ESSAYS ON SOME UNSETTLED QUESTIONS OF POLITICAL ECONOMY

by

JOHN STUART MILL

1844

PREFACE. 

Of these Essays, which were written in 1829 and 1830, the fifth alonehas been previously printed. The other four have hitherto remained inmanuscript, because, during the temporary suspension of public interestin the species of discussion to which they belong, there was noinducement to their publication. 

They are now published (with a few merely verbal alterations) under theimpression, that the controversies excited by Colonel Torrens' _Budget_have again called the attention of political economists to thediscussions of the abstract science: and from the additionalconsideration, that the first paper relates expressly to the point uponwhich the question at issue between Colonel Torrens and his antagonistshas principally turned. 

From that paper it will be seen that opinions identical in principlewith those promulgated by Colonel Torrens (there would probably beconsiderable difference as to the extent of their practical application)have been held by the writer for more than fifteen years: although hecannot claim to himself the original conception, but only theelaboration, of the fundamental doctrine of the Essay. 

A prejudice appears to exist in many quarters against the theory inquestion, on the supposition of its being opposed to one of the mostvaluable results of modern political philosophy, the doctrine of Freedomof Trade between nation and nation. The opinions now laid before thereader are presented as corollaries necessarily following from theprinciples upon which Free Trade itself rests. The writer has also beencareful to point out, that from these opinions no justification can bederived for any _protecting_ duty, or other preference given to domesticover foreign industry. But in regard to those duties on foreigncommodities which do not operate as protection, but are maintainedsolely for revenue, and which do not touch either the necessaries oflife or the materials and instruments of production, it is his opinionthat any relaxation of such duties, beyond what may be required by theinterest of the revenue itself, should in general be made contingentupon the adoption of some corresponding degree of freedom of trade withthis country, by the nation from which the commodities are imported. 

CONTENTS. 

ESSAY I. 

Of the Laws of Interchange between Nations; and the Distribution of theGains of Commerce among the Countries of the Commercial World

ESSAY II. 

Of the Influence of Consumption upon Production

ESSAY III. 

On the Words Productive and Unproductive

ESSAY IV. 

On Profits, and Interest

ESSAY V. 

On the Definition of Political Economy; and on the Method ofInvestigation proper to it

ESSAY I. 

OF THE LAWS OF INTERCHANGE BETWEEN NATIONS; AND THE DISTRIBUTION OF THEGAINS OF COMMERCE AMONG THE COUNTRIES OF THE COMMERCIAL WORLD. 

Of the truths with which political economy has been enriched by Mr. Ricardo, none has contributed more to give to that branch of knowledgethe comparatively precise and scientific character which it at presentbears, than the more accurate analysis which he performed of the natureof the advantage which nations derive from a mutual interchange of theirproductions. Previously to his time, the benefits of foreign trade weredeemed, even by the most philosophical enquirers, to consist inaffording a vent for surplus produce, or in enabling a portion of thenational capital to replace itself with a profit. The futility of thetheory implied in these and similar phrases, was an obvious consequencefrom the speculations of writers even anterior to Mr. Ricardo. But itwas he who first, in the chapter on Foreign Trade, of his immortal_Principles of Political Economy and Taxation_, substituted for theformer vague and unscientific, if not positively false, conceptions withregard to the advantage of trade, a philosophical exposition whichexplains, with strict precision, the nature of that advantage, andaffords an accurate measure of its amount. 

He shewed, that the advantage of an interchange of commodities betweennations consists simply and solely in this, that it enables each toobtain, with a given amount of labour and capital, a greater quantity ofall commodities taken together. This it accomplishes by enabling each, with a quantity of one commodity which has cost it so much labour andcapital, to purchase a quantity of another commodity which, if producedat home, would have required labour and capital to a greater amount. To render the importation of an article more advantageous than itsproduction, it is not necessary that the foreign country should be ableto produce it with less labour and capital than ourselves. We may evenhave a positive advantage in its production: but, if we are so farfavoured by circumstances as to have a still greater positive advantagein the production of some other article which is in demand in theforeign country, we may be able to obtain a greater return to our labourand capital by employing none of it in producing the article in whichour advantage is least, but devoting it all to the production of that inwhich our advantage is greatest, and giving this to the foreign countryin exchange for the other. It is not a difference in the _absolute_ costof production, which determines the interchange, but a difference in the_comparative_ cost. It may be to our advantage to procure iron fromSweden in exchange for cottons, even although the mines of England aswell as her manufactories should be more productive than those ofSweden; for if we have an advantage of one-half in cottons, and only anadvantage of a quarter in iron, and could sell our cottons to Sweden atthe price which Sweden must pay for them if she produced them herself, we should obtain our iron with an advantage of one-half, as well as ourcottons. We may often, by trading with foreigners, obtain theircommodities at a smaller expense of labour and capital than they costto the foreigners themselves. The bargain is still advantageous to theforeigner, because the commodity which he receives in exchange, thoughit has cost us less, would have cost him more. As often as a countrypossesses two commodities, one of which it can produce with less labour, comparatively to what it would cost in a foreign country, than theother; so often it is the interest of the country to export the firstmentioned commodity and to import the second; even though it might beable to produce both the one and the other at a less expense of labourthan the foreign country can produce them, but not less in the samedegree; or might be unable to produce either except at a greaterexpense, but not greater in the same degree. 

On the contrary, if it produces both commodities with greater facility, or both with greater difficulty, and greater in exactly the same degree, there will be no motive to interchange. 

"If the cloth and the corn, each of which required 100 days' labour inPoland, required each 150 days' labour in England; it would follow, thatthe cloth of 150 days' labour in England, if sent to Poland, would beequal to the cloth of 100 days' labour in Poland: if exchanged for corn, therefore, it would exchange for the corn of only 100 days' labour. Butthe corn of 100 days' labour in Poland, was supposed to be the samequantity with that of 150 days' labour in England. With 150 days' labourin cloth, therefore, England would only get as much corn in Poland asshe could raise with 150 days' labour at home; and she would, inimporting it, have the cost of carriage besides. In these circumstancesno exchange would take place. 

"If, on the other hand, while the cloth produced with 100 days' labourin Poland was produced with 150 days' labour in England, the corn whichwas produced in Poland with 100 days' labour could not be produced inEngland with less than 200 days' labour; an adequate motive to exchangewould immediately arise. With a quantity of cloth which England producedwith 150 days' labour, she would be able to purchase as much corn inPoland as was there produced with 100 days' labour; but the quantity, which was there produced with 100 days' labour, would be as great as thequantity produced in England with 200 days' labour. 

"The power of Poland would be reciprocal. With a quantity of corn whichcost her 100 days' labour, equal to the quantity produced in England by200 days' labour, she could in the supposed case purchase in England theproduce of 200 days' labour in cloth. " But "the produce of 150 days'labour in England in the article of cloth would be equal to the produceof 100 days' labour in Poland [1]. "

The remainder of what Mr. Ricardo has done for the philosophicalexposition of the principles of foreign trade, is to shew, that thetruth of the propositions now recapitulated is not affected by theintroduction of money as a medium of exchange; the precious metalsalways tending to distribute themselves in such a manner throughout thecommercial world, that every country shall import all that it would haveimported, and export all that it would have exported, if exchanges hadtaken place, as in the example above supposed, by barter. 

To this branch of the subject we shall, in the sequel of this essay, return. At present it will be more convenient that we should continue tosuppose, that exchanges take place by the direct trucking of onecommodity against another. 

It is established, that the advantage which two countries derive fromtrading with each other, results from the more advantageous employmentwhich thence arises, of the labour and capital--for shortness let us saythe labour--of both jointly. The circumstances are such, that if eachcountry confines itself to the production of one commodity, there is agreater total return to the labour of both together; and this increaseof produce forms the whole of what the two countries taken together gainby the trade. 

It is the purpose of the present essay to inquire, in what proportionthe increase of produce, arising from the saving of labour, is dividedbetween the two countries. 

This question was not entered into by Mr. Ricardo, whose attention wasengrossed by far more important questions, and who, having a science tocreate, had not time, or room, to occupy himself with much more than theleading principles. When he had done enough to enable any one who cameafter him, and who took the necessary pains, to do all the rest, he wassatisfied. He very rarely followed out the principles of the scienceinto the ramifications of their consequences. But we believe that to noone, who has thoroughly entered into the spirit of his discoveries, willeven the minutiae of the science offer any difficulty but that which isconstituted by the necessity of patience and circumspection in tracingprinciples to their results. 

Mr. Ricardo, while intending to go no further into the question of theadvantage of foreign trade than to show what it consisted of, and underwhat circumstances it arose, unguardedly expressed himself as if each ofthe two countries making the exchange separately gained the whole of thedifference between the comparative costs of the two commodities in onecountry and in the other. But, the whole gain of both countriestogether, consisting in the saving of labour; and the saving of labourbeing exactly equal to the difference between the costs, in the twocountries, of the one commodity as compared with the other; the twocountries taken together gain no more than this difference: and ifeither country gains the whole of it, the other country derives noadvantage from the trade. 

Suppose, for example, that 10 yards of broad cloth cost in England asmuch labour as 15 yards of linen, and in Germany as much as 20. IfEngland sends 10 yards of broad cloth to Germany, and is able toexchange them for linen according to the German cost of production, shewill get 20 yards of linen, with a quantity of labour with which shecould not have produced more than 15; and will gain, therefore, 5 yardson every 15, or 33-1/3 per cent. But in this case Germany would obtainonly 10 yards of cloth for 20 of linen. Now, 10 yards of cloth costexactly the same quantity of labour in Germany as 20 of linen; Germany, therefore, derives no advantage from the trade, more than she wouldpossess if it did not exist. 

So, on the other hand, if Germany sends 15 yards of linen to England, and finding the relative value of the two articles in that countrydetermined by the English costs of production, is enabled to purchasewith 35 yards of linen 10 yards of cloth; Germany now gains 5 yards, just as England did before, --for with 15 yards of linen she purchases 10yards of cloth, when to produce these 10 yards she must have employed asmuch labour as would have enabled her to produce 20 yards of linen. Butin this case England would gain nothing: she would only obtain, for her10 yards of cloth, 15 yards of linen, which is exactly the comparativecost at which she could have produced them. 

This, which was not an error, but a mere oversight of Mr. Ricardo, arising from his having left the question of the division of theadvantage entirely unnoticed, was first corrected in the third editionof Mr. Mill's _Elements of Political Economy_. It can hardly, however, be said that Mr. Mill has prosecuted the inquiry any further; which, indeed, would have been quite as inconsistent with the nature of hisplan as of Mr. Ricardo's. 

1. When the trade is established between the two countries, the twocommodities will exchange for each other at the same rate of interchangein both countries--bating the cost of carriage, of which, for the present, it will be more convenient to omit the consideration. Supposing, therefore, for the sake of argument, that the carriage of the commodities from onecountry to another could be effected without labour and without cost, nosooner would the trade be opened than, it is self-evident, the value ofthe two commodities, estimated in each other, would come to a level inboth countries. 

If we knew what this level would be, we should know in what proportionthe two countries would share the advantage of the trade. 

When each country produced both commodities for itself, 10 yards ofbroad cloth exchanged for 15 yards of linen in England, and for 20 inGermany. They will now exchange for the same number of yards of linen inboth. For what number? If for 15 yards, England will be just as she was, and Germany will gain all. If for 20 yards, Germany will be as before, and England will derive the whole of the benefit. If for any numberintermediate between 15 and 20, the advantage will be shared between thetwo countries. If, for example, 10 yards of cloth exchange for 18 oflinen, England will gain an advantage of 3 yards on every 15, Germanywill save 2 out of every 20. 

The problem is, what are the causes which determine the proportion inwhich the cloth of England and the linen of Germany will exchange foreach other?

This, therefore, is a question concerning exchangeable value. There mustbe something which determines how much of one commodity anothercommodity will purchase; and there is no reason to suppose that the lawof exchangeable value is more difficult of ascertainment in this casethan in other cases. 

The law, however, cannot be precisely the same as in the common cases. When two articles are produced in the immediate vicinity of one another, so that, without expatriating himself, or moving to a distance, acapitalist has the choice of producing one or the other, the quantitiesof the two articles which will exchange for each other will be, on theaverage, those which are produced by equal quantities of labour. Butthis cannot be applied to the case where the two articles are producedin two different countries; because men do not usually leave theircountry, or even send their capital abroad, for the sake of those smalldifferences of profit which are sufficient to determine their choice ofa business, or of an investment, in their own country and neighbourhood. 

The principle, that value is proportional to cost of production, beingconsequently inapplicable, we must revert to a principle anterior tothat of cost of production, and from which this last flows as aconsequence, --namely, the principle of demand and supply. 

In order to apply this principle, with any advantage, to the solution ofthe question which now occupies us, the principle itself, and the ideaattached to the term demand, must be conceived with a precision, whichthe loose manner in which the words are used generally prevents. 

It is well known that the quantity of any commodity which can bedisposed of, varies with the price. The higher the price, the fewer willbe the purchasers, and the smaller the quantity sold. The lower theprice, the greater will in general be the number of purchasers, and thegreater the quantity disposed of. This is true of almost all commoditieswhatever: though of some commodities, to diminish the consumption in anygiven degree would require a much greater rise of price than of others. 

Whatever be the commodity--the supply in any market being given, thereis some price at which the whole of the supply exactly will findpurchasers, and no more. That, whatever it be, is the price at which, bythe effect of competition, the commodity will be sold. If the price behigher, the whole of the supply will not be disposed of, and thesellers, by their competition, will bring down the price. If the pricebe lower, there will be found purchasers for a larger supply, and thecompetition of these purchasers will raise the price. 

This, then, is what we mean, when we say that price, or exchangeablevalue, depends on demand and supply. We should express the principlemore accurately, if we were to say, the price so regulates itself thatthe demand shall be exactly sufficient to carry off the supply. 

Let us now apply the principle of demand and supply, thus understood, tothe interchange of broadcloth and linen between England and Germany. 

As exchangeable value in this case, as in every other, is proverbiallyfluctuating, it does not matter what we suppose it to be when we begin;we shall soon see whether there be any fixed point about which itoscillates--which it has a tendency always to approach to, and to remainat. 

Let us suppose, then, that by the effect of what Adam Smith calls thehiggling of the market, 10 yards of cloth, in both countries, exchangefor 17 yards of linen. 

The demand for a commodity, that is, the quantity of it which can find apurchaser, varies, as we have before remarked, according to the price. In Germany, the price of 10 yards of cloth is now 17 yards of linen; orwhatever quantity of money is equivalent in Germany to 17 yards oflinen. Now, that being the price, there is some particular number ofyards of cloth, which will be in demand, or will find purchasers, atthat price. There is some given quantity of cloth, more than which couldnot be disposed of at that price, --less than which, at that price, wouldnot fully satisfy the demand. Let us suppose this quantity to be, 1000times 10 yards. 

Let us now turn our attention to England. There, the price of 17 yardsof linen is 10 yards of cloth, or whatever quantity of money isequivalent in England to 10 yards of cloth. There is some particularnumber of yards of linen, which, at that price, will exactly satisfy thedemand, and no more. Let us suppose that this number is 1000 times 17yards. 

As 17 yards of linen are to 30 yards of cloth, so are 1000 times 17yards to 1000 times 10 yards. At the existing exchangeable value, thelinen which England requires, will exactly pay for the quantity of clothwhich, on the same terms of interchange, Germany requires. The demand oneach side is precisely sufficient to carry off the supply on the other. The conditions required by the principle of demand and supply arefulfilled, and the two commodities will continue to be interchanged, aswe supposed them to be, in the ratio of 17 yards of linen for 10 yardsof cloth. 

But our supposition might have been different. Suppose that, at theassumed rate of interchange, England had been disposed to consume nogreater quantity of linen than 800 times 17 yards; it is evident that, at the rate supposed, this would not have sufficed to pay for the 1000times 10 yards of cloth, which we have supposed Germany to require atthe assumed value. Germany would be able to procure no more than 800times 10 yards, at that price. To procure the remaining 200, which shewould have no means of doing but by bidding higher for them, she wouldoffer more than 17 yards of linen in exchange for 10 yards of cloth; letus suppose her to offer 18. At that price, perhaps, England would beinclined to purchase a greater quantity of linen. She could consume, possibly, at that price, 900 times 18 yards. On the other hand, clothhaving risen in price, the demand of Germany for it would, probably, have diminished. If, instead of 1000 times 10 yards, she is nowcontented with 900 times ten yards, these will exactly pay for the 900times 18 yards of linen which England is willing to take at the alteredprice: the demand on each side will again exactly suffice to take offthe corresponding supply; and 10 yards for 18 will be the rate at which, in both countries, cloth will exchange for linen. 

The converse of all this would have happened if instead of 800 times 17yards, we had supposed that England, at the rate of 10 for 17, wouldhave taken 1200 times 17 yards of linen. In this case, it is Englandwhose demand is not fully supplied; it is England who, by bidding formore linen, will alter the rate of interchange to her own disadvantage;and 10 yards of cloth will fall, in both countries, below the value of17 yards of linen. By this fall of cloth, or what is the same thing, this rise of linen, the demand of Germany for cloth will increase, andthe demand of England for linen will diminish, till the rate ofinterchange has so adjusted itself that the cloth and the linen willexactly pay for another; and when once this point is attained, valueswill remain as they are. 

It may be considered, therefore, as established, that when two countriestrade together in two commodities, the exchangeable value of thesecommodities relatively to each other will adjust itself to theinclinations and circumstances of the consumers on both sides, in suchmanner that the quantities required by each country, of the articlewhich it imports from its neighbour, shall be exactly sufficient to payfor one another. As the inclinations and circumstances of consumerscannot be reduced to any rule, so neither can the proportions in whichthe two commodities will be interchanged. We know that the limits withinwhich the variation is confined are the ratio between their costs ofproduction in the one country, and the ratio between their costs ofproduction in the other. Ten yards of cloth cannot exchange for morethan 20 yards of linen, nor for less than 15. But they may exchange forany intermediate number. The ratios, therefore, in which the advantageof the trade may be divided between the two nations, are various. Thecircumstances on which the proportionate share of each country moreremotely depends, admit only of a very general indication. 

It is even possible to conceive an extreme case, in which the whole ofthe advantage resulting from the interchange would be reaped by oneparty, the other country gaining nothing at all. There is no absurdityin the hypothesis, that of some given commodity a certain quantity isall that is wanted at any price, and that when that quantity isobtained, no fall in the exchangeable value would induce other consumersto come forward, or those who are already supplied to take more. Let ussuppose that this is the case in Germany with cloth. Before her tradewith England commenced, when 10 yards of cloth cost her as much labouras 20 yards of linen, she nevertheless consumed as much cloth as shewanted under any circumstances, and if she could obtain it at the rateof 10 yards of cloth for 15 of linen, she would not consume more. Letthis fixed quantity be 1000 times 10 yards. At the rate, however, of 10for 20, England would want more linen than would be equivalent to thisquantity of cloth. She would consequently offer a higher value forlinen; or, what is the same thing, she would offer her cloth at acheaper rate. But as by no lowering of the value could she prevail onGermany to take a greater quantity of cloth, there would be no limit tothe rise of linen, or fall of cloth, until the demand of England forlinen was reduced by the rise of its value, to the quantity which onethousand times ten yards of cloth would purchase. It might be, that toproduce this diminution of the demand, a less fall would not suffice, than one which would make 10 yards of cloth exchange for 15 of linen. Germany would then gain the whole of the advantage, and England would beexactly as she was before the trade commenced. It would be for theinterest, however, of Germany herself, to keep her linen a little belowthe value at which it could be produced in England, in order to keepherself from being supplanted by the home producer. England, therefore, would always benefit in some degree by the existence of the trade, though it might be in a very trifling one. 

But in general there will not be this extreme inequality in the degreein which the demand in the two countries varies with variations in theprice. The advantage will probably be divided equally, oftener than inany one unequal ratio that can be named; though the division will bemuch oftener, on the whole, unequal than equal. 

2. We shall now examine whether the same law of interchange, which wehave shown to apply upon the supposition of barter, holds good after theintroduction of money. Mr. Ricardo found that his more generalproposition stood this test; and as the proposition which we have justdemonstrated is only a further developement of his principle, we shallprobably find that it suffers a little, by a mere change in the mode(for it is no more) in which one commodity is exchanged against another. 

We may at first make whatever supposition we will with respect to thevalue of money. Let us suppose, therefore, that before the opening ofthe trade, the price of cloth is the same in both countries, namely, sixshillings per yard [2]. As 10 yards of cloth were supposed to exchange inEngland for 5 yards of linen, in Germany for 20, we must suppose thatlinen is sold in England at four shillings per yard, in Germany atthree. Cost of carriage and importer's profit are left as before, out ofconsideration. 

