Principles Of Political Economy
By
John Stuart Mill
Abridged, with Critical, Bibliographical,
and Explanatory Notes, and a Sketch
of the History of Political Economy,
By
J. Laurence Laughlin, Ph. D.
Assistant Professor of Political Economy in Harvard University
A Text-Book For Colleges.
New York:
D. Appleton And Company,
1, 3, and 5 Bond Street.
1885
CONTENTS
Preface.
Introductory.
A Sketch Of The History Of Political Economy.
Books For Consultation (From English, French, And German Authors).
Preliminary Remarks.
Book I. Production.
Chapter I. Of The Requisites Of Production.
§ 1. The requisites of production.
§ 2. The Second Requisite of Production, Labor.
§ 3. Of Capital as a Requisite of Production.
Chapter II. Of Unproductive Labor.
§ 1. Definition of Productive and Unproductive Labor.
§ 2. Productive and Unproductive Consumption.
§ 3. Distinction Between Labor for the Supply of Productive
Consumption and Labor for the Supply of Unproductive Consumption.
Chapter III. Of Capital.
§ 1. Capital is Wealth Appropriated to Reproductive Employment.
§ 2. More Capital Devoted to Production than Actually Employed in
it.
§ 3. Examination of Cases Illustrative of the Idea of Capital.
Chapter IV. Fundamental Propositions Respecting Capital.
§ 1. Industry is Limited by Capital.
§ 2. Increase of Capital gives Increased Employment to Labor,
Without Assignable Bounds.
§ 3. Capital is the result of Saving, and all Capital is Consumed.
§ 4. Capital is kept up by Perpetual Reproduction, as shown by the
Recovery of Countries from Devastation.
§ 5. Effects of Defraying Government Expenditure by Loans.
§ 6. Demand for Commodities is not Demand for Labor.
Chapter V. On Circulating And Fixed Capital.
§ 1. Fixed and Circulating Capital.
§ 2. Increase of Fixed Capital, when, at the Expense of Circulating,
might be Detrimental to the Laborers.
§ 3. —This seldom, if ever, occurs.
Chapter VI. Of Causes Affecting The Efficiency Of Production.
§ 1. General Causes of Superior Productiveness.
§ 2. Combination and Division of Labor Increase Productiveness.
§ 3. Advantages of Division of Labor.
§ 4. Production on a Large and Production on a Small Scale.
Chapter VII. Of The Law Of The Increase Of Labor.
§ 1. The Law of the Increase of Production Depends on those of Three
Elements—Labor. Capital, and Land.
§ 2. The Law of Population.
§ 3. By what Checks the Increase of Population is Practically
Limited.
Chapter VIII. Of The Law Of The Increase Of Capital.
§ 1. Means for Saving in the Surplus above Necessaries.
§ 2. Motive for Saving in the Surplus above Necessaries.
§ 3. Examples of Deficiency in the Strength of this Desire.
§ 4. Examples of Excess of this Desire.
Chapter IX. Of The Law Of The Increase Of Production From Land.
§ 1. The Law of Production from the Soil, a Law of Diminishing
Return in Proportion to the Increased Application of Labor and
Capital.
§ 2. Antagonist Principle to the Law of Diminishing Return; the
Progress of Improvements in Production.
§ 3. —In Railways.
§ 4. —In Manufactures.
§ 5. Law Holds True of Mining.
Chapter X. Consequences Of The Foregoing Laws.
§ 1. Remedies for Weakness of the Principle of Accumulation.
§ 2. Even where the Desire to Accumulate is Strong, Population must
be Kept within the Limits of Population from Land.
§ 3. Necessity of Restraining Population not superseded by Free
Trade in Food.
§ 4. —Nor by Emigration.
Book II. Distribution.
Chapter I. Of Property.
§ 1. Individual Property and its opponents.
§ 2. The case for Communism against private property presented.
§ 3. The Socialists who appeal to state-help.
§ 4. Of various minor schemes, Communistic and Socialistic.
§ 5. The Socialist objections to the present order of Society
examined.
§ 6. Property in land different from property in Movables.
Chapter II. Of Wages.
§ 1. Of Competition and Custom.
§ 2. The Wages-fund, and the Objections to it Considered.
§ 3. Examination of some popular Opinions respecting Wages.
§ 4. Certain rare Circumstances excepted, High Wages imply
Restraints on Population.
§ 5. Due Restriction of Population the only Safeguard of a
Laboring-Class.
Chapter III. Of Remedies For Low Wages.
§ 1. A Legal or Customary Minimum of Wages, with a Guarantee of
Employment.
§ 2. —Would Require as a Condition Legal Measures for Repression of
Population.
§ 3. Allowances in Aid of Wages and the Standard of Living.
§ 4. Grounds for Expecting Improvement in Public Opinion on the
Subject of Population.
§ 5. Twofold means of Elevating the Habits of the Laboring-People;
by Education, and by Foreign and Home Colonization.
Chapter IV. Of The Differences Of Wages In Different Employments.
§ 1. Differences of Wages Arising from Different Degrees of
Attractiveness in Different Employments.
§ 2. Differences arising from Natural Monopolies.
§ 3. Effect on Wages of the Competition of Persons having other
Means of Support.
§ 4. Wages of Women, why Lower than those of Men.
§ 5. Differences of Wages Arising from Laws, Combinations, or
Customs.
Chapter V. Of Profits.
§ 1. Profits include Interest and Risk; but, correctly speaking, do
not include Wages of Superintendence.
§ 2. The Minimum of Profits; what produces Variations in the Amount
of Profits.
§ 3. General Tendency of Profits to an Equality.
§ 4. The Cause of the Existence of any Profit; the Advances of
Capitalists consist of Wages of Labor.
§ 5. The Rate of Profit depends on the Cost of Labor.
Chapter VI. Of Rent.
§ 1. Rent the Effect of a Natural Monopoly.
§ 2. No Land can pay Rent except Land of such Quality or Situation
as exists in less Quantity than the Demand.
§ 3. The Rent of Land is the Excess of its Return above the Return
to the worst Land in Cultivation.
§ 4. —Or to the Capital employed in the least advantageous
Circumstances.
§ 5. Opposing Views of the Law of Rent.
§ 6. Rent does not enter into the Cost of Production of Agricultural
Produce.
Book III. Exchange.
Chapter I. Of Value.
§ 1. Definitions of Value in Use, Exchange Value, and Price.
§ 2. Conditions of Value: Utility, Difficulty of Attainment, and
Transferableness.
§ 3. Commodities limited in Quantity by the law of Demand and
Supply: General working of this Law.
§ 4. Miscellaneous Cases falling under this Law.
§ 5. Commodities which are Susceptible of Indefinite Multiplication
without Increase of Cost. Law of their Value Cost of Production.
§ 6. The Value of these Commodities confirm, in the long run, to
their Cost of Production through the operation of Demand and Supply.
Chapter II. Ultimate Analysis Of Cost Of Production.
§ 1. Of Labor, the principal Element in Cost of Production.
§ 2. Wages affect Values, only if different in different
employments; “non-competing groups.”
§ 3. Profits an element in Cost of Production.
§ 4. Cost of Production properly represented by sacrifice, or cost,
to the Laborer as well as to the Capitalist; the relation of this
conception to the Cost of Labor.
§ 5. When profits vary from Employment to Employment, or are spread
over unequal lengths of Time, they affect Values accordingly.
§ 6. Occasional Elements in Cost of Production; taxes and
ground-rent.
Chapter III. Of Rent, 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
Production in the most unfavorable existing circumstances.
§ 2. Such commodities, when Produced in circumstances more
favorable, yield a Rent equal to the difference of Cost.
§ 3. Rent of Mines and Fisheries and ground-rent of Buildings, and
cases of gain analogous to Rent.
§ 4. _Résumé_ of the laws of value of each of the three classes of
commodities.
Chapter IV. Of Money.
§ 1. The three functions of Money—a Common Denominator of Value, a
Medium of Exchange, a “Standard of Value”.
§ 2. Gold and Silver, why fitted for those purposes.
§ 3. Money a mere contrivance for facilitating exchanges, which does
not affect the laws of value.
Chapter V. Of The Value Of Money, As Dependent On Demand And Supply.
§ 1. Value of Money, an ambiguous expression.
§ 2. The Value of Money depends on its quantity.
§ 3. —Together with the Rapidity of Circulation.
§ 4. Explanations and Limitations of this Principle.
Chapter VI. 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.
§ 2. —Which is determined by the cost of production.
§ 3. This law, how related to the principle laid down in the
preceding chapter.
Chapter VII. Of A Double Standard And Subsidiary Coins.
§ 1. Objections to a Double Standard.
§ 2. The use of the two metals as money, and the management of
Subsidiary Coins.
§ 3. The experience of the United States with a double standard from
1792 to 1883.
Chapter VIII. Of Credit, As A Substitute For Money.
§ 1. Credit not a creation but a Transfer of the means of
Production.
§ 2. In what manner it assists Production.
§ 3. Function of Credit in economizing the use of Money.
§ 4. Bills of Exchange.
§ 5. Promissory Notes.
§ 6. Deposits and Checks.
Chapter IX. Influence Of Credit On Prices.
§ 1. What acts on prices is Credit, in whatever shape given.
§ 2. Credit a purchasing Power, similar to Money.
§ 3. Great extensions and contractions of Credit. Phenomena of a
commercial crisis analyzed.
§ 4. Influence of the different forms of Credit on Prices.
§ 5. On what the use of Credit depends.
§ 6. What is essential to the idea of Money?
Chapter X. Of An Inconvertible Paper Currency.
§ 1. What determines the value of an inconvertible paper money?
§ 2. If regulated by the price of Bullion, as inconvertible Currency
might be safe, but not Expedient.
§ 3. Examination of the doctrine that an inconvertible Current is
safe, if representing actual Property.
§ 4. Experiments with paper Money in the United States.
§ 5. Examination of the gain arising from the increase and issue of
paper Currency.
§ 6. _Résumé_ of the subject of money.
Chapter XI. Of Excess Of Supply.
§ 1. The theory of a general Over-Supply of Commodities stated.
§ 2. The supply of commodities in general can not exceed the power
of Purchase.
§ 3. There can never be a lack of Demand arising from lack of Desire
to Consume.
§ 4. Origin and Explanation of the notion of general Over-Supply.
Chapter XII. Of Some Peculiar Cases Of Value.
§ 1. Values of commodities which have a joint cost of production.
§ 2. Values of the different kinds of agricultural produce.
Chapter XIII. Of International Trade.
§ 1. Cost of Production not a regulator of international values.
Extension of the word “international.”
§ 2. Interchange of commodities between distance places determined
by differences not in their absolute, but in the comparative, costs
of production.
§ 3. The direct benefits of commerce consist in increased Efficiency
of the productive powers of the World.
§ 4. —Not in a Vent for exports, nor in the gains of Merchants.
§ 5. Indirect benefits of Commerce, Economical and Moral; still
greater than the Direct.
Chapter XIV. Of International Values.
§ 1. The values of imported commodities depend on the Terms of
international interchange.
§ 2. The values of foreign commodities depend, not upon Cost of
Production, but upon Reciprocal Demand and Supply.
§ 3. —As illustrated by trade in cloth and linen between England and
Germany.
§ 4. The conclusion states in the Equation of International Demand.
§ 5. The cost to a country of its imports depends not only on the
ratio of exchange, but on the efficiency of its labor.
Chapter XV. Of Money Considered As An Imported Commodity.
§ 1. Money imported on two modes; as a Commodity, and as a medium of
Exchange.
§ 2. As a commodity, it obeys the same laws of Value as other
imported Commodities.
Chapter XVI. Of The Foreign Exchanges.
§ 1. Money passes from country to country as a Medium of Exchange,
through the Exchanges.
§ 2. Distinction between Variations in the Exchanges which are
self-adjusting and those which can only be rectified through Prices.
Chapter XVII. 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.
§ 2. The preceding Theorem further illustrated.
§ 3. The precious metals, as money, are of the same Value, and
distribute themselves according to the same Law, with the precious
metals as a Commodity.
§ 4. International payments entering into the “financial account.”
Chapter XVIII. Influence Of The Currency On The Exchanges And On
Foreign Trade.
§ 1. Variations in the exchange, which originate in the Currency.
§ 2. Effect of a sudden increase of a metallic Currency, or of the
sudden creation of Bank-Notes or other substitutes for Money.
§ 3. Effect of the increase of an inconvertible paper Currency. Real
and nominal exchange.
Chapter XIX. Of The Rate Of Interest.
§ 1. The Rate of Interest depends on the Demand and Supply of Loans.
§ 2. Circumstances which Determine the Permanent Demand and Supply
of Loans.
§ 3. Circumstances which Determine the Fluctuations.
§ 4. The Rate of Interest not really Connected with the value of
Money, but often confounded with it.
§ 5. The Rate of Interest determines the price of land and of
Securities.
Chapter XX. Of The Competition Of Different Countries In The Same
Market.
§ 1. Causes which enable one Country to undersell another.
§ 2. High wages do not prevent one Country from underselling
another.
§ 3. Low wages enable a Country to undersell another, when Peculiar
to certain branches of Industry.
§ 4. —But not when common to All.
§ 5. Low profits as affecting the carrying Trade.
Chapter XXI. Of Distribution, As Affected By Exchange.
§ 1. Exchange and money make no Difference in the law of Wages.
§ 2. In the law of Rent.
§ 3. —Nor in the law of Profits.
Book IV. Influence Of The Progress Of Society On Production And
Distribution.
Chapter I. Influence Of The Progress Of Industry And Population On
Values And Prices.
§ 1. Tendency of the progress of society toward increased Command
over the powers of Nature; increased Security, and increased
Capacity of Co-Operation.
§ 2. Tendency to a Decline of the Value and Cost of Production of
all Commodities.
§ 3. —except the products of Agriculture and Mining, which have a
tendency to Rise.
§ 4. —that tendency from time to time Counteracted by Improvements
in Production.
§ 5. Effect of the Progress of Society in moderating fluctuations of
Value.
Chapter II. Influence Of The Progress Of Industry And Population On
Rents, Profits, And Wages.
§ 1. Characteristic features of industrial Progress.
§ 2. First two cases, Population and Capital increasing, the arts of
production stationary.
§ 3. The arts of production advancing, capital and population
stationary.
§ 4. Theoretical results, if all three Elements progressive.
§ 5. Practical Results.
Chapter III. Of The Tendency Of Profits To A Minimum.
§ 1. Different Theories as to the fall of Profits.
§ 2. What determines the minimum rate of Profit?
§ 3. In old and opulent countries, profits habitually near to the
minimum.
§ 4. —prevented from reaching it by commercial revulsions.
§ 5. —by improvements in Production.
§ 6. —by the importation of cheap Necessaries and Implements.
§ 7. —by the emigration of Capital.
Chapter IV. Consequences Of The Tendency Of Profits To A Minimum, And
The Stationary State.
§ 1. Abstraction of Capital not necessarily a national loss.
§ 2. In opulent countries, the extension of machinery not
detrimental but beneficial to Laborers.
§ 3. Stationary state of wealth and population dreaded by some
writers, but not in itself undesirable.
Chapter V. On The Possible Futurity Of The Laboring-Classes.
§ 1. The possibility of improvement while Laborers remain merely
receivers of Wages.
§ 2.—through small holdings, by which the landlord’s gain is shared.
§ 3. —through co-operation, by which the manager’s wages are shared.
§ 4. Distributive Co-operation.
§ 5. Productive Co-Operation.
§ 6. Industrial Partnership.
§ 7. People’s Banks.
Book V. On The Influence Of Government.
Chapter I. On The General Principles Of Taxation.
§ 1. Four fundamental rules of Taxation.
§ 2. Grounds of the principle of Equality of Taxation.
§ 3. Should the same percentage be levied on all amounts of Income?
§ 4. Should the same percentage be levied on Perpetual and on
Terminable Incomes?
§ 5. The increase of the rent of land from natural causes a fit
subject of peculiar Taxation.
§ 6. Taxes falling on Capital not necessarily objectionable.
Chapter II. Of Direct Taxes.
§ 1. Direct taxes either on income or expenditure.
§ 2. Taxes on rent.
§ 3. —on profits.
§ 4. —on Wages.
§ 5. —on Income.
§ 6. A House-Tax.
Chapter III. Of Taxes On Commodities, Or Indirect Taxes.
§ 1. A Tax on all commodities would fall on Profits.
§ 2. Taxes on particular commodities fall on the consumer.
§ 3. Peculiar effects of taxes on Necessaries.
§ 4. —how modified by the tendency of profits to a minimum.
§ 5. Effects of discriminating Duties.
§ 6. Effects produced on international Exchange by Duties on Exports
and on Imports.
Chapter IV. Comparison Between Direct And Indirect Taxation.
§ 1. Arguments for and against direct Taxation.
§ 2. What forms of indirect taxation are most eligible?
§ 3. Practical rules for indirect taxation.
§ 4. Taxation systems of the United States and other Countries.
§ 5. A _Résumé_ of the general principles of taxation.
Chapter V. Of A National Debt.
§ 1. Is it desirable to defray extraordinary public expenses by
loans?
§ 2. Not desirable to redeem a national Debt by a general
Contribution.
§ 3. In what cases desirable to maintain a surplus revenue for the
redemption of Debt.
Chapter VI. Of An Interference Of Government Grounded On Erroneous
Theories.
§ 1. The doctrine of Protection to Native Industry.
§ 2. —had its origin in the Mercantile System.
§ 3. —supported by pleas of national subsistence and national
defense.
§ 4. —on the ground of encouraging young industries; colonial
policy.
§ 5. —on the ground of high wages.
§ 6. —on the ground of creating a diversity of industries.
§ 7. —on the ground that it lowers prices.
Appendix I. Bibliographies.
Appendix II. Examination Questions.
Footnotes
PREFACE.
An experience of five years with Mr. Mill’s treatise in the class-room not
only convinced me of the great usefulness of what still remains one of the
most lucid and systematic books yet published which cover the whole range
of the study, but I have also been convinced of the need of such additions
as should give the results of later thinking, without militating against
the general tenor of Mr. Mill’s system; of such illustrations as should
fit it better for American students, by turning their attention to the
application of principles in the facts around us; of a bibliography which
should make it easier to get at the writers of other schools who offer
opposing views on controverted questions; and of some attempts to lighten
those parts of his work in which Mr. Mill frightened away the reader by an
appearance of too great abstractness, and to render them, if possible,
more easy of comprehension to the student who first approaches Political
Economy through this author. Believing, also, that the omission of much
that should properly be classed under the head of Sociology, or Social
Philosophy, would narrow the field to Political Economy alone, and aid,
perhaps, in clearer ideas, I was led to reduce the two volumes into one,
with, of course, the additional hope that the smaller book would tempt
some readers who might hesitate to attack his larger work. In consonance
with the above plan, I have abridged Mr. Mill’s treatise, yet have always
retained his own words; although it should be said that they are not
always his consecutive words. Everything in the larger type on the page is
taken literally from Mr. Mill, and, whenever it has been necessary to use
a word to complete the sense, it has been always inserted in square
brackets. All additional matter introduced by me has been printed in a
smaller but distinctive type. The reader can see at a glance which part of
the page is Mr. Mill’s and which my own.
It has seemed necessary to make the most additions to the original
treatise under the subjects of the Wages Question; of Wages of
Superintendence; of Socialism; of Cost of Production; of Bimetallism; of
the Paper Money experiments in this country; of International Values; of
the Future of the Laboring-Classes (in which the chapter was entirely
rewritten); and of Protection. The treatment of Land Tenures has not been
entirely omitted, but it does not appear as a separate subject, because it
has at present less value as an elementary study for American students.
The chapters on Land Tenures, the English currency discussion, and much of
Book V, on the Influence of Government, have been simply omitted. In one
case I have changed the order of the chapters, by inserting Chap. XV of
Book III, treating of a standard of value, under the chapter treating of
money and its functions. In other respects, the same order has been
followed as in the original work.
Wherever it has seemed possible, American illustrations have been inserted
instead of English or Continental ones.
To interest the reader in home problems, twenty-four charts have been
scattered throughout the volume, which bear upon our own conditions, with
the expectation, also, that the different methods of graphic
representation here presented would lead students to apply them to other
questions. They are mainly such as I have employed in my class-room. The
use and preparation of such charts ought to be encouraged. The earlier
pages of the volume have been given up to a “Sketch of the History of
Political Economy,” which aims to give the story of how we have arrived at
our present knowledge of economic laws. The student who has completed Mill
will then have a very considerable bibliography of the various schools and
writers from which to select further reading, and to select this reading
so that it may not fall wholly within the range of one class of writers.
But, for the time that Mill is being first studied, I have added a list of
the most important books for consultation. I have also collected, in
Appendix I, some brief bibliographies on the Tariff, on Bimetallism, and
on American Shipping, which may be of use to those who may not have the
means of inquiring for authorities, and in Appendix II a number of
questions and problems for the teacher’s use.
In some cases I have omitted Mr. Mill’s statement entirely, and put in its
stead a simpler form of the same exposition which I believed would be more
easily grasped by a student. Of such cases, the argument to show that
Demand for Commodities is not Demand for Labor, the Doctrine of
International Values, and the Effect of the Progress of Society on wages,
profits, and rent, are examples. Whether I have succeeded or not, must be
left for the experience of the teacher to determine. Many small figures
and diagrams have been used throughout the text, in order to suggest the
concrete means of getting a clear grasp of a principle.
In conclusion, I wish to acknowledge my indebtedness to several friends
for assistance in the preparation of this volume, among whom are Professor
Charles F. Dunbar, Dr. F. W. Taussig, Dr. A. B. Hart, and Mr. Edward
Atkinson.
J. LAURENCE LAUGHLIN.
HARVARD UNIVERSITY, CAMBRIDGE, MASSACHUSETTS,
_September, 1884._
[Illustration: Population Map of eastern United States, 1830]
Chart I
[Illustration: Population Map of United States, 1880]
Chart II
INTRODUCTORY.
A Sketch Of The History Of Political Economy.
GENERAL BIBLIOGRAPHY.—There is no satisfactory general history of
political economy in English. Blanqui’s “Histoire de l’économie
politique en Europe” (Paris, 1837) is disproportioned and
superficial, and he labors under the disadvantage of not
understanding the English school of economists. He studies to give
the history of economic facts, rather than of economic laws. The
book has been translated into English (New York, 1880).
Villeneuve-Bargemont, in his “Histoire de l’économie politique”
(Paris, 1841), aims to oppose a “Christian political economy” to
the “English” political economy, and indulges in religious
discussions.
Travers Twiss, “View of the Progress of Political Economy in
Europe since the Sixteenth Century” (London, 1847), marked an
advance by treating the subject in the last four centuries, and by
separating the history of principles from the history of facts. It
is brief, and only a sketch. Julius Kautz has published in German
the best existing history, “Die geschichtliche Entwickelung der
National-Oekonomie und ihrer Literatur” (Vienna, 1860). (See
Cossa, “Guide to the Study of Political Economy,” page 80.) Cossa
in his book has furnished a vast amount of information about
writers, classified by epochs and countries, and a valuable
discussion of the divisions of political economy by various
writers, and its relation to other sciences. It is a very
desirable little hand-book. McCulloch, in his “Introduction to the
Wealth of Nations,” gives a brief sketch of the growth of economic
doctrine. The editor begs to acknowledge his great indebtedness
for information to his colleague, Professor Charles F. Dunbar, of
Harvard University.
Systematic study for an understanding of the laws of political economy is
to be found no farther back than the sixteenth century. The history of
political economy is not the history of economic institutions, any more
than the history of mathematics is the history of every object possessing
length, breadth, and thickness. Economic history is the story of the
gradual evolution in the thought of men of an understanding of the laws
which to-day constitute the science we are studying. It is essentially
modern.(1)
Aristotle(2) and Xenophon had some comprehension of the theory of money,
and Plato(3) had defined its functions with some accuracy. The economic
laws of the Romans were all summed up in the idea of enriching the
metropolis at the expense of the dependencies. During the middle ages no
systematic study was undertaken, and the nature of economic laws was not
even suspected.
It is worth notice that the first glimmerings of political economy came to
be seen through the discussions on money, and the extraordinary movements
of gold and silver. About the time of Charles V, the young study was born,
accompanied by the revival of learning, the Reformation, the discovery of
America, and the great fall in the value of gold and silver. Modern
society was just beginning, and had already brought manufactures into
existence—woolens in England, silks in France, Genoa, and Florence; Venice
had become the great commercial city of the world; the Hanseatic League
was carrying goods from the Mediterranean to the Baltic; and the Jews of
Lombardy had by that time brought into use the bill of exchange. While the
supply of the precious metals had been tolerably constant hitherto, the
steady increase of business brought about a fall of prices. From the
middle of the fourteenth to the end of the fifteenth century the
purchasing power of money increased in the ratio of four to ten. Then into
this situation came the great influx of gold and silver from the New
World. Prices rose unequally; the trading and manufacturing classes were
flourishing, while others were depressed. In the sixteenth century the
price of wheat tripled, but wages only doubled; the laboring-classes of
England deteriorated, while others were enriched, producing profound
social changes and the well-known flood of pauperism, together with the
rise of the mercantile classes. Then new channels of trade were opened to
the East and West. Of course, men saw but dimly the operation of these
economic causes; although the books now began to hint at the right
understanding of the movements and the true laws of money.
Even before this time, however, Nicole Orêsme, Bishop of Lisieux (died
1382), had written intelligently on money;(4) but, about 1526, the
astronomer Copernicus gave a very good exposition of some of the functions
of money. But he, as well as Latimer,(5) while noticing the economic
changes, gave no correct explanation. The Seigneur de Malestroit, a
councilor of the King of France, however, by his errors drew out Jean
Bodin(6) to say that the rise of prices was due to the abundance of money
brought from America. But he was in advance of his time, as well as
William Stafford,(7) the author of the first English treatise on money,
which showed a perfect insight into the subject. Stafford distinctly
grasped the idea that the high prices brought no loss to merchants, great
gain to those who held long leases, and loss to those who did not buy and
sell; that, in reality, commodities were exchanged when money was passed
from hand to hand.
Such was the situation(8) which prefaced the first general system destined
to be based on supposed economic considerations, wrongly understood, to be
sure, but vigorously carried out. I refer to the well-known mercantile
system which over-spread Europe.(9) Spain, as the first receiver of
American gold and silver, attributed to it abnormal power, and by heavy
duties and prohibitions tried to keep the precious metals to herself. This
led to a general belief in the tenets of the mercantile system, and its
adoption by all Europe. 1. It was maintained that, where gold and silver
abounded, there would be found no lack of the necessaries of life; 2.
Therefore governments should do all in their power to secure an abundance
of money. Noting that commerce and political power seemed to be in the
hands of the states having the greatest quantity of money, men wished
mainly to create such a relation of exports and imports of goods as would
bring about an importation of money. The natural sequence of this was, the
policy of creating a favorable “balance of trade” by increasing exports
and diminishing imports, thus implying that the gain in international
trade was not a mutual one. The error consisted in supposing that a nation
could sell without buying, and in overlooking the instrumental character
of money. The errors even went so far as to create prohibitory
legislation, in the hope of shutting out imported goods and keeping the
precious metals at home. The system spread over Europe, so that France
(1544) and England (1552) forbade the export of specie. But, with the more
peaceful conditions at the end of the sixteenth century, the expansion of
commerce, the value of money became steadier, and prices advanced more
slowly.
Italian writers were among the first to discuss the laws of money
intelligently,(10) but a number of acute Englishmen enriched the
literature of the subject,(11) and it may be said that any modern study of
political economy received its first definite impulse from England and
France.
The prohibition of the export of coin was embarrassing to the East India
Company and to merchants; and Mun tried to show that freedom of
exportation would increase the amount of gold and silver in a country,
since the profits in foreign trade would bring back more than went out. It
probably was not clear to them, however, that the export of bullion to the
East was advantageous, because the commodities brought back in return were
more valuable in England than the precious metals. The purpose of the
mercantilists was to increase the amount of gold and silver in the
country. Mun, with some penetration, had even pointed out that too much
money was an evil; but in 1663 the English Parliament removed the
restriction on the exportation of coin. The balance-of-trade heresy, that
exports should always exceed imports (as if merchants would send out goods
which, when paid for in commodities, should be returned in a form of less
value than those sent out!), was the outcome of the mercantile system, and
it has continued in the minds of many men to this day. The policy which
aimed at securing a favorable balance of trade, and the plan of protecting
home industries, had the same origin. If all consumable goods were
produced at home, and none imported, that would increase exports, and
bring more gold and silver into the country. As all the countries of
Europe had adopted the mercantile theory after 1664, retaliatory and
prohibitory tariffs were set up against each other by England, France,
Holland, and Germany. Then, because it was seen that large sums were paid
for carrying goods, in order that no coin should be required to pay
foreigners in any branch of industry, navigation laws were enacted, which
required goods to be imported only in ships belonging to the importing
nation. These remnants of the mercantile system continue to this day in
the shipping laws of this and other countries.(12)
A natural consequence of the navigation acts, and of the mercantile
system, was the so-called colonial policy, by which the colonies were
excluded from all trade except with the mother-country. A plantation like
New England, which produced commodities in competition with England, was
looked upon with disfavor for her enterprise; and all this because of the
fallacy, at the foundation of the mercantile system, that the gain in
international trade is not mutual, but that what one country gains another
must lose.(13)
An exposition of mercantilism would not be complete without a statement of
the form it assumed in France under the guidance of Colbert,(14) the great
minister of Louis XIV, from 1661 to 1683. In order to create a favorable
balance of trade, he devoted himself to fostering home productions, by
attempts to abolish vexatious tolls and customs within the country, and by
an extraordinary system of supervision in manufacturing establishments
(which has been the stimulus to paternal government from which France has
never since been able to free herself). Processes were borrowed from
England, Germany, and Sweden, and new establishments for making tapestries
and silk goods sprang up; even the sizes of fabrics were regulated by
Colbert, and looms unsuitable for these sizes destroyed. In 1671
wool-dyers were given a code of detailed instructions as to the processes
and materials that might be used. Long after, French industry felt the
difficulty of struggling with stereotyped processes. His system, however,
naturally resulted in a series of tariff measures (in 1664 and 1667).
Moderate duties on the exportation of raw materials were first laid on,
followed by heavy customs imposed on the importation of foreign goods. The
shipment of coin was forbidden; but Colbert’s criterion of prosperity was
the favorable balance of trade. French agriculture was overlooked. The
tariff of 1667 was based on the theory that foreigners must of necessity
buy French wines, lace, and wheat; that the French could sell, but not
buy; but the act of 1667 cut off the demand for French goods, and
Portuguese wines came into the market. England and Holland retaliated and
shut off the foreign markets from France. The wine and wheat growers of
the latter country were ruined, and the rural population came to the verge
of starvation. Colbert’s last years were full of misfortune and
disappointment; and a new illustration was given of the fallacy that the
gain from international trade was not mutual.
From this time, economic principles began to be better apprehended. It is
to be noted that the first just observations arose from discussions upon
money, and thence upon international trade. So far England has furnished
the most acute writers: now France became the scene of a new movement.
Marshal Vauban,(15) the great soldier, and Boisguillebert(16) both began
to emphasize the truth that wealth really consists, not in money alone,
but in an abundance of commodities; that countries which have plenty of
gold and silver are not wealthier than others, and that money is only a
medium of exchange. It was not, however, until 1750 that evidences of any
real advance began to appear; for Law’s famous scheme (1716-1720) only
served as a drag upon the growth of economic truth. But in the middle of
the eighteenth century an intellectual revival set in: the “Encyclopædia”
was published, Montesquieu wrote his “l’Ésprit des Lois,” Rousseau was
beginning to write, and Voltaire was at the height of his power. In this
movement political economy had an important share, and there resulted the
first school of Economists, termed the Physiocrats.
The founder and leader of this new body of economic thinkers was François
Quesnay,(17) a physician and favorite at the court of Louis XV. Passing by
his ethical basis of a natural order of society, and natural rights of
man, his main doctrine, in brief, was that the cultivation of the soil was
the only source of wealth; that labor in other industries was sterile; and
that freedom of trade was a necessary condition of healthy distribution.
While known as the “Economists,” they were also called the
“Physiocrats,”(18) or the “Agricultural School.” Quesnay and his followers
distinguished between the creation of wealth (which could only come from
the soil) and the union of these materials, once created, by labor in
other occupations. In the latter case the laborer did not, in their
theory, produce wealth. A natural consequence of this view appeared in a
rule of taxation, by which all the burdens of state expenditure were laid
upon the landed proprietors alone, since they alone received a surplus of
wealth (the famous _net produit_) above their sustenance and expenses of
production. This position, of course, did not recognize the old mercantile
theory that foreign commerce enriched a nation solely by increasing the
quantity of money. To a physiocrat the wealth of a community was increased
not by money, but by an abundant produce from its own soil. In fact,
Quesnay argued that the right of property included the right to dispose of
it freely at home or abroad, unrestricted by the state. This doctrine was
formulated in the familiar expression, “_Laissez faire, laissez
passer_.”(19) Condorcet and Condillac favored the new ideas. The
“Economists” became the fashion in France; and even included in their
number Joseph II of Austria, the Kings of Spain, Poland, Sweden, Naples,
Catharine of Russia, and the Margrave of Baden.(20) Agriculture,
therefore, received a great stimulus.
Quesnay had many vigorous supporters, of whom the most conspicuous was the
Marquis de Mirabeau(21) (father of him of the Revolution), and the
culmination of their popularity was reached about 1764. A feeling that the
true increase of wealth was not in a mere increase of money, but in the
products of the soil, led them naturally into a reaction against
mercantilism, but also made them dogmatic and overbearing in their
one-sided system, which did not recognize that labor in all industries
created wealth. As the mercantile system found a great minister in Colbert
to carry those opinions into effect on a national scale, so the
Physiocrats found in Turgot(22) a minister, under Louis XVI, who gave them
a national field in which to try the doctrines of the new school.
Benevolently devoted to bettering the condition of the people while
Intendant of Limoges (1751), he was made comptroller-general of the
finances by Louis XVI in 1774. Turgot had the ability to separate
political economy from politics, law, and ethics. His system of freeing
industry from governmental interference resulted in abolishing many
abuses, securing a freer movement of grain, and in lightening the
taxation. But the rigidity of national prejudices was too strong to allow
him success. He had little tact, and raised many difficulties in his way.
The proposal to abolish the _corvées_ (compulsory repair of roads by the
peasants), and substitute a tax on land, brought his king into a costly
struggle (1776), and attempts to undermine Turgot’s power were successful.
With his downfall ended the influence of the Economists. The last of them
was Dupont de Nemours,(23) who saw a temporary popularity of the
Physiocrats in the early years of the French Revolution, when the
Constituent Assembly threw the burden of taxes on land. But the fire
blazed up fitfully for a moment, only to die away entirely.
All this, however, was the slow preparation for a newer and greater
movement in political economy than had yet been known, and which laid the
foundation of the modern study as it exists to-day. The previous
discussions on money and the prominence given to agriculture and economic
considerations by the Economists made possible the great achievements of
Adam Smith and the English school. A reaction in England against the
mercantile system produced a complete revolution in political economy.
Vigorous protests against mercantilism had appeared long before,(24) and
the true functions of money had come to be rightly understood.(25) More
than that, many of the most important doctrines had been either discussed,
or been given to the public in print. It is at least certain that hints of
much that made so astonishing an effect in Adam Smith’s “Wealth of
Nations” (1776) had been given to the world before the latter was written.
To what sources, among the minor writers, he was most indebted, it is hard
to say. Two, at least, deserve considerable attention, David Hume and
Richard Cantillon. The former published his “Economic Essays” in 1752,
which contained what even now would be considered enlightened views on
money, interest, balance of trade, commerce, and taxation; and a personal
friendship existed between Hume and Adam Smith dating back as far as 1748,
when the latter was lecturing in Edinburgh on rhetoric. The extent of
Cantillon’s acquirements and Adam Smith’s possible indebtedness to him
have been but lately recognized. In a recent study(26) on Cantillon, the
late Professor Jevons has pointed out that the former anticipated many of
the doctrines later ascribed to Adam Smith, Malthus, and Ricardo. Certain
it is that the author of the “Wealth of Nations” took the truth wherever
he found it, received substantial suggestions from various sources, but,
after having devoted himself in a peculiarly successful way to collecting
facts, he wrought out of all he had gathered the first rounded system of
political economy the world had yet known; which pointed out that labor
was at the basis of production, not merely in agriculture, as the French
school would have it, but in all industries; and which battered down all
the defenses of the mediæval mercantile system. In a marked degree Adam
Smith(27) combined a logical precision and a power of generalizing results
out of confused data with a practical and intuitive regard for facts which
are absolutely necessary for great achievements in the science of
political economy. At Glasgow (1751-1764) Adam Smith gave lectures on
natural theology, ethical philosophy, jurisprudence, and political
economy, believing that these subjects were complementary to each other.
A connected and comprehensive grasp of principles was the great
achievement of Adam Smith;(28) for, although the “Wealth of Nations” was
naturally not without faults, it has been the basis of all subsequent
discussion and advance in political economy. In Books I and II his own
system is elucidated, while Book IV contains his discussion of the
Agricultural School and the attacks on the mercantile system. Seeing
distinctly that labor was the basis of all production (not merely in
agriculture), he shows (Books I and II) that the wealth of a country
depends on the skill with which its labor is applied, and upon the
proportion of productive to unproductive laborers. The gains from division
of labor are explained, and money appears as a necessary instrument after
society has reached such a division. He is then led to discuss prices
(market price) and value; and, since from the price a distribution takes
place among the factors of production, he is brought to wages, profit, and
rent. The functions of capital are explained in general; the separation of
fixed from circulating capital is made; and he discusses the influence of
capital on the distribution of productive and unproductive labor; the
accumulation of capital, money, paper money, and interest. He, therefore,
gets a connected set of ideas on production, distribution, and exchange.
On questions of production not much advance has been made since his day;
and his rules of taxation are now classic. He attacked vigorously the
balance-of-trade theory, and the unnatural diversion of industry in
England by prohibitions, bounties, and the arbitrary colonial system. In
brief, he held that a plan for the regulation of industry by the
Government was indefensible, and that to direct private persons how to
employ their capital was either hurtful or useless. He taught that a
country will be more prosperous if its neighbors are prosperous, and that
nations have no interest in injuring each other. It was, however, but
human that his work should have been somewhat defective.(29) A new period
in the history of political economy, however, begins with Adam Smith. As
Roscher says, he stands in the center of economic history.
