THAT POLITICAL ECONOMY IS A POSITIVE, NOT AN HYPOTHETICAL
SCIENCE.--DEFINITION OF WEALTH.
In the present Lecture I shall consider whether the science of
Political Economy may be more conveniently based on positive or on
hypothetical principles, and shall afterwards explain, more fully than
I have as yet done, the sense in which I use the word wealth. Mr. John
Mill, who has contributed much to Political Economy, as he has, indeed,
to every science which he has touched, maintains that it is based on
hypothesis. As it is impossible to change Mr. Mill’s language for the
better, I shall extract the material parts of the passage in which he
states and supports this opinion.
“Political Economy,”[D] he says, “is concerned with man solely as a
being who desires to possess wealth, and who is capable of judging of
the comparative efficacy of means for obtaining that end. It predicts
only such of the phenomena of the social state as take place in
consequence of the pursuit of wealth. It makes entire abstraction
of every other human passion or motive, except those which may be
regarded as perpetually antagonising principles to the desire of
wealth; namely, aversion to labour, and desire of the present enjoyment
of costly indulgences. These it takes, to a certain extent, into
its calculations, because these do not merely, like other desires,
occasionally conflict with the pursuit of wealth, but accompany it
always as a drag or impediment, and are therefore inseparably mixed
up in the consideration of it. Political Economy considers mankind as
occupied solely in acquiring and consuming wealth, and aims at showing
what is the course of action into which mankind, living in a state of
society, would be impelled, if that motive, except in the degree in
which it is checked by the two perpetual counter-motives above adverted
to, were absolutely ruler of all their actions. Under the influence of
this desire, it shows mankind accumulating wealth, and employing wealth
in the production of other wealth; sanctioning by mutual agreement the
institution of property; establishing laws to prevent individuals from
encroaching upon the property of others by force or fraud; adopting
various contrivances for increasing the productiveness of their labour;
settling the division of the produce by agreement, under the influence
of competition (competition itself being governed by certain laws,
which laws are therefore the ultimate regulators of the division of
the produce), and employing certain expedients, as money, credit, &c.,
to facilitate the distribution. All these operations, though many of
them are really the result of a plurality of motives, are considered
by Political Economy as flowing solely from the desire of wealth.
The science then proceeds to investigate the laws which govern these
several operations, under the supposition that man is a being who
is determined, by the necessity of his nature, to prefer a greater
proportion of wealth to a smaller in all cases, without any other
exception than that constituted by the two counter-motives already
specified. Not that any political economist was ever so absurd as to
suppose that mankind are really thus constituted, but because this is
the mode in which science must necessarily proceed. When an effect
depends upon a concurrence of causes, those causes must be studied one
at a time, and their laws separately investigated, if we wish, through
the causes, to obtain the power of either predicting or controlling the
effect; since the law of the effect is compounded of the laws of all
the causes which determine it. The law of the centripetal and that of
the tangential force must have been known, before the motions of the
earth and planets could be explained, or many of them predicted. The
same is the case with the conduct of man in society. In order to judge
how he will act under the variety of desires and aversions which are
concurrently operating upon him, we must know how he would act under
the exclusive influence of each one in particular. There is, perhaps,
no action of a man’s life in which he is neither under the immediate
nor under the remote influence of any impulse but the mere desire of
wealth. With respect to those parts of human conduct of which wealth
is not even the principal object, to these Political Economy does not
pretend that its conclusions are applicable. But there are also certain
departments of human affairs, in which the acquisition of wealth is the
main and acknowledged end. It is only of these that Political Economy
takes notice. The manner in which it necessarily proceeds is that of
treating the main and acknowledged end as if it were the sole end;
which, of all hypotheses equally simple, is the nearest to the truth.
The political economist inquires, what are the actions which would be
produced by this desire, if, within the departments in question, it
were unimpeded by any other?
[D] Essays on some Unsettled Questions of Political Economy,
pp. 137, 138, 139, 140, 144, 145.