In this state of prices, cloth, it is evident, cannot yet be exportedfrom England into Germany. But linen can be imported from Germany intoEngland. It will be so, and, in the first instance, the linen will bepaid for in money. 

The efflux of money from England, and its influx into Germany, willraise money prices in the latter country, and lower them in the former. Linen will rise in Germany above three shillings per yard, and clothabove six shillings. Linen in England being imported from Germany, will(since cost of carriage is not reckoned) sink to the same price as inthat country, while cloth will fall below six shillings. As soon as theprice of cloth is lower in England than in Germany, it will begin to beexported, and the price of cloth in Germany will fall to what it is inEngland. As long As the cloth exported does not suffice to pay for thelinen imported, money will continue to flow from England into Germany, and prices generally will continue to fall in England, and rise inGermany. By the fall, however, of cloth in England, cloth will fall inGermany also, and the demand for it will increase. By the rise of linenin Germany, linen must rise in England also, and the demand for it willdiminish. Although the increased exportation of cloth takes place at alower price, and the diminished importation of linen at a higher, yetthe total money value of the exportation would probably increase, thatof the importation diminish. As cloth fell in price and linen rose, there would be some particular price of both articles at-which the clothexported, and the linen imported, would exactly pay for each other. Atthis point prices would remain, because money would then cease to moveout of England into Germany. What this point might be, would entirelydepend upon the circumstances and inclinations of the purchasers on bothsides. If the fall of cloth did not much increase the demand for it inGermany, and the rise of linen did not diminish very rapidly the demandfor it in England, much money must pass before the equilibrium isrestored; cloth would fall very much, and linen would rise, untilEngland, perhaps, had to pay nearly as much for it as when she producedit for herself. But if, on the contrary, the fall of cloth caused a veryrapid increase of the demand for it in Germany, and the rise of linen inGermany reduced very rapidly the demand in England from what it wasunder the influence of the first cheapness produced by the opening ofthe trade; the cloth would very soon suffice to pay for the linen, little money would pass between the two countries, and England wouldderive a large portion of the benefit of the trade. We have thus arrivedat precisely the same conclusion, in supposing the employment of money, which we found to hold under the supposition of barter. 

In what shape the benefit accrues to the two nations from the trade, isclear enough. Germany, before the commencement of the trade, paid sixshillings per yard for broad-cloth. She now obtains it at a lower price. This, however, is not the whole of her advantage. As the money prices ofall her other commodities have risen, the money incomes of all herproducers have increased. This is no advantage to them in buying fromeach other; because the price of what they buy has risen in the sameratio with their means of paying for it: but it is an advantage to themin buying any thing which has not risen; and still more, any thing whichhas fallen. They therefore benefit as consumers of cloth, not merely tothe extent to which cloth has fallen, but also to the extent to whichother prices have risen. Suppose that this is one-tenth. The sameproportion of their money incomes as before, will suffice to supplytheir other wants, and the remainder, being increased one-tenth inamount, will enable them to purchase one-tenth more cloth than before, even though cloth had not fallen. But it has fallen: so that they aredoubly gainers. If they do not choose to increase their consumption ofcloth, this does not prevent them from being gainers. They purchase thesame quantity with less money, and have more to expend upon their otherwants. 

In England, on the contrary, general money-prices have fallen. Linen, however, has fallen more than the rest; having been lowered in price, byimportation from a country where it was cheaper, whereas the others havefallen only from the consequent efflux of money. Notwithstanding, therefore, the general fall of money-prices, the English producers willbe exactly as they were in all other respects, while they will gain aspurchasers of linen. 

The greater the efflux of money required to restore the equilibrium, thegreater will be the gain of Germany; both by the fall of cloth, and bythe rise of her general prices. The less the efflux of money requisite, the greater will be the gain of England; because the price of linen willcontinue lower, and her general prices will not be reduced so much. Itmust not, however, be imagined that high money-prices are a good, andlow money-prices an evil, in themselves. But the higher the generalmoney-prices in any country, the greater will be that country's meansof purchasing those commodities which, being imported from abroad, areindependent of the causes which keep prices high at home. 

3. We have hitherto supposed the carriage to be performed without labouror expense. If we abandon this supposition, we must correct thestatement of the case in a slight degree. The prices of the two articleswill no longer, when the trade is opened, be the same in both countries, nor will the articles exchange for one another at the same rate in both. Ten yards of cloth will purchase in Germany a quantity of linen greaterthan in England by a per-centage equal to the entire cost of conveyanceboth of the cloth to Germany and of the linen to England. Themoney-price of linen will be higher in England than in Germany, by thecost of carriage of the linen. The money-price of cloth will be higherin Germany than in England, by the cost of carriage of the cloth. 

The expense of the carriage is evidently a deduction _pro tanto_ fromthe saving of labour produced by the establishment of the trade. The twocountries together, therefore, have their gains by the trade diminished, by the amount of the cost of carriage of both commodities. But here thequestion arises, which of the two countries bears this deduction, or inwhat proportion it is divided between them. 

At the first inspection it would appear that each country bears its owncost of carriage, that is, that each country pays the carriage of thecommodity which it imports. Upon this supposition, each country wouldgain whatever share of the joint saving of labour would otherwise fallto its lot, _minus_ the cost of bringing from the other country thecommodity which it imports. This solution is rendered plausible by thecircumstance just now mentioned, that the price of the commodity will behigher in the country which imports it, than in the country whichexports it, by the amount of the cost of carriage. If linen is sold inEngland at a higher price than in Germany, by a per-centage equal to thecost of carriage of the linen, it appears obvious that England pays forthe carriage of the linen, and Germany, by parity of reason, for that ofthe cloth. 

But if we apply to these questions the principles already explained, weshall see that this is not by any means a universal law: the fact maycorrespond with it, or it may not. 

For suppose that the prices have adjusted themselves, no matter how, andthat the imports and exports balance one another, each commodity, ofcourse, being dearer by the cost of carriage, in the country whichimports than in that which exports it: and suppose now that the cost ofcarriage, both of the one and of the other, were suddenly andmiraculously annihilated, and that the commodities could pass fromcountry to country without expense. If each country bore its own cost ofcarriage before, each country will save its own cost of carriage now. Cloth, in Germany, will in that case fall exactly to what it is inEngland; linen in England, to what it is in Germany. 

Now this fall of price, supposing it to happen, will probably affect thedemand on both sides; and it will either affect it alike in bothcountries, or it will affect it unequally. It will affect it alike, ifthe fall of price does not affect the demand at all, or if it affects itequally in both countries. If either of these results should take place, the cloth and the linen would continue to balance each other as before:no money would pass from one country to the other; prices in both wouldcontinue at the point to which they had fallen, and each country wouldexactly save the cost of carriage on the commodity which it imports fromthe other. 

But the result might be, that the fall of price might not have an effectexactly equal, on the demand in the two countries. Suppose, forinstance, that the fall of cloth in Germany owing to the saving of thecost of carriage, did not increase the demand for cloth in Germany; butthat the fall of linen in England from a like cause, did increase thedemand for linen in England. The linen imported would be more than couldbe paid for by the cloth exported: the difference must be paid in money:the change in the distribution of the precious metals between the twocountries would lower the price of cloth in England, (and consequentlyin Germany), while it would raise the price of linen in Germany, (andconsequently in England). Germany, therefore, by the annihilation ofcost of carriage, would save in price more than the cost of carriage ofthe cloth; England would save less in price than the cost of carriage ofthe linen. But if by the miraculous annihilation of cost of carriage, England would not _save_ the whole of the carriage of her imports, itfollows that England did not previously _pay_ the whole of that cost ofcarriage. 

Thus, the division of the cost of trade, and the division of theadvantage of trade, are governed by precisely the same principles; andthe only general proposition which can be affirmed respecting the costis, that it is _pro tanto_ a deduction from the advantage. It cannoteven be maintained that the cost is shared in the same proportion as theadvantage is; because the increase of the demand for a commodity as itsprice falls, is not governed by any fixed law. Suppose, for instance, that the advantage happened to be divided equally: this must be becausethe greater cheapness arising from the establishment of the trade, either did not affect the demand at all, or affected it in an equalproportion on both sides. Now, because such is the effect of the degreeof increased cheapness resulting from importation burthened with cost ofcarriage, it would not follow that the still greater degree ofcheapness, produced by the additional saving of the cost of carriageitself, would also affect the demand of both countries in precisely anequal degree. But we cannot be said to bear an expense, which, if saved, would be saved to somebody else, and not to us. Two countries may haveequal shares of the clear benefit of the trade, while, if the cost ofcarriage were saved, they would divide that saving unequally. If so, they divide the gross gain in one unequal ratio, the cost in anotherunequal ratio, though their shares of the cost being deducted from theirshares of the gain leave equal remainders. 

4. The question naturally suggests itself, whether any country, by itsown legislative policy, can engross to itself a larger share of thebenefits of foreign commerce, than would fall to it in the natural orspontaneous course of trade. 

The answer is, it can. By taxing exports, for instance, we may, undercertain circumstances, produce a division of the advantage of the trademore favourable to ourselves. In some cases, we may draw into ourcoffers, at the expense of foreigners, not only the whole tax, but morethan the tax: in other cases, we should gain exactly the tax, --inothers, less than the tax. In this last case, a part of the tax is borneby ourselves: possibly the whole, possibly even, as we shall show, morethan the whole. 

Suppose that England taxes her export of cloth: the tax not beingsupposed high enough to induce Germany to produce cloth for herself. Theprice at which cloth can be sold in Germany is augmented by the tax. This will probably diminish the quantity consumed. It may diminish it somuch, that even at the increased price, there will not be required sogreat a money value as before. It may diminish it in such a ratio, thatthe money value of the quantity consumed will be exactly the same asbefore. Or it may not diminish it at all, or so little, that, inconsequence of the higher price, a greater money value will be purchasedthan before. In this last case, England will gain, at the expense ofGermany, not only the whole amount of the duty, but more. For the moneyvalue of her exports to Germany being increased, while her importsremain the same, money will flow into England from Germany. The price ofcloth will rise in England, and consequently in Germany; but the priceof linen will fall in Germany, and consequently in England, We shallexport less cloth, and import more linen, till the equilibrium isrestored. It thus appears, what is at first sight somewhat remarkable, that, by taxing her exports, England would, under some conceivablecircumstances, not only gain from her foreign customers the whole amountof the tax, but would also get her imports cheaper. She would get themcheaper in two ways, --for she would obtain them for less money, andwould have more money to purchase them with. Germany, on the other hand, would suffer doubly: she would have to pay for her cloth a priceincreased not only by the duty, but by the influx of money into England, while the same change in the distribution of the circulating mediumwould leave her less money to purchase it with. 

This, however, is only one of three possible cases. If, after theimposition of the duty, Germany requires so diminished a quantity ofcloth, that its total money value is exactly the same as before, thebalance of trade will be undisturbed; England will gain the duty, Germany will lose it, and nothing more. If, again, the imposition of theduty occasions such a falling off in the demand, that Germany requires aless pecuniary value than before, our exports will no longer pay for ourimports, money must pass from England into Germany, and Germany's shareof the advantage of the trade will be increased. By the change in thedistribution of money, cloth will fall in England; and therefore itwill, of course, fall in Germany. Thus Germany will not pay the whole ofthe tax. From the same cause, linen will rise in Germany, andconsequently in England. When this alteration of prices has so adjustedthe demand, that the cloth and the linen again pay for one another, theresult is, that Germany has paid only a part of the tax, and theremainder of what has been received into our treasury has comeindirectly out of the pockets of our own consumers of linen, who pay ahigher price for that imported commodity, in consequence of the tax onour exports, which at the same time they, in consequence of the effluxof money and consequent fall of prices, have smaller money incomeswherewith to pay for the linen at that advanced price. 

It is not an impossible supposition that, by taxing our exports, wemight not only gain nothing from the foreigner, the tax being paid outof our own pockets, but might even compel our own people to pay a secondtax to the foreigner. Suppose, as before, that the demand of Germany forcloth falls off so much on the imposition of the duty, that she requiresa smaller money value than before, but that the case is so differentwith linen in England, that when the price rises the demand either doesnot fall off at all, or so little that the money value required isgreater than before. The first effect of laying on the duty is, asbefore, that the cloth exported will no longer pay for the linenimported. Money will, therefore, flow out of England into Germany. Oneeffect is to raise the price of linen in Germany, and, consequently, inEngland. But this, by the supposition, instead of stopping the efflux ofmoney, only makes it greater, because the higher the price, the greaterthe money value of the linen consumed. The balance, therefore, can onlybe restored by the other effect, which is going on at the same time, namely, the fall of cloth in the English, and, consequently, in theGerman market. Even when cloth has fallen so low that its price with theduty is only equal to what its price without the duty was at first, itis not a necessary consequence that the fall will stop; for the sameamount of exportation as before will not now suffice to pay theincreased money value of the imports; and although the German consumershave now not only cloth at the old price, but likewise increased moneyincomes, it is not certain that they will be inclined to employ theincrease of their incomes in increasing their purchases of cloth. Theprice of cloth, therefore, must perhaps fall, to restore theequilibrium, more than the whole amount of the duty; Germany may beenabled to import cloth at a lower price when it is taxed, than when itwas untaxed: and this gain she will acquire at the expense of theEnglish consumers of linen, who, in addition, will be the real payers ofthe whole of what is received at their own custom-house under the nameof duties on the export of cloth. 

Such are the extremely various effects which may result to ourselves, and to our customers, from the imposition of taxes on our exports [3]:and the determining circumstances are of a nature so imperfectlyascertainable, that it must be almost impossible to decide with anycertainty, even after the tax has been imposed, whether we have beengainers by it or losers. It is certain, however, that whatever we gain, is lost by somebody else, and there is the expense of the collectionbesides: if international morality, therefore, were rightly understoodand acted upon, such taxes, as being contrary to the universal weal, would not exist. Moreover, the imposition of such a tax frequently will, and always may, expose a country to lose this branch of its tradealtogether, or to carry it on with diminished advantage, in consequenceof the competition of untaxed exporters from other countries, or of thedomestic producers in the country to which it exports. Even on the mostselfish principles, therefore, the benefit of such a tax is alwaysextremely precarious. 

5. We have had an example of a tax on exports, that is, on foreigners, falling in part on ourselves. We shall, therefore, not be surprised ifwe find a tax on imports, that is, on ourselves, partly falling uponforeigners. 

Instead of taxing the cloth which we export, suppose that we tax thelinen which we import. The duty which we are now supposing must not bewhat is termed a protecting duty, that is, a duty sufficiently high toinduce us to produce the article at home. If it had this effect, itwould destroy entirely the trade both in cloth and in linen, and bothcountries would lose the whole of the advantage which they previouslygained by exchanging those commodities with one another. We suppose aduty which might diminish the consumption of the article, but whichwould not prevent us from continuing to import, as before, whateverlinen we did consume. 

The equilibrium of trade would be disturbed if the imposition of the taxdiminished in the slightest degree the quantity of linen consumed. For, as the tax is levied at our own custom-house, the German exporter onlyreceives the same price as formerly, though the English consumer pays ahigher one. If, therefore, there be any diminution of the quantitybought, although a larger sum of money may be actually laid out in thearticle, a smaller one will be due from England to Germany: this sumwill no longer be an equivalent for the sum due from Germany to Englandfor cloth, the balance therefore must be paid in money. Prices will fallin Germany, and rise in England; linen will fall in the German market;cloth will rise in the English. The Germans will pay higher price forcloth, and will have smaller money incomes to buy it with; while theEnglish will obtain linen cheaper, that is, its price will exceed whatit previously was by less than the amount of the duty, while their meansof purchasing it will be increased by the increase of their moneyincomes. 

If the imposition of the tax does not diminish the demand, it will leavethe trade exactly as it was before. We shall import as much, and exportas much; the whole of the tax will be paid out of our own pockets. 

But the imposition of a tax on a commodity, almost always diminishes thedemand more or less; and it can never, or scarcely ever increase thedemand. It may, therefore, be laid down as a principle, that a tax onimported commodities, when it really operates as a tax, and not as aprohibition, either total or partial, almost always falls in part uponthe foreigners who consume our goods: and that this is a mode in which anation may be almost sure of appropriating to itself, at the expense offoreigners, a larger share than would otherwise belong to it of theincrease in the general productiveness of the labour and capital of theworld, which results from the interchange of commodities among nations. 

It is scarcely necessary to observe, that no such advantage can resultfrom the duty, if it operate as a protecting duty; if it induce thecountry which imposes it, to produce for herself that which she wouldotherwise have imported. The saving of labour--the increase in thegeneral productiveness of the capital of the world--which is the effectof commerce, and which a non-protecting duty would enable the countryimposing it to engross, could not be engrossed by a protecting duty, because such a duty prevents any such increased production fromexisting. 

With a view to practical legislation, therefore, duties on importationmay be divided into two classes: those which have the effect ofencouraging some particular branch of domestic industry, and those whichhave not. 

The former are purely mischievous, both to the country imposing them, and to those with whom it trades. They prevent a saving of labour andcapital, which, if permitted to be made, would be divided in someproportion or other between the importing country and the countrieswhich buy what that country does or might export. 

The other class of duties are those which do not encourage one mode ofprocuring an article at the expense of another, but allow interchange totake place just as if the duty did not exist--and to produce the savingof labour which constitutes the motive to international as to all othercommerce. Of this kind, are duties on the importation of any commoditywhich could not by any possibility be produced at home; and duties notsufficiently high to counterbalance the difference of expense betweenthe production of the article at home, and its importation. Of the moneywhich is brought into the treasury of any country by taxes of this lastdescription, a part only is paid by the people of that country; theremainder by the foreign consumers of their goods. 

Nevertheless, this latter kind of taxes are in principle as ineligibleas the former, although not precisely on the same ground. A protectingduty can never be a cause of gain, but always and necessarily of loss, to the country imposing it, just so far as it is efficacious to its end. A non-protecting duty on the contrary would, in most cases, be a sourceof gain to the country imposing it, in so far as throwing part of theweight of its taxes upon other people is a gain; but it would be a meansof gain which it could seldom be advisable to adopt, being so easilycounteracted by a precisely similar proceeding on the other side. 

If England, in the case already supposed, sought to obtain for herselfmore than her natural share of the advantage of the trade with Germany, by imposing a duty upon cloth, Germany would only have to impose a dutyupon linen, sufficient to diminish the demand for that article about asmuch as the demand for cloth had been diminished in England by the tax. Things would then be as before, and each country would pay its own tax. Unless, indeed, the sum of the two duties exceeded the entire advantageof the trade; for in that case the trade, and its advantage, would ceaseentirely. 

There would be no advantage, therefore, in imposing duties of this kind, with a view to gain by them, in the manner which has been pointed out. But so long as any other kind of taxes on commodities are retained, as asource of revenue, these may often be as unobjectionable as the rest. Itis evident, moreover, that considerations of reciprocity, which arequite unessential when the matter in debate is a protecting duty, are ofmaterial importance when the repeal of duties of this other descriptionis discussed. A country cannot be expected to renounce the power oftaxing foreigners, unless foreigners will in return practise towardsitself the same forbearance. The only mode in which a country can saveitself from being a loser by the duties imposed by other countries onits commodities, is to impose corresponding duties on theirs. Only itmust take care that these duties be not so high as to exceed all thatremains of the advantage of the trade, and put an end to importationaltogether; causing the article to be either produced at home, orimported from another and a dearer market. 

It is not necessary to apply the principles which we have stated to thecase of bounties on exportation or importation. The application is easy, and the conclusions present nothing of particular interest orimportance. 

6. Any cause which alters the exports or imports from one country intoanother, alters the division of the advantage of interchange betweenthose two countries. Suppose the discovery of a new process, by whichsome article of export, or some article not previously exported, can beproduced so cheap as to occasion a great demand for it in othercountries. This of course produces a great influx of money from othercountries, and lowers the prices of all articles imported from them, until the increase of importation produced by this cause has restoredthe equilibrium. Thus, the country which acquires a new article ofexport gets its imports cheaper. This is not a case of mere alterationin the division of the advantage; it is a new advantage created by thediscovery. 

But suppose that the invention, to which the nation is indebted for thisincrease of the return to its industry, comes into use also in the othercountry, and that the process is one which can be as perfectly and ascheaply performed in the one country as in the other. The newexportation will cease; trade will revert to its old channels, the moneywhich flowed in will again flow out, and the country which invented theprocess will lose that increase of its gain by trade, which it hadderived from the discovery. 

Now the exportation of machinery comes within the case which we havejust described. 

