Essays on Some Unsettled Questions of Political Economy
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The\r\nopinions now laid before the reader are presented as\r\ncorollaries necessarily following from the principles\r\nupon which Free Trade itself rests. The writer has\r\nalso been careful to point out, that from these opinions\r\nno justification can be derived for any \u003ci\u003eprotecting\u003c/i\u003e\r\nduty, or other preference given to domestic over\r\nforeign industry. But in regard to those duties on\r\nforeign commodities which do not operate as protection,\r\nbut are maintained solely for revenue, and which\r\ndo not touch either the necessaries of life or the\r\nmaterials and instruments of production, it is his\r\nopinion that any relaxation of such duties, beyond\r\nwhat may be required by the interest of the revenue\r\nitself, should in general be made contingent upon the\r\nadoption of some corresponding degree of freedom of\r\ntrade with this country, by the nation from which the\r\ncommodities are imported.\u003c/p\u003e\r\n\r\n\r\n\r\n\u003chr style=\"width: 65%;\"\u003e\r\n\u003ca name=\"CONTENTS\"\u003e\u003c/a\u003e\u003ch2\u003eCONTENTS.\u003c/h2\u003e\r\n\r\n\u003c!– Autogenerated TOC. Modify or delete as required. –\u003e\r\n\u003ca href=\"#PREFACE\"\u003ePREFACE.\u003c/a\u003e\u003cbr\u003e\r\n \u003ca href=\"#CONTENTS\"\u003eCONTENTS.\u003c/a\u003e\u003cbr\u003e\r\n \u003ca href=\"#ESSAY_I\"\u003eESSAY I.\u003c/a\u003e\u003cbr\u003e\r\n \u003ca href=\"#ESSAY_II\"\u003eESSAY II.\u003c/a\u003e\u003cbr\u003e\r\n \u003ca href=\"#ESSAY_III\"\u003eESSAY III.\u003c/a\u003e\u003cbr\u003e\r\n \u003ca href=\"#ESSAY_IV\"\u003eESSAY IV.\u003c/a\u003e\u003cbr\u003e\r\n \u003ca href=\"#ESSAY_V\"\u003eESSAY V.\u003c/a\u003e\u003cbr\u003e\r\n\r\n\u003c!– End Autogenerated TOC. –\u003e\r\n\r\n\r\n\u003cbr\u003e\r\n\r\n\u003cp\u003eESSAY I.\u003c/p\u003e\r\n\r\n\u003cp\u003e\u003cb\u003eOf the Laws of Interchange between Nations; and the Distribution\r\nof the Gains of Commerce among the Countries\r\nof the Commercial World\u003c/b\u003e\u003c/p\u003e\r\n\r\n\u003cp\u003eESSAY II.\u003c/p\u003e\r\n\r\n\u003cp\u003e\u003cb\u003eOf the Influence of Consumption upon Production\u003c/b\u003e\u003c/p\u003e\r\n\r\n\u003cp\u003eESSAY III.\u003c/p\u003e\r\n\r\n\u003cp\u003e\u003cb\u003eOn the Words Productive and Unproductive\u003c/b\u003e\u003c/p\u003e\r\n\r\n\u003cp\u003eESSAY IV.\u003c/p\u003e\r\n\r\n\u003cp\u003e\u003cb\u003eOn Profits, and Interest\u003c/b\u003e\u003c/p\u003e\r\n\r\n\u003cp\u003eESSAY V.\u003c/p\u003e\r\n\r\n\u003cp\u003e\u003cb\u003eOn the Definition of Political Economy; and on the Method\r\nof Investigation proper to it\u003c/b\u003e\u003c/p\u003e\r\n\r\n\r\n\r\n\u003chr style=\"width: 65%;\"\u003e\r\n\u003ca name=\"ESSAY_I\"\u003e\u003c/a\u003e\u003ch2\u003eESSAY I.\u003c/h2\u003e\r\n\r\n\u003ch2\u003eOF THE LAWS OF INTERCHANGE BETWEEN NATIONS;\r\nAND THE DISTRIBUTION OF THE GAINS OF COMMERCE\r\nAMONG THE COUNTRIES OF THE\r\nCOMMERCIAL WORLD.\u003c/h2\u003e\r\n\u003cbr\u003e\r\n\r\n\u003cp\u003eOf the truths with which political economy has been\r\nenriched by Mr. Ricardo, none has contributed more\r\nto give to that branch of knowledge the comparatively\r\nprecise and scientific character which it at present bears,\r\nthan the more accurate analysis which he performed of\r\nthe nature of the advantage which nations derive from\r\na mutual interchange of their productions. Previously\r\nto his time, the benefits of foreign trade were deemed,\r\neven by the most philosophical enquirers, to consist in\r\naffording a vent for surplus produce, or in enabling a\r\nportion of the national capital to replace itself with a\r\nprofit. The futility of the theory implied in these\r\nand similar phrases, was an obvious consequence from\r\nthe speculations of writers even anterior to Mr.\r\nRicardo. But it was he who first, in the chapter\r\non Foreign Trade, of his immortal \u003ci\u003ePrinciples of\r\nPolitical Economy and Taxation\u003c/i\u003e, substituted for the\r\nformer vague and unscientific, if not positively false,\r\nconceptions with regard to the advantage of trade,\r\na philosophical exposition which explains, with strict\r\nprecision, the nature of that advantage, and affords an\r\naccurate measure of its amount.\u003c/p\u003e\r\n\r\n\u003cp\u003eHe shewed, that the advantage of an interchange\r\nof commodities between nations consists simply and\r\nsolely in this, that it enables each to obtain, with a\r\ngiven amount of labour and capital, a greater quantity\r\nof all commodities taken together. This it accomplishes\r\nby enabling each, with a quantity of one commodity\r\nwhich has cost it so much labour and capital,\r\nto purchase a quantity of another commodity which,\r\nif produced at home, would have required labour and\r\ncapital to a greater amount. To render the importation\r\nof an article more advantageous than its production,\r\nit is not necessary that the foreign country\r\nshould be able to produce it with less labour and\r\ncapital than ourselves. We may even have a positive\r\nadvantage in its production: but, if we are so far\r\nfavoured by circumstances as to have a still greater\r\npositive advantage in the production of some other\r\narticle which is in demand in the foreign country, we\r\nmay be able to obtain a greater return to our labour and\r\ncapital by employing none of it in producing the article\r\nin which our advantage is least, but devoting it all to the\r\nproduction of that in which our advantage is greatest,\r\nand giving this to the foreign country in exchange for\r\nthe other. It is not a difference in the \u003ci\u003eabsolute\u003c/i\u003e cost\r\nof production, which determines the interchange, but\r\na difference in the \u003ci\u003ecomparative\u003c/i\u003e cost. It may be to our\r\nadvantage to procure iron from Sweden in exchange\r\nfor cottons, even although the mines of England as well\r\nas her manufactories should be more productive than\r\nthose of Sweden; for if we have an advantage of one-half\r\nin cottons, and only an advantage of a quarter in\r\niron, and could sell our cottons to Sweden at the price\r\nwhich Sweden must pay for them if she produced them\r\nherself, we should obtain our iron with an advantage\r\nof one-half, as well as our cottons. We may often, by\r\ntrading with foreigners, obtain their commodities at a\r\nsmaller expense of labour and capital than they cost\r\nto the foreigners themselves. The bargain is still\r\nadvantageous to the foreigner, because the commodity\r\nwhich he receives in exchange, though it has cost us\r\nless, would have cost him more. As often as a\r\ncountry possesses two commodities, one of which it\r\ncan produce with less labour, comparatively to what it\r\nwould cost in a foreign country, than the other; so\r\noften it is the interest of the country to export the\r\nfirst mentioned commodity and to import the second;\r\neven though it might be able to produce both the one\r\nand the other at a less expense of labour than the\r\nforeign country can produce them, but not less in the\r\nsame degree; or might be unable to produce either\r\nexcept at a greater expense, but not greater in the\r\nsame degree.\u003c/p\u003e\r\n\r\n\u003cp\u003eOn the contrary, if it produces both commodities\r\nwith greater facility, or both with greater difficulty,\r\nand greater in exactly the same degree, there will be\r\nno motive to interchange.\u003c/p\u003e\r\n\r\n\u003cp\u003e\u0026quot;If the cloth and the corn, each of which required\r\n100 days\u0027 labour in Poland, required each 150 days\u0027\r\nlabour in England; it would follow, that the cloth of\r\n150 days\u0027 labour in England, if sent to Poland, would\r\nbe equal to the cloth of 100 days\u0027 labour in Poland: if\r\nexchanged for corn, therefore, it would exchange for\r\nthe corn of only 100 days\u0027 labour. But the corn of\r\n100 days\u0027 labour in Poland, was supposed to be the\r\nsame quantity with that of 150 days\u0027 labour in\r\nEngland. With 150 days\u0027 labour in cloth, therefore,\r\nEngland would only get as much corn in Poland as\r\nshe could raise with 150 days\u0027 labour at home; and\r\nshe would, in importing it, have the cost of carriage\r\nbesides. In these circumstances no exchange would\r\ntake place.\u003c/p\u003e\r\n\r\n\u003cp\u003e\u0026quot;If, on the other hand, while the cloth produced\r\nwith 100 days\u0027 labour in Poland was produced with\r\n150 days\u0027 labour in England, the corn which was produced\r\nin Poland with 100 days\u0027 labour could not be\r\nproduced in England with less than 200 days\u0027 labour;\r\nan adequate motive to exchange would immediately\r\narise. With a quantity of cloth which England produced\r\nwith 150 days\u0027 labour, she would be able to\r\npurchase as much corn in Poland as was there produced\r\nwith 100 days\u0027 labour; but the quantity, which\r\nwas there produced with 100 days\u0027 labour, would be\r\nas great as the quantity produced in England with\r\n200 days\u0027 labour.\u003c/p\u003e\r\n\r\n\u003cp\u003e\u0026quot;The power of Poland would be reciprocal.\r\nWith a quantity of corn which cost her 100 days\u0027\r\nlabour, equal to the quantity produced in England by\r\n200 days\u0027 labour, she could in the supposed case purchase\r\nin England the produce of 200 days\u0027 labour in\r\ncloth.\u0026quot; But \u0026quot;the produce of 150 days\u0027 labour in\r\nEngland in the article of cloth would be equal to the\r\nproduce of 100 days\u0027 labour in Poland \u003ca name=\"FNanchor1\"\u003e\u003c/a\u003e\u003ca href=\"#Footnote_1\"\u003e\u003csup\u003e[1]\u003c/sup\u003e\u003c/a\u003e.\u0026quot;\u003c/p\u003e\r\n\r\n\u003cp\u003eThe remainder of what Mr. Ricardo has done for\r\nthe philosophical exposition of the principles of foreign\r\ntrade, is to shew, that the truth of the propositions\r\nnow recapitulated is not affected by the introduction\r\nof money as a medium of exchange; the precious\r\nmetals always tending to distribute themselves in such\r\na manner throughout the commercial world, that every\r\ncountry shall import all that it would have imported,\r\nand export all that it would have exported, if exchanges\r\nhad taken place, as in the example above\r\nsupposed, by barter.\u003c/p\u003e\r\n\r\n\u003cp\u003eTo this branch of the subject we shall, in the\r\nsequel of this essay, return. At present it will be\r\nmore convenient that we should continue to suppose,\r\nthat exchanges take place by the direct trucking of\r\none commodity against another.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is established, that the advantage which two\r\ncountries derive from trading with each other, results\r\nfrom the more advantageous employment which thence\r\narises, of the labour and capital\u0026mdash;for shortness let us\r\nsay the labour\u0026mdash;of both jointly. The circumstances are\r\nsuch, that if each country confines itself to the production\r\nof one commodity, there is a greater total\r\nreturn to the labour of both together; and this increase\r\nof produce forms the whole of what the two\r\ncountries taken together gain by the trade.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is the purpose of the present essay to inquire, in\r\nwhat proportion the increase of produce, arising from\r\nthe saving of labour, is divided between the two\r\ncountries.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis question was not entered into by Mr. Ricardo,\r\nwhose attention was engrossed by far more important\r\nquestions, and who, having a science to create, had not\r\ntime, or room, to occupy himself with much more than\r\nthe leading principles. When he had done enough to\r\nenable any one who came after him, and who took the\r\nnecessary pains, to do all the rest, he was satisfied.\r\nHe very rarely followed out the principles of the\r\nscience into the ramifications of their consequences.\r\nBut we believe that to no one, who has thoroughly\r\nentered into the spirit of his discoveries, will even\r\nthe minutiae of the science offer any difficulty but\r\nthat which is constituted by the necessity of patience\r\nand circumspection in tracing principles to their results.\u003c/p\u003e\r\n\r\n\u003cp\u003eMr. Ricardo, while intending to go no further\r\ninto the question of the advantage of foreign trade\r\nthan to show what it consisted of, and under what\r\ncircumstances it arose, unguardedly expressed himself\r\nas if each of the two countries making the exchange\r\nseparately gained the whole of the difference between\r\nthe comparative costs of the two commodities in one\r\ncountry and in the other. But, the whole gain of both\r\ncountries together, consisting in the saving of labour;\r\nand the saving of labour being exactly equal to the\r\ndifference between the costs, in the two countries, of\r\nthe one commodity as compared with the other; the\r\ntwo countries taken together gain no more than this\r\ndifference: and if either country gains the whole of it,\r\nthe other country derives no advantage from the trade.\u003c/p\u003e\r\n\r\n\u003cp\u003eSuppose, for example, that 10 yards of broad cloth\r\ncost in England as much labour as 15 yards of linen,\r\nand in Germany as much as 20. If England sends 10\r\nyards of broad cloth to Germany, and is able to exchange\r\nthem for linen according to the German cost\r\nof production, she will get 20 yards of linen, with a\r\nquantity of labour with which she could not have produced\r\nmore than 15; and will gain, therefore, 5 yards\r\non every 15, or 33-1/3 per cent. But in this case Germany\r\nwould obtain only 10 yards of cloth for 20 of\r\nlinen. Now, 10 yards of cloth cost exactly the same\r\nquantity of labour in Germany as 20 of linen; Germany,\r\ntherefore, derives no advantage from the trade,\r\nmore than she would possess if it did not exist.\u003c/p\u003e\r\n\r\n\u003cp\u003eSo, on the other hand, if Germany sends 15 yards of\r\nlinen to England, and finding the relative value of the\r\ntwo articles in that country determined by the English\r\ncosts of production, is enabled to purchase with 35\r\nyards of linen 10 yards of cloth; Germany now gains\r\n5 yards, just as England did before,\u0026mdash;for with 15 yards\r\nof linen she purchases 10 yards of cloth, when to produce\r\nthese 10 yards she must have employed as much labour\r\nas would have enabled her to produce 20 yards of\r\nlinen. But in this case England would gain nothing:\r\nshe would only obtain, for her 10 yards of cloth, 15\r\nyards of linen, which is exactly the comparative cost at\r\nwhich she could have produced them.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis, which was not an error, but a mere oversight\r\nof Mr. Ricardo, arising from his having left the question\r\nof the division of the advantage entirely unnoticed,\r\nwas first corrected in the third edition of Mr. Mill\u0027s\r\n\u003ci\u003eElements of Political Economy\u003c/i\u003e. It can hardly, however,\r\nbe said that Mr. Mill has prosecuted the inquiry any\r\nfurther; which, indeed, would have been quite as\r\ninconsistent with the nature of his plan as of Mr.\r\nRicardo\u0027s.\u003c/p\u003e\r\n\r\n\u003cp\u003e1. When the trade is established between the two\r\ncountries, the two commodities will exchange for each\r\nother at the same rate of interchange in both countries\u0026mdash;bating\r\nthe cost of carriage, of which, for the\r\npresent, it will be more convenient to omit the consideration.\r\nSupposing, therefore, for the sake of argument,\r\nthat the carriage of the commodities from one\r\ncountry to another could be effected without labour\r\nand without cost, no sooner would the trade be opened\r\nthan, it is self-evident, the value of the two commodities,\r\nestimated in each other, would come to a level\r\nin both countries.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf we knew what this level would be, we should\r\nknow in what proportion the two countries would\r\nshare the advantage of the trade.\u003c/p\u003e\r\n\r\n\u003cp\u003eWhen each country produced both commodities for\r\nitself, 10 yards of broad cloth exchanged for 15 yards\r\nof linen in England, and for 20 in Germany. They\r\nwill now exchange for the same number of yards of\r\nlinen in both. For what number? If for 15 yards,\r\nEngland will be just as she was, and Germany will\r\ngain all. If for 20 yards, Germany will be as before,\r\nand England will derive the whole of the benefit. If\r\nfor any number intermediate between 15 and 20, the\r\nadvantage will be shared between the two countries.\r\nIf, for example, 10 yards of cloth exchange for 18\r\nof linen, England will gain an advantage of 3 yards\r\non every 15, Germany will save 2 out of every 20.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe problem is, what are the causes which determine\r\nthe proportion in which the cloth of England\r\nand the linen of Germany will exchange for each other?\u003c/p\u003e\r\n\r\n\u003cp\u003eThis, therefore, is a question concerning exchangeable\r\nvalue. There must be something which determines\r\nhow much of one commodity another commodity will\r\npurchase; and there is no reason to suppose that the\r\nlaw of exchangeable value is more difficult of ascertainment\r\nin this case than in other cases.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe law, however, cannot be precisely the same as\r\nin the common cases. When two articles are produced\r\nin the immediate vicinity of one another, so that, without\r\nexpatriating himself, or moving to a distance, a\r\ncapitalist has the choice of producing one or the other,\r\nthe quantities of the two articles which will exchange\r\nfor each other will be, on the average, those which are\r\nproduced by equal quantities of labour. But this cannot\r\nbe applied to the case where the two articles are\r\nproduced in two different countries; because men do\r\nnot usually leave their country, or even send their\r\ncapital abroad, for the sake of those small differences\r\nof profit which are sufficient to determine their choice\r\nof a business, or of an investment, in their own country\r\nand neighbourhood.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe principle, that value is proportional to cost of\r\nproduction, being consequently inapplicable, we must\r\nrevert to a principle anterior to that of cost of production,\r\nand from which this last flows as a consequence,\u0026mdash;namely,\r\nthe principle of demand and supply.\u003c/p\u003e\r\n\r\n\u003cp\u003eIn order to apply this principle, with any advantage,\r\nto the solution of the question which now occupies us,\r\nthe principle itself, and the idea attached to the term\r\ndemand, must be conceived with a precision, which the\r\nloose manner in which the words are used generally\r\nprevents.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is well known that the quantity of any commodity\r\nwhich can be disposed of, varies with the price.\r\nThe higher the price, the fewer will be the purchasers,\r\nand the smaller the quantity sold. The lower the\r\nprice, the greater will in general be the number of\r\npurchasers, and the greater the quantity disposed of.\r\nThis is true of almost all commodities whatever:\r\nthough of some commodities, to diminish the consumption\r\nin any given degree would require a much\r\ngreater rise of price than of others.\u003c/p\u003e\r\n\r\n\u003cp\u003eWhatever be the commodity\u0026mdash;the supply in any\r\nmarket being given, there is some price at which the\r\nwhole of the supply exactly will find purchasers, and\r\nno more. That, whatever it be, is the price at which,\r\nby the effect of competition, the commodity will be\r\nsold. If the price be higher, the whole of the supply\r\nwill not be disposed of, and the sellers, by their competition,\r\nwill bring down the price. If the price be\r\nlower, there will be found purchasers for a larger supply,\r\nand the competition of these purchasers will raise\r\nthe price.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis, then, is what we mean, when we say that\r\nprice, or exchangeable value, depends on demand and\r\nsupply. We should express the principle more accurately,\r\nif we were to say, the price so regulates itself\r\nthat the demand shall be exactly sufficient to carry off\r\nthe supply.\u003c/p\u003e\r\n\r\n\u003cp\u003eLet us now apply the principle of demand and\r\nsupply, thus understood, to the interchange of broadcloth\r\nand linen between England and Germany.\u003c/p\u003e\r\n\r\n\u003cp\u003eAs exchangeable value in this case, as in every\r\nother, is proverbially fluctuating, it does not matter\r\nwhat we suppose it to be when we begin; we shall\r\nsoon see whether there be any fixed point about which\r\nit oscillates\u0026mdash;which it has a tendency always to approach\r\nto, and to remain at.\u003c/p\u003e\r\n\r\n\u003cp\u003eLet us suppose, then, that by the effect of what\r\nAdam Smith calls the higgling of the market, 10 yards\r\nof cloth, in both countries, exchange for 17 yards of\r\nlinen.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe demand for a commodity, that is, the quantity\r\nof it which can find a purchaser, varies, as we have\r\nbefore remarked, according to the price. In Germany,\r\nthe price of 10 yards of cloth is now 17 yards of\r\nlinen; or whatever quantity of money is equivalent\r\nin Germany to 17 yards of linen. Now, that being\r\nthe price, there is some particular number of yards\r\nof cloth, which will be in demand, or will find purchasers,\r\nat that price. There is some given quantity\r\nof cloth, more than which could not be disposed of at\r\nthat price,\u0026mdash;less than which, at that price, would not\r\nfully satisfy the demand. Let us suppose this quantity\r\nto be, 1000 times 10 yards.\u003c/p\u003e\r\n\r\n\u003cp\u003eLet us now turn our attention to England. There,\r\nthe price of 17 yards of linen is 10 yards of cloth, or\r\nwhatever quantity of money is equivalent in England\r\nto 10 yards of cloth. There is some particular number\r\nof yards of linen, which, at that price, will exactly\r\nsatisfy the demand, and no more. Let us suppose\r\nthat this number is 1000 times 17 yards.\u003c/p\u003e\r\n\r\n\u003cp\u003eAs 17 yards of linen are to 30 yards of cloth,\r\nso are 1000 times 17 yards to 1000 times 10 yards.\r\nAt the existing exchangeable value, the linen which\r\nEngland requires, will exactly pay for the quantity\r\nof cloth which, on the same terms of interchange,\r\nGermany requires. The demand on each side is\r\nprecisely sufficient to carry off the supply on the\r\nother. The conditions required by the principle of\r\ndemand and supply are fulfilled, and the two commodities\r\nwill continue to be interchanged, as we supposed\r\nthem to be, in the ratio of 17 yards of linen for\r\n10 yards of cloth.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut our supposition might have been different.\r\nSuppose that, at the assumed rate of interchange,\r\nEngland had been disposed to consume no greater\r\nquantity of linen than 800 times 17 yards; it is\r\nevident that, at the rate supposed, this would not\r\nhave sufficed to pay for the 1000 times 10 yards of\r\ncloth, which we have supposed Germany to require\r\nat the assumed value. Germany would be able to\r\nprocure no more than 800 times 10 yards, at that\r\nprice. To procure the remaining 200, which she\r\nwould have no means of doing but by bidding higher\r\nfor them, she would offer more than 17 yards of linen in\r\nexchange for 10 yards of cloth; let us suppose her\r\nto offer 18. At that price, perhaps, England would\r\nbe inclined to purchase a greater quantity of linen.\r\nShe could consume, possibly, at that price, 900 times\r\n18 yards. On the other hand, cloth having risen\r\nin price, the demand of Germany for it would, probably,\r\nhave diminished. If, instead of 1000 times 10 yards,\r\nshe is now contented with 900 times ten yards, these\r\nwill exactly pay for the 900 times 18 yards of linen\r\nwhich England is willing to take at the altered price:\r\nthe demand on each side will again exactly suffice to\r\ntake off the corresponding supply; and 10 yards for\r\n18 will be the rate at which, in both countries, cloth\r\nwill exchange for linen.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe converse of all this would have happened if\r\ninstead of 800 times 17 yards, we had supposed that\r\nEngland, at the rate of 10 for 17, would have taken\r\n1200 times 17 yards of linen. In this case, it is\r\nEngland whose demand is not fully supplied; it is\r\nEngland who, by bidding for more linen, will alter the\r\nrate of interchange to her own disadvantage; and 10\r\nyards of cloth will fall, in both countries, below the\r\nvalue of 17 yards of linen. By this fall of cloth, or\r\nwhat is the same thing, this rise of linen, the demand\r\nof Germany for cloth will increase, and the demand\r\nof England for linen will diminish, till the rate of\r\ninterchange has so adjusted itself that the cloth and\r\nthe linen will exactly pay for another; and when\r\nonce this point is attained, values will remain as they\r\nare.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt may be considered, therefore, as established,\r\nthat when two countries trade together in two commodities,\r\nthe exchangeable value of these commodities\r\nrelatively to each other will adjust itself to the inclinations\r\nand circumstances of the consumers on both\r\nsides, in such manner that the quantities required by\r\neach country, of the article which it imports from its\r\nneighbour, shall be exactly sufficient to pay for one\r\nanother. As the inclinations and circumstances of consumers\r\ncannot be reduced to any rule, so neither can\r\nthe proportions in which the two commodities will\r\nbe interchanged. We know that the limits within\r\nwhich the variation is confined are the ratio between\r\ntheir costs of production in the one country, and the\r\nratio between their costs of production in the other. Ten\r\nyards of cloth cannot exchange for more than 20 yards\r\nof linen, nor for less than 15. But they may exchange\r\nfor any intermediate number. The ratios, therefore,\r\nin which the advantage of the trade may be divided\r\nbetween the two nations, are various. The circumstances\r\non which the proportionate share of each country\r\nmore remotely depends, admit only of a very general\r\nindication.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is even possible to conceive an extreme case, in\r\nwhich the whole of the advantage resulting from the\r\ninterchange would be reaped by one party, the other\r\ncountry gaining nothing at all. There is no absurdity\r\nin the hypothesis, that of some given commodity a\r\ncertain quantity is all that is wanted at any price, and\r\nthat when that quantity is obtained, no fall in the exchangeable\r\nvalue would induce other consumers to\r\ncome forward, or those who are already supplied to\r\ntake more. Let us suppose that this is the case in\r\nGermany with cloth. Before her trade with England\r\ncommenced, when 10 yards of cloth cost her as much\r\nlabour as 20 yards of linen, she nevertheless consumed\r\nas much cloth as she wanted under any circumstances,\r\nand if she could obtain it at the rate of 10\r\nyards of cloth for 15 of linen, she would not consume\r\nmore. Let this fixed quantity be 1000 times\r\n10 yards. At the rate, however, of 10 for 20, England\r\nwould want more linen than would be equivalent\r\nto this quantity of cloth. She would consequently\r\noffer a higher value for linen; or, what is the same\r\nthing, she would offer her cloth at a cheaper rate. But\r\nas by no lowering of the value could she prevail on\r\nGermany to take a greater quantity of cloth, there\r\nwould be no limit to the rise of linen, or fall of cloth,\r\nuntil the demand of England for linen was reduced\r\nby the rise of its value, to the quantity which one\r\nthousand times ten yards of cloth would purchase. It\r\nmight be, that to produce this diminution of the demand,\r\na less fall would not suffice, than one which would\r\nmake 10 yards of cloth exchange for 15 of linen.\r\nGermany would then gain the whole of the advantage,\r\nand England would be exactly as she was before the\r\ntrade commenced. It would be for the interest, however,\r\nof Germany herself, to keep her linen a little\r\nbelow the value at which it could be produced in\r\nEngland, in order to keep herself from being supplanted\r\nby the home producer. England, therefore, would\r\nalways benefit in some degree by the existence of the\r\ntrade, though it might be in a very trifling one.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut in general there will not be this extreme inequality\r\nin the degree in which the demand in the two\r\ncountries varies with variations in the price. The\r\nadvantage will probably be divided equally, oftener\r\nthan in any one unequal ratio that can be named;\r\nthough the division will be much oftener, on the whole,\r\nunequal than equal.\u003c/p\u003e\r\n\r\n\u003cp\u003e2. We shall now examine whether the same law of\r\ninterchange, which we have shown to apply upon the\r\nsupposition of barter, holds good after the introduction\r\nof money. Mr. Ricardo found that his more general proposition\r\nstood this test; and as the proposition which we\r\nhave just demonstrated is only a further developement\r\nof his principle, we shall probably find that it suffers a\r\nlittle, by a mere change in the mode (for it is no\r\nmore) in which one commodity is exchanged against\r\nanother.\u003c/p\u003e\r\n\r\n\u003cp\u003eWe may at first make whatever supposition we\r\nwill with respect to the value of money. Let us suppose,\r\ntherefore, that before the opening of the trade,\r\nthe price of cloth is the same in both countries, namely,\r\nsix shillings per yard \u003ca name=\"FNanchor2\"\u003e\u003c/a\u003e\u003ca href=\"#Footnote_2\"\u003e\u003csup\u003e[2]\u003c/sup\u003e\u003c/a\u003e. As 10 yards of cloth were supposed\r\nto exchange in England for 5 yards of linen,\r\nin Germany for 20, we must suppose that linen is sold\r\nin England at four shillings per yard, in Germany at\r\nthree. Cost of carriage and importer\u0027s profit are left\r\nas before, out of consideration.\u003c/p\u003e\r\n\r\n\u003cp\u003eIn this state of prices, cloth, it is evident, cannot\r\nyet be exported from England into Germany. But\r\nlinen can be imported from Germany into England.\r\nIt will be so, and, in the first instance, the linen will be\r\npaid for in money.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe efflux of money from England, and its influx\r\ninto Germany, will raise money prices in the latter\r\ncountry, and lower them in the former. Linen will\r\nrise in Germany above three shillings per yard, and\r\ncloth above six shillings. Linen in England being\r\nimported from Germany, will (since cost of carriage is\r\nnot reckoned) sink to the same price as in that country,\r\nwhile cloth will fall below six shillings. As soon as the\r\nprice of cloth is lower in England than in Germany, it\r\nwill begin to be exported, and the price of cloth in\r\nGermany will fall to what it is in England. As long\r\nAs the cloth exported does not suffice to pay for the\r\nlinen imported, money will continue to flow from\r\nEngland into Germany, and prices generally will continue\r\nto fall in England, and rise in Germany. By\r\nthe fall, however, of cloth in England, cloth will fall in\r\nGermany also, and the demand for it will increase.\r\nBy the rise of linen in Germany, linen must rise in\r\nEngland also, and the demand for it will diminish.\r\nAlthough the increased exportation of cloth takes place\r\nat a lower price, and the diminished importation of\r\nlinen at a higher, yet the total money value of the\r\nexportation would probably increase, that of the importation\r\ndiminish. As cloth fell in price and linen rose,\r\nthere would be some particular price of both articles\r\nat-which the cloth exported, and the linen imported,\r\nwould exactly pay for each other. At this point prices\r\nwould remain, because money would then cease to\r\nmove out of England into Germany. What this point\r\nmight be, would entirely depend upon the circumstances\r\nand inclinations of the purchasers on both sides. If\r\nthe fall of cloth did not much increase the demand for\r\nit in Germany, and the rise of linen did not diminish\r\nvery rapidly the demand for it in England, much money\r\nmust pass before the equilibrium is restored; cloth would\r\nfall very much, and linen would rise, until England,\r\nperhaps, had to pay nearly as much for it as when she\r\nproduced it for herself. But if, on the contrary, the\r\nfall of cloth caused a very rapid increase of the demand\r\nfor it in Germany, and the rise of linen in Germany\r\nreduced very rapidly the demand in England from\r\nwhat it was under the influence of the first cheapness\r\nproduced by the opening of the trade; the cloth would\r\nvery soon suffice to pay for the linen, little money would\r\npass between the two countries, and England would\r\nderive a large portion of the benefit of the trade. We\r\nhave thus arrived at precisely the same conclusion, in\r\nsupposing the employment of money, which we found\r\nto hold under the supposition of barter.\u003c/p\u003e\r\n\r\n\u003cp\u003eIn what shape the benefit accrues to the two nations\r\nfrom the trade, is clear enough. Germany,\r\nbefore the commencement of the trade, paid six shillings\r\nper yard for broad-cloth. She now obtains it at\r\na lower price. This, however, is not the whole of her\r\nadvantage. As the money prices of all her other commodities\r\nhave risen, the money incomes of all her producers\r\nhave increased. This is no advantage to them in\r\nbuying from each other; because the price of what they\r\nbuy has risen in the same ratio with their means of\r\npaying for it: but it is an advantage to them in\r\nbuying any thing which has not risen; and still more,\r\nany thing which has fallen. They therefore benefit as\r\nconsumers of cloth, not merely to the extent to which\r\ncloth has fallen, but also to the extent to which other\r\nprices have risen. Suppose that this is one-tenth.\r\nThe same proportion of their money incomes as before,\r\nwill suffice to supply their other wants, and the remainder,\r\nbeing increased one-tenth in amount, will enable\r\nthem to purchase one-tenth more cloth than before,\r\neven though cloth had not fallen. But it has fallen:\r\nso that they are doubly gainers. If they do not choose\r\nto increase their consumption of cloth, this does not\r\nprevent them from being gainers. They purchase the\r\nsame quantity with less money, and have more to\r\nexpend upon their other wants.\u003c/p\u003e\r\n\r\n\u003cp\u003eIn England, on the contrary, general money-prices\r\nhave fallen. Linen, however, has fallen more than the\r\nrest; having been lowered in price, by importation from\r\na country where it was cheaper, whereas the others\r\nhave fallen only from the consequent efflux of money.\r\nNotwithstanding, therefore, the general fall of money-prices,\r\nthe English producers will be exactly as they\r\nwere in all other respects, while they will gain as purchasers\r\nof linen.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe greater the efflux of money required to restore\r\nthe equilibrium, the greater will be the gain of\r\nGermany; both by the fall of cloth, and by the rise of\r\nher general prices. The less the efflux of money\r\nrequisite, the greater will be the gain of England;\r\nbecause the price of linen will continue lower, and her\r\ngeneral prices will not be reduced so much. It must\r\nnot, however, be imagined that high money-prices\r\nare a good, and low money-prices an evil, in themselves.\r\nBut the higher the general money-prices in\r\nany country, the greater will be that country\u0027s means\r\nof purchasing those commodities which, being imported\r\nfrom abroad, are independent of the causes which keep\r\nprices high at home.\u003c/p\u003e\r\n\r\n\u003cp\u003e3. We have hitherto supposed the carriage to be\r\nperformed without labour or expense. If we abandon\r\nthis supposition, we must correct the statement of the\r\ncase in a slight degree. The prices of the two articles\r\nwill no longer, when the trade is opened, be the same\r\nin both countries, nor will the articles exchange for\r\none another at the same rate in both. Ten yards of\r\ncloth will purchase in Germany a quantity of linen\r\ngreater than in England by a per-centage equal to the\r\nentire cost of conveyance both of the cloth to Germany\r\nand of the linen to England. The money-price\r\nof linen will be higher in England than in Germany,\r\nby the cost of carriage of the linen. The money-price\r\nof cloth will be higher in Germany than in England,\r\nby the cost of carriage of the cloth.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe expense of the carriage is evidently a deduction\r\n\u003ci\u003epro tanto\u003c/i\u003e from the saving of labour produced by the\r\nestablishment of the trade. The two countries together,\r\ntherefore, have their gains by the trade diminished, by\r\nthe amount of the cost of carriage of both commodities.\r\nBut here the question arises, which of the two countries\r\nbears this deduction, or in what proportion it is divided\r\nbetween them.\u003c/p\u003e\r\n\r\n\u003cp\u003eAt the first inspection it would appear that each\r\ncountry bears its own cost of carriage, that is, that each\r\ncountry pays the carriage of the commodity which it\r\nimports. Upon this supposition, each country would\r\ngain whatever share of the joint saving of labour would\r\notherwise fall to its lot, \u003ci\u003eminus\u003c/i\u003e the cost of bringing from\r\nthe other country the commodity which it imports.\r\nThis solution is rendered plausible by the circumstance\r\njust now mentioned, that the price of the commodity\r\nwill be higher in the country which imports it, than in\r\nthe country which exports it, by the amount of the\r\ncost of carriage. If linen is sold in England at a\r\nhigher price than in Germany, by a per-centage equal\r\nto the cost of carriage of the linen, it appears obvious\r\nthat England pays for the carriage of the linen, and\r\nGermany, by parity of reason, for that of the cloth.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut if we apply to these questions the principles\r\nalready explained, we shall see that this is not by any\r\nmeans a universal law: the fact may correspond with\r\nit, or it may not.\u003c/p\u003e\r\n\r\n\u003cp\u003eFor suppose that the prices have adjusted themselves,\r\nno matter how, and that the imports and exports\r\nbalance one another, each commodity, of course, being\r\ndearer by the cost of carriage, in the country which imports\r\nthan in that which exports it: and suppose now\r\nthat the cost of carriage, both of the one and of the\r\nother, were suddenly and miraculously annihilated, and\r\nthat the commodities could pass from country to country\r\nwithout expense. If each country bore its own cost of\r\ncarriage before, each country will save its own cost of\r\ncarriage now. Cloth, in Germany, will in that case fall\r\nexactly to what it is in England; linen in England, to\r\nwhat it is in Germany.\u003c/p\u003e\r\n\r\n\u003cp\u003eNow this fall of price, supposing it to happen, will\r\nprobably affect the demand on both sides; and it will\r\neither affect it alike in both countries, or it will affect\r\nit unequally. It will affect it alike, if the fall of price\r\ndoes not affect the demand at all, or if it affects it\r\nequally in both countries. If either of these results\r\nshould take place, the cloth and the linen would continue\r\nto balance each other as before: no money would pass\r\nfrom one country to the other; prices in both would\r\ncontinue at the point to which they had fallen, and\r\neach country would exactly save the cost of carriage\r\non the commodity which it imports from the other.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut the result might be, that the fall of price might\r\nnot have an effect exactly equal, on the demand in the\r\ntwo countries. Suppose, for instance, that the fall of\r\ncloth in Germany owing to the saving of the cost of\r\ncarriage, did not increase the demand for cloth in Germany;\r\nbut that the fall of linen in England from a\r\nlike cause, did increase the demand for linen in England.\r\nThe linen imported would be more than could\r\nbe paid for by the cloth exported: the difference must\r\nbe paid in money: the change in the distribution of\r\nthe precious metals between the two countries would\r\nlower the price of cloth in England, (and consequently\r\nin Germany), while it would raise the price of linen in\r\nGermany, (and consequently in England). Germany,\r\ntherefore, by the annihilation of cost of carriage, would\r\nsave in price more than the cost of carriage of the\r\ncloth; England would save less in price than the cost\r\nof carriage of the linen. But if by the miraculous\r\nannihilation of cost of carriage, England would not \u003ci\u003esave\u003c/i\u003e\r\nthe whole of the carriage of her imports, it follows that\r\nEngland did not previously \u003ci\u003epay\u003c/i\u003e the whole of that cost\r\nof carriage.\u003c/p\u003e\r\n\r\n\u003cp\u003eThus, the division of the cost of trade, and the\r\ndivision of the advantage of trade, are governed by\r\nprecisely the same principles; and the only general\r\nproposition which can be affirmed respecting the cost\r\nis, that it is \u003ci\u003epro tanto\u003c/i\u003e a deduction from the advantage.