interest. A
depreciation of the currency, when it
has become an accomplished fact,
affects the rate of interest in no man-
ner whatever. It diminishes indeed
the power of money to buy commodi-
ties, but not the power of money to
buy money. If a hundred pounds
•will buy a perpetual annuity of four
pounds a year, a depreciation which
makes the hundred pounds worth only
half as much as before, has precisely
the same effect on the four pounds,
and cannot therefore alter the relation
between the two. The greater or
emaller number of counters which
must be used to express a given
amount of real wealth, makes no dif-
ference in the position or interests of
lenders or borrowers, and therefore
makes no difference in the demand
and supply of loans. There is the
same amount of real capital lent and
boirowed; and if the capital in the
hands of lenders is represented by a
greater number of pounds sterling, the
panic greater number of pounds ster-
ling will, in consequence of the rise of
prices, be now required for the pur-
poses to which the borrowers intend to
apply

.Hut though the greater or less
quantity of money makes in itself no
difference in the rate of interest, a
change from a less quantity to a
greater, or from a greater to a less,
may and docs make a difference in it.

Suppose money to be in process of
depreciation, by means of an incon-
vertible currency, issued by a govern-
ment in payment of its expenses.
This fact will in no way diminish the

demand for real capital on loan ; but
it will diminish the real capital loan-
able, because, this existing only in the
form of money, the increase of quan-
tity depreciates it. Estimated in
capital, the amount offered is less,
while the amount required is the same
as before. Estimated in currency, the
amount offered is only the same as
before, while the amount required,
owing to the rise of prices, is greater.
Either way, the rate of interest must
rise. So that in this case increase of
currency really affects the rate of inte-
rest, but in the* contrary way to that
which is generally supposed ; by rais-
ing, not by lowering it.

The reverse will happen as the
effect of calling in, or diminishing in
quantity, a depreciated currency. The
money in the hands of lenders, in
common with all other money, will be
enhanced in value, that is, there will
be a greater amount of real capital
seeking borrowers ; while the real
capital wanted by borrowers will be
only the same as before, and the
money amount less : the rate of inte-
rest, therefore, will tend to fall.

We thus see that depreciation,
merely as such, while in process of
taking place, tends to raise the rate of
interest: and the expectation of fur-
ther depreciation adds to this effect ;
because lenders who expect that their
interest will be paid, and the principal
perhaps redeemed, in a less valuable
currency than they lent, of course re-
quire a rate of interest sufficient to
cover this contingent loss.

But this effect is more than counter-
acted by a contrary one, when the
additional money is thrown into circu-
lation not by purchases but by loans.
In England, and in most other com-
mercial countries, the paper currency
in common use, being a currency pro-
vided by bankers, is all issued in the
way of loans, except the part employed
in the purchase of gold and silver.
The same operation, therefore, which
adds to the currency also adds to tho
loans : tho whole increase of currency
in the first instance swells the loaii
market. Considered as an addition to
loans it tends to lower interest, more

302

than in its character of depreciation it
tends to raise it ; for the former effect
depends ou the ratio which the new
money bears to the money lent, while
the latter depends on its ratio to all
the money in circulation. An in-
crease, therefore, of currency issued by
banks, tends, while the process con-
tinues, to bring down or to keep down
the rate of interest. A similar effect
is produced by the increase of money
arising from the gold discoveries ;
almost the whole of which, as already
noticed, is, when brought to Europe,
added to the deposits in banks, and
consequently to the amount of loans ;
and when drawn out and invested
in securities, liberates an equivalent
amount of other loanable capital. The
newly-arrived gold can only get itself
invested, in any given state of busi-
ness, by lowering the rate of interest ;
and as long as the influx continues, it
cannot fail to keep interest lower than,
all other circumstances being supposed
the same, would otherwise have been
the case.

As the introduction of additional
gold and silver which goes into the
loan market, tends to keep down the
rate of interest, so any considerable
abstraction of them from the country
invariably raises it ; even when occur-
ring in the course of trade, as in pay-
ing for the extra importations caused
by a bad harvest, or for the high-priced
cotton which is, just now, imported
from so many parts of the world. The
money required for these payments is
taken in the first instance from the
deposits in the hands of bankers, and
to that extent starves the fund that
supplies the loan market.

The rate of interest, then, depends,
essentially and permanently, on the
comparative amount of real capital
offered and demanded in the way of
loan ; but is subject to temporary dis-
turbances of various sorts, from in-
crease and diminution of the circu-
lating medium ; which derangements
are somewhat intricate, and some-
times in direct opposition to first ap-
pearances. All these distinctions are
veiled over and confounded, by the
Unfortunate misapplication of language

BOOK m. CHAPTER XX11I. § 4.

which designates the rate of interest
by a phrase ("the value of money")
which properly expresses the purchas-
ing power of the circulating medium.
The public, even mercantile, habitu-
ally fancies that ease in the money
market, that is, facility of borrowing
at low interest, is proportional to the
quantity of money in circulation. Not
only, therefore, are bank notes sup-
posed to produce effects as currency,
which they only produce as loans, but
attention is habitually diverted from
effects similar in kind and much
greater in degree, when produced by
an action on loans which does not
happen to be accompanied by any
action on the currency.

For example, in considering the
effect produced by the proceedings of
banks in encouraging the excesses of
speculation, an immense effect is
usually attributed to their issues of
notes, but until of late hardly any
attention was paid to the management
of their deposits; though nothing is
more certain than that their impru-
dent extensions of credit take place
more frequently by means of their
deposits than of their issues. " There
is no doubt," says Mr. Tooke,* "that
banks, whether private or joint stock,
may, if imprudently conducted, minister
to an undue extension of credit for the
purpose of speculations, whether in
commodities, or in over-trading in ex-
ports or imports, or in building or
mining operations, and that they have
so ministered not unfrequently, and in
some cases to an extent ruinous to
themselves, and without ultimate
benefit to the parties to whose views
their resources were made subser-
vient." But, " supposing all the de-
posits received by a banker to be in
coin, is he not, just as much as the
issuing banker, exposed to the impor-
tunity of customers, whom it may be
impolitic to refuse, for loans or dis-
counts, or to be tempted by a high
interest ? and may he not be induced
to encroach so much upon his deposits
as to leave him, under not improbable
circumstances, unable to meet the de-
mands of his depositors? In what
* Inquiry into the Currency Princip'e,c\i. xiVt

RATE OF INTEREST.

393

respect, indeed, would the case of a
banker in a perfectly metallic circula-
tion, differ from that of a London
banker at the present day ? He is not
a creator of money, he cannot avail
himself of his privilege as an issuer in
aid of his other business, and yet there
have been lamentable instances of Lon-
don bankers issuing money in excess."
In the discussions, too, which have
been for so many years carried on re-
specting the operations of the Bank of
England, and the effects produced by
those operations on the state of credit,
though for nearly half a century there
never has been a commercial crisis
•which the Bank has not been strenu-
ously accused either of producing or of
aggravating, it has been almost uni-
versally assumed that the influence of
its acts was felt only through the
amount of its notes in circulation, and
that if it could be prevented from ex-
ercising any discretion as to that one
feature in its position, it would no longer
have any power liable to abuse. This
at least is an error which, after the
experience of the year 1847, we may
hope has been committed for the last
time. During that year the hands of
the Bank were absolutely tied, in its
character of a bank of issue ; but
through its operations as a bank of de-
posit it exercised as great an influence,
or apparent influence, on the rate of
interest and the state of credit, as at
any former period ; it was exposed to
as vehement accusations of abusing
that influence ; and a crisis occurred,
such as lew that preceded it had
equalled, and none perhaps surpassed,
in intensity.

§ 5. Before quitting the general
subject of this chapter, 1 will make the
obvious remark, that the rate of in-
terest determines the value and price
of all those saleable articles which are
desired and bought, not for themselves,
but for the income which they are ca-
pable of yielding. The public funds,
shares in joint-stock companies, and all
descriptions of securities, arc at a high
price in proportion as the rate of in-
terest is lo v. They are sold at the
price which will cjive the market rate

of interest on the purchase money, with
allowance for .ill differences in the risk
incurred, or in any circumstance of
convenience. Exchequer bills, for ex-
ample, usually sell at a higher price
than consols, proportionally to the in-
terest which they yield ; because,
though the security is the same, yet
the former being annually paid off at
par unless renewed by the nolder, the
purchaser (unless obliged to sell in a
moment of general emergency), is in no
danger of losing anything by the re-sale,
except the premium he may have paid.
The price of land, mines, and all
other fixed sources of income, depends
in like manner on the rate of interest.
Land usually sells at a higher price, in
proportion to the income afforded by it,
than the public funds, not only because
it is thought, even in this country, to
be somewhat more secure, but because
ideas of power and dignity are asso-
ciated with its possession. But these
differences are constant, or nearly so ;
and in the variations of price, land
follows, c&teris paribus, the permanent
(though of course not the daily) varia-
tions of the rate of interest. When in-
terest is low, land will naturally be
dear ; when interest is high, land will
be cheap. The last long war presented
a striking exception to this rule, since
the price of land as well as the rate of
interest was then remarkably high. For
this, however, there was a special
cause. The continuance of a very high
average price of corn for many years,
had raised the rent of land even more
than in proportion to the rise of in-
terest ; and fall of the selling price of
fixed incomes. Had it not been for
this accident, chiefly dependent on the
seasons, land must have sustained as
trivat a depreciation in value as the
public funds : which it probably would
do, were a similar war to break out
hereafter; to the signal disappoint-
ment of those landlords and farmers
who, generalizing from the casual cir-
cumstances of a remarkable period, so
long persuaded themselves that a state
of war was peculiarly advantageous,
and a state of peace disadvantageous,
to what they chose to call the interests
of agriculture.

894

BOOK III. CHAPTER XXIV. 5 l.

CHAPTER XXIV.

THE REGULATION OF A CONVERTIBLE PAPER CURRENCY.

§ 1. THE frequent recurrence during
the last half century of the painful
scries of phenomena called a commer-
cial crisis, has directed much of the at-
tention both of economists and of prac-
tical politicians to the contriving of
expedients for averting, or at the least,
mitigating its evils. And the habit
which grew up during the era of the
Bank restriction, of ascribing all al-
ternations of high and low prices to the
issues of banks, has caused inquirers
in general to fix their hopes of success
in moderating those vicissitudes, upon
schemes for the regulation of bank
notes. A scheme of this nature, after
having obtained the sanction of high
authorities, so far established itself in
the public mind, as to be, with general
approbation, converted into a law, at
the renewal of the Charter of the Bank
of England in 1844 : and the regula-
tion is still in force, though with a great
abatement of its popularity, and with
its prestige impaired by two temporary
suspensions, on the responsibility of the
executive, the earlier of the two little
more than three years after its enact-
ment. It is proper that the merits of
this plan for the regulation of a con-
vertible bank note currency should be
here considered. Before touching upon
the practical provisions of Sir Robert
Peel's Act of 1844, I shall briefly state
the nature, and examine the grounds,
of the theory on which it is founded.

It is believed by many, that banks
of issue universally, or the Bank of
England in particular, have a power of
throwing their notes into circulation,
and thereby raising prices, arbitrarily ;
that this power is only limited by the
degree of moderation with which they
think fit to exercise it ; that when they
increase their issues beyond the usual
amount, the rise of prices, thus pro-
duced, generates a spirit of speculation
in commodities, which carries prices
still higher, and ultimately causes a

reaction and recoil, amounting in ex-
treme cases to a commercial crisis;
and that every such crisis which has
occurred in this country within mer-
cantile memory, has been either ori-
ginally produced by this cause, or
greatly aggravated by it. To this ex-
treme length the currency theory has
not been carried by the eminent poli-
tical economists who have given to a
more moderate form of the same theory
the sanction of their names. But I
have not overstated the extravagance
of the popular version ; which is a re-
markable instance to what lengths a
favourite theory will hurry, not the
closet students whose competency in
such questions is often treated with so
much contempt, but men of the world
and of business, who pique themselves
on the practical knowledge which they
have at least had ample opportunities
of acquiring. Not only has this fixed
idea of the currency as the prime agent
in the fluctuations of price, made them
shut their eyes to the multitude of cir-
cumstances which, by influencing tha
expectation of supply, are the true
causes of almost all speculations and of
almost all fluctuations of pi-ice ; but in
order to bring about the chronological
agreement required by their theory,
between the variations of bank issues
and those of prices, they have played
such fantastic tricks with facts and
dates as would be thought incredible,
if an eminent practical authority had
not taken the trouble of meeting
them, on the ground of mere history,
with an elaborate exposure. I refer,
as all conversant with the subject
must be aware, to Mr. Tooke's His-
tory of Prices. The result of Mr.
Tooke's investigations was thus stated
by himself, in his examination before
the Commons Committee on the Bank
Charter question in 1832 ; and the evi-
dences of it stand recorded in his
book : " In point of fact, and histori-

REGULATION OF CURRENCY.

395

cally, as far as my researches have
gone, in every signal instance of a rise
or fall of prices, the rise or fall has
preceded, and therefore could not be the
effect of, an enlargement or contrac-
tion of the bank circulation."

The extravagance of the currency
theorists, in attributing almost every
rise or fall of prices to an enlargement
or contraction of the issues of bank
notes, has raised up, by reaction, a
theory the extreme opposite of the
former, of which, in scientific discus-
sion, the most prominent representa-
tives are Mr. Tooke and Mr. Fullarton.
This counter- theory denies to bank
notes, so long as their convertibility is
maintained, any power whatever of
raising prices, and to banks any power
of increasing their circulation, except
as a consequence of, and in proportion
to, an increase of the business to be
done. This last statement is supported
by the unanimous assurances of all the
c'ountry bankers who have been ex-
amined before successive Parliamentary
Committees on the subject. They all
bear testimony that (in the words of
Mr. Fullarton*) " the amount of their
issues is exclusively regulated by the
extent of local dealings and expendi-
ture in their respective districts, fluc-
tuating with the fluctuations of produc-
tion and price, and that they neither
can increase their issues beyond the
limits which the range of such dealings
and expenditure prescribes, without
the certainty of having their notes im-
mediately returned to them, nor dimi-
nish them, but at an almost equal
certainty of the vacancy being filled up
from some other source." From these
premises it is argued by Mr. Tooke
and Mr. Fullarton, that bank issues,
since they cannot be increased in
amount unless there be an increased
demand, cannot possibly raise prices ;
cannot encourage speculation, nor oc-
casion a commercial crisis ; and that
the attempt to guard against that evil
by an artificial management of the
issue of notes, is of no effect for the
intended purpose, and liable to produce
other consequences extremely calami-
tous.

* Eegulation nf Currencies, p. 85.

§ 2. As much of this doctrine as
rests upon testimony, and not upon in-
ference, appears tome incontrovertible.
I give complete credence to the asser-
tion of the country bankers, very clearlv
and correctly condensed into a small
compass in the sentence just quoted
from Mr. Fullarton. I am convinced
that they cannot possibly increase their
issue of notes in any other circum-
stances than those which are thero
stated. I believe, also, that the theory,
grounded by Mr. Fullarton upon this
fact, contains a large portion of truth,
and is far nearer to being the expres-
sion of the whole truth than any form
whatever of the currency theory.

There are two states of the markets:
one which may be termed the quiescent
state, the other the expectant, or
speculative state. The first is that in
which there is nothing tending to en-
gender in any considerable portion of
the mercantile public a desire to extend
their operations. The producers pro-
duce and the dealers purchase only
their usual stocks, having no expecta-
tion of a more than usually rapid vent
for them. Each person transacts his
ordinary amount of business and no
more, or increases it only in corre-
spondence with the increase of his
capital or connexion, or with the gra-
dual growth of the demand for his
commodity, occasioned by the public
prosperity. Not meditating any un-
usual extension of their own operations,
producers and dealers do not need
more than the usual accommodation
from bankers and other money lenders ;
and as it is only by extending thci?
loans that bankers increase their issuer,
none but a momentary augmentation
of issues is in these circumstances
possible. If at a certain time of the
year a portion of the public have larger
payments to make than at other times,
or if an individual, under some peculiar
exigency, requires an extra advance,
they may apply for more bank notes,
and obtain them ; but the notes will no
more remain in circulation, than the
extra quantity cf Bank of England
notes which are issued once in every
three months in payment of the divi-
dends. The person to whom, after

BOOK 111. CHAPTER XXIV. § 2.

being borrowed, the notes are paid
away, has no extra payments to make,
and no peculiar exigency, and he keeps
them by him unused, or sends them
into deposit, or repays with them a
previous advance made to him by some
banker : in any case he does not buy
commodities with them, since by the
supposition there is nothing to induce
him to lay in a larger stock of com-
modities than before. Even if we
suppose, as we may do, that bankers
create an artificial increase of the de-
mand for loans, by offering them below
the market rate of interest, the notes
they issue will not remain in circula-
tion ; for when the borrower, having
completed the transaction for which he
availed himself of them, has paid them
away, the creditor or dealer who re-
ceives them, having no demand for the
immediate use of an extra quantity of
notes, sends them into deposit. In
this case, therefore, there can be no
addition, at the discretion of bankers,
to the general circulating medium :
any increase of their issues either
comes back to them, or remains idle in
the hands of the public, and no rise
takes place in prices.

But there is another state of the
markets, strikingly contrasted with the
preceding, and to this state it is not so
obvious that the theory of Mr. Tooke
and Mr. Fullarton is applicable ;
namely, when an impression prevails,
whether well founded or groundless,
that the supply of one or more great
articles of commerce is likely to fall
short of the ordinary consumption. In
such circumstances all persons con-
nected with those commodities desire
to extend their operations. The pro-
ducers or importers desire to produce
or import a larger quantity, speculators
desire to lay in a stock in order to
profit by the expected rise of price,
and holders of the commodity desire
additional advances to enable them to
continue holding. All these classes
are disposed to make a more than
ordinary use of their credit, and to this
desire it is not denied that bankers
very often unduly administer. Effects
of the same kind may be produced by
anything which, exciting more than

usual hopes of profit, gives increased,
briskness to business : for example, a
sudden foreign demand for commodities
on a large scale, or the expectation of
it; such as occurred on the opening of
Spanish America to English trade, and
has occurred on various occasions in
the trade with the United States.
Such occurrences produce a tendency
to a rise of price in exportable articles,
and generate speculations, sometimes
of a reasonable, and (as long as a large
proportion of men in business prefer
excitement to safety) frequently of an
irrational or immoderate character.
In such cases there is a desire in the
mercantile classes, or in some portion
of them, to employ their credit, in a
more than usual degree, as a power of
purchasing. This is a state of business
which, when pushed to an extreme
length, brings on the revulsion called
a commercial crisis ; and it is a known
fact that such periods of speculation
hardly ever pass off without having
been attended, during some part of
their progress, by a considerable in-
crease of bank notes.

To this, however, it is replied by
Mr. Tooke and Mr. Fullarton, that the
increase of the circulation always fol-
lows, instead of preceding, the rise of
prices, and is not its cause, but its
effect. That in the first place, the
speculative purchases by which prices
are raised, are not effected by bank
notes but by cheques, or still more
commonly on a simple book credit : and
secondly, even if they were made with
bank notes borrowed for that express
puqjose from bankers, the notes, after
being used for that purpose, would, if
not wanted for current transactions, I >e
returned into deposit by the persons
receiving them. In this I fully concur,
and I regard it as proved, both scienti-
fically and historically, that during the
ascending period of speculation, and as
long as it is confined to transactions
between dealers, the issues of bank
notes are seldom materially increased,
nor contribute anything to the specula-
tive rise of prices. It seems to me,
however, that this can no longer bo
affirmed when speculation has pro-
ceeded BO far as to reach the producers.

I;I.<;ULATION OF CURRENCY.

397

Speculative orders riven by merchants
to manufacturers induce them to extend
their operations, and to become appli-
cants to bankers for increased advances,
which, if made in notes, are not paid
away to persons who return them into
deposit, but are partially expended in
paying wages, and pass into the va-
rious channels of retail trade, where they
become directly effective in producing
a further rise of prices. I cannot but
think that this employment of bank
notes must have been powerfully opera-
tive on prices at the time when notes
of one and two pounds value were per-
mitted by law. Admitting, however,
that the prohibition of notes below five
pounds has now rendered this part of
their operation comparatively insignifi-
cant, by greatly limiting their applica-
bility to the payment of wages, there
is another form of their instrumentality
which comes into play in the later
stages of speculation, and which forms
the principal argument of the more
moderate supporters of the currency
theory. Though advances by bankers
are seldom demanded for the purpose
of buying on speculation, they are
largely demanded by unsuccessful
speculators for the purpose of holding
on ; and the competition of these specu-
lators for a share of the loanable capital,
makes even those who have not specu-
lated, more dependent than before on
bankers for the advances they require.
Between the ascending period of specu-
lation and the revulsion, there is an
interval, extending to weeks and some-
times months, of struggling against a
fall. The tide having shown signs of
turning, the speculative holders are
unwilling to sell in a falling market,
and in the meantime they require funds
to enable them to fulfil even their ordi-
nary engagements. It is this stage
that is ordinarily marked by a con-
siderable increase in the amount of the
bank note circulation. That such an
increase does usually take place, is
denied by no one. And I think it must
be admitted that this increase tends
to prolong the duration of the specula-
tions ; that it enables the speculative
prices to be kept up for some time after
they would otherwise have collapsed ;

and therefore prolongs and increases
the drain of the precious metals for
exportation, which is a leading feature
of this stage in the progress of a com-
mercial crisis : the continuance of
which drain at last endangering the
power of the banks to fulfil their en-
gagement of paying their notes on
demand, they are compelled to contract
their credit more suddenly and severely
than would have been necessary if they
had been prevented from propping up
speculation by increased advances, after
the time when the recoil had become
inevitable.

§ 3. To prevent this retardation of
the recoil, and ultimate aggravation of
its severity, is the object of the scheme
for regulating the currency, of which
Lord Overstone, Mr. Norman, and
Colonel Torrens, were the first pro-
rnul^ators, and which has, in a slightly
modified form, been enacted into law.*

* I think myself justified in affirming that
the mitigation of commercial revulsions is
the real, and only serious, purpose of the Act
of 1844. I am quite aware that its sup-
porters insist (especially since 1847) on its
supreme efficacy in " maintaining the con-
vertibility of the Bank note." But I must
be excused for not attaching any serious im-
portance to this one among its alleged merits.
The convertibility of the Bank note was
maintained, and would have continued to be
maintained, at whatever cost, under the old
system. As was well said by Lord Over-
stone in his Evidence, the Bank can always,
by a sufficiently violent action on credit,
save itself at the expense of the mercantile
public. That the Act of 1844 mitigates the
violence of that process, is a sufficient claim
to prefer in its behalf. Besides, if we sup-
pose such a degree of mismanagement on the
part of the Bank, as, were it not for the Act,
would endanger the continuance of con-
vertibility, the same (or a less) degree of
mismanagement, practised under the Act,
would suffice to produce a suspension of
payments by the Banking Department ; an
event which the compulsory separation of
the two departments brings much nearer to
possibility than it was before, and which,
involving as it would the probable stoppage
of every private banking establishment in
London, and perhaps also the non-payment
of the dividends to the national creditor,
would be a far greater immediate calamity
than a brief interruption of the converti-
bility of the note ; insomuch that, to enable
the Bank to resume payment of its deposits,
no Government would hesitate a moment to
suspend payment of the notes, if suspension
of the Act of 1844 proved insufficient.

398

BOOK III. CHAPTER XXIV. § 3.

According to the scheme in its origi-
nal purity, the issue of promissory
notes for circulation was to be confined
to one body. In the form adopted by
Parliament, all existing issuers were
permitted to retain this privilege, but
none were to be thereafter admitted to
it, even in the place of those who might
discontinue their issues: and, for all
except the Bank of England, a maxi-
mum of issues was prescribed, on a
scale intentionally low. To the Bank
of England no maximum was fixed for
the aggregate amount of its notes, but
only for the portion issued on securi-
ties, or in other words, on loan. These
were never to exceed a certain limit,
fixed in the first instance at fourteen
millions.* All issues beyond that
amount must be in exchange for bul-
lion; of which the Bank is bound to
purchase, at a trifle below the Mint
valuation, any quantity which is offered
to it, giving its notes in exchange. In
regard, therefore, to any issue of notes
beyond the limit of fourteen millions,
the Bank is purely passive, having no
function but the compulsory one of
giving its notes for gold at 31. 17s. 9d.,
and gold for its notes at 3Z. 17s. W^d.,
whenever and by whomsoever it is
called upon to do so.

The object for which this mechanism
is intended is, that the bank note cur-
rency may vary in its amount at the
exact times, and in the exact degree,
in which a purely metallic currency
would vary. And the precious metals
being the commodity that has hitherto
approached nearest to that invariability
in all the circumstances influencing
value, which fits a commodity for being
adopted as a medium of exchange, it
seems to be thought that the excel-
lence of the Act of 1844 is fully made
out, if under its operation the issues
conform in all their variations of quan-

* A conditional increase of this maximum
Is permitted, but only when by arrangement
with any country bank the issues of that
bank are discontinued, and Bank of England
notes substituted; and even then the in-
trease is limited to two-thirds of the amount
of the country notes to be thereby superseded.
Under this provision, the amount of notes
Which the Hank of England is now at
liberty to issue against securities, is rather
under fourteen and a half millions.

tity, and therefore, as is inferred, of
value, to the variations which would
take place in a currency wholly me-
tallic.

Now, all reasonable opponents of
the Act, in common with its sup-
porters, acknowledge as an essential
requisite of any substitute for the
precious metals, that it should con-
form exactly in its permanent value
to a metallic standard. And they say,
that so long as it is convertible into
specie on demand, it does and must so
conform. But when the value of a
metallic or of any other currency is
spoken of, there are two points to be
considered ; the permanent or average
value, and the fluctuations. It is to
the permanent value of a metallic
currency, that the value of a paner
currency ought to conform. But there
is no obvious reason why it should be
required to conform to the fluctuations
too. The only object of its conform-
ing at all, is steadiness of value ; and
with respect to fluctuations the sole
thing desirable is that they should be
the smallest possible. Now the fluctu-
ations in the value of the currency
are determined, not by its quantity,
whether it consist of gold or of paper,
but by the expansions and contractions
of credit. To discover, therefore, what
currency will conform the most nearly
to the permanent value of the precious
metals, we must find under what cur-
rency the variations in credit are least
frequent and least extreme. Now,
whether this object is best attained
by a metallic currency (and therefore
by a paper currency exactly conform-
ing in quantity to it) is precisely the
question to be decided. If it should
prove that a paper currency which
follows all the fluctuations in quantity
of a metallic, leads to more violent re-
vulsions of credit than one which is
not held to this rigid conformity, it
will follow that the currency which
agrees most exactly in quantity with
a metallic currency is not that which
adheres closest to its value ; that is to
say, its permanent value, with which
alone agreement is desirable.

WhetheV this is really the case or
not we will now inquire. And first,

REGULATION OF CURRENCY.

399

let us consider whether the Act effects
the practical object chiefly relied on
in its defence by the more sober of its
advocates, that of arresting specula-
tive extensions of credit at nn earlier
period, with a less drain of gold, and
consequently by a milder and more
gradual process. I think it must be
admitted that to a certain degree it is
wiccessful in this object.

I am aware of what may be urged,
snd reasonably urged, in opposition to
this opinion. It may be said, that
•when the time arrives at which the
banks are pressed for increased ad-
vances to enable speculators to fulfil
their engagements, a limitation of the
issue of notes will not prevent the
banks, if otherwise willing, from mak-
ing these advances ; that they have
still their deposits as a source from
which loans may be made beyond the
point which is consistent with pru-
dence as bankers ; and that even if
they refused to do so, the only effect
would be, that the deposits themselves
would be drawn out to supply the
wants of the depositors ; which would
be just as much an addition to the
bank notes and coin in the hands of
the public, as if the notes themselves
were increased. This is true, and is a
sufficient answer to those who think
that the advances of banks to prop up
failing speculations are objectionable
chiefly as an increase of the currency.
But the mode in which they are really
objectionable, is as an extension of
credit. If, instead of increasing their
discounts, the banks allow their de-
posits to be drawn out, there is the
same increase of currency (for a short
time at least) but there is not an in-
crease of loans, at the time when there
ought to be a diminution. If they do
increase their discounts, not by means
of notes, but at the expense of the
deposits alone, their deposits (properly
BO called) are definite and exhaustible,
while notes may be increased to any
amount, or, after being returned, may
be reissued without limit. It is true
that a bank, if willing to add inde-
finitely to its liabilities, has the power
of making its nominal deposits as un-
limited a fund as its issues could be ;

it has only to make its advances in
a book credit, which is creating de-
posits out of its own liabilities, the
money for which it has made itself
responsible becoming a deposit in its
hands to be drawn against by cheques ;
and the cheques, when drawn, may be
liquidated (either at the same bank
or at the clearing house) without the
aid of notes, by a mere transfer of
credit from one account to another.
I apprehend it is chiefly in this way
that undue extensions of credit, in
periods of speculation, are commonly
made. But the banks are not likely
to persist in this course when the tide
begins to turn. It is not when their
deposits have already began to flow
out, that they are likely to create
deposit accounts which represent,
instead of funds placed in their hands,
fresh liabilities of their own. But
experience proves that extension of
credit in the form of notes goes on long
after the recoil from over-speculation
has commenced. When this mode of
resisting the revulsion is made impos-
sible, and deposits and book credits are
left as the only source from which
undue advances can be made, the rate
of interest is not so often, or so long,
prevented from rising, after the diffi-
culties consequent on excess of specu-
lation begin to be felt. On the con-
trary, the necessity which the banks
feel of diminishing their advances to
maintain their solvency, when they
find their deposits flowing out, and
cannot supply the vacant place by
their own notes, accelerates the rise
of the rate of interest. Speculative
holders are therefore obliged to sub-
mit earlier to that loss by resale,
which could not have been prevented
from coming on them at last: the
recoil of prices and collapse of general
credit take place sooner.

To appreciate the effect which this
acceleration of the crisis has in miti-
gating its intensity, let us advert
more particularly to the nature and
effects of that leading feature in the
period just preceding the collapse, the
drain of gold. A rise of prices pro-
duced by a speculative extension of
credit, even when bank notes have not

400

BOOK m. CHAPTER XXIV. § 4.

been the instrument, is not the less
effectual (if it lasts long enough) in
turning the exchanges : and when the
exchanges have turned from this cause,
they can only be turned back, and the
drain of gold stopped, either by a fall
of prices or by a rise of the rate of
interest. A fall of prices will stop it
by removing the cause which produced
it, and by rendering goods a more ad-
vantageous remittance than gold, even
for paying debts already due. A rise
of the rate of interest, and consequent
fall of the prices of securities, will
accomplish the purpose still more ra-
pidly, by inducing foreigners, instead
of taking away the gold which is due
to them, to leave it for investment
within the country, and even send
gold into the country to take ad-
vantage of the increased rate of in-
terest. Of this last mode of stopping
a drain of gold, the year 1847 afforded
signal examples. But until one of
these two things takes place — until
either prices fall, or the rate of
interest rises — nothing can possibly
arrest, or even moderate, the efflux of
gold. Now, neither will prices fall
nor interest rise, so long as the un-
duly expanded credit is upheld by the
continued advances of bankers. It is
well known that when a drain of gold
has set in, even if bank notes have
not increased in quantity, it is upon
them that the contraction first falls,
the gold wanted for exportation being
always obtained from the Bank of
England in exchange for its notes.
But under the system which pre-
ceded 1844, the Bank of England,
being subjected, in common with
other banks, to the importunities for
fresh advances which are character-
istic of such a time, could, and often
did, immediately re-issue the notes
which had been returned to it in
exchange for bullion. It is a great
error, certainly, to suppose that the
mischief of this re-issue chiefly con-
sisted in preventing a contraction of
the currency. It was, however, quite
as mischievous as it has ever been
supposed to be. As long as it lasted,
the efflux of gold could not cease,
gince neither would prices, fall nor

interest rise while these advances con-
tinued. Prices, having risen without
any increase of bank notes, could well
have fallen without a diminution ol
them ; but having risen in conse-
quence of an extension of credit, they
could not fall without a contraction o!
it. As long, therefore, as the Bank of
England and the other banks per-
severed in this course, so long gold
continued to flow out, until so little
was left that the Bank of England,
being in danger of suspension of pay-
ments, was compelled at last to con-
tract its discounts so greatly and
suddenly as to produce a much more
extreme variation in the rate of in-
terest, inflict much greater loss and
distress on individuals, and destroy a
much greater amount of the ordinary
credit of the country, than any real
necessity required.

I acknowledge, (and the experience
of 1847 has proved to those who over-
looked it before,) that the mischief
now described, may be wrought, and
in large measure, by the Bank of
England, through its deposits alone.
It may continue or even increase its
discounts and advances, when it ought
to contract them ; with the ultimate
effect of making the contraction much
more severe and sudden than neces-
sary. I cannot but think, however,
that banks which commit this error
with their deposits, would commit it
still more if they were at liberty to
make increased loans with their issues
as well as their deposits. I am com-
pelled to think that the being re-
stricted from increasing their issues, is
a real impediment to their making
those advances which arrest the tide
at its turn, and make it rush like a
torrent afterwards : and when the Act
is blamed for interposing obstacles at
a time when not obstacles but facilities
are needed, it must injustice receive
credit for interposing them when they
are an acknowledged benefit. In this
particular, therefore, I think it cannot
be denied, that the new system is a
real improvement upon the old.

§ 4. But however this may be, it
seems to me certain that these ad-

REGULATION OF CURRENCY.

401

vantages, whatever value may be
put on them, are purchased by still
greater disadvantages.

In the first place, a large extension
of credit by bankers, though most
hurtful when, credit being already in
an inflated state, it can only serve to
retard and aggravate the collapse, is
most salutary when the collapse has
come, and when credit instead of being
in excess is in distressing deficiency,
and increased advances by bankers,
instead of being an addition to the
ordinary amount of floating credit,
serve to replace a mass of other credit
•which has been suddenly destroyed.
Antecedently to 1844, if the Bank of
England occasionally aggravated the
severity of a commercial revulsion by
rendering the collapse of credit more
tardy and thence more violent than
necessary, it in return rendered in-
valuable services during the revulsion
itself, by coming forward with ad-
vances to support solvent firms, at a
time when all other paper and almost
all mercantile credit had become com-
paratively valueless. This service was
eminently conspicuous in the crisis of
1825-6, the severest probably ever
experienced ; during which the Bank
increased what is called its circula-
tion by many millions, in advances to
those mercantile firms of whose ulti-
mate solvency it felt no doubt ; ad-
vances which if it had been obliged to
withhold, the severity of the crisis
would have been still greater than it
It' the Bank, it is justly re-
marked by Mr. Fullarton,* complies
with such applications, "it must
comply with them by an issue of notes,
for notes constitute the only instru-
mentality through which the Bank is
in the practice of lending its credit.
But those notes are not intended to
circulate, nor do they circulate. There
is no more demand for circulation than
there was before. On the contrary,
the rapid decline of prices which the
case in supposition presumes, would
necessarily contract the demand for
circulation. The notes would cither
be returned to the Bank of England,
as fast as they were issued, in the
* P. 106.

r.E.

shape of deposits, or would Ue locked up
in the drawers of the private London
bankers, or distributed by them to
their correspondents in the country,
or intercepted by other capitalists, who,
during tho fervour of the previous
excitement, had contracted liabilities
which they might be imperfectly pre-
pared on the sudden to encounter. lu
such emergencies, every man con-
nected with business, who has been
trading on other means than his own,
is placed on the defensive, and his
whole object is to make himself as
strong as possible, an object which
cannot be more effectually answereJ
than by keeping by him as large a
reserve as possible in paper which tho
law has made a legal tender. The
notes themselves never find their way
into the produce market ; and if they
at all contribute to retard" (or, as I
should rather say, to moderate) " the
fall of prices, it is not by promoting in
the slightest degree the effective de-
mand for commodities, not by enabling
consumers to buy more largely for
consumption, and so giving briskness
to commerce, but by a process pre-
cisely the reverse, by enabling the
.holders of commodities to hold on, by
obstructing traffic and repressing con-
sumption.

The opportune relief thus afforded to
credit, during the excessive contraction
which succeeds to an undue expansion,
is consistent with the principle of tho
new system ; for an extraordinary con-
traction of credit, and fall of prices,
inevitably draw gold into the country,
and the principle of the system is that
the bank-note currency shall be per-
mitted, and even compelled, to enlarge
itself, in all cases in which a metallic
currency would do the same. But,
what the principle of the law would
encourage, its provisions in this in-
stance preclude, by not suffering the
increased issues to take place until the
gold has actually arrived ; which is
never until the worst part of the crisis
is past, and almost all the losses and
failures attendant on it are consum-
mated. The machinery of the system
withholds, until for many purposes it
comes too late, the very medicine
D D

402

BOOK III. CHAPTEfi XXIV. § 4.

which the theory of the system pre-
scribes as the appropriate remedy.*

This function of banks in filling up
the gap made in mercantile credit by
the consequences of undue speculation
and its revulsion, is so entirely indis-
pensable, that if the Act of 1844 con-
tinues unrepealed, there can be no
difficulty in foreseeing that its pro-
visions must be suspended, as tliey
vrere in 1847, in every period of great
iommercial difficulty, as soon as the
crisis has really and completely set in.f
Were this all, there would be no abso-
late inconsistency in maintaining the
restriction as a means of preventing a
crisis, and relaxing it for the purpose
of relieving one. But there is another
objection, of a still more radical and
comprehensive character, to the new
By stem.

Professing, in theory, to require that
a paper currency shall vary in its
amount in exact conformity to the
variations of a metallic currency, it
provides, in fact, that in every case of
an efflux of gold, a corresponding dimi-
nution shall take place in the quantity
of bank notes; in other words, that
every exportation of the precious
metals shall be virtually drawn from
the circulation ; it being assumed that
this would be the case if the currency
were wholly metallic. This theory,
and these practical arrangements, are
adapted to the case in which the drain
of gold originates in a rise of prices
produced by an undue expansion of
currency or credit; but they are
adapted to no case beside.

When the efflux of gold ia the last

* True, the Bank is not precluded from
making increased advances from its deposits,
which are likely to be of unusually large
amount, since, at these periods, every one
leaves his money in deposit in order to have
it within call. But, that the deposits are not
always sufficient, was conclusively proved in
18-17, when the Bank stretched to the very
utmost the means of relieving commerce
which its deposits afforded, without allaying
the panic, which however ceased at once
when the Government decided on suspending
the Act.

t This prediction was verified on the very
next occurrence of a commercial crisis, in
1857; when Government were again under
the necessity of suspending, on their own re-
sponsibility, the provisions of the Act.

stage of a series of effects arising from
an increase of the currency, or from au
expansion of credit tantamount in its
effect on prices to an increase of cur-
rency, it is in that case a fair assump-
tion that in a purely metallic system
the gold exported would be drawn from
the currency itself; because such a
drain, being in its nature unlimited,
will necessarily continue as long aa
currency and credit are undiminished.
But an exportation of the precious
metals often arises from no causes
affecting currency or credit, but simply
from an unusual extension of foreign
payments, arising either from the state
of the markets for commodities, or from
some circumstance not commercial.
In this class of causes, four, of power-
ful operation, are included, of each of
which the last fifty years of English
history afford repeated instances. The
first is that of an extraordinary foreign
expenditure by government, either
political or military ; as in the revolu-
tionary war, and, as long as it lasted,
during the late war with Russia. The
second is the case of a large exporta-
tion of capital for foreign investment ;
such as the loans and mining opera-
tions which partly contributed to the
crisis of 1825, and the American
speculations which were the principal
cause of the crisis of 1839. The third
is a failure of crops in the countries
which supply the raw material of im-
portant manufactures ; such as the
cotton failure in America, which com-
pelled England, in 1847, to incur un-
usual liabilities for the purchase of
that commodity at an advanced price.
The fourth is a bad harvest, and a
great consequent importation of food ;
of which the years 1846 and 1847 pre-
sented an example surpassing all ante-
cedent experience.

In none of these cases, if the cur-
rency were metallic, would the gold or
silver exported for the purposes in
question be necessarily, or even pro-
bably, drawn wholly from the circula-
tion. It would be drawn from the
hoards, which under a metallic cur-
rency always exist to a very large
amount; in uncivilized countries, ia
the hands of all who caii afford it j in

REGULATION OF CURRENCY.

403

civilized countries chiefly in the form
of bankers' reserves. Mr. Tooke, in
his " Inquiry into the Currency Prin-
ciple," bears testimony to this fact ;
but it is to Mr. Fullarton that the
public are indebted for the clearest and
most satisfactory elucidation of it. As
1 am not aware that this part of the
theory of currency has been set forth
by any other writer with anything like
the same degree of completeness, I
shall quote somewhat largely from this
able production.

" No person who has ever resided in
an Asiatic country, where hoarding is
carried on to a far larger extent in
proportion to the existing stock of
wealth, and where the practice has
become much more deeply engrafted
in the habits of the people, by tradi-
tionary apprehensions of insecurity and
the difficulty of finding safe and remu-
nerative investments, than in any
European community — no person who
has had personal experience of this
state of eociety, can be at a loss to re-
collect innumerable instances of large
metallic treasures extracted in times
of pecuniary difficulty from the coffers
of individuals by the temptation of a
high rate of interest, and brought in
aid of the public necessities, nor, on
the other hand, of the facility with
which those treasures have been ab-
Borbed again, when the inducements
which had drawn them into light wore
no longer in operation. In countries
more advanced in civilization and
wealth than the Asiatic principalities,
and where no man is in fear of attract-
ing the cupidity of power by an exter-
nal display of riches, but where the
interchange of commodities is still
almost universally conducted through
the medium of a metallic circulation,
as is the case with most of the com-
mercial countries on the Continent of
Europe, the motives for amassing the
precious metals may be less powerful
than in the majority of Asiatic princi-
palities ; but the ability to accumulate
being more widely extended, the abso-
lute quantity amassed will be found
probably to bear a considerably larger
proportion to the population.* In

• It is known, from unquestionable facts,

those states which lie exposed to hos-
tile invasion, or whose social condition
is unsettled and menacing, the motive
indeed must still be very strong ; and
in a nation carrying on an extensive
commerce, both foreign and internal,
without any considerable aid from any
of the banking substitutes for money,
the reserves of gold and silver indis-
pensably required to secure the regu-
larity of payments, must of themselves
engross a share of the circulating coin
which it would not be easy to estimate.
" In this country, where the banking
system has been carried to an extent
and perfection unknown in any other
part of Europe, and may be said to
have entirely superseded the use of
coin, except for retail dealings and the
purposes of foreign commerce, the in-
centives to private hoarding exist no
longer, and the hoards have all been
transferred to the banks, or rather, I
should say, to the Bank of England.
But in France, where the bank-note
circulation is still comparatively
limited, the quantity of gold and silver
coin in existence I find now currently
estimated, on what are described as the
latest authorities, at the enormous sum
of 120 millions sterling; nor is the esti-
mate at all at variance with the rea-
sonable probabilities of the case. Of
this vast treasure there is every reason
to presume that a very large proportion,
probably by much the greater part, is
absorbed in the hoards. If you present
for payment a bill for a thousand
francs to a French banker, he brings
you the silver in a sealed bag from his
strong room. And not the banker only,
but every merchant and trader, ac-
cording to his means, is under the
necessity of keeping by him a stock of
cash sufficient not only for his ordinary
disbursements, but to meet any unex-
pected demands. That the quantity
of specie accumulated in these innu-

that the hoards of money at all times existing
in the hands of the French peasantry, often
from a remote date, surpass any amount
which could have been imagined possible;
and even in so poor a country as Ireland, it
has of late been ascertained, that the small
farmers sometimes possess hoards quite dis-
proportioned t» their visible means of sub-
•Utcnce.

D D 2

404

BOOK HI. CHAPTER XXIV. § 4.

merable depots, not in France only, Imt
all over the Continent, where banking
institutions are still either entirely
wanting or very imperfectly organized,
is not merely immense in itself, but
admits of being largely drawn upon,
and transferred even in vast masses
from one country to another, with very
little, if any, effect on prices, or other
material derangements, we have had
some remarkable proofs : " among
others, " the signal success which at-
tended the simultaneous efforts of some
of the principal European powers
(Russia, Austria, Prussia, Sweden, and
Denmark) to replenish their treasuries,
and to replace with coin a considerable
portion of the depreciated paper which
the necessities of the war had forced
upon them, and this at the very time
when the available stock of the pre-
cious metals over the world had been
reduced by the exertions of England to

recover her metallic currency

There can be no doubt that these com-
bined operations were on a scale of
very extraordinary magnitude, that
they were accomplished without any
sensible injury to commerce or public
prosperity, or any other effect than
some temporary derangement of the
exchanges, and that the private hoards
of treasure accumulated throughout
Europe during the war must have been
the principal source from which all
this gold and silver was collected. And
no person, I think, can fairly contem-
plate the vast superflux of metallic
wealth thus proved to be at all times
in existence, and, though in a dormant
and inert state, always ready to spring
into activity on the first indication of a
. sufficiently intense demand, without
'. feeling themselves compelled to admit
| the possibility of the mines being even
j shut up for years together, and the
production of the metals altogether
suspended, while there might be scarcely
a perceptible alteration in the ex-
changeable value of the metal."*

Applying this to the currency doc-
trine and its advocates, " one might
imagine," says Mr. Fullarton,t " that

* Fullarton on the Regulation qfCurrenciet,
pp. 71—4.

t Ib. pp. 139—42.

they supposed the gold which is drained
off for exportation from a country
using a currency exclusively metallic,
to be collected by driblets at the fairs
and markets, or from the tills of the
grocers and mercers. They never even
allude to the existence of such a thing
as a great hoard of the metals, though
upon the action of the hoards depends
the whole economy of international
payments between specie-circulating
communities, while any operation of
the money collected in hoards upon
prices must, even according to the
currency hypothesis, be wholly impos-
sible. We know from experience what
enormous payments in gold and silver
specie-circulating countries are capable,
at times, of making, without the least
disturbance of their internal pro-
sperity ; and whence is it supposed
that these payments come, but from
their hoards ? Let us think how the
money market of a country transacting
all its exchanges through the medium
of the precious metals only, would be
likely to be affected by the necessity of
making a foreign payment of several
millions. Of course the necessity
could only be satisfied by a transmis-
sion of capital; and would not the
competition for the possession of capi-
tal for transmission which the occasion
would call forth, necessarily raise the
market rate of interest ? If the pay-
ment was to be made by the govern-
ment, would not the government, in all
probability, have to open a new loan
on terms more than usually favourable
to the lender ?" If made by merchants,
would it not be drawn either from the
deposits in banks, or from the reserves
which merchants keep by them in de-
fault of banks, or would it not oblige
them to obtain the necessary amount
of specie by going into the money
market as borrowers? "And would
not all this inevitably act upon the
hoards, and draw forth into activity a
portion of the gold and silver which
the money-dealers had been accumu-
lating, and some of them with the
express view of watching such oppor-
tunities for turning their treasures to
advantage? ....

" To come to the present time

REGULATION OF CURRENCY.

405

[1844J, the balance of payments with
nearly all Europe has for about four
years past been m favour of this coun-
try, and gold has been pouring in till
the influx amounts to the unheard-of
sum of about fourteen millions sterling.
Vet in all this time, has any one heard
a complaint of any serious suffering in-
flicted on the people of the Continent?
.Have prices there been greatly de-
j-ivi.-vd beyond their range in this
country? Have wages fallen, or have
merchants been extensively ruined by
the universal depreciation of their
stock ? There has occurred nothing
of the kind. The tenor of commercial
and monetary affairs has been every-
where even and tranquil ; and in
France more particularly, an improving
revenue and extended commerce bear
testimony to the continued progress of
internal prosperity. It maybe doubted,
indeed, if this great efflux of gold has
withdrawn from that portion of the
metallic wealth of the nation which
really circulates, a single napoleon.
And it has been equally obvious, from
the undisturbed state of credit, that
not only has the supply of specie indis-
pensable for the conduct of business in
the retail market been all the while
uninterrupted, but that the hoards
have continued to furnish every facility
requisite for the regularity of mercan-
tile payments. It is of the very
essence of the metallic system, that
the hoards, in all cases of probable
occurrence, should be equal to both
objects ; that they should, in the first
place, supply the bullion demanded for
exportation, and in the next place,
should keep up the home circulation to
its legitimate complement. Every man
trading under that system, who, in the
course of his business may have fre-
quent occasion to remit large sums in
specie to foreign countries, must either
keep by him a sufficient treasure of his
own or must have the means of bor-
rowing enough from his neighbours,
not only to make up when wanted the
amount of his remittances, but to en-
able him, moreover, to carry on his
ordinary transactions at home without
interruption."

In a country in which credit is

earned to so great an extent as in
England, one great resei-ve, in a single
establishment, the Bank of England,
supplies the place, as far as the pre-
cious metals are concerned, of the mul-
titudinous reserves of other countries.
The theoretical principle, therefore, of
the currency doctrine would require,
that all those drains of the metal,
which, if the currency were purely
metallic, would be taken from the
hoards, should be allowed to operate
freely upon the reserve in the coffers of
the Bank of England, without any
attempt to stop it either by a diminu-
tion of the currency or by a contraction
of credit. Nor to this would there be
any well-grounded objection, unless the
drain were so great as to threaten the
exhaustion of the reserve, and a con-
sequent stoppage of payments ; a
danger against which it is possible to
take adequate precautions, because in
the cases which we are considering,
the drain is for foreign payments of
definite amount, and stops of itself as
soon as these are effected. And in all
systems it is admitted that the habi-
tual reserve of the Bank should exceed
the utmost amount to which experience
warrants the belief that such a drain
may extend ; which extreme limit
Mr. Fullarton affirms to be seven
millions, but Mr. Tooke recommends
an average reserve of ten, and in his
last publication, of twelve millions.
Under these circumstances, the habi-
tual reserve, which would never be em-
ployed in discounts, but kept to be paid
out exclusively in exchange for cheques
or bank notes, would be sufficient for a
crisis of this description ; which there-
fore would pass off without having its
difficulties increased by a contraction
either of credit or of the circulation.
But this, the most advantageous
denouement that the case admits of,
and not only consistent with, but re-
quired by, the professed principle of
the system, the panegyrists of the
system claim for it as a great merit
that it prevents. They boast, that on
the first appearance of a drain for ex-
portation, (whatever may be its cause,
and whether under a metallic currency
it would involve a contraction of credit

403

BOOK III. CHAPTER XXIV. §4.

or not) the Bank is at once obliged to
curtail its advances. And this, be it
remembered, when there has been no
speculative rise of prices which it is
indispensable to correct, no unusual
extension of credit requiring contrac-
tion ; but the demand for gold is solely
occasioned by foreign payments on
account of government, or large corn im-
portations consequent on a bad harvest.
Even supposing that the reserve is
insufficient to meet the foreign pay-
ments, and that the means -wherewith
to make them have to be taken from
the loanable capital of the country, the
consequence of which is a rise of the
rate of interest : in such circumstances
some pressure on the money market is
unavoidable ; but that pressure is much
increased in severity by the separation
of the banking from the issue depart-
ment. The case is generally stated as
if the Act only operated in one way,
namely, by preventing the Bank, when
it has parted with (say) three millions
of bullion in exchange for three millions
of its notes, from again lending those
notes, in discounts or other advances
But the Act really does much more
than this. It is well known, that the
first operation of a drain is always on
the banking department. The bank
deposits constitute the bulk of the unem-
ployed and disposable capital of the
country ; and capital wanted for foreign
payments is almost always obtained
mainly by drawing out deposits. Sup-
posing three millions to be the amount
wanted, three millions of notes are
drawn from the banking department
(either directly or through the private
bankers, who keep the bulk of their
reserves with the Bank of England),
and the three millions of notes, thus
obtained, are presented at the Issue
Department, and exchanged against
gold for exportation. Thus a drain
upon the country at large of only three
millions, is a drain upon the Bank vir-
tually of six millions. The deposits
have lost three millions, and the re-
serve of the Issue Department has lost
an equal amount. As the two depart-
ments, so long as the Act remains in
operation, cannot even in the utmost
extremity help one another, each must

take its separate precautions for its
own safety. Whatever measures, there-
fore, on the part of the Bank, would
have been required under the old system
by a drain of six millions, arc now ren-
dered necessary by a drain only of
thri'o. The Issue Department protects
itself in the manner prescribed by the
Act, by not re-issuing the three mil-
lions of notes which have been returned
to it. But the Banking Department
must take measures to replenish its
reserve, which has been reduced by
thn_-e millions. Its liabilities having
also decreased three millions, by the
loss of that amount of deposits, the re-
serve, on the ordinary banking principle
of a third of the liabilities, will bear a
reduction of one million. But the
other two millions it must procure by
letting that amount of advances run
out, and not renewing them. Not
only must it raise its rate of inte-
rest, but it must effect, by whatever
means, a diminution of two millions in
the total amount of its discounts, or it
must sell securities to an equal amount.
This violent action on the money mar-
ket for the purpose of replenishing the
Banking reserve, is wholly occasioned
by the Act of 1844. If the restrictions
of that Act did not exist, the Bank,
instead of contracting its discounts,
would simply transfer two millions,
either in gold or in notes, [from the
Issue to the Banking Department ; not
in order to lend them to the public, but
to secure the solvency of the Banking
Department in the event of further un-
expected demands by the depositors.
And unless the drain continued, and
reached so great an amount as to seem
likely to exceed the whole of the gold
in the reserves of both departments,
the Bank would be under no necessity,
while the pressure lasted, of withhold-
ing from commerce its accustomed
amount of accommodation, at a rate of
interest corresponding to the increased
demand.*

• This, which I have called " the double
action of drains," has been strangely under-
stood as if I had asserted that tiie Bank
is compelled to part with six millions' worth
of property by a drain of three millions.
Such an assertion would be too absurd to
require any refutation. Drains have a

REGULATION

I am aware it will bo said that by
allowing drains of this character to
operate freely upon the Bank reserve
until they cease of themselves, a con-
traction of the currency and of credit
would not be prevented, but only post-
poned ; since if a limitation of issues
•u •(•!•(! not reswted to for the purpose of
king the drain in its commence-
ment, the same or a still greater limi-
tation must take place afterwards, in
ordt-r, by acting on prices, to bring back
this large quantity of gold, for the in-
dispensable purpose of replenishing the
Bank reserve. But in this argument
il things are overlooked. In the
first place, the gold might be brought
back, not by a fall of prices, but by the
much more rapid and convenient me-
dium of a rise of the rate of interest,
involving no fall of any prices except
the prices of securities. Either Eng-
lish securities would be bought on
account of foreigners, or foreign secu-
rities held in England would be sent
abroad for sale, both which operations
took place largely during the mercan-

double action, not npon the pecuniary posi-
tion of the Bank itself, but upon the
measures it is forced to take in order to stop
the drain. Though the Bank itself is no
poorer, its two reserves, the reserve in the
banking department and the reserve in the
i^ue department, have each been reduced
three millions by a drain of only three. And
as the separation of the departments renders
it necessary that each of them separately
should be kept as strong as the two together
need be if they could help one another, the
Bank's action on the money market must be
as violent on a drain of three millions, as
would have been required on the old system
for one of six. The reserve in the banking
department being less than it otherwise
would be by the entire amount of the bul-
lion in the issue department, and the whole
amount of the drain falling in the first in-
stance on that diminished reserve, the pres-
§ure of the whole drain on the half reserve is
as much felt, and requires as strong measures
to stop it, as a pressure of twice the amount
on the entire reserve. As I have said else-
where,* " it is as if a man having to lift a
weight were restricted from using both hands
to do it, and v ere only allowed to use one
hand at a time ; in which case it would be
necessary that each of his hands should be
as strong as the two together."

• Evidence before the Committee of the
Hou«e of Commons on the Bank Acts, in
1837.

OF CURRENCY. 407

tile difficulties of 1847, and not ouly
checked tho efflux of gold, but turned
the tide and brought the metal back.
It was not, therefore, brought back by
a contraction of the currency, though
in this case it certainly was so by a
contraction of loans. But even this is
not always indispensable. For in the
second place, it is not necessary that
the gold should return with the same
suddenness with which it went out. A
great portion would probably return in
the ordinary way of commerce, iu pay-
ment for exported commodities. The
extra gains made by dealers and pro-
ducers in foreign countries through
the extra payments they receive from
this country, are very likely to be partly
expended in increased purchases of
English commodities, either for con-
sumption or on speculation, though the
effect may not manifest itself with suffi-
cient rapidity to enable the transmis-
sion of gold to be dispensed with in the
first instance. These extra purchases
would turn the balance of payments in
favour of the country, and gradually
restore a portion of the exported gold ;
and the remainder would probably be
brought back, without any considerable
rise of the rate of interest in England,
by the fall of it in. foreign countries,
occasioned by the addition of some
millions of gold to the loanable capital
of those countries. Indeed, in the state
of things consequent on the gold dis-
coveries, when the enormous quantity
of gold annually produced in Australia,
and much of that from California, is
distributed to other countries through
England, and a month seldom passes
without a large arrival, the Bank re-
serves can replenish themselves with-
out any re-importation of the gold pre-
viously carried off by a drain. All that
is needful is an intermission, and a very
brief intermission is sufficient, of the
exportation.

For these reasons it appears to me,
that notwithstanding the beneficial
operation of the Act of 1844 in the
first stages of one kind of commercial
crisis £that produced by over-specula-
tion), it on the whole materially aggra-
vates the severity of commercial revul-
sions. And not only are contractions

408 BOOK 111.

of credit made more severe by the Act,
they are also made greatly more
frequent. " Suppose," says Mr. George
Walker, in a clear, impartial, and con-
clusive series of papers in the Aberdeen
Herald, forming one of the best exist-
ing discussions of the present question
— " suppose that, of eighteen millions
of gold, ten are in the issue department
and eight are in the banking depart-
ment. The result is the same as under
a metallic currency •with only eight
millions in reserve instead of eighteen.
.... The effect of the Bank Act is,
that the proceedings of the Bank under
a drain are not determined by the
amount of gold within its vaults, but
arc, or ought to be, determined by the
portion of it belonging to the banking
department. With the whole of the
gold at its disposal, it may find it un-
necessary to interfere with credit, or
force down prices, if a drain leave a
fair reserve behind. With only the
banking reserve at its disposal, it must,
from the narrow margin it has to ope-
rate on, meet all drains by counterac-
tives more or less strong, to the injury
of the commercial world ; and if it fail
to do so, as it may fail, the consequence
is destruction. Hence the extraordinary
and frequent variations of the rate of
interest under the Bank Act. Since
1847, when the eyes of the Bank were
opened to its true por-ition, it has felt
it necessary, as a precautionary mea-
sure, that every variation in the reserve
should be accompanied by an altera-
tion in the rate of interest." To make
the Act innocuous, therefore, it would
lie necessary that the Bank, in addition
to the whole of the; gold in the Issue
Department, should retain as great a
reserve in gold or notes in the Banking
Department alone, as would suffice
under the old system for the security
both of the issr.os and of the deposits.

§ 5. There remain two questions
respecting a bank-note currency, which
have also been a subject of consi-
derable discussion of late years : whe-
tner the privilege of providing it should
be confined to a single establishment,
such as the Bank of England, or a
plurality of issuers should be allowed:

CHAPTER XXIV. § 5.

and in the latter case, whether

any

peculiar precautions are requisite or
advisable, to protect the holdcrsof notes
against losses occasioned by the insol-
vency of the issuers.

The course of the preceding specu-
lations has led us to attach so much
less of peculiar importance to bank
notes, as compared with other forms of
credit, than accords with the notions
generally current, that questions re-
specting the regulation of so very small
a part of the general mass of credit,
cannot appear to us of such momentous
import as they are sometimes considered.
Bank notes, however, have so far a real
peculiarity, that they are the only form
of credit sufficiently convenient for all
the purposes of circulation, to be ablf
entirely to supersede the use of metallic
money for internal purposes. Though
the extension of the use of cheques has
a tendency more ana more to diminish
the number of bank notes, as it would
that of the sovereigns or other coins
which would take their place if thej
were abolished ; there is sure, for a long
time to come, to be a considerable sup-
ply of them wherever the necessary
degree of commercial confidence exists,
and their free use is permitted. The
exclusive privilege, therefore, of issuing
them, if reserved to the government or
to some one body, is a source of great
pecuniary gain. That this gain should
be obtained for the nation at large is
both practicable and desirable : and if
the management of a bank-note cur-
rency ought to be so completely mecha-
nical, so entirely a thing of fixed ride, as
it is made by the Act of 1844, there
seems no reason why this mechanism
should be worked for the profit of any
private issuer, Bather than for the pub-
lic treasury. If, however, a plan be
preferred which leaves the variations
in the amount of issues in any degree
whatever to the discretion of the issuers,
it is not desirable that to the ever-grow-
ing attributions of the government, so
delicate a function should be super-
added ; and that the attention of the
heads of the state should be diverted
from larger objects, by their being be-
sieged with the applications., and made
a mark for all the attacks, which are

REGULATION OF CURRENCY.

409

Hover spared to those deemed to be
responsible for any acts, however mi-
nute, connected with the regulation of
the currency. It would be better that
treasury notes, exchangeable for gold
on demand, should be issued to a fixed
amount, not exceeding the minimum of
a bank-note currency; the remainder of
the notes which may be required being
left to be supplied either by one or by
a number of private banking establish-
ments. Or an establishment like the
Lank of England might supply the
whole couutry, on condition of lending
fifteen or twenty millions of its notes
to the government without interest;
which would give thj same pecuniary
advantage to the state as if it issued
that number of its own notes.

The reason ordinarily alleged in
condemnation of the system of plurality
of issuers which existed in England
before the Act of 1844, and under
certain limitations still subsists, is, that
the competition of these different is-
suers induces them to increase the
amount of their notes to an injurious
extent. But we have seen that the
power which bankers have of augment-
ing their issues, and the degree of
mischief which they can produce by it,
are quite trifling compared with the
current over-estimate. As remarked
by Mr. Fullarton,* the extraordinary
increase of banking competition occa-
sioned by the establishment of the
joint-stock banks, a competition often
of the most reckless kind, has proved
utterly powerless to enlarge the aggre-
gate mass of the bank-note circulation ;
that aggregate circulation having, on
the contrary, actually decreased. In
the absence of any special case for an
exception to freedom of industry, the
general rule ought to prevail. It ap-
pears desirable, however, to maintain
one great establishment like the Bank
of England, distinguished from other
banks of issue in this, that it alone is
required to pay in gold, the others
being at liberty to pay their notes with
notes of the central establishment. The
object of this is that there may be one
body, responsible for maintaining a re-
aerve of the precious metals sufficient
• Pp. 89—92.

to meet any drain that can reasonably
be expected to take place. By disse-
minating this responsibility among a
number of banks, it is prevented from
operating efficaciously upon any : or if
it be still enforced against one, the re-
serves of the metals retained by all the
others are capital kept idle in pure
waste, which may be dispensed with
by allowing them at their option to
pay in Bank of England notes.

§ 6. The question remains whether,
in case of a plurality of issuers, any
peculiar precautions are needed to
protect the holders of notes from the
consequences of failure of payment.
Before 1826, the insolvency of banks of
issue was a frequent and very serious
evil, often spreading distress through a
whole neighbourhood, and at one blow
depriving provident industry of the
results of long and painful saving. This
was one of the chief reasons which in-
duced Parliament, in that year, to pro-
hibit the issue of bank notes of a deno-
mination below five pounds, that the
labouring classes at least might be as
little as possible exposed to participate
in this suffering. As an additional
safeguard, it has been suggested to
give the holders of notes a priority
over other creditors, or to require
bankers to deposit stock or other public
securities as a pledge for the whole
amount of their issues. The insecurity
of the former bank-note currency of
England was partly the work of the
law, which, in order to give a qualified
monopoly of banking business to the
Bank of England, had actually mado
the formation of safe banking establish-
ments a punishable offence, by prohi-
biting the existence of any banks, in
town or country, whether of issue or
deposit, with a number of partners ex-
ceeding six. This truly characteristic
specimen of the old system of monopoly
and restriction was done away with in
1826, both as to issues and deposits,
everywhere bnt in a district of sixty-
five miles radius round London, and in
1833 in that district also, as far as
relates to deposits. It was hoped that
the numerous joint-stock banks since
established, would have furnished a

410

BOOK III. CHAPTER XXV. § 1.

more trustworthy currency, and that
under their influence the banking
system of England would have been
almost as secure to the public as that
of Scotland (where banking was always
free) has been for two centuries past.
JJut the almost incredible instances of
reckless and fraudulent mismanagement
which these institutions have of late
allbi-ded (though in some of the most
notorious cases the delinquent esta-

blishments have not been banks of
issue), have shown only too clearly that,
south of the Tweed at least, the joint-
stock principle applied to banking is
not the adequate safeguard it was so
confidently supposed to be : and it is
dillicult now to resist the conviction,
that if plurality of issuers is allowed to
exist, some kind of special security in
favour of the holders of notes should bo
exacted as an imperative condition.

CHAPTEK XXV.

OP THE COMPETITION OP DIFFERENT COUNTRIES IN THE SAME MARKET.

§ 1. IN the phraseology of the
Mercantile System, the language and
doctrines of which are still the basis of
what may be called the political eco-
nomy of the selling classes, as distin-
guished from the buyers or consumers,
there is no word of more frequent
recurrence or more perilous import
than the word underselling. To un-
dersell other countries — not to be
undersold by other countries — were
spoken of, and are still very often
spoken of, almost as if they were the
sole purposes for which production and
commodities exist. The feelings of
rival tradesmen, prevailing among
nations, overruled for centuries all
sense of the general community of ad-
vantage which commercial countries
derive from the prosperity of one an-
other : and that commercial spirit
which is now one of the strongest ob-
stacles to wars, was during a certain
period of European history their prin-
cipal cause.

Even in the more enlightened view
now attainable of the nature and con-
sequences of international comrjerce,
some, though a comparatively small,
space must still be made for the fact of
commercial rivality. Nations may,
like individual dealers, be competitors,
with opposite interests, in the markets
of some commodities, while in others
they are in the more fortunate relation
of reciprocal customere. The benefit

of commerce does not consist, as it was
once thought to do, in the commodities
sold ; but, since the commodities sold
are the means of obtaining those which
are bought, a nation would be cut off
from the real advantage of commerce,
the imports, if it could not induce other
nations to take any of its commodities
in exchange ; and in proportion as the
competition of other countries compels
it to offer its commodities on cheaper
terms, on pain of not selling them at
all, the imports which it obtains by its
foreign trade are procured at greater
cost.

These points have been adequately,
though incident-ally, illustrated in some-
of the preceding chapters. But the
great space which the topic has filled,
and continues to fill, in economical
speculations, and in the practical
anxieties both of politicians and of
dealers and manufacturers, makes it
desirable, before quitting the subject
of international exchange, to subjoin a
few observations on the things which
do, and on those which do not, enable
countries to undersell one another.

One country can only undersell an-
other in a given market, to the extent
of entirely expelling her from it, on two
conditions. In the first place, she must
have a greater advantage than the
second country in the production of the
article exported by both ; meaning by
a greater advantage (as has been a.1-

COMPETITION OF COI'NTKIES IN THE SAME MARKET. 411

;'ii:ly explained) not absolutely,
kit in comparison with other commo-
dities; and in the second place, such
must bo her relation with the customer
country in respect to the demand for
each other's products, and such the
-late of international va-
to giv<; away to the customer
country more than the whole advan-
tage possessed by the rival country ;
otherwise the rival will still be able to
hold her ground in the market.

Let us revert to the imaginary hypo-
thesis of a trade between England and
Germany in cloth and linen : England
being capable of producing 10 yards of
cloth at the same cost with 15 yards of
Jjnen, Germany at the same cost with
20, and the two commodities being
exchanged between the two countries
(cost of carriage apart) at some inter-
mediate rate, say 10 for 17. Germany
could not be permanently undersold in
the English market, and expelled from
it, unless by a country which offered
not merely more than 17, but more
than 20 yards of linen for 10 of cloth.
bhort of that, the competition would
only oblige Germany to pay dearer for
cloth, but would not disable her from
exporting linen. The country, there-
fore, which could undersell Germany,
must, in the first place, be able to
produce linen at less cost, compared
with cloth, than Germany herself; and
in the next place, must have such a
demand for cloth, or other English
commodities, as would compel her, even
when she became sole occupant of the
market, to give a greater advantage to
England than Germany could give by
resigning the whole of hers ; to give,
for example, 21 yards for 10. For if
not — if, for example, the equation of
international demand, after Germany
was excluded, gave a ratio of 18 for 10,
Germany could again enter into the
competition; Germany would be now
the underselling nation; and there
would be a point, perhaps 19 for 10, at
which both countries would be able to
maintain their ground, and to sell in
England enough linen to pay for the
cloth, or other English commodities,
for which, on these newly adjusted
terms of interchange, they had a de-

mand, lu liku manner, England, as
an exporter of cloth, could only be
driven from the German market by
some rival whose superior advantages
in the production of cloth enabled her,
and the intensity of whoso demand for
German produce compelled her, to
offer 10 yards of cloth, not merely for
less than 17 yards of linen, but for less
than 15. In that case, England could
no longer carry on the trade without
loss ; but in any case short of this, she.
would merely be obliged to give to
Germany more cloth for less linen than
she had previously given.

It thus appears that the alarm of be-
ing permanently undersold may be taken
much too easily ; may be taken when
the thing really to be anticipated is
not the loss of the trade, but the minor
inconvenience of carrying it on at a
diminished advantage ; an inconve-
nience chiefly falling on the consumers
of foreign commodities, and not on the
producers or sellers of the exported
article. It is no sufficient ground of
apprehension to the English producers,
to find that some other country can.
sell cloth in foreign markets at some
particular time, a trifle cheaper than
they can themselves afford to do in tho
existing state of prices in England.
Suppose them to be temporarily unsold,
and their exports diminished ; the im-
ports will exceed the exports, there will
be a new distribution of the precious
metals, prices will fall, and as all the
money expenses of the English pro-
ducers will be diminished,-they will bo
able (if the case falls short of that
stated in the preceding paragraph)
again to compete with their rivals.
The loss which England will incur,
will not fall upon the exporters, but
upon those who consume imported
commodities ; who, with money incomes
reduced in amount, will have to pay
the same or even an increased price
for all things produced in foreign
countries.

§ 2. Such, I conceive, is the trua
theory, or rationale, of underselling.
It will be observed that it takes no
account of some things which we hear
spoken of, oftener perhaps than any

412

BOOK III. CHAPTER XXV. § 3.

others, in the character of causes ex-
posing a country to be undersold.

According to the preceding doctrine,
a country cannot be undersold in any
commodity, unless the rival country
has a stronger inducement than itself
for devoting its labour and capital to the
production of the commodity; arising
from the fact that by doing so it occa-
sions a greater saving of labour and
capital, to be shared between itself and
its customers — a greater increase of the
aggregate produce of the world. The
underselling, therefore, though a loss
to the undersold country, is an advan-
tage to the world at large ; the sub-
stituted commerce being one which
economizes more of the labour and
capital of mankind, and adds more to
their collective wealth, than the com-
merce superseded by it. The advan-
tage, of course, consists in being able
to produce the commodity of better
quality, or with less labour (compared
with other things) ; or perhaps not with
less labour, but in less time ; with a
less prolonged detention of the capital
employed. This may arise from greater
natural advantages (such as soil, cli-
mate, richness of mines) ; superior ca-
pability, either natural or acquired, iu
the labourers ; better division of labour,
and better tools, or machinery. But
there is no place left in this theory for
the case of lower wages. This, how-
ever, in the theories commonly current,
is a favourite cause of underselling.
We continually hear of the disadvan-
tage under which the British producer
labours, both in foreign markets and
even in his own, through the lower
wages paid by his foreign rivals. These
lower wages, we are told, enable, or are
always on the point of enabling them
to sell at lower prices, and to dislodge
the English manufacturer from all
markets in which he is not artificially
protected.

Before examining this opinion on
grounds of principle, it is worth while
to bestow a moment's consideration
upon it as a question of fact. Is it
true that the wages of manufachmng
labour are lower in foreign countries
than in England, in any sense in which
low wages are an advantage to the

capitalist? The artisan of Ghent or
Lyons may earn less wages in a day,
but docs he not do less work ? Degrees
of efficiency considered, does his labour
cost less to his employer? Though
wages may be lower on the Continent,
is not the Cost of Labour, which is the
real element in the competition, very
nearly the same ? That it is so seems
the opinion of competent judges, and is
confirmed by the very little difference
in the rate of profit between England
and the Continental countries. But if
so, the opinion is absurd that English
producers can be undersold by their
Continental rivals from this cause. It
is only in America that the supposition
is primd facie admissible. In America,
wages are much higher than in Eng-
land, if we mean by wages the daily
earnings of a labourer : but the produc-
tive power of American labour is so
great — its efficiency, combined with
the favourable circumstances in which
it is exerted, makes it worth so much
to the purchaser, that the Cost of
Labour is lower in America than in
England ; as is indicated by the fact
that the general rate of profits and of
interest is higher.

§ 3. But is it true that low wages,
even in the sense of low Cost of Labour,
enable a countiy to sell cheaper in the
foreign market ? I mean, of course,
low wages which are common to the
whole productive industry of the
country.

If wages, in any of the departments
of industry which supply exports, are
kept, artificially, or by some accidental
cause, below the general rate of wages
in the country, this is a real advantage
in the foreign market. It lessens the
comparative cost of production of those
articles, in relation to others ; and
has the same effect as if their pro-
duction required so much less labour.
Take, for instance, the case of the
United States in respect to certain
commodities. In that country, tobacco
and cotton, two great articles of export,
are produced by slave labour, while
food and manufactures generally are
produced by free labourers, who either
work on their own account or are paid

COMPETITION OF COUNTRIES IN THE SAME MARKET. 413

by wages. In spite of the inferior
efficiency of slave labour, there can be
no reasonable doubt that in a country
where the wages of free labour are so
high, the work executed by slaves is a
bi-tU-r bargain to the capitalist. To
'vhatever extent it is so, this smaller
cost of labour, being not general, but
limited to those employments, is just
as much a cause of cheapness in the
products, both in the home and in the
foreign market, as if they had been
made by a less quantity of labour. If
the slaves in the Southern States were
all emancipated, and their wages rose
to the general lavel of the earnings of
free labour in America, that country
might be obliged to erase some of the
slave-grown articles from the catalogue
of its exports, and would certainly be
unable to sell any of them in the foreign
market at the accustomed price. Their
cheapness is partly an artificial cheap-
ness, which may be compared to that
produced by a bounty on production
or on exportation : or, considering the
means by which it is obtained, an apter
comparison would be with the cheap-
ness of stolen goods.

An advantage of a similar economi-
cal, though of a very different moral
character, is that possessed by domestic
manufactures ; fabrics produced in the
kioure hours of families partially
occupied in other pursuits, who, not
depending for subsistence on the pro-
duce of the manufacture, can afford to
sell it at any price, however low, for
which they think it worth while to
take the trouble of producing. In an
account of the Canton of Zurich, to
which I have had occasion to refer on
another subject, it is observed,* "The
workman of Zurich is to-day a manufac-
turer, to-morrow again an agriculturist,
and changes his occupations with the
seasons, in a continual round. Manu-
facturing industry and tillage advance
h and in hand, in inseparable alliance,
and in this union of the two occupa-
tions the secret may be found, why the
simple and unlearned Swiss manufac-
turer can always go on competing, and
increasing in prosperity, in the face of

* Ilin/orlcal, Geographical, and Statittical
Pictum <if Switzerland, vol. i. p. 105 (1834).

those extensive establishments fitted
out with great economic, and (what is
still more important) intellectual, re«
sources. Even in those parts of the
Canton where manufactures have ex-
tended themselves the most widely,
only one-seventh of all the families
belong to manufactures alone ; four-
sevenths combine that employment
with agriculture. The advantage of
this domestic or family manufacture
consists chiefly in the fact, that it is
compatible with all other avocations,
or rather that it may in part be re-
garded as only a supplementary em-
ployment. In winter, in the dwellings
of the operatives, the whole family
employ themselves in it : but as soon
as spring appears, those on whom the
early field labours devolve, abandon the
in-door work ; many a shuttle stands
still ; by degrees, as the field-work
increases, one member of the family
follows another, till at last, at the
harvest, and during the so-called ' great
works,' all hands seize the implements
of husbandry; but in unfavourable
weather, and in all otherwise vacant
hours, the work in the cottage is re-
sumed, and when the ungenial season
again recurs, the people return in the
same gradual order to their home
occupation, until they have all re-
sumed it."

In the case of these domestic ma-
nufactures, the comparative cost of
production, on which the interchange
between countries depends, is much
lower than in proportion to the quan-
tity of labour employed. The work
people, looking to the earnings of theii
loom for a part only, if for any part, o\
their actual maintenance, can afford to
work for a less remuneration, than the
lowest rate of wages which can per-
manently exist in the employments by
which the labourer has to support the
whole expense of a family. Working,
as they do, not for an employer but for
themselves, they may be said to carry
on the manufacture at no cost at all,
except the small expense of a loom and
of the material ; and the limit of pos-
sible cheapness is not the necessity of
living by their trade, but that of earn-
ing enough by the work to make that

414

BOOK Hi. CHAPTER XXV. §§ 4, 5.

social employment of tlicir leisure hours
not disagreeable.

§ 4. These two cases, of slave labour
and of domestic manufactures, exem-
plify the conditions under which low
wages enable a country to sell its com-
modities cheaper in foreign markets,
and consequently to undersell its rivals,
or to avoid being undersold by them.
But no such advantage is conferred by
low wages when common to all branches
of industry. General low wages never
caused any country to undersell its
rivals, nor did general high wages ever
hinder it from doing so.

To demonstrate this, we must return
to an elementary principle which was
discussed in a former chapter.* Gene-
ral low wages do not cause low prices,
nor high wages high prices, within the
country itself. General prices are not
raised by a rise of wages, any more than
they would be raised by an increase of
the quantity of labour required in all
production. Expenses which affect all
commodities equally, have no influence
on prices. If the maker of broadcloth
or cutlery, and nobody else, had to pay
higher wages, the price of his commo-
dity would rise, just as it would if he
had to employ more laboiir ; because
otherwise he would gain less profit than
other producers, and nobody would
engage in the employment. But if
everybody has to pay higher wages, or
everybody to employ more labour, the
loss must be submitted to ; as it affects
everybody alike, no one can hope to get
rid of it by a change of employment,
each therefore resigns himself to a
diminution of profits, and prices remain
as they were. In like manner, general
low wages, or a general increase in the
productiveness of labour, does not make
prices low, but profits high. If wages
fall (meaning here by wages the cost
of labour), why, on that account, should
the producer lower his price? He will
be forced, it may be said, by the com-
petition of other capitalists who will
irowd into his employment. But other
capitalists are also paying lower wages,
and by entering into competition with
him they would gain nothing but what
* Supra, book iii. ch. iv.

they are gaining already. The rate
then at which labour is paid, as well as
the quantity of it which is employed,
affects neither the value nor the price
of the commodity produced, except in
so far as it is peculiar to that commo-
dity, and not common to commodities
generally.

Since low wages are not a cause of
low prices in the country itself, so
neither do they cause it to offer its
commodities in foreign markets at a
lower price. It is quite true that if the
cost of labour is lower in America than
in England, America could sell her
cottons to Cuba at a lower price than
England, and still gain as high a profit
as the English manufacturer. But it
is not with the profit of the English
manufacturer that the American cotton
spinner will make his comparison ; it
is with the profits of other American
capitalists. These enjoy, in common
with himself, the benefit of a low cost
of labour, and have accordingly a high
rate of profit. This high profit the
cotton spinner must also have : he will
not content himself with the English
profit. It is true he may go on for a
time at that lower rate, rather than
change his employment ; and a trade
may be carried on, sometimes for a
long period, at a much lower profit
than that for which it would have
been originally engaged in. Countries
which have a low cost of labour, and
high profits, do not for that reason
undersell others, but they do oppose a
more obstinate resistance to being
undersold, because the producers can
often submit to a diminution of profit
without being unable to live, and even
to thrive, by their business. But this
is all which their advantage does for
them : and in this resistance they will
not long persevere, when a change of
times, which may give them equal
profits with the rest of their country-
men, has become manifestly hopeless.

§ 5. There is a class of trading and
exporting communities, on which a
few words of explanation seem to be
required. These are hardly to bo
looked upon as countries, carrying on
an exchange of commodities with other

COMPETITION OF COUNTRIES IN THE SAME MARKET. 415

countries, but more properly as out-
lying agricultural or manufacturing
establishments belonging to a larger
community. Our West India colonies,
for example, cannot be regarded as
countries, with a productive capital of
their own. If Manchester, instead of
being where it is, were on a rock in
the North Sea (its present industry
nt1 vertheless continuing), it would still
be but a town of England, not a
country trading with England ; it
•would be merely, as now, a place
where England iiuds it convenient to
carry on her cotton manufacture. The
West Indies, in like manner, are the
place where England finds it con-
venient to carry on the production of
sugar, coffee, and a few other tropical
commodities. All the capital employed
is English capital; almost all the in-
dustry is carried on for English uses ;
there is little production of anything
except the staple commodities, and
these are sent to England, not to be
exchanged for things exported to the
colony and consumed by its inhabitants,
but to be sold in England for the be-
nefit of the proprietors there. The
trade with the West Indies is therefore
hardly to be considered as external
trade, but more resembles the traffic
between town and country, and is
amenable to the principles of the home
trade. The rate of profit in the colo-
nies will be regulated by English pro-
fits : the expectation of profit must be
about the same as in England, with
the addition of compensation for the
disadvantages attending the more dis-
tant and hazardous employment : and
after allowance is made for those dis-
advantages, the value and price of
West India produce in the English
market must be regulated (or rather
must have been regulated formerly),
like that of any English commodity,
by the cost of production. For the
last twelve or fil'teen years this prin-
ciple has been in abeyance : the price
•was first kept up beyond the ratio of
the cost of production by deficient sup-
plies, which could not, owing to the
deficiency of labour, be increased ; and
more recently the admission of foreign
competition hae introduced another

element, and some of the West India
Islands are undersold, not so much be-
cause wages are higher than in Cuba
and Brazil, as because they are higher
than in England : for were they not so,
Jamaica could sell her sugars at Cuban
prices, and still obtain, though not a
Cuban, an English rate of profit.

It is worth while also to notice an-
other class of small, but in this case
mostly independent communities,
which have supported and enriched
themselves almost without any produc-
tions of their own, (except ships and
marine equipments,) by a mere carry-
ing trade, and commerce of entrepot ;
by buying the produce of one country,
to sell it at a profit in another. Such
were Venice and the Hanse Towns.
The case of these communities is very
simple. They made themselves and
their capital the instruments, not of
production, but;'of accomplishing ex-
changes between the productions of
other countries. These exchanges are
attended with an advantage to those
countries — an increase of the aggregate
returns to industry — part of which
went to indemnify the agents, for the
necessary expense of transport, and
another part to remunerate the use of
their capital and mercantile skill. The
countries themselves had not capital
disposable for the operation. When
the Venetians became the agents of
the general commerce of Southern
Europe, they had scarcely any compe-
titors : the thing would not have been
done at all without them, and there
was really no limit to their profits
except the limit to what the ignorant
feudal nobility could and would givo
for the unknown luxuries then first
presented to their sight. At a later
period competition arose, and the profit
of this operation, like that of others,
became amenable to natural laws. The
carrying trade was taken up by Hol-
land, a country with productions of
its own and a large accumulated ca-
pital. The other nations of Europe
also had now capital to spare, and were
capable of conducting their foreign
trade for themselves : but Holland,
having, from a variety of circumstances,
a lower rate of profit at home, could

416

BOOK m. CHAPTER XXVI. § 1,

afford to carry for other countries at a
smaller advance on the original cost of
the goods, than would have been re-
quired by their own capitalists ; and
Holland, therefore, engrossed the

greatest part of the carrying tiade of
all those countries which did not keep
it to themselves by Navigation Laws,
constructed, like those of England, tor
that express purpose.