If the fact be, that by allowing to foreigners a participation in ourmachinery, we enable them to produce any of our leading articles ofexport, at a lower money price than we can sell those articles, it iscertain that unless we possess as great an advantage in the productionof the machinery itself as we have in the production of other articlesby means of machinery, the permitting of its exportation would alter toour disadvantage the division of the benefit of trade. Our exports beingdiminished, we should have to pay a balance in money. This would raise, in foreign countries, the price of everything which we import fromthence: while our incomes, being reduced in money value, would renderus less able to buy those articles even if they had not risen. Theequilibrium of exports and imports would only be restored, when eithersome of the latter became so dear that we could produce them cheaper athome, or some articles not previously exported became exportable fromthe fall of prices. In the one case, we lose the benefit of importationaltogether, and are obliged to produce at home, at a greater cost. Inthe other case, we continue to import, but pay dearer for our imports. 

Notwithstanding what has now been observed, restrictions on theexportation of machinery are not, in our opinion, justifiable, either onthe score of international morality or of sound policy. It is evidentlythe common interest of all nations that each of them should abstain fromevery measure by which the aggregate wealth of the commercial worldwould be diminished, although of this smaller sum total it might therebybe enabled to attract to itself a larger share. And the time willcertainly come when nations in general will feel the importance of thisrule, and will so direct their approbation and disapprobation as toenforce observance of it. Moreover, a country possessing machines shouldconsider that if a similar advantage were extended to other countries, they would employ it above all in the production of those articles, inwhich they had already the greatest natural advantages; and if theformer country would be a loser by their improvements in the productionof articles which it sells, it would gain by their improvements in thosewhich it buys. The exportation of machinery may, however, be a propersubject for adjustment with other nations, on the principle ofreciprocity. Until, by the common consent of nations, all restrictionsupon trade are done away, a nation cannot be required to abolish thosefrom which she derives a real advantage, without stipulating for anequivalent. 

7. The case which we have just examined, is an example in how remarkablea manner every cause which materially influences exports, operates uponthe prices of imports. According to the ancient theory of the balance oftrade, and to the associations of the generality of what are termedpractical men to this day, the sole benefit derived from commerceconsists in the exports, and imports are rather an evil than otherwise. Political economists, seeing the folly of these views, and clearlyperceiving that the advantage of commerce consists and must consistsolely of the imports, have occasionally suffered themselves to employlanguage evincing inattention to the fact, that exports, thoughunimportant in themselves, are important by their influence on imports. So real and extensive is this influence, that every new market which isopened for any of our goods, and every increase in the demand for ourcommodities in foreign countries, enables us to supply ourselves withforeign commodities at a smaller cost. 

Let us revert to our earliest and simplest example, but which displaysthe real law of interchange more luminously than any formula into whichmoney enters; the case of simple barter. We showed, that if at the rateof 10 yards of cloth for 17 of linen, the demand of Germany amounted to1000 times 10 yards of cloth, the two nations will trade together atthat rate of interchange, provided that the linen required in England beexactly 1000 times 17 yards, neither more nor less. For the cloth andthe linen will then exactly pay for one another, and nobody on eitherside will be obliged to offer what he has to sell at a lower rate, inorder to procure what he wants to buy. 

Now if the increase of wealth and population in Germany should greatlyincrease the demand in that country for cloth, the demand for linen inEngland not increasing in the same ratio, --if, for instance, Germanybecame willing, at the above rate, to take 1500 times 10 yards; is itnot evident, that to induce England to take in exchange for this theonly article which Germany by supposition has to give, the latter mustoffer it at a rate more advantageous to England--at 18, or perhaps 19yards, for 10 of cloth? So that the division of the advantage becomesmore and more favourable to a country, in proportion as the demand forits commodities increases in foreign countries. 

It is not even necessary that the country which takes its goods, shouldsupply it with any commodity whatever. Suppose that a country should beopened to our merchants, disposed to buy from us in abundance, but whichcan sell to us scarcely anything, as every commodity which it affordscould be got cheaper by us from some other quarter. Nevertheless, ourtrade with this country will enable us to obtain from all othercountries their commodities at a lower price. At the first opening ofthis commerce of mere exportation, we must have received in payment alarge quantity of money; for which our customer will have beenindemnified by other countries, in exchange for her commodities. Pricesmust consequently be lower in all other countries, and higher with us, than before the opening of the new branch of trade; and we thereforeobtain the commodities of other countries at a less cost, both as we payless money for them, and as that money is lower in value. 

8. Another obvious application of the same principle will enable us toexplain, and to bring within the dominion of strict science, therivality of one exporting nation and another, or what is called, in thelanguage of the mercantile system, _underselling_: a subject whichpolitical economists have taken little trouble to elucidate, from thehabit before alluded to of disregarding almost entirely, in their purelyscientific inquiries, those circumstances which affect the trade of acountry by operating immediately upon the exports. 

Let us revert to our old example, and to our old figures. Suppose thatthe trade between England and Germany in cloth and linen is established, and that the rate of interchange is 10 yards of cloth for 17 of linen. Now suppose that there arises in another country, in Flanders, forexample, a linen manufacture; and that the same causes, the working ofwhich in England and Germany has made 10 yards exchange for 17, would inEngland and Flanders, putting Germany out of the question, have made therate of interchange 10 for 18. It is evident that Germany also must give18 yards of linen for 10 of cloth, and so carry on the trade with adiminished share of the advantage, or lose it altogether. If the play ofdemand in England and Flanders had made the rate of interchange not 10for 18 but 10 for 21, (10 to 20 being in Germany the comparative cost ofproduction, ) it is evident that Germany could not have maintained thecompetition, and would have lost, not part of her share of theadvantage, but all advantage, and the trade itself. 

It would be no answer to say, that Germany could probably still havefound the means of importing cloth from England, by exporting somethingelse. If she had purchased cloth with anything else, she would havepurchased it dearer: as is proved by the fact, that having free choice, she found it most advantageous to purchase it with linen. When she couldget 10 yards of cloth for 17 of linen, that was the mode in which shecould get it with least labour. Being pressed by competition, she gavesuccessively 17, 18, 18; but rather than give 19 yards of linen, sheperhaps would prefer to give, as costing her rather less labour, 10yards of silk, (which we will suppose to be the quantity which inEngland will purchase 10 yards of cloth. ) It is obvious that, althoughGermany has found the means of supplying herself with cloth, byexporting a different article from that in which she was undersold, yetthe advantage of the trade between her and England is now shared in aproportion much less favourable to Germany. 

There is no difficulty in showing that the same series of consequencestakes place in exactly the same manner through the agency of money. Thetrade in cloth and linen between England and Germany being supposed toexist as before, Flanders produces linen at a lower price than that atwhich Germany has hitherto afforded it. The exportation from Germany issuspended; and Germany, continuing to import cloth, pays for it inmoney. By so doing she lowers her own prices, and raises those inEngland: she has to pay more money for cloth, and to pay it in acurrency of higher value. She thus suffers more and more as a consumerof cloth, until by the fall of her prices she can either afford to selllinen as cheap as Flanders, or to export some other commodity which shecould not export before. In either case, her trade resumes its course, but with diminished advantage on her side. [4]

It is in the mode just described, that those countries which formerlysupplied Europe with manufactures, but which owed their power of doingso not to any natural and permanent advantages, but to their moreadvanced state of civilization as compared with other countries, havelost their pre-eminence as other countries successively attained anequal degree of civilization. Lombardy and Flanders, in the middle ages, produced some descriptions of clothing and ornament for all Europe:Holland, at a much later period, supplied ships, and almost all articleswhich came in ships, to most other parts of the world. All thesecountries have probably at this moment a much larger amount of capitalthan ever they had, but having been undersold by other countries, theyhave lost by far the greater part of the share which they had engrossedto themselves of the benefit which the world derives from commerce; andtheir capital yields to them in consequence a smaller proportionalreturn. We are aware that other causes have contributed to the sameeffect, but we cannot doubt that this is a principal one. 

As much as is really true of the great returns alleged to have been madeto capital during the last war, must have arisen from a similar cause. Our exclusive command of the sea excluded from the market all by whom weshould have been undersold. 

The adoption by France, Russia, the Netherlands, and the United States, of a more severely restrictive commercial policy, subsequently to 1815, has done great injury undoubtedly to those countries; for the dutieswhich they have established are intended to be, and really are, of theclass termed _protecting_; that is to say, such as force the productionof commodities by more costly processes at home, instead of sufferingthem to be imported from abroad. But these duties, though chieflyinjurious to the countries imposing them, have also been highlyinjurious to England. By diminishing her exportation, or preventing itfrom increasing as it would otherwise have done, they have kept up theprices of all imported commodities in England, above what those priceswould have fallen to if trade had been left free. 

By another obvious application of the same reasoning, it will be seen, that there is a real foundation for the notion, that a country may bebenefited by receiving from another country the concession of what usedto be termed commercial advantages, or by restraining its colonies frompurchasing goods of any country except itself. In the figuredillustration last used (p. 34) [not available, M. D. ], it is evident, that if England had been bound by a treaty with Germany to buy linenexclusively from her, Germany would have retained the trade which wesupposed her to lose, and would have continued to purchase cloth at acomparatively cheap rate from England, instead of producing it by a morecostly process at home. Suppose that England had been a colony ofGermany, and we see that by compelling colonies to deal at her shop, shemay obtain a real advantage, though of a nature which we may hazard theassertion that the founders of our colonial policy little dreamt of. 

Such an advantage, however, being gained at the expense of anothercountry, is, at the least, simply equivalent to a tax, or tribute. Now, if a country has just grounds, or deems superiority of power asufficient ground, for exacting a tribute from another country, the mostdirect mode is the best. First, because it is the most intelligible, andhas least of trick or disguise. Secondly, because it allows the peopleof the country paying the tribute, to raise the money in whatever waythey consider least oppressive to themselves. Thirdly, because theindirect mode of taxing a country, by restrictions on its commerce, disturbs the distribution of industry most advantageous to the world atlarge, and occasions a greater loss to the restricted country, and tothe other countries with which that country would have traded, than gainto the country in whose favour the restrictions are imposed. And lastly, because a country never could obtain such privileges from an independentnation, and has seldom been so undisguised an oppressor as to demandthem even from its colonies, without subjecting itself to restrictionsin some degree equivalent, for the benefit of those whom it has thustaxed. Each country, therefore, usually pays tribute to the other; andto produce this fruitless reciprocity of exaction, the industry andtrade of both countries are diverted from the most advantageouschannels, and the return to the labour and capital of both isdiminished, in pure loss. 

9. The same principles which have led to the above conclusions, alsosuggest a remark of some importance with respect to the probable effectof a change from a restricted to a comparatively free trade. 

There is no doubt that our prohibiting the importation of a particulararticle, which, but for the prohibition, would have been imported, enables us to obtain our other imports at smaller cost. The article forwhich we have the greatest demand, and for which our demand is mostincreased by cheapness, is that which we should naturally importpreferably to any other; now of this article we should import thequantity necessary to pay for our exports, on terms of interchange lessadvantageous to us than in the case of any other commodity. If ourlegislature prohibits this commodity, the other country will be obligedto offer any other article on easier terms, in order to force asufficient demand for it to be an equivalent to what she purchases fromus. 

The steps of the process, money being used, would be these:--We prohibitthe importation of linen. The exportation of cloth continues, but ispaid for in money. Our prices rise, those in Germany fall, until silk, or some other article, can be imported from Germany cheaper than it canbe produced at home, and in sufficient abundance to balance the exportof cloth. Thus by sacrificing the cheapness of one commodity, we gainthe cheapness of another: but we sacrifice a greater cheapness to gain aless, and we sacrifice cheapness in the article which we most want, andwould import by preference, while our compensation is cheapness in anarticle which we either could produce more advantageously at home, orwhich we have so little desire for, that it requires a species of bountyon the article to create a demand. 

Restrictions on importation do, however, tend to keep down the value andprice of our remaining imports, and to keep up the nominal or moneyprices of all our other commodities, by retaining a greater quantity ofmoney in the country than would otherwise be there. From this itobviously follows, that if the restrictions were removed, we should haveto pay rather more for some of the articles which we now import, whilethose which we are now prevented from importing would cost us more thanmight be inferred from their _present_ price in the foreign market. Andgeneral prices would fall; to the benefit of those who have fixed sumsto receive; to the disadvantage of those who have fixed sums to pay; andgiving rise, as a general fall of prices always does, to an appearance, though a temporary and fallacious one, of general distress. [5]

It is right to observe that the measures of the British Legislaturewhich have been falsely characterised as measures of free trade, must, from their extremely insignificant extent, have produced far too littleeffect in increasing our importation, to have actually led, in anydegree worth mentioning, to the results specified above. 

It is of greater importance to take notice, that these effects may beentirely obviated, if foreign countries can be prevailed uponsimultaneously to relax their restrictive systems, so as to create animmediate increase of demand for our exports at the present prices. Itis true that exports and imports must, in the end, balance one another, and if we increase our imports, our exports will of necessity increasetoo. But it is a forced increase, produced by an efflux of money andfall of prices; and this fall of prices being permanent, although itwould be no evil at all in a country where credit is unknown, it may bea very serious one where large classes of persons, and the nationitself, are under engagements to pay fixed sums of money of largeamount. 

10. The only remaining application of the principle set forth in thisessay, which we think it of importance to notice specially, is theeffect produced upon a country by the annual payment of a tribute orsubsidy to a foreign power, or by the annual remittance of rents toabsentee landlords, or of any other kind of income to its absent owners. Remittances to absentees are often very incorrectly likened in theirgeneral character to the payment of a tribute; from which they differ inthis very material circumstance, that tribute, if not paid to a foreigncountry, is not paid at all, whereas rents are paid to the landlord, andconsumed by him, even if he resides at home. The two kinds of payment, however, have a perfect resemblance to each other in such parts of theireffects as we are about to point out. 

The tribute, subsidy, or remittance, is always in goods; for, unless thecountry possesses mines of the precious metals, and numbers those metalsamong its regular articles of export, it cannot go on, year after year, parting with them, and never receiving them back. When a nation hasregular payments to make in a foreign country, for which it is not toreceive any return, its exports must annually exceed its imports by theamount of the payments which it is bound so to make. In order to force ademand for its exports greater than its imports will suffice to pay for, it must offer them at a rate of interchange more favourable to theforeign country, and less so to itself, than if it had no payments tomake beyond the value of its imports. It therefore carries on the tradewith less advantage, in consequence of the obligations to which it issubject towards persons resident in foreign countries. 

The steps of the process are these. The exports and imports being inequilibrium, suppose a treaty to be concluded, by which the countrybinds itself to pay in tribute to another country, a certain sumannually. It makes, perhaps, the first payment by a remittance of money. This lowers prices in the paying country, and raises them in thereceiving one: the exports of the tributary country increase, itsimports diminish. When the efflux of money has altered prices in therequisite degree, the exports exceed the imports annually, by the amountof the tribute; and the latter, being added to the sum of the paymentsdue, restores the balance of payments between the two countries. Theresult to the tributary country is a diminution of her share in theadvantage of foreign trade. She pays dearer for her imports, in twoways, because she pays more money, and because that money is of highervalue, the money incomes of her inhabitants being of smaller amount. 

Thus the imposition of a tribute is a double burthen to the countrypaying it, and a double gain to that which receives it. The tributarycountry pays to the other, first, the tax, whatever be its amount, andnext, something more, which the one country loses in the increased costof its imports, the other gains in the diminished cost of its own. 

Absenteeism, moreover, though not burthensome in the former of theseways, since the money is paid whether the receiver be an absentee ornot, is yet disadvantageous in the second of the two modes which havebeen mentioned. Ireland pays dearer for her imports in consequence ofher absentees; a circumstance which the assailants of Mr. M'Culloch, whether political economists or not, have not, we believe, hithertothought of producing against him. 

11. If the question be now asked, which of the countries of the worldgains most by foreign commerce, the following will be the answer. 

If by gain be meant advantage, in the most enlarged sense, that countrywill generally gain the most, which stands most in need of foreigncommodities. 

But if by gain be meant saving of labour and capital in obtaining thecommodities which the country desires to have, whatever they may be; thecountry will gain, not in proportion to its own need of foreignarticles, but to the need which foreigners have of the articles whichitself produces. 

Let us take, as an illustration of our meaning, the case of France andEngland. Those two nations, in consequence of the restrictions withwhich they have loaded their commercial intercourse, carry on so littletrade with each other, as may almost, regard being had to the wealth andpopulation of the two countries, be called none at all. If these fetterswere at once taken off, which of the two countries would be the greatestgainer? England without doubt. There would instantly arise in France animmense demand for the cottons, woollens, and iron of England; whilewines, brandies, and silks, the staple articles of France, are lesslikely to come into general demand here, nor would the consumption ofsuch productions, it is probable, be so rapidly increased by the fall ofprice. The fall would probably be very great before France could obtaina vent in England for so much of her exports as would suffice to pay forthe probable amount of her imports. There would be a considerable flowof the precious metals out of France into England. The English consumerof French wine would not merely save the amount of the duty which thatwine now pays, but would find the wine itself falling-in prime cost, while his means of purchasing it would be increased by the augmentationof his own money income. The French consumer of English cottons, on thecontrary, would not long continue to be able to purchase them at theprice they now sell for in England. He would gain less, as the Englishwould gain more, than might appear from a mere comparison between thepresent prices of commodities in the two countries. 

Various consequences would flow from opening the trade between Franceand England, which are not expected, either by the friends or by theopponents of the present restrictive system. The wine-growers of France, who imagine that free trade would relieve their distress by raising theprice of their wine, might not improbably find that price actuallylowered. On the other hand, our silk manufacturers would be surprised ifthey were told that the free admission of our cottons and hardware intothe French market, would endanger _their_ branch of manufacture: yetsuch might very possibly be the effect. France, it is likely, could mostadvantageously pay us in silks for a portion of the large amount ofcottons and hardware which we should sell to her; and though our silkmanufacturers may now be able to compete advantageously, in somebranches of the manufacture, with their French rivals, it by no meansfollows that they could do so when the efflux of money from France, andits influx into England, had lowered the price of silk goods in theFrench market, and increased all the expenses of production here. 

On the whole, England probably, of all the countries of Europe, draws toherself the largest share of the gains of international commerce:because her exportable articles are in universal demand, and are of sucha kind that the demand increases rapidly as the price falls. Countrieswhich export food, have the former advantage, but not the latter. Butour own colonies, and the countries which supply us with the materialsof our manufactures, maintain a hard struggle with us for an equal shareof the advantages of their trade; for _their_ exports are also of a kindfor which there exists a most extensive demand here, and a demandcapable of almost indefinite extension by a fall of price. Contrary, therefore, to common opinion, it is probable that our trade with thecolonies, and with the countries which send us the raw materials of ournational industry, is not more but less advantageous to us, inproportion to its extent, than our trade with the continent of Europe. We mean in respect to the mere amount of the return to the labour andcapital of the country; considered abstractedly from the usefulness oragreeableness of the particular articles on which the receivers maychoose to expend it. 

NOTES:

[1] _Elements of Political Economy_, by James Mill, Esq. , 3rdedit. , pp. 120-1. 

[2] The figures used are of course arbitrary, having noreference to any existing prices. 

[3] We have not deemed it necessary to enter minutely into allthe circumstances which might modify the results mentioned in the text. For example, let us revert to the first case, that in which the demandfor cloth in Germany is so little affected by the rise of price inconsequence of the tax, that the quantity bought exceeds in pecuniaryvalue what it was before. As the German consumers lay out more money incloth, they have less to lay out in other things; other money priceswill fall; among the rest that of linen; and this may so increase thedemand for linen in England as to restore the equilibrium of exports andimports without any passage of money. But England's treasury will stillgain from Germany the whole of the tax, and the English people will buytheir linen cheaper besides. Again, in the opposite case, where the taxso diminishes the demand, that a smaller pecuniary value is requiredthan before. The German consumers have, therefore, more to expend inother things; these, and among the rest linen, will rise; and this mayso diminish the demand for linen in England, as to restore theequilibrium without the transmission of money. But the effect, asrespects the division of the advantage, is still as stated in the text. 

[4] The world at large, sellers and buyers taken together, isalways a gainer by underselling. If, in the case supposed, England werecompelled by a commercial treaty to exclude the linen of Flanders fromher market, the total wealth of the world, if affected at all, would bediminished. 

For, what is the cause which enables Flanders to undersell Germany? ThatFlanders, if she had the trade, would exchange linen for cloth at a rateof interchange more advantageous to England. And why can Flanders do so?It must be either because Flanders can produce the article with a lesscomparative quantity of labour than Germany, and therefore the totaladvantage to be divided between the two countries is greater in the caseof Flanders than of Germany; or else because, though the total advantageis not greater, Flanders obtains a less share of it, her demand forcloth being greater, at the same rate of interchange, than that ofGermany. In the former case, to exclude Flemish linen from England wouldbe to prevent the world at large from making a greater saving of labourinstead of a less. In the latter, the exclusion would be inefficaciousfor the only end it could be intended for, viz. , the benefit of Germany, unless Flemish money were excluded from England as well as Flemishlinen. For Flanders would buy English cloth, paying for it in money, until the fall of her prices enabled her to pay for it with somethingelse: and the ultimate result would be that, by the rise of prices inEngland, Germany must pay a higher price for her cloth, and so lose apart of the advantage in spite of the treaty; while England would payfor German linen the same price indeed, but as the money incomes of herown people would be increased, the same money price would imply asmaller sacrifice. 

