there is this great difference. Rousseau thought that the state of
nature had been denaturalised by social and especially by political
institutions, including, of course, private property; and his chief
desire was to give back to the people the equivalent of what they had
lost. The “social contract” is just an attempt to secure this. The
Physiocrats, on the other hand, regarded the institution of private
property as the perfect bloom of the “natural order.” Its beauty
has perhaps suffered at the hands of turbulent Governments, but let
Governments be removed and the “natural order” will at once resume its
usual course.
There is also this other prime difference. The Physiocrats regarded
interest and duty as one and the same thing, for by following his own
interest the individual is also furthering the good of everybody else.
To Rousseau they seemed antagonistic: the former must be overcome by
the latter. “Personal interest is always in inverse ratio to duty, and
becomes greater the narrower the association, and the less sacred.”
(_Contrat Social_, ii, chap. 3.) In other words, family ties and
co-operative associations are stronger than patriotism.
[12] “There is a natural society whose existence is prior to every other
human association.… These self-evident principles, which might form the
foundation of a perfect constitution, are also self-revealing. They are
evident not only to the well-informed student, but also to the simple
savage as he issues from the lap of nature.” (Dupont, vol. i, p. 341.)
Some Physiocrats even seem inclined to the belief that this “natural
order” has actually existed in the past and that men lost it through
their own remissness. Dupont de Nemours mournfully asks: “How have the
people fallen from that state of felicity in which they lived in those
far-off, happy days? How is it that they failed to appreciate the natural
order?” But even when interpreted in this fashion it had no resemblance
to a savage state. It must rather be identified with the Golden Age of
the ancients or the Eden of Holy Scripture. It is a lost Paradise which
we must seek to regain.
The view is not peculiar to the Physiocrats, but it is interesting to
note how unfamiliar they were with the modern idea of evolutionary
progress.
[13] Mercier de la Rivière, vol. ii, p. 615. “Natural right is
indeterminate in a state of nature [note the paradox]. The right only
appears when justice and labour have been established.” (Quesnay, p. 43.)
[14] “By entering society and making conventions for their mutual
advantage men increase the scope of natural right without incurring any
restriction of their liberties, for this is just the state of things that
enlightened reason would have chosen.” (Quesnay, pp. 43, 44.)
[15] Pursuing this same idea, Dupont writes as follows: “It is thirteen
years since a man of exceptional genius, well versed in profound
disquisition, and already known for his success in an art where complete
mastery only comes with careful observation and complete submission to
the laws of nature, predicted that natural laws extended far beyond
the bounds hitherto assigned to them. If nature gives to the bee, the
ant, or the beaver the power of submitting by common consent and for
their own interest to a good, stable, and equable form of government,
it can hardly refuse man the power of raising himself to the enjoyment
of the same advantages. Convinced of the importance of this view, and
of the important consequences that might follow from it, he applied his
whole intellectual strength to an investigation of the physical laws
which govern society.” Elsewhere he adds: “The natural order is merely
the physical constitution which God Himself has given the universe.”
(Introduction to Quesnay’s works, p. 21.)
Hector Denis in his _Histoire des Doctrines_ expresses the belief that
the most characteristic feature of the Physiocratic system is the
emphasis laid upon a naturalistic conception of society. He illustrates
this by means of diagrams showing the identity of the circulation of
wealth and the circulation of the blood.
[16] “Its laws are irrevocable, pertaining as they do to the essence of
matter and the soul of humanity. They are just the expression of the will
of God.… All our interests, all our wishes, are focused at one point,
making for harmony and universal happiness. We must regard this as the
work of a kind Providence, which desires that the earth should be peopled
by happy human beings.” (Mercier de la Rivière, vol. i, p. 390; vol. ii,
p. 638.)
[17] “There is a natural judge of all ordinances, even of the
sovereign’s. This judge, which recognises no exceptions, is just the
evidence of their conformity with or opposition to natural laws.”
(Dupont, vol. i, p. 746.)
[18] Dupont, introduction to Quesnay’s works, vol. i, pp. 19 and 26.
[19] Baudeau, vol. i, p. 820.
[20] Letter to Mdlle. Lespinasse (1770).
[21] See some remarks on the _Tableau économique_ on p. 18.
[22] Baudeau, _Éphémérides du Citoyen_.
[23] “The laws of the natural order do not in any way restrain the
liberty of mankind, for the great advantage which they possess is that
they make for greater liberty.” (Quesnay, _Droit Naturel_, p. 55.) And
Mercier de la Rivière says (vol. ii, p. 617): “The institution of private
property and of liberty would secure perfect order without the help of
any other law.”
[24] _Dialogues sur les Artisans._
[25] Mercier de la Rivière, vol. ii, p. 617.
[26] The origin of the famous formula is uncertain. Several of the
Physiocrats, especially Mirabeau and Mercier de la Rivière, assign it to
Vincent de Gournay, but Turgot, the friend and biographer of Vincent de
Gournay, attributes it, under a slightly different form, _laissez-nous
faire_, to Le Gendre, a merchant who was a contemporary of Colbert.
Oncken thinks that the credit must go to the Marquis d’Argenson, who
employed the term in his _Mémoires_ as early as the year 1736. The
formula itself is quite commonplace. It only became important when it
was adopted as the motto of a famous school of thinkers, so that this
kind of research has no great interest. For a discussion of this trivial
question, see the work of M. Schelle, _Vincent de Gournay_ (1897), and
especially Oncken’s _Die Maxime Laissez-faire et Laissez-passer_ (Berne,
1886).
[27] “The prosperity of mankind is bound up with a maximum net product.”
(Dupont de Nemours, _Origine d’une Science nouvelle_, p. 346.)
[28] “Labour applied anywhere except to land is absolutely sterile, for
man is not a creator.” (Le Trosne, p. 942.)
“This physical truth that the earth is the source of all commodities
is so very evident that none of us can doubt it.” (Le Trosne, _Intérêt
social_.)
“The produce of the soil may be divided into two parts … what remains
over is free and disposable, a pure gift given to the cultivator in
addition to the return for his outlay and the wages of his labour.”
(Turgot, _Réflexions_.)
“Raw material is transformed into beautiful and useful objects through
the diligence of the artisan, but before his task begins it is necessary
that others should supply the raw material and provide the necessary
sustenance. When their part is completed others should recompense them
and pay them for their trouble. The cultivators, on the other hand,
produce their own raw material, whether for use or for consumption, as
well as everything that is consumed by others. This is just where the
difference between a productive and a sterile class comes in.” (Baudeau,
_Correspondance avec M. Graslin_.)
[29] “A weaver buys food and clothing, giving 150 francs for them,
together with a quantity of flax, for which he gives 50 francs. The cloth
will be sold for 200 francs, a sum that will cover all expenditure.”
(Mercier de la Rivière, vol. ii, p. 598.) “Industry merely superimposes
value, but does not create any which did not previously exist.” (_Ibid._)
[30] Baudeau, _Éphém._ ix (1770). One feels that the Physiocrats go too
far when they say that “the merchant who sells goods may occasionally
prove as useful as the philanthropist who gives them, because want puts
a price upon the service of the one just as it does upon the charity of
the other.” (_Du Marchand de Grains_, in the _Journal de l’Agriculture,
du Commerce, et des Finances_, December 1773, quoted in a thesis on
the corn trade by M. Curmond, 1900.) We must insist upon the fact that
“unproductive” or “sterile” did not by any means signify “useless.”
They saw clearly enough that the labour of the weaver who makes linen
out of flax or cloth out of wool is at any rate as useful as that of
the cultivator who produced the wool and the flax, or rather that the
latter’s toil would be perfectly useless without the industry of the
former. They also realised that although we may say that agricultural
labour is more useful than that of the weaver or the mason, especially
when the land is used for raising corn, one cannot say as much when that
same land is employed in producing roses, or mulberry trees for rearing
silkworms.
[31] Le Trosne, p. 945.
[32] “It seems necessary as well as simple and natural to distinguish the
men who pay others and draw their wealth directly from nature, from the
paid men, who can only obtain it as a reward for useful and agreeable
services which they have rendered to the former class.” (Dupont, vol. i,
p. 142.)
[33] It is rather strange that Turgot should have added this
qualification, because he was more favourable to industry and less
devoted to agriculture than the rest of the Physiocrats.
[34] “I must have a man to make my clothes, just as I must have a doctor
whose advice I may ask concerning my health, or a lawyer concerning my
affairs, or a servant to work instead of me.” (Le Trosne, p. 949.)
[35] On this point see M. Pervinquière, _Contribution à l’Étude de la
Productivité dans la Physiocratie_. The indifference of the Physiocrats
to mines shows a want of scientific spirit, for even from their own point
of view the question was one of prime importance. No commodity could
be produced without raw material, and wealth is simply a collection of
commodities. Raw material is furnished by the mine as well as by the
soil. In the history of mankind iron has played as important a part as
corn. Agriculture itself is an extractive industry, where the miner—the
agriculturist—uses plants instead of drills, and in both cases the
product is exhaustible.
[36] Le Trosne, p. 942.
“Land owes its fertility to the might of the Creator, and out of His
blessing flow its inexhaustible riches. This power is already there, and
man simply makes use of it.” (Le Trosne, _Intérêt social_, chap. 1, § 2.)
[37] Quesnay, p. 325.
[38] _Geschichte der National Oekonomie_, Part I, _Die Zeit vor Adam
Smith_.
M. Méline’s book, _Le Retour à la Terre_, though Protectionist in tone,
is wholly imbued with the Physiocratic spirit.
[39] _Essai physique sur l’Économie animale_ (1747).
[40] “There have been since the world began three great inventions which
have principally given stability to political societies, independent of
many other inventions which have enriched and advanced them. The first
is the invention of writing, which alone gives human nature the power
of transmitting without alteration its laws, its contracts, its annals,
and its discoveries. The second is the invention of money, which binds
together all the relations between civilised societies. The third is
the Economical Table, the result of the other two, which completes them
both by perfecting their object; the great discovery of our age, but
of which our posterity will reap the benefit.” (Mirabeau, quoted in
_Wealth of Nations_, Book IV, chap. 9.) Baudeau is no less enthusiastic.
“These figures,” he writes, “are borrowed with the consent and upon the
advice of the great master whose genius first begat the sublime idea of
this _Tableau_. The _Tableau_ gives us such a clear idea of the premier
position of the science that all Europe is bound to accept its teaching,
to the eternal glory of the invention and the everlasting happiness of
mankind.” (P. 867.)
The first edition of the _Tableau_, of which only a few copies were
printed, is missing altogether, but a proof of that edition, corrected by
Quesnay himself, was recently discovered in the Bibliothèque Nationale in
Paris by Professor Stephen Bauer, of the University of Bâle. A facsimile
was published by the British Economic Association in 1894.
[41] “The discovery of the circulation of wealth in economic societies
occupies in the history of the science the same position as is occupied
by the discovery of the circulation of the blood in the history of
biology.”
[42] Quesnay’s table consists of a number of columns placed in
juxtaposition with a number of zigzag lines which cross from one column
to another. If he had been living now he would almost certainly have
used the graphic method, which would have simplified matters very
considerably, and it is somewhat strange that no one has attempted this
with his _Tableau_. Hector Denis has compared his tables with those of
the anatomist and traced a parallel between the links of the economical
world and the plexus of veins and arteries in the human body.
His explanation of the _Tableau_ by means of mathematical tables gives
him a claim to be considered a pioneer of the Mathematical school. Full
justice has been done to him in this respect. An article by Bauer in
the _Quarterly Journal of Economics_, 1890, recognises his claim, and
there is another by Oncken in the _Economic Journal_ for June 1896,
entitled _The Physiocrats as Founders of the Mathematical School_. His
contemporary Le Trosne is even more emphatic on the point: “Economic
science, being a study of measurable objects, is an exact science, and
its conclusions may be mathematically tested. What the science lacked
was a convenient formula which might be applied to test its general
conclusions. Such a formula we now have in the _Tableau économique_.”
(_De l’Ordre social_, viii, p. 218.)
[43] Turgot, although he is not speaking of the _Tableau_ itself in this
case, sums it up admirably in the following: “What the labourers get from
the land in addition to what is sufficient to supply their own needs
constitutes the only wages fund [note the phrase], which all the other
members of society can draw upon in return for their labour. The other
members of society, when they buy the commodities which the labourer has
produced, simply give him the bare equivalent of what it has cost the
labourer to produce them.” (Turgot, vol. i, p. 10.) For a more detailed
account see Baudeau, _Explication du Tableau économique_.
[44] “This movement of commerce from one class to another, and the
conditions which give rise to it, are not mere hypotheses. A little
reflection will show that they are faithfully copied from nature.”
(Quesnay, p. 60.)
[45] They imagined that it was actually so. “On the one hand, we see
the productive class living on a series of payments, which are given in
return for its labour, and always bearing a close relation to the outlay
upon its upkeep. On the other, there is nothing but consumption and
annihilation of goods, but no production.” (Quesnay, p. 60.)
[46] “It is impossible not to recognise the right of property as a divine
institution, for it has been ordained that this should be the indirect
means of perpetuating the work of creation.” (La Rivière, p. 618.) “The
order of society presupposes the existence of a third class in society,
namely, the proprietors who make preparation for the work of cultivation
and who dispense the net product.” (Quesnay, p. 181.)
[47] “Immediately below the landed proprietors come the productive
classes, whose labour is the only source of their income, but who cannot
exercise that labour unless the landlord has already incurred some outlay
in the way of ground expenses.” (Baudeau, p. 691.)