New writers now appear who add gradually stone after stone to the good
foundation already laid, and raise the edifice to fairer proportions. The
first considerable addition comes from a contribution by a country
clergyman, Thomas Robert Malthus,(30) in his “Essay on the Principles of
Population” (1798). Against the view of Pitt that “the man who had a large
family was a benefactor to his country,” Malthus argued conclusively that
“a perfectly happy and virtuous community, by physical law, is constrained
to increase very rapidly.... By nature human food increases in a slow
arithmetical ratio; man himself increases in a quick geometrical ratio,
unless want and vice stop him.” In his second edition (1803), besides the
positive check of vice and want, he gave more importance to the negative
check of “self-restraint, moral and prudential.” The whole theory was
crudely stated at first; and it raised the cry that such a doctrine was
inconsistent with the belief in a benevolent Creator. In its essence, the
law of population is simply that a tendency and ability exist in mankind
to increase its numbers faster than subsistence, and that this result
actually will happen unless checks retard it, or new means of getting
subsistence arise. If an undue increase of population led to vice and
misery, in Malthus’s theory, he certainly is not to be charged with
unchristian feelings if he urged a self-restraint by which that evil
result should be avoided. Malthus’s doctrines excited great discussion:
Godwin says that by 1820 thirty or forty answers to the essay had been
written; and they have continued to appear. The chief contributions have
been by A. H. Everett, “New Ideas on Population” (1823), who believed that
an increase of numbers increased productive power; by M. T. Sadler, “Law
of Population” (1830), who taught that human fertility varied inversely
with numbers, falling off with density of population; by Sir Archibald
Alison, “Principles of Population” (1840), who reasoned inductively that
the material improvement of the human race is a proof that man can produce
more than he consumes, or that in the progress of society preventive
checks necessarily arise; by W. R. Greg, “Enigmas of Life” (1873); and by
Herbert Spencer, “Westminster Review” (April, 1852), and “Principles of
Biology,” (part vi, ch. xii and xiii), who worked out a physiological
check, in that with a mental development out of lower stages there comes
an increased demand upon the nervous energy which causes a diminution of
fertility. Since Darwin’s studies it has been very generally admitted that
it is the innate _tendency_ of all organic life to increase until numbers
press upon the limit of food-production; not that population has always
done so in every country.(31) Malthus’s teachings resulted in the modern
poor-house system, beginning with 1834 in England, and they corrected some
of the abuses of indiscriminate charity.
While Adam Smith had formulated very correctly the laws of production, in
his way Malthus was adding to the means by which a better knowledge of the
principles of distribution was to be obtained; and the next advance, owing
to the sharp discussions of the time on the corn laws, was, by a natural
progress, to the law of diminishing returns and rent. An independent
discovery of the law of rent is to be assigned to no less than four
persons,(32) but for the full perception of its truth and its connection
with other principles of political economy the credit has been rightly
given to David Ricardo,(33) next to Adam Smith without question the
greatest economist of the English school. Curiously enough, although Adam
Smith was immersed in abstract speculations, his “homely sagacity” led him
to the most practical results; but while Ricardo was an experienced and
successful man of business, he it was, above all others, who established
the abstract political economy, in the sense of a body of scientific laws
to which concrete phenomena, in spite of temporary inconsistencies, must
in the end conform. His work, therefore, supplemented that of Adam Smith;
and there are very few doctrines fully worked out to-day of which hints
have not been found in Ricardo’s wonderfully compact statements. With no
graces of exposition, his writings seem dry, but are notwithstanding mines
of valuable suggestions.
In the field of distribution and exchange Ricardo made great additions.
Malthus and West had shown that rent was not an element in cost of
production; but both Malthus and Ricardo seemed to have been familiar with
the doctrine of rent long before the former published his book. Ricardo,
however, saw into its connection with other parts of a system of
distribution.(34) The Malthusian doctrine of a pressure of population on
subsistence naturally forced a recognition of the law of diminishing
returns from land;(35) then as soon as different qualities of land were
simultaneously cultivated, the best necessarily gave larger returns than
the poorest; and the idea that the payment of rent was made for a superior
instrument, and in proportion to its superiority over the poorest
instrument which society found necessary to use, resulted in the law of
rent. Ricardo, moreover, carried out this principle as it affected wages,
profits, values, and the fall of profits; but did not give sufficient
importance to the operation of forces in the form of improvements acting
in opposition to the tendency toward lessened returns. The theory of rent
still holds its place, although it has met with no little opposition.(36)
A doctrine, quite as important in its effects on free exchange, was
clearly established by Ricardo, under the name of the doctrine of
“Comparative Cost,” which is the reason for the existence of any and all
international trade.
The work of Adam Smith was soon known to other countries, apart from
translations. A most lucid and attractive exposition was given to the
French by J. B. Say, “Traité d’économie politique” (1803), followed, after
lecturing in Paris from 1815-1830, by a more complete treatise,(37) “Cours
complète d’économie politique” (1828). While not contributing much that
was new, Say did a great service by popularizing previous results in a
happy and lively style, combined with good arrangement, and many
illustrations. The theory that general demand and supply are identical is
his most important contribution to the study. Although he translated
Ricardo’s book, he did not grasp the fact that rent did not enter into
price. Say’s work was later supplemented by an Italian, Pellegrino
Rossi,(38) who, in his “Cours d’économie politique” (1843-1851),
naturalized the doctrines of Malthus and Ricardo on French soil. His work
is of solid value, and he and Say have given rise to an active school of
political economy in France. In Switzerland, Sismondi expounded Adam
Smith’s results in his “De la richesse commerciale” (1803), but was soon
led into a new position, explained in his “Nouveaux principes d’économie
politique” (1819). This has made him the earliest and most distinguished
of the humanitarian economists. Seeing the sufferings caused by
readjustments of industries after the peace, and the warehouses filled
with unsold goods, he thought the excess of production over the power of
consumption was permanent, and attacked division of labor, labor-saving
machinery, and competition. Discoveries which would supersede labor he
feared would continue, and the abolition of patents, together with the
limitation of population,(39) was urged. These arguments furnished
excellent weapons to the socialistic agitators. Heinrich Storch(40) aimed
to spread the views of Adam Smith(41) in Russia, by his “Cours d’économie
politique” (1815). Without further developing the theory of political
economy, he produced a book of exceptional merit by pointing out the
application of the principles to Russia, particularly in regard to the
effect of a progress of wealth on agriculture and manufactures; to the
natural steps by which a new country changes from agriculture to a
manufacturing _régime_; and to finance and currency, with an account of
Russian depreciated paper since Catharine II.
For the next advance, we must again look to England. Passing by
McCulloch(42) and Senior, a gifted writer, the legitimate successor of
Ricardo is John Stuart Mill.(43) His father, James Mill,(44) introduced
him into a circle of able men, of which Bentham was the ablest, although
his father undoubtedly exercised the chief influence over his training.
While yet but twenty-three, in his first book, “Essays on some Unsettled
Questions of Political Economy” (1829-1830), he gained a high position as
an economist. In one form or another, all his additions to the study are
to be found here in a matured condition. The views on productive and
unproductive consumption, profits, economic methods, and especially his
very clever investigation on international values, were there presented.
His “Logic” (1843) contains (Book VI) a careful statement of the relation
of political economy to other sciences, and of the proper economic method
to be adopted in investigations. Through his “Principles of Political
Economy” (1848) he has exercised a remarkable influence upon men in all
lands; not so much because of great originality, since, in truth, he only
put Ricardo’s principles in better and more attractive form, but chiefly
by a method of systematic treatment more lucid and practical than had been
hitherto reached, by improving vastly beyond the dry treatises of his
predecessors (including Ricardo, who was concise and dull), by infusing a
human element into his aims, and by illustrations and practical
applications. Even yet, however, some parts of his book show the tendency
to too great a fondness for abstract statement, induced probably by a
dislike to slighting his reasons (due to his early training), and by the
limits of his book, which obliged him to omit many possible illustrations.
With a deep sympathy for the laboring-classes, he was tempted into the
field of sociology in this book, although he saw distinctly that political
economy was but one of the sciences, a knowledge of which was necessary to
a legislator in reaching a decision upon social questions. Mill shows an
advance beyond Ricardo in this treatise, by giving the study a more
practical direction. Although it is usual to credit Mill with originating
the laws of international values, yet they are but a development of
Ricardo’s doctrine of international trade, and Mill’s discussions of the
progress of society toward the stationary state were also hinted at,
although obscurely, by Ricardo. In the volumes of Mr. Mill the subject is
developed as symmetrically as a proof in geometry. While he held strongly
to free trade,(45) he gave little space to the subject in his book. All in
all, his book yet remains the best systematic treatise in the English
language, although much has been done since his day.(46)
He who has improved upon previous conceptions, and been the only one to
make any very important advance in the science since Mill’s day, is J. E.
Cairnes,(47) in his “Leading Principles of Political Economy newly
expounded” (1874). Scarcely any previous writer has equaled him in logical
clearness, originality, insight into economic phenomena, and lucidity of
style. He subjected value, supply and demand, cost of production, and
international trade, to a rigid investigation, which has given us actual
additions to our knowledge of the study. The wages-fund theory was
re-examined, and was stated in a new form, although Mr. Mill had given it
up. Cairnes undoubtedly has given it its best statement. His argument on
free trade (Part III, chapter iv) is the ablest and strongest to be found
in modern writers. This volume is, however, not a systematic treatise on
all the principles of political economy; but no student can properly pass
by these great additions for the right understanding of the science. His
“Logical Method of Political Economy” (1875) is a clear and able statement
of the process to be adopted in an economic investigation, and is a book
of exceptional merit and usefulness, especially in view of the rising
differences in the minds of economists as to method.
A group of English writers of ability in this period have written in such
a way as to win for them mention in connection with Cairnes and Mill.
Professor W. Stanley Jevons(48) put himself in opposition to the methods
of the men just mentioned, and applied the mathematical process to
political economy, but without reaching new results. His most serviceable
work has been in the study of money, which appears in an excellent form,
“The Money and Mechanism of Exchange” (1875), and in an investigation
which showed a fall of the value of gold since the discoveries of 1849. In
this latter he has furnished a model for any subsequent investigator. Like
Professor Jevons, T. E. Cliffe Leslie(49) opposed the older English school
(the so-called “orthodox”), but in the different way of urging with great
ability the use of the historical method, of which more will be said in
speaking of later German writers.(50) He also distinguished himself by a
study of land tenures, in his “Land Systems and Industrial Economy of
Ireland, England, and Continental Countries” (1870), which was a brilliant
exposition of the advantages of small holdings.
By far the ablest of the group, both by reason of his natural gifts and
his training as a banker and financial editor, was Walter Bagehot.(51) In
his “Economic Studies” (1880) he has discussed with a remarkable economic
insight the postulates of political economy, and the position of Adam
Smith, Ricardo, and Malthus; in his “Lombard Street” (fourth edition,
1873), the money market is pictured with a vivid distinctness which
implies the possession of rare qualities for financial writing; indeed, it
is in this practical way also, as editor of the London “Economist,”(52)
that he made his great reputation.
Of living English economists, Professor Henry Fawcett,(53) in his “Manual
of Political Economy” (1865; sixth edition, 1883), is a close follower of
Mill, giving special care to co-operation, silver, nationalization of
land, and trades-unions. He is an exponent of the strict wages-fund
theory, and a vigorous free-trader. Professor J. E. Thorold Rogers, of
Oxford, also holds aloof from the methods of the old school. His greatest
contribution has been a “History of Agriculture and Prices in England,”
from 1255 to 1793, in four volumes(54) (1866-1882).
Of all the writers(55) since Cairnes, it may be said that, while adding to
the data with which political economy has to do, and putting principles to
the test of facts, they have made no actual addition to the existing body
of principles; although questions of distribution and taxation are
certainly not yet fully settled, as is seen by the wide differences of
opinion expressed on subjects falling within these heads by writers of
to-day.
It now remains to complete this sketch of the growth of political economy
by a brief account of the writers on the Continent and in the United
States, beginning with France. About the time of the founding of the
London “Economist” (1844) and “The Statistical Journal” (1839) in England,
there was established in Paris the “Journal des Économistes” (1842), which
contains many valuable papers. On the whole, the most popular writer since
J. B. Say has been Bastiat,(56) who aspired to be the French Cobden. He
especially urged a new(57) view of value, which he defined as the relation
established by an exchange of services; that nature’s products are
gratuitous, so that man can not exact anything except for a given service.
Chiefly as a foe of protection, which he regarded as qualified socialism,
he has won a reputation for popular and clever writing; and he was led to
believe in a general harmony of interests between industrial classes; but
in general he can not be said to have much influenced the course of French
thought. On value, rent, and population, he is undoubtedly unsound. A
writer of far greater depth than Bastiat, with uncommon industry and wide
knowledge, was Michel Chevalier,(58) easily the first among modern French
economists. He has led in the discussion upon the fall of gold,
protection, banking, and particularly upon money; an ardent free-trader,
he had influence enough to induce France to enter into the commercial
treaty of 1860 with England. One of the ablest writers on special topics
is Levasseur,(59) who has given us a history of the working-classes before
and since the Revolution, and the best existing monograph on John Law. The
most industrious and reliable of the recent writers is the well-known
statistician, Maurice Block,(60) while less profound economists were J. A.
Blanqui(61) and Wolowski.(62) The latter devoted himself enthusiastically
to banks of issue, and bimetallism. A small group gave themselves up
chiefly to studies on agriculture and land-tenures—H. Passy,(63) Laveleye,
and Lavergne.(64) The latter is by far the most important, as shown by his
“L’économie rurale de la France depuis 1789” (1857), which gives a means
of comparing recent French agriculture with that before the Revolution, as
described in Arthur Young’s “Travels in France” (1789). The best
systematic treatise in French is the “Précis de la science économique”
(1862), by Antoine-Élise Cherbuliez,(65) a Genevan. The French were the
first to produce an alphabetical encyclopædia of economics, by Coquelin
and Guillaumin, entitled the “Dictionnaire de l’économie politique”
(1851-1853, third edition, 1864). Courcelle-Seneuil,(66) by his “Traité
théorique et pratique d’économie politique” (second edition, 1867); and
Baudrillart, by a good compendium. Joseph Garnier, Dunoyer,(67) Paul
Leroy-Beaulieu,(68) Reybaud,(69) De Parieu,(70) Léon Say,(71) Boiteau, and
others, have done excellent work in France, and Walras(72) in Switzerland.
As Cobden had an influence on Bastiat, so both had an influence in Germany
in creating what has been styled by opponents the “Manchester school,” led
by Prince-Smith (died 1874). They have worked to secure complete liberty
of commerce and industry, and include in their numbers many men of ability
and learning. Yearly congresses have been organized for the purpose of
disseminating liberal ideas, and an excellent review, the
“Vierteljahrschrift für Volkswirthschaft, Politik, und
Kulturgeschichte,”(73) has been established. They have devoted themselves
successfully to reforms of labor-laws, interest, workingmen’s dwellings,
the money system, and banking, and strive for the abolition of protective
duties. Schulze-Delitzsch has acquired a deserved reputation for the
creation of people’s banks, and other forms of co-operation. The
translator of Mill into German, Adolph Soetbeer,(74) is the most eminent
living authority on the production of the precious metals, and a vigorous
monometallist. The school is represented in the “Handwörterbuch der
Volkswirthschaftslehre” (1865) of Reutzsch. The other writers of this
group are Von Böhmert,(75) Faucher, Braun, Wolff, Michaelis,
Emminghaus,(76) Wirth,(77) Hertzka, and Von Holtzendorf. The best known of
the German protectionists is Friedrich List, the author of “Das nationale
System der politischen Oekonomie” (1841), whose doctrines are very similar
to those of H. C. Carey in this country.(78) An able writer on
administrative functions and finance(79) is Lorenz Stein, of Vienna.
But German economists are of interest, inasmuch as they have established a
new school who urge the use of the historical method in political economy,
and it is about the question of method that much of the interest of to-day
centers. In 1814 Savigny introduced this method into jurisprudence, and
about 1850 it was applied to political economy. The new school claim that
the English “orthodox” writers begin by an _a priori_ process, and by
deductions reach conclusions which are possibly true of imaginary cases,
but are not true of man as he really acts. They therefore assert that
economic laws can only be truly discovered by induction, or a study of
phenomena first, as the means of reaching a generalization. To them
Bagehot(80) answers that scientific bookkeeping, or collections of facts,
in themselves give no results ending in scientific laws; for instance,
since the facts of banking change and vary every day, no one can by
induction alone reach any laws of banking; or, for example, the study of a
panic from the concrete phenomena would be like trying to explain the
bursting of a boiler without a theory of steam. More lately,(81) since it
seems that the new school claim that induction does not preclude
deduction, and as the old school never intended to disconnect themselves
from “comparing conclusions with external facts,” there is not such a
cause of difference as has previously appeared. Doubtless the insistence
upon the merits of induction will be fruitful of good to “orthodox”
writers, in the more general resort to the collection of statistics and
means of verification. It is suggestive also that the leaders of the new
school in Germany and England have reached no different results by their
new method, and in the main agree with the laws evolved by the old English
school. The economist does not pretend that his assumptions are
descriptions of economic conditions existing at a given time; he simply
considers them as forces (often acting many on one point or occasion) to
be inquired into separately, inasmuch as concrete phenomena are the
resultants of several forces, not to be known until we know the separate
operation of each of the conjoined forces.
The most prominent of the new school is Wilhelm Roscher,(82) of Leipsic,
who wrote a systematic treatise, “System der Volkswirthschaft” (1854,
sixteenth edition, 1883), in the first division of which the notes contain
a marvelous collection of facts and authorities. He agrees in results with
Adam Smith, Ricardo, Malthus, and Mill, but does not seem to have known
much of Cairnes. This book, however, is only a first of four treatises
eventually intended to include the political economy of (2) agriculture,
(3) industry and commerce, and (4) the state and commune. The ablest
contemporary of Roscher, who was probably the first to urge the historical
method, is Karl Knies,(83) in “Die politische Oekonomie vom Standpunkte
der geschichtlichen Methode” (1853, second edition, 1881-1883). The third
of the group who founded the historical school is Bruno Hildebrand,(84) of
Jena, author of “Die Nationalökonomie der Gegenwart und Zukunft” (1848).
The German mind has always been familiar with the interference of the
state, and a class of writers has arisen, not only advocating the
inductive method, but strongly imbued with a belief in a close connection
of the state with industry; and, inasmuch as the essence of modern
socialism is a resort to state-help, this body of men, with Wagner at
their head, has received the name of “Socialists(85) of the Chair,” and
now wield a wide influence in Germany. Of these writers,(86) Wagner,
Engel, Schmoller, Von Scheel, Brentano, Held, Schönberg, and Schäffle are
the most prominent.
The historical school has received the adhesion of Émile de Laveleye,(87)
in Belgium, and other economists in England and the United States. While
Cliffe Leslie has been the most vigorous opponent of the methods of the
old school, there have been many others of less distinction. Indeed, the
period, the close of which is marked by J. R. McCulloch’s book, was one in
which the old school had seemingly come to an end of its progress, from
too close an adhesion to deductions from assumed premises. Mill’s great
merit was that he began the movement to better adapt political economy to
society as it actually existed; and the historical school will probably
give a most desirable impetus to the same results, even though its
exaggerated claims as to the true method(88) can not possibly be admitted.
Italian writers have not received hitherto the attention they deserve.
After 1830, besides Rossi, who went to France, there was Romagnosi, who
dealt more with the relations of economics to other studies; Cattanes, who
turned to rural questions and free trade (combating the German, List);
Scialoja, at the University of Turin; and Francesco Ferrara, also at Turin
from 1849 to 1858. The latter was a follower of Bastiat and Carey, as
regards value and rent, and at the same time was a radical believer in
_laissez-faire_. Since the union of Italy there has been a new interest in
economic study, as with us after our war. The most eminent living Italian
economist is said to be Angelo Messedaglia, holding a chair at Padua since
1858. He has excelled in statistical and financial subjects, and is now
engaged on a treatise on money, “Moneta,” of which one part has been
issued (1882). Marco Minghetti and Fedele Lampertico stand above others,
the former for a study of the connection of political economy with morals,
and for his public career as a statesman; the latter for his studies on
paper money and other subjects. Carlo Ferrais presented a good monograph
on “Money and the Forced Currency” (1879); and Boccardo issued a library
of selected works of the best economists, and a large Dictionary of
Political Economy, “Dizionario universale di Economia Politica e di
Commercio” (2 vols., second edition, 1875). Luigi Luzzati is a vigorous
advocate of co-operation; and Elia Lattes has made a serious study of the
early Venetian banks.
Political economy has gained little from American writers. Of our
statesmen none have made any additions to the science, and only Hamilton
and Gallatin can properly be called economists. Hamilton, in his famous
“Report on Manufactures” (1791), shared in some of the erroneous
conceptions of his day; but this paper, together with his reports on a
national bank and the public credit, are evidences of a real economic
power. Gallatin’s “Memorial in Favor of Tariff Reform” (1832) is as able
as Hamilton’s report on manufactures, and a strong argument against
protection. Both men made a reputation as practical financiers.
“With few exceptions, the works produced in the United States have been
prepared as text-books(89) by authors engaged in college instruction, and
therefore chiefly interested in bringing principles previously worked out
by others within the easy comprehension of undergraduate students.”(90) Of
these exceptions, Alexander H. Everett’s “New Ideas on Population”(91)
(1822), forms a valuable part in the discussion which followed the
appearance of Malthus’s “Essay.” The writer, however, who has drawn most
attention, at home and abroad, for a vigorous attack on the doctrines of
Ricardo is Henry Charles Carey.(92) Beginning with “The Rate of Wages”
(1835), he developed a new theory of value (see “Principles of Political
Economy,” 1837-1840), “which he defined as a measure of the resistance to
be overcome in obtaining things required for use, or the measure of the
power of nature over man. In simpler terms, value is measured by the cost
of reproduction. The value of every article thus declines as the arts
advance, while the general command of commodities constantly increases.
This causes a constant fall in the value of accumulated capital as
compared with the results of present labor, from which is inferred a
tendency toward harmony rather than divergence of interests between
capitalist and laborer.” This theory of value(93) he applied to land, and
even to man, in his desire to give it universality. He next claimed to
have discovered a law of increasing production from land in his “Past,
Present, and Future” (1848), which was diametrically opposed to Ricardo’s
law of diminishing returns. His proof was an historical one, that in fact
the poorer, not the richer lands, were first taken into cultivation. This,
however, did not explain the fact that different grades of land are
simultaneously under cultivation, on which Ricardo’s doctrine of rent is
based. The constantly increasing production of land naturally led Carey to
believe in the indefinite increase of population. He, however, was
logically brought to accept the supposed law of an ultimate limit to
numbers suggested by Herbert Spencer, based on a diminution of human
fertility. He tried to identify physical and social laws, and fused his
political economy in a system of “Social Science” (1853), and his “Unity
of Law” (1872). From about 1845 he became a protectionist, and his
writings were vigorously controversial. In his doctrines on money he is
distinctly a mercantilist;(94) but, by his earnest attacks on all that has
been gained in the science up to his day, he has done a great service in
stimulating inquiry and causing a better statement of results. While
undoubtedly the best known of American writers, yet, because of a prolix
style and an illogical habit of mind, he has had no extended influence on
his countrymen.(95)
The effect of the civil war is now beginning to show itself in an
unmistakable drift toward the investigation of economic questions, and
there is a distinctly energetic tone which may bring new contributions
from American writers. General Francis A. Walker,(96) in his study on “The
Wages Question” (1876), has combated the wages-fund theory, and proposed
in its place a doctrine that wages are paid out of the product, and not
out of accumulated capital. Professor W. G. Sumner(97) is a vigorous
writer in the school of Mill and Cairnes, and has done good work in the
cause of sound money doctrines. Both General Walker and Professor Sumner
hold to the method of economic investigation as expounded by Mr. Cairnes;
although several younger economists show the influence of the German
school. Professor A. L. Perry,(98) of Williams College, adopted Bastiat’s
theory of value. He also accepts the wages-fund theory, rejects the law of
Malthus, and, although believing in the law of diminishing returns from
land, regards rent as the reward for a service rendered. Another writer,
Henry George,(99) has gained an abnormal prominence by a plausible book,
“Progress and Poverty” (1880), which rejects the doctrine of Malthus, and
argues that the increase of production of any kind augments the demand for
land, and so raises its value. His conclusions lead him to advocate the
nationalization of land. Although in opposition to almost all that
political economy has yet produced, his writing has drawn to him very
unusual notice. The increasing interest in social questions, and the
general lack of economic training, which prevents a right estimate of his
reasoning by people in general, sufficiently account for the wide
attention he has received.
Of late, however, new activity has been shown in the establishment of
better facilities for the study of political economy in the principal
seats of learning—Harvard, Yale, Cornell, Columbia, Michigan, and
Pennsylvania: and a “Cyclopædia of Political Science” (1881-1884, three
volumes) has been published by J. J. Lalor, after the example of the
French dictionaries.
Books For Consultation (From English, French, And German Authors).
GENERAL TREATISES FORMING A PARALLEL COURSE OF READING WITH MILL.
Professor Fawcett’s “Manual of Political Economy” (London, sixth edition,
1883) is a brief statement of Mill’s book, with additional matter on the
precious metals, slavery, trades-unions, co-operation, local taxation,
etc.
Antoine-Élise Cherbuliez’s “Précis de la science économique” (Paris, 1862,
2 vols.) follows the same arrangement as Mill, and is considered the best
treatise on economic science in the French language. He is methodical,
profound, and clear, and separates pure from applied political economy.
Other excellent books in French are: Courcelle-Seneuil’s “Traité théorique
et pratique d’économie politique” (1858), (Paris, second edition, 1867, 2
vols.), and a compendium by Henri Baudrillart, “Manuel d’économie
politique” (third edition, 1872).
Roscher’s “Principles of Political Economy” is a good example of the
German historical method; its notes are crowded with facts; but the
English translation (New York, 1878) is badly done. There is an excellent
translation of it into French by Wolowski.
A desirable elementary work, “The Economics of Industry” (London, 1879),
was prepared by Mr. and Mrs. Marshall.
Professor Jevons wrote a “Primer of Political Economy” (1878), which is a
simple, bird’s-eye view of the subject in a very narrow compass.
IMPORTANT GENERAL WORKS.
Adam Smith’s “Wealth of Nations” (1776). The edition of McCulloch is
perhaps more serviceable than that of J. E. T. Rogers.
Ricardo’s “Principles of Political Economy and Taxation” (1817).
J. S. Mill’s “Principles of Political Economy” (2 vols., 1848—sixth
edition, 1865).
Schönberg’s “Handbuch der politischen Oekonomie” (1882). This is a large
co-operative treatise by twenty-one writers from the historical school.
Cairnes’s “Leading Principles of Political Economy” (1874); “Logical
Method” (1875), lectures first delivered in Dublin in 1857.
Carey’s “Social Science” (1877). This has been abridged in one volume by
Kate McKean.
F. A. Walker’s “Political Economy” (1883). This author differs from other
economists, particularly on wages and questions of distribution.
H. George’s “Progress and Poverty” (1879). In connection with this, read
F. A. Walker’s “Land and Rent” (1884).
TREATISES ON SPECIAL SUBJECTS.
W. T. Thornton’s “On Labor” (1869).
McLeod’s “Theory and Practice of Banking” (second edition, 1875-1876).
M. Block’s “Traité théorique et pratique de statistique” (1878).
Goschen’s “Theory of Foreign Exchanges” (eighth edition, 1875).
J. Caird’s “Landed Interest” (fourth edition, 1880), treating of English
land and the food-supply.
W. G. Sumner’s “History of American Currency” (1874).
John Jay Knox’s “United States Notes” (1884).
Jevons’s “Money and the Mechanism of Exchange” (1875).
Tooke and Newmarch’s “History of Prices” (1837-1856), in six volumes.
Leroy-Beaulieu’s “Traité de la science des finances” (1883). This is an
extended work, in two volumes, on taxation and finance; “Essai sur la
répartition des richesses” (second edition, 1883).
F. A. Walker’s “The Wages Question” (1876); “Money” (1878).
L. Reybaud’s “Études sur les réformateurs contemporains, ou socialistes
modernes” (seventh edition, 1864).
DICTIONARIES.
McCulloch’s “Commercial Dictionary” (new and enlarged edition, 1882).
Lalor’s “Cyclopædia of Political Science” (1881-84) is devoted to articles
on political science, political economy, and American history.
Coquelin and Guillaumin’s “Dictionnaire de l’économie politique”
(1851-1853, third edition, 1864), in two large volumes.
REPORTS AND STATISTICS.
The “Compendiums of the Census” for 1840, 1850, 1860, and 1870, are
desirable. The volumes of the tenth census (1880) are of great value for
all questions; as is also F. A. Walker’s “Statistical Atlas” (1874).
The United States Bureau of Statistics issues quarterly statements; and
annually a report on “Commerce and Navigation,” and another on the
“Internal Commerce of the United States.”
The “Statistical Abstract” is an annual publication, by the same
department, compact and useful. It dates only from 1878.
The Director of the Mint issues an annual report dealing with the precious
metals and the circulation. Its tables are important.
The Comptroller of the Currency (especially during the administration of
J. J. Knox) has given important annual reports upon the banking systems of
the United States.
The reports of the Secretary of the Treasury deal with the general
finances of the United States. These, with the two last mentioned, are
bound together in the volume of “Finance Reports,” but often shorn of
their tables.
There are valuable special reports to Congress of commissioners on the
tariff, shipping, and other subjects, published by the Government.
The report on the “International Monetary Conference of 1878” contains a
vast quantity of material on monetary questions.
The British parliamentary documents contain several annual “Statistical
Abstracts” of the greatest value, of which the one relating to other
European states is peculiarly convenient and useful. These can always be
purchased at given prices.
A. R. Spofford’s “American Almanac” is an annual of great usefulness.
Preliminary Remarks.
Writers on Political Economy profess to teach, or to investigate, the
nature of Wealth, and the laws of its production and distribution;
including, directly or remotely, 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.
It will be noticed that political economy does not include ethics,
legislation, or the science of government. The results of
political economy are offered to the statesman, who reaches a
conclusion after weighing them in connection with moral and
political considerations. Political Economy is distinct from
Sociology; although it is common to include in the former
everything which concerns social life. Some writers distinguish
between the pure, or abstract science, and the applied art, and we
can speak of a science of political economy only in the sense of a
body of abstract laws or formulas. This, however, does not make
political economy less practical than physics, for, after a
principle is ascertained, its operation is to be observed in the
same way that we study the force of gravitation in a falling
stone, even when retarded by opposing forces. An economic force,
or tendency, can be likewise distinctly observed, although other
influences, working at the same time, prevent the expected effect
from following its cause. It is, in short, the aim of political
economy to investigate the laws which govern the phenomena of
material wealth. (Cf. Cossa, “Guide,” chap. iii.)
While the [Mercantile] system prevailed, it was assumed, either expressly
or tacitly, in the whole policy of nations, 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. According to
the doctrines then prevalent, whatever tended to heap up money or bullion
in a country added to its wealth.
More correctly the Mercantilists (in the sixteenth and seventeenth
centuries) held that where money was most plentiful, there would
be found the greatest abundance of the necessaries of life.(100)
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 might be the returns in
another shape, was looked upon as a losing trade. Exportation of goods was
favored and encouraged (even by means extremely onerous to the real
resources of the country), because, the exported goods being stipulated to
be paid for in money, it was hoped that the returns would actually be made
in gold and silver. Importation of anything, other than the precious
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 instruments of some industry
practiced 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,
preventing them from gaining it.
The Mercantile 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. 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 in which they can be useful to him. The difference
between a country with money, and a country altogether without it, would
be only one of convenience; a saving of time and trouble, like grinding by
water instead of by hand, or (to use Adam Smith’s illustration) like the
benefit derived from roads; and to mistake money for wealth is the same
sort of error as to mistake the highway, which may be the easiest way of
getting 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 human
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
purchasing them. Everything forms, therefore, a part of wealth, which has
a power of purchasing; for which anything useful or agreeable would be
given in exchange. Things for which nothing could be obtained in exchange,
however 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 absolute 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 production and
distribution are the subject of a very different study from Political
Economy. 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 naturally 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
acquire a very high marketable value. In 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 lie in not
considering that, however rich the possessor of air might become at the
expense of the rest of the community, all persons else would be poorer by
all that they were compelled to pay for what they had before obtained
without payment.
Wealth, then, may be defined, all useful 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 labor
or sacrifice.
This is the usual definition of wealth. Henry George (see
“Progress and Poverty,” pp. 34-37) regards wealth as consisting
“of natural products that have been secured, moved, combined,
separated, or in other ways _modified by human exertion_, so as to
fit them for the gratification of human desires.... Nothing which
Nature supplies to man without his labor is wealth.... All things
which have an exchange value are, therefore, not wealth. Only such
things can be wealth the production of which increases and the
destruction of which decreases the aggregate of wealth....
Increase in land values does not represent increase in the common
wealth, for what land-owners gain by higher prices the tenants or
purchasers who must pay them will lose.” Jevons (“Primer,” p. 13)
defines wealth very properly as what is transferable, limited in
supply, and useful. F. A. Walker defines wealth as comprising “all
articles of value and nothing else” (“Political Economy,” p. 5).
Levasseur’s definition (“Précis,” p. 15) is, “all material objects
possessing utility” (i.e., the power to satisfy a want). (Cf.
various definitions in Roscher’s “Political Economy,” section 9,
note 3.) Perry (“Political Economy,” p. 99) rejects the term
_wealth_ as a clog to progress in the science, and adopts
_property_ in its stead, defining it as that “which can be bought
or sold.” Cherbuliez (“Précis,” p. 70) defines wealth as the
material product of nature appropriated by labor for the wants of
man. Carey (“Social Science,” i, 186) asserts that wealth consists
in the power to command Nature’s services, including in wealth
such intangible things as mental qualities.
BOOK I. PRODUCTION.
Chapter I. Of The Requisites Of Production.
§ 1. The Requisites of Production are Two: Labor, and Appropriate Natural
Objects.
There is a third requisite of production, capital (see page 58).
Since the limitation to only two requisites applies solely to a
primitive condition of existence, so soon as the element of _time_
enters into production, then a store of capital becomes necessary;
that is, so soon as production requires such a term that during
the operation the laborer can not at the same time provide himself
with subsistence, then capital is a requisite of production. This
takes place also under any general division of labor in a
community. When one man is making a pin-head, he must be supplied
with food by some person until the pins are finished and
exchanged.
Labor is either bodily or mental; or, to express the distinction more
comprehensively, either muscular or nervous; 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 annoyance, connected
with the employment of one’s thoughts, or muscles, or both, in a
particular occupation.
The word “sacrifice” conveys a just idea of what the laborer
undergoes, and it corresponds to the abstinence of the capitalist.
Of the other requisite—appropriate natural objects—it is to be remarked
that some objects exist or grow up spontaneously, of a kind suited to the
supply of human wants. There are caves and hollow trees capable of
affording shelter; fruits, roots, wild honey, and other natural products,
on which human life can be supported; but even here a considerable
quantity of labor is generally required, not for the purpose of creating,
but of finding and appropriating them.
Of natural powers, some are unlimited, others limited in quantity. By an
unlimited quantity is of course not meant literally, but practically
unlimited: a quantity beyond the use which can in any, or at least 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 be made to it for generations to come. But, even there, land favorably
situated 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 cultivate, or otherwise turn to use. In all old countries, land
capable of cultivation, land at least of any tolerable fertility, must be
ranked among agents limited in quantity. Coal, metallic ores, and other
useful substances found in the earth, are still more limited than land.
For the present I shall only remark that, so long as the quantity of a
natural agent is practically unlimited, it can not, unless 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 operative—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.
Rich lands in our Western Territories a few years ago could be had
practically for the asking; but now, since railways and an
increase of population have brought them nearer to the markets,
they have acquired a distinct exchange value. The value of a
commodity (it may be anticipated) is the quantity of other things
for which it can be exchanged.
When more water-power is wanted in a particular district than there are
falls of water to supply it, persons will give an equivalent 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.
§ 2. The Second Requisite of Production, Labor.
It is now our purpose to describe the second requisite of
production, labor, and point out that it can be either direct or
indirect. This division and subdivision can be seen from the
classification given below. Under the head of indirect labor are
to be arranged all the many employments subsidiary to the
production of any one article, and which, as they furnish but a
small part of labor for the one article (e.g., bread), are
subsidiary to the production of a vast number of other articles;
and hence we see the interdependence of one employment on another,
which comes out so conspicuously at the time of a commercial
depression.
“We think it little to sit down to a table covered with articles
from all quarters of the globe and from the remotest isles of the
sea—with tea from China, coffee from Brazil, spices from the East,
and sugar from the West Indies; knives from Sheffield, made with
iron from Sweden and ivory from Africa; with silver from Mexico
and cotton from South Carolina; all being lighted with oil brought
from New Zealand or the Arctic Circle. Still less do we think of
the great number of persons whose united agency is required to
bring any one of these finished products to our homes—of the
merchants, insurers, sailors, ship-builders, cordage and sail
makers, astronomical-instrument makers, men of science, and
others, before a pound of tea can appear in our market.”(101)
The labor(102) which terminates in the production of an article fitted for
some human use is either employed directly about the thing, or in previous
operations destined to facilitate, perhaps essential to the possibility
of, the subsequent ones. In making bread, for example, the labor employed
about the thing itself is that of the baker; but the labor of the miller,
though employed directly in the production not of bread but of flour, is
equally part of the aggregate sum of labor by which the bread is produced;
as is also the labor of the sower, and of the reaper. Some may think that
all these persons ought to be considered as employing their labor 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 plowman, who prepared the ground for the
seed, and whose labor never came in contact with the substance in any of
its states; and the plow-maker, whose share in the result was still more
remote. We must add yet another kind of labor; that of transporting the
produce from the place of its production to the place of its destined use:
the labor of carrying the corn 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.
Besides the two classes of indirect laborers here mentioned, those
engaged in producing materials and those in transportation, there
are several others who are paid fractions out of the bread.