[5] This last possible effect of a sudden introduction of freetrade, was pointed out in an able article on the Silk question, in awork of too short duration, the _Parliamentary Review_. 

ESSAY II. 

OF THE INFLUENCE OF CONSUMPTION ON PRODUCTION. 

Before the appearance of those great writers whose discoveries havegiven to political economy its present comparatively scientificcharacter, the ideas universally entertained both by theorists and bypractical men, on the causes of national wealth, were grounded uponcertain general views, which almost all who have given any considerableattention to the subject now justly hold to be completely erroneous. 

Among the mistakes which were most pernicious in their directconsequences, and tended in the greatest degree to prevent a justconception of the objects of the science, or of the test to be appliedto the solution of the questions which it presents, was the immenseimportance attached to consumption. The great end of legislation inmatters of national wealth, according to the prevalent opinion, was tocreate consumers. A great and rapid consumption was what the producers, of all classes and denominations, wanted, to enrich themselves and thecountry. This object, under the varying names of an extensive demand, abrisk circulation, a great expenditure of money, and sometimes _totidemverbis_ a large consumption, was conceived to be the great condition ofprosperity. 

It is not necessary, in the present state of the science, to contestthis doctrine in the most flagrantly absurd of its forms or of itsapplications. The utility of a large government expenditure, for thepurpose of encouraging industry, is no longer maintained. Taxes are notnow esteemed to be "like the dews of heaven, which return again inprolific showers. " It is no longer supposed that you benefit theproducer by taking his money, provided you give it to him again inexchange for his goods. There is nothing which impresses a person ofreflection with a stronger sense of the shallowness of the politicalreasonings of the last two centuries, than the general reception so longgiven to a doctrine which, if it proves anything, proves that the moreyou take from the pockets of the people to spend on your own pleasures, the richer they grow; that the man who steals money out of a shop, provided he expends it all again at the same shop, is a benefactor tothe tradesman whom he robs, and that the same operation, repeatedsufficiently often, would make the tradesman's fortune. 

In opposition to these palpable absurdities, it was triumphantlyestablished by political economists, that consumption never needsencouragement. All which is produced is already consumed, either for thepurpose of reproduction or of enjoyment. The person who saves his incomeis no less a consumer than he who spends it: he consumes it in adifferent way; it supplies food and clothing to be consumed, tools andmaterials to be used, by productive labourers. Consumption, therefore, already takes place to the greatest extent which the amount ofproduction admits of; but, of the two kinds of consumption, reproductiveand unproductive, the former alone adds to the national wealth, thelatter impairs it. What is consumed for mere enjoyment, is gone; what isconsumed for reproduction, leaves commodities of equal value, commonlywith the addition of a profit. The usual effect of the attempts ofgovernment to encourage consumption, is merely to prevent saving; thatis, to promote unproductive consumption at the expense of reproductive, and diminish the national wealth by the very means which were intendedto increase it. 

What a country wants to make it richer, is never consumption, butproduction. Where there is the latter, we may be sure that there is nowant of the former. To produce, implies that the producer desires toconsume; why else should he give himself useless labour? He may not wishto consume what he himself produces, but his motive for producing andselling is the desire to buy. Therefore, if the producers generallyproduce and sell more and more, they certainly also buy more and more. Each may not want more of what he himself produces, but each wants moreof what some other produces; and, by producing what the other wants, hopes to obtain what the other produces. There will never, therefore, bea greater quantity produced, of commodities in general, than there areconsumers for. But there may be, and always are, abundance of personswho have the inclination to become consumers of some commodity, but areunable to satisfy their wish, because they have not the means ofproducing either that, or anything to give in exchange for it. Thelegislator, therefore, needs not give himself any concern aboutconsumption. There will always be consumption for everything which canbe produced, until the wants of all who possess the means of producingare completely satisfied, and then production will not increase anyfarther. The legislator has to look solely to two points: that noobstacle shall exist to prevent those who have the means of producing, from employing those means as they find most for their interest; andthat those who have not at present the means of producing, to the extentof their desire to consume, shall have every facility afforded to theiracquiring the means, that, becoming producers, they may be enabled toconsume. 

These general principles are now well understood by almost all whoprofess to have studied the subject, and are disputed by few exceptthose who ostentatiously proclaim their contempt for such studies. Wetouch upon the question, not in the hope of rendering these fundamentaltruths clearer than they already are, but to perform a task, so usefuland needful, that it is to be wished it were oftener deemed part of thebusiness of those who direct their assaults against ancient prejudices, --that of seeing that no scattered particles of important truth areburied and lost in the ruins of exploded error. Every prejudice, whichhas long and extensively prevailed among the educated and intelligent, must certainly be borne out by some strong appearance of evidence; andwhen it is found that the evidence does not prove the receivedconclusion, it is of the highest importance to see what it does prove. If this be thought not worth inquiring into, an error conformable toappearances is often merely exchanged for an error contrary toappearances; while, even if the result be truth, it is paradoxicaltruth, and will have difficulty in obtaining credence while the falseappearances remain. 

Let us therefore inquire into the nature of the appearances, which gaverise to the belief that a great demand, a brisk circulation, a rapidconsumption (three equivalent expressions), are a cause of nationalprosperity. 

If every man produced for himself, or with his capital employed othersto produce, everything which he required, customers and their wantswould be a matter of profound indifference to him. He would be rich, ifhe had produced and stored up a large supply of the articles which hewas likely to require; and poor, if he had stored up none at all, or notenough to last until he could produce more. 

The case, however, is different after the separation of employments. Incivilized society, a single producer confines himself to the productionof one commodity, or a small number of commodities; and his affluencedepends, not solely upon the quantity of his commodity which he hasproduced and laid in store, but upon his success in finding purchasersfor that commodity. 

It is true, therefore, of every particular producer or dealer, thata great demand, a brisk circulation, a rapid consumption, of thecommodities which he sells at his shop or produces in his manufactory, is important to him. The dealer whose shop is crowded with customers, who can dispose of a product almost the very moment it is completed, makes large profits, while his next neighbour, with an equal capitalbut fewer customers, gains comparatively little. 

It was natural that, in this case, as in a hundred others, the analogyof an individual should be unduly applied to a nation: as it has beenconcluded that a nation generally gains in wealth by the conquest of aprovince, because an individual frequently does so by the acquisition ofan estate; and as, because an individual estimates his riches by thequantity of money which he can command, it was long deemed an excellentcontrivance for enriching a country, to heap up artificially thegreatest possible quantity of the precious metals within it. 

Let us examine, then, more closely than has usually been done, the casefrom which the misleading analogy is drawn. Let us ascertain to whatextent the two cases actually resemble; what is the explanation of thefalse appearance, and the real nature of the phenomenon which, beingseen indistinctly, has led to a false conclusion. 

 * * * * *

We shall propose for examination a very simple case, but the explanationof which will suffice to clear up all other cases which fall within thesame principle. Suppose that a number of foreigners with large incomesarrive in a country, and there expend those incomes: will this operationbe beneficial, as respects the national wealth, to the country whichreceives these immigrants? Yes, say many political economists, if theysave any part of their incomes, and employ them reproductively; becausethen an addition is made to the national capital, and the produce is aclear increase of the national wealth. But if the foreigner expends allhis income unproductively, it is no benefit to the country, say they, and for the following reason. 

If the foreigner had his income remitted to him in bread and beef, coatsand shoes, and all the other articles which he was desirous to consume, it would not be pretended that his eating, drinking, and wearing them, on our shores rather than on his own, could be of any advantage to us inpoint of wealth. Now, the case is not different if his income isremitted to him in some one commodity, as, for instance, in money. Forwhatever takes place afterwards, with a view to the supply of his wants, is a mere exchange of equivalents; and it is impossible that a personshould ever be enriched by merely receiving an equal value in exchangefor an equal value. 

When it is said that the purchases of the foreign consumer giveemployment to capital which would otherwise yield no profit to itsowner, the same political economists reject this proposition asinvolving the fallacy of what has been called a "general glut. " Theysay, that the capital, which any person has chosen to produce and toaccumulate, can always find employment, since the fact that he hasaccumulated it proves that he had an unsatisfied desire; and if hecannot find anything to produce for the wants of other consumers, he canfor his own. 

It is impossible to contest these propositions as thus stated. But thereis one consideration which clearly shews, that there is something morein the matter than is here taken into the account; and this is, that theabove reasoning tends distinctly to prove, that it does a tradesman nogood to go into his shop and buy his goods. How can he be enriched? itmight be asked. He merely receives a certain value in money, for anequivalent value in goods. Neither does this give employment to hiscapital; for there never exists more capital than can find employment, and if one person does not buy his goods another will; or if nobodydoes, there is over-production in that business, he can remove hiscapital, and find employment for it in another trade. 

Every one sees the fallacy of this reasoning as applied to individualproducers. Every one knows that as applied to them it has not even thesemblance of plausibility; that the wealth of a producer does in a greatmeasure depend upon the number of his customers, and that in generalevery additional purchaser does really add to his profits. If thereasoning, which would be so absurd if applied to individuals, beapplicable to nations, the principle on which it rests must require muchexplanation and elucidation. 

Let us endeavour to analyse with precision the real nature of theadvantage which a producer derives from an addition to the number of hiscustomers. 

For this purpose, it is necessary that we should premise a singleobservation on the meaning of the word capital. It is usually defined, the food, clothing, and other articles set aside for the consumption ofthe labourer, together with the materials and instruments of production. This definition appears to us peculiarly liable to misapprehension; andmuch vagueness and some narrow views have, we conceive, occasionallyresulted from its being interpreted with too mechanical an adherence tothe literal meaning of the words. 

The capital, whether of an individual or of a nation, consists, weapprehend, of all matters possessing exchangeable value, which theindividual or the nation has in his or in its possession for the purposeof reproduction, and not for the purpose of the owner's unproductiveenjoyment. All unsold goods, therefore, constitute a part of thenational capital, and of the capital of the producer or dealer to whomthey belong. It is true that tools, materials, and the articles on whichthe labourer is supported, are the only articles which are directlysubservient to production: and if I have a capital consisting of money, or of goods in a warehouse, I can only employ them as means ofproduction in so far as they are capable of being exchanged for thearticles which conduce directly to that end. But the food, machinery, &c, which will ultimately be purchased with the goods in my warehouse, may at this moment not be in the country, may not be even in existence. If, after having sold the goods, I hire labourers with the money, andset them to work, I am surely employing capital, though the corn, whichin the form of bread those labourers may buy with the money, may be nowin warehouse at Dantzic, or perhaps not yet above ground. 

Whatever, therefore, is destined to be employed reproductively, eitherin its existing shape, or indirectly by a previous (or even subsequent)exchange, is capital. Suppose that I have laid out all the money Ipossess in wages and tools, and that the article I produce is justcompleted: in the interval which elapses before I can sell the article, realize the proceeds, and lay them out again in wages and tools, will itbe said that I have no capital? Certainly not: I have the same capitalas before, perhaps a greater, but it is locked up, as the expression is, and not disposable. 

When we have thus seen accurately what really constitutes capital, itbecomes obvious, that of the capital of a country, there is at all timesa very large proportion lying idle. The annual produce of a country isnever any thing approaching in magnitude to what it might be if all theresources devoted to reproduction, if all the capital, in short, of thecountry, were in full employment. 

If every commodity on an average remained unsold for a length of timeequal to that required for its production, it is obvious that, at anyone time, no more than half the productive capital of the country wouldbe really performing the functions of capital. The two halves wouldrelieve one another, like the semichori in a Greek tragedy; or ratherthe half which was in employment would be a fluctuating portion, composed of varying parts; but the result would be, that each producerwould be able to produce every year only half as large a supply ofcommodities, as he could produce if he were sure of selling them themoment the production was completed. 

This, or something like it, is however the habitual state, at everyinstant, of a very large proportion of all the capitalists in the world. 

The number of producers, or dealers, who turn over their capital, as theexpression is, in the shortest possible time, is very small. There arefew who have so rapid a sale for their wares, that all the goods whichtheir own capital, or the capital which they can borrow, enables them tosupply, are carried off as fast as they can be supplied. The majorityhave not an _extent of business_, at all adequate to the amount of thecapital they dispose of. It is true that, in the communities in whichindustry and commerce are practised with greatest success, thecontrivances of banking enable the possessor of a larger capital than hecan employ in his own business, to employ it productively and derive arevenue from it notwithstanding. Yet even then, there is, of necessity, a great quantity of capital which remains fixed in the shape ofimplements, machinery, buildings, &c, whether it is only half employed, or in complete employment: and every dealer keeps a stock in trade, tobe ready for a possible sudden demand, though he probably may not beable to dispose of it for an indefinite period. 

This perpetual non-employment of a large proportion of capital, is theprice we pay for the division of labour. The purchase is worth what itcosts; but the price is considerable. 

Of the importance of the fact which has just been noticed there arethree signal proofs. One is, the large sum often given for the goodwillof a particular business. Another is, the large rent which is paid forshops in certain situations, near a great thoroughfare for example, which have no advantage except that the occupier may expect a largerbody of customers, and be enabled to turn over his capital more quickly. Another is, that in many trades, there are some dealers who sellarticles of an equal quality at a lower price than other dealers. Ofcourse, this is not a voluntary sacrifice of profits: they expect by theconsequent overflow of customers to turn over their capital morequickly, and to be gainers by keeping the whole of their capital in moreconstant employment, though on any given operation their gains are less. 

The reasoning cited in the earlier part of this paper, to show theuselessness of a mere purchaser or customer, for enriching a nation oran individual, applies only to the case of dealers who have already asmuch business as their capital admits of, and as rapid a sale for theircommodities as is possible. To such dealers an additional purchaser isreally of no use; for, if they are sure of selling all their commoditiesthe moment those commodities are on sale, it is of no consequence whetherthey sell them to one person or to another. But it is questionablewhether there be any dealers in whose case this hypothesis is exactlyverified; and to the great majority it is not applicable at all. Anadditional customer, to most dealers, is equivalent to an increase oftheir productive capital. He enables them to convert a portion of theircapital which was lying idle (and which could never have becomeproductive in their hands until a customer was found) into wages andinstruments of production; and if we suppose that the commodity, unlessbought by him, would not have found a purchaser for a year after, thenall which a capital of that value can enable men to produce during ayear, is clear gain--gain to the dealer, or producer, and to thelabourers whom he will employ, and thus (if no one sustains anycorresponding loss) gain to the nation. The aggregate produce of thecountry for the succeeding year is, therefore, increased; not by themere exchange, but by calling into activity a portion of the nationalcapital, which, had it not been for the exchange, would have remainedfor some time longer unemployed. 

Thus there are actually at all times producers and dealers, of all, ornearly all classes, whose capital is lying partially idle, because theyhave not found the means of fulfilling the condition which the divisionof labour renders indispensable to the full employment of capital, --viz. , that of exchanging their products with each other. If these personscould find one another out, they could mutually relieve each other fromthis disadvantage. Any two shopkeepers, in insufficient employment, whoagreed to deal at each other's shops so long as they could therepurchase articles of as good a quality as elsewhere, and at as low aprice, would render the nation a service. It may be said that they mustpreviously have dealt, to the same amount, with some other dealers; butthis is erroneous, since they could only have obtained the means ofpurchasing by being previously enabled to sell. By their compact, eachwould gain a customer, who would call his capital into fuller employment;each therefore would obtain an increased produce; and they would thus beenabled to become better customers to each other than they could be tothird parties. 

It is obvious that every dealer who has not business sufficient fully toemploy his capital (which is the case with all dealers when they commencebusiness, and with many to the end of their lives), is in thispredicament simply for want of some one with whom to exchange hiscommodities; and as there are such persons to about the same degreeprobably in all trades, it is evident that if these persons sought oneanother out, they have their remedy in their own hands, and by eachother's assistance might bring their capital into more full employment. 

We are now qualified to define the exact nature of the benefit which aproducer or dealer derives from the acquisition of a new customer. It isas follows:--

1. If any part of his own capital was locked up in the form of unsoldgoods, producing (for a longer period or a shorter) nothing at all;a portion of this is called into greater activity, and becomes moreconstantly productive. But to this we must add some further advantages. 

2. If the additional demand exceeds what can be supplied by setting atliberty the capital which exists in the state of unsold goods; and ifthe dealer has additional resources, which were productively invested(in the public funds, for instance), but not in his own trade; he isenabled to obtain, on a portion of these, not mere interest, but profit, and so to gain that difference between the rate of profit and the rateof interest, which may be considered as "wages of superintendance. "

3. If all the dealer's capital is employed in his own trade, and no partof it locked up as unsold goods, the new demand affords him additionalencouragement to save, by enabling his savings to yield him not merelyinterest, but profit; and if he does not choose to save (or until heshall have saved), it enables him to carry on an additional businesswith borrowed capital, and so gain the difference between interest andprofit, or, in other words, to receive wages of superintendance on alarger amount of capital. 

This, it will be found, is a complete account of all the gains which adealer in any commodity can derive from an accession to the number ofthose who deal with him: and it is evident to every one, that theseadvantages are real and important, and that they are the cause whichinduces a dealer of any kind to desire an increase of his business. 

It follows from these premises, that the arrival of a new unproductiveconsumer (living on his own means) in any place, be that place avillage, a town, or an entire country, is beneficial to that place, ifit causes to any of the dealers of the place any of the advantages aboveenumerated, without withdrawing an equal advantage of the same kind fromany other dealer of the same place. 

This accordingly is the test by which we must try all such questions, and by which the propriety of the analogical argument, from dealing witha tradesman to dealing with a nation, must be decided. 

Let us take, for instance, as our example, Paris, which is muchfrequented by strangers from various parts of the world, who, assojourners there, live unproductively upon their means. Let us considerwhether the presence of these persons is beneficial, in an _industrial_point of view, to Paris. 

We exclude from the consideration that portion of the strangers' incomeswhich they pay to natives as direct remuneration for service, or labourof any description. This is obviously beneficial to the country. Anincrease in the funds expended in employing labour, whether that labourbe productive or unproductive, tends equally to raise wages. Thecondition of the whole labouring class is, so far, benefited. It is truethat the labourers thus employed by sojourners are probably, in part oraltogether, withdrawn from productive employment. But this is far frombeing an evil; for either the situation of the labouring classes isimproved, which is far more than an equivalent for a diminution in mereproduction, or the rise of wages acts as a stimulus to population, andthen the number of productive labourers becomes as great as before. 

To this we may add, that what the sojourners pay as wages of labour orservice (whether constant or casual), though expended unproductively bythe first possessor, may, when it passes into the hands of the receivers, be by them saved, and invested in a productive employment. If so, a directaddition is made to the national capital. 

All this is obvious, and is sufficiently allowed by political economists;who have invariably set apart the gains of all persons coming under theclass of domestic servants, as real advantages arising to a place fromthe residence there of an increased number of unproductive consumers. 

We have only to examine whether the purchases of commodities by theseunproductive consumers, confer the same kind of benefit upon thevillage, town, or nation, which is bestowed upon a particular tradesmanby dealing at his shop. 

Now it is obvious that the sojourners, on their arrival, confer thebenefit in question upon some dealers, who did not enjoy it before. Theypurchase their food, and many other articles, from the dealers in theplace. They, therefore, call the capital of some dealers, which waslocked up in unsold goods, into more active employment. They encouragethem to save, and enable them to receive wages of superintendance upon alarger amount of capital. These effects being undeniable, the questionis, whether the presence of the sojourners deprives any others of theParis dealers of a similar advantage. 

It will be seen that it does; and nothing will then remain but acomparison of the amounts. 

It is obvious to all who reflect (and was shown in the paper whichprecedes this) that the remittances to persons who expend their incomesin foreign countries are, after a slight passage of the precious metals, defrayed in commodities: and that the result commonly is, an increase ofexports and a diminution of imports, until the latter fall short of theformer by the amount of the remittances. 

The arrival, therefore, of the strangers (say from England), while itcreates at Paris a market for commodities equivalent in value to theirfunds, displaces in the market other commodities to an equal value. Tothe extent of the increase of exports from England into France in theway of remittance, it introduces additional commodities which, by theircheapness, displace others formerly produced in that country. To theextent of the diminution of imports into England from France, commodities which existed or which were habitually produced in thatcountry are deprived of a market, or can only find one at a price notsufficient to defray the cost. 

It must, therefore, be a matter of mere accident, if by arriving in aplace, the new unproductive consumer causes any net advantage to itsindustry, of the kind which we are now examining. Not to mention thatthis, like any other change in the channels of trade, may render uselessa portion of fixed capital, and so far injure the national wealth. 