[48] The Physiocrats never mention the agricultural workers, and one
might almost think that there were none. Their solicitude for the
agriculturists does not extend beyond the farmers and _métayers_. M.
Weulersse has referred to their system, not without some justification,
as an essentially capitalistic one.
[49] “We may call them the nobility, as well as the propertied class.
Nobility in this sense, far from being illusory, is a very useful
institution in the history of civilised nations.” (Baudeau, p. 670.)
[50] “In the third line—they generally occupy the first rank—we have the
landed proprietors who prepare the soil, build houses, make plantations
and enclosures at their own expense or who pay for those outlays by
buying property already developed. This revenue, they might argue,
belongs to us because of the wisdom and forethought we have exercised in
preparing the land, in undertaking to keep it in repair, and to improve
it still further.” (Baudeau, _Philosophie économique_, p. 757.) “The
foremost and most essential agent of production must be that man who
makes it possible. But who is this agent but the landed proprietor, whose
claims to his prerogatives are based upon the need for his productive
services?” (Mercier de la Rivière, pp. 466-467.)
“It is this expenditure that makes the claim of proprietors real and
their existence just and necessary. Until such expenditure is incurred
the right of property is merely an exclusive right to make the soil
capable of bearing fruit.” (Baudeau, p. 851.) In other words, so long as
the proprietor has not incurred some expenditure the right of property is
simply reduced to occupation.
The Physiocrats distinguished three kinds of _avances_:
1. The annual expenditure (_avances annuelles_) incurred in connection
with the actual work of cultivation, which recurs every year, such as the
cost of seed and manure, cost of maintaining labourers, etc. The annual
harvest ought to repay all this, which to-day would be called circulating
capital.
2. The “original” outlay (_avances primitives_) involved in buying
cattle and implements which render service for a number of years, and
for which the proprietor does not expect to be recompensed in a single
year. The return is spread out over a number of years. Here we have the
distinction between fixed and circulating capital, and the idea of the
gradual redemption of the former as against the total repayment of the
latter at one single use. It did not escape the Physiocrats’ notice that
an intelligent increase of the fixed might gradually reduce the annual
expenditure. Such ideas were quite novel. But they immediately took
their place as definite contributions to the science. They are no longer
confined to agriculture, however, but apply equally to all branches of
production.
3. The _avances foncières_ are the expenses which are undertaken with a
view to preparing the land for cultivation. (The adjective “primitive”
would have been better applied here.)
The first two kinds of expenditure are incumbent upon the agriculturist
and entitle him to a remuneration sufficient to cover his expenses.
The third is incumbent upon the proprietor and constitutes his claim to a
share of the funds. “Before you can set up a farm where agriculture may
be steadily practised year in and year out what must be done? A block of
buildings and a farmhouse must be built, roads made and plantations set,
the soil must be prepared, the stones cleared, trees cut down and roots
removed; drains must also be cut and shelters prepared. These are the
_avances foncières_, the work that is incumbent upon proprietors, and the
true basis of their claim to the privileges of proprietorship.” (Baudeau,
_Éphémérides_, May 1776. A reply to Condillac.)
[51] “Without that sense of security which property gives, the land would
still be uncultivated.” (Quesnay, _Maximes_, iv.) “Everything would be
lost if this fount of wealth were not as well assured as the person of
the individual.” (Dupont, vol. i. p. 26.)
[52] Mercier de la Rivière, vol. i, p. 242.
[53] _Maximes_, iv.
[54] Pp. 615, 617.
[55] It is necessary to make a note here of one of the many differences
between Turgot and the Physiocrats. Turgot seems much less firmly
convinced of the social utility of landed property and of the legitimacy
of the right of property. He thinks that its origin is simply due to
occupation. This weakens the Physiocratic case very considerably. “The
earth is peopled and cultivation extends. The best lands will in time
all be occupied. For the last comers there will only be the unfertile
lands rejected by the first. In the end every piece of land will have
its owner, and those who possess none will have no other resource than
to exchange the labour of their arm for the superfluous corn of the
proprietor.” (Vol. i, p. 12.) We are here not very far from the Ricardian
theory.
[56] Baudeau, p. 378.
[57] “A proprietor who keeps up the _avances foncières_ without fail is
performing the noblest service that anyone can perform on this earth.”
(Baudeau.)
[58] “The rich have the control of the fund from which the workers are
paid, but they are doing a great injustice if they appropriate it.”
(Quesnay, vol. i, p. 193.)
[59] Pp. 835, 839. And Mercier de la Rivière writes in terms not less
severe; “He is responsible under pain of annihilation for the products of
society, and no part of the produce which goes to support the cultivator
should wittingly be employed otherwise.” The history of Ireland is an
interesting commentary on these words.
But let us always remember that when the Physiocrats speak of the rights
of the cultivator they think only of the farmer and _métayer_ and never
of the paid agriculturist. They are content to demand merely a decent
existence for the latter. Were they put too much at ease they would
perhaps leave off working. See Weulersse, vol. ii, p. 729. He seems a
little unjust, and quotes some words of Quesnay, who protests against
the belief that “the poor must be kept poor if they are not to become
indolent.”
[60] One is perhaps surprised to find that freedom of work—in other
words, the abolition of corporations—is not included in their list,
especially since the credit for the downfall of those institutions is
usually given to the Physiocrats. Their writings contain only very
occasional reference to this topic, because industrial labour is regarded
as sterile, and reform touching its organisation concerned them but
little. They did, however, protest against the rule that confined the
right to engage in a trade to those who had received an express privilege
from the Crown. They considered that “to an honest soul this was the most
odious maxim which the spirit of domination and rapacity ever invented.”
(Baudeau, in _Éphémérides_, 1768, vol. iv.) Turgot’s famous _Edict_ of
January 1776, abolishing the rights of corporations and establishing
liberty for all, is, with good reason, attributed to Physiocratic
influence.
[61] “Exchange is a contract of equality, equal value being given in
exchange for equal value. Consequently it is not a means of increasing
wealth, for one gives as much as the other receives, but it is a means of
satisfying wants and of varying enjoyment.” (Le Trosne, pp. 903, 904.)
But what does this satisfying of wants and variation of enjoyment signify
if it does not mean increased wealth?
[62] Mercier de la Rivière, p. 545.
[63] P. 548.
[64] “The settlement of international indebtedness by payment of money is
a mere _pis aller_ of foreign trade, adopted by those nations which are
unable to give commodities in return for commodities according to custom.
And foreign trade itself is a mere _pis aller_ adopted by those nations
whose home trade is insufficient to enable them to make the best use of
their own productions. It is very strange that anyone should have laid
such stress upon a mere _pis aller_ of commerce.” (Quesnay’s _Dialogues_,
p. 175.)
[65] “After all merchants are only traffickers, and the trafficker is
just a person who employs his ability in appropriating a part of other
people’s wealth.” (Mercier de la Rivière, p. 551.) “Merchants’ gains are
not a species of profit.” (Quesnay, p. 151.)
[66] _Ordre Naturel_, p. 538.
[67] Enforcing sales in open market and in limited quantities only,
keeping corn beyond two years, etc. Corn was to be supplied to consumers
in the first place, then to bakers, and finally to merchants, etc.
[68] “Let entire freedom of commerce be maintained, for the surest, the
exactest, the most profitable regulator both of home and of foreign
trade for the nation as well as for the State is perfect freedom of
competition.” (Quesnay’s _Maximes_, xxv.) “We must tell them that free
trade is in accordance with the order and with the demands of justice,
and everything that conforms to the order bears its own reward.” (Le
Trosne, p. 586.)
[69] _Dialogues_, p. 153. The dearth of plenty, as they paradoxically
put it, stimulates production, and Boisguillebert, in an equal paradox,
remarks that “Low price gives rise to want.” In the _Maximes_, p. 98,
Quesnay contents himself by saying that free trade in corn makes the
price more equal. “It is clear,” he adds, “that, leaving aside the
question of foreign debt, equal prices will increase the revenue yielded
by the land, which will again result in extended cultivation, which will
provide a guarantee against those dearths that decimate population.”
Mercier de la Rivière writes in a similar vein. “A good constant average
price ensures abundance, but without freedom we have neither a good price
nor plenty.” (P. 570.)
Turgot in his _Lettres sur le Commerce des Grains_ develops the argument
at great length and tries to give a mathematical demonstration of it.
There was no need for this. It is a commonplace of psychology that a
steady price of 20 is preferable to alternative prices of 35 and 5 francs
respectively, although the average in both cases is the same.
[70] It is worth noting that the nature of American competition was
clearly foreseen by Quesnay—one of the most remarkable instances
of scientific prevision on record. In his article on corn in the
_Encyclopédie_ he says that he views the fertility of the American
colonies with apprehension and dreads the growth of agriculture in the
New World, but the fear is provisionally dismissed because the corn is
inferior in quality to that of France and is damaged in transit. (See our
remarks concerning the Physiocratic connection with modern Protectionist
theories.)
[71] It must not be forgotten that the Protectionist system aided the
development of industry and retarded that of agriculture by its policy of
encouraging the exportation of manufactured products and its restrictions
on the exportation of agricultural products and raw materials with a
view to securing cheap labour and a plentiful supply of raw materials
for the manufacturing industries. The Protectionists were not concerned
to prevent the exportation of corn. Both Colbertism and Mercantilism
sacrificed the cultivator by preventing the exportation of corn and
by allowing of its importation, while doing the exact opposite for
manufactured products.
[72] “Upon final analysis do you find that you have gained anything by
your policy of always selling to foreigners without ever buying from
them? Have you gained any money by the process? But you cannot retain it.
It has passed through your hands without being of the least use. The more
it increases the more does its value diminish, while the value of other
things increases proportionally.” (Mercier de la Rivière, pp. 580-583.)
[73] Turgot, _Œuvres_, vol. i, p. 181. “If you succeed in keeping back
foreign merchants by means of your protective tariffs they will not bring
you those goods which you need, thus causing those impositions which
were designed for others to retaliate upon your own head.” (Quesnay,
_Dialogues_.)
[74] _Dialogues_, pp. 254, 274.
[75] _Ibid._, p. 237.
[76] _Ibid._, p. 22. He proposed a highly complicated system imposing
moderate duties both upon the importation and exportation of corn—a 5 per
cent. _ad valorem_ duty in the one case and a 10 per cent. in the other.
[77] Turgot was the author of a work on this subject, entitled _Mémoire
sur les Prêts d’Argent_ (1769).
[78] _Réflexions sur la Formation des Richesses_, §§ lix, lxi, lxxiv.
[79] “Remove all useless, unjust, contradictory, and absurd laws, and
there will not be much legislative machinery left after that.” (Baudeau,
p. 817.) “It is not a question of procuring immense riches, but simply
a question of letting people alone, a problem that hardly requires a
moment’s thought.” So wrote Boisguillebert sixty years before.
[80] Quesnay, _Maximes_, vol. i, p. 390. Mercier de la Rivière writes in
much the same style; “The positive laws that are already in existence are
merely expressions of such natural rights.” (Vol. ii, p. 61.) It sounds
like a preamble to the Declaration of the Rights of Man.
[81] “The Physiocrats had the most absolute contempt for political
liberty.” (Esmein, _La Science politique des Physiocrates_, address at
the opening session of the Congress of Learned Societies, Paris, 1906.)
“The Greek republics never became acquainted with the laws of the order.
Those restless, usurping, tyrannical tribes never ceased to drench the
plains with human blood, to cover with ruins and to reduce to waste
the most fertile and the best situated soil in the then known world.”
(Baudeau, p. 800.)
“It is evident that a democratic sovereign—_i.e._ the whole
people—cannot itself exercise its authority, and must be content to
name representatives. These representatives are merely agents, whose
functions are naturally transitory, and such temporary agents cannot
always be in complete harmony with every interest within the nation. This
is not the kind of administration contemplated by the Physiocrats. The
sovereignty of the natural order is neither elective nor aristocratic.
Only in the case of hereditary monarchy can all interests, both personal
and individual, present and future, be clearly linked with those of the
nation, by their co-partnership in all the net products of the territory
submitted to their care.” (Dupont, vol. i, pp. 359-360.)
This sounds very much like a eulogy of the House of Hohenzollern,
delivered by William II.
Very curious also are Dupont’s criticisms of the parliamentary _régime_.
In his letter to J. B. Say (p. 414) he notes “its tendency to corruption
and canker,” which had not then manifested itself in the United States
of America. These letters, though very interesting, hardly belong to a
history of economic doctrines.
[82] “It is only when the people are ingenuous that we find real despots,
because then the sovereign can do whatever he wills.” (Dupont, p. 364.)
[83] Quesnay, _Maximes_, i. The Physiocrats were in favour of a national
assembly, but would give it no legislative power. It was to be just
a council of State concerned chiefly with public works and with the
apportionment of the burden of taxation. See M. Esmein’s _mémoire_ on
the proposed National Assembly of the Physiocrats (_Comptes rendus de
l’Académie des Sciences Morales et Politiques_, 1904).
[84] “The personal despotism will only be the legal despotism of an
obvious and essential order. In legal despotism the obviousness of a law
demands obedience before the monarch enjoins it. Euclid is a veritable
despot, and the geometrical truths that he enunciates are really despotic
laws. The legal and personal despotism of the legislator are one and
the same. Together they are irresistible.” (Mercier de la Rivière, pp.
460-471.) This despotism is really not unlike that of Comte, who remarks
that there is no question of liberty of conscience in geometry.