“It reasons, and, as we contend, must necessarily reason, from
assumptions, not from facts. It is built upon hypotheses strictly
analogous to those which, under the name of definitions, are the
foundation of the other abstract sciences. Geometry presupposes
an arbitrary definition of a line, ‘that which has length but not
breadth.’ Just in the same manner does Political Economy presuppose an
arbitrary definition of man, as a being who invariably does that by
which he may obtain the greatest amount of necessaries, conveniences,
and luxuries, with the smallest quantity of labour and physical
self-denial with which they can be obtained in the existing state of
knowledge. It is true that this definition of man is not formally
prefixed to any work on Political Economy, as the definition of a line
is prefixed to Euclid’s Elements; and in proportion as, by being
so prefixed, it would be less in danger of being forgotten, we may
see ground for regret that it is not done. It is proper that what
is assumed in every particular case, should once for all be brought
before the mind in its full extent, by being somewhere formally stated
as a general maxim. Now, no one who is conversant with systematic
treatises on Political Economy will question, that whenever a
political economist has shown that, by acting in a particular manner,
a labourer may obviously obtain higher wages, a capitalist larger
profits, or a landlord higher rent, he concludes, as a matter of
course, that they will certainly act in that manner. Political Economy,
therefore, reasons from assumed premises--from premises which might
be totally without foundation in fact, and which are not pretended to
be universally in accordance with it. The conclusions of Political
Economy, consequently, like those of geometry, are only true, as
the common phrase is, in the abstract; that is, they are only true
under certain suppositions, in which none but general causes--causes
common to the whole class of cases under consideration--are taken into
account.”
I have extracted this long passage because it is a clear statement
of an original view of the science of Political Economy,--a view so
plausible, indeed so philosophical, that I feel bound either to adopt
it, or to state fully my reasons for rejecting it. I am not aware of
any writer, except, perhaps, Mr. Merivale, who has expressed a formal
concurrence in Mr. Mill’s doctrine; but Mr. Ricardo has practically
assented to it.
His treatment of the science, indeed, is still more abstract than
that proposed by Mr. Mill. He adds to Mr. Mill’s hypothesis other
assumptions equally arbitrary; and he draws all his illustrations, not
from real life, but from hypothetical cases. Out of these materials
he has framed a theory, as to the distribution of wealth, possessing
almost mathematical precision.
But neither the reasoning of Mr. Mill, nor the example of Mr. Ricardo,
induce me to treat Political Economy as an hypothetical science. I
do not think it necessary, and, if unnecessary, I do not think it
desirable.
It appears to me, that if we substitute for Mr. Mill’s hypothesis,
that wealth and costly enjoyment are the _only_ objects of human desire,
the statement that they are universal and constant objects of desire,
that they are desired by all men and at all times, we shall have laid
an equally firm foundation for our subsequent reasonings, and have put
a truth in the place of an arbitrary assumption. We shall not, it is
true, from the fact that by acting in a particular manner a labourer
may obtain higher wages, a capitalist larger profits, or a landlord
higher rent, be able to infer the further fact that they will certainly
act in that manner, but we shall be able to infer that they will do
so in the absence of disturbing causes. And if we are able, as will
frequently be the case, to state the cases in which these causes may
be expected to exist, and the force with which they are likely to
operate, we shall have removed all objection to the positive as opposed
to the hypothetical treatment of the science.
I have said that the hypothetical treatment of the science, if
unnecessary, is undesirable. It appears to me to be open to three great
objections. In the first place it is obviously unattractive. No one
listens to an exposition of what might be the state of things under
given but unreal conditions, with the interest with which he hears a
statement of what is actually taking place.