A distinction, however, must here be made. 

The place to which the new unproductive consumers have come, may be atown or village, as well as a country. If a town or village, it mayeither be or not be a place having an export trade. 

If the place had no previous trade except with the immediateneighbourhood, there are no exports and imports, by the new arrangementof which, the remittance can be made. There is no capital, formerlyemployed in manufacturing for the foreign market, which is now broughtinto less full employment. 

Yet the remittance evidently is still made in commodities, but in thiscase without displacing any which were produced before. To shew this, itis necessary to make the following remarks. 

The reason why towns exist, is that _ceteris paribus_ it is convenient, in order to save cost of carriage, that the production of commoditiesshould take place as far as practicable in the immediate vicinity of theconsumer. Capital finds its way so easily from town to country and fromcountry to town, that the amount of capital in the town will be regulatedwholly by the amount which can be employed there more conveniently thanelsewhere. Consequently the capital of a place will be such as issufficient

1st. To produce all commodities which from local circumstances can beproduced there at less cost than elsewhere: and if this be the case toany great extent, it will be an exporting town. When we say _produced_, we may add, or _stored_. 

2nd. To produce and retail the commodities which are consumed by theinhabitants of the town, and the place of whose production is in otherrespects a matter of indifference. To the inhabitants of the town mustbe added such dwellers in the adjoining country, as are nearer to thatplace than to any other equally well furnished market. 

Now, if new unproductive consumers resort to the place, it is clear thatfor the latter of these two purposes, more capital will be required thanbefore. Consequently, if less is not required for the former purpose, more capital will establish itself at the place. 

Until this additional capital has arrived, the producers and dealersalready on the spot will enjoy great advantages. Every particle of theirown capital will be called into the most active employment. What theircapital does not enable them to supply, will be got from others at adistance, who cannot supply it on such favourable terms; consequentlythey will be in the predicament of possessing a partial monopoly--receiving for every thing a price regulated by a higher cost ofproduction than they are compelled to pay. They also, being in possessionof the market, will be enabled to make a large portion of the new capitalpass through their hands, and thus to earn wages of superintendance uponit. 

If, indeed, the place from whence the strangers came, previously tradedwith that where they have taken up their abode, the effect of theirarrival is, that the exports of the town will diminish, and that it willbe supplied from abroad with something which it previously produced athome. In this way an amount of capital will be set free equal to thatrequired, and there will be no increase on the whole. The removal of thecourt from London to Birmingham would not necessarily, though it wouldprobably [6], increase the amount of capital in the latter place. Theafflux of money to Birmingham, and its efflux from London, would renderit cheaper to make some articles in London for Birmingham consumption;and to make others in London for home consumption, which were formerlybrought from Birmingham. 

But instead of Birmingham, an exporting town, suppose a village, or atown which only produced and retailed for itself and its immediatevicinity. The remittances must come thither in the shape of money; andthough the money would not remain, but would be sent away in exchangefor commodities, it would, however, first pass through the hands of theproducers and dealers in the place, and would by them be exported inexchange for the articles which they require--viz. The materials, tools, and subsistence necessary for the increased production now required ofthem, and articles of foreign luxury for their own increased unproductiveconsumption. These articles would not displace any formerly made in theplace, but on the contrary, would forward the production of more. 

Hence we may consider the following propositions as established:

1. The expenditure of absentees (the case of domestic servants excepted, )is not necessarily any loss to the _country_ which they leave, or gain tothe _country_ which they resort to (save in the manner shown in Essay I. ):for almost every _country_ habitually exports and imports to a muchgreater value than the incomes of its absentees, or of the foreignsojourners within it. 

2. But sojourners often do much good to the _town_ or village which theyresort to, and absentees harm to that which they leave. The capital ofthe petty tradesman in a small town near an absentee's estate, isdeprived of the market for which it is conveniently situated, and mustresort to another to which other capitals lie nearer, and where it isconsequently outbid, and gains less; obtaining only the same price, withgreater expenses. But this evil would be equally occasioned, if, insteadof going abroad, the absentee had removed to his own capital city. 

If the tradesman could, in the latter case, remove to the metropolis, orin the former, employ himself in producing increased exports, or inproducing for home consumption articles now no longer imported, each inthe place most convenient for that operation; he would not be a loser, though the place which he was obliged to leave might be said to lose. 

Paris undoubtedly gains much by the sojourn of foreigners, while thecounteracting loss by diminution of exports from France is suffered bythe great trading and manufacturing towns, Rouen, Bordeaux, Lyons, &c, which also suffer the principal part of the loss by importation ofarticles previously produced at home. The capital thus set free, findsits most convenient seat to be Paris, since the business to which itmust turn is the production of articles to be unproductively consumed bythe sojourners. 

The great trading towns of France would undoubtedly be more flourishing, if France were not frequented by foreigners. 

Rome and Naples are perhaps purely benefited by the foreignerssojourning there: for they have so little external trade, that theircase may resemble that of the village in our hypothesis. 

Absenteeism, therefore, (except as shown in the first Essay, ) is alocal, not a national evil; and the resort of foreigners, in so far asthey purchase for unproductive consumption, is not, in any commercialcountry, a national, though it may be a local good. 

From the considerations which we have now adduced, it is obvious whatis meant by such phrases as a _brisk demand_, and a rapid circulation. There is a brisk demand and a rapid circulation, when goods, generallyspeaking, are sold as fast as they can be produced. There is slackness, on the contrary, and stagnation, when goods, which have been produced, remain for a long time unsold. In the former case, the capital which hasbeen locked up in production is disengaged as soon as the production iscompleted; and can be immediately employed in further production. In thelatter case, a large portion of the productive capital of the country islying in temporary inactivity. 

From what has been already said, it is obvious that periods of "briskdemand" are also the periods of greatest production: the nationalcapital is never called into full employment but at those periods. This, however, is no reason for desiring such times; it is not desirable thatthe whole capital of the country should be in full employment. For, thecalculations of producers and traders being of necessity imperfect, there are always some commodities which are more or less in excess, asthere are always some which are in deficiency. If, therefore, the wholetruth were known, there would always be some classes of producerscontracting, not extending, their operations. If _all_ are endeavouringto extend them, it is a certain proof that some general delusion isafloat. The commonest cause of such delusion is some general, or veryextensive, rise of prices (whether caused by speculation or by thecurrency) which persuades all dealers that they are growing rich. Andhence, an increase of production really takes place during the progressof depreciation, as long as the existence of depreciation is notsuspected; and it is this which gives to the fallacies of the currencyschool, principally represented by Mr. Attwood, all the littleplausibility they possess. But when the delusion vanishes and the truthis disclosed, those whose commodities are relatively in excess mustdiminish their production or be ruined: and if during the high pricesthey have built mills and erected machinery, they will be likely torepent at leisure. 

In the present state of the commercial world, mercantile transactionsbeing carried on upon an immense scale, but the remote causes offluctuations in prices being very little understood, so thatunreasonable hopes and unreasonable fears alternately rule withtyrannical sway over the minds of a majority of the mercantile public;general eagerness to buy and general reluctance to buy, succeed oneanother in a manner more or less marked, at brief intervals. Exceptduring short periods of transition, there is almost always either greatbriskness of business or great stagnation; either the principalproducers of almost all the leading articles of industry have as manyorders as they can possibly execute, or the dealers in almost allcommodities have their warehouses full of unsold goods. 

In this last ease, it is commonly said that there is a generalsuperabundance; and as those economists who have contested thepossibility of general superabundance, would none of them deny thepossibility or even the frequent occurrence of the phenomenon which wehave just noticed, it would seem incumbent on them to show, that theexpression to which they object is not applicable to a state of thingsin which all or most commodities remain unsold, in the same sense inwhich there is said to be a superabundance of any one commodity when itremains in the warehouses of dealers for want of a market. 

This is merely a question of naming, but an important one, as it seemsto us that much apparent difference of opinion has been produced by amere difference in the mode of describing the same facts, and thatpersons who at bottom were perfectly agreed, have considered each otheras guilty of gross error, and sometimes oven misrepresentation, on thissubject. 

In order to afford the explanations, with which it is necessary to takethe doctrine of the impossibility of an excess of all commodities, wemust advert for a moment to the argument by which this impossibility iscommonly maintained. 

There can never, it is said, be a want of buyers for all commodities;because whoever offers a commodity for sale, desires to obtain acommodity in exchange for it, and is therefore a buyer by the mere factof his being a seller. The sellers and the buyers, for all commoditiestaken together, must, by the metaphysical necessity of the case, be anexact equipoise to each other; and if there be more sellers than buyersof one thing, there must be more buyers than sellers for another. 

This argument is evidently founded on the supposition of a state ofbarter; and, on that supposition, it is perfectly incontestable. Whentwo persons perform an act of barter, each of them is at once a sellerand a buyer. He cannot sell without buying. Unless he chooses to buysome other person's commodity, he does not sell his own. 

If, however, we suppose that money is used, these propositions cease tobe exactly true. It must be admitted that no person desires money forits own sake, (unless some very rare cases of misers be an exception, )and that he who sells his commodity, receiving money in exchange, doesso with the intention of buying with that same money some other commodity. Interchange by means of money is therefore, as has been often observed, ultimately nothing but barter. But there is this difference--that in thecase of barter, the selling and the buying are simultaneously confoundedin one operation; you sell what you have, and buy what you want, by oneindivisible act, and you cannot do the one without doing the other. Nowthe effect of the employment of money, and even the utility of it, is, that it enables this one act of interchange to be divided into twoseparate acts or operations; one of which may be performed now, and theother a year hence, or whenever it shall be most convenient. Although hewho sells, really sells only to buy, he needs not buy at the same momentwhen he sells; and he does not therefore necessarily add to the_immediate_ demand for one commodity when he adds to the supply ofanother. The buying and selling being now separated, it may very welloccur, that there may be, at some given time, a very general inclinationto sell with as little delay as possible, accompanied with an equallygeneral inclination to defer all purchases as long as possible. This isalways actually the case, in those periods which are described asperiods of general excess. And no one, after sufficient explanation, will contest the possibility of general excess, in this sense of theword. The state of things which we have just described, and which is ofno uncommon occurrence, amounts to it. 

For when there is a general anxiety to sell, and a generaldisinclination to buy, commodities of all kinds remain for a long timeunsold, and those which find an immediate market, do so at a very lowprice. If it be said that when all commodities fall in price, the fallis of no consequence, since mere money price is not material while therelative value of all commodities remains the same, we answer that thiswould be true if the low prices were to last for ever. But as it iscertain that prices will rise again sooner or later, the person who isobliged by necessity to sell his commodity at a low money price isreally a sufferer, the money he receives sinking shortly to its ordinaryvalue. Every person, therefore, delays selling if he can, keeping hiscapital unproductive in the mean time, and sustaining the consequentloss of interest. There is stagnation to those who are not obliged tosell, and distress to those who are. 

It is true that this state can be only temporary, and must even besucceeded by a reaction of corresponding violence, since those who havesold without buying will certainly buy at last, and there will then bemore buyers than sellers. But although the general over-supply is ofnecessity only temporary, this is no more than may be said of everypartial over-supply. An overstocked state of the market is alwaystemporary, and is generally followed by a more than common briskness ofdemand. 

In order to render the argument for the impossibility of an excess ofall commodities applicable to the case in which a circulating medium isemployed, money must itself be considered as a commodity. It must, undoubtedly, be admitted that there cannot be an excess of all othercommodities, and an excess of money at the same time. 

But those who have, at periods such as we have described, affirmed thatthere was an excess of all commodities, never pretended that money wasone of these commodities; they held that there was not an excess, buta deficiency of the circulating medium. What they called a generalsuperabundance, was not a superabundance of commodities relatively tocommodities, but a superabundance of all commodities relatively tomoney. What it amounted to was, that persons in general, at thatparticular time, from a general expectation of being called upon to meetsudden demands, liked better to possess money than any other commodity. Money, consequently, was in request, and all other commodities were incomparative disrepute. In extreme cases, money is collected in masses, and hoarded; in the milder cases, people merely defer parting with theirmoney, or coming under any new engagements to part with it. But theresult is, that all commodities fall in price, or become unsaleable. When this happens to one single commodity, there is said to be asuperabundance of that commodity; and if that be a proper expression, there would seem to be in the nature of the case no particularimpropriety in saying that there is a superabundance of all or mostcommodities, when all or most of them are in this same predicament. 

It is, however, of the utmost importance to observe that excess of allcommodities, in the only sense in which it is possible, means only atemporary fall in their value relatively to money. To suppose that themarkets for all commodities could, in any other sense than this, beoverstocked, involves the absurdity that commodities may fall in valuerelatively to themselves; or that, of two commodities, each can fallrelatively to the other, A becoming equivalent to B-_x_, and B to A-_x_, at the same time. And it is, perhaps, a sufficient reason for not usingphrases of this description, that they suggest the idea of excessiveproduction. A want of market for one article may arise from excessiveproduction of that article; but when commodities in general becomeunsaleable, it is from a very different cause; there cannot be excessiveproduction of commodities in general. 

The argument against the possibility of general over-production is quiteconclusive, so far as it applies to the doctrine that a country mayaccumulate capital too fast; that produce in general may, by increasingfaster than the demand for it, reduce all producers to distress. Thisproposition, strange to say, was almost a received doctrine as lately asthirty years ago; and the merit of those who have exploded it is muchgreater than might be inferred from the extreme obviousness of itsabsurdity when it is stated in its native simplicity. It is true that ifall the wants of all the inhabitants of a country were fully satisfied, no further capital could find useful employment; but, in that case, nonewould be accumulated. So long as there remain any persons not possessed, we do not say of subsistence, but of the most refined luxuries, and whowould work to possess them, there is employment for capital; and if thecommodities which these persons want are not produced and placed attheir disposal, it can only be because capital does not exist, disposablefor the purpose of employing, if not any other labourers, those verylabourers themselves, in producing the articles for their own consumption. Nothing can be more chimerical than the fear that the accumulation ofcapital should produce poverty and not wealth, or that it will ever takeplace too fast for its own end. Nothing is more true than that it isproduce which constitutes the market for produce, and that every increaseof production, if distributed without miscalculation among all kinds ofproduce in the proportion which private interest would dictate, creates, or rather constitutes, its own demand. 

This is the truth which the deniers of general over-production haveseized and enforced; nor is it pretended that anything has been addedto it, or subtracted from it, in the present disquisition. But it isthought that those who receive the doctrine accompanied with theexplanations which we have given, will understand, more clearly thanbefore, what is, and what is not, implied in it; and will see that, whenproperly understood, it in no way contradicts those obvious facts whichare universally known and admitted to be not only of possible, but ofactual and even frequent occurrence. The doctrine in question onlyappears a paradox, because it has usually been so expressed asapparently to contradict these well-known facts; which, however, wereequally well known to the authors of the doctrine, who, therefore, canonly have adopted from inadvertence any form of expression which couldto a candid person appear inconsistent with it. The essentials of thedoctrine are preserved when it is allowed that there cannot be permanentexcess of production, or of accumulation; though it be at the same timeadmitted, that as there may be a temporary excess of any one articleconsidered separately, so may there of commodities generally, not inconsequence of over-production, but of a want of commercial confidence. 

NOTE:

[6] Probably; because most articles of an ornamental description beingstill required from the same makers, these makers, with their capital, would probably follow their customers, Besides, from place to placewithin the same country, most persons will lather change theirhabitation than their employment. But the moving on this score would bereciprocal. 

ESSAY III. 

ON THE WORDS PRODUCTIVE AND UNPRODUCTIVE. 

It would probably be difficult to point out any two words, respectingthe proper use of which political economists have been more divided, than they have been concerning the two words _productive_ and_unproductive_; whether considered as applied to _labour_, to_consumption_, or to _expenditure_. 

Although this is a question solely of nomenclature, it is one ofsufficient importance to be worth another attempt to settle itsatisfactorily. For, although writers on political economy have notagreed in the ideas which they were accustomed to annex to these terms, the terms have generally been employed to denote ideas of very greatimportance, and it is impossible that some vagueness should not havebeen thrown upon the ideas themselves by looseness in the use of thewords by which they are habitually designated. Further, so long as thepedantic objection to the introduction of new technical terms continues, accurate thinkers on moral and political subjects are limited to a veryscanty vocabulary for the expression of their ideas. It therefore is ofgreat importance that the words with which mankind are familiar, shouldbe turned to the greatest possible advantage as instruments of thought;that one word should not be used as the sign of an idea which is alreadysufficiently expressed by another word; and that words which arerequired to denote ideas of great importance, should not be usurped forthe expression of such as are comparatively insignificant. 

The phrases _productive labour_, and _productive consumption_, have beenemployed by some writers on political economy with very great latitude. They have considered, and classed, as productive labour and productiveconsumption, all labour which serves any _useful_ purpose--allconsumption which is not _waste_. Mr. M'Culloch has asserted, _totidemverbis_, that the labour of Madame Pasta was as well entitled to becalled productive labour as that of a cotton spinner. 

Employed in this sense, the words _productive_ and _unproductive_ aresuperfluous, since the words _useful_ and _agreeable_ on the one hand, _useless_ and _worthless_ on the other, are quite sufficient to expressall the ideas to which the words _productive_ and _unproductive_ arehere applied. 

This use of the terms, therefore, is subversive of the ends of language. 

Those writers who have employed the words in a more limited sense, haveusually understood by productive or unproductive labour, labour which isproductive of wealth, or unproductive of wealth. But what is wealth? Andhere the words productive and unproductive have been affected withadditional ambiguities, corresponding to the different extension whichdifferent writers have given to the term wealth. 

Some have given the name of wealth to _all things_ which tend to the useor enjoyment of mankind, and which possess exchangeable value. This lastclause is added to exclude air, the light of the sun, and any otherthings which can be obtained in unlimited quantity without labour orsacrifice; together with all such things as, though produced by labour, are not held in sufficient general estimation to command any price inthe market. 

But when this definition came to be explained, many persons weredisposed to interpret "_all things_ which tend to the use or enjoymentof man, " as implying only all _material_ things. _Immaterial_ productsthey refused to consider as wealth; and labour or expenditure whichyielded nothing but immaterial products, they characterised asunproductive labour and unproductive expenditure. 

To this it was, or might have been, answered, that according to thisclassification, a carpenter's labour at his trade is productive labour, but the same individual's labour in learning his trade was unproductivelabour. Yet it is obvious that, on both occasions, his labour tendedexclusively to what is allowed to be production: the one was equallyindispensable with the other, to the ultimate result. Further, if weadopted the above definition, we should be obliged to say that a nationwhose artisans were twice as skilful as those of another nation, wasnot, _ceteris paribus_, more wealthy; although it is evident that everyone of the results of wealth, and everything for the sake of whichwealth is desired, would be possessed by the former country in a higherdegree than by the latter. 

Every classification according to which a basket of cherries, gatheredand eaten the next minute, are called wealth, while that title is deniedto the acquired skill of those who are acknowledged to be productivelabourers, is a purely arbitrary division, and does not conduce to theends for which classification and nomenclature are designed. 

In order to get over all difficulties, some political economists seemdisposed to make the terms express a distinction sufficiently definiteindeed, but more completely arbitrary, and having less foundation innature, than any of the former. They will not allow to any labour or toany expenditure the name of productive, unless the produce which ityields returns into the hands of the very person who made the outlay. Hedging and ditching they term productive labour, though thoseoperations conduce to production only indirectly, by protecting theproduce from destruction; but the necessary expenses incurred by agovernment for the protection of property are, they insist upon it, consumed unproductively: though, as has been well pointed out by Mr. M'Culloch, these expenses, in their relation to the national wealth, areexactly analogous to the wages of a hedger or a ditcher. The onlydifference is, that the farmer, who pays for the hedging and ditching, is the person to whom the consequent increase of production accrues, while the government, which is at the expense of police officers andcourts of justice, does not, as a necessary consequence, get back intoits own coffers the increase of the national wealth resulting from thesecurity of property. 

It would be endless to point out the oddities and incongruities whichresult from this classification. Whether we take the words wealth andproduction in the largest, or in the most restricted sense in which theyhave ever yet been employed, nobody will dispute that roads, bridges, and canals, contribute in an eminent degree, and in a very directmanner, to the increase of production and wealth. The labour andpecuniary resources employed in their construction would, according tothe above theory, be considered productive, if every occupier of landwere compelled by law to construct so much of the road, or canal, aspasses through his own farm. If, instead of this, the government makesthe road, and throws it open to the public toll-free, the labour andexpenditure would be, on the above system, clearly unproductive. But ifthe government, or an association of individuals, made the road, andimposed a toll to defray the expense, we do not see how these writerscould refuse to the outlay the title of productive expenditure. It wouldfollow, that the very same labour and expense, if given gratuitously, must be called unproductive, which, if a charge had been made for it, would have been called productive. 

