apprehend, of all matters possessing exchangeable value, which the
individual or the nation has in his or in its possession for the purpose
of reproduction, and not for the purpose of the owner's unproductive
enjoyment. All unsold goods, therefore, constitute a part of the
national capital, and of the capital of the producer or dealer to whom
they belong. It is true that tools, materials, and the articles on which
the labourer is supported, are the only articles which are directly
subservient to production: and if I have a capital consisting of money,
or of goods in a warehouse, I can only employ them as means of
production in so far as they are capable of being exchanged for the
articles which conduce directly to that end. But the food, machinery,
&c, which will ultimately be purchased with the goods in my warehouse,
may at this moment not be in the country, may not be even in existence.
If, after having sold the goods, I hire labourers with the money, and
set them to work, I am surely employing capital, though the corn, which
in the form of bread those labourers may buy with the money, may be now
in warehouse at Dantzic, or perhaps not yet above ground.
Whatever, therefore, is destined to be employed reproductively, either
in its existing shape, or indirectly by a previous (or even subsequent)
exchange, is capital. Suppose that I have laid out all the money I
possess in wages and tools, and that the article I produce is just
completed: in the interval which elapses before I can sell the article,
realize the proceeds, and lay them out again in wages and tools, will it
be said that I have no capital? Certainly not: I have the same capital
as before, perhaps a greater, but it is locked up, as the expression is,
and not disposable.
When we have thus seen accurately what really constitutes capital, it
becomes obvious, that of the capital of a country, there is at all times
a very large proportion lying idle. The annual produce of a country is
never any thing approaching in magnitude to what it might be if all the
resources devoted to reproduction, if all the capital, in short, of the
country, were in full employment.
If every commodity on an average remained unsold for a length of time
equal to that required for its production, it is obvious that, at any
one time, no more than half the productive capital of the country would
be really performing the functions of capital. The two halves would
relieve one another, like the semichori in a Greek tragedy; or rather
the half which was in employment would be a fluctuating portion,
composed of varying parts; but the result would be, that each producer
would be able to produce every year only half as large a supply of
commodities, as he could produce if he were sure of selling them the
moment the production was completed.
This, or something like it, is however the habitual state, at every
instant, of a very large proportion of all the capitalists in the world.
The number of producers, or dealers, who turn over their capital, as the
expression is, in the shortest possible time, is very small. There are
few who have so rapid a sale for their wares, that all the goods which
their own capital, or the capital which they can borrow, enables them to
supply, are carried off as fast as they can be supplied. The majority
have not an _extent of business_, at all adequate to the amount of the
capital they dispose of. It is true that, in the communities in which
industry and commerce are practised with greatest success, the
contrivances of banking enable the possessor of a larger capital than he
can employ in his own business, to employ it productively and derive a
revenue from it notwithstanding. Yet even then, there is, of necessity,
a great quantity of capital which remains fixed in the shape of
implements, machinery, buildings, &c, whether it is only half employed,
or in complete employment: and every dealer keeps a stock in trade, to
be ready for a possible sudden demand, though he probably may not be
able to dispose of it for an indefinite period.
This perpetual non-employment of a large proportion of capital, is the
price we pay for the division of labour. The purchase is worth what it
costs; but the price is considerable.
Of the importance of the fact which has just been noticed there are
three signal proofs. One is, the large sum often given for the goodwill
of a particular business. Another is, the large rent which is paid for
shops in certain situations, near a great thoroughfare for example,
which have no advantage except that the occupier may expect a larger
body of customers, and be enabled to turn over his capital more quickly.
Another is, that in many trades, there are some dealers who sell
articles of an equal quality at a lower price than other dealers. Of
course, this is not a voluntary sacrifice of profits: they expect by the
consequent overflow of customers to turn over their capital more
quickly, and to be gainers by keeping the whole of their capital in more
constant employment, though on any given operation their gains are less.
The reasoning cited in the earlier part of this paper, to show the
uselessness of a mere purchaser or customer, for enriching a nation or
an individual, applies only to the case of dealers who have already as
much business as their capital admits of, and as rapid a sale for their
commodities as is possible. To such dealers an additional purchaser is
really of no use; for, if they are sure of selling all their commodities
the moment those commodities are on sale, it is of no consequence whether
they sell them to one person or to another. But it is questionable
whether there be any dealers in whose case this hypothesis is exactly
verified; and to the great majority it is not applicable at all. An
additional customer, to most dealers, is equivalent to an increase of
their productive capital. He enables them to convert a portion of their
capital which was lying idle (and which could never have become
productive in their hands until a customer was found) into wages and
instruments of production; and if we suppose that the commodity, unless
bought by him, would not have found a purchaser for a year after, then
all which a capital of that value can enable men to produce during a
year, is clear gain--gain to the dealer, or producer, and to the
labourers whom he will employ, and thus (if no one sustains any
corresponding loss) gain to the nation. The aggregate produce of the
country for the succeeding year is, therefore, increased; not by the
mere exchange, but by calling into activity a portion of the national
capital, which, had it not been for the exchange, would have remained
for some time longer unemployed.