Subsidiary to the direct labor of the bread-maker is the labor of
all those who make the instruments employed in the process (as,
e.g., the oven). Materials are completely changed in character by
one use, as when the coal is burned, or the flour baked into
bread; while an instrument, like an oven, is capable of remaining
intact throughout many operations. The producer of materials and
the transporter are paid by the bread-maker in the price of his
coal and flour when left at his door, so that the price of the
loaf is influenced by these payments. Those persons, moreover,
who, like the police and officers of our government, act to
protect property and life, are also to be classed as laborers
indirectly aiding in the production of the given article, bread
(and by his taxes the bread-maker helps pay the wages of these
officials). Shading off into a more distant, although essential,
connection is another class—that of those laborers who train human
beings in the branches of knowledge necessary to the attainment of
proper skill in managing the processes and instruments of an
industry. The acquisition of the rudiments of education, and, in
many cases, the most profound knowledge of chemistry, physics and
recondite studies, are essential to production; and teachers are
indirect laborers in producing almost every article in the market.
In this country, especially, are inventors a class of indirect
laborers essential to all ultimate production as it now goes on.
The improvements in the instruments of production are the results
of an inventive ability which has made American machinery known
all over the world. They, too, as well as the teacher, are paid (a
small fraction, of course) out of the ultimate result, by an
indirect path, and materially change the ease or difficulty,
cheapness or dearness, of production in nearly every branch of
industry. In the particular illustration given they have improved
the ovens, ranges, and stoves, so that the same or better articles
are produced at a less cost than formerly. All these indirect
laborers receive, in the way of remuneration, a fraction, some
more, some less (the farther they are removed from the direct
process), of the value of the final result.
§ 3. Of Capital as a Requisite of Production.
But another set of laborers are to be placed in distinct contrast
with these, so far as the grounds on which they receive their
remuneration is concerned. These are the men engaged previously in
providing the subsistence, and articles by which the former
classes of labor can carry on their operations.
The previous employment of labor is an indispensable condition to every
productive operation, on any other than the very smallest scale. Except
the labor of the hunter and fisher, there is scarcely any kind of labor to
which the returns are immediate. Productive operations require to be
continued a certain time before their fruits are obtained. Unless the
laborer, 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 can undertake no labor
but such as can be carried on at odd intervals, concurrently with the
pursuit of his subsistence.
The possession of capital is thus a third requisite of production,
together with land and labor, as noted above. Henry George
(“Progress and Poverty,” chap. iv) holds an opposite opinion: “The
subsistence of the laborers who built the Pyramids was drawn, not
from a previously hoarded stock” (does he not forget the story of
Joseph’s store of corn?), “but from the constantly recurring crops
of the Nile Valley.”
He can not obtain food itself in any abundance; for every mode of so
obtaining it requires that there be already food in store. Agriculture
only brings forth food after the lapse of months; and, though the labors
of the agriculturist are not necessarily continuous during the whole
period, they must occupy a considerable 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
support itself wholly by agriculture. A country like England or the United
States 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 support 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 laborers, but a
large industrious population besides.
The claim to remuneration founded on the possession of food, available for
the maintenance of laborers, is of another kind; remuneration for
abstinence, not for labor. If a person has a store of food, he has it in
his power to consume it himself in idleness, or in feeding 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 laborers to support
them during their work, he can, and naturally 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 advantage from delaying to apply his savings to his own
benefit or pleasure. He will look for some equivalent for this
forbearance:(103) he will expect his advance of food to come back to him
with an increase, called, in the language of business, a profit; and the
hope of this profit will generally have been a part of the inducement
which made him accumulate a stock, by economizing in his own consumption;
or, at any rate, which made him forego the application of it, when
accumulated, to his personal ease or satisfaction.
Chapter II. Of Unproductive Labor.
§ 1. Definition of Productive and Unproductive Labor.
Labor is indispensable to production, but has not always production for
its effect. There is much labor, and of a high order of usefulness, of
which production is not the object. Labor has accordingly been
distinguished into Productive and Unproductive. Productive labor means
labor productive of wealth. We are recalled, therefore, to the question
touched upon in our [Preliminary Remarks], what Wealth is.
By Unproductive Labor, on the contrary, will be understood labor which
does not terminate in the creation of material wealth. And all labor,
according to our present definition, must be classed as unproductive,
which terminates in a permanent benefit, however important, provided that
an increase of material products forms no part of that benefit. The labor
of saving a friend’s life is not productive, unless the friend is a
productive laborer, and produces more than he consumes.
The principle on which the distinction is made is perfectly clear,
but in many cases persons may be misled chiefly in regard to
matters of fact. A clergyman may at first sight be classed as an
unproductive laborer; but, until we know the facts, we can not
apply the principle of our definition. Unless we know that no
clergyman, by inculcating rules of morality and self-control, ever
caused an idler or wrong-doer to become a steady laborer, we can
not say that a clergyman is a laborer unproductive of material
wealth. Likewise the army, or the officers of our government at
Washington, may or may not have aided in producing material wealth
according as they do or do not, in fact, accomplish the protective
purposes for which they exist. So with teachers. There is,
however, no disparagement implied in the word unproductive; it is
merely an economic question, and has to do only with forces
affecting the production of wealth.
Unproductive may be as useful as productive labor; it may be more useful,
even in point of permanent advantage; or its use may consist only in
pleasurable 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 subtracted, for the time,
from the material products which society would otherwise have possessed.
To be wasted, however, is a liability not confined to unproductive labor.
Productive labor may equally be waste, if more of it is expended than
really conduces to production. If defect of skill in laborers, or of
judgment in those who direct them, causes a misapplication of productive
industry, labor is wasted. Productive labor 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 immediately wanted: as when a
commodity is unsalable, because produced in a quantity beyond the present
demand; or when speculators build docks and warehouses before there is any
trade.
§ 2. Productive and Unproductive Consumption.
The distinction of Productive and Unproductive is applicable to
Consumption as well as to Labor. All the members of the community are not
laborers, but all are consumers, and consume either unproductively or
productively. Whoever contributes nothing directly or indirectly to
production is an unproductive consumer. The only productive consumers are
productive laborers; the labor of direction being of course included, as
well as that of execution. But the consumption even of productive laborers
is not all of it Productive Consumption. There is unproductive consumption
by productive consumers. What they consume in keeping up or improving
their health, strength, and capacities of work, or in rearing other
productive laborers to succeed them, is Productive Consumption. But
consumption on pleasures or luxuries, whether by the idle or by the
industrious, since production is neither its object nor is in any way
advanced by it, must be reckoned Unproductive: with a reservation,
perhaps, of a certain quantum of enjoyment which may be classed among
necessaries, since anything short of it would not be consistent with the
greatest efficiency of labor. That alone is productive consumption which
goes to maintain and increase the productive powers of the community;
either those residing in its soil, in its materials, in the number and
efficiency of its instruments of production, or in its people.
I grant that no labor really tends to the enrichment of society, which is
employed in producing things for the use of unproductive consumers. The
tailor who makes a coat for a man who produces nothing is a productive
laborer; 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 labor of the tailor than if the same sum had been paid
for a stall at the opera. Nevertheless, society has been richer by the
labor while the coat lasted. These things also [such as lace and
pine-apples] are wealth until they have been consumed.
§ 3. Distinction Between Labor for the Supply of Productive Consumption
and Labor for the Supply of Unproductive Consumption.
We see, however, by this, that there is a distinction more important to
the wealth of a community than even that between productive and
unproductive labor; the distinction, namely, between labor for the supply
of productive, and for the supply of unproductive, consumption; between
labor employed in keeping up or in adding to the productive resources of
the country, and that which is employed otherwise. Of the produce of the
country, a part only is destined to be consumed productively; the
remainder supplies the unproductive consumption of producers, and the
entire consumption of the unproductive class. Suppose that the proportion
of the annual produce applied to the first purpose amounts to half; then
one half the productive laborers of the country are all that are employed
in the operations on which the permanent wealth of the country depends.
The other half are occupied from year to year and from generation to
generation in producing things which are consumed and disappear without
return; and whatever this half consume is as completely lost, as to any
permanent effect on the national resources, as if it were consumed
unproductively. Suppose that this second half of the laboring population
ceased to work, and that the government maintained 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 undiminished: the
unproductive classes, indeed, would be either starved or obliged to
produce their own subsistence, and the whole community would be reduced
during a year to bare necessaries; 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 laborers had suspended
their accustomed occupations, and the second half had continued theirs,
the country at the end of the twelvemonth would have been entirely
impoverished. It would be a great error to regret the large proportion of
the annual produce, which in an opulent country goes to supply
unproductive consumption. That so great a surplus should be available for
such purposes, and that it should be applied to them, can only be a
subject of congratulation.
This principle may be seen by the following classification:
(A) Idlers; or unproductive laborers—e.g., actors.
(B) Productive laborers—e.g., farmers.
(C) Producing wealth for productive consumption, one half the annual
produce.
(D) Producing wealth for unproductive consumption (A), one half the
annual produce.
Group D are productive laborers, and their _own necessaries_ are
productively consumed, but they are supplied by C, who keep themselves and
D in existence. So long as C work, both C and D can go on producing. If D
stopped working, they could be still subsisted as before by C; but A would
be forced to produce for themselves. But, if C stopped working, D and C
would be left without the necessaries of life, and would be obliged to
cease their usual work. In this way it may be seen how much more important
to the increase of material wealth C are than D, who labor “for the supply
of unproductive consumption.” Of course, group D are desirable on other
than economic grounds, because their labor represents what can be enjoyed
beyond the necessities of life.
Chapter III. Of Capital.
§ 1. Capital is Wealth Appropriated to Reproductive Employment.
It has been seen in the preceding chapters that besides the primary and
universal requisites of production, labor 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 labor. This accumulated
stock of the produce of labor is termed Capital. 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 laborers
during the process. These are the services which present labor requires
from past, and from the produce of past, labor. Whatever things are
destined for this use—destined to supply productive labor with these
various prerequisites—are Capital.
Professor Fawcett, “Manual” (chap. ii), says: “Since the laborer
must be fed by previously accumulated food, ... some of the
results of past labor are required to be set aside to sustain the
laborer while producing. The third requisite of production,
therefore, is a fund reserved from consumption, and devoted to
sustain those engaged in future production.... Capital is not
confined to the food which feeds the laborers, but includes
machinery, buildings, and, in fact, every product due to man’s
labor which can be applied to assist his industry” (chap. iv).
General Walker (“Political Economy,” pages 68-70) defines capital
as that portion of wealth (excluding unimproved land and natural
agents) which is employed in the production of new forms of
wealth. Henry George (“Progress and Poverty,” page 41) returns to
Adam Smith’s definition: “That part of a man’s stock which he
expects to yield him a revenue is called his capital.” Cherbuliez
(“Précis,” page 70) points out the increasing interdependence of
industrial operations as society increases in wealth, and that
there is not a single industry which does not demand the use of
products obtained by previous labor. “These auxiliary products
accumulated with a view to the production to which they are
subservient” form what is called capital. Carey (“Social Science,”
iii, page 48) regards as capital all things which in any way form
the machinery by which society obtains wealth. Roscher’s
definition is, “Every product laid by for purposes of further
production.” (“Political Economy,” section 42.) By some, labor is
regarded as capital.(104)
A manufacturer, for example, has one part of his capital in the form of
buildings, fitted and destined for carrying on this branch of manufacture.
Another part he has in the form of machinery. A third consists, if he be a
spinner, of raw cotton, flax, or wool; if a weaver, of flaxen, woolen,
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 he 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 has money, which he pays to his work-people, and so enables
them to supply themselves. What, then, is his capital? Precisely that part
of his possessions, whatever it be, which he designs to employ in carrying
on fresh production. It is of no consequence that a part, or even the
whole of it, is in a form in which it can not directly supply the wants of
laborers.
Care should be taken to distinguish between wealth, capital, and
money. Capital may be succinctly defined as _saved wealth devoted
to reproduction_, and the relations of the three terms mentioned
may be illustrated by the following figure: The area of the
circle, A, represents the wealth of a country; the area of the
inscribed circle, B, the quantity out of the whole wealth which is
saved and devoted to reproduction and called capital. But money is
only one part of capital, as shown by the area of circle C.
Wherefore, it can be plainly seen that not all capital, B, is
money; that not all wealth, A, is capital, although all capital is
necessarily wealth as included within it. It is not always
understood that money is merely a convenient article by which
other forms of wealth are exchanged against each other, and that a
man may have capital without ever having any actual money in his
possession. In times of commercial depression, that which is
capital to-day may not to-morrow satisfy any desires (i.e., not be
in demand), and so for the time it may, so to speak, drop entirely
out of our circles above. For the moment, not having an exchange
value, it can not be wealth, and so can the less be capital.
[Illustration. Outer circle A, enclosing inner circle B, with small circle
C overlapping edge of circle B.]
Suppose, for instance, that the capitalist is a hardware manufacturer, and
that his stock in trade, over and above his machinery, consists at present
wholly in iron goods. Iron goods can not feed laborers. Nevertheless, by a
mere change of the destination of the iron goods, he can cause laborers to
be fed. Suppose that [the capitalist changed into wages what he had before
spent] in buying plate and jewels; and, in order to render the effect
perceptible, let us suppose that the change takes place on a considerable
scale, and that a large sum is diverted from buying plate and jewels to
employing productive laborers, whom we shall suppose to have been
previously, like the Irish peasantry, only half employed and half fed. The
laborers, 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 laborers or animals, as in the former
case, whose food is set free for productive purposes. Food will therefore
be imported if possible; if not possible, the laborers will remain for a
season on their short allowance: but the consequence of this change in the
demand for commodities, occasioned by the change in the expenditure of
capitalists from unproductive to productive, is that next year more food
will be produced, and less plate and jewelry. So that again, without
having had anything to do with the food of the laborers directly, the
conversion by individuals 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 appropriated to the consumption of
productive laborers. The distinction, then, between Capital and
Not-capital, does not lie in the kind of commodities, but in the mind of
the capitalist—in his will to employ them for one purpose rather than
another; and all property, however ill adapted in itself for the use of
laborers, is a part of capital, so soon as it, or the value to be received
from it, is set apart for productive reinvestment.
§ 2. More Capital Devoted to Production than Actually Employed in it.
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. (1) A fund may be seeking for
productive employment, and find none adapted to the inclinations of its
possessor: it then is capital still, but unemployed capital. (2) Or the
stock may consist of unsold goods, not susceptible of direct application
to productive uses, and not, at the moment, marketable: these, until sold,
are in the condition of unemployed capital.
This is not an important distinction. The goods are doubtless
marketable at some price, if offered low enough. If no one wants
them, then, by definition, they are not wealth so long as that
condition exists.
(3) [Or] suppose that the Government lays a tax on the production in one
of its earlier 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
productive labor; or (what is equivalent) with a given capital he
maintains less labor. (4) 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.
(5) Finally, that large portion of the productive capital of a country
which is employed in paying the wages and salaries of laborers, 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 laborers is usually considerable) is not
expended in supporting labor, but in remunerating it, and the laborers
could wait for this part of their remuneration until the production is
completed.
The previous accumulation of commodities requisite for production
must inevitably be large enough to cover necessaries, but need not
be more, if the laborer is willing to wait for the additional
amount of his wages (the amount of his unproductive consumption)
until the completion of the industrial operation. In fact,
however, the accumulation must be sufficient to pay the laborer
all his wages from week to week, by force of custom (wherever
there is any considerable division of labor), and also sufficient
to purchase tools and materials. The various elements of capital
are materials, instruments, and subsistence, giving “instruments”
its wide signification which includes money (the tool of
exchange), and other necessary appliances of each special kind of
production.
In truth, it is only after an abundant capital had already been
accumulated that the practice of paying in advance any remuneration of
labor beyond a bare subsistence could possibly have arisen: since whatever
is so paid is not really applied to production, but to the unproductive
consumption of productive laborers, 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 laborers are always
subsisted from capital:(105) and this is obviously the fact, though the
capital need not necessarily be furnished by a person called a capitalist.
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 disposed of. Each is supported by a small capital of his own,
which he periodically replaces from the produce of his labor. The large
capitalist is, in like manner, maintained from funds provided in advance.
§ 3. Examination of Cases Illustrative of the Idea of Capital.
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 has not
dissipated has or has not been dissipated by somebody else.
Let the reader consider, in the four following suppositions,
whether or not the given capital has wholly dropped out of the
circle in the diagram, page 67. In (3) and (4) the wealth is
entirely dissipated; as it can not longer be in circle A, it can
not, of course, be in circle B.
(1.) For example, let property of the value of ten thousand pounds,
belonging to A, be lent to B, a farmer or manufacturer, 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 laborers and providing tools and materials—which
capital belongs to A, while B takes the trouble of employing it, and
receives for his remuneration the difference between the profit which it
yields and the interest he pays to A. This is the simplest case.
(2.) Suppose next that A’s ten thousand pounds, instead of being lent to
B, are lent on mortgage to C, a landed proprietor, by whom they are
employed in improving the productive powers of his estate, by fencing,
draining, road-making, or permanent manures. This is productive
employment. The ten thousand pounds are sunk, but not dissipated. They
yield a permanent return; 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 increasing the produce of the country.
This constitutes a capital, for which C, if he lets his land, receives the
returns in the nominal form of increased rent; and the mortgage entitles A
to receive from these returns, in the shape of interest, such annual sum
as has been agreed on.
(3.) Suppose, however, that C, the borrowing landlord, is a spendthrift,
who burdens his land not to increase his fortune but to squander it,
expending the amount in equipages and entertainments. In a year or two it
is dissipated, 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 ten thousand pounds
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. No
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 expenditure 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 more than
balanced at the end of the year by new products, created by the labor of
those who 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’s 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 consumption of the laboring-classes; while, at the expiration
of the time (to say nothing of an increase), C would have had the ten
thousand pounds or its value replaced to him, which now he has not. There
is, therefore, on the general result, a difference, to the disadvantage 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 thousand 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 prodigality. A now
receives his income, not from the produce of his capital, but from some
other source of income belonging to C, probably from the rent of his land,
that is, from payments made to him by farmers out of the produce of
_their_ capital.
(4.) Let us now 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 Government 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 income. 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 wealth or production is
concerned; though for other reasons the employment 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 community; to whom his capital is not yielding any return,
to indemnify them for the payment; it is all lost and gone, and what he
now possesses is a claim on the returns to other people’s capital and
industry.
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 productive employment, placed in the fund for unproductive
consumption, and destroyed without equivalent.
The United States had borrowed in the late civil war, by August
31, 1865, $2,845,907,626; and, to June 30, 1881, the Government
had paid in interest on its bonds, “from taxes drawn from the
produce of the remaining capital,” $1,270,596,784, as an income to
bondholders. From this can be seen the enormous waste of wealth to
the United States during the war, and consequently the less
existing capital to-day in this country; since, under the same
inducements to save, the smaller the outside circle (wealth), the
less the inside circle (capital) must be.
Chapter IV. Fundamental Propositions Respecting Capital.
§ 1. Industry is Limited by Capital.
The first of these propositions is, that industry is limited by capital.
To employ labor in a manufacture is to invest capital in the manufacture.
This implies that industry can not be employed to any greater extent than
there is capital to invest. The proposition, indeed, must be assented to
as soon as it is distinctly apprehended. The expression “applying capital”
is of course metaphorical: what is really applied is labor; capital being
an indispensable condition. The food of laborers and the materials of
production have no productive power; but labor can not exert its
productive power unless provided with them. There 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
labor, but of past.
Therefore, as capital increases, more labor can be employed. When
the Pittsburg rioters, in 1877, destroyed property, or the product
of past labor, they did not realize then that that property might,
but now could never again, be employed for productive purposes,
and thereby support laborers.
They consume what has been produced, not what is about to be produced.
Now, of what has been produced, a part only is allotted to the support of
productive labor; and there will not and can not be more of that labor
than the portion so allotted (which is the capital of the country) can
feed, and provide with the materials and instruments of production.
Because industry is limited by capital, we are not, however, to infer that
it always reaches that limit. There may not be as many laborers obtainable
as the capital would maintain and employ. This has been known to occur in
new colonies, where capital has sometimes perished uselessly for want of
labor.
In the farming districts of our Middle and Western States, in
harvest-time, crops have been often of late years ruined because
farm-hands could not be obtained. In earlier days, President John
Adams was unable to hire a man in Washington to cut wood in the
surrounding forests with which to warm the White House.
The unproductive consumption of productive laborers, the whole of which is
now supplied by capital, might cease, or be postponed, until the produce
came in; and additional productive laborers might be maintained with the
amount.
[Governments] can create capital. They may lay on taxes, and employ the
amount productively. They may do what is nearly equivalent: they may lay
taxes on income or expenditure, and apply the proceeds toward paying off
the public debts. The fund-holder, when paid off, would still desire to
draw an income from his property, most of which, therefore, 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.
§ 2. Increase of Capital gives Increased Employment to Labor, Without
Assignable Bounds.
While, on the one hand, industry is limited by capital, so, on the other,
every increase of capital gives, or is capable of giving, additional
employment to industry; and this without assignable limit. I do not mean
to deny that the capital, or part of it, may be so employed as not to
support laborers, 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
laborers, not maintain them.
It will be remembered, however, that subsistence is but one part
or element of capital; that instruments and materials form a large
part of capital. But still the question of mere maintenance is
rightfully discussed, because it is asserted to-day that, while
the rich are growing richer, the poor lack even the food to keep
them alive; and throughout this discussion Mr. Mill has in view
the fact that laborers may exist in the community either “half fed
or unemployed.”
What I do intend to assert is, that the portion which is destined to their
maintenance may (supposing no alteration in anything else) be indefinitely
increased, without creating an impossibility of finding the employment: in
other words, that if there are human beings capable of work, and food to
feed them, they may always be employed in producing something. It is very
much opposed to common doctrines.(106) 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.
It is to be noticed that, in fact, after the arts have so far
advanced in a community that mankind can obtain by their exertion
more than the amount of the mere necessaries of life sufficient on
the average for the subsistence of all, any further production
rendered possible to the human race by new discoveries and
processes is naturally unproductively consumed, and that
consequently a demand for labor for unproductive consumption is
essential for the employment of all existing laborers. This,
however, can be done, because enough capital has been brought into
existence to create the demand for the labor. Yet it is clear that
it is not _expenditure_, but capital, by which employment is given
to the poor.
Suppose that every capitalist came to be of opinion that, not being more
meritorious than a well-conducted laborer, he ought not to fare better;
and accordingly laid by, from conscientious motives, the surplus of his
profits; unproductive expenditure is now reduced to its lowest limit: and
it is asked, How is the increased capital to find employment? Who is to
buy the goods which it will produce? There are no longer customers even
for those which were produced 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 customers has lessened. But this is seeing only one half of
the matter. In the case supposed, there would no longer be any demand for
luxuries on the part of capitalists and land-owners. But, when these
classes turn their income into capital, they do not thereby annihilate
their power of consumption; they do but transfer it from themselves to the
laborers to whom they give employment. Now, there are two possible
suppositions in regard to the laborers: either there is, or there is not,
an increase of their numbers proportional to the increase of capital. (1.)
If there is, the case offers no difficulty. The production of necessaries
for the 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. (2.) But suppose that there is no increase of population.
The whole of what was previously expended in luxuries, by capitalists and
landlords, is distributed among the existing laborers, in the form of
additional wages. We will assume them to be already sufficiently supplied
with necessaries.
What follows? That the laborers become consumers of luxuries; and the
capital previously employed in the production of luxuries is still able to
employ itself in the same manner; the difference being, that the luxuries
are shared among the community generally, instead of being confined to a
few, supposing that the power of their labor 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
productive power. Every addition to capital gives to labor either
additional employment or additional remuneration.
That laborers should get more (_a_) by capitalists abstaining from
unproductive expenditure than (_b_) by expenditure in articles
unproductively consumed is a question difficult for many to
comprehend, and needs all the elucidation possible. To start with,
no one ever knew of a community all of whose wants were satisfied:
in fact, civilization is constantly leading us into new fields of
enjoyment, and results in a constant differentiation of new
desires. To satisfy these wants is the spring to nearly all
production and industry. There can, therefore, be no stop to
production arising from lack of desire for commodities. “The limit
of wealth is never deficiency of consumers,” but of productive
power.
Now, in supposition (2) of the text, remember that the laborers
are supposed not to be employed up to their full productive power.
If all capitalists abstain from unproductive consumption, and
devote that amount of wealth to production, then, since there can
be no production without labor, the same number of laborers have
offered to them in the aggregate a larger sum of articles for
their exertions, which is equivalent to saying they receive
additional wages.
But some persons want to see the process in the concrete, and the
same principle may be illustrated by a practical case. It is
supposed that all laborers have the necessaries of life only, but
none of the comforts, decencies, and luxuries. Let A be a farmer
in New York, who can also weave carpets, and B a lumberman in
Maine. A begins to want a better house, and B wishes a carpet,
both having food, clothing, and shelter. One of the capitalists
abstaining from unproductive consumption, as above, is X, who,
knowing the two desires of A and B, presents himself as a
middle-man (i.e., he gives a market for both men, as is found in
every center of trade, as well as in a country store), furnishing
A the tools, materials, etc., and giving him the promise of lumber
if he will create the carpet, and promising B the carpet if he
will likewise produce the additional lumber. To be more matter of
fact, X buys the carpet of A, and sells it to B for the lumber.
Thus two new articles have been created, and for their exertions A
has received additional wages (either in the form of lumber, or of
the money paid him for the carpet), and B has received additional
wages (either in the form of a carpet, or the money paid him by X
for the lumber). If A and B are regarded as typifying all the
laborers, and X all the above capitalists, in the multiplicity of
actual exchanges, it will be seen that A and B are creating new
articles to satisfy their own demand, instead of meeting the
demands of X. If their primary wants are already supplied, then
they take their additional wages in the form of comforts and
decencies. When Class X forego their consumption, but add that
amount to capital, they do not give up their title to that
capital, but they transfer the use of it, or their consuming
power, to others for the time being. This question will be more
fully discussed in § 6.
§ 3. Capital is the result of Saving, and all Capital is Consumed.
A second fundamental theorem respecting capital relates to the source from
which it is derived. It is the result of saving.
If all persons were to expend in personal indulgences all that they
produce, and all the income that they receive from what is produced by
others, capital could not increase. Some saving, therefore, there must
have been, even in the 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
laborers, or increase their production beyond what can be accomplished by
the work of their own hands. If it were said, for instance, that the only
way to accelerate the increase of capital is by increase of saving, the
idea would probably be suggested of greater abstinence and increased
privation. But it is obvious that whatever increases the productive power
of labor, creates an additional fund to make savings from, and enables
capital to be enlarged, not only without additional 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. To consume less than is produced is saving;
and that is the process by which capital is increased; not necessarily by
consuming less, absolutely.
The economic idea of saving involves, of course, the intention of
using the wealth in reproduction. Saving, without this meaning,
results only in hoarding of wealth, and while hoarded this amount
is not capital. To explain the process by which capital comes into
existence, Bastiat has given the well-known illustration of the
plane in his “Sophisms of Protection.”(107)
A 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 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
altogether by the consumption of the ultimate product. The remainder is
paid in wages to productive laborers, 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-employed as capital, and consumed. 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. The person who expends
his fortune in unproductive consumption is looked upon as diffusing
benefits all around, and is an object of so much favor, that some portion
of the same popularity attaches even to him who spends what does not
belong to him; who not only destroys his own capital, if he ever had any,
but, under pretense of borrowing, and on promise of repayment, possesses
himself of capital belonging to others, and destroys that likewise.
This popular error comes from attending 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. There is, in the one
case, a wearing out of tools, a destruction of material, and a quantity of
food and clothing supplied to laborers, which they destroy by use; in the
other case, there is a consumption, 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
destroyed in both cases. But in the spending, this first stage is also the
final stage; that particular amount of the produce of labor 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
laborers at work repairing it; who are ultimately found to have replaced,
with an increase, the equivalent of what has been consumed.
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 confounding money
with wealth. The wealth which has been destroyed was not the money, but
the wines, equipages, and furniture which the money purchased; and, these
having been destroyed without return, society collectively is poorer by
the amount. In proportion as any class is improvident or luxurious, the
industry of the country takes the direction of producing luxuries for
their use; while not only the employment for productive laborers is
diminished, but the subsistence and instruments which are the means of
such employment do actually exist in smaller quantity.
§ 4. Capital is kept up by Perpetual Reproduction, as shown by the
Recovery of Countries from Devastation.
To return to our fundamental theorem. Everything which is produced is
consumed—both what is saved and what is said to be spent—and the former
quite as rapidly as the 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 acquired, 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 the
United States] has been produced by human hands within the last twelve
months.
“In the State of Massachusetts it is estimated that the capital,
on the average, belonging to each individual does not exceed $600,
and that the average annual product _per capita_ is about $200; so
that the total capital is the product of only two or three years’
labor.”(108)
The land subsists, and the land is almost the 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.
Westminster Abbey has lasted many centuries, 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
unproductive use. Capital is kept in existence from age to age not by
preservation, but by perpetual reproduction; every part of it is used and
destroyed, generally very soon after it is produced, but those who consume
it are employed meanwhile in producing 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.
This perpetual consumption and reproduction of capital afford the
explanation of what has so often excited wonder, the great rapidity with
which countries recover from a state of devastation. The possibility of a
rapid repair of their disasters mainly depends on whether the country has
been depopulated. If its effective population have not been extirpated at
the time, and are not starved afterward, then, with the same skill and
knowledge which they had before, with their land and its permanent
improvements undestroyed, and the more durable buildings probably
unimpaired, or only partially injured, they have nearly all the requisites
for their former amount of production. If there is as much of food left to
them, or of valuables 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 collectively as great
wealth and as great a capital, as before, by the mere continuance of that
ordinary amount of exertion which they are accustomed to employ in their
occupations. Nor does this evince any strength in the principle of saving,
in the popular sense of the term, since what takes place is not
intentional abstinence, but involuntary privation.
The world has at any given period the power, under existing
conditions of production and skill, to create a certain amount of
wealth, as represented by the inner rectangle, W. Each increased
power of production arising from conquests over Nature’s forces,
as the use of steam and labor-saving machinery, permits the total
wealth to be enlarged, as, in the figure, to rectangle W’. For the
production of wealth are required labor, capital, and land;
therefore, if the labor and land are not destroyed by war, there
need not necessarily be in existence all the previous capital. If
there are the necessaries for all, and only sufficient tools to
accomplish the work, they will, in a few years, again recreate all
the wealth that formerly existed, regain the same position as
before, and go on slowly increasing the total wealth just as fast
as improvements in the arts of production render it possible.
[Illustration. Inner rectangle W, surrounded by rectangle W’.]
§ 5. Effects of Defraying Government Expenditure by Loans.
[An application of this truth has been made to the question of raising
government supplies for war purposes.] Loans, being drawn from capital (in
lieu of taxes, which would generally have been paid from income, and made
up in part or altogether by increased economy), must, according to the
principles we have laid down, tend to impoverish the country: yet the
years in which expenditure of this sort has been on the greatest scale
have often been years of great apparent prosperity: the wealth 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.
During our civil war, at the same time that wealth was being
destroyed on an enormous scale, there was a very general feeling
that trade was good, and large fortunes were made. At the close of
the war a period of speculation and overtrading continued until it
was brought to a disastrous close by the panic of 1873. Much of
this speculation, however, was due to an inflated paper currency.
We will suppose the most unfavorable case possible: that the whole amount
borrowed and destroyed by the Government was abstracted by the lender from
a productive employment in which it had actually been invested. The
capital, therefore, of the country, is this year diminished by so much.
But, unless the amount abstracted 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 can not 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 laborers: and the laborers 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 labor 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 misery of the
laboring-class.
As Mr. Mill points out, during the Napoleonic wars, in France the
withdrawal of laborers from industry into the army was so large
that it caused a rise of wages, and a fall in the profits of
capital; while in England, inasmuch as capital, rather than men,
was sent to the Continent in the war, the very reverse took place:
the diversion of “hundreds of millions of capital from productive
employment” caused a fall of wages, and the prosperity of the
capitalist class, while the permanent productive resources did not
fall off.
This leads to the vexed question to which Dr. Chalmers has very
particularly adverted: whether the funds required by a government for
extraordinary 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 can not, without great
hardship, pay the whole at once out of their yearly income; and that it is
much better to require of them a small payment every year in the shape of
interest, than so great a sacrifice once for all. To which his answer is,
that the sacrifice is made equally in either case. Whatever is spent can
not 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 laboring-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 laboring-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 laboring-class. And,
after having, in this most painful and unjust of ways, 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.
The United States, for example, borrows capital from A, with which
it buys stores from B. If the loan all comes from within the
country, A’s capital is _borrowed_, when the United States should
have taken that amount outright by taxation. When the money is
borrowed of A, the laborers undergo the sacrifice, the title to
the whole sum remains in A’s hands, and the claim against the
Government by A still exists; while, if the amount were taken by
taxation, the title to the sum raised is in the state, and it is
paid to the right person.
The experience of the United States during the civil war is an
illustration of this principle. It is asserted that, as a matter
of fact, the total expenses of the war were defrayed by the
Northern States, during the four years of its continuance, out of
surplus earnings; and yet at the close of the conflict a debt of
$2,800,000,000 was saddled on the country.
The United States borrowed $2,400,000,000
Revenue during that time 1,700,000,000
Total cost of the war $4,100,000,000
In reality we borrowed only about $1,500,000,000 instead of
$2,400,000,000, since (1) the Government issued paper which
depreciated, and yet received it at par in subscriptions for
loans. Moreover, the total cost would have been much reduced had
we issued no paper and (2) thereby not increased the prices of
goods to the state, and (3) if no interest account had been
created by borrowing. But could the country have raised the whole
sum each year by taxation? In the first fiscal year after the war
the United States paid in war taxes $650,000,000. At the beginning
of the struggle, to June 30, 1862, the expenditure was
$515,000,000, and by June 30, 1863, it had amounted to
$1,098,000,000; so that $600,000,000 of taxes a year would have
paid the war expenses, and left us free of debt at the close.
A confirmatory experience is that of England during the
Continental wars, 1793-1817:
Total war expenditures £1,060,000,000
Interest charge on the existing debt 235,000,000
Total amount required £1,295,000,000
Revenue for that period 1,145,000,000
Deficit £150,000,000
To provide for this deficit, the Government actually increased its
debt by £600,000,000. A slight additional exertion would have
provided £150,000,000 more of revenue, and saved £450,000,000 to
the taxpayers.(109)
The practical state of the case, however, seldom exactly corresponds 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 are generally made, not with funds withdrawn
from productive employment, 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 colonies, or sought other investments abroad.
§ 6. Demand for Commodities is not Demand for Labor.
Mr. Mill’s statement of the theorem respecting capital, discussed
in the argument that “demand for commodities is not demand for
labor,” needs some simplification. For this purpose represent by
the letters of the alphabet, A, B, C, ... X, Y, Z, the different
kinds of commodities produced in the world which are exchanged
against each other in the process of reaching the consumers. This
exchange of commodities for each other, it need hardly be said,
does not increase the number or quantity of commodities already in
existence; since their production, as we have seen, requires labor
and capital in connection with natural agents. Mere exchange does
not alter the quantity of commodities produced.
To produce a plow, for example, the maker must have capital (in
the form of subsistence, tools, and materials) of which some one
has foregone the use by a process of saving in order that
something else, in this case a plow, may be produced. This saving
must be accomplished first to an amount sufficient to keep
production going on from day to day. This capital is all consumed,
but in a longer or shorter term (depending on the particular
industrial operation) it is reproduced in new forms adapted to the
existing wants of man. Moreover, without any new exertion of
abstinence, this amount of capital may be again consumed and
reproduced, and so go on forever, after once being saved (if never
destroyed in the mean while, thereby passing out of the category
not only of capital, but also of wealth). The total capital of the
country, then, is not the sum of one year’s capital added to that
of another; but that of last year reproduced in a new form this
year, plus a fractional increase arising from new savings. But,
once saved, capital can go on constantly aiding in production
forever. This plow when made is exchanged (if a plow is wanted,
and the production is properly adjusted to meet desires) for such
other products, food, means for repairing tools, etc., as give
back to the plow-maker all the commodities consumed in its
manufacture (with an increase, called profit).
Returning to our illustration of the alphabet, it is evident that
a certain amount of capital united with labor (constituting what
may be called a productive engine) lies behind the production of A
(such as the plow, for example), and to which its existence is
due. The same is true of Z. Suppose that 5,000 of Z is produced,
of which 4,000 is enough to reimburse the capital used up by labor
in the operation, and that the owner of commodity Z spends the
remaining 1,000 Z in exchange for 1,000 of commodity A. It is
evident (no money being used as yet) that this exchange of goods
is regulated entirely by the desires of the two parties to the
transaction. No more goods are created simply by the exchange; the
simple process of exchange does not keep the laborers engaged on A
occupied. And yet the owner of Z had a demand for commodity A; his
demand was worthless, except through the fact of his production,
which gave him actual wealth, or purchasing power, in the form of
Z. His demand for commodity A was not the thing which employed the
laborers engaged in producing A, although the demand (if known
beforehand) would cause them to produce A rather than some other
article—that is, the demand of one quantity of wealth for a
certain thing determines the _direction_ taken by the owner of
capital A. But, since the exchange is merely the form in which the
demand manifests itself, it is clear that the demand does not add
to production, and so of itself does not employ labor. Of course,
if there were no desires, there would be no demand, and so no
production and employment of labor. But we may conclude by
formulating the proposition, that wealth (Z) offered for
commodities (A) necessitates the use of other wealth (than Z) as
capital to support the operation by which those commodities (A)
are produced. It makes no difference to the existing employment of
labor what want is supplied by the producers of A, whether it is
velvet (intended for unproductive consumption) or plows (intended
for productive consumption). Even if Z is no longer offered in
exchange for A, and if then A is no longer to be made, the
laborers formerly occupied in producing A—if warning is given of
the coming change; if not, loss results—having the plant, can
produce something else wanted by the owner of Z.