\r\nIt cannot even be maintained that the cost is shared\r\nin the same proportion as the advantage is; because\r\nthe increase of the demand for a commodity as its\r\nprice falls, is not governed by any fixed law. Suppose,\r\nfor instance, that the advantage happened to be\r\ndivided equally: this must be because the greater\r\ncheapness arising from the establishment of the trade,\r\neither did not affect the demand at all, or affected it\r\nin an equal proportion on both sides. Now, because\r\nsuch is the effect of the degree of increased cheapness\r\nresulting from importation burthened with cost of carriage,\r\nit would not follow that the still greater degree\r\nof cheapness, produced by the additional saving of the\r\ncost of carriage itself, would also affect the demand of\r\nboth countries in precisely an equal degree. But we\r\ncannot be said to bear an expense, which, if saved,\r\nwould be saved to somebody else, and not to us. Two\r\ncountries may have equal shares of the clear benefit of\r\nthe trade, while, if the cost of carriage were saved,\r\nthey would divide that saving unequally. If so, they\r\ndivide the gross gain in one unequal ratio, the cost in\r\nanother unequal ratio, though their shares of the cost\r\nbeing deducted from their shares of the gain leave\r\nequal remainders.\u003c/p\u003e\r\n\r\n\u003cp\u003e4. The question naturally suggests itself, whether\r\nany country, by its own legislative policy, can engross\r\nto itself a larger share of the benefits of foreign commerce,\r\nthan would fall to it in the natural or spontaneous\r\ncourse of trade.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe answer is, it can. By taxing exports, for\r\ninstance, we may, under certain circumstances, produce\r\na division of the advantage of the trade more\r\nfavourable to ourselves. In some cases, we may draw\r\ninto our coffers, at the expense of foreigners, not only\r\nthe whole tax, but more than the tax: in other cases,\r\nwe should gain exactly the tax,\u0026mdash;in others, less than\r\nthe tax. In this last case, a part of the tax is borne\r\nby ourselves: possibly the whole, possibly even, as we\r\nshall show, more than the whole.\u003c/p\u003e\r\n\r\n\u003cp\u003eSuppose that England taxes her export of cloth:\r\nthe tax not being supposed high enough to induce\r\nGermany to produce cloth for herself. The price at\r\nwhich cloth can be sold in Germany is augmented by\r\nthe tax. This will probably diminish the quantity\r\nconsumed. It may diminish it so much, that even at\r\nthe increased price, there will not be required so great\r\na money value as before. It may diminish it in such\r\na ratio, that the money value of the quantity consumed\r\nwill be exactly the same as before. Or it may not\r\ndiminish it at all, or so little, that, in consequence of\r\nthe higher price, a greater money value will be purchased\r\nthan before. In this last case, England will\r\ngain, at the expense of Germany, not only the whole\r\namount of the duty, but more. For the money value\r\nof her exports to Germany being increased, while her\r\nimports remain the same, money will flow into England\r\nfrom Germany. The price of cloth will rise in England,\r\nand consequently in Germany; but the price of\r\nlinen will fall in Germany, and consequently in England,\r\nWe shall export less cloth, and import more\r\nlinen, till the equilibrium is restored. It thus appears,\r\nwhat is at first sight somewhat remarkable, that, by\r\ntaxing her exports, England would, under some conceivable\r\ncircumstances, not only gain from her foreign\r\ncustomers the whole amount of the tax, but would also\r\nget her imports cheaper. She would get them cheaper\r\nin two ways,\u0026mdash;for she would obtain them for less\r\nmoney, and would have more money to purchase them\r\nwith. Germany, on the other hand, would suffer\r\ndoubly: she would have to pay for her cloth a price\r\nincreased not only by the duty, but by the influx\r\nof money into England, while the same change in the\r\ndistribution of the circulating medium would leave\r\nher less money to purchase it with.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis, however, is only one of three possible cases.\r\nIf, after the imposition of the duty, Germany requires\r\nso diminished a quantity of cloth, that its total money\r\nvalue is exactly the same as before, the balance of\r\ntrade will be undisturbed; England will gain the duty,\r\nGermany will lose it, and nothing more. If, again,\r\nthe imposition of the duty occasions such a falling off\r\nin the demand, that Germany requires a less pecuniary\r\nvalue than before, our exports will no longer pay for\r\nour imports, money must pass from England into\r\nGermany, and Germany\u0027s share of the advantage of the\r\ntrade will be increased. By the change in the distribution\r\nof money, cloth will fall in England; and therefore\r\nit will, of course, fall in Germany. Thus Germany\r\nwill not pay the whole of the tax. From the same\r\ncause, linen will rise in Germany, and consequently in\r\nEngland. When this alteration of prices has so adjusted\r\nthe demand, that the cloth and the linen again\r\npay for one another, the result is, that Germany has\r\npaid only a part of the tax, and the remainder of what\r\nhas been received into our treasury has come indirectly\r\nout of the pockets of our own consumers of\r\nlinen, who pay a higher price for that imported commodity,\r\nin consequence of the tax on our exports, which\r\nat the same time they, in consequence of the efflux of\r\nmoney and consequent fall of prices, have smaller\r\nmoney incomes wherewith to pay for the linen at that\r\nadvanced price.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is not an impossible supposition that, by taxing\r\nour exports, we might not only gain nothing from\r\nthe foreigner, the tax being paid out of our own\r\npockets, but might even compel our own people to\r\npay a second tax to the foreigner. Suppose, as before,\r\nthat the demand of Germany for cloth falls off so\r\nmuch on the imposition of the duty, that she requires\r\na smaller money value than before, but that the case\r\nis so different with linen in England, that when the\r\nprice rises the demand either does not fall off at all, or\r\nso little that the money value required is greater than\r\nbefore. The first effect of laying on the duty is, as\r\nbefore, that the cloth exported will no longer pay for\r\nthe linen imported. Money will, therefore, flow out\r\nof England into Germany. One effect is to raise the\r\nprice of linen in Germany, and, consequently, in England.\r\nBut this, by the supposition, instead of stopping\r\nthe efflux of money, only makes it greater, because the\r\nhigher the price, the greater the money value of the\r\nlinen consumed. The balance, therefore, can only be\r\nrestored by the other effect, which is going on at the\r\nsame time, namely, the fall of cloth in the English,\r\nand, consequently, in the German market. Even\r\nwhen cloth has fallen so low that its price with the\r\nduty is only equal to what its price without the duty\r\nwas at first, it is not a necessary consequence that the\r\nfall will stop; for the same amount of exportation as\r\nbefore will not now suffice to pay the increased money\r\nvalue of the imports; and although the German consumers\r\nhave now not only cloth at the old price, but\r\nlikewise increased money incomes, it is not certain\r\nthat they will be inclined to employ the increase of\r\ntheir incomes in increasing their purchases of cloth.\r\nThe price of cloth, therefore, must perhaps fall, to\r\nrestore the equilibrium, more than the whole amount\r\nof the duty; Germany may be enabled to import\r\ncloth at a lower price when it is taxed, than when it\r\nwas untaxed: and this gain she will acquire at the\r\nexpense of the English consumers of linen, who, in\r\naddition, will be the real payers of the whole of what\r\nis received at their own custom-house under the name\r\nof duties on the export of cloth.\u003c/p\u003e\r\n\r\n\u003cp\u003eSuch are the extremely various effects which may\r\nresult to ourselves, and to our customers, from the imposition\r\nof taxes on our exports \u003ca name=\"FNanchor3\"\u003e\u003c/a\u003e\u003ca href=\"#Footnote_3\"\u003e\u003csup\u003e[3]\u003c/sup\u003e\u003c/a\u003e: and the determining\r\ncircumstances are of a nature so imperfectly ascertainable,\r\nthat it must be almost impossible to decide\r\nwith any certainty, even after the tax has been imposed,\r\nwhether we have been gainers by it or losers.\r\nIt is certain, however, that whatever we gain, is lost\r\nby somebody else, and there is the expense of the\r\ncollection besides: if international morality, therefore,\r\nwere rightly understood and acted upon, such taxes,\r\nas being contrary to the universal weal, would not\r\nexist. Moreover, the imposition of such a tax frequently\r\nwill, and always may, expose a country to lose\r\nthis branch of its trade altogether, or to carry it on with\r\ndiminished advantage, in consequence of the competition\r\nof untaxed exporters from other countries, or\r\nof the domestic producers in the country to which it\r\nexports. Even on the most selfish principles, therefore,\r\nthe benefit of such a tax is always extremely precarious.\u003c/p\u003e\r\n\r\n\u003cp\u003e5. We have had an example of a tax on exports,\r\nthat is, on foreigners, falling in part on ourselves. We\r\nshall, therefore, not be surprised if we find a tax on\r\nimports, that is, on ourselves, partly falling upon\r\nforeigners.\u003c/p\u003e\r\n\r\n\u003cp\u003eInstead of taxing the cloth which we export, suppose\r\nthat we tax the linen which we import. The\r\nduty which we are now supposing must not be what is\r\ntermed a protecting duty, that is, a duty sufficiently\r\nhigh to induce us to produce the article at home. If\r\nit had this effect, it would destroy entirely the trade\r\nboth in cloth and in linen, and both countries would\r\nlose the whole of the advantage which they previously\r\ngained by exchanging those commodities with one\r\nanother. We suppose a duty which might diminish\r\nthe consumption of the article, but which would not\r\nprevent us from continuing to import, as before, whatever\r\nlinen we did consume.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe equilibrium of trade would be disturbed if\r\nthe imposition of the tax diminished in the slightest\r\ndegree the quantity of linen consumed. For, as the\r\ntax is levied at our own custom-house, the German\r\nexporter only receives the same price as formerly,\r\nthough the English consumer pays a higher one. If,\r\ntherefore, there be any diminution of the quantity\r\nbought, although a larger sum of money may be\r\nactually laid out in the article, a smaller one will be\r\ndue from England to Germany: this sum will no\r\nlonger be an equivalent for the sum due from Germany\r\nto England for cloth, the balance therefore must\r\nbe paid in money. Prices will fall in Germany, and\r\nrise in England; linen will fall in the German market;\r\ncloth will rise in the English. The Germans will pay\r\nhigher price for cloth, and will have smaller money\r\nincomes to buy it with; while the English will obtain\r\nlinen cheaper, that is, its price will exceed what it\r\npreviously was by less than the amount of the duty,\r\nwhile their means of purchasing it will be increased\r\nby the increase of their money incomes.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf the imposition of the tax does not diminish the\r\ndemand, it will leave the trade exactly as it was\r\nbefore. We shall import as much, and export as\r\nmuch; the whole of the tax will be paid out of our\r\nown pockets.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut the imposition of a tax on a commodity,\r\nalmost always diminishes the demand more or less;\r\nand it can never, or scarcely ever increase the demand.\r\nIt may, therefore, be laid down as a principle, that a\r\ntax on imported commodities, when it really operates\r\nas a tax, and not as a prohibition, either total or\r\npartial, almost always falls in part upon the foreigners\r\nwho consume our goods: and that this is a mode in\r\nwhich a nation may be almost sure of appropriating to\r\nitself, at the expense of foreigners, a larger share than\r\nwould otherwise belong to it of the increase in the\r\ngeneral productiveness of the labour and capital of\r\nthe world, which results from the interchange of\r\ncommodities among nations.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is scarcely necessary to observe, that no such\r\nadvantage can result from the duty, if it operate as a\r\nprotecting duty; if it induce the country which imposes\r\nit, to produce for herself that which she would\r\notherwise have imported. The saving of labour\u0026mdash;the\r\nincrease in the general productiveness of the capital\r\nof the world\u0026mdash;which is the effect of commerce,\r\nand which a non-protecting duty would enable the\r\ncountry imposing it to engross, could not be engrossed\r\nby a protecting duty, because such a duty prevents\r\nany such increased production from existing.\u003c/p\u003e\r\n\r\n\u003cp\u003eWith a view to practical legislation, therefore,\r\nduties on importation may be divided into two classes:\r\nthose which have the effect of encouraging some particular\r\nbranch of domestic industry, and those which\r\nhave not.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe former are purely mischievous, both to the\r\ncountry imposing them, and to those with whom it\r\ntrades. They prevent a saving of labour and capital,\r\nwhich, if permitted to be made, would be divided in\r\nsome proportion or other between the importing\r\ncountry and the countries which buy what that\r\ncountry does or might export.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe other class of duties are those which do not\r\nencourage one mode of procuring an article at the\r\nexpense of another, but allow interchange to take place\r\njust as if the duty did not exist\u0026mdash;and to produce the\r\nsaving of labour which constitutes the motive to international\r\nas to all other commerce. Of this kind, are\r\nduties on the importation of any commodity which\r\ncould not by any possibility be produced at home;\r\nand duties not sufficiently high to counterbalance the\r\ndifference of expense between the production of the\r\narticle at home, and its importation. Of the money\r\nwhich is brought into the treasury of any country by\r\ntaxes of this last description, a part only is paid by\r\nthe people of that country; the remainder by the\r\nforeign consumers of their goods.\u003c/p\u003e\r\n\r\n\u003cp\u003eNevertheless, this latter kind of taxes are in principle\r\nas ineligible as the former, although not precisely\r\non the same ground. A protecting duty can never be\r\na cause of gain, but always and necessarily of loss, to\r\nthe country imposing it, just so far as it is efficacious\r\nto its end. A non-protecting duty on the contrary\r\nwould, in most cases, be a source of gain to the\r\ncountry imposing it, in so far as throwing part of the\r\nweight of its taxes upon other people is a gain; but\r\nit would be a means of gain which it could seldom\r\nbe advisable to adopt, being so easily counteracted by\r\na precisely similar proceeding on the other side.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf England, in the case already supposed, sought to\r\nobtain for herself more than her natural share of the\r\nadvantage of the trade with Germany, by imposing a\r\nduty upon cloth, Germany would only have to impose\r\na duty upon linen, sufficient to diminish the demand\r\nfor that article about as much as the demand for cloth\r\nhad been diminished in England by the tax. Things\r\nwould then be as before, and each country would pay\r\nits own tax. Unless, indeed, the sum of the two duties\r\nexceeded the entire advantage of the trade; for in that\r\ncase the trade, and its advantage, would cease entirely.\u003c/p\u003e\r\n\r\n\u003cp\u003eThere would be no advantage, therefore, in imposing\r\nduties of this kind, with a view to gain by\r\nthem, in the manner which has been pointed out.\r\nBut so long as any other kind of taxes on commodities\r\nare retained, as a source of revenue, these may often\r\nbe as unobjectionable as the rest. It is evident, moreover,\r\nthat considerations of reciprocity, which are\r\nquite unessential when the matter in debate is a protecting\r\nduty, are of material importance when the\r\nrepeal of duties of this other description is discussed.\r\nA country cannot be expected to renounce the power\r\nof taxing foreigners, unless foreigners will in return\r\npractise towards itself the same forbearance. The\r\nonly mode in which a country can save itself from\r\nbeing a loser by the duties imposed by other countries\r\non its commodities, is to impose corresponding duties\r\non theirs. Only it must take care that these duties\r\nbe not so high as to exceed all that remains of the\r\nadvantage of the trade, and put an end to importation\r\naltogether; causing the article to be either produced\r\nat home, or imported from another and a dearer\r\nmarket.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is not necessary to apply the principles which\r\nwe have stated to the case of bounties on exportation\r\nor importation. The application is easy, and the\r\nconclusions present nothing of particular interest or\r\nimportance.\u003c/p\u003e\r\n\r\n\u003cp\u003e6. Any cause which alters the exports or imports\r\nfrom one country into another, alters the division of\r\nthe advantage of interchange between those two countries.\r\nSuppose the discovery of a new process, by\r\nwhich some article of export, or some article not previously\r\nexported, can be produced so cheap as to\r\noccasion a great demand for it in other countries. This\r\nof course produces a great influx of money from other\r\ncountries, and lowers the prices of all articles imported\r\nfrom them, until the increase of importation\r\nproduced by this cause has restored the equilibrium.\r\nThus, the country which acquires a new article of\r\nexport gets its imports cheaper. This is not a case of\r\nmere alteration in the division of the advantage; it is\r\na new advantage created by the discovery.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut suppose that the invention, to which the\r\nnation is indebted for this increase of the return to\r\nits industry, comes into use also in the other country,\r\nand that the process is one which can be as perfectly\r\nand as cheaply performed in the one country as in the\r\nother. The new exportation will cease; trade will\r\nrevert to its old channels, the money which flowed in\r\nwill again flow out, and the country which invented\r\nthe process will lose that increase of its gain by trade,\r\nwhich it had derived from the discovery.\u003c/p\u003e\r\n\r\n\u003cp\u003eNow the exportation of machinery comes within\r\nthe case which we have just described.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf the fact be, that by allowing to foreigners a\r\nparticipation in our machinery, we enable them to\r\nproduce any of our leading articles of export, at a\r\nlower money price than we can sell those articles, it\r\nis certain that unless we possess as great an advantage\r\nin the production of the machinery itself as we have\r\nin the production of other articles by means of machinery,\r\nthe permitting of its exportation would alter\r\nto our disadvantage the division of the benefit of\r\ntrade. Our exports being diminished, we should have\r\nto pay a balance in money. This would raise, in\r\nforeign countries, the price of everything which we\r\nimport from thence: while our incomes, being reduced\r\nin money value, would render us less able to buy those\r\narticles even if they had not risen. The equilibrium\r\nof exports and imports would only be restored, when\r\neither some of the latter became so dear that we\r\ncould produce them cheaper at home, or some articles\r\nnot previously exported became exportable from the\r\nfall of prices. In the one case, we lose the benefit of\r\nimportation altogether, and are obliged to produce at\r\nhome, at a greater cost. In the other case, we continue\r\nto import, but pay dearer for our imports.\u003c/p\u003e\r\n\r\n\u003cp\u003eNotwithstanding what has now been observed,\r\nrestrictions on the exportation of machinery are not,\r\nin our opinion, justifiable, either on the score of\r\ninternational morality or of sound policy. It is evidently\r\nthe common interest of all nations that each\r\nof them should abstain from every measure by which\r\nthe aggregate wealth of the commercial world would\r\nbe diminished, although of this smaller sum total it\r\nmight thereby be enabled to attract to itself a larger\r\nshare. And the time will certainly come when nations\r\nin general will feel the importance of this rule,\r\nand will so direct their approbation and disapprobation\r\nas to enforce observance of it. Moreover, a\r\ncountry possessing machines should consider that if a\r\nsimilar advantage were extended to other countries,\r\nthey would employ it above all in the production of\r\nthose articles, in which they had already the greatest\r\nnatural advantages; and if the former country would\r\nbe a loser by their improvements in the production of\r\narticles which it sells, it would gain by their improvements\r\nin those which it buys. The exportation of\r\nmachinery may, however, be a proper subject for\r\nadjustment with other nations, on the principle of\r\nreciprocity. Until, by the common consent of nations,\r\nall restrictions upon trade are done away, a nation\r\ncannot be required to abolish those from which she\r\nderives a real advantage, without stipulating for an\r\nequivalent.\u003c/p\u003e\r\n\r\n\u003cp\u003e7. The case which we have just examined, is an\r\nexample in how remarkable a manner every cause\r\nwhich materially influences exports, operates upon\r\nthe prices of imports. According to the ancient\r\ntheory of the balance of trade, and to the associations\r\nof the generality of what are termed practical\r\nmen to this day, the sole benefit derived from commerce\r\nconsists in the exports, and imports are rather\r\nan evil than otherwise. Political economists, seeing\r\nthe folly of these views, and clearly perceiving that\r\nthe advantage of commerce consists and must consist\r\nsolely of the imports, have occasionally suffered themselves\r\nto employ language evincing inattention to the\r\nfact, that exports, though unimportant in themselves,\r\nare important by their influence on imports. So real\r\nand extensive is this influence, that every new market\r\nwhich is opened for any of our goods, and every\r\nincrease in the demand for our commodities in foreign\r\ncountries, enables us to supply ourselves with foreign\r\ncommodities at a smaller cost.\u003c/p\u003e\r\n\r\n\u003cp\u003eLet us revert to our earliest and simplest example,\r\nbut which displays the real law of interchange more\r\nluminously than any formula into which money enters;\r\nthe case of simple barter. We showed, that if at the\r\nrate of 10 yards of cloth for 17 of linen, the demand\r\nof Germany amounted to 1000 times 10 yards of\r\ncloth, the two nations will trade together at that rate\r\nof interchange, provided that the linen required in\r\nEngland be exactly 1000 times 17 yards, neither\r\nmore nor less. For the cloth and the linen will then\r\nexactly pay for one another, and nobody on either\r\nside will be obliged to offer what he has to sell at a\r\nlower rate, in order to procure what he wants to buy.\u003c/p\u003e\r\n\r\n\u003cp\u003eNow if the increase of wealth and population in\r\nGermany should greatly increase the demand in that\r\ncountry for cloth, the demand for linen in England\r\nnot increasing in the same ratio,\u0026mdash;if, for instance, Germany\r\nbecame willing, at the above rate, to take 1500\r\ntimes 10 yards; is it not evident, that to induce\r\nEngland to take in exchange for this the only article\r\nwhich Germany by supposition has to give, the\r\nlatter must offer it at a rate more advantageous to\r\nEngland\u0026mdash;at 18, or perhaps 19 yards, for 10 of cloth?\r\nSo that the division of the advantage becomes more\r\nand more favourable to a country, in proportion as\r\nthe demand for its commodities increases in foreign\r\ncountries.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is not even necessary that the country which\r\ntakes its goods, should supply it with any commodity\r\nwhatever. Suppose that a country should be opened\r\nto our merchants, disposed to buy from us in abundance,\r\nbut which can sell to us scarcely anything, as\r\nevery commodity which it affords could be got cheaper\r\nby us from some other quarter. Nevertheless, our\r\ntrade with this country will enable us to obtain from\r\nall other countries their commodities at a lower price.\r\nAt the first opening of this commerce of mere exportation,\r\nwe must have received in payment a large\r\nquantity of money; for which our customer will have\r\nbeen indemnified by other countries, in exchange for\r\nher commodities. Prices must consequently be lower\r\nin all other countries, and higher with us, than before\r\nthe opening of the new branch of trade; and we\r\ntherefore obtain the commodities of other countries at\r\na less cost, both as we pay less money for them, and\r\nas that money is lower in value.\u003c/p\u003e\r\n\r\n\u003cp\u003e8. Another obvious application of the same principle\r\nwill enable us to explain, and to bring within\r\nthe dominion of strict science, the rivality of one\r\nexporting nation and another, or what is called, in the\r\nlanguage of the mercantile system, \u003ci\u003eunderselling\u003c/i\u003e: a subject\r\nwhich political economists have taken little\r\ntrouble to elucidate, from the habit before alluded to\r\nof disregarding almost entirely, in their purely scientific\r\ninquiries, those circumstances which affect the trade\r\nof a country by operating immediately upon the\r\nexports.\u003c/p\u003e\r\n\r\n\u003cp\u003eLet us revert to our old example, and to our old\r\nfigures. Suppose that the trade between England\r\nand Germany in cloth and linen is established, and\r\nthat the rate of interchange is 10 yards of cloth for\r\n17 of linen. Now suppose that there arises in another\r\ncountry, in Flanders, for example, a linen manufacture;\r\nand that the same causes, the working of\r\nwhich in England and Germany has made 10 yards\r\nexchange for 17, would in England and Flanders,\r\nputting Germany out of the question, have made the\r\nrate of interchange 10 for 18. It is evident that\r\nGermany also must give 18 yards of linen for 10 of\r\ncloth, and so carry on the trade with a diminished\r\nshare of the advantage, or lose it altogether. If the\r\nplay of demand in England and Flanders had made\r\nthe rate of interchange not 10 for 18 but 10 for 21,\r\n(10 to 20 being in Germany the comparative cost\r\nof production,) it is evident that Germany could not\r\nhave maintained the competition, and would have\r\nlost, not part of her share of the advantage, but all\r\nadvantage, and the trade itself.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt would be no answer to say, that Germany could\r\nprobably still have found the means of importing cloth\r\nfrom England, by exporting something else. If she\r\nhad purchased cloth with anything else, she would\r\nhave purchased it dearer: as is proved by the fact,\r\nthat having free choice, she found it most advantageous\r\nto purchase it with linen. When she could\r\nget 10 yards of cloth for 17 of linen, that was the\r\nmode in which she could get it with least labour.\r\nBeing pressed by competition, she gave successively\r\n17, 18, 18; but rather than give 19 yards of linen,\r\nshe perhaps would prefer to give, as costing her rather\r\nless labour, 10 yards of silk, (which we will suppose\r\nto be the quantity which in England will purchase 10\r\nyards of cloth.) It is obvious that, although Germany\r\nhas found the means of supplying herself with\r\ncloth, by exporting a different article from that in\r\nwhich she was undersold, yet the advantage of the\r\ntrade between her and England is now shared in a\r\nproportion much less favourable to Germany.\u003c/p\u003e\r\n\r\n\u003cp\u003eThere is no difficulty in showing that the same\r\nseries of consequences takes place in exactly the same\r\nmanner through the agency of money. The trade in\r\ncloth and linen between England and Germany being\r\nsupposed to exist as before, Flanders produces linen at\r\na lower price than that at which Germany has hitherto\r\nafforded it. The exportation from Germany is suspended;\r\nand Germany, continuing to import cloth, pays\r\nfor it in money. By so doing she lowers her own\r\nprices, and raises those in England: she has to pay more\r\nmoney for cloth, and to pay it in a currency of higher\r\nvalue. She thus suffers more and more as a consumer\r\nof cloth, until by the fall of her prices she can either\r\nafford to sell linen as cheap as Flanders, or to export\r\nsome other commodity which she could not export\r\nbefore. In either case, her trade resumes its course,\r\nbut with diminished advantage on her side. \u003ca name=\"FNanchor4\"\u003e\u003c/a\u003e\u003ca href=\"#Footnote_4\"\u003e\u003csup\u003e[4]\u003c/sup\u003e\u003c/a\u003e\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is in the mode just described, that those countries\r\nwhich formerly supplied Europe with manufactures,\r\nbut which owed their power of doing so not to\r\nany natural and permanent advantages, but to their\r\nmore advanced state of civilization as compared with\r\nother countries, have lost their pre-eminence as other\r\ncountries successively attained an equal degree of\r\ncivilization. Lombardy and Flanders, in the middle\r\nages, produced some descriptions of clothing and ornament\r\nfor all Europe: Holland, at a much later\r\nperiod, supplied ships, and almost all articles which\r\ncame in ships, to most other parts of the world. All\r\nthese countries have probably at this moment a much\r\nlarger amount of capital than ever they had, but\r\nhaving been undersold by other countries, they have\r\nlost by far the greater part of the share which they\r\nhad engrossed to themselves of the benefit which the\r\nworld derives from commerce; and their capital yields\r\nto them in consequence a smaller proportional return.\r\nWe are aware that other causes have contributed to\r\nthe same effect, but we cannot doubt that this is a\r\nprincipal one.\u003c/p\u003e\r\n\r\n\u003cp\u003eAs much as is really true of the great returns\r\nalleged to have been made to capital during the last\r\nwar, must have arisen from a similar cause. Our\r\nexclusive command of the sea excluded from the\r\nmarket all by whom we should have been undersold.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe adoption by France, Russia, the Netherlands,\r\nand the United States, of a more severely restrictive\r\ncommercial policy, subsequently to 1815, has\r\ndone great injury undoubtedly to those countries; for\r\nthe duties which they have established are intended\r\nto be, and really are, of the class termed \u003ci\u003eprotecting\u003c/i\u003e;\r\nthat is to say, such as force the production of commodities\r\nby more costly processes at home, instead\r\nof suffering them to be imported from abroad. But\r\nthese duties, though chiefly injurious to the countries\r\nimposing them, have also been highly injurious to\r\nEngland. By diminishing her exportation, or preventing\r\nit from increasing as it would otherwise have\r\ndone, they have kept up the prices of all imported\r\ncommodities in England, above what those prices\r\nwould have fallen to if trade had been left free.\u003c/p\u003e\r\n\r\n\u003cp\u003eBy another obvious application of the same reasoning,\r\nit will be seen, that there is a real foundation\r\nfor the notion, that a country may be benefited\r\nby receiving from another country the concession of\r\nwhat used to be termed commercial advantages, or\r\nby restraining its colonies from purchasing goods of\r\nany country except itself. In the figured illustration\r\nlast used (p. 34) [not available, M.D.], it is evident, that if England had\r\nbeen bound by a treaty with Germany to buy linen\r\nexclusively from her, Germany would have retained\r\nthe trade which we supposed her to lose, and would\r\nhave continued to purchase cloth at a comparatively\r\ncheap rate from England, instead of producing it by a\r\nmore costly process at home. Suppose that England\r\nhad been a colony of Germany, and we see that by\r\ncompelling colonies to deal at her shop, she may obtain\r\na real advantage, though of a nature which we\r\nmay hazard the assertion that the founders of our\r\ncolonial policy little dreamt of.\u003c/p\u003e\r\n\r\n\u003cp\u003eSuch an advantage, however, being gained at the\r\nexpense of another country, is, at the least, simply\r\nequivalent to a tax, or tribute. Now, if a country has\r\njust grounds, or deems superiority of power a sufficient\r\nground, for exacting a tribute from another\r\ncountry, the most direct mode is the best. First,\r\nbecause it is the most intelligible, and has least of\r\ntrick or disguise. Secondly, because it allows the\r\npeople of the country paying the tribute, to raise the\r\nmoney in whatever way they consider least oppressive\r\nto themselves. Thirdly, because the indirect mode of\r\ntaxing a country, by restrictions on its commerce, disturbs\r\nthe distribution of industry most advantageous\r\nto the world at large, and occasions a greater loss to\r\nthe restricted country, and to the other countries\r\nwith which that country would have traded, than\r\ngain to the country in whose favour the restrictions\r\nare imposed. And lastly, because a country never\r\ncould obtain such privileges from an independent\r\nnation, and has seldom been so undisguised an oppressor\r\nas to demand them even from its colonies,\r\nwithout subjecting itself to restrictions in some degree\r\nequivalent, for the benefit of those whom it has\r\nthus taxed. Each country, therefore, usually pays\r\ntribute to the other; and to produce this fruitless\r\nreciprocity of exaction, the industry and trade of both\r\ncountries are diverted from the most advantageous\r\nchannels, and the return to the labour and capital of\r\nboth is diminished, in pure loss.\u003c/p\u003e\r\n\r\n\u003cp\u003e9. The same principles which have led to the\r\nabove conclusions, also suggest a remark of some\r\nimportance with respect to the probable effect of a\r\nchange from a restricted to a comparatively free\r\ntrade.\u003c/p\u003e\r\n\r\n\u003cp\u003eThere is no doubt that our prohibiting the importation\r\nof a particular article, which, but for the prohibition,\r\nwould have been imported, enables us to\r\nobtain our other imports at smaller cost. The article\r\nfor which we have the greatest demand, and for\r\nwhich our demand is most increased by cheapness, is\r\nthat which we should naturally import preferably to\r\nany other; now of this article we should import the\r\nquantity necessary to pay for our exports, on terms of\r\ninterchange less advantageous to us than in the case\r\nof any other commodity. If our legislature prohibits\r\nthis commodity, the other country will be obliged to\r\noffer any other article on easier terms, in order to\r\nforce a sufficient demand for it to be an equivalent to\r\nwhat she purchases from us.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe steps of the process, money being used, would\r\nbe these:\u0026mdash;We prohibit the importation of linen.\r\nThe exportation of cloth continues, but is paid for in\r\nmoney. Our prices rise, those in Germany fall, until\r\nsilk, or some other article, can be imported from\r\nGermany cheaper than it can be produced at home,\r\nand in sufficient abundance to balance the export of\r\ncloth. Thus by sacrificing the cheapness of one commodity,\r\nwe gain the cheapness of another: but we\r\nsacrifice a greater cheapness to gain a less, and we\r\nsacrifice cheapness in the article which we most want,\r\nand would import by preference, while our compensation\r\nis cheapness in an article which we either could\r\nproduce more advantageously at home, or which we\r\nhave so little desire for, that it requires a species of\r\nbounty on the article to create a demand.\u003c/p\u003e\r\n\r\n\u003cp\u003eRestrictions on importation do, however, tend to\r\nkeep down the value and price of our remaining imports,\r\nand to keep up the nominal or money prices\r\nof all our other commodities, by retaining a greater\r\nquantity of money in the country than would otherwise\r\nbe there. From this it obviously follows, that if\r\nthe restrictions were removed, we should have to pay\r\nrather more for some of the articles which we now\r\nimport, while those which we are now prevented from\r\nimporting would cost us more than might be inferred\r\nfrom their \u003ci\u003epresent\u003c/i\u003e price in the foreign market. And\r\ngeneral prices would fall; to the benefit of those who\r\nhave fixed sums to receive; to the disadvantage of\r\nthose who have fixed sums to pay; and giving rise, as\r\na general fall of prices always does, to an appearance,\r\nthough a temporary and fallacious one, of general\r\ndistress \u003ca name=\"FNanchor5\"\u003e\u003c/a\u003e\u003ca href=\"#Footnote_5\"\u003e\u003csup\u003e[5]\u003c/sup\u003e\u003c/a\u003e.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is right to observe that the measures of the\r\nBritish Legislature which have been falsely characterised\r\nas measures of free trade, must, from their extremely\r\ninsignificant extent, have produced far too\r\nlittle effect in increasing our importation, to have\r\nactually led, in any degree worth mentioning, to the\r\nresults specified above.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is of greater importance to take notice, that these\r\neffects may be entirely obviated, if foreign countries\r\ncan be prevailed upon simultaneously to relax their\r\nrestrictive systems, so as to create an immediate increase\r\nof demand for our exports at the present prices.\r\nIt is true that exports and imports must, in the end,\r\nbalance one another, and if we increase our imports,\r\nour exports will of necessity increase too. But it is a\r\nforced increase, produced by an efflux of money and fall\r\nof prices; and this fall of prices being permanent,\r\nalthough it would be no evil at all in a country where\r\ncredit is unknown, it may be a very serious one where\r\nlarge classes of persons, and the nation itself, are under\r\nengagements to pay fixed sums of money of large\r\namount.\u003c/p\u003e\r\n\r\n\u003cp\u003e10. The only remaining application of the principle\r\nset forth in this essay, which we think it of importance\r\nto notice specially, is the effect produced upon a country\r\nby the annual payment of a tribute or subsidy to a\r\nforeign power, or by the annual remittance of rents to\r\nabsentee landlords, or of any other kind of income to\r\nits absent owners. Remittances to absentees are often\r\nvery incorrectly likened in their general character to\r\nthe payment of a tribute; from which they differ in this\r\nvery material circumstance, that tribute, if not paid to\r\na foreign country, is not paid at all, whereas rents\r\nare paid to the landlord, and consumed by him, even\r\nif he resides at home. The two kinds of payment,\r\nhowever, have a perfect resemblance to each other in\r\nsuch parts of their effects as we are about to point\r\nout.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe tribute, subsidy, or remittance, is always in\r\ngoods; for, unless the country possesses mines of the\r\nprecious metals, and numbers those metals among its\r\nregular articles of export, it cannot go on, year after\r\nyear, parting with them, and never receiving them\r\nback. When a nation has regular payments to make\r\nin a foreign country, for which it is not to receive any\r\nreturn, its exports must annually exceed its imports by\r\nthe amount of the payments which it is bound so to\r\nmake. In order to force a demand for its exports\r\ngreater than its imports will suffice to pay for, it must\r\noffer them at a rate of interchange more favourable to\r\nthe foreign country, and less so to itself, than if it had\r\nno payments to make beyond the value of its imports.\r\nIt therefore carries on the trade with less advantage, in\r\nconsequence of the obligations to which it is subject\r\ntowards persons resident in foreign countries.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe steps of the process are these. The exports and\r\nimports being in equilibrium, suppose a treaty to be\r\nconcluded, by which the country binds itself to pay in\r\ntribute to another country, a certain sum annually. It\r\nmakes, perhaps, the first payment by a remittance of\r\nmoney. This lowers prices in the paying country, and\r\nraises them in the receiving one: the exports of the\r\ntributary country increase, its imports diminish. When\r\nthe efflux of money has altered prices in the requisite\r\ndegree, the exports exceed the imports annually, by the\r\namount of the tribute; and the latter, being added to\r\nthe sum of the payments due, restores the balance of\r\npayments between the two countries. The result to\r\nthe tributary country is a diminution of her share in\r\nthe advantage of foreign trade. She pays dearer for\r\nher imports, in two ways, because she pays more\r\nmoney, and because that money is of higher value,\r\nthe money incomes of her inhabitants being of smaller\r\namount.