In the second place, a writer who starts from arbitrarily assumed
premises, is in danger of forgetting, from time to time, their
unsubstantial foundation, and of arguing as if they were true. This
has been the source of much error in Ricardo. He assumed the land of
every country to be of different degrees of fertility, and rent to be
the value of the difference between the fertility of the best and of
the worst land in cultivation. The remainder of the produce he divided
into profit and wages. He assumed that wages naturally amount to
neither more nor less than the amount of commodities which nature or
habit has rendered necessary to maintain the labourer and his family
in health and strength. He assumed that, in the progress of population
and wealth, worse and worse soils are constantly resorted to, and that
agricultural labour, therefore, becomes less and less proportionately
productive; and he inferred that the share of the produce of land taken
by the landlord and by the labourer must constantly increase, and the
share taken by the capitalist constantly diminish.
This was a logical inference, and would consequently have been true
in fact, if the assumed premises had been true. The fact is, however,
that almost every one of them is false. It is not true that rent
depends on the difference in fertility of the different portions
of land in cultivation. It might exist if the whole territory of a
country were of uniform quality. It is not true that the labourer
always receives precisely the necessaries, or even what custom leads
him to consider the necessaries, of life. In civilised countries he
almost always receives much more; in barbarous countries he from time
to time obtains less. It is not true that as wealth and population
advance, agricultural labour becomes less and less proportionately
productive. The corn now raised with the greatest labour in England
is raised with less labour than that which was raised with the least
labour three hundred years ago, or than that which is now raised with
the least labour in Poland. It is not true that the share of the
produce taken by the capitalist is least in the richest countries.
Those are the countries in which it generally is the greatest. Mr.
Ricardo was certainly justified in assuming his premises, provided that
he was always aware, and always kept in mind, that they were merely
assumed. This, however, he seems sometimes not to know, and sometimes
he forgets. Thus he states, as an actual fact, that in an improving
country, the difficulty of obtaining raw produce constantly increases.
He states as a real fact, that a tax on wages falls not on the
labourer but on the capitalist.
He affirms that tithes occasion a proportionate increase in the price
of corn, and a proportionate increase of wages, and therefore are a tax
on the capitalist, not on the landlord. Positions both of which depend
on an assumed fixed amount of wages.
A third objection to reasoning on hypothesis is its liability to error,
either from illogical inference, or from the omission of some element
necessarily incident to the supposed case. When a writer takes his
premises from observation and consciousness, and infers from them what
he supposes to be real facts, if he have committed any grave error, it
generally leads him to some startling conclusion. He is thus warned
of the probable existence of an unfounded premise, or of an illogical
inference, and if he be wise, tries back until he has detected his
mistake. But the strangeness of the results of an hypothesis, gives
no warning. We expect them to differ from what we observe, and lose,
therefore, this incidental means of testing the correctness of our
reasoning.
An illustration of this may be found in the eminently ingenious and
eminently erroneous work of Colonel Torrens, called “The Budget.”
Colonel Torrens supposes the commercial world to consist of only two
countries, equal in wealth and civilisation, which he calls England
and Cuba. He supposes that England has peculiar advantages for the
production of woollens, and Cuba for that of sugar, and that the cloth
of the one, and the sugar of the other, are freely exchanged in
proportion to the labour which each has cost. He then supposes Cuba to
impose a duty on English cloth, which would of course, to a certain
extent, prevent its importation; and he states that the consequence
would be, that England would have to send money to Cuba for sugar,
until the exportation of money had impoverished England, and its
importation had enriched Cuba.
Now if Colonel Torrens, instead of hypothetical, had taken real cases,
if he had inquired, for instance, into the results of the prohibitive
system of France, and had come to the conclusion that that system
increases her wealth, the strangeness of such a result would have
led him to suspect an error in his facts or in his reasoning. But
the strangeness of the result of an imaginary case did not rouse his
suspicion. The fact is, that his hypothetical argument is erroneous;
and the error consists in his not having taken into account an element
essentially incident to his supposed case, namely, the influence of
commercial restrictions on the efficiency of labour. If he had taken
this element into account, he would have found that Cuba, by her
prohibitive system, would diminish the productive power of her labour,
and consequently would find it her interest to import from England
commodities which she previously produced at home; so that the ultimate
result would probably be, rather an export of gold from Cuba than from
England.