CHAPTER XXVI.

Ok DISTRIBUTION, AS AFFECTED BY EXCHANGE.

§ 1 . WE have now completed, as far
as is compatible with our purposes and
limits, the exposition of the machinery
through which the produce of a country
is apportioned among the different
classes of its inhabitants ; which is no
other than the machinery of Exchange,
and has for the exponents of its opera-
tion, the laws of Value and of Price.
We shall now avail ourselves of the
light thus acquired, to cast a retro-
spective glance at the subject of Dis-
tribution. The division of the produce
among the three classes, Labourers,
Capitalists, and Landlords, when con-
sidered without any reference to Ex-
change, appeared to depend on certain
general laws. It is fit that we should
now consider whether these same laws
still operate, when the distribution
takes place through the complex me-
chanism of exchange and money ; or
whether the properties of the me-
chanism interfere with and modify the
presiding principles.

The primary division of the produce
of human oxertion and frugality is, as
we have seen, into three shares, wages,
profits, and rent ; and these shares are
portioned out to the persons entitled
to them, in the form of money, and by
a process of exchange ; or rather, the
capitalist, with whom in the usual ar-
rangements of society the produce
remains, pays in money, to the other
two sharers, the market value of their
labour and land. If we examine, on
what the pecuniary value of labour,
and the pecuniary value of the use of
land, depend, we shall find that it is
on the very same causes by which we
found that wages and rent would be

regulated if there were no money and
no exchange of commodities.

It is evident, in the first place, that
the law of Wages is not affected by
the existence or non-existence of Ex-
change or Money. Wages depend on
the ratio between population and ca-
pital ; and would do so it' all the capital
in the world were the property of one
association, or if the capitalists among
whom it is shared maintained each an
establishment for the production of
every article consumed in the commu-
nity, exchange of commodities having
no existence. As the ratio between
capital and population, in all old
countries, depends on the strength of
the checks by which the too rapid in-
crease of population is restrained, it
may be said, popularly speaking, that
wages depend on the checks to popu-
lation ; that when the check is not
death, by starvation or disease ,wnges
depend on the prudence of the labour-
ing people ; and that wages in any
country arc habitually at the lowest
rate, to which in that country the
labourer will suffer them to be de-
pressed rather than put a restraint
upon multiplication.

What is here meant, however, by
wages, is the labourer's real scale of
comfort ; tho quantity he obtains of
the things which nature or habit has
made necessary or agreeable to hi in :
wages in the sense in which they are
of importance to the receiver. In the
sense in which they are of importance
to the payer, they do not depend ex-
clusively on such simple principles.
Wages in the first sense, the wages on
which the labourer's comfort depends,

DISTRIBUTION AS AFFECTED BY EXCHANGE.

we will call real wages, or wages in
kind. Wages in the second sense, we
may be permitted to call, for the pre-
sent, money wages ; assuming, as it is
allowable to do, that money remains
for the time an invariable standard, no
alteration taking place in the condi-
tions under which the circulating me-
dium itself is produced or obtained.
If money itself undergoes no variation
in cost, the money price of labour is an
exact measure of tne Cost of Labour,
and may be made use of as a conve-
nient symbol to express it.

The money wages of labour are a
compound result of two elements: first,
real wages, or wages in kind, or in
other words, the quantity which the
labourer obtains of the ordinary ar-
ticles of consumption ; and secondly,
the money prices of those articles. In
all old countries — all countries in which
the increase of population is in any
degree checked by the difficulty of
obtaining subsistence — the habitual
money price of labour is that which
will just enable the labourers, one
with another, to purchase the commo-
dities without which they either cannot
or will not keep up the population at
its customary rate of increase. Their
standard of comfort being given, (and
by the standard of comfort in a labour-
ing class, is meant that, rather than
forego which, they will abstain from
multiplication), money wages depend
on the money price, and therefore on
the cost of production, of the various
articles which the labourers habitually
consume : because if their wages can-
not procure them a given quantity of
these, their increase will slacken, and
their wages rise. Of these articles,
food and other agricultural produce
are so much the principal, as to leave
little influence to anything else.

It is at this point that we are
enabled to invoke the aid of the prin-
ciples which have been laid down in
this Third Part. The cost of produc-
tion of food and agricultural produce
has been analyzed in a preceding
chapter. It depends on the produc-
tiveness of the least fertile land, or of
the least productively employed portion
of capital, which the necessities of

society have as yet put in requisition
for agricultural purposes. The cost o\
production of food grown in these least
advantageous circumstances, deter-
mines, as we have seen, the exchange
value and money price of the whole.
In any given state, therefore, of the
labourers' habits, their money wages
depend on the productiveness of the
least fertile land, or least productive
agricultural capital; on the point
which cultivation has reached in its
downward progress— in its encroach-
ments on the barren lands, and its gra-
dually increased strain upon the powers
of the more fertile. Now, the force
which urges cultivation in this down-
ward course, is the increase of people ;
while the counter-force which checks
the descent, is the improvement of
agricultural science and practice,
enabling the same soil to yield to the
same labour more ample returns. The
costliness of the most costly part of
the produce of cultivation, is an exact
expression of the state, at any given
moment, of the race which population
and agricultural skill are always run-
ning against each other.

§ 2. It is well said by Dr. Chalmers,
that many of the most important
lessons in political economy are to be
learnt at the extreme margin of culti-
vation, the last point which the culture
of the soil has reached in its contest
with the spontaneous agencies of nature.
The degree of productiveness of this ex-
treme margin, is an index to the exist-
ing state of the distribution of the
produce among the three classes,
of labourers, capitalists, and land-
lords.

When the demand of an increasing
population for more food cannot be
satisfied without extending cultivation
to less fertile land, or incurring addi-
tional outlay, with a less proportional
return, on land already in cultivation,
it is a necessary condition of this in-
crease of agricultural produce, that the
value and price of that produce must
first rise. But as soon as the price has
risen sufficiently to give to tne addv
tional outlay of capital the ordinary
profit, the rise will not go on still fur-
EE

418

BOOK HI. CHAPTER XXVI. § 3.

ther for the purpose of enabling the
new land, or the new expenditure on
old land, to yield rent as well as profit.
The land or capital last put in requisi-
tion, and occupying what Dr. Chalmers
calls the margin of cultivation, will
yield, and continue to yield, no rent.
But if this yields no rent, the rent
afforded by all other land or agricul-
tural capital will be exactly so much
as it produces more than this. The
price of food will always on the average
be such, that the worst land, and the
least productive instalment of the capi-
tal employed on the better lands, shall
just replace the expenses with the
ordinary profit. If the least favoured
land and capital just do thus much,
all other land and capital will yield an
extra profit, equal to the proceeds of
the extra produce due to their superior
productiveness ; and this extra profit
becomes, by competition, the prize of
the landlords. Exchange, and money,
therefore, make no diiference in the
law of rent: it is the same as we
originally found it. Rent is the extra
return made to agricultural capital
•when employed with peculiar advan-
tages; the exact equivalent of what
those advantages enable the producers
to economize in the cost of production :
the value and price of the produce
being regulated by the cost of pro-
duction to those producers who have
no advantages ; by the return to that
portion of agricultural capital, the cir-
cumstances of which are the least
favourable.

§ 3. Wages and Rent being thus
regulated by the same principles when
paid in money, as they would be if
apportioned in kind, it follows that
Profits are so likewise. For the sur-
plus, after replacing wages and paying
rent, constitutes Profits.

We found in the last chapter of the
Second Book, that the advances of the
capitalist, when analyzed to their ulti-
mate elements, consist either in the
purchase or maintenance of labour, or
in the profits of former capitalists ; and
that therefore profits in the last resort,
depend upon the Cost of Labour, falling
as tlxat rises, and rising as it falls. Let

us endeavour to trace more minutely
the operation of this law.

There are two modes in which the
Cost of Labour, which is correctly re-
presented (money being supposed in-
variable) by the money wages of the
labourer, may be increased. The la-
bourer may obtain greater comforts ;
wages in kind — real wages — may rise.
Or the progress of population may force
down cultivation to inferior soils, and
more costly processes ; thus raising tre
cost of production, the value, and the
price, of the chief articles of the la-
bourer's consumption. On either of
these suppositions, the rate of profit
will fall.

If the labourer obtains more abun-
dant commodities, only by reason of
their greater cheapness ; if he obtain
a greater quantity, but not on the
whole a greater cost ; real wages will
be increased, but not money wages, and
there will be nothing to affect the rate
of profit. But if he obtains a greater
quantity of commodities of which the
cost of production is not lowered, lie
obtains a greater cost ; his money wages
are higher. The expense of these in-
creased money wages falls wholly on
the capitalist. There are no conceiv-
able means by which he can shake it
off. It may be said — it used formerly
to be said — that he will get rid of it
by raising his price. But this opinion
we have already, and more than once,
fully refuted.*

The doctrine, indeed, that a rise
of wages causes an equivalent rise of
prices, is, as we formerly observed, self-
contradictory : for if it did so, it would
not be a rise of wages ; the labourer
would get no more of any commodity
than he had before, let his money wages
rise ever so much ; a rise of real wages
would be an impossibility. This being
equally contrary to reason and to fact, it
is evident that a rise of money wages
does not raise prices ; that high wages
are not a cause of high prices. A rise
of general wages falls on profits. There
is no possible alternative.

Having disposed of the case in which
the increase of money wages, and of

* Supra, book Hi. cli. iv. § 2, and ch. xxv.
§4.

DISTRIBUTION AS AFFECTED BY EXCHANGE.

419

the Cost of Labour, arises from the
labourer's obtaining more ample wages
in kind, let us now suppose it to arise
from the increased cost of production
of the things which he consumes;
owing to an increase of population, un-
accompanied by an equivalent increase
of agricultural skill. The augmented
supply required by the population
would not be obtained, unless the price
of food rose sufficiently to remunerate
the farmer for the increased cost of
production. The farmer, however, in
this case sustains a twofold disadvan-
tage. He has to carry on his cultiva-
tion under less favourable conditions
of productiveness than before. For
this, as it is a disadvantage belonging
to him only as a farmer, and not shared
by other employers, he will, on the
general principles of value, be com-
pensated by a rise of the price of his
commodity: indeed, until this rise has
taken place, he will not bring to market
the required increase of produce. But
this very rise of price involves him in
another necessity, for which he is not
compensated. He must pay higher
money wages to his labourers. This
necessity, being common to him with
all other capitalists, forms no ground
for a rise of price. The price will rise,
until it has placed him in as good a
situation in respect of profits, as other
employers of labour : it will rise so .
as to indemnify him for tne increased j
labour which he must now employ in I
order to produce a given quantity of I
food : but the increased wages of that
labour are a burthen common to all,
and for which no one can be indemnified.
It will be paid wholly from profits.

Thus we see chat increased \rages,
when common to all descriptions of pro-
ductive labourers, and when really re-
presenting a greater Cost of Labour, are
always and necessarily at the expense of
profits. And by reversing the cases, we
should find in like manner that dimi-
nished wages, when representing a
really diminished Cost of Labour, are
equivalent to a rise of profits. But
the opposition of pecuniary interest
thus indicated between the class of
capitalists and that of labourers, is to
» great extent only apparent. Real

wages are a very different thing from
the Cost of Labour, and are generally
highest at the times and places where,
from the easy terms on which the land
yields all the produce as yet required
from it, the value and price of food
being low, the cost of labour to the
employer, notwithstanding its ample
remuneration, is comparatively cheap,
and the rate of profit consequently
high. We thus obtain a full con-
firmation of our original theorem, that
Profits depend on the Cost of Labour :
or, to express the meaning with still
greater accuracy, the rate of profit and
the cost of labour vary inversely as one
another, and are joint effects of the
same agencies or causes.

But does not this proposition require
to be slightly modified, by making al-
lowance for that portion (though com-
paratively small) of the expenses of
the capitalist, which does not consist
in wages paid by himself or reim-
bursed to previous capitalists, but in
the profits of those previous capitalists ?
Suppose, for example, an invention in
the manufacture of leather, the advan-
tage of which should consist in ren-
dering it unnecessary that the hides
should remain for so great a length
of time in the tan-pit. Shoemakers,
saddlers, and other workers in leather,
would save a part of that portion of the
cost of their material which consists of
the tanner's profits during the time his
capital is locked up ; and this saving,
it may be said, is a source from which
they might derive an increase of profit,
though wages and the Cost of Labour
remained exactly the same. In the
case here supposed, however, the con-
sumer alone would benefit, since the
prices of shoes, harness, and all other
articles into which leather enters,
would fall, until the profits of the
producers were reduced to the general
leveL To obviate this objection, let
us suppose that a similar saving of
expenses takes place in all depart-
ments of production at once. In that
case, since values and prices would not
be affected, profits would probably be
raised ; but if we look more closely into
the case we shall find that it is because
the cost of labour would be lowered,
E E2

420

BOOK III. CHAPTER XXVI. § 3.

In this as in any other case of increase
in the general productiveness of labour,
if the labourer obtained only the same
real wages, profits would be raised :
tout the same real wages would imply
a smaller Cost of Labour ; the cost of
production of all things having been,
by the supposition, diminished. If,
on the other hand, the real wages of
labour rose proportionally, and the Cost
of Labour to the employer remained
the same, the advances of the capi-
talist would bear the same ratio to his
returns as before, and the rate of profit
would be unaltered. The reader who
may wish for a more minute examina-

tion of this point, will find it in the
volume of separate Essays to which
reference has before been made.* The
question is too intricate in comparison
with its importance, to be further en-
tered into in a work like the present ;
and I will merely say, that it seems to
result from the considerations adduced
in the Essay, that there is nothing in
the case in question to affect the inte-
grity of the theory which affirms an
exact correspondence, in an inverse
direction, between the rate of profit
and the Cost of Labour.

* Essay IV. on Profits and InttrtH,

BOOK IV.

INFLUENCE OF THE PROGRESS OF SOCIETY
ON PRODUCTION AND DISTRIBUTION.

CHAPTER I.

GENERA!, CHARACTERISTICS OF A PROGRESSIVE STATE OP WEALTH.

§ 1. Tur three preceding Parts in-
clude as detailed a view as our limits
permit, of what, by a happy generaliza-
tion of a mathematical phrase, has been
called the Statics of the subject. We
have surveyed the field of economical
facts, and have examined how they
stand related to one another as causes
and effects ; what circumstances deter-
mine the amount of production, of em-
ployment for labour, of capital and
population ; what laws regulate rent,
profits, and wages ; under what condi-
tions and in what proportions commodi-
ties are interchanged between indivi-
duals and between countries. We have
thus obtained a collective view of the
economical phenomena of society, con-
sidered as existing simultaneously. We
have ascertained, to a certain extent,
the principles of their interdependence ;
and when the state of some of the ele-
ments is known, we should now be able
to infer, in a general way, the contem-
poraneous state of most of the others.
All this, however, has only put us in
possession of the economical laws of a
stationary and unchanging society.
We have still to consider the econo-
mical condition of mankind as liable to
change, and indeed (in the more ad-
vanced portions of the race, and in all
regions to which their influence reaches)
as at all times undergoing progressive
changes. We have to consider what
these changes are, what are their laws,
and what their ultimate tendencies ;
thereby adding a theory of motion to our

theory of equilibrium — the Dynamics
of political economy to the Statics.

In this inquiry, it is natural to com-
mence by tracing the operation of
known and acknowledged agencies.
Whatever may be the other changes
which the economy of society is des-
tined to undergo, there is one actually
in progress, concerning which there can
be no dispute. In the leading countries
of the world, and in all others as they
come within the influence of those lead-
ing countries, there is at least one pro-
gressive movement which continues
with little interruption from year to
year and from generation to genera-
tion ; a progress in wealth ; an ad-
vancement in what is called material
prosperity. All the nations which we
are accustomed to call civilized, in-
crease gradually in production and in
population : and there is no reason to
doubt, that not only these nations will
for some time continue so to increase,
but that most of the other nations of
the world, including some not yet
founded, will successively enter upon
the same career. It will, therefore, be
our first object to examine the nature
and consequences of this progressive
change ; the elements which constitute
it, and the effects it produces on the
various economical facts of \vhich we
have been tracing the laws, and espe-
cially on wages, profits, rents, values,
and prices.

§ 2, Of the features which charac-

422

BOOK IV. CHAPTER 1. § 2.

terize tins progressive economical move-
ment of civilized nations, that which first
excites attention, through its intimate
connexion with the phenomena of Pro-
duction, is the perpetual, and so far as
human foresight can extend, the un-
limited, growth of man's power over
nature. Our knowledge of the proper-
ties and laws of physical ohjects shows
no sign of approaching its ultimate
boundaries: it is advancing more ra-
pidly, and in a greater number of direc-
tions at once, than in any previous age
or generation, and affording such fre-
quent glimpses of unexplored fields be-
yond, as to justify the belief that our
acquaintance with nature is still almost
in its infancy. This increasing phy-
sical knowledge is now, too, more ra-
pidly than at any former period, con-
verted by practical ingenuity, into phy-
sical power. The most marvellous of
modern inventions, one which realizes
the imaginary feats of the magician,
not metaphorically but literally — the
electro-magnetic telegraph — sprang
into existence but a few years after
the establishment of the scientific
theory which it realizes and exempli-
fies. Lastly, the manual part of these
great scientific operations is now never
wanting to the intellectual : there is no
difficulty in finding or forming, in a suf-
ficient number of the working hands of
the community, the skill requisite for
executing the most delicate processes
of the application of science to prac-
tical uses. From this union of condi-
tions, it is impossible not to look for-
ward to a vast multiplication and long
succession of contrivances for econo-
mizing labour and increasing its pro-
duce ; and to an ever wider diffusion
of the use and benefit of those contri-
vances.

Another change which has always
hitherto characterized, and will as-
suredly continue to characterize, the
progress of civilized society, is a con-
tinual increase of the security of person
and property. The people of eveiy
country in Europe, the most backward
as well as the most advanced, are, in
each generation, better protected
against the violence and rapacity of
one another both by a more efficient

judicature and police for the suppres-
sion of private crime, and by the decay
and destruction of those mischievous
privileges which enabled certain classes
of the community to prey with impunity
upon the rest. They are also, in every
generation, better protected, either by
institutions or by manners and opinion,
against arbitraiy exercise of the power
of government. Even in semi-barba-
rous Russia, acts of spoliation directed
against individuals, who have not made
themselves politically obnoxious, are
not supposed to be now so frequent as
much to affect any person's feelings of
security. Taxation, in all European
countries, grows less arbitrary and op-
pressive, both in itself and in the man-
ner of levying it. Wars, and the de-
struction they cause, are now usually
confined, in almost every country, to
those distant and outlying possessions
at which it comes into contact with
savages. Even the vicissitudes of for-
tune which arise from inevitable na-
tural calamities, are more and more
softened to those on whom they fall, by
the continual extension of the salutary
practice of insurance.

Of this increased security, one of
the most unfailing effects is a great
increase both of production and of ac-
cumulation. Industry and frugality
cannot exist, where there is not a pre-
ponderant probability that those who
labour and spare will be permitted to
enjoy. And the nearer this probability
approaches to certainty, the more do
industry and frugality become per-
vading qualities in a people. Experi-
ence has shown that a large proportion
o f the results of labour and abstinence
may be taken away by fixed taxation,
without impairing, and sometimes even
with the effect of stimulating, the
qualities from which a great production
and an abundant capital take their
rise. But those qualities are not
proof against a high degree of uncer-
tainty. The government may carry
off a part ; but there must be assurance
that it will not interfere, nor suffer
any one to interfere, with the re-
mainder.

One of the changes which most in-
fallibly attend the progress of modern

PROGRESSIVE STATE OF WEALTH.

423

society, is an improvement in the busi-
ness capacities of the general mass of
mankind. I do not mean that the
practical sagacity of an individual
human being is greater than formerly.
I am inclined to believe that econo-
miral progress has hitherto had even a
contrary effect. A person of good na-
tural endowments, in a rude state of
society, can do a greater number of
tilings tolerably well, has a greater
power of adapting means to ends, is
more capable of extricating himself
and others from an unforeseen embar-
rassment, than ninety-nine in a hun-
dred of those who have known only
•what is called the civilized form of life.
How far these points of inferiority of
faculties are compensated, and by what
means they might be compensated still
more completely, to the civilized man
as an individual being, is a question
belonging to a different inquiry from
the present. But to civilized human
beings collectively considered, the com-
pensation is ample. What is lost in
the separate efliciency of each, is far
more than made up by the greater ca-
pacity of united action. In proportion
as they put off the qualities of the
savage, they become amenable to dis-
cipline ; capable of adhering to plans
concerted beforehand, and about which
they may not have been consulted ; of
subordinating their individual caprice
to a preconceived determination, and
performing severally the parts allotted
to them in a combined undertaking.
Works of all sorts, impracticable to the
savage or the half-civilized, are daily
accomplished by civilized nations, not
by any greatness of faculties in the
actual agents, but through the fact
that i-ach is able to rely with certainty
on the others for the portion of the work
which they respectively undertake.
The peculiar characteristic, in short, of
civilized beings, is the capacity of co-
operation ; and this, like other facul-
ties, tends to improve by practice, and
becomes capable of assuming a con-
stantly wider sphere of action.

Accordingly there is no more certain
incident of the progressive change
taking place in society, than the con-
tinual growth of the principle and

practice of co-operation. Associations
of individuals voluntarily combining
their small contributions, now perform
works, both of an industrial and of
many other characters, which no one
person or small number of persons arc
rich enough to accomplish, or for the
performance of which the tew persons
capable of .accomplishing them were
formerly enabled to exact the most
inordinate remuneration. As wealth
increases and business capacity im-
proves, we may look forward to a great
extension of establishments, both for
industrial and other purposes, formed
by the collective contributions of large
numbers ; establishments like those
called by the technical name of joint-
stock companies, or the associations
less formally constituted, which are so
numerous in England, to raise funds
for public or philanthropic objects, or
lastly, those associations of workpeople,
either for production or to buy goods
for their common consumption, which
are now specially known by the name
of co-operative societies.

The progress which is to be expected
in the physical sciences and arts, com-
bined with the greater security of pro-
perty, and greater freedom in disposing
of it, which are obvious features in the
civilization of modern nations, and
with the more extensive and more
skilful employment of tho joint-stock
principle, afford space and scope for an
indefinite increase of capital and pro-
duction, and for the increase of popula-
tion which is its ordinary accompani-
ment. That the growth of population
will overpass the increase of produc-
tion, there is not much reason to ap-
prehend ; and that it should even keep
pace with it, is inconsistent with the
supposition of any real improvement
in the poorest classes of the people. It
is, however, quite possible that there
might be a great progress in industrial
improvement, and in the signs of what
is commonly called national prosperity;
a great increase of aggregate wealth,
and even, in some respects, a better
distribution of it; that not only the
rich might grow richer, but many of
the poor might grow rich, that tho
intermediate classes might become

424

BOOK IV. CHAPTER H. § 1.

more numerous and powerful, and the
means of enjoyable existence be more
and more largely diffused, while yet
the great class at the base of the whole
might increase in numbers only, and
not in comfort nor in cultivation. We
must, therefore, in considering the
effects of the progress of industry,
admit as a supposition, however greatly
we deprecate as a fact, an increase of

population as long-continued, as inde-
finite, and possibly even as rapid, as
the increase of production and accu-
mulation.

With these preliminary observations
on the causes of change at work in a
society which is in a state of econo-
mical progress, I proceed to a more
detailed examination of the changes
themselves.

CHAPTER H.

INFLUENCE OK THE PROGRESS OF INDUSTRY AND POPULATION ON
VALUES AND PRICES.

§ 1. THE changes which the pro-
gress of industry causes or presupposes
in the circumstances of production, are
necessarily attended with changes in
the values of commodities.

The permanent values of all things
which are neither under a natural nor
under an artificial monopoly, depend,
as Ave have seen, on their cost of pro-
duction. But the increasing power
which mankind are constantly ac-
quiring over nature, increases more
and more the efficiency of human
exertion, or in other words, diminishes
cost of production. All inventions by
which a greater quantity of any com-
modity can be produced with the same
labour, or the same quantity with less
labour, or which abridge the process,
BO that the capital employed needs not
be advanced for so long a time, lessen
the cost of production of the com-
modity. As, however, value is relative ;
if inventions and improvements in pro-
duction were made in all commodities,
and all in the same degree, there would
be no alteration in values. Things
would continue to exchange for each
other at the same rates as before ; and
mankind would obtain a greater quan-
tity of all things in return for their
labour and abstinence, without having
that greater abundance measured and
declared (as it is when it affects only
one thing) by the diminished exchange
value of tho commodity.

As for prices, in these circumstances
they would be affected or not, accord-
ing as the improvements in production
did or did not extend to the precious
metals. If the materials of money
were an exception to the general dimi-
nution of cost of production, the values
of all other things would fall in relation
to money, that is, there would be a fall
of general prices throughout the world.
But if money, like other things, and in
the same degree as other things, were
obtained in greater abundance and
cheapness, prices would be no more
affected than values would ; and there
would be no visible sign, in the state
of the markets, of any of the changes
which had taken place ; except that
there would be (if people continued to
labour as much as before) a greater
quantity of all sorts of> commodities,
circulated at the same prices by a
greater quantity of money.

Improvements in production are not
the only circumstance accompanying
the progress of industry, which tends
to diminish the cost of producing, or at
least of obtaining, commodities. An-
other circumstance is the increase of
intercourse between different parts of
the world. As commerce extends, and
the ignorant attempts to restrain it by
tariffs become obsolete, commodities
tend more and more to be produced in
the places in which their production
can be carried on at the least expenso

INFLUCENE OF INDUSTRIAL PROGRESS ON PRICES. 425

of labour and capital tc mankind. As
civilization spreads, and security of
person and property becomes esta-
blished, in parts of the world which
have not hitherto had that advantage,
the productive capabilities of those
places are called into fuller activity,
for the benefit both of their own inha-
bitants and of foreigners. The igno-
rance and misgovernment in which
many of the regions most favoured by
nature are still grovelling, afford work,
probably, for many generations before
those countries will be raised even to
the present level of the most civilized
parts of Europe. Much will also depend
on the increasing migration of labour
and capital to unoccupied parts of the
earth, of which the soil, climate, and
situation are found, by the ample means
of exploration now possessed, to pro-
mise not only a large return to in-
dustry, but great facilities of producing
commodities suited to the markets of
old countries. Much as the collective
industry of the earth is likely to be
increased in efficiency by the extension
of science and of the industrial arts, a
still more active source of increased
cheapness of production will be found,
probably, for some time to come, in the
gradually unfolding consequences of
Free Trade, and in the increasing scale
on which Emigration and Colonization
will be carried on.

From the causes now enumerated,
unless counteracted by others, the
progress of things enables a country to
obtain at less and less of real cost, not
only its own productions but those of
foreign countries. Indeed, whatever
diminishes the cost of its own produc-
tions, when of an exportable character,
enables it, as we have already seen, to
obtain its imports at less real cost.

§ 2. But is it the fact, that these
tendencies are not counteracted ? Has
the progress of wealth and industry no
effect in regard to cost of production,
but to diminish it ? Are no causes of
an opposite character brought into
operation by the same progress, suf-
ficient in some cases not only to neu-
tralize but to overcome the former, and
convert the descending movement of

cost of production into an ascending
movement? We are already aware
that there are such causes, and that,
in the case of the most important
classes of commodities, food and mate-
rials, there is a tendency diametrically
opposite to that of which we have been
speaking. The cost of production of
these commodities tends to increase.

This is not a property inherent in
the commodities themselves. If popu-
lation were stationary, and the produce
of the earth never needed to be aug-
mented in quantity, there would be no
cause for greater cost of production.
Mankind would, on the contrary, have
the full benefit of all improvements in
agriculture, or in the arts subsidiary to
it, and there would be no difference, in
this respect, between the products of
agriculture and those of manufactures.
The only products of industry which, if
population did not increase, would bo
liable to a real increase of cost of pro-
duction, are those which, depending on
a material which is not renewed, are
either wholly or partially exhaustible ;
such as coal, and most if not all metals ;
for even iron, the most abundant as
well as most useful of metallic products,
which forms an ingredient of most
minerals and of almost all rocks, is
susceptible of exhaustion so far as
regards its richest and most tractable
ores.

When, however, population in-
creases, as it has never yet failed to
do when the increase of industry and
of the means of subsistence made room
for it, the demand for most of the pro-
ductions of the earth, and particularly
for food, increases in a corresponding
proportion. And then comes into
effect that fundamental law of produc-
tion from the soil, on which we have so
frequently had occasion to expatiate ;
the law, that increased labour, in any
given state of agricultural skill, ia
attended with a less than proportional
increase of produce. The cost of pro-
duction of the fruits of the earth in-
creases, cceteris paribus, with every
increase of the demand.

No tendency of a like kind exists
with respect to manufactured articles.
The tendency is in the contrary direc-

BOOK IV. CHAPTEE H. § 3.

tion. The larger the scale on which
manufacturing operations are carried
on, the more cheaply they can in
general he performed. Mr. Senior has
gone the length of enunciating as an
inherent law of manufacturing in-
dustry, that in it increased production
takes place at a smaller cost, while in
agricultural industry increased produc-
tion takes place at a greater cost. I
cannot think, however, that even in
manufactures, increased cheapness fol-
lows increased production by anything
amounting to a law. It is a probable
and usual, but not a necessary, con-
sequence.

As manufactures, however, depend
for their materials either upon agricul-
ture, or mining, or the spontaneous
produce of the earth, manufacturing
industry is subject, in respect of one
of its essentials, to the same law as
agriculture. But the crude material
generally forms so small a portion of
the total cost, that any tendency which
may exist to a progressive increase in
that single item, is much over-balanced
by the diminution continually taking
place in all the other elements; to
which diminution it is impossible at
present to assign any limit.

The tendency, then, being to a per-
petual increase of the productive
power of labour in manufactures, while
in agriculture and mining there is a
conflict between two tendencies, the
one towards an increase of productive
power, the other towards a diminution
of it, the cost of production being les-
r.cned by every improvement in the
processes, and augmented by every
addition to population ; it follows that
the exchange values of manufactured
articles, compared with the products of
agriculture and of mines, have, as
population and industry advance, a
certain and decided tendency to fall.
Money being a product of mines, it
may also be laid down as a rule, that
manufactured articles tend, as society
advances, to fall in money price. The
industrial history of modern nations,
especially during the last hundred
years, fully bears out this assertion.

§ 3. 'Whether agricultural produce

increases in absolute as woll as com
parative cost of production, depends on
the conflict of the two antagonist
agencies, increase of population, and
improvement in agricultural skill. In
some, perhaps inmost, states of society,
(looking at the whole surface of the
earth,) both agricultural skill and
population are either stationary, or
increase veiy slowly, and the cost of
production of food, therefore, is nearly
stationary. In a society which is
advancing in wealth, population gene-
rally increases faster than agricultural
skill, and food consequently tends to
become more costly ; but there are
times when a strong impulse sets in
towards agricultural improvement.
Such an impulse has shown itself in
Great Britain during the last twenty
or five-and-twenty years. In England
and Scotland agricultural skill has of
late increased considerably faster than
population, insomuch that food and
other agricultural produce, notwith-
standing the increase of people, can be
grown at less cost than they were
thirty years ago : and the abolition of
the Corn Laws has given an additional
stimulus to the spirit of improvement.
In some other countries, and particu-
larly in France, the improvement of
agriculture gains ground still more
decidedly- upon population, because
though agriculture, except in a few
provinces, advances slowly, population
advances still more slowly, and even
with increasing slowness ; its growth
being kept down, not by poverty, which
is diminishing, but by prudence.

"Which of tho two conflicting
agencies is gaining upon the other at
any particular time, might be conjec-
tured with tolerable accuracy from the
money price of agricultural produce
(supposing bullion not to vary mate-
rially in value), provided a sufficient
number of years could be taken, to
form an average independent of the
fluctuations of seasons. This, however,
is hardly practicable, since Mr. Tooke
has shown that even so long a period
as half a century may include a much
greater proportion of abundant and a
smaller of deficient seasons, than is
properly due to it. A mere average,

INFLUENCE OF INDUSTRIAL PROGRESS ON PRICES. 427

therefore, might lead to conclusions
onlj the more misleading, for their dc-
cept'.ve semblance of accuracy. There
would be less danger of error in taking
the average of only a small number of
years, and correcting it by a conjec-
tural allowance for the character of the
seasons, than in trusting to a longer
average without any such correction.
It is hardly necessary to add, that in
founding conclusions on quoted prices,
allowance must also be made as far
as possible for any changes in the
general exchange value of the precious
metals.*

§ 4. Thus far, of the eflect of the
progress of society on the permanent
or average values and prices of com-
modities. It remains to be considered,
in what manner the same progress
affects their fluctuations. Concerning
the answer to this question there can
be no doubt. It tends in a very high
degree to diminish them.

In poor and backward societies, as
in the East, and in Europe during the
middle ages, extraordinary differences
in the price of the same commodity
might exist in places not very
distant from each other, because the
want of roads and canals, the imper-
fection of marine navigation, and the
insecurity of communications generally,
prevented things from being trans-
ported from the places where they were
cheap tc those where they were deai.
The things most liable to fluctuations
in value, those directly influenced by
the seasons, and especially food, were
seldom carried to any great distances.
Each locality depended, as a general
rule, on its own produce and that of
its immediate neighbourhood. In most
years, accordingly, there was, in some
part or Jther of any large country, a
real dearth. Almost every season must
be unpropitious to some among the
many soils and climates to be found in
an extensive tract of country ; but as
the same season is also in general more

* A still better criterion, perhaps, than
that suggested in the text, would be the
increase or diminution of the amount of the
labourer's wagi>s estimated in agricultural
produce.

than ordinarily favourable to others, it
is only occasionally that the aggregate
produce of the whole country is de-
ficient, and even then in a less degree
than that of many separate portions ;
while a deficiency at all considerable,
extending to the whole world, is a
thing almost unknown. In modern
times, therefore, there is only dearth,
where there formerly would have been
famine, and sufficiency everywhere
when anciently there would have been
scarcity iu some places and superfluity
in others.

The same change has taken place
with respect to all other articles of
commerce. The safety and cheapness
of communications, which enable *
deficieucy in one place to be supplier
from the surplus of another, at a mode-
rate or even a small advance on the
ordinary price, render the fluctuations
of prices much less extreme than for-
merly. This effect is much promoted
by the existence of large capitals, be-
longing to what are called speculative
merchants, whose business it is to buy
goods in order to resell them at a profit.
These dealers naturally buying thmga
when they are cheapest, and storing
them up to be brought again into the
market when the price has become un-
usually high; the tendency of their
operations is to equalize price, or at
least to moderate its inequalities. The
prices of things are neither so much
depressed at one time, nor so much
raised at another, as they would be if
speculative dealers did not exist.

Speculators, therefore, have a highly
useful office in the economy of society ;
and (contrary to common opinion) th»
most useful portion of the class aro
those who speculate in commodities
affected by the vicissitudes of seasons.
If there were no corn-dealers, not only
would the price of com be liable to
variations much more extreme than at
present, but in a deficient season the
necessary supplies might not be forth-
coming at all. Unless there were
speculators in corn, or unless, in de-
fault of dealers, the farmers became
speculators, the price in a season of
abundance would fall without any liftiit
or check, except the wasteful consump-

428

BOOK IV. CHAPTER II. § 5.

tion that would invariably follow. That
any part of the surplus of one year
remains to supply the deficiency of
another, is owing either to farmers
who withhold corn from the market,
or to dealers who buy it when at the
cheapest and lay it up in store.

§ 5. Among persons who have not
much considered the subject, there is a
notion that the gains of speculators are
often made by causing an artificial
scarcity ; that they create a high, price
by their own purchases, and then profit
by it. This may easily be shown to be
fallacious. If a corn-dealer makes pur-
chases on speculation, and produces a
rise, when there is neither at the time
nor afterwards any cause for a rise of
price except his own proceedings ; he
no doubt appears to grow richer as
long as his purchases continue, because
he is a holder of an article which is
quoted at a higher and higher price :
but this apparent gain only seems
within his reach so long as he does
not attempt to realize it. If he has
bought, for instance, a million of quar-
ters, and by withholding them from
the market, has raised the price ten
shillings a quarter; just so much as
the price has been raised by with-
drawing a million quarters, will it be
lowered by bringing them back, and
the best that he can hope is that he
will lose nothing except interest and
his expenses. If by a gradual and
cautious sale he is able to realize, on
some portion of his stores, a part of the
increased price, so also he will un-
doubtedly have had to pay a part of
that price on some portion of his pur-
chases. He runs considerable risk of
incurring a still greater loss ; for the
temporary high price is very likely to
have tempted others, who had no share
in causing it, and who might other-
wise not have found their way to his
market at all, to bring their corn there,
and intercept a part of the advantage.
So that instead of profiting by a
scarcity caused by himself, he is by no
means unlikely, after buying in an
average market, to be forced to sell in
a superabundant one.

As an individual speculator cannot

gain by a rise of price solely of his
own creating, so neither can a number
of speculators gain collectively by a
rise, which their operations have ar-
tificially produced. Some among a
number of speculators may gain, by
superior judgment or good fortune in
selecting the time for realizing; but
they make this gain at the expense,
not of the consumer, but of the other
speculators who are less judicious.
They, in fact, convert to their own
benefit the high price produced by the
speculations of the others, leaving to
these the loss resulting from the recoil.
It is not to be denied, therefore, that
speculators may enrich themselves by
other people's loss. But it is by the
losses of other speculators. As much
must have been lost by one set of
dealers as is gained by another set.

When a speculation in a commodity
proves profitable to the speculators as
a body, it is because in the interval
between their buying and reselling,
the price rises from some cause inde-
pendent of them, their only connexion
with it consisting in having foreseen
it. In this case, their purchases make
the price begin to rise sooner than it
otherwise would do, thus spreading
the privation of the consumers over a
longer period, but mitigating it at the
time of its greatest height : evidently
to the general advantage. In this,
however, it is assumed that they have
not overrated the rise which they
looked forward to. For it often hap-
pens that speculative purchases are
made in the expectation of some in-
crease of demand, or deficiency of
supply, which after all does not occur,
or not to the extent which the specu-
lator expected. Jn that case the specu-
lation, instead of moderating fluctua-
tions, has caused a fluctuation of price
which otherwise would not have hap-
pened, or aggravated one which would.
But in that case the speculation is a
losing one, to the speculators collec-
tively, however much some individuals
may gain by it. All that part of the
rise of price by which it exceeds what
there are independent grounds for,
cannot give to the speculators as a
body any benefit, since the price is as

INFLUENCE OF INDUSTRIAL PROGRESS ON PRICES. 429

ranch depressed by their sales as it was
raised by their purchases ; and while
they gain nothing by it, they lose, not
only their trouble and expenses, but
almost always much more, through the
effects incident to the artificial rise of
price, in checking consumption, and
bringing forward supplies from unfore-
seen quarters. The operations, there-
fore, of speculative dealers, are useful
to the public whenever profitable to
themselves ; and though they are
sometimes injurious to the public, by
heightening the fluctuations which
their more usual office is to alleviate,
yet whenever this happens the specu-
lators are tbe greatest losers. The in-
terest, in short, of the speculators as a
body, coincides with the interest of the
public; and as they can only fail to
serve the public interest in proportion
as they miss their own, the best way
to promote the one is to leave them to
pursue the other in perfect freedom.

I do not deny that speculators may
aggravate a local scarcity. In col-
lecting corn from the villages to supply
the towns, they make the dearth
penetrate into nooks and corners
which might otherwise have escaped
from bearing their share of it. To buy
and resell in the same place, tends to
alleviate scarcity : to buy in one place
and resell in another, may increase it
in the former of the two places, but
relieves it in the latter, where the
price is higher, and which therefore,
by the very supposition, is likely to be
Buffering more. And these sufferings
always fall hardest on the poorest
consumers, since the rich, by out-
bidding, can obtain their accustomed
supply undiminished if they choose.
To no persons, therefore, are the ope-
rations of corn-dealers on the whole so
beneficial as to the poor. Accidentally
and exceptionally, the poor may suffer
from them : it might sometimes be
more advantageous to the rural poor
to have corn cheap in winter, when
they are entirely dependent on it, even
if the consequence were a dearth in
spring, when they can perhaps obtain
partial substitutes. But there are no
substitutes, procurable at that season,
which serve in any great degree to

replace bread-corn as the chief article
of food : if there were, its price would
fall in the spring, instead of con-
tinuing, as it always does, to rise till
the approach of harvest.

There is an opposition of immediate
interest, at the moment of sale, be-
tween the dealer in corn and the con-
sunier, as there always is between the
seller and the buyer : and a time of
dearth being that in which the specu-
lator makes his largest profits, he is
an object of dislike and jealousy at
that time, to those who are suffering
while he is gaining. It is an error,
however, to suppose that the corn-
dealer's business affords him any ex-
traordinary profit ; he makes his gains
not constantly, but at particular times,
and they must therefore occasionally
be great, but the chances of profit in
a business in which there is so much
competition, cannot on the whole be
greater than in other employments.
A year of scarcity, in which great
gains are made by corn-dealers, rarely
comes to an end without a recoil
which places many of them in the list
of bankrupts. There have been few
more promising seasons for corn-
dealers than the year 1847, and
seldom was there a greater break-up
among the speculators than in the
autumn of that year. The chances of
failure, in this most precarious trade,
are a set-off against great occasional
profits. If the corn-dealer were to
sell his stores, during a dearth, at a
lower price than that which the
competition of the consumers assigns
to him, he would make a sacrifice, to
charity or philanthropy, of the fair
profits of his employment, which may
be quite as reasonably required from
any other person of equal means.
His business being a useful one, it is
the interest of the public that the
ordinary motives should exist for car-
rying it on, and that neither law nor
opinion should prevent an operation
beneficial to the public from being
attended with as much private ad-
vantage as is compatible with full and
free competition.

It appears, then, that the fluctu*
lions of values and prices arising from

430

BOOK IV. CHAPTER III. § 1.

variations of supply, or from alterations
in real (as distinguished from specu-
lative) demand, may be expected to
become more moderate as society
advances. With regard to those
which arise from miscalculation, and
especially from the alternations of
undue expansion and excessive con-
traction of credit, which occupy so
conspicuous a place among commercial
phenomena, the same thing cannot be
affirmed with equal confidence. Such
vicissitudes, beginning with irrational
speculation and ending with a com-
mercial crisis, have not hitherto be-

come either less frequent or less
violent with the growth of capital
and extension of industry. Rather
they may be said to have become
more so : in consequence, as is often
said, of increased competition ; but, as
I prefer to say, of a low rate of profits
and interest, which makes capitalists
dissatisfied with the ordinary course
of safe mercantile gains. Tho con-
nexion of this low rate of proiil with
the advance of population and accu-
mulation, is one of the points to bo
illustrated in the ensuing chapters.

CHAPTER IH.

INFLUENCE OP THE PROGRESS OP INDUSTRY AND POPULATION ON RENTS,
PROFITS, AND WAGES.

§ 1. CONTINUING the inquiry into
tlio nature of the economical changes
taking place in a society which is in
a state of industrial progress, we shall
next consider what is the effect of that
progress on the distribution of the
produce among the various classes who
share in it. We may confine our at-
tention to the system of distribution
which is the most complex, and which
virtually includes all others — that in
which the produce of manufactures is
shared between two classes, labourers
and capitalists, and the produce of
agriculture among three, labourers,
capitalists, and landlords.

The characteristic features of what
is commonly meant by industrial pro-
gress, resolve themselves mainly into
three — increase of capital, increase of
population, and improvements in pro-
duction ; understanding the last ex-
pression in its widest sense, to include
the process of procuring commodities
from a distance, as well as that of pro-
ducing them. The other changes
which take place are chiefly conse-
quences of these ; as, for example, the
tendency to a progressive increase of
the cost of production of food; arising

from an increased demand, which may
be occasioned either by increased popu-
lation, or by an increase of capital and
wages, enabling the poorer classes to
increase their consumption. ]t will
be convenient to set out by consider-
ing each of the three causes, as
operating separately ; after which we
can suppose them combined in any
manner we think fit.

Let us first suppose that population
increases, capital and the arts of pro-
duction remaining stationary. One of
the effects of this change of circum-
stances is sufficiently obvious : wages
will fall ; the labouring class will be
reduced to an inferior condition. The
state of the capitalist, on the contrary,
will be improved. With the same
capital, he can purchase more labour,
and obtain more produce. His rate of
profit is increased. The dependence
of the rate of profits on the cost of
labour is here verified; for the labourer
obtaining a diminished quantity of
commodities, and no alteration being
supposed in the circumstances of their
production, the diminished quantity
represents a diminished cost. The
labourer obtains not only a smaller

INFLUENCE OF PROGRESS ON RENTS, PRO PITS, ETC. 431

rofil reward, but tbo product of a
smaller quantity of labour. Tbc first
circumstance is the important cue
to bimself, the last to his employer.

Nothing has occurred, thus i'ar, to
afl'cct in any way the value of any
commodity ; and no reason, therefore,
has vet shown itself, why rent should
IK: ('iihcr raised or lowered. But if
we look forward another stage in the
series of effects, we may see our way
to such a consequence. The labourers
have increased in numbers: their
condition is reduced in the same pro-
portion ; the increased numbers divide
among them only the produce of the
same amount of labour as before. But
they may economize in their other
comforts, and not in their food : each
may consume as much food, and of as
costly a quality, as previously ; or
they may submit to a reduction, but
not in proportion to the increase of
numbers. On this supposition, not-
withstanding the diminution of real
wages, the increased population will
require an increased quantity of food.
But since industrial skill and know-
ledge are supposed to bo stationary,
more food can only be obtained by
resorting to worse laud, or to methods
of cultivation which are less productive
in proportion to the outlay. Capital
for this extension of agriculture will
not be wanting ; for though, by hypo-
thesis, no addition takes place to
the capital in existence, a sufficient
amount can be spared from the in-
dustry which previously supplied the
other and less pressing wants which
the labourers have . been obliged to
curtail. The additional supply of
food, therefore, will be produced, but
produced at a greater cost ; and the
exchange value of agricultural pro-
duce must rise. It may be objected,
that profits having risen, the extra cost
of producing food can be defrayed from
profits, without any increase of price.
xt could, undoubtedly, but it will not :
because if it did, the agriculturist
would be placed in an inferior position
to other capitalists. The increase of
profits, being the effect of diminished
wages, is common to all employers of
labour. The increased expenses arising

from the necessity of a more costly
cultivation, aflect the agriculturist
alone. For this peculiar burthen
he must be peculiarly compensated,
whether the general rate of profit bo
high or low. He will not submit in-
definitely to a deduction from hia
profits, to which other capitalists are
not subject. He will not extend his
cultivation by laying out fresh capital,
unless for a return sufficient to yield
him as high a profit as could be ob-
tained by the same capital in other
investments. The value, therefore, of
his commodity will rise, and rise in
proportion to the increased cost. The
fanner will thus be indemnified for
the burthen which is peculiar to him-
self, and will also enjoy the augmented
rate of profit which is common to all
capitalists.

It follows, from principles with
which we are already familiar, that
in these circumstances rent will rise.
Any land can afford to pay, and under
free competition will pay, a rent equal
to the excess of its produce above the
return to an equal capital on the
worst land, or under the least favour-
able conditions. Whenever, therefore,
agriculture is driven to descend to
worse land, or more onerous processes,
rent rises. Its rise will be twofold,
for, in the first place, rent in kind, 01
corn rent, will rise ; and in the second,
since the value of agricultural pro-
duce has also risen, rent, estimated in
manufactured or foreign commodities
(which is represented cceteris paribus
by money rent) will rise still more.

The steps of the process (if, after
what haa been formerly said, it is
necessary to retrace them) are as fol-
lows. Corn rises in price, to repay
with the ordinary profit the capital
required for producing additional corn
on worse land or by more costly pro-
cesses. So far as regards this addi-
tional corn, the increased price is but
an equivalent for the additional ex-
pense; but the rise, extending to all
corn, affords on all, except tho last
produced, an extra profit. If the
farmer was accustomed to produce
100 quarters of wheat at 40s., and
120 quarters are now required, of

432

BOOK IV. CHAPTER III. § 2.

which the last twenty cannot be pro-
duced under 45s., he obtains the extra
five shillings on the entire 120
quarters, and not on the last twenty
alone. He has thus an extra 251.
beyond the ordinary profits, and this,
in a state of free competition, he will
not be able to retain. He cannot how-
ever be compelled to give it up to the
consumer, since a less price than 45s.
would be inconsistent with the produc-
tion of the last twenty quarters. The
price, then, will remain at 45s., and
the 251. will be transferred by com-
petition not to the consumer but
to the landlord. A rise of rent is
therefore inevitably consequent on an
increased demand for agricultural pro-
duce, when unaccompanied by in-
creased facilities for its production.
A truth which, after this final illus-
tration, we may henceforth take for
granted.

The new element now introduced —
an increased demand for food — besides
occasioning an increase of rent, still
further disturbs the distribution of the
produce between capitalists and la-
bourers. The increase of population
will have diminished the reward of
labour : and if its cost is diminished
as greatly as its real remuneration,
profits will be increased by the full
amount. If, however, the increase of
population leads to an increased pro-
duction of food, which cannot be sup-
plied but at an enhanced cost of pro-
duction, the cost of labour will not be
so much diminished as the real reward
of it, and profits, therefore, will not be
so much raised. It is even possible
that they might not be raised at all.
The .abourers may previously have
been so well provided for, that the
whole of what they now lose may be
struck off from their other indulgences,
and they may not, either by necessity
or choice, undergo any reduction in
the quantity or quality of their food.
To produce the food for the increased
number may be attended with such
an increase of expense, that wages,
though reduced in quantity, may re-
present as great a cost, may be the
product of as much labour, as before,
and the capitalist may not be at all

benefited. On this supposition the
loss to the labourer is partly absorbed
in the additional labour required fo»
producing the last instalment of agri-
cultural produce ; and the remainder
is gained by the landlord, the only
sharer who always benefits by an in-
crease of population.

§ 2. Let us now reverse our hypo-
thesis, and, instead of supposing ca-
pital stationary and population ad-
vancing, let us suppose capital ad-
vancing and population stationary;
the facilities of production, both natu-
ral and acquired, being, as before, un-
altered. The real wages of labour,
instead of falling, will now rise ; and
since the cost of production of the
things consumed by the labourer ia
not diminished, this rise of wages im-
plies an equivalent increase of the cost
•f labour, and diminution of profits.
To state the same deduction in otker
terms ; the labourers not being more
numerous, and the productive power
of their labour being only the same as
before, there is no increase of the pro-
duce ; the increase of wages, therefore,
must be at the charge of the capital-
ists. It is not impossible that the
cost of labour might be increased in
even a greater ratio than its real re-
muneration. The improved condition
of the labourers may increase the de-
mand for food. The labourers may
have been so ill off before, as not to
have food enough ; and may now con-
sume more : or they may choose to
expend their increased means partly
or wholly in a more costly quality of
food, requiring more labour and more
land ; wheat, for example, instead of
oats or potatoes. This extension of
agriculture implies, as usual, a greater
cost of production and a higher price,
so that besides the increase of the cost
of labour arising from the increase of
its reward, there will be a further in-
crease (and an additional fall of profits)
from the increased costliness of the
commodities of which that reward
consists. The same causes will pro-
duce a rise of rent. What the capital-
ists lose, above what the labourers
gain, is partly transferred to the land-

INFLUENCE OF PROGRESS

lord, and partly swallowed up in the
cost of growing food on worse land or
by a less productive process.

§ 3. Having disposed of the two
simple cases, an increasing population
and stationary capital, and an increas-
ing capital and stationary population,
we are prepared to take into consider-
ation the mixed case, in which the
two elements of expansion are com-
bined, both population and capital in-
creasing. If either element increases
faster than the other, the case is so far
assimilated with one or other of the
two preceding : we shall suppose
them, therefore, to increase with equal
rapidity ; the test of equality being,
that each labourer obtains the same
commodities as before, and the same
quantity of those commodities. Let
us examine what will be the effect,
on rent and profits, of this double
progress.

Population having increased, with-
out any falling off in the labourer's
condition, there is of course a demand
for more food. The arts of production
being supposed stationary, this food
must be produced at an increased
cost. To compensate for this greater
cost of the additional food, the price
of agricultural produce must rise. The
rise extending over the whole amount
of food produced, though the increased
expenses only apply to a part, there is
a greatly increased extra profit, which,
by competition, is transferred to the
landlord. Rent will rise, both in
quantity of produce and in cost ;
while wages, being supposed to be the
same in quantity, will be greater in
cost. The labourer obtaining the
same amount of necessaries, money
wages have risen ; and as the rise is
common to all branches of production,
the capitalist cannot indemnify him-
self by changing his employment, and
the loss must be borne by profits.

It appears, then, that the tendency
of an increase of capital and popula-
tion is to add to rent at the expense
of profits : though rent does not gain
all that profits lose, a part being ab-
sorbed in increased expenses of pro-
duction, that is, in hiring or feeding a

ON RENTS, PROFITS, ETC. -433

greater number of labourers to obtain
a given amount of agricultural pro-
duce. By profits, must of course be
understood the rate of profit ; for a
lower rate of profit on a larger capital
may yield a larger gross profit, con-
sidered absolutely, though a smaller
in proportion to the entire produce.

This tendency of profits to fall, is
from time to time counteracted by
improvements in production : whether
arising from increase of knowledge, or
from an increased use of the know-
ledge already possessed. This is the
third of the three elements, the effects
of which on the distribution of the
produce we undertook to investigate ;
and the investigation will be facili-
tated by supposing, as in the case of
the other two elements, that it ope-
rates, in the first instance, alone.

§ 4. Let us then suppose capital
and population stationary, and a sud-
den improvement made in the arts of
production ; by the invention of more
efficient machines, or less costly pro-
cesses, or by obtaining access to
cheaper commodities through foreign
trade.

The improvement may either be ia
some of the necessaries or indulgences
which enter into the habitual consump-
tion of the labouring class ; or it may be
applicable only to luxuries consumed
exclusively by richer people. Very
few, however, of the great industrial
improvements are altogether of this
last description. Agricultural im-
provements, except such as specially
relate to some of the rarer and more
peculiar products, act directly upon
the principal objects of the labourer's
expenditure. The steam-engine, and
every other invention which affords a
manageable power, are applicable to
all things, and of course to those con-
sumed by the labourer. Even the
power-loom and the spinning-jenny,
though applied to the most delicate
fabrics, are available no less for the
coarse cottons and woollens worn by
the labouring class. All improvements
in locomotion cheapen the transport
of necessaries as well as of luxuries,
Seldom is a new branch of trade opened.
F F

434

BOOR IV. CHAPTER III. § 4.

without, either directly or in some in-
direct way, causing some of the articles
which the mass of the people consume
to be either produced or imported at
smaller cost. It may safely be affirmed,
therefore, that improvements in pro-
duction generally tend to cheapen the
commodities on which the wages of
the labouring class are expended.

In so far as the commodities affected
by an improvement are those which
the labourers generally do not consume,
the improvement has no effect in alter-
ing the distribution of the produce.
Those particular commodities, indeed,
are cheapened ; being produced at less
cost, they fall in value and in price,
and all who consume them, whether
landlords, capitalists, or skilled and
privileged labourers, obtain increased
means of enjoyment. The rate of

E-ofits, however, is not raised. There
a larger gross profit, reckoned in
quantity of commodities. But the
capital also, if estimated in those com-
modities, has risen in value. The
profit is the same percentage on the
capital that it was before. The capi-
talists are not benefited as capitalists,
but as consumers. The landlords and
the privileged classes of labourers, if
they are consumers of the same com-
modities, share the same benefit.

The case is different with improve-
ments which diminish the cost of pro-
duction of the necessaries of life, or of
commodities which enter habitually
into the consumption of the great mass
of labourers. The play of the different
forces being here rather complex, it is
necessary to analyze it with some
ininuteness.

As formerly observed,* there are two
kinds of agricultural improvements.
Some consist in a mere saving of
labour, and enable a given quantity of
food to be produced at less cost, but
not on a smaller surface of land than
before. Others enable a given extent
of land to yield not only the same pro-
duce with less labour, but a greater
produce ; so that if no greater produce
is required, a part of the land already
under culture may be dispensed with.
AJS the part rejected will be the least
* Supra, p. 113.

productive portion, the market will
thenceforth be regulated by a better
description of land than what was pre-
viously the worst under cultivation.

To place the effect of the improve-
ment in a clear light, we must suppose
it to take place suddenly, so as to leavo
no time during its introduction, for any
increase of capital or of population.
Its first effect will be a fall of the value
ami price of agricultural produce.
This is a necessary consequence of
either kind of improvement, but espe-
cially of the last.

An improvement of the first kind,
not increasing the produce, does not
dispense with any portion of the land;
the margin of cultivation (as Dr.
Chalmers terms it) remains where it
was ; agriculture does not recede,
either in extent of cultivated land, or in
elaborateness of methods : and the
price continues to be regulated by the
same land, and by the same capital, as
before. But since that land or capital,
and all other land or capital which
produces food, now yields its produce
at smaller cost, the price of food will
fall proportionally. If one-tenth of the
expense of production has been saved,
the price of produce will fall one-tenth.

But suppose the improvement to be
of the second kind ; enabling the land
to produce, not only the same corn
with one- tenth less labour, but a tenth
more corn with the same labour. Here
the effect is still more decided. Culti-
vation can now be contracted, and the
market supplied from a smaller quan-
tity of land. Even if this smaller
surface of land were of the same ave-
rage quality as the larger surface, the
price would fall one-tenth, because the
same produce would be obtained with
a tenth less labour. But since the
portion of land abandoned will be the
least fertile portion, the price of pro-
duce will thenceforth be regulated by
a better quality of land than before
In addition, therefore, to the original
diminution of one-tenth in the cost of
production, there will be a further
diminution, corresponding with the re-
cession of the " margin" of agriculture
to land of greater fertility. There will
thus be a twofold fall of price.

INFLUENCE OF PROGRESS

Let us now examine the effect of the
improvements, thus suddenly made, on
the division of the produce ; and in the
first place, on rent. By the former of
the two kinds of improvement, rent
would be diminished. By the second,
it would he diminished still more.

Suppose that the demand for food
requires the cultivation of three quali-
lii-s of land, yielding, on an equal sur-
face, and at an equal expense, 100, 80,
and 60 hushelt of wheat. The price of
wheat will, on the average, be just
sufficient to enable the third quality to
be cultivated with the ordinary profit.
The first quality therefore will yield
forty and the second twenty bushels of
extra profit, constituting the rent of
the landlord. And first, let an im-
provement be made, which, without
enabling more corn to be grown, en-
ables the same corn to be grown with
one-fourth less labour. The price of
wheat will fall one-fourth, and 80
bushels will be sold for the price for
which 60 were sold before. But the
produce of the land which produces 60
bushels is still required, and the ex-
penses being as much reduced as the
price, that land can still be cultivated
with the ordinary profit. The first and
second qualities will therefore continue
to yield a surplus of 40 and 20 bushels,
and com rent will remain the same as
before. But com having fallen in price
one-fourth, the same corn rent is equi-
valent to a fourth less of money and of
all other commodities. Sj far, there-
fore, as the landlord expends his in-
come in manufactured or foreign pro-
ducts, he is one-fourth worse off than
before. His income as landlord is re-
duced to three-quarters of its amount :
it is only as a consumer of corn that he
is as well off.

If the improvement is of tha other
kind, rent will fall in a still greater
ratio. Suppose that the amount of
produce winch the market requires,
can be grown not only with a fourth
less labour, but on a fourth less land.
If all the land already in cultivation
continued to be cultivated, it would
yield a produce much larger than
necessary. Land, equivalent to a fourth
of the produce, must now bo aban-

ON RENTS, PROFITS, ETC. 43*

doned; and as the third quality yielded
exactly one-fourth, (being 60 out of
240,) that quality will go out of culti-
vation. The 240 bushels can now bo
grown on land of the first and second
qualities only; being, on the first, 100
bushels plus one-third, or 133 J bushels;
on the second, 80 bushels plus one-
third, or 106| bushels ; together, 240.
The second quality of land, instead of
the third, is now the lowest^ and regu-
lates the price. Instead of 60, it is
sufficient if 106| bushels repay the
capital with the ordinary profit. The
price of wheat will consequently fall,
not in the ratio of 60 to 80, as in the
other case, but in the ratio of 60 to
106|. Even this gives an insufficient
idea of the degree m which rent will be
aflbcted. The whole produce of the
second quality of land will now be re-
quired to repay the expenses of produc-
tion. That land, being the worst in
cultivation, will pay no rent. And the
first quality will only yield the diffe-
rence between 133J bushels and 106§,
being 26| bushels instead of 40. The
landlords collectively will have lost 33 ^
out of 60 bushels in corn rent alone,
while the value and price of what in
left will have been diminished in the
ratio of 60 to 106g.

It thus appears, that the interest of
the landlord is decidedly hostile to the
sudden and general introduction of
agricultural improvements. This as-
sertion has been called a paradox, and
made a ground for accusing its first
promulgator, Ricardo, of great intellec-
tual perverseness, to say nothing worse.
I cannot discern in what the paradox
consists ; and the obliquity of vision
seems to me to be on the side of his
assailants. The opinion is only made
to appear absurd by stating it unfairly-
If the assertion were that a landlord
is injured by the improvement of bis
estate, it would certainly be indefen-
sible ; but what is asserted is, that he
is injured by the improvement of the
estates of other people, although hit
own is included. Nobody doubts that
he would gain greatly by the improve-
ment if he could keep it to himself, and
unite the two benefits, of an increased
produce from his land, and a price as
FF 2

436

BOOK IV. CHAPTER III. § 4.

high as before. But if the increase of
produce took place simultaneously on all
lands, the price would not be as high
as before ; and there is nothing un-
reasonable in supposing that the land-
lords would be, not benefited, but in-
jured. It is admitted that whatever
permanently reduces the price of pro-
duce diminishes rent : and it is quite
in accordance with common notions to
suppose that if, by the increased pro-
ductiveness of land, less land were re-
quired for cultivation, its value, like
that of other articles for which the
demand had diminished, would fall.

I am quite willing to admit that
rents have not really been lowered by
the progress of agricultural improve-
ment ; but why ? Because improve-
ment has never in reality been sudden,
but always slow ; at no time much
outstripping, and often falling far short
of, the growth of capital and popula-
tion, which tends as much to raise rent,
as the other to lower it, and which is
enabled, as we shall presently see, to
raise it much higher by means of the
additional margin afforded by improve-
ments in agriculture. First, however,
we must examine in what manner the
sudden cheapening of agricultural pro-
duce would affect profits and wages.

In the beginning, money wages
would probably remain the same as
before, and the labourers would have
the full benefit of the cheapness. They
would be enabled to increase their
consumption either of food or of other
articles, and would receive the same
cost, and a greater quantity. So
far, profits would be unaffected. But
the permanent remuneration of the
labourers essentially depends on what
we have called their habitual stan-
dard ; the extent of the require-
ments which, as a class, they in-
sist on satisfying before they choose
to have children. If their tastes and
requirements receive a durable impress
from the sudden improvement in their
condition, the benefit to the class will
be permanent. But the same cause
which enables them to purchase greater
comforts and indulgences with the same
wages, would enable them to purchase
the same amount of comforts and in-

dulgences with lower wages ; and a
greater population may now exist,
without reducing the labourers below
the condition to which they are accus-
tomed. Hitherto, this and no other
has been the use which the labourers
have commonly made of any increase
of their means of living ; they have
treated it simply as convertible into
food for a greater number of children.
It is probable, therefore, that popula-
tion would be stimulated, and that
after the lapse of a generation the real
wages of labour would be no higher
than before the improvement : the re-
duction being partly brought about by
a fall of money wages, and partly
through the price of food, the cost of
which, from the demand occasioned
by the increase of population, would
be increased. To the extent to
which money wages fell, profits would
rise ; the capitalist obtaining a greater
quantity of equally efficient labour by
the same outlay of capital. We thus
see that a diminution of the cost of
living, whether arising from agricultu-
ral improvements or from the importa-
tion of foreign produce, if the habits
and requirements of the labourers are
not raised, usually lowers money wages
and rent, and raises the general rate of
profit.

What is true of improvements which
cheapen the production of food, is true
also of the substitution of a cheaper for
a more costly variety of it. The same
land yields to the same labour a much
greater quantity of human nutriment
in the form of maize or potatoes, than
in the form of wheat. If the labourers
were to give up bread, and feed only
on those cheaper products, taking as
their compensation not a greater quan-
tity of other consumable commodities,
but earlier marriages and larger fami-
lies, the cost of labour would be much
diminished, and if labour continued
equally efficient, profits would rise ;
while rent would be much lowered,
since food for the whole population
could be raised on half or a third part
of the land now sown with corn. At
the same time, it being evident that
land too barren to be cultivated for
wheat might be made in case of neeeo-

INFLUENCE OF PROGRESS ON RENTS, PROFITS, ETC. 43?

of these rival forces. If during any

Bity to yield potatoes sufficient to sup-
port the little labour necessary for
producing them, cultivation might ulti-
mately descend lower, and rent even-
tually rise higher, on a potato or maize
sy>trni, than on a corn system ; be-
cause the land would he capable of
feeding a much larger population before
reaching the limit of its powers.

If the improvement, which we sup-
pose to take place, is not in the pro-
duction of food, but of some manufac-
tured article consumed by the labouring
class, the effect on wages and profits
will at first be the same ; but the
effect on rent very different. It will
not be lowered ; it will even, if the ul-
timate effect of the improvement is an
increase of population, be raised : in
which last case profits will be lowered.
The reasons are too evident to require
statement.

§ 5. We have considered, on the
one hand, the manner in which the
distribution of the produce into rent,
profits, and wages, is affected by the
ordinary increase of population and
capital, and on the other, how it is
affected by improvements in produc-
tion, and more especially in agricul-
ture. We have found that the former
cause lowers profits, and raises rent
and the cost of labour : while the ten-
dency of agricultural improvements is
to diminish rent ; and all improve-
ments which cheapen any article of
the labourer's consumption, tend to
diminish the cost of labour, and to
raise profits. The tendency of-each
cause in its separate state being thus
ascertained, it is easy to determine the
tendency of the actual course of things,
in which the two movements are going
on simultaneously, capital and popu-
lation increasing with tolerable stea-
diness, while improvements in agri-
culture are made from time to time,
and the knowledge and practice of
improved methods become diffused
gradually through the community.

The habits and requirements of the
labouring classes being given (which
determine their real wages,) rent,
profits, and money wages at any given
time, are the result of the composition

period agricultural improvement ad-
vances faster than population, rent and
money wages during that period will
tend downward, and profits upward.
If population adsrances more rapidly
than agricultural improvement, either
the labourers will submit to a reduc-
tion in the quantity or quality of their
food, or if not, rent and money wages
will progressively rise, and profits will
fall.

Agricultural skill and knowledge are
of slow growth, and still slower diffu-
sion. Inventions and discoveries, too,
occur only occasionally, while the in-
crease of population and capital are
continuous agencies. It therefore
seldom happens that improvement,
even during a short time, has so much
the start of population and capital as
actually to lower rent, or raise the
rate of profits. There are many
countries in which the growth of
population and capital are not rapid,
but in these agricultural improvement
is less active still. Population almost
everywhere treads close on the heels of
agricultural improvement, and effaces
its effects as fast as they are produced.

The reason why agricultural im-
provement seldom lowers rent, is that
it seldom cheapens food, but only pre-
vents it from growing dearer ; <md
seldom, if ever, throws land out of
cultivation, but only enables worse and
worse land to be taken in for the sup-
ply of an increasing demand. What
is sometimes called the natural stato
of a country which is but half cul-
tivated, namely, that the land is
highly productive, and food obtained
in great abundance by little labour, is
only true of unoccupied countries colo-
nized by a civilized people. In the
United States the worst land in cul-
tivation is of a high quality (except
sometimes in the immediate vicinity
of markets or means of conveyance,
where a bad quality is compensated
by a good situation) ; and even if no
further improvements were made in
agriculture or locomotion, cultivation
would have many steps yet to descend,
before the increase of population and
capital would be brought to a stand;

188

BOOK IV.

out in Europe five hundred vears ago,
though so thinly peopled in compa-
rison to the present population, it is
probable that the worst land under the
plough was, from the rude state of
agriculture, quite as unproductive as
the worst land now cultivated ; and
that cultivation had approached as
near to the ultimate limit of profitable
tillage, in those times as in the pre-
sent. What the agricultural improve-
ments since made have really done is,
hy increasing the capacity of produc-
tion of land in general, to enable til-
lage to extend downwards to a much
worse natural quality of land than the
worst which at that time would have
admitted of cultivation by a capitalist
for profit ; thus rendering a much
greater increase of capital and popu-
lation possible, and removing always
a little and a little further off, the
barrier which restrains them ; popu-
lation meanwhile always pressing so
hard against the barrier, that there is
never any visible margin left for it to
seize, every inch of ground made
vacant for it by improvement being at
once filled up by its advancing columns.
Agricultural improvement may thus
be considered to be not so much a
counterforce conflicting with increase
of population, as a partial relaxation
of the bonds which confine that in-
crease.

The effects produced on the division
of the produce by an increase of pro-
duction, under the joint influence of
increase of population and capital and
improvements of agriculture, are very
different from those deduced from the
hypothetical cases previously discussed.
In particular, the effect on rent is
most materially different. We re-
marked that — while a great agricul-
tural improvement, made suddenly and
universally, would in the first instance
inevitably lower rent — such improve-
ments enable rent, in the progress of
society, to rise gradually to a much
higher limit than it could otherwise
attain, since they enable a much
lower quality of land to be ultimately
cultivated. But in the case we are
now supposing, which nearly cor-
responds to the usual course of things,

CHAPTER HI. § 5

this ultimate effect becomes the imma
diate effect. Suppose cultivation to
have reached, or almost reached, the
utmost limit permitted by the state of
the industrial arts, and rent, there-
fore, to have attained nearly the high-
est point to which it can be carried by
the progress of population and capital,
with the existing amount of skill and
knowledge. If a great agricultural
improvement were suddenly intro
duced, it might throw back rent for
a considerable space, leaving it to
regain its lost ground by the progress
of population and capital, and after-
wards to go on further. But, taking
place, as such improvement always
does, very gradually, it causes no re-
trograde movement of either rent or
cultivation ; it merely enables the one
to go on rising, and the other extend-
ing, long after they must otherwise
have stopped. It would do this even
without the necessity of resorting to
a worse quality of land ; simply by
enabling the lands already in cultiva-
tion to yield a greater produce, with
no increase of the proportional cost.
If by improvements of agriculture all
the lands in cultivation could be made,
even with double labour and capital,
to yield a double produce, (supposing
that in the meantime population in-
creased so as to require this double
quantity) all rents would be doubled.

To illustrate the point, let us revert
to the numerical example in a former
page. Three qualities of land yield
respectively 100, 80, and 60 bushels
to the same outlay on the same extent
of surface. If No. 1 could be made to
yield 200, No. 2, 160, and No. 3, 120
bushels, at only double the expense
and therefore without any increase of
the cost of production, and if the popu-
lation, having doubled, required aH
this increased quantity, the rent of
No. 1 would be 80 bushels instead of
40, and of No. 2, 40 instead of 20,
while the price and value per bushel
would be the same as before : so
that corn rent and money rent would
both bo doubled. I need not point
out the difference between this result,
and what we have shown would tak»
place if there were an improvemeil

TENDENCY OF PROFITS TO A MINIMUM.

439

in production without the accompa-
niment of an increased demand for
food.

Agricultural improvement, then, is
always ultimately, and in the manner
in which it generally takes place also
immediately, beneficial to the landlord.
We may add, that when it takes place
in that manner, it is beneficial to no
one else. When tho demand for pro-
duce fully keeps pace with the in-
creased capacity of production, food is
not cheapened ; the labourers are not,
even temporarily, benefited ; the cost
of labour is not diminished, nor profits
raised. There is a greater aggregate
production, a greater produce divided
among the labourers, and a larger gross
profit ; but thu wages being shared
among a larger population, and the
profit spread over a larger capital, no
labourer is better off, nor does any
capitalist derive from the same amount
of capital a larger income.

The result of this long investigation
may be summed up as follows. The
economical progress of a society con-
stituted of landlords, capitalists, and
labourers, tends to the progressive en-
richment of the landlord class ; while
the cost of the labourer's subsistence
tends on the whole to increase, and
profits to fall. Agricultural improve-
ments are a counteracting force to the
two last effects ; but the first, though
a case is conceivable in which it would
be temporarily checked, is ultimately
in a high degree promoted by those
improvements ; and the increase of

Eopulation tends to transfer all the
enefits derived from agricultural im-
provement to the landlords alone,
What other consequences, in addition
to these, or in modification of them,
arise from the industrial progress of a
society thus constituted, I shall en-
deavour to show in the succeeding
chaptei.

CHAPTER IV.

OF THE TENDENCY OP TBOFITS TO A MINIMUM.

§ 1. THE tendency of profits to fall
as society advances, which has been
brought to notice in the preceding
chapter, was early recognised by
writers on industry and commerce ;
but the laws which govern profits not
being then understood, the phenome-
non was ascribed to a wrong cause.
Adam Smith considered profits to be
determined by what he called the
competition of capital ; and concluded
that when capital increased, this com-
petition must likewise increase, and
profits must fall. It is not quite cer-
tain what sort of competition Adam
Smith had here in view. His words
in the chapter on Profits of Stock*
are, " When the stocks of many rich
merchants are turned into the same
trade, their mutual competition natu-
rally tends to lower its profits ; and
* Wealth of Xationi, book i. ch. 9.

when there is a like increase of stock
in all the different trades carried on in
the same society, the same competition
must produce the same effect in them
all." This passage would lead us to
infer that, in Adam Smith's opinion,
the manner in which the competition
of capital lowers profits is by lowering
prices ; that being usually the mode
in which an increased investment of
capital in any particular trade, lowers
the profits of that trade. But if this
was his meaning, he overlooked the
circumstance, that the fall of price,
which if confined to one commodity
really does lower the profits of the
producer, ceases to have that effect as
soon as it extends to all commodities ;
because, when all things have fallen,
nothing has really fallen, except nomi-
nally ; and even computed in money,
the expenses of every producer have

4-10

BOOK IV. CHAPTER IV. § 2

diminished as much as his returns.
Unless indeed labour he the one com-
modity which has not fallen in money
price, when all other things hare : if
BO, what has really taken place is a
rise of wages ; and it is that, aud not
the fall of prices, which Las lowered
the profits of capital. There is another
thing which escaped the notice of
Adam Smith ; that the supposed uni-
versal fall of prices, through increased
competition of capitals, is a thing
which cannot take place. Prices are
not determined by the competition of
the sellers only, but also by that of
the buyers ; by demand as well as
supply. The demand which affects
money prices consists of all the money
in the hands of the community des-
tined to be laid out in commodities ;
and as long as the proportion of this
to the commodities is not diminished,
there is no fall of general prices.
Now, howsoever capital may increase,
and give rise to an increased produc-
tion of commodities, a full share of the
capital will be drawn to the business
of producing or importing money, and
the quantity of money will be aug-
mented in an equal ratio with the
quantity of commodities. For if this
were not the case, and if money, there-
fore, were, as the theory supposes,
perpetually acquiring increased pur-
chasing power, those who produced or
imported it would obtain constantly
increasing profits ; and this could not
happen without attracting labour and
capital to that occupation from other
employments. If a general fall of
prices, and increased value of money,
were really to occur, it could only be
as a consequence of increased cost of
production, from the gradual exhaus-
tion of the mines.

It is not tenable, therefore, in theory,
that the increase of capital produces,
or tends to produce, a general decline
of money prices. Neither is it true,
that any general decline of prices,
as capital increased, has manifested
itself in fact. The only things ob-
served to fall in price with the progress
of society, are those in which there
have been improvements in production,
greater than have taken place in the

production of the precious metals ; as
for example, all spun and woven
fabrics. Other things again, instead
of falling, have risen in price, be-
cause their cost of production, com-
pared with that of gold and silver, has
increased. Among these are all kinds
of food, comparison being made with a
much earlier period of history. The
doctrine, therefore, that competition of
capital lowers profits by lowering
prices, is incorrect in fact, as well as
unsound in principle.

But it is not certain that Adam
Smith really held that doctrine ; for his
language on the subject is wavering
and unsteady, denoting the absence of
a definite and well-digested opinion.
Occasionally he seems to think that
the mode in which the competition of
capital lowers profits, is by raising
wages. And when speaking of the
rate of profit in new colonies, he seems
on the very verge of grasping the com-
plete theory of the subject. "As the
colony increases, the profits of stock
gradually diminish. When the most
fertile and best situated lands have
been all occupied, less profit can be
made by the cultivation of what is in-
ferior both in soil and situation." Had
Adam Smith meditated longer on
the subject, and systematized his
view of it by harmonizing with each
other the various glimpses which he
caught of it from different points, he
would have perceived that this last
is the true cause of the fall of profits
usually consequent upon increase ot
capital.

§ 2. Mr. Wakefield, in his Com-
mentary on Adam Smith, and his im-
portant writings on Colonization, takes
a much clearer view of the subject,
and arrives, through a substantially
correct series of deductions, at practi-
cal conclusions which appear to me
just and important ; but he is not
equally happy in incorporating his
valuable speculations with the results
of previous thought, and reconciling
them with other truths. Some of the
theories of Dr. Chalmers, in his chapter
" On the Increase and Limits of Capi-
tal," and the two chapters which follow

TENDENCY OF PROFITS TO A MINIMUM.

441

it, coincide in their tendency and
spirit with those of Mr. Wakefield ;
but Dr. Chalmers' ideas, though de-
livered, ns is his custom, with a most
attractive semblance of clearness, are
rr-allv on this subject much more con-
fos i ilian even those of Adam Smith,
and more decidedly infected with the
often refuted notion that the compe-
tition of capital lowers general prices ;
the subject of Money apparently not
having been included among the parts
of Political Economy which this acute
and vigorous writer had carefully
studied.

Mr. Wakefield's explanation of the
fall of profits is briefly this. Production
is limited not solely by the quantity of
capital and of labour, but also by the
extent of the "field of employment."
The field of employment for capital is
twofold ; the land of the country, and
the capacity of foreign markets to take
its manufactured commodities. On a
limited extent of land, only a limited
quantity of capital can find employment
at a profit. As the quantity of capital
approaches this limit, profit falls ; when
the limit is attained, profit is annihi-
lated ; and can only be restored through
an extension of the field of employment,
either by the acquisition of fertile land,
or by opening new markets in foreign
countries, from which food and ma-
terials can be purchased with the
products of domestic capital. These
propositions are in my opinion sub-
stantially true ; and, even to the phra-
seology in which they are expressed,
considered as adapted to popular and
practical rather than scientific uses, I
nave nothing to object. The error which
seems to me imputable to Mr. Wake-
field is that of supposing his doctrines
to be in contradiction to the principles
of the best school of preceding political
economists, instead of being, as they
really are, corollaries from those prin-
ciples ; though corollaries which, per-
haps, would not always have been
admitted by those political economists
themselves.

The most scientific treatment of the
Bubject which I have met with, is in an
essay on the effects of Machinery, pub-
lished in the Westminster Review for

January 1826, by Mr. William Ellis ;*
which was doubtless unknown to Mr,
Wakefield, but which had preceded
him, though by a different path, in
several of his leading conclusions. This
essay excited little notice, partly from
being published anonymously in a pe-
riodical, and partly because it was
much in advance of the state of political
economy at the time. In Mr. Ellis's
view of the subject, the questions and
difficulties raised by Mr. Wakefield's
speculations and by those of Dr.
Chalmers, find a solution consistent
with the principles of political economy
laid down in the present treatise.

§ 3. There is at every time and place
some particular rate of profit, which is
the lowest that will induce the people
of that country and time to accumulate
savings, and to employ those savings
productively. This minimum rate ot
profit varies according to circum-
stances. It depends on two elements.
One is, the strength of the effective
desire of accumulation ; the compara-
tive estimate made by the people of
that place and era, of future interests
when weighed against present. This
element chiefly affects the inclination to
save. The other element, which affects
not so much the willingness to save as
the disposition to employ savings pro-
ductively, is the degree of security of
capital engaged in industrial opera-
tions. A state of general insecurity,
no doubt affects also the disposition to
save. A hoard may be a source of ad-
ditional danger to its reputed possessor.
But as it may also be a powerful means
of averting dangers, the effects in this
respect may perhaps be looked upon as
balanced. But in employing any funds
which a person may possess as capital
on his own account, or in lending it
to others to be so employed, there is
always some additional risk, over and
above that incurred by keeping it idlo
in his own custody. This extra ri.-k is
great in proportion as the general state

* Now so much better known through Ills
apostolic exertions, by pen, purse, and per-
son, for the improvement of popular educa-
tion, and especially for the introduction into
it of the elements of practical Political
Economy.

44*

BOOK IV. CHAPTER IV. § 3.

of society is insecure : it may be equi-
valent to twenty, thirty, or fifty per
cent, or to no more than one or two ;
something, however, it must always
be : and for this, the expectation of
profit must be sufficient to compensate.
There would be adequate motives
for a certain amount of saving, even
if capital yielded no profit. There
would be an inducement to lay by
in good times a provision for bad ;
to reserve something for sickness and
infirmity, or as a means of leisure
and independence in the latter part of
life, or a help to children in the outset
of it. Savings, however, which have
only these ends in view, have not much
tendency to increase the amount of ca-
pital permanently in existence. These
motives only prompt persons to save at
one period of life what they purpose to
consume at another, or what will be
consumed by their children before they
can completely provide for themselves.
The savings by which an addition is
made to the national capital, usually
emanate from the desire of persons to
improve what is termed their condition
in life, or to make a provision for chil-
dren or others, independent of their
exertions. Now, to the strength of these
inclinations it makes a very material
difference how much of the desired ob-
ject can be effected by a given amount
and duration of self-denial ; which again
depends on the rate of profit. And there
is in every country some rate of profit,
below which persons in general will not
find sufficient motive to save for the mere
purpose of growing richer, or of leaving
others better off than themselves. Any
accumulation, therefore, by which the
general capital is increased, requires as
its necessary condition a certain rate
of profit : a rate which an average per-
son will deem to be an equivalent for
abstinence, with the addition of a suffi-
cient insurance against risk. There
are always some persons in whom the
effective desire of accumulation is above
the average, and to whom less than this
rate of profit is a sufficient inducement
to save ; but these merely step into the
place of others whose taste for expense
and indulgence is beyond the average,
and who, instead of saving, perhaps

even dissipate what they havo re-
ceived.