[85] “On the contrary,” says Quesnay in a letter to Mirabeau, “this
despotism is a sufficient guarantee against the abuse of power.”
[86] “That is an abominable absurdity,” says Baudeau, “for on this
reckoning a mere majority vote would be sufficient to justify parricide.”
Is it necessary to point out that this is exactly the reverse of the view
held by interventionists and socialists of these later times, who think
that the mission of the State is to redress the grievances caused by
natural laws?
[87] “This single supreme will which exercises supreme power is not,
strictly speaking, a human will at all. It is just the voice of
nature—the will of God. The Chinese are the only people whose philosophy
seems to have got hold of this supreme truth, and they regard their
emperor as the eldest son of God.” (Baudeau, p. 798.)
[88] Some writers—for example, Pantaleoni in his introduction to Arthur
Labriola’s book, _Le Dottrine economiche di Quesnay_—seem to think that
the Physiocratic criticism proved fatal to feudal society, just as the
socialistic criticism of the present time is undermining the _bourgeois_
society. Politically this is true enough, for the Physiocrats advocated
the establishment of a single supreme monarch with undivided authority.
Economically it is incorrect, for their conception even of sovereignty
and taxation is impregnated with feudal ideas.
[89] Dupont, _Discours en tête des Œuvres de Quesnay_, vol. i, p. 35.
[90] _Ibid._ p. 22.
[91] Turgot, who is less inclined to favour agriculture, thinks that
certain royal privileges must be granted before manufacturers can compete
with agriculture (_Œuvres_, vol. i, p. 360).
[92] “One has come to regard the various nations as drawn up against one
another in a perpetual state of war. This unfortunate prejudice is almost
sacred, and is regarded as a patriotic virtue.” (Baudeau, p. 808.)
The three errors usually committed by States, and the three that led
to the downfall of Greece, Baudeau thought, were arbitrary use of
legislative authority, oppressive taxation, and aggressive patriotism (p.
801).
[93] “Before a harvest can be reaped not only must the cultivators incur
the usual outlay upon stock, etc., and the proprietors upon clearing the
land, but the public authority must also incur some expense, which might
be designated _avances souveraines_.” (Baudeau, p. 758.)
[94] “The Government ought to be less concerned with the task of saving
than with the duty of spending upon those operations that are necessary
for the prosperity of the realm. This heavy expenditure will cease when
the country has become wealthy.” (Quesnay, _Maximes_, xxvi.)
“It is a narrow and churlish English idea which decrees that an annual
sum should be annually voted to the Government, and that Parliament
should reserve to itself the right of refusing this tax. Such a procedure
is a travesty of democracy.” (Dupont, in a letter to J. B. Say.)
[95] “The amount of the tax as compared with the amount of the net
product should be such that the position of the landed proprietor shall
be the best possible and the state of being a landowner preferable to any
other state in society.” (Dupont, p. 356.)
[96] If we compare this figure with the total gross revenue of France,
valued then at 5 milliard francs, it would represent a tax of 12 per
cent., which is rather heavy for a State that was supposed to be governed
by the laws of the “natural order.” The proportion which the present
French Budget bears to the total revenue of the country is 16 per cent.
The French Budget of 1781, introduced by Necker, corresponded almost
exactly with the figure given by the Physiocrats, namely, 610 millions.
Of course, we ought to add to this the ecclesiastical dues, the
seigniorial rights, and the compulsory labour of every kind, which were
to disappear under the Physiocratic _régime_.
[97] “The tax is a kind of inalienable common property. When proprietors
buy or sell land they do not buy and sell the tax. They can only dispose
of that portion of the land which really belongs to them, after deducting
the amount of the tax. This tax is no more a charge upon property than is
the right of fellow proprietors a burden upon one’s property. And so the
public revenue is not burdensome to anyone, costs nothing, and is paid
by no one. Hence, it in no way curtails the amount of property which a
person has.” (Dupont, vol. i, pp. 357, 358.)
[98] In order to give every security to proprietors the Physiocrats were
anxious that the value of the property, when once it was fixed, should
vary as little as possible. Baudeau, however, recognised the advisability
of periodical revaluations “in order that the sovereign power should
always share in both the profits and the losses of the producer.” And he
addresses this important caution to the proprietors: “Take no credit to
yourselves for the increase in the revenue of land. The thanks are really
due to the growing efficiency of the sovereign authority.” (P. 708.)
[99] “Let us observe, in passing, that the terms ‘taxation’ and ‘public
revenue’ have unfortunately become synonymous in the public mind. The
term ‘taxation’ is always unpopular. It implies a charge that is hard to
bear, and which everybody is anxious to shirk. The public revenue is the
product of the sovereign’s landed property, which is distinct from his
subjects’ property.” (Mercier de la Rivière, p. 451.)
[100] “The sovereign takes a fixed amount of the net product for his
annual income. This amount of necessity grows with every increase of
the net product and diminishes with every shrinking of the product. The
people’s interests and the sovereign’s are, consequently, necessarily
one.” (Baudeau, p. 769.)
[101] This was the basis of Voltaire’s lively satire, _L’Homme avec
Quarante Écus_. It treats of a wealthy financier who escapes taxation,
and who makes sport of the poor agriculturist who pays taxes for both,
although his income is only forty _écus_.
[102] “Such a reduction of the necessary expenditure must result in
diminished production, because there can be no harvest without some
amount of preliminary expense. You may check your expenditure, but it
will mean diminishing your harvest—a decrease in the one means an equal
decrease of the other. Such a fatal blow to the growth of population
would, in the long run, injure the landed proprietor and the sovereign.”
(Dupont de Nemours, p. 353.)
“A fall in the expenditure means a smaller harvest, which means that
less will be expended upon making preparation for the next harvest. This
cyclical movement seems a terrible thing to those who have given it some
thought.” (Mercier de la Rivière, p. 499.)
[103] “There would be something to say for this if the rich repaid
them by increased wages or additional almsgiving. But the poor give
to the rich, and so add to their misery, already sufficiently great.
The State demands from those who have nothing to give, and directs all
its penalties and exercises all its severity upon the poor.” (Turgot,
_Œuvres_, vol. i, p. 413).
“It would be better for the landed proprietors to pay it direct to the
Treasury, and thus save the cost of collection.” (Dupont de Nemours, p.
352.)
[104] “It might happen—and, indeed, it often does happen—that the
worker’s wage is only equal to what is necessary for his subsistence.”
(_Réflexions_, vi.)
It is also possible that Jesus was not formulating a general law when
He said that we have the poor always with us. Turgot likewise wished to
state the simple fact, and not to draw a general conclusion.
[105] Quesnay, _Second Problème économique_, p. 134. The argument which
follows is rather curious. He does not seem to think that a fall in wages
even below the minimum would result in the death of many people, but
simply that it would result in emigration to other countries, and that as
a consequence of such emigration the diminished supply at home would soon
lead to higher wages being paid—a fairly optimistic conclusion for the
period.
[106] Baudeau (p. 770) points out the error of confusing the gross
revenue with the net revenue. Allowance should be made for the cost of
collecting the revenue, etc.
[107] “If unfortunately it be true that three-tenths of the annual
product is not sufficient to cover the ordinary expenditure, there is
only one natural and reasonable conclusion to be drawn from this, namely,
curtail the expenditure.” (Dupont de Nemours, p. 775.)
“The tax must never be assessed in accordance with individual caprice.
The amount is determined by the natural order.” (Dupont, _Sur l’Origin
d’un Science nouvelle_.) Neither should the State, in their opinion,
exceed the limit, because it would mean having recourse to borrowing,
which would simply mean increased deferred taxation.
[108] See M. Garçon’s instructive brochure, _Un Prince allemand
physiocrate_, for a _résumé_ of the Margrave’s correspondence.
[109] We find the word in one of Dupont’s letters to Say, but that is
much later.
[110] Henry George dedicated his volume entitled _Protection or Free
Trade_ to them because he considered that they were his masters. But his
tribute loses its point somewhat when we remember that he admits that he
had never read them.
[111] Listen to Mercier de la Rivière: “We must admire the way in which
one man becomes an instrument for the happiness of others, and the
manner in which this happiness seems to communicate itself to the whole.
Speaking literally, of course I do not know whether there will not be a
few unhappy people even in this State, but their numbers will be so few
and the happy ones will be so numerous that we need not be much concerned
about helping them. All our interests and wills will be linked to the
interest and will of the sovereign, forming for our common good a harmony
which can only be regarded as the work of a kind Providence that wills
that the land shall be full of happy men.” This enchanting picture only
applies to future society, when the “natural order” will be established.
The optimism of the Physiocrats is very much like the anarchists’.
[112] Very little seems to have been known about Cantillon for more
than a century after his death. But, like all the rediscovered founders
of the science, he has received considerable attention for some years
past. His influence upon the Physiocrats has perhaps been exaggerated.
Mirabeau’s earliest book, _L’Ami des Hommes_, which appeared just twelve
months after Cantillon’s work, is undoubtedly inspired by Cantillon.
No discussion of his work is included in the text because it was felt
that it might interfere with the plan of the work as already mapped out.
There are several articles in various reviews which deal with Cantillon’s
work, the earliest being that contributed by Stanley Jevons to the
_Contemporary Review_ in 1881.
[113] _Valeurs et Monnaies_, which dates from 1769, and again in his
_Réflexions_. Quesnay’s conception of value may be gleaned from his
article entitled _Hommes_, which remained unpublished for a long time,
and has only recently appeared in the _Revue d’Histoire des Doctrines
économiques et sociales_, vol. i, No. 1.
[114] He dilates at considerable length on the distinction between
estimative value (what would now be called subjective value) and
appreciative (or social) value. The first depends upon the amount of time
and trouble we are willing to sacrifice in order to acquire it. In this
connection the notion of labour-value appears. As to appreciative value,
it differs from the preceding only in being an “average estimative value.”
[115] Turgot, though a disciple of Quesnay, remained outside the
Physiocratic school. He always referred to them contemptuously as “the
sect.”
[116] “I am so struck with this notion that I think it must serve as the
basis of this whole treatise.” (Chap. 1.)
[117] _Le Commerce et le Gouvernement_, p. 15.
[118] _Ibid._, Part I, chap. 1.
[119] “It is not correct to say that the exchanged values are equal; on
the contrary, each party seeks to give a smaller value in exchange for a
larger one. The process proves advantageous to both; hence, doubtless,
the origin of the idea that the values must be equal. But one ought to
have come to the conclusion that if each gains both must have given less
and obtained more.” (_Op. cit._, pp. 55, 86.) Compare this with the
quotation from de Trosne, p. 27, and note its psychological superiority.
[120] _Op. cit._, Part I, chap. 9.
[121] “Even where the land is covered with products there is no
additional material beyond what there was formerly. They have just been
given a new form, and wealth consists merely of such transformations.”
[122] _Op. cit._, Part I, chap. 29.
[123] In a recent study of the wage bargain we find M. Chatelain giving
expression to similar ideas, though apparently knowing nothing of
Condillac’s work.
[124] _Op. cit._, chap. xv, par. 8.
[125] See Turgot, _Mémoire sur les Prêts d’Argent_, p. 122: “In every
bargain involving the taking of interest a certain sum of money is given
now in exchange for a somewhat larger sum to be paid at some future date;
difference of time as well as of place makes a real difference to the
value of money.” Further on he adds (p. 127): “The difference is familiar
to everyone, and the well-known proverb ‘A bird in the hand is worth two
in the bush’ is simply a popular way of expressing it.”
[126] The life of Adam Smith presents nothing remarkable. It is easily
summed up in the story of his travels, his professional activities,
and the records of his friendships, and among these his intimacy with
Hume the philosopher has become classical. He was born at Kirkcaldy,
in Scotland, on June 5, 1723. From 1737 to 1740 he studied at the
University of Glasgow under Francis Hutcheson, the philosopher, to whom
he became much attached. From 1740 to 1746 he continued his studies at
Oxford, where he seems to have worked steadily, chiefly by himself. The
intellectual state of the university was at that time extremely low, and
a number of the professors never delivered any lectures at all. Returning
to Scotland, he gave two free courses of lectures at Edinburgh, one on
English literature and the other on political economy, in the course of
which he defended the principles of commercial liberty. In 1751 he became
Professor of Logic at Glasgow, at that time one of the best universities
in Europe. Towards the end of the year he was appointed to the chair of
Moral Philosophy, which included the four divisions of Natural Theology,
Ethics, Jurisprudence, and Politics within its curriculum. In 1759 he
published his _Theory of Moral Sentiments_, which speedily brought him
a great reputation. In 1764, when forty years of age, he quitted the
professorial chair at Glasgow University and accompanied the young
Duke of Buccleuch, son-in-law of Charles Townshend, the celebrated
statesman, on his travels abroad. With the young nobility of this period
foreign travel frequently took the place of a university training, on
account of the disrepute into which the latter had fallen. Smith was
given a pension of £300 a year for the rest of his life, so that the
mere material advantage was considerably in excess of his earnings as a
professor. The years 1764-66 were spent in this way. A year and a half
was passed at Toulouse, two months at Geneva, where he met Voltaire,
and another ten months at Paris. While in Paris he became acquainted
with the Physiocrats, particularly with Turgot and the Encyclopædists.
It was at Toulouse that he began his _Wealth of Nations_. Returning to
Scotland in 1767, he went to live with his mother, with the sole object
of devoting himself to this work. By 1773 the book was nearly complete.
But Smith moved to London, and the work did not appear till 1776. By this
achievement Smith crowned the great celebrity which he already enjoyed.