When these consequences of the purely arbitrary classification to whichwe allude have been pointed out and complained of, the only answer whichwe have ever seen made to the objection is, that the line of demarcationmust be drawn somewhere, and that in every classification there areintermediate cases, which might have been included, with almost equalpropriety, either in the one class or in the other. 

This answer appears to us to indicate the want of a sufficientlyaccurate and discriminating perception, what is the kind of inaccuracywhich generally cannot be avoided in a classification, and what is thatother kind of inaccuracy, from which it always may be, and should be, exempt. 

The classes themselves may be, mentally speaking, perfectly definite, though it may not always be easy to say to which of them a particularobject belongs. When it is uncertain in which of two classes an objectshould be placed, if the classification be properly made, and properlyexpressed, the uncertainty can turn only upon a matter of fact. It isuncertain to which class the object belongs, because it is doubtfulwhether it possesses in a greater degree the characteristics of the oneclass or those of the other. But the characteristics themselves may bedefined and distinguished with the nicest exactness, and always ought tobe so. Especially ought they in a case like the present, because here itis only the distinction between the ideas which is of any importance. That we should be able with ease to portion out all employments betweenthe two classes, does not happen to be of any particular consequence. 

It is frequently said that classification is a mere affair ofconvenience. This assertion is true in one sense, but not if its meaningbe, that the most proper classification is that in which it is easiestto say whether an object belongs to one class or to the other. The useof classification is, to fix attention upon the distinctions which existamong things; and that is the best classification, which is founded uponthe most important distinctions, whatever be the facilities which it mayafford of ticketing and arranging the different objects which exist innature. In fixing, therefore, the meaning of the words productive andunproductive, we ought to endeavour to render them significative of themost important distinctions which, without too glaring a violation ofreceived usage, they can be made to express. 

We ought further, when we are restricted to the employment of old words, to endeavour as far as possible that it shall not be necessary tostruggle against the old associations with those words. We should, ifpossible, give the words such a meaning, that the propositions in whichpeople are accustomed to use them, shall as far as possible still betrue; and that the feelings habitually excited by them, shall be such asthe things to which we mean to appropriate them ought to excite. 

We shall endeavour to unite these conditions in the result of thefollowing enquiry. 

In whatever manner political economists may have settled the definitionof productive and unproductive labour or consumption, the consequenceswhich they have drawn from the definition are nearly the same. Inproportion to the amount of the productive labour and consumption ofa country, the country, they all allow, is enriched: in proportion tothe amount of the unproductive labour and consumption, the country isimpoverished. Productive expenditure they are accustomed to view asa gain; unproductive expenditure, however useful, as a sacrifice. Unproductive expenditure of what was destined to be expendedproductively, they always characterise as a squandering of resources, and call it profusion and prodigality. The productive expenditure ofthat which might, without encroaching upon capital, be expendedunproductively, is called saving, economy, frugality. Want, misery, andstarvation, are described as the lot of a nation which annually employsless and less of its labour and resources in production; growing comfortand opulence as the result of an annual increase in the quantity ofwealth so employed. 

Let us then examine what qualities in expenditure, and in the employmentof labour, are those from which all the consequences above mentionedreally flow. 

The end to which all labour and all expenditure are directed, istwofold. Sometimes it is _enjoyment_ immediately; the fulfilment ofthose desires, the gratification of which is wished for on its ownaccount. Whenever labour or expense is not incurred _immediately_ forthe sake of enjoyment, and is yet not absolutely wasted, it must beincurred for the purpose of enjoyment _indirectly_ or mediately; byeither repairing and perpetuating, or adding, to the _permanent sources_of enjoyment. 

Sources of enjoyment may be accumulated and stored up; enjoyment itselfcannot. The wealth of a country consists of the sum total of thepermanent sources of enjoyment, whether material or immaterial, containedin it: and labour or expenditure which tends to augment or to keep upthese permanent sources, should, we conceive, be termed productive. 

Labour which is employed for the purpose of directly affordingenjoyment, such as the labour of a performer on a musical instrument, weterm unproductive labour. Whatever is consumed by such a performer, weconsider as unproductively consumed: the accumulated total of thesources of enjoyment which the nation possesses, is diminished by theamount of what he has consumed: whereas, if it had been given to him inexchange for his services in producing food or clothing, the total ofthe permanent sources of enjoyment in the country might have been notdiminished but increased. 

The performer on the musical instrument then is, so far as respects thatact, not a productive, but an unproductive labourer. But what shall wesay of the workman who made the musical instrument? He, most personswould say, is a productive labourer; and with reason; because themusical instrument is a permanent source of enjoyment, which does notbegin and end with the enjoying, and therefore admits of beingaccumulated. 

But the _skill_ of the musician is a permanent source of enjoyment, aswell as the instrument which he plays upon: and although skill is not amaterial object, but a quality of an object, viz. , of the hands and mindof the performer; nevertheless skill possesses exchangeable value, isacquired by labour and capital, and is capable of being stored andaccumulated. Skill, therefore, must be considered as wealth; and thelabour and funds employed in acquiring skill in anything tending to theadvantage or pleasure of mankind, must be considered to be productivelyemployed and expended. 

The skill of a productive labourer is analogous to the machinery heworks with: neither of them is enjoyment, nor conduces directly to it, but both conduce indirectly to it, and both in the same way. If aspinning-jenny be wealth, the spinner's skill is also wealth. If themechanic who made the spinning-jenny laboured productively, the spinneralso laboured productively when he was learning his trade: and what theyboth consumed was consumed productively, that is to say, its consumptiondid not tend to diminish, but to increase the sum of the permanentsources of enjoyment in the country, by effecting a new creation ofthose sources, more than equal to the amount of the consumption. 

The skill of a tailor, and the implements he employs, contribute in thesame way to the convenience of him who wears the coat, namely, a remoteway: it is the coat itself which contributes immediately. The skill ofMadame Pasta, and the building and decorations which aid the effect ofher performance, contribute in the same way to the enjoyment of theaudience, namely, an immediate way, without any intermediateinstrumentality. The building and decorations are consumedunproductively, and Madame Pasta labours and consumes unproductively;for the building is used and worn out, and Madame Pasta performs, immediately for the spectators' enjoyment, and without leaving, as aconsequence of the performance, any permanent result possessingexchangeable value: consequently the epithet unproductive must beequally applied to the gradual wearing out of the bricks and mortar, thenightly consumption of the more perishable "properties" of the theatre, the labour of Madame Pasta in acting, and of the orchestra in playing. But notwithstanding this, the architect who built the theatre was aproductive labourer; so were the producers of the perishable articles;so were those who constructed the musical instruments; and so, we mustbe permitted to add, were those who instructed the musicians, and allpersons who, by the instructions which they may have given to MadamePasta, contributed to the formation of her talent. All these personscontributed to the enjoyment of the audience in the same way, and thata remote way, viz. , by the production of a _permanent source ofenjoyment_. 

The difference between this case, and the case of the cotton spinneralready adverted to, is this. The spinning-jenny, and the skill of thecotton spinner, are not only the result of productive labour, but arethemselves productively consumed. The musical instrument and the skillof the musician are equally the result of productive labour, but arethemselves unproductively consumed. 

Let us now consider what kinds of labour, and of consumption orexpenditure, will be classed as productive, and what as unproductive, according to this rule. 

The following are always productive:

Labour and expenditure, of which the direct object or effect is thecreation of some material product useful or agreeable to mankind. 

Labour and expenditure, of which the direct effect and object are, toendow human or other animated beings with faculties or qualities usefulor agreeable to mankind, and possessing exchangeable value. 

Labour and expenditure, which without having for their direct object thecreation of any useful material product or bodily or mental faculty orquality, yet tend indirectly to promote one or other of those ends, andare exerted or incurred solely for that purpose. 

The following are partly productive and partly unproductive, and cannotwith propriety be ranged decidedly with either class:

Labour or expenditure which does indeed create, or promote the creationof, some useful material product or bodily or mental faculty or quality, but which is not incurred or exerted for that sole end; having also foranother, and perhaps its principal end, enjoyment, or the promotion ofenjoyment. 

Such are the labour of the judge, the legislator, the police-officer, the soldier; and the expenditure incurred for their support. Thesefunctionaries protect and secure mankind in the exclusive possession ofsuch material products or acquired faculties as belong to them; and bythe security which they so confer, they indirectly increase productionin a degree far more than equivalent to the expense which is necessaryfor their maintenance. But this is not the only purpose for which theyexist; they protect mankind, not merely in the possession of theirpermanent resources, but also in their actual enjoyments; and so far, although highly useful, they cannot, conformably to the distinctionwhich we have attempted to lay down, be considered productive labourers. 

Such, also, are the labour and the wages of domestic servants. Suchpersons are entertained mainly as subservient to mere enjoyment; butmost of them occasionally, and some habitually, render services whichmust be considered as of a productive nature; such as that of cookery, the last stage in the manufacture of food; or gardening, a branch ofagriculture. 

The following are wholly unproductive:

Labour exerted, and expenditure incurred, directly and exclusively forthe purpose of enjoyment, and not calling into existence anything, whether substance or quality, but such as begins and perishes in theenjoyment. 

Labour exerted and expenditure incurred uselessly, or in pure waste, andyielding neither direct enjoyment nor permanent sources of enjoyment. 

It may be objected, that expenditure incurred even for pure enjoymentpromotes production indirectly, by inciting to exertion. Thus the viewof the splendour of a rich establishment is supposed by some writers toproduce upon the mind of an indigent spectator an earnest desire ofenjoying the same luxuries, and a consequent purpose of working withvigour and diligence, and saving from his earnings, thus increasing theproductive capital of the country. 

It is true that mankind are, for the most part, excited to productiveindustry solely by the desire of subsequently consuming the result oftheir labour and accumulation. The consumption called unproductive, viz. , that of which the direct result is enjoyment, is in reality theend, to which production is only the means; and a desire for the end, is what alone impels any one to have recourse to the means. 

But, notwithstanding this, it is of the greatest importance to mark thedistinction between the labour and the consumption which have enjoymentfor their immediate end, and the labour and the consumption of which theimmediate end is reproduction. Though the sight of the former may stillfurther stimulate that desire for the enjoyments afforded by wealth, which the mere knowledge, without the immediate view, would suffice toexcite (and without dwelling on the consideration that if the exampleof a large expenditure excites one individual to accumulation, itencourages two to prodigal expense); still, if we look only to theeffects which are intended, or to those which immediately follow fromthe consumption, and whose connexion with it can be distinctly traced, it evidently renders a country poorer in the permanent sources ofenjoyment; while reproductive consumption leaves the country richer inthese same sources. Besides, if what is spent for mere pleasure promotesindirectly the increase of wealth, it can only be by inducing others_not_ to expend on mere pleasure. 

Before quitting the subject, one more observation should be added. Itmust not be supposed that what is expended upon unproductive labourersis necessarily, the whole of it, unproductively consumed. Theunproductive labourers may save part of their wages, and invest them ina productive employment. 

It is not unusual to speak of what is paid in wages to a labourer asbeing thereby _consumed_, as if all profit and loss to the nation wereto be seen in the capitalist's account-book. What is paid for productivelabour is said to be productively consumed; what is paid forunproductive labour is said to be consumed unproductively. It would beproper to say, not that it is productively or unproductively _consumed_, but productively or unproductively _expended_; otherwise, we shall beobliged to say that it is consumed twice over; the first timeunproductively, perhaps, and the second, it may be, productively. 

To pronounce in which way the wages of the labourer are consumed, wemust follow them into the labourer's own hands. As much as is necessaryto keep the productive labourer in perfect health and fitness for hisemployment, may be said to be consumed productively. To this should beadded what he expends in rearing children to the age at which theybecome capable of productive industry. If the state of the market forlabour be such as to afford him more, this he may either save, or, asthe common expression is, he may spend it. If he saves any portion, this(unless it be merely hoarded) he intends to employ productively, and itwill be productively consumed. If he spends it, the consumption is forenjoyment immediately, and is therefore unproductive. 

This suggests another correction in the established language. Politicaleconomists generally define the "net produce" to be that portion of thegross annual produce of a country which remains after replacing thecapital annually consumed. This, as they proceed to explain, consists ofprofits and rent; wages being included in the other portion of the grossproduce, that which goes to replace capital. After this definition, theyusually proceed to tell us that the net produce, and that alone, constitutes the fund from which a nation can accumulate, and add to itscapital, as also that which it can, without retrograding in wealth, expend unproductively, or for enjoyment. Now, it is impossible that boththe above propositions can be true. If the net produce is that whichremains after replacing capital, then net produce is not the only fundout of which accumulation may be made: for accumulation may be made fromwages; this is in all countries one of the great sources, and in countrieslike America perhaps the greatest source of accumulation. If, on the otherhand, it is desirable to reserve the name of net produce to denote thefund available for accumulation or for unproductive consumption, we mustdefine net produce differently. The definition which appears the bestadapted to render the ordinary doctrines relating to net produce true, would be this:

The net produce of a country is whatever is annually produced beyondwhat is necessary for maintaining the stock of materials and implementsunimpaired, for keeping all productive labourers alive and in conditionfor work, and for just keeping up their numbers without increase. Whatis required for these purposes, or, in other words, for keeping up theproductive resources of the country, cannot be diverted from itsdestination without rendering the nation as a whole poorer. But allwhich is produced beyond this, whether it be in the hands of thelabourer, of the capitalist, or of any of the numerous varieties ofrent-owners, may be taken for immediate enjoyment, without prejudice tothe productive resources of the community; and whatever part of it isnot so taken, constitutes a clear addition to the national capital, orto the permanent sources of enjoyment. 

ESSAY IV. 

ON PROFITS, AND INTEREST. 

The profits of stock are the surplus which remains to the capitalistafter replacing his capital: and the ratio which that surplus bears tothe capital itself, is the _rate_ of profit. 

This being the definition of profits, it might seem natural to adopt, asa sufficient theory in regard to the rate of profit, that it dependsupon the productive power of capital. Some countries are favoured beyondothers, either by nature or art, in the means of production. If thepowers of the soil, or of machinery, enable capital to produce what isnecessary for replacing itself, and twenty per cent more, profits willbe twenty per cent; and so on. 

This, accordingly, is a popular mode of speaking on the subject ofprofits; but it has only the semblance, not the reality, of anexplanation. The "productive power of capital, " though a common, and, for some purposes, a convenient expression, is a delusive one. Capital, strictly speaking, has no productive power. The only productive power isthat of labour; assisted, no doubt, by tools, and acting upon materials. That portion of capital which consists of tools and materials, may besaid, perhaps, without any great impropriety, to have a productivepower, because they contribute, along with labour, to the accomplishmentof production. But that portion of capital which consists of wages, hasno productive power of its own. Wages have no productive power; they arethe price of a productive power. Wages do not contribute, along withlabour, to the production of commodities, no more than the price oftools contributes along with the tools themselves. If labour could behad without purchase, wages might be dispensed with. That portion ofcapital which is expended in the wages of labour, is only the means bywhich the capitalist procures to himself, in the way of purchase, theuse of that labour in which the power of production really resides. 

The proper view of capital is, that anything whatever, which a personpossesses, constitutes his capital, provided he is able, and intends, to employ it, not in consumption for the purpose of enjoyment, but inpossessing himself of the means of production, with the intention ofemploying those means productively. Now the means of production arelabour, implements, and materials. The only productive power whichanywhere exists, is the productive power of labour, implements, andmaterials. 

We need not, on this account, altogether proscribe the expression, "productive power of capital;" but we should carefully note, that it canonly mean the quantity of real productive power which the capitalist, by means of his capital, can command. This may change, though theproductive power of labour remains the same. Wages, for example, mayrise; and then, although all the circumstances of production remainexactly as they were before, the same capital will yield a less return, because it will set in motion a less quantity of productive labour. 

We may, therefore, consider the capital of a producer as measured by themeans which he has of possessing himself of the different essentials ofproduction: namely, labour, and the various articles which labourrequires as materials, or of which it avails itself as aids. 

The ratio between the price which he has to pay for these means ofproduction, and the produce which they enable him to raise, is the_rate_ of his _profit_. If he must give for labour and tools four-fifthsof what they will produce, the remaining fifth will constitute hisprofit, and will give him a rate of one in four, or twenty-five percent, on his outlay. 

It is necessary here to remark, what cannot indeed by any possibility bemisunderstood, but might possibly be overlooked in cases where attentionto it is indispensable, viz. , that we are speaking now of the _rate_ ofprofit, not the gross profit. If the capital of the country is verygreat, a profit of only five per cent upon it may be much more ample, may support a much larger number of capitalists and their families inmuch greater affluence, than a profit of twenty-five per cent on thecomparatively small capital of a poor country. The _gross_ profit of acountry is the actual amount of necessaries, conveniences, and luxuries, which are divided among its capitalists: but whether this be large orsmall, the rate of profit may be just the same. The rate of profit isthe proportion which the profit bears to the capital; which the surplusproduce after replacing the outlay, bears to the outlay. In short, if wecompare the _price paid_ for labour and tools with what that labour andthose tools will _produce_, from this ratio we may calculate the rate ofprofit. 

As the gross profit may be very different though the rate of profit bethe same; so also may the absolute price paid for labour and tools bevery different, and yet the proportion between the price paid and theproduce obtained may be just the same. For greater clearness, let usomit, for the present, the consideration of tools, materials, &c, andconceive production as the result solely of labour. In a certaincountry, let us suppose, the wages of each labourer are one quarter ofwheat per year, and 100 men can produce, in one year, 120 quarters. Herethe price paid for labour is to the produce of that labour as 100 to120, and profits are 20 per cent. Suppose now that, in another country, wages are just double what they are in the country before supposed;namely, two quarters of wheat per year, for each labourer. But suppose, likewise, that the productive power of labour is double what it is inthe first country; that by the greater fertility of the soil, 100 mencan produce 240 quarters, instead of 120 as before. Here it is obvious, that the real price paid for labour is twice as great in the one countryas in the other; but the produce being also twice as great, the ratiobetween the price of labour and the produce of labour is still exactlythe same: an outlay of 200 quarters gives a return of 240 quarters, andprofits, as before, are 20 per cent. 

Profits, then (meaning not gross profits, but the rate of profit), depend (not upon the price of labour, tools, and materials--but) uponthe ratio between the price of labour, tools, and materials, and theproduce of them: upon the proportionate share of the produce of industrywhich it is necessary to offer, in order to purchase that industry andthe means of setting it in motion. 

 * * * * *

We have hitherto spoken of tools, buildings, and materials, asessentials of production, co-ordinate with labour, and equallyindispensable with it. This is true; but it is also true that tools, buildings, and materials, are themselves the produce of labour; and thatthe only cause (cases of monopoly excepted) of their having any value, is the labour which is required for their production. 

If tools, buildings, and materials were the spontaneous gifts of nature, requiring no labour either in order to produce or to appropriate them;and if they were thus bestowed upon mankind in indefinite quantity, andwithout the possibility of being monopolized; they would still be asuseful, as indispensable as they now are; but since they could, like airand the light of the sun, be obtained without cost or sacrifice, theywould form no part of the expenses of production, and no portion of theproduce would be required to be set aside in order to replace the outlaymade for these purposes. The whole produce, therefore, after replacingthe wages of labour, would be clear profit to the capitalist. 

Labour alone is the primary means of production; "the originalpurchase-money which has been paid for everything. " Tools and materials, like other things, have originally cost nothing but labour; and have avalue in the market only because wages have been paid for them. Thelabour employed in making the tools and materials being added to thelabour afterwards employed in working up the materials by aid of thetools, the sum total gives the whole of the labour employed in theproduction of the completed commodity. In the ultimate analysis, therefore, labour appears to be the only essential of production. Toreplace capital, is to replace nothing but the wages of the labouremployed. Consequently, the whole of the surplus, after replacing wages, is profits. From this it seems to follow, that the ratio between thewages of labour and the produce of that labour gives the rate of profit. And thus we arrive at Mr. Ricardo's principle, that profits depend uponwages; rising as wages fall, and falling as wages rise. 

To protect this proposition (the most perfect form in which the law ofprofits seems to have been yet exhibited) against misapprehension, oneor two explanatory remarks are required. 

If by wages, be meant what constitutes the real affluence of thelabourer, the _quantity_ of produce which he receives in exchange forhis labour; the proposition that profits vary inversely as wages, willbe obviously false. The rate of profit (as has been already observed andexemplified) does not depend upon the price of labour, but upon theproportion between the price of labour and the produce of it. If theproduce of labour is large, the price of labour may also be largewithout any diminution of the rate of profit: and, in fact, the rate ofprofit is highest in those countries (as, for instance, North America)where the labourer is most largely remunerated. For the wages of labour, though so large, bear a less proportion to the abundant _produce_ oflabour, there than elsewhere. 