I have already observed that this
minimum rate of profit, less than which
is not consistent with the further in-
crease of capital, is lower in some states
of society than in others ; and I may
add, that the kind of social progress
characteristic of our present civilixa-
tion, tends to diminish it. In the lir^t
place, one of the acknowledged effects
of that progress is an increase of gene-
ral security. Destruction by wars, ainT
spoliation by private or public violence,
are less and less to be apprehended;
and the improvements which may be
looked for in education and in the ad-
ministration of justice, or, in their
default, increased regard for opinion,
afford a growing protection against
fraud and reckless mismanagement.
The risks attending the investment of
savings in productive employment, re-
quire therefore a smaller rate of profit
to compensate for them than was re-
quired a century ago, and will here-
after require less than at present. In
the second place, it is also one of the
consequences of civilization that man-
kind become less the slaves of the
moment, and more habituated to carry
their desires and purposes forward into
a distant future. This increase of pro-
vidence is a natural result of the in-
creased assurance with which futurity
can be looked forward to; and is, be-
sides, favoured by most of the influ-
ences which an industrial life exercises
over the passions and inclinations of
human nature. In proportion as life
has fewer vicissitudes, as habits become
more fixed, and great prizes are less
and less to be hoped for by any other
means than long perseverance, man-
kind become more willing to sacrifice
present indulgence for future objects.
This increased capacity of forethought
and self-control may assuredly find
other things to exercise itself upon
than increase of riches, and some con-
siderations connected with this topio
will shortly be touched upon. Tho
present kind of social progress, how-
ever, decidedly tends, though not per-
haps to increase the desire of accumu-
lation, yet to weaken the obstacles to

TENDENCY OF PROFITS TO A MINIMUM.

443

it, and to diminish the amount of profit
which people absolutely require as an
inducement to save and accumulate.
For these two reasons, diminution of
risk and increase of providence, a profit
fir interest of three or four per cent is
as sufficient a motive to the increase of
capital in England at the present day,
as thirty or forty per cent in the Bur-
mese Empire, or in England at the
time of King. John. In Holland during
the List century a return of two pel-
cent, on government security, was con-
Mstt-nt with an undimiuished, if not
\viih an increasing capital. J)ut though
the minimum rate of profit is thus liable
to vary, and though to specify exactly
what it is would at any given time be
impossible, such a minimum always
exists; and whether it be high or low,
when once it is reached, no further in-
crease of capital can for the present
take place. The country has then
attained what is known to political
economists under the name of the sta-
tionary state.

§ 4. We now arrive at the funda-
mental proposition which this chapter
is intended to inculcate. When a coun-
try has long possessed a large produc-
tion, and a large net income to make
savings from, and when, therefore, the
means have long existed of making a
great annual addition to capital ; (the
country not having, like America, a
large reserve of fertile land still un-
used ;) it is one of the characteristics
of such a country, that the rate of
profit is habitually within, as it were,
a hand's breadth of the minimum, and
the country therefore on the very verge
of the stationary state. By this I do
not mean that this state is likely, in
any of the great countries of Europe,
to be soon actually reached, or that
capital docs not still yield a profit con-
siderably greater than what is barely
sufficient to induce the people of those
countries to save and accumulate. My
meaning is, that it would require but
a short time to reduce profits to the
minimum, if capital continued to in-
.t its present rate, and no cir-
cumstances having a tendency to raise
the rate of profit occurred in the mean-

time. The expansion of capital •would
soon reach its ultimate boundary, if the
boundary itself did not continually open
and leave more space.

In England, the ordinary rate of
interest on government securities, in
which the risk is next to nothing, may
be estimated at a little more than three
per cent : in all other investments,
therefore, the interest or profit calcu-
lated upon (exclusively of what -is pro-
perly a remuneration for talent or ex-
ertion) must be as much more than
this amount, as is equivalent to the
degree of risk to which the capital is
thought to be exposed. Let us suppose
that in England even so small a net
profit as one per cent, exclusive of in-
surance against risk, would constitute
a sufficient inducement to save, but
that less than this would not be a suffi-
cient inducement. I now say, that the
mere continuance of the present annual
increase of capital, if no circumstance
occurred to counteract its effect, would
suffice in a small number of years to
reduce the rate of net profit to one per
cent.

To fulfil the conditions of the hypo-
thesis, we must suppose an entire ces-
sation of the exportation of capital for
foreign investment. No more capital
sent abroad for railways, or loans ; no
more emigrants taking capital with
them, to the colonies, or to other coun-
tries; no fresh advances made, or
credits given, by bankers or merchants
to their foreign correspondents. We
must also assume that there are no
fresh loans for unproductive expendi-
ture by the government, or on mort-
gage, or otherwise ; and none of the
waste of capital which now takes place
by the failure of undertakings, which
people are tempted to engage in by
the hope of a better income than can
be obtained in safe paths at the present
habitually low rate of profit. We must
suppose the entire savings of the com-
munity to be annually invested in
really productive employment within
the country itself; and no new channels
opened by industrial inventions, or by
a more extensive substitution of the
best known processes for inferior ones.

Few persons would hesitate to say

444

BOOK IV. CHAPTER IV. § 5,

that tlicre would be great difficulty in
limling remunerative employment every
year ibr so much new capital, and most
would conclude that there woull be
what used to be termed a general glut ;
that commodities would be produced, and
remain unsold, or be sold only at a loss.
But the full examination which we have
already given to this question,* has
shown that this is not the mode in
which the inconvenience would be ex-
perienced. The difficulty would not
consist in any want of a market. If
the new capital were duly shared
among many varieties of employment,
it would raise up a demand for its own
produce, and there would be no cause
why any part of that produce should
remain longer on hand than formerly.
What would really be, not merely diffi-
cult, but impossible, would be to em-
ploy this capital without submitting to
a rapid reduction of the rate of profit.

As capital increased, population
either would also increase, or it would
not. If it did not, wages would rise,
and a greater capital would be distri-
buted in wages among the same num-
ber of labourers. There being no more
labour than before, and no improve-
ments to render the labour more effi-
cient, there would not be any increase
of the produce ; and as the capital,
however largely increased, would only
obtain the same gross return, the whole
savings of each year would be exactly
so much subtracted from the profits of
the next and of every following year.
It is hardly necessary to say that in
such circumstances profits would very
soon fall to the point at which further
increase of capital would cease. An
augmentation of capital, much more
rapid than that of population, must
soon reach its extreme limit, unless
accompanied by increased efficiency of
labour (through inventions and disco-
veries, or improved mental and physical
education), or unless some of the idle
people, or of the unproductive labourers,
became productive.

If population did increase with the
increase of capital, and in proportion to
it,_the fall of profits wmild still be in-
evitable. Increased population implies
• Book iii. ch. 14.

increased demand for agricultural pro-
duce. In the absence of industrial im-
provements, this demand can only be
supplied at an increased cost of produc-
tion, either by cultivating worse land,
or by a more elaborate and costly cul-
tivation of the land already under til-
lage. The cost of the labourer's sub-
sistence is therefore increased ; and
unless the labourer submits to a deteri-
oration of his condition, profits must fall.
In an old country like England, if, in
addition to supposing all improvement
in domestic agriculture suspended, we
suppose that there is no increased pro-
duction in foreign countries for the
English market, the fall of profits would
be very rapid. If both these avenues
to an increased supply of food were
closed, and population continued to in-
crease, as it is said to do, at the rate of
a thousand a day, all waste land which
admits of cultivation in the existing
state of knowledge would soon be culti-
vated, and the cost of production and
price of food would be so increased,
that if the labourers received the in-
creased money wages necessary to com-
pensate for their increased expenses,
profits would very soon reach the mini-
mum. The fall of profits would be re-
tarded if money wages did not rise, or
rose in a less degree ; but the margin
which can be gained by a deterioration
of the labourers' condition is a very nar-
row one : in general they cannot bear
much reduction ; when they can, they
have also a higher standard of neces-
sary requirements, and will not. On
the whole, therefore, we may assume
that in such a country as England, if
the present annual amount of savings
were to continue, without any of the
counteracting circumstances which now
keep in check the natural influence of
those savings in reducing profit, the
rate of profit would speedily attain the
minimum, and all further accumula-
tion of capital would for the present
cease.

§ 5. What, then, are these counter-
acting circumstances, which, in the
existing state of things, maintain a
tolerably equal struggle against the
downward tendency of profits, and pre

TENDENCY OF PROFITS TO A MINIMUM.

445

Vent the great annual savings which
take place in this country, from de-
pressing the rate of profit much nearer
tothat lowest point to which it is always
tending, and which, left to itself, it
would so promptly attain ? The re-
sisting agencies are of several kinds.

First among them, we may notice
one which is so simple and so conspi-
cuous, that some political economists,
especially M. de Sismondi and Dr.
Chalmers, have attended to it almost
to the exclusion of all others. This is,
the waste of capital in periods of over-
trading and rash speculation, and in
the commercial revulsions by which
such times are always followed. Tt is
true that a great part of what is lost
at such periods is not destroyed, but
merely transferred, like a gambler's
losses, to more successful speculators.
But even of these mere transfers, a
large portion 13 always to foreigners,
by the hasty purchase of unusual
quantities of foreign goods at advanced
prices. And much also is absolutely
•wasted. Mines are opened, railways
or bridges made, and many other works
of uncertain profit commenced, and in
these enterprises much capital is sunk
which yields either no return, or none
adequate to the outlay. Factories are
built and machinery erected beyond
what the market requires, or can keep
in employment. Even if they are kept
in employment, the capital is no less
sunk ; it has been converted from cir-
culating into fixed capital, and has
ceased to have any influence on wages
or profits. Besides this, there is a
great unproductive consumption of ca-
pital, during the stagnation which fol-
lows a period of general over-trading.
Establishments are shut up, or kept
working without any profit, hands are
discharged, and numbers of persons in
all ranks, being deprived of their in-
come, and thrown for support on their
savings, find themselves, after the
crisis has passed away, in a condition
of more or less impoverishment. Such
are the effects of a commercial revul-
sion : and that such revulsions are al-
most periodical, is a consequence of the
very tendency of profits which we are
considering. By the time a few ycarc

have passed over without a crisis, so
much additional capital has been ac-
cumulated, that it is no longer possible
to invest it at the accustomed profit :
all public securities rise to a high price,
the rate of interest on the best mer-
cantile security falls very low, and the
complaint is general among persons in
business that no money is to be made.
Does not this demonstrate how speedily
profit would be at the minimum, and
the stationary condition of capital
would be attained, if these accumula-
tions went on without any counteract-
ing principle ? But the diminished
scale of all safe gains, inclines persons
to give a ready ear to any projects
which hold out, though at the risk of
loss, the hope of a higher rate of
profit ; and speculations ensue, which,
with the subsequent revulsions, de-
stroy, or transfer to foreigners, a con-
siderable amount of capital, produce a
temporary rise of interest and profit,
make room for fresh accumulations,
and the same round is recommenced.

This, doubtless, is one considerable
cause which arrests profits in their
descent to the minimum, by sweeping
away from time to time a part of the
accumulated mass by which they are
forced down. But this is not, as might
be inferred from the language of some
writers, the principal cause. If it
were, the capital of the country would
not increase ; but in England it does
increase greatly and rapidly. This is
shown by the increasing productiveness
of almost all taxes, by the continual
growth of all the signs of national
wealth, and by the rapid increase of
population, while the condition of the
labourers is certainly not decb'ning, but
on the whole improving. These things
prove that each commercial revulsion,
however disastrous, is very far from de-
stroying all the capital which has been
added to the accumulations of the
country since the last revulsion pre-
ceding it, and that, invariably, room is
either found or made for the profitable
employment of a perpetually increasing
capital, consistently with not forcing
down profits to a lower rate.

| 6. This brings us to the second of

446

BOOK IV. CHAPTER IV. § 7.

the counter-agencies, namely, improve-
ments in production. These evidently
have the effect of extending what Mr.
Wakefield terms the field of employ-
ment, that is, they enable a greater
amount of capital to be accumulated
and employed without depressing the
rate of profit : provided always that they
do not raise, to a proportional extent,
the habits and requirements of the la-
bourer. If the labouring class gain
the full advantage of the increased
cheapness, in other words, if money
wages do not fall, profits are not raised,
nor their fall retarded. But if the
labourers people up to the improve-
ment in their condition, and so relapse
to their previous state, profits will rise.
All inventions which cheapen any of
the things consumed by the labourers,
unless their requirements are raised in
an equivalent degree, in time lower
money wages : and by doing so, enable
a greater capital to be accumulated
and employed, before profits fall back
to what they were previously.

Improvements which only affect
things consumed exclusively by the
richer classes, do not operate precisely
in the same manner. The cheapening
of lace or velvet has no effect in dimi-
nishing the cost of labour ; and no
mode can be pointed out in which it
can raise the rate of profit, so as to
make room for a larger capital before
the minimum is attained. It, however,
produces an effect which is virtually
equivalent ; it lowers, or tends to
lower, the minimum itself. In the first
place, increased cheapness of articles
of consumption promotes the inclina-
tion to save, by affording to all con-
sumers a surplus which they may lay
by, consistently with their accustomed
manner of living; and unless they
were previously suffering actual hard-
ships, it will require little self-denial
to save some part at least of this sur-
plus. In the next place, whatever
enables people to live equally well on
a smaller income, inclines them to lay
I>y capital for a lower rate of profit.
If people can live on an independence
«f 500Z. a year in the same manner as
they formerly could on one of 1000Z.,
lome persons will be induced to save

in hopes of the one, who wouW have
been deterred by the more i smote
prospect of the other. All improve-
ments, therefore, in the production of
almost any commodity, tend in some
degree to widen the interval which hat
to be passed before arriving at the
stationaiy state : but this effect belongs
in a much greater degree to the im-
provements which affect the articles
consumed by the labourer, since these
conduce to it in two ways ; they induce
people to accumulate for a- lower profit,
and they also raise tho rate of profit
itself.

§ 7. Equivalent in effect to improve-
ments in production, is the acquisition
of any new power of obtaining cheap
commodities from foreign countries. If
necessaries are cheapened, whether
they are so by improvements at home
or importation from abroad, is exactly
tho same thing to wages and profits.
Unless the labourer obtains, and by an
improvement of his habitual standard,
keeps, the whole benefit, the cost of
labour is lowered, and the rate of profit
raised. As long as food can continue
to be imported for an increasing popu-
lation without any diminution of cheap-
ness, so long the declension of profits
through the increase of population and
capital is arrested, and accumulation
may go on without making the rate of
profit draw nearer to the minimum.
And on this ground it is believed by
some, that the repeal of the corn laws
has opened to this country a long era
of rapid increase of capital with an
undiminished rate of profit.

Before inquiring whether this expec-
tation is reasonable, one remark must
be made, which is much at variance
with commonly received notions. Fo-
reign trade does not necessarily increase
the field of employment for capital. It
is not the mere opening of a market
for a country's productions, that tends
to raise the rate of profits. If nothing
were obtained in exchange for those
productions but the luxuries of the rich,
the expenses of no capitalist would be
diminished ; profits would not be at all
raised, nor room made for tho accumu-
lation of move capital without sub*

TENDENCY OP PROFITS TO A MINIMUM.

niitting to a reduction of profits : and
if tht? attainment of tho stationary
state were at all retarded, it would
only be because the diminished cost at
which a certain degree of luxury could
be enjoyed, might induce people, in
that prospect, to make fresh savings
for a lower profit than they formerly
were willing to do. When foreign
trade makes room for more capital at
the same profit, it is by enabling the
necessaries of life, or the habitual ar-
ticles of the labourer's consumption, to
bo obtained at smaller cost. It may
do this in two ways ; by the importa-
tion either of those commodities them-
selves, or of the means and appliances
for producing them. Cheap iron has,
in a certain measure, the same effect
on profits and the cost of labour as
cheap corn, because cheap iron makes
cheap tools for agriculture and cheap
machinery for clothing. But a foreign
trade which neither directly, nor by
any indirect consequence, increases
the cheapness of anything consumed
by the labourers, does not, any mere
than an invention or discovery in the
like case, tend to raise profits or retard
their fall ; it merely substitutes the
production of goods for foreign markets,
in tho room of the home production of
luxuries, leaving the employment for
capital neither greater nor less than
before. It is true, that there is scarcely
any export trade which, in a country
that already imports necessaries or ma-
terials, comes within these conditions :
for every increase of exports enables
the country to obtain all its imports on
cheaper terms than before.

A country which, as is now the case
with England, admits food of all kinds,
and all necessaries and the materials
of necessaries, to be freely imported
from all parts of the world, no longer
depends on the fertility of her own soil
to keep up her rate of profits, but on the
soil of the whole world. It remains
to consider how far this resource can
be counted upon for making head
during a very long period against the
tendency of profits to decline as capital
increases.

It must, of course, be supposed that
with the increase of capital, popula-

tion also increases ; for if it did not,
the consequent rise of wages would
bring down profits, in spite of any
rli.>ii|>u"s3 of food. Suppose then that
the population of Great Britain goes
on increasing at its present rate, and
demands every year a supply of imported
food considerably beyond that of the
year preceding. This annual increase
in the food demanded from the export-
ing countries, can only be obtained
either by great improvements in their
agriculture, or by the application of a
great additional capital to the growth
of food. The former is likely to be a very
slow process, from the rudeness and
ignorance of the agricultural classes in
the food-exporting conn tries of Europe,
while the British colonies and the
United States are already in possession
of most of the improvements yet made,
so far as suitable to their circumstances.
There remains as a resource, the ex-
tension of cultivation. And on this it
is to be remarked, that the capital by
which any such extension can take
place, is mostly still to be created. In
Poland, Russia, Hungary, Spain, the
increase of capital is extremely slow.
In America it is rapid, but not more
rapid than the population. The prin-
cipal fund at present available for sup-
plying this country with a yearly in-
creasing importation of food, is that
portion of the annual savings of
America which has heretofore been
applied to increasing the manufacturing
establishments of the United States,
and which free trade in corn may pos-
sibly divert from that purpose to grow-
ing food for our market. This limited
source of supply, unless great improve-
ments take place in agriculture, cannot
be expected to keep pace with tho
growing demand of so rapidly increas-
ing a population as that of Great Bri-
tain ; and if our population and capital
continue to increase with their present
rapidity, the only mode in which food
can continue to be supplied cheaply to
the one, is by sending the other abroad
to produce it.

§ 8. This brings us to the last of the
counter-forces which check the down-
ward tendency of profits in a ccuutsj

448

BOOK IV. CHAPTER V. § 1.

whose capital increases faster than
that of its neighbours, and whose pro-
fits are therefore nearer to the mi-
nimum. This is, the perpetual over-
flow of capital into colonies or foreign
countries, to seek higher profits than
can be obtained at home. I believe
this to have been for many years one
of the principal causes by which the
decline of profits in England has been
arrested. It has a twofold operation.
In the first place, it does what a fire,
or an inundation, or a commercial crisis
would have done : it carries off a part
of the increase of capital from which
the reduction of profits proceeds. Se-
condly, the capital so carried off is not
lost, but is chiefly employed either in
founding colonies, which become large
exporters of cheap agricultural produce,
or in extending and perhaps improv-
ing the agriculture of older commu-
nities. It is to the emigration of En-
glish capital, that we have chiefly to
look for keeping up a supply of cheap
food and cheap materials of clothing,
proportional to the increase of our
population : thus enabling an increas-
ing capital to find employment in the
country, without reduction of profit, in
producing manufactured articles with
which to pay for this supply of raw
produce. Thus, the exportation of
capital is an agent of great efficacy in
extending the field of employment for
that which remains : and it may be

said truly that, up to a certain point,
the more capital we send away, the
more we shall possess and be able to
retain at home.

In countries which are further ad-
vanced in industry and population, and
have therefore a lower rate of profit,
than others, there is always, long
before the actual minimum is reached,
a practical minimum, viz. when profits
have fallen so much below what they
are elsewhere, that, were they to fall
lower, all further accumulations would
go abroad. In the present state of
the industry of the world, when there
is occasion, in any rich and improving
country, to take the minimum of profits
at all into consideration for practical
purposes, it is only this practical mi-
nimum that needs be considered. As
long as there are old countries where
capital increases very rapidly, and new
countries where profit is still high,
profits in the old countries will not sink
to the rate which would put a stop to
accumulation ; the fall is stopped at the
point which sends capital abroad. It
is only, however, by improvements in
production, and even in the production
of things consumed by labourers, that
the capital of a country like England
is prevented from speedily reaching
that degree of lowness of profit, which
would cause all further savings to he
sent to find employment in the colonies,
or in foreign countries.

CHAPTER V.

CONSEQUENCES OP THE TENDENCY OP PROFITS TO A MINIMUM.

§ 1 . THE theory of the effect of ac-
cumulation on profits, laid down in the
preceding chapter, materially alters
many of the practical conclusions which
might otherwise be supposed to follow
from the general principles of Political
Economy, and which were, indeed, long
admitted as true by the highest autho-
rities on the subject.

It must greatly abate, or rather, al-
together destroy, in countries where

profits are low, the immense impor-
tance which used to be attached by
political economists to the effects which
an event or a measure of government
might have in adding to or subtracting
from the capital of the country. We
have now seen that the lowness of pro-
fits is a proof that the spirit of accu-
mulation is so active, and that the
increase of capital has proceeded at so
rapid a rate, as to outstrip the two

TENDENCY OF PROFITS TO A MINIMUM.

449

counter-agencies, improvements in pro- '
duction, and increased supply of cheap
necessaries from abroad : and that un-
less a considerable portion of the annual
increase of capital were either periodi-
cally destroyed, or exported for foreign
investment, the country would speedily
attain the point at which further accu-
mulation would cease, or at least spon-
taneously slacken, so as no longer to
overpass the march of invention in the
arts which produce the necessaries of
life. In such a state of things as this,
a sudden addition to the capital of the
country, unaccompanied by any increase
of productive power, would be but of
transitory duration ; since, by depress-
ing profits and interest, it would either
diminish by a corresponding amount
the savings which would bo made from
income in the year or two following, or
it would cause an equivalent amount
to be sent abroad, or to be wasted in
rash speculations. Neither, on the
other hand, would a sudden abstraction
of capital, unless of inordinate amount,
have any real effect in impoverishing
the country. After a few months or
years, there would exist in the coun-
try just as much capital as if none had
been taken away. The abstraction, by
raising profits and interest, would give
a fresh stimulus to the accumulative
principle, which would speedily fill up
the vacuum. Probably, indeed, the
only effect that would ensue, would be
that for some time afterwards less capi-
tal would be exported, and less thrown
away in hazardous speculation.

In the first place, then, this view of
things greatly weakens, in a wealthy
and industrious country, the force of
the economical argument against tho
expenditure of public money for really
valuable, even though industriously un-
productive, purposes. If for any great
object of justice or philanthropic policy,
such as the industrial regeneration of
Ireland, or a comprehensive measure
of colonization or of public education,
it were proposed to raise a large sum
by way of loan, politicians need not
demur to the abstraction of so much
capital, as tending to dry up the per-
manent sources of the country's wealth,
Bud diminish, the Awd 'which supplies
Mb

the subsistence of the labouring popu-
lation. The utmost expense which
could be requisite for any of these pur-
poses, would not in all probability de-
Srive one labourer of employment, or
iminish the next year's production by
one ell of cloth or one bushel of grain.
In poor countries, the capital of tho
country requires the legislator's sedu-
lous care ; he is bound to bo most
cautious of encroaching upon it, and
should favour to the utmost its accu-
mulation at home, and its introduction
from abroad. But in rich, populous,
and highly cultivated countries, it is
not capital which is the deficient ele-
ment, but fertile land ; and what the
legislator should desire and promote, is
not a greater aggregate saving, but a
greater return to savings, either by im-
proved cultivation, or by access to the
produce of more fertile lands in other
parts of the globe. In such countries,
the government may take any moderato
portion of the capital of the country
and expend it as revenue, without
affecting the national wealth : the whole
being either drawn from that portion
of the annual savings which would
otherwise be sent abroad, or being sub-
tracted from the unproductive expendi-
ture of individuals for the next year or
two, since every million spent makes
room for another million to be saved
before reaching the overflowing point.
"When the object in view is worth the
sacrifice of such an amount of the ex-
penditure that furnishes tho daily en-
joyments of the people, the only well-
grounded economical objection against
taking the necessary funds directly
from capital, consists of the inconve-
niences attending tho process of rais-
ing a revenue by taxation, to pay the
interest of a debt.

The same considerations enable us
to throw aside as unworthy of regard,
one of the common arguments against
emigration as a means of relief for the
labouring class. Emigration, it is said,
can do no good to the labourers, if, in
order to defray the cost, as much musf
be taken away from the capital of th<
country as from its population. That
anything like this proportion could re-
quire to b§ abstracted from capital fur

450

BOOK IV. CHAPTEU V. § 4.

the purpose even of the most extensive
colonization, few, I should think, would
now assert: but even on that untenable
supposition, it is an error to suppose
that no benefit would be conferred on
the labouring class. If one-tenth of
the labouring people of England were
transferred to the colonies, and along
with them one-tenth of the circulating
capital of the country, either wages, or
profits, or both, would be greatly bene-
fited, by the diminished pressure of
capital and population upon the ferti-
lity of the land. There would be a
reduced demand for food : the inferior
arable lands would be thrown out of
cultivation, and would become pasture ;
the superior would be cultivated less
highly, but with a greater proportional
return ; food would be lowered in price,
and though money wages would not
rise, every labourer would be consider-
ably improved in circumstances ; an
improvement which, if no increased
stimulus to population and fall of wages
ensued, would be permanent ; while if
there did, profits would rise, and accu-
mulation start forward so as to repair
the loss of capital. The landlords alone
would sustain some loss of income ; and
even they, only if colonization went to
the length of actually diminishing capi-
tal and population, but not if it merely
carried off the annual increase.

§ 2. From the same principles we
are now able to arrive at a final con-
clusion respecting the effects which
machinery, and generally the sinking
of capital for a productive purpose, pro-
duce upon the immediate and ultimate
interests of the labouring class. The
characteristic property of this class of
Vidustrial improvements is the conver-
sion ef circulating capital into fixed :
and it was shown in the First Book,*
that in a country where capital accu-
mulates slowly, the introduction of ma-
chinery, permanent improvements of
land, and thelike, might be, for the time,
extremely injurious ; since the capital
BO employed might be directly taken
from the wages fund, the subsistence
of the people and the employment for
Jabour curtailed, and the gross annual
* Supra, p. 69.

produce of the country actually dimi-
nished. But in a country of great
annual savings and low profits, no such
effects need be apprehended. Since
even the emigration of capital, or its
unproductive expenditure, or its abso-
lute waste, do not in such a country,
if confined within any moderate bounds,
at all diminish the aggregate amount
of the wages fund — still less can the
ineiC conversion of a like sum into fixed
capital, which continues to be produc-
tive, have that effect. It merely draws
off at one orifice what was already flow-
ing out at another; or if not, the greatei
vacant space left in the reservoir does
but cause a greater quantity to flow in.
Accordingly, in spite of the mischievous
derangements of the money-market
which have been occasioned by the
sinking of great sums in railways, I was
never able to agree with those who
apprehended mischief, from this source,
to the productive resources of the coun-
try. Not on the absurd ground (which
to any one acquainted with the ele-
ments of the subject needs no confuta-
tion) that railway expenditure is a mere
transfer of capital from hand to hand,
by which nothing is lost or destroyed.
This is true of what is spent in the pur-
chase of the land ; a portion too of what
is paid to parliamentary agents, coun-
sel, engineers, and surveyors, is saved
by those who receive it, and becomes
capital again : but what is laid out
in the bond fide construction of the rail-
way itself, is lost and gone ; when once
expended, it is incapable of ever being
paid in wages or applied to the main-
tenance of labourers again ; as a matter
of account, the result is that so much
food and clothing and tools have been
consumed, and the country has got a
railway instead. But what I would
urge is, that sums so applied are mostly
a mere appropriation of the annual
overflowing which would otherwise have
gone abroad, or been thrown away un-
profitably, leaving neither a rail way nor
any other tangible result. The railway
gambling of 1844 and 1845 probably
saved the country from a depression of
profits and interest, and a rise of all
public and private securities, which
would have engendered still wilder spe-

TENDENCY OF PROFITS TO A MINIMUM.

45V

dilations, and when the effects camo
afterwards to be complicated by the
scarcity of food, would have ended in a
still more formidable crisis than was
need iu the years immediately
following. In the poorer countries of
Europe, the rage for railway construc-
tion might have had worse consequences
than in England, were it not that in
those countries such enterprises are in
a great measure carried on by foreign
capital. The railway operations of the
various nations of the world may be
looked upon as a sort of competition
for the overflowing capital of the coun-
tries where profit is low and capital
nlmndant, as England and Holland.
The English railway speculations are
a struggle to keep our annual increase
of capital at home; those of foreign
countries are an effort to obtain it.*

It already appears from these con-
fiMt't-alions, that the conversion of cir-
culating capital into fixed, whether by
railways, or manufactories, or ships, or
machinery, or canals, or mines, or works
of drainage and irrigation, is not likely,
in any rich country, to diminish the
gross produce or the amount of employ-
ment for labour. How much then is the
case strengthened, when we consider
that these transformations of capital are
of the nature of improvements in produc-
tion, which, instead of ultimately dimi-
nishing circulating capital, are the ne-
cessary conditions of its increase ; since
they alone enable a country to possess
a constantly augmenting capital, with-
out reducing profits to the rate which
would cause accumulation to stop.
There is hardly any increase of fixed
capital which does not enable the
country to contain eventually a larger
circulating capital, than it otherwise
could possess and employ within its

* It is hardly needful to point out how
fully the remarks in the text have been veri-
fied by subsequent facts. The capital of tho
country, far from having been in any degree
impaired by the large amount sunk in rail-
way construction, was Boon again over-
BewMfc,

own limits; for there i« hardly any
creation of fixed capital which, when
it proves successful, does not cheapen
the articles on which wages are habi-
tually expended. All capital sunk in
the permanent improvement of land
lessens the cost of food and materials ;
almost all improvements in machinery
cheapen the labourer's clothing or
lodging, or the tools with which these
are made ; improvements in locomotion,
such as railways, cheapen to the con-
sumer all things which are brought
from a distance. All these improve-
ments make the labourers better off
with the same money wages, better off
if they do not increase their rate of
multiplication. But if they do, and
wages consequently fall, at least profits
rise, and, while accumulation receives
an immediate stimulus, room is made
for a greater amount of capital before
a sufficient motive arises for sending it
abroad. Even the improvements which
do not cheapen the things consumed
by the labourer, and which, therefore,
do not raise profits nor retain capital
in the country, nevertheless, as we have-
seen, by lowering the minimum of profit
for which people will ultimately consent
to save, leave an ampler margin than
previously for eventual accumulation,
before arriving at the stationary state.
We may conclude, then, that im-
provements in production, and emigra-
tion of capital to the more fertile soils
and unworked mines of the uninhabited
or thinly peopled parts of the globe, d»
not, as appears to a superficial view,
diminish the gross produce and the
demand for labour at home, but, on
the contrary, are what we have chiefly
to depend on for increasing both, and
are even the necessary conditions of
any great or prolonged augmentation
of either. Nor is it any exaggeration
to say, that within certain, and not
very narrow, limits, the more capital a
country like England expends in thcso
two ways, the more she will have left.

452

BOOK IV CHAPTER VI. g 1,

CHAPTER VL

OP THE STATIONARY STATE.

§ 1. THE preceding chapters com-
prise the general theory of the econo-
mical progress of society, in the sense
in which those terms are commonly
understood ; the progress of capital, of

Bjpulation, and of the productive arts,
ut in contemplating any progressive
movement, not in its nature unlimited,
the mind is not satisfied with merely
tracing the laws of the movement ; it
cannot but ask the further question, to
what goal? Towards what ultimate
point is society tending by its indus-
trial progress? When the progress
ceases, in what condition are we to
expect that it will leave mankind?

It must always have been seen, more
or less distinctly, by political econo-
mists, that the increase of wealth is
not boundless : that at the end of what
they term the progressive state lies the
stationary state, that all progress in
wealth is but a postponement of this,
and that each step in advance is an
approach to it. We have now been
led to recognise that this ultimate goal
is at all times near enough to be fully
in view ; that we are always on the
verge of it. and that if we have not
reached it long ago, it is because the
goal itself flies before us. The richest
and most prosperous countries would
very soon attain the stationary state,
if no further improvements were made
in the productive arts, and if there
were a suspension of the overflow of
capital from those countries into the
uncultivated or ill-cultivated regions of
the earth.

This impossibility of ultimatelj
avoiding the stationary state — this
irresistible necessity that the stream
of human industry should finally
spread itself out into an apparently
stagnant sea — must have been, to the
political economists of the last two
generations, an unpleasing and dis-
couraging prospect ; for the tone and
tendency of theii speculations goes

completely to identify all that is econo-
mically desirable with the progressive
state, and with that alone. With Mr.
M'Culloch, for example, prosperity docs
not mean a large production and a good
distribution of wealth, but a rapid in-
crease of it ; his test of prosperity is
high profits ; and as the tendency of
that very increase of wealth, which he
calls prosperity, is towards low profits,
economical progress, according to him,
must tend to the extinction of pros-
perity. Adam Smith always assumes
that the condition of the mass of the
people, though it may not be positively
distressed, must be pinched and stinted
in a stationary condition of wealth, and
can only be satisfactory in a progressive
state. The doctrine that, to however
distant a time incessant struggling may
put oflfour doom, the progress of society
must "end in shallows and in miseries,"
far from being, as many people still
believe, a wicked invention of Mr. Mal-
thus, was either expressly or tacitly
affirmed by his most distinguished pre-
decessors, and can only be successfully
combated on his principles. Before at-
tention had been directed to the prin-
ciple of population as the active force
in determining the remuneration of
labour, the increase of mankind was
virtually treated as a constant quan-
tity: it was, at all events, assumed
that in the natural and normal stata
of human affairs population must con-
stantly increase, from which it followed
that a constant increase of the means
of support was essential to the physical
comfort of the mass of mankind. The
publication of Mr. Malthus' Essay is
the era from which better views of tins
subject must be dated; and notwith-
standing the acknowledged errors of
his first edition, few writers have done
more than himself, in the subsequent
editions, to promote these juster and
more hopeful anticipations.
Even in a progressiTe state of capital.

THE STATIONARY STATE.

453

in old countries, a conscientious or pru-
dential restraint on population isindis-
pi'tisable, to prevent the increase of
iiiinibcia from outstripping the in.
crease of capital, and the condition
of the classes who are at the bottom
of society from being deteriorated.
Where there is not, in the people, or
in some very large proportion of them,
a resolute resistance to this deteriora-
tion— a determination to preserve an es-
tablished standard of comfort — the con-
dition of the poorest class sinks, even
in a progressive state, to the lowest
point which they will consent to en-
dure. The same determination would
be equally effectual to keep up their
condition in the stationary state, and
would be quite as likely to exist. In-
deed, even now, the countries in which
the greatest prudence is manifested in
the regulating of population, are often
those in which capital increases least
rapidly. Where there is an indefinite
prospect of employment for increased
numbers, there is apt to appear less
necessity for prudential restraint. If it
were evident that a new hand could not
obtain employment but by displacing,
or succeeding to, one already employed,
the combined influences of prudence and
public opinion might in some measure
be relied on for restricting the coming
generation within the numbers neces-
sary for replacing the present.

§ 2. I cannot, therefore, regard the
stationary state of capital and wealth
with the unaffected aversion so gene-
rally manifested towards it by political
economists of the old school. I am in-
clined to believe that it would be, on
the whole, a very considerable improve-
ment on our present condition. I con-
fess I am not charmed with the ideal
of life held out by those who think
that the normal state of human beings
is that of struggling to get on ; that
the trampling, crushing, elbowing, and
treading on each other's heels, which
form the existing type of social life,
are the most desirable lot of human
kind, or anything but the disagreeable
symptoms of one of the phases of in-
dustrial progress. It may be a neces-
sary stage in the progress of civiliza-

tion, and those European nations which
have hitherto been so fortunate as to
be preserved from it, may have it yet
to undergo. It is an incident of growth,
not a mark of decline, for ii, is not ne-
cessarily destructive of the higher as-
pirations and the heroic virtues ; ai
America, in her great civil war, is
proving to the world, both by her con-
duct as a people and by numerous
splendid individual examples, and as
England, it is to be hoped, would also
prove on an equally trying and exciting
occasion. But it is not a kind of social
perfection which philanthropists to
come will feel any very eager desire to
assist in realizing. Most fitting, in-
deed, is it, that while riches are power,
and to grow as rich as possible the
universal object of ambition, the path
to its attainment should be open to all,
without favour or partiality. But the
best state for human nature is that in
which, while no one is poor, no one
desires to be richer, nor has any reason
to fear being thrust back, by the efforts
of others to push themselves forward.

That the energies of mankind should
be kept in employment by the struggle
for riches, as they were formerly by
the struggle of war, until the better
minds succeed in educating the others
into better things, is undoubtedly more
desirable than that they should rust
and stagnate. While minds are coarse
they require coarse stimuli, and let
them have them. In the meantime,
those who do not accept the present
very early stage of human improve-
ment as its ultimate type, may bo
excused for being comparatively indif-
ferent to the kind of economical pro-
gress which excites the congratulations
of ordinary politicians; the mere in-
crease of production and accumulation.
For the safety of national independence
it is essential that a country should not
fall much behind its neighbours in these
things. But in themselves they are of
little importance, so long as either the
increase of population or anything else
prevents the mass of the people from
reaping any part of the benefit of them.
I know not why it should be matter of
congratulation that persons who are
already richer than any one needs to

464

BOOK IV. CHAPTER VI. § 2.

be, should have doubled their means of
consuming things which give little or
no pleasure except as representative of
wealth ; or that numbers of individuals
should pass over, every year, from the
middle classes into a richer class, or
from the class of the occupied rich to
that of the unoccupied. It is only in
the backward countries of the world
that increased production is still an im-
portant object : in those most advanced,
what is economically needed is a better
distribution, of which one indispensable
means is a stricter restraint on popula-
tion. Levelling institutions, either of
a just or of an unjust kind, cannot
alone accomplish it ; they may lower
the heights of society, but they cannot,
of themselves, permanently raise the
depths.

On the other hand, we may suppose
this better distribution of property at-
tained, by the joint effect of the pru-
dence and frugality of individuals, and
of a system of legislation favouring
equality of fortunes, so far as is con-
sistent with the just claim of the indi-
vidual to the fruits, whether great or
small, of his or her own industry. We
may suppose, for instance, (according
to the suggestion thrown out in a former
chapter,*) a limitation of the sum which
any one person may acquire by gift or
inheritance, to the amount sufficient to
constitute a moderate independence.
Under this twofold influence, society
would exhibit these leading features :
a well-paid and affluent body of la-
bourers; no enormous fortunes, except
what were earned and accumulated
during a single lifetime ; but a much
larger body of persons than at present,
not only exempt from the coarser toils,
but with sufficient leisure, both physical
and mental, from mechanical details,
to cultivate freely the graces of life,
and afford examples of them to the
classes less favourably circumstanced
for their growth. This condition of
eociety, so greatly preferable to the
present, is not only perfectly compatible
with the stationary state, but, it would
seem, more naturally allied with that
state than with any other.

There is room in the world, no doubt,
* Supra, v. 139.

and even in old countries, for a great
increase of population, supposing the
arts of life to go on improving, and
capital to increase. But even if innocu-
ous, I confess I see very little reason
for desiring it. The density of popula-
tion necessary to enable mankind to
obtain, in the greatest degree, all the
advantages both of co-operation and of
social intercourse, has, in all the most
populous countries, been attained. A
population may be too crowded, though
all be amply supplied with food and
raiment. It is not good for man to be
kept perforce at all times in the pre-
sence of his species. A world from which
solitude is extirpated, is a very poor
ideal. Solitude, in the sense of being
often alone, is essential to any depth of
meditation or of character ; and soli-
tude in the presence of natural beauty
and grandeur, is the cradle of thoughts
and aspirations which are not only good
for the individual, but which society
could ill do without. Nor is there much
satisfaction in contemplating the world
with nothing left to the spontaneous
activity of nature ; with every rood of
land brought into cultivation, which is
capable of growing food for human
beings ; every flowery waste or natural
pasture ploughed up, all quadrupeds or
birds which are not domesticated for
man's use exterminated as his rivals
for food, every hedgerow or superfluous
tree rooted out, and scarcely a place
left where a wild shrub or flower could
grow without being eradicated as a
weed in the name of improved agricul-
ture. If the earth must lose that great
portion of its pleasantness which it
owes to things that the unlimited in-
crease of wealth and population would
extirpate from it, for the mere purpose
of enabling it to support a larger, but
not a better or a happier population, I
sincerely hope, for the sake of posterity,
that they will be content to be sta-
tionary, long before necessity compels
them to it.

It is scarcely necessary to remark
that a stationary condition of capital
and population implies no stationary
state of human improvement. There
would be as much scope as ever for all
kinds of mental culture, and moral and

PROBABLE FUTURE OF THE LABOURING CLASSES. 455

social progress ; as much room for im-
proving i!io Art of Living, and much
more likelihood of its being improved,
when minds ceased to be engrossed by
the art of getting on. Even the indus-
trial arts might be as earnestly and as
successfully cultivated, with this sole
difference, that instead of serving no

Surpose but the increase of wealth, in-
ustrial improvements would produce
their legitimate effect, that of abridging
labour. Hitherto it is questionable if
all the mechanical inventions yet made
have lightened the day's toil of any
human being. They have enabled a
greater population to live the same life
of drudgery and imprisonment, and an

increased number of manufacturers and
others to make fortunes. They have
increased the comforts of the middle
classes. But they have not yet begun
to effect those {Treat changes in human
destiny, which it is in their nature and
in their futurity to accomplish. Only
when, in addition to just institutions,
the increase of mankind shall be under
the deliberate guidance of judicious fore-
sight, can the conquests made from the
powers of nature by the intellect and
energy of scientific discoverers, become
the common property of the species,
and the means of improving and ele-
vating the universal lot.

CHAPTER VTI.

OK THE PROBABLE FUTURITY OP THE LABOURING CLASSES.

§ 1. THE observations in the pre-
ceding chapter had for their principal
object to deprecate a false ideal of
human society. Their applicability to
the practical purposes of present times,
consists in moderating the inordinate
importance attached to the mere in-
crease of production, and fixing atten-
tion upon improved distribution, and a
large remuneration of labour, as the
two desiderata. Whether the aggre-
gate produce increases absolutely or
not, is a thing in which, after a certain
amount has been obtained, neither the
legislator nor the philanthropist need
fuel any strong interest: but, that it
should increase relatively to the num-
ber of those who share in it, is of the
utmost possible importance ; and this,
(whether the wealth of mankind be
ry, or increasing at the most
rapid rate ever known in an old country,)
must depend on the opinions and habits
of the most numerous class, the class of
manual labourers.

When I speak, either in this place or
elsewhere, of "the labouring classes,''
or of labourers as a " class," I use those
phrases in compliance with custom,
and as descriptive of an existing, but

by no means a necessary or permanent
state of social relations. I do not re-
cognise as either just or salutary, a
state of society in which there is any
" class" which is not labouring ; any
human beings, exempt from bearing
their share of the necessary labours of
human life, except those unable to
labour, or who have fairly earned rest
by previous toil. So long, however, as
the great social evil exists of a non-
labouring class, labourers also consti-
tute a class, and may be spoken of,
though only provisionally, in that cha-
racter.

Considered in its moral and social
aspect, the state of the labouring people
has latterly been a subject of much
more speculation and discussion than
formerly ; and the opinion, that it is
not now what it ought to be, has be-
come very general. The suggestions
which have been promulgated, and the
controversies which have been excited,,
on detached points rather than on the
foundations of the subject, have put in
evidence the existence of two conflict-
ing theories, respecting the social posi-
tion desirable for manual labourers.
The one may be called the theory of

BOOK IV. CHAPTER VII. § 1.

dapcnJeoee and protection, the other
tlint of self-dependence.

Accrrding to the former theory, the
lot of the poor, in all things which
affect them collectively, should be re-
gulated/or them, not by them. They
ehould not be required or encouraged
to think for themselves, or give to their
<nvn reflection or forecast an influential
voice in the determination of their des-
tiny. It is supposed to be the duty of
the higher classes to think for them,
and to take the responsibility of their
lot, as the commander and officers of
an army take that of the soldiers com-
posing it. This function, it is con-
tended, the higher classes should pre-
pare themselves to perform conscien-
tiously, and their whole demeanour
should impress the poor with a reliance
on it, in order that, while yielding pas-
sive and active obedience to the rules
prescribed for them, they may resign
themselves in all other respects to a
trustful insouciance, and repose under
the shadow of their protectors. The
relation between rich and poor, accord-
ing to this theory, (a theory also ap-
plied to the relation between men and
women) should be only partly authori-
tative ; it should be amiable, moral,
and sentimental : affectionate tutelage
on the one side, respectful and grateful
deference on the other. The rich should
be in loco parentis to the poor, guiding
and restraining them like children. Of
spontaneous action on their part there
•tumid be no need. They should be
called on for nothing but to do their
day's work, and to be moral and reli-
gious. Their morality and religion
should be provided for them by their
superiors, who should see them pro-
perly taught it, and should do all that
is necessary to ensure their being, in
return for labour and attachment, pro-
perly fed, clothed, housed, spiritually
edified, and innocently amused.

This is the ideal of the future, in the
minds of those whose dissatisfaction
with the Present assumes the form of
affection and regret towards the Past
Like other ideals, it exercises an un-
conscious influence on the opinions
and sentiments of numbers who never
consciously guide themselves by any

! ideal. It has also this in common with
J other ideals, that it has never been his-
! torically realized. It makes its appeal
| to our imaginative sympathies in the
j character of a restoration of the good
times of our forefathers. But no times
can be pointed out in which the higher
I classes of this or any other country per-
! formed a part even distantly resembling
] the one assigned to them in this theory.
It is an idealization, grounded on the
conduct and character of here and there
an individual. All privileged and
powerful classes, as such, have used
their power in the interest of their own
selfishness, and have indulged their
self-importance in despising, and not in
lovingly caring for, those who were, in
their estimation, degraded, by being
under the necessity of working for their
benefit. I do not affirm that what has
always been must always be, or that
human improvement has no tendency
to correct the intensely selfish feelings
engendered by power ; but though the
evil may be lessened, it cannot be eradi-
cated, until the power itself is with-
drawn. This, at least, seems to me un-
deniable, that long before the superior
classes could be sufficiently improved
to govern in the tutelary manner sup-
posed, the inferior classes would be too
much improved to be so governed.

I am quite sensible of all that is se-
ductive in the picture of society which
this theory presents. Though the facts
of it have no prototype in the past, the
feelings have. In them lies all that
there is of reality in the conception.
As the idea is essentially repulsive of
a society only held together by the re-
lations and feelings arising out of pe-
cuniary interests, so there is something
naturally attractive in a form of society
abounding in strong personal attach-
ments and disinterested self-devotion.
Of such feelings it must be admitted
that the relation of protector and pro-
tected has hitherto been the richest
source. The strongest attachments of
human beings in general, are towards
the things or the persons that stand
between them and some dreaded evil.
Hence, in an age of lawless violence
and insecurity, and general hardness
and roughness of manners, in which

PKOBABLE FUTURE OF THE LABOURING CLASSES. 457

life is beset with dangers and sufferings
at every step, to those who have neither
a commukuBg position of their own,
nor a claim on the protection of some
one who has — a generous giving of pro-
tection, and a grateful receiving of it,
are the strongest ties which connect
human beings; the feelings arising from
that relation are their warmest feel-
ings ; all the enthusiasm and tender-
ness of the most sensitive natures gather
round it ; loyalty on the one part and
chivalry on the other are principles ex-
alted into passions. 1 do not desire to
depreciate these qualities. The error
lies in not perceiving, that these virtues
and sentiments, like the clanship and
the hospitality of the wandering Arab,
belong emphatically to a rude and im-
perfect state of the social union, and
that the feelings between protector and
protected, whether between kings and
subjects, rich and poor, or men and
women, can no longer have this beauti-
ful and endearing character, where
there are no longer any serious dangers
from which to protect. What is there
in the present state of society to make
it natural that human beings,of ordinary
strength and courage, should glow with
the warmest gratitude and devotion in
return for protection? The laws pro-
tect them ; wherever the laws do not
criminally fail iu their duty. To be
under tho power of some one, instead
of being as formerly the sole condition
of safety, is now, speaking generally,
the only situation which exposes to
grievous wrong. The so-called protec-
tors are now the only persons against
r.-hom, in any ordinary circumstances,
protection is needed. The brutality
and tyranny with which every police
report is filled, are those of husbands to
wives, of parents to children. That
the law does not prevent these atroci-
ties, that it is only now making a first
timid attempt to repress and punish
them, is no matter of necessity, but the
deep disgrace of those by whom the
laws are made and administered. No
man or woman who either possesses or
is able to earn an independent liveli-
hood, requires any other protection
than tnat which the law could and
ought to give. This being the case, it '

argues great ignorance of human na-
ture to continue taking for granted
that relations founded on protection
must always subsist, and not to see
that the assumption of the part of pro-
tector, and of the power which belongs
to it, without any of the necessities
which justify it, must engender feelings
opposite to loyalty.

Of the working men, at least in the
more advanced countries of Europe, it
may be pronounced certain, that the
patriarchal or paternal system of go-
vernment is one to which they will not
again be subject. That question was
decided, when they were taught to
read, and allowed access to newspapers
and political tracts; when dissenting
preachers were suffered to go among
them, and appeal to their faculties and
feelings in opposition to the creeds
professed and countenanced by their
superiors; when they were brought
together in numbers, to work socially
under the same roof; when railways
enabled them to shift from place to
place, and change their patrons and
employers as easily as their coats;
when they were encouraged to seek a
share in the government, by means of
the electoral franchise. The working
classes have taken their interests into
their own hands, and are perpetually
showing that they think the interests of
their employers not identical with their
own, but opposite to them. Some
among the higher classes flatter them-
selves that these tendencies may be
counteracted by moral and religious
education ; but they have let the time
go by for giving an education which
can serve their purpose. The principles
of the Eeformation have reached as
low down in society as reading and
•writing, and the poor will not much
longer accept morals and religion of
other people's prescribing. 1 speak
more particularly of this country, espe-
cially the town population, and the
districts of the most scientific agricul-
ture or the highest wages, Scotland
and the north of England. Among
the more inert and less modernized
agricultural population of the southern
counties, it might be possible for tho
gentry to retain, for some time longer,

45*

BOOK IV. CITAPTER VII. § 2.

something of the ancient deference and
submission of the poor, by bribing
them with high wages and constant
employment; by ensuring them sup-
port, and never requiring them to do
anything which they do not like. But
these are two conditions which never
have been combined, and never can be,
for long together. A guarantee of
subsistence can only be practically
kept up, when work is enforced, and
superfluous multiplication restrained,
by at least a moral compulsion. It is
then, that the would-be revivers of old
times which they do not understand,
would feel practically in how hopeless
a task they were engaged. The whole
fabric of patriarchal or seignorial in-
fluence, attempted to be raised on the
foundation of caressing the poor, would
be shattered against the necessity of
enforcing a stringent Poor-law.

§ 2. It is on a far other basis that
the well-being and well-doing of the
labouring people must henceforth rest.
The poor have come out of leading-
strings, and cannot any longer be
governed or treated like children. To
their own qualities must now be com-
mended the care of their destiny. Modern
nations will have to learn the lesson,
that the well-being of a people must
exist by means of the justice and
self-government, the SiKatoavvij and
ffwtypoavvi], of the individual citizens.
The theory of dependence attempts to
dispense with the necessity of these
qualities in the dependent classes. But
now, when even in position they are
becoming less and less dependent, and
their minds less and less acquiescent
in the degree of dependence which re-
mains, the virtues of independence are
those which they stand in need of.
Whatever advice, exhortation, or guid-
ance is held out to the labouring classes,
must henceforth be tendered to them
as equals, and accepted by them with
their eyes open. The prospect of the
future depends on the degree in which
they can be made rational beings.

There is no reason to believe that
prospect other than hopeful. The
progress indeed has hitherto been, and
still is, slow. But there is a sponta-

neous education going on in the minds
of the multitude, which may be greatly
accelerated and improved by artificial
aids. The instruction obtained from
newspapers and political tracts may
not be the most solid kind of instruc-
tion, but it is an immense improvement
upon none at all. What it does for a
people, has been admirably exemplified
during the cotton crisis, in the case of.
the Lancashire spinners and weavers j
who have acted with the consistent
good sense and forbearance so justly
applauded, simply because, being
readers of newspapers, they understood
the causes of the calamity which had
befallen them, and knew that it was in
no way imputable either to their em-
ployers or to the Government. It is
not certain that their conduct would
have been as rational and exemplary,
if the distress had preceded the salu-
tary measure of fiscal emancipation
which gave existence to the penny
press. The institutions for lectures
and discussion, the collective delibe-
rations on questions of common inte-
rest, the trades unions, the political
agitation, all servo to awaken public
spirit, to diffuse variety of ideas among
the mass, and to excite thought and
reflection in the more intelligent.
Although the too early attainment of
political franchises by the least edu-
cated class might retard, instead of
promoting, their improvement, there
can be little doubt that it has been
greatly stimulated by the attempt to
acquire them. In the meantime, the
working classes are now part of the
public ; in all discussions on matters ot
general interest they, or a portion of
them, are now partakers ; all who use
the press as an instrument may, if it
so happens, have them for an audience ;
the avenues of instruction through
which tho middle classes acquire such
ideas as they have, arc accessible to, at
least, the operatives in the towns.
With these resources, it cannot bo
doubted that they will increase in in-
telligence, even by their own unaidei
efforts ; while there is reason to hopV
that great improvements both in th«
quality and quantity of school educa-
tion will be effected by tho exertiant

PROBABLE FUTURE OF THE LABOURING CLASSES. 459

either of Government or of individuals,
and that the progress of the mass of
the people in mental cultivation, and
in the virtues which are dependent on
it. will take place more rapidly, and
with fewer intermittonces and aberra-
tions, than if left to itself.

From this increase of intelligence,
several effects may be confidently an-
ticipated. First : that they will become
even less willing than at present to be
led and governed, and directed into the
way they should go, by the mere au-
thority and prestige of superiors. If
they have not now, still less will they
have hereafter, any deferential awe, or
religious principle of obedience, holding
them in mental subjection to a class
above them. The theory of dependence
and protection will be more and more
intolerable to them, and they will re-
quire that their conduct and condition
shall be essentially self-governed. It
is, at the same time, quite possible
that they may demand, in many cases,
the intervention of the legislature in
their affairs, and the regulation by law
of various things which concern them,
often under very mistaken ideas of
their interest. Still, it is their own
will, their own ideas and suggestions,
to which they will demand that effect
should be given, and not rules laid
down for them by other people. It is
quite consistent with this, that they
should feel respect for superiority of
intellect and knowledge, and defer
much to the opinions, on' any subject,
of those whom they think well ac-

auainted with it Such deference is
eeply grounded in human nature ; but
they will judge for themselves of the
persons who are and are not entitled
to it.

§ 3. It appears to me impossible
cut that the increase of intelligence, of
education, and of the love of indepen-
dence among the working classes,
«uust be attended with a corresponding
growth of the good sense which mani-
fests itself in provident habits of con-
duct, and that population, therefore,
will hear a gradually diminishing ratio
to capital and employment. This most
desirable result would be much accele-

rated by another change, which lies in
the direct line of the best tendencies of
the time ; the opening of industrial
occupations freely to both sexes. The
same reasons which make it no longer
necessary that the poor should depend
on the rich, make it equally unneces-
sary that women should depend on
men, and the least which justice re-
quires is that law and custom should
not enforce dependence (when the cor-
relative protection has become super-
fluous) by orda:ning that a woman,
who does not happen to have a provi-
sion by inheritance, shall have scarcely
any means open to her of gaining a
livelihood, except as a wife and mother.
Let women who prefer that occupation,
adopt it ; but that there should be no
option, no other career possible for
the great majority of women, except in
the humbler departments of life, is a
flagrant social injustice. The ideas
and institutions by which the accident
of sex is made the groundwork of an
inequality of legal rights and a forced
dissimilarity of social functions, must
ere long be recognised as the greatest
hindrance to moral, social, and even
intellectual improvement. On the
present occasion I shall only indicate,
among the probable consequences of
the industrial and social independence
of women, a great diminution of the
evil of over-population. It is by devot-
ing one-half of the human species to
that exclusive function, by making it
fill the entire life of one sex, and inter-
weave itself with almost all the objects
of the other, that the animal instinct
in question is nursed into the dispro-
portionate preponderance which it has
hitherto exercised in human life.

§ 4, The political consequences of
the increasing power and importance
of the operative classes, and of the
growing ascendancy of numbers, which
even in England and under the present
institutions, is rapidly giving to the-
will of the majority at least a negative
voice in the acts of government, are
too wide a subject to be discussed in
this place. But, confining ourselves to
economical considerations, and notwith-
standing the effect which improved

BOOK IV. ClUtTER VI t. § 4.

intelligence in tlio working classes,
together with just laws, may have in
altering the distribution of the produce
to their advantage, I cannot think that
they will be permanently contented
with the condition of labouring for
wages as their ultimate state. They
may bo willing to pass through the
class of servants in their way to that
of employers ; but Rot to remain in it
all their lives. To begin as hired
labourers, then after a few years to
work on their own account, and finally
employ others, is the normal condition
of labourers in a new country, rapidly
increasing in wealth and population,
like America or Australia. But in an
old and fully peopled country, those
who begin life as labourers for hire, as
a general rule, continue such to the
end, unless they 'sink into the still
lower grade of recipients of public
charity. In the present stage of human
progress, when ideas of equality are
daily spreading more widely avnong
the poorer classes, and can no longer
be checked by anything short of the
entire suppression of printed discussion
and even of freedom of speech, it is not
to be expected that the division of the
human race into two hereditary classes,
employers and employed, can be per-
manently maintained. The relation is
nearly as unsatisfactory to the payer
of wages as to the receiver. If the rich
regard the poor as, by a kind of natural
law, their servants and dependents, the
rich in their turn are regarded as a
mere prey and pasture for the poor ;
the subject of demands and expecta-
tions wholly indefinite, increasing in
extent with every concession made to
them. The total absence of regard for
justice or fairness in the relations be-
tween the two, is as marked on the side
of the employed as on that of the em-
ployers. We look in vain among the
working classes in general for the just
pride which will choose to give good
work for good wages : for the most
part, their sole endeavour is to receive
as much, and return as little in the
shape of service, as possible. It will
sooner or later become insupportable
to the employing classes to live in close
and hourly contact with persons whose

interests and feelings arc in hostility
to them. Capitalists are almost aa
much interested as labourers, in placing
the operations of industry on such a
footing, that those who labour for them
may feel the same interest in the work,
which is felt by those who labour oi»
their own account.

The opinion expressed in a former
part of this treatise respecting small
landed properties and peasant proprie-
tors, may have made the reader anti-
cipate that a wide diffusion of property
in land is the resource on which I rely
for exempting at least the agricultural
labourers from exclusive dependence
on labour for hire. Such, however, is
not my opinion. I indeed deem that
form of agricultural economy to be most
groundlessly cried down, and to be
greatly preferable, in its aggregate
effects on human happiness, to hired
labour in any form in which it exists at
present ; because the prudential check
to population acts more directly, and is
shown by experience to be more effica-
cious; and because, in point of security,
of independence, of exercise for any
other than the animal faculties, the
state of a peasant proprietor is far
superior to that of an agricultural la-
bourer in this or in any other old coun-
try. Where the former system already
exists, and works on the whole satis-
factorily, I should regret, in the present
state of human intelligence, to see it
abolished in order to make way for the
other, under a pedantic notion of agri-
cultural improvement as a thing neces-
sarily the same in every diversity of
circumstances. In a backward state
of industrial improvement, as in Ire-
land, I should urge its introduction, in.
preference to an exclusive system of
hired labour ; as a more powerful in-
strument for raising a population from
semi-savage listlessness and reckless-
ness, to persevering industry and pru-
dent calculation.

But a people who have once adopted
the large system of production, either
in manufactures or in agriculture, are
not likely to recede from it ; and when
population is kept in due proportion to
the means of support, it is not desir-
able that they should. Labour is un-

PROBABLE FUTURE OF THE LABOURING CLASSES. 461

with hostile interests and feelings, tho
many who do the work being mere
servants under the command of the one
who supplies the funds, and having no
interest of their own in the enterprise
except to earn their wages with aa
little labour as possible. The specula-
tions and discussions of the last fifty
years, and the events of the last twenty,
are abundantly conclusive on this point.
If the improvement which even tri-
umphant military despotism has only
retarded, not stopped, shall continue
its course, there can be little doubt that
the status of hired labourers will gra-
dually tend to confine itself to the de-
scription of workpeople whose low
moral qualities render them unfit for
anything more independent : and that
the relation of masters and workpeople
will be gradually superseded by part-
nership, in one of two forms : in some
cases, association of the labourers with
the capitalist ; in others, and perhaps
finally in all, association of labourers
among themselves.

questionably more productive on the
system of large industrial enterprises ;
the produce, if not greater absolutely,
is greater in proportion to the labour
employed : the same number of persons
can be supported equally well with less
toil and greater leisure ; which will be
wholly an advantage, as soon as civili
zation and improvement have so far
advanced, that what is a benefit to the
whole shall be a benefit to each indi-
vidual composing it. And in the moral
aspect of the question, which is still more
important than the economical, some-
thing better should be aimed at as the
goal of industrial improvement, than
to disperse mankind over the earth in
single families, each ruled internally,
as families now are, by a patriarchal
despot, and having scarcely any com-
munity of interest, or necessary mental
communion, with other human beings.
The domination of the head of the
family over the other members, in this
state of things, is absolute ; while the
effect on his own mind tends towards
concentration of all interests in the
family, considered as an expansion of
self, and absorption of all passions in
that of exclusive possession, of all cares
in those of preservation and acquisition.
As a step out of the merely animal
state into the human, out of reckless
abandonment to brute instincts into
prudential foresight and self-govern-
ment, this moral condition may be seen
without displeasure. But if public
epirit, generous sentiments, or true jus-
tice and equality are desired, associa-
tion, not isolation, of interests, is the
school in which these excellences are
nurtured. The aim of improvement
should be not solely to place human
beings in a condition in which they will
be able to do without one another, but
to enable them to work with or for one
another in relations not involving de-
pendence. Hitherto there has been no
alternative for those who lived by their
labour, but that of labouring either
each for himself alone, or for a master.
But the civilizing and improving in-
fluences of association, and the effi-
ciency and economy of production on a
large scale, may be obtained without
dividing the producers into two parties

§ 5. The first of these forms of
association has long been practised,
not indeed as a rule, but as an excep-
tion. In several departments of indus-
try there are already cases in which
every one who contributes to the work,
either by labour or by pecuniary re-
sources, has a partner's interest in it,
proportional to the value of his contri-
bution. It is already a common prac-
tice to remunerate those in whom pe-
culiar trust is reposed, by means of a
percentage on the profits : and cases
exist in which the principle is, with
excellent success, carried down to the
class of mere manual labourers.

In the American ships trading to
China, it has long been the custom for
every sailor to have an interest in the
profits of the voyage ; and to this has
been ascribed the general good conduct
of those seamen, and the extreme rarity
of any collision between them and tho
government or people of the country.
An instance in England, not so well
known as it deserves to be, is that of
the Cornish miners. " In Cornwall tha
mines are worked strictly on the sys-
tem of joint adventure ; gangs of miners

162

BOOK IV. CHAPTER VII. § 5.

contracting with the agent, who repre-
sents the owner of the mine, to execute
a certain portion of a vein, and fit the
ore for market, at the price of so much
in the pound of the sum for which the
ore is sold. These contracts are put
up at certain regular periods, generally
every two months, and taken by a vo-
luntary partnership of men accustomed
to the mine. This system has its dis-
advantages, in consequence of the un-
certainty and irregularity of the earn-
ings, and consequent necessity of living
for long periods on credit ; but it has
advantages which more than counter-
balance these drawbacks. It produces
a degree of intelligence, independence,
and moral elevation, which raise the
condition and character of the Cornish
miner far above that of the generality
of the labouring class. We are told by
Dr. Barham, that ' they are not only,
as a class, intelligent for labourers, but
men of considerable knowledge.' Also,
that ' they have a character of indepen-
dence, something American, the sys-
tem by which the contracts are let
giving the takers entire freedom to
make arrangements among themselves;
so that each man feels, as a partner in
his little firm, that he meets his em-
ployers on nearly equal terms.' . . .
With this basis of intelligence and in-
dependence in their character, we are
not surprised when we hear that ' a
very great number of miners are now
located on possessions of their own,
leased for three lives or ninety-nine
years, on which they have built houses;'
or that ' 281, 541 1. are deposited in sav-
ings banks in Cornwall, of which two-
thirds are estimated to belong to
miners.' ''*

Mr. Babbage, who also gives an ac-
count of this system, observes that the
payment to the crews of whaling ships
is governed by a similar principle ; and
that " the profits arising from fishing
with nets on the south coast of Eng-
land are thus divided : one-half the pro-
duce belongs to the owner of the boat

* This passage is from the Prize Essay on
the Causes and Remedies of National Dis-
tress by Mr. Samuel Laing. The extracts
which it includes are from the Appendix to
tho Report of the Children's Enwluxuent

and net ; the other half ia divided in
equal portions between the persona
using it, who are also bound to assist
in repairing the net when required."
Mr. Babbage has the great merit of
having pointed out the practicability,
and the advantage, of extending tho
principle to manufacturing industry
generally.*

Some attention has been excited by
an experiment of this nature, com-
menced about sixteen years ago by a
Paris tradesman, a house-painter, 'M.
Leclaire,+ and described by him in a
pamphlet published in the year 1842.
M. Lecla;.re, according to his state-
ment, employs on an average two hun-
dred workmen, whom lie pays in the
usual manner, by fixed wages or
salaries. He assigns to himself, besides
interest for his capital, a fixed allow-
ance for his labour and responsibility
as manager. At the end of the year,
the surplus profits are divided among
the body, himself included, in the pro-
portion of their salaries.* The reasons
by which M. Leclairo was led to adopt
this system are highly instructive.
Finding the conduct of his workmen
unsatisfactory, he first tried the effect
of giving higher wages, and by this ho
managed to obtain a body of excellent
workmen, who would not quit hia
service for any other. "Having thus
succeeded" (I quote from an abstract
of the pamphlet in Chambers' Journal, §)
" in producing some sort of stability in
the arrangements of his establishment,
M. Ledaire expected, he says, to enjoy
greater peace of mind. In this, how-
ever, he was disappointed. So long as
he was able to superintend everything

* Economy of Machinery and Hantifac*
tures, 3rd edition, ch. 26.

t His establishment is 11, Rue Saint
Georges.

t It appears, however, that the workmen
whom M. Leclaire had admitted to this par-
ticipation of profits, were only a portion
(rather less than half) of the whole number
whom he employed. This is explained by
another part of his system. M. Leclairo
pays the full market rate of wages to all his
workmen. The share of profit assign <1 to
them is, therefore, a clear adlition to the
ordinary gains of their class, which be very
laudably uses as an instrument of improve-
ment, by making it the reward of desert, or
the recompense for peculiar trust.
§ For September 27, 1845.

PROBABLE FUTURE OF THE LABOURING CLASSES. 463

himself, from the general concerns of
his business down to its minutest de-
tails, ho did enjoy a certain satisfac-
tion ; but from the moment that, owing
to the increase of his business, ho
found that he could be nothing more
than the centre from which orders
were issued, and to which reports were
brought in, his former anxiety and
discomfort returned upon him." He
speaks lightly of the other sources of
anxiety to which a tradesman is
subject, but describes as an incessant
cause of vexation the losses arising
from the misconduct of workmen. An
employer "will find workmen whose
indifference to his interests is such
that they do not perform two-thirds of
the amount of work which t^ey are
capable of; hence the continual retting
of masters, who, seeing their /nterests
neglected, believe themselves entitled
to suppose that workmen are con-
stantly conspiring to ruin those from
whom they derive their livelihood. If
the journeyman were sure of constant
employment, his position would in some
respects be more enviable than that of
the master, because he is assured of a
certain amount of day's wages, which
he will pet whether he works much or
little. He runs no risk, and has no
other motive to stimulate him to do his
best than his own sense of duty. The
master, on the other hand, depends
greatly on chance for his returns : his
position is one of continual irritation
anil anxiety. This would no longer be
the case to the same extent, if the
interests of the master and those of the
•workmen were bound up with each
other, connected by some bond of
mutual security, such as that which
would be obtained by the plan of a
yearly division of profits."

Even in the first year during whicn
M. Leclaire's experiment was in com-
plete operation, the success was re-
markable. Not one of his journeymen
•who worked as many as three hundred
days, earned in that year less than
1500 francs, and some considerably
more. His highest rate of daily wages
being four francs, or 1200 francs for
300 days, the remaining 300 francs,
or 122., must have been the smallest

amount which any journeyman win
worked that number of days, obtained
as his proportion of the surplus profit.
M. Leclairo describes in strong terms
the improvement which was already
manifest in the habits and demeanour
of his workmen, not merely when at
work, and in their relations with their
employer, but at other times and in
other relations, showing increased re-
spect both for others and for themselves.
M. Chevalier, in a work published in
1848,* stated on M. Leclaire's autho-
rity, that the increased zeal of the
workpeople continued to be a full com-
pensation to him, even in a pecuniary
sense, for the share of profit which
he renounced in their favour. And
M. Villiaume, in 1857,+ observes: —
" Though he has always kept himself
free from the frauds which are but too
frequent in his profession, he has always
been able to hold his ground against
competition, and has acquired a hand-
some competency, in spite of the re-
linquishment of so great a portion of
his profits. Assuredly he has only been
thus successful because the unusual
activity of his workpeople, and the
watch which they kept over one an
other, have compensated him for the
sacrifice he made in contenting himself
with only a share of the gain."J

* Letter* on the Organization of Labour,
letter 14.

t l*ev> Treatise on Political Economy.

j At the present time (1865), M. Leclaire's
establishment is conducted on a somewhat
altered system, though the principle of
dividing the profits is maintained. There
are now three partners in the concern :
M. Lecture himself, one other person (M.
Defournaux), and a Provident Society
(Societe de Secours Mutuels), of which all
persons in his employment are the members.
(This Society owns an excellent library, and
has scientific, technical, and other lectures
regularly delivered to It). Each of the thru
partners has 100,000 francs invested in tha
concern; M. Leclaire having advanced to
the Provident Society as much as was neces-
sary to supply the original insufficiency of
their own funds. The partnership, on the
part of the Society, is limited ; on that of
M. Leclaire and M. Defournaux, unlimited.
These two receive 6000 francs (•24/01.') per
annum each as wages of superintendence.
Of the annual profits they receive half,
though owning two-thirds of the capital.
The remaining half belongs to the employes
and workpeople ; two-fifths of it being paid
to the Provident Society, and the other

464

BOOK IV. CHAPTER MI. § 5.

The beneficent example set by M.
Leclaire lias been followed, with bril-
liant success, by other employers of
labour on a large scale at Paris ; and
I annex, from the work last referred to
(one of the ablest of the many able
treatises on political economy produced
by the present generation of the po-
litical economists of France), some
signal examples of the economical
and moral benefit arising from this
admirable arrangement.*

three-fifths divided among the body. M.
Leclaire, however, now reserves to himself
the right of deciding who shall share in the
distribution, and to what amount; only
binding himself never to retain any part, but
to bestow whatever has not been awarded to
individuals, on the Provident Society. It is
further provided that in case of the retire-
ment of both the private partners, the good-
will and plant shall become, without pay-
ment, the property of the Society.

• " In March 1817, M. Paul Dupont, the
head of a Paris printing-office, had the idea
of taking his workmen into partnership by
assigning to them a tenth of the profits. He
habitually employs three hundred ; two
hundred of them on piece work, and a
hundred by the day. He also employs a
hundred extra hands, who are not included
in the association. The portion of profit
which falls to the workmen does not bring
them in, on the average, more than the
amount of a fortnight's wages ; but they re-
ceive their ordinary pay according to the
rates established in all the great Paris print-
ing offices ; and have, besides, the advantage
of medical attendance in illness at the ex-
pense of the association, and a franc and a
half per day while incapacitated for work.
The workmen cannot draw out their share
of profit except on quitting the association.
It is left at interest, (sometimes invested in
the public funds) and forms an accumulating
reserve of savings for its owners.

" M. Dupont and his partners find this as-
sociation a source of great additional profit
to them : the workmen, on their side, con-
gratulate themselves daily on the happy idea
if their employer. Several of them have by
their exertions caused the establishment to
gain a gold medal in 1849, and an honorary
medal at the Universal Exhibition of 1855 :
some even have personally received the re-
compense of their inventions and of their
labours. Under an ordinary employer, these
excellent people would not have had leisure
to prosecute their inventions, unless by leav-
ing the whole honour to one who was not the
author of them : but, associated as they were,
if the employer had been unjust, two hun-
dred men would have obliged him to repair
the wrong.

"I have visited this establishment, and
have been able to see for myself the improve-
ment which the partnership produces in the
of the workpeople,

Until the passing of the Limited
Liability Act, it was held that an
arrangement similar to M. Leclaire's
would have been impossible in England,
as the workmen could not, in the
previous state of the law, have been
associated in the profits without being
liable for losses. One of the ma.uy
benefits of that great legislative im-
provement, has been to render partner-
ships of this description possible : and
we may now hope to see them carried

" M. Gisquet, formerly Prefect of Police,
has long been the proprietor of an oil manu-
factory at St. Denis, the most important one
in France next to that of M. Darblay, of Cor-
beil. When in 1848 he took the personal
management of it, he found workmen who
got drunk several days in the week, and
during their work sung, smoked, and some-
times quarrelled with one another. Many
unsuccessful attempts had been made to alter
this state of things: he accomplished it by
forbidding his workmen to get drunk on
working days, on pain of dismissal, and at
the same time promising to share with them,
by way of annual gratuity, five per cent of
his net profits, in shares proportioned to
wages, which are fixed at the current rates.
From that time the reformation has been
complete, and he is surrounded by a hundred
workmen full of zeal and devotion. Their
comforts have been increased by what they
have ceased to spend in drink, and what they
gain by their punctuality at work. The an-
nual gratuity has amounted, on the averaget
to the equivalent of six weeks' wages.

" M. Beslay, a member of the Chamber of
Deputies from 1S30 to 1839, and afterwards
of the Constituent Assembly, has founded an
important manufactory of steam engines at
Paris, in the Faubourg of the Temple. He
has taken his workpeople into partnership
ever since the beginning of 18-t", and the co iv
tract of association is one of the most com-
plete which have been made between em-
ployers and workpeople."

The practical sagacity cf Chinese emi-
grants long ago suggested to them, according
to the report of a recent visitor to Manilla, a
similar constitution of the relation between
an employer and labourers. " In these
Chinese shops" (at Manilla) "the owner
usually engages all the activity of his country-
men employed by him in them, by giving
each of them a share in the profits of the con-
cern, or in fact by making them all small
partners in the business, of which he of
course takes care to retain the lion's share,
so that while doin;; good for him by managing
it well, they are also benefiting themselves.
To such an extent is this principle carried,
that it is usual to give even their coolies a
share in the profits of the business in lieu of
fixed wages, and the plan appears to suit
their temper well ; for although they are in
general most complete eye-servants when
working for a fixed wage, they are fourjd to

PROBABLE FUTURE OF THE LABOURING CLASSES. 465

into practice. Messrs. Briggs, of the
Whitwood and Methley Collieries, near
Normanton in Yorkshire, have taken
the first step. They have issued a
proposal to work those collieries by a
company, two-thirds of the capital of
which they will themselves continue to
hold, but will in the allotment of the
remaining third give the preference to
the " officials and operatives employed
in the concern," and, what is of still
greater importance, will propose to the
shareholders that whenever the annual
profit exceeds 10 per cent, one-half the
excess shall be divided among the
•workpeople and employes, whether
sharonoraen or not, in proportion to
their earnings during the year. It is
highly honourable to these important
employers of labour to have initiated a
system so full of benefit both to the
operatives employed and to the general
interest of social improvement; and
they express no more than a just con-
fidence in the principle when they say,
that " the adoption of the mode of ap-
propriation thus recommended would,
it is believed, add so great an element
of success to the undertaking as to
increase rather than diminish the divi-
dend to the shareholders."

§ 6. The form of association, how-
ever, which if mankind continue to
improve, must be expected in the end
to predominate, is not that which can
exist between a capitalist as chief,
and workpeople without a voice in the
management, but the association of
the labourers themselves on terms of
equality, collectively owning the capital
with which they carry on their opera-
tions. and working under managers
elected and removable by themselves.
So long as this idea remained in a
state of theory, in the writings of Owen
or of Louis Blanc, it may have ap-
peared, to the common modes oF judg-
ment, incapable of being realized, and
not likely to be tried unless by seizing
on the existing capital, and confiscat-

p. 24.

F.E.

ing it for the benefit of the labourers ;
which is even now imagined by many
persons, and pretended by more, both
in England and on the Continent, to
be the meaning and purpose of Social-
ism. But there is a capacity of exertion
and self-denial in the masses of man-
kind, which is never known but on the
rare occasions on which it is appealed
to in the name of some great idea or
elevated sentiment. Such an appeal
was made by the French Revolution of
1848. For the first time it then seemed
to the intelligent and generous of the
working classes of a great nation, that
they had obtained a government who
sincerely desired the freedom and dig-
nity of the many, and who did not
look upon it as their natural and legiti-
mate state to be instruments of pro-
duction, worked for the benefit of tli*
possessors of capital. Under this en-
couragement, the ideas sown by So-
cialist writers, of an emancipation of
labour to be effected by means of
association, throve and fructified ; and
many working people came to the re-
•olution, not only that they would
work for one another, instead of
working for a master tradesman or
manufacturer, but that they would
also free themselves, at whatever cost
of labour or privation, from the ne-
cessity of paying, out of the pro-
duce of their industry, a heavy tribute
for the use of capital ; that they would
extinguish this tax, not by robbing the
capitalists of what they or their pre-
decessors had acquired by labour and
preserved by economy, but by honestly
acquiring capital for themselves. If
only a lew operatives had attempted
this arduous task, or if, while many
attempted it, a few only had succeeded,
their success might have been deemed
to furnish no argument for their sys-
tem as a permanent mode of industrial
organization. But, excluding all the
instances of failure, there exist or ex-
isted a short time ago, upwards of a
hundred successful, and many emi-
nently prosperous, associations of ope-
ratives in Paris alone, besides a con
siderable number in the departs -uita.
An instructive sketch of their history
and principles has been published,
H H

466 BOOK IV. CHAPTER VII.

under the title of " Association of
Workpeople Manufacturing and Agri-
cultural," by II. Feugueray: and as it
is frequently affirmed in English news-
papers that the associations at Paris
have failed, by writers who appear to
mistake the predictions of their enemies
at their first formation for the testi-
monies of subsequent experience, I
think it important to show by quota-
tions from M. Feugueray's volume,
strengthened by still later testimonies,
that these representations are not only
wide of the truth, but the extreme con-
trary of it.

The capital of most of the associa-
tions was originally confined to the few
tools belonging to the founders, and
the small sums which could be col-
lected from their savings, or which
were lent to them by other workpeople
as poor as themselves. In some cases,
however, loans of capital were made to
them by the republican government :
but the associations which obtained
these advances, or at least which ob-
tained them before they had already
achieved success, are, it appears, in
general by no means the most pros-
perous. The most .striking instances
of prosperity are in the case of those
who have had nothing to rely on but
their own slender means and the small
loans of fellow-workmen, and who lived
on bread and water while they devoted
the whole surplus of their gains to the
formation of a capital. "Often," says
M. Feugueray,* " there was no money
at all in hand, and no wages could be
paid. The goods did not go off, the
payments did not come in, bills could
not get discounted, the warehouse of
materials was empty ; they had to sub-
mit to privation, to reduce all expenses
to the minimum, to live sometimes on
bread and water. ... It is at the price

§6.

able history of one of these associa-
tions.*

"The necessity of a large capital
for the establishment of a pi
manufactory was so fully re-
in the trade, that in 1848 the delegates
of several hundred workmen who had
combined to form a great association,
solicited from the government a subven-
tion of 300,000 francs [12,000?.], being
a tenth part of the whole sum voted by
the National Assembly. I remember
that as one of the Commission charged
with the distribution of the fund, I
tried in vain for two hours to convince
the two delegates with whom tha
Commission conferred, that their re-
quest was exorbitant. They answered
imperturbably, that their trade was a
peculiar one ; that the association could
only have a chance of success on a very
large scale and with a considerable
capital ; that 300,000 francs were the
smallest sum which could suffice them,
and that they could not reduce the de-
mand by a single sou. The Commis-
sion refused.

" Now, after this refusal, the project
of a great association being abandoned,
what happened was this. Fourteen
workmen, and it is singular that among
them was one of the two delegates, re-
solved to set up by themselves a piano-
forte-making association. The project
was hazardous on the part of men who
had neither money nor credit : but
faith does not reason — it acts.

" Our fourteen men therefore i
work, and I borrow from an excellent
article by M. Cochut in the National,
the accuracy of which I can
the following account of their first pro-
ceedings.

" Some of them, who had worked on
their own account, brought with them
in tools and materials the value of about

of -these hardships and anxieties that 2000 francs [801.]. There was needed
men who began with hardly any re- j besides a circulating capital. Each
Source but their good will and their -
hands, succeeded in creating customers,
in acquiring credit, forming at last a
joint capital, and thus founding asso-

ciations whose futurity now seems to
be assured."

I will quote at length the remark.

*P. 112.

member, not without difficulty, ma-
naged to subscribe 10 francs [8s.]. A
certain number of workmen not in-
terested in the society gave their ad-
hesion by bringing small contributions.
On March 10, 1849, a sum of 229J
francs [92. 8s. 7 Id.] having been real-
* Pp. 113-16.

PROBABLE 1TTFRE OF THE LABOUHING CLASSES. 4G7

ized, the association was declared con-
stituted.

'' This sum was not even sufficient
for setting up, and for the small ex-
penses required from day to day for the
service of a workshop. There being
nothing left for wages, nearly two
months elapsed without their touching
a farthing. How did they subsist during
this interval ? As workmen live when
out of employment, by sharing the por-
tion of a comrade who is in work ; by
selling or pawning bit by bit the few
articles they possess.

"They had executed some orders.
They received the payment on the 4th
<-f May. That day was for them like
a victory at the opening of a campaign,
and they determined to celebrate it.
After paying all debts that had fallen
due, the dividend of each member
amounted to 6 francs 61 centimes.
They agreed to allow to each 5 francs
[4«. ] on account of his wages, and to
devote the surplus to a fraternal repast.
The fourteen shareholders, most of
tvhom had not tasted wine for a year
past, met, along with their wives and
children. They expended 32 sous
[Is. 4d.] per family. This day is still
spoken of iu their workshops with an
emotion which it is difficult not to
share.