In January 1778 Smith was appointed Commissioner of Customs at Edinburgh,
a distinguished position which he held until his death in 1790.
All that we know of Smith’s character shows him to have been a
man of tender feelings and of great refinement of character. His
absent-mindedness has become proverbial. In politics his sympathies
were with the Whigs. In religion he associated himself with the deists,
a school that was greatly in vogue towards the end of the eighteenth
century, and of which Voltaire, who was much admired by Smith, was the
most celebrated representative.
For a long time the only life of Smith which we possessed was the memoir
written by Dugald Stewart, _Account of the Life and Writings of Adam
Smith_, and read by him in 1793 before the Royal Society of Edinburgh.
It appeared in the _Transactions_ of the society for 1794, and was
published in volume form in 1811 along with other biographies, under the
title of _Biographical Memoirs of Adam Smith, Robertson, etc._, by Dugald
Stewart. To-day we are more fortunate. John Rae in his charming _Life of
Adam Smith_ (London, 1895) has succeeded in bringing to light all that
we can know of Smith and his circle. To him we are indebted for most of
the details we have given. In 1894 James Bonar published a catalogue of
Smith’s library, containing about 2300 volumes, and comprising about
two-thirds of his whole library. A still more important contribution to
the study of Smith’s ideas has been made by Dr. Edwin Cannan, who in 1896
published _Lectures on Justice, Police, Revenue, and Arms, delivered in
Glasgow by Adam Smith, from Notes taken by a Student in 1763_ (Oxford).
This represents the course of lectures on political economy delivered by
Smith while professor at Glasgow. A manuscript copy of the notes taken in
this course by a student, probably in 1763, was accidentally discovered
by a London solicitor in 1876. These notes were in 1895 forwarded to Dr.
Cannan for publication. They are especially precious in helping us to
understand Smith’s ideas before his stay in France and his meeting with
the Physiocrats. Of the numerous editions of the _Wealth of Nations_
which have hitherto been published, the more important are those of
Buchanan, McCulloch, Thorold Rogers, and Nicholson. The latest critical
edition is that of Dr. Cannan, published in 1904 by Methuen, containing
very valuable notes. This is the edition we have used.
[127] _Wealth of Nations_, vol. ii, p. 275.
[128] On this point see Schatz’s _Individualisme économique et social_
(Paris, 1908).
[129] Chap. iv of sec. ii of the 7th part of the _Theory of Moral
Sentiments_ is entitled _Of Systems of License_.
[130] Oncken’s edition, p. 331.
[131] The theory that there are three factors of production, which has
since become a commonplace of economics, is not to be found in Smith.
Indirectly, however, it was he who originated the idea by distinguishing
in his treatment of distribution between the various sources of revenue.
The distinction once made, it was quite natural to consider each source
as a factor of production; and this is just what J. B. Say did in his
_Treatise_ (2nd ed., chaps. iv and v). Cf. Cannan’s _History of the
Theories of Production and Distribution_, p. 40 (1894).
[132] _Wealth of Nations_, Book I, chap. 1; Cannan, vol. i, pp. 13-14.
[133] “In almost every other race of animals each individual, when it is
grown up to maturity, is entirely independent, and in its natural state
has occasion for the assistance of no other living creature.” (_Wealth of
Nations_, Book I, chap. 2; Cannan, vol. i, p. 16.)
[134] _Wealth of Nations_, Book I, chap. 1; Cannan, vol. i, p. 6.
[135] _Ibid._, Book V, chap, 1, par. iii, art. 2; vol. ii, p. 267.
[136] “For a very small expence the public can facilitate, can encourage,
and can even impose upon almost the whole body of the people, the
necessity of acquiring those most essential parts of education.” (_Wealth
of Nations_, Book V, chap. 1, part iii, art. 2; Cannan, vol. ii, p. 270.)
[137] _Ibid._, Book I, chap. 3; vol. i, p. 19.
[138] “As the accumulation of stock must, in the nature of things, be
previous to the division of labour, so labour can be more and more
subdivided in proportion only as stock is previously more and more
accumulated.” (_Ibid._, Book II, Introd.; vol. i, p. 259.) It is true
that in another passage he speaks of the quantity of stock which can be
employed in any branch of business depending very much upon that of the
labour which can be employed in it (Book I, chap. 10, part ii; vol. i, p.
137). But this observation remains isolated, while the former represents
his true teaching.
[139] Cf. Cannan’s penetrating criticism of this idea of Smith’s in
_Theories of Production and Distribution_, pp. 80-83.
[140] This is the first of the four celebrated maxims enunciated by Smith
in his theory of taxation. Here are the other three: “(ii) The tax which
each individual is bound to pay ought to be certain and not arbitrary.
The time of payment, the manner of payment, the quantity to be paid,
ought all to be clear and plain to the contributor, and to every other
person. (iii) Every tax ought to be levied at the time, or in the manner,
in which it is most likely to be convenient for the contributor to pay
it. (iv) Every tax ought to be so contrived as both to take out and to
keep out of the pockets of the people as little as possible, over and
above what it brings into the public treasury of the State.” (_Wealth of
Nations_, Book V, chap. 2, part ii; Cannan, vol. ii, pp. 310-311.)
[141] This rule of payment according to ability did not prevent his
pronouncing in another paragraph in favour of progressive taxation. This
is an instance of a want of logic frequently evidenced in his writings.
Speaking of taxes upon rent, he remarks that they weigh more heavily
upon rich than upon poor, because the former in proportion to their
income spend more upon house rent than the latter. But “it is not very
unreasonable that the rich should contribute to the public expence, not
only in proportion to their revenue, but something more than in that
proportion.” (_Ibid._, Book V, chap. 2, part ii, art. 1; vol. ii, p. 327.)
[142] _Ibid._, Book II, chap. 3; vol. i, p. 314.
[143] “Farmers and country labourers, indeed, over and above the stock
which maintains and employs them, reproduce annually a neat produce, a
free rent to the landlord. As a marriage which affords three children is
certainly more productive than one which affords only two; so the labour
of farmers and country labourers is certainly more productive than that
of merchants, artificers, and manufacturers. The superior produce of the
one class, however, does not render the other barren or unproductive.”
(_Wealth of Nations_, Book IV, chap. 9; Cannan, vol. ii, p. 173.)
[144] _Ibid._, Book IV, chap. 9; vol. ii, p. 176.
[145] _Ibid._, Book II, chap. 5; vol. i, p. 344.
[146] _Wealth of Nations_, Book II, chap. 5; Cannan, vol. i, p. 344. Note
that here as elsewhere Smith entertains more than one opinion. In other
passages in the book he regards rent as a monopoly price “that enters
into the composition of the price of commodities in a different way from
wages and profit. High or low wages and profit, are the causes of high
or low price; high or low rent is the effect of it. It is because high
or low wages and profit must be paid, in order to bring a particular
commodity to market, that its price is high or low. But it is because its
price is high or low; a great deal more, or very little more, or no more,
than what is sufficient to pay those wages and profit, that it affords a
high rent, or a low rent, or no rent at all.” (_Ibid._, Book I, chap. 11;
vol. i, p. 147.)
It is impossible to reconcile these statements. In the one case rent is
regarded as a constituent element of price, in the other it is the effect
of price.
In the first edition this contradiction was still more evident. In
that edition rent, along with profit and wages, was treated as a third
determinant of value. (See Cannan’s edition, vol. i, p. 51, note 7.)
The paragraph was deleted from the second edition, and rent was treated
merely as a component part of the price. This modification was perhaps
the outcome of a letter written by Hume to Smith on April 1, 1776, after
he had read the _Wealth of Nations_ for the first time. “I cannot think,”
says Hume, “that the rent of farms makes any part of the price of the
produce, but that the price is determined altogether by the quantity and
the demand.” (Quoted by Rae in his _Life of Adam Smith_, p. 286.) The
celebrated controversy as to whether rent enters into prices is not a
thing of yesterday. Its origin dates from the birth of political economy
itself, and it will probably only die with it.
[147] His error is partly due to the fact that he failed to distinguish
between the profits of the _entrepreneur_ and the interest of the
capitalist. Both with Smith and with his successors the word “profit”
signified a twofold revenue, and this was perfectly correct so long
as the _entrepreneur_ was also a capitalist. The word “interest” was
reserved for the income of that person who lent capital but who did
not himself produce anything. The revenue “derived from stock, by the
person who manages or employs it, is called profit. That derived from it
by the person who does not employ it himself, but lends it to another,
is called the interest or the use of money.” (_Ibid._, Book I, chap.
6; vol. i, p. 54.) J. B. Say was the first to give us a definite idea
of the _entrepreneur_. Had Smith realised more clearly the functions
of the _entrepreneur_ he would probably have perceived: (1) That the
_entrepreneur_, in addition to paying interest on his capital, frequently
has to pay rent for the use of the soil; (2) that profit strictly so
called includes an element analogous to rent. According to Smith, profit
was simply payment for risks undergone or for work undertaken.
[148] James Watt in 1756 had set up his workshop within the precincts
of the University of Glasgow, for which he manufactured mathematical
instruments. The corporation had refused him permission to set it up in
the town—a striking illustration of the narrowness and inflexibility of
“the corporative _régime_.”
[149] A combination of Hargreave’s spinning jenny and Arkwright’s water
frame.
[150] Marx speaks of Smith as the economist who is the very epitome of
the manufacturing period. (_Das Kapital_, vol. i, p. 313, note.)
[151] See Mantoux’ work, _La Révolution industrielle au XVIIIe Siècle_,
p. 75 (Paris, 1905). “We are mistaken,” says he, “if we think that
manufacture was the dominant feature of the period preceding the factory
system. Logically it may be the necessary antecedent, but historically
its claim to priority is weak, although it left its indelible marks upon
industry. The appearance of industry at the time of the Renaissance is an
event of the greatest importance and significance, but it only played a
part of secondary importance for a century or two.”
[152] Rae’s _Life of Adam Smith_, p. 89.
[153] _Wealth of Nations_, Book I, chap. 11; Cannan, vol. i. p. 250.
[154] _Wealth of Nations_, Book I, chap. 8; Cannan, vol. i, p. 80.
[155] _Ibid._, Book I, chap. 9, in fine; vol. i, p. 100.
[156] _Ibid._, Book I, chap. 10, part ii; vol. i, p. 143.
[157] _Ibid._, Book I, chap. 10, part ii; vol. i, p. 128. The whole
passage contains a curious eulogy of proprietors and farmers.
[158] _Wealth of Nations_, Book IV, chap. 2; Cannan, vol. i, p. 427.
[159] For the connection between Smith’s system and the philosophy of
his time see W. Hasbach, _Die allgemeinen philosophischen Grundlagen der
von F. Quesnai und A. Smith begründeten politischen Oekonomie_ (Leipzig,
1890).
[160] _Wealth of Nations_, Book I, chap. 2; Cannan, vol. i, p. 15.
[161] The whole passage, almost word for word, may be found in Smith’s
course of lectures at Glasgow, and the whole is taken from Mandeville’s
_Fable des Abeilles_.
[162] _Wealth of Nations_, Book I, chap. 4; Cannan, vol. i, p. 24.
[163] For a long time economists were quite content with Smith’s theory
of capital. Like other portions of his work, it readily became classic,
and subsequent writers simply repeated it. To-day, however, this success
hardly seems to have been warranted. “It can scarcely be denied,”
writes Cannan, “that Smith left the whole subject of capital in the
most unsatisfactory state.” (_Theories of Production and Distribution_,
p. 89.) If this remark needs any justification we have it in the many
discussions which have taken place on this subject during the last
fifty years, and which are not yet at an end. Some of the most original
works of recent years, Böhm-Bawerk’s _Positive Theory of Capital_, for
example, are entirely taken up with this topic. In England, America,
and Italy the best-known economists, Cannan, Fisher, and Pareto, have
recently revived the ancient notions, and the discussions which have
followed are sufficient evidence that Smith had by no means exhausted the
subject. If we carefully read Book II of the _Wealth of Nations_, which
is entirely devoted to this topic, what do we find? We have a distinction
drawn between fixed and circulating capital borrowed from practical
affairs, but possessing no great scientific value; the very doubtful
identification of national capital with the sum of private capitals; a
very unsatisfactory attempt at differentiating between the notions of
capital and revenue; the affirmation that saving involves consumption, a
paradox repeated _ad nauseam_ down to the days of Mill; the commonplace
statement that capital increases as saving grows; and, finally, the
proposition that “capital limits industry.”
[164] _Wealth of Nations_, Book II, chap. 3; Cannan, vol. i, p. 325. “The
annual produce of the land and labour of any nation can be increased in
its value by no other means, but by increasing either the number of its
productive labourers, or the productive powers of those labourers who
had before been employed. The number of its productive labourers, it is
evident, can never be much increased, but in consequence of an increase
of capital, or of the funds destined for maintaining them. The productive
powers of the same number of labourers cannot be increased, but in
consequence either of some addition and improvement to those machines
and instruments which facilitate and abridge labour; or of a more proper
division and distribution of employment. In either case an additional
capital is almost always required.”
[165] _Ibid._, Book IV, chap. 2; vol. i, p. 423.
[166] “The general industry of the society never can exceed what the
capital of the society can employ.” (_Ibid._, Book IV, chap. 2; vol. i,
p. 419.) John Stuart Mill was the first to employ the formula in its
condensed form, “Industry is limited by capital.”