But this does not affect the truth of Mr. Ricardo's principle as hehimself understood it; because an increase of the labourer's realcomforts was not considered by him as a rise of wages. In his languagewages were only said to rise, when they rose not in mere quantity but in_value_. To the labourer himself (he would have said) the _quantity_ ofhis remuneration is the important circumstance: but its _value_ is theonly thing of importance to the person who purchases his labour. 

The rate of profits depends not upon absolute or real wages, but uponthe _value_ of wages. 

If, however, by value, Mr. Ricardo had meant _exchangeable_ value, hisproposition would still have been remote from the truth. Profits dependno more upon the exchangeable value of the labourer's remuneration, thanupon its quantity. The truth is, that by the exchangeable value is meantthe quantity of commodities which the labourer can purchase with hiswages; so that when we say the exchangeable value of wages, we say theirquantity, under another name. 

Mr. Ricardo, however, did not use the word value in the sense ofexchangeable value. 

Occasionally, in his writings, he could not avoid using the word asother people use it, to denote value in exchange. But he more frequentlyemployed it in a sense peculiar to himself, to denote cost ofproduction; in other words, the _quantity of labour_ required to producethe article; that being his criterion of cost of production. Thus, if ahat could be made with ten days' labour in France and with five days'labour in England, he said that the value of a hat was double in Franceof what it was in England. If a quarter of corn could be produced acentury ago with half as much labour as is necessary at present, Mr. Ricardo said that the value of a quarter of corn had doubled. 

Mr. Ricardo, therefore, would not have said that wages had risen, because a labourer could obtain two pecks of flour instead of one, for aday's labour; but if last year he received, for a day's labour, something which required eight hours' labour to produce it, and thisyear something which requires nine hours, then Mr. Ricardo would saythat wages had risen. A rise of wages, with Mr. Ricardo, meant anincrease in the cost of production of wages; an increase in the numberof hours' labour which go to produce the wages of a day's labour; anincrease in the _proportion_ of the fruits of labour which the labourerreceives for his own share; an increase in the ratio between the wagesof his labour and the produce of it. This is the theory: the reasoning, of which it is the result, has been given in the preceding paragraphs. 

Some of Mr. Ricardo's followers, or more properly, of those who haveadopted in most particulars the views of political economy which hisgenius was the first to open up, have given explanations of Mr. Ricardo's doctrine to nearly the same effect as the above, but in ratherdifferent terms. They have said that profits depend not on _absolute_, but on _proportional_ wages: which they expounded to mean the proportionwhich the labourers _en masse_ receive of the total produce of thecountry. 

It seems, however, to be rather an unusual and inconvenient use oflanguage to speak of anything as depending upon the wages of labour, andthen to explain that by wages of labour you do not mean the wages of anindividual labourer, but of all the labourers in the countrycollectively. Mankind will never agree to call anything a rise of wages, except a rise of the wages of individual labourers, and it is thereforepreferable to employ language tending to fix attention upon the wages ofthe individual. The wages, however, on which profits are said to depend, are undoubtedly _proportional_ wages, namely, the proportional wages ofone labourer: that is, the ratio between the wages of one labourer, and(not the whole produce of the country, but) the amount of what onelabourer can produce; the amount of that portion of the collectiveproduce of the industry of the country, which may be considered ascorresponding to the labour of one single labourer. Proportional wages, thus understood, may be concisely termed the cost of production ofwages; or, more concisely still, the cost of wages, meaning their costin the "original purchase money, " labour. 

We have now arrived at a distinct conception of Mr. Ricardo's theory ofprofits in its most perfect state. And this theory we conceive to be thebasis of the true theory of profits. All that remains to do is to clearit from certain difficulties which still surround it, and which, thoughin a greater degree apparent than real, are not to be put aside aswholly imaginary. 

Though it is true that tools, materials, and buildings (it is to bewished that there were some compact designation for all these essentialsof production taken together, ) are themselves the produce of labour, andare only on that account to be ranked among the expenses of production;yet the _whole_ of their value is not resolvable into the wages of thelabourers by whom they were produced. The wages of those labourers werepaid by a capitalist, and that capitalist must have the same profit uponhis advances as any other capitalist; when, therefore, he sells thetools or materials, he must receive from the purchaser not only thereimbursement of the wages he has paid, but also as much more as willafford him the ordinary rate of profit. And when the producer, afterbuying the tools and employing them in his own occupation, comes toestimate his gains, he must set aside a portion of the produce toreplace not only the wages paid both by himself and by the tool-maker, but also the profits of the tool-maker, advanced by himself out of hisown capital. 

It is not correct, therefore, to state that all which the capitalistretains after replacing wages forms his profit. It is true the wholereturn to capital is either wages or profits; but profits do not composemerely the surplus after replacing the outlay; they also enter into theoutlay itself. Capital is expended partly in paying or reimbursingwages, and partly in paying the profits of other capitalists, whoseconcurrence was necessary in order to bring together the means ofproduction. 

If any contrivance, therefore, were devised by which that part of theoutlay which consists of previous profits could be either wholly orpartially dispensed with, it is evident that more would remain as theprofit of the immediate producer; while, as the quantity of _labour_necessary to produce a given quantity of the commodity would beunaltered, as well as the quantity of produce paid for that labour, itseems that the ratio between the price of labour and its produce wouldbe the same as before; that the cost of production of wages would be thesame, proportional wages the same, and yet profits different. 

To illustrate this by a simple instance, let it be supposed thatone-third of the produce is sufficient to replace the wages of thelabourers who have been immediately instrumental in the production; thatanother third is necessary to replace the materials used and the fixedcapital worn out in the process; while the remaining third is cleargain, being a profit of 50 per cent. Suppose, for example, that 60agricultural labourers, receiving 60 quarters of corn for their wages, consume fixed capital and seed amounting to the value of 60 quartersmore, and that the result of their operations is a produce of 180quarters. When we analyse the price of the seed and tools into itselements, we find that they must have been the produce of the labour of40 men: for the wages of those 40, together with profit at the ratepreviously supposed (50 per cent) make up 60 quarters. The produce, therefore, consisting of 180 quarters is the result of the labouraltogether of 100 men: namely, the 60 first mentioned, and the 40 bywhose labour the fixed capital and the seed were produced. 

Let us now suppose, by way of an extreme case, that some contrivance isdiscovered, whereby the purposes to which the second third of theproduce had been devoted, may be dispensed with altogether: that somemeans are invented by which the same amount of produce may be procuredwithout the assistance of any fixed capital, or the consumption of anyseed or material sufficiently valuable to be worth calculating. Let us, however, suppose that this cannot be done without taking on a number ofadditional labourers, equal to those required for producing the seed andfixed capital; so that the saving shall be only in the profits of theprevious capitalists. Let us, in conformity with this supposition, assume that in dispensing with the fixed capital and seed, value 60quarters, it is necessary to take on 40 additional labourers, receivinga quarter of corn each, as before. 

The rate of profit has evidently risen. It has increased from 50 percent to 60 per cent. A return of 180 quarters could not before beobtained but by an outlay of 120 quarters; it can now be obtained by anoutlay of no more than 100. 

Here, therefore, is an undeniable rise of profits. Have wages, in thesense above attached to them, fallen or not? It would seem not. 

The produce (180 quarters) is still the result of the same quantity oflabour as before, namely, the labour of 100 men. A quarter of corn, therefore, is still, as before, the produce of 10/18 of a man's labourfor a year. Each labourer receives, as before, one quarter of corn;each, therefore, receives the produce of 10\18 of a year's labour of oneman, that is, the same cost of production; each receives 10/18 of theproduce of his own labour, that is, the same proportional wages; and thelabourers collectively still receive the same proportion, namely 10/18, of the whole produce. 

The conclusion, then, cannot be resisted, that Mr. Ricardo's theory isdefective: that the rate of profits does _not_ exclusively depend uponthe value of wages, in his sense, namely, the quantity of labour ofwhich the wages of a labourer are the produce; that it does _not_exclusively depend upon proportional wages, that is, upon the proportionwhich the labourers collectively receive of the whole produce, or theratio which the wages of an individual labourer bear to the produce ofhis individual labour. 

Those political economists, therefore, who have always dissented fromMr. Ricardo's doctrine, or who, having at first admitted, ended bydiscarding it, were so far in the right; but they committed a seriouserror in this, that, with the usual one-sidedness of disputants, theyknew no medium between admitting absolutely and dismissing entirely;and saw no other course than utterly to reject what it would have beensufficient to modify. 

It is remarkable how very slight a modification will suffice to renderMr. Ricardo's doctrine completely true. It is even doubtful whether hehimself, if called upon to adapt his expressions to this peculiar case, would not have so explained his doctrine as to render it entirelyunobjectionable. 

It is perfectly true, that, in the example already made use of, a riseof profits takes place, while wages, considered in respect to thequantity of labour of which they are the produce, have not varied atall. But though wages are still the produce of the same _quantity oflabour_ as before, the _cost of production_ of wages has neverthelessfallen; for into cost of production there enters another element besideslabour. 

We have already remarked (and the very example out of which thedifficulty arose presupposes it) that the cost of production of anarticle consists generally of two parts, --the _wages_ of the labouremployed, and the _profits_ of those who, in any antecedent stage ofthe production, have advanced any portion of those wages. An article, therefore, may be the produce of the same quantity of labour as before, and yet, if any portion of the profits which the last producer has tomake good to previous producers can be economized, the cost ofproduction of the article is diminished. 

Now, in our example, a diminution of this sort is supposed to have takenplace in the cost of production of corn. The production of that articlehas become less costly, in the ratio of six to five. A quantity of corn, the means of producing which could not previously have been secured butat an expense of 120 quarters, can now be produced by means which 100quarters are sufficient to purchase. 

But the labourer is supposed to receive the same quantity of corn asbefore. He receives one quarter. The cost of production of wages has, therefore, fallen one-sixth. A quarter of corn, which is theremuneration of a single labourer, is indeed the produce of the samequantity of labour as before; but its cost of production is neverthelessdiminished. It is now the produce of 10/18 of a man's labour, andnothing else; whereas formerly it required for its production theconjunction of that quantity of labour with an expenditure, in the formof reimbursement of profit, amounting to one-fifth more. 

If the cost of production of wages had remained the same as before, profits could not have risen. Each labourer received one quarter ofcorn; but one quarter of corn at that time was the result of the samecost of production, as 1 1/5 quarter now. In order, therefore, that eachlabourer should receive the same cost of production, each must nowreceive one quarter of corn, _plus_ one-fifth. The labour of 100 mencould not be purchased at this price for less than 120 quarters; and theproduce, 180 quarters, would yield only 50 per cent, as first supposed [7]. 

It is, therefore, strictly true, that the rate of profits variesinversely as the cost of production of wages. Profits cannot rise, unless the cost of production of wages falls exactly as much; nor fall, unless it rises. 

The proof of this position has been stated in figures, and in aparticular case: we shall now state it in general terms, and for allcases. 

We have supposed, for simplicity, that wages are paid in the finishedcommodity. The agricultural labourers, in our example, were paid incorn, and if we had called them weavers, we should have supposed them tobe paid in cloth. This supposition is allowable, for it is obviously ofno consequence, in a question of value, or cost of production, whatprecise article we assume as the medium of exchange. The suppositionhas, besides, the recommendation of being conformable to the mostordinary state of the facts; for it is by the sale of his own finishedarticle that each capitalist obtains the means of hiring labourers torenew the production; which is virtually the same thing as if, insteadof selling the article for money and giving the money to his labourers, he gave the article itself to the labourers, and they sold it for theirdaily bread. 

Assuming, therefore, that the labourer is paid in the very article heproduces, it is evident that, when any saving of expense takes place inthe production of that article, if the labourer still receives the samecost of production as before, he must receive an increased quantity, inthe very same ratio in which the productive power of capital has beenincreased. But, if so, the outlay of the capitalist will bear exactlythe same proportion to the return as it did before; and profits will notrise. 

The variations, therefore, in the rate of profits, and those in the costof production of wages, go hand in hand, and are inseparable. Mr. Ricardo's principle, that profits cannot rise unless wages fall, isstrictly true, if by low wages be meant not merely wages which are theproduce of a smaller quantity of labour, but wages which are produced atless cost, reckoning labour and previous profits together. But theinterpretation which some economists have put upon Mr. Ricardo'sdoctrine, when they explain it to mean that profits depend upon theproportion which the labourers collectively receive of the aggregateproduce, will not hold at all; for that, in our first example, remainedthe same, and yet profits rose. 

The only expression of the law of profits, which seems to be correct, is, that they depend upon the cost of production of wages. This must bereceived as the ultimate principle. 

From this may be deduced all the corollaries which Mr. Ricardo andothers have drawn from his theory of profits as expounded by himself. The cost of production of the wages of one labourer for a year, is theresult of two concurrent elements or factors, --viz. , 1st, the quantityof commodities which the state of the labour market affords to him;2ndly, the cost of production of each of those commodities. It follows, that the rate of profits can never rise but in conjunction with one orother of two changes, --1st, a diminished remuneration of the labourer;or, 2ndly, an improvement in production, or an extension of commerce, bywhich any of the articles habitually consumed by the labourer may beobtained at smaller cost. (If the improvement be in any article which isnot consumed by the labourer, it merely lowers the price of that article, and thereby benefits capitalists and all other people so far as they areconsumers of that particular article, and may be said to increase grossprofit, but not the rate of profit. )

So, on the other hand, the rate of profit cannot fall, unlessconcurrently with one of two events: 1st, an improvement in thelabourer's condition; or, 2ndly, an increased difficulty of producingor importing some article which the labourer habitually consumes. Theprogress of population and cultivation has a tendency to lower profitsthrough the latter of these two channels, owing to the well known lawof the application of capital to land, that a double capital does not_caeteris paribus_ yield a double produce. There is, therefore, atendency in the rate of profits to fall with the progress of society. But there is also an antagonist tendency of profits to rise, by thesuccessive introduction of improvements in agriculture, and in theproduction of those manufactured articles which the labourers consume. Supposing, therefore, that the actual comforts of the labourer remainthe same, profits will fall or rise, according as population, orimprovements in the production of food and other necessaries, advancefastest. 

The rate of profits, therefore, tends to _fall_ from the followingcauses:--1. An increase of capital beyond population, producingincreased competition for labour; 2. An increase of population, occasioning a demand for an increased quantity of food, which must beproduced at a greater cost. The rate of profits tends to _rise_ fromthe following causes:--1. An increase of population beyond capital, producing increased competition for employment; 2. Improvementsproducing increased cheapness of necessaries, and other articleshabitually consumed by the labourer. 

 * * * * *

The circumstances which regulate the rate of interest have usually beentreated, even by professed writers on political economy, in a vague, loose, and unscientific manner. It has, however, been felt that there issome connexion between the rate of interest and the rate of profit; that(to use the words of Adam Smith) much will be given for money, when muchcan be made of it. It has been felt, also, that the fluctuations in themarket-rate of interest from day to day, are determined, like othermatters of bargain and sale, by demand and supply. It has, therefore, been considered as an established principle, that the rate of interestvaries from day to day according to the quantity of capital offered orcalled for on loan; but conforms on the average of years to a standarddetermined by the rate of profits, and bearing some proportion to thatrate--but a proportion which few attempts have been made to define. 

In consequence of these views, it has been customary to judge of thegeneral rate of profits at any time or place, by the rate of interest atthat time and place: it being supposed that the rate of interest, thoughliable to temporary fluctuations, can never vary for any long period oftime unless profits vary; a notion which appears to us to be erroneous. 

It was observed by Adam Smith, that profits may be considered as dividedinto two parts, of which one may properly be considered as theremuneration for the use of the capital itself, the other as the rewardof the labour of superintending its employment; and that the former ofthese will correspond with the rate of interest. The producer whoborrows capital to employ it in his business, will consent to pay, forthe use of it, all that remains of the profits he can make by it, afterreserving what he considers reasonable remuneration for the trouble andrisk which he incurs by borrowing and employing it. 

This remark is just; but it seems necessary to give greater precision tothe ideas which it involves. 

The difference between the profit which can be made by the use ofcapital, and the interest which will be paid for it, is rightlycharacterized as wages of superintendance. But to infer from this thatit is regulated by entirely the same principles as other wages, would beto push the analogy too far. It is wages, but wages paid by a commissionupon the capital employed. If the general rate of profit is 10 per cent, and the rate of interest 5 per cent, the wages of superintendance willbe 5 per cent; and though one borrower employ a capital of 100, 000_l_. , another no more than 100_l_. , the labour of both will be rewarded withthe same per centage, though, in the one ease, this symbol willrepresent an income of 5_l_. , in the other case, of 5000_l_. Yet itcannot be pretended that the labour of the two borrowers differs in thisproportion. The rule, therefore, that equal quantities of labour ofequal hardness and skill are equally remunerated, does not hold of thiskind of labour. The wages of any other labour are here an inapplicablecriterion. 

The wages of superintendance are distinguished from ordinary wages byanother peculiarity, that they are not paid in advance out of capital, like the wages of all other labourers, but merge in the profit, and arenot realized until the production is completed. This takes them entirelyout of the ordinary law of wages. The wages of labourers who are paid inadvance, are regulated by the number of competitors compared with theamount of capital; the labourers can consume no more than what has beenpreviously accumulated. But there is no such limit to the remunerationof a kind of labour which is not paid for out of wealth previouslyaccumulated, but out of that produce which it is itself employed incalling into existence. 

When these circumstances are duly weighed, it will be perceived, thatalthough profit may be correctly analyzed into interest and wages ofsuperintendance, we ought not to lay it down as the law of interest, that it is profits _minus_ the wages of superintendance. Of the twoexpressions, it would be decidedly the more correct, that the wages ofsuperintendance are regulated by the rate of interest, or are equal toprofits _minus_ interest. In strict, propriety, neither expression wouldbe allowable. Interest, and the wages of superintendance, can scarcelybe said to depend upon one another. They are to one another in the samerelation as wages and profits are. They are like two buckets in a well:when one rises, the other descends, but neither of the two motions isthe cause of the other; both are simultaneous effects of the same cause, the turning of the windlass. 

 * * * * *

There are among the capitalists of every country a considerable numberwho are habitually, and almost necessarily, lenders; to whom scarcelyany difference between what they could receive for their money and whatcould be made by it, would be an equivalent for incurring the risk andlabour of carrying on business. In this predicament is the property ofwidows and orphans; of many public bodies; of charitable institutions;most property which is vested in trustees; and the property of a greatnumber of persons unused to business, and who have a distaste for it, or whose other occupations prevent their engaging in it. How large aproportion of the property lent to the nation comes under thisdescription, has been pointed out in Mr. Tooke's _Considerations on theState of the Currency. _

There is another large class, consisting of bankers, bill-brokers, andothers, who are money-lenders by profession; who enter into thatprofession with the intention of making such gains as it will yieldthem, and who would not be induced to change their business by any buta very strong pecuniary inducement. 

There is, therefore, a large class of persons who are habituallylenders. On the other hand, all persons in business may be consideredas habitually borrowers. Except in times of stagnation, they are alldesirous of extending their business beyond their own capital, and arenever desirous of lending any portion of their capital except for veryshort periods, during which they cannot advantageously invest it intheir own trade. 

There is, in short, a productive class, and there is, besides, a classtechnically styled the monied class, who live upon the interest of theircapital, without engaging personally in the work of production. 

The class of borrowers may be considered as unlimited. There is noquantity of capital that could be offered to be lent, which theproductive classes would not be willing to borrow, at any rate ofinterest which would afford them the slightest excess of profit above abare equivalent for the additional risk, incurred by that transaction, of the evils attendant on insolvency. The only assignable limit to theinclination to borrow, is the power of giving security: the producerswould find it difficult to borrow more than an amount equal to their owncapital. If more than half the capital of the country were in the handsof persons who preferred lending it to engaging personally in business, and if the surplus were greater than could be invested in loans toGovernment, or in mortgages upon the property of unproductive consumers;the competition of lenders would force down the rate of interest verylow. A certain portion of the monied class would be obliged either tosacrifice their predilections by engaging in business, or to lend oninferior security; and they would accordingly accept, where they couldobtain good security, an abatement of interest equivalent to thedifference of risk. 

This is an extreme case. Let us put an extreme case of a contrary kind. Suppose that the wealthy people of any country, not relishing an idlelife, and having a strong taste for gainful labour, were generallyindisposed to accept of a smaller income in order to be relieved fromthe labour and anxiety of business. Every producer in flourishingcircumstances would be eager to borrow, and few willing to lend. Underthese circumstances the rate of interest would differ very little fromthe rate of profit. The trouble of managing a business is notproportionally increased by an increase of the magnitude of thebusiness; and a very small surplus profit above the rate of interest, would therefore be a sufficient inducement to capitalists to borrow. 