" For a month longer it was neces-
sary to content themselves with the re-
ceipt of five francs per week. In the
course of June a baker, either from
love of music or on speculation, offered
to buy a piano, paying for it in bread.
The bargain was made at the price of
480 francs. It was a piece of good
luck to the association. They had
now at least what \vas indispensable.
They determined not to reckon the
bread in the account of wages. Each
ate according to his appetite, or rather
to that of his family; for the married
ehareholders were allowed to take away
bread freely for their wives and
children.

" Meanwhile the association, being
romposed of excellent workmen, gra-
dually surmounted the obsta
privations which had embarrassed its
starting. Its account-books oiler the
lost proof of the progress which its

pianos had made in the estimation of
buyers. From August 184'J the
weekly contingent rises to 10, 15, and
20 francs per week ; and this last sum
does not represent all their profits, each
partner having left in the common
stock much more than he received from
it. Indeed it is not by the sum which
the member receives weekly that his
situation can be judged, but by the
share acquired in the ownership of a
property already considerable. The
following was the position of the as-
sociation when it took stock on the
30th December 1850.

" At this period the nnmber of share-
holders was thirty-two. Large work-
shops and warehouses, rented for 2000
francs, were no longer sufficient for the
business.

Frs. Cents.

Independent of tools, valued at 5,922 60
They possessed in goods and
especially in materials, the

value of 22,972 29

They had in cash 1,021 10

„ in bills 3,540

There was due to tharn* . . 5,861 90

They had thus to their credit 39,317 83

Against this are only to be de-
bited 4737 francs 86 centimes
due to creditors, and 1650
francs to eighty adherents ;t
in all 6,387 86

liemaining

. 32,930 02
4s.]

which formed their indivisible capital
and the reserve of the individual mem-
bers. At this period the association
had 76 pianos under construction, and
received more orders than they could
execute."

From a later report we learn that this
society subsequently divided itself into
two separate associations, one of which,
in 1854, already possessed a circulating
capital of 56,000 francs}: [2240Z.]. In
1863 its total capital was 6520Z.

* " The last two items consisted of safe
securities, nearly all of which have since been
realized."

t " These adherents are workmen of the
trade, who subscribed small sums to the asso-
ciation at its commencement : a portion of
tlieiii were reimbursed in the beginning of
Isol. The sum due to creditors has also
been muijh reduced : on the 23rd of April it
only amounted to 113 francs 59 centimes."

1 Article by M. Cherotiiiez on "Opera-

H H 2

4G8

The

which

BOOK IV. CHAPTER VII. § 6.

same admirable qualities by
the associations were carried

through their early struggles, main-
tained them in their increasing pros-
perity. Their rules of discipline, in-
stead of being more lax, are stricter
than those of ordinary workshops ; but

tive Associations," in the Journal des Econo-
mistes for November 1860.

I subjoin, from M. Villiaume and M. Cher-
buliez, detailed particulars of other emi-
nently successful experiments by associated
workpeople.

" We will first cite," says M. Cherbuliez,
" as having attained its object and arrived at
ft definitive result, the Association Remquet,
of the Rue GaranciSre, at Paris, whose
founder, in 1848, was a foreman in M. Re-
nouard's printing establishment. That firm
being under the necessity of winding up, he
proposed to his fellow- workmen to join with
him in continuing the enterprise on their own
account, asking a subvention from the go-
vernment to cover the purchase-money of
the business and the first expenses. Fifteen
of them accepted the proposal, and formed
an association, whose statutes fixed the wages
for every kind of work, and provided for the
gradual formation of a working capital by a
deduction of 25 per cent from all wages and
salaries, on which deduction no dividend or
interest was to be allowed during the ten
years that the association was intended to
last. Remquet asked and obtained for him-
self the entire direction of the enterprise, at
a very moderate fixed salary. At the wind-
ing up, the entire profits were to be divided
among all the members, proportionally to
their share in the capital, that is, to the work
they had done. A subvention of 80,000 francs,
was granted by the State, not without great
difficulty, and on very onerous conditions.
In spite of these conditions, and of the un-
favourable circumstances resulting from the
political situation of the country, the asso-
ciation prospered so well, that on the wind-
ing up, after repaying the advance made by
the State, it was in possession of a clear ca-
pital of 155,000 francs [G200/.], the division of
which gave on the average between ten and
eleven francs to each partner; 7000 being
the smallest and 18,000 the largest share.

" The Fraternal Association of Working
Tinmen and Lampmakers had been founded
in March 1848 by 500 operatives, comprising
nearly the whole body of the trade. This
first attempt, inspired by unpractical ideas,
not having survived the fatal days of June, a
now association was formed of more modest
proportions. Originally composed of forty
members, it commenced business in 1849 with
a capital composed of the subscriptions of its
members, without asking for a subvention.
After various vicissitudes, which reduced the
number of partners to three, then brought it
back to fourteen, then again sunk it to three,
It ended by keeping together forty-six mcm-
bei'J, who quietly remodelled their statutes
m th? points which experience had shown

being rules self-imposed, for the mani-
fest good of the community, and not
for the convenience of an employer
regarded as having an opposite interest,
they are far more scrupulously obeyed,
and the voluntary obedience carries
with it a sense of personal \vorth and

to be faulty, and their number having been
raised by successive steps to 100, they pos-
sessed, in 1858, a joint property of 50,000
francs, and were in a condition to divide an-
nually 20,000 francs.

" The Association of Operative Jewellers,
the oldest of all, had been founded in 1831 by
eight workmen, with a capital of 200 francs
[81."] derived from their united savings. A
subvention of 21,000 francs enabled them in
1849 greatly to extend their operations, which
in 1858 had already attained the value of
140,000 francs, and gave to each partner an
annual dividend equal to double his wages."

The following are from M. Villiaume : —

" After the insurrection of June 1848, work
was suspended in the Faubourg St. Antoino,
which, as we know, is principally occupied
by furniture-makers. Some operative arm-
chair makers made an appeal to those who
might be willing to combine with them. Out
of six or seven hundred composing the trade,
four hundred gave in their names. But ca-
pital being wanting, nine of the most zealous
began the association with all that they pos-
sessed ; being a value of 369 francs in tools,
and 135 francs 20 centimes in money.

" Their good taste, honesty and punctuality
having increased their business, they soon
numbered 108 members. They received from
the State an advance of 25,000 francs, reim-
bursable in 14 years by way of annuity, with
interest at 3J per cent.

" In 1857 the number of partners is 65, the
auxiliaries average 100. All the partners
vote at the election of a council of eight mem-
bers, and a manager whose name represents
the firm. The distribution and superinten-
dence of all the works is entrusted to foremen
chosen by the manager and council. There
is a foreman to every 20 or 25 workmen.

" The payment is by the piece, at rates de-
termined in general assembly. The earnings
vary from 3 to 7 francs a day, according to
zeal and ability. The average is 50 francs
[2/.] a fortnight, and no one gains much less
than 40 francs per fortnight, while many earn
80. Some of the carvers and moulders'malie
as much as 100 francs, being 200 francs [s/. ]
a month. Each binds himself to work 120
hours per fortnight, equal to ten per da^.
By the regulations, every hour short of the
number subjects the delinquent to a penally
of 10 centimes [one pennyj per hour up to
thirty hours, and 15 centimes [1^.] beyond.
The object of this rule was to abolish Saint
Monday, and it succeeded in its effort. For
the last two years the conduct of the mem-
bers has been so good, that fines have fallen
into disuse.

" Though the partners started with only
359 francs, the vaJve of the plant (Hue df

PllOBABLE FUTURE OF TUB LABOURING CLASSES. 469

dignity. With wonderful rapidity the
associated workpeople have learnt to
correct those of the ideas they set out
\\ith, which are in opposition to the
teaching of reason and experience.
Almost all the associations, at first, ex-
cluded piece-work, and gave equal
wages whether the work done was more

Chavonne, Cour St. Joseph, Faubourg St.
Antoine) already in 1851 amounted to 5713
franca, and the assets of the association,
debts due to them included, to 24,000 francs.
Since then the association has become still
more flourishing, having resisted all the at-
tempts made to impede its progress. It does
the largest business, and is the most con-
sidered, of all the bouses in Paris in the trade.
Its business amounts to400,000 francs a year."
Its inventory in December 1855 showed, ac-
cording to M. Villiaume', a balance of 100,398
francs 90 centimes in favour of the associa-
tion, but it possessed, he says, in reality,
123,000 francs.

But the most important association of all
is that of the 'Masons. " The Association of
Masons was founded August 10th, 1848. Its
address is Rue St. Victor, 155. Its number of
members is So, and its auxiliaries from three
to four hundred. There are.two managers,
one for the building department, the otherfor
the pecuniary administration : these are re-
garded as the ablest master-masons in Paris,
and are content with a moderate salary. This
association has lately constructed three or
four of the most remarkable mansions in the
metropolis. Though it does its work more
economically than ordinary cpntractors,yet as
ithastogive long credits, it is called upon for
considerable advances : it prospers, however,
as is proved by the dividend of 56 per cent
which has been paid this year on its capital,
including in the payment those who have as-
sociated themselves in its operations. It con-
sists of workmen who bring only their labour,
of others who bring their labour and a capital
of some sort, and of a third class who do not
work, but contribute capital only.

" The masons, in the evening, carry on
mutual instruction. They, as well as the
arm-chair makers, give medical attendance
at the expense of the association, arid an allow-
ance to its sick members. They extend their
protection over every member in every action
of his life. The arm-chair makers will soon
each possess a capital of two or three thou-
sand francs, with which to portion their
daughters or commence a reserve for future
years. Of the masons, some have already
4000 francs, which are left in the common
stock.

" Before they were associated, these work-
men were poorly clad in jackets and blouses;
because, for want of forethought,and still more
from want of work, they had never CO t'rancs
beforehand to buy an overcoat. Most ofthem
are now as well dressed as shopkeepers, and
sometimes more tastefully. For the work-
man, having always a credit with the associa-
tion, can get whatever he wants by signing an

or less. Almost all have abandoned
this system, and after allowing to every
one a fixed minimum, sufficient for sub-
sistence, they apportion all further re-
muneration according to the work
done : most of them even dividing the
profits at the end of the year, in tho
same proportion as the earnings.*

order ; and the association reimburses itself
by fortnightly stoppages, making him save as
it were in spite of himself. Some workmen
who are not in debt to the concern, sign
orders payable to themselves at five months
date, to resist the temptation of needless ex-
»e. They are put under stoppages of 10
ics per fortnight, and thus at the end of
five months they have saved the amount."
The following table, taken by M.Cherbuliez

pense.
francs

most ardent and high-principled apostles of
this kind of co-operation) shows the rapidly
progressive growth in prosperity of the
Masons' Association up to 1858:—

Amount of Profits

Year. business done, realized.

francs. francs.

1862 .... 45,530 ... 1,000

1853 .... 297,208 ... 7,000

1854 .... 3*4,240 ... 20,000

1855 .... 614,694 ... 46,000

1856 .... 998,240 ... 80,000

1857 .... 1,330,000 ... 100,000

1858 .... 1,231,461 ... 130,000

" Of this last dividend," says M. Cherbuliez,
"30,000 francs were taken for the reservo
fund, and the remaining 100,000, divided
among the shareholders, gave to each from
600 to 1500 francs, besides their wages or
salaries, and their share in the fixed capital
of the concern."

Of the management of the associations
generally, M. Villiaume^ says, " I have been
able to satisfy myself personally of the ability
of the managers and councils of the opera-
tive associations. The managers are far su-
perior in intelligence, in zeal, and even in
politeness, to most of the private masters in
their respective trades. And among the as-
sociated workmen, the fatal habit of intem-
perance is gradually disappearing, along with
the coarseness and rudeness which are the
consequence of the too imperfect education
of the class."

* Even the association founded by M.
Louis Blanc, that of the tailors of Clichy,
after eighteen months trial of this system,
adopted piece-work. One of the reasons
given by them for abandoning the original
system is well worth extracting. " Besides
the vices I have mentioned, the tailors com-
plained that it caused incessant disputes and
quarrels, through the interest which each had
in making his neighbours work. Their mu-
tual watchfulness degenerated into a real
slavery ; nobody had the free control of his
time and his actions. These dissensions have
disappeared since piece-work was intro-
duced."— Fevgueray, p. 88. One of the most

470

It is the declared principle of most
of these associations, that they do not
exist for the mere private benefit of the
individual members, but for the pro-
motion of the ce-opera live cause. "With
every extension, therefore, of their busi-
ness, they take in additional members,
not (when they remain faithful to their
original plan) to receive wages from
them as hired labourers, but to enter at
once into the full benefits of the asso-
ciation, without being required to bring
anything in, except their labour: the
only condition imposed is that of re-
ceiving during a few years a smaller
share in the annual division of profits,
as some equivalent for the sacrifices of
the founders. When members quit the
association, which they are always at
liberty to do, they carry none of the
capital with them : it remains an indi-
visible property, of which the members
for the time being have the use, but
not the arbitrary disposal : by the sti-
pulations of most of the contracts, even
if the association breaks up, the capital
cannot be divided, but must be devoted
entire to some work of beneficence or
of public utility. A fixed, and gene-
rally a considerable, proportion of the
annual profits, is not shared among the
members, but added to the capital of
the association, or devoted to the re-
payment of advances previously made
to it : another portion is set aside to
provide for the sick and disabled, and
another to form a fund for extending
the practice of association, or aiding
other associations in their need. The
managers aro paid, like other mem-
bers, for the time which is occupied in

discreditable indications of a low moral con-
dition given of late by part of the English
working classes, is the opposition to piece-
work. When the payment per piece is cot
sufficiently high, that is a just ground of ob-
jection. But dislike to piece-work in itself,
except under mistaken notions, must be dis-
like to justice and fairness ; a desire to cheat,
by not giving work in proportion to pay.
Piece-work is the perfection of contract;
and contract, in all work, and in the most
minute detail — the principle of so much pny
for so much service, carried out to tlie utmost
extremity — is the system, of all others, in the
present state of society and degree of civiliza-
tion, most favourable to the worker; though
most unfavourable to the non-worker who
wishes to be paid for being idle.

BOOK IV. CHAPTER VII. § 6.

management, usually at the rate of
the highest paid labour : but the rule is
adhered to, that the exercise of power
shall never be an occasion for profit.

Of the ability of the associations to
compete successfully with individual
capitalists, even at an early period of
their existence, M. Feugucray* said,
" The associations which have been
founded in the last two years" (M.
Fcugueray wrote in 1851) "had many
obstacles to overcome ; the majority of
them were almost entirely without
capital : all were treading in a path
previously unexplored ; they ran the
risks which always threaten innovators
and beginners. Nevertheless, in many
of the trades in which they have been
established, they are already formidable
competitors of the old houses, and are
even complained of on that account by
a part of the bourgeoisie. This is not
only true of the cooks, the lemonade
sellers, and hairdressers, trades the
nature of which enables the associa-
tions to rely on democratic custom, but
also in other trades where they have
not the same advantages. One has
only to consult the makers of chairs, of
arm-chairs, of files, and one will learn
from them if the most important esta-
blishments in their respective trades aro
not those of the associated •workmen."

The vitality of these associations
must indeed be great, to have enabled
about twenty of them to survive not
only the anti-socialist reaction, which
for the time discredited all attempts
to enable workpeople to be their own
employers — not only the tracasseries
of the police, and the hostile policy of
the government since the usurpation —
but in addition to these obstacles, all
the difficulties arising from the trying
condition of financial and commercial
affairs from 1854 to 1858. Of the pros-
perity attained by some of them even
while passing through this difficult
period, I have given examples which
must be conclusive to all minds as to
the brilliant future reserved for the
principle of co -opcration.f

• Pp. 37-8.

t In the last year or two, the co-operativa
movement among the French wo,
classes has taken a fresh start. An interest*

PROBABLE FUTURE OF THE LABOURING CLASSES. 4?l

It is not in France alone that those

;,ive commenced a career

of prosperity. To say nothing at present

•:iany, Piedmont, or Swi
(whore the Consumers' Union of Zurich
is one of the most prosperous co-opera-
tive associations in Europe), England
can produce cases of success, rivalling
even those which I have cited from
France. Under the impulse commenced
by Mr. Owen, and more recently pro-
1 1 by the writings and personal

efforts of a band of friends, chiefly
ion and hamsters, to whose
noble exertions too much praise can
scarcely be given, the good seed was
widely S'>wn ; the necessary alterations
in the English law of partnership were
obtained from Parliament, on the bene-
volent and public-spirited initiative of
Mr. Slaney; many industrial associa-
tions, and a still greater number of
co-operative stores for retail purchases,
were founded. Among these are already
many instances of remarkable pros-
perity, the most signal of which are
the Leeds Flour Mill, and the Rochdale
nt Equitable Pioneers. Of this
riation, the most successful of
all, the history has been written in a
very interesting manner by Mr. Iloly-
oake ;* and the notoriety which by

ing account of the Provision Association of
Grenoblo has been given in a pamphlet by
M. Casiinir Pcrier; and in the Times of
November 21, 1864, we road the following
passage : " While a certain number of ope-
rutivea stand out for more wages or fewer
hours of labour, others, who have also
seceded, have associated for the purpose of
carrying on their respective trades on their
own account, and have collected funds for
the purchase of instruments of labour. They
have founded a society — Societe Generale
d'Approvisionnement et de Consommation.
It numbers between 300 and 400 members,
•> already opened a " co-operative
store" at Fassy, wuich is now within the limits
of Paris. They calculate that by May next
fifteen new self-supporting associations of
the same kind will be ready to commence
operations; so that the number will be, for
Paris alone, from 50 to 60.

• Self-Self by tht People— History of Co-
If trillion in Rochdale. An instructive ac-
count of this and other co-operative associa-
tions has also been written in the Companion
to the Almaih; . by Mr. John

Plummcr, of Kettcring; himself one of the
examples of mental cultiva-
tion and high principle in a self-instructed
:.• irking or. an.

this and other means has been given
to facts so encouraging, is causing a
rapid extension of associations with
similar objects in Lancashire, York-
shire, London, and elsewhere.

The original capital of the Rochdale
Society consisted of 281., brought to-
gether by the unassisted economy of
about forty labourers, through 1 •

Process of a subscription of twopence
afterwards raised to threepence) per
week. With this sum they established
in 1844 a small shop, or store, for the
supply of a few common articles for
the consumption of their own fami-
lies. As their carefulness and honesty
brought them an increase of customers
and of subscribers, they extended their
operations to a greater number of arti-
cles of consumption, and in a few years
were able to make a large investment
in shares of a Co-operative Corn Mill.
Mr. Holyoake thus relates the stages
of their progress up to 1857.

" The Equitable Pioneers' Society is
divided into seven departments : Gro-
ccry,Drapery, Butchering, Shocmakiiig,
Clogging, Tailoring, Wholesale.

" A separate account is kept of each
business, and a general account :
each quarter, showing the position of
the whole.

" The grocery business was com-
menced, as we have related, in De-
cember 1844, with only four ar;i
sell. It now includes whatever a gro-
cer's shop should include.

" The drapery business was started
in 1847, with an humble array of at-
tractions. In 1854 it was erected into
a separate department.

"A year earlier, 1846, the Store
began to sell butcher's meat, buying
eighty or one hundred pounds of a
tradesman in the town. After a while,
the sales were discontinued until 1850,
when the Society had a warehouse of
its own. Mr. John Moorhouse, who
has now two assistants, buys and kills
for the Society three oxen, eight sheep,
sundry porkers and calves, which are
on the average converted into 1301. of
cash per week.

" Shoemaking commenced in 1852.
Three men and an apprentice make,
and a stock is kept on sale.

472

BOOK IV. CHAPTER VII. § G.

" Clogging and tailoring commenced
also in this year.

" The -wholesale department com-
menced in 1852, and marks an im-
portant development of the Pioneers'
proceedings. This department has been
created for supplying any members re-
quiring largo quantities, and with a
view to supply the co-operative stores
of Lancashire and Yorkshire, whose
small capitals do not enable them to
buy in the best markets, nor command
the services of what is otherwise indis-
pensable to every store — a good buyer,
who knows the markets and his busi-
ness, who knows what, how, and where
to buy. The wholesale department
guarantees purity, quality, fair prices,
standard weight and measure, but all
on the never-failing principle, cash pay-
ment."

In consequence of the number of
members who now reside at a distance,
and the difficulty of serving the great
increase of customers, " Branch Stores
have been opened. In 1856, the first
Branch was opened, in the Oldham
Road, about a mile from the centre
of Rochdale. In 1857 the Castleton
Branch, and another in the Whitworth
Road, were established, and a fourth
Branch in Pinfold."

The warehouse, of which the original
Store was a single apartment, was
taken on lease by the Society, very
much out of repair, in 1849. " Every
part has undergone neat refitting and
modest decoration, and now wears the
air of a thoroughly respectable place
of business. One room is now hand-
somely fitted up as a newsroom. Another

is neatly fitted up as a library

Their newsroom is as well supplied as
that of a London club." It is now
" free to members, and supported from
the Education Fund," a fund con-
sisting of 2J per cent of all the profits
divided, which is set apart for educa-
tional purposes. " The Library con-
tains 2200 volumes of the best, and
among them, many of the most ex-
pensive books published. The Library
is free. From 1850 to 1855, a school
for young persons was conducted at a
charge of twopence per month. Since
1855, a room has been granted by the

Board for the use of from twenty to
thirty persons, from the ages of four-
teen to forty, for mutual instruction on
Sundays and Tuesdays. . . .

" The corn-mill was of course rented,
and stood at Small Bridge, some dis-
tance from the town — one mile and a
half. The Society have since built in
the town an entirely new mill for them-
selves. The engine and the machinery
are of the most substantial and im-
proved kind. The capital invested .
in the corn-mill is 8450Z., of which
3731Z. 15s. 2d. is subscribed by the
Equitable Pioneers' Society. The corn-
mill employs eleven men."

At a later period they extended their
operations to the staple manufacture
itself. From the success of the Pioneers'
Society grew not only the co-operative
corn-mill, but a co-operative associa-
tion for cotton and woollgn manufac-
turing. " The capital in this depart-
ment is 4000Z., of which sum 2042J.
has been subscribed by the Equitablo
Pioneers' Society. This Manufacturing
Society has ninety-six power-looms at
work, and employs twenty-six men,
seven women, four boys, and five girls
— in all forty-two persons "

" In 1853 the Store purchased for
745Z. a warehouse (freehold) on the
opposite side of the street, where they
keep and retail their stores of flour,
butcher's meat, potatoes, and kindred
articles. Their committee-rooms and
offices are fitted up in the same build-
ing. They rent other houses adjoining
for calico and hosiery and shoe stores.
In their wilderness of rooms, the visitor
stumbles upon shoemakers and tailors,
at work under healthy conditions, and
in perfect peace of mind as to the re-
sult on Saturday night. Their ware-
houses are everywhere as bountifully
stocked -as Noah's Ark, and cheerful
customers literally crowd Toad Lane
at night, swarming like bees to every
counter. The industrial districts of
England have not such another sight
as the Rochdale Co-operative Store on
Saturday night.* Since the disgraceful

* "But it is not," adds Mr. Holyoake,
"the brilliancy of commercial activity ia
which either writer or reader will take the
deepest interest; it is in the new and im«

PROBABLE FUTU11E OF THE LABOURING CLASSES.

failure of the Rochdale Savings Bank

in 1849, the Society's Store has become

the virtual Savings Bank of the place.

The following table, completed to

1860 from the Almanack published by
the Society, shows the pecuniary result
of its operations from the commence-
ment.

Tear.

No. of
members.

Amount of capital.

Amount of cash sales
in store (annual).

1
Amount of profit
(annual).

£ 8. d.

£ s. d.

£ «. d.

1044.

oq

OQ (] ()

I O^^

1845

£O

74

*O V V

181 12 5

710 6 5

32 17 6

1846

86

252 7 li

1,146 17 7

80 16 34

1847

110

286 5 34

1,924 13 10

72 2 10

1848

140

397 0 0

2,276 6 5i

117 16 104

1849

390

1,193 19 1

6,611 18 0

561 3 9

1850

600

2,299 10 5

13,179 17 0

889 12 5

1851

630

2,785 0 li

17,638 4 0

990 19 84

1852

680

3,471 0 6

16,352 5 0

1,206 15 24

1853

720

5,848 3 11

22,760 0 0

1,674 18 ll|

1854

900

7,172 15 7

33,364 0 0

1,763 11 2|

1855

1400

11,032 12 10J

44,902 12 0

3,106 8 44

1856

1600

12,920 13 14

63,197 10 0

3,921 13 14

1857

1850

15,142 1 2

79,788 0 0

5,470 6 8J

1858

1950

18,160 4

71,689 0 0

6,284 17 44

1859

2703

27,060 14 2

104,012 0 0

10,739 18 6£

1860*

3450

37,710 9 0

152,063 0 0

15,906 9 11

proved spirit animating this intercourse of
trade. Buyer and seller meet as friends ;
there is no overreaching on one side, and no

suspicion on the other These crowds

of humble working men, who never knew
before when they put good food in their
mouths, whose every dinner was adulterated,
whose shoes let in the water a month too
soon, whose waistcoats shone with devil's
dust, and whose wives wore calico that would
not wash, now buy in the markets like mil-
lionnaires, and as far as pureness of food
goes, live like lords." Far oetter, probably,
in that particular ; for assuredly lords are
not the customers least cheated, in the pie-
sent race of dishonest competition. " They
are weaving their own stuffs, making their
own shoes, sewing their own garments, and
grinding their own corn. They buy the
purest sugar and the best tea, and grind their
own coffee. They slaughter their own cattle,
and the finest beasts of the land waddle down
the streets of Rochdale for the consumption
of flannel-weavers and cobblers. (Last year
the Society advertised for a Provision Agent
to make purchases in Ireland, and to devote
his whole time to that duty.) When did
competition give poor men these advantages ?
And will any man say that the moral cha-
lacter of these people is not improved under
these influences ? The teetotallers of Koch-
dale acknowledge that tho Store has made
more sober men since it commenced than all
their efforts have been able to make in the
same time. Husbands who never knew what

it was to be out of debt, and poor wives who
during forty years never had sixpence uncon-
demned in their pockets, now possess little
stores of money sufficient to build them cot-
tages, and to go every week into their own
market with money jingling in their pockets ;
and in that market there is no distrust and no
deception ; there is no adulteration, and
no second prices. The whole atmosphere
is honest. Those who serve neither hurry,
finesse, nor flatter. They hate no interest in
chicanery. They have but one duty to per-
form— that of giving fair measure, full
weight, and a pure article. In other parts
of the town, where competition is the prin-
ciple of trade, all the preaching in Eoch.
dale cannot produce moral effects like
these.

" As the Store hag made no debts, it has
incurred no losses; and during thirteen
years' transactions, and receipts amounting
to 303,852?., it has had no law-suits. Tho
Arbitrators of the Societies, during all their
years of office, have never had a case to
decide, and are discontented that nobody
quarrels."

* The latest report to which I have access
is that for the quarter ending Sept. 20, 1864,
of which I take the following abstract from
the November number of that valuable pe-
riodical the Co-operator, conducted by Mr.
Henry Pitman, one of the most active and
judicious apostles of the Co-operative cause.
" The number of members is 4CSO, being
tux increase of 132 for the three mouths j

474

BOOK IV. CHAPTER VII. § G.

I need not enter into similar parti-
culars respecting the Corn-Mill Society.
and will merely state that in 1860 its
capital is set down, on the same autho-
rity, at 26,6182. 14s. 6d., and the profit
for that single year at 10,1641 12s. 5d.
For the manufacturing establishment I
have no certified information later than
that of Mr. Holyoake, who states the
capital of the concern, in 1857, to he
5500Z. But a letter in the Rochdale
Observer of May 26, 1860, editorially
announced as by a person of good in-
formation, says that the capital had at
that time reached 50,OOOZ.: and the
E?.me letter gives highly satisfactory
statements respecting other similar
associations : the Rossendale Industrial
Company, capital 40,OOOZ. ; the Wals-
den Co-operative Company, capital
8000Z. ; the Bacup and Wardle Com-
mercial Company, with a capital of
40.000Z., " of which more than one=
third is borrowed at 5 per cent, and
this circumstance, during the last two
years of unexampled commercial pros-
perity, has caused the rate of dividend
to shareholders to rise to an almost
fabulous height."

It is not necessary to enter into any
details respecting the subsequent his-
tory of English Co-operation; the less
so, as it is now one of the recognised
elements in the progressive movement
of the age, and as such, has latterly
been the subject of elaborate articles in
most of our leading periodicals, the
most recent, and one of the best of
which, was in the Edinburgh Review

the capital or assets of the society is
59,536?. 10«. Id., or more than last quarter
by 3637Z. 13«. 7d. The cash received for sale
of goods is 45,8062. 0*. 10%d., being an increase
of 22S3Z. 12*. &\d., as compared with the pre-
vious three months. The profit realized is
6713/. 2f. 7i<7., which after depreciating fixed
stock account 182?. 2s. tyd., paying interest
on share capital 598?. 17*. 6rf., 'applying 2$ per
cent to an educational fund, viz. 122?. 17*. 9</.,
leaves a dividend to members on their pur-
chases of 2s. 4rf.inthc pound. Non-members
have received 261?. ISs. 4d., at 1». Bd. in the
pound on their purchases, leaving 3d. in the
pound profit to the society, which increases
the reserve fund 1041. 15*. 4d. This fund
now stands at 1352?. 7«. 11$<2. the accumula-
tion of profits from the trade of the public
with the store since September 1S62, over
and above tho Is. Sd.ia tie pound allowed to
such purchasers."

for October 1864 : and the progress of
Co-operation from month to month is
regularly chronicled in the " Co-opera-
tor." I must not, however, omit to
mention the last great step in advance,
in reference to the Co-operative Stores ;
the formation, in the North of England
(and another is in course of formation
in London) of a Wholesale Society, to
dispense with the services of the whole-
sale merchant as well as of the retail
dealer, and extend to the Societies the
advantage which each society gives to
its own members, by an agency for
co-operative purchases of foreign as
well as domestic commodities direct
from the producers.

It is hardly possible to take any but
a hopeful view of the prospects of man-
kind, when in the two leading countries
of the world, the obscure depths of
society contain simple working men
whose integrity, good sense, self-com-
mand, and honourable confidence in
one another, have enabled them to
carry these noble experiments to the
triumphant issue which the facts
recorded in the preceding pages
attest.

From the progressive advance of tho
co-operative movement, a great in-
crease may be looked for even in the
aggregate productiveness of industry.
The sources of the increase are two-
fold. In the first place, the class of
mere distributors, who are not pro-
ducers but auxiliaries of production,
and whose inordinate numbers, far
more than the gains of capitalists, are
the cause why so great a portion of the
wealth produced does not reach the
producers — will be reduced to more
modest dimensions. Distributors differ
from producers in this, that when pro-
ducers increase, even though in any
given department of industry they may
be too numerous, they actually produce
more : but the multiplication of distri-
butors does not make more distribution
to be done, more wealth to be distri-
buted; it does but divide th
work among a greater number of per-
sons, seldom even cheapening the pro-
cess. By limiting the distributors^ to
the number really required for making
the commodities accessible to the con-

PROBABLE FUTURE OF THE LABOURING CLASSES. 473

Burners — which is the direct effect of
the co-operative system — avast numher
of hands will be set free for production,
and the capital which feeds and the
gains which remunerate them will be
applied to feed and remunerate pro-
ducers. This great economy of the
world's resources would be realized,
even if co-operation stopped at as-
sociations for purchase and con-
sumption, without extending to pro-
duction.

The other mode in which co-opera-
tion tends-, still more efficaciously, to
increase the productiveness of labour,
consists in the vast stimulus given to
productive energies, by placing the
labourers, as a mass, in a relation to
their work which would make it their
principle and their interest — at present
it is neither — to do the utmost instead
of the least possible in exchange for
their remuneration. It is scarcely
possible to rate too highly this material
benefit, which yet is as nothing com-
pared with the moral revolution in
society that would accompany it : the
healing of the standing feud between
capital and labour; the transformation
of human life, from a conflict of classes
struggling for opposite interests, to a
friendly rivalry in the pursuit of a good
common to all ; the elevation of the
dignity of labour, a new sense of
security and independence in the
labouring class, and the conversion
of each human being's daily occu-
pation into a school of the social
sympathies and the practical intelli-
gence.

Such is the noble ideal which the
promoters of Co-operation should have
before them. But to attain, in any
degree, these objects, it is indispensable
that all, and not some only, of those
who do the work, should be identified
in interest with the prosperity of the
undertaking. Associations which,
when they have been successful, re-
nounce the essential principle of the
system, and become joint-stock com-
panies of a limited number of share-
holders, who differ from those of other
companies only in being working men ;
associations which employ hired la-
bourers without any interest in the

profits (and I grieve to say that the
Manufacturing Society even of Roch-
dale has thus degenerated), are, no
doubt, exercising a lawful right in
honestly employing the existing system
of society to improve their position aa
individuals : but it is not from them
that anything needs be expected to-
wards replacing that system by a
better. Neither will such societies, in
the long run, succeed in keeping their
ground against individual competition.
Individual management by the one
person principally interested, has great
advantages over every description of
collective management : co-operation
has but one thing to oppose to those
advantages — the common interest of all
the workers in the work. When indi-
vidual capitalists, as they will cer-
tainly do, add this to their other points
of advantage ; when, even if only to
increase their gains, they take up the
practice which these co-operative socie-
ties have dropped, and connect the
pecuniary interest of every person in
their employment with the most effi-
cient and most economical manage-
ment of the concern ; they are likely to
gain an easy victory over societies
which retain the defects, while they
cannot possess the full advantages, of
the old system.

Under the most favourable supposi-
tion it will be desirable, and perhaps
for a considerable length of time, that
individual capitalists associating their
workpeople in the profits, should co-
exist with even those co-operative
societies which are faithful to the co-
operative principle. Unity of authority
makes many things possible, which
could not, or would not, be undertaken,
subject to the chance of divided coun-
cils, or changes in the management. A
private capitalist, exempt from the
control of a body, if he is a person of
capacity, is considerably more likely
than almost any association to run
judicious risks, and originate costly
improvements. Co-operative societies
may be depended on for adopting im-
provements after they have been tested
by success : but individuals are more
likely to commence things previously
untried. Even in ordinary business,

476

BOOK IV. CHAPTER VII. § ?.

the competition of capable persons who
in the event of failure are to have all
the loss, and in case of success the
greater part of the gain, will be very
useful in keeping the managers of co-
operative societies up to the due pitch
of activity and vigilance.

When, however, co-operative societies
shall have sufficiently multiplied, it is
not probable that any but the least
valuable workpeople will any longer
consent to work all their lives for wages
merely: and both private capitalists
and associations will gradually find it
necessary to make the entire body of
labourers participants in profits. Even-
tually, and in perhaps a less remote
future than may be supposed, \ve may,
through the co-operative principle, see
our way to a change in society, which
would combine the freedom and inde-
pendence of the individual, with the
moral, intellectual, and economical
advantages of aggregate production ;
and which, without violence or spolia-
tion, or even any sudden disturbance
of existing habits and expectations,
would realize, at least in the industrial
department, the best aspirations of the
democratic spirit, by putting an end to
the division of pociety into the indus-
trious and the idle, and effacing all
social distinctions but those fairly
earned by personal services and exer-
tions. Associations like those which
we have described, by the very process
of their success, are a course of educa-
tion in those moral and active qualities
by which alone success can be cither
deserved or attained. As associations
multiplied, they would tend more and
more to absorb all workpeople, except
those who have too little understanding,
or too little i virtue, to be capable of
learning to act on any other system
than that of narrow selfishness. As
this change proceeded, owners of capi-
tal would gradually find it to their
advantage, instead of maintaining the
struggle of the old system with work-
people of only the worst description, to
lend their capital to the associations ;
to do this at a diminishing rate of in-
terest, and at last, perhaps, even to
exchange their capital for terminable
annuities. In this or some such mode,

the existing accumulations of capital
might honestly, and by a kind of spon-
taneous process, become in the end the
joint property of all who participate in
their productive employment : a trans-
formation which, thus effected, (and
assuming of course that both sexes
participate equally in the rights and
in the government of the association)*
would be the nearest approach to social
jtistice, and the most beneficial order-
ing of industrial affairs for the universal
good, which it is possible at present to
foresee.

§ 7. I agree, then, with the So-
cialist writers in their conception of
the form which industrial operations
tend to assume in the advance of im-
provement ; and I entirely share their
opinion that the time is ripe for com
mencing this transformation, and that
it should by all just and effectual means
be aided and encouraged. But while
I agree and sympathize with Socialists
in this practical portion of their aims,
I utterly dissent from the most conspi-
cuous and vehement part of their
teaching, their declamations against
competition. With moral conceptions
in many respects far ahead of the ex-
isting arrangements of society, they
have in general very confused and
erroneous notions of its actual working ;
and one of their greatest errors, as I
conceive, is to charge upon competition
all the economical evils which at
present exist. They foi-get that wher-
ever competition is not, monopoly is;

* In this respect also the Rochdale Society
has given an example of reason and justice,
worthy of the good sense and good feeling
manifested in their general proceedings.
" The Rochdale Store," says Mr. Holyoake,
" renders incidental but valuable aid towards
realizing the civil independence of women.
Women may be members of this Store, and
vote in its proceedings. Single and married
women join. Many married v.'omen become
members because their husbands will not
take the trouble, and others join in it in self-
defence, to prevent the husband from spend-
ing their money in drink. The husband can-
not withdraw the savings at the Store stand-
ing in the wife's name, unless she signs the
order. Of course, as the law still stands, tho
husband could by legal process get possession
of the money. But a process takes time, and
the husband gets sober and thinks better of
it before the law can move."

PROBABLE FUTURE OF THE LABOURING CLASSES. 477

and that monopoly, in all its forms, is
the taxation of the industrious for the
support of indolence, if not of plunder.
They forget, too, that with the excep-
tion of competition among labourers,
all other competition is for the benefit
of the labourers, by cheapening the
articles they consume ; that competi-
tion even in the labour market is a
source not of low but of high wages,
wherever the competition for labour
exceeds the competition of labour, as
in America, in the colonies, and in the
skilled trades; and never could be a
cause of low wages, save by the over-
stocking of the labour market through
the too great numbers of the labourers'
families; while, if the supply of la-
bourers is excessive, not even Socialism
can prevent their remuneration from
being low. Besides, if association were
universal, there vould be no competi-
tion between labourer and labourer;
and that between association and asso-
ciation would b« for the benefit of the
consumers, that is, of the associa-
tions ; of the industrious classes gene-
rally.

I do not pretend that there are no
inconveniences in competition, or that
the moral objections urged against it
by Socialist writers, as a source of
jealousy and hostility amons tnose i
engaged in the same occupation, are
altogether groundless. But if compe-
tition has its evils, it prevents greater
evils. As M. Feugueray well says,*
"The deepest root of the evils and ini-
quities which fill the industrial world,
is not competition, but the subjection
of labour to capital, and the enormous
share which the possessors of the in-
struments of industry are able to take
from the produce If competi-
tion has great power for evil, it is no
less fertile of good, especially in what
regards the development of the indi-
vidual faculties, and the success of
innovations." It is the common error
of Socialists to overlook the natural in-
dolence of mankind ; their tendency to
be passive, to be the slaves of habit, to
persist indefinitely in a course once
chosen. Let them once attain any

*P. 90.

state of existence which they consider
tolerable, and the danger to be appre-
hended is that they will thenceforth
stagnate ; will not exert themselves to
improve, and by letting their faculties
rust, will lose even the energy required
to preserve them from deterioration.
Competition may not be the best con-
ceivable stimulus, but it is at present a
necessary one, and no one can foresee
the time when it will not be indispen-
sable to progress. Even confining our-
selves to the industrial department, in
which, more than in any other, the
majority may be supposed, to be com-
petent judges of improvements ; it
would be difficult to induce the general
assembly of an association to submit to
the trouble and inconvenience of alter-
ing their habits by adopting some new
and promising invention, unless their
knowledge of the existence of rival
associations made them apprehend that
what they would not consent to do,
others would, and that they would bo
left behind in the race.

Instead of looking upon competition
as the baneful and anti-social principle
which it is held to bo by the generality
of Socialists, I conceive that, even in
the present state of society and in-
dustry, every restriction of it is an evil,
ana every extension of it, even if for
the time injuriously affecting some
class of labourers, is always an ultimate
good. To be protected against com-
petition is to be protected in idleness,
in mental dulness ; to be saved tho
necessity of being as active and as in-
telligent as other people ; and if it is
also to be protected against being un-
derbid for employment by a less highly
paid class of labourers, this is only
where old custom or local and partial
monopoly has placed some particular
class of artisans in a privileged position
as compared with the rest; and tho
time has come when the interest of
universal improvement is no longer
promoted by prolonging the privileges
of a few. If the slopsellers and others
of their class have lowered the wages
of tailors, and some other artisans, by
making them an affair of competition
instead of custom, so much the better
in the end. What is now required ia

478

BOOK IV. CHATTER VII. § 7.

not to bolster up old customs, whereby
limited classes of labouring people ob-
tain partial gains which interest them
in keeping up the present organi/ation
of society, but to introduce new general
practices beneficial to all ; and there is
reason to rejoice at whatever makes
the privileged classes of skilled artisans

feel, that they have the same interests,
and depend for their remuneration on
the same general causes, and must re-
sort for the improvement of their con-
dition to the same remedies, as the less
fortunately circumstanced and compa-
ratively helpless multitude.

BOOK V.

ON THE INFLUENCE OP GOVEENMENT.

CHAPTER L

OF THE FUNCTIONS OP GOVERNMENT IN GENERAL.

§ 1. ONE of the most disputed
questions both in political science and
'. .lanship at this par-

ticular period, relates to the proper
limita of the functions and agency of
governments. At other times it has
been a subject of controversy how go-
vernments should be constituted, and
according to what principles and rules
they should exercise their authority ;
but it is now almost equally a question,
to what departments of human affairs
that authority should extend. And
when the tide sets so strongly towards
changes in government and legislation,
as a means of improving the condition
of mankind, this discussion is more
likely to increase than to diminish in
interest. On the one hand, impatient
reformers, thinking it easier and shorter
to get possession of the government
than of the intellects and dispositions
of the public, are under a constant
temptation to stretch the province of
government beyond due bounds : while,
on the other, mankind have been so
much accustomed by their rulers to in-
terference for purposes other than the
public good, or under an erroneous con-
ception of what that good requires,
and so many rash proposals are made
by sincere lovers of improvement, for
attempting, by compulsory regulation,
the attainment of objects which can
only be effectually or only usefully
compassed by opinion and discussion,
that there has grown up a spirit of re-
sistance in limine to tlie interference
of government, merely as such, and a
disposition to restrict its sphere of

action within the narrowest bounds.
From differences in the historical de-
velopment of different nations, not
necessary to be here dwelt upon, the
former excess, that of exaggerating
the province of government, prevails
most, both in theory and in practice,
among the Continental nations, whilo
in England the contrary spirit has
hitherto been predominant.

The general principles of the ques-
tion, in so far as it is a question of
principle, I shall make an attempt to
determine in a later chapter of this
Book : after first considering the effects
produced by the conduct of government
in the exercise of the functions univer-
sally acknowledged to belong to it.
For this purpose, there must be a
specification of the functions which are
either inseparable from the idea of a
government, or are exercised habitually
and without objection by all govern-
ments ; as distinguished from those
respecting which it has been considered
questionable whether governments
should exercise them or not. The
former may be termed the necessary,
the latter the optional, functions of
government. By the term optional it
is not meant to imply, that it can ever
be a matter of indifference, or of arbi-
trary choice, whether the government
should or should not take upon itself
the functions in question ; but only
that the expediency of its exercising
them does not amount to necessity, and
is a subject on which diversity of
opinion does or may exist.

480

BOOK V. CHAPTER I. § 2.

§ 2. In attempting to enumerate
the necessary functions of government,
we find them to be considerably more
multifarious than most people are at
first aware of, and not capable of being
circumscribed by those very definite
lines of demarcation, which, in the in-
considerateness of popular discussion,
it is often attempted to draw round
them. We sometimes, for example,
hear it said that governments ought to
confine themselves to affording protec-
tion against force and fraud : that,
these two things apart, people should
be free agents, able to take care of
themselves, and that so long as a person
practises no violence or deception, to
the injury of others in person or pro-
perty, legislatures and governments
are in no way called on to concern
themselves about him. But why should
people be protected by their govern-
ment, that is, by their own collective
strength, against violence and fraud,
and not against other evils, except that
the expediency is more obvious ? If
nothing, but what people cannot pos-
eibly do for themselves, can be fit to be
done for them by government, people
might be required to protect them-
selves by their skill and courage even
against force, or to beg or buy protec-
tion against it, as they actually do
where the government is not capable
of protecting them : and against fraud
every one has the protection of his own
wits. But without further anticipating
the discussion of principles, it is suffi-
cient oa the present occasion to con-
sider facts.

Under which of these heads, the re-
pression of force or of fraud, are we to
place the operation, for example, of the
laws of inheritance ? Some such laws
must exist in all societies. It may be
said, perhaps, that in this matter go-
vernment has merely to give effect to
the disposition which an individual
makes of his own property by will.
This, however, is at least extremely
disputable ; there is probably no coun-
try by whose laws the power of testa-
mentary disposition is perfectly abso-
lute. And suppose the very common
case of there being no will: does not
the law, that is, the government, decide

on principles of general cxpcdicncv,
who shall take the succession ? and in
case the successor is in any manner
incompetent, does it not appoint per-
sons, frequently officers of its own, to
collect the property and apply it to his
benefit? There are many other cases
in which the government undertakes
the administration of property, because
the public interest, or perhaps only
that of the particular persons con-
cerned, is thought to require it. This
is often done in cases of litigated pro-
perty; and in cases of judicially de-
clared insolvency. It has never been
contended that in doing these things,
a government exceeds its province.

Nor is the function of the law in de-
fining property itself, so simple a thing
as may be supposed. It may be ima-
gined, perhaps, that the law has only
to declare and protect the right of
every one to what he has himself pro-
duced, or acquired by the voluntary
consent, fairly obtained, of those who
produced it. But is there nothing re-
cognised as property except what has
been produced? Is there not the earth
itself, its forests and waters, and all
other natural riches, above and below
the surface ? These are the inheri-
tance of the human race, and there
must be regulations for the common
enjoyment of it. What rights, and
under what conditions, a person shall
be allowed to exercise over any portion
of this common inheritance, cannot be
left undecided. No function of govern-
ment is less optional than the regula-
tion of these things, or more com-
pletely involved in the idea of civilized
society.

Again, the legitimacy is conceded of
repressing violence or treachery ; but
under which of these heads are we to
place the obligation imposed on people
to perform their contracts ? Non-per-
formance does not necessarily imply
fraud ; the person who entered into tho
contract may have sincerely intended
to fulfil it : and the term fraud, which
can scarcely admit of being extended
even to the case of voluntary breach of
contract when no deception was prac-
tised, is certainly not applicable when
the omission to perform is a case of

FUNCTIONS OF GOVEKNMEN1 L*? GENERAL.

481

negligence. Is it no part of the duty
of governments to enforce contracts ?
he doctrine of non-interference
would no doubt be stretched a little,
and it would be said, that enforcing
contracts is not regulating the affairs
01 individuals at the pleasure of govern-
ment, but giving effect to their own
expressed desire. Let us acquiesce in
this enlargement of the restrictive
theory, and take it for what it is worth.
But governments do not limit their
concern with contracts to a simple en-
forcement. They take upon themselves
to determine what contracts are fit to
be enforced. It is not enough that one
person, not being cither cheated or
compelled, makes a promise to another.
There are promises by which it is not
for the public good that persons should
have the power of binding themselves.
To say nothing of engagements to do
something contrary to law, there are
engagements which the law refuses to
enforce, for reasons connected with the
interest of the promisor, or with the
general policy of the state. A contract
by which a person sells himself to an-
other as a slave, would be declared
void by the tribunals of this and of
most othei European countries. There
are few nations whose laws enforce a
contract for what is looked upon as
prostitution, or any matrimonial en-
gagement of which the conditions vary
in any respect from those which the
law has thought fit to prescribe. But
•when once it is admitted that there are
any engagements which for reasons of
expediency the law ought not to en-
force, the same question is necessarily
opened with respect to all engage-
ments. Whether, for example, the law
should enforce a contract to labour,
when the wages are too low, or the
hours of work too severe : whether it
should enforce a contract by which a
person binds himself to remain, for
more than a very limited period, in the
sen-ice of a given individual : whether
a contract of marriage, entered into for
life, should continue to be enforced
against the deliberate will of the per-
sons, or of either of the persons, who
entered into it. Every question which
can possibly arise as to the policy of

contracts, and of the relations whic»
they establish among human beings, is
a question for the legislator ; and on&
which he cannot escape from coa
sidcring, and in some way or othct
deciding.

Again, the prevention and suppres
sion of force and fraud afford apprv
priate employment for soldiers, police-
men, and criminal judges ; but there
are also civil tribunals. The punish-
ment of wrong is one business of an
administration of justice, but the de-
cision of disputes is another. Innu-
merable disputes arise between per-
sons, without mala fides on either side,
through misconception of their legal
rights, or from not being agreed about
the facts, on the proof of which those
rights are legally dependent. Is it
not for the general interest that the
State should appoint persons to clear
up these uncertainties and terminate
these disputes ? It cannot be said to
be a case of absolute necessity. People
might appoint an arbitrator, aad en-
gage to submit to his decision ; and
they do so where there are no courts
of justice, or where the courts are not
trusted, or where their delays and
expenses, or the irrationality of their
rules of evidence, deter people from
resorting to them. Still, it is uni-
versally thought right that the State
should establish civil tribunals ; and
if their defects often drive people to
have recourse to substitutes, even then
the power held in reserve of carrying
the case before a legally constituted
court, gives to the substitutes their
principal efficacy.

Not only does the State undertake
to decide disputes, it takes precautions
beforehand that disputes may not arise.
The laws of most countries lay down
rules for determining many things, not
because it is of much consequence in
what way they are determined, but in
order that they may be determined
somehow, and there may be no ques-
tion on the subject. The law pre-
scribes forms of words for many kinds
of contract, in order that no dispute
or misunderstanding may arise about
their meaning : it makes provisioa
that if a dispute does arise, evidence

482

BOOK V. CHAPTER I. § 3.

shall be procurable for deciding it, by
requiring that the document be at-
tested by witnesses and executed
with certain formalities. The law
preserves authentic evidence of facts
to which legal consequences are at-
tached, by keeping a registry of such
facts ; as of births, deaths, and mar-
Hages, of wills and contracts, and of
judicial proceedings. In doing these
things, it has never been alleged that
government oversteps the proper limits
of its functions.

Again, however wide a scope we
may allow to the doctrine that indi-
viduals are the proper guardians of
their own interests, and that govern-
ment owes nothing to them but to
save them from being interfered with
by other people, the doctrine can never
be applicable to any persons but those
who are capable of acting in their own
behalf. The individual may be an
infant, or a lunatic, or fallen into
imbecility. The law surely must look
after the interests of such persons. It
does not necessarily do this through
officers of its own. It often devolves
the trust upon some relative or
connexion. But in doing so is its
duty ended? Can it make over the
interests of one person to the control
of another, and be excused from super-
vision, or from holding the person
thus trusted, responsible for the dis-
charge of the trust ?

There is a multitude of cases in
which governments, with general ap-
probation, assume powers and execute
functions for which no reason can bo
assigned except the simple one, that
! they conduce to general convenience.
. We may take as an example, the
: function (which is a monopoly too) of
, coining money. This is assumed for
no more recondite purpose than that
rf saving 'to individuals the trouble,
delay, and expense of weighing and
assaying. No one, however, even of
those most jealous of state interfer-
ence, has objected to this as an im-
proper exercise of the powers of
government. Prescribing a set of
standard weights and measures is
another instance. Paving, lighting,
and cleansing the streets and tho-

roughfares, is another ; whether done
by the general government, or, as is
more usual, and generally moie ad
visable, by a municipal authority.
Making or improving harbours, build-
ing lighthouses, making surveys in
order to have accurate maps and
charts, raising dykes to keep the sea
out, and embankments to keep rivers
in, are cases in point.

Examples might be ir.c'efinitely mul
tiplied without intruding on any dis-
puted ground. But enough has been
said to show that the admitted func-
tions of government embrace a much
wider field than can easily be included
within the ring-fence of any restrictive
definition, and that it is hardly pos-
sible to find any ground of justification
common to them all, except the com-
prehensive one of general expediency ;
nor to limit the interference of govern-
ment by any universal rule, save the
simple and vague one that it should
never be admitted but when the case
of expediency is strong.

§ 3. Some observations, however,
may be usefully bestowed on the
nature of the considerations on which
the question of government interference
is most likely to turn, and on the
mode of estimating the comparative
magnitude of the expediencies in-
volved. This will form the last of
the three parts into which our discus-
sion of the principles and effects of
government interference may con-
veniently be divided. The following
will be our division of the subject.

We shall first consider the econo-
mical effects arising from the mannes
in which governments perform their
necessary and acknowledged func-
tions.

Wo shall tlicu pass to certain go-
vernmental interferences of what I
have termed the optional kind (i.e.
overstepping the boundaries of the-
universally acknowledged functions)
which have heretofore taken place,
and in some cases still take place,
under the influence of false general
theories.

It will lastly remain to inquire
whether, independently of any false

GENERAL PRINCIPLES OF TAXATION.

483

theory, and consistently with a correct
view of the laws which regulate human
affairs, there be any cases of the
oj;;i mil class in which governmental
'. i-nce is really advisable, and

what are those cases.

The first of these divisions is of an
extremely miscellaneous character :
since the necessary functions of go-
vernment, and those which are so
,;ly expedient that they have
never or very rarely been objected to,
s already pointed out, too
to be brought under any very
simple classification. Those, how-
CVIT, which are of principal import-
ance, which alone it is necessary hero

to consider, may be reduced to the
following general heads.

First, the means adopted by govern-
ments to raise the revenue which is the
condition of their existence.

Secondly, the nature of the laws
which they prescribe on the two
great subjects of Property and Con-
tracts.

Thirdly, the excellences or defects
of the system of means by which they
enforce generally the, execution of
their laws, namely, their judicature
and police.

We commence with the first head,
that is, with the theory of Taxa-
tion.

CHAPTER IL

0» THE GENERAL PRINCIPLES OP TAXATION.

§ 1. THE qualities desirable, eco-
nomically speaking, in a system of
taxation, have been embodied by
A'lum Smith in four maxims or prin-
ciples, which, having been generally
concurred in by subsequent writers,
may be said to have become classical,
and this chapter cannot be better com-
menced than by quoting them.*

" 1. The subjects of every state
ought to contribute to the support of
the government, as nearly as possible
in proportion to their respective abili-
ties : that is, in proportion to the re-
venue which they respectively enjoy
under the protection ot the state. In
the observation or neglect of this
maxim consists what is called the
equality or inequality of taxation.

" 2. The tax which each individual
is bound to pay ought to be certain,
and not arbitrary. The time of pay-
ment, the manner of payment, the
quantity to be paid, ought all to be
clear and plain to the contributor, and
to every other person. "Where it is
otherwise, every person subject to the
tax is put more or less in the power of
• W<xUth ofNatiotu, book v. ch ii.

the taxgatherer, who can either aggra-
vate the tax upon any obnoxious con-
tributor, or extort by the terror of such
aggravation, some present or perqui-
site to himself. The uncertainty of
taxation encourages the insolence and
favours the corruption of an order of
men who are naturally unpopular,
aven when they are neither insolent
n<w corrupt. The certainty of what
eafth individual ought to pay is, in
taxation, a matter of so great impor-
tance, that a very considerable degree
of inequality, it appears, I believe,
from th<» experience of all nations, is
not near so great an evil, as a very
small degree of uncertainty.

" 3. Every tax ought to'be levied at
the time, or in the manner, in which
it is most lik«ly to be convenient for
the contributor to pay it. A tax upon
the rent of land or of houses, payable
at the same term at which such rents
are usually paid, is levied at a time
when it is most likely to be convenient
for the contributor to pay ; or \\ hen he
is most likely to have wherewithal to
pay. Taxes upon such consumable
goods as are articles of luxuvv, are all

434

BOOK V. CHAPTER II. § 2.

finally paid by the consumer, and
generally in a manner that is very
convenient to him. He pays them
by little and little, as he has occasion
to buy the goods. As he is at liberty,
too, .either to buy or not to buy, as he
pleases, it must be his own fault if he
ever suffers any considerable incon-
venience from such taxes.

" 4. Every tax ought to be so con-
trived as both to take out and to keep
out of the pockets of the people as
little as possible over and above what
it brings into the public treasury of
the state. A tax may either take out
or keep out of the pockets of the people
a great deal more than it brings into
the public treasury, in the four follow-
ing ways. First, the levying of it
may require a great number of officers,
whose salaries may eat up the greater
part of the produce of the tax, and
whose perquisites may impose another
additional tax upon the people." Se-
condly, it may divert a portion of the
labour and capital of the community
from a more to a less productive em-
ployment. " Thirdly, by the forfeitures
and other penalties which those un-
fortunate individuals incur who at-
tempt unsuccessfully to evade the tax,
it may frequently ruin them, and there-
by put an end to the benefit which the
community might have derived from
the employment of their capitals. An
injudicious tax offers a great tempta-
tion to smuggling. Fourthly, by sub-
jecting the people to the frequent visits
and the odious examination of the tax-
gatherers, it may expose them to much
unnecessary trouble, vexation, and op-
pression :" to which may be added,
that the restrictive regulations to
which trades and manufactures are
often subjected to prevent evasion of a
tax, are not only in themselves trouble-
some and expensive, but often oppose
insuperable obstacles to making im-
provements in the processes.

The last three of these four maxims
require little other explanation or illus-
tration than is contained in the pas-
sage itself. How far any given tax
conforms to, or conflicts with them, is
a matter to be considered in the dis-
cussion of particular taxes. But the

first of the four points, equality of tax-
ation, requires to be more fully exa-
mined, being a thing often imperfectly
understood, and on which many falsa
notions have become to a certain de-
gree accredited, through the absence
of any definite principles of judgment
in the popular mind.

§ 2. For what reason ought equality
to be the rule in matters of taxation ?
For the reason, that it ought to be so
in all affairs of government. As a
government ought to make no dis-
tinction of persons or classes in the
strength of their claims on it, what-
ever sacrifices it requires from them
should be made to bear as nearly as
possible with the same pressure upon
all ; which, it must be observed, is the
mode by which least sacrifice is occa-
sioned on the whole. If any one bears
less than his fair share of the burthen,
some other person must suffer more
than his share, and the alleviation to
the one is not, on the average, so
great a good to him, as the increased
pressure upon the other is an evil.
Equality of taxation, therefore, as a
maxim of politics, means equality of
sacrifice. It means apportioning tho
contribution of each person towards
the expenses of government, so that
he shall feel neither more nor less
inconvenience from his share of the
payment than every other person ex-
periences from his. This standard,
like other standards of perfection, can-
not be completely realized ; but the
first object in every practical discus-
sion should be to know what perfection
is.

There are persons, however, who are
not content with the general principles
of justice as a basis to ground a rule of
finance upon, but must have something,
as they think, more specifically appro-
priate to the subject. What best
pleases them is, to regard the taxes
paid by each member of the community
as an equivalent for value received, in
the shape of service to himself; and
they prefer to rest the justice of making
each contribute in proportion to his
means, upon the ground, that he who
has twice as much property to be pro-

GENERAL PRINCIPLES OF TAXATION.

485

tected, receives, on an accurate calcu-
lation, twice as much protection, and
ought, on the principles of bargain and
8<ile, to pay twice as much for it.
Since, however, the assumption that
government exists solely for the pro-
tection of property, is not one to he de-
liberately adhered to; some consistent
adherents of the quid pro quo principle
go on to observe, that protection being
required for person as well as property,
and everybody's person receiving the
same amount of protection, a poll-tax
of a fixed sum per head is a proper
equivalent for this part of the benefits
of government, while the remaining
part, protection to property, should be
paid for in proportion to property.
There is in this adjustment a false air
of nice adaptation, very acceptable to
some minds. But in the first place, it
is not admissible that the protection of
persons and that of property are the
sole purposes of government. The
ends of government are as comprehen-
sive as those of the social union. They
consist of all the good, and all the im-
munity from evil, which the existence
of government can be made either
directly or indirectly to bestow. In
the second place, the practice of setting
definite values on things essentially
indefinite, and making them a ground
of practical conclusions, is peculiarly
fertile in false views of social questions.
It cannot be admitted, that to be pro-
tected in the ownership of ten times as
much property, is to be ten times as
much protected. Neither can it be
truly said that the protection of 1000Z.
a year costs the State ten times as
much as that of 100?. a year, rather
than twice as much, or exactly as
much. The same judges, soldiers,
sailors, who protect the one protect the
other ; and the larger income does not
necessarily, though it may sometimes,
require even more policemen. Whether
the labour and expense of the protec-
tion, or the feelings of the protected
person, or any other definite thing be
made the standard, there is no such
proportion as the one supposed, nor
any other definable proportion. If we
wanted to estimate the degrees of
benefit which different persons derive

from the protection of government, we
should have to consider who would
suffer most if that protection were
withdrawn : to which question if any
answer could be made, it must be, that
those would suffer most who were
weakest in mind or body, either by
nature or by position. Indeed, such
persons would almost infallibly bo
slaves. If there were any justice,
therefore, in the theory of justice now
under consideration, those who are
least capable of helping or defending
themselves, being those to whom the
protection of government is the most
indispensable, ought to pay the greatest
share of its price : the reverse of the
true idea of distributive justice, which
consists not in imitating but in re-
dressing the inequalities and wrongs of
nature.

Government must be regarded as so
pre-eminently a concern of all, that to
determine who are most interested in
it is of no real importance. If a person
or class of persons receive so small a
share of the benefit as makes it neces-
sary to raise the question, there is
something else than taxation which is
amiss, and the thing to be done is to
remedy the defect, instead of recognis-
ing it and making it a ground for de-
manding less taxes. As, in a case of
voluntary subscription for a purpose in
which all are interested, all are thought
to have done their part fairly when
each has contributed according to his
means, that is, has made an equal
sacrifice for the common object ; in
like manner should this be the prin-
ciple of compulsory contributions : and
it is superfluous to look for a more in-
genious or recondite ground to rest tho
principle upon.

§ 3. Setting out, then, from the
maxim that equal sacrifices ought to
be demanded from all, we have next to
inquire whether this is in fact done, by
making each contribute the same per-
centage on his pecuniary means. Many
persons maintain the negative, saying
that a tenth part taken from a small
income is a heavier burthen than the
same fraction deducted from one much
larger : and on this is grounded the

486

BOOK V. CHAPTER II. § 3.

very popular scheme of what is called
graduated property-tax, viz. an in-
come tax in which the percentage rises
with the amount of the income.

On the best consideration I am able
to give to this question, it appears to
me that the portion of truth which the
Joctrine contains, arises principally
from the difference between a tax which
can he saved from luxuries, and one
which trenches, in ever so small a de-
gree, upon the necessaries of life. To
take a thousand a year from the pos-
sessor of ten thousand, would not de-
prive him of anything really conducive
either to the support or to the comfort
of existence ; and if such would be the
effect of taking five pounds from one
whose income is fifty, the sacrifice re-
quired from the last is not only greater
than, but entirely incommensurable
with, that imposed upon the first. The
mode of adjusting these inequalities of
pressure which seems to be the most
equitable, is that recommended by
Bentham, of leaving a certain mini-
mum of income, sufficient to provide
the necessaries of life, untaxed. Sup-
pose 501. a year to he sufficient to pro-
vide the number of persons ordinarily
supported from a single income, with
the requisites of life and health, and
with protection against habitual bodily
suffering, but not with any indulgence.
This then should be made the mini-
mum, and incomes exceeding it should
pay taxes not upon their whole amount,
out upon the surplus. If the tax be
ten per cent, an income of 601. should
be considered as a net income of 101.,
and charged with II. a year, while an
income of 100QL should be charged as
one of 950?. Each would then pay a
fixed proportion, not of his whole
means, but of his superfluities.* An
income not exceeding 50Z. should not
be taxed at all, either directly or by
taxes on necessaries ; for as by suppo-
sition this is the smallest income which
labour ought to be able to command,
the government ought not to he a party

* This principle of assessment has been
partially adopted by Mr. Gladstone at the
last renewal of the income tax. From 1007..,
at which the tax begins, up to 2007., the
income only pays tax on the excess above
60*.

to making it smaller: This arrange-
ment however would constitute a
reason, in addition to others which
might be stated, for maintaining taxes
on articles of luxury consumed by the
poor. The immunity extended to the
income required for necessaries, should
depend on its being actually expended
for that purpose ; and the poor who,
not having more than enough for neces-
saries, divert any part of it to indul-
gences, should lake other people con-
tribute their quota out of those in-
dulgences to the expenses of the
state.

The exemption in favour of the
smaller incomes should not, I think, be
stretched further than to the amount
of income needful for life, health, and
immunity from bodily pain. If 501.
a year is sufficient (which may be
doubted) for these purposes, an income
of 100?. a year would, as it seems to
me, obtain all the relief it is entitled
to, compared with one of 1000?., by
being taxed only on 501. of its amount.
It may be said, indeed, that to take
100?. from 10001. (even giving back
five pounds) is a heavier impost than
1000?. taken from 10,000?. (giving
back the same five pounds). But this
doctrine seems to me too disputable
altogether, and even if true at all, not
true to a sufficient extent, to be made
the foundation of any rale of taxation.
Whether the person with 10,000?. a
year cares less for 10001. than the
person with only 1000?. a year cares
for 100Z., and if so, how much less,
does not appear to me capable of being
decided with the degree of certainty on
which a legislator or a financier ought
to act.

Some indeed contend that the rule
of proportional taxation bears harder
upon the moderate than upon the large
incomes, because the same proportional
payment has more tendency in the
former case than in the latter, to re-
duce the payer to a lower grade of
social rank. The fact appears to me
more than questionable. But even ad-
mitting it, I object to its being con-
sidered incumbent on government to
shape its course by such considerations,
or to recognise the notion that social

GENKKAL PRINCIPLES OF TAXATION.

487

importance is or can be determined by
amount of expenditure. Government

sunlit to set an example of rating all
things at their true value, and riches,
therefore, at the worth, for comfort or

re, of the things which they will
•A ouirht not to sanction the

'i y of prizing them for the pitiful
i if being known to possess them,
or the paltry shaine of being suspected
to be without them, the presiding mo-
tives of three-four the of the expenditure
of the middle classes. The sacrifices
of real comfort or indulgence which
government requires, it is bound to
apportion among all persons with as
much equality as possible; but their
sacrifices of the imaginary dignity de-
; t on expense, it may spare itself

the trouble of estimating.

Both in England and on the Conti-
nent a graduated property-tax has
been advocated, on the avowed ground
that the state should use the instru-
ment of taxation as a means of miti-
gating the inequalities of wealth. I
am as desirous as any one, that means
should be taken to diminish those in-
equalities, but not so as to relieve the
prodigal at the expense of the prudent.
To tax the larger incomes at a higher
percentage than the smaller, is to lay
a tax on industry and economy ; to
impose a penalty on people for having
worked harder and saved more than
their neighbours. It is not the for-
tunes which are earned, but those
which arc unearned, that it is for the
public good to place under limitation.
A just and wise legislation would ab-
stain from holding out motives for
dissipating rather than saving the
earnings of honest exertion: Its im-
partiality between competitors would
consist in endeavouring that they
should all start fair, and not in hang-
i:<;,' a weight upon the swift to dimi-
nish the distance between them and
the Blow. Many, indeed, fail with
greater efforts than those with which
others succeed, not from difference of
merits, but difference of opportunities ;
but if all were done which it would be
in the power of a good government to
do, by instruction and by legislation,
to diminish this inequality of oppor-

tunities, the differences of fortune aris-
ing from people's own earnings could
not justly give umbrage. With re-
snect to the large fortunes acquired by
gift or inheiitancc, the power of be-
queathing is one of those privileges
of property which are fit subjects for
regulation on grounds of general ex-
pediency ; and I have already sug-
gested,* as a possible mode of re-
straining the accumulation of large
fortunes in the hands of those who
have not earned them by exertion, a
limitation of the amount which any
one person should be permitted to
acquire by gift, bequest, or inheritance.
Apart from this, and from the proposal
of Bentham (also discussed in a former
chapter) that collateral inheritance in
case of intestacy should cease, and the
property escheat to the state, I con-
ceive that inheritances and legacies,
exceeding a certain amount, are highly
proper subjects for taxation : and that
the revenue from them should be as
great as it can be made without giving
rise to evasions, by donation during
life or concealment of property, such
as it would be impossible adequately
to check. The principle of graduation
(as it is called,) that is, of levying a
larger percentage on a larger sum,
though its application to general taxa-
tion would be in my opinion objection-
able, seems to me both just and ex-
pedient as applied to legacy and in-
heritance duties.

The objection to a graduated pro-
perty-tax applies in an aggravated
degree to the proposition of an exclu-
sive tax on what is called "realized
property," that is, property not form-
ing a part of any capital engaged in
business, or rather in business under
the superintendence of the owner : as
land, the public funds, money lent on
mortgage, and shares (I presume) in
joint-stock companies. Except the
proposal of applying a sponge to the
national debt, no such palpable viola-
tion of common honesty has found
sufficient support in this country,
during the present generation, to be
regarded as within the domain of dis-
cussion. It has not the palliation of
* Supra, book ii. cb. ii.

483

a graduated property-tax, that of lay-
ing the burthen on those best able to
bear it; for "realized property" in-
cludes the far larger portion of the
provision made for those who are un-
able to work, and consists, in great
part, of extremely small fractions. I
can hardly conceive a more shameless
pretension than that the major part of
the property of the country, that of
merchants, manufacturers, farmers, and
shopkeepers, should be exempted from
its share of taxation ; that these classes
should only begin to pay their propor-
tion after retiring from business, and
if they never retire should be excused
from it altogether. But even this does
not give an adequate idea of the in-
justice of the proposition. The burthen
thus exclusively thrown on the owners
of the smaller portion of the wealth of
the community, would not even be a
burthen on that class of persons in
perpetual succession, but would fall
exclusively on those who happened to
compose it when the tax was laid on.
As land and those particular securities
would thenceforth yield a smaller net
income, relatively to the general inte-
rest of capital and to the profits of
trade ; the balance would rectify itself
by a permanent depreciation of those
kinds of property. Future buyers
would acquire land and securities at a
reduction of price, equivalent to the
peculiar tax, which tax they would,
therefore, escape from paying ; while
the original possessors would remain
burthened with it even after parting
•with the property, since they would
have sold their land or securities at a
loss of value equivalent to the fee-
Bimple of the tax. Its imposition
•would thus be tantamount to the con-
fiscation for public uses of a percentage
of their property, equal to the percent-
age laid on their income by the tax.
That such a proposition should find
any favour, is a striking instance of
the want of conscience in matters of
taxation, resulting from the absence
of any fixed principles in the public
mind, and of any indication of a sense
of justice on the subject in the general
conduct of governments. Should the
scheme ever enlist a large party in its

!VV)K V. CHAPTER II. § 4.

support, the fact would indicate a laxity
of pecuniary integrity in national af-
fairs, scarcely inferior to American
repudiation.

§ 4. Whether the profits of trade
may not rightfully be taxed at a lower
rate than incomes derived from inte-
rest or rent, is part of the more com-
prehensive question, so often mooted
on the occasion of the present income-
tax, whether life incomes should be
subjected to the same rate of taxation
as perpetual incomes : whether sala-
ries, for example, or annuities, or the
gains of professions, should pay tho
same percentage as the income from
inheritable property.

The existing tax treats all kinds of
incomes exactly alike, taking its seven-
pence (now sixpence) in the pound as
well from the person whose income
dies with him, as from the landholder,
stockholder, or mortgagee, who can
transmit his fortune undiminished to
his descendants. This is a visible in-
justice : yet it does not arithmetically
violate the rule that taxation ought to
be in proportion to means. When it
is said that a temporary income ought
to be taxed less than a permanent one,
the reply is irresistible, that it is taxed
less ; for the income which lasts only
ten years pays the tax only ten years,
while that which lasts for ever pays
for ever. On this point some financial
reformers are guilty of a great fallacy.
They contend that incomes ought to
be assessed to the income-tax not in
proportion to their annual amount, but
to their capitalized value : that, for
example, if the value of a perpetual
annuity of 100Z. is 3000?., and a life
annuity of the same amount being
worth only half the number of years'
purchase could only be sold for 1 500/.,
the perpetual income should pay twice
as much per cent income-tax as tho
terminable income ; if the one pays
101. a year, the other should pay only
51. But in this argument there is
the obvious oversight, that it values
the incomes by one standard and tho
payments by another ; it capitalizes
the incomes, but forgets to capitalize
the payments. An annuity worth

PKLSC1PLES OF TAXATION.

489

3000Z. ought, it is alleged, to bo taxed
twice as highly as one which is only
worth 1500/., and no assertion can be
more unquestionable ; but it is for-
gotten that the income worth 30001.
pays to the supposed income-tax 101.
ft year in perpetuity, which is equiva-
lent, by supposition, to 300J., while the
terminable income pays the same 101.
only during the life of its owner, which
on the same calculation is a value of
1501., and could actually be bought for
that sum. Already, therefore, the in-
come which is only half as valuable,
pays only half as much to the tax ; and
if in addition to this its annual quota
were reduced from 101. to 51., it would
pay, not half, but a fourth part only of
the payment demanded from the per-
petual income. To make it just that
the one income should pay only half
as much per annum as the other, it
would be necessary that it should pay
that half for the same period, that is,
in

The rule of payment which this
school of financial reformers contend
for, would be very proper if the tax
were only to be levied once, to meet
some national emergency. On the
principle of requiring from all payers
an equal sacrifice, every person who
had anything belonging to him, re-
versioners included, would be called
on for a payment proportioned to the
present value of his property. I
wonder it does not occur to the re-
formers in question, that precisely be-
cause this principle of assessment
would be just in the case of a pay-
ment made once for all, it cannot
possibly be just for a permanent tax.
\Vhen each pays only once, one person
pays no oftener than another ; and the
proportion which would be just in that
case, cannot also be just if one person
has to make the payment only once,
and the other several times. This,
however, is the type of the case which
actually occurs. The permanent in-
comes pay the tax as much oftener
than the temporary ones, as a per-
petuity exceeds the certain or mi-
certain length of time which forms
the duration of the income for life or
years.

All attempts to establish a claim in
favour of terminable incomes on nu-
merical grounds — to make out, in
short, that a proportional tax is not a
proportional tax — are manifestly ab-
surd. The claim does not rest on
grounds of arithmetic, but of human
wants and feelings. It is not because
the temporary annuitant has smaller
means, but because he has greater
necessities, that he ought to be as-
sessed at a lower rate.

In spite of the nominal equality of
income, A, an annuitant of 10001. a
year, cannot so well afford to pay 1001.
out of it, as B who derives the same
annual sum from heritable property ,
A having usually a demand on his
income which B has not, namely, to
provide by saving for children or
others ; to which, in the case of
salaries or professional gains, must
generally be added a provision for his
own later years ; while B may expend
his whole income without injury to
his old age, and still have it all to
bestow on others after his death. If
A, in order to meet these exigencies,
must lay by 5001. of his income, to take
1001. from him as iHcome-tax is to
take 1 001. from 7001., since it must bo
retrenched from that part only of his
means which he can afford to spend
on his own consumption. Were he to
throw it rateably on what he spends
and on what he saves, abating 70/.
from his consumption and 301. from
his annual saving, then indeed his
immediate sacrifice would be propor-
tionally the same as B's: but then
his children or his old age would be
worse provided for in consequence of
the tax. The capital sum which
would be accumulated for them would
be one-tenth less, and on the reduced
income afforded by this reduced ca-
pital, they would be a second time
charged with income-tax ; while B's
heirs would only be charged once.

The principle, therefore, of equality
of taxation, interpreted in its only
just sense, equality of sacrifice, re-
quires that a person who has no means
of providing for old ago, or for those
in whom he is interested, except by
saving from income, should have, tho

490

BOOK V. CHAPTER II. § 4.

tax remitted on all that part of his
income which is really and bonajlde
applied to that purpose.

If, indeed, reliance could be placed
on the conscience of the contributors,
or sufficient security taken for the cor-
rectness of their statements by colla-
teral precautions, the proper mode of
assessing an income-tax would be to
tax only the part of income devoted to
expenditure, exempting that which is
paved. For when saved and invested
(and all savings, speaking generally,
are invested) it thenceforth pays in-
come-tax on the interest or profit
which it brings, notwithstanding that
it has already been taxed on the prin-
cipal. Unless, therefore, savings are
exempted from income-tax, the con-
tributors are twice taxed on what they
save, and only once on what they
spend. A person who spends all he
receives, pays Id, in the pound, or say
three per cent, to the tax, and no
more ; but if he saves part of the
year's income and buys stock, then in
addition to the three per cent which
he has paid on the principal, and
which diminishes the interest in the
same ratio, he pays three per cent
annually on the interest itself, which
is equivalent to an immediate pay-
ment of a second three per cent on
the principal. So that while unpro-
ductive expenditure pays only three
per cent, savings pay six per cent ; or
more correctly, three per cent on the
whole, and another three per cent on
the remaining ninety-seven. The dif-
ference thus created to the disad-
vantage of prudence and economy, is
not only impolitic but unjust. To tax
the sum invested, and afterwards tax
also the proceeds of the investment, is
to tax the same portion of the con-
tributor's means twice over. The
principal and the interest cannot
both together form part of his re-
sources; they are the same portion
twice counted : if he has the interest,
it is because he abstains from using
the principal ; if he spends the prin-
cipal, he does not receive the in-
terest. Yet because he can do either
of the two, he is taxed as if he
could do botli , and could have the

benefit of the saving and that of tho
spending, concurrently with one an-
other.

It has been urged as an objection to
exempting savings from taxation, that
the law ought not to disturb, by arti-
ficial interference, the natural corn-
petition between the motives for
saving and those for spending. But
we have seen that the law disturbs
this natural competition when it taxes
savings, not when it spares them ; for
as the savings pay at any rate tho
full tsx as soon as they are invested,
their exemption from payment in the
earlier stage is necessary to prevent
them from paying twice, while money
spent in unproductive consumption
pays only once. It has been further
objected, that since the rich have the
greatest means of saving, any privilege
given to savings is an advantage be-
stowed on the rich at the expense of
the poor. I answer, that it is bestowed
on them only in proportion as they
abdicate the personal use of their
riches ; in proportion as they divert
their income from the supply of their
own wants, to a productive invest-
ment, through which, instead of
being consumed by themselves, it is
distributed in wages among the
poor. If this be favouring the rich,
1 should like to have it pointed
out, what mode of assessing taxation
can deserve the name of favouring
the poor.

No income-tax is really just, from
which savings are not exempted ; and
no income-tax ought to be voted with-
out that provision, if the form of the
returns, and the nature of the evidence
required, could be so arranged as to
prevent the exemption from being
taken fraudulent advantage of, by
saving with one hand and getting
into debt with the other, or by
ing in the following year what had
been passed tax-free as saving in the
year preceding. If this difficulty could
be surmounted, the difficulties and
complexities arising from the com-
parative claims of temporary and per
manent incomes, would disappear ; for
since temporary incomes have no just
claim to lighter taxation than per-

GENERAL PRINCIPLES OF TAXATION.

491

mancut incomes, except in so far as
their possessors are more called upon to

!ic exemption of what they do
save would fully satisfy the claim.
Uut if no plan can be devised for the
exemption of actual savings, sufficiently
free from liability to fraud, it is neces-
sary, as the next thing in point of
justice, to take into account in assess-
ing the tax, what the different classes
of contributors ought to save. And
there would probably be no other
mode of doing this than the rough
expedient of two different rates of

iont. There would be great
difficulty in taking into account dif-
ferences of duration between one ter-
minable income and another ; and in
the most frequent case, that of incomes
dependenton life, difierences of age and
health would constitute snch extreme
diversity as it would be impossible to
take proper cognizance of. It would
probably bo necessary to be content
with one uniform rate for all incomes
of inheritance, and another uniform
rate for all those which necessarily
terminate with the life of the indi-
vidual. In fixing the proportion be-
tween the two rates, there must
inevitably be something arbitrary ;
perhaps a deduction of one-fourth in
favour of life-incomes would be as little
objectionable as any which could be
made, it being thus assumed that one-
fourth of a life-income is, on the
average of all ages and states of
health, a suitable proportion to be laid
by as a provision for successors and
for old age.*

* Mr. Hubbard, the first person who, as a
practical legislator, has attempted the recti-
fication of the income tax on principles of
unimpeachable justice, and whose well -con-
ceived plan wants little of being as near an
approximation to a just assessment as it is
likely that means could be found of carrying
into practical effect, proposes a deduction
not of a fourth but of a third, in favour of
industrial and professional incomes. He fixes
on this ratio, on the ground that, indepen-
dently of all consideration as to what the
Industrial and professional classes ought to
save, the attainable evidence goes to prove
that a third of their incomes is what on an
average they do save, over ar. 1 above the
: n saved by other classes. " The

savings" (Mr. Hubbard observes) "effected
out of incomes derived from invested pro-
perty are estimated at one-tenth. The

Of the net profits of persons in

, a part, as before <!
may bo considered as interest on
capital, and of a perpetual character,
and the remaining part as remune-
ration for the skill and labour of
superintendence. The surplus beyond
interest depends on the life of the in-

savings effected out of industrial incomes arc
estimated at four-tenths. The ametinta
which would be assessed under these two
classes being nearly equal, the adjustment is
simplified by striking off one-tenth on either
side, and then reducing by three-tenths, or
one-third, the assessable amount of indus-
trial incomes." Proposed Report (p. xiv. of
the Report and Evidence of the Committee
of 1861 .) In such an estimate there must be
a large element of conjecture ; but in so far
as it can be substantiated, it affords a valid
ground for the practical conclusion which
Mr. Hubbard founds on it.

Several writers on the subject, including
Mr. Mill in his Elemviti of Political
.Economy, and Mr. M'CuIloch in 1.
on Taxation, have contended that as much
snouid be deducted as would be sufficient to
insure the possessor's life for a sum which
would give to his successors for ever an in-
come equal to what he reserves for himself;
since this is what the possessor of heritable
property can do without saving at all : in
other words, that temporary incomes should
be converted into perpetual incomes of equal
present value, and taxed as such. If the
owners of life-incomes actually did save this
large proportion of their income, or even a
still larger, I would gladly grant them an
exemption from taxation on the whole
amount, since, if practical means could be
found of doing it, I would exempt savings
altogether. Hut I cannot admit that they
have a claim to exemption on the general
assumption of their being obliged to save this
amount. Owners of life-incomes are not
bound to forego the enjoyment of them for
the sake of leaving to a perpetual line of
successors an independent provision equal
to their own temporary one; and no one
ever dreams of doing so. Least of all is it
to be required or expected from those whose
incomes are the fruits of personal exertion,
that they should leave to their posterity for
ever, without any necessity for exertion, ihe
same incomes which they allow to them-
selves. All they are bound to do, even for
their children, is to place them in circum-
stances in which they will have favourable
chances of earning their own living. To
give, however, either to children or to others,
by bequest, being a legitimate inclination,
which these persons cannot indulge without
laying by a part of their income, while the
owners of heritable property can ; this real
inequality in cases where the incomes them-
selves arc equal, should be considered, to a
reasonable degree, in the adjustment of taxa-
tion, so as to require from both, as nearly as
practicable^ an equal sacrifice.