[167] We have spoken of the controversies as threadbare, for every
economist is by this time persuaded that, assuming the necessity for the
co-operation of capital, land, and labour in production, it is quite
clear that the amount of produce raised must depend upon the amount of
each of these factors employed, and not upon the amount of any one of
them.
Smith had anticipated the arguments advanced by such socialists as
Rodbertus and Lassalle, who regard saving rather than labour as the
source of capital. “Parsimony, and not industry, is the immediate cause
of the increase of capital. Industry, indeed, provides the subject which
parsimony accumulates. But whatever industry might acquire, if parsimony
did not save and store up, the capital would never be the greater.”
(_Wealth of Nations_, Book II, chap. 3; Cannan, vol. i, p. 320.)
[168] _Ibid._, Book II, chap. 3; vol. i, pp. 323, 324, 325.
[169] _Wealth of Nations_, Book I, chap. 7; Cannan, vol. i, p. 58. “The
market price of every particular commodity is regulated by the proportion
between the quantity which is actually brought to market, and the demand
of those who are willing to pay the natural price of the commodity, or
the whole value of the rent, labour, and profit, which must be paid
in order to bring it thither. Such people may be called the effectual
demanders, and their demand the effectual demand; since it may be
sufficient to effectuate the bringing of the commodity to market. It is
different from the absolute demand. A very poor man may be said in some
sense to have a demand for a coach and six; he might like to have it;
but his demand is not an effectual demand, as the commodity can never be
brought to market in order to satisfy it.”
[170] For Smith oppression meant the tyranny either of producers or
consumers. When profits are above the normal rate “it is a proof that
something is either bought cheaper or sold dearer than it ought to be,
and that some particular class of citizens is more or less oppressed
either by paying more or by getting less than what is suitable to that
equality which ought to take place, and which naturally does take place
among all the different classes of them.” (_Ibid._, Book IV, chap. 7,
part iii; vol. ii, p. 128.)
The correspondence between selling price and the cost of production
seemed to Smith to be of the very essence of justice. Complete
correspondence would realise the ideal of the just price.
[171] _Wealth of Nations_, Book I, chap. 4; Cannan, vol. i, p. 30. The
passage is well known. “The word ‘value,’ it is to be observed, has
two different meanings, and sometimes expresses the utility of some
particular object, and sometimes the power of purchasing other goods
which the possession of that object conveys. The one may be called
‘value in use,’ the other ‘value in exchange.’ The things which have the
greatest value in use have frequently little or no value in exchange;
and, on the contrary, those which have the greatest value in exchange
have frequently little or no value in use. Nothing is more useful than
water: but it will purchase scarce anything; scarce anything can be had
in exchange for it. A diamond, on the contrary, has scarce any value in
use; but a very great quantity of other goods may frequently be had in
exchange for it.”
[172] The statement has been qualified because in the passage referred
to Smith seems to define utility in the vulgar sense (_i.e._ utility as
contrasted with mere agreeableness). This want of exactness was corrected
by Ricardo, and is the subject of a searching criticism by Mill. The
following passage from his _Lectures on Justice_ may serve to throw some
light upon the definition: “There is no demand for a thing of little
use; it is not a rational object of desire.” Smith could not conceive
the possibility of a demand or even a desire for a commodity which was
useless from a rational point of view. But this is evidently a great
mistake.
[173] The radical separation of the two ideas was perhaps more a matter
of expression than of reasoning, for in his _Lectures on Justice_, p.
176, value in use, coupled with the purchasing power possessed by those
who desired the commodity, was regarded as one of the elements which
determined the demand for it and fixed its market price. The whole
discussion of the theory of value by Smith is very unsatisfactory.
[174] We ought perhaps to have said that he had to choose between three
possible definitions, for in the _Lectures on Justice_ we find a third
definition of “natural price” (p. 176).
[175] _Wealth of Nations_, Book I, chap. 7; Cannan, vol. i, p. 58.
[176] _Ibid._, Book I, chap. 5; vol. i, p. 33.
[177] Pareto in his recent article _L’Économie et la Sociologie au point
de vue scientifique_ (_Rivista di Scienza_, 1907, No. 2) expresses
himself as follows: “Underneath the actual prices quoted on the
exchanges, prices varying according to the exigencies of time and place
and dependent upon an infinite number of circumstances, is there nothing
which has any constancy or is in any degree less variable? This is the
problem that political economy must solve.”
[178] _Wealth of Nations_, Book I, chap. 5; Cannan, vol. i, p. 32.
In this passage Smith seems to imply that the value of an object is
determined, not by the amount of labour which it cost to produce it,
but by the amount of labour which can be bought in exchange for it.
Fundamentally the two ideas are one, for objects of equal value only
can be exchanged, so that the amount of labour anyone can buy with any
given object is equal to the amount of labour which that object cost to
produce. “Goods,” says Smith, “contain the value of a certain quantity of
labour, which we exchange for what is supposed at the time to contain the
value of an equal quantity.”
[179] _Ibid._, Book I, chap. 5; vol. i, p. 33.
[180] _Ibid._, Book I, chap. 6; vol. i, p. 50.
[181] _Wealth of Nations_, Book I, chap. 7; Cannan, vol. i, p. 57.
[182] _Ibid._, chap. 6; vol. i, p. 51. Here, for example, is a passage in
which, as Böhm-Bawerk forcibly remarks (_Kapital und Kapitalzins_, 2nd
ed., 1900, p. 84), the two conceptions are found in juxtaposition without
any attempt at reconciliation: “In this state of things [where labour
and capital have already been appropriated] the whole produce of labour
does not always belong to the labourer. He must in most cases share it
with the owner of the stock which employs him. Neither is the quantity
of labour commonly employed in acquiring or producing any commodity,
the only circumstance which can regulate the quantity which it ought
commonly to purchase, command, or exchange for. An additional quantity,
it is evident, must be due for the profits of the stock which advanced
the wages and furnished the materials of that labour.” At the beginning
of the passage the workman shared the produce of his labour and profits
constituted a deduction from the value created by labour alone; at the
end of the paragraph profits issue from a supplementary value which is an
addition to the value already given it by labour. Other passages where
the two conceptions come into contact are also cited by Böhm-Bawerk.
Interest and rent are also occasionally taken as evidence that the
workman is being exploited, and this entitles Smith to be regarded as the
father of socialism. More than one passage in his work seems to point to
this conclusion. “In other countries, rent and profit eat up wages, and
the two superior orders of people oppress the inferior one.” (Book IV,
chap. 7, part ii; vol. ii, p. 67.) Concerning property he writes: “Civil
government, so far as it is instituted for the security of property, is
in reality instituted for the defence of the rich against the poor, or of
those who have some property against those who have none at all.” (Book
V, chap. 1, part ii; vol. ii, p. 207.) And finally there is the famous
passage from the sixth chapter: “As soon as the land of any country has
all become private property, the landlords, like all other men, love
to reap where they never sowed, and demand a rent even for its natural
produce.… He [the workman] must then pay for the licence to gather them;
and must give up to the landlord a portion of what his labour either
collects or produces. This portion, or, what comes to the same thing, the
price of this portion, constitutes the rent of land, and in the price of
the greater part of commodities makes a third component part.” (Book I,
chap. 6; vol. i, p. 51.) Dr. Cannan in his _History of the Theories of
Production and Distribution_ goes the length of declaring that the theory
of spoliation is the only one in Smith’s work. It is to Smith that we owe
that idea so frequently expressed by socialists, namely, that the workman
in modern society never really obtains the produce of his toil.
[183] Cf. _supra_, p. 64, note 2.
[184] _Wealth of Nations_, Book I, chap. 7; Cannan, vol. i, p. 59.
[185] Smith only gives at most seven or eight lines to monopoly price.
He simply states that “the price of monopoly is upon every occasion the
highest which can be got.” (_Ibid._, Book I, chap. 7; vol. i, p. 63.)
To-day the theory of monopoly prices is one of the most important in the
whole of economics.
[186] _Wealth of Nations_, Book I, chap. 8; Cannan, vol. i, pp. 81-82.
[187] “That wealth consists in money, or in gold and silver, is a popular
notion which naturally arises from the double function of money, as
the instrument of commerce, and as the measure of value.” (_Wealth of
Nations_, Book IV, chap. 1; Cannan, vol. i, p. 396.) The whole chapter is
an attempt to get rid of this prejudice.
[188] _Ibid._, Book IV, chap. 1; vol. i, p. 416; also Book II, chap. 2;
vol. i, p. 274. “Though the weekly or yearly revenue of all the different
inhabitants of any country, in the same manner, may be, and in reality
frequently is, paid to them in money, their real riches, however, the
real weekly or yearly revenue of all of them taken together, must always
be great or small in proportion to the quantity of consumable goods which
they can all of them purchase with this money. The whole revenue of all
of them taken together is evidently not equal to both the money and the
consumable goods; but only to one or other of those two values, to the
latter more properly than to the former.”
[189] We meet with this expression several times: in Book I, chap. 11,
part iii (vol. i, pp. 4 and 240), and in Book II, chap. 3 (vol. i, pp.
315, 323).
[190] An expression that is met with three times—in chap. 2 of Book II
(vol. i, pp. 272, 275, 279).
[191] _Wealth of Nations_, Book II, chap. 2; Cannan, vol. i, p. 275.
[192] All these questions so obscurely treated in Smith’s work are
handled with admirable lucidity in Irving Fisher’s _Nature of Capital and
Income_ (New York, 1907). Revenue is entirely stripped of that material
suggestion which was always associated with it in Smith’s work, and is
looked upon as a continual flow of services, whilst capital as a whole is
regarded as total wealth existing at one particular moment and from which
these services flow out.
[193] _Wealth of Nations_, Book II, chap. 2; Cannan, vol. i, p. 304.
[194] _Ibid._, Book IV, chap. 1; vol. i, pp. 402, 406.
[195] _Ibid._, Book II, chap. 3; vol. i, p. 322.
[196] Hume’s treatment of the quantity theory of money in his essays on
_Money_ and _The Balance of Trade_ is much clearer than Smith’s.
[197] _Wealth of Nations_, Book II, chap. 2; Cannan, vol. i, p. 285.
[198] For instance, a high rate of exchange immediately readjusts the
commercial indebtedness of nations. (_Ibid._, Book IV, chap. 1; vol. i,
p. 400.) Elsewhere he points out that the advantages enjoyed by Europe
from the possession of colonies were not exactly sought by her. The
search for colonies, their discovery and exploitation, all this was
undertaken without any preconceived plan, and in spite of the disastrous
regulations imposed by European Governments. (_Ibid._, Book IV, chap. 7,
part ii; vol. ii, pp. 90, 91.)
[199] _Wealth of Nations_, Book IV, chap. 5; Cannan, vol. i, p. 324; Book
II, chap. 9; vol. ii, p. 43; Book IV, chap. 9; vol. ii, p. 172.
[200] “It is thus that the private interests and passions of individuals
naturally dispose them to turn their stock towards the employments
which in ordinary cases are most advantageous to the society.” The word
“passion” was not inserted by chance. It occurs no less than three times
on the same page. (_Ibid._, Book IV, chap. 7, part iii; vol. ii, p. 129.)
[201] _Ibid._, Book III, chap. 4; vol. i, pp. 389, 390.
[202] _Ibid._, Book II, chap. 1, in fine; vol. i, p. 267.
[203] _Wealth of Nations_, Book II, chap. 4, beginning of chapter;
Cannan, vol. i, p. 332.
[204] _Ibid._, Book II, chap. 2; vol. i, p. 278.
[205] _Ibid._, Book IV, chap. 2; vol. i, p. 421. After having just said:
“By pursuing his own interest, he frequently promotes that of the society
more effectually than when he really intends to promote it.”
[206] _Ibid._, Book IV, chap. 5; vol. ii, p. 43.
[207] _Wealth of Nations_, Book IV, chap. 9; Cannan, vol. ii, p. 172.
[208] “The great object of the political œconomy of every country, is to
increase the riches and power of that country.” (_Wealth of Nations_,
Book II, chap. 5; Cannan, vol. i, p. 351.) The expression “the political
economy of every country,” which Smith frequently employed, might be used
in answer to writers such as Knies, who speak of the Universalism or
Internationalism of Smith.
[209] _Ibid._, Book IV, chap. 1; vol. i, p. 421.
[210] _Wealth of Nations_, Book I, chap. 8; Cannan, vol. i, p. 68. The
masters possess the advantage in discussion (1) because they can combine
much more easily; (2) because, thanks to their superior funds, they can
afford to wait while “many workmen could not subsist a week, few could
subsist a month, and scarce any a year without employment.”
[211] Cf. _supra_, p. 78.
[212] _Ibid._, Book IV, chap. 7, part ii, the beginning; vol. ii, p. 67.
[213] Say, speaking of the working classes, remarks: “Are we quite
certain that the workman obtains that share of wealth which is exactly
proportioned to the amount which he has contributed to production?”
(_Treatise_, 6th ed., p. 116.)
[214] _Wealth of Nations_, Book IV, chap. 9, in fine; Cannan, vol. ii, p.
184.
[215] _Ibid._, Book V, chap. 2, part i; vol. ii, p. 304. He makes
exception only of the post-office, “perhaps the only mercantile project
which has been successfully managed by, I believe, every sort of
government.” (P. 303.)
[216] _Ibid._, Book II, chap. 3; vol. i, p. 328.
[217] _Ibid._, Book V, chap. 2, part ii, art. 1; vol. ii, p. 318.
[218] _Ibid._, Book V, chap. 3; vol. ii, p. 413.