Now into a community, as here pictured, all laborers supposed to
be occupied, and all capital employed in producing A, B, C, ... X,
Y, Z, imagine the coming of a shipwrecked crew. Instead of
exchanging Z for A, as before, the owner of Z may offer his wealth
to the crew to dance for him. The essential question is, Is more
employment offered to labor by this action than the former
exchange for A? That is, it is a question merely of distribution
of wealth among the members of a community. The labor engaged on A
is not thrown out of employment (if they have warning). There is
no more wealth in existence, but it is differently distributed
than before: the crew, instead of the former owner, now have 1,000
of Z. So far as the question of employment is concerned, it makes
no difference on what terms the crew got it: they might have been
hired to stand in a row and admire the owner of Z when he goes
out. But yet it may naturally be assumed that the crew were
employed productively. In this case, after they have consumed the
wealth Z, they have brought into existence articles in the place
of those they consumed. But, although this last operation is
economically more desirable for the future growth of wealth, yet
no more laborers for the time were employed than if the crew had
merely danced. The advantages or disadvantages of productive
consumption are not to be discussed here. It is intended, however,
to establish the proposition that _wealth paid out in wages, or
advanced to producers, itself supports labor_; that wealth offered
directly to laborers in this way employs more labor than when
merely offered in exchange for other goods, or, in other words, by
a demand for commodities; that an increased demand for commodities
does not involve an increased demand for labor, since this can
only be created by capital. The essential difference is, that the
owner of Z in one case, by exchanging goods for A, did not forego
his consuming power; in the other case, by giving Z to the
unemployed crew, he actually went through the process of saving by
foregoing his personal consumption, and handing it over to the
crew. If the crew use it unproductively, it is in the end the same
as if the owner of Z had done it; but meanwhile the additional
laborers were employed. If the crew be employed productively, then
the saving once made will go on forever, as explained above, and
the world will be the richer by the wealth this additional capital
can create.
It may now be objected that, if A is no longer in demand, the
laborers in that industry will be thrown out of employment. Out of
that employment certainly, but not out of every other. One
thousand of Z was able to purchase certain results of labor and
capital in industry A, when in the hands of its former owner; and
now when in the hands of the crew it will control, as purchasing
power, equivalent results of labor and capital. The crew may not
want the same articles as the former owner of Z, but they will
want the equivalents of 1,000 of Z in something, and that
something will be produced now instead of A. The whole process may
be represented by this diagram.
[Illustration, showing interrelationships between A, Z, and Crew.]
1. Z is exchanged against A, and the crew remain unemployed.
2. Here the crew possess Z, and they themselves exchange Z for
whatever A may produce in satisfaction of their wants, and the
crew are then employed.
It is possible that the intervention of money blinds some minds to
a proper understanding of the operations described above. The
supposition, as given, applies to a condition of barter, but is
equally true if money is used.(110) Imagine a display of all the
industries of the world, A, B, C, ... X, Y, Z, presented within
sight on one large field, and at the central spot the producer of
gold and silver. When Z is produced, it is taken to the
gold-counter, and exchanged for money; when A is produced, the
same is done. Then the former money is given for A, and the latter
for Z, so that in truth A is exchanged against Z through the
medium of money, just as before money was considered. Now, it may
be said by an objector, “If A is not wanted, after it is produced,
and can not be sold, because the demand from Z has been withdrawn,
then the capital used for A will not be returned, and the laborers
in A will be thrown out of employment.” The answer is, of course,
that the state of things here contemplated is a permanent and
normal one wherein production is correctly adapted to human
desires. If A is found not to be wanted, after the production of
it, an industrial blunder has been committed, and wealth is wasted
just as when burned up. It is ill-assorted production. The trouble
is not in a lack of demand for what A may produce (of something
else), but with the producers of A in not making that for which
there were desires, from ignorance or lack of early information of
the disposition of wealth Z. In practice, however, it will be
found that most goods are made upon “orders,” and, except under
peculiar circumstances, not actually produced unless a market is
foreseen. Indeed, as every man knows, the most important function
of a successful business man is the adaptation of production to
the market, that is, to the desires of consumers.
One other form of this question needs brief mention. It is truly
remarked that a large portion of industrial activity is engaged
to-day, not in supplying productive consumption, such as food,
shelter, and clothing, but in supplying the comforts and luxuries
of low and high alike, or unproductive consumption; now, if there
were not a demand for luxuries and comforts, many vast industries
would cease to exist, and labor would be thrown out of employment.
Is not a demand for such commodities, then, a cause of the present
employment of labor? No, it is not. Luxuries and comforts are of
course the objects of human wants; but a desire alone, without
purchasing power, can not either buy or produce these commodities.
To obtain a piano, one must produce goods, and this implies the
possession of capital, by which to bring into existence goods, or
purchasing power, to be offered for a piano. Nor is this
sufficient. Even after a man, A, for example, offers purchasing
power, he will not get a piano unless there exists an accumulation
of unemployed capital, together with labor ready to manufacture
the instrument. If capital were all previously occupied, no piano
could be made, although A stood offering an equivalent in valuable
goods. It may be said that A himself has the means. He has the
_wealth_, and if he is willing to forego the use of this wealth,
or, in other words, save it by devoting it to reproduction in the
piano industry—that is, create the capital necessary for the
purpose—then the piano can be made. But this shows again that, not
a mere desire, but the existence of capital, is necessary to the
production, and so to the employment of labor. An increased demand
for commodities, therefore, does not give additional employment to
labor, unless there be capital to support the labor.
Some important corollaries result from this proposition: (_a._)
When a country by legislation creates a home demand for
commodities, that does not of itself give additional employment to
labor. If the goods had before been purchased abroad, under free
discretion, then if produced at home they must require more
capital and labor, or they would not have been brought from
foreign countries. If produced at home, it would require, to
purchase them, more of what was formerly sent abroad; or some must
do without. The legislation can not, _ipso facto_, create capital,
and only by an increase of capital can more employment result. It
is possible, however, that legislation might cause a more
effective use of existing capital; but that must be a question of
fact, to be settled by circumstances in each particular case. It
is not a thing to be governed by principles.
(_b._) It follows from the above proposition also that taxes
levied on the rich, and paid by a saving from their consumption of
luxuries, do not fall on the poor because of a lessened demand for
commodities; since, as we have seen, that demand does not create
or diminish the demand for labor. But, if the taxes levied on the
rich are paid by savings from what the rich would have expended in
wages, then if the Government spends the amount of revenue thus
taken in the direct purchase of labor, as of soldiers and sailors,
the tax does not fall on the laboring-class taken as a whole. When
the Government takes that wealth which was formerly capital, burns
it up, or dissipates it in war, it ceases to exist any longer as a
means of again producing wealth, or of employing labor.
Chapter V. On Circulating And Fixed Capital.
§ 1. Fixed and Circulating Capital.
Of the capital engaged in the production of any commodity, there is a part
which, after being once used, exists no longer as capital; is no longer
capable of rendering service to production, or at least not the same
service, nor to the same sort of production. 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. In the same division must be placed the portion of capital
which is paid as the wages, or consumed as the subsistence, of laborers.
That part of the capital of a cotton-spinner which he pays away to his
work-people, once so paid, exists no longer as his capital, or as a
cotton-spinner’s capital. Capital which in this manner fulfills the whole
of its office in the production in which it is engaged, by a single use,
is called Circulating Capital. The term, which is not very appropriate, is
derived from the circumstance that this portion of capital requires 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
production, 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 operations: the expense of opening a mine,
for example; of cutting canals, of making roads or docks. Other examples
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.
Of fixed capital, some kinds require to be occasionally or periodically
renewed. Such are all implements and buildings: they require, at
intervals, partial renewal by means of repairs, and are at last entirely
worn out. In other cases the capital does not, unless as a consequence of
some unusual accident, require entire renewal. A dock or a canal, once
made, does not require, like a machine, to be made again, unless purposely
destroyed. The most permanent of all kinds of fixed capital is that
employed in giving increased productiveness to a natural agent, such as
land.
To return to the theoretical distinction between fixed and circulating
capital. Since all wealth which is destined to be employed for
reproduction 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 manufacturer 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
therefore is not yet either fixed or circulating capital, but will become
either one or the other, or be eventually divided between them.
§ 2. Increase of Fixed Capital, when, at the Expense of Circulating, might
be Detrimental to the Laborers.
There is a great difference between the effects of circulating and those
of fixed capital, on the amount of the gross produce of the country.
Circulating capital being destroyed as such, the result of a single use
must be a reproduction equal to the whole amount of the circulating
capital used, and a profit besides. This, however, is by no means
necessary in the case of fixed capital. Since machinery, for example, is
not wholly consumed by one use, it is not necessary that it should be
wholly replaced from the product of that use. The machine answers the
purpose of its owner if it brings in, during each interval of time, enough
to cover the expense of repairs, and the deterioration in value which the
machine has sustained during the same time, with a surplus sufficient to
yield the ordinary 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 interests of the laborers. This is true, not of machinery alone,
but of all improvements by which capital is sunk; that is, rendered
permanently incapable of being applied to the maintenance and remuneration
of labor.
It is highly probable that in the twenty-five years preceding the
panic of 1873, owing to the progress of invention, those
industries in the United States employing much machinery were
unduly stimulated in comparison with other industries, and that
the readjustment was a slow and painful process. After the
collapse vast numbers left the manufacturing to enter the
extractive industries.
The argument relied on by most of those who contend that machinery can
never be injurious to the laboring-class is, that by cheapening production
it creates such an increased demand for the commodity as enables, ere
long, a greater number of persons than ever to find employment in
producing it. The argument does not seem to me to have the weight commonly
ascribed to it. The fact, though too broadly stated, is, no doubt, often
true. The copyists who were thrown out of employment by the invention of
printing were doubtless soon outnumbered by the compositors and pressmen
who took their place; and the number of laboring persons now employed in
the cotton manufacture is many times greater than were so occupied
previously to the inventions of Hargreaves and Arkwright, which shows
that, besides the enormous fixed capital now embarked in the manufacture,
it also employs a far larger circulating 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 laboring-classes
for the mere transfer?
There is a machine used for sizing the cotton yarn to prepare it
for weaving, by which it is dried over a steam cylinder, the wages
for attendance on which were only two dollars per day, as compared
with an expenditure for labor of fourteen dollars per day to
accomplish the same ends before the machine was invented.
All attempts to make out that the laboring-classes as a collective body
_can not_ suffer temporarily by the introduction of machinery, or by the
sinking of capital in permanent improvements, are, I conceive, necessarily
fallacious.(111) That they would suffer in the particular department of
industry to which the change applies is generally admitted, and obvious to
common sense; but it is often said that, though employment is withdrawn
from labor in one department, an exactly equivalent employment is opened
for it in others, because what the consumers save in the increased
cheapness of one particular article enables them to augment their
consumption of others, thereby increasing the demand for other kinds of
labor. 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 labor. It is true, the consumers have now additional means of
buying other things; but this will not create the other things, unless
there is capital to produce them, and the improvement has not set at
liberty any capital, even if it has not absorbed some from other
employments.
If the improvement has lowered the cost of production, it has
often required less capital (as well as less labor) to produce the
same quantity of goods; or, what is the same thing, an increased
product with the same capital.
§ 3. —This seldom, if ever, occurs.
Nevertheless, I do not believe that, as things are actually transacted,
improvements in production are often, if ever, injurious, even
temporarily, to the laboring-classes in the aggregate. They would be so if
they took place suddenly to a great amount, because much of the capital
sunk must necessarily 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 production, but are made by the employment of the annual
increase. I doubt if there would be found a single example of a great
increase of fixed capital, at a time and place where circulating capital
was not rapidly increasing likewise.
In the United States, while the cost per yard of the manufactured
goods has decreased, and so made accessible to poorer classes than
before, the capital engaged in manufactures has increased so as to
allow a vastly greater number of persons to be employed, as will
be seen by the following comparison of 1860 with 1880 taken from
the last census returns. (Compendium, 1880, pp. 928, 930.)
Number of Capital Average Total amount
establishments. (Thousands). number of paid in
hands wages during
employed. the year.
1860 140,433 $1,009,855 1,311,246 $378,878,966
1880 253,852 2,790,272 2,732,595 947,953,795
“A hundred years ago, one person in every family of five or six
must have been absolutely needed to spin and weave by hand the
fabrics required for the scanty clothing of the people; now one
person in two hundred or two hundred and fifty only need work in
the factory to produce the cotton and woolen fabrics of the most
amply clothed nation of the world.”(112)
To these considerations must be added, that, even if improvements did for
a time decrease the aggregate produce and the circulating capital of the
community, they would not the less tend in the long run to augment both.
This tendency of improvements in production to cause increased
accumulation, and thereby ultimately to increase the gross produce, even
if temporarily 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 production, 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 existing; and that every
improvement, even if for the time it diminish the circulating capital and
the gross produce, ultimately makes room for a larger amount of both than
could possibly have existed otherwise. It is this which is the conclusive
answer to the objections against machinery; and the proof thence arising
of the ultimate benefit to laborers of mechanical inventions, even in the
existing state of society, will hereafter be seen to be conclusive.(113)
Chapter VI. Of Causes Affecting The Efficiency Of Production.
§ 1. General Causes of Superior Productiveness.
The most evident cause of superior productiveness is what are called
natural advantages. These are various. Fertility of soil is one of the
principal. The influence of climate [is another advantage, and] consists
in lessening the physical requirements of the producers.
In spinning very fine cotton thread, England’s natural climate
gives in some parts of the country such advantages in proper
moisture and electric conditions that the operation can be carried
on out-of-doors; while in the United States it is generally
necessary to create an artificial atmosphere. In ordinary spinning
in our country more is accomplished when the wind is in one
quarter than in another. The dry northwest wind in New England
reduces the amount of product, while the dry northeast wind in
England has a similar effect, and it is said has practically
driven the cotton-spinners from Manchester to Oldham, where the
climate is more equably moist. The full reasons for these facts
are not yet ascertained.
Experts in the woolen industry, also, explain that the quality and
fiber of wool depend upon the soil and climate where the sheep are
pastured. When Ohio sheep are transferred to Texas, in a few years
their wool loses the distinctive quality it formerly possessed,
and takes on a new character belonging to the breeds of Texas. The
wool produced by one set of climatic conditions is quite different
from that of another set, and is used by the manufacturers for
different purposes.
In hot regions, mankind can exist in comfort with less perfect housing,
less clothing; fuel, that absolute necessary of life in cold climates,
they can almost dispense with, except for industrial uses. They also
require less aliment. Among natural advantages, besides soil and climate,
must be mentioned abundance of mineral productions, in convenient
situations, and capable of being worked with moderate labor. Such are the
coal-fields of Great Britain, which do so much to compensate its
inhabitants for the disadvantages of climate; and the scarcely inferior
resource possessed by this country and the United States, 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.
But perhaps a greater advantage than all these is a maritime situation,
especially when accompanied with good natural harbors; and, next to it,
great navigable rivers. These advantages consist indeed wholly in saving
of cost of carriage. But few, who have not considered the subject, have
any adequate notion how great an extent of economical advantage this
comprises.
As the second of the [general] causes of superior productiveness, we may
rank the greater energy of labor. By this is not to be understood
occasional, but regular and habitual energy. The third element which
determines the productiveness of the labor of a community is the skill and
knowledge therein existing, whether it be the skill and knowledge of the
laborers themselves or of those who direct their labor. That the
productiveness of the labor of a people is limited by their knowledge of
the arts of 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 same quantity and intensity of labor to raise a greater
produce. One principal department of these improvements consists in the
invention and use of tools and machinery.(114)
The deficiency of practical good sense, which renders the majority of the
laboring-class such bad calculators—which makes, for instance, their
domestic economy so improvident, lax, and irregular—must disqualify them
for any but a low grade of intelligent labor, and render their industry
far less productive than with equal energy it otherwise might be. The
moral qualities of the laborers are fully as important to the efficiency
and worth of their labor as the intellectual. Independently of the effects
of intemperance upon their bodily and mental faculties, and of flighty,
unsteady habits upon the energy and continuity of their work (points so
easily understood as not to require being insisted upon), it is well
worthy of meditation how much of the aggregate effect of their labor
depends on their trustworthiness.
Among the secondary causes which determine the productiveness of
productive agents, the most important is Security. By security I mean the
completeness of the protection which society affords to its members.
§ 2. Combination and Division of Labor Increase Productiveness.
In the enumeration of the circumstances which promote the productiveness
of labor, we have left one untouched, which is co-operation, or the
combined action of numbers. Of this great aid to production, a single
department, known by the name of Division of Labor, 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
comprehensive law. 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 rowing 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 thousands more, it is absolutely necessary that many
persons should work together, at the same time, in the same place, and in
the same way. [But] in the present state of society, the breeding and
feeding of sheep is the occupation of one set of people; dressing 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.
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 labor the food required for its own
sustenance, 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 labor, 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 labor. 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
anything more.
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 population. 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 population is now
most materially altered. They have an opportunity given them of acquiring
comforts and luxuries. Things which, while they depended solely upon their
own labor, they never could have obtained, because they could not have
produced, are now accessible to them if they can succeed in producing an
additional quantity of food and necessaries. They are thus incited to
increase the productiveness of their industry. The new settlers constitute
what is called a _market_ for surplus agricultural produce; and their
arrival has enriched the settlement, not only by the manufactured 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 we
before maintained,(115) that a market for commodities does not constitute
employment for labor. The labor of the agriculturists was already provided
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 labor into increased vigor and efficiency; to stimulate them,
by new motives, to new exertions.
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 large export trade in agricultural produce to
supply a population elsewhere. I use the phrase “town population” for
shortness, to imply a population non-agricultural.
It is found that the productive power of labor is increased by carrying
the separation further and further; by breaking down more and more every
process of industry into parts, so that each laborer shall confine himself
to an ever smaller number of simple operations. And thus, in time, arise
those remarkable cases of what is called the division of labor, 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, performed two or
three distinct operations. But though they were very poor, and therefore
but indifferently accommodated with the necessary machinery, they could,
when they exerted themselves, make among them about twelve pounds of pins
in a day. There are in a pound upward of four thousand pins of a middling
size. Those ten persons, therefore, could make among them upward 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 without any of them having been educated
to this peculiar business, they certainly could not each of them have made
twenty, perhaps not one pin in a day.”
§ 3. Advantages of Division of Labor.
The causes of the increased efficiency given to labor by the division of
employments are some of them too familiar to require specification; but it
is worth while to attempt a complete enumeration of them. By Adam Smith
they are reduced to three: “First, the increase of dexterity in every
particular workman; secondly, the saving of the time which is commonly
lost in passing from one species of work to another; and, lastly, the
invention of a great number of machines which facilitate and abridge
labor, and enable one man to do the work of many.”
(1.) Of these, the increase of dexterity of the individual workman is the
most obvious and universal. It does not follow 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. This is as true of mental
operations 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 playing music at sight, are
cases as remarkable as they are familiar. Among bodily acts, dancing,
gymnastic exercises, ease and brilliancy of execution on a musical
instrument, are examples of the rapidity and facility acquired by
repetition. In simpler manual operations the effect is, of course, still
sooner produced.
(2.) The second advantage enumerated by Adam Smith as arising from the
division of labor is one on which I can not 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: “It is impossible to pass
very quickly from one kind of work to another, that is carried on in a
different place, and with quite different 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
saunters a little in turning his hand from one sort of employment to
another.” I am very far from implying that these considerations are of no
weight; but I think there are counter-considerations which are overlooked.
If one kind of muscular or mental labor is different from another, for
that very reason it is to some extent a rest from that other; and if the
greatest vigor 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 that a change of occupation
will often afford relief where complete repose would otherwise be
necessary, and that a person can work many more hours without fatigue at a
succession of occupations, than if confined during the whole time to
one.(116) Different occupations employ different muscles, or different
energies of the mind, some of which rest and are refreshed while others
work. Bodily labor itself rests from mental, and conversely. The variety
itself has an invigorating effect on what, for want of a more
philosophical appellation, we must term the animal spirits—so important to
the efficiency of all work not mechanical, and not unimportant even to
that.
(3.) The third advantage attributed by Adam Smith to the division of labor
is, to a certain extent, real. Inventions tending to save labor in a
particular 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.
This also can not be wholly true. “The founder of the cotton
manufacture was a barber. The inventor of the power-loom was a
clergyman. A farmer devised the application of the
screw-propeller. A fancy-goods shopkeeper is one of the most
enterprising experimentalists in agriculture. The most remarkable
architectural design of our day has been furnished by a gardener.
The first person who supplied London with water was a goldsmith.
The first extensive maker of English roads was a blind man, bred
to no trade. The father of English inland navigation was a duke,
and his engineer was a millwright. The first great builder of iron
bridges was a stone-mason, and the greatest railway engineer
commenced his life as a colliery engineer.”(117)
(4.) The greatest advantage (next to the dexterity of the workmen) derived
from the minute division of labor 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 labor 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 labor, are made
much more useful by being employed solely in them; the operations which
everybody is capable of being left to those who are fit for no others.
The division of labor, 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 advisable if the number of accessible
consumers is such as to require, every day, something like forty-eight
thousand pins. If there is only a demand for twenty-four thousand, the
division of labor can only be advantageously carried to the extent which
will every day produce that smaller number. The increase of the general
riches of the world, when accompanied with freedom of commercial
intercourse, improvements in navigation, and inland communication by
roads, canals, or railways, tends to give increased productiveness to the
labor 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 labor in their production is an ordinary consequence.
The division of labor is also limited, in many cases, by the nature of the
employment. Agriculture, for example, is not susceptible of so great a
division of occupations as many branches of manufactures, because its
different operations can not possibly be simultaneous.
(5.) “In the examples given above the advantage obtained was
derived from the mere fact of the separation of employments,
altogether independently of the mode in which the separated
employments were distributed among the _persons_ carrying them on,
as well as of the _places_ in which they were conducted. But a
further gain arises when the employments are of a kind which, in
order to their effective performance, call for special capacities
in the workman, or special natural resources in the scene of
operation. There would be a manifest waste of special power in
compelling to a mere mechanical or routine pursuit a man who is
fitted to excel in a professional career; and similarly, if a
branch of industry were established on some site which offered
greater facilities to an industry of another sort, a waste,
analogous in character, would be incurred. In a word, while a
great number of the occupations in which men engage are such as,
with proper preparation for them, might equally well be carried on
by any of those engaged in them, or in any of the localities in
which they are respectively established, there are others which
demand for their effective performance special personal
qualifications and special local conditions; and the general
effectiveness of productive industry will, other things being
equal, be proportioned to the completeness with which the
adaptation is accomplished between occupation on the one hand and
individuals and localities on the other.”(118)
§ 4. Production on a Large and Production on a Small Scale.
Whenever it is essential to the greatest efficiency of labor that many
laborers should combine, the scale of the enterprise must be such as to
bring many laborers together, 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
considerable division of labor. The larger the enterprise the further the
division of labor may be carried. This is one of the principal causes of
large manufactories. Every increase of business would enable the whole to
be carried on with a proportionally smaller amount of labor.
As a general rule, the expenses of a business do not increase by any means
proportionally to the quantity of business. Let us take as an example a
set of operations which we are accustomed to see carried on by one great
establishment, that of the Post-Office. Suppose that the business, let us
say only of the letter-post, instead of being centralized in a single
concern, were divided among five or six competing 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 an office for receiving letters
in every neighborhood, with all subsidiary arrangements for collecting the
letters from the different offices and redistributing 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 necessity,
perhaps, of being satisfied in many instances with an inferior standard of
qualification, and so failing in the object.
Whether or not the advantages obtained 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
establishments, 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 labor; and this, when obtained
by a more extended division of employment, or by a classification tending
to a better economy of skill, always implies a greater produce from the
same labor, and not merely the same produce from less labor; it increases
not the surplus only, but the gross produce of industry. If an increased
quantity of the particular article is not required, and part of the
laborers in consequence lose their employment, the capital which
maintained and employed them is also set at liberty, and the general
produce of the country is increased by some other application of their
labor.
A considerable part of the saving of labor effected by substituting the
large system of production for the small, is the saving in the labor of
the capitalists themselves. If a hundred producers with small capitals
carry on separately the same business, the superintendence of each concern
will probably require the whole attention of the person conducting it,
sufficiently, at least, to hinder his time or thoughts from being
disposable for anything else; while a single manufacturer 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.
Production on a large scale is greatly promoted by the practice of forming
a large capital by the combination of many small contributions; or, in
other words, by the formation of stock companies. The advantages of the
principle are important, [since] (1) many undertakings require an amount
of capital beyond the means of the richest individual or private
partnership. [Of course] the Government can alone be looked to for any of
those 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, government agency for the conduct of industrial
operations is generally one of the least eligible of resources when any
other is available. Of [the advantages referred to above] one of the most
important is (2) that which relates to the intellectual and active
qualifications of the directing head. The stimulus of individual interest
is some security for exertion, but exertion is of little avail if the
intelligence 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 attract 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 intelligence which more than compensates for
their inferior interest in the result. It must be further remarked that it
is not a necessary consequence of joint-stock management that the persons
employed, whether in superior or in subordinate offices, should be paid
wholly by fixed salaries. In the case of the managers of joint-stock
companies, and of the superintending and controlling officers in many
private establishments, it is a common enough practice to connect their
pecuniary interest with the interest of their employers, by giving them
part of their remuneration in the form of a percentage on the profits.
The possibility of substituting 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.
In the countries in which there are the largest markets, the widest
diffusion of commercial confidence and enterprise, 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.
These are almost always able to undersell the smaller tradesmen, partly,
it is understood, by means of division of labor, 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 labor arising
from the great scale of the transactions; 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 labor,
this change is wholly beneficial.
A single large company very often, instead of being a monopoly, is
generally better than two large companies; for there is little
likelihood of competition and lower prices when the competitors
are so few as to be able to agree not to compete. As Mr. Mill says
in regard to parallel railroads: “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.” The actual
tendency of charges to diminish on the railways, before the matter
of parallel railways was suggested is clearly seen by reference to
Chart V (p. 137).
Chapter VII. Of The Law Of The Increase Of Labor.
§ 1. The Law of the Increase of Production Depends on those of Three
Elements—Labor. Capital, and Land.
Production is not a fixed but an increasing 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; stimulated not only by the desire
of the producers to augment their means of consumption, but by the
increasing number of the consumers.
We have seen that the essential requisites of production are three—labor,
capital, and natural agents; the term capital including all external and
physical requisites which are products of labor, the term natural agents
all those which are not. The increase 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 productiveness. We proceed to
consider the three elements successively, with reference to this effect;
or, in other words, the law of the increase of production, viewed in
respect of its dependence, first on Labor, secondly on Capital, and lastly
on Land.
§ 2. The Law of Population.
The increase of labor is the increase of mankind; of population. The power
of multiplication inherent in all organic life may be regarded as
infinite. 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 moderate 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 upward to two millions and a half. The capacity of increase
is necessarily in a geometrical progression: the numerical 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
favorable circumstances known to exist, which are those of a fertile
region colonized from an industrious and civilized community, population
has continued, for several generations, independently of fresh
immigration, to double itself in not much more than twenty years.
Years. Population. Food.
25 11 mills x
25 22 mills 2x
25 44 mills 3x
25 88 mills 4x
25 176 mills 5x
By this table it will be seen that if population can double itself
in twenty-five years, and if food can only be increased by as much
as _x_ (the subsistence of eleven millions) by additional
application of another equal quantity of labor on the same land in
each period, then at the end of one hundred years there would be
the disproportion of one hundred and seventy-six millions of
people, with subsistence for only fifty-five millions. Of course,
this is prevented either by checking population to the amount of
the subsistence; by sending off the surplus population; or by
bringing in food from new lands.
In the United States to 1860 population has doubled itself about
every twenty years, while in France there is practically no
increase of population. It is stated that the white population of
the United States between 1790 and 1840 increased 400.4 per cent,
deducting immigration. The extraordinary advance of population
with us, where subsistence is easily attainable, is to be seen in
the chart on the next page (No. III), which shows the striking
rapidity of increase in the United States when compared with the
older countries of Europe. The steady demand for land can be seen
by the gradual westward movement of the center of population, as
seen in chart No. IV (p. 116), and by the rapid settlement of the
distant parts of our country, as shown by the two charts
(frontispieces), which represent to the eye by heavier colors the
areas of the more densely settled districts in 1830 and in 1880.
[Illustration.]
Chart III: Population of European Countries, XIXth Century.
§ 3. By what Checks the Increase of Population is Practically Limited.
The obstacle to a just understanding of the subject arises 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.
The conduct of human creatures is more or less influenced by foresight of
consequences, and by some impulses superior to mere animal instincts; 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
premature death.
Malthus found an explanation of the anomaly that in the Swiss
villages, with the longest average duration of life, there were
the fewest births, by noting that no one married until a
cow-herd’s cottage became vacant, and precisely because the
tenants lived so long were the new-comers long kept out of a
place.
In proportion as mankind rise above the condition of the beast, 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. Among the middle classes, in many individual
instances, there is an additional restraint exercised from the desire of
doing more than maintaining their circumstances—of improving them; but
such a desire is rarely found, or rarely has that effect, in the
laboring-classes. If they can bring up a family as they were themselves
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.
[Illustration.]
Chart IV: Westward Movement of Center of Population.
This, in effect, is the well-known Malthusian doctrine. The
thorough reader will also consult the original “Essay” of Malthus.
Mr. Bowen(119) and other writers oppose it, saying it has “no
relation to the times in which we live, or to any which are near
at hand.” He thinks the productive power of the whole world
prevents the necessity of considering the pressure of population
upon subsistence as an actuality now or in the future. This,
however, does not deny the existence of Malthus’s principles, but
opposes them only on the methods of their action. Mr.
Rickards(120) holds that man’s food—as, e.g., wheat—has the power
to increase geometrically faster than man; but he omits to
consider that for the growth of this food land is demanded; that
land is not capable of such geometrical increase; and that without
it the food can not be grown. Of course, any extension of the land
area, as happened when England abolished the corn laws and drew
her food from our prairies, removes the previous pressure of
population on subsistence. No believer in the Malthusian doctrine
is so absurd as to hold that the growth of population actually
exceeds subsistence, but that there is a “constant _tendency_ in
all animated life to increase beyond the nourishment prepared for
it,” no one can possibly doubt. This is not inconsistent with the
fact that subsistence has at any time increased faster than
population. It is as if a block of wood on the floor were acted on
by two opposing forces, one tending to move it forward, one
backward: if it moves backward, that does not prove the absence of
any force working to move it forward, but only that the other
force is the stronger of the two, and that the final motion is the
resultant of the two forces. It is only near-sighted
generalization to say that since the block moves forward, there is
therefore no opposing force to its advance.(121) Mr. Doubleday
maintains that, as people become better fed, they become
unprolific. Mr. Mill’s answer, referring to the large families of
the English peerage, is unfortunate.(122) In Sweden the increase
of the peasantry is six times that of the middle classes, and
fourteen times that of the nobility. The diminishing fertility of
New England families gives a truer explanation, when it is seen
that with the progress in material wealth later marriages are the
rule. When New-Englanders emigrate to the Western States, where
labor is in demand and where it is less burdensome to have large
families, there is no question as to their fertility.(123)
(1.) 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
frequent and more extreme than Europe is now accustomed to. (2.) 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.(124) 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 laboring-people are habituated; they
perceive that, by having too numerous families, they must sink below that
condition, or fail to transmit it to their children; and this they do not
choose to submit to.
There are other cases in which the prudence and forethought, which perhaps
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 the prospect of a comfortable
support. 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 difficulty of obtaining a cottage to live in. It was the custom for
unmarried laborers to lodge and board with their employers; it was the
custom for married laborers 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, rendered land-owners averse to promote marriage. About
the end of the century, the great demand for men in war and manufactures
made it be thought a patriotic thing to encourage population: and about
the same time the growing inclination of farmers to live like rich people,
favored as it was by a long period of high prices, made 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
laborers into cottages, which the landowners now no longer refused
permission to build.
It is but rarely that improvements in the condition of the
laboring-classes do anything more than give a temporary margin, speedily
filled up by an increase of their numbers. Unless, either by their general
improvement in intellectual and moral culture, or at least by raising
their habitual standard of comfortable living, they can be taught to make
a better use of favorable circumstances, nothing permanent can be done for
them; the most promising schemes end only in having a more numerous but
not a happier people. There is no doubt that [the standard] is gradually,
though slowly, rising in the more advanced countries of Western
Europe.(125) 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 population than that of the
period preceding; and the produce of French agriculture and industry is
increasing in a progressive ratio, while the population exhibits, in every
quinquennial census, a smaller proportion of births to the population.
This brings forward the near connection between land-tenures and
population. France is pre-eminently a country of small holdings,
and it is undoubtedly true that the system has checked the
thoughtless increase of numbers. On his few hectares, the French
peasant sees in the size of his farm and the amount of its produce
the limit of subsistence for himself and his family; as in no
other way does he see beforehand the results of any lack of food
from his lack of prudence.(126) From 1790 to 1815 the average
yearly increase of population was 120,000; from 1815 to 1846, the
golden age of French agriculture, 200,000; from 1846 to 1856, when
agriculture was not prosperous, 60,000; from 1856 to 1880 the
increase has been not more than 36,000 yearly. In France the
question shapes itself to the peasant proprietor, How many can be
subsisted by the amount of produce, not on an unlimited area of
land in other parts of the world, but on this particular property
of a small size? While in England there are ten births to six
deaths, in France there are about ten births to every nine
deaths.(127) In no country has the doctrine of Malthus been more
attacked than in France, and yet in no other country has there
been a more marked obedience to its principles in actual practice.
Since the French are practically not at all an emigrating people,
population has strictly adapted itself to subsistence. For the
relative increase of population in France and the United States,
see also the movement of lines indicating the increase of
population in chart No. III (p. 114).
Chapter VIII. Of The Law Of The Increase Of Capital.
§ 1. Means for Saving in the Surplus above Necessaries.
The requisites of production being labor, 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. But production
has other requisites, and, of these, the one which we shall next consider
is Capital. There can not be more people in any country, or in the world,
than can be supported from the produce of past labor until that of present
labor comes in [although it is not to be supposed that capital consists
wholly of food]. We have next, therefore, to inquire into the conditions
of the increase of capital: the causes by which the rapidity of its
increase is determined, and the necessary limitations of that increase.
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.
(1.) The fund from which saving can be made is the surplus of the produce
of labor, after supplying the necessaries of life to all concerned in the
production (including those employed in replacing the materials, and
keeping the fixed capital in repair). More than this surplus can not be
saved under 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 fund from which all are subsisted who are not themselves engaged in
production, and from which all additions are made to capital. The capital
of the employer forms the revenue of the laborers, and, if this exceeds
the necessaries of life, it gives them a surplus which they may either
expend in enjoyments or save.
It is evident that the whole unproductive consumption of the
laborer can be saved. When it is considered how enormous a sum is
spent by the working-classes in drink alone (and also in the great
reserves of the Trades-Unions collected for purposes of strikes),
it is indisputable that the laborers have the margin from which
savings can be made, and by which they themselves may become
capitalists. The great accumulations in the savings-banks by small
depositors in the United States also show somewhat how much is
actually saved. In 1882-1883 there were 2,876,438 persons who had
deposited in the savings-banks of the United States
$1,024,856,787, with an average to each depositor of $356.29. The
unproductive consumption, however, of all classes—not merely that
of the working-men—is the possible fund which may be saved. That
being the amount which _can_ be saved, how much _will_ be saved
depends on the strength of the desire to save.
The greater the produce of labor after supporting the laborers, the more
there is which _can_ be saved. The same thing also partly contributes to
determine how much _will_ 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 accumulation.
§ 2. Motive for Saving in the Surplus above Necessaries.
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
different persons, and in different communities.
(2.) All accumulation involves the sacrifice of a present, for the sake of
a future good.
This is the fundamental motive underlying the effective desire of
accumulation, and is far more important than any other. It is, in
short, the test of civilization. In order to induce the
laboring-classes to improve their condition and save capital, it
is absolutely necessary to excite in them (by education or
religion) a belief in a future gain greater than the present
sacrifice. It is, to be sure, the whole problem of creating
character, and belongs to sociology and ethics rather than to
political economy.
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, “increasing the probability of
the provision we make for futurity being enjoyed 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
probability 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 hazardous occupations and in climates
pernicious 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 favorable 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.”(128)
It is asserted that the prevalence of homicide in certain parts of
the United States has had a vital influence in retarding the
material growth of those sections. The Southern States have
received but a very small fraction (from ten to thirteen per cent)
of foreign immigration. “A country where law and order prevail to
perfection may find its material prosperity checked by a deadly
and fatal climate; or, on the other hand, a people may destroy all
the advantages accruing from matchless natural resources and
climate by persistent disregard of life and property. A rather
startling confirmation of this economic truth is afforded by the
fact that homicide has been as destructive of life in the South as
yellow fever. Although there have been forty thousand deaths from
yellow fever since the war, the deaths from homicide, for the same
period, have been even greater.”(129) The influence of the old
slave _régime_, and its still existing influences, in checking
foreign immigration into the South can be seen by the colored
chart, No. VIII, showing the relative density of foreign-born
inhabitants in the several parts of the United States. The deeper
color shows the greater foreign-born population.
The more perfect the security, the greater will be the effective strength
of the desire of accumulation. Where property 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 temptation of present enjoyment.
In the circumstances, for example, of a hunting tribe, “man may be said to
be necessarily improvident, and regardless of futurity, because, in this
state, the future presents nothing which can be with certainty either
foreseen or governed.... 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 connection in the mind of those distant points, and of the series
of events serving to unite them. Even, therefore, if motives be awakened
capable of producing the exertion necessary to effect this connection,
there remains the task of training the mind to think and act so as to
establish it.”
§ 3. Examples of Deficiency in the Strength of this Desire.
For instance: “Upon the banks of the St. Lawrence there are several little
Indian villages. The cleared land is rarely, I may almost say never,
cultivated, 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 repugnance to labor; on the contrary, they
apply very diligently to it when its reward is immediate. It is evidently
not the necessary labor that is the obstacle to more extended culture, but
the distant return from that labor. I am assured, indeed, that among some
of the more remote tribes, the labor thus expended much exceeds that given
by the whites. On the Indian, succeeding years are too distant to make
sufficient impression; though, to obtain what labor 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 interesting efforts to civilize the Indians of Paraguay. The real
difficulty was the improvidence 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 care of the oxen with which they plowed,
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, thinking, when reprehended, that they sufficiently
excused themselves by saying they were hungry.”
As an example intermediate, in the strength of the effective desire of
accumulation, between the state of things thus depicted and that of modern
Europe, the case of the Chinese deserves attention. “Durability is one of
the chief qualities, marking a high degree of the effective desire of
accumulation. The testimony of travelers ascribes to the instruments
formed by the Chinese a very inferior durability to similar instruments
constructed 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. A greater degree of
strength in the effective desire of accumulation would cause them to be
constructed of materials requiring a greater present expenditure, but
being far more durable. From the same cause, much land, that in other
countries would be cultivated, lies waste. All travelers take notice of
large tracts of lands, chiefly swamps, which continue in a state of
nature. To bring a swamp into tillage is generally a process to complete
which requires several years. It must be previously drained, the surface
long exposed to the sun, and many operations performed, before it can be
made capable of bearing a crop. Though yielding, probably, a very
considerable return for the labor 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 amount of self-denial would seem to be small. It is their
great deficiency in forethought and frugality in this respect which is the
cause of the scarcities and famines that frequently occur.”