\u003c/p\u003e\r\n\r\n\u003cp\u003eThus the imposition of a tribute is a double burthen\r\nto the country paying it, and a double gain to\r\nthat which receives it. The tributary country pays to\r\nthe other, first, the tax, whatever be its amount, and\r\nnext, something more, which the one country loses in\r\nthe increased cost of its imports, the other gains in the\r\ndiminished cost of its own.\u003c/p\u003e\r\n\r\n\u003cp\u003eAbsenteeism, moreover, though not burthensome\r\nin the former of these ways, since the money is paid\r\nwhether the receiver be an absentee or not, is yet\r\ndisadvantageous in the second of the two modes which\r\nhave been mentioned. Ireland pays dearer for her imports\r\nin consequence of her absentees; a circumstance\r\nwhich the assailants of Mr. M\u0027Culloch, whether political\r\neconomists or not, have not, we believe, hitherto\r\nthought of producing against him.\u003c/p\u003e\r\n\r\n\u003cp\u003e11. If the question be now asked, which of the\r\ncountries of the world gains most by foreign commerce,\r\nthe following will be the answer.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf by gain be meant advantage, in the most enlarged\r\nsense, that country will generally gain the most,\r\nwhich stands most in need of foreign commodities.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut if by gain be meant saving of labour and\r\ncapital in obtaining the commodities which the country\r\ndesires to have, whatever they may be; the country\r\nwill gain, not in proportion to its own need of foreign\r\narticles, but to the need which foreigners have of the\r\narticles which itself produces.\u003c/p\u003e\r\n\r\n\u003cp\u003eLet us take, as an illustration of our meaning, the\r\ncase of France and England. Those two nations, in\r\nconsequence of the restrictions with which they have\r\nloaded their commercial intercourse, carry on so little\r\ntrade with each other, as may almost, regard being had\r\nto the wealth and population of the two countries,\r\nbe called none at all. If these fetters were at once\r\ntaken off, which of the two countries would be the\r\ngreatest gainer? England without doubt. There would\r\ninstantly arise in France an immense demand for the\r\ncottons, woollens, and iron of England; while wines,\r\nbrandies, and silks, the staple articles of France, are\r\nless likely to come into general demand here, nor would\r\nthe consumption of such productions, it is probable, be\r\nso rapidly increased by the fall of price. The fall would\r\nprobably be very great before France could obtain a\r\nvent in England for so much of her exports as would\r\nsuffice to pay for the probable amount of her imports.\r\nThere would be a considerable flow of the precious\r\nmetals out of France into England. The English\r\nconsumer of French wine would not merely save the\r\namount of the duty which that wine now pays, but\r\nwould find the wine itself falling-in prime cost, while\r\nhis means of purchasing it would be increased by the\r\naugmentation of his own money income. The French\r\nconsumer of English cottons, on the contrary, would\r\nnot long continue to be able to purchase them at the\r\nprice they now sell for in England. He would gain\r\nless, as the English would gain more, than might\r\nappear from a mere comparison between the present\r\nprices of commodities in the two countries.\u003c/p\u003e\r\n\r\n\u003cp\u003eVarious consequences would flow from opening the\r\ntrade between France and England, which are not expected,\r\neither by the friends or by the opponents of the\r\npresent restrictive system. The wine-growers of France,\r\nwho imagine that free trade would relieve their distress\r\nby raising the price of their wine, might not improbably\r\nfind that price actually lowered. On the other\r\nhand, our silk manufacturers would be surprised if they\r\nwere told that the free admission of our cottons and\r\nhardware into the French market, would endanger\r\n\u003ci\u003etheir\u003c/i\u003e branch of manufacture: yet such might very possibly\r\nbe the effect. France, it is likely, could most\r\nadvantageously pay us in silks for a portion of the large\r\namount of cottons and hardware which we should sell\r\nto her; and though our silk manufacturers may now\r\nbe able to compete advantageously, in some branches\r\nof the manufacture, with their French rivals, it by no\r\nmeans follows that they could do so when the efflux of\r\nmoney from France, and its influx into England, had\r\nlowered the price of silk goods in the French market,\r\nand increased all the expenses of production here.\u003c/p\u003e\r\n\r\n\u003cp\u003eOn the whole, England probably, of all the countries\r\nof Europe, draws to herself the largest share of\r\nthe gains of international commerce: because her exportable\r\narticles are in universal demand, and are of\r\nsuch a kind that the demand increases rapidly as the\r\nprice falls. Countries which export food, have the\r\nformer advantage, but not the latter. But our own\r\ncolonies, and the countries which supply us with the\r\nmaterials of our manufactures, maintain a hard struggle\r\nwith us for an equal share of the advantages of their\r\ntrade; for \u003ci\u003etheir\u003c/i\u003e exports are also of a kind for which\r\nthere exists a most extensive demand here, and a demand\r\ncapable of almost indefinite extension by a fall\r\nof price. Contrary, therefore, to common opinion, it is\r\nprobable that our trade with the colonies, and with the\r\ncountries which send us the raw materials of our national\r\nindustry, is not more but less advantageous to\r\nus, in proportion to its extent, than our trade with the\r\ncontinent of Europe. We mean in respect to the mere\r\namount of the return to the labour and capital of the\r\ncountry; considered abstractedly from the usefulness\r\nor agreeableness of the particular articles on which the\r\nreceivers may choose to expend it.\u003c/p\u003e\r\n\r\n\u003cp class=\"NO\"\u003e\u003cb\u003eNOTES:\u003c/b\u003e\u003c/p\u003e\r\n\r\n\u003cp\u003e\u003ca name=\"Footnote_1\"\u003e\u003c/a\u003e\u003ca href=\"#FNanchor1\"\u003e[1]\u003c/a\u003e\u003cdiv class=note\u003e \u003ci\u003eElements of Political Economy\u003c/i\u003e, by James Mill, Esq., 3rd\r\nedit., pp. 120-1.\u003c/div\u003e\u003cbr\u003e\r\n\r\n\u003cp\u003e\u003ca name=\"Footnote_2\"\u003e\u003c/a\u003e\u003ca href=\"#FNanchor2\"\u003e[2]\u003c/a\u003e\u003cdiv class=note\u003e The figures used are of course arbitrary, having no reference\r\nto any existing prices.\u003c/div\u003e\u003cbr\u003e\r\n\r\n\u003cp\u003e\u003ca name=\"Footnote_3\"\u003e\u003c/a\u003e\u003ca href=\"#FNanchor3\"\u003e[3]\u003c/a\u003e\u003cdiv class=note\u003e We have not deemed it necessary to enter minutely into all the\r\ncircumstances which might modify the results mentioned in the\r\ntext. For example, let us revert to the first case, that in which\r\nthe demand for cloth in Germany is so little affected by the rise of\r\nprice in consequence of the tax, that the quantity bought exceeds\r\nin pecuniary value what it was before. As the German consumers\r\nlay out more money in cloth, they have less to lay out in other things;\r\nother money prices will fall; among the rest that of linen; and this\r\nmay so increase the demand for linen in England as to restore the\r\nequilibrium of exports and imports without any passage of money.\r\nBut England\u0027s treasury will still gain from Germany the whole of\r\nthe tax, and the English people will buy their linen cheaper\r\nbesides. Again, in the opposite case, where the tax so diminishes\r\nthe demand, that a smaller pecuniary value is required than before.\r\nThe German consumers have, therefore, more to expend in other\r\nthings; these, and among the rest linen, will rise; and this may\r\nso diminish the demand for linen in England, as to restore the\r\nequilibrium without the transmission of money. But the effect, as\r\nrespects the division of the advantage, is still as stated in the text.\u003c/div\u003e\u003cbr\u003e\r\n\r\n\u003cp\u003e\u003ca name=\"Footnote_4\"\u003e\u003c/a\u003e\u003ca href=\"#FNanchor4\"\u003e[4]\u003c/a\u003e\u003cdiv class=note\u003e The world at large, sellers and buyers taken together, is\r\nalways a gainer by underselling. If, in the case supposed, England\r\nwere compelled by a commercial treaty to exclude the linen of\r\nFlanders from her market, the total wealth of the world, if affected\r\nat all, would be diminished.\r\n\u003cbr\u003e\u003cbr\u003e\r\nFor, what is the cause which enables Flanders to undersell\r\nGermany? That Flanders, if she had the trade, would exchange\r\nlinen for cloth at a rate of interchange more advantageous to\r\nEngland. And why can Flanders do so? It must be either\r\nbecause Flanders can produce the article with a less comparative\r\nquantity of labour than Germany, and therefore the total advantage\r\nto be divided between the two countries is greater in the case\r\nof Flanders than of Germany; or else because, though the total\r\nadvantage is not greater, Flanders obtains a less share of it, her\r\ndemand for cloth being greater, at the same rate of interchange,\r\nthan that of Germany. In the former case, to exclude Flemish\r\nlinen from England would be to prevent the world at large from\r\nmaking a greater saving of labour instead of a less. In the latter,\r\nthe exclusion would be inefficacious for the only end it could be\r\nintended for, viz., the benefit of Germany, unless Flemish money\r\nwere excluded from England as well as Flemish linen. For\r\nFlanders would buy English cloth, paying for it in money, until\r\nthe fall of her prices enabled her to pay for it with something\r\nelse: and the ultimate result would be that, by the rise of prices\r\nin England, Germany must pay a higher price for her cloth, and\r\nso lose a part of the advantage in spite of the treaty; while England\r\nwould pay for German linen the same price indeed, but as\r\nthe money incomes of her own people would be increased, the\r\nsame money price would imply a smaller sacrifice.\u003c/div\u003e\u003cbr\u003e\r\n\r\n\u003cp\u003e\u003ca name=\"Footnote_5\"\u003e\u003c/a\u003e\u003ca href=\"#FNanchor5\"\u003e[5]\u003c/a\u003e\u003cdiv class=note\u003e This last possible effect of a sudden introduction of free trade,\r\nwas pointed out in an able article on the Silk question, in a work\r\nof too short duration, the \u003ci\u003eParliamentary Review\u003c/i\u003e.\u003c/div\u003e\u003cbr\u003e\r\n\r\n\r\n\r\n\u003chr style=\"width: 65%;\"\u003e\r\n\u003ca name=\"ESSAY_II\"\u003e\u003c/a\u003e\u003ch2\u003eESSAY II.\u003c/h2\u003e\r\n\r\n\u003ch2\u003eOF THE INFLUENCE OF CONSUMPTION ON\r\nPRODUCTION.\u003c/h2\u003e\r\n\u003cbr\u003e\r\n\r\n\u003cp\u003eBefore the appearance of those great writers whose\r\ndiscoveries have given to political economy its present\r\ncomparatively scientific character, the ideas universally\r\nentertained both by theorists and by practical men, on\r\nthe causes of national wealth, were grounded upon\r\ncertain general views, which almost all who have given\r\nany considerable attention to the subject now justly\r\nhold to be completely erroneous.\u003c/p\u003e\r\n\r\n\u003cp\u003eAmong the mistakes which were most pernicious\r\nin their direct consequences, and tended in the greatest\r\ndegree to prevent a just conception of the objects\r\nof the science, or of the test to be applied to the\r\nsolution of the questions which it presents, was the\r\nimmense importance attached to consumption. The\r\ngreat end of legislation in matters of national wealth,\r\naccording to the prevalent opinion, was to create consumers.\r\nA great and rapid consumption was what\r\nthe producers, of all classes and denominations, wanted,\r\nto enrich themselves and the country. This object,\r\nunder the varying names of an extensive demand, a\r\nbrisk circulation, a great expenditure of money, and\r\nsometimes \u003ci\u003etotidem verbis\u003c/i\u003e a large consumption, was conceived\r\nto be the great condition of prosperity.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is not necessary, in the present state of the science,\r\nto contest this doctrine in the most flagrantly\r\nabsurd of its forms or of its applications. The utility\r\nof a large government expenditure, for the purpose of\r\nencouraging industry, is no longer maintained. Taxes\r\nare not now esteemed to be \u0026quot;like the dews of heaven,\r\nwhich return again in prolific showers.\u0026quot; It is no longer\r\nsupposed that you benefit the producer by taking his\r\nmoney, provided you give it to him again in exchange\r\nfor his goods. There is nothing which impresses a\r\nperson of reflection with a stronger sense of the shallowness\r\nof the political reasonings of the last two centuries,\r\nthan the general reception so long given to a doctrine\r\nwhich, if it proves anything, proves that the more you\r\ntake from the pockets of the people to spend on your\r\nown pleasures, the richer they grow; that the man\r\nwho steals money out of a shop, provided he expends\r\nit all again at the same shop, is a benefactor to the\r\ntradesman whom he robs, and that the same operation,\r\nrepeated sufficiently often, would make the\r\ntradesman\u0027s fortune.\u003c/p\u003e\r\n\r\n\u003cp\u003eIn opposition to these palpable absurdities, it was\r\ntriumphantly established by political economists, that\r\nconsumption never needs encouragement. All which\r\nis produced is already consumed, either for the purpose\r\nof reproduction or of enjoyment. The person who\r\nsaves his income is no less a consumer than he who\r\nspends it: he consumes it in a different way; it supplies\r\nfood and clothing to be consumed, tools and\r\nmaterials to be used, by productive labourers. Consumption,\r\ntherefore, already takes place to the greatest\r\nextent which the amount of production admits of;\r\nbut, of the two kinds of consumption, reproductive\r\nand unproductive, the former alone adds to the national\r\nwealth, the latter impairs it. What is consumed\r\nfor mere enjoyment, is gone; what is consumed\r\nfor reproduction, leaves commodities of equal value,\r\ncommonly with the addition of a profit. The usual\r\neffect of the attempts of government to encourage\r\nconsumption, is merely to prevent saving; that is, to\r\npromote unproductive consumption at the expense of\r\nreproductive, and diminish the national wealth by the\r\nvery means which were intended to increase it.\u003c/p\u003e\r\n\r\n\u003cp\u003eWhat a country wants to make it richer, is never\r\nconsumption, but production. Where there is the latter,\r\nwe may be sure that there is no want of the former.\r\nTo produce, implies that the producer desires to consume;\r\nwhy else should he give himself useless labour?\r\nHe may not wish to consume what he himself produces,\r\nbut his motive for producing and selling is the\r\ndesire to buy. Therefore, if the producers generally\r\nproduce and sell more and more, they certainly also\r\nbuy more and more. Each may not want more of\r\nwhat he himself produces, but each wants more of what\r\nsome other produces; and, by producing what the other\r\nwants, hopes to obtain what the other produces. There\r\nwill never, therefore, be a greater quantity produced, of\r\ncommodities in general, than there are consumers for.\r\nBut there may be, and always are, abundance of persons\r\nwho have the inclination to become consumers of\r\nsome commodity, but are unable to satisfy their wish,\r\nbecause they have not the means of producing either\r\nthat, or anything to give in exchange for it. The\r\nlegislator, therefore, needs not give himself any concern\r\nabout consumption. There will always be consumption\r\nfor everything which can be produced, until\r\nthe wants of all who possess the means of producing\r\nare completely satisfied, and then production will not\r\nincrease any farther. The legislator has to look solely\r\nto two points: that no obstacle shall exist to prevent\r\nthose who have the means of producing, from employing\r\nthose means as they find most for their interest;\r\nand that those who have not at present the means of\r\nproducing, to the extent of their desire to consume,\r\nshall have every facility afforded to their acquiring the\r\nmeans, that, becoming producers, they may be enabled\r\nto consume.\u003c/p\u003e\r\n\r\n\u003cp\u003eThese general principles are now well understood\r\nby almost all who profess to have studied the subject,\r\nand are disputed by few except those who ostentatiously\r\nproclaim their contempt for such studies.\r\nWe touch upon the question, not in the hope of rendering\r\nthese fundamental truths clearer than they\r\nalready are, but to perform a task, so useful and needful,\r\nthat it is to be wished it were oftener deemed part\r\nof the business of those who direct their assaults\r\nagainst ancient prejudices,\u0026mdash;that of seeing that no\r\nscattered particles of important truth are buried and\r\nlost in the ruins of exploded error. Every prejudice,\r\nwhich has long and extensively prevailed among the\r\neducated and intelligent, must certainly be borne out\r\nby some strong appearance of evidence; and when\r\nit is found that the evidence does not prove the received\r\nconclusion, it is of the highest importance to\r\nsee what it does prove. If this be thought not worth\r\ninquiring into, an error conformable to appearances\r\nis often merely exchanged for an error contrary to\r\nappearances; while, even if the result be truth, it is\r\nparadoxical truth, and will have difficulty in obtaining\r\ncredence while the false appearances remain.\u003c/p\u003e\r\n\r\n\u003cp\u003eLet us therefore inquire into the nature of the\r\nappearances, which gave rise to the belief that a great\r\ndemand, a brisk circulation, a rapid consumption (three\r\nequivalent expressions), are a cause of national prosperity.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf every man produced for himself, or with his capital\r\nemployed others to produce, everything which he\r\nrequired, customers and their wants would be a matter\r\nof profound indifference to him. He would be rich, if\r\nhe had produced and stored up a large supply of the\r\narticles which he was likely to require; and poor, if he\r\nhad stored up none at all, or not enough to last until\r\nhe could produce more.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe case, however, is different after the separation\r\nof employments. In civilized society, a single producer\r\nconfines himself to the production of one commodity,\r\nor a small number of commodities; and his affluence\r\ndepends, not solely upon the quantity of his commodity\r\nwhich he has produced and laid in store, but upon\r\nhis success in finding purchasers for that commodity.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is true, therefore, of every particular producer\r\nor dealer, that a great demand, a brisk circulation, a\r\nrapid consumption, of the commodities which he sells\r\nat his shop or produces in his manufactory, is important\r\nto him. The dealer whose shop is crowded\r\nwith customers, who can dispose of a product almost\r\nthe very moment it is completed, makes large profits,\r\nwhile his next neighbour, with an equal capital but\r\nfewer customers, gains comparatively little.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt was natural that, in this case, as in a hundred\r\nothers, the analogy of an individual should be unduly\r\napplied to a nation: as it has been concluded that a\r\nnation generally gains in wealth by the conquest of a\r\nprovince, because an individual frequently does so by\r\nthe acquisition of an estate; and as, because an individual\r\nestimates his riches by the quantity of money\r\nwhich he can command, it was long deemed an excellent\r\ncontrivance for enriching a country, to heap up\r\nartificially the greatest possible quantity of the precious\r\nmetals within it.\u003c/p\u003e\r\n\r\n\u003cp\u003eLet us examine, then, more closely than has usually\r\nbeen done, the case from which the misleading analogy\r\nis drawn. Let us ascertain to what extent the two cases\r\nactually resemble; what is the explanation of the false\r\nappearance, and the real nature of the phenomenon\r\nwhich, being seen indistinctly, has led to a false conclusion.\u003c/p\u003e\r\n\r\n\u003chr style=\"width: 45%;\"\u003e\r\n\r\n\u003cp\u003eWe shall propose for examination a very simple\r\ncase, but the explanation of which will suffice to clear\r\nup all other cases which fall within the same principle.\r\nSuppose that a number of foreigners with large incomes\r\narrive in a country, and there expend those incomes:\r\nwill this operation be beneficial, as respects the national\r\nwealth, to the country which receives these immigrants?\r\nYes, say many political economists, if they save any\r\npart of their incomes, and employ them reproductively;\r\nbecause then an addition is made to the national\r\ncapital, and the produce is a clear increase of the national\r\nwealth. But if the foreigner expends all his\r\nincome unproductively, it is no benefit to the country,\r\nsay they, and for the following reason.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf the foreigner had his income remitted to him in\r\nbread and beef, coats and shoes, and all the other\r\narticles which he was desirous to consume, it would\r\nnot be pretended that his eating, drinking, and wearing\r\nthem, on our shores rather than on his own, could\r\nbe of any advantage to us in point of wealth. Now,\r\nthe case is not different if his income is remitted to\r\nhim in some one commodity, as, for instance, in money.\r\nFor whatever takes place afterwards, with a view to\r\nthe supply of his wants, is a mere exchange of equivalents;\r\nand it is impossible that a person should ever\r\nbe enriched by merely receiving an equal value in\r\nexchange for an equal value.\u003c/p\u003e\r\n\r\n\u003cp\u003eWhen it is said that the purchases of the foreign\r\nconsumer give employment to capital which would\r\notherwise yield no profit to its owner, the same political\r\neconomists reject this proposition as involving the\r\nfallacy of what has been called a \u0026quot;general glut.\u0026quot; They\r\nsay, that the capital, which any person has chosen to\r\nproduce and to accumulate, can always find employment,\r\nsince the fact that he has accumulated it proves\r\nthat he had an unsatisfied desire; and if he cannot\r\nfind anything to produce for the wants of other consumers,\r\nhe can for his own.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is impossible to contest these propositions as\r\nthus stated. But there is one consideration which\r\nclearly shews, that there is something more in the\r\nmatter than is here taken into the account; and this\r\nis, that the above reasoning tends distinctly to prove,\r\nthat it does a tradesman no good to go into his shop\r\nand buy his goods. How can he be enriched? it might\r\nbe asked. He merely receives a certain value in money,\r\nfor an equivalent value in goods. Neither does this\r\ngive employment to his capital; for there never exists\r\nmore capital than can find employment, and if one person\r\ndoes not buy his goods another will; or if nobody\r\ndoes, there is over-production in that business, he can\r\nremove his capital, and find employment for it in\r\nanother trade.\u003c/p\u003e\r\n\r\n\u003cp\u003eEvery one sees the fallacy of this reasoning as\r\napplied to individual producers. Every one knows\r\nthat as applied to them it has not even the semblance\r\nof plausibility; that the wealth of a producer does in a\r\ngreat measure depend upon the number of his customers,\r\nand that in general every additional purchaser\r\ndoes really add to his profits. If the reasoning, which\r\nwould be so absurd if applied to individuals, be applicable\r\nto nations, the principle on which it rests\r\nmust require much explanation and elucidation.\u003c/p\u003e\r\n\r\n\u003cp\u003eLet us endeavour to analyse with precision the\r\nreal nature of the advantage which a producer derives\r\nfrom an addition to the number of his customers.\u003c/p\u003e\r\n\r\n\u003cp\u003eFor this purpose, it is necessary that we should\r\npremise a single observation on the meaning of the\r\nword capital. It is usually defined, the food, clothing,\r\nand other articles set aside for the consumption of the\r\nlabourer, together with the materials and instruments\r\nof production. This definition appears to us peculiarly\r\nliable to misapprehension; and much vagueness and\r\nsome narrow views have, we conceive, occasionally\r\nresulted from its being interpreted with too mechanical\r\nan adherence to the literal meaning of the\r\nwords.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe capital, whether of an individual or of a nation,\r\nconsists, we apprehend, of all matters possessing\r\nexchangeable value, which the individual or the nation\r\nhas in his or in its possession for the purpose of reproduction,\r\nand not for the purpose of the owner\u0027s\r\nunproductive enjoyment. All unsold goods, therefore,\r\nconstitute a part of the national capital, and of the\r\ncapital of the producer or dealer to whom they belong.\r\nIt is true that tools, materials, and the articles on\r\nwhich the labourer is supported, are the only articles\r\nwhich are directly subservient to production: and if I\r\nhave a capital consisting of money, or of goods in\r\na warehouse, I can only employ them as means of\r\nproduction in so far as they are capable of being\r\nexchanged for the articles which conduce directly\r\nto that end. But the food, machinery, \u0026amp;c, which\r\nwill ultimately be purchased with the goods in my\r\nwarehouse, may at this moment not be in the country,\r\nmay not be even in existence. If, after having sold\r\nthe goods, I hire labourers with the money, and set\r\nthem to work, I am surely employing capital, though\r\nthe corn, which in the form of bread those labourers\r\nmay buy with the money, may be now in warehouse\r\nat Dantzic, or perhaps not yet above ground.\u003c/p\u003e\r\n\r\n\u003cp\u003eWhatever, therefore, is destined to be employed\r\nreproductively, either in its existing shape, or indirectly\r\nby a previous (or even subsequent) exchange, is\r\ncapital. Suppose that I have laid out all the money\r\nI possess in wages and tools, and that the article\r\nI produce is just completed: in the interval which\r\nelapses before I can sell the article, realize the proceeds,\r\nand lay them out again in wages and tools, will\r\nit be said that I have no capital? Certainly not: I\r\nhave the same capital as before, perhaps a greater,\r\nbut it is locked up, as the expression is, and not\r\ndisposable.\u003c/p\u003e\r\n\r\n\u003cp\u003eWhen we have thus seen accurately what really\r\nconstitutes capital, it becomes obvious, that of the\r\ncapital of a country, there is at all times a very\r\nlarge proportion lying idle. The annual produce of\r\na country is never any thing approaching in magnitude\r\nto what it might be if all the resources devoted to\r\nreproduction, if all the capital, in short, of the country,\r\nwere in full employment.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf every commodity on an average remained unsold\r\nfor a length of time equal to that required for its\r\nproduction, it is obvious that, at any one time, no\r\nmore than half the productive capital of the country\r\nwould be really performing the functions of capital.\r\nThe two halves would relieve one another, like the\r\nsemichori in a Greek tragedy; or rather the half which\r\nwas in employment would be a fluctuating portion,\r\ncomposed of varying parts; but the result would\r\nbe, that each producer would be able to produce\r\nevery year only half as large a supply of commodities,\r\nas he could produce if he were sure of\r\nselling them the moment the production was completed.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis, or something like it, is however the habitual\r\nstate, at every instant, of a very large proportion of all\r\nthe capitalists in the world.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe number of producers, or dealers, who turn\r\nover their capital, as the expression is, in the shortest\r\npossible time, is very small. There are few who\r\nhave so rapid a sale for their wares, that all the\r\ngoods which their own capital, or the capital which\r\nthey can borrow, enables them to supply, are carried\r\noff as fast as they can be supplied. The majority\r\nhave not an \u003ci\u003eextent of business\u003c/i\u003e, at all adequate\r\nto the amount of the capital they dispose of. It is\r\ntrue that, in the communities in which industry and\r\ncommerce are practised with greatest success, the\r\ncontrivances of banking enable the possessor of a\r\nlarger capital than he can employ in his own business,\r\nto employ it productively and derive a revenue from\r\nit notwithstanding. Yet even then, there is, of necessity,\r\na great quantity of capital which remains fixed\r\nin the shape of implements, machinery, buildings, \u0026amp;c,\r\nwhether it is only half employed, or in complete employment:\r\nand every dealer keeps a stock in trade, to\r\nbe ready for a possible sudden demand, though he probably\r\nmay not be able to dispose of it for an indefinite\r\nperiod.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis perpetual non-employment of a large proportion\r\nof capital, is the price we pay for the division of\r\nlabour. The purchase is worth what it costs; but\r\nthe price is considerable.\u003c/p\u003e\r\n\r\n\u003cp\u003eOf the importance of the fact which has just been\r\nnoticed there are three signal proofs. One is, the\r\nlarge sum often given for the goodwill of a particular\r\nbusiness. Another is, the large rent which is paid\r\nfor shops in certain situations, near a great thoroughfare\r\nfor example, which have no advantage except\r\nthat the occupier may expect a larger body of customers,\r\nand be enabled to turn over his capital more\r\nquickly. Another is, that in many trades, there are\r\nsome dealers who sell articles of an equal quality at a\r\nlower price than other dealers. Of course, this is not\r\na voluntary sacrifice of profits: they expect by the\r\nconsequent overflow of customers to turn over their\r\ncapital more quickly, and to be gainers by keeping\r\nthe whole of their capital in more constant employment,\r\nthough on any given operation their gains are\r\nless.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe reasoning cited in the earlier part of this paper,\r\nto show the uselessness of a mere purchaser or customer,\r\nfor enriching a nation or an individual, applies\r\nonly to the case of dealers who have already as much\r\nbusiness as their capital admits of, and as rapid a sale\r\nfor their commodities as is possible. To such dealers\r\nan additional purchaser is really of no use; for, if they\r\nare sure of selling all their commodities the moment\r\nthose commodities are on sale, it is of no consequence\r\nwhether they sell them to one person or to another.\r\nBut it is questionable whether there be any dealers\r\nin whose case this hypothesis is exactly verified; and to\r\nthe great majority it is not applicable at all. An additional\r\ncustomer, to most dealers, is equivalent to an\r\nincrease of their productive capital. He enables them\r\nto convert a portion of their capital which was lying\r\nidle (and which could never have become productive in\r\ntheir hands until a customer was found) into wages\r\nand instruments of production; and if we suppose that\r\nthe commodity, unless bought by him, would not have\r\nfound a purchaser for a year after, then all which a\r\ncapital of that value can enable men to produce during\r\na year, is clear gain\u0026mdash;gain to the dealer, or producer,\r\nand to the labourers whom he will employ, and thus\r\n(if no one sustains any corresponding loss) gain to the\r\nnation. The aggregate produce of the country for the\r\nsucceeding year is, therefore, increased; not by the\r\nmere exchange, but by calling into activity a portion\r\nof the national capital, which, had it not been for the\r\nexchange, would have remained for some time longer\r\nunemployed.\u003c/p\u003e\r\n\r\n\u003cp\u003eThus there are actually at all times producers and\r\ndealers, of all, or nearly all classes, whose capital is\r\nlying partially idle, because they have not found the\r\nmeans of fulfilling the condition which the division of\r\nlabour renders indispensable to the full employment of\r\ncapital,\u0026mdash;viz., that of exchanging their products with\r\neach other. If these persons could find one another\r\nout, they could mutually relieve each other from this\r\ndisadvantage. Any two shopkeepers, in insufficient\r\nemployment, who agreed to deal at each other\u0027s shops\r\nso long as they could there purchase articles of as good\r\na quality as elsewhere, and at as low a price, would\r\nrender the nation a service. It may be said that they\r\nmust previously have dealt, to the same amount, with\r\nsome other dealers; but this is erroneous, since they\r\ncould only have obtained the means of purchasing by\r\nbeing previously enabled to sell. By their compact,\r\neach would gain a customer, who would call his capital\r\ninto fuller employment; each therefore would obtain\r\nan increased produce; and they would thus be enabled\r\nto become better customers to each other than\r\nthey could be to third parties.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is obvious that every dealer who has not business\r\nsufficient fully to employ his capital (which is the case\r\nwith all dealers when they commence business, and with\r\nmany to the end of their lives), is in this predicament\r\nsimply for want of some one with whom to exchange his\r\ncommodities; and as there are such persons to about the\r\nsame degree probably in all trades, it is evident that if\r\nthese persons sought one another out, they have their\r\nremedy in their own hands, and by each other\u0027s\r\nassistance might bring their capital into more full\r\nemployment.\u003c/p\u003e\r\n\r\n\u003cp\u003eWe are now qualified to define the exact nature of\r\nthe benefit which a producer or dealer derives from\r\nthe acquisition of a new customer. It is as follows:\u0026mdash;\u003c/p\u003e\r\n\r\n\u003cp\u003e1. If any part of his own capital was locked up in\r\nthe form of unsold goods, producing (for a longer\r\nperiod or a shorter) nothing at all; a portion of this\r\nis called into greater activity, and becomes more constantly\r\nproductive. But to this we must add some\r\nfurther advantages.\u003c/p\u003e\r\n\r\n\u003cp\u003e2. If the additional demand exceeds what can be\r\nsupplied by setting at liberty the capital which exists in\r\nthe state of unsold goods; and if the dealer has additional\r\nresources, which were productively invested (in\r\nthe public funds, for instance), but not in his own trade;\r\nhe is enabled to obtain, on a portion of these, not mere\r\ninterest, but profit, and so to gain that difference between\r\nthe rate of profit and the rate of interest, which\r\nmay be considered as \u0026quot;wages of superintendance.\u0026quot;\u003c/p\u003e\r\n\r\n\u003cp\u003e3. If all the dealer\u0027s capital is employed in his own\r\ntrade, and no part of it locked up as unsold goods, the\r\nnew demand affords him additional encouragement to\r\nsave, by enabling his savings to yield him not merely\r\ninterest, but profit; and if he does not choose to save\r\n(or until he shall have saved), it enables him to carry\r\non an additional business with borrowed capital, and\r\nso gain the difference between interest and profit, or,\r\nin other words, to receive wages of superintendance on\r\na larger amount of capital.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis, it will be found, is a complete account of all\r\nthe gains which a dealer in any commodity can derive\r\nfrom an accession to the number of those who deal\r\nwith him: and it is evident to every one, that these\r\nadvantages are real and important, and that they are\r\nthe cause which induces a dealer of any kind to desire\r\nan increase of his business.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt follows from these premises, that the arrival of a\r\nnew unproductive consumer (living on his own means)\r\nin any place, be that place a village, a town, or an\r\nentire country, is beneficial to that place, if it causes\r\nto any of the dealers of the place any of the advantages\r\nabove enumerated, without withdrawing an equal\r\nadvantage of the same kind from any other dealer of\r\nthe same place.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis accordingly is the test by which we must try\r\nall such questions, and by which the propriety of the\r\nanalogical argument, from dealing with a tradesman to\r\ndealing with a nation, must be decided.\u003c/p\u003e\r\n\r\n\u003cp\u003eLet us take, for instance, as our example, Paris,\r\nwhich is much frequented by strangers from various\r\nparts of the world, who, as sojourners there, live\r\nunproductively upon their means. Let us consider\r\nwhether the presence of these persons is beneficial, in\r\nan \u003ci\u003eindustrial\u003c/i\u003e point of view, to Paris.\u003c/p\u003e\r\n\r\n\u003cp\u003eWe exclude from the consideration that portion of\r\nthe strangers\u0027 incomes which they pay to natives as\r\ndirect remuneration for service, or labour of any description.\r\nThis is obviously beneficial to the country.\r\nAn increase in the funds expended in employing\r\nlabour, whether that labour be productive or unproductive,\r\ntends equally to raise wages. The condition\r\nof the whole labouring class is, so far, benefited. It\r\nis true that the labourers thus employed by sojourners\r\nare probably, in part or altogether, withdrawn from productive\r\nemployment. But this is far from being an\r\nevil; for either the situation of the labouring classes is\r\nimproved, which is far more than an equivalent for a\r\ndiminution in mere production, or the rise of wages\r\nacts as a stimulus to population, and then the number\r\nof productive labourers becomes as great as before.\u003c/p\u003e\r\n\r\n\u003cp\u003eTo this we may add, that what the sojourners pay\r\nas wages of labour or service (whether constant or\r\ncasual), though expended unproductively by the first\r\npossessor, may, when it passes into the hands of the\r\nreceivers, be by them saved, and invested in a productive\r\nemployment. If so, a direct addition is made\r\nto the national capital.\u003c/p\u003e\r\n\r\n\u003cp\u003eAll this is obvious, and is sufficiently allowed by\r\npolitical economists; who have invariably set apart\r\nthe gains of all persons coming under the class of\r\ndomestic servants, as real advantages arising to a place\r\nfrom the residence there of an increased number of\r\nunproductive consumers.\u003c/p\u003e\r\n\r\n\u003cp\u003eWe have only to examine whether the purchases of\r\ncommodities by these unproductive consumers, confer\r\nthe same kind of benefit upon the village, town, or\r\nnation, which is bestowed upon a particular tradesman\r\nby dealing at his shop.\u003c/p\u003e\r\n\r\n\u003cp\u003eNow it is obvious that the sojourners, on their arrival,\r\nconfer the benefit in question upon some dealers,\r\nwho did not enjoy it before. They purchase their food,\r\nand many other articles, from the dealers in the place.\r\nThey, therefore, call the capital of some dealers, which\r\nwas locked up in unsold goods, into more active employment.\r\nThey encourage them to save, and enable\r\nthem to receive wages of superintendance upon a larger\r\namount of capital. These effects being undeniable, the\r\nquestion is, whether the presence of the sojourners\r\ndeprives any others of the Paris dealers of a similar\r\nadvantage.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt will be seen that it does; and nothing will then\r\nremain but a comparison of the amounts.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is obvious to all who reflect (and was shown in\r\nthe paper which precedes this) that the remittances to\r\npersons who expend their incomes in foreign countries\r\nare, after a slight passage of the precious metals, defrayed\r\nin commodities: and that the result commonly\r\nis, an increase of exports and a diminution of imports,\r\nuntil the latter fall short of the former by the amount\r\nof the remittances.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe arrival, therefore, of the strangers (say from\r\nEngland), while it creates at Paris a market for commodities\r\nequivalent in value to their funds, displaces in\r\nthe market other commodities to an equal value. To\r\nthe extent of the increase of exports from England\r\ninto France in the way of remittance, it introduces\r\nadditional commodities which, by their cheapness, displace\r\nothers formerly produced in that country. To\r\nthe extent of the diminution of imports into England\r\nfrom France, commodities which existed or which\r\nwere habitually produced in that country are deprived\r\nof a market, or can only find one at a price not sufficient\r\nto defray the cost.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt must, therefore, be a matter of mere accident, if\r\nby arriving in a place, the new unproductive consumer\r\ncauses any net advantage to its industry, of the kind\r\nwhich we are now examining. Not to mention that\r\nthis, like any other change in the channels of trade,\r\nmay render useless a portion of fixed capital, and so\r\nfar injure the national wealth.