[219] _Wealth of Nations_, Book V, chap. 2, part ii; Cannan, vol. ii, p.
308.
[220] Cf. particularly Burgin, _Les Communaux et la Révolution
française_, in _Nouvelle Revue historique de Droit_, Nov.-Dec. 1908.
[221] _Wealth of Nations_, Book V, chap. 1, part iii, art. 2; Cannan,
vol. ii, p. 250.
[222] _Ibid._, Book IV, chap. 9; vol. ii, p. 185.
[223] _Ibid._, Book I, chap. 10, part ii; vol. i, p. 130.
[224] _Wealth of Nations_, Book V, chap. 1, part iii, art. 1; Cannan,
vol. ii, p. 233.
[225] _Ibid._, Book V, chap. 1, part iii, art. 1; vol. ii, p. 246.
[226] _Ibid._, Book II, chap. 4, in fine. It is probable that his
conversion to belief in absolute liberty took place later as the result
of his perusal of Bentham’s _Defence of Usury_, published in 1787,
advocating the right of taking interest. This seems to have been the case
if we can credit the report of a conversation which Smith had with one of
Bentham’s friends, mentioned in a letter written to Bentham by another of
his friends—George Wilson. Cf. John Rae, _Life of Adam Smith_, p. 423.
[227] _Wealth of Nations_, Book II, chap. 2; Cannan, vol. i, p. 307.
[228] _Wealth of Nations_, Book II, chap. 2; Cannan, vol. i, p. 307. He
continues: “The obligation of building party walls in order to prevent
the communication of fire, is a violation of natural liberty, exactly
of the same kind with the regulations of the banking trade which are
here proposed.” This passage proves that Smith was in favour of public
regulations which would further the material security of the citizens.
Elsewhere he shows his partiality for adopting hygienic precautions
against the spread of contagious diseases (Book V, chap. 1, part iii;
vol. ii, p. 272).
[229] Cf. Mantoux, _op. cit._, pp. 65-66. This work gives most
interesting details bearing upon all the points mentioned here. Internal
restrictions are criticised by Smith in the second part of chap. 10 of
Book I.
[230] “Each of those different branches of trade, however, is not only
advantageous, but necessary and unavoidable, when the course of things,
without any constraint or violence, naturally introduces it,” says he,
after giving an exposition of the respective advantages of the various
forms of economic activity. (_Wealth of Nations_, Book II, chap. 5;
Cannan, vol. i, p. 352.)
[231] _Wealth of Nations_, Book IV, chap. 2; Cannan, vol. i, p. 419.
[232] _Ibid._, Book IV, chap. 1; vol. i, p. 422.
[233] _Ibid._, Book IV, chap. 3, part ii; vol. i, pp. 457-458.
[234] _Principles of Political Economy_, Book III, chap. 17.
[235] _Wealth of Nations_, Book IV, chap. 8; Cannan, vol. ii, p. 159.
[236] It is true that in Book IV, chap. 3, part 2, he declares: “In
every country it always is and must be the interest of the great body of
the people to buy whatever they want of those who sell it cheapest. The
proposition is so very manifest, that it seems ridiculous to take any
pains to prove it.” (Cannan, vol. i, p. 458.)
[237] Speaking of duties on corn, he writes: “To prohibit by a perpetual
law the importation of foreign corn and cattle, is in reality to enact,
that the population and industry of the country shall at no time exceed
what the true produce of its own soil can maintain.” (_Ibid._, Book
IV, chap. 2; vol. i, p. 427.) He always views the question from the
standpoint of increased population and labour, and not from that of the
consumer.
[238] _Ibid._, Book II, chap. 5. Cf. Book IV, chap. 1.
[239] _Wealth of Nations_, Book IV, chap. 2, in fine; Cannan, vol. i, p.
435.
[240] The “Navigation Laws” is a generic term for a number of laws, the
most famous of them dating from the time of Cromwell. Their immediate
object was the destruction of the Dutch fleet, and English commerce was
organised with a view to securing this. There is no doubt but that they
contributed very considerably to the development of English maritime
power.
[241] _Ibid._, Book IV, chap. 2; vol. i, p. 429.
[242] But “when there is no probability that any such repeal can be
procured it seems a bad method of compensating the injury done to certain
classes of our people, to do another injury ourselves, not only to those
classes, but to almost all the other classes of them.” (_Ibid._, Book IV,
chap. 2; vol. i, p. 433.)
[243] The discussion of these various cases is to be found towards the
end of chap. 2 of Book IV.
[244] This system is expounded in Book V, chap 2, part ii, art. 5.
[245] In the preface to his translation, 1821 ed., p. lxix.
[246] Rae, _Life of Smith_, p. 103. The author of this famous phrase is
not known.
[247] J. B. Say, _Traité_, 1st ed., p. 240.
[248] Mantoux, _La Révolution industrielle_, p. 83. M. Halévy gives
expression to a similar idea in his _La Jeunesse de Bentham_, p. 193
(Paris, 1901).
[249] So called in honour of the leading English representative, Lord
Eden.
[250] In 1778, 1784, 1786, 1789.
[251] 1791, 1793, 1796.
[252] Professor Kraus, writing in 1796, declared that no book published
since the days of the New Testament would effect so many welcome changes
when it became thoroughly known (J. Rae, p. 360). By the beginning of
the nineteenth century its influence had become predominant. All the
Prussian statesmen who aided Stein in the preparation and execution of
those important reforms that gave birth to modern Prussia were thoroughly
versed in Smith’s doctrines, and the Prussian tariff of 1821 is the first
European tariff in which they are deliberately applied. (Cf. Roscher,
_Geschichte der Nationalökonomik in Deutschland_.)
[253] In his introduction to the _Traité_, 1st ed. (The phrase was
deleted in the 6th ed.)
[254] J. B. Say, _Traité_, 1st ed., introduction, p. xxxiii.
[255] He was born at Lyons on January 5, 1767. After a visit to England
he entered the employment of an assurance company, and took part as
a volunteer in the campaign of 1792. From 1794 to 1800 he edited a
review entitled _Décade philosophique, littéraire et politique, par une
Société de Républicains_. He was nominated a member of the Tribunate in
1799. After the publication of his _Traité_, the First Consul, having
failed to obtain a promise that the financial proposals outlined in the
first edition would be eliminated in the second, dismissed him from the
Tribunate, offering him the post of director of the _Droits réunis_ as
compensation. Say, who disapproved of the new _régime_, refused, and
set up a cotton factory at Auchy-les-Hesdins in the Pas-de-Calais. He
realised his capital in 1813, returned to Paris, and in 1814 published a
second edition of his treatise. In 1816 he delivered a course of lectures
on political economy at the Athénée, probably the first course given
in France. These lectures were published in 1817 in his _Catéchisme
d’Économie politique_. In 1819 the Restoration Government appointed him
to give a course on “Industrial Economy” (the term “Political Economy”
was too terrible). In 1831 he was made Professor of Political Economy in
the Collège de France. He died in 1832. His _Cours complet d’Économie
politique_ was published, in six volumes, in 1828-29.
[256] Cf. a letter to Louis Say in 1827 (_Œuvres diverses_, p. 545).
[257] Garnier’s translation of Adam Smith, 1802, vol. v, p. 283.
[258] _Traité_, 1803 ed., p. 39.
[259] _Ibid._, p. 21. Later on he employs the more comprehensive term
“natural agents.”
[260] _Traité_, 1803 ed., Book I, chaps. 42 and 43. By “industry” Say
understands every kind of labour. Cf. 6th ed., pp. 70 _et seq._
[261] Malthus still appeared hostile to the doctrine of immaterial
products, but Lauderdale, Tooke, McCulloch, and Senior accepted it, and
it seemed definitely fixed when Stuart Mill confined the word “product”
to material products only. For Tooke’s view see his letter to J. B. Say
in the _Œuvres diverses_ of the latter.
[262] _Traité_, Book I, chap. 2. Is it not strange that Say should
have failed to apply this idea to commerce? He regards the latter
as productive because it creates exchangeable values. Nevertheless
he criticises Condillac for having said that mere exchange of goods
increases wealth because it increases the utility of objects. This is
because Say is perpetually mixing up utility and exchange value, a
confusion that leads him into many serious mistakes.
[263] _Traité_, 6th ed., p. 6. The word “laws” does not appear in the
first edition. Say merely speaks of general principles. It is found for
the first time in the edition of 1814: “General facts or, if one wishes
to call principles by that name, general laws” (p. xxix).
[264] Correspondence with Malthus, in _Œuvres diverses_, p. 466.
[265] _Traité_, Introd., 1st ed., p. ix; 6th ed., p. 13.
[266] _Ibid._, 1st ed., Book I, p. 404.
[267] There is no need for exaggeration, however, and no need to regard
Say as totally indifferent to suffering and misery. He declares,
_e.g._, that “for many homes both in town and country life is one long
privation,” and that thrift in general “implies, not the curtailment of
useless commodities, such as expediency and humanity would welcome, but a
diminution of the real needs of life, which is a standing condemnation of
the economic system of many Governments.” (_Traité_, 1st ed., vol. i, pp.
97-98; 6th ed., p. 116.)
[268] _Traité_, 6th ed., p. 403.
[269] _Ibid._, 1st ed., vol. i, p. 48.
[270] _Ibid._, 5th ed., vol. i, p. 67.
[271] Critical examination of McCulloch’s treatise (1825), in _Œuvres
diverses_, pp. 274-275.
[272] _Traité_, 6th ed., p. 349.
[273] “Rent,” he says, “doubtless is partly interest on capital buried
in the soil, for there are few properties which do not owe something to
improvements made in them. But their total value is seldom due to this
alone. It might be if the land were fertile but lacked the necessary
facilities for cultivation. But this is never the case in civilised
countries.” (Critical examination of McCulloch’s treatise (1825), in
_Œuvres diverses_, p. 277.)
[274] _Traité_, 1st ed., p. 154.
[275] “The theory of heat and of weight and the study of the inclined
plane have placed the whole of nature at the disposal of mankind. In the
same way the theory of exchange and of markets will change the whole
policy of the world.” (_Ibid._, 6th ed., p. 51.)
[276] _Traité_, 1st ed., vol. ii, p. 175.
[277] _Ibid._, p. 179.
[278] _Ibid._, p. 178.
[279] “One kind of product would seldom be more plentiful than another
and goods would seldom be too many if everyone were given complete
freedom.” Too much stress has possibly been laid on the phrase “Certain
products are superabundant just because others are wanting,” and it
has been taken as implying that even partial over-production is an
impossibility. A note inserted on the next page helps to clear up the
matter and to prevent misunderstanding. “The argument of the chapter,”
says he, “is not that partial over-production is impossible, but merely
that the production of one thing creates the demand for another.” He
certainly seems unfaithful to his own position in the letters he wrote
to Malthus, in which he tries to defend his own point of view by saying
that “production implies producing goods that are demanded,” and that
consequently if there is any excessive production it is not the fault
of production as such and cannot be regarded as _over-production_. In
greater conformity with his own views and much nearer the truth is
his reply to an article by Sismondi published in 1824 in the _Revue
encyclopédique_ under the title _Sur la Balance des Consommations avec
les Productions_ (_Œuvres diverses_, p. 250). His statements vary from
one edition to another, and anything more unstable than Say’s views
on this question would be difficult to imagine. The formula “Products
exchange for products” is so general that it includes everything, but
means nothing at all; for what is money, after all, if it is not a
product?
[280] Letters to Malthus (_Œuvres diverses_, p. 466).
[281] Malthus, _Principles of Political Economy_, Book II, chap. 1, sect.
9.
[282] _Sur la Balance des Consommations avec les Productions_, p. 252.
[283] _Ibid._, p. 251.
[284] Dühring, _Kritische Geschichte der Nationalökonomie und des
Sozialismus_, 2nd ed., 1875, p. 165. For the other side of the question
one may profitably peruse the interesting study of Say contributed by M.
Allix to the _Revue d’Économie politique_, 1910 (pp. 303-341), and the
_Revue d’Histoire des Doctrines_, 1911, p. 321.
[285] Stanley Jevons (_Theory of Political Economy_, 3rd ed., 1888)
has recognised in too absolute a fashion, perhaps, the superiority of
the French economists over Ricardo. “The true doctrine may be more
or less clearly traced through the writings of a succession of great
French economists, from Condillac, Baudeau, and Le Trosne, through
J. B. Say, Destutt de Tracy, Storch, and others, down to Bastiat and
Courcelle-Seneuil. The conclusion to which I am ever more clearly coming
is that the only hope of attaining a true system of economics is to fling
aside, once and for ever, the mazy and preposterous assumptions of the
Ricardian School.” (Preface, p. xlix.)
[286] “The people must comprehend that they are themselves the cause of
their own poverty.” (Malthus, p. 458.) Doubtless this is the reason why
M. Halévy, among others, in his book _Le Radicalisme philosophique_,
remarks that Ricardo, Malthus, and their disciples were regarded as
the exponents of optimism and quietism. But in what sense were they
optimists? Of course they believed that the existing economic order is
the best possible, and that it would be impossible to change it for
a better. That may be. But we prefer to think of them as “contented
pessimists.”
[287] “Every reader of candour must acknowledge that the practical design
uppermost in the mind of the writer, with whatever want of judgment it
may have been executed, is to improve the condition and increase the
happiness of the lower classes of society.” It is with this declaration
that Malthus brings his book on population to a close.