492

BOOK V. CHAPTER II. § 5.

dividual, and even on his continuance
in business, and is entitled to the
full amount of exemption allowed to
terminable incomes. It has also, I
conceive, a just claim to a further
amount of exemption in consideration
of its precariousness. An income which
some not unusual vicissitude may
reduce to nothing, or even convert into
u loss, is not the same thing to the
feelings of the possessor as a perma-
nent income of 1000Z. a year, even
though on an average of years it may
yield 1000Z. a year. If life-incomes
were assessed at three- fourths of their
amount, the profits of business, after
deducting interest on capital, should
not only be assessed at three-fourths,
but should pay, on that assessment, a
lower rate. Or perhaps the claims of
justice in this respect might be suffi-
ciently met by allowing the deduction
of a fourth on the entire income,
interest included.

These are the chief cases, of ordi-
nary occurrence, in which any difficulty
arises in interpreting the maxim of
equality of taxation. The proper sense
to be put upon it, as we have seen in
the preceding example, is, that people
should be taxed, not in proportion to
what they have, but to what they can
afford to spend. It is no objection to
this principle that we cannot apply it
consistently to all cases. A person
with a life-income and precarious
health, or who has many persons de-
pending on his exertions, must, if he
wishes to provide for them after his
death, be more rigidly economical than
one who has a life-income of equal
amount, with a strong constitution, and
few claims upon him ; and if it be
conceded that taxation cannot accom-
modate itself to these distinctions, it
is argued that there is no use in at-
tending to any distinctions, where the
absolute amount of income is the same.
But the difficulty of doing perfect
justice, is no reason against doing as
much as we can. Though it may be
a hardship to an annuitant whose life
is only worth five years purchase, to be
allowed no greater abatement than is
granted to one whose life is worth
twenty, it is better for him even so,

than if neither of them were allowed
any abatement at all.

§ 5. Before leaving the subject of
Equality of Taxation, I must remark
that there are cases in which exceptions
may be made to it, consistently with
that equal justice which is the ground-
work of the rule. Suppose that there
is a kind of income which constantly
tends to increase, without any exer-
tion or sacrifice on the part of the
owners : those owners constituting a
class in the community, whom the
natural course of things progressively
enriches, consistently with complete
passiveness on their own part. In such
a case it would be no violation of the
principles on which private property
is grounded, if the state should appro-
priate this increase of wealth, or part
of it, as it arises. This would not
properly be taking anything from any
body ; it would merely be applying an
accession of wealth, created by circum-
stances, to the benefit of society, in-
stead of allowing it to become an un-
earned appendage to the riches of a
particular class.

Now this is actually the case with
rent. The ordinary progress of a
society which increases in wealth, is
at all times tending to augment tha
incomes of landlords; to give them
both a greater amount and a greater
proportion of the wealth of the com-
munity, independently of any trouble
or outlay incurred by themselves.
They grow richer, as it were in their
sleep, without working, risking, or
economizing. What claim have they,
on the general principle of social
justice, to this accession of riches? In
what would they have been wronged
if society had, from the beginning,
reserved the right of taxing the spon-
taneous increase of rent, to the highest
amount required by financial exigen-
cies ? I admit that it would be unjust
to come upon each individual estate,
and lay hold of the increase which
might be found to have taken place in
its rental ; because there would be no
means of distinguishing in individual
cases, between an inc.vease owing
solely to the general circumstances of

GKM5BAL PEINCIPLES OF TAXATION.

493

society, and one which was the effect
of skill and expenditure on the part of
the proprietor. The only admissible
mode of proceeding would be by a
general measure. Tho first step
should be a valuation of all the land
in the country. The present value of
all land should be exempt from the
tax ; but after an interval nad elapsed,
during which society had increased
in population and capital, a rough
estimate might be made of the spon-
taneous increase which had accrued
to rent since the valuation was made.
Of this the average price of produce
would be some criterion : if that had
risen, it would be certain that rent had
increased, and (as already shown) even
in a greater ratio than the rise of
price. On this and other data, an
approximate estimate might be made,
how much value had been added to
the land of the country by natural
causes; and in laying on a general
land-tax, which for fear of miscalcu-
lation should be considerably within
the amount thus indicated, there would
be an assurance of not touching any
increase of income which might be
the result of capital expended or in-
dustry exerted by the proprietor.

But though there could be no ques-
tion as to the justice of taxing the in-
crease of rent, if society had avowedly
reserved the right, has not society
waved that right by not exercising it ?
In England, for example, have not all
who bought land for the last century
or more, given value not only for the
existing income, but for the prospects
of increase, under an implied assurance
of being only taxed in the same pro-
portion with other incomes? This
objection, in so far as valid, has a dif-
ferent degree of validity in different
countries ; depending on the degree of
desuetude into which society has al-
lowed a right to fall, which, as no one
can doubt, it once fully possessed. In
most countries of Europe, the right to
take by taxation, as exigency might
require, an indefinite portion of the
rent of land, has never been allowed to
slumber. In several parts of the Con-
tinent the land-tax forms a large pro
portion of the public revenues, and nas

always been confessedly liable to bo
raised or lowered without reference to
other taxes. In these countries no one
can pretend to have become the owner
of land on the faith of never being
called upon to pay an increased land-
tax. In England the land-tax has not
varied since the early part of the last
century. The last act of the legisla-
ture in relation to its amount, was to
diminish it: and though the subse-
quent increase in the rental of the
country has been immense, not only
from agriculture, but from the growth
of towns and the increase of buildings,
the ascendancy of landholders in the
legislature has prevented any tax from
being imposed, as it so justly might,
upon the very large portion of this in-
crease which was unearned, and, as it
were, accidental. For the expectations
thus raised, it appears to me that an
amply sufficient allowance is made, if
the whole increase of income which has
accrued during this long period from a
mere natural law, without exertion or
sacrifice, is held sacred from any pe-
culiar taxation. From the present
date, or any subsequent time at which
the legislature may think fit to assert
the principle, I see no objection to
declaring that the future increment of
rent should be liable to special taxa-
tion ; in doing which all injustice to
the landlords would be obviated, if the
present market-price of their land were
secured to them; since that includes
the present value of all future expecta-
tions. With reference to such a tax,
perhaps a safer criterion than cither a
rise of rents or a rise of the price of
corn, would be a general rise in the
price of land. It would be easy to
keep the tax within the amount which
would reduce the market-value of land
below the original valuation: and up
to that point, whatever the amount of
the tax might be, no injustice would
be done to the proprietors.

§ 6. But whatever may be thought
of the legitimacy of making the State
a sharer in all future increase of rent
from natural causes, the existing land-
tax (which in this country unfortu-
nately is very small) ought not to be

BOOK V. CHAPTER II. § 7.

regarded as a tax, but as a rent-charge
in favour of the piiblic ; a portion of the
rent, reserved irom the beginning by
the State, which has never belonged
to or formed part of the income of the
landlords, and should not therefore be
counted to them as part of their taxa-
tion, so as to exempt them from their
fair share of every other tax. As well
might the tithe he regarded as a tax
on the landlords : as well, in Bengal,
•where the State, though entitled to
the whole rent of the land, gave away
one-tenth of it to individuals, retaining
the other nine-tenths, might those
nine-tenths be considered as an un-
equal and unjust tax on the grantees
of the tenth. That a person owns
part of the rent, does not make the
rest of it his just light, injuriously
withheld from him. The landlords
originally held their estates subject to
feudal burthens, for which the present
land-tax is an exceedingly small equi-
valent, and for their relief from which
they should have been required to pay
a much higher price. All who have
bought land since the tax existed have
bought it subject to the tax. There
is not the smallest pretence for looking
upon it as a payment exacted from the
existing race of landlords.

These observations are applicable to
a land-tax, only in so far as it is a pe-
culiar tax, and not when it is merely a
mode of levying from the landlords the
equivalent of what is taken from other
classes. In France, for example, there
are peculiar taxes on other kinds of
property and income (the mobilier and
the patente), and supposing the land-
tax to be not more than equivalent to
these, there would be no ground for
contending that the state had reserved
to itself a rent-charge on the land.
But wherever and in so far as income
derived from land is prescriptively
subject to a deduction for public pur-
poses, beyond the rate of taxation
levied on other incomes, the surplus is
not properly taxation, but a share of
the property in the soil, reserved by
the state. In this country there are no
peculiar taxes on other classes, corre-
sponding to, or intended to countervail,
tlio laud-tax. The whole of it, there-

fore, is not taxation but a rent-charg^
and is as if the state had retained, no(
a portion of the rent, but a portion oi
the land. It is no more a burthen on
the landlord, than the share of ono
joint tenant is a burthen on the other.
The landlords are entitled to no com-
pensation for it, nor have they any
claim to its being allowed for, as part
of their taxes. Its continuance on the
existing footing is no infringement of
the principle of Equal Taxation.*

We shall hereafter consider, in treat-
ing of Indirect Taxation, how far, and
with what modifications, the rule of
equality is applicable to that depart-
ment.

§ 7. In addition to the preceding
rules, another general rule of taxation
is sometimes laid down, namely, that
it should fall on income, and not on
capital. That taxation should not en-
croach upon the amount of the national
capital, is indeed of the greatest im-
portance ; but this encroachment, when
it occurs, is not so much a consequence
of any particular mode of taxation, as
of its excessive amount. Over-taxation,
carried to a sufficient extent, is quite
capable of ruining the most industrious
community, especially when it is in any
degree arbitrary, so that the payer is
never certain how much or how little
he shall be allowed to keep ; or when it
is so laid on as to render industry
and economy a bad calculation. But if
these errors be avoided, and the amount
of taxation be not greater than it is at
present even in the most heavily taxed
country of Europe, there is no danger
lest it should deprive the country of a
portion of its capital.

To provide that taxation shall fall
entirely on income, and not at all on
capital, is beyond the power of any

* The same remarks obviously apply to
those local taxes, of the peculiar pressure of
which on landed property so much has been
said by the remnant of the Protectionists.
As much of these burthens as is of old s!:iud-
ing, ought to be regarded as a prescriptive
deduction or reservation, for public pur,
of a portion of the rent. And any recent
additions have either been incurred' for the
benefit of the owners of landed property, or
occasioned by their fault : in neither case
giving them any just ground of complaint.

DIRECT TAXES.

system of fiscal arrangements. There
is no tax which is not partly paid from
what would otherwise have D^on saved ;
no tax. the amount of which, if remit-
ted, would be wholly employed in in-
creased expenditure, and no part •what-
ever laid by as an addition to capital.
All taxes, therefore, are in some sense
partly paid out of capital ; and in a
poor country it is impossible to impose
any tax which will not impede the in-
crease of the national wealth. But in
a country where capital abounds, and
the spirit of accumulation is strong,
this effect of taxation is scarcely felt.
Capital having reached the stage in
which, were it not for a perpetual suc-
cession of improvements in production,
any further increase would soon be
stopped — and having so strong a
tendency even to outran those improve-
ments, that profits are only kept above
the minimum by emigration of capital,
or by a periodical sweep called a com-
mercial crisis ; to take from capital by
taxation what emigration would re-
move, or a commercial crisis destroy, is
only to do what either of those causes
would have done, namely, to make a
clear space for further saving.

I cannot, therefore, attach any im-
portance, in a wealthy country, to the
objection made against taxes on lega-
cies and inheritances, that they are
taxes on capital. It is perfectly true
that they are so. As Ricardo observes,
if 100Z. are taken from any one in a
tax on houses or on wine, he will pro-
bably save it, or a part of it, by living
in a cheaper house, consuming less
wine, or retrenching from some other
of his expenses : but if the same sum
be taken from him because he has re-

ceived a legacy of 1000Z., he considers
the legacy as only 900Z., and feels no
more inducement than at any other
time (probably feels rather less in-
ducement) to economize in his expendi-
ture. The tax, therefore, is wholly paid
out of capital : and there are countries
in which this would be a serious objec-
tion. But in the first place, the ar-
gument cannot apply to any country
which has a national debt, and devotes
any portion of revenue to paying it off ;
since the produce of the tax, thus
applied, still remains capital, and is
merely transferred from the tax-payer
to the fundholder. But the objection
is never applicable in a country
which increases rapidly in wealth.
The amount which would be derived,
even from a very high legacy duty, in
each year, is but a small fraction of
the annual increase of capital in such a
country ; and its abstraction would but
make room for saving to an equivalent
amount : while the effect of not taking
it, is to prevent that amount of saving,
or cause the savings when made, to be
sent abroad for investment. A country
which, like England, accumulates capi-
tal not only for itself, but for half the
world, may be said to defray the whole
of its public expenses from its over-
flowings ; and its wealth is probably at
this moment as great as if it had no
taxes at all. What its taxes really do
is, to subtract from its means, not of
production but of enjoyment ; since
whatever any one pays in taxes, he
could, if it were not taken for that
purpose, employ in indulging his ease,
or in gratifying some want or tasto
which at present remains unsatisfied.

CHAPTER HL

OP DIRECT TAXES.

§ 1. TAXES are either direct or in-

A direct tax is one which is

demanded from the very persons who,

it is intended or desired, should pay it.

Indirect taxes are those which are
demanded from one person in the ex-
pectation and intention that he shall
indemnify himself at the expense ol

496 BOOK V. CHAPTER III.

another : such as the excise or customs.
'Ihe producer or importer of a com-
fiodity is called upon to pay a tax on it,
vot with the intention to levy a peculiar
IHitribution upon him, but to tax
through him the consumers of the com-
modity, from whom it is supposed that
he will recover the amount by means
of an advance in price.

Direct taxes are either on income,
or on expenditure. Most taxes on ex-
penditure are indirect, but some are
direct, being imposed, not on the pro-
ducer or seller of an article, but imme-
diately on the consumer. A house-tax,
for example, is a direct tax on expendi-
ture, if levied, as it usually is, on the
occupier of the house. If levied on the
builder or owner, it would be an in-
direct tax. A window-tax is a direct
tax on expenditure ; so are the taxes
on horses and carriages, and the rest
of what are called the assessed taxes.

The sources of income are rent,
profits, and wages. This incudes
every sort of income, except gift or
plunder. Taxes may be laid on any
one of the three kinds of income, or an
uniform tax on all of them. We will
consider these in their order.

§ 2. A tax on rent falls wholly on
the landlord. There are no meana by
which he can shift the burthen upon
any one else. It does not affect the
value or price of agricultural produce,
for this is determined by the cost of
production in the most unfavourable
circumstances, and in those circum-
stances, as we have so often demon-
strated, no rent is paid. A tax on rent,
therefore, has no effect, other than its
obvious one. It merely takes so much
from the landlord, and transfers it to
the state.

This, however, is, in strict exact-
ness, only true of the rent which is the
result either of natural causes, or of im-
provements made by tenants. When
the landlord makes improvements
which increase the productive power
of his land, he is remunerated for them
by an extra payment from the tenant ;
and this payment, which to the land-
lord is properly a profit on capital, is
blended and confounded with rent ;

§§ 2, 3.

which indeed it really is, to the tenant,
and in respect of the economical laws
which determine its amount. A tax on
rent, if extending to this portion of
it, would discourage landlords from
making improvements : but it does not
follow that it would raise the price of
agricultural produce. The same im-
provements might be made with the
tenant's capital, or even with the land-
lord's if lent by him to the tenant ; pro-
vided he is willing to give the tenant
so long a lease as will enable him to
indemnify himself before it expires.
But whatever hinders improvements
from being made in the manner in
which people prefer to make them, will
often prevent them from being made
at all : and on this account a tax on
rent would be inexpedient, unless some
means could be devised of excluding
from its operation that portion of the
nominal rent which may be regarded
as landlord's profit. This argument,
however, is not needed for the con-
demnation of such a tax. A peculiar
tax on the income of any class, not
balanced by taxes on other classes, is a
violation of justice, and amounts to a
partial confiscation. I have already
shown grounds for excepting from this
censure a tax which, sparing existing
rents, should content itself with appro-
priating a portion of any future increase
arising from the mere action of natural
causes. But even this could not be
justly done, without offering as an al-
ternative the market price of the land.
In the case of a tax on rent which is
not peculiar, but accompanied by an
equivalent tax on other incomes, tho
objection grounded on its. reaching the
profit arising from improvements is
less applicable : since, profits being
taxed as well as rent, the profit which
assumes the form of rent is liable to its
share in common with other profits ;
but since profits altogether ought, for
reasons formerly stated, to be taxed
somewhat lower than rent properly so
called, the objection is only diminished,
not removed.

§ 3. A tax on profits, like a tax on
rent, must, at least in its immediate
operation, fall wholly on the

DIRECT

All profits being alike affected, no
relief can be obtained by a change of
employment. If a tax were laid on the
profits of any one branch of productive
employment, the tax would be virtually
an increase of the cost of production,
and the value and price of the article
would rise accordingly ; by which the
tax would be thrown upon the con-
sumers of the commodity, and would
not affect profits. But a general and
equal tax on all profits would not
affect general prices, and would fall, at
least in the first instance, on capitalists
alone.

There is, however, an ulterior effect,
which, in a rich and prosperous country,
requires to be taken into account.
"When the capital accumulated is so
great, and the rate of annual accumu-
lation so rapid, that the country is
only kept from attaining the stationary
state by the emigration of capital, or
by continual improvements in produc-
tion ; any circumstance which virtually
lowers the rate of profit, cannot be
without a decided influence on these
phenomena. It may operate in differ-
ent ways. The curtailment of profit,
and the consequent increased difficulty
in making a fortune or obtaining a sub-
sistence by the employment of capital,
may act as a stimulus to inventions,
and to the use of them when made. If
improvements in production are much
accelerated, and if these improvements
cheapen, directly or indirectly, any of
the things habitually consumed by the
labourer, profits may rise, and rise
sufficiently to make up for all that is
taken from them by the tax. In that
case the tax will have been realized
without loss to any one, the produce
of the country being increased by an
equal, or what would in that case be a
far greater amount. The tax, however,
must even in this case be considered as
paid from profits, because the receivers
of profits are those who would be bene-

.fitcd if it were taken off.

But though the artificial abstraction

-of a portion of profits would have a
real tendency to accelerate improve-
ments in production, no considerable

"improvements might actually result,
at only of such a kind aa not to raise

P.B.

TAXES. 497

general profits at all, or not to raise
them so much as the tax had dimi-
nished them. If so, the rate of profit
would be brought closer to that practi*
cal minimum, to which it is constantly
approaching : and this diminished re-
tura to capital would either give a de-
cided check to further accumulation, or
would cause a greater proportion than
before of the annual increase to be sen*
abroad, or wasted in unprofitable spa
culations. At its first imposition the
tax falls wholly on profits : but the
amount of increase of capital, which
the tax prevents, would, if it had been
allowed to continue, have tended to re-
duce profits to the same level ; and at
every period of ten or twenty years
there will be found less difference be-
tween profits as they are, and profits as
they would in that case have been :
until at last there is no difference, and
the tax is thrown either upon the la-
bourer or upon the landlord. The real
effect of a tax on profits is to make the
country possess at any given period, a
smaller capital and a smaller aggregate
production, and to make the stationary
state be attained earlier, and with a
smaller sum of national wealth. It ia
possible that a tax on profits might
even diminish the existing capital of
the country. If the rate of profit is
already at the practical minimum, that
is, at the point at which all that portion
of the annual increment which would
tend to reduce profits is carried off
either by exportation or by specula-
tion ; then if a tax is imposed which
reduces profits still lower, the same
causes which previously carried off the
increase would probably carry off a
portion of the existing capital. A tax
on profits is thus, in a state of capital
and accumulation like that in England,
extremely detrimental to the national
wealth. And this effect is not con-
fined to the case of a peculiar, and
therefore intrinsically unjust, tax on
profits. The mere fact that profits
have to bear their share of a neavy
general taxation, tends, in the samo
manner as a peculiar tax, to drivo
capital abroad, to stimulate imprudent
speculations by diminishing safe gains,
to discourage further accumulation,
KK

498

BOOK V. CHAPTER III. § 4.

and to accelerate the attainment of the
stationary state. This is thought to
have been the principal cause of the
decline of Holland, or rather of her
having ceased to make progress.

Even in countries which do not accu-
mulate KO last as to he always within
a short interval of the stationary state,
it seems impossible that, if capital is
accumulating at all, its accumulation
should not be in some degree retarded
by the abstraction of a portion of its
profit ; and unless the effect in stimu-
lating improvements be a full counter-
balance, it is inevitable that a part of the
burthen will be thrown off the capital-
ist, upon the labourer or the landlord.
One or other of these is always the
loser by a diminished rate of accumu-
lation. If population continues to in-
crease as before, tho labourer suffers :
if not, cultivation is checked in its ad-
vance, and the landlords lose the acces-
sion of rent which would have accrued
to them. The only countries in which
a tax on profits seems likely to be per-
manently a burthen on capitalists ex-
clusively, are those in which capital is
stationary, because there is no new
accumulation. In such countries the
tax might not prevent the whole capi-
tal from being kept up through habit,
or from unwillingness to submit to im-
poverishment, and so the capitalist
might continue to bear the whole of
the tax. It is seen from these consi-
derations that the effects of a tax on
profits are much more complex, more
various, and in some points more un-
certain, than writers on the subject
have commonly supposed.

§ 4. We now turn to Taxes on
Wages. The incidence of these is very
different, according ae the wages taxed
are those of ordinary unskilled labour,
or are the remuneration of such skilled
or privileged employments, whether
manual or intellectual, as are taken
out of the sphere of competition by a
natural or conferred monopoly.

I have already remarked, that in the
present low state of popular education,
all the higher grades of mental or edu-
cated labour are at a monopoly price ;
exceeding the wages of common work-

men in a degree very far beyond that
which is due to tho expense, trouble,
and loss of time required in qualifying
for the employment. Any tax levieil
on these gains, which still leaves them
above (or not below) their just propor-
tion, falls on those who pay it ; they
have no means of relieving themselves
at the expense of any other class. The
same thing is true of ordinary wages,
in cases like that of the United States,
or of a new colony, where, capital in-
creasing as rapidly as population can
increase, wages are kept up by the in-
crease of capital, and not by the ad-
herence of the labourers to a fixed stan-
dard of comforts. In such a case, some
deterioration of their condition, whether
by a tax or otherwise, might possibly
take place without checking the in-
crease of population. The tax would
in that case fall on the labourers them-
selves, and would reduce them prema-
turely to that lower state to which, on
the same supposition with regard to
their habits, they would in any case
have been reduced ultimately, by the
inevitable diminution in the rate of in-
crease of capital, through the occupa-
tion of all the fertile land.

Some will object that, even in this
case, a tax on wages cannot be detri-
mental to the labourers, since tho
money raised by it, being expended in
the country, comes back to the labourers
again through the demand for labour.
The fallacy, however, of this doctrine
has been so completely exhibited in the
First Book,* that I need do little more
than refer to that exposition. It was
there shown that funds expended un-
productively have no tendency to raise
or keep up wages, unless when ex-
pended in the direct purchase of labour.
If the government took a tax of a
shilling a week from every labourer,
and laid it all out in hiring labourers
for military service, public works, or
the like, it would, no doubt, indemnify
the labourers as a class for all that tho
tax took from them. That would
really be " spending the money among
the people." But if it expended tho
whole in buying goods, or in adding to
the salaries of employes who bought
» Snpra, pp. 49-55.

DI1JKOT TAXES.

499

goods with it, this would not increase
the demand ibr labour, or tend to raise
wages. Without, however, reverting
to general principles, wo may rely on
an obvious rednctio ad dbsurdum. If
to take money from the labourers and
hp'.'iid it in commodities is giving it
back to the labourers, then, to take
money from other classes, and spend it
in the same manner, must be giving it
to the labourers; consequently, the
more a government takes in taxes, the
greater will be the demand for labour,
and the more opulent the condition of
the labourers. A proposition the ab-
surdity of which no one can fail to see.
In the condition of most communi-
ties, wages are regulated by the habi-
tual standard of living to which the
labourers adhere, and on less than
which they will not multiply. Where
there exists such a standard, a tax on
wages will .indeed for a time be borne
by the labourers themselves ; but unless
this temporary depression has the
effect of lowering the standard itself,
the increase of population will receive
a check, which will raise wages, and
restore the labourers to their previous
condition. On whom, in this case, will
the tax fall? According to Adam
Smith, on the community generally,
in their character of consumers ; since
the rise of wages, he thought, would
raise general prices. We have seen,
however, that general prices depend
on other causes, and are never raised
by any circumstance which affects all
kinds of productive employment in the
same manner and degree. A rise of
wages occasioned by a tax, must, like
any other increase of the cost of labour,
be defrayed from profits. To attempt
to tax day-labourers, in an old country,
is merely to impose an extra tax upon
all employers of common labour ; unless
the tax has the much worse effect of
permanently lowering the standard of
comfortable subsistence in the minds
of the poorest class.

We lind in the preceding considera-
tions an additional argument for the
cpinion already expressed, that direct
taxation should stop short of the class
of incomes which do not exceed what
is necessary for healthful existence.

These very small incomes are mostly
derived from manual labour ; and, a"s
we now see, any tax imposed on these,
either permanently degrades the habits
of the labouring class, or falls on pro-
fits, and burthens capitalists with an
indirect tax, in addition to their shaix
of the direct taxes ; which is doubly
objectionable, both as a violation of tho
fundamental rule of equality, and for
the reasons which, as already shown,
render a peculiar tax on profits detri-
mental to the public wealth, and con-
sequently to the means which societ)
possesses of paying any taxes whatever

§ 5. We now pass, from taxes on
the separate kinds of income, to a tax
attempted to be assessed fairly upon
all kinds ; in other words, an Income
Tax. The discussion of the conditions
necessary for making this tax consis-
tent with justice, has been anticipated
in the last chapter. We shall suppose,
therefore, that these conditions are com-
plied with. They are, first, that in-
comes below a certain amount should
be altogether untaxed. This minimum
should not be higher than the amount
which suffices for the necessaries of the
existing population. The exemption
from the present income-tax, of all in-
comes under 1002. a year, and the lower
percentage levied on those between
1001. and 150?., are only defensible on
the ground that almost all the indirect
taxes press more heavily on incomes
between 501. and 150?. than on any
others whatever. The second condi-
tion is, that incomes above the limit
should be taxed only in proportion to
the surplus by which they exceed the
limit. Thirdly, that all sums saved
from income and invested, should be
exempt from the tax : or if this be
found impracticable, that life incomes
and incomes from business and profes«
sions should be less heavily taxed than
inheritable incomes, in a degree as
nearly as possible equivalent to the in-
creased need of economy arising front
their terminable character : allowance
being also made, in the case of variable
incomes, for their precariousness.

An income-tax, fairly assessed on
these principles, would be, in r.oint ct
K K 2

600

justice, tho least exceptionable of all
taxes. The objection to it, in tbe pre-
sent low state of public morality, is the
impossibility of ascertaining the real
incomes of the contributors. The sup-
posed hardship of compelling peoplo to
disclose the amount of their incomes,
ought not, in my opinion, to count for
much. One of the social evils of this
country is the practice, amounting to a
custom, of maintaining, or attempting
to maintain, the appearance to the
world of a larger income than is pos-
sessed ; and it would bo far better for
the interests of those who yield to this
weakness, if the extent of their means
were universally and exactly known,
and the temptation removed to expend-
ing more than they can afford, or stint-
ing real wants in order to make a false
show externally. At the eame time,
the reason of the case, even on this
point, is not so exclusively on one side
of the argument as is sometimes sup-
posed. So long as the vulgar of any
country are in the debased state of
mind which this national habit presup-
poses— so long as their respect (if sucn
a word can be applied to it) is pro-
portioned to what they suppose to be
each person's pecuniary means — it may
be doubted whether anything which
would remove all uncertainty as to that
point, would not considerably increase
the presumption and arrogance of the
vulgar rich, and their insolence towards
those above them in mind and charac-
ter, but below them in fortune.

Notwithstanding, too, what is called
the inquisitorial nature of the tax, no
amount of inquisitorial power which
would be tolerated by a people the
most disposed to submit to it, could
enable the revenue officers to assess
the tax from actual knowledge of the
circumstances of contributors. Rents,
salaries, annuities, and all fixed in-
comes, can be exactly ascertained.
But the variable gains of professions,
and still more the profits of business,
which the person interested cannot
always himself exactly ascertain, can
still less be estimated with any ap-
proach to fairness by a tax-collector.
The main reliance must be placed,
and always has been placed, on the re-

BOOK V. CHAPTER III. § 5.

turns made by the person himself.
No production of accounts is of much
avail, except against the more flagrant
cases of falsehood; and even against
these the check is very imperfect, for
if fraud is intended, false accounts can
generally be framed which it will baffle
any means of inquiry possessed by the
revenue officers to detect : the easy re-
source of omitting entries on the credit
side being often sufficient without the
aid of fictitious debts or disbursements.
The tax, therefore, on whatever prin-
ciples of equality it may be imposed,
is in practice unequal in one of the
worst ways, falling heaviest on the
most conscientious. The unscrupulous
succeed in evading a great proportion
of what they should pay ; even persons
of integrity in their ordinary transac-
tions are tempted to palter with their
consciences, at least to the extent of
deciding in their own favour all points
on which the smallest doubt or dis-
cussion could arise : while the strictly
veracious may be made to pay more
than the state intended, by the powers
of arbitrary assessment necessarily in-
trusted to the Commissioners as the
last defence against the tax-payer's
power of concealment.

It is to be feared, therefore, that the
fairness which belongs to the principle
of an income-tax, cannot be made to
attach to it in practice : and that this
tax, while apparently the most just
of all modes of raising a revenue, is in
effect more unjust than many others
which are prima facie more objection-
able. This consideration would lead
us to concur in the opinion which, until
of late, has usually prevailed — that
direct taxes on income should be re-
served as an extraordinary resource for
great national emergencies, in which
the necessity of a large additional re-
venue overrules all objections.

The difficulties of A fair income-tax
have elicited a proposition for a direct
tax of so much per cent, not on income
but on expenditure ; the aggregate
amount of each person's expenditure
being ascertained, as tho amount of
income now is, from statements fur-
nished by the contributors themselves.
Iho author of this suggestion, Mr.

DIRECT TAXES.

601

Eevans, in a clever pamphlet on the
subject,* contends that the returns
which persons would furnish of their
expenditure would be more trustworthy
than those which they now make of
their income, inasmuch as expenditure
is in its own nature more public than
income, and false representations of it
more easily detected. lie cannot, I
think, have sufficiently considered, how
few of the items in the annual expen-
diture of most families can be judged
of with any approximation to correct-
ness from the external signs. The only
security would still be the veracity of
individuals, and there is no reason for
supposing that their statements would
be more trustworthy on the subject of
their expenses than on that of their re-
venues ; especially as, the expenditure
of most persons being composed of
many more items than their income,
there would be more scope for conceal-
ment and suppression in the detail of
expenses than even of receipts.

The taxes on expenditure at present
in force, either in this or in other coun-
tries, fall only en particular kinds of
expenditure, and diner no otherwise
from laxes on commodities than in
being paid directly by the person who
consumes or uses the article, instead
of being advanced by the producer or
seller, and reimbursed in the price.
The taxes on horses and carriages, on
dogs, on servants, are of this nature.
They evidently fall on the persons from
whom they are levied — those who use
the commodity taxed. A tax of a simi-
lar description, and more important, is
a house-tax : which must be considered
at somewhat greater leagth.

§ 6. The rent of a house consists of
t\ro parts, the ground-rent, and what
Adam Smith calls the building-rent.
The first is determined by the ordinary
principles of rent, it is the remunera-
tion given for the use of the portion of
land occupied by the house and its ap-
purtenances ; and varies from a mere
equivalent for the rent which the ground

* A Tercentage Tax on Dcmeitic Expendi-
ture to mvply the ichole of llie Public
Jfecenue. By John Revaus. Published by
Hatchard, in 1847.

would afford in agriculture, to the mono-
poly rents paid, for advantageous situa
lions in populous thoroughfares. The
rent of the house itself, as distinguished
from the ground, is the equivalent give*
for the labour and capital expended on
the building. The fact of its being re-
ceived in quarterly or half-yearly pay-
ments, makes no difference in the prin-
ciples by which it is regulated. It
comprises the ordinary profit on the
builder's capital, and an annuity, suffi-
cient at the current rate of interest,
after paying for all repairs chargeabl*
on the proprietor, to replace the origina.
capital by the time the house is wont
out, or by the expiration of the usua»
term of a building lease.

A tax of so much per cent on the
gross rent, falls on botn those portions
alike. The more highly a house is
rented, the more it pays to the tax,
whether the quality of the situation or
that of the house itself is the cause.
The incidence, however, of these two
portions of the tax must be considered
separately.

As much of it as is a tax on build-
ing-rent, must ultimately fall on tho
consumer, in other words the occupier.
For as the profits of building are al-
ready not above the ordinary rate, they
would, if the tax fell on the owner and
not on the occupier, become lower than
the profits of untaxed employments
and houses would not be built. It is
probable however that for some tima
after the tax was first imposed, a great
part of it would fall, not on the renter,
but on tho owner of the house. A large
proportion of the consumers either could
not afford, or would not choose, to pay
their former rent with the tax in ad-
dition, but would content themselves
with a lower scale of accommodation.
Houses therefore would be for a time
in excess of the demand. The conse-
quence of such excess, in tho case of
most other articles, would be an al-
most immediate diminution of the sup-
ply : but so durable a commodity as
houses does not rapidly diminish il
amount. New buildings indeed, of the
class for which the demand had de-
creased, would cease to be erected, ex-
cept for special reasons; but in the

IJOOK. V. CHAl'TEU III. § 6.

meantime the temporary superfluity
would lower rents, and the consumers
wouRl obtain, perhaps, nearly the same
accommodation »a formerly, for the
same aggregate payment, rent and
tax together. By degrees, however,
as the existing houses wore out, or as
increase of population demanded a
greater supply, rents would again rise ;
until it became profitable to recom-
mence building, which would not be
until the tax was wholly transferred
to the occupier. In the end, therefore,
the occupier bears that portion of a
tax on rout, which falls on the payment
made for the house itself, exclusively
of the ground it stands on.

The case is partly different with the
portion which is a tax on ground-rent.
As taxes on rent, properly so called,
fall on the landlord, a tax on ground-
rent, one would suppose, must fall on
the ground-landlord, at least after the
expiration of the building lease. It
will not however fall wholly on the
landlord, unless with the tax on ground-
rent there is combined an equivalent
tax on agricultural rent. The lowest
rent of land let for building is very
little above the rent which the same
ground would yield in agriculture :
since it is reasonable to suppose that
land, unless in case of exceptional cir-
cumstances, is let or sold for building
as soon as it is decidedly worth more
for that purpose than for cultivation.
If, therefore, a tax were laid on ground-
rents without being also laid on agri-
cultural rents, it would, unless of trifling
amount, reduce the return from the
lowest ground-rents below the ordinary
return from land, and would check fur-
ther building quite as effectually as if
it were a tax on building-rents, until
cither the increased demand of a grow-
ing population, or a diminution of sup-
ply by the ordinary causes of destruc-
tion, had raised the rent by a full
equivalent for the tax. But whatever
raises the lowest ground-rents, raises
all others, since each exceeds the
lowest by the market value of its
peculiar advantages. If, therefore, the
tax on ground-rents were a fixed sum
per square foot, the more valuable
situations paying no more than those

least in request, this fixed [
would ultimately fall on the occupier.
Suppose the lowest ground-rent to be
101. per acre, and the highest WOOL, a
tax of II. per acre on ground-rents
would ultimately raise the former to
HZ., and the latter consequently to
1001Z., since the difference of value
between the two situations would bo
exactly what it was before : the annual
pound, therefore, would be paid by the
occupier. But a tax on ground-rent is
supposed to be a portion of a house-tax,
which is not a fixed payment, but a
percentage on the rent. The cheapest
site, therefore, being supposed as befor*
to pay 11., the dearest would pay 100Z.,
of which only the 11. could be thrown
upon the occupier, since the rent would
still be only raised to 1001Z. Conse-
quently, 99Z. of the 100Z. levied from
the expensive site, would fall on the
ground-landlord. A house-tax thus re-
quires to be considered in a double
aspect, as a tax on all occupiers of
houses, and a tax on ground-rents.

In the vast majority of houses, the
ground-rent forms but a small propor-
tion of the annual payment made for
the house, and nearly all the tax falls
on the occupier. It is only in ex-
ceptional cases, like that of the fa-
vourite situations in large towns, that
the predominant element in the rent
of the house is the ground-rent ; and
among the very few kinds of income
which are fit subjects for peculiar taxa-
tion, these ground-rents hold the prin-
cipal place, being the most gigantic
example extant of enormous accessions
of riches acquired rapidly, and in many
cases unexpectedly, by a few families,
from the mere accident of their pos-
sessing certain tracts of land, without
their having themselves aided in the
acquisition by the smallest exertion,
outlay, or risk. So far therefore as a
house-tax falls on the ground-landlord,
it is liable to no valid objection.

In so far as it falls on the occupier,
if justly proportioned to the value of
the house, it is one of the fairest and
most unobjectionable of all taxes. No
part of a person's expenditure is a
better criterion of his means, or bears,
on the whole, more nearly the same

DIRECT TAXES.

503

proportion to them. A house-tax is a
nearer approach to a fair income-tax,
than a direct assessment on income
can easily be ; having the great ad-
vantage, that it makes spontaneously
all the allowances which it is so diffi-
cult to make, and so impracticable to
make exactly, in assessing an income-
tax : for if what a person pays in house-
rent is a test of anything, it is a test
not of what he possesses, but of what
he thinks he can afford to spend. The
equality of this tax can only be seri-
ously questioned on two grounds. The
iirst is, that a miser may escape it.
This objection applies to all taxes on
expeniliture : nothing but a direct tax
on income can reach a miser. But as
misers do not now hoard their treasure,
but invest it in productive employments,
it not only adds to the national wealth,
and consequently to the general means
of paying taxes, but the payment claim-
able from itself is only transferred from
the principal sum to the income after-
wards derived from it, which pays taxes
as soon as it comes to be expended.
The second objection is that a person
may require a larger and more ex-
pensive house, not from having greater
means, but from having a larger family.
Of this, however, he is not entitled to
complain ; since having a large family
is at a person's own choice : and, so
far as concerns the public interest, is
a thing rather to be discouraged than
promoted.*

* Another common objection is that large
»nd expensive accommodation is often re-
quired, not as a residence, but for business.
But it is an admitted principle that buildings
or portions of buildings occupied exclusively
for business, such as shops, warehouses, or
manufactories, ought to be exempted from
house-tax. The plea that persons in busi-
ness may be compelled to live in situations,
such as the great thoroughfares of London,
where house-rent is at a monopoly rate,
eeems to me unworthy of regard : since no
one does so but because the extra profit
which he expects to derive from the situation,
is more than an equivalent to him for the
extra cost. But in any case, the bulk of the
tax on this extra rent will not fall on him, but
on the ground-landlord.

It his been also objected that house-rent
in the rural districts is much lower than in
town--, r.nd lower in some towns and in some
rural districts than in others : so that a tar
proportioned to it would have a correspond-
ing inequality of pressure. To this, however,

A large portion of the taxation of
this country is raised by a house-tax.
The parochial taxation of the towns
entirely, and of the rural districts par-
tially, consists of an assessment on
house-rent. The window-tax, which
was also a house-tax, but of a bad
kind, operating as a tax on light, and
a cause of deformity in building, was
exchanged in 1851 for a house-tax pro-
perly so called, but on a much lower
scale than that which existed pre-
viously to 1834. It is to be lamented
that the new tax retains the unjust
principle on which the old house-tax
was assessed, and which contributed
quite as much as the selfishness of the
middle classes to produce the outcry
against the tax. The public were
justly scandalized on learning that re-
sidences like Chatsworth or Belvoir
were only rated on an imaginary rent
of perhaps 200Z. a year, under the pre-
text that owing to the great expense
of keeping them up, they could not be
let for more. Probably, indeed, they
could not be let even for that, and if
the argument were a fair one, they
ought not to have been taxed at all.
But a house-tax is not intended as a
tax on incomes derived from houses,
but on expenditure incurred for them.
The thing which it is wished to ascer-
tain is what a house costs to the person
who lives in it, not what it would
bring in if let to some one else. When
the occupier is not the owner, and does
not hold on a repairing lease, the rent
he pays is the measure of what the
house costs him : but when he is the
owner, some other measure must be
sought. A valuation should be made
of the house, not at what it would sell
for, but at what would be the cost of
rebuilding it, and this valuation might

it may be answered, that in places where
house-rent is low, persons of the same
amount of income usually live in larger and
better houses, and thus expend in house-
rout more nearly the same proportion of
their incomes than might at first sight
appear. Or if not, the probability will be,
that many of them live in those places pre-
cisely because they are too poor to live else-
where, and have therefore the strongest
claim to be taxed lightly. In some cases, it
is precisely because the people are poor,
that house-rent remains low.

504

BOOK V. CHAPTER IV. § 1.

be periodically corrected by an allow-
ance for what it had lost in value by
time, or gained by repairs and improve-
ments. The amount of the amended
valuation would form a principal sum,
the interest of which, at the current
price of the public funds, would form
the annual value at which the building
should be assessed to the tax.

As incomes below a certain amount
ought to be exempt from income-tax,
so ought houses below a certain value,

from house-tax, on the universal prin-
ciple of sparing from all taxation the
absolute necessaries of healthful exist-
ence. In order that the occupiers of
lodgings, as well as of houses, might
benefit, as injustice they ought, by this
exemption, it might be optional with
the owners to have every portion of a
house which is occupied by a separate
tenant, valued and assessed separately,
as is now usually the case with cham-
bers.

CHAPTER IV.

OF TAXES ON COMMODITIES.

§ 1. BY taxes on commodities are
commonly meant, those which are le-
vied either on the producers, or on the
carriers or dealers who intervene be-
tween them and the final purchasers
for consumption. Taxes imposed di-
rectly on the consumers of particular
commodities, such as a house-tax, or
the tax in this country on horses and
carriages, might be called taxes on
commodities, but are not ; the phrase
being, by custom, confined to indirect
taxes — those which are advanced by
one person, to be, as is expected and
intended, reimbursed by another.
Taxes on commodities are either on
production within the country, or on
importation into it, or on conveyance
or sale within it ; and are classed re-
spectively as excise, customs, or tolls
and transit duties. To whichever class
they belong, and at whatever stage in
the progress of the community they may
be imposed, they are equivalent to an
increase of the cost of production ;
using that term in its most enlarged
sense, which includes the cost of trans-
port and distribution, or, in common
phrase, of bringing the commodity to
market.

When the cost of production is in-
creased artificially by a tax, the effect
is the same as when it is increased by
natural causes. If only one or a few
commodities are affected their value

and price rise, so as to compensate the
producer or dealer for the peculiar bur-
then ; but if there were a tax on all
commodities, exactly- proportioned to
their value, no such compensation
would be obtained : there would neither
be a general rise of values, which is
an absurdity, nor of prices, which de-
pend on causes entirely different.
There would, however, as Mr. M'Cul-
loch has pointed out, be a disturbance
of values, some falling, others rising,
owing to a circumstance, the effect of
which on values and prices we for-
merly discussed ; the different durabi-
lity of the capital employed in different
occupations. The gross produce of
industry consists of two parts ; one
portion serving to replace the capital
consumed, while the other portion is
profit. Now equal capitals in two
branches of production must have equal
expectations of profit ; but if a greater
portion of the one than of the other is
fixed capital, or if that fixed capital is
more durable, there will be a less con-
sumption of capital in the year, and
less will be required to replace it, so>
that the profit, if absolutely the same,
will form a greater proportion of tha
annual returns. To derive from a ca-
pital of 10001. a profit of 1001, the ono
producer may have to sell produce to
the value of 1100L, the other only to,
the value of 5001. If on these 'two

TAXES ON COMMODITIES.

505

branches of industry a tax be imposed
of five per cent ad valorem, the last
will be charged only with 257., the first
with 55/. ; leaving to the one 751.
profit, to the other only 45?. To
equalise, therefore, their expectation of
profit, the one commodity must rise in
price, or the other must fall, or both :
commodities made chiefly by immediate
labour must rise in value, as compared
with those which are chiefly made by
machinery. It is unnecessary to prose-
cute this branch of the inquiry any
i'urther.

§ 2. A tax on any one commodity,
whether laid on its production, its im-
pjilation, its carriage from place to
place, or its sale, and whether the tax
be a fixed sum of money for a given
quantity of the commodity, or an ad
valorem duty, will, as a general rule,
,rui-i> the value and price of the com-
modity by at least the amount of the
tax. There are few cases in which it
•does not raise them by more than that
.amount. In the first place, there are
few taxes on production on account of
which it is not found or deemed neces-
sary to impose restrictive regulations
on the manufacturers or dealers, in
•order to check evasions of the tax.
These regulations are always sources
of trouble and annoyance, and gene-
rally of expense, for all of which, being
peculiar disadvantages, the producers
«r dealers must have compensation in
the price of their commodity. These
restrictions also frequently interfere
•with the processes of manufacture, re-
quiring the producer to carry on his
operations in the way most convenient
to the revenue, though not the cheapQst,
or most efficient for purposes of produc-
tion. Any regulations whatever, en-
forced by law, make it difficult for the
producer to adopt new and improved
processes. Further, the necessity of
advancing the tax obliges producers
and dealers to carry on their business
with larger capitals than would other-
wise be necessary, on the whole of
which they must receive the ordinary
rate of profit, though a part only is em-
ployed in defraying the real expenses
pf production or importation. The price

of the article must be such as to afford
a profit on more than its natural value,
instead of a profit on only its natural
value. A part of the capital of the
country, in short, is not employed in
production, but in advances to the state,
repaid in the price of goods ; and tho
consumers must give an indemnity to
the sellers, equal to the profit which
they could have made on the same
capital if really employed in produc-
tion.* Neither ought it to be forgotten,
that whatever renders a larger capital
necessary in any trade or business,
limits the competition in that business,
and by giving something like a mono-
poly to a few dealers, may enable them
either to keep up the price beyond what
would afford the ordinary rate of profit,
or to obtain the ordinary rate of profit
with a less degree of exertion for iin-

5 roving and cheapening their conimo-
ity. In these several modes, taxes on
commodities often cost to the consumer,
through the increased price of tho ar-
ticle, much more than they bring into
the treasury of the state. There is
still another consideration. The higher
price necessitated by the tax, almost
always checks the demand for the com-
modity ; and since there are many im-
provements in production which, to
make them practicable, require a cer-
tain extent of demand, such improve-
ments are obstructed, and many of them
prevented altogether. It is a well-
known fact, that the branches of pro-
duction in which fewest improvements
are made, are those with which the
revenue officer interferes; and that
nothing, in general, gives a greater
impulse to improvements in the pro-
duction of a commodity, than taking
off a tax which narrowed the market
for it.

* It is true, this does not constitute, as it
at first sight appears to do, a case of taking
more out of the pockets of the people than
the state receives ; since if the state needs
the advance, and gets it in this manner, it
can dispense with an equivalent amount of
borrowing in stock or exchequer bills. But
it is more economical that the necessities of
the state should be supplied from the dis-
posable capital in the hands of the lending
class, than by an artificial addition to the
expenses of one or several classes of pro-
ducers or dealers.

506

BOOK V. CHAPTER IV. § 3.

§ 3. Such are the effects of taxes
on commodities, considered generally ;
hut as there are some commodities
(those composing the necessaries of the
labourer) of which the values have an
influence on the distribution of wealth
among different classes of the commu-
nity, it is requisite to trace the effects
of taxes on those particular articles
somewhat farther. If a tax be laid,
say on corn, and the price rises in pro-
portion to the tax, the rise of price may
operate in two ways. First : it may
lower the condition of the labouring
classes ; temporarily indeed it can
scarcely fail to do so. If it diminishes
their consumption of the produce of the
earth, or makes them resort to a food
which the soil produces more abun-
dantly, and therefore more cheaply, it
to that extent contributes to throw
back agriculture upon more fertile lands
or less costly processes, and to lower
the value and price of corn ; which
therefore ultimately settles at a pi-ice,
increased not by the whole amount of
the tax, but by only a part of its
amount. Secondly, however, it may
happen that the dearness of the taxed
food does not lower the habitual stan-
dard of the labourer's requirements,
but that wages, on the contrary,
through an action on population, rise,
in a shorter or longer period, so as to
compensate the labourers for their por-
tion of the tax; the compensation
being of course at the expense of
profits. Taxes on necessaries must
thus have one of two effects. Either
they lower the condition of the labour-
ing classes ; or they exact from the
owners of capital, in addition to the
amount due to the state on their own
necessaries, the amount due on those
consumed by the labourers. In the
last case, the tax on necessaries, like a
tax on wages, is equivalent to a pecu-
liar tax on profits ; which is, like all

other partial taxation, unjust, and is
specially prejudicial to the increase 01
the national wealth.

It remains to speak of the effect on
rent. Assuming (what is usually the
fact) that the consumption of food is
not diminished, the same cultivation as
before will be necessary to supply the
wants of the community ; the margin
of cultivation, to use Dr. Chalmers'
expression, remains where it was ; and
the same land or capital which, as the
least productive, already regulated tho
value and price of the whole produce,
will continue to regulate them. The
effect which a tax on agricultural pro-
duce will have on rent, depends on its
affecting or not affecting the difference
between the return to this least pro-
ductive land or capital, and the returns
to other lands and capitals. Now tin's
depends on the manner in which the
tax is imposed. If it is an ad valorem
tax, or what is the same thing, a fixed
proportion of the produce, such as tithe
for example, it evidently lowers corn-
rents. For it takes more corn from the
better lands than from the worse ; and
exactly in the degree in which they are
better; land of twice the productive-
ness paying twice as much to the tithe,
Whatever takes more from the greater
of two quantities than from the less,
diminishes the difference between
them. The imposition of a tithe on
corn would take a tithe also from corn-
rent : for if we reduce a series of numbers
by a tenth each, the differences between
them are reduced one-tenth.

For example, let there be five quali-
ties of land, which severally yield, on
the same extent of ground and with
the same expenditure, 100, 90, 80, 70,
and 60 bushels of wheat ; the last of
these being the lowest quality which
the demand for food renders it neces-
sary to cultivate. The rent of these
lands will be as follows : —

The land producing 100 bushels will yield a rent of 100— GO, or 40 bushels.

That producing 90 „ „ 90—60, or 30 „

„ 80 „ „ 80— CO, or 20 „

„ 70 „ „ 70—60, or 10 „

00 no rent.

Now let a tithe bo imposed, which
takes from these five pieces of

land 10, 9, 8, 7, and G bushels re-
spectively, the fifth quality still

TAXES ON COMMODITIES.

S07

being the one which rcguhtos the
pi ice, but returning to the farmer,

after payment of tithe, no more than
54 bushels : —

The land producing 100 bushels reduced to 90, will yield a rent of 90 — 54, or 36 bushels.
That producing 90 „ 81 „ 81—54, or 27 „

80 „ 72 „ 72— 51, or 18 „

„ 70 „ 63 „ 63—54, or 9 „

nn.l that producing 60 bushels, reduced
' 5 1. will yield, as before, no rent. So
(hat the rent of the first quality of
laud has lost four bushels; of the
second, three ; of the third, two ; and
of the fourth, one : that is, each has
1'Xst exactly one-tenth. A tax, there-
fore, of a fixed proportion of the pro-
duce, lowers, in the same proportion,
corn-rent.

But it is only corn-rent that is
!, and not rent estimated in
or in any other commodity.
For, in the same proportion as corn-
rent is reduced in quantity, the com
composing it is raised in value. Under
the tithe, 54 bushels will be worth in
the market what 60 were before ; and
nine-tenths will in all cases sell for as
nnich as the whole ten-tenths pre\i-
ously sold for. The landlords will
therefore be compensated in value and
price for what they lose in quantity;
and will suffer only so far as they con-
sume their rent in kind, or, after re-
ceiving it in money, expend it in
agricultural produce : that is, they
only suffer as consumers of agricultural
produce, and in common with all the
other consumers. Considered as land-
lords, they have the same income as
before ; the tithe, therefore, falls on
the consumer, and not on the landlord.

The same effect would be produced
on reYtt, if the tax, instead of being a
fixed proportion of the produce, were a
fixed sum per quarter or per bushel. A
tax which takes a shilling for every
bushel, takes more shillings from one
field than from another, just in propor-
tion as it produces more bushels ; and
operates exactly like tithe, except that
lithe is not only the same proportion
on all hinds, but is also the same pro-
portion at all times, while a fixed sum
of money per bushel will amount to a
greater or less proportion, according as
corn is cheap or dear.

There are other modes of taxing

agriculture, which would affect rent
differently. A tax proportioned to tho
rent would fall wholly on the rent, and
would not at all raise the price of corn,
which is regulated by the portion of
the produce that pays no rent. A fixed
tax of so much per cultivated acre,
without distinction of value, would have
effects directly the reverse. Taking
no more from the best qualities of land
than from the worst, it would leave tho
differences the same as before, and con-
sequently the same corn-rents, and the
landlords would profit to the full extent
of the rise of price. To put the thing
in another manner ; the price must riso
sufficiently to enable the worst land to
pay the tax : thus enabling all lands
which produce more than the worst, to
pay not only the tax, but also an in-
creased rent to the landlords. These,
however, are not so much taxes on tho
produce of land, as taxes on the land
itself. Taxes on the produce, properly
so called, whether fixed or ad valorem,
do not affect rent, but fall on the con-
sumer : profits, however, generally
bearing either the whole or the greatest
part of the portion which is levied on
the consumption of the labouring
classes.

§ 4. The preceding is, I appre-
hend, a correct statement of the man-
ner in which taxes on agricultural
produce operate when first laid on.
When, however, they are of old stand-
ing, their effect may be different, as
was first pointed out, I believe, by
Mr. Senior. It is, as we have seen, an
almost infallible consequence of any
reduction of profits, to retard the rate
of accumulation. Now the effect of
accumulation, when attended by its
usual accompaniment, an increase of
population, is to increase the value and
price of food, to raise rent, and to
lower profits : that is, to do precisely
what is done by a tax on agricultural

508

produce, except that this does not raise
rent. The tax, therefore, merely anti-
cipates the rise of price, and fall of
profits, which would have taken place
ultimately through the mere progress
of accumulation ; while it at the same
time prevents, or at least retards, that
progress. If the rate of profit was such,
previous to the imposition of a tithe,
that the effect of the tithe reduces it
to the practical minimum, the tithe
will put a stop to all further accumu-
lation, or cause it to take place out of
the country ; and the only effect which
the tithe will then have had on the
consumer, is to make him pay earlier
the price which he would have had to
pay somewhat later — part of which,
indeed, in the gradual progress of
wealth and population, he would have
almost immediately begun to pay.
After a lapse of time which would have
admitted of arise of one-tenth through
the natural progress of wealth, the con-
sumer will he paying no more than he
would have paid if the tithe had never
existed; he will have ceased to pay
any portion of it, and the person who
will really pay it is the landlord, whom
it deprives of the increase of rent which
would hy that time have accrued to
him. At every successive point in this
interval of time, less of the hurthen will
rest on the consumer, and more of it on
the landlord : and in the ultimate re-
sult, the minimum of profits will be
reached with a smaller capital and
population, and a lower rental, than if
the course of things had not been dis-
turbed by the imposition of the tax.
If, on the other hand, the tithe or other
tax on agricultural produce does not
reduce profits to the minimum, but to
eomething above the minimum, accu-
mulation will not be stopped, but only
slackened : and if population also in-
creases, the twofold increase will con-
tinue to produce its effects — a rise of
the price of com, and an increase of
rent. These consequences, however,
will not take place with the same
rapidity as if the higher rate of profit
had continued. At the end of twenty
years the country will have a smaller
population and capital, than, but for
the lax, it would by that time have

BOOK V. CHAPTER IV. § 4.

had ; the landlords will have a smaller
rent; and the price of corn, having
increased less rapidly than it would
otherwise have done, will not be so
much as a tenth higher than what, if
there had been no tax, it would by that
time have become. A part of the tax,
therefore, will already have ceased to
fall on the consumer, and devolved
upon the landlord ; and the proportion
will become greater and greater by
lapse of time.

Mr. Senior illustrates this view of
the subject by likening the effects of
tithes, or other taxes on agricultural
produce, to those of natural sterility of
soil. If the land of a country without
access to foreign supplies, were sud-
denly smitten with a permanent dete-
rioration of quality, to an extent which
would make a tenth more labour neces-
sary to raise the existing produce, the
price of corn would undoubtedly rise
one-tenth. But it cannot hence be
infeiTed that if the soil of the country
had from the beginning been one-tenth
worse than it is, corn would at present
have been one-tenth dearer than we
find it. It is far more probable, that
the smaller return to labour and capital,
ever since the first settlement of the
country, would have caused in each
successive generation a less rapid in-
crease than has taken place : that the
country would now have contained less
capital, and maintained a smaller popu-
lation, so that notwithstanding the in-
feriority of the soil, the price of com
would not have been higher, nor profits
lower, than at present ; rent alone
would certainly have been lower. Wo
may suppose two islands, which, beiurc
alike in extent, in natural fertility, and
industrial advancement, have up to .1
certain time been equal in population
and capital, and have had equal reiKals,
and the same price of corn. Let us
imagine a tithe imposed in one of lho:io
islands, but not in the other. 'J Iv.e
will be immediately a difference in lh«j
price of com, and therefore probab! v in
profits. While profits are not tending
downwards in either country, that is,
while improvements in the production
of necessaries fully keep pace with llie
increase of population, this difference

TAXES ON COMMODITIES.

509

of prices and profits between the islands
may continue. But if, in the untithecl
island, capital increases, and popula-
tion along with it, more than enough
to counterbalance any improvements
which take place, the price of corn will
gradually rise, profits will fall, and rent
will increase ; while in the tithed island
capital and population will either not
increase (beyond what is balanced by
the improvements), or if they do, will
increase in a less degree ; so that rent
and the price of corn will either not rise
at all, or rise more slowly. Rent, there-
fore, will soon be higher in the untithed,
than in the tithed island, and profits
not so much higher, nor corn so much
cheaper, as they were on the first im-
position of the tithe. These effects
will be progressive. At the end of
every ten years there will be a greater
difference between the rentals and be-
tween the aggregate wealth and popu-
lation of the two islands, and a less
difference in profits and in the price of
corn.

At what point will these last dif-
ferences entirely cease, and the tem-
porary effect of taxes on agricultural
produce, in raising the price, have en-
tirely given place to the ultimate effect,
that of limiting the total produce of
the country ? Though the untithed
island is always verging towards the
point at which the price of food would
overtake that in the tithed island, its
progress towards that point naturally
slackens as it draws nearer to attaining
it ; since — the difference between the
two islands in the rapidity of accumu-
lation, depending upon the difference
in the rates of profit — in proportion as
these approximate, the movement which
draws them closer together, abates of
its force. The one may not actually
overtake the other, until both islands
reach the minimum of profits : up to
that point, the tithed island may con-
tinue more or less ahead of the untithed
island in the price of corn: considerably
ahead if it is far from the minimum,
and is therefore accumulating rapidly ;
lery little ahead if it is near the mini-
mum, and accumulating slowly.

But whatever is true of the tithed
and untithed islands, in our hypotheti-

cal case, is true of any country having
a tithe, compared with the same
country if it had never had a tithe.

In England the great emigration of
capital, and the almost periodical oc-
currence of commercial crises through
the speculations occasioned by the
habitually low rate of profit, are indi-
cations that profit has attained the
practical, though not the ultimate
minimum, and that all the savings
which take place (beyond what im-
provements, tending to the cheapening
of necessaries, make room for) are
either sent abroad for investment, or
periodically swept away. There can
therefore, I think, be little doubt that
if England had never had a tithe, or
any tax on agricultural produce, the
price of corn would have been by this
time as high, and the rate of profits as
low, as at present. Independently of
the more rapid accumulation which
would have taken place if profits had
not been prematurely lowered by these
imposts ; the mere saving of a part of
the capital which has been wasted
in unsuccessful speculations, and the
keeping at home a part of that which
has been sent abroad, would have been
quite sufficient to produce the effect. I
think, therefore, with Mr. Senior, that
the tithe, even before its commutation,
had ceased to be a cause of high prices
or low profits, and had become a mere
deduction from rent ; its other effects
being, that it caused the country to
have no greater capital, no larger pro-
duction, and no more numerous popu-
lation than if it had been one-tenth
less fertile than it is ; or let us rather
say one-twentieth, (considering how
great a portion of the land of Great
Britain was tithe-free).

But though tithes and other taxes
on agricultural produce, when of long
standing, either do not raise the price
of food and lower profits at all, or if at
all, not in proportion to the tax ; yet
the abrogation of such taxes, when
they exist, does not the less diminish
price, arid, in general, raise the rate of
profit. The abolition of a tithe takes
one-tenth from the cost of production,
and consequently from the price, of
all agricultural produce ; and unless it

510

BOOK V. CHAPTER IV. § 5.

permanently raises the labourer's re-
quirements, it lowers the cost of labour,
and raises profits. Ecnt, estimated in
money or in commodities, generally
remains as before; estimated in agri-
cultural produce, it is raised. The
country adds as much by the repeal of
a tithe, to the margin which intervenes
between it and the stationary state, as
is cut off from that margin by a tithe
when first imposed. Accumulation is
greatly accelerated ; and if population
also increases, the price of corn imme-
diately begins to recover itself, and
rent to rise ; thus gradually trans-
ferring the benefit of the remission,
from the consumer to the landlord.

The effects which thus result from
abolishing tithe, result equally from
what has been done by the arrange-
ments under the Commutation Act for
converting it into a rent-charge. When
the tax, instead of being levied on the
whole produce of the soil, is levied only
from the portions which pay rent, and
does not touch any fresh extension of
cultivation, the tax no longer forms
any part of the cost of production of
the portion of the produce which regu-
lates the price of all the rest. The
land or capital which pays no rent, can
now send its produce to market one-
tenth cheaper. The commutation of
tithe ought therefore to have produced
a considerable fall in the average price
of corn. If it had not come so gradu-
ally into operation, and if the price of
corn had not during the same period
been under the influence of several
other causes of change, the effect would
probably have been markedly conspicu-
ous. As it is, there can be no doubt
that this circumstance has had its
share in the fall which has taken place
in the cost of production and in the
price of home-grown produce ; though
the effects of the great agricultural
improvements which have been simul-
taneously advancing, and of the free
admission of agricultural produce from
foreign countries, have masked those
of the other cause. This fall of price
would not in itself have any tendency
injurious to the landlord, since corn-
rents are increased in the same ratio in
which the price of com is diminished.

But neither does it in any way tend (9
increase his income. The rent charg^
therefore, which is substituted for tithe,
is a dead loss to him at the expiration
of existing leases : and the commuta-
tion of tithe was not a mere alteration
in the mode in which the landlord bora
an existing burthen, but theimpositiot
of a new one ; relief being afforded to
the consumer at the expense of the
landlord, who, however, begins imme-
diately to receive progressive indemni-
fication at the consumer's expense, by
the impulse given to accumulation and
population.

§ 5. We have hitherto inquired into
the effects of taxes on commodities, on
the assumption that they are levied
impartially on every mode in which the
commodity can be produced or brought
to market. Another class of considera-
tions is opened, if we suppose that this
impartiality is not maintained, and
that the tax is imposed, not on the
commodity, but on some particular
mode of obtaining it.

Suppose that a commodity is capable
of being made by two different pro-
cesses ; as a manufactured commodity
may be produced either by hand or
by steam-power ; sugar may be made
either from the sugar-cane or from
beet-root, cattle fattened either on hay
and green crops, or on oil cake and the
refuse of breweries. It is the interest
of the community, that of the two
methods, producers should adopt that
which produces the best article at the
lowest price. This being also the in-
terest of the producers, unless protected
against competition, and shielded from
the penalties of indolence ; the process
most advantageous to the community
is that which, if not interfered with by
government, they ultimately find it to
their advantage, to adopt. Supp< so
however that a tax is laid on one of
the processes, and no tax at all, or one
of smaller amount, on the other. If the
taxed process is the one which the pro-
ducers would not have adopted, Ilia
measure is simply nugatory. But if
the tax falls, as it is of course iniriirlcd
to do, upon the one which they would
have adopted, it creates an artiiicial

TAXES ON COMMODITIES.

511

motive for preferring the untaxcd pro-
ce^ ;•-, though the interior of the two.
If, therefore, it has any elleet at all, it
causes the commodity to be produced
of worse quality, or at a greater ex-
pense of labour ; it causes .so much of
tho labour of the community to be
. and the capital employed in
supporting and remunerating that
labour to be expended as uselessly, as
it' it wore spent in hiring men to dig
holes and fill them up again. This
waste of labour and capital constitutes
an addition to the cost of production of
tho commodity, which raises its value
and price in a corresponding ratio, and
thus the owners of the capital are in-
demnified. The loss falls on the con-
; though the capital of the
country is also eventually diminished,
by the diminution of their means of
saving, and in some degree, of their
inducements to save.

The kind of tax, therefore, which
comes under the general denomination
of a discriminating duty, transgresses
the rule that taxes should take as little
as possible from the tax-payer beyond
what they bring into the treasury
of the state. A discriminating duty
makes the consumer pay two distinct
taxes, only one of which is paid to the
government, and that frequently the
less onerous of the two. If a tax were
laid on sugar produced from the cane,
leaving the sugar from beet-root un-
taxed, then in so far as cane sugar
continued to be used, the tax on it
•would be paid to the treasury, and
might be as unobjectionable as most
other taxes ; but if cane sugar, having
previously been cheaper than beet-root
sugar, was now dearer, and beet-root
sugar was to any considerable amount
substituted for it, and fields laid out
and manufactories established in con-
sequence, the government would gain
no revenue from the beet-root sugar,
while the consumers of it would pay a
real tax. They would pay for beet-root
sugar more than they had previously
paid for cane sugar, and the difference
would go to indemnify producers for a
portion of the labour of the country
actually thrown away, in producing by
the labour of (say) three hundred men,

what could be obtained by the other
process with the labour of two hundred.

One of the commonest cases of dis-
criminating duties, is that of a tax on
the importation of a commodity capa-
ble of being produced at home, unac-
companied by an equivalent tax on
the home production. A commodity ia
never permanently imported, unless it
can be obtained from abroad at a
smaller cost of labour and capital on
the whole, than is necessary for pro-
ducing it. If, therefore, by a duty on
the importation, it is rendered cheaper
to uroduce the article than to import
it, an extra quantity of labour and
capital is expended, without any extra
result. The labour is useless, and the
capital is spent in paying people for
laboriously doing nothing. All custom
duties which operate as an encourage-
ment to the home production of tho
taxed article, are thus an eminently
wasteful mode of raising a revenue.

This character belongs in a peculiar
degree to custom duties on the produce
of land, unless countervailed by excise
duties on the home production. Such
taxes bring less into the public trea-
sury, compared with what they take
from the consumers, than any other
imposts to which civilized nations are
usually subject. If the wheat pro-
duced in a country is twenty millions
of quarters, and the consumption
twenty-one millions, a million being
annually imported, and if on this
million a duty is laid which raises the
price ten shillings per quarter, the
price which is raised is not that of
the million only, but of the whole
twenty-one millions. Taking the most
favourable, but extremely improbable
supposition', that the importation is
not at all checked, nor the home pro-
duction enlarged, the state gains a
revenue of only half a million, while
the consumers are taxed ten millions
and a half: the ten millions being a
contribution to the home growers, who
are forced by competition to resign it
all to the landlords. The consumer
thus pays to the owners of land an
additional tax, equal to twenty times
that which he pays to the state. Let
us now suppose that the tax really

51$

BOOK V. CHAPTER IV. § 6.

checks importation. Suppose importa-
tion stopped altogether in ordinary
years ; it being found that the million
of quarters can be obtained, by a more
elaborate cultivation, or by breaking
up inferior land, at a less advance than
ten shillings upon the previous price
— say, for instance, five shillings a
quarter. The revenue now obtains
nothing, except from the extraordinary
imports which may happen to take
place in a season of scarcity. But the
consumers pay every year a tax of
five shillings on the whole twenty-one
millions of quarters, amounting to 5£
millions sterling. Of this the odd
250,0002. goes to compensate the
growers of the last million of quarters
for the labour and capital wasted
under the compulsion of the law.
The remaining five millions go to
enrich the landlords as before.

Such is the operation of what are
technically termed Corn Laws, when
first laid on; and such continues to
be their operation, so long as they
have any effect at all in raising the
price of corn. But I am by no means
of opinion that in the long run they
keep up either prices or rents in the de-
gree which these considerations might
lead us to suppose. What we have
said respecting the effect of tithes and
other taxes on agricultural produce,
applies in a great degree to corn laws :
they anticipate artificially a rise of
price and of rent, which would at all
events have taken place through the
increase of population and of produc-
tion. The difference between a country
without com laws, and a country which
has long had corn laws, is not so much
that the last has a higher price or a
larger rental, but that it has the same
price and the same rental with a smaller
aggregate capital and a smaller popu-
lation. The imposition of corn laws
raises rents, but retards that progress
of accumulation which would in no
long period have raised them fully as
much. The repeal of corn laws tends
to lower rents, but it unchains a force
which, in a progressive state of capital
and population, restores and even in-
creases the former amount. There is
evory reason to expect that under the

virtually free importation of agricultural
produce, at last extorted from the niling
powers of this country, the price of food,
if population goes on increasing, will
gradually but steadily rise ; though this
effect may for a time be postponed by
the strong current which in this country
has set in (and the impulse is extending-
itself to other countries) towards the--
improvement of agricultural science,,
and its increased application to prac-
tice.

What we have said of duties on im-
portation generally, is equally appli-
cable to discriminating duties which-
favour importation from one place or
in one particular manner, in contradis-
tinction to others : such as the pre-
ference given to the produce of a colony,.
or of a country with which there is at
commercial treaty : or the higher duties
formerly imposed by our navigation-
laws on goods imported in other than-
British shipping. Whatever else may
be alleged in favour of such distinc-
tions, whenever they are not nugatory,
they are economically wasteful. They
induce a resort to a more costly ruode-
of obtaining a commodity, in lieu of
one less costly, and thus cause a por-
tion of the labour which the country
employs in providing itself with foreign-
commodities, to be sacrificed without
return.

§ 6. There is one more point, re-
lating to the operation of taxes on
commodities conveyed from one coun-
try to another, which requires notice :
the influence which they exert on in-
ternational exchanges. Every tax on
a commodity tends to raise its price,
and consequently to lessen the demand
for it in the market in which it is .sold.
All taxes on international trade ten:],
therefore, to produce a disturbance and
readjustment of what we have termed
the Equation of International Demand.
This consideration leads to some rather
curious consequences, which have been
pointed out in the separate essay on
International Commerce, already seve-
ral times referred to in this treatise.

Taxes on foreign trade are of two
kinds — taxes on imports, and on ex-
ports. On the first aspect of the

TAXES ON COMMODITIES.

613

matter it would seem that both these
taxes nre paid by the consumers of
the commodity ; that taxes on exports
consequently fall entirely on foreigners,
taxes on imports wholly on the homo
consumer. The true state of the case,
however, is much more complicated.

" By taxing exports, we may, in
certain circumstances, produce a divi-
sion of the advantage of the trade
more favourable to ourselves. In some
cases we may draw into our coffers, at
the expense of foreigners, not only the
whole tax, but more than the tax : in
other cases, we should gain exactly the
tax ; iu others, less than the tax. In this
last case, a part of the tax is borne by
ourselves : possibly the whole, possibly
even, as we shall show, more than the
whole."

Reverting to the supposititious case
employed in the Essay, of a trade be-
tween Germany and England in broad-
cloth and linen, " suppose that England
taxes her export of cloth, the tax not
being supposed high enough to induce
Germany to produce cloth for herself.
The price at which cloth can be sold
in Germany is augmented by the tax.
This will probably diminish the quan-
tity consumed. It may diminish it so
much that, even at the increased price,
there will not b« required so great a
money value as before. Or it may not
diminish it at all, or so little, that in
consequence of the higher price, a
greater money value will be purchased
than before. In this last case, Eng-
land will gain, at the expense of Ger-
many, not only the whole amount of
the duty, but more; for, the money
value of her exports to Germany being
increased, while her imports remain
the same, money will flow into England
from Germany. The price of cloth
will rise in England, and consequently
in Germany; but the price of linen
will fall in Germany, and consequently
in England. We shall export less
cloth, and import more linen, till the
equilibrium is restored. It thus ap-
pears (what is at first sight somewhat
remarkable) that by taxing her exports,
England would, in some conceivable
circumstances, not only gain from her
foreign customers tta whole amount of
*.«.

the tax, but would also get her imports
cheaper. She would get thorn cheaper
in two ways; for she would obtain
them for lesa money, and would have
more money to purchase them with.
Germany, «n the other hand, would
suffer doubly : she would have to pay
for her cloth a price increased not only
by the duty, but by the influx of money
into England, while the same change
in the distribution of the circulating
medium would leave her less money to
purchase it with.

" This, however, is only one of three
possible cases. If, after the imposition
of the duty, Germany requires so di-
minished a quantity of cloth, that ita
total value is exactly the same as be-
fore, the balance of trade would be un-
disturbed ; England will gain the duty,
Germany will lose it, and nothing more.
If, again, the imposition of the duty
occasions such a falling off in the de-
mand that Germany requires a less
pecuniary value than before, our ex-
ports will no longer pay for our im-
ports ; money must pass from England
into Germany ; and Germany's share
of the advantage of the trade will be
increased. By the change in the dis-
tribution of money, cloth will fall iu
England ; and therefore it will, of
course, fall in Germany. Thus Ger-
many will not pay the whole of the
tax. From the same cause, linen will
rise in Germany, and consequently in
England. When this alteration of
prices has so adjusted the demand,
that the cloth and the linen again pay
for one another, the result is that Ger-
many has paid only a part of the tax,
and the remainder of what has been
received into our treasury has come in-
directly out of the pockets of our own
consumers of linen, who pay a higher
price for that imported commodity in
consequence of the tax on our exports,
while at the same time they, in con-
sequence of the efflux of money and
the fall of prices, have smaller money
incomes wherewith to pay for the linen
at that advanced price.

" It is not an impossible supposition

that by taxing our exports we might

not only gain nothing from the i<*

reigner, the tax being paid out of out

L L

BOOK V. CHAPTEH IV. § 6.

514

own pockets, but might even compel
our own people to pay a second tax to
the foreigner. Suppose, as hefore, that
the demand of Germany for cloth falls
off so much on the imposition of the
duty, that she requires a smaller money
value than before, but that the case is
so different with linen in England, that
when the price rises the demand either
does not fall off at all, or so little that
the money value required is greater
than before. The first effect of laying
on the duty is, as before, that the cloth
exported will no longer pay for the linen
imported. Money will therefore flow
out of England into Germany. One
effect is to raise the price of linen in
Germany, and consequently in Eng-
land. But this, by the supposition,
instead of stopping the efflux of money,
only makes it greater, because the
higher the price, the greater the money
value of the linen consumed. The ba-
lance, therefore, can only be restored
by the other effect, which is going on
at the same time, namely, the fall of
cloth in the English and consequently
in the German market. Even when
cloth has fallen so low that its price
with the duty is only equal to what its
price without the duty was at first, it
is not a necessary consequence that the
fall will stop ; for the same amount of
exportation as before will not now suf-
fice to pay the increased money value
of the imports j and although the Ger-
man consumers have now not only cloth
at the old price, but likewise increased
money incomes, it is not certain that
they will be inclined to employ the in-
crease of their incomes in increasing
their purchases of cloth. The price of
cloth, therefore, must perhaps fall, to
restore the equilibrium, more than the
whole amount of the duty ; Germany
may be enabled to import cloth at a
lower price when it is taxed, than when
it was untaxed : and this gain she will
acquire at the expense of the English
consumers of linen, who, in addition,
•will be the real payers of the whole of
what is received at their own custom-
house under the name of duties on the
export of cloth."

It is almost unnecessary to remark
tliat cloth and linen are here merely

representatives of exports and imports
in general ; and that the effect which
a tax on exports might have in increas-
ing the cost of imports, would affect
the imports from all countries, and not
peculiarly the articles which might bo
imported from the particular country
to which the taxed exports were sent.

" Such are the extremely various
effects which may result to ourselves
and to our customers from the imposi-
tion of taxes on our exports ; and the
determining circumstances are of a
nature so imperfectly ascertainable,
that it must be almost impossible to
decide with any certainty, even after
the tax has been imposed, whether wo
have been gainers by it or losers."
In general, however, there could be littlo
doubt that a country which imposed
such taxes would succeed in making
foreign countries contribute something
to its revenue ; but unless the taxed
article be one for which their demand
is extremely urgent, they will seldom
pay the whole of the amount which the
tax brings in.* " In any case, whatever
we gain is lost by somebody else, and
there is the expense of the collection
besides : if international morality,
therefore, were rightly understood and
acted upon, such taxes, as being con-
trary to the universal weal, would not
exist."

Thus far of duties on exports. We
now proceed to the more ordinary case
of duties on imports. " We have had an
example of a tax on exports, that is, on
foreigners, falling in part on ourselves.
We shall therefore not be surprised
if we find a tax on imports, that is,
on ourselves, partly falling upon fo-
reigners.

" Instead of taxing the cloth which
we export, suppose that we tax the
linen which we import. The duty
which we are now supposing must not
be what is termed a protecting duty,

* Probably the strongest known instance
of a large revenue raised from foreigners by
a tax on exports, is the opium trade with
China. The high price of the article under
the Government monopoly (which is equiva-
lent to a high export duty) has so little effect
in discouraging its consumption, that it is
said to have been occasionally sold in Chin*
for as much as its weight in silver.

TAXES ON COMMODITIES.

515

that ia, a duty sufficiently high to
induce us to produce the article at
home. If it had this effect, it would
destroy entirely the trade both in cloth
and in linen, and both countries would
lose the whole of the advantage which
tin y previously gained by exchanging
those commodities with one another.
W<' suppose a duty which might dimi-
nish the consumption of the article, but
which would not prevent us from con-
tinuing to import, as before, whatever
linen we did consume.

" The equilibrium of trade would be
disturbed if the imposition of the tax
diminished, in the slightest degree, the
quantity of linen consumed. For, as
the tax is levied at our own custom-
house, the German exporter only re-
ceives the same price as formerly,
though the English consumer pays a
higher one. If, therefore, there be any
diminution of the quantity bought, al-
though a larger sum of money may be
actually laid out in the article, a
smaller one will be due from England
to Germany : this sum will no longer
be an equivalent for the sum due from
Germany to England for cloth, the ba-
lance therefore must be paid in money.
Prices will fall in Germany and rise in
England ; linen will fall in the German
market ; cloth will rise in the English.
The Germans will pay a higher price
for cloth, and will have smaller money
incomes to buy it with ; while the Eng-
lish will obtain linen cheaper, that is,
its price will exceed what it previously
was by less than the amount of the
duty, while their means of purchasing
it will be increased by the increase oi
their money incomes.

" If the imposition of the tax does
not diminish the demand, it will leave
the trade exactly as it was before. We
shall import as much, and export as
much ; the whole of the tax will be
paid out of our own pockets.

" But the imposition of a tax on a
commodity almost always diminishes
the demand more or less ; and it can
aever, or scarcely ever, increase the
demand. It may, therefore, be laid
down as a principle, that a tax on im-
ported commodities, when it really
operates as a tax, and not as a prohi-

ition either total or partial, almost al-
ways falls in part upon the foreigners
who consume our goods ; and that this
s a mode in which a nation may ap-
)ropriate to itself, at the expense
of foreigners, a larger share than
would otherwise belong to it of tho
ncrease in the general productive-
ness of the labour and capital of the
world, which results from the inter,
change of commodities among na-
ions."

Those are, therefore, in the right
who maintain that taxes on imports
are partly paid by foreigners ; but they
are mistaken when they say, that it is
by the foreign producer. It is not on
the person from whom we buy, but on
all those who buy from us, that a por-
tion of our custom duties spontaneously
falls. It is the foreign consumer of our
exported commodities, who is obliged
to pay a higher price for them because
we maintain revenue duties on foreign
goods.

There are but two cases in which
duties on commodities can in any de-
gree, oj in any manner, fall on the pro-
ducer. One is, when the article is a
strict monopoly, and at a scarcity price.
The price in this case being only limited
by the desires of the buyer ; the sum
obtained for the restricted supply being
the utmost which the buyers would con-
sent to give rather than go without it ;
if the treasury intercepts a part of this,
the price cannot be further raised to
compensate for the tax, and it must be
paid from the monopoly profits. A tax
on rare and high priced wines will fall
wholly on the growers, or rather, on
the owners of the vineyards. The
second case in which the producer
sometimes bears a portion of the tax,
is more important : the case of duties
on the produce of land or of mines.
These might be so high as to diminish
materially the demand for the produce,
and compel the abandonment of some
of the interior qualities of land or mines.
Supposing this to be the effect, the con-
sumers, both in the country itself and
in those which dealt with it, would ob-
tain the produce at smaller cost ; and
a part only, instead of the whole, of
the duty would fall on the purchaser,
LLl

516

BOOK V. CHAPTER IV. § 6.

who would be indemnified chiefly at
the expense of the landowners or mine-
owners in the producing country.

Duties on importation may, then, be
divided " into two classes : those
which have the effect of encouraging
some particular branch of domestic in-
dustry, and those which have not. The
former are purely mischievous, both to
the country imposing them, and to
those with whom it trades. They pre-
vent a saving of labour and capital,
which, if permitted to be made, would
be divided in some proportion or other
between the importing country and the
countries which buy what that country
does or might export.

"The other class of duties are those
which do not encourage one mode of
procuring an article at the expense of
another, but allow interchange to take
place just as if the duty did not exist,
and to produce the saving of labour
which constitutes the motive to inter-
national, as to all other commerce. Of
this kind are duties on the importation
of any commodity which could not by
any possibility be produced at home ;
and duties not sufficiently high to
counterbalance the difference of ex-
pense between the production of the
article at home and its importation.
Of the money which is brought into
the treasury of any country by taxes
of this last description, a part only is
paid by the people of that country ; the
remainder by the foreign consumers of
their goods.

" Nevertheless, this latter kind of
taxes are in principle as ineligible as
the former, though not precisely on the
same ground. A protecting duty can
never be n cause of gain, but always
and necessarily of loss, to the country
imposing it, just so far as it is effica-
cious to its end. A non-protecting
duty, on the contrary, would in most
cases be a source of gain to the country
imposing it, in so far as throwing part
ol the weight of its taxes upon other
people is a gain • but it would be a

means which it could seldom be ad-
visable to adopt, being so easily coun-
teracted by a precisely similar pro-
ceeding on the other side.

" If England, in the case already
supposed, sought to obtain for herself
more than her natural sliare of the
advantage of the trade with Germany
by imposing a duty upon linen, Ger-
many would only have to impose a
duty upon cloth, sufficient to diminish
the demand for that article about as
much as the demand for linen had been
diminished in England by the tax.
Things would then be as before, and
each country would pay its own tax.
Unless, indeed, the sum of the two
duties exceeded the entire advantage
of the trade ; for in that case the trade,
and its advantage, would cease en-
tirely.