\u003c/p\u003e\r\n\r\n\u003cp\u003eA distinction, however, must here be made.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe place to which the new unproductive consumers\r\nhave come, may be a town or village, as well\r\nas a country. If a town or village, it may either be or\r\nnot be a place having an export trade.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf the place had no previous trade except with the\r\nimmediate neighbourhood, there are no exports and\r\nimports, by the new arrangement of which, the remittance\r\ncan be made. There is no capital, formerly\r\nemployed in manufacturing for the foreign market,\r\nwhich is now brought into less full employment.\u003c/p\u003e\r\n\r\n\u003cp\u003eYet the remittance evidently is still made in\r\ncommodities, but in this case without displacing any\r\nwhich were produced before. To shew this, it is necessary\r\nto make the following remarks.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe reason why towns exist, is that \u003ci\u003eceteris paribus\u003c/i\u003e it\r\nis convenient, in order to save cost of carriage, that the\r\nproduction of commodities should take place as far as\r\npracticable in the immediate vicinity of the consumer.\r\nCapital finds its way so easily from town to country and\r\nfrom country to town, that the amount of capital in the\r\ntown will be regulated wholly by the amount which\r\ncan be employed there more conveniently than elsewhere.\r\nConsequently the capital of a place will be\r\nsuch as is sufficient\u003c/p\u003e\r\n\r\n\u003cp\u003e1st. To produce all commodities which from local\r\ncircumstances can be produced there at less cost than\r\nelsewhere: and if this be the case to any great extent,\r\nit will be an exporting town. When we say \u003ci\u003eproduced\u003c/i\u003e,\r\nwe may add, or \u003ci\u003estored\u003c/i\u003e.\u003c/p\u003e\r\n\r\n\u003cp\u003e2nd. To produce and retail the commodities which\r\nare consumed by the inhabitants of the town, and the\r\nplace of whose production is in other respects a matter\r\nof indifference. To the inhabitants of the town must\r\nbe added such dwellers in the adjoining country, as\r\nare nearer to that place than to any other equally well\r\nfurnished market.\u003c/p\u003e\r\n\r\n\u003cp\u003eNow, if new unproductive consumers resort to the\r\nplace, it is clear that for the latter of these two purposes,\r\nmore capital will be required than before. Consequently,\r\nif less is not required for the former purpose,\r\nmore capital will establish itself at the place.\u003c/p\u003e\r\n\r\n\u003cp\u003eUntil this additional capital has arrived, the producers\r\nand dealers already on the spot will enjoy great\r\nadvantages. Every particle of their own capital will\r\nbe called into the most active employment. What\r\ntheir capital does not enable them to supply, will be\r\ngot from others at a distance, who cannot supply it on\r\nsuch favourable terms; consequently they will be in the\r\npredicament of possessing a partial monopoly\u0026mdash;receiving\r\nfor every thing a price regulated by a higher cost of\r\nproduction than they are compelled to pay. They also,\r\nbeing in possession of the market, will be enabled to\r\nmake a large portion of the new capital pass through\r\ntheir hands, and thus to earn wages of superintendance\r\nupon it.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf, indeed, the place from whence the strangers\r\ncame, previously traded with that where they have\r\ntaken up their abode, the effect of their arrival is, that\r\nthe exports of the town will diminish, and that it will\r\nbe supplied from abroad with something which it previously\r\nproduced at home. In this way an amount of\r\ncapital will be set free equal to that required, and there\r\nwill be no increase on the whole. The removal of the\r\ncourt from London to Birmingham would not necessarily,\r\nthough it would probably \u003ca name=\"FNanchor6\"\u003e\u003c/a\u003e\u003ca href=\"#Footnote_6\"\u003e\u003csup\u003e[6]\u003c/sup\u003e\u003c/a\u003e, increase the amount\r\nof capital in the latter place. The afflux of money to\r\nBirmingham, and its efflux from London, would render\r\nit cheaper to make some articles in London for Birmingham\r\nconsumption; and to make others in London\r\nfor home consumption, which were formerly brought\r\nfrom Birmingham.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut instead of Birmingham, an exporting town,\r\nsuppose a village, or a town which only produced and\r\nretailed for itself and its immediate vicinity. The\r\nremittances must come thither in the shape of money;\r\nand though the money would not remain, but would be\r\nsent away in exchange for commodities, it would, however,\r\nfirst pass through the hands of the producers and\r\ndealers in the place, and would by them be exported in\r\nexchange for the articles which they require\u0026mdash;viz. the\r\nmaterials, tools, and subsistence necessary for the increased\r\nproduction now required of them, and articles\r\nof foreign luxury for their own increased unproductive\r\nconsumption. These articles would not displace any\r\nformerly made in the place, but on the contrary, would\r\nforward the production of more.\u003c/p\u003e\r\n\r\n\u003cp\u003eHence we may consider the following propositions\r\nas established:\u003c/p\u003e\r\n\r\n\u003cp\u003e1. The expenditure of absentees (the case of domestic\r\nservants excepted,) is not necessarily any loss to the\r\n\u003ci\u003ecountry\u003c/i\u003e which they leave, or gain to the \u003ci\u003ecountry\u003c/i\u003e which\r\nthey resort to (save in the manner shown in Essay I.):\r\nfor almost every \u003ci\u003ecountry\u003c/i\u003e habitually exports and imports\r\nto a much greater value than the incomes of its absentees,\r\nor of the foreign sojourners within it.\u003c/p\u003e\r\n\r\n\u003cp\u003e2. But sojourners often do much good to the \u003ci\u003etown\u003c/i\u003e\r\nor village which they resort to, and absentees harm to\r\nthat which they leave. The capital of the petty\r\ntradesman in a small town near an absentee\u0027s estate,\r\nis deprived of the market for which it is conveniently\r\nsituated, and must resort to another to which other\r\ncapitals lie nearer, and where it is consequently outbid,\r\nand gains less; obtaining only the same price, with\r\ngreater expenses. But this evil would be equally\r\noccasioned, if, instead of going abroad, the absentee\r\nhad removed to his own capital city.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf the tradesman could, in the latter case, remove\r\nto the metropolis, or in the former, employ himself\r\nin producing increased exports, or in producing for\r\nhome consumption articles now no longer imported,\r\neach in the place most convenient for that operation;\r\nhe would not be a loser, though the place which he\r\nwas obliged to leave might be said to lose.\u003c/p\u003e\r\n\r\n\u003cp\u003eParis undoubtedly gains much by the sojourn of\r\nforeigners, while the counteracting loss by diminution\r\nof exports from France is suffered by the great\r\ntrading and manufacturing towns, Rouen, Bordeaux,\r\nLyons, \u0026amp;c, which also suffer the principal part of the\r\nloss by importation of articles previously produced\r\nat home. The capital thus set free, finds its most convenient\r\nseat to be Paris, since the business to which\r\nit must turn is the production of articles to be unproductively\r\nconsumed by the sojourners.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe great trading towns of France would undoubtedly\r\nbe more flourishing, if France were not frequented\r\nby foreigners.\u003c/p\u003e\r\n\r\n\u003cp\u003eRome and Naples are perhaps purely benefited by\r\nthe foreigners sojourning there: for they have so little\r\nexternal trade, that their case may resemble that of the\r\nvillage in our hypothesis.\u003c/p\u003e\r\n\r\n\u003cp\u003eAbsenteeism, therefore, (except as shown in the first\r\nEssay,) is a local, not a national evil; and the resort of\r\nforeigners, in so far as they purchase for unproductive\r\nconsumption, is not, in any commercial country, a national,\r\nthough it may be a local good.\u003c/p\u003e\r\n\r\n\u003cp\u003eFrom the considerations which we have now\r\nadduced, it is obvious what is meant by such phrases\r\nas a \u003ci\u003ebrisk demand\u003c/i\u003e, and a rapid circulation. There is a\r\nbrisk demand and a rapid circulation, when goods,\r\ngenerally speaking, are sold as fast as they can be\r\nproduced. There is slackness, on the contrary, and\r\nstagnation, when goods, which have been produced,\r\nremain for a long time unsold. In the former case,\r\nthe capital which has been locked up in production is\r\ndisengaged as soon as the production is completed;\r\nand can be immediately employed in further production.\r\nIn the latter case, a large portion of the\r\nproductive capital of the country is lying in temporary\r\ninactivity.\u003c/p\u003e\r\n\r\n\u003cp\u003eFrom what has been already said, it is obvious that\r\nperiods of \u0026quot;brisk demand\u0026quot; are also the periods of\r\ngreatest production: the national capital is never called\r\ninto full employment but at those periods. This,\r\nhowever, is no reason for desiring such times; it is not\r\ndesirable that the whole capital of the country should\r\nbe in full employment. For, the calculations of producers\r\nand traders being of necessity imperfect, there\r\nare always some commodities which are more or less\r\nin excess, as there are always some which are in\r\ndeficiency. If, therefore, the whole truth were known,\r\nthere would always be some classes of producers contracting,\r\nnot extending, their operations. If \u003ci\u003eall\u003c/i\u003e are\r\nendeavouring to extend them, it is a certain proof\r\nthat some general delusion is afloat. The commonest\r\ncause of such delusion is some general, or very\r\nextensive, rise of prices (whether caused by speculation\r\nor by the currency) which persuades all dealers\r\nthat they are growing rich. And hence, an increase of\r\nproduction really takes place during the progress of\r\ndepreciation, as long as the existence of depreciation\r\nis not suspected; and it is this which gives to the fallacies\r\nof the currency school, principally represented by\r\nMr. Attwood, all the little plausibility they possess. But\r\nwhen the delusion vanishes and the truth is disclosed,\r\nthose whose commodities are relatively in excess must\r\ndiminish their production or be ruined: and if during\r\nthe high prices they have built mills and erected\r\nmachinery, they will be likely to repent at leisure.\u003c/p\u003e\r\n\r\n\u003cp\u003eIn the present state of the commercial world,\r\nmercantile transactions being carried on upon an\r\nimmense scale, but the remote causes of fluctuations\r\nin prices being very little understood, so that unreasonable\r\nhopes and unreasonable fears alternately rule\r\nwith tyrannical sway over the minds of a majority of\r\nthe mercantile public; general eagerness to buy and\r\ngeneral reluctance to buy, succeed one another in a\r\nmanner more or less marked, at brief intervals. Except\r\nduring short periods of transition, there is almost\r\nalways either great briskness of business or great stagnation;\r\neither the principal producers of almost all the\r\nleading articles of industry have as many orders as they\r\ncan possibly execute, or the dealers in almost all commodities\r\nhave their warehouses full of unsold goods.\u003c/p\u003e\r\n\r\n\u003cp\u003eIn this last ease, it is commonly said that there is a\r\ngeneral superabundance; and as those economists who\r\nhave contested the possibility of general superabundance,\r\nwould none of them deny the possibility or even\r\nthe frequent occurrence of the phenomenon which we\r\nhave just noticed, it would seem incumbent on them to\r\nshow, that the expression to which they object is not\r\napplicable to a state of things in which all or most commodities\r\nremain unsold, in the same sense in which\r\nthere is said to be a superabundance of any one commodity\r\nwhen it remains in the warehouses of dealers\r\nfor want of a market.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis is merely a question of naming, but an important\r\none, as it seems to us that much apparent\r\ndifference of opinion has been produced by a mere\r\ndifference in the mode of describing the same facts,\r\nand that persons who at bottom were perfectly agreed,\r\nhave considered each other as guilty of gross error, and\r\nsometimes oven misrepresentation, on this subject.\u003c/p\u003e\r\n\r\n\u003cp\u003eIn order to afford the explanations, with which it\r\nis necessary to take the doctrine of the impossibility\r\nof an excess of all commodities, we must advert for a\r\nmoment to the argument by which this impossibility\r\nis commonly maintained.\u003c/p\u003e\r\n\r\n\u003cp\u003eThere can never, it is said, be a want of buyers\r\nfor all commodities; because whoever offers a commodity\r\nfor sale, desires to obtain a commodity in\r\nexchange for it, and is therefore a buyer by the mere\r\nfact of his being a seller. The sellers and the buyers,\r\nfor all commodities taken together, must, by the metaphysical\r\nnecessity of the case, be an exact equipoise\r\nto each other; and if there be more sellers than\r\nbuyers of one thing, there must be more buyers than\r\nsellers for another.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis argument is evidently founded on the supposition\r\nof a state of barter; and, on that supposition, it\r\nis perfectly incontestable. When two persons perform\r\nan act of barter, each of them is at once a seller\r\nand a buyer. He cannot sell without buying. Unless\r\nhe chooses to buy some other person\u0027s commodity, he\r\ndoes not sell his own.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf, however, we suppose that money is used, these\r\npropositions cease to be exactly true. It must be\r\nadmitted that no person desires money for its own\r\nsake, (unless some very rare cases of misers be an\r\nexception,) and that he who sells his commodity,\r\nreceiving money in exchange, does so with the intention\r\nof buying with that same money some other commodity.\r\nInterchange by means of money is therefore,\r\nas has been often observed, ultimately nothing but\r\nbarter. But there is this difference\u0026mdash;that in the case\r\nof barter, the selling and the buying are simultaneously\r\nconfounded in one operation; you sell what\r\nyou have, and buy what you want, by one indivisible\r\nact, and you cannot do the one without doing the\r\nother. Now the effect of the employment of money,\r\nand even the utility of it, is, that it enables this\r\none act of interchange to be divided into two separate\r\nacts or operations; one of which may be performed\r\nnow, and the other a year hence, or whenever\r\nit shall be most convenient. Although he who\r\nsells, really sells only to buy, he needs not buy at\r\nthe same moment when he sells; and he does not\r\ntherefore necessarily add to the \u003ci\u003eimmediate\u003c/i\u003e demand for\r\none commodity when he adds to the supply of another.\r\nThe buying and selling being now separated, it may\r\nvery well occur, that there may be, at some given\r\ntime, a very general inclination to sell with as little\r\ndelay as possible, accompanied with an equally general\r\ninclination to defer all purchases as long as possible.\r\nThis is always actually the case, in those periods which\r\nare described as periods of general excess. And no one,\r\nafter sufficient explanation, will contest the possibility\r\nof general excess, in this sense of the word. The state\r\nof things which we have just described, and which is\r\nof no uncommon occurrence, amounts to it.\u003c/p\u003e\r\n\r\n\u003cp\u003eFor when there is a general anxiety to sell, and a\r\ngeneral disinclination to buy, commodities of all kinds\r\nremain for a long time unsold, and those which find an\r\nimmediate market, do so at a very low price. If it be\r\nsaid that when all commodities fall in price, the fall is\r\nof no consequence, since mere money price is not\r\nmaterial while the relative value of all commodities\r\nremains the same, we answer that this would be true\r\nif the low prices were to last for ever. But as it is\r\ncertain that prices will rise again sooner or later, the\r\nperson who is obliged by necessity to sell his commodity\r\nat a low money price is really a sufferer, the\r\nmoney he receives sinking shortly to its ordinary\r\nvalue. Every person, therefore, delays selling if he\r\ncan, keeping his capital unproductive in the mean\r\ntime, and sustaining the consequent loss of interest.\r\nThere is stagnation to those who are not obliged to\r\nsell, and distress to those who are.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is true that this state can be only temporary,\r\nand must even be succeeded by a reaction of\r\ncorresponding violence, since those who have sold\r\nwithout buying will certainly buy at last, and there\r\nwill then be more buyers than sellers. But although\r\nthe general over-supply is of necessity only temporary,\r\nthis is no more than may be said of every partial\r\nover-supply. An overstocked state of the market is\r\nalways temporary, and is generally followed by a more\r\nthan common briskness of demand.\u003c/p\u003e\r\n\r\n\u003cp\u003eIn order to render the argument for the impossibility\r\nof an excess of all commodities applicable to the\r\ncase in which a circulating medium is employed,\r\nmoney must itself be considered as a commodity. It\r\nmust, undoubtedly, be admitted that there cannot be\r\nan excess of all other commodities, and an excess of\r\nmoney at the same time.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut those who have, at periods such as we have\r\ndescribed, affirmed that there was an excess of all\r\ncommodities, never pretended that money was one\r\nof these commodities; they held that there was not\r\nan excess, but a deficiency of the circulating medium.\r\nWhat they called a general superabundance, was\r\nnot a superabundance of commodities relatively to\r\ncommodities, but a superabundance of all commodities\r\nrelatively to money. What it amounted to was,\r\nthat persons in general, at that particular time, from a\r\ngeneral expectation of being called upon to meet\r\nsudden demands, liked better to possess money than\r\nany other commodity. Money, consequently, was in\r\nrequest, and all other commodities were in comparative\r\ndisrepute. In extreme cases, money is collected\r\nin masses, and hoarded; in the milder cases,\r\npeople merely defer parting with their money, or\r\ncoming under any new engagements to part with it.\r\nBut the result is, that all commodities fall in price,\r\nor become unsaleable. When this happens to one\r\nsingle commodity, there is said to be a superabundance\r\nof that commodity; and if that be a proper expression,\r\nthere would seem to be in the nature of the case\r\nno particular impropriety in saying that there is a\r\nsuperabundance of all or most commodities, when all\r\nor most of them are in this same predicament.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is, however, of the utmost importance to observe\r\nthat excess of all commodities, in the only sense in\r\nwhich it is possible, means only a temporary fall in\r\ntheir value relatively to money. To suppose that the\r\nmarkets for all commodities could, in any other sense\r\nthan this, be overstocked, involves the absurdity that\r\ncommodities may fall in value relatively to themselves;\r\nor that, of two commodities, each can fall\r\nrelatively to the other, A becoming equivalent to\r\nB-\u003ci\u003ex\u003c/i\u003e, and B to A-\u003ci\u003ex\u003c/i\u003e, at the same time. And it is,\r\nperhaps, a sufficient reason for not using phrases of this\r\ndescription, that they suggest the idea of excessive production.\r\nA want of market for one article may arise\r\nfrom excessive production of that article; but when\r\ncommodities in general become unsaleable, it is from\r\na very different cause; there cannot be excessive production\r\nof commodities in general.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe argument against the possibility of general\r\nover-production is quite conclusive, so far as it applies\r\nto the doctrine that a country may accumulate capital\r\ntoo fast; that produce in general may, by increasing\r\nfaster than the demand for it, reduce all producers to\r\ndistress. This proposition, strange to say, was almost a\r\nreceived doctrine as lately as thirty years ago; and\r\nthe merit of those who have exploded it is much\r\ngreater than might be inferred from the extreme\r\nobviousness of its absurdity when it is stated in its\r\nnative simplicity. It is true that if all the wants of\r\nall the inhabitants of a country were fully satisfied, no\r\nfurther capital could find useful employment; but, in\r\nthat case, none would be accumulated. So long as\r\nthere remain any persons not possessed, we do not\r\nsay of subsistence, but of the most refined luxuries,\r\nand who would work to possess them, there is employment\r\nfor capital; and if the commodities which these\r\npersons want are not produced and placed at their disposal,\r\nit can only be because capital does not exist,\r\ndisposable for the purpose of employing, if not any other\r\nlabourers, those very labourers themselves, in producing\r\nthe articles for their own consumption. Nothing can\r\nbe more chimerical than the fear that the accumulation\r\nof capital should produce poverty and not wealth, or\r\nthat it will ever take place too fast for its own end.\r\nNothing is more true than that it is produce which\r\nconstitutes the market for produce, and that every\r\nincrease of production, if distributed without miscalculation\r\namong all kinds of produce in the proportion\r\nwhich private interest would dictate, creates, or rather\r\nconstitutes, its own demand.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis is the truth which the deniers of general over-production\r\nhave seized and enforced; nor is it pretended\r\nthat anything has been added to it, or subtracted from\r\nit, in the present disquisition. But it is thought that\r\nthose who receive the doctrine accompanied with the\r\nexplanations which we have given, will understand,\r\nmore clearly than before, what is, and what is not,\r\nimplied in it; and will see that, when properly understood,\r\nit in no way contradicts those obvious facts\r\nwhich are universally known and admitted to be not\r\nonly of possible, but of actual and even frequent occurrence.\r\nThe doctrine in question only appears a paradox,\r\nbecause it has usually been so expressed as\r\napparently to contradict these well-known facts;\r\nwhich, however, were equally well known to the\r\nauthors of the doctrine, who, therefore, can only have\r\nadopted from inadvertence any form of expression\r\nwhich could to a candid person appear inconsistent\r\nwith it. The essentials of the doctrine are preserved\r\nwhen it is allowed that there cannot be permanent\r\nexcess of production, or of accumulation; though it be\r\nat the same time admitted, that as there may be a\r\ntemporary excess of any one article considered separately,\r\nso may there of commodities generally, not in\r\nconsequence of over-production, but of a want of\r\ncommercial confidence.\u003c/p\u003e\r\n\r\n\u003cp class=\"NO\"\u003e\u003cb\u003eNOTE:\u003c/b\u003e\u003c/p\u003e\r\n\r\n\u003cp\u003e\u003ca name=\"Footnote_6\"\u003e\u003c/a\u003e\u003ca href=\"#FNanchor6\"\u003e[6]\u003c/a\u003e\u003cdiv class=note\u003e Probably; because most articles of an ornamental description\r\nbeing still required from the same makers, these makers,\r\nwith their capital, would probably follow their customers, Besides,\r\nfrom place to place within the same country, most persons\r\nwill lather change their habitation than their employment. But\r\nthe moving on this score would be reciprocal.\u003c/div\u003e\u003cbr\u003e\r\n\r\n\r\n\r\n\u003chr style=\"width: 65%;\"\u003e\r\n\u003ca name=\"ESSAY_III\"\u003e\u003c/a\u003e\u003ch2\u003eESSAY III.\u003c/h2\u003e\r\n\r\n\u003ch2\u003eON THE WORDS PRODUCTIVE AND\r\nUNPRODUCTIVE.\u003c/h2\u003e\r\n\u003cbr\u003e\r\n\r\n\u003cp\u003eIt would probably be difficult to point out any two\r\nwords, respecting the proper use of which political\r\neconomists have been more divided, than they have\r\nbeen concerning the two words \u003ci\u003eproductive\u003c/i\u003e and \u003ci\u003eunproductive\u003c/i\u003e;\r\nwhether considered as applied to \u003ci\u003elabour\u003c/i\u003e, to\r\n\u003ci\u003econsumption\u003c/i\u003e, or to \u003ci\u003eexpenditure\u003c/i\u003e.\u003c/p\u003e\r\n\r\n\u003cp\u003eAlthough this is a question solely of nomenclature,\r\nit is one of sufficient importance to be worth another\r\nattempt to settle it satisfactorily. For, although writers\r\non political economy have not agreed in the ideas which\r\nthey were accustomed to annex to these terms, the terms\r\nhave generally been employed to denote ideas of very\r\ngreat importance, and it is impossible that some vagueness\r\nshould not have been thrown upon the ideas themselves\r\nby looseness in the use of the words by which\r\nthey are habitually designated. Further, so long as\r\nthe pedantic objection to the introduction of new\r\ntechnical terms continues, accurate thinkers on moral\r\nand political subjects are limited to a very scanty\r\nvocabulary for the expression of their ideas. It therefore\r\nis of great importance that the words with which\r\nmankind are familiar, should be turned to the greatest\r\npossible advantage as instruments of thought; that one\r\nword should not be used as the sign of an idea which\r\nis already sufficiently expressed by another word; and\r\nthat words which are required to denote ideas of great\r\nimportance, should not be usurped for the expression\r\nof such as are comparatively insignificant.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe phrases \u003ci\u003eproductive labour\u003c/i\u003e, and \u003ci\u003eproductive consumption\u003c/i\u003e,\r\nhave been employed by some writers on\r\npolitical economy with very great latitude. They have\r\nconsidered, and classed, as productive labour and productive\r\nconsumption, all labour which serves any \u003ci\u003euseful\u003c/i\u003e\r\npurpose\u0026mdash;all consumption which is not \u003ci\u003ewaste\u003c/i\u003e. Mr.\r\nM\u0027Culloch has asserted, \u003ci\u003etotidem verbis\u003c/i\u003e, that the labour\r\nof Madame Pasta was as well entitled to be called productive\r\nlabour as that of a cotton spinner.\u003c/p\u003e\r\n\r\n\u003cp\u003eEmployed in this sense, the words \u003ci\u003eproductive\u003c/i\u003e and\r\n\u003ci\u003eunproductive\u003c/i\u003e are superfluous, since the words \u003ci\u003euseful\u003c/i\u003e and\r\n\u003ci\u003eagreeable\u003c/i\u003e on the one hand, \u003ci\u003euseless\u003c/i\u003e and \u003ci\u003eworthless\u003c/i\u003e on the\r\nother, are quite sufficient to express all the ideas to\r\nwhich the words \u003ci\u003eproductive\u003c/i\u003e and \u003ci\u003eunproductive\u003c/i\u003e are here\r\napplied.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis use of the terms, therefore, is subversive of\r\nthe ends of language.\u003c/p\u003e\r\n\r\n\u003cp\u003eThose writers who have employed the words in a\r\nmore limited sense, have usually understood by productive\r\nor unproductive labour, labour which is productive\r\nof wealth, or unproductive of wealth. But\r\nwhat is wealth? And here the words productive\r\nand unproductive have been affected with additional\r\nambiguities, corresponding to the different extension\r\nwhich different writers have given to the term\r\nwealth.\u003c/p\u003e\r\n\r\n\u003cp\u003eSome have given the name of wealth to \u003ci\u003eall things\u003c/i\u003e\r\nwhich tend to the use or enjoyment of mankind, and\r\nwhich possess exchangeable value. This last clause is\r\nadded to exclude air, the light of the sun, and any other\r\nthings which can be obtained in unlimited quantity\r\nwithout labour or sacrifice; together with all such\r\nthings as, though produced by labour, are not held in\r\nsufficient general estimation to command any price in\r\nthe market.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut when this definition came to be explained,\r\nmany persons were disposed to interpret \u0026quot;\u003ci\u003eall things\u003c/i\u003e\r\nwhich tend to the use or enjoyment of man,\u0026quot; as implying\r\nonly all \u003ci\u003ematerial\u003c/i\u003e things. \u003ci\u003eImmaterial\u003c/i\u003e products they\r\nrefused to consider as wealth; and labour or expenditure\r\nwhich yielded nothing but immaterial products,\r\nthey characterised as unproductive labour and unproductive\r\nexpenditure.\u003c/p\u003e\r\n\r\n\u003cp\u003eTo this it was, or might have been, answered, that\r\naccording to this classification, a carpenter\u0027s labour at\r\nhis trade is productive labour, but the same individual\u0027s\r\nlabour in learning his trade was unproductive labour.\r\nYet it is obvious that, on both occasions, his labour\r\ntended exclusively to what is allowed to be production:\r\nthe one was equally indispensable with the other, to\r\nthe ultimate result. Further, if we adopted the above\r\ndefinition, we should be obliged to say that a nation\r\nwhose artisans were twice as skilful as those of another\r\nnation, was not, \u003ci\u003eceteris paribus\u003c/i\u003e, more wealthy;\r\nalthough it is evident that every one of the results of\r\nwealth, and everything for the sake of which wealth is\r\ndesired, would be possessed by the former country in a\r\nhigher degree than by the latter.\u003c/p\u003e\r\n\r\n\u003cp\u003eEvery classification according to which a basket\r\nof cherries, gathered and eaten the next minute, are\r\ncalled wealth, while that title is denied to the acquired\r\nskill of those who are acknowledged to be productive\r\nlabourers, is a purely arbitrary division, and does not\r\nconduce to the ends for which classification and\r\nnomenclature are designed.\u003c/p\u003e\r\n\r\n\u003cp\u003eIn order to get over all difficulties, some political\r\neconomists seem disposed to make the terms express a\r\ndistinction sufficiently definite indeed, but more completely\r\narbitrary, and having less foundation in nature,\r\nthan any of the former. They will not allow to any\r\nlabour or to any expenditure the name of productive,\r\nunless the produce which it yields returns into the\r\nhands of the very person who made the outlay.\r\nHedging and ditching they term productive labour,\r\nthough those operations conduce to production only indirectly,\r\nby protecting the produce from destruction; but\r\nthe necessary expenses incurred by a government for\r\nthe protection of property are, they insist upon it, consumed\r\nunproductively: though, as has been well pointed\r\nout by Mr. M\u0027Culloch, these expenses, in their relation\r\nto the national wealth, are exactly analogous to the\r\nwages of a hedger or a ditcher. The only difference is,\r\nthat the farmer, who pays for the hedging and ditching,\r\nis the person to whom the consequent increase of production\r\naccrues, while the government, which is at the\r\nexpense of police officers and courts of justice, does\r\nnot, as a necessary consequence, get back into its own\r\ncoffers the increase of the national wealth resulting\r\nfrom the security of property.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt would be endless to point out the oddities and\r\nincongruities which result from this classification.\r\nWhether we take the words wealth and production in\r\nthe largest, or in the most restricted sense in which\r\nthey have ever yet been employed, nobody will dispute\r\nthat roads, bridges, and canals, contribute in an\r\neminent degree, and in a very direct manner, to the\r\nincrease of production and wealth. The labour and\r\npecuniary resources employed in their construction\r\nwould, according to the above theory, be considered\r\nproductive, if every occupier of land were compelled by\r\nlaw to construct so much of the road, or canal, as\r\npasses through his own farm. If, instead of this, the\r\ngovernment makes the road, and throws it open to the\r\npublic toll-free, the labour and expenditure would be,\r\non the above system, clearly unproductive. But if the\r\ngovernment, or an association of individuals, made the\r\nroad, and imposed a toll to defray the expense, we do\r\nnot see how these writers could refuse to the outlay\r\nthe title of productive expenditure. It would follow,\r\nthat the very same labour and expense, if given gratuitously,\r\nmust be called unproductive, which, if a\r\ncharge had been made for it, would have been called\r\nproductive.\u003c/p\u003e\r\n\r\n\u003cp\u003eWhen these consequences of the purely arbitrary\r\nclassification to which we allude have been pointed\r\nout and complained of, the only answer which we have\r\never seen made to the objection is, that the line of\r\ndemarcation must be drawn somewhere, and that in\r\nevery classification there are intermediate cases, which\r\nmight have been included, with almost equal propriety,\r\neither in the one class or in the other.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis answer appears to us to indicate the want of\r\na sufficiently accurate and discriminating perception,\r\nwhat is the kind of inaccuracy which generally cannot\r\nbe avoided in a classification, and what is that other\r\nkind of inaccuracy, from which it always may be, and\r\nshould be, exempt.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe classes themselves may be, mentally speaking,\r\nperfectly definite, though it may not always be easy to\r\nsay to which of them a particular object belongs.\r\nWhen it is uncertain in which of two classes an object\r\nshould be placed, if the classification be properly\r\nmade, and properly expressed, the uncertainty can turn\r\nonly upon a matter of fact. It is uncertain to which\r\nclass the object belongs, because it is doubtful whether\r\nit possesses in a greater degree the characteristics of\r\nthe one class or those of the other. But the characteristics\r\nthemselves may be defined and distinguished\r\nwith the nicest exactness, and always ought to be\r\nso. Especially ought they in a case like the present,\r\nbecause here it is only the distinction between the\r\nideas which is of any importance. That we should be\r\nable with ease to portion out all employments between\r\nthe two classes, does not happen to be of any particular\r\nconsequence.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is frequently said that classification is a mere\r\naffair of convenience. This assertion is true in one\r\nsense, but not if its meaning be, that the most proper\r\nclassification is that in which it is easiest to say whether\r\nan object belongs to one class or to the other.\r\nThe use of classification is, to fix attention upon the\r\ndistinctions which exist among things; and that is the\r\nbest classification, which is founded upon the most\r\nimportant distinctions, whatever be the facilities which\r\nit may afford of ticketing and arranging the different\r\nobjects which exist in nature. In fixing, therefore, the\r\nmeaning of the words productive and unproductive, we\r\nought to endeavour to render them significative of the\r\nmost important distinctions which, without too glaring\r\na violation of received usage, they can be made to\r\nexpress.\u003c/p\u003e\r\n\r\n\u003cp\u003eWe ought further, when we are restricted to the\r\nemployment of old words, to endeavour as far as\r\npossible that it shall not be necessary to struggle\r\nagainst the old associations with those words. We\r\nshould, if possible, give the words such a meaning, that\r\nthe propositions in which people are accustomed to use\r\nthem, shall as far as possible still be true; and that the\r\nfeelings habitually excited by them, shall be such as the\r\nthings to which we mean to appropriate them ought\r\nto excite.\u003c/p\u003e\r\n\r\n\u003cp\u003eWe shall endeavour to unite these conditions in the\r\nresult of the following enquiry.\u003c/p\u003e\r\n\r\n\u003cp\u003eIn whatever manner political economists may have\r\nsettled the definition of productive and unproductive\r\nlabour or consumption, the consequences which they\r\nhave drawn from the definition are nearly the same.\r\nIn proportion to the amount of the productive labour\r\nand consumption of a country, the country, they all\r\nallow, is enriched: in proportion to the amount of the\r\nunproductive labour and consumption, the country is\r\nimpoverished. Productive expenditure they are accustomed\r\nto view as a gain; unproductive expenditure,\r\nhowever useful, as a sacrifice. Unproductive expenditure\r\nof what was destined to be expended productively,\r\nthey always characterise as a squandering of resources,\r\nand call it profusion and prodigality. The productive\r\nexpenditure of that which might, without encroaching\r\nupon capital, be expended unproductively, is called\r\nsaving, economy, frugality. Want, misery, and starvation,\r\nare described as the lot of a nation which annually\r\nemploys less and less of its labour and resources\r\nin production; growing comfort and opulence as the\r\nresult of an annual increase in the quantity of wealth\r\nso employed.\u003c/p\u003e\r\n\r\n\u003cp\u003eLet us then examine what qualities in expenditure,\r\nand in the employment of labour, are those from\r\nwhich all the consequences above mentioned really\r\nflow.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe end to which all labour and all expenditure are\r\ndirected, is twofold. Sometimes it is \u003ci\u003eenjoyment\u003c/i\u003e immediately;\r\nthe fulfilment of those desires, the gratification\r\nof which is wished for on its own account. Whenever\r\nlabour or expense is not incurred \u003ci\u003eimmediately\u003c/i\u003e for the\r\nsake of enjoyment, and is yet not absolutely wasted, it\r\nmust be incurred for the purpose of enjoyment \u003ci\u003eindirectly\u003c/i\u003e\r\nor mediately; by either repairing and perpetuating,\r\nor adding, to the \u003ci\u003epermanent sources\u003c/i\u003e of enjoyment.\u003c/p\u003e\r\n\r\n\u003cp\u003eSources of enjoyment may be accumulated and\r\nstored up; enjoyment itself cannot. The wealth of a\r\ncountry consists of the sum total of the permanent\r\nsources of enjoyment, whether material or immaterial,\r\ncontained in it: and labour or expenditure which tends\r\nto augment or to keep up these permanent sources,\r\nshould, we conceive, be termed productive.\u003c/p\u003e\r\n\r\n\u003cp\u003eLabour which is employed for the purpose of\r\ndirectly affording enjoyment, such as the labour of a\r\nperformer on a musical instrument, we term unproductive\r\nlabour. Whatever is consumed by such a performer,\r\nwe consider as unproductively consumed: the\r\naccumulated total of the sources of enjoyment which\r\nthe nation possesses, is diminished by the amount of\r\nwhat he has consumed: whereas, if it had been given\r\nto him in exchange for his services in producing food or\r\nclothing, the total of the permanent sources of enjoyment\r\nin the country might have been not diminished\r\nbut increased.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe performer on the musical instrument then is,\r\nso far as respects that act, not a productive, but an unproductive\r\nlabourer. But what shall we say of the\r\nworkman who made the musical instrument? He, most\r\npersons would say, is a productive labourer; and with\r\nreason; because the musical instrument is a permanent\r\nsource of enjoyment, which does not begin and end\r\nwith the enjoying, and therefore admits of being accumulated.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut the \u003ci\u003eskill\u003c/i\u003e of the musician is a permanent source\r\nof enjoyment, as well as the instrument which he plays\r\nupon: and although skill is not a material object, but\r\na quality of an object, viz., of the hands and mind of\r\nthe performer; nevertheless skill possesses exchangeable\r\nvalue, is acquired by labour and capital, and is\r\ncapable of being stored and accumulated. Skill, therefore,\r\nmust be considered as wealth; and the labour and\r\nfunds employed in acquiring skill in anything tending\r\nto the advantage or pleasure of mankind, must be\r\nconsidered to be productively employed and expended.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe skill of a productive labourer is analogous to\r\nthe machinery he works with: neither of them is enjoyment,\r\nnor conduces directly to it, but both conduce\r\nindirectly to it, and both in the same way. If a spinning-jenny\r\nbe wealth, the spinner\u0027s skill is also wealth.\r\nIf the mechanic who made the spinning-jenny laboured\r\nproductively, the spinner also laboured productively\r\nwhen he was learning his trade: and what they both\r\nconsumed was consumed productively, that is to say, its\r\nconsumption did not tend to diminish, but to increase\r\nthe sum of the permanent sources of enjoyment in the\r\ncountry, by effecting a new creation of those sources,\r\nmore than equal to the amount of the consumption.