Colonel Torrens’s book always reminds me of the suit of clothes which
the Laputa tailor cut on hypothetical data. Unfortunately, however, for
the credit of the Laputa artist, Gulliver tried them on, and the error
which had slipped into the calculation showed itself in every form of
misfit. Happily for Colonel Torrens, and happily for ourselves, we have
not tried on his theory.
But though the objections against founding the science on hypothesis
seem to me decisive, I do not give up hypothetical illustrations.
Such illustrations not only make abstract reasonings more easily
intelligible, they often expose their errors. Conclusions which
appeared to be correct, when the vague terms of capital and labour,
profit and wages, were used, are often found to be erroneous, when an
hypothetical example embodies these abstractions, and endeavours to
show the moral and physical processes by which the supposed result
would be obtained. The absence of such illustrations is one of the
great defects of Adam Smith. Perhaps this very defect contributed
to the popularity of his work. Such illustrations, however useful,
always give an appearance of stiffness and pedantry. The careless
reader or hearer neglects them, and the real student is annoyed at
having to learn the _dramatis personæ_ of an imaginary case. But if
Smith had used them, he would probably have avoided some errors, and
have preserved his successors from many more. His example in this and
in some other respects, introduced a loose, popular mode of treating
Political Economy, which has mainly retarded its progress.
It may be remarked, that I have as yet used the word wealth, without
defining it. I have done so, because I employ it in its popular
sense, and because the ideas usually attached to that word appear to
me to be sufficiently precise, to prevent any danger of my hearers
misunderstanding it. Having now, however, completed the introduction
to the science of Political Economy, having marked out its province,
and stated the mode in which I intend to treat it, I think it advisable
formally to define the term which expresses its subject matter. And
this for two reasons. First, because, in a scientific work, every
technical term ought to be defined; and, secondly, because that term
has been employed by many of those who have preceded me, in senses
differing from that which I adopt.
In ordinary use, and I think it is the most convenient use, wealth
comprehends all those things, and those things only, which, directly
or indirectly, are made the subjects of purchase and sale, of letting
and hiring. For this purpose, they must, in the first place, possess
utility, or, in other words, be capable of affording pleasure or
preventing pain, since no one would purchase or hire anything
absolutely useless. In the second place, they must be limited in
supply, since no one would buy anything of which he might acquire as
much as he pleased by merely taking possession of it. The water in the
open sea is practically unlimited in supply; any one who chooses to go
for it, may have as much of it as he pleases. The portion of it which
has been brought to London to supply salt water baths is limited, and
cannot be obtained, therefore, without payment. In the third place,
nothing is wealth that is not capable of appropriation. Fine weather
is useful, and is limited in supply, but it is not wealth, since it
cannot be appropriated. Some things are capable of appropriation
only under peculiar circumstances. In an extensive, thinly inhabited
plain, light and air are incapable of appropriation, every inhabitant
may enjoy them equally; but in a town, one house intercepts them
from another. A town house, surrounded by an open space, has more
of them than one in a street. The possessor of such a house, and
of the ground which surrounds it, has practically appropriated its
peculiar advantages of light and air; they add to its value, and
form, therefore, part of his wealth. He even may sell them without
parting with his house, by selling the privilege of erecting buildings
which will intercept them. Fourthly, as is implied by the definition,
nothing can be wealth which is not directly or indirectly transferable.
High birth is agreeable and rare, it may add to the happiness of its
possessor, but, as it is absolutely incapable of transfer, it is not
part of his wealth. Most of our personal qualities are only indirectly
transferable; they are transferable, not in themselves, but embodied in
the commodities which their possessor can produce, or in the services
which he can render. The skill of a painter is transferable in the
form of a commodity, his pictures; the skill of a surgeon in that of
a service, the dexterity with which he performs an operation. Such
qualities perish by the death of the possessor, or may be impaired or
destroyed by disease, or rendered valueless by changes in the customs
of the country, which put an end to the demand for their products.