[288] Miss Edgeworth, a contemporary of Ricardo, states in her letters
that political economy was so much the fashion that distinguished ladies
before engaging a governess for their children inquired about her
competence to teach political economy.
[289] _Conversations on Political Economy_, by Mrs. Marcet (1816).
_Illustrations of Political Economy_, by Miss Martineau (9 vols.,
containing thirty stories, 1832-34).
[290] Thomas Robert Malthus was born in 1766. His father, a country
gentleman, was a man of learning and a friend of most of the philosophers
of his time, especially Hume, and, it also seems, J. J. Rousseau. He was
the youngest son of the family, and was intended for the Church and given
an excellent education. After leaving Cambridge he took a living in the
country, but in 1807 was appointed professor at a college founded by the
East India Company at Haileybury, in Hertfordshire, where he remained
until his death in 1834. He married when thirty-nine years of age, and
had three sons and a daughter.
Malthus was a young unmarried clergyman living in a small country parish
when, at the age of thirty-two, he in 1798 published anonymously his
famous _Essay on the Principle of Population as it affects the Future
Improvement of Society_. His critics were legion. In order to devote more
study to the subject, he took a three years’ tour (1799-1802) on the
Continent—avoiding France, because France at this period was anything but
inviting to an Englishman. In 1803 he published—under his own name this
time—a second edition, much modified and amplified, and with a slightly
different title: _An Essay on the Principle of Population, or a View of
its Past and Present Effects on Human Happiness_. Four other editions
were published during his lifetime.
We must not forget his other works, although they were all eclipsed by
his earliest effort. These were: The _Principles of Political Economy
considered with a View to their Practical Application_ (1820); _A Series
of Short Studies dealing with the Corn Laws_ (1814-15); _On Rent_ (1815);
_The Poor Law_ (1817); and finally his _Definitions in Political Economy_
(1827).
[291] See Stangeland, _Pre-Malthusian Doctrines_ (New York, 1904).
[292] Godwin, _Political Justice_, Book VIII, chap. 7 (reprinted, London,
1890).
[293] “Man doubtless will never become immortal, but it is possible that
the span of human life may be indefinitely prolonged.”
[294] Chap. 8 is entitled “The Error of Thinking that the Danger
resulting from Population is Remote.” “There are few States in which
there is not a constant effort in the population to increase beyond the
means of subsistence. This constant effort as constantly tends to subject
the lower classes of society to distress, and to prevent any great
permanent amelioration of their condition.” (P. 10.)
[295] If two children were the normal issue of every marriage,
population would evidently diminish, for all the children will not reach
the marriageable age. Of those that do all will not become parents.
Experience seems to show that with a birth-rate of less than three per
family population does not increase, or if it does grow at all it is
almost imperceptibly. This is the case in France, where on an average
there are 2·70 births to every marriage.
To justify multiplying by two, Malthus regards a family of six as being a
normal one. Of the six, two will die before attaining marriageable age,
or will remain celibates, so that we are left with four, who will in turn
become parents, and so we have the series 2, 4, etc.
[296] The statement that population doubles every twenty-five years might
appear to be confirmed by the growth of population in the United States.
It is curious to find that the population there during the nineteenth
century conforms exactly to Malthus’s formula. In 1800 it was 5 millions.
Doubling four times (4 periods of 25 years = 100) gives us a population
of 80 millions, which is actually the figure for 1905, five years after
the end of the century. But of course this is pure chance, the increase
resulting from immigration rather than a rising birth-rate.
[297] It was in this connection that Malthus penned those famous words
which have been so frequently brought up against him, although they were
omitted from a later edition. “A man who is born into a world already
possessed, if he cannot get subsistence from his parents on whom he has a
just demand, and if the society do not want his labour, has no claim of
_right_ to the smallest portion of food, and, in fact, has no business
to be where he is. At Nature’s mighty feast there is no vacant cover for
him. She tells him to be gone.…” On the other hand, let us remember his
services in reorganising public assistance in England in 1832.
[298] “The effect of anything like a promiscuous intercourse which
prevents the birth of children is evidently to weaken the best affections
of the heart and in a very marked manner to degrade the female character.
And any other intercourse would, without improper arts, bring as many
children into the society as marriage, with a much greater probability of
their becoming a burden to it.” (P. 450.)
[299] “These considerations show that the nature of chastity is not, as
some have supposed, a forced produce of artificial society; but that
it has the most real and solid foundation in nature and reason; being
apparently the only virtuous means of avoiding the vice and misery which
result so often from the principle of population.” (P. 450.)
He also notes that this virtue has usually been especially commended to
women, but that “there is no reason for supposing that the violation
of the laws of chastity are not equally dishonourable for both sexes.”
Malthus evidently believed in one moral law for both sexes.
Consequently whenever the reverend gentleman is reproached with
encouraging blasphemy, a point upon which he is particularly
sensitive—for example, when it is pointed out that God’s injunction
to man was to increase and multiply—he has no difficulty in showing
that if procreation is the will of Providence, chastity is dictated by
Christianity, and that the glorious work of chastity is to aid Providence
in keeping even the balance of life.
[300] “Of the other branch of the preventive check, which comes under the
head of vice, though its effect appears to have been very considerable,
yet upon the whole its operation seems to have been inferior to the
positive checks.” (P. 140.)
“I have said what I conceive to be strictly true, that it is our duty
to defer marriage till we can feed our children; and that it is also
our duty not to indulge ourselves in vicious gratifications; but I have
never said that I expected either, much less both, of these duties to be
completely fulfilled. In this and a number of other cases, it may happen
that the violation of one of two duties will enable a man to perform the
other with greater facility.… The moralist is still bound to inculcate
the practice of both duties, and each individual must be left to act as
his conscience shall dictate.” (P. 560.)
[301] “I should be extremely sorry to say anything which could either
directly or remotely be construed unfavourably to the cause of virtue;
but I certainly cannot think that the vices which relate to the sex
are the only vices which are to be considered in a moral question.”
(P. 462.) Malthus omits to mention the particular vice which he has in
mind. “I have not the slightest hesitation in saying that the prudential
check [note the word—no longer “moral restraint”] to marriage is better
than premature mortality.” (P. 560.) We are far removed from the first
edition, where there is no mention of a third alternative between
chastity and vice.
[302] “Abject poverty is a state the most unfavourable to chastity that
can well be conceived.… There is a degree of squalid poverty in which if
a girl was brought up I should say that her being really modest at twenty
was an absolute miracle.” (P. 464.) And elsewhere he writes: “I maintain
that the diminution of the vice which results from poverty would afford a
sufficient compensation for any other evil that might follow.”
[303] These figures only give the values expressed in money by
capitalising them at the market rate of interest, which gives a rather
fictitious result. It does not warrant the belief that an American
citizen of to-day, however much his consumption may have increased, is
any better off than his ancestors.
[304] These differ, again, from the desire for marriage, which is
influenced by other considerations. French people marry in order to have
a home, but a desire for a home and a desire for love or for children are
very different things.
[305] “By a son a man obtains victory over all people; by a son’s son he
enjoys immortality; and afterwards by the son of that grandson he reaches
the solar abode.” “The son delivers his father from hell.” “A son of a
Brahmin if he performs virtuous acts redeems from sin his ten ancestors.”
(P. 105.)
This is Manu’s law, which Malthus quotes in support of his contention.
But he failed to see that as soon as one begins to doubt Manu’s teaching
the argument is the other way. One of the reasons why sterility was
considered a dishonour by Jewish women was that each of them secretly
hoped that she might become the mother of the promised Messiah. But when
the Jews ceased to hope for the Deliverer that was to come, then the
incentive to childbirth was gone.
[306] Neo-Malthusianism dates from the publication of Dr. Drysdale’s
book, _Elements of Social Science_, in 1854, but the Malthusian League
came into existence only in 1877. During the last few years the movement
seems to have taken hold everywhere, especially in France, where we would
least have expected it.
[307] He categorically declares that “we must suppose the general
prevalence of such prudential habits among the poor as would prevent
them from marrying when the actual price of labour joined to what they
might have saved in their single state would not give them the prospect
of being able to support a wife and five or six children without
assistance.” (P. 536.) Marriage seems prohibited to every worker whose
wages are not enough to keep eight persons, which practically would mean
that no workman could marry.
[308] “I have been accused of proposing a law to prohibit the poor from
marrying. This is not true.… I am, indeed, most decidedly of opinion that
any positive law to limit the age of marriage would be both unjust and
immoral.” (P. 357.)
[309] It is worth while recalling the passage to which we have already
incidentally drawn attention: “The poor are themselves the cause of their
own poverty.” (P. 458.)
[310] His views concerning charity are exceedingly interesting, and are
directly connected with his theory of population. This was the practical
question about which he was most concerned, and his influence in this
direction has been very considerable. He showed himself an uncompromising
opponent of the English Poor Law as it then existed. Speaking of the
famous 43rd of Elizabeth, he declares that one of its clauses is “as
arrogant and as absurd as if it had enacted that two ears of wheat
should in future grow where one only had grown before. Canute, when he
commanded the waves not to wet his princely foot, did not in reality
assume a greater power over the laws of nature.” Since public assistance
cannot create wealth, it cannot either keep alive a single pauper. “It
may at first appear strange, but I believe it is true, that I cannot by
means of money raise the condition of a poor man … without proportionally
depressing others in the same class.” But it may be pointed out that
although charity cannot beget wealth it does transfer a certain portion
of wealth from the pockets of the rich to fill the mouths of the hungry
poor. The consumption of the one is increased just as much as the other’s
is decreased.
Not only does he condemn charity in the way of almsgiving, but also the
practice of giving work for charity’s sake. He admits an exception in the
case of education, of which everybody can partake without making anyone
else the poorer. Such arguments would seem to imply the prohibition
of all charity, whether public or private, and as a matter of fact he
demands the gradual abolition of the Poor Laws and of every kind of
systematic assistance which offers to the poor any kind of help upon
which they can always reckon. But he recognises the “good results of
private charity, discriminately and occasionally exercised.” Though he
failed to remove the Poor Laws, the effect of his teaching is clearly
seen in the Poor Law Amendment Act of 1834.
Malthus’s doctrine is just the reverse of the social teaching on the
question in France at the present time. There you have an attempt to
substitute solidarity for Christian charity. That means that the poor
should be able to demand assistance, not as a gift, but as a right, and
that the place of individual or private charity should be taken by a
public institution with a view to giving effect to this. His teaching
concerning the preventive obstacle has been so thoroughly taken to heart
that there is not much fear of legal assistance resulting in a growth of
population.
[311] It is not proved, however, that such were Malthus’s views. Private
property, at least peasant proprietorship, acts as a stimulus to
population. And it is very curious to think that he should have taken
his illustration from France, where the multiplication of small farms is
considered one of the causes of the falling birth-rate. “At all times
the number of small farmers and proprietors in France was great, and
though such a state of things is by no means favourable to the clear
surplus produce or disposable wealth of a nation, yet sometimes it is
not unfavourable to the absolute produce, and it has always a strong
tendency to encourage population.” And again: “Even in France, with all
her advantages of situation and climate, the tendency of population is so
great and the want of foresight among the lower classes so remarkable.…”
Godwin and Young express similar opinions. The latter is quoted by
Malthus: “The predominant evil of the kingdom is the having so great a
population that she can neither employ nor feed it.” (P. 509.)
Marriage, Malthus thought, had a restraining influence upon population.
He admits that the simplest and most natural obstacle is to oblige every
father to rear his own children. He also admits that the shame which the
mother of a bastard and her child have to endure is a matter of social
necessity. He does not approve of forcing the man who has betrayed a
woman to marry, but he declares that seduction ought to be seriously
punished. This is the view commonly adopted to-day, but it was very novel
then.
[312] There are some sociologists who, like Malthus, would seek an
explanation both of depopulation and of over-population in biological
causes. Fourier and Doubleday, for example, are among the number.
Doubleday, who wrote forty years before Malthus, believed that fecundity
varied inversely with subsistence, and that this acted as a kind of
natural check upon the growth of population. There are others, again,
who think that reproductive capacity varies inversely with intellectual
activity. Both explanations seem to suggest a kind of opposition between
the development of the individual and the progress of the race which
is very suggestive. But their views have not gained many adherents. If
they are ever proved, which is not very likely, the prospect is not
an attractive one. It would mean that those nations and classes who
have risen to a position of ease through their superior culture would
disappear, while the poorer, uncultured masses would continue to increase.
[313] David Ricardo was descended from a Jewish family originally
domiciled in Holland. He was born in 1772 in London, where his father
had settled as a stockbroker. He entered business at an early age, and
soon became thoroughly conversant with the intricacies of banking and
exchange. On the occasion of his marriage he changed his religion, and
thus incurred the displeasure of his family. Setting up as a broker on
his own account, he was not long in amassing a huge fortune, estimated at
about £2,000,000—an enormous sum for those days.
Naturally enough, his earliest interest in economics centred round
banking questions. The French wars had caused a depreciation in the
value of the bank-note, and this aroused the interest not only of the
specialists, but also of the public. His first essay, published in 1810,
when he was thirty-eight years of age, was entitled _The High Price of
Bullion a Proof of the Depreciation of Bank-notes_. It was soon followed
by other studies dealing with banks and with the credit system. But
these short polemical efforts gave scarcely any indication of the great
attention which he was bestowing upon the principles of the science. His
interest was primarily personal, for it appears that he had no intention
of publishing anything on the subject. In 1817, however, the results
were seen in a volume entitled _The Principles of Political Economy_.
Ricardo the business man could hardly have guessed that it would shake
the capitalistic edifice to its very foundations.