"There would be no advantage,
therefore, in imposing duties of this
kind, with a view to gain by them in
the manner which has been pointed
out. But when any part of the revenue
is derived from taxes on commodities,
these may often be as little objection-
able as the rest. It is evident, too,
that considerations of reciprocity, which
are quite unessential when the matter
in debate is a protecting duty, are of
material importance when the repeal
of duties of this other description is
discussed. A country cannot be ex-
pected to renounce the power of taxing
foreigners, unless foreigners will in re-
turn practise towards itself the sama
forbearance. The only mode in which
a country can save itself from being a
loser by the revenue duties imposed by
other countries on its commodities, is
to impose corresponding revenue duties
on theirs. Only it must take care that
those duties be not so high as to exceed
all that remains of the advantage of
the trade, and put an end to importa-
tion altogether, causing the article to
be cither produced at home, or im-
ported from another and a dearor
market.1'

MISCELLANEOUS TAXES.

517

CHAPTER V.

OF SOME OTHER TAXK8.

§ 1. BKSIDES direct taxes on in-
come, and taxes on consumption, the
financial systems of most countries
comprise a variety of miscellaneous
imposts, not strictly included in either
class. The modern European systems
retain many such taxes, though in
much less number and variety than
those semi-barbarous governments
which European influence has not yet
reached. In some of these, scarcely
nny incident of life has escaped being
made an excuse for some fiscal exac-
tion ; hardly any act, not belonging to
daily routine, can be performed by any
one, without obtaining leave from some
agent of government, which is only
granted in consideration of a payment :
especially when the act requires the aid
or the peculiar guarantee of a public
authority. In the present treatise we
may confine our attention to such
taxes as lately existed, or still exist, in
countries usually classed as civilized.

In almost all nations a considerable
revenue is drawn from taxes on con-
tracts. These are imposed in various
forms. One expedient is that of taxing
the legal instrument which serves as
evidence of the contract, and which is
commonly the only evidence legally
admissible. In England, scarcely any
contract is binding unless executed on
stamped paper, which has paid a tax
to government ; and until very lately,
when the contract related to property
the tax was proportionally much
heavier on the smaller than on the
larger transactions ; which is still true
of some of those taxes. There are also
stamp duties on the legal instruments
which are evidence of the fulfilment of
contracts; such as acknowledgments
of receipt, and deeds of release. Taxes
on contracts are not always levied by
means of stamps. The duty on sales
by auction, abrogated by Sir Robert
Peel, was an instance in point. The
taxes on transfers of landed property,

in France, are another: in England
these are stamp duties. In somo
countries, contracts of many kinds are
not valid unless registered, and their
registration is made an occasion for a
tax.

Of taxes on contracts, the most im-
portant are those on the transfer of
property, chiefly on purchases and
sales. Taxes on the sale of consumable
commodities are simply taxes on those
commodities. If they affect only some
particular commodities, they raise the
prices of those commodities, and are
paid by the consumer. If the attempt
were made to tax all purchases and
sales, which, however absurd, was for
centuries the law of Spain, the tax, if
it could he enforced, would he equiva-
lent to a tax on all commodities, and
would not affect prices : if levied from
the sellers, it would be a tax on profits,
if from the buyers, a tax on consump-
tion ; and neither class could throw tho
burthen upon the other. If confined
to some one mode of sale, as tor ex-
ample by auction, it discourages re-
course to that mode, and if of any
material amount, prevents it from being
adopted at all, unless in a case of
emergency; in which case as the seller
is under a necessity to sell, but the
buyer under no necessity to buy, the
tax falls on the seller ; and this was
the strongest of the objections to the
auction duty : it almost always fell on
a necessitous person, and in the crisia
of his necessities.

Taxes on the purchase and sale of
land are, in most countries, liable U
the same objection. Landed property
in old countries is seldom parted with,
except from reduced circumstances, or
some urgent need : the seller, there-
fore, must take what he can get, while
the buyer, whose object is an invest-
ment, makes his calculations on the
interest which he can obtain for his
money in other ways, and wiK not buy

518

BOOK V. CHAPTER V. §

if he is charged with a government tax
:ra the transaction.* It has indeed
teen objected, that this argument
would not apply if all modes of perma-
nent investment, such as the purchase
of government securities, shares in
joint-stock companies, mortgages, and
the like, were subject to the same tax.
But even then, if paid by the buyer, it
would be equivalent to a tax on in-
terest: if sufficiently heavy to be of
any importance, it would disturb the
established relation between interest
and profit; and the disturbance would
redress itself by a rise in the rate of
interest, and a fall of the price of land
and of all securities. It appears to me,
therefore, that the seller is the person
by whom such taxes, unless under
peculiar circumstances, will generally
be borne.

All tapces must be condemned which
throw c-Dstacles in the way of the sale
of land, or other instruments of produc-
tion. Such sales tend naturally to
render the property more productive.
The seller, whether moved by necessity
or choice, is probably some one who is
cither without the means, or without
the capacity, to make the most advan-
tageous use of the property for produc-
tive purposes ; while the buyer, on the
other hand, is at any rate not needy,
and is frequently both inclined and
able to improve the property, since, as
it is worth more to such a person than
to any other, he is likely to offer the
highest price for it. All taxes, there-
fore, and all difficulties and expenses,
annexed to such contracts, are deci-
dedly detrimental ; especially in the
case of land, the source of subsistence,
and the original foundation of all wealth,
on the improvement of which, there-
fore, so much depends. Too great
facilities cannot be given to enable
land to pass into the hands, and as-

* The statement in the text requires
modification in the case of countries where
the land is owned in small portions. These
being neither a badge of importance, nor in
general an object of local attachment, are
readily parted with at a small advance on
their original cost, with the intention of buy-
ing elsewhere : and the desire of acquiring
laud, even on disadvantageous terms, is so
great, as to be little checked by even a high
rate of taxation.

sume the modes of aggregation or divi-
sion, most conducive to its productive-
ness. If landed properties are too
large, alienation should be free, in
order that they may be subdivided ; i(
too small, in order that they may be
united. All taxes on the transfer of
landed property should be abolished ;
but, as the landlords have no claim to
be relieved from any reservation which
the state has hitherto made in its own
favour from the amount of their rent,
an annual impost equivalent to the
average produce of these taxes should
be distributed over the land generally,
in the form of a land-tax.

Some of the taxes on contracts are
very pernicious, imposing a virtual
penalty upon transactions which it
ought to be the policy of the legislator
to encourage. Of this sort is the stamp
duty on leases, which in a country of
large properties are an essential condi-
tion of good agriculture ; and the tax
on insurances, a direct discouragement
to prudence and forethought. In the
case of fire insurances, the tax was
until lately in all cases, and still is
in most cases, exactly double the
amount of the premium of insurance on
common risks ; so that the person in-
suring is obliged by the government
to pay for the insurance just three
times the value of the risk. If this tax
existed in France, we should not see, as
we do in some of her provinces, the plate
of an insurance company on almost
every cottage or hovel. This, indeed,
must be ascribed to the provident and
calculating habits produced by the dis«
semination of property through the la-
bouring class : but a tax of so extra-
vagant an amount would be a heavy
drag upon any habits of providence.

§ 2. Nearly allied to the taxes on
contracts are those on communication.
The principal of these is the postage
tax ; to which may be added taxes on
advertisements, and on newspapers,
which are taxes on the communication
of information.

The common mode of levying a tax
on the conveyance of letters, is by
making the government the sole au-
thorized carrier of them, and demand-

MISCELLANEOUS TAXES.

519

ing a monopoly price. When this
price is so moderate aa it is in this
country under the uniform penny post-
age, scarcely if at all exceeding what
would be charged under the freest
competition by any private company, it
can nardly be considered as taxation,
lut rather as the profits of a business ;
whatever excess there is above the
crdinary profits of stock being a fair
result of the saving of expense, caused
by having only one establishment and
one set of arrangements for the whole
country, instead of many competing
ones. The business, too, being one
which both can and ought to be con-
ducted on fixed rules, is one of the few
businesses which it is not unsuitable to
a government to conduct. The post
office, therefore, is at present one of the
best of the sources from which this
country derives its revenue. But a
postage much exceeding what would
be paid for the same service in a system
of freedom, is not a desirable tax. Its
chief weight falls on letters of business,
and increases the expense of mercan-
tile relations between distant places.
It is like an attempt to raise a large
revenue by heavy tolls : it obstructs all
operations by which goods are con-
veyed from place to place, and dis-
courages the production of commodities
in one place for consumption in an-
other ; which is not only in itself one
of the greatest sources of economy of
labour, but is a necessary condition of
almost all improvements in production,
and one of the strongest stimulants to
industry and promoters of civilization.

A tax on advertisements is not free
from the same objection, since in what-
ever degree advertisements are useful
to business, by facilitating the coming
together of the dealer or producer and
the consumer, in that same degree, if
the tax be high enough to be a serious
discouragement to advertising, it pro-
longs the period during which goods
remain unsold, and capital locked up
in idleness.

A tax on newspapers is objection-
able, not so much where it does fall as
where it does not, that is, where it
prevents newspapers from being used.
To the generality of those who buy

them, newspapers are a luxury which
they can as well afford to pay for as
any other indulgence, and which is as
unexceptionable a source of revenue.
But to that large part of the commu-
nity who have been taught, to read, but
have received little other intellectual
education, newspapers are the source
of nearly all the general information
which they possess, and of nearly all
their acquaintance with the ideas and
topics current among mankind ; and
an interest is more easily excited in
newspapers, than in books or other
more recondite sources of instruction.
Newspapers contribute so little, in a
direct way, to the origination of useful
ideas, that many persons undervalue
the importance of their office in dis-
seminating them. They correct many
prejudices and superstitions, and keep
up a habit of discussion, and interest
in public concerns, the absence of which
is a great cause of the stagnation of
mind usually found in the lower and
middle, if not in all, ranks, of those
countries where newspapers of an irn •
portant or interesting character do not
exist. There ought to be no taxes
which render this great diffuser of in-
formation, of mental excitement, and
mental exercise, less accessible to that
portion of the public which most needs
to be carried into a region of ideas
and interests beyond its own limited
horizon.

§ 3. In the enumeration of bad
taxes, a conspicuous place must be
assigned to law taxes ; which extract
a revenue for the state from the various
operations involved in an application
to the tribunals. Like all needless
expenses attached to law proceedings,
they are a tax on redress, and there-
fore a premium on injury. Although
such taxes have been abolished in thin
country as a general source of revenue,
they still exist in the form of fees of
court, for defraying the expense of the
courts of justice ; under the idea, ap-
parently, that those may fairly be re-
quired to bear the expenses of tha
administration of justice, who reap the
benefit of it. The fallacy of this doc-
trine was powerfully exposed by Ben*

520

fham. As he rerharked, those who are
under the necessity of going to law,
nrc those who henefit least, not most,
by the law and its administration. To
them the protection which the law
affords has not been complete, since
they have heen obliged to resort to a
court of justice to ascertain their rights,
or maintain those rights against in-
fringement : while the remainder of
the public have enjoyed the immunity
from injury conferred by the law and
the tribunals, without the inconveni-
ence of an appeal to them.

§ 4. Besides the general taxes of
the State, there are in all or most
countries local taxes, to defray any ex-
penses of a public nature which it is
thought best to place under the control
or management of a local authority.
Some of these expenses are incurred
for purposes in which the particular
locality is solely or chiefly interested ;
as the paving, cleansing, and lighting
of the streets ; or the making »nd re-
pairing of roads and bridges, which
may be important to people from any
part of the country, but only in so far
as they, or goods in which they have
an interest, pass along the roads or
over the bridges. In other cases again,
the expenses are of a kind as nation-
ally important as any others, but are
defrayed locally because supposed more
ikely to be well administered by local
bodies; as, in England, the relief of
the poor and the support of gaols, and
in some other countries, of schools.
To decide for what public objects local
superintendence is best suited, and
what are those which should be kept
immediately under the central govern-
ment, or under a mixed system of local
management and central superintend-
ence, is a question not of political
economy, but of administration. It is
an important principle, however, that
taxes imposed by a local authority,
being less amenable to publicity and
discussion than the acts of the govern-
ment, should always be special — laid
on for some definite service, and not
exceedingthe expense actually incurred

BOOK V. CHAPTER V. § 4.

in rendering the service. Thus limited,
it is desirable, whenever practicable,
that the burthen should fall on those
to whom the service is rendered ; that
the expense, for instance, of roads and
bridges, should be defrayed by a toll
on passengers and goods conveyed by
them, thus dividing the cost between
those who use them for pleasure or
convenience, and the consumers of the
goods which they enable to be brought
to and from the market at a diminished
expense. When, however, the tolls
have repaid with interest the whole of
the expenditure, the road or bridge
should be thrown open free of toll, that
it may be used also by those to whom,
unless open gratuitously, it would be
valueless ; provision being made for
repairs either from the funds of
the state, or by a rate levied on the
localitiea which reap the principal
benefit.

In England, almost all local taxes
are direct, (the coal duty of the City of
London, and a few similar imposts,
being the chief exceptions,) though the
greatest part of the taxation for gene-
ral purposes is indirect. On the con-
trary, in France, Austria, and other
countries where direct taxation is much
more largely employed by the state,
the local expenses of towns are princi-
pally defrayed by taxes levied on com-
modities when entering them. These
indirect taxes are much more objec-
tionable in towns than on the frontier,
because the things which the country
supplies to the towns are chiefly the
necessaries of life and the materials of
manufacture, while of what a country
imports from foreign countries, tlio
greater part usually consists of luxuries.
An octroi cannot produce a large reve-
nue, without pressing severely upon
the labouring classes of the towns ;
unless their wages rise proportionally,
in which case the tax falls in a great
measure on the consumers of town
produce, whether residing in town or
country, since capital will not remain
in the towns if its profits fall below
their ordinary proportion as compared
with the rural districts.

DIRECT AKD INDIRECT TAXES COMPARED.

621

CUAPTER VI.

COMPARISON BETWEEN DIRECT AND INDIRECT TAXATION.

§ 1. ARE direct or indirect taxes
the most eligible ? This question, at
all times interesting, has of late excited
a considerable amount of discussion.
In England there is a popular feeling,
of old standing, in favour of indirect,
or it should rather be said in opposition
to direct, taxation. The feeling is not
grounded on the merits of the case, and
is of a puerile kind. An Englishman
dislikes, not so much the payment as
the act of paying. He dislikes seeing
the face of the tax-collector, anl being
subjected to his peremptory demand.
Perhaps, too, the money which he is
required to pay directly out of his
pocket is the only taxation which he is
quite sure that he pays at all. That a
tax of one shilling per pound on tea, or
of two shillings per bottle on wine,
raises the price 01 each pound of tea
and bottle of wine which he consumes,
by that and more than that amount,
cannot indeed be denied ; it is the fact,
and is intended to be so, and he him-
self, at times, is perfectly aware of it ;
"out it makes hardly any impression on
his practical feelings and associations,
serving to illustrate the distinction be-
tween what is merely known to be true
and what is felt to be so. The un-
popularity of direct taxation, contrasted
with the easy manner in which the
public consent to let themselves he
fleeced in the prices of commodities,
has generated in many friends of im-
provement a directly opposite mode of
thinking to the foregoing. They con-
lend that the very reason which makes
direct taxation disagreeable, makes it
preferable. Under it, every one knows
now much he really pays ; and if he
votes for a war, or any other expensive
national luxury, he does so with his
eyes open to what it costs him. If all
laxes were direct, taxation would be
much more perceived than at present ;
»nd there would be a security which

now there is not, for economj in the
public expenditure.

Although this argument is not with-
out force, its weight is likely to be
constantly diminishing. The real in-
cidence of indirect taxation is every
day more generally understood and
more familiarly recognised : and what-
ever else may be said of the changes
which are taking place in the tenden-
cies of the human mind, it can scarcely,
I think, be denied, that things are more
and more estimated according to their
calculated value, and less according to
their non-essential accompaniments.
The mere distinction between paying
money directly to the tax-collector, and
contributing the same sum through
the intervention of the tea-dealer or
the wine-merchant, no longer makes
the whole difference between dislike or
opposition, and passive acquiescence.
But further, while any such infirmity,
of the popular mind subsists, the argu-
ment grounded on it tells partly on
the other side of the question. If
our present revenue of about seventy
millions were all raised by direct
taxes, an extreme dissatisfaction would
certainly arise at having to pay so
much ; but while men's minds are so
little guided by reason, as such a
change of feeling from so irrelevant a
cause would imply, so great an aver-
sion to taxation might not be an un-
qualified good. Of the seventy millions
in question, nearly thirty are pledged,
under the most binding obligations, to
those whose property has been bor-
rowed and spent by the state : and
while this debt remains unredeemed, a
greatly increased impatience of taxa-
tion would involve no little danger of
a breach of faith, similar to that
which, in the defaulting states of
America, has been produced, and in
some of them still continues, from the
fame cause. That part, indeed, of the

BOOK V. CHAPTER VI. § 1.

523

public expenditure, which is devoted
to the maintenance of civil and mili-
tary establishments, (that is, all ex-
cept the interest of the national debt)
aflbrds, in many of its details, ample
r-cope for retrenchment. But while
much of the revenue is wasted under
the mere pretence of public sen-ice, so
much of the most important business
of government is left undone, that
whatever can be rescued from useless
expenditure is urgently required for
useful. Whether the object be educa-
tion ; a more efficient and accessible
administration of justice ; reforms of
any kind which, like the Slave Eman-
cipation, require compensation to indi-
vidual interests ; or what is as im-
portant as any of these, the entertain-
ment of a sufficient staff of able and
educated public servants, to conduct
in a better than the present awkward
manner the business of legislation and
administration ; every one of these
ihings implies considerable expense,
and many of them have again and
ngain been prevented by the reluc-
tance which existed to apply to Par-
liament for an increased grant of
public money, though (besides that
the existing means would be more
than sufficient if applied to the proper
purposes) the cost would be repaid,
often a hundred-fold, in mere pecuniary
advantage to the community generally.
If so great an addition were made to
the public dislike of taxation as might
be tne consequence of confining it to
the direct fonn, the classes who profit
by_ the misapplication of public money
might probably succeed in saving that
by which they profit, at the expense
of that which would only be useful to
the public.

There is, however, a frequent plea
in support of indirect taxation, which
must be altogetherrejected, asgrounded
on a fallacy. We are often told that
taxes on commodities are less burthen-
fiome than other taxes, because the
contributor can escape from them by
ceasing to use the taxed commodity.
He certainly can, if that be his object,
deprive the government of the money;
but he does so by a sacrifice of his own
indulgences, which (if he chose to

undergo it) would equally make up to
him for the same amount taken from
him by direct taxation. Suppose a tax
laid on wine, sufficient to add five pounds
to the price of the quantity of wine which
he consumes in a year. He has only
(we are told) to diminish his consump-
tion of wine by 51., and he escapes the
burthen. True : but if the 5/., instead
of being laid on wine, had been taken
from him by an income-tax, he could,
by expending 5Z. less in wine, equally
save the amount of the tax, so that
the difference between the two cases
is really illusory. If the government
takes from the contributor five pounds
a year, whether in one way or another,
exactly that amount must be retrenched
from his consumption to leave him as
well off as before ; and in either way
the same amount of sacrifice, neithei
more nor less, is imposed on him.

On the other hand, it is some ad-
vantage on the side of indirect taxes,
that what they exact from the con-
tributor is taken at a time and in a
manner likely to be convenient to him.
It is paid at a time when he has at
any rate a payment to make ; it causes,
therefore, no additional trouble, nor
(unless the tax be on necessaries) any
inconvenience but what is inseparable
from the payment of the amount. He
can also, except in the case of very
perishable articles, select his own time
for laying in a stock of the commodity,
and consequently for payment of the
tax. The producer or dealer who ad-
vances these taxes, is, indeed, some-
times subjected to inconvenience ; but,
in the case of imported goods, this in-
convenience is reduced to a minimuir
by what is called the Warehousing
System, under which, instead of paying
the duty at the time of importation, h«
is only required to do so when he take?
out the goods for consumption, which
is seldom done until he has eithe'
actually found, or has the prospect oi
immediately finding, a purchaser.

The strongest objection, however, to
raising the whole or the greater part
of a large revenue by direct taxes, is
the impossibility of assessing them
fairly without a conscientious co-ope-
ration on the part of the contributors,

DIRECT AND INDIRECT TAXES COMPARED.

523

not to be hoped for in the present low
state of public morality. In the case
of an income-tax, we have already
seen that unless it be found practicable
to exempt savings altogether from the
tax, the burthen cannot be apportioned
with any tolerable approach to fairness
upon those whose incomes are derived
from business or professions ; and this
is in fact admitted by most of the
advocates of direct taxation, who, I
am afraid, generally get over the diffi-
culty by leaving those classes untaxed,
and confining their projected income-
tax to " realized property," in which
form it certainly has the merit of
being a very easy form of plunder.
Bui enough has been said In condem-
nation of this expedient. \Vo have
Been, however, that a house-tax is a
form of direct taxation not liable to
the same objections as an income-tax,
and indeed liable to as few objections
of any kind as perhaps any of our indi-
rect taxes. But it would be impossible
to raise, by a house-tax alone, the
greatest part of the revenue of Great
Britain, without producing a very ob-
jectionable over-crowding of the popu-
lation, through the strong motive
which all persons would have to avoid
the tax by restricting their house ac-
commodation. Besides, even a house-
tax has inequalities, and consequent
injustices ; no tax is exempt from
them, and it is neither just nor politic
to make all the inequalities fall in the
same places, by calling upon one tax
to defray the whole or the chief part
of the public expenditure. So much
of the local taxation, in this country,
being already in the form of a house-
tax, it is probable that ten millions a
year would be fully as much as could
beneficially be levied, through this
medium, for general purposes.

A certain amount of revenue may,
as we have seen, be obtained without
injustice by a peculiar tax on rent.
Besides the present land-tax, and an
equivalent for the revenue now derived
from stamp duties on the conveyance
of land, Borne further taxation might,
1 have contended, at some future
period be imposed, to enable the state
to participate in the progressive in-

crease of the incomes of landlords from
natural causes. Legacies and inheri-
tances, we have also seen, ought to be
subjected to taxation sufficient to yield
a considerable revenue. With these
taxes, and a house-tax of suitable
amount, we should, I think, havo
reached the prudent limits of direct
taxation, save in a national emergency
so urgent as to justify the government
in disregarding the amount of in-
equality and unfairness which may
ultimately be found inseparable from
an income-tax. The remainder of the
revenue would have to be provided by
taxes on consumption, and tbe ques-
tion is, which of these are the least
objectionable.

§ 2. There are some forms of indi-
rect taxation which must be peremp-
torily excluded. Taxes on commodi-
ties, for revenue purposes, must not
operate as protecting duties, but must
be levied impartially on every mode in
which the articles can be obtained,
whether produced in the country itself,
or imported. An exclusion must also
be put jtppn all taxes on the neces-
saries of life, or on the materials or
instruments employed in producing
those necessaries. Such taxes are
always liable to encroach on what
should be left untaxed, the incomes
barely sufficient for healthful exist-
ence ; and on the most favourable
supposition, namely, that wages rise
to compensate the labourers for the
tax, it operates as a peculiar tax on
profits, which is at once unjust, and
detrimental to national wealth.* What
remain are taxes on luxuries. And
these have some properties which

* Some argue that the materials and in-
struments of all production should be exempt
from taxation ; but these, when they do not
enter into the production of necessaries, seem
aa proper subjects of taxation as the finished
article. It ia chiefly with reference to
foreign trade, that such taxes have been
considered injurious. Internationally speak-
ing, they may be looked upon as export
duties, and, unless in cases in which an ex-
port duty is advisable, they should be accom-
panied with an equivalent drawback on ex-
portation. But there is no sufficient reason
against taxing the materials and instruments
used in the production of anything which ia
itself a fit object of taxation.

524

BOOK V. CHAPTER VI. §

strongly recommend them. In the
first place, they can never, by any
possibility, touch those whose whole
income is expended on necessaries ;
while they do reach those by whom
what is required for necessaries, is ex-
pended on indulgences. In the next
place, they operate in some cases as
an useful, and the only useful, kind of
sumptuary law. I disclaim all asceti-
cism, and by no means wish to see dis-
couraged, either by law or opinion, any
indulgence (consistent with the means
and obligations of the person using it)
which is sought from a genuine incli-
nation for, and enjoyment of, the thing
itself; but a great portion of the ex-
pense of the higher and middlo classes
in most countries, and the greatest in
tin's, is not incurred for the sake of
the pleasure afforded by the things on
which the money is spent, but from
regard to opinion, and an idea that
certain expenses are expected from
them, as an appendage of station ;
and I cannot but think that expendi-
ture of this sort is a most desirable
subject of taxation. If taxation dis-
courages it, some good is done, and if
not, no harm ; for in so far as taxes
are levied on things which arc desired
and possessed from motives of this
description, nobody is the worse for
them. When a thing is bought not
for its use but for its costliness, cheap-
ness is no recommendation. As Sis-
mondi remarks, the consequence of
cheapening articles of vanity, is not
that less is expended on such things,
but that the buyers substitute for the
cheapened article some other which
is more costly, or a- more elaborate
quality of the same thing ; and as the
inferior quality answered the purpose
of vanity equally well when it was
equally expensive, a tax on the article
is really paid by nobody : it is a crea-
tion of public revenue by which nobody
loses.*

• " Were we to suppose that diamonds
could only be procured from one particular
and distant country, and pearls from another,
and were the produce of the mines in the
former, and of the fishery in the latter, from
the operation of natural causes, to become
doubly difficult to procure, the effect would
merely be that in time half the quantity of

§ 3. In order to reduce as much as
possible the inconveniences, and in-
crease the advantages, incident to
taxes on commodities, the following
are the practical rules which suggest
themselves. 1st. To raise as large a
revenue as conveniently may be, from
those classes of luxuries which have
most connexion with vanity, and least
with positive enjoyment ; such as the
more costly qualities of all kinds of
personal equipment and ornament.
2ndly. Whenever possible, to demand
the tax, not from the producer, but
directly from the consumer, since when
levied on the producer it raises the
price always by more, and often by
much more, than the mere amount of
the tax. Most of the minor assessed

diamonds and pearl* would be sufficient to
mark a certain opulence aud rank, that it
had before been necessary to employ lor that
purpose. The same quantity of gold, or
some commodity reducible at last to labour,
would be required to produce the now re-
duced amount, as the former larger amount.
Were the difficulty interposed by the regula-
tions of legislators it could

make no difference to the fitness of these
articles to serve the purposes of vanity."
Suppose that means were discovered whereby
the physiological process which generates the
pearl might be induced ad libitum, the result
being that the amount of labour expended in
procuring each pearl, came to be only the
five hundredth part of what it was before.
"The ultimate effect of such a change would
depend on whether the fishery was free or
not. Were it free to all, as pearls could be
got simply for the labour of fishing for them,
a string of them might be had for a few
pence. The very poorest class of society
could therefore allbrd to decorate their per-
sons with them. They would thus soon be-
come extremely vulgar and unfashionable,
and so at last valueless. If however we sup.
pose that instead of the fishery being free,
the legislator owns and has complete com-
mand of the place, where alone pearls are to
be procured; as the progress of discovery
advanced, he might impose a duty on them
equal to the diminution of labour necessary
to procure them. They would then be as
much esteemed as they were before. What
simple beauty they have would remain un-
changed. The difficulty to be surmounted
in order to obtain them would be different,
but equally great, and they would therefore
equally serve to mark the opulence of those
who possessed them." The net revenue ob-
tained by such a tax "would not cost the
society anything. If not abused in its ap-
plication, it would be a clear addition of so
much to the resources of the community." —
Eae, .AVic Principlet of Political Economy,
pp. 309-71.

DIRECT AN'D INDIRECT TAXES COMPARED.

525

taxes in this country are recommended
by loth these considerations. But
with regard to horses and carriages, as
there are many persons to whom, from
health or constitution, these are not so
much luxuries as necessaries, the tax
paid by those who have but one riding
horse, or but one carriage, especially
of the cheaper descriptions, should be
low; while taxation should rise very
rapidly with the number of horses
and carriages, and with their cost-
liness. Srdly. But as the only in-
direct taxes which yield a large re-
venHe are those which fall on articles
of universal or very general consump-
tion, and as it is therefore necessary
to have some taxes on real luxuries,
that is, on things which afford pleasure
in themselves, and are valued on that
account rather than for their cost;
these taxes should, if possible, be so
adjusted as to fall with the same pro-
portional weight on small, on moderate,
and on large incomes. This is not an
easy matter ; since the things which
are the subjects of the more produc-
tive taxes, are in proportion more
largely consumed by the poorer mem-
bers of the community than by the
rich. Tea, coflee, sugar, tobacco, fer-
mented drinks, can hardly be so taxed,
that the poor shall not bear more than
their due share of the burthen. Some-
thing might be done by making the
duty on the superior qualities, which
are used by the richer consumers,
much higher in proportion to the value,
(instead of much lower, as is almost
universally the practice under the pre-
sent English system) ; but in some
cases the difficulty of at all adjusting
the duty to the value, so as to prevent
evasion, is said, with what truth I
know not, to be insuperable ; so that
it is thought necessary to levy the
same fixed duty on all the qualities
alike : a flagrant injustice to the
poorer cksAs of contributors, unless
compensated by the existence of other
taxes from which, as from the present
income-tax, they arealtogetherexemnt.
4thly. As far as is consistent with the
preceding rules, taxation should rather
be concentrated on a few articles than
diffused over many, in order that the

expenses of collection may be smaller,
and that as few employments as pos-
sible may be burthensomely and vexa-
tiously interfered with. 5thly. Among
luxuries of general consumption, tax-
ation should by preference attach
itself to stimulants, because these,
though in themselves as legitimate
indulgences as any others, are more
liable than most others to be used in
excess, so that the check to consump-
tion, naturally arising from taxation,
is on the whole better applied to them
than to other things. 6thly. As far ai
other considerations permit, taxation
should be confined to imported articles,
since these can be taxed with a less
degree of vexatious interference, and
with fewer incidental bad effects, than
when a tax is levied on the field or on
the workshop. Custom duties are,
cteteris paribug, much less objection-
able than excise : but they must be
laid only on things which either can-
not, or at least will not, be produced
in the country itself; or else their
production there must be prohibited
(as in England is the case with to-
bacco,) or subjected to an excise duty
of equivalent amount. 7thly. No tax
ought to be kept so high as to furnish
a motive to its evasion, too strong to
be counteracted by ordinary means of
prevention: and especially no com-
modity should be taxed so highly as
to raise up a class of lawless characters,
smugglers, illicit distillers, and the like.
Of the excise and custom duties
lately existing in this country, all
which are intrinsically unfit to form
part of a good system of taxation,
have, since the last reforms by Mr.
Gladstone, been got rid of. Among
these arc all duties on ordinary articles
of food,* whether for human beings or
for cattle ; those on timber, as falling
on the materials of lodging, which is
one of the necessaries of life ; all
duties on the metals, and on imple-
ments made of them ; taxes on soap,
which is a necessary of cleanlin -ss,
and on tallow, the material both of
that and of some other necessaries ,

• Except the shilling per quarter duty on
corn, ostensibly for registration, and scarcely
felt as a burthen.

526

BOOK V. CHAPTER VII. 1 1.

the tax on paper, an indispensable
instrument of almost all business and
of most kinds of instruction. The
duties which now yield nearly the
whole of the customs and excise re-
venue, those on sugar, coft'ee, tea,
wine, beer, spirits, and tobacco, are in
themselves, where a large amount of
revenue is necessary, extremely pro-
per taxes ; but at present grossly un-
just, from the disproportionate weight
with which they press on the poorer
classes ; and some of them (those on
spirits and tobacco) are so high as to
cause a considerable amount of smug-
gling. It is probable that most of
these taxes might bear a great reduc-
tion without any material loss of
revenue. In what manner the finer
articles of manufacture, consumed by
the rich, 'jnight most advantageously

be taxed, I must leave to be decided
by those Avho have the requisite prac-
tical knowledge. The difficulty would
be, to effect it without an inadmissible
degree of interference with production.
In countries which, like the United
States, import the principal part of
the finer manufactures which they
consume, there is little difficult v in
the matter : and even where nothing
is imported but the raw material,
that may be taxed, especially the
qualities of it which are exclusively
employed for the fabrics used by the
richer class of consumers. Thus, in
England a high custom duty on raw
silk would be consistent with prin
ciple ; and it might perhaps be prac-
ticable to tax the finer qualities of
cotton or linen yarn, whether spun in
the country itself or imported.

CHAPTER VH.

OF A NATIONAL DEBT.

§ 1. THE question must now be
considered, how far it is right or ex-
pedient to raise money for the purposes
of government, not by laying on taxes
to the amount required, but by taking
a portion of the capital of the country
in the form of a loan, and charging the
public revenue with only the interest.
Nothing needs be said about providing
for temporary wants by taking up
money ; for instance, by an issue of
exchequer bills, destined to be paid off,
at furthest in a year or two, from the
proceeds of the existing taxes. This
jg a convenient expedient, and when
the government does not possess a
treasure or hoard, is often a necessary
one, on the occurrence of extraordinary
expenses, or of a temporary failure in
the ordinary soui'ces of revenue. What
we have to discuss is the propriety of
contracting a national debt of a per-
manent character ; defraying the ex-
penses of a war, or of any season of
difficulty, by loans, to be redeemed

either very gradually and at a distant
period, or not at all.

This question has already been
touched upon in the First Book.* We
remarked, that if the capital taken in
loans is abstracted from funds either
engaged in production, or destined to
be employed in it, their diversion from
that purpose is equivalent to taking
the amount from the wages of the
labouring classes. Borrowing, in this
case, is not a substitute for raising the
supplies within the year. A govern-
ment which borrows does actually take
the amount within the year, and that
too by a tax exclusively on the labour-
ing classes : than which it could have
done nothing worse, if it had supplied
its wants by avowed taxation ; and in
that case the transaction, audits evils,
would have ended with the emergency;
while by the circuitous mode adopted,
the value exacted from the labourers it
gained, not by the state, but by the
• Supra, p. 40.

A NATIONAL DEBT.

527

employers of labour, the state remain-
ing charged with the debt besides, and
with its interest in perpetuity. The
system of public loans, in such circum-
stances, may be pronounced the very
worst which, in the present state of
civilization, is still included in the
catalogue of financial expedients.

We however remarked that there
are other circumstances in which loans
are not chargeable with these per-
nicious consequences : namely, first,
when what is borrowed is foreign capi-
tal, the overflowings of the general ac-
cumulation of the world ; or, secondly,
when it is capital which either would
not have been saved at all unless this
mode of investment had been open to
it, or after being saved, would have
been wasted in unproductive enter-
prises, or sent to seek employment in
foreign countries. When the progress
of accumulation has reduced profits
either to the ultimate or to the practi-
cal minimum, — to the rate, less than
which would either put a stop to the
increase of capital, or send the whole
of the new accumulations abroad ;
government may annually intercept
these new accumulations, without
trenching on the employment or wages
of the labouring classes in the country
itself, or perhaps in any other country.
To this extent, therefore, the loan
system may be carried, without being
liable to the utter and peremptory con-
demnation which is due to it when it
overpasses this limit. What is wanted
is an index to determine whether, in
any given series of years, as during
the last great war for example, the
limit has been exceeded or not.

Such an index exists, at once a cer-
tain and an obvious one. Did the
government, by its loan operations,
augment the rate of interest? If it
only opened a channel for capital
which would not otherwise have been
accumulated, or which, if accumulated,
would not have been employed within
the country; this implies that the
capital, which the government took
and expended, could not have found
employment at the existing rate of in-
terest. So long as the loans do no
more than absorb this surplus, they

prevent any tendency to a fall of the
rate of interest, but they cannot occa-
sion any rise. When they do raise the
rate of interest, as they did in a most
extraordinary degree during the French
war, this is positive proof that the go-
vernment is a competitor for capital
with the ordinary channels of produc-
tive investment, and is carrying off,
not merely funds which would not, but
funds which would, have fou^d produc-
tive employment within the country.
To the full extent, therefore, to which
the loans of government, during the
war, caused the rate of interest to ex-
ceed what it was before, and what it
has been since, those loans are charge-
able with all the evils which have been
described. If it be objected that in-
terest only rose because profits rose, I
reply that this does not weaken, but
strengthens, the argument. If the
government loans produced the rise of
profits by the great amount of capital
which they absorbed, by what means
can they have had this effect, unless
by lowering the wages of labour ? It
will perhaps be said, that what kept
profits high during the war was not the
drafts made on the national capital by
the loans, but the rapid progress of in-
dustrial improvements. This, in a
great measure, was the fact ; and it no
doubt alleviated the hardship to the
labouring classes, and made the finan-
cial system which was pursued less
actively mischievous, but not less con-
trary to principle. These very im-
provements in industry, made room for
a larger amount of capital ; and the
government, by draining away a great
part of the annual accumulations, did
not indeed prevent that capital from
existing ultimately, (for it started into
existence with great rapidity after the
peace,) but prevented it from existing
at the time, and subtracted just so
much, while the war lasted, from dis-
tribution among productive labourers.
If the government had abstained from
taking this capital by loan, and had
allowed it to reach the labourers, but
had raised the supplies which it re-
quired by a direct tax on the labouring
classes, it would have produced (in
every respect but the expense and IB-

5-28

BOOK V. CHAPTER VrII. § 2.

convenience of collecting the tax^ the
very same economical effects which it
did produce, except that we should not
now have had the debt. The course it
actually took was therefore worse than
the very worst mode which it could
possibly have adopted of raising the
supplies within the year : and the only
excuse, or justification, which it admits
of, (so far as that excuse could be truly
pleaded) was hard necessity; the im-
possibility of raising BO enormous an
annual sum by taxation, without re-
sorting to taxes which from their odi-
ousness, or from the facility of evasion,
it would have been found impracticable
to enforce.

When government loans are limited
to the overflowings of the national
capital, or to those accumulations
which would not take place at all un-
less suffered to overflow, they are at
least not liable to this grave condem-
nation : they occasion no privation to
any one at the time, except by the
payment of the interest, and may even
be beneficial to the labouring class
during the term of their expenditure,
by employing in the direct purchase of
labour, as that of soldiers, sailors, &c.,
funds which might otherwise have
quitted the country altogether. In
this case therefore the question really
is, what it is commonly supposed to be
in all cases, namely, a choice between
a great sacrifice at once, and a small
one indefinitely prolonged. On this
matter it seems rational to think, that
the prudence of a nation will dictate
the same conduct as the prudence of
an individual ; to submit to as much of
the privation immediately, as can
easily be borne, and only when any
further burthen would distress or cripple
them too much, to provide for the re-
mainder by mortgaging their future
income. It is an excellent maxim to
make present resources suffice for pre-
sent wants ; the future will have its
own wants to provide for. On the
other hand, it may reasonably be taken
into consideration that in a country
increasing in wealth, the necessary ex-
bensei sf government do not increase
in the same ratio as capital or popula-
tion ; ai.y burthea, therefore- :" *4ways

less and less felt : and since those ex-
traordinary expenses of government
which are fit to be incurred at all, ar«
mostly beneficial beyond the existing
generation, there is no injustice in
making posterity pay a part of tha
price, if the inconvenience would bo
extreme of defraying the whole of it by
the exertions and sacrifices of the
generation which first incurred it.

§ 2. When a country, wisely or
unwisely, has burthened itself with a
debt, is it expedient to take steps for
redeeming that debt ? In principle it
is impossible not to maintain the af-
firmative. It is true that the payment
of the interest, when the creditors are
members of the same community, is
no national loss, but a mere transfer.
The transfer, however, being compul-
sory, is a serious evil, and the raising
a great extra revenue by any system
of taxation necessitates BO much ex-
pense, vexation, disturbance of the
channels of industry, and other mis-
chiefs over and above the mere pay-
ment of the money wanted by the
government, that to get rid of the
necessity of such taxation is at all
times worth a considerable effort. The
same amount of sacrifice which would
have been worth incurring to avoid
contracting the debt, it is worth while
to incur, at any subsequent time, for
the purpose of extinguishing it.

Two modes have been contemplated
of paying off a national debt : either
at once oy a general contribution, or

Gradually by a surplus revenue. The
rst would be incomparably t«he best,
if it were practicable ; and it would
j be practicable if it could justly be
j done by assessment on property alone.
! If property bore the whole interest of
! the debt, property might, with great'
i advantage to itself, pay it off ; since
' this would be merely surrendering to
; a creditor the principal sum, the whole
| annual proceeds of which were already
his by law ; and would be equivalent
to what a landowner does when he
sells part of his estate, to free the re-
mainder from a mortgage. But pro-
perty, it needs hardly be said, doe*
not pay, and csnnot justly be required

A NATIONAL DEBT.

529

to pay, the whole interest of the debt.
Some indeed affirm that it can, on the
plea that the existing generation is
only bound to pay the debts of its pre-
decessors from the assets it has re-
ceived from them, and not from the
produce of its own industry. But has
no one received anything from pre-
vious generations except those who
have succeeded to property? Is the
whole difference between the earth as
it is, with its clearings and improve-
ments, its roads and canals, its towns
and manufactories, and the earth as it
was when the first human being set
foot on it, of no benefit to any but
those who are called the owners of the
soil ? Is the capital accumulated by
the labour and abstinence of all former
generations of no advantage to any
but those who have succeeded to the
legal ownership of part of it? And
have we not inherited a mass of ac-
quired knowledge, both scientific and
empirical, due to the sagacity and
industry of those who preceded us,
the benefits of which are the common
wealth of all ? Those who are born to
the ownership of property have, in
addition to these common benefits, a
separate inheritance, and to this differ-
ence it is right that advertence should
be had in regulating taxation. It be-
longs to the general financial system
of the country to take due account of
this principle, and I have indicated, as
in my opinion a proper mode of taking
account of it, a considerable tax on
legacies and inheritances. Let it be
determined directly and openly what
is due from property to the state, and
from the state to property, and let the
institutions of the state be regulated
accordingly. Whatever is the fitting
contribution from property to the ge-
neral expenses of the state, in the
same, and in no greater proportion
should it contribute towards eithor
the interest or the repayment of the
national debt.

This, however, if admitted, is fatal
to any scheme for the extinction of the
debt by a general assessment on the
community. Persons of property could
pay their share of the amount by a
aacrifice of property, and have the
P.K.

same net income as before ; but it
those who have no accumulations, but
only incomes, were required to make
up by a single payment the equivalent
of the annual charge laid on them by
the taxes maintained to pay the inte-
rest of the debt, they could only do so
by incurring a private debt equal ta
their share of the public debt ; while,
from the insufficiency, in most cases,
of the security which they could giro,
the interest would amount to a much
larger annual sum than their share of
that now paid by the state. Besides,
a collective debt defrayed by taxes,
has over the same debt parcelled out
among individuals, the immense ad-
vantage, that it is virtually a mutual
insurance among the contributors. If
the fortune of a contributor diminishes,
his taxes diminish ; if he is ruined,
they cease altogether, and his portion
of the debt is wholly transferred to the
solvent members of the community.
If it were laid on him as a private
obligation, he would still be liable to
it even when penniless.

When the state possesses property,
in land or otherwise, which there are
not strong reasons of public utility for
its retaining at its disposal, this should
be employed, as far as it will go, in
extinguishing debt. Any casual gain,
or godsend, is naturally devoted to the
same purpose. Beyond this, the only
mode which is both just and feasible,
of extinguishing or reducing a na-
tional debt, is by means of a surplus
revenue.

§ 3. The desirableness, per se, of
maintaining a surplus for this purpose
does not, I think, admit of a doubt.
We sometimes, indeed, hear it said
that the amount should rather be left
to " fructify in the pockets of the
people." This is a good argument, as
fur as it goes, against levying taxes
unnecessarily for purposes of unpro-
ductive expenditure, but not against
paying off a national debt. For, what
is meant by the word fructify ? If it
means anything, it means productive
employment ; and as an argument
against taxation, we must understand
it to assert, that if the amouat were
M M

530

left -with the people they would save
it, and convert it into capital. It is
probable, indeed, that they would save
a part, but extremely improbable that
they would save the whole : while if
taken by taxation, and employed in
paying off debt, the whole is saved,
and made productive. To the fund-
holder who receives the payment it is
already capital, not revenue, and he
will make it " fructify," that it may
continue to afford him an income.
The objection, therefore, is not only
groundless, but the real argument is
on the other side : the amount is much
more certain of fructifying if it is not
" left in the pockets of the people."

It is not, however, advisable in all
cases to maintain a surplus revenue
for the extinction of debt. The ad-
vantage of paying off the national
debt of Great Britain for instance, is
that it would enable us to get rid of
the worse half of our taxation. But
of this worse half some portions must
be worse than others, and to get rid of
those would be a greater benefit pro-
portionally than to get rid of the rest.
If renouncing a surplus revenue would
enable us to dispense with a tax, we
ought to consider the very worst of all
our taxes as precisely the one which
we are keeping up for the sake of ulti-
mately abolishing taxes not so bad as
itself. In a country advancing in
wealth, whose increasing revenue gives
it the power of ridding itself from time
to time of the most inconvenient por-
tions of its taxation, I conceive that
the increase of revenue should rather
be disposed of by taking off taxes, than
by liquidating debt, as long as any
very objectionable imposts remain. In
the present state of England, there-
fore, I hold it to be good policy in the
government, when it has a surplus of
an apparently permanent character,
to take off taxes, provided these are
lightly selected. Even when no taxes
remain but such as are not unfit to
form part of a permanent system, it is
wise to continue the same policy by
experimental reductions of those taxes,
until the point js discovered at which
a given amount of revenue can be
raised with the smallest pressure on

BOOK V. CHAPTER VH. § 8.

the contributors. After this, such sur-
plus revenue as might arise from any
further increase of the produce of the
taxes, should not, I conceive, be re-
mitted, but applied to the redemption
of debt. Eventually, it might be ex-
pedient to appropriate the entire pro-
duce of particular taxCs to this pur-
pose ; since there would be more assu-
rance that the liquidation would bo
persisted in, if the fund destined to it
were kept apart, and not blended with
the general revenues of the state. The
succession duties would be peculiarly
suited to such a purpose, since taxes
paid as they are, out of capital, would
be better employed in reimbursing
capital than in defraying current ex-
penditure. If this separate appropria-
tion were made, any surplus afterwards
arising from the increasing produce of
the other taxes, and from the saving
of interest on the successive portions
of debt paid off, might form a ground
for a remission of taxation.

It has been contended that some
amount of national debt is desirable,
and almost indispensable, as an in-
vestment for the savings of the poorer
or more inexperienced part of the
community. Its convenience in that
respect is undeniable ; but (besides
that the progress of industry is gradu-
ally affording other modes of invest-
ment almost as safe and untrouble-
some, such as the shares or obligations
of great public companies) the only
real superiority of an investment in
the funds consists in the national
guarantee, and this could be afforded
by other means than that of a public
debt, involving compulsory taxation.
One mode which would answer the
purpose, would be a national bank of
deposit and discount, with ramifica-
tions throughout the country ; which
might receive any money confided to
it, and either fund it at a fixed rate of
interest, or allow interest on a floating
balance, like the joint stock banks ;
the interest given being of course
lower than the rate at which indi-
viduals can borrow, in proportion to
the greater security of a government
investment ; and the expenses of tha
establishment being defrayed by the

ORDINARY FUNCTIONS OF GOVERNMENT.

531

difference between the interest which
the bank would pay, and that which it
would obtain, by lending its deposits
on mercantile, landed, or other se-
curity. There are no insuperable ob-
jections in principle, nor, I should
think, in practice, to an institution of
this sort, as a means of supplying the
same convenient mode of investment

now afforded by the public funds. It
would constitute the state a great in-
surance company, to insure that part
of the community who live on the
interest of their property, against the
risk of losing it by the bankruptcy of
those to whom they might otherwise
be under the necessity of confiding
it.

CHAPTER

OF THE OHDIHARY FUNCTIONS OF GOVERNMENT, CONSIDERED AS TO

THEIE ECONOMICAL EFFECTS.

§ 1. BEFORE we discuss the line of
demarcation between the things with
which government should, and those
with which they should not, directly
interfere, it is necessary to consider the
economical effects, whether of a bad or
of a good complexion, arising from the
manner in which they acquit them-
selves of the duties which devolve on
them in all societies, and which no one
denies to be incumbent on them.

The first of these is the protection
of person and property. There is no
need to expatiate on the influence ex-
ercised over the economical interests
of society by the degree of complete-
ness with which this duty of govern-
ment is performed. Insecurity of person
and property, is as much as to say, un-
certainty of the connexion between all
human exertion or sacrifice, and the
attainment of the ends for the sake of
which they are undergone. It means,
uncertainty whether they who sow
shall reap, whether they who produce
shall consume, and they who spare to-
day shall enjoy to-morrow. It means,
not only that labour and frugality are
not the road to acquisition, but that
violence is. When person and pro-
perty are to a certain degree insecure,
all the possessions of the weak are at
tne mercy of the strong. No one can
keep what he has produced, unless he
is more capable of defending it, than
others who give no part of their time

and exertions to useful industry are of
taking it from him. The productive
classes, therefore, when the insecurity
surpasses a certain point, being un-
equal to their own protection against
the predatory population, are obliged
to place themselves individually in a
state of dependence on some member
of the predatory class, that it may be
his interest to shield them from all de-
predation except his own. In this
manner, in the Middle Ages, allodial
property generally became feudal, and
numbers of the poorer freemen volun-
tarily made themselves and their pos-
terity serfs of some military lord.

Nevertheless, in attaching to this
great requisite, security of person and
property, the importance which is
justly due to it, we must not forget
that even for economical purposes there
are other things quite as indispensable,
the presence of which will often make
up for a very considerable degree of
imperfection in the protective arrange-
ments of government. As was ob-
served in a previous chapter,* the freo
cities of Italy, Flanders, and the
Hanseatie league, were habitually in
a state of such internal turbulence,
varied by such destructive external
wars, that person and property enjoyed
very imperfect protection ; yet during
several centuries they increased rapidly
in wealth and prosperity, brought many
* Supra, p. 70.

M M2

535

BOOK V. CHAPTER VIII. § 2.

of the industrial arts to a high degree
of advancement, carried on distant and
dangerous voyages of exploration and
commerce with extraordinary success,
became an overmatch in power for the
greatest feudal lords, and could defend
themselves even against the sovereigns
of Europe : because in the midst of
turmoil and violence, the citizens of
those towns enjoyed a certain rude
freedom, under conditions of union and
co-operation, which, taken together,
made them a brave, energetic, and
high-spirited people, and fostered a
great amount of public spirit and
patriotism. The prosperity of these
and other free states in a lawless age,
allows that a certain degree of in-
security, in some combinations of cir-
cumstances, has good as well as bad
effects, by making energy and prac-
tical ability the conditions of safety.
Insecurity paralyzes, only when it is
such in nature and in degree, that no
energy, of which mankind in general
are capable, affords any tolerable means
of self-protection. And this is a main
reason why oppression by the govern-
ment, whose power is generally irre-
sistible by any efforts that can be
made by individuals, has so much
more baneful an effect on the springs
of national prosperity, than almost
any degree of lawlessness and turbu-
lence under free institutions. Nations
have acquired some wealth, and made
Borne progress in improvement, in
states of social union so imperfect as
to border on anarchy: but no coun-
tries in which the people were exposed
without limit to arbitrary exactions
from the officers of government, ever
yet continued to have industry or
wealth. A few generations of such a
government never fail to extinguish
both. Some of the fairest, and once
the most prosperous, regions of the
earth, have, under the Roman and
afterwards under the Turkish domi-
nion, been i educed to a desert, solely
by that cause. I say solely, because
they would have recovered with the
utmost rapidity, as countries always
do, from the devastations of war, or
any other temporary calamities. Dif-
ficulties and hardships are often but

an incentive to exertion : what is fatal
to it, is the belief that it will not be
suffered to produce its fruits.

§ 2. Simple over-taxation by go-
vernment, though a great evil, is not
comparable in the economical part of
its mischiefs to exactions much more
moderate in amount, which either
subject the contributor to the arbi-
trary mandate of government officers,
or are so laid on as to place skill, in-
dustry, and frugality at a disadvantage.
The burthen of taxation in our own
country is very great, yet as every one
knows its limit, and is seldom made to
pay more than he expects and cal-
culates on, and as the modes of taxa-
tion are not of such a kind as much to
impair the motives to industry and
economy, the sources of prosperity are
little diminished by the pressure of
taxation ; they may even, as some
think, be increased, by the extra exer-
tions made to compensate for the pres-
sure of the taxes. But in the bar-
barous despotisms of many countries
of the East, where taxation consists in
fastening upon those who have suc-
ceeded in acquiring something, in
order to confiscate it, unless the pos-
sessor buys its release by submitting
to give some large sum as a com-
promise, we cannot expect to find
voluntary industry, or wealth derived
from any source but plunder. And
even in comparatively civilized coun-
tries, bad modes of raising a revenue
have had effects similar in Kind, though
in an inferior degree. French writers
before the Revolution represented the
taille as a main cause of the back-
ward state of agriculture, and of the
wretched condition of the rural popu.
lation ; not from its amount, but be
cause, being proportioned to the visible
capital of the cultivator, it gave him a
motive for appearing poor, which suf-
ficed to turn the scale in favour of in-
dolence. The arbitrary powers also of
fiscal officers, of intcndants and sitb-
d£ti(jues, were more destructive of pros-
perity than a far larger amount of
exactions, because they destroyed se-
curity: there was a marked superiority
in the condition of the districts pos-

ORDINARY FUNCTIONS OF GOVEPxNMENT.

533

scssing Provincial States, which were
exempt from this scourge. The uni-
versal venality ascribed, to Russian
functionaries, must be an immense
drag on the capabilities of economical
improvement possessed so abundantly
by the Russian empire ; since the emo-
luments of public officers must depend
on the success with which they can
multiply vexations, for the purpose of
being bought off by bribes.

Yet mere excess of taxation, even
when not aggravated by uncertainty,
is, independently of its injustice, a
Berions economical evil. It may be
carried so far as to discourage industry
by insufficiency of reward. Very long
before it reaches this point, it prevents
or greatly checks accumulation, or
causes the capital accumulated to be
sent for investment to foreign coun-
tries. Taxes which fall on profits,
even though that kind of income may
not pay more than its just share, ne-
cessarily diminish the motive to any
saving, except for investment in foreign
countries where profits are higher.
Holland, for example, seems to have
long ago reached the practical mini-
mum of profits : already in the last
century her wealthy capitalists had a
great part of their fortunes invested in
the loana and joint-stock speeulatious
of other countries : and this low rate
of profit is ascribed to the heavy taxa-
tion, which had been in some measure
forced on her by the circumstances of
her position and history. The taxes
indeed, besides their great amount,
were many of them on necessaries, a
kind of tax peculiarly injurious to in-
dustry and accumulation. But when
the aggregate amount of taxation is
very great, it is inevitable that recourse
must be had for part of it to taxes of an
objectionable character. And any taxes
on consumption, when heavy, even if
not operating on profits, have some-
thing of the same effect, by driving
persons of moderate means to live
nbroad, often taking their capital with
them. Although I by no means join
with those political economists who
think no state of national existence
desirable in which there is not a rapid
iiKvease of wealth, I cannot overlook

the many disadvantages to an inde-
pendent nation from being brought
prematurely to a stationary state,
while the neighbouring countries con-
tinue advancing.

§ 3. The subject of protection to
person and property, considered as af-
forded by government, ramifies widely,
into a number of indirect channels. It
embraces, for example, the whole sub-
ject of the perfection or inefficiency of
the means provided for the ascertain-
ment of rights and the redress of in-
juries. Person and property cannot bo
considered secure where the adminis-
tration of justice is imperfect, cither
from defect of integrity or capacity in
the tribunals, or because the delay,
vexation, and expense accompanying
their operation impose a heavy tax on
those who appeal to them, and make
it preferable to submit to any en-
durable amount of the evils which they
are designed to remedy. In England
there is no fault to be found with the
administration of justice, in point of
pecuniary integrity ; a result which the
progress of social improvement may
also be supposed to have brought about
in several other nations of Europe.
But legal and judicial imperfections of
other kinds are abundant ; and, in
England especially, are a large abate-
ment from the value of the services
which the government renders back to
the people in return for our enormous
taxation. In the first place, the in-
cognoscibility (as Bentham termed it)
of the law, and its extreme uncer-
tainty, even to those who best know it,
render a resort to the tribunals often
necessary for obtaining justice, when,
there being no dispute as to facts, no
litigation ought to be required. In the
next place, the procedure of the tri-
bunals is so replete with delay, vexa-
tion, and expense, that the price at
which justice is at last obtained is an
evil outweighing a very considerable
amount of injustice ; and the wrong
side, even that which the law considers
such, has many chances of gaining its
point, through the abandonment of
litigation by the other party for want
of funds, or through a compromise in

534

BOOK V. CHAPTER VIII. § 3.

which a sacrifice is made of just rights
to terminate the suit, or through some
technical quirk, whereby a decision is
obtained on some other ground than
the merits. This last detestable inci-
dent often happens without blame to
the judge, under a system of law, of
which a great part rests on no rational
principles adapted to the present state
of society, hut was originally founded
partly on a kind of whims and conceits,
and partly on the principles and inci-
dents of feudal tenure, (which now sur-
vive only as legal fictions;) and has
only been very imperfectly adapted, as
cases arose, to the changes which had
taken place in society. Of all parts of
the English legal system, the Court of
Chancery, which has the best substan-
tive law, has been incomparably the
worst as to delay, vexation, and ex-
pense ; and this is the only tribunal
for most of the classes of cases which
are in their nature the most compli-
cated, such as cases of partnership,
and the great range and variety of
cases which come under the denomina-
tion of trust. The recent reforms
in this Court have abated the mis-
chief, but are still far from having
removed it.

Fortunately for the prosperity of
England, the greater part of the mer-
cantile law is comparatively modern,
and was made by the tribunals, by the
simple process of recognising and
giving force of law to the usages which,
from motives of convenience, had
grown up among merchants them-
selves : so that this part of the law, at
least, was substantially made by those
who were most interested in its good-
ness: while the defects of the tribu-
nals have been the less practically
pernicious in reference to commer-
cial transactions, because the im-
portance of credit, which depends on
character, renders the restraints of
opinion (though, as daily experience
proves, an insufficient) yet a very
powerful, protection against those
forms of mercantile dishonesty which
are generally recognised as such.

Ihe imperfections of the law, both
in its substance and in its procedure,
fall heaviest upon the interests con-

nected with what is technically called
real property ; in the general language
of European jurisprudence, immoveablo
property. With respect to all this
portion of the wealth of the community,
the law fails egregiously in the pro-
tection which it undertakes to pro-
vide. It fails, first, by the uncertainty,
and tha maze of technicalities, which
make it impossible for any one, at
however great an expense, to possess a
title to land which he can positively
know to be unassailable. It fails,
secondly, in omitting to provide due
evidence of transactions, by a proper
registration of legal documents. It
fails, thirdly, by creating a necessity
for operose and expensive instruments
and formalities (independently of fiscal
burthens) on occasion of the purchase
and sale, or even the lease or mortgage,
of immoveable property. And, fourthly,
it fails by the intolerable expense and
delay of law proceedings, in almost all
cases in which real property is con-
cerned. There is no doubt that tho
greatest sufferers by the defects of the
higher courts of civil law are the land-
owners. Legal expenses, either those
of actual litigation, or of the prepara-
tion of legal instruments, form, I
apprehend, no inconsiderable item in
the annual expenditure of most per-
sons of large landed property ; and the
saleable value of their land is greatly
impaired, by the difficulty of giving to
the buyer complete confidence in the
title ; independently of the legal ex-

?mses which accompany the transfer,
et the landowners, though they have
been masters of the legislation of
England, to say the least, since 1688,
have never made a single move in the
direction of law reform, and have
been strenuous opponents of some of
the improvements of which they would
more particularly reap the benefit;
especially that great one of a regis-
tration of contracts affecting land,
which when proposed by a Commis-
sion of eminent real property lawyers,
and introduced into the House of
Commons by Lord Campbell, was so
offensive to the general body of land-
lords, and was rejected by so large a
majority, as to have long discouraged

ORDINARY FUNCTIONS OF GOVERNMENT.

any repetition of the attempt.* This
irrational hostility to improvement, in
a case in which their own interest
would be the most benefited by it,
must be ascribed to an intense timi-
dity on the subject of their titles,
go ni.- rated by the defects of the very
law which they refuse to alter ; and
to a conscious ignorance, and inca-
pacity of judgment, on all legal sub-
jects, which makes them helplessly
defer to the opinion of their profes-
sional advisers, heedless of the fact
that every imperfection of the law, in
proportion as it is burthensome to
them, brings gain to the lawyer.

In so far as the defects of legal
arrangements are a mere burthen on
the landowner, they do not much
affect the sources of production ; but
the uncertainty of the title under
which land is held, must often act as
a great discouragement to the expen-
diture of capital ia its improvement;
and the expense of making transfers,
operates to prevent land from coming
into the hands of those who would use
it to most advantage ; often amount-
ing, in the case of small purchases, to
more than the price of the land, and
tantamount, therefore, to a prohibition
of the purchase and sale of land in
Email portions, unless in exceptional
circumstances. Such purchases, how-
ever, are almost everywhere extremely
desirable, there being hardly any
country in which landed property is
not either too much or too little sub-
divided, requiring either that great
estates should be broken down, or
that small ones should be bought up
and consolidated. To make land as
easily transferable as stock, would be
one of the greatest economical improve-
ments which could be bestowed on a
country ; and has been shown, again
and again, to have no insuperable
difficulty attending it.

resides the excellences or defects
that belong to the law and judicature
of a country as a system of arrange-
ments for attaining direct practical

* Lord Westbury's recent Act is a ma-
terial mitigation of this grievous defect in
English law, and will probably lead to fur-
ther improvements.

ends, much also depends, even in an
economical point of view, upon the
moral influences of the law. Enough
has been said in a former place,t on
the degree in which both the indus-
trial and all other combined opera-
tions of mankind depend for efficiency
on their being able to rely on one
another for probity and fidelity to
engagements ; from which we see how
greatly even the economical prosperity
of a country is liable to be affected, by
anything in its institutions by which
either integrity and trustworthiness, or
the contrary qualities, are encouraged.
The law everywhere ostensibly favours
at least pecuniary honesty and the
faith of contracts; but if it afforda
facilities for evading those obligations,
by trick and chicanery, or by the un-
scrupulous use of riches in instituting
unjust or resisting just litigation; if
there are ways and means by which
persons may attain the ends of roguery,
under the apparent sanction of the
law ; to that extent the law is demo-
ralizing, even in regard to pecuniary
integrity. And such cases are, un-
fortunately, frequent under the English
system. If, again, the law, by a mis-
placed indulgence, protects idleness or
prodigality against their natural con-
sequences, or dismisses crime with
inadequate penalties, the effect, both
on the prudential and on the social
virtues, is unfavourable. When the
law, by its own dispensations and in-
junctions, establishes injustice between
individual and individual ; as all laws
do which recognise any form of slavery ,
as the laws of all countries do, though
not all in the same degree, in respect
to the family relations; and as the
laws of many countries do, though in
still more unequal degrees, as between
rich and poor ; the effect on the moral
sentiments of the people is still more
disastrous. But these subjects intro-
duce considerations so much larger
and deeper than those of political
economy, that I only advert to them
in order not to pass wholly unnoticed
things superior in importance to those
of which I treat.

t Supra, p. 68.

533

BOOK V. CHAPTER IX. § 1.

CHAPTER IX.

THE SAME SUBJECT CONTINUED.

§ 1. HAVING spoken thus far of the
effects produced by the excellences or
defects of the general system of the
law, I shall now touch upon those re-
sulting from the special character of
particular parts of it. As a selection
must be made, I shall confine myself
to a few leading topics. The portions
of the civil law of a country which are
of most importance economically (next
to those which determine the status of
the labourer, as slave, serf, or free),
are those relating to the two subjects
of Inheritance and Contract. Of the
laws relating to contract, none are
more important economically than the
laws of partnership, and those of
insolvency. It happens that on all
these three points, there is jus>t ground
for condemning some of the provisions
of the English law.

With regard to Inheritance, I have,
in an early chapter, considered the
general principles of the subject, and
suggested what appear to me to be,
putting all prejudices apart, the best
dispositions which the law could adopt.
Freedom of bequest as the general
rule, but limited by two things : first,
that if there are descendants, who,
being unable to provide for themselves,
•would become burthensome to the
state, the equivalent of whatever the
state would accord to them should be
reserved from the property for their
benefit : and secondly, that no one
person should be permitted to acquire
by inheritance, more than the amount
of a moderate independence. In case of
intestacy, the whole property to escheat
to the state : which should be bound
to make a just and reasonable provi-
sion for descendants, that is, such a
provision as the parent or ancestor
ought to have made, their circum-
stances, capacities, and mode of bring-
ing up being considered.

The laws of inheritance, however,
have probably gcveral phases of im- j

provement to go through, before ideas
so far removed from present modes of
thinking will be taken into serious con-
sideration : and as, among the recog-
nised modes of determining the suc-
cession to property, some must be
better and others worse, it is necessary
to consider which of them deserves
the preference. As an intermediate
course, therefore, I would recommend
the extension to all property, of the
present English law of inheritance
affecting personal property (freedom of
bequest, and, in case of intestacy, equal
division) : except that no rights should
be acknowledged in collaterals, and
that the property of those who have
neither descendants nor ascendants,
and make no will, should escheat to
the state.

The laws of existing nations deviate
from these maxims in two opposite
ways. In England, and in most of
the countries where the influence of
feudality is still felt in the laws, one
of the objects aimed at in respect to
land and other immoveable property, is
to keep it together in large masses :
accordingly, in cases of intestacy, it
passes, generally speaking (for the
local custom of a few places is dif-
ferent), exclusively to the eldest son.
And though the rule of primogeniture
is not binding on testators, who in
England have nominally the power of
bequeathing their property as they
please, any proprietor may so exercise
this power as to deprive his successors
of it, by entailing the property on one
particular line of his descendants :
which, besides preventing it from
passing by inheritance in any other
than the prescribed manner, is at-
tended with the incidental conse-
quence of precluding it from being
sold ; since each successive possessor,
having only a life interest in the pro-
perty, cannot alienate it for a longer
period than his own life. In some

INHERITANCE.

537

other countries, such as Franco, the
law, on the contrary, compels division
of inheritances ; not only, in case of
intestacy, sharing the property, both
real and personal, equally among all
the children, or fit' there are no
children) among all relatives in the
same degree of propinquity ; but also
not recognising any power of bequest,
or recognising it over only a limited
portion of the property, the remainder
being subjected to compulsory equal
division.

Neither of these systems, 1 appre-
hend, was introduced, or is perhaps
maintained, in the countries where it
exists, from any general considerations
of justice, or any foresight of economi-
cal consequences, but chiefly from poli-
tical motives ; in the one case to keep
up large hereditary fortunes, and a
landed aristocracy ; in the other, to
break these down, and prevent their
resurrection. The first object, as an
aim of national policy, I conceive to be
eminently undesirable : with regard to
the second, I have pointed out what
seems to me a better mode of attaining
it. The merit, or demerit, however, of
cither purpose, belongs to the general
(science of politics, not to the limited
department of that science which is
hero treated of. Each of the two
systems i.s a real and efficient instru-
ment for the purpose intended by it ;
but each, as it appears to me, achieves
that purpose at the cost of much mis-
chief.

§ 2. There are two arguments of
an economical character, which are
urged in favour of primogeniture. One
is, the stimulus applied to the industry
and ambition of younger children, by
leaving them to be the architects of
their own fortunes. This argument
•was put by Dr. Johnson in a manner
more forcible than complimentary to
an hereditary aristocracy, when he said,
by way of recommendation of primo-
geniture, that it " makes but one fool
in a family." It is curious that a de-
fender of aristocraticinstituiions should
be the person to assert that to inherit
Buch a fortune as takes away any
necessity for exertion, is generally fatal

to activity and strength of mind : in
tlio present state of education, how-
ever, the proposition, with some allow-
ance for exaggeration, may be admitted
to be true. JJut whatever force there
is in the argument, counts in favour of
limiting the eldest, as well as all the
other children, to a mere provision, and
dispensing with even the " one fool"
whom Dr. Johnson was willing to
tolerate. If unearned riches are so
pernicious to the character, one docs
not see why, ia order to withhold the
poison from the junior members of a
family, there should be no way but to
unite all their separate potions, and
administer them in the largest possible
dose to one selected victim. It cannot
be necessary to inflict this great evil on
the eldest son, for want of knowing
what else to do with a large fortune.

Some writers, however, look upon
the effect of primogeniture in stimulat-
ing industry, as depending, not so much
on the poverty of the younger children,
as on the contrast between that poverty
and the riches of the elder ; thinking
it indispensable to the activity and
energy of the hive, that there should
be a huge drone here and there, to im-
press the working bees with a due sense
of the advantages of honey. " Tlieii
inferiority in point of wealth," says
Mr. M'(Julloch,8peakingofthe younger
children, " and their desire to escape
from this lower station, and to attaii.
to the same level with their e'de.
brothers, inspires them with an energy
and vigour they could not otherwise
feel. But the advantage of preserving
large estates from being frittered down
by a scheme of equal division, is not
limited to its influence over the younger
children of their owners. It rr.ues
universally the standard of competence,
and gives new force to the springs
which set industry in motion. Ihe
manner of living among the great land-
lords is that in which every one is am-
bitious of being able to indulge ; and
their habits of expense, though FOUIC-
timcs injurious to themselves, act as
powerful incentives to the ingenuity
and enterprise of the other classes, who
never think their fortunes sufficiently
ample, unless they will enable them to

538

BOOK V. CHAPTER IX. § 2.

emulate the splendour of the richest
landlords; so that the custom of pri-
mogeniture seems to render all classes
more industrious, and to augment at
the same time, the mass of wealth and
the scale of enjoyment." *

The portion of truth, 1 can hardly
say contained in these observations,
but recalled by them, I apprehend to
be, that a state of complete equality of
fortunes would not be favourable to
active exertion for the increase of
wealth. Speaking of the mass, it is as
true of wealth as of most other distinc-
tions— of talent, knowledge, virtue —
that those who already have, or think
they have, as much of it as their neigh-
bours, will seldom exert themselves to
acquire more. But it is not therefore
necessary that society should provide a
set of persons with large fortunes, to
fulfil the social duty of standing to be
looked at, with envy and admiration,
by the aspiring poor. The fortunes
which people have acquired for them-
selves, answer the purpose quite as
well, indeed much better; since a
person is more powerfully stimulated
by the example of somebody who has
earned a fortune, than by the mere
sight of somebody who possesses one ;
and the former is necessarily an ex-
ample of prudence and frugality as well
as industry, while the latter much
oftener sets an example of profuse ex-
pense, which spreads, with pernicious
effect, to the very class on whom the
sight of riches is supposed to have so
beneficial an influence, namely, those
whose weakness of mind, and taste for
ostentation, make " the splendour of
the richest landlords" attract them
with the most potent spell. In Ame-
rica there are few or no hereditary
fortunes; yet industrial energy, and
the ardour of accumulation, are not
supposed to be particularly backward
in that part of the world. When a
country has once fairly entered into
the industrial career, which is the
principal occupation of the modern, as

* Principles of Political Economy, ed.
J843, p. 264. There is much more to the
enme effect in the more recent treatise by
the same author, On the Succession to Pro-
perty vacant by Death.

war was that of the ancient and me-
diaeval world, the desire of acquisition
by industry needs no factitious stimu-
lus : the advantages natural!}' inherent
in riches, and the character they as-
sume of a test by which talent anJ
success in life are habitually measured,
are an ample security for their beii g
pursued with sufficient intensity a a
zeal. As to the deeper consideration,
that the diffusion of wealth, and not its
concentration, is desirable, and th t
the more wholesome state of society is
not that in which immense fortunes
are possessed by a few and coveted by
all, but that in which the greatest
possible numbers possess and are con-
tented with a moderate competency,
which all may hope to acquire ; I refer
to it in this place, only to show, how
widely separated, on social questions,
is the entire mode of thought of the
defenders of primogeniture, from that
which is partially promulgated in the
present treatise.

The other economical argument in
favour of primogeniture, has special
reference to landed property. It is
contended, that the habit of dividing
inheritances equally, or with an ap-
proach to equality, among children,
promotes the subdivision of land into
portions too small to admit of being
cultivated in an advantageous manner.
This argument, eternally reproduced,
has again and again been refuted by
English and Continental writers. It
proceeds on a supposition entirely at
variance with that on which all the
theorems of political economy are
grounded. It assumes that mankind
in general will habitually act in a
manner opposed to their immediate
and obvious pecuniary interest. For
the division of the inheritance does not
necessarily imply division of the land ;
which may be held in common, as is
not unfrequently the case in France
and Belgium ; or may become the pro-
perty of one of the coheirs, being
charged with the shares of the others
by way of mortgage ; or they may sell
it outright, and divide the proceeds.
When the division of the land would
diminish its productive power, it is the
direct interest of ihe heirs to adopt

INHERITANCE.

539

some one of these arrangements. Sup-
posing, however, what the argument
assumes, that either from legal difficul-
ties or from their own stupidity and
barbarism, they would not, if left to
themselves, obey the dictates of this
obvious interest, but would insist upon
cutting up the land bodily into equal
parcels, with the effect of impoverish-
ing themselves ; this would be an ob-
jection to a law such as exists in
France, of compulsory division, but can
be no reason why testators should be
discouraged from exercising the right
of bequest in general conformity to the
rule of equality, since it would always
be in their power to provide that the
division of the inheritance should take
place without dividing the land itself.
That the attempts of the advocates of
primogeniture to make out a case by
facts against the custom of equal divi-
sion, are equally abortive, has been
shown in a former place. In all coun-
tries, or parts of countries, in which
the division of inheritances is accom-
panied by small holdings, it is because
small holdings are the general system
of the country, even on the estates of
the great proprietors.

Unless a strong case of social utility
can be made out for primogeniture, it
stands sufficiently condemned by the
general principles of justice ; being a
broad distinction in the treatment of
one person and of another, grounded
solely on an accident. There is no
need, therefore, to make out any case
of economical evil against primogeni-
ture. Such a case, however, and a
very strong one, may be made. It is
a natural e fleet of primogeniture to
make the landlords a needy class.
The object of the institution, or custom,
is to keep the land together in large
masses, and this it commonly accom-
plishes ; but the legal proprietor of a
large domain is not necessarily the
lona fide owner of the whole income
which it yields. It is usually charged,
in each generation, with provisions for
the other children. It is often charged
still more heavily by the imprudent
expenditure of the proprietor. Great
landowners are generally improvident
in their expenses ; they live up to their

incomes when at the highest, and if
any change of circumstances diminishes
their resources, some time elapses be-
fore they make up their minds to re-
trench. Spendthrifts in other classes
are ruined, and disappear from society ;
but the spendthrift landlord usually
holds fast to his land, even when ho
has become a mere receiver of its rents
for the benefit of creditors. The same
desire to keep up the " splendour'' of
the family, which gives rise to the
custom of primogeniture, indisposes
the owner to sell a part in order to set
free the remainder ; their apparent are
therefore habitually greater than their
real means, and they ar« under a per-
petual temptation to proportion their
expenditure to the former rather than
to the latter. From such causes as
these, in almost all countries of great
landowners, the majority of landed
estates are deeply mortgaged; and
instead of having capital to spare for
improvements, it requires all the in-
creased value of land, caused by the
rapid increase of the wealth and popu-
lation of the country, to preserve the
class from being impoverished.

§ 3. To avert this impoverishment,
recourse was had to the contrivance of
entails, whereby the order of succession
was irrevocably fixed, and each holder,
having only a life interest, was unable
to burthen his successor. The land
thus passing, free from debt, into the
possession of the heir, the family could
not be ruined by the improvidence of
its existing representative. The eco-
nomical evils arising from this dispo-
sition of property were partly of the
same kind, partly different, but on the
whole greater, than those arising from
primogeniture alone. The possessor
could not now ruin his successors, but
he could still ruin himself: he was not
at all more likely than in the former
case to have the means necessary for
improving the property : while, even if
he had, he was still less likely to em-
ploy them for that purpose, when the
benefit was to accrue to a person whom
the entail made independent of him,
while he had probably younger chil-
dren to provide for, in whose favour he

540

BOOK V. CHAPTER IX. § 4.

could not now charge the estate.
While thus disabled from being him-
self an improver, neither could he sell
the estate to somebody who would ;
since entail precludes alienation. In
general he has even been unable to
grant leases beyond the term of his own
life ; " for," says Blaclcstone, "if such
leases had been valid, then, under cover
of long leases, the issue might have
been virtually disinherited ;" and it
has been necessary in Great Britain to
relax, by statute, the rigour of entails,
in order to allow either of long leases,
or of the execution of improvements at
the expense of the estate. It may be
added that the heir of entail, being
assured of succeeding to the family
property, however undeserving of it,
and being aware of this from his ear-
liest years, has much more than the
ordinary chances of growing up idle,
dissipated, and profligate.

In England the power of entail is
more limited by law, than in Scotland
and in most other countries where it
exists. A landowner can settle his
property upon any number of persons
successively who are living at the time,
and upon one unborn person, on whose
attaining the age of twenty-one, the
entail expires, and the land becomes his
absolute property. An estate may in
this manner be transmitted through a
son, or a son and grandson, living when
the deed is executed, to an unborn
child of that grandson It has been
maintained that this power of entail is
not sufficiently extensive to do any
mischief: in truth, however, it is much
larger than it seems. Entails very
rarely expire ; the first heir of entail,
when of age, joins with the existing
possessor in resettling the estate, so
as to prolong the entail for a further
term. Large properties therefore, are
rarely free for any considerable period,
from the restraints of a strict settle-
ment; though the mischief is in one
respect mitigated, since in the renewal
of the settlement for one more genera-
tion, the estate is usually charged with
9 provision for younger children.

In an economical point of view, the
best system of landed property is that
in which land is most completely an

object of commerce ; passing readily
from hand to hand when a buyer can
be found to whom it is worth while to
offer a greater sum for tho land, than
the value of the income drawn from it
by its existing possessor. This of
course is not meant of ornamental pro-
perty, which is a source of expense, not
profit ; but only of land employed for
industrial uses, and held for the sake of
the income which it affords. What-
ever facilitates the sale of land, tends
to make it a more productive instru-
ment for the community at large ;
whatever prevents or restricts its sale,
subtracts from its usefulness. Now,
not only has entail this effect, but pri-
mogeniture also. The desire to keep
land together in large masses, from
other motives than that of promoting
its productiveness, often prevents
changes and alienations which would
increase its efficiency as an instru-
ment.

§ 4. On the other hand, a law
which, like the French, restricts the
power of bequest to a narrow compass,
and compels the equal division of the
whole or the greater part of the pro-
perty among the children, seems to
me, though on different grounds, also
very seriously objectionable. The only
reason for recognising in the children
any claim at all to more than a pro-
vision, sufficient to launch them in life,
and enable them to find a livelihood,
is grounded on the expressed or pre-
sumed wish of the parent ; whose claim
to dispose of what is actually his own,
cannot be set aside by any pretensions
of others to receive what is not theirs.
To control the rightful owner's liberty
of gift, by creating in the children a
legal right superior to it, is to post-
pone a real claim to an imaginary one.
To this great and paramount objection
to the law, numerous secondary onus
may be added. Desirable as it is that
the parent should treat the children
with impartiality, and not make an
eldest son or a favourite, impartial
division is not always synonymous
with equal division. Some of the chil-
dren may, without fault of their own,
be less capable thau others of pro-

PARTNERSHIP.

541

viding for themselves : some may, by
other means than their own exertions,
be already provided for: and impar-
tiality may therefore require that the
rule observed should not bo one of
equality, but of compensation. Even
when equality is the object, there are
sometimes better means of attaining it,
than the inflexible rules by which law
must necessarily proceed. If one of
the coheirs, being of a quarrelsome or
litigious disposition, stands upon his
utmost rights, the law cannot make
equitable adjustments ; it cannot ap-
portion the property as seems best for
the collective interest of all concerned ;
if there are several parcels of land,
and the heirs cannot agree about
their value, tho law cannot give a
parcel to each, but every separate
parcel must be either put up to sale or
divided : if there is a residence, or a
park or pleasure-ground, which would
be destroyed, as such, by subdivision,
it must be sold, perhaps at a great sa-
crifice both of money and of feeling.
But what the law could not do, the
parent could. By means of the liberty
of bequest, all these points might be
determined according to reason and the
general interest of the persons con-
cerned ; and the spirit of the principle
of equal division might be the better ob-
served, because the testator was eman-
cipated from its letter. Finally, it
would not then be necessary, as under
the compulsory system it is, that the
law should interfere authoritatively in
the concerns of individuals, not only on
the occurrence of a death, but through-
out life, in order to guard against the
attempts of parents to frustrate the
]i Lral claims of their heirs, under colour
of u'ifi.s and other alienations intervivos.
in conclusion; all owners of pro-
perty should, I conceive, have power
to dispose by will of every part of it,
but not to determine the person who
should succeed to it after the death of
all who were living when the will was
made. Under what restrictions it
should be allowable to bequeath pro-
perty to one person for lite, with re-
mainder to another person already in
existence, is a question belonging to
general legislation, not to political

economy. Such settlements would l»
no greater hindrance to alienation than
any case of joint ownership, since tho
consent of persons actually in existencs
is all that would be necessary for any
new arrangement respecting the pro-
perty.

§ 5. From the subject of Inherit-
ance I now pass to that of Contracts,
and among these, to the important
subject of the Laws of Partnership.
How much of good or evil depends
upon these laws, and how important it
is that they should be the best pos-
sible, is evident to all who recognise
in the extension of the co-operative
principle in the larger sense of the
term, the great economical necessity
of modern industry. The progress of
the productive arts requiring that
many sorts of industrial occupation
should be carried on by larger and
larger capitals, the productive power of
industry must suffer by whatever im-
pedes the formation of large capitals
through the aggregation of smaller
ones. Capitals of the requisite magni-
tude, belonging to single owners, do
not, in most countries, exist in tho
needful abundance, and would be still
less numerous if the laws favoured th«
diffusion instead of the concentration
of property : while it is most unde-
sirable that all those improved pro-
cesses, and those means of efficiency
and economy in production, which de-
pend on the possession of large funds,
should be monopolies in the hands of a
few rich individuals, through tho diffi-
culties experienced by persons of mo-
derate or small means in associating
their capital. Finally, I must repeat
my conviction, that the industrial eco-
nomy which divides society absolutely
into two portions, the payers of wages
and the receivers of them, the first
counted by thousands and the last by
millions, is neither fit for, nor capable
of, indefinite duration: and the possi-
bility of changing this system for one
of combination without dependence, and
unity of interest instead of organized
hostility, depends altogether upon the
future (IcvclopDxyjts of the Partnership
principle.