Even to the same person, and under the same circumstances in all other
respects, they may become wealth, or cease to be wealth, merely in
consequence of a change in the social position of their possessor. When
Miss Linley became Mrs. Sheridan, her powers of action and song ceased
to be wealth; they remained the delight of private societies, but were
no longer objects of sale. If Sheridan had condescended to accept an
income on such terms, his wife’s accomplishments would have enriched
him. Subject, however, to these contingencies, personal qualities are
wealth, and wealth of the most valuable kind. The amount of the revenue
derived from their exercise in England, far exceeds the rental of all
its land.
The words wealth and value differ as substance and attribute. All those
things, and those things only, which constitute wealth, are valuable.
As the meaning of the term value has been the subject of long and eager
controversy, I shall, at a future period, consider at some length the
different significations which have been given to it. It is enough to
say at present that I use it in its popular acceptation, as signifying
in anything the quality which fits it to be given and received in
exchange, or, in other words, to be let or sold, hired or purchased.
It follows, from this definition of wealth, that in a community
enjoying perfect abundance, there would be no wealth. If every object
of desire could be procured by a wish, nothing would have value, and
nothing would be exchanged. It follows, also, that it is possible to
conceive at least a temporary diminution of the wealth of a community
occasioned by an increase of their means of enjoyment. This would be
the immediate consequence of any cause which should occasion the supply
of any useful article to change from limited to unlimited. Thus, if
the climate of England could suddenly be changed to that of Bogota,
and the warmth which we extract imperfectly and expensively from fuel
were supplied by the sun, fuel would cease to be useful, except as one
of the productive instruments employed by art. We should want no more
grates or chimney-pieces in our sitting-rooms. What had previously been
a considerable amount of property in the fixtures of houses, in stock
in trade, and materials, would become valueless. Coals would sink in
price; the most expensive mines would be abandoned; those which were
retained would afford smaller rents. The proprietors and tradesmen
specially affected by the change would lose not only in wealth, but
in the means of enjoyment. The owner of a mine whose rent fell from
20,000_l._ a year to 10,000_l._, would not be compensated by being
saved the expense of fuel in every room except his kitchen. On the
other hand, persons without fire-places or coal-cellars of their own,
would lose nothing, and the rest of the world would lose only in the
value of their grates, chimney-pieces, and stocks of coal; and all
would gain in enjoyment by being able to devote to other purposes
the money which they previously paid for artificial warmth. Still
for a time there would be less wealth. That time, indeed, would be
short; the capital and the labour previously devoted to warming our
apartments, would be diverted to the production of new commodities. The
cheapness of coal would increase the supply of manufactured articles,
and there would then be as much wealth as there was before the change;
probably more, and certainly much more enjoyment. It is probable that
salt forms a smaller part of the wealth of England than of Hindostan,
though every Englishman has twenty times as much of it as every Hindoo.
The Englishman is allowed to use freely the abundant supply offered by
nature. In Hindostan there is a natural scarcity, aggravated tenfold by
the Government.
We may conceive a case in which unlimited abundance would destroy
not only the value, but the utility of a whole class of commodities;
would prevent them not merely from being objects of exchange, but even
from being objects of desire. This would be the case as to all the
commodities whose only utility is to be a means of displaying wealth.
If emeralds were suddenly to become as abundant as pebbles, they could
be no longer used as ornaments; and if no other use could be made of
them, and I am not aware of any, they would be valueless. All their
possessors, at the time of the change, would find themselves poorer,
and neither they nor any one else would be compensated by any increased
means of enjoyment. It would be a mere destruction of wealth.
It may be as well to remark, that things may be wealth to individuals
without forming part of the wealth of the community to which those
individuals belong. This is the case with respect to almost all the
wealth created by an artificial limitation of supply. The monopolies
with which Elizabeth rewarded her favourites were wealth to them, but
diminished the wealth of the rest of the community. The same may be
said of a patent right, or of the secrecy of a manufacturing process.