That it is defect of providence, not defect of industry, that limits
production among the Chinese, is still more obvious than in the case of
the semi-agriculturized Indians. “Where the returns 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. “What marks the readiness with which labor is forced to form
the most difficult 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 structures
resembling the floating gardens of the Peruvians, rafts covered with
vegetable soil and cultivated. Labor 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 travelers are
surprised at meeting these little floating farms by the side of swamps
which only require draining to render them tillable.”
When a country has carried production 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 addition will be made to capital, unless there takes place either
some improvement in the arts of production, or an increase in the strength
of the desire 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 desire of accumulation exceeds the average. These
become the natural purchasers of the lands, manufactories, and other
instruments of production owned by their less provident countrymen.
In China, if that country has really attained, as it is supposed to have
done, the stationary state, accumulation has stopped when the returns to
capital are still as high as is indicated by a rate of interest legally
twelve per cent, and practically 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 security, at
three!
§ 4. Examples of Excess of this Desire.
In [the United States and] the more prosperous countries of Europe, there
are to be found abundance of prodigals: still, in a very numerous portion
of the community, the professional, manufacturing, 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 circumstances turning much of it into some one channel,
such as railway construction 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 property
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 recent origin, and less firmly established.
The growth of deposit-banking in Great Britain, therefore,
advances with enormous strides, while in Continental countries it
makes very little headway. The disturbed condition of the country
in France, owing to wars, leads the thrifty to hoard instead of
depositing their savings. But in the United States the same growth
is seen as among the English. The net deposits of the national
banks of the United States in 1871 were $636,000,000, but in 1883
they had increased more than 83 per cent to $1,168,000,000.
Deposit accounts are the rule even with small tradesmen; and the
savings-banks of Massachusetts alone show deposits in 1882-1883 of
$241,311,362, and those of New York of $412,147,213. The United
States also escapes from the heavy taxation which in Europe is
imposed to maintain an extravagant army and navy chest. The effect
of institutions, moreover, in stimulating the growth of material
prosperity is far more true of the United States than of England,
for the barriers raised against the movement from lower to higher
social classes in the latter country are non-existent here, and
consequently there is more stimulus toward acquiring the means of
bettering a man’s social condition.
The geographical causes which have made industry rather than war the
natural source of power and importance to Great Britain [and the United
States] have turned an unusual proportion of the most enterprising and
energetic characters into the direction of manufactures and commerce; into
supplying their wants and gratifying their ambition by producing and
saving, rather than by appropriating 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 decline of feudalism [in England] having removed or
much weakened invidious distinctions between the 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 acquisition was invested with a factitious value independent of its
intrinsic utility. 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 ambition to save not merely
as much as will afford a large income while in business, but enough to
retire from business and live in affluence on realized gains.
In [the United States,] England, and Holland, then, for a long time past,
and now in most other countries in Europe, the second requisite of
increased production, increase of capital, shows no tendency to become
deficient. So far as that element is concerned, production is susceptible
of an increase without any assignable bounds. The limitation to
production, not consisting in any necessary limit to the increase of the
other two elements, labor 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 IX. Of The Law Of The Increase Of Production From Land.
§ 1. The Law of Production from the Soil, a Law of Diminishing Return in
Proportion to the Increased Application of Labor and Capital.
Land differs from the other elements of production, labor, and capital, in
not being susceptible of indefinite increase. Its extent is limited, and
the extent of the more productive kinds of it more limited still. It is
also evident that the quantity of produce capable of being raised on any
given piece of land is not indefinite. This limited quantity of land and
limited productiveness of it are the real limits to the increase of
production.
The limitation to production from the properties of the soil is 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 advanced, stage in the progress of
agriculture—as soon, in fact, as mankind have applied themselves to
cultivation with any energy, and have brought to it any tolerable
tools—from that time it is the law of production from the land, that in
any given state of agricultural skill and knowledge, by increasing the
labor, the produce is not increased in an equal degree; doubling the labor
does not double the produce; or, to express the same thing in other words,
every increase of produce is obtained by a more than proportional increase
in the application of labor to the land. This general law of agricultural
industry is the most important proposition in political economy. Were the
law different, nearly all the phenomena of the production and distribution
of wealth would be other than they are.
It is not generally considered that in the United States, where in
many sparsely settled parts of the country new land is constantly
being brought into cultivation, an additional population under
existing conditions of agricultural skill can be maintained with
constantly increasing returns up to a certain point before the law
of diminishing returns begins to operate. Where more laborers are
necessary, and more capital wanted, to co-operate in a new country
before all the land can give its maximum product, in such a stage
of cultivation it can not be said that the law of diminishing
returns has yet practically set in.
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 labor. The very meaning of
inferior land is land which with equal labor returns a smaller amount of
produce. Land may be inferior either in fertility or in situation. The one
requires a greater proportional amount of labor for growing 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, etc., and, in order
to raise another thousand, recourse 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 labor as the original thousand,
and the produce of agriculture will be increased in a less ratio than the
labor employed in procuring it.
Instead of cultivating the land B, it would be possible, by higher
cultivation, to make the land A produce more. It might be plowed or
harrowed twice instead of once, or three times instead of twice; it might
be dug instead of being plowed; after plowing, it might be gone over with
a hoe 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 construction; a greater quantity or
more expensive kinds of manure might be applied, or, when applied, they
might be more carefully mixed and incorporated with the soil.
The example of market-gardens in the vicinity of great cities and
towns shows how the intensive culture permits an increase of labor
and capital with larger returns. These lands, by their situation,
are superior lands for this particular purpose, although they
might be inferior lands as regards absolute productiveness when
compared with the rich wheat-lands of Dakota. New England and New
Jersey farms, generally speaking, no longer attempt the culture of
grains, but (when driven out of that culture by the great railway
lines which have opened up the West) they have arranged themselves
in a scale of adaptability for stock, grass, fruit, dairy, or
vegetable farming; and have thereby given greater profits to their
owners than the same land did under the old _régime_. Even on
lands where any grain can still be grown, corn, buckwheat, barley,
oats, and rye, cover the cultivated areas instead of wheat.
Inferior lands, or lands at a greater distance from the market, of course
yield an inferior return, and an increasing demand can not 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 labor 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 labor and capital
would yield, at the best, no greater return than can be obtained at the
same expense from less fertile or less favorably situated lands.
“It is long,” says a late traveler in the United States,(130) “before an
English eye becomes reconciled to the lightness of the crops and the
careless farming (as we should call it) which is apparent. One forgets
that, where land is so plentiful and labor so dear as it is here, a
totally different principle must be pursued from 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 labor.”
Of the two causes mentioned, the plentifulness of land seems to me the
true explanation, rather than the dearness of labor; for, however dear
labor may be, when food is wanted, labor will always be applied to
producing it in preference to anything else. But this labor is more
effective for its end by being applied to fresh soil than if it were
employed in bringing the soil already occupied into higher cultivation.
The Western movement of what might be called the “wheat-center” is
quite perceptible. Until recently Minnesota has been a great
wheat-producing State, and vast tracts of land were there planted
with that grain when the soil was first broken. The profits on the
first few crops have been enormous, but it is now said to be more
desirable for wheat-growers to move onward to newer lands, and to
sell the land to cultivators of a different class (of fruit and
varied products), who produce for a denser population. So that (in
1884) Dakota, instead of Minnesota, has become the district of the
greatest wheat production.(131)
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
immediate vicinity of towns, where saving in cost of carriage may
compensate for great inferiority in the return from the soil itself.
The principle which has now been stated must be received, no doubt, with
certain explanations and limitations. Even after the land is so highly
cultivated that the mere application of additional labor, or of an
additional amount of ordinary dressing, would yield no return proportioned
to the expense, it may still happen that the application of a much greater
additional labor and capital to improving the soil itself, by draining or
permanent manures, would be as liberally remunerated by the produce as any
portion of the labor and capital already employed. It would sometimes be
much more amply remunerated. This could not be, if capital always sought
and found the most advantageous employment.
§ 2. Antagonist Principle to the Law of Diminishing Return; the Progress
of Improvements in Production.
That the produce of land increases, _cæteris paribus_, in a diminishing
ratio to the increase in the labor employed, is, as we have said (allowing
for occasional and temporary exceptions), the universal law of
agricultural industry. This principle, however, has been denied. So much
so, indeed, that (it is affirmed) the worst land now in cultivation
produces as much food per acre, and even as much to a given amount of
labor, as our ancestors contrived to extract from the richest soils in
England.
The law of diminishing returns is the physical fact upon which the
economic doctrine of rent is based, and requires careful
attention. Carey asserts, instead, that there is a law of
increasing productiveness, since, as men grow in numbers and
intelligence, there arises an ability to get more from the
soil.(132) Some objectors even deny that different grades of land
are cultivated, and that there is no need of taking inferior soils
into cultivation. If this were true, why would not one half an
acre of land be as good as a whole State? Johnston(133) says: “In
a country and among poor settlers ... poor land is a relative
term. Land is called poor which is not suitable to a poor man,
which on mere clearing and burning will not yield good first
crops. Thus that which is poor land for a poor man may prove rich
land to a rich man.”(134) Moreover, as is constantly the case in
our country, it often happens that a railway may bring new lands
into competition with old lands in a given market; of which the
most conspicuous example is the competition of Western
grain-fields with the Eastern farms. In these older districts,
before the competition came, there was a given series of grades in
the cultivated land; after the railway was built there was a
disarrangement of the old series, some going out of cultivation,
some remaining, and some of the new lands entering the list. The
result is a new series of grades better suited to satisfy the
wants of men.
This, however, does not prove that the law of which we have been speaking
does not exist, but only that there is some antagonizing principle at
work, capable for a time of making head against the law. Such an agency
there is, in habitual antagonism to the law of diminishing return from
land; and to the consideration of this we shall now proceed. It is no
other than the progress of civilization. The most obvious [part of it] is
the progress of agricultural knowledge, skill, and invention. Improved
processes of agriculture are of two kinds: (1) some enable the land to
yield a greater absolute produce, without an equivalent increase of labor;
(2) others have not the power of increasing the produce, but have that of
diminishing the labor and expense by which it is obtained. (1.) Among the
first are to be reckoned the disuse of fallows, by means of the rotation
of crops; and the introduction of new articles of cultivation capable of
entering advantageously into the rotation. The change made in agriculture
toward the close of the last century, by the introduction of
turnip-husbandry, is spoken of as amounting to a revolution. Next in order
comes the introduction of new articles of food, containing a greater
amount of sustenance, like the potato, or more productive 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;
inventions like subsoil-plowing or tile-draining, by which the produce of
some kinds of lands is so greatly multiplied; improvements in the breed or
feeding of laboring cattle; augmented stock, of the animals which consume
and convert into human food what would otherwise be wasted; and the like.
(2.) The other sort of improvements, those which diminish labor, but
without increasing the capacity of the land to produce, are such as the
improved construction of tools; the introduction of new instruments which
spare manual labor, as the winnowing and thrashing machines. These
improvements do not add to the productiveness of the land, but they are
equally calculated with the former to counteract the tendency in the cost
of production of agricultural produce, to rise with the progress of
population and demand.
§ 3. —In Railways.
Analogous in effect to this second class of agricultural improvements are
improved means of communication. Good roads are equivalent to good tools.
It is of no consequence whether the economy of labor takes place in
extracting the produce from the soil, or in conveying it to the place
where it is to be consumed.
The functions performed by railways in the system of production is
highly important. They are among the most influential causes
affecting the cost of producing commodities, particularly those
which satisfy the primary wants of man, of which food is the
chief. The amount of tonnage carried is enormous; and the cost of
this service to the producers and consumers of the United States
is a question of very great magnitude. The serious reduction in
the cost of transportation on the railways will be a surprise to
all who have not followed the matter very closely; the more so,
that it has been brought about by natural causes, and independent
of legislation. Corn, meat, and dairy products form, it is said,
at least 50 per cent, and coal and timber about 30 per cent, of
the tonnage moved on all the railways of the United States. If a
lowered cost of transportation has come about, it has then cost
less to move the main articles of immediate necessity. Had the
charge in 1880 remained as high even as it was from 1866 to 1869,
the number of tons carried in 1880 would have cost the United
States from $500,000,000 to $800,000,000 more than the charge
actually made, owing to the reductions by the railways. It seems,
however, that this process of reduction culminated about 1879. In
order to show the facts of this process, note the changes in the
following chart, No. V. The railways of the State of New York are
taken, but the same is also true of those of Ohio:
Chart V.
_Cost of 20 Barrels of Flour, 10 Beef, 10 Pork, 100 Bushels Wheat,
100 Corn, 100 Oats, 100 Pounds Butter, 100 Lard, and 100 Fleece
Wool, in New York City, at the Average of each Year, Compiled by
Months, in Gold; Compared Graphically with the Decrease in the
Charge per Ton per Mile, on all the Railroads of the State of New
York, during the Same Period._
Year. Price in Charge for Decrease in Decrease in
gold of carrying one the railroad the profits
staple farm ton one expenses per of the
products. mile. ton. (Cents) railroads
(Dollars) (Cents) for carrying
one ton.
(Cents)
1870 776.02 1.7016 1.1471 .5545
1871 735.33 1.7005 1.1450 .5555
1872 675.92 1.6645 1.1490 .5155
1873 662.50 1.6000 1.0864 .5136
1874 748.54 1.4480 .9730 .4750
1875 696.40 1.3039 .9587 .3452
1876 651.74 1.1604 .8561 .3043
1877 751.95 1.0590 .7740 .2850
1878 569.81 .9994 .6900 .3094
1879 568.34 .8082 .5847 .2295
1880 631.32 .9220 .6030 .3190
1881 703.10 .8390 .5880 .2510
1882 776.12 .8170 .6010 .2160
1883 662.11 .8990 .6490 .2500
In 1855 the charge per ton per mile was 3.27 cents, as compared
with 0.89 in 1883.
Tons moved 1 m. in 1883 by 9,286,216,628
railroads of N.Y.
At rate of 1855, would cost $303,659,283
Actual cost in 1883 83,464,919
Saving to the State $220,194,364
The explanation of this reduced cost is given by Mr. Edward
Atkinson(135) as (1) the competition of water-ways, (2) the
competition of one railway with another, and (3) the competition
of other countries, which forces our railways to try to lay our
staple products down in foreign markets at a price which will
warrant continued shipment. Besides these reasons, much ought also
(4) to be assigned to the progress of inventions and the reduced
cost of steel and all appliances necessary to the railways.
The large importance of the railways shows itself in an influence
on general business prosperity, and as a place for large
investments of a rapidly growing capital. The building of
railways, however, has been going on, at some times with greater
speed than at others. Instead of 33,908 miles of railways at the
close of our war, we have now (1884) over 120,000 miles. How the
additional mileage has been built year by year, with two distinct
eras of increased building—one from 1869 to 1873, and another from
1879 to 1884—may be seen by the shorter lines of the subjoined
chart, No. VI.
That speculation has been excited at different times by the
opening up of our Western country, there can be no doubt. And if a
comparison be made with Chart No. XVII (Book IV, Chap. III), which
gives the total grain-crops of the United States, it will be seen
that since 1879, although our population has increased from 12-½
per cent to 14 per cent, our grain-crops only 5 per cent, yet our
railway mileage has increased 40 per cent.
The extent to which the United States has carried
railway-building, as compared with European countries, although we
have a very much greater area, is distinctly shown by Chart No.
VII. This application of one form of improvement to oppose the law
of diminishing returns in the United States has produced
extraordinary results, especially when we consider that we are
probably not yet using all our best lands, or, in other words,
that we have not yet felt the law of diminishing returns in some
large districts.
Chart VI.
_Miles of Railroad in Operation on the 1st January in each Year, and the
Miles added in the Year Ensuing._
Year. Miles of Railroad. Miles added.
1865 33,908 1,177
1866 35,085 1,716
1867 36,801 2,449
1868 39,250 2,979
1869 42,229 4,615
1870 46,844 6,070
1871 52,914 7,379
1872 60,293 5,878
1873 66,171 4,107
1874 70,278 2,105
1875 72,383 1,713
1876 74,096 2,712
1877 76,808 2,281
1878 79,089 2,687
1879 81,776 4,721
1880 86,497 7,048
1881 93,545 9,789
1882 103,334 11,591
1883 114,925 6,618
Railways and canals are virtually a diminution of the cost of production
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 remunerated
the cultivators without a rise of price. Improvements in navigation have,
with respect to food or materials brought from beyond sea, a corresponding
effect.
§ 4. —In Manufactures.
From similar considerations, it appears that many purely mechanical
improvements, which have, apparently, at least, no peculiar connection
with agriculture, nevertheless enable a given amount of food to be
obtained with a smaller expenditure of labor. A great improvement in the
process of smelting iron would tend to cheapen agricultural implements,
diminish the cost of railroads, of wagons 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 production
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 application
of wind or water power to grind corn tended to cheapen bread as much as a
very important discovery in agriculture would have done; and any great
improvement in the construction of corn-mills would have, in proportion, a
similar influence.
Those manufacturing improvements which can not be made instrumental to
facilitate, in any of its stages, the actual production of food, and
therefore do not help to counteract or retard the diminution of the
proportional return to labor from the soil, have, however, another effect,
which is practically equivalent. What they do not prevent, they yet, in
some degree, compensate for.(136)
Chart VII.
_Ratio of Miles of Railroad to the Areas of States and Countries—United
States and Europe. The relative proportion is 1 Mile Railroad to 4 Square
Miles of Area._
No. Name. Rank in Size. Relative.
1 Massachusetts 67 98
2 Belgium 62 96
3 England and 29 88
Wales
4 New Jersey 62 81
5 Connecticut 68 80
6 Rhode Island 71 65
7 Ohio 44 60
8 Illinois 32 59
9 Pennsylvania 40 55
10 Delaware 69 53
11 Indiana 50 52
12 New Hampshire 65 45
13 Switzerland 59 44
14 New York 39 41
15 Iowa 33 39
16 German Empire 4 38
17 Scotland 52 37
18 Maryland 63 36
19 Vermont 64 35
20 Ireland 51 29
21 Michigan 31 28
22 France 5 27
23 Denmark 60 26
24 Netherlands 57 25
25 Missouri 26 24
26 Wisconsin 34 23
27 Austrian 3 21
Empire
28 Virginia 45 19
29 Italy 13 18
30 Georgia 30 17
31 Kansas 22 16
32 Kentucky 46 15
33 South 49 14
Carolina
34 Tennessee 42 14
35 Minnesota 21 13
36 Alabama 36 13
37 West Virginia 55 12
38 Roumania 41 12
39 North 37 12
Carolina
40 Maine 48 12
41 Nebraska 23 10
42 Mississippi 38 9
43 Spain 6 9
44 Portugal 47 9
45 Sweden 7 9
46 Arkansas 35 8
47 Louisiana 43 8
48 Colorado 16 8
49 California 8 7
50 Turkey 27 7
51 Texas 2 7
52 Utah 20 6
53 Florida 28 6
54 Dakota 7 6
55 Russia in 1 5
Europe
56 Nevada 15 5
57 Norway 11 5
58 Oregon 18 4
59 Bulgaria 54 4
60 New Mexico 12 3
61 Wyoming 17 2
62 Indian 25 2
Territory
63 Washington 24 1
64 Arizona 14 1
65 Idaho 19 1
66 Greece 58 0
67 Montana 10 0
68 Bosnia and 53 0
Herzegovina
69 Servia 56 0
70 Eastern 61 0
Roumelia
71 Montenegro 70 0
72 Andorra 72 0
(The United States have substantially one mile of railway to each 540
inhabitants. Europe has one mile to each 3,000 inhabitants, if Russia be
included; about one mile to each 2,540, exclusive of Russia.)
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 production from the land, the law of
diminishing return, must in the last resort be applicable to manufacturing
as well as to agricultural history. As population increases, and the power
of the land to yield increased produce is strained harder and harder, any
additional supply of material, as well as of food, must be obtained by a
more than proportionally increasing expenditure of labor. But the cost of
the material forming generally a very small portion of the entire cost of
the manufacture, the agricultural labor concerned in the production of
manufactured goods is but a small fraction of the whole labor worked up in
the commodity.
Mr. Babbage(137) gives an interesting illustration of this
principle. Bar-iron of the value of £1 became worth, when
manufactured into—
£
Slit-iron, for nails 1.10
Natural steel 1.42
Horseshoes 2.55
Gun-barrels, ordinary 9.10
Wood-saws 14.28
Scissors, best 446.94
Penknife-blades 657.14
Sword-handles, polished steel 972.82
It can not, however, be said of such manufactures as coarse cotton
cloth, wherein the increased cost of raw cotton causes an
immediate effect upon the price of the cloth, that the cost of the
materials forms but a small portion of the cost of the
manufacture.(138)
All the labor [not engaged in preparing materials] tends constantly and
strongly toward diminution, as the amount of production increases.
Manufactures are vastly more susceptible than agriculture of mechanical
improvements and contrivances for saving labor. In manufactures,
accordingly, the causes tending to increase the productiveness of industry
preponderate greatly over the one cause which tends to diminish it; and
the increase of production, called forth by the progress of society, takes
place, not at an increasing, but at a continually diminishing 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. 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 improvement in the arts of production which
does not in one or another mode exercise an antagonistic influence to the
law of diminishing return to agricultural labor. Nor is it only industrial
improvements which have this effect. Improvements in government, and
almost every kind of moral and social advancement, operate in the same
manner. We may say the same of improvements in education. The intelligence
of the workman is a most important element in the productiveness of labor.
The carefulness, economy, and general trustworthiness of laborers are as
important as their intelligence. Friendly relations and a community of
interest and feeling between laborers and employers are eminently so. 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 country
and in its institutions and customs.
§ 5. Law Holds True of Mining.
We must observe that what we have said of agriculture is true, with little
variation, of the other occupations 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 labor and capital. As a
mine does not reproduce 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 production, also
applies in a still greater degree. Mining operations are more susceptible
of mechanical improvements than agricultural: the first great application
of the steam-engine was to mining; and there are unlimited possibilities
of improvement in the chemical processes by which the metals are
extracted. There is another contingency, of no unfrequent occurrence,
which avails to counterbalance the progress of all existing mines toward
exhaustion: this is, the discovery of new ones, equal or superior in
richness.
Professor Jevons has applied this economic law to the industrial
situation of England.(139) While explaining that the supply of
cheap coal is the basis of English manufacturing prosperity, yet
he insists that, if the demand for coal is constantly increasing,
the point must inevitably be reached in the future when the
increased supply can be obtained only at a higher cost. When coal
costs England as much as it does any other nation, then her
exclusive industrial advantage will cease to exist. In the United
States the outlying iron deposits of Lake Superior, Lake
Champlain, and Pennsylvania, so geologists tell us, will find
competition arising from the new grades of greater productiveness
in the richer deposits of States like Alabama. In that case we
shall be going from poorer to better grades of iron-mines, but
after the change is made a series of different grades of
productiveness will be established as before.
To resume: all natural agents which are limited in quantity are not only
limited in their ultimate productive power, but, long before that power is
stretched to the utmost, they yield to any additional demands on
progressively harder terms. This law may, however, be suspended, or
temporarily controlled, by whatever adds to the general power of mankind
over nature, and especially by any extension of their knowledge, and their
consequent command, of the properties and powers of natural agents.
Chapter X. Consequences Of The Foregoing Laws.
§ 1. Remedies for Weakness of the Principle of Accumulation.
From the preceding exposition it appears that the limit to the increase of
production is twofold: from deficiency of capital, or of land. Production
comes to a pause, either because the effective desire of accumulation is
not sufficient to give rise to any further increase of capital, or
because, however disposed the possessors of surplus income 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 return 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, the desideratum 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 permanent 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. Thirdly, the introduction of foreign arts, which raise the
returns derivable from additional capital to a rate corresponding to the
low strength of the desire of accumulation.
An excellent example of what might be done by this process is to
be seen under our very eyes in the present development of Mexico,
to which American capital and enterprise have been so prominently
drawn of late. All these proposed remedies, if put into use in
Mexico, would undoubtedly result in a striking increase of wealth.
§ 2. Even where the Desire to Accumulate is Strong, Population must be
Kept within the Limits of Population from Land.
But there are other countries, and England [and the United States are] at
the head of them, in which neither the spirit of industry nor the
effective desire of accumulation need any encouragement. In these
countries there would never be any deficiency of capital, if its increase
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 production to be often attended with a
deterioration 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.
This, of course, is based on the supposition that no new lands,
such as those of the United States, can be opened for cultivation.
If there is no prohibition to the importation of cheaper food, new
and richer land in any part of the world, within reach of the
given country, is an influence which works against the tendency.
Yet the tendency, or economic law, is there all the same, forever
working.
In all countries which have passed beyond a very early stage in the
progress of agriculture, every increase in the demand for food, occasioned
by increased population, will always, unless there is a simultaneous
improvement in production, diminish the share which on a fair division
would fall to each individual. An increased production, in default of
unoccupied tracts of fertile land, or of fresh improvements tending to
cheapen commodities, can never be obtained but by increasing the labor in
more than the same proportion. The population must either work harder or
eat less, or obtain their usual food by sacrificing a part of their other
customary comforts. Whenever this necessity is postponed, it is because
the improvements which facilitate production continue progressive; because
the contrivances of mankind for making their labor 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
restraining population is not, as many persons believe, peculiar to a
condition of great inequality of property. A greater number of people can
not, in any given state of civilization, be collectively so well provided
for as a smaller. The niggardliness of nature,(140) not the injustice 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.
After a degree of density has been attained, sufficient to allow the
principal benefits of combination of labor, all further increase tends in
itself to mischief, so far as regards the average condition 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 industrial inventions, or an extended use of
those already known, but improvements in institutions, education,
opinions, and human affairs generally, provided they tend, as almost all
improvements do, to give new motives or new facilities to production.
The increase in the population of the United States has been
enormous, as already seen, but the increase of production has been
still greater, owing to the fertility of our land, to improvements
in the arts, and to our great genius for invention, as may be seen
by the following table (amounts in the second column are given in
millions).(141) The steady increase of the valuation of our wealth
goes on faster than the increase of population, so that it
manifests itself in a larger average wealth to each inhabitant.
Decades. Valuation. Per cent Population. Per cent Per
of of capital
increase. increase. valuation.
1800 $1,742 .. 5,308,483 .. $328
1810 2,382 37 7,239,881 36 329
1820 3,734 57 9,633,882 33 386
1830 4,328 16 12,866,020 34 336
1840 6,124 41 17,069,453 33 359
1850 8,800 44 23,191,876 36 379
1860 16,160 84 31,443,321 35 514
1870 30,068 86 38,558,371 23 780
1880 40,000 33 50,155,783 30 798
If the productive powers of the country increase as rapidly as advancing
numbers call for an augmentation of produce, it is not necessary to obtain
that augmentation by the cultivation of soils more sterile than the worst
already under culture, or by applying additional labor 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,
labor is employed in manufactures. In one way or the other, the increased
population 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.
Ever since the great mechanical inventions of Watt, Arkwright, and their
contemporaries, the return to labor has probably increased as fast as the
population; and would even have outstripped it, if that very augmentation
of return had not called forth an additional portion of the inherent power
of multiplication in the human species. During the twenty or thirty years
last elapsed, so rapid has been the extension of improved processes of
agriculture [in England], that even the land yields a greater produce in
proportion to the labor 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 pressure 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 deterioration 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 improvements taken place, there would
have been a larger dividend than there now is, for the nation or the
species at large. The new ground wrung from nature by the improvements
would not have been all tied up in the support of mere numbers. Though the
gross produce would not have been so great, there would have been a
greater produce per head of the population.
§ 3. Necessity of Restraining Population not superseded by Free Trade in
Food.
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 unfavorable, by the inability of its land to meet additional demands
except on more onerous conditions, 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 increase. 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
diminished cost at home. It equally increases the productive power of
labor. The return was before, so much food for so much labor employed in
the growth of food: the return is now, a greater quantity of food for the
same labor 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 labor by a
certain distance: but in the one case, as in the other, it immediately
resumes its course; the tide which has receded, instantly begins to
readvance. 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 inhabitants of the country may double
and treble their numbers without feeling the effect in any increased
tension of the springs of production, or any enhancement of the price of
food throughout 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 neighborhood of coasts or navigable rivers; 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.
In the next place, even if the supply were drawn from the whole instead of
a small part of the surface of the exporting 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 effective desire of
accumulation is strong, and those in which it is weak. In Australia and
the United States of America, the effective desire of accumulation 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 agriculture has to provide for their own
expanding 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 labor and expense.
The extraordinary resources of the United States are scarcely
understood even by Americans. Chart No. XVIII (see Book IV, Chap.
III) may give some idea of the agricultural possibilities of our
land. It will be seen from this that the quantity of fertile land
in but one of our States—Texas—is greater than that of
Austria-Hungary.
But the countries which have at the same time cheap food and great
industrial 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 export 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 Russia, Poland, and Hungary.
The law, therefore, of diminishing return to industry, whenever population
makes a more rapid progress than improvement, 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.
§ 4. —Nor by Emigration.
Besides the importation of corn, there is another resource which can be
invoked by a nation whose increasing numbers press hard, not against their
capital, but against the productive capacity of their land: I mean
Emigration, especially in the form of Colonization. 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 existed at home,
would enable the demand of an increasing population to be met without any
falling off in the productiveness of labor. Accordingly, when the region
to be colonized is near at hand, and the habits and tastes of the people
sufficiently migratory, 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 throughout the Union without having yet
diminished the return to industry, or increased the difficulty of earning
a subsistence.
How strictly true this is may be seen by examining the map given
in the last census returns,(142) showing the residence of the
natives of the State of New York. The greater or less frequency of
natives of New York, residing in other States, is shown by
different degrees of shading on the map. A large district westward
as far as the Mississippi shows a density of natives of New York
of from two to six to a square mile, and a lesser density from
Minnesota to Indian Territory, on the other side of the
Mississippi. The same is shown of other older States. The
explanation of the movement can not be anything else than the same
as that for the larger movement from Europe to America.
There is no probability that even under the most enlightened arrangements
(in older countries) a permanent stream of emigration could 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 can
not, even in an economical point of view, dispense with the necessity of
checks to population.
The influence of immigration to the United States from European countries,
in lessening the tension in the relation between food and numbers, is one
of the most marked events in this century. The United States has received
about one fourth of its total population in 1880 from abroad since the
foundation of the republic, as will be seen by this table:
Total Immigration Into The United States.
Periods. Numbers.
From 250,000(143)
1789-1820
1820-1830 151,824
1831-1840 599,125
1841-1850 1,713,251
1851-1860 2,598,214
1861-1870 2,491,451
1871-1880 2,812,191
1881-1883 2,061,745
Total 12,677,801
Of this number, 5,333,991 came from the British Isles, of which 3,367,624
were Irish.
There came 3,860,624 Germans, 593,021 Scandinavians, and 334,064 French.
(See United States “Statistical Abstract,” 1878, 1880, 1883.)
The causes operating on this movement of men—a movement unequaled in
history—are undoubtedly economic. Like the migration of the early Teutonic
races from the Baltic to Southern Europe, it is due to the pressure of
numbers on subsistence.
A still more interesting study is that of the causes which attempt to
explain the direction of this stream after it has reached our shores. It
is a definite fact that the old slave States have hitherto received
practically none of this vast foreign immigration.(144) The actual
distribution of the foreign born in the United States is to be seen in a
most interesting way by aid of the colored map, Chart No. VIII, giving the
different densities of foreign-born population in different parts of the
Union. It seems almost certain that the general belief hitherto in the
insecurity of life and property in the old slave States has worked against
the material prosperity of that section.
The different ages of the native- and foreign-born inhabitants of the
United States may be seen from the accompanying diagrams(145) comparing
the aggregate population of the United States with the foreign-born. This
may profitably be compared with a similar diagram relating to the Chinese
in the United States (Book II, Chap. III, § 3).
Aggregate: 1870. The figures give the number of thousands of each sex.
Decade of Life. Males. Females.
1 136 132
2 115 114
3 87 90
4 62 63
5 47 44
6 31 27
7 17 15
8 7 7
9 2 2
Foreign: 1870.
Decade of Life. Males. Females.
1 24 23
2 48 49
3 128 114
4 134 113
5 107 84
6 60 44
7 27 23
8 9 9
9 2 2
BOOK II. DISTRIBUTION.
Chapter I. Of Property.
§ 1. Individual Property and its opponents.
The laws and conditions of the Production of Wealth partake of the
character of physical truths. There is nothing optional or arbitrary in
them. It is not so with the Distribution of Wealth. That is a matter of
human institution solely. The things once there, mankind, individually or
collectively, can do with them as they like. They can place them at the
disposal of whomsoever they please, and on whatever terms. The
Distribution of Wealth depends on the laws and customs of society. The
rules by which it is determined are what the opinions and feelings of the
ruling portion of the community make them, and are very different in
different ages and countries; and might be still more different, if
mankind so chose. We have here to consider, not the causes, but the
consequences, of the rules according to which wealth may be distributed.
Those, at least, are as little arbitrary, and have as much the character
of physical laws, as the laws of production.
We proceed, then, to the consideration of the different modes of
distributing the produce of land and labor, which have been adopted in
practice, or may be conceived in theory. Among these, our attention is
first claimed by that primary and fundamental institution, on which,
unless in some exceptional and very limited cases, the economical
arrangements of society have always rested, though in its secondary
features it has varied, and is liable to vary. I mean, of course, the
institution of individual property.
Private property, as an institution, 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
analogous states of society in our own time, to show that tribunals (which
always precede laws) were originally established, not to determine rights,
but to repress violence and terminate quarrels. With this object chiefly
in view, they naturally enough gave legal effect to first occupancy, by
treating as the aggressor the person who first commenced violence, by
turning, or attempting to turn, another out of possession.
In considering the institution of property as a question in social
philosophy, we must leave out of consideration its actual origin in any of
the existing nations of Europe. We may suppose a community unhampered by
any previous possession; a body of colonists, occupying for the first time
an uninhabited country. (1.) If private property were adopted, we must
presume that it would be accompanied by none of the initial inequalities
and injustice which obstruct the beneficial operation of the principle in
old society. Every full-grown man or woman, we must suppose, would be
secured in the unfettered use and disposal of his or her bodily and mental
faculties; and the instruments of production, the land and tools, would be
divided fairly among them, so that all might start, in respect to outward
appliances, 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 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 advantageous use of what was assigned
to them. (2.) If individual property, on the contrary, were excluded, the
plan which must be 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 industry on the common account. The direction of the labor
of the community would devolve upon a magistrate or magistrates, whom we
may suppose elected by the suffrages of the community, and whom we must
assume to be voluntarily obeyed by them. The division of the produce would
in like manner be a public act. The principle might either be that of
complete equality, or of apportionment to the necessities or deserts of
individuals, in whatever manner might be conformable to the ideas of
justice or policy prevailing in the community.
The assailants of the principle of individual property may be divided into
two classes: (1) those whose scheme implies absolute equality in the
distribution of the physical means of life and enjoyment, and (2) those
who admit inequality, but grounded on some principle, or supposed
principle, of justice or general expediency, and not, like so many of the
existing social inequalities, dependent on accident alone. The
characteristic name for this [first] 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 necessarily implying Communism,
or the entire 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.
It should be said, moreover, that Socialism is to-day used in the
distinct sense of a system which abolishes private property, and
places the control of the capital, labor, and combined industries
of the country in the hands of the state. The essence of modern
socialism is the appeal to state-help and the weakening of
individual self-help. Collectivism is also a term now used by
German and French writers to describe an organization of the
industries of a country under a collective instead of an
individual management. Collectivism is but the French expression
for the system of state socialism.
§ 2. The case for Communism against private property presented.
The objection ordinarily made to a system of community of property and
equal distribution of the produce, that each person would be incessantly
occupied 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. And though the “master’s eye,”
when the master is vigilant and intelligent, is of proverbial value, it
must be remembered that, in a Socialist farm or manufactory, each laborer
would be under the eye, not of one master, but of the whole community. If
Communistic labor might be less vigorous than that of a peasant
proprietor, or a workman laboring on his own account, it would probably be
more energetic than that of a laborer for hire, who has no personal
interest in the matter at all.
Another of the objections to Communism is that if every member of the
community were assured of subsistence for himself and any number of
children, on the sole condition of willingness to work, prudential
restraint on the multiplication of mankind would be at an end, and
population would start forward at a rate which would reduce the community
through successive stages of increasing discomfort to actual starvation.
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. An augmentation of numbers which diminished the
comfort or increased the toil of the mass would then cause (which now it
does not) immediate and unmistakable inconvenience to every individual in
the association; inconvenience which could not then be imputed to the
avarice of employers, or the unjust privileges of the rich.
A more real difficulty is that of fairly apportioning the labor of the
community 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, or
brick-laying, or chimney-sweeping, is equivalent to so much plowing?
Besides, even in the same kind of work, nominal equality of labor 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 labor;
and the same quantity of labor is an unequal burden on the weak and the
strong, the hardy and the delicate, the quick and the slow, the dull and
the intelligent.(146)
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
injustices, all the difficulties, great or small, of Communism, would be
but as dust in the balance. But, to make the comparison applicable, we
must compare Communism at its best with the _régime_ of individual
property, not as it is, but as it might be made. The laws of property 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
property ought to exist. Private property, in every defense made of it, is
supposed to mean the guarantee to individuals of the fruits of their own
labor and abstinence. The guarantee to them of the fruits of the labor 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 promote,
but conflicts with the ends which render private property legitimate. To
judge of the final destination of the institution of property, we must
suppose everything rectified which causes the institution to work in a
manner opposed to that equitable principle, of proportion between
remuneration and exertion, on which, in every vindication of it that will
bear the light, it is assumed to be grounded. We must also suppose two
conditions realized, without 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 institutions:
and, these being supposed, the question of socialism is not, as generally
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 determine. 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.
If a conjecture may be hazarded, the decision will probably depend mainly
on one consideration, viz., which of the two systems is consistent with
the greatest amount of human liberty and spontaneity. It is yet to be
ascertained whether the communistic scheme would be consistent with that
multiform development of human nature, those manifold unlikenesses, that
diversity of tastes and talents, and variety of intellectual points of
view, which not only form a great part of the interest of human life, but,
by bringing intellects into stimulating collision and by presenting to
each innumerable notions that he would not have conceived of himself, are
the mainspring of mental and moral progression.