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe skill of a tailor, and the implements he employs,\r\ncontribute in the same way to the convenience of him\r\nwho wears the coat, namely, a remote way: it is the\r\ncoat itself which contributes immediately. The skill\r\nof Madame Pasta, and the building and decorations\r\nwhich aid the effect of her performance, contribute in\r\nthe same way to the enjoyment of the audience, namely,\r\nan immediate way, without any intermediate instrumentality.\r\nThe building and decorations are consumed\r\nunproductively, and Madame Pasta labours and\r\nconsumes unproductively; for the building is used and\r\nworn out, and Madame Pasta performs, immediately\r\nfor the spectators\u0027 enjoyment, and without leaving,\r\nas a consequence of the performance, any permanent\r\nresult possessing exchangeable value: consequently the\r\nepithet unproductive must be equally applied to the\r\ngradual wearing out of the bricks and mortar, the\r\nnightly consumption of the more perishable \u0026quot;properties\u0026quot;\r\nof the theatre, the labour of Madame Pasta in\r\nacting, and of the orchestra in playing. But notwithstanding\r\nthis, the architect who built the theatre\r\nwas a productive labourer; so were the producers of\r\nthe perishable articles; so were those who constructed\r\nthe musical instruments; and so, we must be permitted\r\nto add, were those who instructed the musicians, and\r\nall persons who, by the instructions which they may\r\nhave given to Madame Pasta, contributed to the formation\r\nof her talent. All these persons contributed\r\nto the enjoyment of the audience in the same way, and\r\nthat a remote way, viz., by the production of a \u003ci\u003epermanent\r\nsource of enjoyment\u003c/i\u003e.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe difference between this case, and the case of\r\nthe cotton spinner already adverted to, is this. The\r\nspinning-jenny, and the skill of the cotton spinner, are\r\nnot only the result of productive labour, but are themselves\r\nproductively consumed. The musical instrument\r\nand the skill of the musician are equally the\r\nresult of productive labour, but are themselves unproductively\r\nconsumed.\u003c/p\u003e\r\n\r\n\u003cp\u003eLet us now consider what kinds of labour, and of\r\nconsumption or expenditure, will be classed as productive,\r\nand what as unproductive, according to this\r\nrule.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe following are always productive:\u003c/p\u003e\r\n\r\n\u003cp\u003eLabour and expenditure, of which the direct object\r\nor effect is the creation of some material product useful\r\nor agreeable to mankind.\u003c/p\u003e\r\n\r\n\u003cp\u003eLabour and expenditure, of which the direct effect\r\nand object are, to endow human or other animated\r\nbeings with faculties or qualities useful or agreeable to\r\nmankind, and possessing exchangeable value.\u003c/p\u003e\r\n\r\n\u003cp\u003eLabour and expenditure, which without having for\r\ntheir direct object the creation of any useful material\r\nproduct or bodily or mental faculty or quality, yet\r\ntend indirectly to promote one or other of those\r\nends, and are exerted or incurred solely for that purpose.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe following are partly productive and partly\r\nunproductive, and cannot with propriety be ranged\r\ndecidedly with either class:\u003c/p\u003e\r\n\r\n\u003cp\u003eLabour or expenditure which does indeed create,\r\nor promote the creation of, some useful material product\r\nor bodily or mental faculty or quality, but which\r\nis not incurred or exerted for that sole end; having\r\nalso for another, and perhaps its principal end, enjoyment,\r\nor the promotion of enjoyment.\u003c/p\u003e\r\n\r\n\u003cp\u003eSuch are the labour of the judge, the legislator,\r\nthe police-officer, the soldier; and the expenditure\r\nincurred for their support. These functionaries protect\r\nand secure mankind in the exclusive possession of\r\nsuch material products or acquired faculties as belong\r\nto them; and by the security which they so confer,\r\nthey indirectly increase production in a degree far\r\nmore than equivalent to the expense which is necessary\r\nfor their maintenance. But this is not the only\r\npurpose for which they exist; they protect mankind,\r\nnot merely in the possession of their permanent resources,\r\nbut also in their actual enjoyments; and so\r\nfar, although highly useful, they cannot, conformably\r\nto the distinction which we have attempted to lay\r\ndown, be considered productive labourers.\u003c/p\u003e\r\n\r\n\u003cp\u003eSuch, also, are the labour and the wages of domestic\r\nservants. Such persons are entertained mainly as\r\nsubservient to mere enjoyment; but most of them\r\noccasionally, and some habitually, render services\r\nwhich must be considered as of a productive nature;\r\nsuch as that of cookery, the last stage in the manufacture\r\nof food; or gardening, a branch of agriculture.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe following are wholly unproductive:\u003c/p\u003e\r\n\r\n\u003cp\u003eLabour exerted, and expenditure incurred, directly\r\nand exclusively for the purpose of enjoyment, and not\r\ncalling into existence anything, whether substance or\r\nquality, but such as begins and perishes in the enjoyment.\u003c/p\u003e\r\n\r\n\u003cp\u003eLabour exerted and expenditure incurred uselessly,\r\nor in pure waste, and yielding neither direct\r\nenjoyment nor permanent sources of enjoyment.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt may be objected, that expenditure incurred even\r\nfor pure enjoyment promotes production indirectly, by\r\ninciting to exertion. Thus the view of the splendour\r\nof a rich establishment is supposed by some\r\nwriters to produce upon the mind of an indigent\r\nspectator an earnest desire of enjoying the same\r\nluxuries, and a consequent purpose of working with\r\nvigour and diligence, and saving from his earnings,\r\nthus increasing the productive capital of the country.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is true that mankind are, for the most part, excited\r\nto productive industry solely by the desire of\r\nsubsequently consuming the result of their labour and\r\naccumulation. The consumption called unproductive,\r\nviz., that of which the direct result is enjoyment, is in\r\nreality the end, to which production is only the means;\r\nand a desire for the end, is what alone impels any one\r\nto have recourse to the means.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut, notwithstanding this, it is of the greatest\r\nimportance to mark the distinction between the labour\r\nand the consumption which have enjoyment for their\r\nimmediate end, and the labour and the consumption of\r\nwhich the immediate end is reproduction. Though\r\nthe sight of the former may still further stimulate that\r\ndesire for the enjoyments afforded by wealth, which\r\nthe mere knowledge, without the immediate view,\r\nwould suffice to excite (and without dwelling on the\r\nconsideration that if the example of a large expenditure\r\nexcites one individual to accumulation, it\r\nencourages two to prodigal expense); still, if we look\r\nonly to the effects which are intended, or to those\r\nwhich immediately follow from the consumption, and\r\nwhose connexion with it can be distinctly traced, it\r\nevidently renders a country poorer in the permanent\r\nsources of enjoyment; while reproductive consumption\r\nleaves the country richer in these same sources.\r\nBesides, if what is spent for mere pleasure promotes\r\nindirectly the increase of wealth, it can only be by\r\ninducing others \u003ci\u003enot\u003c/i\u003e to expend on mere pleasure.\u003c/p\u003e\r\n\r\n\u003cp\u003eBefore quitting the subject, one more observation\r\nshould be added. It must not be supposed that\r\nwhat is expended upon unproductive labourers is necessarily,\r\nthe whole of it, unproductively consumed.\r\nThe unproductive labourers may save part of their\r\nwages, and invest them in a productive employment.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is not unusual to speak of what is paid in wages\r\nto a labourer as being thereby \u003ci\u003econsumed\u003c/i\u003e, as if all\r\nprofit and loss to the nation were to be seen in the\r\ncapitalist\u0027s account-book. What is paid for productive\r\nlabour is said to be productively consumed; what\r\nis paid for unproductive labour is said to be consumed\r\nunproductively. It would be proper to say, not that\r\nit is productively or unproductively \u003ci\u003econsumed\u003c/i\u003e, but productively\r\nor unproductively \u003ci\u003eexpended\u003c/i\u003e; otherwise, we\r\nshall be obliged to say that it is consumed twice over;\r\nthe first time unproductively, perhaps, and the second,\r\nit may be, productively.\u003c/p\u003e\r\n\r\n\u003cp\u003eTo pronounce in which way the wages of the labourer\r\nare consumed, we must follow them into the labourer\u0027s\r\nown hands. As much as is necessary to keep the\r\nproductive labourer in perfect health and fitness for\r\nhis employment, may be said to be consumed productively.\r\nTo this should be added what he expends\r\nin rearing children to the age at which they become\r\ncapable of productive industry. If the state of the\r\nmarket for labour be such as to afford him more, this\r\nhe may either save, or, as the common expression is,\r\nhe may spend it. If he saves any portion, this (unless\r\nit be merely hoarded) he intends to employ productively,\r\nand it will be productively consumed. If he\r\nspends it, the consumption is for enjoyment immediately,\r\nand is therefore unproductive.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis suggests another correction in the established\r\nlanguage. Political economists generally define the\r\n\u0026quot;net produce\u0026quot; to be that portion of the gross annual\r\nproduce of a country which remains after replacing\r\nthe capital annually consumed. This, as they proceed\r\nto explain, consists of profits and rent; wages being\r\nincluded in the other portion of the gross produce,\r\nthat which goes to replace capital. After this definition,\r\nthey usually proceed to tell us that the net\r\nproduce, and that alone, constitutes the fund from\r\nwhich a nation can accumulate, and add to its capital,\r\nas also that which it can, without retrograding in\r\nwealth, expend unproductively, or for enjoyment.\r\nNow, it is impossible that both the above propositions\r\ncan be true. If the net produce is that which remains\r\nafter replacing capital, then net produce is not the\r\nonly fund out of which accumulation may be made: for\r\naccumulation may be made from wages; this is in all\r\ncountries one of the great sources, and in countries\r\nlike America perhaps the greatest source of accumulation.\r\nIf, on the other hand, it is desirable to reserve\r\nthe name of net produce to denote the fund available\r\nfor accumulation or for unproductive consumption, we\r\nmust define net produce differently. The definition\r\nwhich appears the best adapted to render the ordinary\r\ndoctrines relating to net produce true, would be\r\nthis:\u003c/p\u003e\r\n\r\n\u003cp\u003eThe net produce of a country is whatever is annually\r\nproduced beyond what is necessary for maintaining\r\nthe stock of materials and implements unimpaired,\r\nfor keeping all productive labourers alive and in condition\r\nfor work, and for just keeping up their numbers\r\nwithout increase. What is required for these purposes,\r\nor, in other words, for keeping up the productive\r\nresources of the country, cannot be diverted from\r\nits destination without rendering the nation as a whole\r\npoorer. But all which is produced beyond this, whether\r\nit be in the hands of the labourer, of the capitalist, or\r\nof any of the numerous varieties of rent-owners, may\r\nbe taken for immediate enjoyment, without prejudice\r\nto the productive resources of the community; and\r\nwhatever part of it is not so taken, constitutes a clear\r\naddition to the national capital, or to the permanent\r\nsources of enjoyment.\u003c/p\u003e\r\n\r\n\r\n\r\n\u003chr style=\"width: 65%;\"\u003e\r\n\u003ca name=\"ESSAY_IV\"\u003e\u003c/a\u003e\u003ch2\u003eESSAY IV.\u003c/h2\u003e\r\n\r\n\u003ch2\u003eON PROFITS, AND INTEREST.\u003c/h2\u003e\r\n\u003cbr\u003e\r\n\r\n\u003cp\u003eThe profits of stock are the surplus which remains to\r\nthe capitalist after replacing his capital: and the ratio\r\nwhich that surplus bears to the capital itself, is the \u003ci\u003erate\u003c/i\u003e\r\nof profit.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis being the definition of profits, it might seem\r\nnatural to adopt, as a sufficient theory in regard to the\r\nrate of profit, that it depends upon the productive\r\npower of capital. Some countries are favoured beyond\r\nothers, either by nature or art, in the means of production.\r\nIf the powers of the soil, or of machinery,\r\nenable capital to produce what is necessary for replacing\r\nitself, and twenty per cent more, profits will\r\nbe twenty per cent; and so on.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis, accordingly, is a popular mode of speaking on\r\nthe subject of profits; but it has only the semblance,\r\nnot the reality, of an explanation. The \u0026quot;productive\r\npower of capital,\u0026quot; though a common, and, for some\r\npurposes, a convenient expression, is a delusive one.\r\nCapital, strictly speaking, has no productive power.\r\nThe only productive power is that of labour; assisted,\r\nno doubt, by tools, and acting upon materials. That\r\nportion of capital which consists of tools and materials,\r\nmay be said, perhaps, without any great impropriety,\r\nto have a productive power, because they contribute,\r\nalong with labour, to the accomplishment of production.\r\nBut that portion of capital which consists of\r\nwages, has no productive power of its own. Wages\r\nhave no productive power; they are the price of a productive\r\npower. Wages do not contribute, along with\r\nlabour, to the production of commodities, no more than\r\nthe price of tools contributes along with the tools\r\nthemselves. If labour could be had without purchase,\r\nwages might be dispensed with. That portion of\r\ncapital which is expended in the wages of labour, is\r\nonly the means by which the capitalist procures to\r\nhimself, in the way of purchase, the use of that labour\r\nin which the power of production really resides.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe proper view of capital is, that anything whatever,\r\nwhich a person possesses, constitutes his capital,\r\nprovided he is able, and intends, to employ it, not in\r\nconsumption for the purpose of enjoyment, but in\r\npossessing himself of the means of production, with the\r\nintention of employing those means productively. Now\r\nthe means of production are labour, implements, and\r\nmaterials. The only productive power which anywhere\r\nexists, is the productive power of labour, implements,\r\nand materials.\u003c/p\u003e\r\n\r\n\u003cp\u003eWe need not, on this account, altogether proscribe\r\nthe expression, \u0026quot;productive power of capital;\u0026quot; but we\r\nshould carefully note, that it can only mean the quantity\r\nof real productive power which the capitalist, by means\r\nof his capital, can command. This may change, though\r\nthe productive power of labour remains the same.\r\nWages, for example, may rise; and then, although all\r\nthe circumstances of production remain exactly as they\r\nwere before, the same capital will yield a less return,\r\nbecause it will set in motion a less quantity of productive\r\nlabour.\u003c/p\u003e\r\n\r\n\u003cp\u003eWe may, therefore, consider the capital of a producer\r\nas measured by the means which he has of possessing\r\nhimself of the different essentials of production:\r\nnamely, labour, and the various articles which labour\r\nrequires as materials, or of which it avails itself as aids.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe ratio between the price which he has to pay for\r\nthese means of production, and the produce which they\r\nenable him to raise, is the \u003ci\u003erate\u003c/i\u003e of his \u003ci\u003eprofit\u003c/i\u003e. If he\r\nmust give for labour and tools four-fifths of what they\r\nwill produce, the remaining fifth will constitute his\r\nprofit, and will give him a rate of one in four, or twenty-five\r\nper cent, on his outlay.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is necessary here to remark, what cannot indeed\r\nby any possibility be misunderstood, but might possibly\r\nbe overlooked in cases where attention to it is\r\nindispensable, viz., that we are speaking now of the\r\n\u003ci\u003erate\u003c/i\u003e of profit, not the gross profit. If the capital of\r\nthe country is very great, a profit of only five per\r\ncent upon it may be much more ample, may support\r\na much larger number of capitalists and their\r\nfamilies in much greater affluence, than a profit of\r\ntwenty-five per cent on the comparatively small\r\ncapital of a poor country. The \u003ci\u003egross\u003c/i\u003e profit of a\r\ncountry is the actual amount of necessaries, conveniences,\r\nand luxuries, which are divided among its\r\ncapitalists: but whether this be large or small, the\r\nrate of profit may be just the same. The rate of\r\nprofit is the proportion which the profit bears to the\r\ncapital; which the surplus produce after replacing\r\nthe outlay, bears to the outlay. In short, if we compare\r\nthe \u003ci\u003eprice paid\u003c/i\u003e for labour and tools with what\r\nthat labour and those tools will \u003ci\u003eproduce\u003c/i\u003e, from this ratio\r\nwe may calculate the rate of profit.\u003c/p\u003e\r\n\r\n\u003cp\u003eAs the gross profit may be very different though\r\nthe rate of profit be the same; so also may the absolute\r\nprice paid for labour and tools be very different, and\r\nyet the proportion between the price paid and the produce\r\nobtained may be just the same. For greater\r\nclearness, let us omit, for the present, the consideration\r\nof tools, materials, \u0026amp;c, and conceive production as the\r\nresult solely of labour. In a certain country, let us\r\nsuppose, the wages of each labourer are one quarter of\r\nwheat per year, and 100 men can produce, in one year,\r\n120 quarters. Here the price paid for labour is to\r\nthe produce of that labour as 100 to 120, and profits\r\nare 20 per cent. Suppose now that, in another\r\ncountry, wages are just double what they are in the\r\ncountry before supposed; namely, two quarters of\r\nwheat per year, for each labourer. But suppose, likewise,\r\nthat the productive power of labour is double\r\nwhat it is in the first country; that by the greater\r\nfertility of the soil, 100 men can produce 240 quarters,\r\ninstead of 120 as before. Here it is obvious, that the\r\nreal price paid for labour is twice as great in the one\r\ncountry as in the other; but the produce being also\r\ntwice as great, the ratio between the price of labour\r\nand the produce of labour is still exactly the same: an\r\noutlay of 200 quarters gives a return of 240 quarters,\r\nand profits, as before, are 20 per cent.\u003c/p\u003e\r\n\r\n\u003cp\u003eProfits, then (meaning not gross profits, but the\r\nrate of profit), depend (not upon the price of labour,\r\ntools, and materials\u0026mdash;but) upon the ratio between the\r\nprice of labour, tools, and materials, and the produce\r\nof them: upon the proportionate share of the produce\r\nof industry which it is necessary to offer, in order to\r\npurchase that industry and the means of setting it in\r\nmotion.\u003c/p\u003e\r\n\r\n\u003chr style=\"width: 45%;\"\u003e\r\n\r\n\u003cp\u003eWe have hitherto spoken of tools, buildings, and\r\nmaterials, as essentials of production, co-ordinate with\r\nlabour, and equally indispensable with it. This is true;\r\nbut it is also true that tools, buildings, and materials, are\r\nthemselves the produce of labour; and that the only cause\r\n(cases of monopoly excepted) of their having any value,\r\nis the labour which is required for their production.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf tools, buildings, and materials were the spontaneous\r\ngifts of nature, requiring no labour either in\r\norder to produce or to appropriate them; and if they\r\nwere thus bestowed upon mankind in indefinite quantity,\r\nand without the possibility of being monopolized; they\r\nwould still be as useful, as indispensable as they now\r\nare; but since they could, like air and the light of the\r\nsun, be obtained without cost or sacrifice, they would\r\nform no part of the expenses of production, and no\r\nportion of the produce would be required to be set\r\naside in order to replace the outlay made for these\r\npurposes. The whole produce, therefore, after replacing\r\nthe wages of labour, would be clear profit to\r\nthe capitalist.\u003c/p\u003e\r\n\r\n\u003cp\u003eLabour alone is the primary means of production;\r\n\u0026quot;the original purchase-money which has been paid for\r\neverything.\u0026quot; Tools and materials, like other things,\r\nhave originally cost nothing but labour; and have a\r\nvalue in the market only because wages have been\r\npaid for them. The labour employed in making the\r\ntools and materials being added to the labour afterwards\r\nemployed in working up the materials by aid of\r\nthe tools, the sum total gives the whole of the labour\r\nemployed in the production of the completed commodity.\r\nIn the ultimate analysis, therefore, labour\r\nappears to be the only essential of production. To replace\r\ncapital, is to replace nothing but the wages of\r\nthe labour employed. Consequently, the whole of the\r\nsurplus, after replacing wages, is profits. From this it\r\nseems to follow, that the ratio between the wages of\r\nlabour and the produce of that labour gives the rate of\r\nprofit. And thus we arrive at Mr. Ricardo\u0027s principle,\r\nthat profits depend upon wages; rising as wages\r\nfall, and falling as wages rise.\u003c/p\u003e\r\n\r\n\u003cp\u003eTo protect this proposition (the most perfect form\r\nin which the law of profits seems to have been yet\r\nexhibited) against misapprehension, one or two explanatory\r\nremarks are required.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf by wages, be meant what constitutes the real\r\naffluence of the labourer, the \u003ci\u003equantity\u003c/i\u003e of produce\r\nwhich he receives in exchange for his labour; the proposition\r\nthat profits vary inversely as wages, will be\r\nobviously false. The rate of profit (as has been\r\nalready observed and exemplified) does not depend upon\r\nthe price of labour, but upon the proportion between\r\nthe price of labour and the produce of it. If the\r\nproduce of labour is large, the price of labour may\r\nalso be large without any diminution of the rate of\r\nprofit: and, in fact, the rate of profit is highest in\r\nthose countries (as, for instance, North America)\r\nwhere the labourer is most largely remunerated. For\r\nthe wages of labour, though so large, bear a less\r\nproportion to the abundant \u003ci\u003eproduce\u003c/i\u003e of labour, there\r\nthan elsewhere.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut this does not affect the truth of Mr. Ricardo\u0027s\r\nprinciple as he himself understood it; because an\r\nincrease of the labourer\u0027s real comforts was not considered\r\nby him as a rise of wages. In his language\r\nwages were only said to rise, when they rose not in\r\nmere quantity but in \u003ci\u003evalue\u003c/i\u003e. To the labourer himself\r\n(he would have said) the \u003ci\u003equantity\u003c/i\u003e of his remuneration\r\nis the important circumstance: but its \u003ci\u003evalue\u003c/i\u003e is\r\nthe only thing of importance to the person who purchases\r\nhis labour.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe rate of profits depends not upon absolute or\r\nreal wages, but upon the \u003ci\u003evalue\u003c/i\u003e of wages.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf, however, by value, Mr. Ricardo had meant\r\n\u003ci\u003eexchangeable\u003c/i\u003e value, his proposition would still have\r\nbeen remote from the truth. Profits depend no more\r\nupon the exchangeable value of the labourer\u0027s remuneration,\r\nthan upon its quantity. The truth is, that\r\nby the exchangeable value is meant the quantity of\r\ncommodities which the labourer can purchase with\r\nhis wages; so that when we say the exchangeable\r\nvalue of wages, we say their quantity, under another\r\nname.\u003c/p\u003e\r\n\r\n\u003cp\u003eMr. Ricardo, however, did not use the word value\r\nin the sense of exchangeable value.\u003c/p\u003e\r\n\r\n\u003cp\u003eOccasionally, in his writings, he could not avoid\r\nusing the word as other people use it, to denote value\r\nin exchange. But he more frequently employed it in\r\na sense peculiar to himself, to denote cost of production;\r\nin other words, the \u003ci\u003equantity of labour\u003c/i\u003e required\r\nto produce the article; that being his criterion of cost\r\nof production. Thus, if a hat could be made with\r\nten days\u0027 labour in France and with five days\u0027 labour\r\nin England, he said that the value of a hat was\r\ndouble in France of what it was in England. If a\r\nquarter of corn could be produced a century ago with\r\nhalf as much labour as is necessary at present, Mr.\r\nRicardo said that the value of a quarter of corn\r\nhad doubled.\u003c/p\u003e\r\n\r\n\u003cp\u003eMr. Ricardo, therefore, would not have said that\r\nwages had risen, because a labourer could obtain two\r\npecks of flour instead of one, for a day\u0027s labour; but\r\nif last year he received, for a day\u0027s labour, something\r\nwhich required eight hours\u0027 labour to produce it, and\r\nthis year something which requires nine hours, then\r\nMr. Ricardo would say that wages had risen. A rise\r\nof wages, with Mr. Ricardo, meant an increase in the\r\ncost of production of wages; an increase in the number\r\nof hours\u0027 labour which go to produce the wages of a\r\nday\u0027s labour; an increase in the \u003ci\u003eproportion\u003c/i\u003e of the\r\nfruits of labour which the labourer receives for his\r\nown share; an increase in the ratio between the wages\r\nof his labour and the produce of it. This is the\r\ntheory: the reasoning, of which it is the result, has\r\nbeen given in the preceding paragraphs.\u003c/p\u003e\r\n\r\n\u003cp\u003eSome of Mr. Ricardo\u0027s followers, or more properly,\r\nof those who have adopted in most particulars\r\nthe views of political economy which his genius\r\nwas the first to open up, have given explanations\r\nof Mr. Ricardo\u0027s doctrine to nearly the same effect\r\nas the above, but in rather different terms. They\r\nhave said that profits depend not on \u003ci\u003eabsolute\u003c/i\u003e, but\r\non \u003ci\u003eproportional\u003c/i\u003e wages: which they expounded to mean\r\nthe proportion which the labourers \u003ci\u003een masse\u003c/i\u003e receive of\r\nthe total produce of the country.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt seems, however, to be rather an unusual and\r\ninconvenient use of language to speak of anything as\r\ndepending upon the wages of labour, and then to\r\nexplain that by wages of labour you do not mean the\r\nwages of an individual labourer, but of all the\r\nlabourers in the country collectively. Mankind will\r\nnever agree to call anything a rise of wages, except a\r\nrise of the wages of individual labourers, and it is\r\ntherefore preferable to employ language tending to fix\r\nattention upon the wages of the individual. The\r\nwages, however, on which profits are said to depend,\r\nare undoubtedly \u003ci\u003eproportional\u003c/i\u003e wages, namely, the proportional\r\nwages of one labourer: that is, the ratio\r\nbetween the wages of one labourer, and (not the\r\nwhole produce of the country, but) the amount of\r\nwhat one labourer can produce; the amount of that\r\nportion of the collective produce of the industry of\r\nthe country, which may be considered as corresponding\r\nto the labour of one single labourer. Proportional\r\nwages, thus understood, may be concisely termed\r\nthe cost of production of wages; or, more concisely\r\nstill, the cost of wages, meaning their cost in the\r\n\u0026quot;original purchase money,\u0026quot; labour.\u003c/p\u003e\r\n\r\n\u003cp\u003eWe have now arrived at a distinct conception of\r\nMr. Ricardo\u0027s theory of profits in its most perfect\r\nstate. And this theory we conceive to be the basis\r\nof the true theory of profits. All that remains to\r\ndo is to clear it from certain difficulties which still\r\nsurround it, and which, though in a greater degree\r\napparent than real, are not to be put aside as wholly\r\nimaginary.\u003c/p\u003e\r\n\r\n\u003cp\u003eThough it is true that tools, materials, and buildings\r\n(it is to be wished that there were some compact\r\ndesignation for all these essentials of production\r\ntaken together,) are themselves the produce of\r\nlabour, and are only on that account to be ranked\r\namong the expenses of production; yet the \u003ci\u003ewhole\u003c/i\u003e of\r\ntheir value is not resolvable into the wages of the\r\nlabourers by whom they were produced. The wages\r\nof those labourers were paid by a capitalist, and that\r\ncapitalist must have the same profit upon his advances\r\nas any other capitalist; when, therefore, he sells the tools\r\nor materials, he must receive from the purchaser not\r\nonly the reimbursement of the wages he has paid, but\r\nalso as much more as will afford him the ordinary rate\r\nof profit. And when the producer, after buying the\r\ntools and employing them in his own occupation,\r\ncomes to estimate his gains, he must set aside a portion\r\nof the produce to replace not only the wages\r\npaid both by himself and by the tool-maker, but also\r\nthe profits of the tool-maker, advanced by himself out\r\nof his own capital.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is not correct, therefore, to state that all which\r\nthe capitalist retains after replacing wages forms his\r\nprofit. It is true the whole return to capital is\r\neither wages or profits; but profits do not compose\r\nmerely the surplus after replacing the outlay; they\r\nalso enter into the outlay itself. Capital is expended\r\npartly in paying or reimbursing wages, and partly in\r\npaying the profits of other capitalists, whose concurrence\r\nwas necessary in order to bring together the\r\nmeans of production.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf any contrivance, therefore, were devised by which\r\nthat part of the outlay which consists of previous\r\nprofits could be either wholly or partially dispensed\r\nwith, it is evident that more would remain as the\r\nprofit of the immediate producer; while, as the\r\nquantity of \u003ci\u003elabour\u003c/i\u003e necessary to produce a given\r\nquantity of the commodity would be unaltered, as well\r\nas the quantity of produce paid for that labour, it\r\nseems that the ratio between the price of labour and\r\nits produce would be the same as before; that the\r\ncost of production of wages would be the same, proportional\r\nwages the same, and yet profits different.\u003c/p\u003e\r\n\r\n\u003cp\u003eTo illustrate this by a simple instance, let it be\r\nsupposed that one-third of the produce is sufficient to\r\nreplace the wages of the labourers who have been\r\nimmediately instrumental in the production; that\r\nanother third is necessary to replace the materials used\r\nand the fixed capital worn out in the process; while\r\nthe remaining third is clear gain, being a profit of\r\n50 per cent. Suppose, for example, that 60 agricultural\r\nlabourers, receiving 60 quarters of corn for their\r\nwages, consume fixed capital and seed amounting\r\nto the value of 60 quarters more, and that the result\r\nof their operations is a produce of 180 quarters.\r\nWhen we analyse the price of the seed and tools\r\ninto its elements, we find that they must have been\r\nthe produce of the labour of 40 men: for the wages\r\nof those 40, together with profit at the rate previously\r\nsupposed (50 per cent) make up 60 quarters.\r\nThe produce, therefore, consisting of 180 quarters\r\nis the result of the labour altogether of 100 men:\r\nnamely, the 60 first mentioned, and the 40 by\r\nwhose labour the fixed capital and the seed were\r\nproduced.\u003c/p\u003e\r\n\r\n\u003cp\u003eLet us now suppose, by way of an extreme case,\r\nthat some contrivance is discovered, whereby the purposes\r\nto which the second third of the produce had\r\nbeen devoted, may be dispensed with altogether: that\r\nsome means are invented by which the same amount\r\nof produce may be procured without the assistance of\r\nany fixed capital, or the consumption of any seed or\r\nmaterial sufficiently valuable to be worth calculating.\r\nLet us, however, suppose that this cannot be done\r\nwithout taking on a number of additional labourers,\r\nequal to those required for producing the seed and\r\nfixed capital; so that the saving shall be only in the\r\nprofits of the previous capitalists. Let us, in conformity\r\nwith this supposition, assume that in dispensing\r\nwith the fixed capital and seed, value 60\r\nquarters, it is necessary to take on 40 additional\r\nlabourers, receiving a quarter of corn each, as before.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe rate of profit has evidently risen. It has\r\nincreased from 50 per cent to 60 per cent. A return\r\nof 180 quarters could not before be obtained but by\r\nan outlay of 120 quarters; it can now be obtained by\r\nan outlay of no more than 100.\u003c/p\u003e\r\n\r\n\u003cp\u003eHere, therefore, is an undeniable rise of profits.\r\nHave wages, in the sense above attached to them,\r\nfallen or not? It would seem not.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe produce (180 quarters) is still the result of\r\nthe same quantity of labour as before, namely, the\r\nlabour of 100 men. A quarter of corn, therefore, is\r\nstill, as before, the produce of 10/18 of a man\u0027s labour for\r\na year. Each labourer receives, as before, one quarter\r\nof corn; each, therefore, receives the produce of 10\\18\r\nof a year\u0027s labour of one man, that is, the same cost of\r\nproduction; each receives 10/18 of the produce of his\r\nown labour, that is, the same proportional wages; and\r\nthe labourers collectively still receive the same proportion,\r\nnamely 10/18, of the whole produce.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe conclusion, then, cannot be resisted, that\r\nMr. Ricardo\u0027s theory is defective: that the rate of\r\nprofits does \u003ci\u003enot\u003c/i\u003e exclusively depend upon the value of\r\nwages, in his sense, namely, the quantity of labour\r\nof which the wages of a labourer are the produce;\r\nthat it does \u003ci\u003enot\u003c/i\u003e exclusively depend upon proportional\r\nwages, that is, upon the proportion which the labourers\r\ncollectively receive of the whole produce, or the ratio\r\nwhich the wages of an individual labourer bear to the\r\nproduce of his individual labour.\u003c/p\u003e\r\n\r\n\u003cp\u003eThose political economists, therefore, who have\r\nalways dissented from Mr. Ricardo\u0027s doctrine, or who,\r\nhaving at first admitted, ended by discarding it, were\r\nso far in the right; but they committed a serious\r\nerror in this, that, with the usual one-sidedness of disputants,\r\nthey knew no medium between admitting\r\nabsolutely and dismissing entirely; and saw no other\r\ncourse than utterly to reject what it would have been\r\nsufficient to modify.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is remarkable how very slight a modification will\r\nsuffice to render Mr. Ricardo\u0027s doctrine completely\r\ntrue. It is even doubtful whether he himself, if called\r\nupon to adapt his expressions to this peculiar case,\r\nwould not have so explained his doctrine as to render\r\nit entirely unobjectionable.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is perfectly true, that, in the example already\r\nmade use of, a rise of profits takes place, while wages,\r\nconsidered in respect to the quantity of labour of which\r\nthey are the produce, have not varied at all. But\r\nthough wages are still the produce of the same\r\n\u003ci\u003equantity of labour\u003c/i\u003e as before, the \u003ci\u003ecost of production\u003c/i\u003e\r\nof wages has nevertheless fallen; for into cost of\r\nproduction there enters another element besides\r\nlabour.\u003c/p\u003e\r\n\r\n\u003cp\u003eWe have already remarked (and the very example\r\nout of which the difficulty arose presupposes it) that\r\nthe cost of production of an article consists generally\r\nof two parts,\u0026mdash;the \u003ci\u003ewages\u003c/i\u003e of the labour employed, and\r\nthe \u003ci\u003eprofits\u003c/i\u003e of those who, in any antecedent stage of\r\nthe production, have advanced any portion of those\r\nwages. An article, therefore, may be the produce\r\nof the same quantity of labour as before, and yet,\r\nif any portion of the profits which the last producer\r\nhas to make good to previous producers can be\r\neconomized, the cost of production of the article is\r\ndiminished.\u003c/p\u003e\r\n\r\n\u003cp\u003eNow, in our example, a diminution of this sort is\r\nsupposed to have taken place in the cost of production\r\nof corn. The production of that article has become\r\nless costly, in the ratio of six to five. A quantity of\r\ncorn, the means of producing which could not previously\r\nhave been secured but at an expense of 120\r\nquarters, can now be produced by means which 100\r\nquarters are sufficient to purchase.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut the labourer is supposed to receive the same\r\nquantity of corn as before. He receives one quarter.\r\nThe cost of production of wages has, therefore, fallen\r\none-sixth. A quarter of corn, which is the remuneration\r\nof a single labourer, is indeed the produce of the\r\nsame quantity of labour as before; but its cost of production\r\nis nevertheless diminished. It is now the\r\nproduce of 10/18 of a man\u0027s labour, and nothing else;\r\nwhereas formerly it required for its production the\r\nconjunction of that quantity of labour with an expenditure,\r\nin the form of reimbursement of profit, amounting\r\nto one-fifth more.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf the cost of production of wages had remained\r\nthe same as before, profits could not have risen. Each\r\nlabourer received one quarter of corn; but one quarter\r\nof corn at that time was the result of the same cost of\r\nproduction, as 1 1/5 quarter now. In order, therefore,\r\nthat each labourer should receive the same cost of\r\nproduction, each must now receive one quarter of corn,\r\n\u003ci\u003eplus\u003c/i\u003e one-fifth. The labour of 100 men could not be\r\npurchased at this price for less than 120 quarters; and\r\nthe produce, 180 quarters, would yield only 50 per\r\ncent, as first supposed \u003ca name=\"FNanchor7\"\u003e\u003c/a\u003e\u003ca href=\"#Footnote_7\"\u003e\u003csup\u003e[7]\u003c/sup\u003e\u003c/a\u003e.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is, therefore, strictly true, that the rate of profits\r\nvaries inversely as the cost of production of wages.\r\nProfits cannot rise, unless the cost of production of\r\nwages falls exactly as much; nor fall, unless it rises.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe proof of this position has been stated in figures,\r\nand in a particular case: we shall now state it in general\r\nterms, and for all cases.\u003c/p\u003e\r\n\r\n\u003cp\u003eWe have supposed, for simplicity, that wages are\r\npaid in the finished commodity. The agricultural\r\nlabourers, in our example, were paid in corn, and if we\r\nhad called them weavers, we should have supposed\r\nthem to be paid in cloth. This supposition is allowable,\r\nfor it is obviously of no consequence, in a question\r\nof value, or cost of production, what precise article we\r\nassume as the medium of exchange. The supposition\r\nhas, besides, the recommendation of being conformable\r\nto the most ordinary state of the facts; for it is by the\r\nsale of his own finished article that each capitalist\r\nobtains the means of hiring labourers to renew the production;\r\nwhich is virtually the same thing as if, instead\r\nof selling the article for money and giving the money\r\nto his labourers, he gave the article itself to the\r\nlabourers, and they sold it for their daily bread.\u003c/p\u003e\r\n\r\n\u003cp\u003eAssuming, therefore, that the labourer is paid in\r\nthe very article he produces, it is evident that, when\r\nany saving of expense takes place in the production of\r\nthat article, if the labourer still receives the same cost\r\nof production as before, he must receive an increased\r\nquantity, in the very same ratio in which the productive\r\npower of capital has been increased. But, if so,\r\nthe outlay of the capitalist will bear exactly the same\r\nproportion to the return as it did before; and profits\r\nwill not rise.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe variations, therefore, in the rate of profits, and\r\nthose in the cost of production of wages, go hand in\r\nhand, and are inseparable. Mr. Ricardo\u0027s principle,\r\nthat profits cannot rise unless wages fall, is strictly\r\ntrue, if by low wages be meant not merely wages\r\nwhich are the produce of a smaller quantity of labour,\r\nbut wages which are produced at less cost, reckoning\r\nlabour and previous profits together. But the\r\ninterpretation which some economists have put upon\r\nMr. Ricardo\u0027s doctrine, when they explain it to mean\r\nthat profits depend upon the proportion which the\r\nlabourers collectively receive of the aggregate produce,\r\nwill not hold at all; for that, in our first example,\r\nremained the same, and yet profits rose.