542

Yet there is scarcely any country
whose laws do not throw great, and in
most cases, intentional obstacles in the
way of the formation of any numerous
partnership. In England it is already
a senous discouragement, that differ-
ences among partners are, practically
speaking, only capable of adjudication
by the Court of Chancery : which is
often worse than placing such questions
out of the pale of all law ; since any
one of the disputant parties, who is
either dishonest or litigious, can involve
the others at his pleasure in the ex-
pense, trouble, and anxiety, which are
the unavoidable accompaniments of a
Chancery suit, without their having
the power of freeing themselves from
the infliction even by breaking up the
association.* Besides this, it required,
until lately, a separate act of the legis-
lature before any joinkstock association
could legally constitute itself, and be
empowered to act as one body. By a
statute passed a few years ago, this
necessity is done away ; but the statute
in question is described by competent
authorities as a "mass of confusion,"
of which they saythat there "never was
such an infliction" on persons entering

* Mr. Cecil Fane, tho Commissioner of
the Bankruptcy Court, in his evidence before
the Committee on the Law of Partnership,
says : " I remember a short time ago reading
a written statement by two eminent solici-
tors, who said that they had known many
partnership accounts go into Chancery, but
that they never knew one come out. . .
Very few of the persons who would be dis-
posed to engage in partnerships of this kind"
(co-operative associations of working men)
" have any idea of the truth, namely, that
the decision of questions arising amongst
partners is really impracticable.

" Do they not know that one partner may
rob the other without any possibility of his
obtaining redress ? — The fact is so ; but
•whether they know it or not I cannot under-
take to say."

This flagrant injustice is, in Mr. Fane's
opinion, wholly attributable to the defects of
the tribunal. " My opinion is, that if there
is one thing more easy than another, it is the
settlement of partnership questions, and for
the simple reason, that everything which is
done in a partnership is entered in the
books; the evidence therefore is at hand; if
therefore a rational mode of proceeding were
once adopted, the difficulty would altogether
vanish." — Minutes of Evidence annexed to
the Report of tho Select Committee on the
L»w or Partnership (1851), pp. 65-7.

BOOK V. CHAPTER IX. § 6.

into partnership.t When a number of

Persons, whether few or many, freely
esire to unite their funds for a com-
mon undertaking, not asking any pecu-
liar privilege, nor the power to dispos-
sess any one of property, the law can
have no good reason for throwing dif-
ficulties in the way of the realization
of the project. On compliance with a
few simple conditions of publicity, any
body of persons ought to have the
power of constituting themselves into
a joint-stock company, or sociiti en
nom collectif, without asking leave
either of any public officer or of parlia-
ment. As an association of many
partners must practically be under the
management of a few, every facility
ought to be afforded to tho body for
exercising the necessary control and
check over those few, whether they bo
themselves members of the association,
or merely its hired servants : and in
this point the English system is still at
a lamentable distance from the standard
of perfection.

§ 6. Whatever facilities, however,
English law might give to associations
formed on the principles of ordinary
partnership, there is one sort of joint-
stock association which until the year
1855 it absolutely disallowed, and
which could only be called into exist-
ence by a special act either of the legis-
lature or of the crown. I mean, asso-
ciations with limited liability.

Associations with limited liability
are of two kinds : in one, the liability
of all the partners is limited, in tho
other that of some of them only. The
first is the Anonymous Society of the
French law, which in England had
until lately no other name than that of
" chartered company:" meaning there-
by a joint-stock company whose share-
holders, by a charter from the crown or
a special enactment of the legislature,
stood exempted from any liability for
the debts of the concern, beyond the
amount of their subscriptions. Tho
other species of limited partnership is
that known to the French law under
tho name of command Ite; of this, which

t Eeport, ut supra, p. 167.

PARTNERSHIP.

643

in England is still unrecognised and
illegal, I shall speak presently.

It' a number of persons choose to as-
sociate for carrying on any operation
of commerce or industry, agreeing
among themselves and announcing to
those with whom they deal that the
members of the association do not un-
dertake to be responsible beyond the
amount of the subscribed capital ; is
there any reason that the law should
raise objections to this proceeding, and
should impose on them the unlimited
responsibility which they disclaim?
For whose sake ? Not for that of the
partners themselves ; for it is they
whom the limitation of responsibility
benefits and protects. It must there-
fore be for the sake of third parties ;
namely, those who may have transac-
tions with the association, and to whom
it may run in debt beyond -what the
subscribed capital suffices to pay. But
nobody is obliged to deal with the as-
sociation ; still less is any one obliged
to give it unlimited credit. The class
of persons with whom such associa-
tions have dealings are in general per-
fectly capable of taking care of them-
selves, and there seems no reason that
the law should be more careful of their
interest than they will themselves be ;
provided no false representation is held
out, and they are aware from the first
what they have to trust to. The law
is warranted in requiring from all
joint-stock associations with limited
responsibility, not only that the amount
of capital on which they profess to
carry on business should either be ac-
tually paid up or security given for it
(if, indeed, with complete publicity,
such a requirement would be neces-
sary) but also that such accounts should
be kept, accessible to individuals, and
if needful, published to the world, as
shall render it possible to ascertain at
any time the existing state of the
company's affairs, and to learn whether
the capital which is the sole security
for the engagements into which they
enter, still subsist unimpaired: the
fidelity of such accounts being guarded
by sufficient penalties. When the law
has thus afforded to individuals all
practicable means of knowing the cir-

cumstances which ought to enter into
their prudential calculations in dealing
with the company, there seems no
more need for interfering with indivi-
dual judgment in this sort of transac-
tions, than in any other par' of the
private business of life.

The reason usually urged for such
interference is, that the managers of
an association with limited responsi-
bility, not risking their whole fortunes
in the event of loss, while in case of
gain they might profit largely, are not
sufficiently interested in exercising
due circumspection, and are under the
temptation of exposing the funds of
the association to improper hazards.
It is, however, well ascertained that
associations with unlimited responsi-
bility, if they have rich shareholders,
can obtain, even when known to be
reckless in their transactions, improper
credit to an extent far exceeding what
would be given to companies equally
ill-conducted whose creditors had only
the subscribed capital to rely on.* To
whichever side the balance of evil in-
clines, it is a consideration of more
importance to the shareholders them-
selves than to third parties ; since,
with proper securities for publicity,
the capital of an association with
limited liability could not be engaged
in hazards beyond those ordinarily in-
cident to the business it carries on,
without the fact's being known, and
becoming the subject of comments by
which the credit of the body would bo
likely to be affected in quite as great
a degree as the circumstances would
justify. If, under securities for pub-
licity, it were found in practice that
companies, formed on the principle of
unlimited responsibility, were more
skilfully and more cautiously managed,
companies with limited liability would
be unable to maintain an equal compe-
tition with them ; and would therefore
rarely be formed, unless when such
limitation was the only condition on
which the necessary amount of capital
could be raised : and in that case it
would be very unreasonable to say that
their formation ought to be prevented.

* See the Keport already referred to
pp. 1 ±5-153.

644

BOOK V. CHAPTER IX. § 6.

It may further be remarked, that
although, with equality of capital, a
company of limited liability offers a
somewhat less security to those who
deal with it, than one in which every
shareholder is responsible with his
whole fortune, yet even the weaker of
these two securities is in some respects
stronger than that which an individual
capitalist can afford. In the case of
an individual, there is such security as
can be founded on his unlimited lia-
bility, but not that derived from pub-
licity of transactions, or from a known
and large amount of paid-up capital.
This topic is well treated in an able
paper by M. Coquelin, published in
the Revue des Deux Mondes for July
1843.*

" While third parties who trade
with individuals," says this writer,
" scarcely ever know, except by ap-
proximation, and even that most vague
and uncertain, what is the amount of
capital responsible for the performance
of contracts made with them, those
who trade with an anonymous society
can obtain full information if they seek
it, and perform their operations with a
feeling of confidence that cannot exist
in the other case. Again, nothing is
easier than for an individual trader to
conceal the extent of his engagements,
as no one can know it certainly but
himself. Even his confidential clerk
may be ignorant of it, as the loans he
finds himself compelled to make may
not all be of a character to require
that they be entered in his day-book.
It is a secret confined to himself ; one
which transpires rarely, and always
slowly ; one which is unveiled only
when the catastrophe has occurred.
On the contrary, the anonymous so-
ciety neither can nor ought to borrow,
without the fact becoming known to
all the world — directors, clerks, share-
holders, and the public. Its operations
partake in some respects, of the nature
of those of governments. The light of
day penetrates in every direction, and
there can be no secrets from those who

* The quotation is from a translation pub-
lished by Mr. H. C. Carey, in an American
periodical, Hunt' '» Merchant' '» Magazine, for
May and June 1845.

seek for information. Thus all is fixed,
recorded, known, of the capital and
debts in the case of the anonymous
society, while all is uncertain and un-
known in the case of the individual
trader. Which of the two, we would
ask the reader, presents the most
favourable aspect, or the surest gua-
rantee, to the view of those who trade
with them ?

"Again, availing himself of the
obscurity in which his affairs are
shrouded, and which he desires to in-
crease, the private trader is enabled,
so long as his business appears pros-
perous, to produce impressions in re-
gard to his means far exceeding the
reality, and thus to establish a credit
not justified by those means. When
losses occur, and he sees himself
threatened with bankruptcy, the world
is still ignorant of his condition, and
he finds himself enabled to contract
debts far beyond the possibility of
payment. The fatal day arrives, and
the creditors find a debt much greater
than had been anticipated, while the
means of payment are as much less.
Even this is not all. The same ob-
scurity which has served him so well
thus far, when desiring to magnify his
capital and increase his credit, now
affords him the opportunity of placing
a part of that capital beyond the reach
of his creditors. It becomes dimi-
nished, if not annihilated. It hides
itself, and not even legal remedies, nor
the activity of creditors, can bring it
forth from the dark corners in which

it is placed Our readers can,

readily determine for themselves if
practices of this kind are equally easy
in the case of the anonymous society.
We do not doubt that such things are
possible, but we think tjiat they will
agree with us that from its nature, its
organization, and the necessary pub-
licity that attends all its actions, the
liability to such occurrences is very
greatly diminished."

The laws of most countries, England
included, have erred in a twofold man-
ner with regard to joint-stock com-
panies. While they have been most
unreasonably jealous of allowing such
associations to exist, especially with

PARTNERSHIP.

limited responsibility, they have gene-
rally neglected the enforcement of
publicity ; the best security to the
public against any danger which might
arise from thi§ description of partner-
ships; and a security quite as much
required in the case of those associa-
tions of the kind in question, which,
by an exception from their general
practice, they suffered to exist. Even
in the instance of the Bank of Eng-
land, which holds a monopoly from the
legislature, and has had partial control
over a matter of so much public inte-
rest as the state of the circulating
medium, it is only within these few
years that any publicity has been en-
forced ; and the publicity was at first
of an extremely incomplete character,
though now, for most practical pur-
poses, probably at length sufficient.

§ 7. The other kind of limited part-
nership which demands our attention,
is that in which the managing partner
or partners are responsible with their
whole fortunes for the engagements of
the concern, but have others associated
with them who contribute only definite
sums, and are not liable for anything
beyond, though they participate in the
profits according to any rule which
may be agreed on. This is called
partnership in commandite: and the
partners with limited liability (to
whom, by the French law, all inter-
ference in the management of the con-
cern is interdicted) are known by the
name commandltaires. Such partner-
ships are not allowed by English law :
in all private partnerships, whoever
shares in the profits is liable for the
debts, to as plenary an extent as the
managing partner.

For such prohibition no satisfactory
defence has ever, so far as I am aware,
been made. Even the insufficient
reason given against limiting the re-
sponsibility of shareholders in a joint-
stock company, does not apply here ;
there being no diminution of the
motives to circumspect management,
since all who take any part in the
direction of the concern are liable with
their whole fortunes. To third parties,
again, the security is improved by the

existence of commaddite ; since the
amount subscribed by commanditaircs
is all of it available to creditor's, the
commanditaires losing their whole in-
vestment before any creditor can lose
anything ; while, if instead of becoming
partners to that amount, they had lent
the sum at an interest equal to the

E refit they derived from it, they would
ave shared with the other creditors
in the residue of the estate, diminish-
ing pro rata the dividend obtained by
all. While the practice of commandite
thug conduces to the interest of cre-
ditors, it is often highly desirable for
the contracting parties themselves.
The managers are enabled to obtain
the aid of a much greater amount of
capital than they could borrow on
their own security ; and persons are
induced to aid useful undertakings, by
embarking limited portions of capital
in them, when they would not, and
often could not prudently, have risked
their whole fortunes on the chances of
the enterprise.

It may perhaps be thought that
where due facilities are afforded to
joint-stock companies, commandito
partnerships are not required. But
there are classes of cases to which the
commandite principle must always
be better adapted than the joint-
stock principle. " Suppose," says M.
Coquelin, " an inventor seeking for a
capital to carry his invention into
practice. To obtain the aid of capi-
talists, he must offer them a share of
the anticipated benefit ; they must as-
sociate themselves with him in the
chances of its success. In such a case,
which of the forms would he select?
Not a common partnership, certainly ;"
for various reasons, and especially the
extreme difficulty of finding a partner
with capital, willing to risk his whole
fortune on the success of the inven-
tion.* " Neither woidd he select the

* " There has been a great deal of com-
miseration professed," says Mr. Duncan,
solicitor, " towards the poor inventor ; he
has been oppressed by the high cost of
patents ; but his chief oppression has been
the partnership law, which prevents his
petting any one to help him to develop his
invention. He is a poor man, and therefore
cannot give security to a creditor ; no on»
will lend him money; the rate of interest

N N

546

BOOK V. CHAPTER IX. § 7.

Anonymous Society," orany other form nomical point of view, of the imperative
of joint-stock company, " in which he

might be superseded as manager. He
would stand, in such an association, on
no better footing than any other share-
holder, and he might be lost in the
crowd ; whereas, the association ex-
isting, as it were, by and for him, the
management would appear to belong
to him as a matter of right. Cases
occur in which a merchant or a manu-
facturer, without being precisely an
inventor, has undeniable claims to the
management of an undertaking, from
the possession of qualities peculiarly
calculated to promote . its success. So
great, indeed, continues M. Coquelin,
" is the necessity, in many cases, for
the limited partnership, that it is diffi-
cult to conceive how we could dis-
pense with or replace it :" and in re-
ference to his own country he is pro-
bably in the right.

Where there is so great a readiness
as in England, on the part of the
public, to form joint-stock associations,
even without the encouragement of a
limitation of responsibility ; comman-
dite partnership, though its prohibition
is in principle quite indefensible, can-
not be deemed to be, in a merely eco-

offered, however high it may be, is not an
attraction. But if by the alteration of the
law he could allow capitalists to take an
interest with him and share the profits, while
the risk should be confined to the capital
they embarked, there is very little doubt at
all that he would frequently get assistance
from capitalists; whereas at the present
moment, with the law as it stands, he is com-
pletely destroyed, and his invention is useless
to him ; he struggles month after month ; he
applies again and again to the capitalist
without avail. 1 know it practically in two
or three cases of patented inventions ; espe-
cially one where parties with capital were
desirous of entering into an undertaking of
great moment in Liverpool, but five or six
different gentlemen were deterred from doing
so, all feeling the strongest objection to what
each one called the cursed partnership law."

Report, p. 155.

Mr. Fane says, "In the course of my pro-
fessional life, as a Commissioner of the Court
of Bankruptcy, I have learned that the most
unfortunate man in the world is an inventor.
The difficulty which an inventor finds in
getting at capital, involves him in all sorts
of embarrassments, and lie ultimately is for
the most part a ruined man, and somebody
else gets possession of his invention."— Ib.
P. 8?.

necessity which M. Coquelin ascribes
to it. Yet the inconveniences are not
small, which arise indirectly from those
provisions of the law by which every
one who shares in the profits of a con-
cern is subject to the full liabilities of
an unlimited partnership. It is impos-
sible to say how many or what useful
modes of combination are rendered
impracticable by this state of the law.
It is sufficient for its condemnation
that, unless in some way relaxed, it is
inconsistent with the payment of wages
in part by a percentage on profits ; in
other words, the association of the
operatives as virtual partners with the
capitalist.*

It is, above all, with reference to the
improvement and elevation of the work-
ing classes, that complete freedom in
the conditions of partnership is indis-
pensable. Combinations such as the
associations of workpeople, described
in a former chapter, are the most
powerful means of effecting the social
emancipation of the labourers through
their own moral qualities. Nor is the
liberty of association important solely
for its examples of success, but fully
as much so for the sake of attempts
which would not succeed ; but by their
failure would give instruction more im-
pressive than can be afforded by any-
thing short of actual experience. Every
theory of social improvement, the worth
of which is capable of being brought to
an experimental test, should be per-
mitted, and even encouraged, to sub-
mit itself to that test. From such
experiments the active portion of the
working classes would derive lessons
which they would be slow to learn from
the teaching of persons supposed to
have interests and prejudices adverse
to their good ; would obtain the means
of correcting, at no cost to society, what-
ever is now erroneous in their notions
of the mean* of establishing their in
dependence; and of discovering the con-
ditions, moral, intellectual, and indua-

* It is considered possible to effect this
through the Limited Liability Act, by
erecting the capitalist and his workpeople
into a Limited Company : as proposed oy
Messrs. Briggs (supra, p. 465).

PARTNERSHIP.

547

trial, which are indispensably necessary
for effecting without injustice, or for
effecting at all, the social regeneration
they aspire to.*

The French law of partnership is
superior to the English in permitting
coinmandite ; and superior, in having
no such unmanageable instrument as
the Court of Chancery, all cases arising
frpm commercial transactions being
adjudicated in a comparatively cheap
and expeditious mannei by a tribunal
of merchants. In other respects the
French system is far worse than the
English. A joint-stock company with
limited responsibility cannot be formed
without the express authorization of
the department of government called
the Council of State, a body of admi-
nistrators, generally entire strangers to
industrial transactions, who have no
interest in promoting enterprises, and
are aj)t to think that the purpose of
their institution is to restrain them;
whose consent cannot in any case be
obtained without an amount of time
and labour which is a very serious
hindrance to the commencement of an
enterprise, while the extreme uncer-
tainty of obtaining that consent at all
is a great discouragement to capitalists
who would be willing to subscribe. In
regard to joint-stock companies with-
out limitation of responsibility, which
in England exist in such numbers and
are formed with such facility, these
associations cannot, in France, exist at
all ; for, in cases of unlimited partner-
ship, the French law does not permit
the division of the capital into trans-
ferable shares.

The best existing laws of partner-
ehip appear to be those of the New

* By an act of the year 1852, called the
Industrial and Provident Societies Act, for
which the nation is indebted to the public-
spirited exertions of Mr. Slaney, industrial
associations of working people are admitted
to the statutory privileges of Friendly So-
cieties. This not only exempts them from
the formalities applicable to joint-stock com-

Sanies, but provides for the settlement of
isputes are on g the partners without recourse
to the Court of Chancery. There are still
Borne defects in the provisions of this Act,
which hamper the proceedings of the
Societies in several respects ; as is pointed
lea in the Almanack of the Kouhdale Equit-
obutPkmoers for 1861,

England States. According to Mr.
Carey, + " nowhere is association so
little trammelled by regulations as in
New England; the consequence of
which is, that it is carried to a greater
extent there, and particularly in M assa-
chusetts and Rhode Island, than in any
other part of the world. In these
states, the soil is covered with com-
pagnies anonymes — chartered compa-
nies — for almost every conceivable
purpose. Every town is a corporation
for the management of its roads, oridges,
and schools ; which are, therefore, under
the direct control of those who pay
for them, and are consequently well
managed. Academies and churches,
lyceums and libraries, saving-fund so-
cieties, and trust companies, exist in
numbers proportioned to the wants of
the people, and all are corporations.
Every district has its locaJ bank, of a
size to suit its wants, the stock of which
is owned by the small capitalists of
the neighbourhood, and managed by
themselves ; the consequence of which
is, that in no part of the world is the
system of banking so perfect — so little
liable to vibration in the amount of
loans — the necessary effect of which is,
that in none is the value of property
so little affected by changes in the
amount or value of the currency re-
sulting from the movements of their
own banking institutions. In the two
states to which we have particularly
referred, they are almost two hundred
in number. Massachusetts, alone,
offers to our view fifty-three insurance
offices, of various forms, scattered
through the state, and all incorporated.
Factories are incorporated, and ar»
owned in shares ; and every one thai
has any part in the management o!
their concerns, from the purchase of
the raw material to the sale of the
manufactured article, is a part owner ;
while every one employed in them has
a prospect of becoming one, by the use
of prudence, exertion, and economy.
Charitable associations exist in large
numbers, and all are incorporated.
Fishing vessels are owned in shares by
those who navigate them; and the

t In a note appended to his translation of
M. Coquelin's pa^er,

548

sailors of a whaling ship depend in a
great degree, if not altogether, upon
the success of the voyage for their
Compensation. Every master of a ves-
sel trading in the Southern Ocean is a
part owner, and the interest he pos-
sesses is a strong inducement to exer-
tion and economy, by aid of which the
people of New England are rapidly
driving out the competition of other
nations for the trade of that part of
the world. Wherever settled, they ex-
hibit the same tendency to combination
of action. In New Y,ork they are the
chief owners of the lines of packet
ships, which are divided into shares,
owned by the shipbuilders, the mer-
chants, the master, and the mates ;
which last generally acquire the means
of becoming themselves masters, and
to this is due their great success. The
system is the most perfectly democratic
of any in the world. It affords to
every labourer, every saifcr, every ope-
rative, male or female, the prospect of
advancement ; and its results are pre-
cisely such as we should have reason
to expect. In no part of the world are
talent, industry, and prudence, so cer-
tain to be largely rewarded."

The cases of insolvency and fraud on
the part of chartered companies in
America, which have caused so much
loss and so much scandal in Europe,
did not occur in the part of the Union
to which this extract refers, but in
other States, in which the right of as-
sociation is much more fettered by legal
restrictions, and in which, accordingly,
joint-stock associations are not compa-
rable in number or variety to those of
New England. Mr. Carey adds, " A
careful examination of the systems of
the several states, can scarcely, we
think, fail to convince the reader of
the advantage resulting from permit-
ting men to determine among them-
selves the terms upon which they will
associate, and allowing the associations
that may be formed to contract with
fce public as to the terms upon which
they will trade together, whether of
ftie limited or unlimited liability of the
partners." This principle has been
adopted as the foundation of all recent
English legislation on the subject.

BOOK V. CHAPTER IX. § 8.

§ 8. I proceed to the subject of In-
solvency Laws.

Good laws on this subject are im-
portant, first and principally, on the
score of public morals ; which arc on
no point more under the influence of
the law, for good and evil, than in a
matter belonging so pre-eminently to
the province of law as the preservation
of pecuniary integrity. But the sub-
ject is also, in a merely economical
point of view, of great importance.
First, because the economical well-
being of a people, and of mankind, de-
pends in an especial manner upon their
being able to trust each other's en-
gagements. Secondly, because one of
the risks, or expenses, of industrial
operations is the risk or expense of
what are commonly called bad debts,
and every saving which can be effected
in this liability is a diminution of cost
of production ; by dispensing with an
item of outlay which in no way con-
duces to the desired end, and which
must be paid for either by the con-
sumer of the commodity, or from the
general profits of capital, according as
the burthen is peculiar or general.

The laws and practice of nations
on this subject have almost always
been in extremes. The ancient laws
of most countries were all severity to
tho debtor. They invested the creditor
with a power of coercion, more or less
tyrannical, which he might use against
his insolvent debtor, either to extort
the surrender of hidden property, or to
obtain satisfaction of a vindictive cha-
racter, which might console him for
the non-payment of the debt. This
arbitrary power has extended, in some
countries, to making the insolvent
debtor serve the creditor as his slave :
in which plan there were at least some
grains of common sense, since it miulit
possibly be regarded as a scheme for
making him work out the debt by his
labour. In England, the coercion as-
sumed the milder form of ordinary im-
prisonment. The one and the other
were the barbarous expedients of a
rude age, repugnant to justice as well
as to humanity. Unfortunately ths
reform of them, like that of the crimi-
nal law generally, has been taken in

INSOLVENCY.

549

hand as an affair of humanity only, not
of justice : and the modish humanity
of the present time, which is essen-
tially a thing of one idea, has in this
as in other cases, gone into a violent
reaction against the ancient severity,
and might almost be supposed to see
in the fact of having lost or squan-
dered other people's property, a pecu-
liar title to indulgence. Everything
in the law which attached disagreeable
consequences to that fact, was gradu-
ally relaxed, or entirely got rid of:
until the demoralizing effects of this
laxity became so evident as to deter-
mine, by more recent legislation, a
salutary though very insufficient move-
ment in the reverse direction.

The indulgence of the laws to those
who have made themselves unable to
pay their just debts, is usually de-
fended, on the plea that the sole object
of the law should be, in case of insol-
vency, not to coerce the person of the
debtor, but to get at his property, and
distribute it fairly among the creditors.
Assuming that this is and ought to be
the sole object, the mitigation of the
law was in the first instance carried so
far as to sacrifice that object. Impri-
sonment at the discretion of a creditor
was really a powerful engine for ex-
tracting from the debtor any property
which he had concealed or otherwise
made away with : and it remains to be
shown by experience whether, in de-
priving creditors of this instrument,
the law, even as last amended, has fur-
nished them with a sufficient equiva-
lent. But the doctrine, that the law
has done all that ought to be expected
from it, when it has put the creditors
in possession of the property of an in-
solvent, is in itself a totally inadmis-
sible piece of spurious humanity. It
is the business of law to prevent wrong-
doing, and not simply to patch up the
consequences of it when it has been
committed. The lav is bound to take
care that insolvency shall not be a good
pecuniary speculation ; that men shall
not have the privilege of hazarding
other people's property without their
knowledge or consent, taking the profits
of the enterprise if it is successful,
and if it fails, throwing the less upon

the rightful owners ; and that they
shall not find it answer to make them-
selves unable to pay their just debts,
by spending the money of their credi-
tors in personal indulgence. It is
admitted that what is technically called
fraudulent bankruptcy, the false pre-
tence of inability to pay, is, when
detected, properly subject to punish-
ment. But does it follow that insol-
vency is not the consequence of mis-
conduct because the inability to pay
may be real ? If a man has been a
spendthrift, or a gambler, with property
on which his creditors had a prior
claim, shall he pass scot-free because
the mischief is consummated and tho
money gone ? Is there any very mate-
rial difference in point of morality
between this conduct, and those other
kinds of dishonesty which go by tho
names of fraud and embezzlement ?

Such cases are not a minority, but
a large majority among insolvencies.
The statistics of bankruptcy prove the
fact. " By far the greater part of all
insolvencies arise from notorious mis-
conduct ; the proceedings of the In-
solvent Debtors Court and of the
Bankruptcy Court will prove it. Ex-
cessive and unjustifiable overtrading
or most absurd speculation in com-
modities, merely because the poor spe-
culator ' thought they would get up,'
but why he thought so he cannot tell ;
speculation in hops, in tea, in silk, in
corn — things with which he is alto-
gether unacquainted ; wild and absurd
investments in foreign funds, or in
jointrstocks ; these are among the
most innocent causes of bankruptcy.1'*
The experienced and intelligent writer
from whom I quote, corroborates his
assertion by the testimony of several
of the official assignees of the Bank-
ruptcy Court. One of them says,
" As far as I can collect from tho
books and documents furnished by the
bankrupts, it seems to me that" in
the whole number of cases which
occurred during a given time in the
court to which he was attached,
" fourteen have been ruined by spe-

* From a volume published in 1815, en-
titled, Credit the L\fe of Commerce, by Mr
J. H. Elliott.

550

BOOK V. CHAPTER IX. § 8.

dilations in things with which they
were unacquainted ; three by neglect-
ing book-keeping; ten by trading
beyond their capital and means, and
the consequent loss and expense of
accommodation-bills ; forty-nine by ex-
pending more than they could rea-
sonably hope their profits would be,
though their business yielded a fair
return ; none by any general distress,
or the falling off of any particular
branch of trade." Another of these
officers says that, during a period of
eighteen months, " fifty-two cases of
bankruptcy have come under my care.
It is my opinion that thirty-two of
these have arisen from an imprudent
expenditure, and five partly from that
cause, and partly from a pressure on
the business in which the bankrupts
were employed. Fifteen 'I attribute
to improvident speculations, combined
in many instances with an extravagant
mode of life."

To these citations the author adds
the following statements from his per-
sonal means of knowledge. " M any
insolvencies are produced by trades-
men's indolence ; they keep no books,
or at least imperfect ones, which they
never balance ; they never take stock ;
they employ servants, if their trade
be extensive, whom they are too in-
dolent even to supervise, and then
become insolvent. It is not too much
to say, that one-half of all the persons
engaged in trade, even in London,
never take stock at all : they go on
year after year without knowing how
their affairs stand, and at last, like the
child at school, they find to their sur-
prise, but one halfpenny left in their
pocket. I will venture to say that not
one-fourth of all the persons in the
provinces, either manufacturers, trades-
men, or farmers, ever take stock ; nor
in fact does one-half of them ever keep
acccmnt-books, deserving any other
narr,« than memorandum-books. I
know sufficient of the concerns of
five hundred small tradesmen in the
provinces, to be enabled to say, that
not one-fifth of them ever take stock,
or keep even the most ordinary ac-
counts. I am prepared to say of such
tradesmen, from carefully-prepared

tables, giving every advantage whera
there has been any doubt as to the
causes of their insolvency, that where
nine happen from extravagance or
dishonesty, one" at most "may be
referred to misfortune alone." *

Is it rational to expect among the
trading classes any high sense of
justice, honour, or integrity, if the law
enables men who act in this manner
to shuffle off the consequences of their
misconduct upon those who have bcon
so unfortunate as to trust them ; and
practically proclaims that it looks
upon insolvency thus produced, as
a " misfortune," not an offence?

It is, of course, not denied, that in.
solvencies do arise from causes beyond
the control of the debtor, and that, in
many more cases, his culpability is not
of a high order ; and the law ought to
make a distinction in favour of such
cases, but not without a searching in-
vestigation ; nor should the case ever
be let go without having ascertained,
in the most complete manner practi-
cable, not the fact of insolvency only,
but the cause of it. To have been
trusted with money or money's worth,
and to have lost or spent it, is primd
facie evidence of something wrong:
and it is not for the creditor to prove,
which he cannot do in one case out of
ten, that there has been criminality,
but for the debtor to rebut the pre-
sumption, by laying open the wholo
state of his affairs, and showing either
that there has been no misconduct, or
that the misconduct has been of an
excusable kind. If he fail in this, ho
ought never to be dismissed without a
punishment proportioned to the de.crroo
of blame which seems justly impotable
to him ; which punishment, however,
might be shortened or mitigated in
proportion as he appeared likely to
exeil himself in repairing the injury
done.

It is a common argument with thoso
who approve a relaxed system of in-
solvency laws, that credit, except in
the great operations of commerce, is
an evil; and that to deprive creditors
of legal redress is a judicious means of
preventing credit from being given.
* PP. 50-1.

INSOLVENCY

551

That which is given by retail dealers
to unproductive consumers is, no
doubt, to the excess to which it is car-
ried, a considerable evil. This, how-
ever, is only true of large, and espe-
cially of long, credits ; for there is
credit whenever goods are not paid for
before they quit the shop, or, at least,
the custody of the seller; and there
would be much inconvenience in put-
ting an end to this sort of credit. But
a large proportion of the debts on
which insolvency laws take effect, are
those due by small tradesmen to the
dealers who supply them : and on no
class of debts does the demoralization
occasioned by a bad state of the law,
operate more perniciously. These are
commercial credits, which no one
wishes to see curtailed ; their existence
is of great importance to the general
industry of the country, and to numbers
of honest, well-conducted persons of
small means, to whom it would be a
great injury that they should be pre-
vented from obtaining the accommo-
dation they need, and would not abuse,
through the omission of the law to
provide just remedies against dishonest
or reckless borrowers.

But though it were granted that
retail transactions, on any footing but
that of ready money payment, are an
evil, and their entire suppression a fit
object for legislation to aim at; a
worse mode of compassing that object
could scarcely be invented, than to
permit those who have been trusted by
others to cheat and rob them with im-
punity. The law does not generally
select the vices of mankind as the ap-
propriate instrument for inflicting chas-
tisement on the comparatively inno-
cent : when it seeks to discourage any
course ofaction.it does so by applying
inducements of its own, not by outlaw-
ing those who act in the manner it
deems objectionable, and letting loose
the predatory instincts of the worthless
part of mankind to feed upon them. If
a man has committed murder, the law
condemns him to death; but it does
not promise impunity to anybody who
may kill him for the sake of taking his
purse. The offence of believing an-
other's word, even rashly, is not so

heinous that, for the sake of discourag-
ing it, the spectacle should be brought
home to every door, of triumphant ras-
cality, with the law on its side, mock-
ing the victims it has made. This
pestilent example has been very widely
exhibited since the relaxation of the
insolvency laws. It is idle to expect
that, even by absolutely depriving cre-
ditors of all legal redress, the kind of
credit which is considered objection-
able would really be very much checked.
Rogues and swindlers are still an ex-
ception among mankind, and people
will go on trusting each other s pro-
mises. Large dealers, in abundant
business, would refuse credit, as many
of them already do : but in the eager
competition of a great town, or the de-
pendent position of a village shop-
keeper, what can be expected from the
tradesman to whom a single customer
is of importance, the beginner, perhaps,
who is striving to get into business?
He will take the risk, even if it were
still greater ; he is ruined if he cannot
sell his goods, and he can but be ruined
if he is defrauded. Nor docs it avail
to say, that he ought to make proper
inquiries, and ascertain the character
of those to whom he supplies goods on
trust. In some of the most flagrant
cases of profligate debtors which have
come before the Bankruptcy Court, the
swindler had been able to give, and
had given, excellent references.*

* The following extracts from the French
Code of Commerce, (the translation is that
of Mr. Fane,) show the great extent to
which the just distinctions are made, and the
proper investigations provided for, by French
law. The word banqueroute, which can only
be translated by bankruptcy, is, however,
confined in France to culpable insolvency,
which is distinguished into timple bank-
ruptcy and fraudulent bankruptcy. The
following are cases of simple bankruptcy : —

" Every insolvent who, in the investigation
of his affairs, shall appear chargeable with
one or more of the following offences, shall
be proceeded against as a simple bank-
rupt.

" If his house expenses, which he is bound
to enter regularly in a day-book, appear
excessive.

" If he has spent considerable sums at
play, or in operations of pure hazard.

" If it shall appear that he has borrowed
largely, or resold merchandize at a loss, or
below the current price, after it appeared by

552

BOOK. V. CHAFTEB X. § 1.

CHAPTER X.

OP IKTERFEREHCES OF GOVERNMENT GROUNDED ON F.RROKEOUfl
THEORIES.

§ 1. FROM the necessary functions
of government, and the effects produced
on the economical interests of society
by their good or ill discharge, we pro-
ceed to the functions which belong to
what I have termed, for want of a
better designation, the optional class ;
those which are sometimes assumed by
governments and sometimes not, and
which it is not unanimously admitted
that they ought to exercise.

Before entering on the general prin-
ciples of the question, it will be ad-
visable to clear from our path all those
cases, in which government interfer-
ence works ill, because grounded on
false views of the subject interfered
with. Such cases have no connexion
with any theory respecting the proper
limits of interference. There are some
things with which governments ought
not to meddle, and other things with
which they ought ; but whether right
or wrong in itself, the interference
must work for ill, if government, not

bis last account-taking that his debt* ex-
ceeded his assets by one-half.

" If he has issued negotiable securities
to three times the amount of his avail-
able asset*, according to his last account-
taking.

"The following may nlso be proceeded
ugainst as simple bankrupts: —

" He who has not declared his own insol-
vency in the manner prescribed by law :

" He who has not come in and surrendered
within the time limited, having no legitimate
excuse for his absence :

" He who either produces no books at all,
or produces such as have been irregularly
kept, and this although the irregularities may
not indicate fraud."

The penalty for "simple bankruptcy" is
imprisonment for a term of not less than one
month, nor more than two years. The fol-
lowing are cases of fraudulent bankruptcy,
of which the punishment is compulsory
laboar (the galleys) for a term :

" If he has attempted to account for his
property by fictitious expenses and losses,
or if he does not fully account for all his
receipts ;

understanding the subject which it
meddles with, meddles to bring about
a result which would be mischievous.
We will therefore begin by passing in
review various false theories, which
have from time to time formed the
ground of acts of government moie or
less economically injurious.

Former writers on political economy
have found it needful to devote much
trouble and space to this department of
their subject. It has now happily be-
come possible, at least in our own
country, greatly to abridge this purely
negative part of our discussions. The
false theories of political economy
which have done so much mischief in
times past, are entirely discredited
among all who have not lagged behind
the general progress of opinion ; and
few of the enactments which were once
grounded on those theories still help to
deform the statute-book. As the prin-
ciples on which their condemnation
rests, have been fully set forth in other

"If he has fraudulently concealed any
sum of money or any debt duo to him, or
any merchandize or other moveables :

" If he has made fraudulent sales or gifts
of his property :

" If he has uUotred fictitious debts to be
proved against his estate :

"If he has been entrusted with pro-
perty, either merely to keep, or with
special directions as to its use, and has
nevertheless appropriated it to his own
use:

" If he has purchased real property in a
borrowed name :

" If he has concealed bis books.

"The following may also be proceeded
agninst in a similar way : —

" He who has not kept books, or whose
books shall not exhibit his real situation as
regards his debts and credits.

"Ho who, having obtained a protection
(naiif-couduit), shall not have duly aS
tendcd."

These various provisions relate only to
commercial insolvency. The laws in regard
to ordinary debts are considerably nioro
rigorous to the debtor,

PROTECTIONISM.

553

parts of this treatise, we may here
content ourselves with a few brief in-
dications.

Of these false theories, the most
notable is the doctrine of Protection to
Native Industry ; a phrase meaning
the prohibition, or the discouragement
by heavy duties, of such foreign com-
modities as are capable of being pro-
duced at home. If the theory involved
in this system had been correct, the
practical conclusions grounded on it
would not have been ^unreasonable.
The theory was, that fb buy things
produced at home was a national bene-
fit, and the introduction of foreign
commodities, generally a national loss.
It being at thu same time evident that
the interest of the consumer is to buy
foreign commodities in preference to
domestic whenever they are either
cheaper or better, the interest of the
consumer appeared in this respect to
be contrary to the public interest ; he
was certain, if left to his own inclina-
tions, to do what according to the
theory was injurious to the public.

It was shown, however, in our
analysis of the effects of international
trade, as it had been often shown by
former writers, that the importation of
foreign commodities, in the common
course of traffic, never takes place, ex-
cept when it is, economically speaking,
a national good, by causing the same
amount of commodities to be obtained
at a smaller cost of labour and capital
to the country. To prohibit, therefore,
this importation, or impose duties
which prevent it, is to render the labour
and capital of the country less efficient
in production than they would other-
wise be ; and compel a- waste, of the
difference between the labour and
capital necessary for the home produc-
tion of the commodity, and that which
is required for producing the tilings
with which it can be purchased from
abroad. The amount of national loss
thus occasioned is measured by the
excess of the price at which the com-
modity is produced, over that at which
it could be imported. In the case of
manufactured goods, the whole diffe-
rence between the two prices is ab-
sorbed in indemnifying the producers

for waste of labour, or of the capital
which supports that labour. Those
who are supposed to be benefited,
namely the makers of the protected
articles, (unless they form an exclusive
company, and have a monopoly against
their own countrymen as well aa
against foreigners,) do not obtain
higher profits than other people. All
is sheer loss, to the country as well as
to the consumer. When the protected
article is a product of agriculture — the
waste of labour not being incurred on
the whole produce, but only on what
may be called the last instalment of it
— the extra price is only in part an
indemnity for waste, the remainder
being a tax paid to the landlords.

The restrictive and prohibitory
policy was originally grounded on what
is called the Mercantile System, which
representing the advantage of foreign
trade to consist solely in bringing
money into the country, gave artificial
encouragement to exportation of goods,
and discountenanced their importation.
The only exceptions to the system
were those required by the system
itself. The materials and instruments
of production were the subjects of a
contrary policy, directed however to
the same end ; they were freely im-
ported, and not permitted to be ex-
ported, in order that manufacturers,
being more cheaply supplied with the
requisites of manufacture, might be
able to sell cheaper, and therefore to
export more largely. For a similar
reason, importation was allowed and
even favoured, when confined to the
productions of countries which were
supposed to take from the country still
more than it took from them, thus en-
riching it by a favourable balance of
trade. As part of the same system,
colonies were founded, fcr the supposed
advantage of compelling them to buy
our commodities, or at all events not
to buy those of any other country : in
retxirn for which restriction, we were
generally willing to come under an
equivalent obligation with respect to
the staple productions of the colonists.
The consequences of the theory were
pushed so far, that it was not unusual
even to give bounties on exportation,

554

BOOK V. CHAPTER X. § 1.

and induce foreigners to buy from us
rather than from other countries, by a
cheapness which we artificially pro-
duced, by paying part of the price for
them out of our own taxes. This is a
stretch beyond the point yet reached
by any private tradesman in his com-
petition for business. No shopkeeper,
I should think, ever made a practice of
bribing customers by selling goods to
them at a permanent loss, making it
up to himself from other funds in his
possession.

The principle of the Mercantile
Theory is now given up even by
writers and governments who still
cling to the restrictive system. What-
ever hold that system has over men's
minds, independently of the private
interests exposed to real or appre-
hended loss by its abandonment, is
derived from fallacies other than the
old notion of the benefits of heaping
up money in the country. The most
effective of these is the specious plea
of employing our own countrymen and
our national industry, instead of feed-
ing and supporting the industry of
foreigners. The answer to this, from
the principles laid down in former
chapters, is evident. Without revert-
ing to the fundamental theorem dis-
cussed in an early part of the present
treatise,* respecting the nature and
sources of employment for labour, it is
sufficient to say, what has usually been
said by the advocates of free trade,
that the alternative is not between em-
ploying cur own people and foreigners,
cut between employing one class and
another of our own people. The im-
ported commodity is always paid for,
directly or indirectly, with the produce
}f our own industry : that industry
being, at the same time, rendered
more productive, since, with the same
labour and outlay, we are enabled to
possess ourselves of a greater quantity
of the article. Those who have not
well considered the subject are apt to
suppose that our exporting an equiva-
lent in our own produce, for the foreign
articles we consume, depends on con-
tingencies— on the consent of foreign

» Supra, pp. 49-55.

countries to make some corresponding
relaxation of their own restrictions, 01
on the question whether those from
whom we buy are induced by that cir-
cumstance to buy more from us ; and
that, if these things, or things equiva-
lent to them, do not happen, the pay-
ment must be made in money. Now,
in the first place, there is nothing
more objectionable in a money pay-
ment than in payment by any other
medium, if the state of the market
makes it the most advantageous re-
mittance ; and the money itself was
first acquired, and would again be re-
plenished, by the export of an equiva-
lent value of our own products. But,
in the next place, a very short interval
of paying in money would so lower
prices as either to stop a part of the
importation, or raise up a foreign de-
mand Cor our produce, sufficient to pay
for the imports. I grant that this dis-
turbance of the equation of interna-
tional demand would be in some de-
gree to our disadvantage, in the pur-
chase of other imported articles ; and
that a country which prohibits some
foreign commodities, does, cceteris
paribus, obtain those which it does
not prohibit, at a less price than it
would otherwise have to pay. To ex-
press the same thing in other words ;
a country which destroys or prevents
altogether certain branches of foreign
trade, thereby annihilating a general
gain to the world, which would be
shared in some proportion between
itself and othei countries — does, in
some circumstances, draw to itself, at
the expense of foreigners, a larger
share than would else belong to it of
the gain arising from that portion of
its foreign trade which it suffers to
subsist. But even this it can only be
enabled to do, if foreigners do not
maintain equivalent prohibitions or re-
strictions against its commodities. In
any case, the justice or expediency of
destroying one of two gains, in order
to engross a rather larger share of the
other, does not require much discus-
sion : the gain, too, which is destroyed,
being, in proportion to the magnitude
of the transactions, the larger of the
two, since it is the one which capital,

PROTECTIONISM.

555

lei to itself, is supposed to seek by
nee.

/•.•neral theory, the
Protectionist doctrine finds support in
some particular cases, from considera-
tions which, when re-ally in point, in-
volve greater interests than mere sav-
ing of labour ; the interests of national
subsistence and of national defence.
The discussions on the Com Laws
have familiarized everybody with the
pica, that we ought to be independent
of foreigners for the food of the
people ; and the Navigation Laws
were grounded, in theory and profes-
sion, on the necessity of keeping up a
" nursery of seamen" for the navy.
Oa this last subject I at once admit,
that the object is worth the sacrifice ;
and that a country exposed to inva-iuii
by yea, if it cannot otherwise have suf-
ficient ships and sailors of its own to
secure the means of manning on an
emergency an adequate fleet, is quite
right in obtaining those means, even
at an economical sacrifice in point of
cheapness of transport. When the
English navigation laws were enacted,
the Dutch, from their maritime skill
and their low rate of profit at home,
were able to cany for other nations,
England included, at cheaper rates
than those nations could carry for
themselves : which placed all other
countries at a great comparative dis-
advantage in obtaining experienced
seamen for their ships of war. The
Navigation Laws, by which this de-
was remedied, and at the
game time a blow struck against the
maritime power of a nation with which
England was then frequently engaged
in hostilities, were probably, though
economically disadvantageous, politi-
cally expedient. But English, ships and
sailors can now navigate as cheaply as
those of any other country ; maintain-
ing at least an equal competition with
the other maritime nations even in
their own trade. The ends which may
once have justified Navigation Laws,
require them no longer, and afforded
no reason for maintaining this in-
vidious exception to the general rule
cf free trade.
With regard to subsistence, the plea

of the Protectionists has been »
and so triumphantly met, that it re-
quires little notice here. That country
is tho most steadily as well as the
most abundantly supplied wit'.
which draws its supplies from the
largest surface. It is ridiculous to
found a general system of policy on go
improbable a danger as t;
at war with all the natii •:!•; <'!' the
world at once ; or to suppose that,
even if inferior at sea, a whole country
could be blockaded like a town, or thai
the growers of food in other countries
would not be as anxious not to lose an
advantageous market, as we should be
not to be deprived of their corn. On
the subject, however, of subsistence,
there is one point which deserves more
especial consideration. In cases of
actual or apprehended scarcity, many
countries of Europe are accustomed to
stop the exportation of food. Is this,
or not, sound policy ? There can be
no doubt that in the present state ot
international morality, a people can-
not, any more than an individual, bo
blamed for not starving itself to feed
others. But if the greatest amount of
good to mankind on the whole, were
the end aimed at in the maxims ot
international conduct, such collective
churlishness would certainly be con-
demned by them. Suppose that in
ordinary circumstances the trade in
food were perfectly free, so that the
price in one country could not habitu-
ally exceed that in any other by more
than the cost of carriage, together with
a moderate profit to the importer. A
general scarcity ensues, affecting all
countries, but in unequal degrees. If
the price rose in one country more
than in others, it would be a proof that
in that country the scarcity was se-
verest, and that by permitting food to
go freely thither from any other coun
try, it would be spared from a less
urgent necessity to relieve a greater.
When the interests, therefore, of all
countries are considered, free exporta-
tion is desirable. To the exporting
country considered separately, it may,
at least on the particular occasion, be
an inconvenience : but taking into ac-
count that the country which is now

556

BOOK V. CHARTER X. § 1.

the giver, will in some future season
be the receiver, and the one that is
benefited by the freedom, I cannot but
think that even to the apprehension of
food-rioters it might be made apparent,
that in such cases they should do to
others what they would wish done to
themselves.

In countries in which the system of
Protection is declining, but not yet
wholly given up, such as the United
States, a doctrine has come into notice
which is a sort of compromise between
free trade and restriction, namely, that
protection for protection's sake is im-
proper, but that there is nothing ob-
jectionable in having as much protec-
tion as may incidentally result from a
tariff framed solely for revenue. Even
in England, regret is sometimes ex-
pressed that a " moderate fixed duty"
was not preserved on corn, on account
of the revenue it would yield. Inde-
pendently, however, of the general
impolicy of taxes on the necessaries of
life, this doctrine overlooks the fact,
that revenue is received only on the
quantity imported, but that the tax is
paid on the entire quantity consumed.
To make the public pay much that the
treasury may receive a little, is not an
eligible mode of obtaining a revenue.
In the case of manufactured articles
the doctrine involves a palpable incon-
sistency. The object of the duty as a
nieans of revenue, is inconsistent with
its affording, even incidentally, any
protection. It can only operate as
protection in so far as it prevents im-
portation ; and to whatever degree it
prevents importation, it affords no
revenue.

The only case in which, on mere
principles of political economy, pro-
tecting duties can be defensible, is
when they are imposed temporarily
(especially in a young and rising na-
tion) in hopes of naturalizing a foreign
industry, in itself perfectly suitable to
the circumstances of the country. The
superiority of one country over another
in a branch of production, often arises
only from having begun it sooner.
There may be no inherent advantage
on one part, or disadvantage on the
other, but only a present superiority of

acquired skill and experience, A
country which has this skill and ex-
perience yet to acquire, may in other
respects be better adapted to the pro-
duction than those winch were earlier
in the field : and besides, it is a just
remark of Mr. Rae, that nothing has a
greater tendency to promote improve-
ments in any branch of production, than
its trial under a new set of conditions.
But it cannot be expected that indi-
viduals should, at their own risk, or
rather to their certain loss, introduce
a new manufacture, and bear the
burthen of carrying it on until the
producers have been educated up to
the level of those with whom the pro-
cesses are traditional. A protecting
duty, continued for a reasonable time,
will sometimes be the least inconve-
nient mode in which the nation can
tax itself for the support of such an
experiment. But the protection should
be confined to cases in which there is
good ground of assurance that the in-
dustry which it fosters will after a
time be able to dispense with it ; nor
should the domestic producers ever be
allowed to expect that it will be con-
tinued to them beyond the time neces-
sary for a fair trial of what they are
capable of accomplishing.

The only writer of any reputation aa
a political economist, who now adheres
to the Protectionist doctrine, M>\ H.
C. Carey, rests its defence, in an
economic point of view, principally on
two reasons. One is, the great saving
in cost of carriage, consequent on pro-
ducing commodities at or very near to
the place where they are to be con-
sumed. The whole of the cost of car-
riage, both on the commodities im-
ported and on those exported in ex-
change for them, he regards as a
direct burthen on the producers, and
not, as is obviously the truth, on the
consumers. On whomsoever it falls,
it is, without doubt, a burthen on tho
industry of the world. But it is ob-
vious (and that Mr. Carey does not
see it, is one of tnc many surprising
things in his book) that the burthen
is only borne for a more than equi-
valent advantage. If the commodity
is bought in a foreign country with

PROTECTIONISM.

557

domestic produce in spite of the double
cost of carriage, the fact proves that,
heavy as that cost may be, the saving
in cost of production outweighs it, and
the collective labour of the country is
on the whole better remunerated than
if the article were produced at home.
Cost of carriage is a natural protecting
duty, which free trade has no power
to abrogate : and unless America
gained more by obtaining her manu-
factures through, the medium of her
corn and cotton, than she loses in cost
of carriage, the capital employed in
producing corn and cotton in annually
increased quantities for the foreign
market, would turn to manufactures
instead. The natural advantage at-
tending a mode of industry in which
there is less cost of carriage to pay,
can at most be only a justification for
a temporary and merely tentative pro-
tection. The expenses of production
being always greatest at first, it may
happen that the home production,
though really the most advantageous,
may not become so until after a certain
duration of pecuniary loss, which it is
not to be expected that private specu-
lators should incur in order that their
successors may be benefited by their
ruin. I have therefore conceded that
in a new country, a temporary pro-
tecting duty may sometimes be econo-
mically defensible ; on condition, how-
ever, that it be strictly limited in
point of time, and provision be made
Jhat during the latter part of its
existence it be on a gradually de-
creasing scale. Such temporary pro-
tection is of the same nature as a
patent, and should be governed by
similar conditions.

The remaining argument of Mr.
Carey in support of the economic
benciits of Protectionism, applies only
to countries whose exports consist
of agricultural produce. He argues,
that by a trade of this description they
actually send away their soil; the dis-
tant consumers not giving back to the
land of the country, as home consumers
would do, the fertilizing elements
which they abstract from it. This
argument deserves attention, on ac-
count of the physical truth on which

it is founded ; a truth which has only
lately coine to be understood, but
which is henceforth destined to be a
permanent element in the thoughts of
statesmen, as it must always have
been in the destinies of nations. To
the question of Protectionism, how-
ever, it is irrelevant. That the im-
mense growth of raw produce in Ame-
rica to be consumed in Europe, is pro-
gressively exhausting the soil of the
Eastern, and even of the older Western
States, and that both are already far
less productive than formerly, is cre-
dible in itself, even if no one bore wit-
ness to it. But what I have already
said respecting cost of carriage, is truo
also of the cost of manuring. Free
trade does not compel America to ex-
port corn ; she would cease to do so, if
it ceased to be to her advantage. As,
then, she would not persist in export-
ing raw produce and importing manu-
factures, any longer than the labour
she saved by doing so, exceeded what
the carriage cost her ; so, when it be-
came necessary for her to replace in
the soil the elements of fertility which
she had sent away, if the saving in
cost of production were more than
equivalent to the cost of carriage and
of manure together, manure would bo
imported, and if not, the export of corn
would cease. It is evident that one of
these two things would already have
taken place, if there had not been near
at hand a constant succession of new
soils, not yet exhausted of their fer-
tility, the cultivation of which enables
her, whether judiciously or not, to
postpone the question of manure. As
soon as it no longer answers better to
break up new soils than to manure
the old, America will either become a
regular importer of manure, or will
without protecting duties grow corn
for herself only, and manufacturing for
herself, will make her manure, as
Mr. Carey desires, at home.*

• To this Mr. Carey would reply (indeed,
he has already so replied in advance), that
of all commodities, manure is the least sus-
ceptible of being conveyed to a distance.
This is true of sewage, and of stable manure,
but not true of the ingredients to which those
manures owe their efficiency. These, on the
contrary, are chiefly substances containing

559

BOOK V. CHAPTER X. § 2.

For these obvious reasons, I hold
Mr. Carey's economic arguments for
Protectionism to be totally invalid. The
economic, however, is far from being
the strongest point of his case. Ame-
rican Protectionists often reason ex-
tremely ill, but it is an injustice to
them to suppose that their Protec-
tionist creed rests upon nothing su-
perior to an economic blunder: many
of them have been led to it much more
by consideration for the higher inte-
rests of humanity, than by purely eco-
nomic reasons. They, and Mr. Carey
at their head, deem it a necessary
condition of human improvement that
towns should abound ; that men should
combine their labour, by means of in-
terchange, with near neighbours — with
people of pursuits, capacities, and
mental cultivation different from their
own, sufficiently close at hand for mu-
tual sharpening of wits and enlarging
of ideas — rather than with people on
the opposite side of the globe. They
believe that a nation all engaged in
the same, or nearly the same, pursuit
— a nation all agricultural — cannot at-
tain a high state of civilization and
culture. And for this there is a great
foundation of reason. If the difficulty
can be overcome, the United States,
with their free institutions, their uni-
versal schooling, and their omnipresent
press, are the people to do it ; but
whether this isjpossible or not, is still
a problem. So far, however, as it is
an object to check the excessive dis-
persion of the population, Mr. Wake-
field has pointed out a better way : to

great fertilizing power in small bulk ; sub-
stances of which the human body requires but
a small quantity, and hence peculiarly suscep-
tible of being imported ; the mineral alkalies
and the phosphates. The question, indeed,
mainly concerns the phosphates ; for of the
alkalies, soda is procurable everywhere,
while potass, being one of the constituents
of granite and the other feldspathic rocks,
exists in many subsoils, by whose progressive
decomposition it is renewed ; a large quan-
tity also being brought down in the deposits
of rivers. As for the phosphates, they, in the
very convenient form of pulverised bones, are
a regular article of commerce, largely im-
ported into England, as they are sure to be
into any country where the conditions of
industry make it worth ^Yhile to pay the
price.

modify the existing method of di*
posing of the unoccupied lands, by
raising their price ; instead of lower-
ing it, or giving away the land gratui-
tously, as is largely done since the
passing of the Homestead Act. To
cut the knot in Mr. Carey's fashion, by
Protectionism, it would be necessary
that Ohio and Michigan should bo
protected against Massachusetts aa
well as against England : for the
manufactories of New England, no
more than those of the old country,
accomplish his desideratum of bring-'
ing a manufacturing population to the
doors of the Western farmer. Boston
and New York do not supply the want
of local towns to the Western Prairies,
any better than Manchester ; and it is
as difficult to get back the manure
from the one place as from the other.

There is only one part of the Pro-
tectionist scheme which requires any
further notice : its policy towards colo-
nies, and foreign dependencies ; that
of compelling them to trade exclusively
with the dominant country. A country
which thus secures to itself an extra
foreign demand for its commodities,
undoubtedly gives itself some advan-
tage in the distribution of the general
gains of the commercial world. Since,
however, it causes the industry and
capital of the colony to be diverted
from channels, which are proved to be
the most productive, inasmuch as they
are those into which industry and ca-
pital spontaneously tend to flow ; there
is a loss, on the whole, to the produc-
tive powers of the world, and the
mother country does not gain so much
as she makes the colony lose. If,
therefore, the mother country refuses
to acknowledge any reciprocity of obli-
gation, she imposes a tribute on the
colony in an indirect mode, greatly
more oppressive and injurious than the
direct. But if, with a more equitable
spirit, she submits herself to corre-
sponding restrictions for the benefit of
the colony, the result of the whole
transaction is the ridiculous one, that
each party loses much, in order that
the other may gain a little.

§ 2. Next to the system of Protec-

USUKY LAWS.

559

tion, among mischievous interferences
•\\ith tlio spontaneous course of indus-
trial transactions, may be noticed cer-
tain interferences with contracts. One
instance is that of the Usury Laws.
These originated in a religious preju-
dice against receiving interest on
money, derived from that fruitful source
of mischief in modern Europe, the at-
tempted adaptation to Christianity of
doctrines and precepts drawn from the
Jewish law. In Mahomedan nations
the receiving of interest is formally in-
terdicted, and rigidly abstained from ;
and Sismondi has noticed, as one
among the causes of the industrial in-
feriority of the Catholic, compared with
the Protestant parts of Europe, that
the Catholic church in the Middle
Ages gave its sanction to the same pre-
judice ; which subsists, impaired but
not destroyed, wherever that religion is
acknowledged. Where law or con-
scientious scruples prevent lending at
interest, the capital which belongs to
persons not in business is lost to pro-
ductive purposes, or can be applied to
them only in peculiar circumstances of
personal connexion, or by a subterfuge.
Industry is thus limited to the capital
of the undertakers, and to what they
can borrow from persons not bound by
the same laws or religion as them-
selves. In Mussulman countries the
bankers and money dealers are either
Hindoos, Armenians, or Jews.

In more improved countries, legisla-
tion no longer discountenances the re-
ceipt of an equivalent for money lent ;
but it has everywhere interfered with
the free agency of the lender and bor-
rower, by fixing a legal limit to the
rate of interest, and making the re-
ceipt of more than the appointed maxi-
mum a penal offence. This restriction,
liiough approved by Adam Smith, has
Ken condemned by all enlightened
fersons since the triumphant onslaught
ihade upon it by Bentham in his
"Letters on Usury," which may still
fce referred to as the best extant writing
on the subject.

Legislators may enact and maintain
Usury Laws from one of two motives :
idoas of public policy, or concern for
the interest of the parties in the con-

tract ; in this case, of one party only,
the borrower. As a matter of policy,
the notion may possibly be, that it is
for the general good that interest
should be low. It is however a mis-
apprehension of the causes which in-
fluence commercial transactions, to sup-
pose that the rate of interest is really
made lower by law, than it would be
made by the spontaneous play of supply
and demand. If the competition of
borrowers, left unrestrained, would
raise the rate of interest to six per
cent, this proves that at five there
would be a greater demand for loans,
than there is capital in the market to
supply. If the law in these circum-
stances permits no interest beyond five
per cent, there will be some lenders,
who not choosing to disobey the law,
and not being in a condition to employ
their capital otherwise, will content
themselves with the legal rate : but
others, finding that in a season of press-
ing demand, more may be made of
their capital by other means than they
are permitted to make by lending it,
will not lend it at all ; and the loan-
able capital, already too small for the
demand, will be still further dimi-
nished. Of the disappointed candi-
dates there will be many at such
periods, who must have their neces-
sities supplied at any price, and these
will readily find a third section ot
lenders, who will not be averse to join
in a violation of the law, either by cir-
cuitous transactions partaking of the
nature of fraud, or by relying on the
honour of the borrower. The extra
expense of the roundabout mode of pro-
ceeding, and an equivalent for the risk
of non-payment and of legal penalties,
must be paid by the borrower, over
and above the extra interest which
would have been required of him by
the general state of the market. The
laws which were intended to lower the
price paid by him for pecuniary accom-
modation, end thus in greatly increasing
it. These- laws have also a directly
demoralizing tendency. Knowing the
difficulty of detecting an illegal pecu-
niary transaction between two persons,
in which no third person is involved, s«
long as it is the interest of both to keep

560

the secret, legislators have adopted
the expedient of tempting the borrower
to become the informer, by making the
annulment of the debt a part of the
penalty for the offence ; thus rewarding
men for obtaining the property of
others by false promises, and then not
only refusing payment, but invoking
legal penalties on those who have
helped them in their need. The moral
sense of mankind very rightly in-
famizes those who resist an otherwise
just claim on the ground of usury, and
tolerates such a plea only when re-
sorted to as the best legal defence
available against an attempt really
considered as partaking of fraud or
extortion. But this very severity of
public opinion renders the enforce-
ment of the laws so difficult, and the
infliction of the penalties so rare, that
when it does occur it merely victimizes
an individual, and has no effect on
general practice.

In so far as the motive of the re-
striction may be supposed to be, not
public policy, but regard for the in-
terest of the borrower, it would be diffi-
cult to point out any case in which
such tenderness on the legislator's part
is more misplaced. A person of sane
mind, and of the age at which persons
are legally competent to conduct their
own concerns, must be presumed to be
a sufficient guardian of his pecuniary
interests. If he may sell an estate, or
grant a release, or assign away all his
property, without control from the law,
it seems very unnecessary that the
only bargain which he cannot make
without its intermeddling, should be a
loan of money. The law seems to
presume that the money-lender, dealing
with necessitous persons, can take ad-
vantage of their necessities, and exact
conditions limited only by his own plea-
sure. It might be so if there were
only one money-lender within reach.
Bat when there is the whole monied
capital of a wealthy community to re-
sort to, no borrower is placed under
any disadvantage in the market merely
kj tfca urgency of his need. If he can-
not borrow at the interest paid by
other people, it must be because he
cannot give such good security : and

BOOK V. CHAPTER X. § 2.

competition will limit the extra de.
niand to a fair equivalent for the risk
of his proving insolvent. Though tho
law intends favour to the barrower, it
is to him above all that injustice is,
in this case, clone by it. What can bo
more unjust than that a person who
cannot give perfectly good security,
should be prevented from borrowing of
persons who are willing to lend money
to him, by their not being permitted to
receive the rate of interest which
would be a just equivalent for their
risk ? Through the mistaken kindness
of the law, he must either go without
the money which is perhaps necessary
to save him from much greater losses,
or be driven to expedients of a far
more ruinous description, which the
law either has not found it possible, or
has not happened, to interdict.

Adam Smith rather hastily ex-
pressed the opinion, that only two
kinds of persons, " prodigals and pro-
jectors,'' could require to borrow money
at more than the market rate of in-
terest. He should have included all
persons who are in any pecuniary diffi-
culties, however temporary their ne-
cessities may be. It may happen to
any person in business, to be disap-
pointed of the resources on which he
had calculated for meeting some en-
gagement, the non-fulfilment of which
on a fixed day would be bankruptcy.
In periods of commercial difficulty, this
is the condition of many prosperous
mercantile firms, who become compe-
titors for the small amount of dispos-
able capital which, in a time of general
distrust, the owners are willing to part
with. Under the English usury laws,
now happily abolished, the limitations
imposed by those laws were felt as a
most serious aggravation of every com-
mercial crisis. Merchants who could
have obtained the aid they required at
an interest of seven or eight per cent
for short periods, were obliged to give
20 or 30 per cent, or to resort to forced
sales of goods at a still greater loss.
Experience having obtruded these evils
on the notice of Parliament, the sort
of compromise took place, of which
English legislation affords so many in-
stances, and which helps to make oar

REGULATION OF THE PRICE OF FOOD.

561

laws and policy the mass of incon-
sistency that they are. The law was
reformed as a person reforms a tight
shoe, who cuts a hole in it where it
pinches hardest, and continues to wear
it. Retaining the erroneous principle
as a general rule, Parliament allowed
nn exception in the case in which the

Jractical mischief was most flagrant,
t left the usury laws unrepealed, hut
exempted hills of exchange, of not
more than three months' date, from
their operation. Some years afterwards
the laws were repealed in regard to all
other contracts, but left in force as to
all those which relate to land. Not a
particle of reason could be given for
making this extraordinary distinction ;
but the " agricultural mind" was of
opinion that the interest on mort-
gages, though it hardly ever came up
to the permitted point, would come up
to a still higher point ; and the usury
laws were maintained that the land-
lords might, as they thought, be en-
abled to borrow below the market rate,
as the corn-laws were kept up that the
same class might be able to sell corn
above the market rate. The modesty
of the pretension was quite worthy of
the intelligence which could think that
the end aimed at was in any way for-
warded by the means used.

With regard to the " prodigals and
prqjectori" spoken of by Adam Smith;
no law can prevent a prodigal from
ruining himself, unless it lays him or
his property under actual restraint,
according to the unjustifiable practice
of the Roman Law and some of the
Continental systems founded on it.
The cnly effect of usury laws upon a
prodigal, is to make his ruin rather
more expeditions, by driving him to a
disreputable class of money-dealers,
and rendering the conditions more
onerous by the extra risk created by
the law. As for projectors, a term, in
its unfavourable sense, rather unfairly
applied to every person who has a
project ; such laws may put a veto
upon the prosecution of the most pro-
mising enterprise, when planned, as it
generally is, by a person who does not
possess capital adequate to its success-
ful completion. Many of the greatest
M,

improvements were at first lookc
shyly on by capitalists, and had to wai
long before they found one sufficient!.?
adventurous to be the first in a ne\i
path : many years elapsed before Stc-
phenson could convince even the en-
terprising mercantile public of Liver
pool and Manchester, of the advantagf
of substituting railways for turnpike,
roads ; and plans on which great labour
and large sums have been expended
with little visible result, (the epoch in
their progress when predictions of
failure are most rife,) may be indefi-
nitely suspended, or altogether dropped,
and the outlay all lost, if, when tb.8
original funds are exhausted, the law
will not allow more to be raised on the
terms on which people are willing to
expose it to the chances of an enter-
prise not yet secure of success.

§ 3. Loans are not the only kind of
contract, of which governments have
thought themselves qualified to regu-
late the conditions Ibetter than the
persons interested. There is scarcely
any commodity which they have not,
at some place or time, endeavoured to
make either dearer or cheaper than it
would be if left to itself. The most
plausible case for artificially cheapen-
ing a commodity, is that of food The
desirableness of the object is in this
case undeniable. But since the ave-
rage price of food, like that of other
things, conforms to the cost of produc-
tion with the addition of the usual
profit ; if this price is not expected by
the farmer, he will, unless compelled
by law, produce no more than ho re-
quires for his own consumption : and
the law therefore, if absolutely deter-
mined to have food cheaper, must sub-
stitute, for the ordinary motives to
cultivation, a system of penalties. If
it shrinks from doing this, it has no
resource but that of taxing the whole
nation, to give a bounty or premium to
the grower or importer of corn, thus
giving everybody cheap bread at the
expense of all : in reality a largess to
those who do not pay taxes, at the ex-
pense of those who do ; one of the forms
of a practice essentially bad, that of
converting the working classes into
00

562

BOOK V. CHAPTER X. § 4

unworking classes by making them a
present of subsistence.

It is not however so much the gene-
ral or average price of food, as its
occasional high price in times of emer-
gency, -which governments have studied
to reduce. In some cases, as for ex-
ample the famous " maximum" of the
revolutionary government of 1793, the
compulsory regulation was an attempt
by the ruling powers to counteract the
necessary consequences of their own
acts; to scatter an indefinite abun-
dance of the circulating medium with
one hand, and keep clown prices with
the other; a thing manifestly impos-
sible under any regime except one of
unmitigated terror. In case of actual
scarcity, governments are often urged,
as they were in the Irish emergency of
1847, to take measures of some sort
i'or moderating the price of food. But
the price of a thing cannot be raised
by deficiency of supply, beyond what
is sufficient to make a corresponding
reduction of the consumption ; and if a
government prevents this reduction
from being brought about by a rise of
price, there remains no mode of effect-
ing it unless by taking possession of
all the food, and serving it out in
rations, as in a besieged town. In a
real scarcity, nothing can afford gene-
ral relief, except a determination by
the richer classes to diminish their own
consumption. If they buy and consume
their usual quantity of food, and con-
tent themselves with giving money,
they do no good. The price is forced
up until the poorest competitors have
no longer the means of competing, and
the privation of food is thrown exclu-
sively upon the indigent, the other
classes being only affected pecuniarily.
When the supply is insufficient, some-
body must consume less, and if every
rich person is determined not to be that
Kmebody, all they do b^ Subsidizing
their poorer competitors is to force up
*he price so much the higher, with no
iffect but to enrich the corn-dealers,
Ihe very reverse of what is desired by
those who recommend such measures.
All that governments can do in these
emergencies, is to counsel a general
moderation in consumption, and to in-

terdict such kinds of it as arc not of
primary importance. Direct measures
at the cost of the state, to procure food
from a distance, are expedient when
from peculiar reasons the thing is not
likely to be done by private speculation.
In any other case they are a great
error. Private speculators will not, in
such cases, venture to compete with
the government ; and though a govern-
ment can do more than any one mer-
chant, it cannot do nearly so much as
all merchants.

§ 4. Governments, however, art
oftener chargeable with having at-
tempted, too successfully, to make
things dear, than with having aimed
by wrong means at making their
cheap. The usual instrument for pro-
ducing artificial dearness is monopoly.
To confer a monopoly upon a producer
or dealer, or upon a set of producers or
dealers not too numerous to combine,
is to give them the power of levying
any amount of taxation on the public,
for their individual benefit, which will
not make the public forego the use of
the commodity. When the sharers in
the monopoly are so numerous and so
widely scattered that they are pre-
vented from combining, the evil is
considerably less : but even then the
competition is not so active among a
limited, as among an unlimited num-
ber. Those who feel assured of a fair
average proportion in the general
business, are seldom eager to get a
larger share, by foregoing a portion of
their profits. A limitation of competi-
tion, however partial, may have mis-
chievous effects quite disproportionecj
to the apparent cause. The mere ex-
clusion of foreigners, from a branch of
industry open to the free competition
of every native, has been known, even
in England, to render that branch a
conspicuous exception to the general
industrial energy of the country. The
silk manufacture of England remained
far behind that of other countries of
Europe, so long as the foreign fabrics
were prohibited. In addition to th«
tax levied for the profit, real or imagi-
nary, of the monopolists, the consumer
thus pays an additional tax for their

MONOPOLIES.— COMBINATION LAWS.

563

laziness and incapacity. When re-
lieved from the immediate stimulus of
it ion, producers and dealers
gn>\v indifferent to the dictates of their
ultimate pecuniary interest ; }>;
to the most hopeful prospects, the pre-
sent case of adhering to routine. A
person who is already thriving, seldom
puts himself out of his way to com-
mence even a lucrative improvement,
unless urged by the additional motive
of fear lest some rival should supplant
him by getting possession of it before
him.

The condemnation of monopolies
ought not to extend to patent*, by
\vliich the originator of an improved
process is allowed to enjoy, fora limited
period, the exclusive privilege of using
his own improvement. This is not
making the commodity dear for his
benefit, but merely postponing a part
of the increased cheapness which the
public owe to the inventor, in order to
compensate and reward him for the
service. That he ought to be both
compensated and rewarded for it, will
not be denied, and also that if all were
at once allowed to avail themselves of
his ingenuity, without having shared
the labours or the expenses which he
had to incur in bringing his idea into
a practical shape, either such expenses
and labours would be undergone by
nobody, except very opulent and very
public-spirited persons, or the state
must put a value on the service ren-
dered by an inventor, and make him a
pecuniary grant. This has been done
in some instances, and may be done
•without inconvenience in cases of very
conspicuous public benefit ; but in
general an exclusi ;a privilege, of tem-
porary duration, is preferable ; because
it leaves nothing to any one's dis-
cretion ; because the reward conferred
by it depends upon the invention's
being found useful, and the greater the
usefulness the greater the reward ; and
because it is paid by the very persons
to whom the service is rendered, the
consumers of the commodity, ^o de-
cisive, indeed, arc those considerations,
that if the system of patents were
abandoned for that of rewards by the
itate, the best shape which these could

assume wou\l be that of a small tem-
porary tax, imposed for the inventor's
benefit, on all persons making use of
the invention. To this, however, or to
any other system which would vest in
the state the power of deciding whether
an inventor should derive any pecu-
niary advantage from the public benefit
which he confers, the objections arc
evidently stronger and more funda-
mental than the strongest which can
possibly be urged against patents. It
is generally admitted that the present
Patent Laws need much improvement ;
but in this case, as well as in tho
closely analogous one of Copyright, it
would be a gross immorality in the law
to set everybody free to use a person's
work without hia consent and without
giving him an equivalent. I have
seen with real alarm several recent
attempts, in quarters carrying some
authority, to impugn the principle of
patents altogether ; attempts which, if
practically successful, would enthrone
free stealing under the prostituted
name of free trade, and make the men
of brains, still more than at present,
the needy retainers and dependents of
the men of money-bags.

§ 5. I pass to another kind of go-
vernment interference, in which the
end and the means are alike odious,
but which existed in England until
not so much as a generation ago, and
in France up to the year 1864. I
mean the laws against combinations
of workmen to raise wages ; laws en-
acted and maintained for the declared
purpose of keeping wages low, as tho
famous Statute of Labourers was passed
by a legislature of employers, to pre«
vent the labouring class, when ila'
numbers had been thinned by a pesti-
lence, from taking advantage of tho
diminished competition to obtain higher
wages. Such laws exhibit the infernal
spirit of the slave master, when to re-
tain the working classes in avowed
slavery has ceased to be practicable.

If it were possible for the working
classes, by combining among them-
selves, to raise or keep up tho general
rate of wages, it needs hardly be said
that this would be a thing not to be
0 0 2

564

punished, but to be welcomed and re-
joiced at. Unfortunately the effect is
quite beyond attainment by such
means. The multitudes who compose
the working class are too numerous
and too widely scattered to combine at
all, much more to combine effectually.
If they could do so, they might doubt-
less succeed in diminishing the hours
of labour, and obtaining the same
wages for less work. But if they
aimed at obtaining actually higher
wages than the rate fixed by demand
and supply — the rate which distributes
the whole circulating capital of the
country ajnong the entire working po-
pulation— this could only be accom-
plished by keeping a part of their
number permanently out of employ-
ment. As support from public charity
would of course be refused to those
who could get work and would not
accept it, they would be thrown for
support upon the trades union of which
they were members ; and the work-
people collectively would be no better
off than before, having to support the
same numbers out of the same aggre-
gate wages. In this way, however,
the class would have its attention for-
cibly drawn to the fact of a superfluity
of numbers, and to the necessity, if
they would have high wages, of pro-
portioning the supply of labour to the
demand.

Combinations to keep up wages
are sometimes successful, in trades
where the workpeople are lew in num-
ber, and collected in a small number of
local centres. It is questionable if com-
binations ever had the smallest effect
on the permanent remuneration of spin-
ners or weavers ; but the journeymen
type-founders, by a close combination,
are able, it is said, to keep up a rate of
wages much beyond that which is usual
in employments of equal hardness and
skill ; and even the tailors, a much more
numerous class, are understood to have
had, to some extent, a similar success.
A rise of wages, thus confined to par-
ticular employments, is not (like a rise
of general wages) defrayed from profits,
but raises the value and price of the
particular article, and falls on the con-
sumer; the capitalist who produces the

BOOK V. CHAPTER X. § 5,

commodity being only injured in so far
as the high price tends to narrow tha
market; and not even then, unless it
does so in a greater ratio than that of
the rise of price : for though, at higher
wages, he employs, with a given capital,
fewer workpeople, and obtains less of
the commodity, yet, if he can sell the
whole of this diminished quantity at
the higher price, his profits are as great
as before.

This partial rise of wages, if not
gained at the expense of the remainder
of the working class, ought not to be
regarded as an evil. The consumer,
indeed, must pay for it ; but cheapness
of goods is desirable only when the
cause of it is that their production
costs little labour, and not when occa-
sioned by that labour's being ill remu-
nerated. It may appear, indeed, at
first sight, that the high wages of the
type-founders (for example) are ob-
tained at the general cost of the labour-
ing class. This high remuneration
either causes fewer persons to find em-
ployment in the trade, or, if not, must
lead to the investment of more capital
in it, at the expense of other trades :
in the first case, it throws an additional
number of labourers on the general
market ; in the second, it withdraws
from that market a portion of the de-
mand: effects, both of which are inju-
rious to the working classes. Such,
indeed, would really be the result of a
successful combination in a particular
trade or trades, for some time after its
formation ; but when it is a permanent
thing, the principles so often insisted
upon in this treatise, show that it can
have no such effect. The habitual
earnings of the working classes at largo
can be affected by nothing but the
habitual requirements of the labouring
people : these indeed may be altered,
but while they remain the same, wages
never fall permanently below the stan-
dard of these requirements, and do not
long remain above that standard. If
there had been no combinations in par-
ticular trades, and the wages of those
trades had never been kept above tha
common level, there is no reason to
suppose that the common level would
have been at all higher than it now is.

COMBINATION LAWS.

565

There \vonld merely have been a greater
number of people altogether, and «
smaller number of exceptions to the
ordinary low rate of wages.

If, therefore, no improvement were
to be hoped for in the general circum-
stances of the working classes, the suc-
cess of a portion of them, however .small,
in keeping their wages by combination
above the market rate, would be wholly
a matter of satisfaction. But when
the elevation of the character and con-
dition of the entire body has at last
become a thing not beyond the reach
of rational effort, it is time that the
better paid classes of skilled artisans
should seek their own advantage in
common with, and not by the exclusion
of, their fellow labourers. "While they
continue to fix their hopes on hedging
themselves in against competition, and
protecting their own wages by shutting
out others from access to their employ-
ment, nothing better can be expected
from them than that total absence of
any large and generous aims, that al-
most open disregard of all other objects
than high wages and little work for
their own small body, which were so
deplorably evident in the proceedings
and manifestoes of the Amalgamated
Society of Engineers during their quar-
rel with their employers. Success, even
if attainable, in raising up a protected
class of working people, would now be
a hindrance, instead of a help, to the
emancipation of the working classes at
large.

IJut though combinations to keep up
wages are seldom effectual, and when
effectual, are, for the reasons which I
have assigned, seldom desirable, the
right of making the attempt is one
which cannot be refused to any portion
of the working population without great
injustice, or without the probability of
fatally misleading them respecting the
circumstances which determine their
condition. So long as combinations to
raise wages were prohibited by law,
the law appeared to the operatives to
be the real cause of the low wages
which there was no denying that it
had done its best to produce. Experi-
ence of strikes has been the best teacher
of the labouring classes on the subject

of the relation between wages and the
demand and supply of labour : and it
is most important that this course of
instruction should not be disturbed.

It is a great error to condemn, j>er
te and absolutely, either trades unions
or the collective action of strikes. 1
grant that a strike is wrong whenever
it is foolish, and it is foolish whenever
it attempts to raise wages above that
market rate which is rendered possible
by the demand and supply. Jiut de-
mand and supply are not physical
agencies, which thrust a given amount
of wages into a labourer's hand without
the participation of his own will and
actions. The market rate is not fixed
for him by some self-acting instrument,
but ia the result of bargaining between
human beings — of what Adam Smith
calls "the higgling of the market;"
and those who do not " higgle" will
long continue to pay, even over a coun-
ter, more than the market price for
their purchases. Still more might poor
labourers who have to do with rich
employers, remain long without the
amount of wages which the demand
for their labour would justify, unless,
in vernacular phrase, they stood out for
it : and how can they stand out for
terms without organized concert? What
chance would any labourer have, who
struck singly for an advance of wages ?
How could he even know whether the
state of the market admitted of a rise,
except by consultation with his fellows,
naturally leading to concerted action?
I do not hesitate to say that associa-
tions of labourers, of a nature similar
to trades unions, far from being a hin-
drance to a free market for labour, are
the necessary instrumentality of that
free market ; the indispensable means
of enabling the sellers of labour to
take due care of their own interests
under a system of competition. There
is an ulterior consideration of much
importance, to which attention was lor
the first time drawn by Professor Faw-
cett, in an article in the Westminster
Iteview. Experience has at length
enabled the more intelligent trades to
take a tolerably correct measure of tho
circumstances ou which the success of
a strike for an advance of wages de-

506

pcnds. The workmen arc now nearly
as well informed as the master, of the
state of the market for his commodi-
ties ; they can calculate his gains and
his expenses, they know when his trade
is or is not prosperous, and only when
it is, are they ever again likely to strike
for higher wages ; which wages thoir
known readiness to strike makes their
employers for the most part willing, in
that case, to concede. The tendency,
therefore, of this state of things is to
make a rise of wages, in any particular
trade, usually consequent upon a rise
of profits, which, as Mr. Fawcett ob-
serves, is a commencement of that
regular participation of the labourers
in the profilJ derived from their labour,
every tendency to which, for the rea-
sons stated in a previous chapter,* it
is so important to encourage, since to
it we have chiefly to look for any radi-
cal improvement in the social and eco-
nomical relations between labour and
capital. Strikes, therefore, and the
trade societies which render strikes
possible, are for these various reasons
not a mischievous, but on the contrary,
a valuable part of the existing ma-
chinery of society.

It is, however, an indispensable con-
dition of tolerating combinations, that
they should be voluntary. No severity,
Necessary to the purpose, is too great
3> be employed against attempts to
compel workmen to join a union, or
take part in a strike, by threats or
violence. Mere moral compulsion, by
the expression of opinion, the law
ought not to interfere with ; it belongs
to more enlightened opinion to restrain
it, by rectifying the moral sentiments
of the people. Other questions arise
when the combination, being voluntary,
proposes to itself objects really con-
trary to the public good. High wages
and short hours are generally good ob-
jects, or, at all events, may be so : but
in many trades unions, it is among the
rules that there shall be no task work,
or no difference of pay between the
most expert workmen and the most un-
Bkilful, or that no member of the union
•hall earn more than a certain sum per
week, in order that there may be more
* Supra, book v. chap. vii.