§ 3. The Socialists who appeal to state-help.
For general purposes, a clearer understanding of the various
schemes may be gained by observing that (1) one class of
socialists intend to include the state itself within their plan,
and (2) another class aim to form separate communities inside the
state, and under its protection.
Of this first system there are no present examples; but the object
of most of the socialistic organizations in the United States and
Europe is to strive for the assumption by the state of the
production and distribution of wealth.(147) At present the most
active Socialists are to be found in Germany. The origin of this
influence, however, is to be traced to France.(148) Louis
Blanc,(149) in his “Organisation du Travail,” considers property
the great scourge of society. The Government, he asserts, should
regulate production; raise money to be appropriated without
interest for creating state workshops, in which the workmen should
elect their own overseers, and all receive the same wages; and the
sums needed should be raised from the abolition of collateral
inheritance. The important practical part of his scheme was that
the great state workshops, aided by the Government, would make
private competition in those industries impossible, and thus bring
about the change from the private to the socialistic system.
The founder of modern German socialism was Karl Marx,(150) and
almost the only Socialist who pretended to economic knowledge. He
aimed his attack on the present social system against the question
of value, by asserting that the amount of labor necessary for the
production of an article is the sole measure of its exchange
value. It follows from this that the right of property in the
article vests wholly in the laborer, while the capitalist, if he
claims a share of the product, is nothing less than a robber. No
just system, he avers, can properly exist so long as the rate of
wages is fixed by free contract between the employer and laborer;
therefore the only remedy is the nationalization of all the
elements of production, land, tools, materials, and all existing
appliances, which involves, of course, the destruction of the
institution of private property. An obvious weakness in this
scheme is the provision that the Government should determine what
goods are to be produced, and that every one is bound to perform
that work which is assigned by the state. In this there is no
choice of work, and the tyranny of one master would be supplanted
by the tyranny of a greater multiplex master in the officers of
Government. Moreover, it can not be admitted that exchange value
is determined by the quantity of labor alone. Every one knows that
the result of ten days’ labor of a skilled watch-maker does not
exchange for the result of ten days’ labor of an unskilled hodman.
Of two men making shoes, one may produce a good the other a poor
article, although both may work the same length of time; so that
their exchange value ought not to be determined by the mere
quantity of labor expended. Above all, Marx would extend the
equality of wages for the same time to the manager and
superintendent also. In other words, he proposes to take away all
the incentives to the acquirement or exercise of superior and
signal ability in every work of life, the result of which would
inevitably lead to a deadening extension of mediocrity.
This system gained an undue attention because it was made the
instrument of a socialist propaganda under the leadership of
Ferdinand Lassalle.(151) This active leader, in 1863, founded the
German “Workingmen’s Union,” a year earlier than the
“International(152) Association.” In 1869 Liebknecht and his
friends established the “Social Democratic Workingmen’s Party,”
which after some difficulties absorbed the followers of Lassalle
in a congress at Gotha in 1875, and form the present Socialist
party in Germany. Their programme,(153) as announced at Gotha, is
as follows:
I. Labor is the source of all riches and of all culture. As
general profitable labor can only be done by the human society,
the whole product of labor belongs to society—i.e., to all its
members—who have the same duties and the same right to work, each
according to his reasonable wants.
In the present society the means of work are the monopoly of the
class of capitalists. The class of workingmen thus become
dependent on them, and consequently are given over to all degrees
of misery and servitude.
In order to emancipate labor it is requisite that the means of
work be transformed into the common property of society, that all
production be regulated by associations, and that the entire
product of labor be turned over to society and justly distributed
for the benefit of all.
None but the working-class itself can emancipate labor, as in
relation to it all other classes are only a reactionary mass.
II. Led by these principles, the German Social Workingmen’s party,
by all legal means, strives for a free state and society, the
breaking down of the iron laws of wages by abolishing the system
of hired workingmen, by abolishing exploitation in every shape,
and doing away with all social and political inequality.
The German Social Workingmen’s party, although first working
within its national confines, is fully conscious of the
international character of the general workingmen’s movement, and
is resolved to fulfill all duties which it imposes on each
workingman in order to realize the fraternity of all men.
The German Social Workingmen’s party, for the purpose of preparing
the way, and for the solution of the social problem, demands the
creation of social productive associations, to be supported by the
state government, and under the control of the working-people. The
productive associations are to be founded in such numbers that the
social organization of the whole production can be effected by
them.
The German Social Workingmen’s party requires as the basis of
state government:
1. Universal, equal, direct, and secret suffrage, which, beginning
with the twentieth year, obliges all citizens to vote in all
State, county, and town elections. Election-day must be a Sunday
or a holiday.
2. Direct legislation by the people; decision as to war and peace
by the people.
3. General capability of bearing arms; popular defense in place of
standing armies.
4. Abolition of all exceptional laws, especially those relating to
the press, public meetings, and associations—in short, of all laws
which hinder the free expression of ideas and thought.
5. Gratuitous administration of justice by the people.
6. General and equal, popular and gratuitous education by the
Government in all classes and institutes of learning; general duty
to attend school; religion to be declared a private affair.
The German Social Workingmen’s party insists on realizing in the
present state of society:
1. The largest possible extension of political rights and freedom
in conformity to the above six demands.
2. A single progressive income-tax for State, counties, and towns,
instead of those which are imposed at present, and in place of
indirect taxes, which unequally burden the people.
3. Unlimited right of combination.
4. A normal working-day corresponding with the wants of society;
prohibition of Sunday labor.
5. Prohibition of children’s work and of women’s work, so far as
it injures their health and morality.
6. Protective laws for the life and health of workingmen; sanitary
control of their dwellings; superintendence of mines, factories,
industry, and home work by officers chosen by the workingmen; an
effectual law guaranteeing the responsibility of employers.
7. Regulation of prison-work.
8. Unrestricted self-government of all banks established for the
mutual assistance of workingmen.
The above scheme also represents very well the character of the
Socialist agitators in the United States, who are themselves
chiefly foreigners, and have foreign conceptions of socialism. On
this form of socialism it is interesting to have Mr. Mill’s later
opinions(154) in his own words.
“Among those who call themselves Socialists, two kinds of persons may be
distinguished. There are, in the first place, (1) those whose plans for a
new order of society, in which private property and individual competition
are to be superseded and other motives to action substituted, are on the
scale of a village community or township, and would be applied to an
entire country by the multiplication of such self-acting units; of this
character are the systems of Owen, of Fourier, and the more thoughtful and
philosophic Socialists generally. The other class (2) who are more a
product of the Continent than of Great Britain, and may be called the
revolutionary Socialists, propose to themselves a much bolder stroke.
Their scheme is the management of the whole productive resources of the
country by one central authority, the general Government. And with this
view some of them avow as their purpose that the working-classes, or
somebody in their behalf, should take possession of all the property of
the country, and administer it for the general benefit. The aim of that is
to substitute the new rule for the old at a single stroke, and to exchange
the amount of good realized under the present system, and its large
possibilities of improvement, for a plunge without any preparation into
the most extreme form of the problem of carrying on the whole round of the
operations of social life without the motive power which has always
hitherto worked the social machinery. It must be acknowledged that those
who would play this game on the strength of their own private opinion,
unconfirmed as yet by any experimental verification, must have a serene
confidence in their own wisdom on the one hand, and a recklessness of
people’s sufferings on the other, which Robespierre and St. Just, hitherto
the typical instances of those united attributes, scarcely came up to.”
§ 4. Of various minor schemes, Communistic and Socialistic.
[Of the schemes to be tried within a state], the two elaborate forms of
non-communistic Socialism known as Saint-Simonism and Fourierism are
totally free from the objections usually urged against Communism. The
Saint-Simonian(155) scheme does not contemplate an equal, but an unequal
division of the produce; it does not propose that all should be occupied
alike, but differently, according to their vocation or capacity; the
function of each being assigned, like grades in a regiment, by the choice
of the directing authority, and the remuneration being by salary,
proportioned to the importance, in the eyes of that authority, of the
function itself, and the merits of the person who fulfills it. But to
suppose that one or a few human beings, howsoever selected, could, by
whatever machinery of subordinate agency, be qualified to adapt each
person’s work to his capacity, and proportion each person’s remuneration
to his merits, is a supposition almost too chimerical to be reasoned
against.(156)
The most skillfully combined, and with the greatest foresight of
objections, of all the forms of Socialism is that commonly known as
Fourierism.(157) This system does not contemplate the abolition of private
property, nor even of inheritance: on the contrary, it avowedly takes into
consideration, as an element in the distribution of the produce, capital
as well as labor. It proposes that the operations of industry should be
carried on by associations of about two thousand members, combining their
labor on a district of about a square league in extent, under the guidance
of chiefs selected by themselves (the “phalanstery”). In the distribution
a certain minimum is first assigned for the subsistence of every member of
the community, whether capable or not of labor. The remainder of the
produce is shared in certain proportions, to be determined beforehand,
among the three elements, Labor, Capital, and Talent. The capital of the
community 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 laborers to which he or she
belongs, these grades being in all cases conferred by the choice of his or
her companions. The remuneration, when received, would not of necessity be
expended or enjoyed in common; there would be separate _ménages_ for all
who preferred them, and no other community of living is contemplated than
that all the members of the association should reside in the same pile of
buildings; for saving of labor and expense, not only in building, but in
every branch of domestic economy; and in order that, the whole buying and
selling operations of the community being performed by a single agent, the
enormous portion of the produce of industry now carried off by the profits
of mere distributors might be reduced to the smallest amount possible.
Fourierism was tried in West Virginia by American disciples, and
it was advocated by Horace Greeley. A modified form appeared in
the famous community at Brook Farm (near Dedham, Massachusetts),
which drew there George Ripley, Margaret Fuller, and even George
William Curtis and Nathaniel Hawthorne.
There have been many smaller communities established in the United
States, but it can not be said that they have been successful from
the point of view either of numbers or material prosperity. The
followers of Rapp, or the Harmonists, in Pennsylvania and Indiana;
the Owenites,(158) in Indiana; the community of Zoar, in Ohio; the
Inspirationists, in New York and Iowa; the Perfectionists, at
Oneida and Wallingford—are all evidently suffering from the
difficulties due to the absence of family life, from the
increasing spirit of personal independence which carries away the
younger members of the organizations,(159) and the want of that
executive ability which distinguishes the successful manager in
private enterprises.
§ 5. The Socialist objections to the present order of Society examined.
“The attacks(160) on the present social order are vigorous and earnest,
but open to the charge of exaggeration.
“In the first place, it is unhappily true that the wages of ordinary
labor, in all the countries of Europe, are wretchedly insufficient to
supply the physical and moral necessities of the population in any
tolerable measure. But when it is further alleged that even this
insufficient remuneration has a tendency to diminish; that there is, in
the words of M. Louis Blanc, _une baisse continue des salaires_; the
assertion is in opposition to all accurate information, and to many
notorious facts. It has yet to be proved that there is any country in the
civilized world where the ordinary wages of labor, estimated either in
money or in articles of consumption, are declining; while in many they
are, on the whole, on the increase; and an increase which is becoming, not
slower, but more rapid. There are, occasionally, branches of industry
which are being gradually superseded by something else, and in those,
until production accommodates itself to demand, wages are depressed.
“M. Louis Blanc appears to have fallen into the same error which was at
first committed by Malthus and his followers, that of supposing because
population has a greater power of increase than subsistence, its pressure
upon subsistence must be always growing more severe. It is a great point
gained for truth when it comes to be seen that the tendency to
over-population is a fact which Communism, as well as the existing order
of society, would have to deal with. However this may be, experience shows
that in the existing state of society the pressure of population on
subsistence, which is the principal cause of low wages, though a great, is
not an increasing evil; on the contrary, the progress of all that is
called civilization has a tendency to diminish it, partly by the more
rapid increase of the means of employing and maintaining labor, partly by
the increased facilities opened to labor for transporting itself to new
countries and unoccupied fields of employment, and partly by a general
improvement in the intelligence and prudence of the population. It is, of
course, open to discussion what form of society has the greatest power of
dealing successfully with the pressure of population on subsistence, and
on this question there is much to be said for Socialism; but it has no
just claim to be considered as the sole means of preventing the general
and growing degradation of the mass of mankind through the peculiar
tendency of poverty to produce over-population.
“Next, it must be observed that Socialists generally, and even the most
enlightened of them, have a very imperfect and one-sided notion of the
operation of competition. They see half its effects, and overlook the
other half. They forget that competition is a cause of high prices and
values as well as of low; that the buyers of labor and of commodities
compete with one another as well as the sellers; and that, if it is
competition which keeps the prices of labor and commodities as low as they
are, it is competition which keeps them from falling still lower. To meet
this consideration, Socialists are reduced to affirm that, when the
richest competitor has got rid of all his rivals, he commands the market
and can demand any price he pleases. But in the ordinary branches of
industry no one rich competitor has it in his power to drive out all the
smaller ones. Some businesses show a tendency to pass out of the hands of
small producers or dealers into a smaller number of larger ones; but the
cases in which this happens are those in which the possession of a larger
capital permits the adoption of more powerful machinery, more efficient by
more expensive processes, or a better organized and more economical mode
of carrying on business, and this enables the large dealer legitimately
and permanently to supply the commodity cheaper than can be done on the
small scale; to the great advantage of the consumers, and therefore of the
laboring-classes, and diminishing, _pro tanto_, that waste of the
resources of the community so much complained of by Socialists, the
unnecessary multiplication of mere distributors, and of the various other
classes whom Fourier calls the parasites of industry.
“Another point on which there is much misapprehension on the part of
Socialists, as well as of trades-unionists and other partisans of labor
against capital, relates to the proportion in which the produce of the
country is really shared and the amount of what is actually diverted from
those who produce it, to enrich other persons. When, for instance, a
capitalist invests £20,000 in his business, and draws from it an income of
(suppose) £2,000 a year, the common impression is as if he were the
beneficial owner both of the £20,000 and of the £2,000, while the laborers
own nothing but their wages. The truth, however, is that he only obtains
the £2,000 on condition of applying no part of the £20,000 to his own use.
He has the legal control over it, and might squander it if he chose, but
if he did he would not have the £2,000 a year also. For all personal
purposes they have the capital and he has but the profits, which it only
yields to him on condition that the capital itself is employed in
satisfying not his own wants, but those of laborers. Even of his own share
a small part only belongs to him as the owner of capital. The portion of
the produce which falls to capital merely as capital is measured by the
interest of money, since that is all that the owner of capital obtains
when he contributes to production nothing except the capital itself.
“The result of our review of the various difficulties of Socialism has led
us to the conclusion that the various schemes for managing the productive
resources of the country by public instead of private agency have a case
for a trial, and some of them may eventually establish their claims to
preference over the existing order of things, but that they are at present
workable only by the _élite_ of mankind, and have yet to prove their power
of training mankind at large to the state of improvement which they
presuppose.”
§ 6. Property in land different from property in Movables.
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,
consists 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 themselves have produced. Nothing is implied in
property 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:
together 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 property, 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 children, and, failing them, to the nearest relations,
may be a proper arrangement or not, but is no consequence of the principle
of private property. I see no reason why collateral inheritance should
exist at all. Mr. Bentham long ago proposed, and other high authorities
have agreed in the 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. The parent owes to society to endeavor to
make the child a good and valuable member of it, and owes to the children
to provide, so far 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 can not admit that as a child he has a claim to more.
The essential principle of property being to assure to all persons what
they have produced by their labor and accumulated by their abstinence,
this principle can not apply to what is not the produce of labor, 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 height of injustice, to let the gift of
nature be engrossed by individuals. [But] the use of the land in
agriculture must indeed, for the time being, be of necessity exclusive;
the same person who has plowed and sown must be permitted to reap.
But though land is not the produce of industry, most of its valuable
qualities are so. Labor is not only requisite for using, but almost
equally so for fashioning, the instrument. Considerable labor is often
required at the commencement, to clear the land for cultivation. In many
cases, even when cleared, its productiveness is wholly the effect of labor
and art. One of the barrenest soils in the world, composed of the material
of the Goodwin Sands, the Pays de Waes in Flanders, has been so fertilized
by industry as to have become one of the most productive in Europe.
Cultivation also requires buildings and fences, which are wholly the
produce of labor. The fruits of this industry can not be reaped in a short
period. The labor and outlay are immediate, the benefit is spread over
many years, perhaps over all future time. A holder will not incur this
labor 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 always a sufficient period as when his tenure is perpetual.
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 improver. Whenever, in any country,
the proprietor, generally speaking, ceases to be the improver, political
economy has nothing to say in defense of landed property, as there
established.
When the “sacredness of property” is talked of, it should always be
remembered that any such sacredness does not belong in the same degree to
landed property. No man made the land. It is the original inheritance of
the whole species. Its appropriation is wholly a question of general
expediency. When private property in land is not expedient, it is unjust.
The reverse is the case with property in movables, and in all things the
product of labor: over these, the owner’s power both of use and of
exclusion should be absolute, 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 can not be shown to be productive of
positive good. To be allowed any exclusive 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 movable goods which a person can
acquire by his labor prevents others from acquiring the like by the same
means; but, from the very nature of the case, whoever owns land keeps
others out of the enjoyment of it. When land is not intended to be
cultivated, no good reason can in general be given for its being private
property at all. 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.
Chapter II. Of Wages.
§ 1. Of Competition and Custom.
Political economists generally, and English political economists above
others, have been accustomed to lay almost exclusive stress upon the first
of [two] agencies [competition and custom]; 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 competition 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 regulator, 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
science, political economy can not be required to do, and indeed can not
do, anything more. But it would be a great misconception of the actual
course of human affairs to suppose that competition exercises in fact this
unlimited sway. I am not speaking of monopolies, either natural or
artificial, or of any interferences of authority with the liberty of
production or exchange. Such disturbing causes have always been allowed
for by political economists. I speak of cases in which there is nothing to
restrain competition; no hindrance to it either in the nature of the case
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.
As stated by Mr. Cairnes,(161) political economy is a science just
as is any recognized physical science—astronomy, chemistry,
physiology. The economic “facts we find existing are the results
of causes, between which and them the connection is constant and
invariable. It is, then, the constant relations exhibited in
economic phenomena that we have in view when we speak of the laws
of the phenomena of wealth; and in the exposition of these laws
consists the science of political economy.” It is to be remembered
that economic laws are _tendencies_, not actual descriptions of
any given conditions in this or that place.
Competition, in fact, has only become in any considerable degree the
governing principle of contracts, at a comparatively modern period. The
further we look back into history, the more we see all transactions and
engagements under the influence of fixed customs. The relations, more
especially between the land-owner and the cultivator, and the payments
made by the latter to the former, are, in all states of society but the
most modern, determined by the usage of the country. The custom of the
country is the universal rule; nobody thinks of raising or lowering rents,
or of letting land, on other than the customary conditions. Competition,
as a regulator of rent, has no existence.
Prices, whenever there was no monopoly, came earlier under the influence
of competition, and are much more universally subject to it, than rents.
The wholesale trade, in the great articles of commerce, is really under
the dominion of competition. But retail 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. The influence of competition is making itself
felt more and more through the principal branches of retail trade in the
large towns.
All professional remuneration is regulated by custom. The fees of
physicians, surgeons, and barristers, the charges of attorneys, are nearly
invariable. Not certainly for want of abundant competition in those
professions, but because the competition operates by diminishing each
competitor’s chance of fees, not by lowering the fees themselves.
These observations must be received 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 and natural effects of
competition were actually 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 ought, in applying the
conclusions of political economy to the 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 competition falls short of the
maximum.
§ 2. The Wages-fund, and the Objections to it Considered.
Under the head of Wages are to be considered, first, the causes which
determine or influence the wages of labor generally, and secondly, the
differences that exist between the wages of different employments. It is
convenient to keep these two classes of considerations separate; and in
discussing the law of wages, to proceed in the first instance as if there
were no other kind of labor than common unskilled labor, of the average
degree of hardness and disagreeableness.
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 labor; or, as it
is often expressed, on the proportion between population and capital. By
population is here meant the number only of the laboring-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
purchase of labor. To this, however, must be added all funds which,
without forming a part of capital, are paid in exchange for labor, such as
the wages of soldiers, domestic servants, and all other unproductive
laborers. There is unfortunately no mode of expressing, by one familiar
term, the aggregate of what may be called the wages-fund of a country:
and, as the wages of productive labor 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 convenient to
employ this expression, remembering, however, to consider it as
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 can not, under the rule of
competition, be affected by anything else. Wages (meaning, of course, the
general rate) can not rise, but by an increase of the aggregate funds
employed in hiring laborers, or a diminution in the number of the
competitors for hire; nor fall, except either by a diminution of the funds
devoted to paying labor, or by an increase in the number of laborers to be
paid.
[Illustration: Pie chart of Fixed Capital, Raw Materials, and
Wages Fund.]
This is the simple statement of the well-known Wages-Fund Theory,
which has given rise to no little animated discussion. Few
economists now assent to this doctrine when stated as above, and
without changes. The first attack on this explanation of the rate
of wages came from what is now a very scarce pamphlet, written by
F. D. Longe, entitled “A Refutation of the Wage-Fund Theory of
Modern Political Economy” (1866). Because laborers do not really
compete with each other, he regarded the idea of average wages as
absurd as the idea of an average price of ships and cloth; he
declared that there was no predetermined wages-fund necessarily
expended on labor; and that “demand for commodities” determined
the amount of wealth devoted to paying wages (p. 46). While the
so-called wages-fund limits the total amount which the laborers
_can_ receive, the employer would try to get his workmen at as
much less than that amount as possible, so that the aggregate fund
would have no bearing on the actual amount paid in wages. The
quantity of work to be done, he asserts, determines the quantity
of labor to be employed. About the same time (but unknown to Mr.
Longe), W. T. Thornton was studying the same subject, and
attracted considerable attention by his publication, “On Labor”
(1868), which in Book II, Chap. I, contained an extended argument
to show that demand and supply (i.e., the proportion between
wages-fund and laborers) did not regulate wages, and denied the
existence of a predetermined wages-fund fixed in amount. His
attack, however, assumes a very different conception of an
economic law from that which we think right to insist upon. The
character of mankind being what it is, it will be for their
interest to invest so much and no more in labor, and we must
believe that in this sense there is a predetermination of wealth
to be paid in wages. In order to make good investments, a certain
amount must, if capitalists follow their best interests, go to the
payment of labor.(162) Mr. Thornton’s argument attracted the more
attention because Mr. Mill(163) admitted that Mr. Thornton had
induced him to abandon his Wages-Fund Theory. The subject was,
however, taken up, re-examined by Mr. Cairnes,(164) and stated in
a truer form. (1.) The total wealth of a country (circle A in the
diagram) is the outside limit of its capital. How much capital
will be saved out of this depends upon the effective desire of
accumulation in the community (as set forth in Book I, Chap.
VIII). The size of circle B within circle A, therefore, depends on
the character of the people. The wages-fund, then, depends
ultimately on the extent of A, and proximately on the extent of B.
It can never be larger than B. So far, at least, its amount is
“predetermined” in the economic sense by general laws regarding
the accumulation of capital and the expectation of profit. Circle
B contracts and expands under influences which have nothing to do
with the immediate bargains between capitalists and laborers. (2.)
Another influence now comes in to affect the amount of capital
actually paid as wages, one also governed by general causes
outside the reach of laborer or capitalist, that is, the state of
the arts of production. In production, the particular conditions
of each industry will determine how much capital is to be set
apart for raw material, how much for machinery, buildings, and all
forms of fixed capital, and how many laborers will be assigned to
a given machine for a given amount of material. With some kinds of
hand-made goods the largest share of capital goes to wages, a less
amount for materials, and a very small proportion for machinery
and tools. In many branches of agriculture and small farming this
holds true. The converse, however, is true in many manufactures,
where machinery is largely used. No two industries will maintain
the same proportion between the three elements. The nature of the
industry, therefore, will determine whether a greater or a less
share of capital will be spent in wages. It is needless to say
that this condition of things is not one to be changed at the
demand of either of the two parties to production, Labor and
Capital; it responds only to the advance of mechanical science or
general intelligence. It is impossible, then, to escape the
conclusion that general causes restrict the amount which will,
under any normal investment, go to the payment of wages. Only
within the limits set by these forces can any further expansion or
contraction take place. (3.) Within these limits, of course, minor
changes may take place, so that the fund can not be said to be
“fixed” or “absolutely predetermined”; but these changes must take
place within such narrow limits that they do not much affect the
practical side of the question. How these changes act, may be seen
in a part of the following illustration of the above principles:
Suppose a cotton-mill established in one of the valleys of
Vermont, for the management of which the owner has $140,000 of
capital. Of this, $100,000 is given for buildings, machinery, and
plant. If he turns over his remaining capital ($40,000) each
month, we will suppose that $28,000 spent in raw materials will
keep five hundred men occupied at a monthly expenditure of
$12,000. The present state of cotton-manufacture itself settles
the relation between a given quantity of raw cotton and a certain
amount of machinery. A fixed amount of cotton, no more, no less,
can be spun by each spindle and woven by each loom; and the nature
of the process determines the number of laborers to each machine.
This proportion is something which an owner must obey, if he
expects to compete with other manufacturers: the relationship is
fixed for, not by, him. Now, each of the five hundred laborers
being supposed to receive on an average $1.00 a day, imagine an
influx of a body of French Canadians who offer to work, on an
average, for eighty cents a day.(165) The five hundred men will
now receive but $9,600 monthly instead of $12,000, as before, as a
wages-fund; the monthly payment for wages now is nearly seven per
cent, while formerly it was nearly nine per cent of the total
capital invested ($140,000). Thus it will be seen that the
wages-fund can change with a change in the supply of labor: but
the point to be noticed is that it is a change in the subdivision,
$12,000, of the total $140,000. That is, this alteration can take
place only within the limits set by the nature of the industry.
Now, if this $2,400 (i.e., $12,000 less $9,600) saved out of the
wages-fund were to be reinvested, it must necessarily be divided
between raw materials, fixed capital, and wages in the existing
relations, that is, only seven per cent of the new $2,400 would be
added to the wages-fund. It is worth while calling attention to
this, if for no other reason than to show that in this way a
change can be readily made in the wages-fund by natural movements;
and that no one can be so absurd as to say that it is absolutely
fixed in amount. But it certainly is “predetermined” in the
economic sense, in that any reinvestments, as well as former
funds, must necessarily be distributed according to the above
general principles, independent of the “higgling” in the labor
market. The following is Mr. Cairnes’s statement of the amount and
“predetermination” of the wages-fund:
“I believe that, in the existing state of the national wealth, the
character of Englishmen being what it is, a certain prospect of
profit will ‘determine’ a certain proportion of this wealth to
productive investment; that the amount thus ‘determined’ will
increase as the field for investment is extended, and that it will
not increase beyond what this field can find employment for at
that rate of profit which satisfies English commercial
expectation. Further, I believe that, investment thus taking
place, the form which it shall assume will be ‘determined’ by the
nature of the national industries—‘determined,’ not under acts of
Parliament, or in virtue of any physical law, but through the
influence of the investor’s interests; while this, the form of the
investment, will again ‘determine’ the proportion of the whole
capital which shall be paid as wages to laborers.”(166) In this
excellent and masterly conception, the doctrine of a wages-fund is
not open to the objections usually urged against it. Indeed, with
the exception of Professor Fawcett, scarcely any economist
believes in an absolutely fixed wages-fund. In this sense, then,
and in view of the above explanation, it will be understood what
is meant by saying that wages depend upon the proportion of the
wages-fund to the number of the wage-receivers.(167)
In applying these principles to the question of strikes, it is
evident enough that if they result in an actual expansion of the
whole circle B, by forcing saving from unproductive expenditure, a
real addition, of some extent, may be made to the wages-fund; but
only by increasing the total capital. If, however, they attempt to
increase one of the elements of capital, the wages-fund, without
also adding to the other elements, fixed capital and materials, in
the proportion fixed by the nature of the industry, they will
destroy all possibility of continuing that production in the
normal way, and the capitalist must withdraw from the enterprise.
Francis A. Walker(168) has also offered a solution of this problem
in his “Wages Question” (1876), in which he holds that “wages are,
in a philosophical view of the subject, paid out of the product of
present industry, and hence that production furnishes the true
measure of wages” (p. 128). “It is the prospect of a profit in
production which determines the employer to hire laborers; it is
the anticipated value of the product which determines how much he
can pay him” (p. 144). No doubt wages _can_ be (and often are)
paid out of the current product; but _what_ amount? What is the
principle of distribution? Wherever the incoming product is a
moral certainty (and, unless this is true, in no case could wages
be paid out of the future product), saving is as effective upon it
as upon the actual accumulations of the past; and the amount of
the coming product which will be saved and used as capital is
determined by the same principles which govern the saving of past
products. An increase of circle A by a larger production makes
possible an increase of circle B, but whether it will be enlarged
or not depends on the principle of accumulation. The larger the
total production of wealth, the greater the _possible_ wages, all
must admit; but it does not seem clear that General Walker has
given us a solution of the real question at issue. The larger the
house you build, the larger the rooms may be; but it does not
follow that the rooms will be necessarily large—as any inmate of a
summer hotel will testify.
§ 3. Examination of some popular Opinions respecting Wages.
There are, however, some facts in apparent contradiction to this [the
Wages-Fund] doctrine, which it is incumbent on us to consider and explain.
1. For instance, it is a common saying that wages are high when trade is
good. The demand for labor in any particular employment is more pressing,
and higher wages are paid, when there is a brisk demand for the commodity
produced; and the contrary when there is what is called a stagnation: then
work-people are dismissed, and those who are retained must submit 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.
Capital which the owner does not employ in purchasing labor, but keeps
idle in his hands, is the same thing to the laborers, 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 laborers in increasing a stock which he
finds it difficult to dispose of; or if he goes on until all his capital
is locked up in unsold goods, then at least he must of necessity pause
until he can get paid for some of them. But no one expects either of these
states to be permanent; if he did, he would at the first opportunity
remove his capital to some other occupation, in which it would still
continue to employ labor. The capital remains unemployed for a time,
during which the labor market is overstocked, and wages fall. Afterward
the demand revives, and perhaps becomes unusually brisk, enabling the
manufacturer to sell his commodity even faster than he can produce it; his
whole capital is then brought into complete efficiency, and, if he is
able, he borrows capital in addition, which would otherwise have gone into
some other employment. 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 demand will in its turn be locked
up in crowded warehouses; and wages in these several departments will ebb
and flow accordingly: but nothing can permanently 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 payment of labor)
compared with the quantity of labor offering itself to be hired.
2. 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 laborers. I have already said that a brisk demand, which
causes temporary high prices, causes also temporary high wages. But high
prices, in themselves, can only raise wages if the dealers, receiving
more, are induced to save more, and make an addition to their capital, or
at least to their purchases of labor. 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 overlooked, 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 employments, and there counterbalance the diminution
previously made in the demand for labor by the diminished savings of other
classes.
A clear distinction must be made between real wages and money
wages; the former is of importance to the laborer as being his
real receipts. The quantity of commodities satisfying his desires
which the laborer receives for his exertion constitutes his real
wages. The mere amount of money he receives for his exertions,
irrespective of what the money will exchange for, forms his money
wages. Since the functions of money have not yet been explained,
it is difficult to discuss the relation between prices and money
wages here. But, as the total value of the products in a certain
industry is the sum out of which both money wages and profits are
paid, this total will rise or fall (efficiency of labor remaining
the same) with the price of the particular article. If the price
rises, profits will be greater than elsewhere, and more capital
will be invested in that one business; that is, the capital will
be a demand for more labor, and, until equalization is
accomplished in all trades between wages and profits, money wages
will be higher in some trades than in others.(169)
When reference is had to the connection between real wages and
prices, the question is a different one. General high prices would
not change general _real wages_. But if high prices cause higher
money wages in particular branches of trade, then, because the
movement is not general, there will accrue, to those receiving
more money, the means to buy more of real wages. And, as in
practice, changes in prices which arise from an increased demand
are partial, and not general, it often happens that high prices
produce high real wages (not general high wages) in some, not in
all employments. (For a further study of this relation between
prices and wages the reader is advised to recall this discussion
in connection with that in a later part of the volume, Book III,
Chaps. XX and XXI.)
3. 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 labor: since the price of food, when it
affects wages at all, affects them through that law. 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
tendency 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 labor market against themselves. But dearness or cheapness
of food, when of a permanent character, and capable of being calculated on
beforehand, may affect wages. (1.) In the first place, if the laborers
have, as is often 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 remained cheap. (2.) But, secondly, even
though wages were high enough to admit of food’s becoming more costly
without depriving the laborers and their families of necessaries; though
they could bear, physically speaking, to be worse off, perhaps 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 additional
restraint on their power of multiplication; so that wages would rise, not
by increase of deaths but by diminution of births. In these cases, then,
wages do adapt themselves to the price of food, though after an interval
of almost a generation.(170) If wages were previously so high that they
could bear reduction, to which the obstacle was a high standard of comfort
habitual among the laborers, a rise of the price of food, or any other
disadvantageous change in their circumstances, may operate in two ways:
(_a_) it may correct itself by a rise of wages, brought about through a
gradual effect on the prudential check to population; or (_b_) it may
permanently lower the standard of living of the class, in case their
previous habits in respect of population prove stronger than their
previous 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 (_b_) is the most frequent, or at all events
sufficiently so to render all propositions, ascribing a self-repairing
quality to the calamities which befall the laboring-classes, practically
of no validity.
The converse case occurs when, by improvements in agriculture, the repeal
of corn laws, or other such causes, the necessaries of the laborers are
cheapened, and they are enabled with the same [money] 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 laborers no better off than before, unless during this interval of
prosperity the standard of comfort regarded as indispensable by the class
is permanently raised. Unfortunately 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 laborers will consider as more
indispensable than marrying and having a family. According to all
experience, a great increase invariably takes place in the number of
marriages in seasons of cheap food and full employment.
This is to be seen by some brief statistics of marriages in
Vermont and Massachusetts.
Year. Vermont Massachusetts
1860 2,179 12,404
1861 2,188 10,972
1862 1,962 11,014
1863 2,007 10,873
1864 1,804 12,513
1865 2,569 13,052
1866 3,001 14,428
1867 2,857 14,451
In Vermont, while the average number of marriages was reached in
1860 and 1861, it fell off on the breaking out of the war; rose in
1863, under the fair progress of the Northern arms; again fell off
in 1864, during the period of discouragement; and since 1865 has
kept a steadily higher average. In manufacturing Massachusetts the
number fell earlier than in agricultural Vermont, at the beginning
of the difficulties.
1856, July to Jan. 6,418
1857, Jan. to July 5,803
1857, July to Jan. 5,936
1858, Jan. to July 4,917
1858, July to Jan. 5,610
The effects of the financial panic of 1857, in Massachusetts, show
a similar movement in the number of marriages. The crisis came in
October, 1857. In the three months following that date there were
400 less marriages.
To produce permanent advantage, the temporary cause operating upon them
must be sufficient to make a great change in their condition—a change such
as will be 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.
§ 4. Certain rare Circumstances excepted, High Wages imply Restraints on
Population.
Wages depend, then, on the proportion between the number of the laboring
population and the capital or other funds devoted to the purchase of
labor; 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 laborers 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 production that is of importance to the
laboring-class; it is not the amount even of the funds destined for
distribution among the laborers; it is the proportion between those funds
and the numbers among whom they are shared. The condition of the class can
be bettered 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 purposes, 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
accumulation coexist 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 impracticability of obtaining
laborers enough. All, therefore, who can possibly be born can find
employment without overstocking the market: every laboring family enjoys
in abundance 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 need not, exist. [In
England] 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 geographical circumstances and the habits or inclinations of
the people rendered available; and while the demand it created for infant
labor has enlisted the immediate pecuniary interest of the operatives in
favor of promoting, instead of restraining, the increase of population;
nevertheless wages in the great seats of the manufacture are still 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 decrease, while
the effect has also been felt in raising the general standard of
agricultural wages in the counties adjoining.
But those circumstances of a country, or of an occupation, in which
population can with impunity increase at its utmost rate, are rare and
transitory. Very few are the countries presenting the needful union of
conditions. Either the industrial arts are backward and stationary, and
capital therefore increases 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 land to be resorted to
of as good quality as that already occupied. Though capital should for a
time double itself simultaneously with population, if all this capital and
population are to find employment on the same land, they can not, without
an unexampled succession of agricultural inventions, continue doubling the
produce; therefore, if wages do not fall, profits must; and, when profits
fall, increase of capital is slackened.
Except, therefore, in the very peculiar 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. In
no old country does population increase at anything 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 retardation of increase results either from mortality or
prudence; from Mr. Malthus’s positive, or from his preventive check: and
one or the other of these must and does exist, and very powerfully too, in
all old societies. Wherever population is not kept down by the prudence
either of individuals or of the state, it is kept down by starvation or
disease.
§ 5. Due Restriction of Population the only Safeguard of a Laboring-Class.
Where a laboring-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
molds their conduct, or affords immediate inducements not to marry. It is
not generally known in how many countries of Europe direct legal obstacles
are opposed to improvident marriages.
Where there is no general law restrictive of marriage, there are often
customs equivalent to it. When the guilds or trade corporations of the
middle ages were in vigor, their by-laws or regulations were conceived
with a very vigilant eye to the advantage which the trade derived from
limiting competition; and they made it very effectually the interest of
artisans not to marry until after passing through the two stages of
apprentice and journeyman, and attaining the rank of master.
Unhappily, sentimentality rather than common sense usually presides over
the discussions of these subjects. Discussions on the condition of the
laborers, lamentations over its wretchedness, denunciations of all who are
supposed to be indifferent 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!
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 principle of population. Some, for instance, have achieved an
easy victory over a passing remark of Mr. Malthus, hazarded chiefly by way
of illustration, that the increase of food may perhaps be assumed to take
place in an arithmetical ratio, while population increases 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, and every person capable of reasoning must see that it
is wholly superfluous to his argument. Others have attached immense
importance to a correction which more recent political economists have
made in the mere language of the earlier followers of Mr. Malthus. Several
writers had 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 subsistence, if it were
not checked either by mortality or by prudence. But inasmuch as these
checks act with unequal 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 civilization
advances, the prudential check tends to become stronger, and population to
slacken its rate of increase, relatively to subsistence; and that it is an
error to maintain that population, in any improving community, tends to
increase faster than, or even so fast as, subsistence.(171) The word
tendency(172) is here used in a totally different sense from that of the
writers who affirmed the proposition; but waiving the verbal question, is
it not allowed, on both sides, that in old countries population presses
too closely upon the means of subsistence?