In 1819 he was elected a member of the House of Commons, but he was as
indifferent a speaker as he was a writer. He was always listened to,
however, with the greatest respect. “I have twice attempted to speak,”
he writes, “but I proceeded in the most embarrassed manner: and I have
no hope of conquering the alarm with which I am assailed the moment I
hear the sound of my own voice.” In 1821 he founded the Political Economy
Club, the earliest of those numerous societies for the study of economic
subjects which have since been established in every country. In 1822 he
published a work on _Protection to Agriculture_. The following year he
died, at the comparatively early age of fifty-one.
Since his death all his writings have been carefully collected, and
his correspondence with the chief economists of his day, with Malthus,
McCulloch, and Say, published. The correspondence is extremely important
for an understanding of his doctrines.
[314] Letter to McCulloch, July 13, 1820, quoted by H. Denis, vol. ii, p.
171.
[315] In his correspondence with McCulloch, under date December 18, 1819,
he writes: “I am not satisfied with the explanation which I have given
of the principles which regulate value. I wish a more able pen would
undertake it.”
In a letter to Malthus written on August 15, 1820, speaking of his own
theory of value and of McCulloch’s, he despairingly adds: “Both of us
have failed.” See Halévy, _Le Radicalisme philosophique_, and Hector
Denis, _op. cit._
[316] Smith had likened industry to a household with two children—wages
and profits; agriculture to a household with three—wages, profits, and
rent.
[317] _An Inquiry into the Nature and Progress of Rent_ (1815).
[318] It is necessary to remember, however, that the old theory survived
and appears here under the very name of Ricardo, for he was unsuccessful
in freeing himself altogether from its influence. He defines rent as
“that portion of the produce of the earth which is paid to the landlord
for the use of the original and indestructible powers of the soil.” He
continually refers to these powers of the soil, which are described as
“natural,” “primitive,” “indestructible,” _i.e._ as independent of all
labour.
[319] “Nothing is more common than to hear of the advantages which the
land possesses over every other source of useful produce on account of
the surplus which it yields in the form of rent. Yet when land is most
abundant, when most productive and most fertile, it yields no rent, and
it is only when its powers decay … that rent appears.” (_Principles_, ed.
Gonner, p. 52.)
[320] “The labour of Nature is paid, not because she does much, but
because she does little. In proportion as she becomes niggardly in her
gifts she exacts a greater price for her work.” (_Ibid._, p. 53, note.)
“The comparative scarcity of the most fertile lands is the cause of
rent.” (_Ibid._, p. 395.)
Adam Smith had already offered this as an explanation in the case of the
products of the mine, but he failed to see that arable land is really
nothing but a sort of mine.
[321] To-day we simply say that it is determined by increased demand.
But this is quite contrary to Ricardo’s views, for in his opinion it is
labour and not demand that creates value.
[322] “The value of corn is regulated by the quantity of labour bestowed
on its production on that quality of land [or with that portion of
capital] which pays no rent.” (_Principles_, ed. Gonner, p. 51.)
[323] The illustration as given by Ricardo is somewhat more complicated.
[324] “When land of an inferior quality is taken into cultivation the
exchangeable value of raw produce will rise because more labour is
required to produce it.” (_Ibid._, p. 49.)
[325] See Cannan’s delightful volume _The Theories of Production and
Distribution_, p. 150, where the average decennial price works out as
follows:
s. d.
1770-1779 45 0
1780-1789 45 9
1790-1799 55 11
1800-1809 82 2
1810-1813 106 2
[326] The number of Enclosure Acts which Parliament, acting with the
sanction of public opinion, passed during the latter part of the
eighteenth and the beginning of the nineteenth centuries increased very
rapidly. Between 1700 and 1845 no fewer than 3835 such Acts were passed,
involving the enclosure of 7,622,664 acres, most of it common land. Not
until 1845 do we find a change either in the attitude of public opinion
or in the action of Parliament.
[327] It is not quite clear whether the high price of corn is due to the
cultivation of new lands or whether this high price is the cause of the
cultivation of new lands. The second interpretation appears to us to be
the most natural, but it involves the abandonment of the Ricardian theory.
[328] Some critics, _e.g._ Fontenay, Bastiat’s disciple, suggested that
land No. 4 might very well become No. 1, if, instead of being employed
in the cultivation of corn, an intelligent husbandman were to put it to
viticulture or rose-growing. But this is to beg the question. The law
of rent implies products of the same kind, for it is this identity of
quality that enables them to be sold at the same price. If bad corn-land
could become good rose-growing ground, then of course it would take its
place among rose-growing areas, yielding rent as soon as less fertile
lands were employed for the same purpose.
[329] Turgot, _Observations sur un Mémoire de M. de Saint-Péravy_
(_Œuvres_, vol. i, p. 420). “It can never be imagined that a doubling
of expenditure would result in doubling the product.… It is more
than probable that by gradually increasing the expenditure up to the
point where nothing would be gained on the return, such items would
successively become less fruitful. The earth’s fertility resembles a
spring that is being pressed downwards by the addition of successive
weights. If the weight is small and the spring not very flexible, the
first attempts will leave no results. But when the weight is enough to
overcome the first resistance then it will give to the pressure. After
yielding a certain amount it will again begin to resist the extra force
put upon it, and weights that formerly would have caused a depression of
an inch or more will now scarcely move it by a hair’s breadth. And so the
effect of additional weights will gradually diminish.
“The comparison is not very exact, but it is near enough to enable us to
understand that when the earth is producing nearly all it can, a great
deal of expense is necessary to obtain very little more produce.”
Turgot, with his usual perspicacity, has noted a fact which the Classical
writers generally failed to perceive, namely, that at the beginning of
the process of cultivation there may be a period when the return shows no
signs of diminishing.
[330] We must note the fact that the law of diminishing returns was
already implied in the second of the famous progressions given by
Malthus, for an arithmetical progression that shows an increase of one
every twenty-five years implies an addition slower than the growth of
the series itself, _i.e._ slower than the movement of time. Let us take
land that yields one; in twenty-five years it will yield two, an increase
of 100 per cent. But this is only the first step. At the end of another
twenty-five years it will yield three, the increase being always one. But
the increase from two to three means an increase of only 50 per cent.,
from three to four of only 33 per cent., and so on to 25 per cent. and 20
per cent. When the hundredth place has been reached, the increase will
only be 1 per cent., and it will continue to fall farther, only more
slowly.
[331] Ricardo gives a slightly different explanation. “If with a capital
of £1000 a tenant obtains 100 quarters of wheat from his land, and by
the employment of a second capital of £1000 he obtains a further return
of eighty-five, his landlord would have the power at the expiration of
his lease of obliging him to pay fifteen quarters, or an equivalent
value for additional rent, for there cannot be two rates of profit.”
(_Principles_, ed. Gonner, p. 48.) He means to say that if profits fall
because new capital is less productive than old, rent must necessarily
appear, because by definition rent is what remains of the produce after
deducting profits and wages. This explanation closely resembles that one
given by West in his _Application of Capital to Land_, published in 1815,
and Ricardo was not above acknowledging his indebtedness to West.
[332] Shortly afterwards a German landowner published a book dealing
with just that side of the problem of rent which had been neglected by
Ricardo, namely, the influence of distance from a market upon cultivation
and the price of products. We are referring to Thünen, who in his book
_Der Isolerte Staat_ (vol. i, 1826) draws a picture of a town surrounded
by a belt of land, and shows how cultivation will be distributed in
concentric zones around that centre, and how the kind of cultivation
adopted will be a function of the distance.
[333] But the honour of discovering this law, which is so important for
an understanding of exchange value, does not belong entirely to Ricardo.
Forty years before a humble Scotch farmer named Anderson had observed
the phenomenon and given a very satisfactory analysis of it in his book
_Observations on the Means of Exciting a Spirit of National Industry_
(1777). “Now as the expense of cultivating the least fertile soil is as
great or greater than that of the most fertile field, it necessarily
follows that if an equal quantity of corn, the produce of each field, can
be sold at the same price, the profit on cultivating the most fertile
soil must be much greater than that of cultivating the other, and as
this continues to decrease as the sterility increases, it must at length
happen that the expense of cultivating some of the inferior soils will
equal the values of the whole produce.” (Quoted by Jevons, _Theory of
Political Economy_, p. 229.) Anderson’s name was forgotten until quite
recently, when it attracted a certain amount of attention among the
pioneers of Ricardo. Ricardo himself does not seem to be aware of his
existence; at least he never quotes him. The only two writers mentioned
by Ricardo are Malthus and West.
[334] “In speaking, however, of labour as being the foundation of
all value, and the relative quantity of labour as almost exclusively
determining the relative value of commodities, I must not be supposed to
be inattentive to the different qualities of labour.” (_Principles_, ed.
Gonner, p. 15.)
[335] Hume had already pointed out the objection to this view. Cf. p. 64,
footnote.
[336] “If fixed capital be not of a durable nature it will require a
great quantity of labour annually to keep it in its original state of
efficiency, but the labour so bestowed may be considered as really
expended on the commodity manufactured, which must bear a value in
proportion to such labour.” (_Principles_, ed. Gonner, p. 32.)
[337] In a note on Section VI, chap. 1, he adds: “Malthus appears to
think that it is a part of my doctrine that the cost and value of a
thing should be the same—it is, if he means by cost, cost of production
including profits.” (_Ibid._, p. 39.)
[338] Still we must note that Ricardo and Karl Marx, like everyone who
has tried to base a theory of value upon labour, tacitly assume the
operation of the law of demand and supply in order that their theories
may fit in with the facts.
[339] But how was it that he never realised that land at least in any
given country, and indeed for that matter over the whole world, is simply
a kind of wealth “of which no labour could increase the quantity”?
[340] “The dealings between the landlord and the public are not like
dealings in trade, whereby both the seller and the buyer may equally be
said to gain, but the loss is wholly on one side and the gain wholly on
the other.” (_Principles_, ed. Gonner, p. 322.) And so when a proprietor
sells corn to a consumer it is not of the nature of an ordinary bargain
where both parties gain something. The consumer gets nothing in return
for what he gives, _i.e._ for what he gives over and above what it has
cost to produce the corn. To get nothing in return for something given is
the kind of transaction that generally goes by the name of theft.
Ricardo soon finds a reply to the comfortable doctrine of Smith, that the
interests of the landlords are nowhere opposed to those of the rest of
the community. “The interest of the landlord is always opposed to that
of the consumer and manufacturer. Corn can be permanently at an advanced
price only because additional labour is necessary to produce it, because
its cost of production is increased. It is therefore for the interest of
the landlord that the cost attending the production of corn should be
increased. This, however, is not the interest of the consumer.… Neither
is it the interest of the manufacturer that corn should be at a high
price, for the high price of corn will occasion high wages, but will not
raise the price of his commodity.” (_Ibid._, p. 322.)
[341] “Wealth increases most rapidly in those countries where the
disposable land is most fertile, where importation is least restricted,
and where, through agricultural improvements, productions can be
multiplied without any increase in the proportional quantity of labour,
and where consequently the progress of rent is slow.” (_Principles_, ed.
Gonner, p. 54.) The contrast between fertile lands, free exchange, and
the development of agricultural science on the one hand, and the growth
of rent on the other, is very strikingly brought out in this paragraph.
[342] “Rent does not and cannot enter in the least degree as a component
part of its price.” (_Ibid._, p. 55.) And he adds: “The clearly
understanding of this principle is, I am persuaded, of the utmost
importance to the science of political economy.” It is true that Smith,
writing long before this time, had declared that the “high rate of rent
is the effect of price,” but he does not seem to have attached any great
importance to the remark.
[343] Ricardo wisely admits the possibility of confiscating this rent by
means of taxation, the reason for this being that “a tax on rent would
affect rent only, it would fall wholly on landlords and could not be
shifted to any class of consumers.” (_Principles_, ed. Gonner, p. 154.)
And the argument which he advances in proof of this, namely, that the
tax could not be shifted, seems to indicate that this particular kind
of revenue is not quite as intangible as that of some other classes in
society. But his advocacy is somewhat restrained, for, as he points out,
it would be unjust to put all the burden of taxation upon the shoulders
of one class of the community. Rent is often the property of people
who, after years of toil, have invested their earnings in land. The
original injustice, if any, would thus be got rid of in the process of
selling the land. This might be a sufficient reason for indemnifying the
expropriated, but it is not enough to condemn expropriation altogether.
[344] “Malthus and Ricardo have both proved false prophets and mistaken
apostles. The much-vaunted Ricardian law is a pure myth.” (Article by M.
de Foville on _Les Variations de la Valeur du Sol en Angleterre au XIXe
Siècle_, in _L’Économiste français_, March 21, 1908.)
[345] Mr. Robert Thompson, in a paper read before the Royal Statistical
Society on December 17, 1907, has shown how the average rent per acre,
valued at 11s. 2d. in 1801-5, reached the figure of 20s. in 1841-45, and
despite the abolition of protection continued to rise up to 1872-77,
when it reached a maximum of 29s. 4d. It then continued to fall until it
reached the present amount of 20s. The present figure is double what it
was in Ricardo’s time, but considerable deductions are necessary in view
of the improvements made in the character of the soil. Thompson, after
making these deductions, puts the amount at 15s. 5d., leaving just 4s.
7d. for rent pure and simple. The 11s. for rent at the beginning of the
century covered something besides economic rent. Considerable deductions
are again necessary, but the amount of capital employed in agriculture
was much less then.