Thus there are actually at all times producers and dealers, of all, or
nearly all classes, whose capital is lying partially idle, because they
have not found the means of fulfilling the condition which the division
of labour renders indispensable to the full employment of capital,--viz.,
that of exchanging their products with each other. If these persons
could find one another out, they could mutually relieve each other from
this disadvantage. Any two shopkeepers, in insufficient employment, who
agreed to deal at each other's shops so long as they could there
purchase articles of as good a quality as elsewhere, and at as low a
price, would render the nation a service. It may be said that they must
previously have dealt, to the same amount, with some other dealers; but
this is erroneous, since they could only have obtained the means of
purchasing by being previously enabled to sell. By their compact, each
would gain a customer, who would call his capital into fuller employment;
each therefore would obtain an increased produce; and they would thus be
enabled to become better customers to each other than they could be to
third parties.
It is obvious that every dealer who has not business sufficient fully to
employ his capital (which is the case with all dealers when they commence
business, and with many to the end of their lives), is in this
predicament simply for want of some one with whom to exchange his
commodities; and as there are such persons to about the same degree
probably in all trades, it is evident that if these persons sought one
another out, they have their remedy in their own hands, and by each
other's assistance might bring their capital into more full employment.
We are now qualified to define the exact nature of the benefit which a
producer or dealer derives from the acquisition of a new customer. It is
as follows:--
1. If any part of his own capital was locked up in the form of unsold
goods, producing (for a longer period or a shorter) nothing at all;
a portion of this is called into greater activity, and becomes more
constantly productive. But to this we must add some further advantages.
2. If the additional demand exceeds what can be supplied by setting at
liberty the capital which exists in the state of unsold goods; and if
the dealer has additional resources, which were productively invested
(in the public funds, for instance), but not in his own trade; he is
enabled to obtain, on a portion of these, not mere interest, but profit,
and so to gain that difference between the rate of profit and the rate
of interest, which may be considered as "wages of superintendance."
3. If all the dealer's capital is employed in his own trade, and no part
of it locked up as unsold goods, the new demand affords him additional
encouragement to save, by enabling his savings to yield him not merely
interest, but profit; and if he does not choose to save (or until he
shall have saved), it enables him to carry on an additional business
with borrowed capital, and so gain the difference between interest and
profit, or, in other words, to receive wages of superintendance on a
larger amount of capital.
This, it will be found, is a complete account of all the gains which a
dealer in any commodity can derive from an accession to the number of
those who deal with him: and it is evident to every one, that these
advantages are real and important, and that they are the cause which
induces a dealer of any kind to desire an increase of his business.
It follows from these premises, that the arrival of a new unproductive
consumer (living on his own means) in any place, be that place a
village, a town, or an entire country, is beneficial to that place, if
it causes to any of the dealers of the place any of the advantages above
enumerated, without withdrawing an equal advantage of the same kind from
any other dealer of the same place.
This accordingly is the test by which we must try all such questions,
and by which the propriety of the analogical argument, from dealing with
a tradesman to dealing with a nation, must be decided.
Let us take, for instance, as our example, Paris, which is much
frequented by strangers from various parts of the world, who, as
sojourners there, live unproductively upon their means. Let us consider
whether the presence of these persons is beneficial, in an _industrial_
point of view, to Paris.
We exclude from the consideration that portion of the strangers' incomes
which they pay to natives as direct remuneration for service, or labour
of any description. This is obviously beneficial to the country. An
increase in the funds expended in employing labour, whether that labour
be productive or unproductive, tends equally to raise wages. The
condition of the whole labouring class is, so far, benefited. It is true
that the labourers thus employed by sojourners are probably, in part or
altogether, withdrawn from productive employment. But this is far from
being an evil; for either the situation of the labouring classes is
improved, which is far more than an equivalent for a diminution in mere
production, or the rise of wages acts as a stimulus to population, and
then the number of productive labourers becomes as great as before.
To this we may add, that what the sojourners pay as wages of labour or
service (whether constant or casual), though expended unproductively by
the first possessor, may, when it passes into the hands of the receivers,
be by them saved, and invested in a productive employment. If so, a direct
addition is made to the national capital.