Chapter III. Of Remedies For Low Wages.
§ 1. A Legal or Customary Minimum of Wages, with a Guarantee of
Employment.
The simplest expedient which can be imagined for keeping the wages of
labor 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 remodeling the relation
between laborers and employers. No one, probably, 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
England have been called local boards of trade, in France “conseils de
prud’hommes,” and other names; consisting of delegates from the
work-people 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 labor market, but natural equity; to provide that the
workmen shall have _reasonable_ wages, and the capitalist reasonable
profits.
The one expedient most suggested by politicians and
labor-reformers in the United States is an eight-hour law,
mandatory upon all employers. It is to be remembered, however,
that in very many industries piece-work exists, and if a
diminution of hours is enforced, that will mean a serious
reduction in the amount of wages which can be possibly earned in a
day. Even if all industries were alike in the matter of arranging
their work, this plan means higher wages for the same work, or the
same wages for less work, and so an increased cost of labor. This
would, then, take its effect on profits at once; and the effects
would be probably seen in a withdrawal of capital from many
industries, where, as now, the profits are very low. It must be
recalled, however, that in the United States there has been, under
the influence of natural causes, unaided by legislation, a very
marked reduction in the hours of labor, accompanied by an increase
of wages. For example, in 1840, Rhode Island operatives in the
carding-room of the cotton-mills worked fourteen hours a day for
$3.28 a week, while in 1884 they work eleven hours and receive
$5.40 a week. This result is most probably due to the gain arising
from the invention of labor-saving machinery.
Others again (but these are rather philanthropists interesting themselves
for the laboring-classes, than the laboring people themselves) are shy of
admitting the interference of authority in contracts for labor: 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 differences instead of healing
them; but what it is useless to attempt by the legal sanction, these
persons desire to compass by the moral. Every employer, they think,
_ought_ to give _sufficient_ wages; and if he does it not willingly,
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
opinion on the subject.
I desire to confine my remarks to the principle involved in all these
suggestions, without taking into account 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 which they
would be brought by competition. This is as much as to say, above the
highest rate which can be afforded by the existing capital consistently
with employing all the laborers. 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 laborers unemployed, these, unless
maintained by charity, become competitors for hire, and wages fall; but
when all who were out of work have found employment, wages will not, under
the freest system of competition, fall lower. There are strange notions
afloat concerning 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 laborers 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 laborers to a share in the
distribution of the wages-fund. If they fell below this point, a portion
of capital would remain unemployed for want of laborers; a
counter-competition would commence on the side of capitalists, and wages
would rise.
The assumption in the last chapter in regard to competition and
custom should be kept in mind in all this reasoning. As a matter
of fact, there is not that mobility of labor which insures so free
an operation of competition that equality of payment always
exists. In reality there is no competition at all between the
lower grades of laborers and the higher classes of skilled labor.
Of course, the _tendency_ is as explained by Mr. Mill, and as time
goes on there is a distinctly greater mobility of labor visible.
Vast numbers pass from Scandinavia and other countries of Europe
to the United States, or from England to Australia, urged by the
desire to go from a community of low to one of higher wages.
Since, therefore, the rate of wages which results from competition
distributes the whole wages-fund among the whole laboring population, if
law or opinion succeeds in fixing wages above this rate, some laborers are
kept out of employment; and as it is not the intention of the
philanthropists that these should starve, they must be provided for by a
forced increase of the wages-fund—by a compulsory saving. It is nothing to
fix a minimum of wages unless there be 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
employment for all the poor. If the moral influence of opinion does not
induce the rich to spare from their consumption enough to set all the poor
at 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 labor and the wages-fund would thus be
modified to the advantage of the laborers, not by restriction of
population, but by an increase of capital.
§ 2. —Would Require as a Condition Legal Measures for Repression of
Population.
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 ample 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 labor; and if
society, that is, if the laborers, lend their physical force to protect
individuals 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 which 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 existence.
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 acknowledged and acted upon, would suspend all checks, both
positive and preventive; there would be nothing to hinder population from
starting forward 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 deficiency, must advance with the same gigantic
strides. But let them work ever so efficiently, the increasing population
could not, as we have so often shown, increase the produce proportionally;
the surplus, after all were fed, would bear a less and less proportion 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
diminishing 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.
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. To give profusely to the
people, whether under the name of charity or of employment, without
placing them under such influences that prudential motives shall act
powerfully upon them, is to lavish the means of benefiting mankind without
attaining the object. But remove the regulation of their wages from their
own control; guarantee to them a certain payment, either by law or by the
feeding 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.
The famous poor-laws of Elizabeth, enacted in 1601, were at first
intended to relieve the destitute poor, sick, aged, and impotent,
but in their administration a share was given to all who _begged_
it. Employers, of course, found it cheaper to hire labor partly
paid for by the parish, and the independent farm-laborer who would
not go on the parish found his own wages lowered by this kind of
competition. This continued a crying evil until it reached the
proportions described by May: “As the cost of pauperism, thus
encouraged, was increasing, the poorer rate-payers were themselves
reduced to poverty. The soil was ill-cultivated by pauper labor,
and its rental consumed by parish rates. In a period of fifty
years, the poor-rates were quadrupled, and had reached, in 1833,
the enormous amount of £8,600,000. In many parishes they were
approaching the annual value of the land itself.”(173) The old
poor-laws were repealed, and there went into effect in 1834 the
workhouse system, which, while not denying subsistence to all
those born, required that the giving of aid should be made as
disagreeable as possible, in order to stimulate among the poor a
feeling of repugnance to all aid from the community. This is also
the general idea of poor-relief in the United States.
The cultivation of the principle of self-help in each laborer is
certainly the right object at which to aim. In the United States
voluntary charitable organizations have associated together, in
some cities, in order to scrutinize all cases of poverty through a
number of visitors in each district, who advise and counsel the
unfortunate, but never give money. This system has been very
successful, and, by basing its operations on the principle of
self-help, has given the best proof of its right to an increasing
influence.
§ 3. Allowances in Aid of Wages and the Standard of Living.
Next to the attempts to regulate wages, and provide artificially that all
who are willing to work shall receive an adequate price for their labor,
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
insufficient, endeavor by some subsidiary resource to make up to the
laborers for the insufficiency. Of this nature was the allowance system.
The principle of this scheme being avowedly that of adapting the means of
every family to its necessities, it was a natural 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. It is obvious that this is merely another
mode of fixing a minimum of wages.
There is a rate of wages, either the lowest on which the people can, or
the lowest on which they will consent, to live. We will suppose this to be
seven shillings a week. Shocked at the wretchedness of this pittance, the
parish authorities humanely make it up to ten. But the laborers 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. Receiving 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
unemployed laborers enough in the workhouse to produce the effect at once.
It is well known that the allowance 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.
The operation of a low standard upon the wages of those in the
community who have a higher one, has been seen in the United
States to a certain extent by the landing on our shores of Chinese
laborers, who maintain a decidedly lower standard of living than
either their American or Irish competitors. If they come in such
numbers as to retain their lower standard by forming a group by
themselves, and are thereby not assimilated into the body of
laborers who have a higher standard of comfort, they can, to the
extent of their ability to do work, drive other laborers out of
employment. This, moreover, is exactly what was done by the Irish,
who drove Americans out of the mills of New England, and who are
now being driven out, probably, by the French Canadians, with a
standard lower than the Irish. The Chinese come here now without
their families, as may be seen by the accompanying diagram, in
which the shaded side represents the males on the left, and the
unshaded the females on the right, of the perpendicular line.
Decade. Males. Females.
1 6 4
2 106 12
3 351 37
4 283 15
5 139 3
6 32 1
7 10 0
8 1 0
9 0 0
The horizontal lines show the ages, the largest number being about
thirty years of age. It will be noted how many come in the prime
of life, and how few children and females there are.
It need hardly be said that the economic side of a question is
here discussed, which requires for its solution many ethical and
political considerations besides.
§ 4. Grounds for Expecting Improvement in Public Opinion on the Subject of
Population.
By what means, then, is poverty to be contended against? How is the evil
of low wages to be remedied? If the expedients usually recommended for the
purpose are not adapted to it, can no others be thought of? Is the problem
incapable of solution? Can political economy do nothing, but only object
to everything, and demonstrate that nothing can be done? Those who think
it hopeless that the laboring-classes should be induced to practice a
sufficient degree of prudence in regard to the increase of their families,
because they have hitherto stopped 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 desirable.
But let us try to imagine what would happen if the idea became general
among the laboring-class that the competition of too great numbers was the
principal cause of their poverty. We are often told that the most thorough
perception of the dependence of wages on population will not influence the
conduct of a laboring-man, because it is not the children he himself can
have that will produce any effect in generally depressing the labor
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 disgrace which naturally and
inevitably attends on conduct by any one individual 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.
If the opinion were once generally established among the laboring-class
that their welfare required a due regulation of the numbers of families,
the respectable and well-conducted of the body would conform to the
prescription, and only those would exempt themselves from it who were in
the habit of making light of social obligations generally; and there would
be then an evident justification for converting the moral obligation
against bringing children into the world, who are a burden to the
community, into a legal one; just as in many other cases of the progress
of opinion, the law ends by enforcing against recalcitrant 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.
The dependence of wages on the number of the competitors for employment is
so far from hard of comprehension, or unintelligible to the
laboring-classes, that by great bodies of them it is already recognized
and habitually acted on. It is familiar to all trades-unions: every
successful combination to keep up wages owes its success to contrivances
for restricting the number of competitors; all skilled trades are anxious
to keep down their own numbers, and many impose, or endeavor to impose, as
a condition upon employers, that they shall not take more than a
prescribed number of apprentices. There is, of course, a great difference
between limiting their numbers 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 application 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
artisans are a more intelligent class than ordinary manual laborers; 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.
§ 5. Twofold means of Elevating the Habits of the Laboring-People; by
Education, and by Foreign and Home Colonization.
For the purpose, therefore, of altering the habits of the laboring people,
there is need of a twofold action, directed simultaneously upon their
intelligence and their poverty. An effective national education of the
children of the laboring-class is the first thing needful; and,
coincidently with this, a system of measures which shall (as the
Revolution did in France) extinguish extreme poverty for one whole
generation. Without entering into disputable points, it may be asserted
without scruple that the aim of all intellectual training for the mass of
the people should be to cultivate common sense; to qualify them for
forming a sound practical judgment of the circumstances by which they are
surrounded. [But] education is not compatible with extreme poverty. It is
impossible effectually to teach an indigent population. Toward 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 incentive to industry, and every motive to
forethought.
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. It has
been shown by others that colonization 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 labor, but
from that surplus which can not find employment at such profit as
constitutes an adequate remuneration for the abstinence of the possessor,
and which is therefore sent abroad for investment, or wasted at home in
reckless speculations.
The second resource would be to devote all common land, hereafter brought
into cultivation, to raising a class of small proprietors. What I would
propose is, that common land should be divided into sections of five acres
or thereabout, to be conferred in absolute property on individuals of the
laboring-class who would reclaim and bring them into cultivation by their
own labor.
This suggestion works to the same purpose as the proposal that our
Government should retain its public lands and aid in the formation
of a great number of small farmers, rather than, by huge grants,
to foster large holdings in the Western States and
Territories.(174)
The preference should be given to such laborers, 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 quitrent,
with power to the peasant to redeem it at any time for a moderate number
of years’ purchase. These little landed estates might, if it were thought
necessary, be indivisible by law; though, if the plan worked in the manner
designed, I should not apprehend any objectionable degree of subdivision.
In case of intestacy, and in default of amicable arrangement among the
heirs, they might be bought by government at their value, and re-granted
to some other laborer who could give security for the price. The desire to
possess one of these small properties would probably become, as on the
Continent, an inducement to prudence and economy pervading the whole
laboring population; and that great desideratum among a people of hired
laborers would be provided, an intermediate class between them and their
employers; affording them the double advantage of an object for their
hopes, and, as there would be good reason to anticipate, an example for
their imitation.
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 laborers remaining 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 comfort and independence to which they have hitherto been
strangers.
Chapter IV. Of The Differences Of Wages In Different Employments.
§ 1. Differences of Wages Arising from Different Degrees of Attractiveness
in Different Employments.
In treating of wages, we have hitherto confined ourselves to the causes
which operate on them generally, and _en masse_; the laws which govern the
remuneration of ordinary or average labor, without reference to the
existence of different kinds of work which are habitually paid at
different rates, depending in some degree on different laws. We will now
take into consideration these differences, and examine in what manner they
affect or are affected by the conclusions already established.
The differences, says [Adam Smith], arise partly “from certain
circumstances in the employments themselves, which either really, or at
least in the imaginations of men, make up for a small pecuniary gain in
some, and counterbalance a great one in others.” These circumstances he
considers to be: “First, the agreeableness or disagreeableness of the
employments themselves; secondly, the easiness and cheapness, or the
difficulty and expense of learning them; thirdly, the constancy 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.”
(1.) “The wages of labor vary with the ease or hardship, the cleanliness
or dirtiness, the honorableness or dishonorableness of the employment. A
journeyman blacksmith, though an artificer, seldom earns so much in twelve
hours as a collier, who is only a laborer, does in eight. His work is not
quite so dirty, is less dangerous, and is carried on in daylight and above
ground. Honor makes a great part of the reward of all honorable
professions. In point of pecuniary gain, all things considered,” their
recompense is, in his opinion, 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 the
public executioner, is, in proportion to the quantity of work done, better
paid than any common trade whatever.”
(2.) “Employment is much more constant,” continues Adam Smith, “in some
trades than in others. In the greater part of manufactures, a journeyman
may be pretty sure of employment almost every day in the year that he is
able to work. A mason or brick-layer, 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
consequence, 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 sometimes occasion.”
“When (1) the inconstancy of the employment is combined with (2) the
hardship, disagreeableness, and dirtiness of the work, it sometimes raises
the wages of the most common labor above those of the most skillful
artificers. A collier working by the piece is supposed, at Newcastle, to
earn commonly about double, and in many parts of Scotland about three
times, the wages of common labor. His high wages arise altogether from the
hardship, disagreeableness, and dirtiness of his work. His employment may,
upon most occasions, be as constant as he pleases. The coal-heavers in
London exercise a trade which in hardship, dirtiness, and disagreeableness
almost equals that of colliers; and from the unavoidable irregularity in
the arrivals of coal-ships, the employment of the greater part of them is
necessarily very inconstant. If colliers, therefore, commonly earn double
and triple the wages of common labor, 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 labor in London.”
These inequalities of remuneration, which are supposed to compensate for
the disagreeable circumstances of particular employments, would, under
certain conditions, be natural consequences 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,
realized in practice.
But it is altogether a false view of the state of facts to present this as
the relation which generally exists between agreeable and disagreeable
employments. The really exhausting and the really repulsive labors,
instead of being better paid than others, are almost invariably paid the
worst of all, because performed by those who have no choice. If the
laborers in the aggregate, instead of exceeding, fell short of the amount
of employment, work which was generally disliked would not be undertaken,
except for more than ordinary wages. But when the supply of labor so far
exceeds the demand that to find employment at all is an uncertainty, and
to be offered it on any terms a favor, the case is totally the reverse.
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 labor.
(3.) 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. Put your son apprentice to a shoemaker, there
is little doubt of his learning to make a pair of shoes; but send him to
study the law, it is at least twenty to one if ever he makes such
proficiency as will enable him to live by the business. 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. How extravagant soever the fees of counselors-at-law
may sometimes appear, their real retribution is never equal to this.
§ 2. Differences arising from Natural Monopolies.
The preceding are cases in which inequality of remuneration is necessary
to produce equality of attractiveness, and are examples of the equalizing
effect of free competition. The following are cases of real inequality,
and arise from a different principle.
(4.) “The wages of labor vary according to the small or great trust which
must be reposed in the workmen. The wages of goldsmiths and jewelers 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 are intrusted.” The superiority of reward is not here the
consequence of competition, but of its absence: not a compensation for
disadvantages inherent in the employment, but an extra advantage; a kind
of monopoly price, the effect not of a legal, but of what has been termed
a natural monopoly. If all laborers 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 same explanation of a natural monopoly applies exactly to the
causes which give able executive managers, who watch over
productive operations, the usually high rewards for labor under
the name of “wages of superintendence.” If successful managers of
cotton or woolen mills were as plentiful, in proportion to the
demand for them, as ordinary artisans, in proportion to the demand
for them, then the former would get no higher rewards than the
latter. Able executive and business managers secure high wages
solely on the ground—as explained above—of monopoly; that is,
because their numbers, owing to natural causes, are few relatively
to the demand for them in every industry in the land.
(5.) Some employments require a much longer time to learn, and a much more
expensive course of instruction, than others; and to this extent there is,
as explained by Adam Smith, an inherent reason for their being more highly
remunerated. Wages, consequently, must yield, over and above the ordinary
amount, an annuity sufficient to repay these sums, with the common rate of
profit, within the number of years [the laborer] can expect to live and be
in working condition.
But, independently of these or any other artificial monopolies, there is a
natural monopoly in favor of skilled laborers against the unskilled, which
makes the difference of reward exceed, sometimes in a manifold proportion,
what is sufficient merely to equalize their advantages. But the fact that
a course of instruction is required, of even a low degree of costliness,
or that the laborer must be maintained for a considerable time from other
sources, suffices everywhere to exclude the great body of the laboring
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.
Here is found the germ of the idea, which has been elaborately
worked out by Mr. Cairnes(175) in his theory of non-competing
groups of laborers: “What we find, in effect, is not a whole
population competing indiscriminately for all occupations, but a
series of industrial layers superposed on one another, within each
of which the various candidates for employment possess a real and
effective power of selection, while those occupying the several
strata are, for all purposes of effective competition, practically
isolated from each other.” (Mr. Mill certainly understood this
fully, and stated it clearly again in Book III, Chap. II, § 2.)
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 immediately below it. The general relaxation 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, tend to produce, among many excellent effects, one which is
the reverse: they tend to bring down the wages of skilled labor.
§ 3. Effect on Wages of the Competition of Persons having other Means of
Support.
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 labor,
and especially of any labor which requires school education, are at a
monopoly rate, from the impossibility, to the mass of the people, of
obtaining that education, 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 advantages
by paying their price.
[Adam Smith has pointed out that] “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 laborers to the degree that
was intended, because 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 receiving more, on account of the contrary competition
of those who expected to derive either profit or pleasure from employing
them.”
Although the highest pecuniary prizes of successful 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 magazines and
reviews becomes daily more difficult. It is only the more troublesome and
disagreeable kinds of literary labor, and those which confer no personal
celebrity, such as most of those connected with newspapers, or with the
smaller periodicals, on which an educated person can now rely for
subsistence. 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.
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 labor in other
employments. The principal example of the kind is domestic manufactures.
When spinning and knitting were carried 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 their labor)
was often so low that there would have been required great perfection of
machinery to undersell it. The amount of the remuneration in such a case
depends chiefly upon whether the quantity of the commodity produced by
this description of labor suffices to supply the whole of the demand. If
it does not, and there is consequently a necessity for some laborers who
devote themselves entirely to the employment, the price of the article
must be sufficient to pay those laborers at the ordinary rate, and to
reward, therefore, very handsomely the domestic producers. But if the
demand is so limited that the domestic manufacture can do more than
satisfy it, the price is naturally kept down to the lowest rate at which
peasant families think it worth while to continue the production. Thus
far, as to the remuneration of the subsidiary employment; but the effect
to the laborers of having this additional resource is almost certain to be
(unless peculiar counteracting causes intervene) a proportional diminution
of the wages of their main occupation.
For the same reason it is found that, _cæteris paribus_, those trades are
generally the worst paid in which the wife and children of the artisan aid
in the work. The income which the habits of the class demand, and down to
which they are almost sure to multiply, is made up in those trades by the
earnings of the whole family, while in others the same income must be
obtained by the labor 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 trades, because the prudential restraint on marriage is
unusually weak when the only consequence immediately felt is an
improvement of circumstances, the joint earnings of the two going further
in their domestic economy after marriage than before.
This statement seems to be borne out by the statistics of
wages(176) both in England and the United States. In our
cotton-mills, where women do certain kinds of work equally well
with men, the wages of the men are lower than in outside
employments into which women can not enter.
Blacksmiths, per week: $16.74
Family of four: Drawers-in, cotton-mill—man, per week: $5.50
Family of four: Drawers-in, cotton-mill—woman, per week: $5.50
Family of four: Tenders, two boys: $4.50
Total: $15.50
In this case the family of four all together receive only about
the same as the wages of the single blacksmith alone.
§ 4. Wages of Women, why Lower than those of Men.
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
unequal, the only explanation that can be given is custom. But the
principal question relates 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, whose wages, speaking generally, are not
determined by competition, but are greatly in excess of the market value
of the labor, and in this excess, as in almost all things which are
regulated by custom, the male sex obtains by far the largest share. In the
occupations in which employers take full advantage of competition, the low
wages of women, as compared with the ordinary earnings of men, are a proof
that the employments are overstocked: that although so much smaller a
number of women than of men support themselves by wages, the occupations
which law and usage make accessible to them are comparatively so few that
the field of their employment is still more overcrowded.
Yet within the employments open to women, such as millinery and
dress-making, certain women are able to charge excessively high
prices for work, because, having obtained a reputation for
especial skill and taste, they can exact in the high prices of
their articles what is really their high wages. Within these
employments women are unable to earn a living not so much by the
lack of work, as by not bringing to their occupation that amount
of skill and those business qualities (owing, of course, to their
being brought up unaccustomed to business methods) which are
requisite for the success of any one, either man or woman.
It must be observed that, as matters 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 be equal to their
support, but need not be more than equal to it; the minimum, in their
case, is the pittance absolutely requisite for 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 laboring-man does not by general custom
contribute to his earnings, the man’s wages must be at least sufficient to
support himself, a wife, and a number of children adequate to keep up the
population, since, if it were less, the population would not be kept up.
§ 5. Differences of Wages Arising from Laws, Combinations, or Customs.
Thus far we have, throughout this discussion, proceeded on the supposition
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 labor. In some trades, however, and to some extent,
the combinations of workmen produce a similar effect. Those combinations
always fail to uphold wages at an artificial rate unless they also limit
the number of competitors. Putting aside the atrocities sometimes
committed by workmen in the way of personal outrage or intimidation, which
can not be too rigidly repressed, if the present state of the general
habits of the people were to remain forever unimproved, 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 as simply intrenching
round a particular spot against the inroads of over-population, and making
the wages of the class depend upon their own rate of increase, instead of
depending on that of a more reckless and improvident class than
themselves.
To conclude this subject, I must repeat an observation already made, that
there are kinds of labor 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.
Chapter V. Of Profits.
§ 1. Profits include Interest and Risk; but, correctly speaking, do not
include Wages of Superintendence.
Having treated of the laborer’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 expenses of production—who, from funds in his
possession, pays the wages of the laborers, or supports them during the
work; who supplies the requisite buildings, materials, and tools or
machinery; and to whom, by the usual terms of the contract, the produce
belongs, 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 [and skill]; 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 laborer are the remuneration of labor, so [a part of]
the profits of the capitalist are properly, according to Mr. Senior’s
well-chosen expression, the remuneration of abstinence. They are what he
gains by forbearing to consume his capital for his own uses, and allowing
it to be consumed by productive laborers for their uses. For this
forbearance he requires a recompense.
Of the gains, however, which the possession of a capital enables a person
to make, (1) 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 for the loan of it. This, which as everybody knows is called interest,
is all that a person is enabled to get by merely abstaining from the
immediate consumption of his capital, and allowing it to be used for
productive purposes by others. The remuneration which is obtained in any
country for mere abstinence is measured by the current rate of interest on
the best security; such security as precludes any appreciable chance of
losing the principal. What a person expects to gain, who superintends the
employment of his own capital, is always more, and generally much more,
than this. The rate of profit greatly exceeds the rate of interest. (2.)
The surplus is partly compensation for risk. By lending his capital on
unexceptionable security he runs little or no risk. But if he embarks in
business 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. (3.) He must
likewise be remunerated for the devotion of his time and labor. 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 person most interested (at least directly), in
the result. To exercise this control with efficiency, if the concern is
large and complicated, requires great assiduity, and often no ordinary
skill. This assiduity and skill must be remunerated.
The gross profits from capital, the gains returned to those who supply the
funds for production, must suffice for these three purposes; and the three
parts into which profit may be considered as resolving itself may be
described respectively as interest, insurance, and wages of
superintendence.
Inasmuch as risk is the cause affecting the rate of interest, it
would be much simpler to consider the whole reward for abstinence
as interest, the rate of which is affected by the risk; and to
carefully exclude from the profits of capital the payment for
“assiduity and skill,” which is distinctly wages of labor. The
“wages of superintendence,” as every one on a moment’s reflection
must admit, have no necessary connection whatever with the
possession of capital. The thing with which the laborer is
occupied does not give the reason for associating his wages with
the name of that thing; because a highly-qualified manager
supervises the operations of capital, it does not follow that he
has capital, or should be regarded as being paid for the
possession of capital. The man who shovels ashes is not paid wages
of ashes, any more than a man who superintends other people’s
capital is paid the reward of capital. The payment for services,
in the one case as in the other, depends upon the skill of the
manager, just as it does with an ordinary mechanic, rising or
falling with his fitness for the peculiar work. Skill as a manager
is the cause; the amount of the remuneration is the consequence.
If so, then the wages of superintendence have no logical
connection, in the economic sense, with capital as the thing which
determines the amount of its reward, any more than it affects the
wages of any and all labor. The payment for the use of capital,
simply as capital, may be seen by the amount which a widow who is
not engaged in active business receives from her property invested
as trust funds. Moreover, it is less and less true that the
manager of the operations of industry is necessarily the
capitalist. To see this, mark the executive managers (called
“treasurers” by custom) of cotton and woolen mills, who receive a
remuneration entirely distinct from any capital they may have
invested in the shares of the corporation; and the officials of
the great mutual insurance companies, who receive the wages of
managers, but for managing the capital of others. A large—by far
the largest—part of what is usually called profit, therefore,
should be treated as wages, and the forces which govern its amount
are the same as those affecting the amounts of all other kinds of
wages, such as are discussed in the preceding chapter. The
acknowledgment of this distinction is of extreme importance, and
affects, in a profound way, the whole question of distribution. To
include “wages of superintendence” in profits of capital is to
unnecessarily complicate one of the most serious economic
questions—namely, the relations of capital and labor.
§ 2. The Minimum of Profits; what produces Variations in the Amount of
Profits.
The lowest rate of profit that 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 implied 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
forbearing to consume it as is then and there a sufficient motive to him
to persist in his abstinence. How much will be required to form this
equivalent 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. Further, after covering
all losses, and remunerating the owner for forbearing to consume, there
must be something left to recompense the labor and skill of the person who
devotes his time to the business.
Such, then, is the minimum of profits: but that minimum is exceedingly
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 different states of society and
civilization, has been seen in a former chapter. There is a still wider
difference in the element which consists in compensation for risk.
The remuneration of capital in different employments, much more than the
remuneration of labor, varies according to the circumstances which render
one employment more attractive or more repulsive than another. The
profits, for example, of retail trade, in proportion to the capital
employed, exceed those of wholesale dealers or manufacturers, for this
reason among others, that there is less consideration attached to the
employment. 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
appear in the estimate of his profits, but is included in the replacement
of his capital.
The minimum of profits can not properly include wages of
superintendence, nor is it so included, practically, in Mr. Mill’s
discussions on the minimum of profits in a later part of this
volume. The operation of the various elements in changing the
amount of profits might be expressed as follows: As between
different countries and communities, who have a different
effective desire of accumulation, profits may vary with the
element of interest and risk; within the same district, where
interest is generally the same on the same security, profits may
vary with the risk attached to different industries; and, within
the same occupations, interest and risk being given, the wages of
superintendence may make a greater variation than either of the
other two causes—since a skillful manager may make a large return,
a poor one none at all. Or between two employments, interest and
risk remaining the same, wages of superintendence sometimes
produce a wide difference.
The portion, too, of the gross profit, which forms the remuneration for
the labor and skill of the dealer or producer, is very different in
different employments. This is the explanation always given of the
extraordinary rate of apothecaries’ profit. There are cases, again, in
which a considerable amount of labor and skill is required 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.
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 labor, operate similarly between
different employments of capital.
In this passage Mr. Mill points out distinctly that the movement
up and down in the wages of a manager are governed by the same
laws as those which regulate differences in the different rewards
of labor, but yet he connects it improperly with capital. It will
be seen that Mr. Mill uses the term “gross profit” on the next
page in order to avoid the difficulty, which rises unconsciously
in his mind, of the anomalous presence of the wages of the manager
in the question of profit.
§ 3. General Tendency of Profits to an Equality.
After due allowance is made for these various causes of inequality,
namely, difference in the risk or agreeableness of different employments,
and natural or artificial monopolies [which give greater or less wages of
superintendence], the rate of profit on capital in all employments tends
to an equality. 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.
It is far otherwise with gross profit, which, though (as will presently be
seen) it does not vary much from employment 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 he employs; on the
accidents of personal connection; 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. 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 compensation for any inferiority in the agreeableness or
safety of an employment. If the case were not so; if there were,
evidently, and to common experience, more favorable chances of pecuniary
success in one business than in others, more persons would engage their
capital in the business. 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 employments; capital gradually leaves it, or at least new
capital is not attracted to it; and by this change in the distribution of
capital between the less profitable and the more profitable employments, a
sort of balance is restored.
[Illustration: Parallel vertical lines AB and GD, with horizontal lines EG
and FC joining them.]
This may be easily shown by a diagram in which the capital in one
employment is represented by _A B_, and which exceeds _C D_, that
in another employment, by the amount of _A F_. It is not necessary
that the whole of the excess, _A F_ should be transferred to _C D_
to make the two capitals equal, but only _A E_, which, added to _C
D_, brings _C D_ to an equality with _E B_.
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 imply 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 preference toward
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
establishments. The numerous and multifarious channels of credit through
which, in commercial nations, unemployed capital diffuses itself over the
field of employment, flowing over in greater abundance to the lower
levels, are the means by which the equalization is accomplished. The
process consists in a limitation by one class of dealers or producers and
an extension by the other of that portion of their business which is
carried on with borrowed capital.
“Political economists say that capital sets toward the most
profitable trades, and that it rapidly leaves the less profitable
and non-paying trades. But in ordinary countries this is a slow
process, and some persons, who want to have ocular demonstrations
of abstract truths, have been inclined to doubt it because they
could not see it. The process would be visible enough if you could
only see the books of the bill-brokers and the bankers. If the
iron-trade ceases to be as profitable as usual, less iron is sold;
the fewer the sales the fewer the bills; and in consequence the
number of iron bills [at the banks] is diminished. On the other
hand, if, in consequence of a bad harvest, the corn trade becomes
on a sudden profitable, immediately ‘corn bills’ are created in
large numbers, and, if good, are discounted [at the banks]. Thus
capital runs as surely and instantly where it is most wanted, and
where there is most to be made of it, as water runs to find its
level.”(177)
In the case of an altogether declining trade, in which it is necessary
that the production should be, not occasionally varied, but greatly and
permanently diminished, or perhaps stopped altogether, the process of
extricating the capital is, no doubt, tardy and difficult, and almost
always attended with considerable loss; much of the capital fixed in
machinery, buildings, permanent works, etc., 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 connection,
and of acquired skill and experience, 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.
In general, then, although profits are very different to different
individuals, and to the same individual in different years, there can not
be much diversity at the same time and place in the average profits of
different employments (other than the standing differences necessary to
compensate for difference of attractiveness), except for short periods, or
when some great permanent revulsion has overtaken a particular trade. It
is true that, to persons with the same amount of original means, there is
more chance of making a large fortune in some employments than in others.
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.
§ 4. The Cause of the Existence of any Profit; the Advances of Capitalists
consist of Wages of Labor.
The preceding remarks have, I hope, sufficiently elucidated what is 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 consider what causes determine its amount.
The cause of profit is, that labor produces more than is required for its
support; the reason why capital yields a profit is, because food,
clothing, materials, and tools last longer than the time which is required
to produce them; so that if a capitalist supplies a party of laborers with
these things, on condition 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. We thus see
that profit arises, not from the incident of exchange, but from the
productive power of labor; and the general profit of the country is always
what the productive power of labor makes it, whether any exchange takes
place or not. I proceed, in expansion of the considerations thus briefly
indicated, to exhibit more minutely the mode in which the rate of profit
is determined.
I assume, throughout, the state of things which, where the laborers and
capitalists are separate classes, prevails, with few exceptions,
universally; namely, that the capitalist advances the whole expenses,
including the entire remuneration of the laborer. That he should do so is
not a matter of inherent necessity; the laborer might wait until the
production is 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 support. But in the latter case the laborer is to that
extent really a capitalist, investing capital in the concern, by supplying
a portion of the funds necessary for carrying it on; and even in the
former case he may be looked upon in the same light, since, contributing
his labor at less than the market price, he may be regarded as lending the
difference to his employer, and receiving it back with interest (on
whatever principle computed) from the proceeds of the enterprise.
The capitalist, then, may be assumed to make all the advances and receive
all the produce. His profit consists of the excess of the produce above
the advances; his _rate_ of profit is the ratio which that excess bears to
the amount advanced.
For example, if A advances 8,000 bushels of corn to laborers in
return for 10,000 yards of cloth (and if one bushel of corn sells
for the same sum as one yard of cloth), his profit consists of
2,000 yards of cloth. The ratio of the excess, 2,000, to 8,000,
the outlay, or 25 per cent, is the _rate_ of profit. It is not the
ratio of 2,000 to 10,000.
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. 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 by
disregarding it.
If, then, leaving rent out of the question, we inquire in what it is that
the advances of the capitalist, for purposes of production, consist, we
shall find that they consist of wages of labor.
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 produced by labor; 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 suppose 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 advances
have consisted of nothing but wages, except that certain of the
capitalists concerned have, for the sake of general convenience, had their
share of profit paid to them before the operation was completed.
This idea may be more clear, perhaps, if we imagine a large
corporation, not only making woolen cloth, but owning
sheep-ranches, where the raw materials are produced; the shops
where all machinery is made; and who even produce on their own
property all the food, clothing, shelter, and consumption of the
laborers employed by them. A line of division may be passed
through the returns in all these branches of the industry,
separating what is wages from what is profit. Then it can be
easily imagined that all the returns on one side, representing
profits, go to capitalists, no matter whether they are thousands
in number, or only one capitalist typifying the rest, or a single
corporation acting for many small capitalists.
§ 5. The Rate of Profit depends on the Cost of Labor.
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 labor; and secondly, the proportion
of that produce obtained by the laborers themselves; the ratio which the
remuneration of the laborers bears to the amount they produce.
We thus arrive at the conclusion of Ricardo and others, that the rate of
profits depends upon wages; rising as wages fall, and falling as wages
rise. In adopting, however, this doctrine, I must insist upon making a
most necessary alteration in its wording. Instead of saying that profits
depend on wages, let us say (what Ricardo really meant) that they depend
on the _cost of labor_.
This is an entirely different question from that concerning the
rate of wages before discussed (Book II, Chap. II). That had to do
with the amount of the capital which each laborer, on an average,
received as real wages, and this average rate was affected by the
number of competitors for labor, as compared with the existing
capital, taking into account the nature of the industries in a
country. An increase of population, bringing more laborers to
compete for employment, will lower the average amount of real
wages received by each one; and a decrease of population will
bring about the reverse. The rate of wages, however, now that we
are considering the matter from the point of view of the
capitalist, is but one of the things to be considered affecting
_cost of labor_. The former question was one as to the
distribution of capital; the latter is one as to the amount by
which the total production is greater than the total capital
advanced. Since all capital consists of advances to labor, the
present inquiry is one in regard to the quantity of advances
compared with the quantity returned; that is, the relation of the
total capital to the total production arising from the use of that
capital. In the diagram before used (p. 179) the question is not
how the contents of circle B are to be distributed, but the
relative size of circle B to circle A. In order to produce circle
A, it is necessary to advance what is represented by circle B.
Wages and the cost of labor; what labor brings in to the laborer 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
designate them, as is almost always done, by the same name. Wages, in
public discussions, both oral and printed, being looked upon from the same
point of view of the payers, much oftener than from that of the receivers,
nothing is more common than to say that wages are high or low, meaning
only that the cost of labor [to the capitalist] is high or low. The
reverse of this would be oftener the truth: the cost of labor is
frequently at its highest where wages are lowest. This may arise from two
causes. (1.) In the first place, the labor, though cheap, may be
inefficient.
The facts presented by Mr. Brassey(178) very fully illustrate this
principle. Although French workmen in their ship-yards receive
less wages for the same kind of work than the English workmen in
English yards, yet it costs less per ton to build ships in England
than in France. The same correspondence between high wages and
efficient work was found to be true of railway construction in
different parts of the world. With different character, varying
amounts of industrial energy, varying intelligence, and endurance,
different people do not have the same efficiency of labor. It is
ascertained that inefficiency is, as a rule, accompanied by low
wages. Even though wages paid for ordinary labor in constructing
railways were in India only from nine to twelve cents a day, and
in England from seventy-five to eighty-seven cents a day, yet it
cost as much to build a mile of railway in India as in England.
The English laborer gave a full equivalent for his higher wages.
Moreover, while an English weaver tends from two to three times as
many looms as his Russian competitor, the workman in the United
States, it is said, will tend even more than the Englishman. In
American sailing-vessels, also, a less number of sailors,
relatively to the tonnage, is required than in English
sailing-ships. Mr. Brassey, besides, came to the conclusion that
the working power, or efficiency, of ordinary English laborers was
to the French as five to three.
(2.) The other cause which renders wages and the cost of labor no real
criteria of one another is the varying costliness of the articles which
the laborer consumes. If these are cheap, wages, in the sense which is of
importance to the laborer, may be high, and yet the cost of labor may be
low; if dear, the laborer may be wretchedly off, though his labor may cost
much to the capitalist. This last is the condition of a country
over-peopled in relation to its land; in which, food being dear, the
poorness of the laborer’s real reward does not prevent labor from costing
much to the purchaser, and low wages and low profits coexist. The opposite
case is exemplified in the United States of America. The laborer there
enjoys a greater abundance of comforts than in any other country of the
world, except some of the newest colonies; but owing to the cheap price at
which these comforts can be obtained (combined with the great efficiency
of the labor), the cost of labor to the capitalist is considerably lower
than in Europe. It must be so, since the rate of profit is higher; as
indicated by the rate of interest, which is six per cent at New York when
it is three or three and a quarter per cent in London.