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe only expression of the law of profits, which\r\nseems to be correct, is, that they depend upon the cost\r\nof production of wages. This must be received as the\r\nultimate principle.\u003c/p\u003e\r\n\r\n\u003cp\u003eFrom this may be deduced all the corollaries which\r\nMr. Ricardo and others have drawn from his theory of\r\nprofits as expounded by himself. The cost of production\r\nof the wages of one labourer for a year, is the\r\nresult of two concurrent elements or factors,\u0026mdash;viz., 1st,\r\nthe quantity of commodities which the state of the\r\nlabour market affords to him; 2ndly, the cost of production\r\nof each of those commodities. It follows, that\r\nthe rate of profits can never rise but in conjunction\r\nwith one or other of two changes,\u0026mdash;1st, a diminished\r\nremuneration of the labourer; or, 2ndly, an improvement\r\nin production, or an extension of commerce, by\r\nwhich any of the articles habitually consumed by the\r\nlabourer may be obtained at smaller cost. (If the\r\nimprovement be in any article which is not consumed\r\nby the labourer, it merely lowers the price of that\r\narticle, and thereby benefits capitalists and all other\r\npeople so far as they are consumers of that particular\r\narticle, and may be said to increase gross profit, but\r\nnot the rate of profit.)\u003c/p\u003e\r\n\r\n\u003cp\u003eSo, on the other hand, the rate of profit cannot fall,\r\nunless concurrently with one of two events: 1st, an\r\nimprovement in the labourer\u0027s condition; or, 2ndly, an\r\nincreased difficulty of producing or importing some\r\narticle which the labourer habitually consumes. The\r\nprogress of population and cultivation has a tendency\r\nto lower profits through the latter of these two\r\nchannels, owing to the well known law of the application\r\nof capital to land, that a double capital does\r\nnot \u003ci\u003ecaeteris paribus\u003c/i\u003e yield a double produce. There is,\r\ntherefore, a tendency in the rate of profits to fall with\r\nthe progress of society. But there is also an antagonist\r\ntendency of profits to rise, by the successive introduction\r\nof improvements in agriculture, and in the\r\nproduction of those manufactured articles which the\r\nlabourers consume. Supposing, therefore, that the\r\nactual comforts of the labourer remain the same, profits\r\nwill fall or rise, according as population, or improvements\r\nin the production of food and other necessaries,\r\nadvance fastest.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe rate of profits, therefore, tends to \u003ci\u003efall\u003c/i\u003e from\r\nthe following causes:\u0026mdash;1. An increase of capital beyond\r\npopulation, producing increased competition for\r\nlabour; 2. An increase of population, occasioning a\r\ndemand for an increased quantity of food, which\r\nmust be produced at a greater cost. The rate of\r\nprofits tends to \u003ci\u003erise\u003c/i\u003e from the following causes:\u0026mdash;1.\r\nAn increase of population beyond capital, producing\r\nincreased competition for employment; 2. Improvements\r\nproducing increased cheapness of necessaries,\r\nand other articles habitually consumed by the labourer.\u003c/p\u003e\r\n\r\n\u003chr style=\"width: 45%;\"\u003e\r\n\r\n\u003cp\u003eThe circumstances which regulate the rate of\r\ninterest have usually been treated, even by professed\r\nwriters on political economy, in a vague, loose, and\r\nunscientific manner. It has, however, been felt that\r\nthere is some connexion between the rate of interest\r\nand the rate of profit; that (to use the words of\r\nAdam Smith) much will be given for money, when\r\nmuch can be made of it. It has been felt, also, that\r\nthe fluctuations in the market-rate of interest from\r\nday to day, are determined, like other matters of\r\nbargain and sale, by demand and supply. It has,\r\ntherefore, been considered as an established principle,\r\nthat the rate of interest varies from day to day\r\naccording to the quantity of capital offered or called\r\nfor on loan; but conforms on the average of years to a\r\nstandard determined by the rate of profits, and bearing\r\nsome proportion to that rate\u0026mdash;but a proportion\r\nwhich few attempts have been made to define.\u003c/p\u003e\r\n\r\n\u003cp\u003eIn consequence of these views, it has been customary\r\nto judge of the general rate of profits at any time or\r\nplace, by the rate of interest at that time and place: it\r\nbeing supposed that the rate of interest, though liable\r\nto temporary fluctuations, can never vary for any long\r\nperiod of time unless profits vary; a notion which\r\nappears to us to be erroneous.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt was observed by Adam Smith, that profits\r\nmay be considered as divided into two parts, of\r\nwhich one may properly be considered as the remuneration\r\nfor the use of the capital itself, the other as\r\nthe reward of the labour of superintending its employment;\r\nand that the former of these will correspond\r\nwith the rate of interest. The producer who borrows\r\ncapital to employ it in his business, will consent to\r\npay, for the use of it, all that remains of the profits he\r\ncan make by it, after reserving what he considers\r\nreasonable remuneration for the trouble and risk\r\nwhich he incurs by borrowing and employing it.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis remark is just; but it seems necessary to give\r\ngreater precision to the ideas which it involves.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe difference between the profit which can be\r\nmade by the use of capital, and the interest which will\r\nbe paid for it, is rightly characterized as wages of\r\nsuperintendance. But to infer from this that it is\r\nregulated by entirely the same principles as other\r\nwages, would be to push the analogy too far. It is\r\nwages, but wages paid by a commission upon the\r\ncapital employed. If the general rate of profit is 10\r\nper cent, and the rate of interest 5 per cent, the\r\nwages of superintendance will be 5 per cent; and\r\nthough one borrower employ a capital of 100,000\u003ci\u003el\u003c/i\u003e.,\r\nanother no more than 100\u003ci\u003el\u003c/i\u003e., the labour of both will\r\nbe rewarded with the same per centage, though, in the\r\none ease, this symbol will represent an income of 5\u003ci\u003el\u003c/i\u003e.,\r\nin the other case, of 5000\u003ci\u003el\u003c/i\u003e. Yet it cannot be pretended\r\nthat the labour of the two borrowers differs in\r\nthis proportion. The rule, therefore, that equal quantities\r\nof labour of equal hardness and skill are equally\r\nremunerated, does not hold of this kind of labour.\r\nThe wages of any other labour are here an inapplicable\r\ncriterion.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe wages of superintendance are distinguished\r\nfrom ordinary wages by another peculiarity, that they\r\nare not paid in advance out of capital, like the wages\r\nof all other labourers, but merge in the profit, and are\r\nnot realized until the production is completed. This\r\ntakes them entirely out of the ordinary law of wages.\r\nThe wages of labourers who are paid in advance, are\r\nregulated by the number of competitors compared\r\nwith the amount of capital; the labourers can consume\r\nno more than what has been previously accumulated.\r\nBut there is no such limit to the remuneration of a\r\nkind of labour which is not paid for out of wealth\r\npreviously accumulated, but out of that produce which\r\nit is itself employed in calling into existence.\u003c/p\u003e\r\n\r\n\u003cp\u003eWhen these circumstances are duly weighed, it\r\nwill be perceived, that although profit may be correctly\r\nanalyzed into interest and wages of superintendance,\r\nwe ought not to lay it down as the law of\r\ninterest, that it is profits \u003ci\u003eminus\u003c/i\u003e the wages of superintendance.\r\nOf the two expressions, it would be\r\ndecidedly the more correct, that the wages of superintendance\r\nare regulated by the rate of interest, or\r\nare equal to profits \u003ci\u003eminus\u003c/i\u003e interest. In strict, propriety,\r\nneither expression would be allowable. Interest, and\r\nthe wages of superintendance, can scarcely be said to\r\ndepend upon one another. They are to one another in\r\nthe same relation as wages and profits are. They are\r\nlike two buckets in a well: when one rises, the other\r\ndescends, but neither of the two motions is the cause\r\nof the other; both are simultaneous effects of the\r\nsame cause, the turning of the windlass.\u003c/p\u003e\r\n\r\n\u003chr style=\"width: 45%;\"\u003e\r\n\r\n\u003cp\u003eThere are among the capitalists of every country a\r\nconsiderable number who are habitually, and almost\r\nnecessarily, lenders; to whom scarcely any difference\r\nbetween what they could receive for their money and\r\nwhat could be made by it, would be an equivalent for\r\nincurring the risk and labour of carrying on business.\r\nIn this predicament is the property of widows and\r\norphans; of many public bodies; of charitable institutions;\r\nmost property which is vested in trustees; and\r\nthe property of a great number of persons unused to\r\nbusiness, and who have a distaste for it, or whose\r\nother occupations prevent their engaging in it. How\r\nlarge a proportion of the property lent to the nation\r\ncomes under this description, has been pointed out\r\nin Mr. Tooke\u0027s \u003ci\u003eConsiderations on the State of the\r\nCurrency.\u003c/i\u003e\u003c/p\u003e\r\n\r\n\u003cp\u003eThere is another large class, consisting of bankers,\r\nbill-brokers, and others, who are money-lenders by\r\nprofession; who enter into that profession with the\r\nintention of making such gains as it will yield them,\r\nand who would not be induced to change their business\r\nby any but a very strong pecuniary inducement.\u003c/p\u003e\r\n\r\n\u003cp\u003eThere is, therefore, a large class of persons who\r\nare habitually lenders. On the other hand, all persons\r\nin business may be considered as habitually borrowers.\r\nExcept in times of stagnation, they are all\r\ndesirous of extending their business beyond their own\r\ncapital, and are never desirous of lending any portion\r\nof their capital except for very short periods, during\r\nwhich they cannot advantageously invest it in their\r\nown trade.\u003c/p\u003e\r\n\r\n\u003cp\u003eThere is, in short, a productive class, and there is,\r\nbesides, a class technically styled the monied class,\r\nwho live upon the interest of their capital, without\r\nengaging personally in the work of production.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe class of borrowers may be considered as unlimited.\r\nThere is no quantity of capital that could\r\nbe offered to be lent, which the productive classes\r\nwould not be willing to borrow, at any rate of interest\r\nwhich would afford them the slightest excess of profit\r\nabove a bare equivalent for the additional risk, incurred\r\nby that transaction, of the evils attendant on\r\ninsolvency. The only assignable limit to the inclination\r\nto borrow, is the power of giving security: the\r\nproducers would find it difficult to borrow more than\r\nan amount equal to their own capital. If more than\r\nhalf the capital of the country were in the hands of\r\npersons who preferred lending it to engaging personally\r\nin business, and if the surplus were greater than\r\ncould be invested in loans to Government, or in mortgages\r\nupon the property of unproductive consumers;\r\nthe competition of lenders would force down the rate\r\nof interest very low. A certain portion of the monied\r\nclass would be obliged either to sacrifice their predilections\r\nby engaging in business, or to lend on\r\ninferior security; and they would accordingly accept,\r\nwhere they could obtain good security, an abatement\r\nof interest equivalent to the difference of risk.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis is an extreme case. Let us put an extreme\r\ncase of a contrary kind. Suppose that the wealthy\r\npeople of any country, not relishing an idle life, and\r\nhaving a strong taste for gainful labour, were generally\r\nindisposed to accept of a smaller income in order\r\nto be relieved from the labour and anxiety of business.\r\nEvery producer in flourishing circumstances would\r\nbe eager to borrow, and few willing to lend. Under\r\nthese circumstances the rate of interest would differ\r\nvery little from the rate of profit. The trouble of\r\nmanaging a business is not proportionally increased\r\nby an increase of the magnitude of the business; and\r\na very small surplus profit above the rate of interest,\r\nwould therefore be a sufficient inducement to capitalists\r\nto borrow.\u003c/p\u003e\r\n\r\n\u003cp\u003eWe may even conceive a people whose habits\r\nwere such, that in order to induce them to lend, it\r\nmight be necessary to offer them a rate of interest\r\nfully equal to the ordinary rate of profit. In that\r\ncase, of course, the productive classes would scarcely\r\never borrow. But government, and the unproductive\r\nclasses, who do not borrow in order to make a profit\r\nby the loan, but from the pressure of a real or supposed\r\nnecessity, might still be ready to borrow at this\r\nhigh rate.\u003c/p\u003e\r\n\r\n\u003cp\u003eAlthough the inclination to borrow has no \u003ci\u003efixed\u003c/i\u003e\r\nor \u003ci\u003enecessary\u003c/i\u003e limit except the power of giving security,\r\nyet it always, in point of fact, stops short of this; from\r\nthe uncertainty of the prospects of any individual\r\nproducer, which generally indisposes him to involve\r\nhimself to the full extent of his means of payment.\r\nThere is never any permanent want of market for\r\nthings in general; but there may be so for the commodity\r\nwhich any one individual is producing; and\r\neven if there is a demand for the commodity, people\r\nmay not buy it of him but of some other. There are,\r\nconsequently, never more than a portion of the producers,\r\nthe state of whose business encourages them to\r\nadd to their capital by borrowing; and even these are\r\ndisposed to borrow only as much as they see an \u003ci\u003eimmediate\u003c/i\u003e\r\nprospect of profitably employing. There is,\r\ntherefore, a practical limit to the demands of borrowers\r\nat any given instant; and when these demands\r\nare all satisfied, any additional capital offered on loan\r\ncan find an investment only by a reduction of the rate\r\nof interest.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe amount of borrowers being given, (and by the\r\namount of borrowers is here meant the aggregate\r\nsum which people are willing to borrow at some\r\ngiven rate,) the rate of interest will depend upon\r\nthe quantity of capital owned by people who are\r\nunwilling or unable to engage in trade. The circumstances\r\nwhich determine this, are, on the one hand,\r\nthe degree in which a taste for business, or an aversion\r\nto it, happens to be prevalent among the classes\r\npossessed of property; and on the other hand, the\r\namount of the annual accumulation from the earnings\r\nof labour. Those who accumulate from their wages,\r\nfees, or salaries, have, of course, (speaking generally)\r\nno means of investing their savings except by lending\r\nthem to others: their occupations prevent them from\r\npersonally superintending any employment.\u003c/p\u003e\r\n\r\n\u003cp\u003eUpon these circumstances, then, the rate of interest\r\ndepends, the amount of borrowers being given. And\r\nthe counter-proposition equally holds, that, the above\r\ncircumstances being given, the rate of interest depends\r\nupon the amount of borrowers.\u003c/p\u003e\r\n\r\n\u003cp\u003eSuppose, for example, that when the rate of interest\r\nhas adjusted itself to the existing state of the circumstances\r\nwhich affect the disposition to borrow and to\r\nlend, a war breaks out, which induces government, for\r\na series of years, to borrow annually a large sum of\r\nmoney. During the whole of this period, the rate of\r\ninterest will remain considerably above what it was\r\nbefore, and what it will be afterwards.\u003c/p\u003e\r\n\r\n\u003cp\u003eBefore the commencement of the supposed war,\r\nall persons who were disposed to lend at the then\r\nrate of interest, had found borrowers, and their capital\r\nwas invested. This may be assumed; for if any\r\ncapital had been seeking for a borrower at the existing\r\nrate of interest, and unable to find one, its owner\r\nwould have offered it at a rate slightly below the\r\nexisting rate. He would, for instance, have bought\r\ninto the funds, at a slight advance of price; and thus\r\nset at liberty the capital of some fundholder, who, the\r\nfunds yielding a lower interest, would have been\r\nobliged to accept a lower interest from individuals.\u003c/p\u003e\r\n\r\n\u003cp\u003eSince, then, all who were willing to lend their\r\ncapital at the market rate, have already lent it,\r\nGovernment will not be able to borrow unless by\r\noffering higher interest. Though, with the existing\r\nhabits of the possessors of disposable capital, an\r\nincreased number cannot be found who are willing to\r\nlend at the existing rate, there are doubtless some who\r\nwill be induced to lend by the temptation of a higher\r\nrate. The same temptation will also induce some persons\r\nto invest, in the purchase of the new stock, what\r\nthey would otherwise have expended unproductively\r\nin increasing their establishments, or productively, in\r\nimproving their estates. The rate of interest will\r\nrise just sufficiently to call forth an increase of lenders\r\nto the amount required.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis we apprehend to be the cause why the rate\r\nof interest in this country was so high as it is well\r\nknown to have been during the last war. It is, therefore,\r\nby no means to be inferred, as some have done,\r\nthat the general rate of profits was unusually high\r\nduring the same period, because interest was so. Supposing\r\nthe rate of profits to have been precisely the\r\nsame during the war, as before or after it, the rate\r\nof interest would nevertheless have risen, from the\r\ncauses and in the manner above described.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe practical use of the preceding investigation is,\r\nto moderate the confidence with which inferences are\r\nfrequently drawn with respect to the rate of profit\r\nfrom evidence regarding the rate of interest; and to\r\nshew that although the rate of profit is one of the\r\nelements which combine to determine the rate of\r\ninterest, the latter is also acted upon by causes peculiar\r\nto itself, and may either rise or fall, both temporarily\r\nand permanently, while the general rate of\r\nprofits remains unchanged.\u003c/p\u003e\r\n\r\n\u003chr style=\"width: 45%;\"\u003e\r\n\r\n\u003cp\u003eThe introduction of banks, which perform the\r\nfunction of lenders and loan-brokers, with or without\r\nthat of issuers of paper-money, produces some further\r\nanomalies in the rate of interest, which have not, so\r\nfar as we are aware, been hitherto brought within the\r\npale of exact science.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf bankers were merely a class of middlemen\r\nbetween the lender and the borrower; if they merely\r\nreceived deposits of capital from those who had it lying\r\nunemployed in their hands, and lent this, together\r\nwith their own capital, to the productive classes,\r\nreceiving interest for it, and paying interest in their\r\nturn to those who had placed capital in their hands;\r\nthe effect of the operations of banking on the rate of\r\ninterest would be to lower it in some slight degree.\r\nThe banker receives and collects together sums of\r\nmoney much too small, when taken individually, to\r\nrender it worth while for the owners to look out\r\nfor an investment, but which in the aggregate form\r\na considerable amount. This amount may be considered\r\na clear addition to the productive capital of the\r\ncountry; at least, to the capital in activity at any\r\nmoment. And as this addition to the capital accrues\r\nwholly to that part of it which is not employed by\r\nthe owners, but lent to other producers, the natural\r\neffect is a diminution of the rate of interest.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe banker, to the extent of his own private\r\ncapital, (the expenses of his business being first paid,)\r\nis a lender at interest. But, being subject to risk and\r\ntrouble fully equal to that which belongs to most\r\nother employments, he cannot be satisfied with the\r\nmere interest even of his whole capital: he must have\r\nthe ordinary profits of stock, or he will not engage\r\nin the business: the state of banking must be such\r\nas to hold out to him the prospect of adding, to\r\nthe interest of what remains of his own capital after\r\npaying the expenses of his business, interest upon\r\ncapital deposited with him, in sufficient amount to\r\nmake up, after paying the expenses, the ordinary\r\nprofit which could be derived from his own capital\r\nin any productive employment. This will be accomplished\r\nin one of two ways.\u003c/p\u003e\r\n\r\n\u003cp\u003e1. If the circumstances of society are such as to\r\nfurnish a ready investment of disposable capital; (as\r\nfor instance in London, where the public funds and\r\nother securities, of undoubted stability, and affording\r\ngreat advantages for receiving the interest without\r\ntrouble and realizing the principal without difficulty\r\nwhen required, tempt all persons who have sums of\r\nimportance lying idle, to invest them on their own\r\naccount without the intervention of any middleman;)\r\nthe deposits with bankers consist chiefly of small sums\r\nlikely to be wanted in a very short period for current\r\nexpenses, and the interest on which would seldom be\r\nworth the trouble of calculating it. Bankers, therefore,\r\ndo not allow any interest on their deposits. After\r\npaying the expenses of their business, all the rest of\r\nthe interest they receive is clear gain. But as the\r\ncircumstances of banking, as of all other modes of\r\nemploying capital, will on the average be such as\r\nto afford to a person entering into the business a\r\nprospect of realizing the ordinary, and no more than\r\nthe ordinary, profits upon his own capital; the gains\r\nof each banker by the investment of his deposits, will\r\nnot on the average exceed what is necessary to make\r\nup his gains on his own capital to the ordinary rate.\r\nIt is, of course, competition, which brings about this\r\nlimitation. Whether competition operates by lowering\r\nthe rate of interest, or by dividing the business\r\namong a larger number, it is difficult to decide. Probably\r\nit operates in both ways; but it is by no means\r\nimpossible that it may operate in the latter way\r\nalone: just as an increase in the number of physicians\r\ndoes not lower the fees, though it diminishes an average\r\ncompetitor\u0027s chance of obtaining them.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is not impossible that the disposition of the lenders\r\nmight be such, that they would cease to lend rather\r\nthan acquiesce in any reduction of the rate of interest.\r\nIf so, the arrival of a new lender, in the person of a\r\nbanker of deposit, would not lower the rate of interest\r\nin any considerable degree. A slight fall would take\r\nplace, and with that exception things would be as before,\r\nexcept that the capital in the hands of the banker\r\nwould have put itself into the place of an equal portion\r\nof capital belonging to other lenders, who would\r\nthemselves have engaged in business (\u003ci\u003ee.g.\u003c/i\u003e, by subscribing\r\nto some joint-stock company, or entering into\r\ncommandite). Bankers\u0027 profits would then be limited\r\nto the ordinary rate chiefly by the division of the\r\nbusiness among many banks, so that each on the\r\naverage would receive no more interest on his deposits\r\nthan would suffice to make up the interest on\r\nhis own capital to the ordinary rate of profit after\r\npaying all expenses.\u003c/p\u003e\r\n\r\n\u003cp\u003e2. But if the circumstances of society render it\r\ndifficult and inconvenient for persons who wish to live\r\nupon the interest of their money, to seek an investment\r\nfor themselves, the bankers become agents for\r\nthis specific purpose: large as well as small sums are\r\ndeposited with them, and they allow interest to their\r\ncustomers. Such is the practice of the Scotch banks,\r\nand of most of the country banks in England. Their\r\ncustomers, not living at any of the great seats of\r\nmoney transactions, prefer entrusting their capital to\r\nsomebody on the spot, whom they know, and in whom\r\nthey confide. He invests their money on the best\r\nterms he can, and pays to them such interest as he can\r\nafford to give; retaining a compensation for his own\r\nrisk and trouble. This compensation is fixed by the\r\ncompetition of the market. The rate of interest is no\r\nfurther lowered by this operation, than inasmuch as it\r\nbrings together the lender and the borrower in a safe\r\nand expeditious manner. The lender incurs less risk,\r\nand a larger proportion, therefore, of the holders of\r\ncapital are willing to be lenders.\u003c/p\u003e\r\n\r\n\u003cp\u003eWhen a banker, in addition to his other functions,\r\nis also an issuer of paper money, he gains an advantage\r\nsimilar to that which the London bankers derive from\r\ntheir deposits. To the extent to which he can put\r\nforth his notes, he has so much the more to lend,\r\nwithout himself having to pay any interest for it.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf the paper is convertible, it cannot get into circulation\r\npermanently without displacing specie, which\r\ngoes abroad and brings back an equivalent value.\r\nTo the extent of this value, there is an increase of\r\nthe capital of the country; and the increase accrues\r\nsolely to that part of the capital which is employed in\r\nloans.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf the paper is inconvertible, and instead of displacing\r\nspecie depreciates the currency, the banker by\r\nissuing it levies a tax on every person who has money\r\nin his hands or due to him. He thus appropriates to\r\nhimself a portion of the capital of other people, and a\r\nportion of their revenue. The capital might have\r\nbeen intended to be lent, or it might have been intended\r\nto be employed by the owner: such part of it\r\nas was intended to be employed by the owner now\r\nchanges its destination, and is lent. The revenue\r\nwas either intended to be accumulated, in which case\r\nit had already become capital, or it was intended to\r\nbe spent: in this last case, revenue is converted into\r\ncapital: and thus, strange as it may appear, the depreciation\r\nof the currency, when effected in this way,\r\noperates to a certain extent as a forced accumulation.\r\nThis, indeed, is no palliation of its iniquity. Though\r\nA might have spent his property unproductively, B\r\nought not to be permitted to rob him of it because\r\nB will expend it on productive labour.\u003c/p\u003e\r\n\r\n\u003cp\u003eIn any supposable case, however, the issue of\r\npaper money by bankers increases the proportion of\r\nthe whole capital of the country which is destined to\r\nbe lent. The rate of interest must therefore fall, until\r\nsome of the lenders give over lending, or until the\r\nincrease of borrowers absorbs the whole.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut a fall of the rate of interest, sufficient to\r\nenable the money market to absorb the whole of the\r\npaper-loans, may not be sufficient to reduce the profits\r\nof a lender who lends what costs him nothing, to the\r\nordinary rate of profit upon his capital. Here, therefore,\r\ncompetition will operate chiefly by dividing the\r\nbusiness. The notes of each bank will be confined\r\nwithin so narrow a district, or will divide the supply\r\nof a district with so many other banks, that on the\r\naverage each will receive no larger amount of interest\r\non his notes than will make up the interest on his\r\nown capital to the ordinary rate of profit.\u003c/p\u003e\r\n\r\n\u003cp\u003eEven in this way, however, the competition has\r\nthe effect, to a certain limited extent, of lowering the\r\nrate of interest; for the power of bankers to receive\r\ninterest on more than their capital attracts a greater\r\namount of capital into the banking business than would\r\notherwise flow into it; and this greater capital being\r\nall lent, interest will fall in consequence.\u003c/p\u003e\r\n\r\n\u003cp class=\"NO\"\u003e\u003cb\u003eNOTE:\u003c/b\u003e\u003c/p\u003e\r\n\r\n\u003cp\u003e\u003ca name=\"Footnote_7\"\u003e\u003c/a\u003e\u003ca href=\"#FNanchor7\"\u003e[7]\u003c/a\u003e\u003cdiv class=note\u003e It would be easy to go over in the same manner\r\nany other case. For instance, we may suppose, that, instead\r\nof dispensing with the \u003ci\u003ewhole\u003c/i\u003e of the fixed capital, material, \u0026amp;c,\r\nand taking on labourers in equal number to those by whom\r\nthese were produced, \u003ci\u003ehalf\u003c/i\u003e only of the fixed capital and material is\r\ndispensed with; so that, instead of 60 labourers and a fixed capital\r\nworth 60 quarters of corn, we have 80 labourers and a fixed capital\r\nworth 30. The numerical statement of this case is more intricate\r\nthan that in the text, but the result is not different.\u003c/div\u003e\u003cbr\u003e\r\n\r\n\r\n\r\n\r\n\u003chr style=\"width: 65%;\"\u003e\r\n\u003ca name=\"ESSAY_V\"\u003e\u003c/a\u003e\u003ch2\u003eESSAY V.\u003c/h2\u003e\r\n\r\n\u003ch2\u003eON THE DEFINITION OF POLITICAL ECONOMY; AND ON\r\nTHE METHOD OF INVESTIGATION PROPER TO IT.\u003c/h2\u003e\r\n\u003cbr\u003e\r\n\r\n\u003cp\u003eIt might be imagined, on a superficial view of the\r\nnature and objects of definition, that the definition of\r\na science would occupy the same place in the chronological\r\nwhich it commonly does in the didactic order.\r\nAs a treatise on any science usually commences with\r\nan attempt to express, in a brief formula, what the\r\nscience is, and wherein it differs from other sciences,\r\nso, it might be supposed, did the framing of such a\r\nformula naturally precede the successful cultivation of\r\nthe science.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis, however, is far from having been the case.\r\nThe definition of a science has almost invariably not\r\npreceded, but followed, the creation of the science\r\nitself. Like the wall of a city, it has usually been\r\nerected, not to be a receptacle for such edifices as\r\nmight afterwards spring up, but to circumscribe an\r\naggregation already in existence. Mankind did not\r\nmeasure out the ground for intellectual cultivation\r\nbefore they began to plant it; they did not divide the\r\nfield of human investigation into regular compartments\r\nfirst, and then begin to collect truths for the\r\npurpose of being therein deposited; they proceeded\r\nin a less systematic manner. As discoveries were\r\ngathered in, either one by one, or in groups resulting\r\nfrom the continued prosecution of some uniform course\r\nof inquiry, the truths which were successively brought\r\ninto store cohered and became agglomerated according\r\nto their individual affinities. Without any intentional\r\nclassification, the facts classed themselves. They\r\nbecame associated in the mind, according to their\r\ngeneral and obvious resemblances; and the aggregates\r\nthus formed, having to be frequently spoken of as\r\naggregates, came to be denoted by a common name.\r\nAny body of truths which had thus acquired a collective\r\ndenomination, was called a \u003ci\u003escience\u003c/i\u003e. It was long\r\nbefore this fortuitous classification was felt not to be\r\nsufficiently precise. It was in a more advanced stage\r\nof the progress of knowledge that mankind became\r\nsensible of the advantage of ascertaining whether the\r\nfacts which they had thus grouped together were distinguished\r\nfrom all other facts by any common properties,\r\nand what these were. The first attempts to\r\nanswer this question were commonly very unskilful,\r\nand the consequent definitions extremely imperfect.\u003c/p\u003e\r\n\r\n\u003cp\u003eAnd, in truth, there is scarcely any investigation in\r\nthe whole body of a science requiring so high a degree\r\nof analysis and abstraction, as the inquiry, what the\r\nscience itself is; in other words, what are the properties\r\ncommon to all the truths composing it, and distinguishing\r\nthem from all other truths. Many persons,\r\naccordingly, who are profoundly conversant with the\r\ndetails of a science, would be very much at a loss to\r\nsupply such a definition of the science itself as should\r\nnot be liable to well-grounded logical objections.\r\nFrom this remark, we cannot except the authors of\r\nelementary scientific treatises. The definitions which\r\nthose works furnish of the sciences, for the most part\r\neither do not fit them\u0026mdash;some being too wide, some too\r\nnarrow\u0026mdash;or do not go deep enough into them, but\r\ndefine a science by its accidents, not its essentials; by\r\nsome one of its properties which may, indeed, serve\r\nthe purpose of a distinguishing mark, but which is of\r\ntoo little importance to have ever of itself led mankind\r\nto give the science a name and rank as a separate\r\nobject of study.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe definition of a science must, indeed, be placed\r\namong that class of truths which Dugald Stewart had\r\nin view, when he observed that the first principles of\r\nall sciences belong to the philosophy of the human\r\nmind. The observation is just; and the first principles\r\nof all sciences, including the definitions of them, have\r\nconsequently participated hitherto in the vagueness\r\nand uncertainty which has pervaded that most difficult\r\nand unsettled of all branches of knowledge. If we\r\nopen any book, even of mathematics or natural philosophy,\r\nit is impossible not to be struck with the mistiness\r\nof what we find represented as preliminary and\r\nfundamental notions, and the very insufficient manner\r\nin which the propositions which are palmed upon us\r\nas first principles seem to be made out, contrasted\r\nwith the lucidity of the explanations and the conclusiveness\r\nof the proofs as soon as the writer enters\r\nupon the details of his subject. Whence comes this\r\nanomaly? Why is the admitted certainty of the\r\nresults of those sciences in no way prejudiced by the\r\nwant of solidity in their premises? How happens it\r\nthat a firm superstructure has been erected upon an\r\nunstable foundation? The solution of the paradox \u003ci\u003eis\u003c/i\u003e,\r\nthat what are called first principles, are, in truth,\r\n\u003ci\u003elast\u003c/i\u003e principles. Instead of being the fixed point from\r\nwhence the chain of proof which supports all the rest\r\nof the science hangs suspended, they are themselves\r\nthe remotest link of the chain. Though presented as\r\nif all other truths were to be deduced from them, they\r\nare the truths which are last arrived at; the result of\r\nthe last stage of generalization, or of the last and\r\nsubtlest process of analysis, to which the particular\r\ntruths of the science can be subjected; those particular\r\ntruths having previously been ascertained by\r\nthe evidence proper to their own nature.\u003c/p\u003e\r\n\r\n\u003cp\u003eLike other sciences, Political Economy has remained\r\ndestitute of a definition framed on strictly\r\nlogical principles, or even of, what is more easily to be\r\nhad, a definition exactly co-extensive with the thing\r\ndefined. This has not, perhaps, caused the real bounds\r\nof the science to be, in this country at least, practically\r\nmistaken or overpassed; but it has occasioned\u0026mdash;perhaps\r\nwe should rather say it is connected with\u0026mdash;indefinite,\r\nand often erroneous, conceptions of the\r\nmode in which the science should be studied.\u003c/p\u003e\r\n\r\n\u003cp\u003eWe proceed to verify these assertions by an examination\r\nof the most generally received definitions of\r\nthe science.\u003c/p\u003e\r\n\r\n\u003cp\u003e1. First, as to the vulgar notion of the nature and\r\nobject of Political Economy, we shall not be wide of\r\nthe mark if we state it to be something to this effect:\u0026mdash;That\r\nPolitical Economy is a science which teaches,\r\nor professes to teach, in what manner a nation may\r\nbe made rich. This notion of what constitutes the\r\nscience, is in some degree countenanced by the title\r\nand arrangement which Adam Smith gave to his invaluable\r\nwork. A systematic treatise on Political\r\nEconomy, he chose to call an \u003ci\u003eInquiry into the Nature\r\nand Causes of the Wealth of Nations\u003c/i\u003e; and the topics\r\nare introduced in an order suitable to that view of the\r\npurpose of his book.\u003c/p\u003e\r\n\r\n\u003cp\u003eWith respect to the definition in question, if definition\r\nit can be called which is not found in any set\r\nform of words, but left to be arrived at by a process of\r\nabstraction from a hundred current modes of speaking\r\non the subject; it seems liable to the conclusive objection,\r\nthat it confounds the essentially distinct, though\r\nclosely connected, ideas of \u003ci\u003escience\u003c/i\u003e and \u003ci\u003eart\u003c/i\u003e. These two\r\nideas differ from one another as the understanding\r\ndiffers from the will, or as the indicative mood in\r\ngrammar differs from the imperative. The one deals in\r\nfacts, the other in precepts. Science is a collection of\r\n\u003ci\u003etruths\u003c/i\u003e; art, a body of \u003ci\u003erules\u003c/i\u003e, or directions for conduct.\r\nThe language of science is, This is, or, This is not;\r\nThis does, or does not, happen. The language of art\r\nis, Do this; Avoid that. Science takes cognizance of\r\na \u003ci\u003ephenomenon\u003c/i\u003e, and endeavours to discover its \u003ci\u003elaw\u003c/i\u003e; art\r\nproposes to itself an \u003ci\u003eend\u003c/i\u003e, and looks out for \u003ci\u003emeans\u003c/i\u003e to\r\neffect it.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf, therefore, Political Economy be a science, it\r\ncannot be a collection of practical rules; though,\r\nunless it be altogether a useless science, practical\r\nrules must be capable of being founded upon it.\r\nThe science of mechanics, a branch of natural philosophy,\r\nlays down the laws of motion, and the properties\r\nof what are called the mechanical powers. The art of\r\npractical mechanics teaches how we may avail ourselves\r\nof those laws and properties, to increase our\r\ncommand over external nature. An art would not be\r\nan art, unless it were founded upon a scientific knowledge\r\nof the properties of the subject-matter: without\r\nthis, it would not be philosophy, but empiricism;\r\n[Greek: empeiria,] not [Greek: technae,] in Plato\u0027s sense. Rules, therefore,\r\nfor making a nation increase in wealth, are not a\r\nscience, but they are the results of science. Political\r\nEconomy does not of itself instruct how to make a\r\nnation rich; but whoever would be qualified to judge\r\nof the means of making a nation rich, must first be a\r\npolitical economist.\u003c/p\u003e\r\n\r\n\u003cp\u003e2. The definition most generally received among\r\ninstructed persons, and laid down in the commencement\r\nof most of the professed treatises on the subject,\r\nis to the following effect:\u0026mdash;That Political Economy\r\ninforms us of the laws which regulate the production,\r\ndistribution, and consumption of wealth. To this\r\ndefinition is frequently appended a familiar illustration.\r\nPolitical Economy, it is said, is to the state,\r\nwhat domestic economy is to the family.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis definition is free from the fault which we\r\npointed out in the former one. It distinctly takes\r\nnotice that Political Economy is a science and not an\r\nart; that it is conversant with laws of nature, not with\r\nmaxims of conduct, and teaches us how things take\r\nplace of themselves, not in what manner it is advisable\r\nfor us to shape them, in order to attain some particular\r\nend.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut though the definition is, with regard to this\r\nparticular point, unobjectionable, so much can scarcely\r\nbe said for the accompanying illustration; which\r\nrather sends back the mind to the current loose\r\nnotion of Political Economy already disposed of.\r\nPolitical Economy is really, and is stated in the\r\ndefinition to be, a science: but domestic economy, so\r\nfar as it is capable of being reduced to principles, is\r\nan art. It consists of rules, or maxims of prudence,\r\nfor keeping the family regularly supplied with what\r\nits wants require, and securing, with any given amount\r\nof means, the greatest possible quantity of physical\r\ncomfort and enjoyment. Undoubtedly the beneficial\r\n\u003ci\u003eresult\u003c/i\u003e, the great practical \u003ci\u003eapplication\u003c/i\u003e of Political Economy,\r\nwould be to accomplish for a nation something\r\nlike what the most perfect domestic economy accomplishes\r\nfor a single household: but supposing this\r\npurpose realised, there would be the same difference\r\nbetween the rules by which it might be effected, and\r\nPolitical Economy, which there is between the art of\r\ngunnery and the theory of projectiles, or between the\r\nrules of mathematical land-surveying and the science\r\nof trigonometry.