All this is obvious, and is sufficiently allowed by political economists;
who have invariably set apart the gains of all persons coming under the
class of domestic servants, as real advantages arising to a place from
the residence there of an increased number of unproductive consumers.
We have only to examine whether the purchases of commodities by these
unproductive consumers, confer the same kind of benefit upon the
village, town, or nation, which is bestowed upon a particular tradesman
by dealing at his shop.
Now it is obvious that the sojourners, on their arrival, confer the
benefit in question upon some dealers, who did not enjoy it before. They
purchase their food, and many other articles, from the dealers in the
place. They, therefore, call the capital of some dealers, which was
locked up in unsold goods, into more active employment. They encourage
them to save, and enable them to receive wages of superintendance upon a
larger amount of capital. These effects being undeniable, the question
is, whether the presence of the sojourners deprives any others of the
Paris dealers of a similar advantage.
It will be seen that it does; and nothing will then remain but a
comparison of the amounts.
It is obvious to all who reflect (and was shown in the paper which
precedes this) that the remittances to persons who expend their incomes
in foreign countries are, after a slight passage of the precious metals,
defrayed in commodities: and that the result commonly is, an increase of
exports and a diminution of imports, until the latter fall short of the
former by the amount of the remittances.
The arrival, therefore, of the strangers (say from England), while it
creates at Paris a market for commodities equivalent in value to their
funds, displaces in the market other commodities to an equal value. To
the extent of the increase of exports from England into France in the
way of remittance, it introduces additional commodities which, by their
cheapness, displace others formerly produced in that country. To the
extent of the diminution of imports into England from France,
commodities which existed or which were habitually produced in that
country are deprived of a market, or can only find one at a price not
sufficient to defray the cost.
It must, therefore, be a matter of mere accident, if by arriving in a
place, the new unproductive consumer causes any net advantage to its
industry, of the kind which we are now examining. Not to mention that
this, like any other change in the channels of trade, may render useless
a portion of fixed capital, and so far injure the national wealth.
A distinction, however, must here be made.
The place to which the new unproductive consumers have come, may be a
town or village, as well as a country. If a town or village, it may
either be or not be a place having an export trade.
If the place had no previous trade except with the immediate
neighbourhood, there are no exports and imports, by the new arrangement
of which, the remittance can be made. There is no capital, formerly
employed in manufacturing for the foreign market, which is now brought
into less full employment.
Yet the remittance evidently is still made in commodities, but in this
case without displacing any which were produced before. To shew this, it
is necessary to make the following remarks.
The reason why towns exist, is that _ceteris paribus_ it is convenient,
in order to save cost of carriage, that the production of commodities
should take place as far as practicable in the immediate vicinity of the
consumer. Capital finds its way so easily from town to country and from
country to town, that the amount of capital in the town will be regulated
wholly by the amount which can be employed there more conveniently than
elsewhere. Consequently the capital of a place will be such as is
sufficient
1st. To produce all commodities which from local circumstances can be
produced there at less cost than elsewhere: and if this be the case to
any great extent, it will be an exporting town. When we say _produced_,
we may add, or _stored_.
2nd. To produce and retail the commodities which are consumed by the
inhabitants of the town, and the place of whose production is in other
respects a matter of indifference. To the inhabitants of the town must
be added such dwellers in the adjoining country, as are nearer to that
place than to any other equally well furnished market.
Now, if new unproductive consumers resort to the place, it is clear that
for the latter of these two purposes, more capital will be required than
before. Consequently, if less is not required for the former purpose,
more capital will establish itself at the place.
Until this additional capital has arrived, the producers and dealers
already on the spot will enjoy great advantages. Every particle of their
own capital will be called into the most active employment. What their
capital does not enable them to supply, will be got from others at a
distance, who cannot supply it on such favourable terms; consequently
they will be in the predicament of possessing a partial monopoly
--receiving for every thing a price regulated by a higher cost of
production than they are compelled to pay. They also, being in possession
of the market, will be enabled to make a large portion of the new capital
pass through their hands, and thus to earn wages of superintendance upon
it.
If, indeed, the place from whence the strangers came, previously traded
with that where they have taken up their abode, the effect of their
arrival is, that the exports of the town will diminish, and that it will
be supplied from abroad with something which it previously produced at
home. In this way an amount of capital will be set free equal to that
required, and there will be no increase on the whole. The removal of the
court from London to Birmingham would not necessarily, though it would
probably [6], increase the amount of capital in the latter place. The
afflux of money to Birmingham, and its efflux from London, would render
it cheaper to make some articles in London for Birmingham consumption;
and to make others in London for home consumption, which were formerly
brought from Birmingham.