The process itself, which is protected by the patent or by the secrecy,
is part of the wealth of the community, since it enables them to have
more or better commodities; but the monopoly granted by the patent,
or guarded by the secrecy, is wealth only to its owner. As soon as
the patent terminates, or the secret is divulged, the wealth of the
community is increased by the increased abundance of the commodities to
the production of which every one may now apply the process.
Again, the national debt is wealth to the proprietors of stock, but
as the sum received in dividends is paid in taxes, it cannot form a
part of the wealth of the nation. If, indeed, those two sums precisely
coincided, if there were no expenses of collection, and if taxes did
not interfere with the production of wealth, the national debt would
not diminish the national wealth, though it could not augment it. It
would be a mere matter of distribution. But the expense of collecting
the national revenue, and the interference of taxation with production,
are so much pure loss; and by the amount of these two sources of
expense and loss, we should be richer if the national debt were
repudiated.
The wealth which consists merely of a right or credit on the part of A.
with a corresponding duty or debt on the part of B., is not considered
by the political economist. He deals with the things which are the
subjects of the right or of the credit, not with the claims or the
liabilities which may affect them. In fact, the credit amounts merely
to this, that B. has in his hands a part of the property of A.
I have said that my definition of wealth differs from that which has
been adopted by many of my predecessors. Some political economists
extend the term to all the objects of human desire; others restrict it
to what they have called material products; and others to the things
which cannot be acquired or produced without labour. The objections to
the first definition are obvious. If wealth be the subject of Political
Economy, and wealth include all that man desires, Political Economy,
whether a science or an art, is the science or the art which treats of
human happiness--a subject, as I have already remarked, too extensive
to be included in a single treatise. The second, that which confines
wealth to material objects, is more plausible. It includes all visible
wealth, it includes all wealth which is capable of direct and complete
sale. The things which it excludes are mere objects of the intellect.
They may be shared, but cannot be completely transferred, since the
proprietor, though he may impart them, cannot divest himself of them;
they may produce permanent effects, but perish themselves with the
individual mind of which they are qualities. But as they obey, in other
respects, the same laws as material wealth, are obtained by the same
means, and owe their value to the same causes, I think their exclusion
a fatal objection to a definition of wealth. The definition which
confines wealth to the things which cannot be acquired or produced
without labour, differs little from mine, which confines it to things
limited in supply. Whatever must be obtained by labour is necessarily
limited in supply, the supply of labour itself being limited; and, on
the other hand, there are, in fact, scarcely any, if there be any,
commodities limited in supply and capable of transfer, which can be
obtained without some labour. So that wealth is always found subject
to both these incidents. Nor does value appear to depend on either
incident exclusively. A quarter of corn from the best, and one from
the worst land, of equal goodness, sell in the same market at the same
price, though one may have cost three times as much labour as the
other. The pictures of Hans Hemling are far more limited in supply than
those of Raffaelle, and yet they sell for much less.
We can separate, however, the two qualities in our minds. We can
suppose a commodity useful and transferable to be limited in supply,
but that supply to be gratuitously afforded by nature. About 1,980,000
lbs. weight of silver is supposed to be now annually supplied. Now, if
precisely the same quantity of pure silver as is now produced daily in
each refining house, were every day to be supernaturally deposited on
a table in the refining house, and all other sources of supply were
to cease, silver would continue to be limited in supply just as it is
now, but would no longer be procured by labour. Is there any reason
for supposing that its value would alter? If its value would remain
the same, it follows that it depends on limitation of supply, and that
limitation of supply, not the necessity of labour, is the differentia
which constitutes wealth. An uncut copy of an early printed book is
worth, perhaps, ten times as much as a copy which has been fitted to be
read by cutting open its leaves. Because it has cost more labour? No:
it has cost rather less. Because it is more readable? No: it is useless
for the purpose of reading. Simply because such copies are more limited
in supply.