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe definition, though not liable to the same objection\r\nas the illustration which is annexed to it, is\r\nitself far from unexceptionable. To neither of them,\r\nconsidered as standing at the head of a treatise, have\r\nwe much to object. At a very early stage in the\r\nstudy of the science, anything more accurate would be\r\nuseless, and therefore pedantic. In a merely initiatory\r\ndefinition, scientific precision is not required: the\r\nobject is, to insinuate into the learner\u0027s mind, it is\r\nscarcely material by what means, some general preconception\r\nof what are the uses of the pursuit, and what\r\nthe series of topics through which he is about to travel.\r\nAs a mere anticipation or \u003ci\u003e\u0026eacute;bauche\u003c/i\u003e of a definition, intended\r\nto indicate to a learner as much as he is able\r\nto understand before he begins, of the nature of what\r\nis about to be taught to him, we do not quarrel with\r\nthe received formula. But if it claims to be admitted\r\nas that complete \u003ci\u003edefinitio\u003c/i\u003e or boundary-line, which results\r\nfrom a thorough exploring of the whole extent\r\nof the subject, and is intended to mark the exact place\r\nof Political Economy among the sciences, its pretension\r\ncannot be allowed.\u003c/p\u003e\r\n\r\n\u003cp\u003e\u0026quot;The science of the laws which regulate the production,\r\ndistribution, and consumption of wealth.\u0026quot; The\r\nterm wealth is surrounded by a haze of floating and\r\nvapoury associations, which will let nothing that is\r\nseen through them be shewn distinctly. Let us supply\r\nits place by a periphrasis. Wealth is defined, all objects\r\nuseful or agreeable to mankind, except such as\r\ncan be obtained in indefinite quantity without labour.\r\nInstead of all objects, some authorities say, all material\r\nobjects: the distinction is of no moment for the\r\npresent purpose.\u003c/p\u003e\r\n\r\n\u003cp\u003eTo confine ourselves to production: If the laws of\r\nthe production of all objects, or even of all material\r\nobjects, which are useful or agreeable to mankind, were\r\ncomprised in Political Economy, it would be difficult\r\nto say where the science would end: at the least, all\r\nor nearly all physical knowledge would be included in\r\nit. Corn and cattle are material objects, in a high\r\ndegree useful to mankind. The laws of the production\r\nof the one include the principles of agriculture; the\r\nproduction of the other is the subject of the art of\r\ncattle-breeding, which, in so far as really an art, must\r\nbe built upon the science of physiology. The laws of\r\nthe production of manufactured articles involve the\r\nwhole of chemistry and the whole of mechanics. The\r\nlaws of the production of the wealth which is extracted\r\nfrom the bowels of the earth, cannot be set\r\nforth without taking in a large part of geology.\u003c/p\u003e\r\n\r\n\u003cp\u003eWhen a definition so manifestly surpasses in extent\r\nwhat it professes to define, we must suppose that\r\nit is not meant to be interpreted literally, though the\r\nlimitations with which it is to be understood are not\r\nstated.\u003c/p\u003e\r\n\r\n\u003cp\u003ePerhaps it will be said, that Political Economy is\r\nconversant with such only of the laws of the production\r\nof wealth as are applicable to \u003ci\u003eall\u003c/i\u003e kinds of wealth:\r\nthose which relate to the details of particular trades\r\nor employments forming the subject of other and\r\ntotally distinct sciences.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf, however, there were no more in the distinction\r\nbetween Political Economy and physical science than\r\nthis, the distinction, we may venture to affirm, would\r\nnever have been made. No similar division exists in\r\nany other department of knowledge. We do not\r\nbreak up zoology or mineralogy into two parts; one\r\ntreating of the properties common to all animals, or to\r\nall minerals; another conversant with the properties\r\npeculiar to each particular species of animals or minerals.\r\nThe reason is obvious; there is no distinction\r\n\u003ci\u003ein kind\u003c/i\u003e between the general laws of animal or of\r\nmineral nature and the peculiar properties of particular\r\nspecies. There is as close an analogy between\r\nthe general laws and the particular ones, as there is\r\nbetween one of the general laws and another: most\r\ncommonly, indeed, the particular laws are but the\r\ncomplex result of a plurality of general laws modifying\r\neach other. A separation, therefore, between the\r\ngeneral laws and the particular ones, merely because\r\nthe former are general and the latter particular, would\r\nrun counter both to the strongest motives of convenience\r\nand to the natural tendencies of the mind.\r\nIf the case is different with the laws of the production\r\nof wealth, it must be because, in this case, the general\r\nlaws differ in kind from the particular ones. But if\r\nso, the difference in kind is the radical distinction,\r\nand we should find out what that is, and found our\r\ndefinition upon it.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut, further, the recognised boundaries which\r\nseparate the field of Political Economy from that of\r\nphysical science, by no means correspond with the\r\ndistinction between the truths which concern all kinds\r\nof wealth and those which relate only to some kinds.\r\nThe three laws of motion, and the law of gravitation,\r\nare common, as far as human observation has yet extended,\r\nto all matter; and these, therefore, as being\r\namong the laws of the production of all wealth, should\r\nform part of Political Economy. There are hardly\r\nany of the processes of industry which do not partly\r\ndepend upon the properties of the lever; but it would\r\nbe a strange classification which included those properties\r\namong the truths of Political Economy. Again,\r\nthe latter science has many inquiries altogether as\r\nspecial, and relating as exclusively to particular sorts\r\nof material objects, as any of the branches of physical\r\nscience. The investigation of some of the circumstances\r\nwhich regulate the price of corn, has as little\r\nto do with the laws common to the production of all\r\nwealth, as any part of the knowledge of the agriculturist.\r\nThe inquiry into the rent of mines or fisheries,\r\nor into the value of the precious metals, elicits truths\r\nwhich have immediate reference to the production\r\nsolely of a peculiar kind of wealth; yet these are\r\nadmitted to be correctly placed in the science of\r\nPolitical Economy.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe real distinction between Political Economy\r\nand physical science must be sought in something\r\ndeeper than the nature of the subject-matter; which,\r\nindeed, is for the most part common to both. Political\r\nEconomy, and the scientific grounds of all the\r\nuseful arts, have in truth one and the same subject-matter;\r\nnamely, the objects which conduce to man\u0027s\r\nconvenience and enjoyment: but they are, nevertheless,\r\nperfectly distinct branches of knowledge.\u003c/p\u003e\r\n\r\n\u003cp\u003e3. If we contemplate the whole field of human\r\nknowledge, attained or attainable, we find that it\r\nseparates itself obviously, and as it were spontaneously,\r\ninto two divisions, which stand so strikingly in\r\nopposition and contradistinction to one another, that\r\nin all classifications of our knowledge they have been\r\nkept apart. These are, \u003ci\u003ephysical\u003c/i\u003e science, and \u003ci\u003emoral\u003c/i\u003e or\r\npsychological science. The difference between these\r\ntwo departments of our knowledge does not reside in\r\nthe subject-matter with which they are conversant:\r\nfor although, of the simplest and most elementary\r\nparts of each, it may be said, with an approach to\r\ntruth, that they are concerned with different subject-matters\u0026mdash;namely,\r\nthe one with the human mind, the\r\nother with all things whatever except the mind; this\r\ndistinction does not hold between the higher regions\r\nof the two. Take the science of politics, for instance,\r\nor that of law: who will say that these are physical\r\nsciences? and yet is it not obvious that they are conversant\r\nfully as much with matter as with mind?\r\nTake, again, the theory of music, of painting, of any\r\nother of the fine arts, and who will venture to pronounce\r\nthat the facts they are conversant with belong\r\neither wholly to the class of matter, or wholly to that\r\nof mind?\u003c/p\u003e\r\n\r\n\u003cp\u003eThe following seems to be the \u003ci\u003erationale\u003c/i\u003e of the distinction\r\nbetween physical and moral science.\u003c/p\u003e\r\n\r\n\u003cp\u003eIn all the intercourse of man with nature, whether\r\nwe consider him as acting upon it, or as receiving impressions\r\nfrom it, the effect or phenomenon depends\r\nupon causes of two kinds: the properties of the object\r\nacting, and those of the object acted upon. Everything\r\nwhich can possibly happen in which man and\r\nexternal things, are jointly concerned, results from the\r\njoint operation of a law or laws of matter, and a law\r\nor laws of the human mind. Thus the production of\r\ncorn by human labour is the result of a law of mind,\r\nand many laws of matter. The laws of matter are\r\nthose properties of the soil and of vegetable life which\r\ncause the seed to germinate in the ground, and those\r\nproperties of the human body which render food\r\nnecessary to its support. The law of mind is, that\r\nman desires to possess subsistence, and consequently\r\nwills the necessary means of procuring it.\u003c/p\u003e\r\n\r\n\u003cp\u003eLaws of mind and laws of matter are so dissimilar\r\nin their nature, that it would be contrary to all principles\r\nof rational arrangement to mix them up as part\r\nof the same study. In all scientific methods, therefore,\r\nthey are placed apart. Any compound effect or\r\nphenomenon which depends both on the properties of\r\nmatter and on those of mind, may thus become the\r\nsubject of two completely distinct sciences, or branches\r\nof science; one, treating of the phenomenon in so far\r\nas it depends upon the laws of matter only; the other\r\ntreating of it in so far as it depends upon the laws of\r\nmind.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe physical sciences are those which treat of the\r\nlaws of matter, and of all complex phenomena in so\r\nfar as dependent upon the laws of matter. The mental\r\nor moral sciences are those which treat of the laws of\r\nmind, and of all complex phenomena in so far as\r\ndependent upon the laws of mind.\u003c/p\u003e\r\n\r\n\u003cp\u003eMost of the moral sciences presuppose physical\r\nscience; but few of the physical sciences presuppose\r\nmoral science. The reason is obvious. There are\r\nmany phenomena (an earthquake, for example, or the\r\nmotions of the planets) which depend upon the laws\r\nof matter exclusively; and have nothing whatever to\r\ndo with the laws of mind. Many, therefore, of the\r\nphysical sciences may be treated of without any reference\r\nto mind, and as if the mind existed as a recipient\r\nof knowledge only, not as a cause producing effects.\r\nBut there are no phenomena which depend exclusively\r\nupon the laws of mind; even the phenomena of the\r\nmind itself being partially dependent upon the physiological\r\nlaws of the body. All the mental sciences,\r\ntherefore, not excepting the pure science of mind,\r\nmust take account of a great variety of physical\r\ntruths; and (as physical science is commonly and very\r\nproperly studied first) may be said to presuppose them,\r\ntaking up the complex phenomena where physical\r\nscience leaves them.\u003c/p\u003e\r\n\r\n\u003cp\u003eNow this, it will be found, is a precise statement\r\nof the relation in which Political Economy stands to\r\nthe various sciences which are tributary to the arts of\r\nproduction.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe laws of the production of the objects which\r\nconstitute wealth, are the subject-matter both of\r\nPolitical Economy and of almost all the physical\r\nsciences. Such, however, of those laws as are purely\r\nlaws of matter, belong to physical science, and to that\r\nexclusively. Such of them as are laws of the human\r\nmind, and no others, belong to Political Economy,\r\nwhich finally sums up the result of both combined.\u003c/p\u003e\r\n\r\n\u003cp\u003ePolitical Economy, therefore, presupposes all the\r\nphysical sciences; it takes for granted all such of the\r\ntruths of those sciences as are concerned in the production\r\nof the objects demanded by the wants of\r\nmankind; or at least it takes for granted that the\r\nphysical part of the process takes place somehow. It\r\nthen inquires what are the phenomena of \u003ci\u003emind\u003c/i\u003e which\r\nare concerned in the production and distribution \u003ca name=\"FNanchor8\"\u003e\u003c/a\u003e\u003ca href=\"#Footnote_8\"\u003e\u003csup\u003e[8]\u003c/sup\u003e\u003c/a\u003e of\r\nthose same objects; it borrows from the pure science\r\nof mind the laws of those phenomena, and inquires\r\nwhat effects follow from these mental laws, acting in\r\nconcurrence with those physical one. \u003ca name=\"FNanchor9\"\u003e\u003c/a\u003e\u003ca href=\"#Footnote_9\"\u003e\u003csup\u003e[9]\u003c/sup\u003e\u003c/a\u003e\u003c/p\u003e\r\n\r\n\u003cp\u003eFrom the above considerations the following seems\r\nto come out as the correct and complete definition of\r\nPolitical Economy:\u0026mdash;\u0026quot;The science which treats of the\r\nproduction and distribution of wealth, so far as they\r\ndepend upon the laws of human nature.\u0026quot; Or thus\u0026mdash;science\r\nrelating to the moral or psychological\r\nlaws of the production and distribution of wealth.\u0026quot;\u003c/p\u003e\r\n\r\n\u003cp\u003eFor popular use this definition is amply sufficient,\r\nbut it still falls short of the complete accuracy required\r\nfor the purposes of the philosopher. Political\r\nEconomy does not treat of the production and distribution\r\nof wealth in all states of mankind, but only\r\nin what is termed the social state; nor so far as they\r\ndepend upon the laws of human nature, but only so\r\nfar as they depend upon a certain portion of those\r\nlaws. This, at least, is the view which must be taken\r\nof Political Economy, if we mean it to find any place\r\nin an encyclopedical division of the field of science.\r\nOn any other view, it either is not science at all, or\r\nit is several sciences. This will appear clearly, if, on\r\nthe one hand, we take a general survey of the moral\r\nsciences, with a view to assign the exact place of\r\nPolitical Economy among them; while, on the other,\r\nwe consider attentively the nature of the methods or\r\nprocesses by which the truths which are the object of\r\nthose sciences are arrived at.\u003c/p\u003e\r\n\r\n\u003cp\u003eMan, who, considered as a being having a moral\r\nor mental nature, is the subject-matter of all the\r\nmoral sciences, may, with reference to that part of his\r\nnature, form the subject of philosophical inquiry under\r\nseveral distinct hypotheses. We may inquire what\r\nbelongs to man considered individually, and as if no\r\nhuman being existed besides himself; we may next\r\nconsider him as coming into contact with other individuals;\r\nand finally, as living in a state of \u003ci\u003esociety\u003c/i\u003e,\r\nthat is, forming part of a body or aggregation of\r\nhuman beings, systematically co-operating for common\r\npurposes. Of this last state, political government,\r\nor subjection to a common superior, is an ordinary\r\ningredient, but forms no necessary part of the conception,\r\nand, with respect to our present purpose,\r\nneeds not be further adverted to.\u003c/p\u003e\r\n\r\n\u003cp\u003eThose laws or properties of human nature which\r\nappertain to man as a mere individual, and do not\r\npresuppose, as a necessary condition, the existence of\r\nother individuals (except, perhaps, as mere instruments\r\nor means), form a part of the subject of pure\r\nmental philosophy. They comprise all the laws of the\r\nmere intellect, and those of the purely self-regarding\r\ndesires.\u003c/p\u003e\r\n\r\n\u003cp\u003eThose laws of human nature which relate to the\r\nfeelings called forth in a human being by other individual\r\nhuman or intelligent beings, as such; namely,\r\nthe \u003ci\u003eaffections\u003c/i\u003e, the \u003ci\u003econscience\u003c/i\u003e, or feeling of duty, and the\r\nlove of \u003ci\u003eapprobation\u003c/i\u003e; and to the conduct of man, so\r\nfar as it depends upon, or has relation to, these parts\r\nof his nature\u0026mdash;form the subject of another portion of\r\npure mental philosophy, namely, that portion of it on\r\nwhich \u003ci\u003emorals\u003c/i\u003e, or \u003ci\u003eethics\u003c/i\u003e, are founded. For morality\r\nitself is not a science, but an art; not truths, but\r\nrules. The truths on which the rules are founded are\r\ndrawn (as is the case in all arts) from a variety of\r\nsciences; but the principal of them, and those which\r\nare most nearly peculiar to this particular art, belong\r\nto a branch of the science of mind.\u003c/p\u003e\r\n\r\n\u003cp\u003eFinally, there are certain principles of human\r\nnature which are peculiarly connected with the ideas\r\nand feelings generated in man by living in a state of\r\n\u003ci\u003esociety\u003c/i\u003e, that is, by forming part of a union or aggregation\r\nof human beings for a common purpose or\r\npurposes. Few, indeed, of the elementary laws of the\r\nhuman mind are peculiar to this state, almost all\r\nbeing called into action in the two other states. But\r\nthose simple laws of human nature, operating in that\r\nwider field, give rise to results of a sufficiently universal\r\ncharacter, and even (when compared with the\r\nstill more complex phenomena of which they are the\r\ndetermining causes) sufficiently simple, to admit of\r\nbeing called, though in a somewhat looser sense, \u003ci\u003elaws\u003c/i\u003e\r\nof society, or laws of human nature in the social\r\nstate. These laws, or general truths, form the subject\r\nof a branch of science which may be aptly designated\r\nfrom the title of \u003ci\u003esocial economy\u003c/i\u003e; somewhat less happily\r\nby that of \u003ci\u003especulative politics\u003c/i\u003e, or the \u003ci\u003escience\u003c/i\u003e of politics,\r\nas contradistinguished from the art. This science\r\nstands in the same relation to the social, as anatomy\r\nand physiology to the physical body. It shows by\r\nwhat principles of his nature man is induced to enter\r\ninto a state of society; how this feature in his position\r\nacts upon his interests and feelings, and through them\r\nupon his conduct; how the association tends progressively\r\nto become closer, and the co-operation extends\r\nitself to more and more purposes; what those purposes\r\nare, and what the varieties of means most generally\r\nadopted for furthering them; what are the various\r\nrelations which establish themselves among human\r\nbeings as the ordinary consequence of the social\r\nunion; what those which are different in different\r\nstates of society; in what historical order those states\r\ntend to succeed one another; and what are the effects\r\nof each upon the conduct and character of man.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis branch of science, whether we prefer to call\r\nit social economy, speculative politics, or the natural\r\nhistory of society, presupposes the whole science of\r\nthe nature of the individual mind; since all the laws\r\nof which the latter science takes cognizance are\r\nbrought into play in a state of society, and the truths\r\nof the social science are but statements of the manner\r\nin which those simple laws take effect in complicated\r\ncircumstances. Pure mental philosophy, therefore, is\r\nan essential part, or preliminary, of political philosophy.\r\nThe science of social economy embraces every\r\npart of man\u0027s nature, in so far as influencing the conduct\r\nor condition of man in society; and therefore\r\nmay it be termed speculative politics, as being the\r\nscientific foundation of practical politics, or the art\r\nof government, of which the art of legislation is a\r\npart \u003ca name=\"FNanchor10\"\u003e\u003c/a\u003e\u003ca href=\"#Footnote_10\"\u003e\u003csup\u003e[10]\u003c/sup\u003e\u003c/a\u003e.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is to \u003ci\u003ethis\u003c/i\u003e important division of the field of\r\nscience that one of the writers who have most correctly\r\nconceived and copiously illustrated its nature\r\nand limits,\u0026mdash;we mean M. Say,\u0026mdash;has chosen to give\r\nthe name Political Economy. And, indeed, this large\r\nextension of the signification of that term is countenanced\r\nby its etymology. But the words \u0026quot;political\r\neconomy\u0026quot; have long ceased to have so large a meaning.\r\nEvery writer is entitled to use the words which are\r\nhis tools in the manner which he judges most conducive\r\nto the general purposes of the exposition of\r\ntruth; but he exercises this discretion under liability\r\nto criticism: and M. Say seems to have done in this\r\ninstance, what should never be done without strong\r\nreasons; to have altered the meaning of a name\r\nwhich was appropriated to a particular purpose (and\r\nfor which, therefore, a substitute must be provided),\r\nin order to transfer it to an object for which it was\r\neasy to find a more characteristic denomination.\u003c/p\u003e\r\n\r\n\u003cp\u003eWhat is now commonly understood by the term\r\n\u0026quot;Political Economy\u0026quot; is not the science of speculative\r\npolitics, but a branch of that science. It does not\r\ntreat of the whole of man\u0027s nature as modified by the\r\nsocial state, nor of the whole conduct of man in\r\nsociety. It is concerned with him solely as a being\r\nwho desires to possess wealth, and who is capable\r\nof judging of the comparative efficacy of means for\r\nobtaining that end. It predicts only such of the\r\nphenomena of the social state as take place in consequence\r\nof the pursuit of wealth. It makes entire\r\nabstraction of every other human passion or motive;\r\nexcept those which may be regarded as perpetually\r\nantagonizing principles to the desire of wealth, namely,\r\naversion to labour, and desire of the present enjoyment\r\nof costly indulgences. These it takes, to a\r\ncertain extent, into its calculations, because these\r\ndo not merely, like other desires, occasionally conflict\r\nwith the pursuit of wealth, but accompany it\r\nalways as a drag, or impediment, and are therefore\r\ninseparably mixed up in the consideration of it. Political\r\nEconomy considers mankind as occupied solely\r\nin acquiring and consuming wealth; and aims at showing\r\nwhat is the course of action into which mankind,\r\nliving in a state of society, would be impelled, if that\r\nmotive, except in the degree in which it is checked by\r\nthe two perpetual counter-motives above adverted to,\r\nwere absolute ruler of all their actions. Under the\r\ninfluence of this desire, it shows mankind accumulating\r\nwealth, and employing that wealth in the production\r\nof other wealth; sanctioning by mutual agreement\r\nthe institution of property; establishing laws to\r\nprevent individuals from encroaching upon the property\r\nof others by force or fraud; adopting various\r\ncontrivances for increasing the productiveness of their\r\nlabour; settling the division of the produce by agreement,\r\nunder the influence of competition (competition\r\nitself being governed by certain laws, which laws are\r\ntherefore the ultimate regulators of the division of the\r\nproduce); and employing certain expedients (as money,\r\ncredit, \u0026amp;c.) to facilitate the distribution. All these\r\noperations, though many of them are really the result\r\nof a plurality of motives, are considered by Political\r\nEconomy as flowing solely from the desire of wealth.\r\nThe science then proceeds to investigate the laws\r\nwhich govern these several operations, under the supposition\r\nthat man is a being who is determined, by\r\nthe necessity of his nature, to prefer a greater portion\r\nof wealth to a smaller in all cases, without any other\r\nexception than that constituted by the two counter-motives\r\nalready specified. Not that any political\r\neconomist was ever so absurd as to suppose that\r\nmankind are really thus constituted, but because this\r\nis the mode in which science must necessarily proceed.\r\nWhen an effect depends upon a concurrence of causes,\r\nthose causes must be studied one at a time, and their\r\nlaws separately investigated, if we wish, through the\r\ncauses, to obtain the power of either predicting or\r\ncontrolling the effect; since the law of the effect is\r\ncompounded of the laws of all the causes which determine\r\nit. The law of the centripetal and that of the\r\ntangential force must have been known before the\r\nmotions of the earth and planets could be explained,\r\nor many of them predicted. The same is the case\r\nwith the conduct of man in society. In order to\r\njudge how he will act under the variety of desires and\r\naversions which are concurrently operating upon him,\r\nwe must know how he would act under the exclusive\r\ninfluence of each one in particular. There is, perhaps,\r\nno action of a man\u0027s life in which he is neither under\r\nthe immediate nor under the remote influence of any\r\nimpulse but the mere desire of wealth. With respect\r\nto those parts of human conduct of which wealth is\r\nnot even the principal object, to these Political Economy\r\ndoes not pretend that its conclusions are applicable.\r\nBut there are also certain departments of\r\nhuman affairs, in which the acquisition of wealth is\r\nthe main and acknowledged end. It is only of these\r\nthat Political Economy takes notice. The manner in\r\nwhich it necessarily proceeds is that of treating the\r\nmain and acknowledged end as if it were the sole end;\r\nwhich, of all hypotheses equally simple, is the nearest\r\nto the truth. The political economist inquires, what\r\nare the actions which would be produced by this\r\ndesire, if, within the departments in question, it were\r\nunimpeded by any other. In this way a nearer approximation\r\nis obtained than would otherwise be practicable,\r\nto the real order of human affairs in those\r\ndepartments. This approximation is then to be corrected\r\nby making proper allowance for the effects of\r\nany impulses of a different description, which can be\r\nshown to interfere with the result in any particular\r\ncase. Only in a few of the most striking cases (such\r\nas the important one of the principle of population)\r\nare these corrections interpolated into the expositions\r\nof Political Economy itself; the strictness of purely\r\nscientific arrangement being thereby somewhat departed\r\nfrom, for the sake of practical utility. So far\r\nas it is known, or may be presumed, that the conduct\r\nof mankind in the pursuit of wealth is under the collateral\r\ninfluence of any other of the properties of\r\nour nature than the desire of obtaining the greatest\r\nquantity of wealth with the least labour and self-denial,\r\nthe conclusions of Political Economy will so\r\nfar fail of being applicable to the explanation or prediction\r\nof real events, until they are modified by a\r\ncorrect allowance for the degree of influence exercised\r\nby the other cause.\u003c/p\u003e\r\n\r\n\u003cp\u003ePolitical Economy, then, may be defined as follows;\r\nand the definition seems to be complete:\u0026mdash;\u003c/p\u003e\r\n\r\n\u003cp\u003e\u0026quot;The science which traces the laws of such of the\r\nphenomena of society as arise from the combined\r\noperations of mankind for the production of wealth,\r\nin so far as those phenomena are not modified by the\r\npursuit of any other object.\u0026quot;\u003c/p\u003e\r\n\r\n\u003cp\u003eBut while this is a correct definition of Political\r\nEconomy as a portion of the field of science, the\r\ndidactic writer on the subject will naturally combine\r\nin his exposition, with the truths of the pure science,\r\nas many of the practical modifications as will, in his\r\nestimation, be most conducive to the usefulness of his\r\nwork.\u003c/p\u003e\r\n\r\n\u003chr style=\"width: 45%;\"\u003e\r\n\r\n\u003cp\u003eThe above attempt to frame a stricter definition\r\nof the science than what are commonly received as\r\nsuch, may be thought to be of little use; or, at best,\r\nto be chiefly useful in a general survey and classification\r\nof the sciences, rather than as conducing to the\r\nmore successful pursuit of the particular science in\r\nquestion. We think otherwise, and for this reason;\r\nthat, with the consideration of the definition of a\r\nscience, is inseparably connected that of the \u003ci\u003ephilosophic\r\nmethod\u003c/i\u003e of the science; the nature of the process by\r\nwhich its investigations are to be carried on, its\r\ntruths to be arrived at.\u003c/p\u003e\r\n\r\n\u003cp\u003eNow, in whatever science there are systematic\r\ndifferences of opinion\u0026mdash;which is as much as to say,\r\nin all the moral or mental sciences, and in Political\r\nEconomy among the rest; in whatever science there\r\nexist, among those who have attended to the subject,\r\nwhat are commonly called differences of principle,\r\nas distinguished from differences of matter-of-fact or\r\ndetail,\u0026mdash;the cause will be found to be, a difference in\r\ntheir conceptions of the philosophic method of the\r\nscience. The parties who differ are guided, either\r\nknowingly or unconsciously, by different views concerning\r\nthe nature of the evidence appropriate to the\r\nsubject. They differ not solely in what they believe\r\nthemselves to see, but in the quarter whence they\r\nobtained the light by which they think they see it.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe most universal of the forms in which this difference\r\nof method is accustomed to present itself, is the\r\nancient feud between what is called theory, and what\r\nis called practice or experience. There are, on social\r\nand political questions, two kinds of reasoners: there\r\nis one portion who term themselves practical men, and\r\ncall the others theorists; a title which the latter do not\r\nreject, though they by no means recognise it as peculiar\r\nto them. The distinction between the two is a very\r\nbroad one, though it is one of which the language employed\r\nis a most incorrect exponent. It has been again\r\nand again demonstrated, that those who are accused of\r\ndespising facts and disregarding experience build and\r\nprofess to build wholly upon facts and experience; while\r\nthose who disavow theory cannot make one step without\r\ntheorizing. But, although both classes of inquirers\r\ndo nothing but theorize, and both of them consult no\r\nother guide than experience, there is this difference\r\nbetween them, and a most important difference it is:\r\nthat those who are called practical men require \u003ci\u003especific\u003c/i\u003e\r\nexperience, and argue wholly \u003ci\u003eupwards\u003c/i\u003e from particular\r\nfacts to a general conclusion; while those who are\r\ncalled theorists aim at embracing a wider field of experience,\r\nand, having argued upwards from particular\r\nfacts to a general principle including a much wider\r\nrange than that of the question under discussion, then\r\nargue \u003ci\u003edownwards\u003c/i\u003e from that general principle to a variety\r\nof specific conclusions.\u003c/p\u003e\r\n\r\n\u003cp\u003eSuppose, for example, that the question were, whether\r\nabsolute kings were likely to employ the powers\r\nof government for the welfare or for the oppression of\r\ntheir subjects. The practicals would endeavour to\r\ndetermine this question by a direct induction from the\r\nconduct of particular despotic monarchs, as testified\r\nby history. The theorists would refer the question\r\nto be decided by the test not solely of our experience\r\nof kings, but of our experience of men. They would\r\ncontend that an observation of the tendencies which\r\nhuman nature has manifested in the variety of situations\r\nin which human beings have been placed, and\r\nespecially observation of what passes in our own minds,\r\nwarrants us in inferring that a human being in the\r\nsituation of a despotic king will make a bad use of\r\npower; and that this conclusion would lose nothing of\r\nits certainty even if absolute kings had never existed,\r\nor if history furnished us with no information of the\r\nmanner in which they had conducted themselves.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe first of these methods is a method of induction,\r\nmerely; the last a mixed method of induction and\r\nratiocination. The first may be called the method \u003ci\u003e\u0026agrave;\r\nposteriori;\u003c/i\u003e the latter, the method \u003ci\u003e\u0026agrave; priori\u003c/i\u003e. We are\r\naware that this last expression is sometimes used to\r\ncharacterize a supposed mode of philosophizing, which\r\ndoes not profess to be founded upon experience at all.\r\nBut we are not acquainted with any mode of philosophizing,\r\non political subjects at least, to which such a\r\ndescription is fairly applicable. By the method \u003ci\u003e\u0026agrave; posteriori\u003c/i\u003e\r\nwe mean that which requires, as the basis of its\r\nconclusions, not experience merely, but specific experience.\r\nBy the method \u003ci\u003e\u0026agrave; priori\u003c/i\u003e we mean (what has\r\ncommonly been meant) reasoning from an assumed\r\nhypothesis; which is not a practice confined to mathematics,\r\nbut is of the essence of all science which admits\r\nof general reasoning at all. To verify the hypothesis\r\nitself \u003ci\u003e\u0026agrave; posteriori\u003c/i\u003e, that is, to examine whether the\r\nfacts of any actual case are in accordance with it, is no\r\npart of the business of science at all, but of the \u003ci\u003eapplication\u003c/i\u003e\r\nof science.\u003c/p\u003e\r\n\r\n\u003cp\u003eIn the definition which we have attempted to frame\r\nof the science of Political Economy, we have characterized\r\nit as essentially an \u003ci\u003eabstract\u003c/i\u003e science, and its\r\nmethod as the method \u003ci\u003e\u0026agrave; priori\u003c/i\u003e. Such is undoubtedly\r\nits character as it has been understood and taught by\r\nall its most distinguished teachers. It reasons, and, as\r\nwe contend, must necessarily reason, from assumptions,\r\nnot from facts. It is built upon hypotheses, strictly\r\nanalogous to those which, under the name of definitions,\r\nare the foundation of the other abstract sciences.\r\nGeometry presupposes an arbitrary definition of a line,\r\n\u0026quot;that which has length but not breadth.\u0026quot; Just in the\r\nsame manner does Political Economy presuppose an\r\narbitrary definition of man, as a being who invariably\r\ndoes that by which he may obtain the greatest amount\r\nof necessaries, conveniences, and luxuries, with the\r\nsmallest quantity of labour and physical self-denial\r\nwith which they can be obtained in the existing state\r\nof knowledge. It is true that this definition of man\r\nis not formally prefixed to any work on Political Economy,\r\nas the definition of a line is prefixed to Euclid\u0027s\r\nElements; and in proportion as by being so prefixed it\r\nwould be less in danger of being forgotten, we may see\r\nground for regret that this is not done. It is proper\r\nthat what is assumed in every particular case, should\r\nonce for all be brought before the mind in its full\r\nextent, by being somewhere formally stated as a general\r\nmaxim. Now, no one who is conversant with systematic\r\ntreatises on Political Economy will question,\r\nthat whenever a political economist has shown that, by\r\nacting in a particular manner, a labourer may obviously\r\nobtain higher wages, a capitalist larger profits, or a\r\nlandlord higher rent, he concludes, as a matter of\r\ncourse, that they will certainly act in that manner.\r\nPolitical Economy, therefore, reasons from \u003ci\u003eassumed\u003c/i\u003e\r\npremises\u0026mdash;from premises which might be totally without\r\nfoundation in fact, and which are not pretended to\r\nbe universally in accordance with it. The conclusions\r\nof Political Economy, consequently, like those of geometry,\r\nare only true, as the common phrase is, \u003ci\u003ein the\r\nabstract\u003c/i\u003e; that is, they are only true under certain suppositions,\r\nin which none but general causes\u0026mdash;causes\r\ncommon to the \u003ci\u003ewhole class\u003c/i\u003e of cases under consideration\u0026mdash;are\r\ntaken into the account.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis ought not to be denied by the political economist.\r\nIf he deny it, then, and then only, he places\r\nhimself in the wrong. The \u003ci\u003e\u0026agrave; priori\u003c/i\u003e method which is\r\nlaid to his charge, as if his employment of it proved his\r\nwhole science to be worthless, is, as we shall presently\r\nshow, the only method by which truth can possibly be\r\nattained in any department of the social science. All\r\nthat is requisite is, that he be on his guard not to\r\nascribe to conclusions which are grounded upon an\r\nhypothesis a different kind of certainty from that which\r\nreally belongs to them. They would be true without\r\nqualification, only in a case which is purely imaginary.\r\nIn proportion as the actual facts recede from the hypothesis,\r\nhe must allow a corresponding deviation from\r\nthe strict letter of his conclusion; otherwise it will be\r\ntrue only of things such as he has arbitrarily supposed,\r\nnot of such things as really exist. That which is true\r\nin the abstract, is always true in the concrete with\r\nproper \u003ci\u003eallowances\u003c/i\u003e. When a certain cause really exists,\r\nand if left to itself would infallibly produce a certain\r\neffect, that same effect, \u003ci\u003emodified\u003c/i\u003e by all the other concurrent\r\ncauses, will correctly correspond to the result\r\nreally produced.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe conclusions of geometry are not strictly true\r\nof such lines, angles, and figures, as human hands can\r\nconstruct. But no one, therefore, contends that the\r\nconclusions of geometry are of no utility, or that it\r\nwould be better to shut up Euclid\u0027s Elements, and\r\ncontent ourselves with \u0026quot;practice\u0026quot; and \u0026quot;experience.\u0026quot;\u003c/p\u003e\r\n\r\n\u003cp\u003eNo mathematician ever thought that his definition\r\nof a line corresponded to an actual line. As little did\r\nany political economist ever imagine that real men had\r\nno object of desire but wealth, or none which would not\r\ngive way to the slightest motive of a pecuniary kind.\r\nBut they were justified in assuming this, for the purposes\r\nof their argument; because they had to do only\r\nwith those parts of human conduct which have pecuniary\r\nadvantage for their direct and principal object;\r\nand because, as no two individual cases are exactly\r\nalike, no \u003ci\u003egeneral\u003c/i\u003e maxims could ever be laid down unless\r\n\u003ci\u003esome\u003c/i\u003e of the circumstances of the particular case\r\nwere left out of consideration.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut we go farther than to affirm that the method\r\n\u003ci\u003e\u0026agrave; priori\u003c/i\u003e is a legitimate mode of philosophical investigation\r\nin the moral sciences: we contend that it is the\r\nonly mode. We affirm that the method \u003ci\u003e\u0026agrave; posteriori\u003c/i\u003e, or\r\nthat of specific experience, is altogether inefficacious in\r\nthose sciences, as a means of arriving at any considerable\r\nbody of valuable truth; though it admits of being\r\nusefully applied in aid of the method \u003ci\u003e\u0026agrave; priori\u003c/i\u003e, and\r\neven forms an indispensable supplement to it.\u003c/p\u003e\r\n\r\n\u003cp\u003eThere is a property common to almost all the moral\r\nsciences, and by which they are distinguished from\r\nmany of the physical; this is, that it is seldom in our\r\npower to make experiments in them. In chemistry\r\nand natural philosophy, we can not only observe what\r\nhappens under all the combinations of circumstances\r\nwhich nature brings together, but we may also try an\r\nindefinite number of new combinations. This we can\r\nseldom do in ethical, and scarcely ever in political science.\r\nWe cannot try forms of government and systems\r\nof national policy on a diminutive scale in our\r\nlaboratories, shaping our experiments as we think they\r\nmay most conduce to the advancement of knowledge.\r\nWe therefore study nature under circumstances of\r\ngreat disadvantage in these sciences; being confined\r\nto the limited number of experiments which take place\r\n(if we may so speak) of their own accord, without any\r\npreparation or management of ours; in circumstances,\r\nmoreover, of great complexity, and never perfectly\r\nknown to us; and with the far greater part of the\r\nprocesses concealed from our observation.