The cost of labor, then, is, in the language of mathematics, a function of
three variables: (1) the efficiency of labor; (2) the wages of labor
(meaning thereby the real reward [or real wages] of the laborer); and (3)
the greater or less cost(179) at which the articles composing that real
reward can be produced or purchased. It is plain that the cost of labor 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 can not be in any way affected except
through one or other of them.
The efficiency of labor, in this connection, is highly important
in its practical aspects, and as affecting the labor question,
because as a function of cost of labor, that is, as an element
affecting the quantity of things advanced to the laborers in
comparison with the quantity of things returned to the employer,
it includes the whole influence of machinery, labor-saving
devices, and the results of invention. The quantity of produce
depends, for a given advance, on the kind of machinery, the speed
with which it is run, and on the general state of the arts and
industrial inventions. The extent to which the productive capacity
of a single laborer has been increased in the United States has
been almost incredible. Instead of weaving cloth by hand, as was
done a hundred years ago, “one operative in Lowell, working one
year, can produce the cotton fabric needed for the year’s supply
of 1,500 to 1,800 Chinese.” Moreover, there is no question as to
the fact that no nation in the world compares with ours in the
power to invent, construct, and manage the most ingenious and
complicated machinery. The inventive faculty belongs to every
class in our country; and, in studying cost of labor, it must be
well borne in mind that the efficiency of American labor,
particularly as combined with mechanical appliances, is one of the
great causes of our enormous production. The result of this, for
instance, has been that, without lowering profits, although the
price of cloth has been greatly reduced, employers have been able
to raise the wages of operatives, and shorten their hours of
labor, because machinery has so vastly increased the production
for a given outlay. As one of a few facts showing this tendency in
the last fifty years, note the following table, taken from the
books of the Namquit cotton-mill in Bristol, Rhode Island:
Kind Of Labor. 1841. 1884.
Card-room help, per week $3.28 $5.40
Card-strippers, per week 4.98 6.00
Weavers, per week 4.75 6.00
Carding-room overseer, per week 7.00 13.50
The hours per week have decreased in the same time from 84 to 66,
while the product of the mill in pounds has increased 25 per cent.
It may be unnecessary, perhaps, to say that these figures
represent the current wages in other mills at the same periods;
and that these facts can be sustained by the records of other
mills.
In its economic effect we must also consider, under efficiency,
the whole question of natural advantages of soil, climate, and
natural resources. Laborers of the same skill, paid the same real
wages, of the same cost, will produce a vastly greater amount of
wheat in Dakota than in Vermont or England. This is the chief
reason why profits are so high in the United States. In many
industries we have very marked natural advantages, which permits a
high reward to labor, and yet yields a high profit to the
capitalist. This applies not merely to agriculture, but to all the
extractive industries, such as the production of petroleum, wood,
copper, etc.
In short, the whole matter of ease and difficulty of production,
of high or low cost of production, taking it in the sense of great
or little sacrifice (compare carefully Book III, Chap. II, § 4),
comes in under the element of efficiency, in cost of labor. The
reader can not be too strongly urged to connect different parts of
the economic system together. And the questions of Cost of Labor
and Cost of Production are of paramount importance to a proper
understanding of political economy.
If labor generally became more efficient, without being more highly
rewarded; if, without its becoming less efficient, its remuneration fell,
no increase taking place in the cost of the articles composing that
remuneration; or if those articles became less costly, without the
laborers obtaining more of them; in any one of these three cases, profits
would rise. If, on the contrary, labor became less efficient (as it might
do from diminished bodily vigor in the people, destruction of fixed
capital, or deteriorated education); or if the laborer obtained a higher
remuneration, without any increased cheapness in the things composing it;
or if, without his obtaining more, that which he did obtain became more
costly; profits, 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.
The connection of profit with the three constituents of cost of
labor may probably be better seen by aid of the following
illustration; it being premised that as yet money is not used, and
that the laborers are paid in the articles which their money wages
would have bought had money been used. For simplicity we will
suppose that all articles of the laborer’s consumption are
represented by corn. Imagine a large woolen-mill employing 500
men, and paying them in corn; and suppose that one yard of woolen
cloth exchanges for one bushel of corn in the open market. In the
beginning, with a given condition of efficiency, suppose that each
man produces on an average 1,200 yards of cloth, for which he is
paid 1,000 bushels of corn:
500 men, each producing 1,200 yards, give a total product of
600,000 yards.
500 men, each paid 1,000 bushels, cause an outlay of 500,000
yards.
Profit: 100,000 yards.
(1.) Now suppose a change increasing the efficiency of labor to
such an extent that each laborer produces 1,300 instead of 1,200
yards, then the account will stand, if the other elements remain
unchanged:
500 men, each producing 1,300 yards, give a total product of
650,000 yards.
500 men, each paid 1,000 bushels, cause an outlay of 500,000
yards.
Profit: 150,000 yards.
(2.) If efficiency and the cost of producing food remain the same
as at first, suppose a change to occur which raises the quantity
of corn each laborer receives from 1,000 to 1,100, or, as it is
called, increases his real wages—then the account will be:
500 men, each producing 1,200 yards, give a total product of
600,000 yards.
500 men, each paid 1,100 bushels, cause an outlay of 550,000
yards.
Profit: 50,000 yards.
(3.) If efficiency and real wages remain the same, suppose such an
increase in the cost to the employers of obtaining corn that they
are obliged to give one and one tenth yard of their goods for one
bushel of corn (1,000 bushels of corn costing them 1,100 yards of
cloth), then the statement will read:
500 men, each producing 1,200 yards, give a total product of
600,000 yards.
500 men, each paid 1,000 bushels, cause an outlay of 550,000
yards.
Profit: 50,000 yards.
Chapter VI. Of Rent.
§ 1. Rent the Effect of a Natural Monopoly.
The requisites of production being labor, capital, and natural agents, the
only person, besides the laborer 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,
possesses exclusive power over some natural agent. The land is the
principal of the natural agents which are capable of being appropriated,
and the consideration 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 comprehended.
It is at once evident that rent is the effect of a monopoly. The reason
why land-owners 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. 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.
The ratio of the land to the cultivators shows the limited
quantity of land. It is very desirable to keep the connection of
one part of the subject with another wherever possible.
“Agricultural rent, as it actually exists,” says Mr. Cairnes,(180)
truly, “is not a consequence of the _monopoly_ of the soil, but of
its diminishing productiveness.” The doctrine of rent depends upon
the law of diminishing returns; and it is only by the pressure of
population upon land that the lessened productiveness of land,
whether because of poorer qualities or poorer situations, is made
apparent. Or, to take things in their natural sequence, an
increase of population necessitates more food; and this implies a
resort to more expensive methods, or poorer soils, so soon as land
is pushed to the extent that it will not yield an increased crop
for the same application of labor and capital as formerly.
Different qualities of land, then, being in cultivation at the
same time, the better qualities must, of course, yield a greater
return than the poorer, and the conditions then exist under which
land pays rent. Those, therefore, who admit the law of diminishing
returns are inevitably led to the doctrine of rent.
§ 2. No Land can pay Rent except Land of such Quality or Situation as
exists in less Quantity than the Demand.
A thing which is limited in quantity, even though its possessors do not
act in concert, is still a monopolized article. But even when monopolized,
a thing which is the gift of nature, and requires no labor or outlay as
the condition of its existence, will, if there be competition among the
holders of it, command a price only if it exist in less quantity than the
demand.
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 other agricultural produce which the
people need, and which they are willing and able to pay for at a price
which remunerates the grower, may always be obtained without cultivating
all the land; sometimes without cultivating more than a small part of it;
the more fertile lands, or those in the more convenient situations, being
of course preferred. There is always, therefore, some land which can not,
in existing 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 can not be made
to yield all the produce required for the community, unless on terms still
less advantageous than the resort to less favored soils. (1.) The worst
land which can be cultivated as a means of subsistence is that which will
just replace the seed and the food of the laborers employed on it,
together with what Dr. Chalmers calls their secondaries; that is, the
laborers 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 laborers
except necessaries: the land, therefore, can only be cultivated by the
laborers themselves, or else at a pecuniary loss; and, _a fortiori_, can
not in any contingency afford a rent. (2.) The worst land which can be
cultivated as an investment for capital is that which, after replacing the
seed, not only feeds the agricultural laborers and their secondaries, but
affords them the current rate of wages, which may extend to much more than
mere necessaries, and leaves, for those who have advanced the wages of
these two classes of laborers, a surplus equal to the profit they could
have expected from any other employment of their capital. (3.) 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 laborers and for the capitalist, beyond feeding all whom it
directly or indirectly employs, 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 to which cultivation can descend, consistently
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 accessibility, 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 land
to a higher place in the scale of fertility, it can not 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 profitable. 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. The Rent of Land is the Excess of its Return above the Return to the
worst Land in Cultivation.
If, then, of the land in cultivation, the part which yields least return
to the labor and capital employed on it gives only the ordinary profit of
capital, without leaving anything for rent, a standard [i.e., the “margin
of cultivation”] is afforded for estimating 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 afford 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
capitals, will enable the landlord to appropriate it. The rent, therefore,
which any land will yield, is the excess of its produce, beyond what would
be returned to the same capital if employed on the worst land in
cultivation.
It has been denied that there can be any land in cultivation which pays no
rent, because landlords (it is contended) would not allow their land to be
occupied without payment. 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
alternate with it. He pays a rent, nominally 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 remaining parts pay no
rent.
This point seems to need some illustration. Suppose that all the
lands in a community are of five different grades of
productiveness. When the price of agricultural produce was such
that grades one, two, and three all came into cultivation, lands
of poorer quality would not be cultivated. When a man rents a
farm, he always gets land of varying degrees of fertility within
its limits. Now, in determining what he ought to pay as rent, the
farmer will agree to give that which will still leave him a profit
on his working capital; if in his fields he finds land which would
not enter into the question of rental, because it did not yield
more than the profit on working it, after he rented the farm he
would find it to his interest to cultivate it, simply because it
yielded him a profit, and because he was not obliged to pay rent
upon it; if required to pay rent for it, he would lose the
ordinary rate of profit, would have no reason for cultivating it,
of course, and would throw it out of cultivation. Moreover,
suppose that lands down to grade three paid rent when A took the
farm; now, if the price of produce rises slightly, grade four may
pay something, but possibly not enough to warrant any rent going
to a landlord. A will put capital on it for this return, but
certainly not until the price warrants it; that is, not until the
price will return him at least the cost of working the land,
_plus_ the profit on his outlay. But the community needed this
land, or the price would not have gone up to the point which makes
possible its cultivation even for a profit, without rent. There
must always be somewhere some land affected in just this way.
§ 4. —Or to the Capital employed in the least advantageous Circumstances.
Let 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
community 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 withheld from
cultivation, the increase of produce, which the wants of society required,
would for the time be obtained wholly (as it always is partially), not by
an extension of cultivation, but by an increased application of labor and
capital to land already cultivated.
Now we have already seen that this increased application of capital, other
things being unaltered, is always attended with a smaller proportional
return. 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 nature; 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. 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 consideration, 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
essentials of the case in one phrase) that which is applied in the least
favorable 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 portion to yield a
surplus proportioned to the advantage it possesses. And this surplus it is
which competition enables the landlord to appropriate.
If land were all occupied, and of only one grade, the first
installment of labor and capital produced, we will say, twenty
bushels of wheat; when the price of wheat rose, and it became
profitable to resort to greater expense on the soil, a second
installment of the same amount of labor and capital when applied,
however, only yielded fifteen bushels more; a third, ten bushels
more; and a fourth, five bushels more. The soil now gives fifty
bushels only under the highest pressure. But, if it was profitable
to invest the same installment of labor and capital simply for the
five bushels that at first had received a return of twenty
bushels, the price must have gone up so that five bushels should
sell for as much as the twenty did formerly; so, _mutatis
mutandis_, of installments second and third. So that if the demand
is such as to require all of the fifty bushels, the agricultural
capital which produced the five bushels will be the standard
according to which the rent of the capital, which grew twenty,
fifteen, and ten bushels respectively, is measured. The principle
is exactly the same as if equal installments of capital and labor
were invested on four different grades of land returning twenty,
fifteen, ten, and five bushels for each installment. Or, as if in
the table on page 240, A, B, C, and D each represented different
installments of the same amount of labor and capital put upon the
same spot of ground, instead of being, as there, put upon
different grades of land.
The rent of all land is measured by the excess of the return to the whole
capital employed 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 disadvantageous
circumstances as the least productive portion of it: whether that least
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 will be true that the farmer requires the ordinary rate of profit on
the whole of his capital; that whatever 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 agriculture in such circumstances
of productiveness 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 measure 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 contracts,
individual miscalculations, the influence of habit, and even the
particular feelings and dispositions of the persons concerned.
The law of rent, in the economic sense, operates in the United
States as truly as elsewhere, although there is no separate class
of landlords here. With us, almost all land is owned by the
cultivator; so that two functions, those of the landlord and
farmer, are both united in one person. Although one payment is
made, it is still just as distinctly made up of two parts, one of
which is a payment to the owner for the superior quality of his
soil, and the other a payment (to the same person, if the owner is
the cultivator) of profit on the farmer’s working capital. Land
which in the United States will only return enough to pay a profit
on this capital can not pay any rent. And land which can pay more
than a profit on this working capital, returns that excess as
rent, even if the farmer is also the owner and landlord. The
principle which regulates the amount of that excess—which is the
essential point—is the principle which determines the amount of
economic rent, and it holds true in the United States or Finland,
provided only that different grades of land are called into
cultivation. The governing principle is the same, no matter
whether a payment is made to one man as profit and to another as
rent, or whether the two payments are made to the same man in two
capacities. It has been urged that the law of rent does not hold
in the United States, because “the price of grain and other
agricultural produce has not risen in proportion to the increase
of our numbers, as it ought to have done if Ricardo’s theory were
true, but has fallen, since 1830, though since that time our
population has been more than tripled.”(181) This overlooks the
fact that we have not even yet taken up all our best agricultural
lands, so that for some products the law of diminishing
productiveness has not yet shown itself. The reason is, that the
extension of our railway system has only of late years brought the
really good grain-lands into cultivation. The fact that there has
been no rise in agricultural products is due to the enormous
extent of marvelously fertile grain-lands in the West, and to the
cheapness of transportation from those districts to the seaboard.
For a general understanding of the law of rent the following table
will show how, under constant increase of population (represented
by four different advances of population, in the first column),
first the best and then the poorer lands are brought into
cultivation. We will suppose (1) that the most fertile land, A, at
first pays no rent; then (2), when more food is wanted than land A
can supply, it will be profitable to till land B, but which, as
yet, pays no rent. But if eighteen bushels are a sufficient return
to a given amount of labor and capital, then when an equal amount
of labor and capital engaged on A returns twenty-four bushels, six
of that are beyond the ordinary profit, and form the rent on land
A, and so on; C will next be the line of comparison, and then D;
as the poorer soils are cultivated, the rent of A increases:
Population A B C D
Increase.
24 18 12 6
bushels bushels bushels bushels
Total Rent in Total Rent in Total Rent in Total Rent in
product Bushels product Bushels product Bushels product Bushels
I. 24 0 .. .. .. .. .. ..
II. 24 6 18 0 .. .. .. ..
III. 24 12 18 6 12 0 .. ..
IV. 24 18 18 12 12 6 6 0
§ 5. Opposing Views of the Law of Rent.
Under the name of rent, many payments are commonly included, which are not
a remuneration for the original powers of the land itself, but for capital
expended on it. The 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, regularly 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
requiring 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 principles of rent. It is true that a landlord will not
expend capital in improving 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.
Mr. Carey (as well as Bastiat) has declared that there is a law of
increasing returns from land. He points out that everything now
existing could be reproduced to-day at a less cost than that
involved in its original production, owing to our advance in
skill, knowledge, and all the arts of production; that, for
example, it costs less to make an axe now than it did five hundred
years ago; so also with a farm, since a farm of a given amount of
productiveness can be brought into cultivation at less cost to-day
than that originally spent upon it. The gain of society has, we
all admit, been such that we produce almost everything at a less
cost now than long ago; but to class a farm and an axe together
overlooks, in the most remarkable way, the fact that land can not
be created by labor and capital, while axes can, and that too
indefinitely. Nor can the _produce_ from the land be increased
indefinitely at a diminishing cost. This is sometimes denied by
the appeal to facts: “It can be abundantly proved that, if we take
any two periods sufficiently distant to afford a fair test,
whether fifty or one hundred or five hundred years, the production
of the land relatively to the labor employed upon it has
progressively become greater and greater.”(182) But this does not
prove that an existing tendency to diminishing returns has not
been more than offset by the progress of the arts and
improvements. “The advance of a ship against wind and tide is [no]
proof that there is no wind and tide.”
In a work entitled “The Past, the Present, and the Future,” Mr. Carey
takes [a] ground of objection to the Ricardo theory of rent, namely, that
in point of historical fact the lands first brought under cultivation are
not the most fertile, but the barren lands. “We find the settler
invariably occupying the high and thin lands requiring little clearing and
no drainage. With the growth of population and wealth, other soils
yielding a larger return to labor are always brought into activity, with a
constantly increasing return to the labor expended upon them.”
In whatever order the lands come into cultivation, those which when
cultivated yield the least return, in proportion to the labor required for
their culture, will always regulate the price of agricultural produce; and
all other lands will pay a rent simply equivalent to the excess of their
produce over this minimum. Whatever unguarded expressions may have been
occasionally used in describing the law of rent, these two propositions
are all that was ever intended by it. If, indeed, Mr. Carey could show
that the return to labor from the land, agricultural skill and science
being supposed the same, is not a diminishing return, he would overthrow a
principle much more fundamental than any law of rent. But in this he has
wholly failed.
Another objection taken against the law of diminishing returns,
and so against the law of rent, is that the potential increase of
food, e.g., of a grain of wheat, is far greater than that of
man.(183) No one disputes the fact that one grain of wheat can
reproduce itself more times than man, and that too in a geometric
increase; but not without land. A grain of wheat needs land in
which it can multiply itself, and this necessary element of its
increase is limited; and it is the very thing which limits the
multiplication of the grains of wheat. On the same piece of land,
one can not get more than what comes from one act of reproduction
in the grain. If one grain produces 100 of its kind, doubling the
capital will not repeatedly cause a geometric increase in the
ratio of reproduction of each grain on this same land, so that one
grain, by one process, produces of its kind 200, 400, 800, or
1,600, because you can not multiply the land in any such ratio as
would accompany this potential reduplication of the grain. This
objection would not seem worth answering, were it not that it
furnishes some difficulty to really honest inquirers.
Others, again, allege as an objection against Ricardo, that if all land
were of equal fertility it might still yield a rent. But Ricardo says
precisely the same. It is also distinctly a portion of Ricardo’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 required
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.
This is simply the question, before discussed, whether, if only
one class of land were cultivated, some agricultural capital would
pay rent or not. It all depends on the fact whether population—and
so the demand for food—has increased to the point where it calls
out a recognition of the diminishing productiveness of the soil.
In that case different capitals would be invested, so that there
would be different returns to the same amount of capital; and the
prior or more advantageous investments of capital on the land
would yield more than the ordinary rate of profit, which could be
claimed as rent.
A. L. Perry(184) admits the law of diminishing returns, but holds
that, “as land is capital, and as every form of capital may be
loaned or rented, and thus become fruitful in the hands of
another, the rent of land does not differ essentially in its
nature from the rent of buildings in cities, or from the interest
of money.” Henry George admits Ricardo’s law of rent to its full
extent, but very curiously says: “Irrespective of the increase of
population, the effect of improvements in methods of production
and exchange is to increase rent.... The effect of labor-saving
improvements will be to increase the production of wealth. Now,
for the production of wealth, two things are required, labor and
land. Therefore, the effect of labor-saving improvements will be
to _extend the demand for land_, and, wherever the limit of the
quality of land in use is reached, to bring into cultivation lands
of less natural productiveness, or to extend cultivation on the
same lands to a point of lower natural productiveness. And thus,
while the primary effect of labor-saving improvements is to
increase the power of labor, the secondary effect is to extend
cultivation, and, where this lowers the margin of cultivation, to
increase rent.”(185) Francis Bowen(186) rejects Ricardo’s law, and
says, “Rent depends, not on the increase, but on the distribution,
of the population”—asserting that the existence of large cities
and towns determines the amount of rent paid by neighboring
land.(187)
§ 6. Rent does not enter into the Cost of Production of Agricultural
Produce.
Rent does not really form any part of the expenses of [agricultural]
production, or of the advances of the capitalist. The grounds on which
this assertion was made are now apparent. It is true that all
tenant-farmers, and many other classes of producers, pay rent. But we have
now seen that whoever cultivates land, paying a rent for it, gets in
return for his 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 production are those
incurred on the worst land, or by the capital employed in the least
favorable 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 does not place him in a worse
position than, but only in the same position as, his fellow-producer who
pays no rent, but whose instrument is one of inferior efficiency.
Soils are of every grade: some, which if cultivated, might replace
the capital, but give no profit; some give a slight but not an
ordinary profit; some, the ordinary profit. That is, “there is a
point up to which it is profitable to cultivate, and beyond which
it is not profitable to cultivate. The price of corn will not, for
any long time, remain at a higher rate than is sufficient to cover
with ordinary profit the cost of that portion of the general crop
which is raised at greatest expense.”(188) For similar reasons the
price will not remain at a lower rate. If, then, the cost of
production of grain is determined by that land which replaces the
capital, yields only the ordinary profit, and pays no rent, rent
forms no part of this cost, since that land does not and can not
pay any rent. McLeod,(189) however, says it is not the cost of
production which regulates the value of agricultural produce, but
the value which regulates the cost.
BOOK III. EXCHANGE.
Chapter I. Of Value.
§ 1. Definitions of Value in Use, Exchange Value, and Price.
It is evident that, of the two great departments of Political Economy, the
production 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 use of a thing, in political economy, means its capacity to satisfy a
desire, or serve a purpose. Diamonds have 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 contradiction; it supposes that persons will give, to possess a thing,
more than the utmost value which they themselves put upon it, as a means
of gratifying their inclinations.
The word Value, when used without adjunct, always means, in political
economy, value in exchange.
Exchange value requires to be distinguished from Price. Writers 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 purchasable commodities in
general. What is meant by command over commodities in general? The same
thing exchanges for a greater quantity of some commodities, and for a very
small quantity of others. 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 improvement made in their
manufacture. Has the value of the coat, under these circumstances, fallen
or risen? It is impossible to say: all that can be said is, that it has
fallen in relation to one thing, and risen in respect to another. Suppose,
for example, that an invention has 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 purchasable things, except such as happened to be affected at the very
time by a similar depressing cause. Those [changes] 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.
There is such a thing as a general rise of prices. All commodities may
rise in their money price. But there can not 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 can not 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 more all
fall, or all rise, than a dozen runners can each outrun all the rest, or a
hundred trees all overtop one another. 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.
Before commencing the inquiry into the laws of value and price, I 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 reader is advised to study the definitions of value given by
other writers. Cairnes(190) defines value as “the ratio in which
commodities in open market are exchanged against each other.” F.
A. Walker(191) holds that “value is the power which an article
confers upon its possessor, irrespective of legal authority or
personal sentiments, of commanding, in exchange for itself, the
labor, or the products of the labor, of others.” Carey(192) says,
“Value is the measure of the resistance to be overcome in
obtaining those commodities or things required for our purposes—of
the power of nature over man.” Value is thus, with him, the
antithesis of wealth, which is (according to Carey) the power of
man over nature. In this school, value is the service rendered by
any one who supplies the article for the use of another. This is
also Bastiat’s idea,(193) “_le rapport de deux services
échangés_.” Following Bastiat, A. L. Perry(194) defines value as
“always and everywhere the relation of mutual purchase established
between two services by their exchange.” Roscher(195) explains
exchange value as “the quality which makes them exchangeable
against other goods.” He also makes a distinction between utility
and value in use: “Utility is a quality of things themselves, in
relation, it is true, to human wants. Value in use is a quality
imputed to them, the result of man’s thought, or his view of them.
Thus, for instance, in a beleaguered city, the stores of food do
not increase in utility, but their value in use does.”
Levasseur(196) regards value as “the relation resulting from
exchange”—_le rapport resultant de l’échange_. Cherbuliez(197)
asserts that “the value of a product or of a service can be
expressed only as the products or services which it obtains in
exchange.... If I exchange the thing A against B, A is the value
of B, B is the value of A.” Jevons(198) defines value as
“proportion in exchange.”
§ 2. Conditions of Value: Utility, Difficulty of Attainment, and
Transferableness.
That a thing may have any value in exchange, two conditions are necessary.
1. 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 part
with anything which serves some of his purposes, to obtain a thing which
serves none of them. 2. But, secondly, the thing must not only have some
utility, there must also be some difficulty in its attainment.
The question is one as to the conditions essential to the
existence of any value. Very justly Cairnes(199) adds also a third
condition, “the possibility of transferring the possession of the
articles which are the subject of the exchange.” For instance, a
cargo of wheat at the bottom of the sea has value in use and
difficulty of attainment, but it is not transferable. Jevons
(following J. B. Say) maintains that “value depends entirely on
utility.” If utility means the power to satisfy a desire, things
which merely have utility and no difficulty of attainment could
have no exchange value.(200) F. A. Walker(201) believes that
“value depends wholly on the relation between demand and supply.”
Carey(202) holds that value depends merely on the cost of
reproduction of the given article. Roscher(203) finds that
exchange value is “based on a combination of value in use with
cost value.” Cherbuliez(204) calls the conditions of value two,
“the ability to give satisfaction, and inability of attainment
without effort. The first element is subjective; it is determined
wholly by the needs or desires of the parties to the exchange. The
second is objective; it depends upon material considerations,
which are the conditions of the existence of the thing, and upon
which the needs of the persons exchanging have no influence
whatever.” It is, as usual, one of Cherbuliez’s clear expositions.
A. L. Perry(205) states that, “while value always takes its rise
in the _desires_ of men, it is never realized except through the
_efforts_ of men, and through these efforts as mutually
exchanged.”
The difficulty of attainment which determines value is not always the same
kind of difficulty: (1.) It sometimes consists in an absolute limitation
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 the 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.
De Quincey(206) has presented some ingenious diagrams to represent
the operations of the two constituents of value in each of the
three following cases: U represents the power of the article to
satisfy some desire, and D difficulty of attainment. In the first
case, exchange value is not hindered by D from going up to any
height, and so it rises and falls entirely according to the force
of U. D being practically infinite, the horizontal line, exchange
value, is not kept down by D, but it rises just as far as U, the
desires of purchasers, may carry it.
[Illustration: Vertical line D, paralleled by shorter vertical line U, D
and U connected at top of U by horizontal line.]
(2.) But there is another category (embracing the majority of all things
that are bought and sold), in which the obstacle to attainment consists
only in the labor and expense requisite to produce the commodity. Without
a certain labor and expense it can not 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 laborers enough and machinery enough, cottons,
woolens, or linens might be produced by thousands of yards for every
single yard now manufactured.
In case (2) the horizontal line, representing exchange value,
follows the force of D entirely. The utility of the article is
very great, but the value is only limited by the difficulty of
obtaining it. So far as U is concerned, exchange value can go up a
great distance, but will go no higher than the point where the
article can be obtained. The dotted lines underneath the
horizontal line indicate that the exchange value of articles in
this class tend to fall in value.
[Illustration: Parallel vertical lines U and D, U being longer, joined by
several horizontal lines of Exchange Value.]
(3.) 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 can be multiplied to an indefinite extent by labor and
expenditure, but not by a fixed amount of labor 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 produce belongs, and generally all the rude produce
of the earth; and this peculiarity is a source of very important
consequences; one of which is the necessity of a limit to population; and
another, the payment of rent.
In case (3) articles like agricultural produce have a very great
power to satisfy desires, and if scarce would have a high value.
So far as U is concerned, here also, as in case (2), exchange
value might mount upward to almost any height, but it can go no
higher than D permits. In commodities of this class, affected by
the law of diminishing returns, the tendency is for D to increase,
and so for exchange value to rise, as indicated by the dotted
lines above that of the exchange value.
[Illustration: Same as before.]
§ 3. Commodities limited in Quantity by the law of Demand and Supply:
General working of this Law.
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 absolutely limited in quantity, such as
ancient sculptures or pictures.
Of such things it is commonly said that their value depends on their
scarcity; others say that the value depends on the demand and supply. But
this statement requires much explanation. 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 demand? 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 purchasing.(207) To distinguish demand in this
technical sense from the demand which is synonymous with desire, they call
the former _effectual_ demand.
General supply consists in the commodities offered in exchange for
other commodities; general demand likewise, if no money exists,
consists in the commodities offered as purchasing power in
exchange for other commodities. That is, one can not increase the
demand for certain things without increasing the supply of some
articles which will be received in exchange for the desired
commodities. Demand is based upon the production of articles
having exchange value, in its economic sense; and the measure of
this demand is necessarily the quantity of commodities offered in
exchange for the desired goods. General demand and supply are thus
reciprocal to each other. But as soon as money, or general
purchasing power, is introduced, Mr. Cairnes(208) defines “demand
as the desire for commodities or services, seeking its end by an
offer of general purchasing power; and supply, as the desire for
general purchasing power, seeking its end by an offer of specific
commodities or services.” But many persons find a difficulty
because they insist upon separating the idea of supply from that
of demand, owing to the fact that producers seem to be a distinct
class in the community, different from consumers. That they are in
reality the same persons can be easily explained by the following
statement: “A certain number of people, A, B, C, D, E, F, etc.,
are engaged in industrial occupations—A produces for B, C, D, E,
F; B for A, C, D, E, F; C for A, B, D, E, F, and so on. In each
case the producer and the consumers are distinct, and hence, by a
very natural fallacy, it is concluded that the whole body of
consumers is distinct from the whole body of producers, whereas
they consist of precisely the same persons.”
But in regard to demand and supply of particular commodities (not
general demand and supply), the increase of the demand is not
necessarily followed by an increased supply, or _vice versa_. Out
of the total production (which constitutes general demand) a
varying amount, sometimes more, sometimes less, may be directed by
the desires of men to the purchase of some given thing. This
should be borne in mind, in connection with the future discussion
of over-production. The identity of general demand with general
supply shows there can be no general over-production: but so long
as there exists the possibility that the demand for a particular
commodity may diminish without a corresponding effect being
thereby produced on the supply of that commodity, by a necessary
connection, we see that there may be over-production of particular
commodities; that is, a production in excess of the demand.
The proper mathematical analogy [between demand and supply] is that of an
_equation_. 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
demand 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 increased. 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.
Mr. Cairnes(209) finally defined market value as the price “which is
sufficient, and no more than sufficient, to carry the existing supply
over, with such a surplus as circumstances may render advisable, to meet
the new supplies forthcoming,” which is nothing more than a paraphrase of
the words “existing or expected supply” just used by Mr. Mill. It seems
unnecessary, therefore, that Mr. Cairnes should have added: “According to
Mr. Mill, the _actual market price_ is the price which equalizes supply
and demand in a given market; as I view the case, the ‘proper market
price’ is the price which equalizes supply and demand, _not_ as existing
in the particular market, but in the larger sense which I have assigned to
the terms. To this price the _actual market price_ will, according to my
view, approximate, in proportion to the intelligence and knowledge of the
dealers.”
Adam Smith, who introduced the expression “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 produced and brought to market.(210)
This, then, is the Law of Value, with respect to all commodities not
susceptible of being multiplied at pleasure.
§ 4. Miscellaneous Cases falling under this Law.
There are but few commodities which are naturally and necessarily limited
in supply. But any commodity whatever may be artificially so. 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. 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 commodities which are at all times and forever
unsusceptible of increase of supply, any commodity whatever may be
temporarily so; and with some commodities this is habitually the case.
Agricultural produce, for example, can not be increased in quantity before
the next harvest; the quantity of corn already existing in the world is
all that can be had for sometimes a year to come. During that interval,
corn is practically assimilated to things of which the quantity can not be
increased. In the case of most commodities, it requires a certain time to
increase their quantity; and if the demand increases, then, until a
corresponding supply can be brought forward, 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 can not be rapidly
diminished. There are things so durable that the quantity in existence 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 might be at once diminished by destroying them; but
to do this could only be the interest of the possessor if he had a
monopoly of the article, and could 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
production; 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 regulated solely by supply and demand, and will rise very
gradually as the existing stock wears out, until there is again a
remunerating value, and production resumes its course.
The total value of gold and silver in the world is variously
estimated at from $10,000,000,000 to $14,000,000,000; while the
annual production of both gold and silver in the world during
1882(211) was only $212,000,000. The loss of gold by abrasion is
about 1/1000 annually, and of silver about 1/700, but much depends
on the size of the coin. A change in the annual production of the
precious metals can have a perceptible effect on their value only
after such a time as will permit the change to affect the existing
quantity in a way somewhat comparable with its previous amount.
The quantity, however, of wheat produced is nearly all consumed
between harvests; and the annual supply bears a very large ratio
to the existing quantity. Consequently the price of wheat will be
very seriously affected by the quantity coming from the annual
product.
Finally, there are commodities of which, though capable of being increased
or diminished to a great and even an unlimited extent, the value never
depends upon anything but demand and supply. This is the case, in
particular, with the commodity Labor, of the value of which we have
treated copiously in the preceding book; and there are many cases besides
in which we shall find it necessary 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.
§ 5. Commodities which are Susceptible of Indefinite Multiplication
without Increase of Cost. Law of their Value Cost of Production.
When the production of a commodity is the effect of labor and expenditure,
whether the commodity is susceptible of unlimited multiplication 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
expectation of profit, the commodity will not continue to be produced.
Capitalists will not go on permanently producing at a loss. When such
profit is evidently 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 labor and
capital. Nobody willingly produces in the prospect of loss.
When a commodity is not only made by labor 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 repays 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 increasing the supply of the article, reduces its value. This is not a
mere supposition or surmise, but a fact familiar to those conversant with
commercial operations. Whenever a new line of business presents itself,
offering a hope of unusual profits, and whenever any established trade or
manufacture 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 commodity 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 further production. As already intimated,(212) 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 produce by availing themselves more largely of their
credit, while those who are not making the ordinary profit, restrict their
operations, and (in manufacturing 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 repaid the cost of production
with the ordinary profit; in other words, such as will give to all
producers the same rate of profit on their outlay. But in order that the
profit may be equal where 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.
Mr. Mill has here used cost of production almost exactly in the
sense of cost of labor, and as excluding profit (while in the next
chapter he includes some part of profit in the analysis). It will
be well, for the sake of definiteness, to collect the phrases
above in which he describes cost of production: “Unless that value
is sufficient to repay the cost of production, and to afford,
_besides_, the ordinary expectation of profit, the commodity will
not continue to be produced”; “the cost of production, _together
with_ the ordinary profit, may therefore be called the _necessary_
price, or value”; “it repays the cost of production, not only
_with_ the customary, but _with_ a higher rate of profit”; “the
cost of production with the ordinary profit—in other words, such
as will give to all producers the same rate of profit on their
outlay”; “that the profit may be equal where _the outlay, that is,
the cost of production_, is equal.” This is a view which
distinctly uses cost of production in the sense of the outlay to
the capitalist, or cost of labor. In no other way can profit vary
with “cost of production” than in the sense that it is what a
given article “costs to the capitalist”; but that is Mr. Mill’s
definition of cost of labor (p. 227). It is, however, very
puzzling when in the next section he speaks of “the natural value,
that is, the cost of production.” Above, value included cost of
production and profit also. Having thus pointed out what is Mr.
Mill’s conception of cost of production, it will remain for us in
the next chapter to consider whether any other view of it is more
satisfactory.
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 center value, toward 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 oscillations 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 particular time. The sea everywhere tends to a level, but
it never is at an exact level; its surface is always ruffled 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.
§ 6. The Value of these Commodities confirm, in the long run, to their
Cost of Production through the operation of Demand and Supply.
The latent influence by which the values of things are made to conform 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 be
increased if the thing continued to sell above the ratio of its cost of
production, and would be diminished if it fell below that ratio.
If one dollar covers the expense of making one spade, then when a
spade, by virtue of a sudden demand, rises in value to one dollar
and ten cents, the manufacturers get an extra profit of ten cents.
This could not long remain so, because other capital would enter
this industry, and so increase the supply that one spade would
sell for only one dollar; then all would receive the average
profit. If, owing to a cessation of demand for spades, the price
fell to ninety cents, then the manufacturers would lose ten cents
on each one made and sold. Thereupon they would cease to do a
losing business, capital would be withdrawn, and spades would not
be made until the supply was suited to the necessary expense of
making them (one dollar). In this way, whenever there is a
departure of the value from the normal cost, there is set in
motion _ipso facto_ a series of forces which automatically
restores the value to that cost. So here again we see the nature
of an economic law: the value may not often correspond exactly
with cost of production, but there is a _tendency_ in all values
to conform to that cost, and this tendency they irresistibly obey.
A body possessing weight does not move downward under all
circumstances (stones may be thrown upward), but the law of
gravitation holds true, nevertheless.
There is no need that there should be any actual alteration of supply; and
when there is, the alteration, if permanent, is not the cause but the
consequence of the alteration in value. If, indeed, the supply _could_ not
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 happen,
and their mutual competition makes them anticipate the result by lowering
the price.
Before the electric light was yet known as a feasible means of
lighting (in 1878), the mere rumor of Edison’s invention, before
it was made public, and long before it became practicable, caused
a serious fall in the price of gas stocks.
It is, therefore, strictly correct to say that the value of things which
can be increased in quantity at pleasure does not depend (except
accidentally, 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 quantity of the commodity at its
natural or cost value, and to that the supply in the long run endeavors to
conform.
Mr. Cairnes(213) fitly says: “The supply of a commodity always
tends to adapt itself to the demand at the normal price. I may
here say briefly that by the normal price of a commodity I mean
that price which suffices, and no more than suffices, to yield to
the producers what is considered to be the average and usual
remuneration on such sacrifices as they undergo.”
When at any time it fails of so conforming, it is either from
miscalculation, 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. 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 only for a time, for the permanent tendency of
supply is to conform itself to the demand which is found by experience 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, can not long continue to be the case.
To recapitulate: demand and supply govern the value of all things which
can not be indefinitely increased; except 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 indefinite multiplication,
demand and supply only determine the perturbations of value during a
period which can not 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 toward 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.