BOOK V. CHAPTER X. § 6.

employment ibr the rest ; and the abo-
lition of piece work, under more or less
of modification, held a conspicuous
place among the demands of the Amal-
gamated Society. These are combina-
tions to effect ohjects which are perni-
cious. Their success, even when only
partial, is a public mischief; and were
it complete, would be equal in magni-
tude to almost any of the evils aris-
ing from bad economical legislation.
Hardly anything worse can be said o/
the worst laws on the subject of in-
dustry and its remuneration, consistent
with the personal freedom of the la-
bourer, than that they place the ener-
getic and the idle, the skilful and the
incompetent, on a level : and tin's, in
so far as it is in itself possible, it is
the direct tendency of the regulations
of these unions to do. It docs not,
however, follow as a consequence that
the law would be warranted in making
the formation of such associatii ns il-
legal and punishable. Independently
of all considerations of constitutional
liberty, the best interests of the hu-
man race imperatively require that
all economical experiments, voluntarily
undertaken, should have the fullest
license, and that force and fraud should
be the only means of attempting to
benefit themselves, which are inter-
dicted to the less fortunate classes of
the community .f

§ 6. Among the modes of undue
exercise of the power of government,
on which I have commented in this

t Whoever desires to understand the ques-
tion of Trade Combinations as seen from tha
point of view of the working people, should
make himself acquainted with a pamphlet
published in I860, under the title "Trades
Unions and Strikes, their Philosophy and
Intention, by T. J. Dunning, Secretary to
the London Consolidated Society of Book-
binders." There are many opinions in this
able tract in which I only partially, and some-
in which I do not at all, coincide. But there
are also many sound arguments, and an in-
structive exposure of the common fallacies
of opponents. Headers of other classes will
see with surprise, not only how great a por-
tion of truth the Unions have on their side,
but how much less flagrant and condemnable
even their errors appear, when seen under
the aspect in which it is only natural thai
the working classes should themselves regard
them.

LIMITS OF THE PROVINCE OF GOVERNMENT.

567

chapter, I liavo included only such, as
theories which have .still more
I of footing in the most en-
; d countries. I have not spoken
of SOUK; which have done still greater
mischief in times not long past, but
which are now generally given up, at
least in theory, though enough of them
still remains in practice to make it im-
possible as yet to class them among
exploded errors.

The notion, for example, that a go-
vernment should choose opinions for
the people, and should not suffer any
doctrines in politics, morals, law, or
religion, but such as it approves, to be
printed or publicly pivi'-s~i'd, may be
said to be altogether abandoned as a
general thesis. It is now well under-
stood that a regime of this sort is fatal
to all prosperity, even of an econo-
mical kind : that the human mind,
•when prevented either by fear of the
lav.- or by fear of opinion from exer-
cising its faculties freely on the most
important subjects, acquires a general
torpidity and imbecility, by which,
when they reach a certain point, it is
disqualified from making any consi-
derable advances even in the common
affairs of life, and which, when greater
still, make it gradually lose even its
previous attainments. There cannot
be a more decisive example than Spain
rtugal, for two centuries after
the Reformation. The decline of those
countries in national greatness, and
cvca in matt-rial civilization, while al-
most all the other nations of Europe

were uninterruptedly advancing, has
been ascribed to varioo causes, but
there is one which lies at the founda-
tion of them all : the Holy Inquisi-
tion, and the system of mental slavery
of which it is the symbol.

Yet although these truths are very
widely recognised, and freedom both of
opinion and of discussion is admitted
as an axiom in all free countries, this
apparent liberality and tolerance has
acquired so little of the authority of a
principle, that it is always ready to
give way to the dread or horror in-
spired by some particular sort of
opinions. Within the last ten or
fifteen years several individuals have
suffered imprisonment, for the public
profession, sometimes in a very tern,
perate manner, of disbelief in religion ;
and it is probable that both the public
and the government, at the first panic
which arises on the subject of Chartism
or Communism, will fly to similar
means for checking^ the propagation of
democratic or anti-property doctrines.
In this country, however, the effective
restraints on mental freedom proceed
much less from the law or the govern-
ment, than from the intolerant temper
of the national mind ; arising no longer
from even as respectable a source as
bigotry or fanaticism, but rather from
the general habit, both in opinion and
conduct, of making adherence to cus-
tom the rule of life, and enforcing it,
by social penalties, against aii persons
who, without a party to back them,
assert their individual independence.

CHAPTER XI.

OF THE GROUNDS AND LIMITS OF THE LATSSER-PA1RE O»
UOX-IXTERFEKEXCE PRINCIPLE.

§ 1. WE have now reached the last
part of our undertaking ; the discus-
sion, so far as suited to this treatise
(that is, so far as it is a question of
principle, not detail) of the limits of
the province of government ; the ques-

tion, to what objects governmental
intervention in the affairs of society
may or should extend, over and abovf.
those which necessarily appertain tr
it. No subject has been more keenly
contested in the present age : the coiv

568

BOOK V. CHAPTER XI. § 2.

test, however, has chiefly taken place
round certain select points, with only
flying excursions into the rest of the
field. Those indeed who have dis-
cussed any particular question of go-
vernment interference, such as state
education (spiritual or secular), regu-
lation of hours of labour, a public pro-
vision for the poor, &c., have often
lealt largely in general arguments, far
outstretching the special application
made of them, and have shown a suffi-
ciently strong bias either in favour of
letting things alone, or in favour of
meddling ; but have seldom declared,
or apparently decided in their own
minds, how far they would carry either
principle. The supporters of inter-
ference have been content with assert-
ing a general right and duty on the
part of government to intervene, wher-
ever its intervention would be useful :
and when those who have been called
the laisser-faire school have attempted
any definite limitation of the province
of government, they have usually re-
stricted it to the protection of person
and property against force and fraud ;
a definition to which neither they nor
any one else can deliberately adhere,
since it excludes, as has been shown
in a preceding chapter,* some of the
most indispensable, and unanimously
recognised, of the duties of govern-
ment.

Without professing entirely to sup-
ply this deficiency of a general theory,
on a question which does not, as I
conceive, admit of any universal solu-
tion, I shall attempt to afford some
little aid towards the resolution of this
class of questions as they arise, by
examining, in the most general point
of view in which the subject can be
considered, what are the advantages,
and what the evils or inconveniences,
of government interference.

We must set out by distinguishing
between two kinds of intervention by
the government, which, though they
may relate to the same subject, differ
widely in their nature and effects, and
require, for their justification, motives
of a very different degree of urgency.
The intervention may extend to con-
• Supra, book v. ch. i.

trolling the free agency of individuals
Government may interdict all persona
from doing certain things ; or from
doing them without its authorization ;
or may prescribe to them certain things
to be done, or a certain manner of
doing things which it is left optional
with them to do or to abstain from.
This is the authoritative interference
of government. There is another kind
of intervention which is not authori-
tative : when a government, instead
of issuing a command and enforcing it
by penalties, adopts the course so
seldom resorted to by governments,
and of which such important use might
be made, that of giving advice, and
promulgating information ; or when,
leaving individuals free to use their
own means of pursuing any object of
general interest, the government, not
meddling with them, but not trusting
the object solely to their care, esta-
blishes, side by side with their ar-
rangements, an agency of its own for
a like purpose. Thus, it is one thing
to maintain a Church Establishment,
and another to refuse toleration to
other religions, or to persons professing-
no religion. It is one thing to provide
schools or colleges, and another to re-
quire that no person shall act as an
instructor of youth without a govern-
ment license. There might be a na-
tional bank, or a government manu-
factory, without any monopoly against
private banks and manufactories.
There might be a post office, without
penalties against the conveyance of let-
ters by other means. There may be a
corps of government engineers for
civil purposes, while the profession of
a civil engineer is free to be adopted
by every one. There may be public
hospitals, without any restriction upon
private medical or surgical practice.

§ 2. It is evident, even at first
sight, that the authoritative form of
government intervention has a much
more limited sphere of legitimate ac-
tion than the other. It requires a
much stronger necessity to justify it
in any case ; while there are large
departments of human life from which
it must be unreservedly and iroperi-

LIMITS OF THE PROVINCE OF GOVERNMENT.

569

onsly excluded. Whatever theory wo
adopt respecting the foundation of the
social union, and under whatever po-
litical institutions we live, there is a
circle around every individual human
being, which no government, be it that
of one, of a few, or of the many, ought
to be permitted t» overstep : there is a
part of the life of every person who
has come to years of discretion, within
which the individuality of that person
ought to reign uncontrolled either by
any other individual or by the public
collectively. That there is, or ought
to be, some space in human existence
thus entrenched around, and sacred
from authoritative intrusion, no one who
professes the smallest regard to human
freedom or dignity will call in question :
the point to be determined is, where
the limit should be placed ; how large
a province of human life this reserved
territory should include. I apprehend
that it ought to include all that part
which concerns only the life, whether
inward or outward, of the individual,
and does not affect the interests of
others, or affects them only through
the moral influence of example. With
respect to the domain of the inward
consciousness, the thoughts and feel-
ings, and as much of external conduct
as is personal only, involving no con-
sequences, none at least of a painful or
injurious kind, to other people ; I hold
that it is allowable in all, and in the
more thoughtful and cultivated often a
duty, to assert and promulgate, with
all the force they are capable of, their
opinion of what is good or bad, admi-
rable or contemptible, but not to com-
pel others to conform to that opinion ;
whether the force used is that of extra-
legal coercion, or exerts itself by means
of the law.

Even in those portions of conduct
•which do affect the interest of others,
the onus of making out a case always
lies on the defenders of legal prohi-
bitions. It is not a merely constructive
or presumptive injury to others, which
•will justify the interference of law with
individual freedom. To be prevented
from doing what one is inclined to, or
from acting according to one's own
judgment of what is desirable, is not

only always irksome, but always tends,
pro tanto, to starve the development
of some portion of the bodily or mental
faculties, either sensitive or active ;
and unless the conscience of the indi-
vidual goes freely with the legal re-
straint, it partakes, either in a great
or in a small degree, of the degrada-
tion of slavery. Scarcely any degree
of utility, short of absolute necessity,
will justify a prohibitory regulation,
unless it can also be made to recom-
mend itself to the general conscience ;
unless persons of ordinary good inten-
tions either believe already, or can be
induced to believe, that the thing pro-
hibited is a thing which they ought
not to wish to do.

It is otherwise with governmental
interferences which do not restrain in-
dividual free agency. When a govern-
ment provides means for fulfilling a
certain end, leaving individuals free to
avail themselves of different means if
in their opinion preferable, there is no
infringement of liberty, no irksome or
degrading restraint. One of the prin-
cipal objections to government inter-
ference is then absent. There is, how-
ever, in almost all forms of government
agency, one thing which is compulsory;
the provision of the pecuniary means.
These are derived from taxation ; or,
if existing in the form of an endow-
ment derived from public property,
they are still the cause of as much
compulsory taxation as the sale or the
annual proceeds of the property would
enable to be dispensed with.* And
the objection necessarily attaching to
compulsory contributions, is almost al-
ways greatly aggravated by the ex-
pensive precautions and onerous re-
strictions, which are indispensable to
prevent evasion of a compulsory tax.

• The only cases in which government
agency involves nothing of a compulsory
nature, are the rare cases in which, without
any artificial monopoly, it pays its own ex-
penses. A bridge unfit with public money,
on which tolls are collected, sulHVient to pay
not only all current expenses, but tin; inte-
rest of the original outlay, is one case in
point. The government railways in Belgium
and Germany are another example. The
Post Office, if its monopoly were abolished,
ami it still paid its expenses, would be
another.

BOOK V. CHAPTER XI. §§ 3,4.

§ 3. A second general objcctun to
government agency, is that every in-
crease of the functions devolving on
the government is an increase of its
power, both in the form of authority,
and still more, in the indirect form of
influence. The importance of this con-
sideration, in respect to political free-
dom, has in general been quite suffi-
ciently recognised, at least in Eng-
land ; but many, in latter times, have
been prone to think that limitation of
the powers of the government is only
essential when the government itself
is badly constituted ; when it does not
represent the people, but is the organ
of a class, or coalition of classes : and
that a government of sufficiently popu-
lar constitution might be trusted with
any amount of power over the nation,
since its power would be only that of
the nation over itself. This might be
true, if the nation, in such cases, did
not practically mean a mere majority
of the nation, and if minorities were
only capable of oppressing, but not of
being oppressed. Experience, however,
proves that the depositaries of power
who are mere delegates of the people,
that is of a majority, are quite as
ready (when they think they can count
on popular support) as any organs of
oligarchy, to assume arbitrary power,
and encroach unduly on the liberty of
private life. The public collectively is
abundantly ready to impose, not only
its generally narrow views of its inte-
rests, but its abstract opinions, and
even its tastes, as laws binding upon
individuals. And the present civiliza-
tion tends so strongly to make the
power of persons acting in masses the
only substantial power ia society, that
there never was more necessity for
surrounding individual independence
of thought, speech, and conduct, with
the most powerful defences, in order to
maintain that originality of mind and
individuality of character, which are
the only source of any real progress,
and of most of the qualities which
make the human race much superior
V> any herd of animals. Hence it is
(o less important in a democratic than
in any other government, that all ten-
dency on the part of public authorities

to stretch their interference, and as-
sume a power of any sort which can
easily be dispensed with, should be re-
garded with unremitting jealousy.
Perhaps this is even more important
in a democracy than in any other form
of political society ; because, where
public opinion is sovereign, an iiv'i-
vidual who is oppressed by the f-ovc-
reign does not, as in most other states
of things, find a rival power to which
he can appeal for relief, or, at all events,
for sympathy.

§ 4. A third general object ion to
government agency, rests on the prin-
ciple of the division of labour. Every
additional function undertaken 1 y the
government, is a fresh occupation im-
posed upon a body already overcharged
with duties. A natural consequence
is that most things are ill done ; much
not done at all, because the govern-
ment is not able to do it without
delays which are fatal to its purpose ;
that the more troublesome, and less
showy, of the functions undertaken,
are postponed or neglected, and an ex-
cuse is always ready for the neglect ;
while the heads of the administration
have their minds so fully taken up with
official details, in however perfunctory
a manner superintended, that they
have no time or thought to spare for
the great interests of the state, and the
preparation of enlarged measures of
social improvement.

But these inconveniences, though
real and serious, result much more
from the bad organization of govern-
ments, than from the extent and va-
riety of the duties undertaken by them.
Government is not a name for some
one functionary, or definite number of
functionaries : there may be almost
any amount of division of labour within
the administrative body itself. The
evil in question is felt in great magni-
tude under some of the governments of
the Continent, where six or eight men,
living at the capital and known by the
name of ministers, demand that the
whole public business of the country
shall pass, or be supposed to pass,
under their individual eye. But the
inconvenience would be reduced to a

LIMITS OF THE PROVINCE OF GOVERNMENT.

571

very mar.a;_val]e compass, in a- country
in which there was a. proper distri-
bution of functions between the central
and local officers of government, and
i:i which the central body was divided
:ifl5cicnt number of departments.
V/IK-II Parliament thought it expedient
to confer on the government an in-
specting and partially controlling au-
thority over railways, it did not add
railways to the department of the
Vomc Minister, but created a Railway
Board. When it determined to have a
central superintending authority for
;;ion, it established
the 1'oor Law Commission. There are
few countries in which a greater num-
ber of functions are discharged by pub-
lic officers, than in some states of the
American Union, particularly the New
England States : but the division of
labour in public business is extreme ;
most of these officers being not even
amenable to any common superior, but
performing their duties freely, under
the double check of election by their
townsmen, and civil as well as criminal
responsibility to the tribunals.

It is, no doubt, indispensable to good
g \vnnnent that the chiefs of the ad-
ministration, whether permanent or
temporary, should extend a command-
ing, though general, view over the
aggregate of all the interests confided,
in any degree, to the responsibility of
the central power. But with a skilful
internal organization of the adminis-
trative machine, leaving to subordi-
nates, and as far as possible to local
subordinates, not only the execution,
but to a great degree the control, of
details ; holding them accountable for
the results of their acts rather than for
the acts themselves, except where these
come within the cognizance of the tri-
bunals ; taking the most ellectual secu-
rities for honest and capable appoint-
ments ; opening a broad path to
promotion from the inferior degrees of
the administrative scale to the supe-
rior ; leaving, at each step, to the func-
tionary, a wider range in the origina-
tion of measures, so that, in the highest
grade of all, deliberation might he con-
lentrated on the great collective inte-
rests of the rx)untry in each depart-

ment ; if all this were done, the
government would not probably bo
ovcrburthened by any business, in other
respects fit to be undertaken by it ;
though the overburthening would re-
main as a serious addition to the in-
conveniences incurred by its under-
taking any which was unfit.

§ 5. But though a better organiza-
tion of governments would greatly
diminish the force of the objection to
the mere multiplication of their duties,
it woidd still remain true that in all the
more advanced communities, the great
majority of things are worse done by
the intervention of government, than
the individuals most interested in the
matter would do them, or cause them
to be done, if left to themselves. The
grounds of this truth are expressed
with tolerable exactness in the popular
dictum, that people understand their
own business and their own interests
better, and care for them more, than
the government does, or can bo ex-
pected to do. This maxim hold.-i true
throughout the greatest part of th«
business of life, and wherever it is true
we ought to condemn every kind of
government intervention that conflicts
with it. The inferiority of government
agency, for example, in any of the
common operations of industry or com-
merce, is proved by the fact, that it is
hardly ever able to maintain itself
in equal competition with individual
agency, where the individuals possess
the requisite degree of industrial enter-
prise, and can command the necessary
assemblage of means. All the facili-
ties which a government enjoys of
access to information ; all the nvtins
which it possesses of remunerating,
and therefore of commanding, the best
available talent in the market — are
not an equivalent for the one great
disadvantage of an inferior interest in
the result.

It must be remembered, besides,
that even if a government were supe-
rior in intelligence and knowledge to
any single individual in the nation, it
must be inferior to all the individuals
of the nation taken together. It can
neither possess in itself, nor enlist in

572

its service, more than a portion of the
acquirements and capacities which the
country contains, applicable to any
given purpose. There must be many
persons equally qualified for the work
with those whom the government cm-
ploys, even if it selects its instruments
with no reference to any consideration
but their fitness. Now these are the
very persons into whose hands, in the
cases of most common occurrence, a
system of individual agency naturally
tends to throw the work, because they
are capable of doing it better or on
cheaper terms than any other persons.
So far as this is the case, it is evident
that government, by excluding or even
by superseding individual agency,
cither substitutes a less qualified in-
strumentality for one better qualified,
or at any rate substitutes its own mode
of accomplishing the work, for all the
variety of modes which would be tried
by a number of equally qualified per-
sons aiming at the same end; a com-
petition by many degrees more pro-
pitious to the progress of improvement,
than any uniformity of system.

§ 6. I have reserved for the last
place one of the strongest of the
reasons against the extension of go-
vernment agency. Even if the govern-
ment could comprehend within itself,
in each department, all the most emi-
nent intellectual capacity and active
talent of the nation, it would not be
the less desirable that the conduct of a
large portion of the affairs of society
should be left in the hands of the
persons immediately interested in them.
The business of life is an essential part
of the practical education of a people ;
without which, book and school in-
struction, though most necessary and
salutary, doss not suffice to qualify
them for conduct, and for the adapta-
tion of means to ends. Instruction is
only one of the desiderata of mental
improvement ; another, almost as in-
dispensable, is a vigorous exercise of
the active energies ; labour, contriv-
ance, judgment, self-control : and the
natural stimulus to these is the diffi-
culties of life. This doctrine is not to
be confounded with the complacent

BOOK. V. CHAPTER XI. § 6.

optimism, which represents the evila
of life as desirable tilings, because they
call forth qualities adapted to combat
with evils. It is only because the dif-
ficulties exist, that the qualities which
combat with them arc of any vafue.
As practical beings it is our business
to free human life from as many as
possible of its difficulties, and not to
keep up a stock of them as hunters
preserve game, for the exercise of pur-
suing it. But since the need of activo
talent and practical judgment in the
affairs of life can only be diminished,
and not, even on the most favourable
supposition, done away with, it is im-
portant that those endowments should
be cultivated not merely in a select
few, but in all, and that the cultivation
should be more varied and complete
than most persons arc able to find in
the narrow sphere of their merely indi-
vidual interests. A people among
whom there is no habit of spontaneous
action for a collective interest — who
look habitually to their government to
command orprompt them in all matters
of joint concern — who expect to have
everything done for them, except what
can be made an affair of mere habit
and routine — have their faculties only
half developed ; their education is de-
fective in one of its most important
branches.

Not only is the cultivation of the
active faculties by exercise, diffused
through the whole community, in itself
one of the most valuable of national
possessions : it is rendered, not less,
but more, necessary, when a high Je-
gree of that indispensable culture is
systematically kept up in the chiefs
and functionaries of the state. There
cannot be a combination of circum-
stances more dangerous to human wel-
fare, than that in which intelligence
and talent are maintained at a high
standard within a governing corpoia-
tion, but starved and discouraged out-
side the pale. Such a system, mor«
completely than any other, embodies
the idea of despotism, by arming with
intellectual superiority as an additional
weapon, those who have already the
legal power. It approaches as nearly
as the organic difference betweep

LIMITS OF THE PROVINCE OP GOVERNMENT.

573

human beings and other animals ad-
mits, to the government of sheep by
their shepherd, without anything like
BO strong an interest as the shepherd
lias in the thriving condition of the
llock. The only security against poli-
tical slavery, is tho check maintained
over governors, by the diffusion of in-
telligence, activity, and public spirit
among the governed. Experience
proves the extreme difficulty of per-
manently keeping up a sufficiently high
standard of those qualities ; a difficulty
which increases, as the advance of
civilization and security removes one
after another of the hardships, embar-
rassments, and dangers against which
individuals had formerly no resource
but in their own strength, skill, and
courage. It is therefore of supreme
importance that all classes of the com-
munity, down to the lowest, should
have much to do for themselves ; that
as great a demand should be made
upon their intelligence and virtue as it
is in any respect equal to; that tho
government should not only leave as
far as possible to their own faculties
the conduct of whatever concerns
themselves alone, but should suffer
them, or rather encourage them, to
manage as many as possible of their
joint concerns by voluntary co-opera-
tion : since this discussion and manage-
ment of collective interests is the great
school of that public spirit, and the
great source of that intelligence of
public affairs, which are always re-
garded as the distinctive character of
the public of free countries.

A democratic constitution, not sup-
ported by democratic institutions in de-
tail, but confined to the central govern-
ment, not only is not political freedom,
but often creates a spirit precisely the
reverse, carrying down to the lowest
grade in society the desire and ambi-
tion of political domination. In some
countries the desire of tho people is
for not being tyrannized over, but in
others it is merely for an equal chance
to everybody of tyrannizing. Unhap-
pily this last state of the desires la
fully as natural to mankind as the
former, and in many of the conditions
even of civilized humanity, is far more

largely exemplified. In proportion as
the people are accustomed to manage
their allairs by their own active inter-
vention, instead of leaving them to the
government, their desires will turn to
repelling tyranny, rather than to tyran-
nizing : while in proportion as all real
initiative and direction resides in tho
government, and individuals habitually
feel and act as under its perpetual
tutelage, popular institutions develope
in them not the desire of freedom, but
an unmeasured appetite for place and
power ; diverting the intelligence and
activity of tho country from its prin-
cipal business, to a wretched competi-
tion for the selfish prizes and the petty
vanities of office.

§ 7. The preceding are tke prin-
cipal reasons, of a general character,
in favour of restricting to the narrowest
compass the intervention of a public
authority in the business of the com-
munity : and few will dispute the more
than sufficiency of these reasons, to
throw, in every instance, the burthen of
making out a strong case, not on those
who resist, but on those who recom-
mend, government interference. Let-
ting alone, in short, should be the
general practice : every departure from
it, unless required by some great good,
is a certain evil.

The degree in which the maxim,
even in the cases to which it is most
manifestly applicable, has heretofore
been infringed by governments, future
ages will probably have difficulty in
crediting. Some idea may be formed
of it from the description by M.
Dunoyer* of the restraints imposed on
the operations of manufacture under
the old government of France, by tho
meddling and regulating spirit of legis-
lation.

" The State exercised over manufac-
turing industry the most unlimited and
arbitrary jurisdiction. It disposed
without scruple of the resources of
manufacturers : it decided who should
be allowed to work, what things it
should be permitted to make, what ma-
terials should be employed, what pro-

* On the Liltrty of Labour, TO!, li,
pp. 3-53-i.

BOOK V. CHAPTER XI. § 7.

cesses followed, what forms should be
given to productions. It was not
enough to do well, to do better ; it was
necessary to do according to the rules.
Everybody knows the regulation of
1670 which prescribed to seize and
nail to the pillory, with the names of
the makers, goods not conformable to
the rules, and which, on a second repe-
tition of the offence, directed that the
inanufacturers themselves should be
fttaohed also. Not the taste of the
consumers, but the commands of the
law must be attended to. Legions of
inspectors, commissioners, controllers,
jurymen, guardians, were charged with
its execution. Machines were broken,
products were burned when not con-
formable to the rules : improvements
were punished; inventors were fined.
There were different sets of rules for
goods destined for home consumption
and for those intended for exportation.
An artizan could neither choose the
place in which to establish himself, nor
work at all seasons, nor work for all
customers. There exists a decree of
March 30, 1700, which limits to
eighteen towns the number of places
where stockings might be woven. A
decree of June 18, 1723, enjoins the
manufacturers at Eouen to suspend
their works from the 1st of July to
the 1 5th of September, in order to fa-
cilitate the harvest. Louis XIV., when
he intended to construct the colonnade
of the Louvre, forbade all private per-
sons to employ workmen without his
permission, under a penalty of 10,000
livres, and forbade workmen to work
for private persons, on pain for the first
offence, of imprisonment, and for the
second, of the galleys."

That these and similar regulations
were not a dead letter, and that the
officious and vexatious meddling was
prolonged down to the French Kevo-
lution, we have the testimony of
Roland, the Girondist minister.* " I
have seen," says he, " eighty, ninety,
a hundred pieces of cotton or woollen
stuff cut up, and completely destroyed.
I have witnessed similar srenes every
week for a number of years. I have

* I quote at second hand, from Mr. Carey's
on the Hate of Waget, pp. 195-0,

seen manufactured goods confiscated ;
heavy fines laid on the manufacturers ;
some pieces of fabric were burnt in
public places, and at the hours of
market : others were fixed to the pil-
lory, with the name of the manufac-
turer inscribed upon them, and he him-
self was threatened with the pillory, in
case of a second offence. All this was
done under my eyes, at Rouen, in con-
formity with existing regulations, or
ministerial orders. What crime de-
served so cruel a punishment ? Some
defects in the materials employed, or
in the texture of the fabric, or even in
some of the threads of the warp.

" I have frequently seen manufac-
turers visited by a band of satellites
who put all in confusion in their esta-
blishments, spread terror in their fami-
lies, cut the stuffs from the frames, tore
off the warp from the looms, and car-
ried them away as proofs of infringe-
ment ; the manufacturers were sum-
moned, tried, and condemned : their
goods confiscated ; copies of their judg-
ment of confiscation posted up in every
public place; fortune, reputation, credit,
all was lost and destroyed. And for
what offence ? Because they had mado
of worsted, a kind of cloth called t-hag,
such as the English used to manufac-
ture, and even sell in France, while the
French regulations stated that that
kind of cloth should be made with mo-
hair. I have seen other manufacturers
treated in the same way, because, they
had made camlets of a particular
width, used in England and Gerruann
for which there was a great deniana
from Spain, Portugal, and other coun-
tries, and from several parts of France,
while the French regulations prescribed
other widths for camlets."

The time is gone by, when such ap-
plications as these of the principle of
"paternal government'1 would be at-
tempted, in- even the least enlightened
country of the European common-
wealth of nations. In such cases asi
those cited, all the general objections
to government interference are valid,
and several of them in nearly their
highest degree. But we must now
turn to tho second part of our task,
and direct our attention to caaes, ia

LIMITS OF THE PROVINCE OP GOVERNMENT.

575

which some of those general objections
arc altogether absent, while those which
can never be got rid of entirely, are
overruled by counter-considerations of
Btill greater importance.

\\\- have observed that, as a general
rule, the business of life is better per-
formed when those who have an imme-
diate interest in it are left to take their
own course, uncontrolled cither by the
mandate of the law or by the meddling
of any public functionary. The per-
sons, or some of the persons, who do
the work, are likely to be better judges
than the government, of the means of
attaining the particular end at which
they aim. Were we to suppose, what
is not very probable, that the govern-
ment has possessed itself of the best
knowledge which had been acquired up
to a given time by the persons most
skilled in the occupation ; even then,
the individual agents have so much
stronger and more direct an interest in
the result, that the means are far more
likely to be improved and perfected if
left to their uncontrolled choice. But
if the workman is generally the best
selector of means, can it be affirmed
with the same universality, that the
consumer, or person served, is the most
competent judge of the end ? Is the
buyer always qualified to judge of the
commodity ? If not, the presumption
in favour of the competition of the
market does not apply to the case ;
and if the commodity be one, in the
quality of which society has much at
stake, the balance of advantages may
be in favour of some mode and degree
of intervention, by the authorized re-
presentatives of the collective interest
of the state.

<j 8. Now, the proposition that the
consumer is a competent judge of the
commodity, can be admitted only with
numerous abatements and exceptions.
He is generally the best judge (though
even this is not true universally) of the
material objects produced for his use.
These are destined to supply some
physical want, or gratify some taste or
inclination, respecting which wants or
inclinations there is no appeal from the
person who feels thorn ; or they are the

means and appliances of some occupa-
tion, for the use of the persons engaged
in it, who may be presumed to be
judges of tho things required in their
own habitual employment. But there
are other things of the worth of which
the demand of the market is by no
means a test ; things of which the
utility docs not consist in ministering
to inclinations, nor in serving the daily
uses of life, and the want of which is
least felt where the need is greatest.
This is peculiarly true of those things
which nre chiefly useful as tending ti
raise the character of human beings.
The uncultivated cannot be competent
judges of cultivation. Those who most
need to be made wiser and better,
usually desire it least, and if they de-
sired it, would be incapable of finding
the way to it by their own lights. It
will continually happen, on the volun-
tary system, that, the end not being
desired, the means will not be provided
at all, or that, the persons requiring
improvement having an imperfect or
altogether erroneous conception of what
they want, the supply called forth by
the demand of the market will be any-
thing but what is really required. Now
any well-intentioned and tolerably
civili/ed government may think wild-
out presumption that it does or ought
to possess a degree of cultivation above
the average of the community which
it rules, and that it should therefore be
capable of offering better education
and better instruction to the people,
than the greater number of them would
spontaneously demand. Education,
therefore, is one of those things which
it is admissible in principle that a
government should provide for tho
people. The case is one to which the
reasons of the non-interference prin-
ciple do not necessarily or universally
extend.*

* In opposition to these opinions, a
writer, with whom on many points I agree,
but whose hostility to government interven-
tion seems to mo too indiscriminate and
unqualified, M. Dunoyer, observes, that
instruction, however good in itself, can only
be useful to the public in so far as they are
willing to receive it, and that the best proof
that the instruction is suitable to their
wauls, ia its success as a pecuniary enter-
prise. This argument seems no more coo*

576

BOOK V. CHAPTER XI. § 8.

With regard to elementary educa-
tion, tho exception to ordinary rides
may, I conceive, justifiably be carried
still further. There are certain primary
elements and means of knowledge,
which it is in the highest degree de-
sirable that all human beings born into
the community should acquire during
childhood. If their parents, or those
on whom they depend, have the power
of obtaining for them this instruction,
and fail to do it, they commit a double
breach of duty : towards the children
themselves, and towards the members
of the community generally, who are
all liable to suffer seriously from the
consequences of ignorance and want of
education in their fellow-citizens. It
is therefore an allowable exercise of the
powers of government, to impose on
parents the legal obligation of giving
elementary instruction to children. This

elusive respecting instruction for the mind,
than it would be respecting medicine for the
body. No medicine will do the patient any
good if he cannot be induced to take it ; but
we are not bound to admit as a corollary
from this, that the patient will select the
right medicine without assistance. Is it not
probable that a recommendation, from any
quarter which he respects, may induce him
to accept a better medicine than he would
spontaneously have chosen ? This is, in
respect to education, the very point in de-
bate. Without doubt, instruction which is
BO far in advance of the people that they
cannot be induced to avail themselves of it,
is to them of no more worth than if it did not
exist. But between what they spontane-
ously choose, and what they will refuse to
accept when offered, there is a breadth of
interval proportioned to their deference for
the recommender. Besides, a thing of which
the public are bad judges, may require to be
shown to them and pressed on their attention
for a long time, ana to prove its advantages
by long experience, before they learn to
appreciate it, yet they may learn at last ;
which they might never have done, if the
thing had not been thus obtruded upon them
in act, but only recommended in theory.
Now, a pecuniary speculation cannot wait
years, or perhaps generations, for success ;
it must succeed rapidly, or not at all. Another
consideratien which M. Dunoyer seems to
have overlooked, is, that institutions and
modes of tuition which never could be made
sufficiently popular to repay, with a profit,
the expenses incurred on them, may lie in-
valuable to the many by giving the highest
quality of education to the few, and keeping
up theperpetual succession of superiormmds,
by whom knowledge is advanced, ;nul the
community urged forward in civilization.

however cannot fairly be done, without
taking measures to ensure that such
instruction shall be always accessible
to them, either gratuitously or at a
trifling expense.

It may indeed be objected that the
education of children is one of those
expenses which parents, even of the
labouring class, ought to defray ; that
it is desirable that they should feel it
incumbent on them to provide by their
own means for the fulfilment of their
duties, and that by giving education at
the cost of others, just as much as by
giving subsistence, the standard of
necessary wages is proportionally low-
ered, and tho springs of exertion and
self-restraint in so much relaxed. This
argument could, at best, be only valid
if the question were that of substi-
tuting a public provision for what indi-
viduals would otherwise do for them-
selves ; if all parents in the labouring
class recognised and practised the duty
of giving instruction to their children
at their own expense. But inasmuch
as parents do not practise this duty,
and do not include education among
those necessary expenses which their
wages must provide for, therefore the
general rate of wages is not high enough
to bear those expenses, and they must
be borne from some other source. And
this is not one of the cases in whicli
the tender of help perpetuates the state
of things which renders help necessary.
Instruction, when it is really such, does
not enervate, but strengthens as well
as enlarges the active faculties : in
whatever manner acquired, its effect on
the mind is favourable to the spirit of
independence : and when, unless had
gratuitously, it would not be had at all,
help in this form has the opposite ten-
dency to that which in so many other
cases makes it objectionable ; it is help
towards doing without help.

In England, and most European
countries, elementary instruction can-
not be paid for, at its full cost, from tho
common wages of unskilled labour, and
would not it' it could. The alternative
therefore is not between government
and private speculation, but between a
government provision and voluntary
charity • Vetwcen interference by go-

LIMITS OF THE PROVINCE OF GOVERNMENT.

577

vornment, ami interference by associa-
tions of individuals, subscribing their
own money for the purpose, like the
two great School Societies. It is, of
course, not desirable that anything
should be done by funds derived from
compulsory taxation, which is already
sufficiently well done by individual
liberality. How far this is the case
with school instruction, is, in each par-
ticular instance, a question of fact.
The education provided in this country
on the voluntary principle has of late
been so much discussed, that it is need-
less in this place to criticise it minutely,
and I shall merely express my convic-
tion, that even in quantity it is, and is
likely to remain, altogether insufficient,
while in quality, though with some
slight tendency to improvement, it is
never good except by some rare acci-
dent, and generally so bad as to be
little more than nominal. I hold it
therefore the duty of the government
to supply the defect by giving pecu-
niary support to elementary schools,
Buch as to render them accessible to all
the children of the poor, either freely,
or for a payment too inconsiderable to
be sensibly felt.

One thing must be strenuously in-
sisted on ; that the government must
claim no monopoly for its education,
either in the lower or in the higher
branches ; must exert neither autho-
rity nor influence to induce the people
to resort to its teachers in preference
to others, and must confer no peculiar
advantages en those who have been
instructed by them. Though the go-
vernment teachers will probably be
superior to the average of private in-
structors, they will not embody all the
knowledge and sagacity to be found in
all instructors taken together, and it is
desirable to leave open as many roads
as possible to the desired end. It is
not endurable that a government should,
cither in law or in fact, have a complete
control over the education of the people.
To possess such a control, and actually
exert it, is to be despotic. A govern-
ment which can mould the opinions
and sentiments of the people from their
youth upwards, can do with them what-
ever it pleases. Though a government,

P.K.

therefore, may, and in many cases
ought to, establish schools and col
leges, it must neither compel nor bribe
any person to come to them ; nor ought
the power of individuals to set up rival
establishments, to depend in any degrea
upon its authorization. It would bs
justified in requiring from all the peopla
that they shall possess instruction in
certain things, but not in prescribing
to them how or from whom they shall
obtain it.

§ 9. In the matter of education, the
intervention of government is justi-
fiable, because the case is not one in
which the interest and judgment of tho
consumer are a sufficient security for
the goodness of the commodity. Let
us now consider another class of cases,
where there is no person in the situa-
tion of a consumer, and where the in-
terest and judgment to be relied on are
those of the agent himself; as in the
conduct of any business in which he
is exclusively interested, or in en-
tering into any contract or engage-
ment by which he himself is to be
bound.

The ground of the practical principle
of non-interference must here be, that
most persons take a juster and more
intelligent view of their own interest,
and of the means of promoting it, than
can either be prescribed to them by a
general enactment of the legislature, or
pointed out in the particular case by a
public functionary. The maxim is un-
questionably sound as a general rule ;
but there is no difficulty in perceivinj
j some very large and conspicuous ex-
I ceptions to it. These may be classed
under several heads.

First : — The individual who is pre-
sumed to be the best judge of his own
interests may be incapable of judging
or acting for himself; may be a lunatic,
an idiot, an infant: or though not
wholly incapable, may be of immature
years and judgment. In this case the
foundation of the non-interference prin-
ciple breaks down entirely. The per-
son most interested is not the best
judge of the matter, nor a competent
judge at all. Insane persons arc every-
where regarded as proper objects of tho
P P

678

BOOK V. CHAPTER XI. § 0.

^re of the state.* In the case of
children and young persons, it is com-
mon to say, that though they cannot
judge for themselves, they have their
parents or other relatives to judge for
them. But this removes the question
into a different category ; making it no
longer a question whether the govern-
ment should interfere with individuals
in the direction of their own conduct
and interests, but whether it should
leave absolutely in their power the
conduct and interests of somebody else.
Parental power is as susceptible of
abuse as any other power, and is, as a
matter of fact, constantly abused. If
laws do not succeed in preventing
parents from brutally ill-treating, and
even from murdering their children, far
less ought it to be presumed that the
interests of children will never be sa-
crificed, in more commonplace and less
revolting ways, to the selfishness or the
ignorance of their parents. Whatever
it can be clearly seen that parents
ought to do or forbear for the interest

* The practice of the English law with
respect to insane persons, especially on the
all-important point of the ascertainment of
insanity, most urgently demands reform.
At present no persons, whose property is
worth coveting;, and whose nearest relations
ere unscrupulous, or on bad terms with
them, are secure against a commission of
lunacy. At the instance of the persons who
'would profit by their being declared insane,
& jury may be impanelled and an investiga-
tion held at the expense of the property, in
which all their personal peculiarities, with all
the additions made by the lying gossip of low
•ervants, are poured into the credulous ears
of twelve petty shopkeepers, ignorant of all
ways of life except those of their own class,
and regarding every trait of individuality in
character or taste as eccentricity, and all
eccentricity as either insanity or wickedness.
If this sapient tribunal gives the desired ver-
dict, the property is handed over to perhaps
the last persons whom the rightful owner
would have desired or suffered to possess it.
Some recent instances of this kind of inves-
tigation have been a scandal to the adminis-
tration of justice. Whatever other changes
in this branch of law may be made, two at
laast are imperative : first, that, as in other
legal proceedings, the expenses should not
So borne by the person on trial, but by
tho promoters of the inquiry, subject to
recovery of costs in case of success : and
secondly, that the property of a person
declared insane, should in no case be made
over to heirs while the proprietor is alive,
but should be managed oy a public officer
until his death or recovery.

of children, the law is warranted, if it
is able, in compelling to be done or for-
borne, and is generally bound to do so.
To take an example from tho peculiar
province of political economy ; it is
right that children, and young persons
not yet arrived at maturity, should be
protected, so far as the eye and hand
of the state can reach, from being
over-worked. Labouring for too many
hours in the day, or on work beyond
their strength, should not be permitted
to them, for if permitted it may always
be compelled. Freedom of contract,
in the case of children, is but another
word for freedom of coercion. Educa-
tion also, the best which circumstances
admit of their receiving, is not a thing
which parents or relatives, from indif-
ference, jealousy, or avarice, should
have it in their power to withhold.

The reasons for legal intervention
in favour of children, apply not less
strongly to the case of those unfortu-
nate slaves and victims of the most
brutal part of mankind, the lower
animals. It is by the grossest misun-
derstanding of the principles of liberty,
that the infliction of exemplary punish-
ment on ruffianism practised towards
these defenceless creatures, has been
treated as a meddling by government
with things beyond its province ; an
interference with domestic life. The
domestic life of domestic tyrants i&
one of the things which it is the most
imperative on the law to interfere
with ; and it is to be regretted that
metaphysical scruples respecting the
nature and source of the authority of
government, should induce many warm
supporters of laws against cruelty to
animals, to seek for a justification of
such laws in the incidental conse-
quences of the indulgence of ferocious
habits, to the interests of human
beings, rather than in the intrinsic
merits of the case itself. What it
would he the duty of a human being,
possessed of the requisite physical
strength, to prevent by force if at-
tempted in his presence, it cannot bo
less incumbent on society generally to
repress. The existing laws of England
on the subject are chiefly defective in
the trifling, often almost nominal,

LIMITS OF THE PROVINCE OF GOVERNMENT.

57 y

maximum, to which the penalty even
in the worst cases is limited.

Among those members of the com-
munity whoso freedom of contract
ought to be controlled by the legisla-
ture for their own protection, on ac
count (it is said) of their de-pendent
]>< -iti.>n, it is frequently proposed to
include women: and in the existing
Factory Act, their labour, in common
with that of young persons, has been
placed under peculiar restrictions.
J!nt the classing together, for this and
other purposes, of women and children,
appears to me both indefensible in
principle and mischievous in practice.
Children below a certain age cannot
judge or act for themselves; up to a
considerably greater age they are in-
evitably more or less disqualified for
doing so ; but women are as capable as
men of appreciating and managing
their own concerns, and the only hin-
drance to their doing so arises from
the injustice of their present social
position. So long as the law makes
everything which the wife acquires, the
property of the husband, while by com-
pelling her to live with him it forces
her to submit to almost any amount of
moral and even physical tyranny
which he may choose to inflict, there
is some ground for regarding every act
done by her as done under coercion :
but it is the great error of reformers
and philanthropists in our time, to
nibble at the consequences of unjust
power instead of redressing the injus-
tice itself. If women had as absolute
a control as men have, over their own
persons and their own patrimony or
acquisitions, there would be no plea
for limiting their hours of labouring
for themselves, in order that they might
Lave time to labour for the husband, in
•what is called, by the advocates of re-
striction, his home. Women employed
in factories are the only women in the
labouring rank of life whose position is
not that of slaves and drudges : pre-
cisely because they cannot easily be
compelled to work and earn wages in
factories against their will. For im-
proving the condition of women, it
should, on the contrary, be an object to
give them the readiest access to inde-

pendent industrial employment, instead
of closing, either entirely or partially,
that which is already open to them.

§ 10. A second exception to the
doctrine that individuals are the best
judges of their own interest, is when
an individual attempts to decide irre-
vocably now, what will be best for his
inteiv>t at some futuro and distant
time. The presumption in favour of
individual judgment is only legitimate,
where the judgment is grounded on
actual, and especially on present, per-
sonal experience; not where it is
formed antecedently to experience, and
not suffered to bo reversed even after
experience has condemned it. When
persons have bound themselves by a
contract, not simply to do some one
thing, but to continue doing some-
thing for ever or for a prolonged period,
without any power of revoking the en-
gagement, the presumption which their
perseverance in that course of conduct
would otherwise raise in favour of its
being advantageous to them, does not
exist ; and any suck presumption
which can be grounded on their having
voluntarily entered into the contract,
perhaps at an early age, and without
any real knowledge of what they un-
dertook, is commonly next to null. The
practical maxim of leaving contracts
free, is not applicable without great
limitations in case of engagements in
perpetuity ; and the law should be ex-
tremely jealous of such engagements ;
should refuse its sanction to them,
when the obligations they impose are
such as the contracting party cannot
be a competent judge of ; if it ever does
sanction them, it should take every
possible security for their being con.
tractcd with foresight and deliberation ;
and in compensation for not permit-
ting the parties themselves to revoke
their engagomen i, should grant them
a release from it, ou a sufficient case
being made out before an impartial
authority. These considerations aw
eminently applicable to marriage, the
most important of all cases of engage-
ment for life.

§ 11. The third exception which I
P P 2

580

BOOK V.- ClIAi'TI'U -U. § 11.

shall notice, to the doctrine that go-
vernment cannot manage the affairs of
individuals as well as the individuals
themselves, has reference to the great
class of cases in which the individuals
ean only manage the concern by dele-
gated agency, and in which the so-
called private management is, in point
of fact, hardly better entitled to be
called management by the persons in-
terested, than administration by a
public officer. Whatever, if left to
spontaneous agency, can only be done
by joint-stock associations, will often
be as well, and sometimes better done,
as far as the actual work is concerned,
by the state. Government manage-
ment is, indeed, proverbially jobbing,
careless, and ineffective, but so like-
wise has generally been joint-stock
management. The directors of a
joint-stock company, it is true, are
always shareholders ; but also the
members of a government are invari-
ably taxpayers; and in the case of
directors, no more than in that of go-
vernments, is their proportional share
of the benefits of good management,
equal to the interest they may possibly
have in mismanagement, even without
reckoning the interest of their ease.
It may be objected, that the share-
holders, in their collective character,
exercise a certain control over the
directors, and have almost always full
power to remove them from office.
Practically, however, the difficulty of
exercising this power is found to be so
great, that it is hardly erer exercised
except in cases of such flagrantly un-
skilful, or, at least, unsuccessful ma-
nagement, as would generally produce
the ejection from office of managers
Appointed by the government. Against
the very ineffectual security afforded
by meetings of shareholders, and by
their individual inspection and en-
quiries, may be placed the greater
publicity and more active discus-
sion and comment, to be expected
in free countries with regard to
affairs in which the general govern-
ment takes part. The defects, there-
fore, of government management, do
not seem to be necessarily much
greater, if necessarily greater at all,

than those of management by joint-
stock.

The true reasons in favour of leaving
to voluntary associations all such things
as "they are competent to perform,
would exist in equal strength if it were
certain that the work itself would bo
as well or better done by public officers.
These reasons have been already
pointed out : the mischief of overload-
ing the chief functionaries of govern-
ment with demands on their attention,
and diverting them from duties which
they alone can discharge, to objects
which can be sufficiently well attained
without them ; the danger of unneces-
sarily swelling the direct power and
indirect influence of government, and
multiplying occasions of collision be-
tween its agents and private citizens ;
and the inexpediency of concentrating
in a dominant bureaucracy, all the
skill and experience in the manage-
ment of large interests, and all the
power of organized action, existing in
the community; a practice which keeps
the citizens in a relation to the govern-
ment like that of children to their
guardians, and is a main cause of the
inferior capacity for political life which
has hitherto characterized the over-
governed countries of the Continent,
whether with or without the forms ot
representative government.*

But although, for these reasons, most
things which are likely to be even
tolerably done by voluntary associa-
tions, should, generally speaking, be

* A parallel case may be found in the
distaste for politics, and absence of publio
spirit, by which women, as a class, are cha-
raeterizedin the present state of society, and
which is often felt and complained of by
political reformers, without, in general,
making them willing to recognise, or de-
sirous to remove, its cause. It obviously
arises from their being taught, both b}
institutions and by the whole of their educa-
tion, to regard themselves as entirely apart
from politics. Wherever they hava beeu
politicians, they have shown as great interest
in the subject, and as great aptitude for it,
according to the spirit of their time, as the
men with whom they were cotemporaries :
in that period of history (for example) in
which Isabella of Castile and Elizabeth ol
England were, not rare exceptions, but
merely brilliant examples of a spirit and
capacity very largely diffused among women
of high statiou and cultivation in Europe.

LIMITS OF THE PROVINCE OF GOVERNMENT.

581

loft to them; it does not follow that
the manner in which those associations
perform their work should be entirely
uncontrolled by the government. There
are many cases in which the agency,
of whatever nature, by which a sen-ice
is performed, is certain, from the nature
of the case, to be virtually single ; in
which a practical monopoly, with all
the power it confers of taxing the com-
munity, cannot be prevented from ex-
isting. I have already more than once
adverted to the case of the gas and
vrater companies, among whi "to, though
perfect freedom is allowed to competi-
tion, none really takes place, and prac-
tically they are found to be even more
irresponsible, and unapproachable by
individual complaints, than the govern-
ment. There are the expenses without
the advantages of plurality of agency ;
and the charge made for services
•which cannot be dispensed with, is, in
Bubstancu, quite as much compulsory
taxation as if imposed by law : there
are few householders who make any
distinction between their "water rate"
and their other local taxes. In the
case of these particular services, the
reasons preponderate in favour of their
being performed, like the paving and
cleansing of the streets, not certainly
by the general government of the state,
but by the municipal authorities of the
town, and the expense defrayed, as
even now it in fact is, by a local rate.
But in the many analogous cases
which it is beet to resign to voluntary
agency, the community needs some
other security for the fit performance
of the service than the interest of the
managers ; and it is the part of govern-
ment, either to subject the business to
reasonable conditions for the general
advantage, or to retain such power
over it, that the profits of the mono-
poly may at least be obtained for the
public. This applies to the case of
a road, a canal, or a railway. These
are always, in a great degree, prac-
tical monopolies ; and a government
which concedes such monopoly un-
reservedly to a private company,
does much the same thing as if it
allowed an individual or an association
o levy any tax they chose, for their

own benefit, on all the malt produced
in the country, or on all the cotton
imported into it To make the con-
cession for a limited time is generally
justifiable, on the principle which jus-
tifies patents for inventions : but the
state should either reserve to itself a
reversionary property in such public
works, or should retain, end freely ex-
ercise, the right of fixing a maximum
of fares and charges, and, from time to
time, varying that maximum. It is
perhaps necessary to remark, that the
state may be the proprietor of canals
or railways without itself working
them ; and that they will almost
always be better worked by means of
a company, renting the rail way or canal
for a limited period from the state.

§ 12. To a fourth case of exception
I must request particular attention, it
being one to which, as it appears to
me, the attention of political economists
has not yet been sufficiently drawn.
There are matters in which the inter-
ference of law is required, not to over-
rule the judgment of individuals re-
specting their own interest, but to give
effect to that judgment ; they being
unable to give efiect to it except by
concert, which concert again cannot be
effectual unless it receives validity and
sanction from the law. For illustra-
tion, and without prejudging the par-
ticular point, I may advert to the
question of diminishing the hours of
labour. Let us suppose, what is at
least supposable, whether it be the fact
or not — that a general reduction of the
hours of factory labour, say from ten to
nine, would be for the advantage of the
work-people : that they would receive
as high wages, or nearly as high, for
nine hours labour as they receive for
ten. If this would be the result, and
if the operatives generally are con-
vinced that it would, the limitation,
some may eay, will be adopted spon-
taneously. I answer, that it will not
be adopted unless the body of opera-
tives bind themselves to one another
to abide by it. A workman who re-
fused to work more than nkie hours
whilo there were others who worked
ten, would either not be employed at

582

BOOK V. CHAPTER XI. § 12.

jill, or if employed, must submit to lose
one-tenth of his wages. However con-
vinced, therefore, he may be that it is
the interest of the class to work short
time, it is contrary to his own interest
to set the example, unless he is well
assured that all or most others will
follow it. But suppose a general agree-
ment of the whole class : might not
this be effectual without the sanction
of law? Not unless enforced by
opinion with a rigour practically equal
to that of law. For however beneficial
the observance of the regulation might
be to the class collectively, the imme-
diate interest of every individual would
lie in violating it : and the more nume-
rous those were who adhered to the rule,
the more would individuals gain by de-
parting from it. If nearly all restricted
themselves to nine hours, those who
chose to work for ten would gain all
the advantage of the restriction, to-
gether with the profit of infringing it ;
they would get ten hours wages for
nine hours work, and an hour's wages
besides. I grant that if a large majo-
rity adhered to the nine hours, there
would be no harm done : the benefit
would he, in the main, secured to the
class, while those indiriduals who pre-
ferred to work harder and earn more,
would have an opportunity of doing so.
Tin's certainly would be the state of
things to be wished for ; and assuming
that a reduction of hours without any
diminution of wages could lake place
without expelling the commodity from
come of its markets — which is in every
particular instance a question of fact,
not of principle — the manner in which
it would be most desirable that this
effect should be brought about, would
Le by a quiet change in the general
custom of the trade ; short hours be-
coming, by spontaneous choice, the
general practice, but those who chose
to deviate from it having the fullest
liberty to do 60. Probably, however,
BO many would prefer the ten hours
work on the improved terms, that the
limitation could not be maintained as
n, general practice: what some did
from choice, others would soon be
obliged to do from necessity, and thope
who had chosen long hours for the

sake of increased wacres, would be
f-rccd in the end to work long hours
for no greater wages than before. As-
suming then that it really wouid bo
the interest of each to work only nino
hours if he could be assured that all
others would do the same, there might
Le no means of their attaining this
object but by converting their supposed
mutual agreement into an engagement
r.nd'.-r penalty, by consenting to have
it enforced by law. I am not express-
ing any opinion in favour of such an
enactment, which has never been de-
manded, and which I certainly should
not, in present circumstances, recom-
mend : but it serves to exemplify the
manner in which classes of persons
may need the assistance of law, to give
effe.-t to their deliberate collective
opinion of their own interest, by afford-
ing to every individual a guarantee
that his competitors will pursue the
same course, without which he cannot
safely adopt it himself.

Another exemplification of the same
principle is afforded by what is known
as the Wakefield system of coloniza-
tion. This system is grounded on the
important principle, that the degree of
productiveness oi' land and labour de-
pends'on their being in a due propor-
tion to one another; that if a few
persons in a newly settled country at-
tempt to occupy and appropriate a
large district, or if each labourer be-
comes too soon an occupier and culti-
vator of land, there is a loss of produc-
tive power, and a great retardation of
the progress of the colony in wealth
and civilization : that nevertheless the
instinct (as it may almost be called) of
appropriation, and the feelings asso-
ciated in old countries with landed
proprietorship, induce almost every
emigrant to take possession of as much
land as he has the means of acquiring,
and every labourer to become at once
a proprietor, cultivating his own land
with no other aid than that of his
family. If this propensity to the im-
mediate possession of land could bo
in some degree restrained, and each
labourer induced to work a certain
number of years on hire before he
became a landed proprietor, a per.

LIMITS OF THE PROVINCE OF GOVERNMENT.

petual stock of hired labourers could
DO maintained, available for roads,
canals, works of irrigation, &c., and
for the establishment and carrying on
of the different branches of town in-
clu>try ; whereby the labourer, when he
did at last become a landed proprietor,
would find his land much more valu-
able, through access to markets, and
facility of obtaining hired labour. Mr.
Wakefield therefore proposed to check
the premature occupation of land, and
dispersion of the people, by putting
upon all unappropriated lands a rather
high price, the proceeds of which were
to be expended in conveying emigrant
labourers from the mother country.

This salutary provision, however, has
been objected to, in the name and on
the authority of what was represented
as the great principle of political eco-
nomy, that individuals are the best
judges of their own interest. It wag
said, that when things are left to them-
selves, land is appropriated and occu-
pied by the spontaneous choice of
individuals, in the quantities and at
the times most advantageous to each
person, and therefore to the community
generally; and that to interpose arti-
ficial obstacles to their obtaining land,
is to prevent them from adopting the
course which in their own judgment is
most beneficial to them, from a self-
conceited notion of the legislator, that
he knows what is most for their inte-
rest, better than they do themselves.
Now this is a complete misunderstand-
ing, either of the system itself, or of
the principle with which it is alleged
to conQict. The oversight is similar
to that which we have just seen exem-
plified on the subject of hours of labour.
However beneficial it might be to the
colony in the aggregate, and to each
individual composing it, that no one
should occupy more land than he can
pi. ji-Tiy cultivate, nor become a pro-
prietor until there are other labourers
ready to take his place in working for
hire ; it can never be the interest of an
individual to exercise this forbearance,
unless he is assured that others will do
so too. Surrounded by settlers who
have each their thousand acres, how is
he benefited by restricting himself to

fifty ? or what does a labourer gain by
deferring the acquisition altogether foi
a few years, if all other labourers rush
to convert their first earnings into
estates in the wilderness, several miles
apart from one another? If they, by
seizing on land, prevent the formation
of a class of labourers for wages, ho
will not, by postponing the time of his
becoming a proprietor, be enabled to
employ the land with any greater ad-
vantage when ho does obtain it; to
what end therefore should he place
himself in what will appear to him and
others a position of inferiority, by re-
maining a hired labourer wnen all
around him are proprietors ? It is the
interest of each to do what is good for
all, but only if others will do likewise.

The principle that each is the best
judge of his own interest, understood
as these objectors understand it, would
prove that governments ought not to
fulfil any of their acknowledged duties
— ought not, in fact, to exist at all. It
is greatly the interest of the commu-
nity, collectively and individually, not
to rob or defraud one another : but
there is not the less necessity for laws
to punish robbery and fraud ; because,
though it is the interest of each that
nobody should rob or cheat, it is not
any one's interest to refrain from rob-
bing and cheating others when all
others are permitted to rob and cheat
him. Penal laws exist at all, chiefly
for this reason, because even an
unanimous opinion that a certain Hue
of conduct is for the general interest,
does not always make it people's indi-
vidual interest to adhere to that line of
conduct.

§ 13. Fifthly; the argument against
government interference grounded on
the maxim that individuals are the
best judges of their own interest, can-
not apply to the very large class of
cases, in which those acts of individuals
with which the government claims to
interfere, are not done by those indi-
viduals for their own interest, but for
the interest of other people. This in-
cludes, among other tnings, the impor-
tant and much agitated subject of
public charity. Though individuals

(584

should, in general, be left to do for
themselves whatever it can reasonably
be expected that they should be capable
of doing, yet when they are at any
rate not to be left to themselves, but to
be helped by other people, the question
arises whether it is better that they
should receive this help exclusively
from individuals, and therefore uncer-
tainly and casually, or by systematic
arrangements, in which society acts
through its organ, the state.

This brings us to the subject of Poor
Laws ; a subject which would be of
very minor importance if the habits of
r.ll classes of the people were temperate
and prudent, and the diffusion of pro-
perty satisfactory ; but of the greatest
moment in a state of things so much
the reverse of this, in both points, as
that which the British islands present.

Apart from any metaphysical con-
siderations respecting the foundation
of morals or of the social union, it will
be admitted to be right that human
beings should help one another; and
the more so, in proportion to the
urgency of the need : and none needs
help so urgently as one who is starving.
The claim to help, therefore, crecited
by destitution, is one of the strongest
which can exist ; and there is primd
facie the amplest reason for making
"the relief of so extreme an exigency as
certain to those who require it, as by
any arrangements of society it can be
made.

On the other hand, in all cases of
helping, there are two sets of conse-
quences to be considered; the con-
sequences of the assistance itself, and
the consequences of relying on the
assistance. The former are generally
beneficial, but the latter, for the most
part, injurious ; so much so, in many
eases, as greatly to outweigh the value
of the benefit. And this is never more
likely to happen than in the very cases
where the need of help is the most
intense. There are few things for
which it is more mischievous that
people should rely on the habitual aid
of others, than for the means of sub-
sistence, and unhappily there is no lesson
which they more easily learn. The
problem to be solved is therefore one

BOOK V. CHAPTER XI. § 13.

of peculiar nicety as well as impor-
tance ; how to give the greatest amount
of needful help, with the smallest en-
couragement to undue reliance on it.

Energy and self-dependence are, how-
ever, liable to be impaired by the ab-
sence of help, as well as by its excess.
It is even more fatal to exertion to
have no hope of succeeding by it, than
to be assured of succeeding without it.
When the condition of any one is so
disastrous that his energies are para-
lyzed by discouragement, assistance is
atonic, not a sedative: it braces in-
stead of deadening the active faculties:
always provided that the assistance is
not such as to dispense with self-help,
by substituting itself for the person's
own labour, skill, and prudence, but is
limited to affording him a better hope
of attaining siiccess by those legiti-
mate means. This accordingly is a
test to which all plans of philanthropy
and benevolence should be brought,
whether intended for the benefit of in-
dividuals or of classes, and whether
conducted on the voluntary or on the
government principle.

In so far as the subject admits of
any general doctrine or maxim, it would
appear to be this — that if assistance is
given in such a manner that the con-
dition of the person helped is as de-
sirable as that of the person who
succeeds in doing the same thing
without help, the assistance, if capable
of being previously calculated on, is
mischievous : but if, while available to
everybody, it leaves to every one a
strong motive to do without it if he
can, it is then for the most part bene-
ficial. This principle, applied to a.
system of public charity, is that of the
Poor Law of 1834. If the condition
of a person receiving relief is made as
eligible as that of the labourer who
supports himself by his own exertions,
the system strikes at the root of all
individual industry and self-govern-
ment ; and, if fully acted up to, would
require as its supplement an organized
system of compulsion, for governing
and setting to work like cattle, those
who had been removed from the in-
fluence of the motives that act on
human beings. But if, consistently

LIMITS OF THE PROVINCE OF GOVERNMENT.

585

with guaranteeing all persons against
absolute want, the condition of those
who are supported by legal charity can
be kept considerably less desirable than
the condition of those who find support
for themselves, none but beneficial con-
sequences can arise from a law which
renders it impossible for any person,
except by his own choice, to die from
insufficiency of food. That in England
at least this supposition can be realized,
is proved by the experience of a long
period preceding the close of the last
century, as well as by that of many
highly pauperized districts in more
recent times, which have been dispau-
perized by adopting strict rules of poor-
law administration, to the great and
permanent benefit of the whole la-
bouring class. There is probably no
country in which, by varying the means
suitably to the character of the people,
a legal provision for the destitute might
not be made compatible with the obser-
vance of the conditions necessary to its
being innocuous.

Subject to these conditions, I con-
ceive it to be highly desirable, that
the certainty of subsistence should be
held out by law to the destitute able-
bodied, rather than that their relief
should depend on voluntary charity.
In the first place, charity almost
always does too much or too little : it
lavishes its bounty in one place, and
leaves people to starve in another.
Secondly, since the state must neces-
sarily provide subsistence for the cri-
minal poor while undergoing punish-
ment, not to do the same for the poor
who have not offended is to give a
premium on crime. And lastly, if the
poor are left to individual charity, a
vast amount of mendicity is inevitable.
What the state may and should aban-
don to private charity, is the task of
distinguishing between one case of
real necessity and another. Private
charity can give more to the more de-
serving. The state must act by general
rules. It cannot undertake to discrimi-
nate between the deserving and the
undeserving indigent. It owes no more
than subsistence to the first, and can
give no less to the last. "What is said
about the injustice of a law which has

no better treatment for the merelj
unfortunate poor than for the ill-con
ducted, is founded on a misconception
of the province of law and public au-
thority. The dispensers of public re-
lief have no business to be inquisitors.
Guardians and overseers are not fit to
be trusted to give or withhold othei
people's money according to their ver-
dict on the morality of the person so
liciting it ; and it would snow much
ignorance of the ways of mankind tc
suppose that such persons, even in the
almost impossible case of their being
qualified, will take the trouble of ascer-
taining and sifting the past conduct of
a person in distress, so as to form a
rational judgment on it. Private cha-
rity can make these distinctions ; and
in bestowing its own money, is en-
titled to do so according to its own
judgment. It should understand that
this is its peculiar and appropriate
province, and that it is commendable
or the contrary, as it exercises the
function with more or less discern-
ment. But the administrators of a
public fund ought not to be required
to do more for anybody, than that
minimum which is due even to the
worst. If they are, the indulgence
very speedily becomes the rule, and
refusal the more or less capricious or
tyrannical exception.

§ 1 4. Another class of cases which
fall within the same general principle
as the case of public charity, are those
in which the acts done by individuals,
though intended solely for their own
benefit, involve consequences extend-
ing indefinitely beyond them, to inte-
rests of the nation or of posterity, for
which society in its collective capacity
is alone able, and alone bound, to pro-
vide. One of these cases is that of
Colonization. If it is desirable, as no
one will deny it to be, that the plant-
ing of colonies should be conducted,
not with an exclusive view to the pri-
vate interests of the first founders, but
with a deliberate regard to the perma-
nent welfare of the nations afterwards
to arise from these small beginnings ;
such regard can only be secured by
olacing the enterprise, from its com-

586

BOOK V. CHAPTER XI. § 14.

mencement, under regulations con-
structed with the foresight and en-
larged views of philosophical legis-
lators ; and the government alone has
power either to frame such regulations,
or to enforce their observance.

The question of government inter-
vention in the work of Colonization
involves the future and permanent in-
terests of civilization itself, and far
outstretches the comparatively narrow
limits of purely economical considera-
tions. But even with a view to those
considerations alone, the removal of
population from the overcrowded to
the unoccupied parts of the earth's sur-
face is one of those works of eminent
social usefulness, which most require,
and which at the same time lest re-
pay, the intervention of government.

To appreciate the benefits of colo-
nization, it should be considered in its
relation, not to a single country, but
to the collective economical interests
of the human race. The question is in
general treated too exclusively as one
of distribution ; of relieving one labour-
market and supplying another. It is
this, but it is also a question of pro-
duction, and of the most efficient em-
ployment of the productive resources
of the world. Much has been said of
the good economy of importing com-
modities from the place where they
can be bought cheapest ; while the
good economy of producing them where
they can be produced cheapest, is
comparatively little thought of. If to
tarry consumable goods from the
places where they are superabundant
to those where they are scarce, is a
good pecuniary speculation, is it not
an equally good speculation to do the
same thing with regard to labour and
instruments ? The exportation of la-
bourers and capital from old to new
countries, from a place where their
productive power is less, to a place
where it is greater, increases by so
much the aggregate produce of the
labour and capital of the world. It
adds to the joint wealth of the old and
the new country, what amounts in a
short period to many times the mere
cost of effecting the transport. There
needs bo no hesitation in affirming

that Colonization, in the present state
of the world, is the best affair of busi-
ness, in which the capital of an old
and wealthy country can engage.

It is equally obvious, however, that
Colonization on a great scale, can bo
undertaken, as an affair of business,
only by the government, or by some
combination of individuals in complete
understanding with the government ;
except under such very peculiar cir-
cumstances as those which succeeded
the Irish famine. Emigration on the
voluntary principle rarely has any
material influence in lightening the
pressure cf population in the old coun-
try, though as far as it goes it is doubt-
less a benefit to the colony. Thoso
labouring persons who voluntarily emi-
grate are seldom the very poor ; they
are small farmers with some little
capital, or labourers who have saved
something, and who, in removing only
their own labour from the crowded
labour-market, withdraw from tbo
capital of the country a fund which
maintained and employed more la-
bourers than themselves. Besides, this
portion of the community is so limited
in number, that it might be removed
entirely, without making any sensible
impression upon the numbers of tho
population, or even upon the annual
increase. Any considerable emigration
of labour is only practicable, when ita
cost is defrayed, or at least advanced,
by others than the emigrants them-
selves. Who then is to advance it?
Naturally, it may be said, the capital-
ists of the colony, who require the
labour, and who intend to employ it.
But to this there is the obstacle, that
a capitalist, after going to the expense
of carrying out labourers, has no se-
curity that he shall be the person to
derive any benefit from them. If &
the capitalists of the colony were tw
combine, and bear the expense by sub-
scription, they would still have no se-
curity that the labourers, when there,
would continue to work for them. After
working for a short time and earning a
few pounds, they always, unless pre-
vented by the government, squat on
unoccupied land, and work only for
themselves. The experiment has been

LIMITS OF THE PROVINCE OP GOVERNMENT.

587

repeatedly tried whether it was pos-
sible to enforce contracts for labour,
or the repayment of the passage-money
of emigrants to those who advanced it,
and the trouble and expense have al-
ways exceeded the advantage. The
only other resource is the voluntary
contributions of parishes or individuals,
to rid themselves of surplus labourers
who are already, or who are likely to
become, locally chargeable on the poor-
rate. Were this speculation to become
general, it might produce a suflicient
amount of emigration to clear off the
existing unemployed population, but
not to raise the wages of the em-
ployed : and the same thing would re-
quire to be done over again in less than
another generation.

One of the principal reasons why
Colonization should be a national un-
dertaking, is that in this manner alone,
save in highly exceptional cases, can
emigration be self-supporting. Th«
exportation of capital and labour to a
new country being, as before observed,
one of the best of all affairs of business,
it is absurd that it should not, like
other afl'airs of business, repay its own
expenses. Of the great addition which
it makes to the produce of the world,
there can be no reason why a sufficient
portion should not be intercepted, and
employed in reimbursing the outlay
incurred in effecting it. For reasons
already given, no individual, or body
of individuals, can reimburse them-
selves for the expense ; the govern-
ment, however, can. It can take from
the annual increase of wealth, caused
i>y the emigration, the fraction which
suffices to repay with interest what the
emigration has cost. The expenses of
emigration to a colony ought to be
1 orne by the colony; and this, in
general, is only possible when they are
Lome by the colonial government.

Of the modes in which a fund for the
.support of colonization can be raised in
the oolcny, none is comparable in ad-
vantage to that which was first sug-
gested, and has since been so ably and
perseveringly advocated, by Mr. Wake-
field: the plan of putting a price on all
unoccupied land, and devoting the pro-
ceeds to emigration. The unfounded

and pedantic objections to this plan
have been answered in a former part
of tins chapter : we have now to speak
of its advantages. First, it av
difficulties and discontents incident to
raising a large annual amount by taxa-
tion ; a thing which it is almost useless
to attempt with a scattered population
of settlers in the wilderness, who, as
experience proves, can seldom be com-
pelled to pay direct taxes, except at a
cost exceeding their amount ; while in
an infant community indirect taxation
soon reaches its limit. The sale of
lands is thus by far the easiest mode of
raising the requisite funds. But it has
other and still greater recommenda-
tions. It is a beneficial check upon
the tendency of a population of co-
lonists to adopt the tastes and inclina-
tions of savage life, and to disperse so
widely as to lose all the advantages of
commerce, of markets, of separation of
employments, and combination of la-
bour. By making it necessary for
those who emigrate at the expense of
the fund, to earn a considerable sum
before they can become landed pro-
prietors, it keeps up a perpetual suc-
cession of labourers for hire, who in
every country are a most important
auxiliary even to peasant proprietors :
and by diminishing the eagerness c<
agricultural speculators to add to their
domain, it keeps the settlers within
reach of each other for purposes of co-
operation, arranges a numerous body of
them within easy distance of each
centre of foreign commerce and non-
agricultural industry, and ensures the
formation and rapid growth of towns
and town products. This concentra-
tion, compared with the dispersion
which uniformly occurs when unoccu-
pied land can be had for nothing,
greatly accelerates the attainment of
i y, and enlarges the fund which
may be drawn upon for further emigra-
tion. Before the adoption of the Wake-
field system, the early years of all new
colonies were full of hardship and diffi-
culty : the last colony founded on tho
old principle, the Swan River settle-
ment, bring one of the most charac-
teristic instances. In nil subsequent
colonization, the WakelielJ principle

BOOR V. CIIAPTEH XI. § 14.

has been acted upon, though imper-
fectly, a part only of the proceeds of
the sale of land being devoted to emi-
gration : yet wherever it has been in-
troduced at all, as in South Australia,
Victoria, and New Zealand, the re-
straint put upon the dispersion of the
settlers, and the influx of capital caused
~)y the assurance of being able to obtain
hired labour, has, in spite of many
difficulties and much mismanagement,
produced a suddenness and rapidity
of prosperity more like fable than
reality.*

The self-supporting system of co-
lonization, once established, would in-
crease in efficiency every year; its
effect would tend to increase in geo-
metrical progression: for since every
able-bodied emigrant, until the country
is fully peopled, adds in a very short
time to its wealth, over and above his
own consumption, as much as would
defray the expense of bringing out
another emigrant, it follows that the
greater the number already sent, the
greater number might continue to be
sent, each emigrant laying the founda-
tion of a succession of other emigrants
at short intervals without fresh ex-
pense, until the colony is filled up. It
would therefore be worth while, to the
mother country, to accelerate the early
stages of this progression, by loans to
the colonies for the purpose of emigra-
tion, repayable from the fund formed
by the sales of land. In thus ad-
vancing the means of accomplishing a
large immediate emigration, it would
be investing that amount of capital in
the mode, of all others, most beneficial
to the colony ; and the labour and
savings of these emigrants would
hasten the period at which a large

* The objections which have been made,
with so much virulence, in some of these
colonies, to the "\Vakefleld system, apply, in
so far as they have any validity, not to the
principle, but to some provisions which are
no part of the system, and have been most
unnecessarily and improperly engrafted on
it ; snch as the offering only a limited
quantity of land for sale, aud that by auction,
and in lots of not less than 610 acres,
instead of selling all land which is asked for,
and allowing to the buyer unlimited freedom
of choice, both as to quantity and situation,
at » fixed price. i

sum would be available from sales of
land. It would be necessary, in order
not to overstock the labour-market, to
act in concert with the persons disposed
to remove their own capital to the
colony. The knowledge that a large
amount of hired labour would be avail-
able, in so productive a field of em-
ployment, would ensure a large emi-
gration of capital from a country, like
England, of low profits and rapid ac-
cumulation : and it would only be ne-
cessary not to send out a greatei
number of labourers at one time, than
this capital could absorb and employ at
high wages.

Inasmuch as, on this system, any
given amount of expenditure, once in-
curred, would provide not merely a
single emigration, but a perpetually
flowing stream of emigrants, which
would increase in breadth and depth
as it flowed on ; this mode of relieving
overpopulation has a recommendation,
not possessed by any other plan ever
proposed for making head against the
consequences of increase without re-
straining the increase itself: there is
an element of indefiniteness in it ; no
one can perfectly foresee how far its
influence, as a vent for surplus popu-
lation, might possibly reach. There is
hence the strongest obligation on the
government of a country like our own,
with a crowded population, and unoc-
cupied continents under its command,
to build, as it were, and keep open, a
bridge from the mother country to
those continents, by establishing tho
self-supporting system of colonization
on such a scale, that as great an
amount of emigration as the colonies
can at the time accommodate, may at
all times be able to take place without
cost to the emigrants themselves.

The importance of these considera-
tions, as regards the British islands,
has been of late considerably di-
minished by the unparalleled amount of
spontaneous emigration from Ireland;
an emigration not eolely of small
farmers, but of the poorest class of
agricultural labourers, and which is at
once voluntary and self-supporting, the
succession of emigrants being kept up
by funds contributed from the earnings

LIMITS OF THE PROVINCE OF GOVERNMENT.

6B9

of their relatives and connexions who
had gone before. To this has been
added a large amount of voluntary
emigration to the seats of the gold dis-
coveries, which has partly supplied the
wants of our most distant colonies,
where, both for local and national in-
terests, it was most of all required.
But the stream of both these emigra-
tions has already considerably slack-
ened, and though that from Ireland has
since partially revived, it is not certain
that the aid of government in a sys-
tematic form, and on the self-sup-
porting principle, will not again be-
come necessary to keep the communi-
cation open between the hands needing
work in England, and the work which
needs hands elsewhere.

§ 15. The same principle which
points out colonization, and the relief
of the indigent, as cases to which the
principal objection to government in-
terference does not apply, extends also
to a variety of cases, in which impor-
tant public services are to be per-
formed, while yet there is no indi-
vidual specially interested in perform-
ing them, nor would any adequate
remuneration naturally or spontane-
ously attend their performance. Take
for instance a voyage of geographical
or scientific exploration. The infor-
mation sought may be of great public
value, yet no individual would derive
any benefit from it which would repay
the expense of fitting out the expe-
dition ; and there is no mode of inter-
cepting the benefit on its way to those
•who profit by it, in order to levy a toll
for the remuneration of its authors.
Such voyages are, or might be, under-
taken by private subscription ; but this
is a rare and precarious resource. In-
stances are more frequent in which the
expense has been borne by public com-

E uuies or philanthropic associations ;
ut in general such enterprises have
been conducted at the expense of go-
vernment, which is thus enabled to en-
trust them to the persons in its judg-
ment best qualified for the task.
Again, it is a proper office of govern-
ment to build and maintain light-
houses, establish buoys, &c., for the

security of navigation : for since it i?
impossible that the ships at sea which
arc benefited by a lighthouse, should
be made to pay a toll on the occasion
of its use, no one would build light-
houses from motives of personal inte-
rest, unless indemnified and rewarded
from a compulsory levy made by the
state. There are many scientific re-
searches, of great value to a nation
and to mankind, requiring assiduous
devotion of time and labour, and not
unfrequently great expense, by persons
who can obtain a high price for their
services in other ways. If the govern-
ment had no power to grant indemnity
for expense, and remuneration for time
and labour thus employed, such re
searches could only be undertaken by
the very few persons who, with an
independent fortune, unite technical
knowledge, laborious habits, and either
great public spirit, or an ardent desire
of scientific celebrity.

Connected with this subject is the
question of providing, by means of en-
dowments or salaries, for the mainte-
nance of what has been called a
learned class. The cultivation of
speculative knowledge, though one of
the most useful of all employments, is
a service rendered to a community
collectively, not individually, and one
consequently for which it is, priina
facie, reasonable that the community
collectively should pay ; since it gives no
claim on any individual for a pecuniary
remuneration ; and unless a provision
is made for such services from some
public fund, there is not only no en
couragement to them, but there is as
much discouragement as is implied in
the impossibility of gaining a living
by such pursuits, and the necessity
consequently imposed on most of those
who would be capable of them, to em-
ploy the greatest part of their time
in gaining a subsistence. The evil,
however, is greater in appearance than
in reality. The greatest things, it ha*
been said, have generally been done
by those who had the least time at
their disposal ; and the occupation ot
some hours every day in a routine em-
ployment, has often been found com-
patible with the most brilliant achieve-

590

BOOK V. CHAPTER XI. § 16.

ments in literature and philosophy.
Yet there are investigations and ex-
periments which require not only a
long but a continuous devotion of time
and attention : there are also occupa-
tions which so engross and fatigue the
mental faculties, as to he inconsistent
with any vigorous employment of
them upon other subjects, even in
intervals of leisure. It is highly de-
sirable, therefore, that there should be
a mode of ensuring to the public the
services of scientific discoverers, and
perhaps of some other classes of savans,
by affording them the means of sup-
port consistently with devoting a suf-
ficient portion of time to their peculiar
pursuits. The fellowships of the Uni-
versities are an institution excellently
adapted for such a purpose ; but are
hardly ever applied to it, being be-
stowed, at the best, as a reward for
past proficiency, in committing to
memory what has been done by others,
and not as the salary of future labours
in the advancement of knowledge. In
some countries, Academies of science,
antiquities, history, &c., have been
formed, with emoluments annexed.
The most effectual plan, and at the
same time the least liable to abuse,
seems to be that of conferring Pro-
fessorships, with duties of instruction
attached to them. The occupation of
teaching a branch of knowledge, at
least in its higher departments, is a
help rather than an impediment to the
systematic cultivation of the subject
itself. The duties of a professorship
almost always leave much time for
original researches, and the greatest
advances which have been made in
the various sciences, both moral and
physical, have originated with those
who were public teachers of them ;
from Plato and Aristotle to the great
lames of the Scotch, French, and
U erman Universities. I do not men-
tion the English, because, until very
.titely, their professorships have been,
as is well known, little more than
nominal. In the case, too, of a lec-
turer in a great institution of educa-
tion, the public at large has the means
Df judging, if not the quality of the
teaching, at least the talents and in-

dustry of the teacher; and it is more
difficult to misemploy the power of
appointment to such an office, than to
job in pensions and salaries to persons
not so directly before the public eye.

It may be said generally, that any-
thing which it is desirable should be
done for the general interests of man-
kind or of future generations, or for the
present interests of those members of
the community who require external
aid, but which is not of a nature to re-
munerate individuals or associations
for undertaking it, is in itself a suitable
thing to be undertaken by govern-
ment : though, before making the work
their own, governments ought always
to consider if there be any rational
probability of its being done on what
is called the voluntary principle, and if
so, whether it is likely to be done in a
better or more effectual manner by
government agency, than by the zeal
and liberality of individuals.

§ 16. The preceding heads com-
prise, to the best of my judgment, the
whole of the exceptions to the practical
maxim, that the business of society
can be best performed by private and
voluntary agency. It is, however,
necessary to add, that the intervention
of government cannot always practi-
cally stop short at the limit which de-
fines the cases intrinsically suitable for
it. In the particular circumstances of
a given age or nation, there is scarcely
anything, really important to the gene-
ral interest, which it may not be de-
sirable, or even necessary, that the
government should take upon itself,
not because private individuals cannot
effectually perform it, but because they-
will not. At some times and places
there will be no roads, docks, harbours,
canals, works of irrigation, Hospitals,
schools, colleges, printing presses, un-
less the government establishes them ;
the public being either too poor to
command the necessary resources, 01
too littlo advanced in intelligence to
appreciate the ends, or not sufficiently
practised in joint action to be capable
:>f the means. This is true, more or
less, of all countries inured to d- spo-
tism, and particularly of those in which

LIMITS OF THE PROVINCE OF GOVERNMENT.

591

there is a very wide distance in civili-
zation between the people and the
government: as in those which have
been conquered and are retained in
subjection by a more energetic and
more cultivated people. In many parts
of the world, the people can do nothing
for themselves which requires large
means and combined action ; all such
things are left undone, unless done by
the state. In these cases, the mode iu
which the government can most surely
Jemonstrate the sincerity with which
it intends the greatest good of its
subjects, is by doing the things which
are made incumbent on it by the help-
lessness of the public, in such a manner
as shall tend not to increase and per-
petuate but to correct that helpless-
ness. A good government will givo all
its aid in such a shape, as to encourage
and nurture any rudiments it may find
of a spirit of individual exertion. It
will be assiduous in removing obstacles
and discouragements to voluntary en-
terprise, and in giving whatever facili-
ties and whatever direction and guid-
ance may be necessary : its pecuniary
means will be applied, when practi-
cable, in aid of private efforts rather
than in supersession of them, and it
will call into play its machinery of re-
wards and honours to elicit such efforts.

Government aid, when given merely
in default of private enterprise, should
bo so given as to be as far as possible
a course of education for the people
in the art of accomplishing great
objects by individual energy and volun-
tary co-operation.

I have not thought it necessary here
to insist on that part of the functions
of government which all admit to be
indispensable, the function of prohibit-
ing and punishing such conduct on the
part of individuals in the exercise of
their freedom, as is clearly injurious to
otlu.T persons, whether the case be one
of force, fraud, or negligence. Even in
the best state which society has yet
reached, it is lamentable to think how
great a proportion of all the efforts and
talents in the world are employed in
merely neutralizing one another. It
is the proper end of government to re-
duce this wretched waste to the smallest
possible amount, by taking such mea-
sures as shall cause the energies now
spent by mankind in injuring one
another, or in protecting themselves
against injury, to be turned to the
legitimate employment of the human
faculties, that of compelling tho
powers of nature to be more and more
subservient to physical and moral
good.

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