But instead of Birmingham, an exporting town, suppose a village, or a
town which only produced and retailed for itself and its immediate
vicinity. The remittances must come thither in the shape of money; and
though the money would not remain, but would be sent away in exchange
for commodities, it would, however, first pass through the hands of the
producers and dealers in the place, and would by them be exported in
exchange for the articles which they require--viz. the materials, tools,
and subsistence necessary for the increased production now required of
them, and articles of foreign luxury for their own increased unproductive
consumption. These articles would not displace any formerly made in the
place, but on the contrary, would forward the production of more.
Hence we may consider the following propositions as established:
1. The expenditure of absentees (the case of domestic servants excepted,)
is not necessarily any loss to the _country_ which they leave, or gain to
the _country_ which they resort to (save in the manner shown in Essay I.):
for almost every _country_ habitually exports and imports to a much
greater value than the incomes of its absentees, or of the foreign
sojourners within it.
2. But sojourners often do much good to the _town_ or village which they
resort to, and absentees harm to that which they leave. The capital of
the petty tradesman in a small town near an absentee's estate, is
deprived of the market for which it is conveniently situated, and must
resort to another to which other capitals lie nearer, and where it is
consequently outbid, and gains less; obtaining only the same price, with
greater expenses. But this evil would be equally occasioned, if, instead
of going abroad, the absentee had removed to his own capital city.
If the tradesman could, in the latter case, remove to the metropolis, or
in the former, employ himself in producing increased exports, or in
producing for home consumption articles now no longer imported, each in
the place most convenient for that operation; he would not be a loser,
though the place which he was obliged to leave might be said to lose.
Paris undoubtedly gains much by the sojourn of foreigners, while the
counteracting loss by diminution of exports from France is suffered by
the great trading and manufacturing towns, Rouen, Bordeaux, Lyons, &c,
which also suffer the principal part of the loss by importation of
articles previously produced at home. The capital thus set free, finds
its most convenient seat to be Paris, since the business to which it
must turn is the production of articles to be unproductively consumed by
the sojourners.
The great trading towns of France would undoubtedly be more flourishing,
if France were not frequented by foreigners.
Rome and Naples are perhaps purely benefited by the foreigners
sojourning there: for they have so little external trade, that their
case may resemble that of the village in our hypothesis.
Absenteeism, therefore, (except as shown in the first Essay,) is a
local, not a national evil; and the resort of foreigners, in so far as
they purchase for unproductive consumption, is not, in any commercial
country, a national, though it may be a local good.
From the considerations which we have now adduced, it is obvious what
is meant by such phrases as a _brisk demand_, and a rapid circulation.
There is a brisk demand and a rapid circulation, when goods, generally
speaking, are sold as fast as they can be produced. There is slackness,
on the contrary, and stagnation, when goods, which have been produced,
remain for a long time unsold. In the former case, the capital which has
been locked up in production is disengaged as soon as the production is
completed; and can be immediately employed in further production. In the
latter case, a large portion of the productive capital of the country is
lying in temporary inactivity.
From what has been already said, it is obvious that periods of "brisk
demand" are also the periods of greatest production: the national
capital is never called into full employment but at those periods. This,
however, is no reason for desiring such times; it is not desirable that
the whole capital of the country should be in full employment. For, the
calculations of producers and traders being of necessity imperfect,
there are always some commodities which are more or less in excess, as
there are always some which are in deficiency. If, therefore, the whole
truth were known, there would always be some classes of producers
contracting, not extending, their operations. If _all_ are endeavouring
to extend them, it is a certain proof that some general delusion is
afloat. The commonest cause of such delusion is some general, or very
extensive, rise of prices (whether caused by speculation or by the
currency) which persuades all dealers that they are growing rich. And
hence, an increase of production really takes place during the progress
of depreciation, as long as the existence of depreciation is not
suspected; and it is this which gives to the fallacies of the currency
school, principally represented by Mr. Attwood, all the little
plausibility they possess. But when the delusion vanishes and the truth
is disclosed, those whose commodities are relatively in excess must
diminish their production or be ruined: and if during the high prices
they have built mills and erected machinery, they will be likely to
repent at leisure.
In the present state of the commercial world, mercantile transactions
being carried on upon an immense scale, but the remote causes of
fluctuations in prices being very little understood, so that
unreasonable hopes and unreasonable fears alternately rule with
tyrannical sway over the minds of a majority of the mercantile public;
general eagerness to buy and general reluctance to buy, succeed one
another in a manner more or less marked, at brief intervals. Except
during short periods of transition, there is almost always either great
briskness of business or great stagnation; either the principal
producers of almost all the leading articles of industry have as many
orders as they can possibly execute, or the dealers in almost all
commodities have their warehouses full of unsold goods.