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe consequence of this unavoidable defect in the\r\nmaterials of the induction is, that we can rarely obtain\r\nwhat Bacon has quaintly, but not unaptly, termed an\r\n\u003ci\u003eexperimentum crucis\u003c/i\u003e.\u003c/p\u003e\r\n\r\n\u003cp\u003eIn any science which admits of an unlimited range\r\nof arbitrary experiments, an \u003ci\u003eexperimentum crucis\u003c/i\u003e may\r\nalways be obtained. Being able to vary all the circumstances,\r\nwe can always take effectual means of\r\nascertaining which of them are, and which are not,\r\nmaterial. Call the effect B, and let the question be\r\nwhether the cause A in any way contributes to it.\r\nWe try an experiment in which all the surrounding\r\ncircumstances are altered, except A alone: if the effect\r\nB is nevertheless produced, A is the cause of it. Or,\r\ninstead of leaving A, and changing the other circumstances,\r\nwe leave all the other circumstances and\r\nchange A: if the effect B in that case does \u003ci\u003enot\u003c/i\u003e take\r\nplace, then again A is a necessary condition of its\r\nexistence. Either of these experiments, if accurately\r\nperformed, is an \u003ci\u003eexperimentum crucis\u003c/i\u003e; it converts the\r\npresumption we had before of the existence of a connection\r\nbetween A and B into proof, by negativing\r\nevery other hypothesis which would account for the\r\nappearances.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut this can seldom be done in the moral sciences,\r\nowing to the immense multitude of the influencing\r\ncircumstances, and our very scanty means of varying\r\nthe experiment. Even in operating upon an individual\r\nmind, which is the case affording greatest room for\r\nexperimenting, we cannot often obtain a \u003ci\u003ecrucial\u003c/i\u003e experiment.\r\nThe effect, for example, of a particular circumstance\r\nin education, upon the formation of character,\r\nmay be tried in a variety of cases, but we can\r\nhardly ever be certain that any two of those cases\r\ndiffer in all their circumstances except the solitary\r\none of which we wish to estimate the influence. In\r\nhow much greater a degree must this difficulty exist in\r\nthe affairs of states, where even the \u003ci\u003enumber\u003c/i\u003e of recorded\r\nexperiments is so scanty in comparison with the variety\r\nand multitude of the circumstances concerned in each.\r\nHow, for example, can we obtain a crucial experiment\r\non the effect of a restrictive commercial policy upon\r\nnational wealth? We must find two nations alike in\r\nevery other respect, or at least possessed, in a degree\r\nexactly equal, of everything which conduces to national\r\nopulence, and adopting exactly the same policy in all\r\ntheir other affairs, but differing in this only, that one\r\nof them adopts a system of commercial restrictions, and\r\nthe other adopts free trade. This would be a decisive experiment,\r\nsimilar to those which we can almost always\r\nobtain in experimental physics. Doubtless this would\r\nbe the most conclusive evidence of all if we could get\r\nit. But let any one consider how infinitely numerous\r\nand various are the circumstances which either directly\r\nor indirectly do or may influence the amount of the\r\nnational wealth, and then ask himself what are the\r\nprobabilities that in the longest revolution of ages two\r\nnations will be found, which agree, and can be shown\r\nto agree, in all those circumstances except one?\u003c/p\u003e\r\n\r\n\u003cp\u003eSince, therefore, it is vain to hope that truth can\r\nbe arrived at, either in Political Economy or in any\r\nother department of the social science, while we look\r\nat the facts in the concrete, clothed in all the complexity\r\nwith which nature has surrounded them, and\r\nendeavour to elicit a general law by a process of induction\r\nfrom a comparison of details; there remains no\r\nother method than the \u003ci\u003e\u0026agrave; priori\u003c/i\u003e one, or that of \u0026quot;abstract\r\nspeculation.\u0026quot;\u003c/p\u003e\r\n\r\n\u003cp\u003eAlthough sufficiently ample grounds are not afforded\r\nin the field of politics, for a satisfactory induction by a\r\ncomparison of the effects, the causes may, in all cases,\r\nbe made the subject of specific experiment. These\r\ncauses are, laws of human nature, and external circumstances\r\ncapable of exciting the human will to action.\r\nThe desires of man, and the nature of the conduct to\r\nwhich they prompt him, are within the reach of our\r\nobservation. We can also observe what are the objects\r\nwhich excite those desires. The materials of\r\nthis knowledge every one can principally collect within\r\nhimself; with reasonable consideration of the differences,\r\nof which experience discloses to him the existence,\r\nbetween himself and other people. Knowing\r\ntherefore accurately the properties of the substances\r\nconcerned, we may reason with as much certainty as in\r\nthe most demonstrative parts of physics from any\r\nassumed set of circumstances. This will be mere trifling\r\nif the assumed circumstances bear no sort of resemblance\r\nto any real ones; but if the assumption is correct\r\nas far as it goes, and differs from the truth no\r\notherwise than as a part differs from the whole, then\r\nthe conclusions which are correctly deduced from the\r\nassumption constitute \u003ci\u003eabstract\u003c/i\u003e truth; and when completed\r\nby adding or subtracting the effect of the non-calculated\r\ncircumstances, they are true in the concrete,\r\nand may be applied to practice.\u003c/p\u003e\r\n\r\n\u003cp\u003eOf this character is the science of Political Economy\r\nin the writings of its best teachers. To render it perfect\r\nas an abstract science, the combinations of circumstances\r\nwhich it assumes, in order to trace their effects,\r\nshould embody all the circumstances that are common\r\nto all cases whatever, and likewise all the circumstances\r\nthat are common to any important class of cases.\r\nThe conclusions correctly deduced from these assumptions,\r\nwould be as true in the abstract as those of\r\nmathematics; and would be as near an approximation\r\nas abstract truth can ever be, to truth in the\r\nconcrete.\u003c/p\u003e\r\n\r\n\u003cp\u003eWhen the principles of Political Economy are to\r\nbe applied to a particular ease, then it is necessary to\r\ntake into account all the individual circumstances of\r\nthat case; not only examining to which of the sets of\r\ncircumstances contemplated by the abstract science\r\nthe circumstances of the case in question correspond,\r\nbut likewise what other circumstances may exist in\r\nthat case, which not being common to it with any large\r\nand strongly-marked class of cases, have not fallen\r\nunder the cognizance of the science. These circumstances\r\nhave been called \u003ci\u003edisturbing causes\u003c/i\u003e. And here\r\nonly it is that an element of uncertainty enters into\r\nthe process\u0026mdash;an uncertainty inherent in the nature\r\nof these complex phenomena, and arising from the\r\nimpossibility of being quite sure that all the circumstances\r\nof the particular case are known to us sufficiently\r\nin detail, and that our attention is not unduly\r\ndiverted from any of them.\u003c/p\u003e\r\n\r\n\u003cp\u003eThis constitutes the only uncertainty of Political\r\nEconomy; and not of it alone, but of the moral sciences\r\nin general. When the disturbing causes are known,\r\nthe allowance necessary to be made for them detracts\r\nin no way from scientific precision, nor constitutes any\r\ndeviation from the \u003ci\u003e\u0026agrave; priori\u003c/i\u003e method. The disturbing\r\ncauses are not handed over to be dealt with by mere\r\nconjecture. Like \u003ci\u003efriction\u003c/i\u003e in mechanics, to which they\r\nhave been often compared, they may at first have been\r\nconsidered merely as a non-assignable deduction to be\r\nmade by guess from the result given by the general\r\nprinciples of science; but in time many of them are\r\nbrought within the pale of the abstract science itself,\r\nand their effect is found to admit of as accurate an\r\nestimation as those more striking effects which they\r\nmodify. The disturbing causes have their laws, as the\r\ncauses which are thereby disturbed have theirs; and\r\nfrom the laws of the disturbing causes, the nature and\r\namount of the disturbance may be predicted \u003ci\u003e\u0026agrave; priori\u003c/i\u003e,\r\nlike the operation of the more general laws which they\r\nare said to modify or disturb, but with which they\r\nmight more properly be said to be concurrent. The\r\neffect of the special causes is then to be added to, or\r\nsubtracted from, the effect of the general ones.\u003c/p\u003e\r\n\r\n\u003cp\u003eThese disturbing causes are sometimes circumstances\r\nwhich operate upon human conduct through\r\nthe same principle of human nature with which Political\r\nEconomy is conversant, namely, the desire of\r\nwealth, but which are not general enough to be taken\r\ninto account in the abstract science. Of disturbances\r\nof this description every political economist can produce\r\nmany examples. In other instances the disturbing\r\ncause is some other law of human nature. In the\r\nlatter case it never can fall within the province of\r\nPolitical Economy; it belongs to some other science;\r\nand here the mere political economist, he who has\r\nstudied no science but Political Economy, if he attempt\r\nto apply his science to practice, will fail. \u003ca name=\"FNanchor11\"\u003e\u003c/a\u003e\u003ca href=\"#Footnote_11\"\u003e\u003csup\u003e[11]\u003c/sup\u003e\u003c/a\u003e\u003c/p\u003e\r\n\r\n\u003cp\u003eAs for the other kind of disturbing causes, namely\r\nthose which operate through the same law of human\r\nnature out of which the general principles of the\r\nscience arise, these might always be brought within\r\nthe pale of the abstract science if it were worth while;\r\nand when we make the necessary allowances for them\r\nin practice, if we are doing anything but guess, we are\r\nfollowing out the method of the abstract science into\r\nminuter details; inserting among its hypotheses a\r\nfresh and still more complex combination of circumstances,\r\nand so adding \u003ci\u003epro h\u0026aacute;c vice\u003c/i\u003e a supplementary\r\nchapter or appendix, or at least a supplementary\r\ntheorem, to the abstract science.\u003c/p\u003e\r\n\r\n\u003cp\u003eHaving now shown that the method \u003ci\u003e\u0026agrave; priori\u003c/i\u003e in\r\nPolitical Economy, and in all the other branches of\r\nmoral science, is the only certain or scientific mode\r\nof investigation, and that the \u003ci\u003e\u0026agrave; posteriori\u003c/i\u003e method, or\r\nthat of specific experience, as a means of arriving at\r\ntruth, is inapplicable to these subjects, we shall be\r\nable to show that the latter method is notwithstanding\r\nof great value in the moral sciences; namely, not as a\r\nmeans of discovering truth, but of verifying it, and\r\nreducing to the lowest point that uncertainty before\r\nalluded to as arising from the complexity of every\r\nparticular case, and from the difficulty (not to say\r\nimpossibility) of our being assured \u003ci\u003e\u0026agrave; priori\u003c/i\u003e that we\r\nhave taken into account all the material circumstances.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf we could be quite certain that we knew all the\r\nfacts of the particular case, we could derive little additional\r\nadvantage from specific experience. The causes\r\nbeing given, we may know what will be their effect,\r\nwithout an actual trial of every possible combination;\r\nsince the causes are human feelings, and outward circumstances\r\nfitted to excite them: and, as these for\r\nthe most part are, or at least might be, familiar to us,\r\nwe can more surely judge of their combined effect\r\nfrom that familiarity, than from any evidence which\r\ncan be elicited from the complicated and entangled\r\ncircumstances of an actual experiment. If the knowledge\r\nwhat are the particular causes operating in any\r\ngiven instance were revealed to us by infallible authority,\r\nthen, if our abstract science were perfect, we\r\nshould become prophets. But the causes are not so\r\nrevealed: they are to be collected by observation; and\r\nobservation in circumstances of complexity is apt to\r\nbe imperfect. Some of the causes may lie beyond\r\nobservation; many are apt to escape it, unless we are\r\non the look-out for them; and it is only the habit of\r\nlong and accurate observation which can give us so\r\ncorrect a preconception what causes we are likely to\r\nfind, as shall induce us to look for them in the right\r\nquarter. But such is the nature of the human understanding,\r\nthat the very fact of attending with intensity\r\nto one part of a thing, has a tendency to withdraw\r\nthe attention from the other parts. We are consequently\r\nin great danger of adverting to a portion only\r\nof the causes which are actually at work. And if we\r\nare in this predicament, the more accurate our deductions\r\nand the more certain our conclusions in the\r\nabstract, (that is, making abstraction of all circumstances\r\nexcept those which form part of the hypothesis,)\r\nthe less we are likely to suspect that we are\r\nin error: for no one can have looked closely into the\r\nsources of fallacious thinking without being deeply\r\nconscious that the coherence, and neat concatenation\r\nof our philosophical systems, is more apt than we are\r\ncommonly aware to pass with us as evidence of their\r\ntruth.\u003c/p\u003e\r\n\r\n\u003cp\u003eWe cannot, therefore, too carefully endeavour to\r\nverify our theory, by comparing, in the particular cases\r\nto which we have access, the results which it would\r\nhave led us to predict, with the most trustworthy\r\naccounts we can obtain of those which have been\r\nactually realized. The discrepancy between our anticipations\r\nand the actual fact is often the only circumstance\r\nwhich would have drawn our attention to some\r\nimportant disturbing cause which we had overlooked.\r\nNay, it often discloses to us errors in thought, still\r\nmore serious than the omission of what can with any\r\npropriety be termed a disturbing cause. It often\r\nreveals to us that the basis itself of our whole argument\r\nis insufficient; that the data, from which we had\r\nreasoned, comprise only a part, and not always the\r\nmost important part, of the circumstances by which\r\nthe result is really determined. Such oversights are\r\ncommitted by very good reasoners, and even by a still\r\nrarer class, that of good observers. It is a kind of\r\nerror to which those are peculiarly liable whose views\r\nare the largest and most philosophical: for exactly in\r\nthat ratio are their minds more accustomed to dwell\r\nupon those laws, qualities, and tendencies, which are\r\ncommon to large classes of cases, and which belong to\r\nall place and all time; while it often happens that\r\ncircumstances almost peculiar to the particular case\r\nor era have a far greater share in governing that one\r\ncase.\u003c/p\u003e\r\n\r\n\u003cp\u003eAlthough, therefore, a philosopher be convinced\r\nthat no general truths can be attained in the affairs\r\nof nations by the \u003ci\u003e\u0026agrave; posteriori\u003c/i\u003e road, it does not the less\r\nbehove him, according to the measure of his opportunities,\r\nto sift and scrutinize the details of every\r\nspecific experiment. Without this, he may be an\r\nexcellent professor of abstract science; for a person\r\nmay be of great use who points out correctly what\r\neffects will follow from certain combinations of possible\r\ncircumstances, in whatever tract of the extensive\r\nregion of hypothetical cases those combinations may\r\nbe found. He stands in the same relation to the\r\nlegislator, as the mere geographer to the practical\r\nnavigator; telling him the latitude and longitude of\r\nall sorts of places, but not how to find whereabouts\r\nhe himself is sailing. If, however, he does no more\r\nthan this, he must rest contented to take no share in\r\npractical politics; to have no opinion, or to hold it\r\nwith extreme modesty, on the applications which\r\nshould be made of his doctrines to existing circumstances.\u003c/p\u003e\r\n\r\n\u003cp\u003eNo one who attempts to lay down propositions\r\nfor the guidance of mankind, however perfect his\r\nscientific acquirements, can dispense with a practical\r\nknowledge of the actual modes in which the affairs of\r\nthe world are carried on, and an extensive personal\r\nexperience of the actual ideas, feelings, and intellectual\r\nand moral tendencies of his own country and of\r\nhis own age. The true practical statesman is he who\r\ncombines this experience with a profound knowledge\r\nof abstract political philosophy. Either acquirement,\r\nwithout the other, leaves him lame and impotent if he\r\nis sensible of the deficiency; renders him obstinate and\r\npresumptuous if, as is more probable, he is entirely\r\nunconscious of it.\u003c/p\u003e\r\n\r\n\u003cp\u003eSuch, then, are the respective offices and uses of\r\nthe \u003ci\u003e\u0026agrave; priori\u003c/i\u003e and the \u003ci\u003e\u0026agrave; posteriori\u003c/i\u003e methods\u0026mdash;the method\r\nof abstract science, and that of specific experiment\u0026mdash;as\r\nwell in Political Economy, as in all the other\r\nbranches of social philosophy. Truth compels us to\r\nexpress our conviction that whether among those who\r\nhave written on, these subjects, or among those for\r\nwhose use they wrote, few can be pointed out who\r\nhave allowed to each of these methods its just value,\r\nand systematically kept each to its proper objects and\r\nfunctions. One of the peculiarities of modern times,\r\nthe separation of theory from practice\u0026mdash;of the studies\r\nof the closet, from the outward business of the world\u0026mdash;has\r\ngiven a wrong bias to the ideas and feelings both\r\nof the student and of the man of business. Each\r\nundervalues that part of the materials of thought with\r\nwhich he is not familiar. The one despises all comprehensive\r\nviews, the other neglects details. The one\r\ndraws his notion of the universe from the few objects\r\nwith which his course of life has happened to render\r\nhim familiar; the other having got demonstration on his\r\nside, and forgetting that it is only a demonstration \u003ci\u003enisi\u003c/i\u003e\u0026mdash;a\r\nproof at all times liable to be set aside by the addition\r\nof a single new fact to the hypothesis\u0026mdash;denies, instead\r\nof examining and sifting, the allegations which are\r\nopposed to him. For this he has considerable excuse\r\nin the worthlessness of the testimony on which the facts\r\nbrought forward to invalidate the conclusions of theory\r\nusually rest. In these complex matters, men see with\r\ntheir preconceived opinions, not with their eyes: an\r\ninterested or a passionate man\u0027s statistics are of little\r\nworth; and a year seldom passes without examples of\r\nthe astounding falsehoods which large bodies of respectable\r\nmen will back each other in publishing to\r\nthe world as facts within their personal knowledge. It\r\nis not because a thing is \u003ci\u003easserted\u003c/i\u003e to be true, but because\r\nin its nature it \u003ci\u003emay\u003c/i\u003e be true, that a sincere and\r\npatient inquirer will feel himself called upon to investigate\r\nit. He will use the assertions of opponents not\r\nas evidence, but indications leading to evidence; suggestions\r\nof the most proper course for his own inquiries.\u003c/p\u003e\r\n\r\n\u003cp\u003eBut while the philosopher and the practical man\r\nbandy half-truths with one another, we may seek far\r\nwithout finding one who, placed on a higher eminence\r\nof thought, comprehends as a whole what they see only\r\nin separate parts; who can make the anticipations of\r\nthe philosopher guide the observation of the practical\r\nman, and the specific experience of the practical man\r\nwarn the philosopher where something is to be added\r\nto his theory.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe most memorable example in modern times of\r\na man who united the spirit of philosophy with the\r\npursuits of active life, and kept wholly clear from the\r\npartialities and prejudices both of the student and of\r\nthe practical statesman, was Turgot; the wonder not\r\nonly of his age, but of history, for his astonishing combination\r\nof the most opposite, and, judging from common\r\nexperience, almost incompatible excellences.\u003c/p\u003e\r\n\r\n\u003cp\u003eThough it is impossible to furnish any test by which\r\na speculative thinker, either in Political Economy or in\r\nany other branch of social philosophy, may know that\r\nhe is competent to judge of the application of his\r\nprinciples to the existing condition of his own or any\r\nother country, indications may be suggested by the\r\nabsence of which he may well and surely know that he\r\nis not competent. His knowledge must at least enable\r\nhim to explain and account for what \u003ci\u003eis\u003c/i\u003e, or he is\r\nan insufficient judge of what ought to be. If a political\r\neconomist, for instance, finds himself puzzled by\r\nany recent or present commercial phenomena; if there\r\nis any mystery to him in the late or present state of\r\nthe productive industry of the country, which his knowledge\r\nof principle does not enable him to unriddle; he\r\nmay be sure that something is wanting to render his\r\nsystem of opinions a safe guide in existing circumstances.\r\nEither some of the facts which influence\r\nthe situation of the country and the course of events\r\nare not known to him; or, knowing them, he knows\r\nnot what ought to be their effects. In the latter case\r\nhis system is imperfect even as an abstract system; it\r\ndoes not enable him to trace correctly all the consequences\r\neven of assumed premises. Though he succeed\r\nin throwing doubts upon the reality of some of\r\nthe phenomena which he is required to explain, his\r\ntask is not yet completed; even then he is called upon\r\nto show how the belief, which he deems unfounded,\r\narose; and what is the real nature of the appearances\r\nwhich gave a colour of probability to allegations which\r\nexamination proves to be untrue.\u003c/p\u003e\r\n\r\n\u003cp\u003eWhen the speculative politician has gone through\r\nthis labour\u0026mdash;has gone through it conscientiously, not\r\nwith the desire of finding his system complete, but\r\nof making it so\u0026mdash;he may deem himself qualified to\r\napply his principles to the guidance of practice: but\r\nhe must still continue to exercise the same discipline\r\nupon every new combination of facts as it arises; he\r\nmust make a large allowance for the disturbing influence\r\nof unforeseen causes, and must carefully watch\r\nthe result of every experiment, in order that any\r\nresiduum of facts which his principles did not lead\r\nhim to expect, and do not enable him to explain, may\r\nbecome the subject of a fresh analysis, and furnish the\r\noccasion for a consequent enlargement or correction\r\nof his general views.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe method of the practical philosopher consists,\r\ntherefore, of two processes; the one analytical, the\r\nother synthetical. He must \u003ci\u003eanalyze\u003c/i\u003e the existing state\r\nof society into its elements, not dropping and losing\r\nany of them by the way. After referring to the experience\r\nof individual man to learn the \u003ci\u003elaw\u003c/i\u003e of each of\r\nthese elements, that is, to learn what are its natural\r\neffects, and how much of the effect follows from so\r\nmuch of the cause when not counteracted by any\r\nother cause, there remains an operation of \u003ci\u003esynthesis\u003c/i\u003e;\r\nto put all these effects together, and, from what\r\nthey are separately, to collect what would be the\r\neffect of all the causes acting at once. If these\r\nvarious operations could be correctly performed, the\r\nresult would be prophecy; but, as they can be performed\r\nonly with a certain approximation to correctness,\r\nmankind can never predict with absolute certainty,\r\nbut only with a less or greater degree of probability;\r\naccording as they are better or worse apprised\r\nwhat the causes are,\u0026mdash;have learnt with more or less\r\naccuracy from experience the law to which each of\r\nthose causes, when acting separately, conforms,\u0026mdash;and\r\nhave summed up the aggregate effect more or less\r\ncarefully.\u003c/p\u003e\r\n\r\n\u003cp\u003eWith all the precautions which have been indicated\r\nthere will still be some danger of falling into partial\r\nviews; but we shall at least have taken the best securities\r\nagainst it. All that we can do more, is to\r\nendeavour to be impartial critics of our own theories,\r\nand to free ourselves, as far as we are able, from that\r\nreluctance from which few inquirers are altogether\r\nhim to expect, and do not enable him to explain, may\r\nbecome the subject of a fresh analysis, and furnish the\r\noccasion for a consequent enlargement or correction\r\nof his general views.\u003c/p\u003e\r\n\r\n\u003cp\u003eThe method of the practical philosopher consists,\r\ntherefore, of two processes; the one analytical, the\r\nother synthetical. He must \u003ci\u003eanalyze\u003c/i\u003e the existing state\r\nof society into its elements, not dropping and losing\r\nany of them by the way. After referring to the experience\r\nof individual man to learn the \u003ci\u003elaw\u003c/i\u003e of each of\r\nthese elements, that is, to learn what are its natural\r\neffects, and how much of the effect follows from so\r\nmuch of the cause when not counteracted by any\r\nother cause, there remains an operation of \u003ci\u003esynthesis\u003c/i\u003e;\r\nto put all these effects together, and, from what\r\nthey are separately, to collect what would be the\r\neffect of all the causes acting at once. If these\r\nvarious operations could be correctly performed, the\r\nresult would be prophecy; but, as they can be performed\r\nonly with a certain approximation to correctness,\r\nmankind can never predict with absolute certainty,\r\nbut only with a less or greater degree of probability;\r\naccording as they are better or worse apprised\r\nwhat the causes are,\u0026mdash;have learnt with more or less\r\naccuracy from experience the law to which each of\r\nthose causes, when acting separately, conforms,\u0026mdash;and\r\nhave summed up the aggregate effect more or less\r\ncarefully.\u003c/p\u003e\r\n\r\n\u003cp\u003eWith all the precautions which have been indicated\r\nthere will still be some danger of falling into partial\r\nviews; but we shall at least have taken the best securities\r\nagainst it. All that we can do more, is to\r\nendeavour to be impartial critics of our own theories,\r\nand to free ourselves, as far as we are able, from that\r\nreluctance from which few inquirers are altogether\r\nexempt, to admit the reality or relevancy of any\r\nfacts which they have not previously either taken into,\r\nor left a place open for in, their systems.\u003c/p\u003e\r\n\r\n\u003cp\u003eIf indeed every phenomenon was generally the\r\neffect of no more than one cause, a knowledge of the\r\nlaw of that cause would, unless there was a logical\r\nerror in our reasoning, enable us confidently to predict\r\nall the circumstances of the phenomenon. We\r\nmight then, if we had carefully examined our premises\r\nand our reasoning, and found no flaw, venture\r\nto disbelieve the testimony which might be brought to\r\nshow that matters had turned out differently from\r\nwhat we should have predicted. If the causes of\r\nerroneous conclusions were always patent on the face\r\nof the reasonings which lead to them, the human understanding\r\nwould be a far more trustworthy instrument\r\nthan it is. But the narrowest examination of\r\nthe process itself will help us little towards discovering\r\nthat we have omitted part of the premises which\r\nwe ought to have taken into our reasoning. Effects\r\nare commonly determined by a \u003ci\u003econcurrence\u003c/i\u003e of causes.\r\nIf we have overlooked any one cause, we may reason\r\njustly from all the others, and only be the further\r\nwrong. Our premises will be true, and our reasoning\r\ncorrect, and yet the result of no value in the particular\r\ncase. There is, therefore, almost always room\r\nfor a modest doubt as to our practical conclusions.\r\nAgainst false premises and unsound reasoning, a good\r\nmental discipline may effectually secure us; but against\r\nthe danger of \u003ci\u003eoverlooking\u003c/i\u003e something, neither strength\r\nof understanding nor intellectual cultivation can be\r\nmore than a very imperfect protection. A person\r\nmay be warranted in feeling confident, that whatever\r\nhe has carefully contemplated with his mind\u0027s eye he\r\nhas seen correctly; but no one can be sure that there\r\nis not something in existence which he has not seen\r\nat all. He can do no more than satisfy himself that\r\nhe has seen all that is visible to any other persons\r\nwho have concerned themselves with the subject.\r\nFor this purpose he must endeavour to place himself\r\nat their point of view, and strive earnestly to see the\r\nobject as they see it; nor give up the attempt until\r\nhe has either added the appearance which is floating\r\nbefore them to his own stock of realities, or made out\r\nclearly that it is an optical deception.\u003c/p\u003e\r\n\r\n\u003chr style=\"width: 45%;\"\u003e\r\n\r\n\u003cp\u003eThe principles which we have now stated are by no\r\nmeans alien to common apprehension: they are not\r\nabsolutely hidden, perhaps, from any one, but are\r\ncommonly seen through a mist. We might have presented\r\nthe latter part of them in a phraseology in\r\nwhich they would have seemed the most familiar of\r\ntruisms: we might have cautioned inquirers against\r\ntoo extensive \u003ci\u003egeneralization\u003c/i\u003e, and reminded them that\r\nthere are \u003ci\u003eexceptions\u003c/i\u003e to all rules. Such is the current\r\nlanguage of those who distrust comprehensive thinking,\r\nwithout having any clear notion why or where it\r\nought to be distrusted. We have avoided the use of\r\nthese expressions purposely, because we deem them\r\nsuperficial and inaccurate. The error, when there is\r\nerror, does \u003ci\u003enot\u003c/i\u003e arise from generalizing too extensively;\r\nthat is, from including too wide a range of particular\r\ncases in a single proposition. Doubtless, a man often\r\nasserts of an entire class what is only true of a part of\r\nit; but his error generally consists not in making too\r\nwide an assertion, but in making the wrong \u003ci\u003ekind\u003c/i\u003e of\r\nassertion: he predicated an actual result, when he\r\nshould only have predicated a \u003ci\u003etendency\u003c/i\u003e to that result\u0026mdash;a\r\npower acting with a certain intensity in that\r\ndirection. With regard to \u003ci\u003eexceptions\u003c/i\u003e; in any tolerably\r\nably advanced science there is properly no such thing\r\nas an exception. What is thought to be an exception\r\nto a principle is always some other and distinct\r\nprinciple cutting into the former: some other force\r\nwhich impinges against the first force, and deflects it\r\nfrom its direction. There are not a \u003ci\u003elaw\u003c/i\u003e and an \u003ci\u003eexception\u003c/i\u003e\r\nto that law\u0026mdash;the law acting in ninety-nine cases,\r\nand the exception in one. There are two laws, each\r\npossibly acting in the whole hundred cases, and bringing\r\nabout a common effect by their conjunct operation.\r\nIf the force which, being the less conspicuous\r\nof the two, is called the disturbing force, prevails\r\nsufficiently over the other force in some one case, to\r\nconstitute that case what is commonly called an exception,\r\nthe same disturbing force probably acts as a\r\nmodifying cause in many other cases which no one\r\nwill call exceptions.\u003c/p\u003e\r\n\r\n\u003cp\u003eThus if it were stated to be a law of nature, that\r\nall heavy bodies fall to the ground, it would probably\r\nbe said that the resistance of the atmosphere, which\r\nprevents a balloon from falling, constitutes the balloon\r\nan exception to that pretended law of nature. But\r\nthe real law is, that all heavy bodies \u003ci\u003etend\u003c/i\u003e to fall; and\r\nto this there is no exception, not even the sun and\r\nmoon; for even they, as every astronomer knows,\r\ntend towards the earth, with a force exactly equal to\r\nthat with which the earth tends towards them. The\r\nresistance of the atmosphere might, in the particular\r\ncase of the balloon, from a misapprehension of what\r\nthe law of gravitation is, be said to \u003ci\u003eprevail\u003c/i\u003e over the\r\nlaw; but its disturbing effect is quite as real in every\r\nother case, since though it does not prevent, it retards\r\nthe fall of all bodies whatever. The rule, and the\r\nso-called exception, do not divide the cases between\r\nthem; each of them is a comprehensive rule extending\r\nto all cases. To call one of these concurrent\r\nprinciples an exception to the other, is superficial,\r\nand contrary to the correct principles of nomenclature\r\nand arrangement. An effect of precisely the same\r\nkind, and arising from the same cause, ought not to\r\nbe placed in two different categories, merely as there\r\ndoes or does not exist another cause preponderating\r\nover it.\u003c/p\u003e\r\n\r\n\u003cp\u003eIt is only in art, as distinguished from science, that\r\nwe can with propriety speak of exceptions. Art, the\r\nimmediate end of which is practice, has nothing to do\r\nwith causes, except as the means of bringing about\r\neffects. However heterogeneous the causes, it carries\r\nthe effects of them all into one single reckoning, and\r\naccording as the sum-total is \u003ci\u003eplus\u003c/i\u003e or \u003ci\u003eminus\u003c/i\u003e, according\r\nas it falls above or below a certain line, Art says, Do\r\nthis, or Abstain from doing it. The exception does\r\nnot run by insensible degrees into the rule, like what\r\nare called exceptions in science. In a question of\r\npractice it frequently happens that a certain thing is\r\neither fit to be done, or fit to be altogether abstained\r\nfrom, there being no medium. If, in the majority\r\nof cases, it is fit to be done, that is made the rule.\r\nWhen a case subsequently occurs in which the thing\r\nought not to be done, an entirely new leaf is turned\r\nover; the rule is now done with, and dismissed: a new\r\ntrain of ideas is introduced, between which and those\r\ninvolved in the rule there is a broad line of demarcation;\r\nas broad and \u003ci\u003etranchant\u003c/i\u003e as the difference between\r\nAy and No. Very possibly, between the last case\r\nwhich comes within the rule and the first of the exception,\r\nthere is only the difference of a shade: but\r\nthat shade probably makes the whole interval between\r\nacting in one way and in a totally different one. We\r\nmay, therefore, in talking of art, unobjectionably speak\r\nof the \u003ci\u003erule\u003c/i\u003e and the \u003ci\u003eexception\u003c/i\u003e; meaning by the rule,\r\nthe cases in which there exists a preponderance, however\r\nslight, of inducements for acting in a particular\r\nway; and by the exception, the cases in which the\r\npreponderance is on the contrary side.\u003c/p\u003e\r\n\r\n\u003cp class=\"NO\"\u003e\u003cb\u003eNOTES:\u003c/b\u003e\u003c/p\u003e\r\n\r\n\u003cp\u003e\u003ca name=\"Footnote_8\"\u003e\u003c/a\u003e\u003ca href=\"#FNanchor8\"\u003e[8]\u003c/a\u003e\u003cdiv class=note\u003e We say, the \u003ci\u003eproduction\u003c/i\u003e and \u003ci\u003edistribution\u003c/i\u003e, not, as is usual\r\nwith writers on this science, the production, distribution, and \u003ci\u003econsumption\u003c/i\u003e.\r\nFor we contend that Political Economy, as conceived\r\nby those very writers, has nothing to do with the consumption of\r\nwealth, further than as the consideration of it is inseparable from\r\nthat of production, or from that of distribution. We know not of\r\nany \u003ci\u003elaws\u003c/i\u003e of the \u003ci\u003econsumption\u003c/i\u003e of wealth as the subject of a distinct\r\nscience: they can be no other than the laws of human enjoyment.\r\nPolitical economists have never treated of consumption on its own\r\naccount, but always for the purpose of the inquiry in what manner\r\ndifferent kinds of consumption affect the production and distribution\r\nof wealth. Under the head of Consumption, in professed\r\ntreatises on the science, the following are the subjects treated of:\r\n1st, The distinction between \u003ci\u003eproductive\u003c/i\u003e and \u003ci\u003eunproductive\u003c/i\u003e consumption;\r\n2nd, The inquiry whether it is possible for \u003ci\u003etoo much\u003c/i\u003e wealth\r\nto be \u003ci\u003eproduced\u003c/i\u003e, and for too great a portion of what has been produced\r\nto be applied to the purpose of further \u003ci\u003eproduction\u003c/i\u003e; 3rd,\r\nThe theory of taxation, that is to say, the following two questions\u0026mdash;by\r\nwhom each particular tax is paid (a question of \u003ci\u003edistribution\u003c/i\u003e),\r\nand in what manner particular taxes affect \u003ci\u003eproduction\u003c/i\u003e.\u003c/div\u003e\u003cbr\u003e\r\n\r\n\u003cp\u003e\u003ca name=\"Footnote_9\"\u003e\u003c/a\u003e\u003ca href=\"#FNanchor9\"\u003e[9]\u003c/a\u003e\u003cdiv class=note\u003e The physical laws of the production of useful objects are all\r\nequally presupposed by the science of Political Economy: most of\r\nthem, however, it presupposes in the gross, seeming to say nothing\r\nabout them. A few (such, for instance, as the decreasing ratio in\r\nwhich the produce of the soil is increased by an increased application\r\nof labour) it is obliged particularly to specify, and thus\r\nseems to borrow those truths from the physical sciences to which\r\nthey properly belong, and include them among its own.\u003c/div\u003e\u003cbr\u003e\r\n\r\n\u003cp\u003e\u003ca name=\"Footnote_10\"\u003e\u003c/a\u003e\u003ca href=\"#FNanchor10\"\u003e[10]\u003c/a\u003e\u003cdiv class=note\u003e The \u003ci\u003escience\u003c/i\u003e of legislation is an incorrect and misleading expression.\r\nLegislation is \u003ci\u003emaking laws\u003c/i\u003e. We do not talk of the\r\n\u003ci\u003escience\u003c/i\u003e of \u003ci\u003emaking\u003c/i\u003e anything. Even the \u003ci\u003escience of government\u003c/i\u003e would\r\nbe an objectionable expression, were it not that \u003ci\u003egovernment\u003c/i\u003e is often\r\nloosely taken to signify, not the act of governing, but the state or\r\ncondition of \u003ci\u003ebeing governed\u003c/i\u003e, or of living under a government. A\r\npreferable expression would be, the science of \u003ci\u003epolitical society\u003c/i\u003e; a\r\nprincipal branch of the more extensive science of society, characterized\r\nin the text.\u003c/div\u003e\u003cbr\u003e\r\n\r\n\u003cp\u003e\u003ca name=\"Footnote_11\"\u003e\u003c/a\u003e\u003ca href=\"#FNanchor11\"\u003e[11]\u003c/a\u003e\u003cdiv class=note\u003e One of the strongest reasons for drawing the line of separation\r\nclearly and broadly between science and art is the following:\u0026mdash;That\r\nthe principle of classification in science most\r\nconveniently follows the classification of \u003ci\u003ecauses\u003c/i\u003e, while arts must\r\nnecessarily be classified according to the classification of the \u003ci\u003eeffects\u003c/i\u003e,\r\nthe production of which is their appropriate end. Now an effect,\r\nwhether in physics or morals, commonly depends upon a concurrence\r\nof causes, and it frequently happens that several of these\r\ncauses belong to different sciences. Thus in the construction of\r\nengines upon the principles of the science of \u003ci\u003emechanics\u003c/i\u003e, it is\r\nnecessary to bear in mind the \u003ci\u003echemical\u003c/i\u003e properties of the material,\r\nsuch as its liability to oxydize; its electrical and magnetic properties,\r\nand so forth. From this it follows that although the\r\nnecessary foundation of all art is science, that is, the knowledge\r\nof the properties or laws of the objects upon which, and with\r\nwhich, the art dons its work; it is not equally true that every art\r\ncorresponds to one particular science. Each art presupposes, not\r\none science, but science in general; or, at least, many distinct\r\nsciences.\u003c/div\u003e\u003cbr\u003e\u003cbr\u003e\r\n\r\n\r\n\r\n\u003cp\u003eTHE END.\u003c/p\u003e\r\n\u003cbr\u003e\u003cbr\u003e\r\n\u003cp\u003e(Editor\u0027s note)\u003c/p\u003e\r\n\r\n\u003cp\u003e\u003cb\u003eEssays on some Unsettled.\r\nQuestions of Political\r\nEconomy\u003c/b\u003e\u003c/p\u003e\r\n\r\n\u003cp\u003eThese five essays represent Mill\u0027s\r\nearliest thoughts on economic matters\r\nand were first composed in 1829 and\r\n1830 before his reputation had been\r\nestablished by the publication of \u003ci\u003eLogic\u003c/i\u003e\r\nin 1843. Their successful reception no\r\ndoubt hastened the composition of his\r\ncomprehensive work the \u003ci\u003ePrinciples of\r\nPolitical Economy\u003c/i\u003e (1848).\u003c/p\u003e\r\n\u003c/article\u003e"}],"SectionSequence":["Back Link","Work Title","Deck","Author","Period","Era","Composition","Date Note","Region","Terra Avita","Terra Avita Region","Modern Country","Original Title","Language","Primary Discipline","Secondary Discipline","Tradition","Full Versions","Core Thesis","Classification","Arguments","Influence","Significance","Evidence Note","Full Text"],"Counts":{"ContextCards":3,"GeoCards":4,"DisciplineCards":2,"Links":11,"Sections":25,"Styles":3,"Scripts":1}}