We may even conceive a people whose habits were such, that in order toinduce them to lend, it might be necessary to offer them a rate ofinterest fully equal to the ordinary rate of profit. In that case, ofcourse, the productive classes would scarcely ever borrow. Butgovernment, and the unproductive classes, who do not borrow in order tomake a profit by the loan, but from the pressure of a real or supposednecessity, might still be ready to borrow at this high rate. 

Although the inclination to borrow has no _fixed_ or _necessary_ limitexcept the power of giving security, yet it always, in point of fact, stops short of this; from the uncertainty of the prospects of anyindividual producer, which generally indisposes him to involve himselfto the full extent of his means of payment. There is never any permanentwant of market for things in general; but there may be so for thecommodity which any one individual is producing; and even if there is ademand for the commodity, people may not buy it of him but of some other. There are, consequently, never more than a portion of the producers, thestate of whose business encourages them to add to their capital byborrowing; and even these are disposed to borrow only as much as theysee an _immediate_ prospect of profitably employing. There is, therefore, a practical limit to the demands of borrowers at any given instant; andwhen these demands are all satisfied, any additional capital offered onloan can find an investment only by a reduction of the rate of interest. 

The amount of borrowers being given, (and by the amount of borrowers ishere meant the aggregate sum which people are willing to borrow at somegiven rate, ) the rate of interest will depend upon the quantity ofcapital owned by people who are unwilling or unable to engage in trade. The circumstances which determine this, are, on the one hand, the degreein which a taste for business, or an aversion to it, happens to beprevalent among the classes possessed of property; and on the otherhand, the amount of the annual accumulation from the earnings of labour. Those who accumulate from their wages, fees, or salaries, have, ofcourse, (speaking generally) no means of investing their savings exceptby lending them to others: their occupations prevent them from personallysuperintending any employment. 

Upon these circumstances, then, the rate of interest depends, the amountof borrowers being given. And the counter-proposition equally holds, that, the above circumstances being given, the rate of interest dependsupon the amount of borrowers. 

Suppose, for example, that when the rate of interest has adjusted itselfto the existing state of the circumstances which affect the dispositionto borrow and to lend, a war breaks out, which induces government, fora series of years, to borrow annually a large sum of money. During thewhole of this period, the rate of interest will remain considerablyabove what it was before, and what it will be afterwards. 

Before the commencement of the supposed war, all persons who weredisposed to lend at the then rate of interest, had found borrowers, andtheir capital was invested. This may be assumed; for if any capital hadbeen seeking for a borrower at the existing rate of interest, and unableto find one, its owner would have offered it at a rate slightly belowthe existing rate. He would, for instance, have bought into the funds, at a slight advance of price; and thus set at liberty the capital ofsome fundholder, who, the funds yielding a lower interest, would havebeen obliged to accept a lower interest from individuals. 

Since, then, all who were willing to lend their capital at the marketrate, have already lent it, Government will not be able to borrow unlessby offering higher interest. Though, with the existing habits of thepossessors of disposable capital, an increased number cannot be foundwho are willing to lend at the existing rate, there are doubtless somewho will be induced to lend by the temptation of a higher rate. The sametemptation will also induce some persons to invest, in the purchase ofthe new stock, what they would otherwise have expended unproductively inincreasing their establishments, or productively, in improving theirestates. The rate of interest will rise just sufficiently to call forthan increase of lenders to the amount required. 

This we apprehend to be the cause why the rate of interest in thiscountry was so high as it is well known to have been during the lastwar. It is, therefore, by no means to be inferred, as some have done, that the general rate of profits was unusually high during the sameperiod, because interest was so. Supposing the rate of profits to havebeen precisely the same during the war, as before or after it, the rateof interest would nevertheless have risen, from the causes and in themanner above described. 

The practical use of the preceding investigation is, to moderate theconfidence with which inferences are frequently drawn with respect tothe rate of profit from evidence regarding the rate of interest; and toshew that although the rate of profit is one of the elements whichcombine to determine the rate of interest, the latter is also acted uponby causes peculiar to itself, and may either rise or fall, bothtemporarily and permanently, while the general rate of profits remainsunchanged. 

 * * * * *

The introduction of banks, which perform the function of lenders andloan-brokers, with or without that of issuers of paper-money, producessome further anomalies in the rate of interest, which have not, so faras we are aware, been hitherto brought within the pale of exact science. 

If bankers were merely a class of middlemen between the lender and theborrower; if they merely received deposits of capital from those who hadit lying unemployed in their hands, and lent this, together with theirown capital, to the productive classes, receiving interest for it, andpaying interest in their turn to those who had placed capital in theirhands; the effect of the operations of banking on the rate of interestwould be to lower it in some slight degree. The banker receives andcollects together sums of money much too small, when taken individually, to render it worth while for the owners to look out for an investment, but which in the aggregate form a considerable amount. This amount maybe considered a clear addition to the productive capital of the country;at least, to the capital in activity at any moment. And as this additionto the capital accrues wholly to that part of it which is not employedby the owners, but lent to other producers, the natural effect is adiminution of the rate of interest. 

The banker, to the extent of his own private capital, (the expenses ofhis business being first paid, ) is a lender at interest. But, beingsubject to risk and trouble fully equal to that which belongs to mostother employments, he cannot be satisfied with the mere interest evenof his whole capital: he must have the ordinary profits of stock, or hewill not engage in the business: the state of banking must be such as tohold out to him the prospect of adding, to the interest of what remainsof his own capital after paying the expenses of his business, interestupon capital deposited with him, in sufficient amount to make up, afterpaying the expenses, the ordinary profit which could be derived from hisown capital in any productive employment. This will be accomplished inone of two ways. 

1. If the circumstances of society are such as to furnish a readyinvestment of disposable capital; (as for instance in London, where thepublic funds and other securities, of undoubted stability, and affordinggreat advantages for receiving the interest without trouble andrealizing the principal without difficulty when required, tempt allpersons who have sums of importance lying idle, to invest them on theirown account without the intervention of any middleman;) the depositswith bankers consist chiefly of small sums likely to be wanted in a veryshort period for current expenses, and the interest on which wouldseldom be worth the trouble of calculating it. Bankers, therefore, donot allow any interest on their deposits. After paying the expenses oftheir business, all the rest of the interest they receive is clear gain. But as the circumstances of banking, as of all other modes of employingcapital, will on the average be such as to afford to a person enteringinto the business a prospect of realizing the ordinary, and no more thanthe ordinary, profits upon his own capital; the gains of each banker bythe investment of his deposits, will not on the average exceed what isnecessary to make up his gains on his own capital to the ordinary rate. It is, of course, competition, which brings about this limitation. Whether competition operates by lowering the rate of interest, or bydividing the business among a larger number, it is difficult to decide. Probably it operates in both ways; but it is by no means impossible thatit may operate in the latter way alone: just as an increase in thenumber of physicians does not lower the fees, though it diminishes anaverage competitor's chance of obtaining them. 

It is not impossible that the disposition of the lenders might be such, that they would cease to lend rather than acquiesce in any reduction ofthe rate of interest. If so, the arrival of a new lender, in the personof a banker of deposit, would not lower the rate of interest in anyconsiderable degree. A slight fall would take place, and with thatexception things would be as before, except that the capital in thehands of the banker would have put itself into the place of an equalportion of capital belonging to other lenders, who would themselves haveengaged in business (e. G. , by subscribing to some joint-stock company, or entering into commandite). Bankers' profits would then be limited tothe ordinary rate chiefly by the division of the business among manybanks, so that each on the average would receive no more interest on hisdeposits than would suffice to make up the interest on his own capitalto the ordinary rate of profit after paying all expenses. 

2. But if the circumstances of society render it difficult andinconvenient for persons who wish to live upon the interest of theirmoney, to seek an investment for themselves, the bankers become agentsfor this specific purpose: large as well as small sums are depositedwith them, and they allow interest to their customers. Such is thepractice of the Scotch banks, and of most of the country banks inEngland. Their customers, not living at any of the great seats of moneytransactions, prefer entrusting their capital to somebody on the spot, whom they know, and in whom they confide. He invests their money on thebest terms he can, and pays to them such interest as he can afford togive; retaining a compensation for his own risk and trouble. Thiscompensation is fixed by the competition of the market. The rate ofinterest is no further lowered by this operation, than inasmuch as itbrings together the lender and the borrower in a safe and expeditiousmanner. The lender incurs less risk, and a larger proportion, therefore, of the holders of capital are willing to be lenders. 

When a banker, in addition to his other functions, is also an issuer ofpaper money, he gains an advantage similar to that which the Londonbankers derive from their deposits. To the extent to which he can putforth his notes, he has so much the more to lend, without himself havingto pay any interest for it. 

If the paper is convertible, it cannot get into circulation permanentlywithout displacing specie, which goes abroad and brings back anequivalent value. To the extent of this value, there is an increase ofthe capital of the country; and the increase accrues solely to that partof the capital which is employed in loans. 

If the paper is inconvertible, and instead of displacing speciedepreciates the currency, the banker by issuing it levies a tax on everyperson who has money in his hands or due to him. He thus appropriates tohimself a portion of the capital of other people, and a portion of theirrevenue. The capital might have been intended to be lent, or it mighthave been intended to be employed by the owner: such part of it as wasintended to be employed by the owner now changes its destination, and islent. The revenue was either intended to be accumulated, in which caseit had already become capital, or it was intended to be spent: in thislast case, revenue is converted into capital: and thus, strange as itmay appear, the depreciation of the currency, when effected in this way, operates to a certain extent as a forced accumulation. This, indeed, isno palliation of its iniquity. Though A might have spent his propertyunproductively, B ought not to be permitted to rob him of it because Bwill expend it on productive labour. 

In any supposable case, however, the issue of paper money by bankersincreases the proportion of the whole capital of the country which isdestined to be lent. The rate of interest must therefore fall, untilsome of the lenders give over lending, or until the increase ofborrowers absorbs the whole. 

But a fall of the rate of interest, sufficient to enable the moneymarket to absorb the whole of the paper-loans, may not be sufficient toreduce the profits of a lender who lends what costs him nothing, to theordinary rate of profit upon his capital. Here, therefore, competitionwill operate chiefly by dividing the business. The notes of each bankwill be confined within so narrow a district, or will divide the supplyof a district with so many other banks, that on the average each willreceive no larger amount of interest on his notes than will make up theinterest on his own capital to the ordinary rate of profit. 

Even in this way, however, the competition has the effect, to a certainlimited extent, of lowering the rate of interest; for the power ofbankers to receive interest on more than their capital attracts agreater amount of capital into the banking business than would otherwiseflow into it; and this greater capital being all lent, interest willfall in consequence. 

NOTE:

[7] It would be easy to go over in the same manner any other case. Forinstance, we may suppose, that, instead of dispensing with the _whole_of the fixed capital, material, &c, and taking on labourers in equalnumber to those by whom these were produced, _half_ only of the fixedcapital and material is dispensed with; so that, instead of 60 labourersand a fixed capital worth 6O quarters of corn, we have 80 labourers anda fixed capital worth 30. The numerical statement of this case is moreintricate than that in the text, but the result is not different. 

ESSAY V. 

ON THE DEFINITION OF POLITICAL ECONOMY; AND ON THE METHOD OFINVESTIGATION PROPER TO IT. 

It might be imagined, on a superficial view of the nature and objects ofdefinition, that the definition of a science would occupy the same placein the chronological which it commonly does in the didactic order. As atreatise on any science usually commences with an attempt to express, ina brief formula, what the science is, and wherein it differs from othersciences, so, it might be supposed, did the framing of such a formulanaturally precede the successful cultivation of the science. 

This, however, is far from having been the case. The definition of ascience has almost invariably not preceded, but followed, the creationof the science itself. Like the wall of a city, it has usually beenerected, not to be a receptacle for such edifices as might afterwardsspring up, but to circumscribe an aggregation already in existence. Mankind did not measure out the ground for intellectual cultivationbefore they began to plant it; they did not divide the field of humaninvestigation into regular compartments first, and then begin to collecttruths for the purpose of being therein deposited; they proceeded in aless systematic manner. As discoveries were gathered in, either one byone, or in groups resulting from the continued prosecution of someuniform course of inquiry, the truths which were successively broughtinto store cohered and became agglomerated according to their individualaffinities. Without any intentional classification, the facts classedthemselves. They became associated in the mind, according to theirgeneral and obvious resemblances; and the aggregates thus formed, havingto be frequently spoken of as aggregates, came to be denoted by a commonname. Any body of truths which had thus acquired a collectivedenomination, was called a _science_. It was long before this fortuitousclassification was felt not to be sufficiently precise. It was in a moreadvanced stage of the progress of knowledge that mankind became sensibleof the advantage of ascertaining whether the facts which they had thusgrouped together were distinguished from all other facts by any commonproperties, and what these were. The first attempts to answer thisquestion were commonly very unskilful, and the consequent definitionsextremely imperfect. 

And, in truth, there is scarcely any investigation in the whole body ofa science requiring so high a degree of analysis and abstraction, as theinquiry, what the science itself is; in other words, what are theproperties common to all the truths composing it, and distinguishingthem from all other truths. Many persons, accordingly, who areprofoundly conversant with the details of a science, would be very muchat a loss to supply such a definition of the science itself as shouldnot be liable to well-grounded logical objections. From this remark, wecannot except the authors of elementary scientific treatises. Thedefinitions which those works furnish of the sciences, for the most parteither do not fit them--some being too wide, some too narrow--or do notgo deep enough into them, but define a science by its accidents, not itsessentials; by some one of its properties which may, indeed, serve thepurpose of a distinguishing mark, but which is of too little importanceto have ever of itself led mankind to give the science a name and rankas a separate object of study. 

The definition of a science must, indeed, be placed among that class oftruths which Dugald Stewart had in view, when he observed that the firstprinciples of all sciences belong to the philosophy of the human mind. The observation is just; and the first principles of all sciences, including the definitions of them, have consequently participatedhitherto in the vagueness and uncertainty which has pervaded that mostdifficult and unsettled of all branches of knowledge. If we open anybook, even of mathematics or natural philosophy, it is impossible not tobe struck with the mistiness of what we find represented as preliminaryand fundamental notions, and the very insufficient manner in which thepropositions which are palmed upon us as first principles seem to bemade out, contrasted with the lucidity of the explanations and theconclusiveness of the proofs as soon as the writer enters upon thedetails of his subject. Whence comes this anomaly? Why is the admittedcertainty of the results of those sciences in no way prejudiced by thewant of solidity in their premises? How happens it that a firmsuperstructure has been erected upon an unstable foundation? Thesolution of the paradox _is_, that what are called first principles, are, in truth, _last_ principles. Instead of being the fixed point fromwhence the chain of proof which supports all the rest of the sciencehangs suspended, they are themselves the remotest link of the chain. Though presented as if all other truths were to be deduced from them, they are the truths which are last arrived at; the result of the laststage of generalization, or of the last and subtlest process ofanalysis, to which the particular truths of the science can besubjected; those particular truths having previously been ascertainedby the evidence proper to their own nature. 

Like other sciences, Political Economy has remained destitute of adefinition framed on strictly logical principles, or even of, what ismore easily to be had, a definition exactly co-extensive with the thingdefined. This has not, perhaps, caused the real bounds of the science tobe, in this country at least, practically mistaken or overpassed; butit has occasioned--perhaps we should rather say it is connected with--indefinite, and often erroneous, conceptions of the mode in which thescience should be studied. 

We proceed to verify these assertions by an examination of the mostgenerally received definitions of the science. 

1. First, as to the vulgar notion of the nature and object of PoliticalEconomy, we shall not be wide of the mark if we state it to be somethingto this effect:--That Political Economy is a science which teaches, orprofesses to teach, in what manner a nation may be made rich. Thisnotion of what constitutes the science, is in some degree countenancedby the title and arrangement which Adam Smith gave to his invaluablework. A systematic treatise on Political Economy, he chose to call an_Inquiry into the Nature and Causes of the Wealth of Nations_; and thetopics are introduced in an order suitable to that view of the purposeof his book. 

With respect to the definition in question, if definition it can becalled which is not found in any set form of words, but left to bearrived at by a process of abstraction from a hundred current modes ofspeaking on the subject; it seems liable to the conclusive objection, that it confounds the essentially distinct, though closely connected, ideas of _science_ and _art_. These two ideas differ from one another asthe understanding differs from the will, or as the indicative mood ingrammar differs from the imperative. The one deals in facts, the otherin precepts. Science is a collection of _truths_; art, a body of_rules_, or directions for conduct. The language of science is, This is, or, This is not; This does, or does not, happen. The language of art is, Do this; Avoid that. Science takes cognizance of a _phenomenon_, andendeavours to discover its _law_; art proposes to itself an _end_, andlooks out for _means_ to effect it. 

If, therefore, Political Economy be a science, it cannot be a collectionof practical rules; though, unless it be altogether a useless science, practical rules must be capable of being founded upon it. The science ofmechanics, a branch of natural philosophy, lays down the laws of motion, and the properties of what are called the mechanical powers. The art ofpractical mechanics teaches how we may avail ourselves of those laws andproperties, to increase our command over external nature. An art wouldnot be an art, unless it were founded upon a scientific knowledge of theproperties of the subject-matter: without this, it would not bephilosophy, but empiricism; [Greek: empeiria, ] not [Greek: technae, ] inPlato's sense. Rules, therefore, for making a nation increase in wealth, are not a science, but they are the results of science. PoliticalEconomy does not of itself instruct how to make a nation rich; butwhoever would be qualified to judge of the means of making a nationrich, must first be a political economist. 

2. The definition most generally received among instructed persons, andlaid down in the commencement of most of the professed treatises on thesubject, is to the following effect:--That Political Economy informs usof the laws which regulate the production, distribution, and consumptionof wealth. To this definition is frequently appended a familiarillustration. Political Economy, it is said, is to the state, whatdomestic economy is to the family. 

This definition is free from the fault which we pointed out in theformer one. It distinctly takes notice that Political Economy is ascience and not an art; that it is conversant with laws of nature, not with maxims of conduct, and teaches us how things take place ofthemselves, not in what manner it is advisable for us to shape them, in order to attain some particular end. 

But though the definition is, with regard to this particular point, unobjectionable, so much can scarcely be said for the accompanyingillustration; which rather sends back the mind to the current loosenotion of Political Economy already disposed of. Political Economy isreally, and is stated in the definition to be, a science: but domesticeconomy, so far as it is capable of being reduced to principles, is anart. It consists of rules, or maxims of prudence, for keeping the familyregularly supplied with what its wants require, and securing, with anygiven amount of means, the greatest possible quantity of physicalcomfort and enjoyment. Undoubtedly the beneficial _result_, the greatpractical _application_ of Political Economy, would be to accomplishfor a nation something like what the most perfect domestic economyaccomplishes for a single household: but supposing this purposerealised, there would be the same difference between the rules by whichit might be effected, and Political Economy, which there is between theart of gunnery and the theory of projectiles, or between the rules ofmathematical land-surveying and the science of trigonometry. 

The definition, though not liable to the same objection as theillustration which is annexed to it, is itself far from unexceptionable. To neither of them, considered as standing at the head of a treatise, have we much to object. At a very early stage in the study of thescience, anything more accurate would be useless, and thereforepedantic. In a merely initiatory definition, scientific precision is notrequired: the object is, to insinuate into the learner's mind, it isscarcely material by what means, some general preconception of what arethe uses of the pursuit, and what the series of topics through which heis about to travel. As a mere anticipation or _ébauche_ of a definition, intended to indicate to a learner as much as he is able to understandbefore he begins, of the nature of what is about to be taught to him, we do not quarrel with the received formula. But if it claims to beadmitted as that complete _definitio_ or boundary-line, which resultsfrom a thorough exploring of the whole extent of the subject, and isintended to mark the exact place of Political Economy among thesciences, its pretension cannot be allowed. 

"The science of the laws which regulate the production, distribution, and consumption of wealth. " The term wealth is surrounded by a haze offloating and vapoury associations, which will let nothing that is seenthrough them be shewn distinctly. Let us supply its place by aperiphrasis. Wealth is defined, all objects useful or agreeable tomankind, except such as can be obtained in indefinite quantity withoutlabour. Instead of all objects, some authorities say, all materialobjects: the distinction is of no moment for the present purpose. 

To confine ourselves to production: If the laws of the production of allobjects, or even of all material objects, which are useful or agreeableto mankind, were comprised in Political Economy, it would be difficultto say where the science would end: at the least, all or nearly allphysical knowledge would be included in it. Corn and cattle are materialobjects, in a high degree useful to mankind. The laws of the productionof the one include the principles of agriculture; the production of theother is the subject of the art of cattle-breeding, which, in so far asreally an art, must be built upon the science of physiology. The laws ofthe production of manufactured articles involve the whole of chemistryand the whole of mechanics. The laws of the production of the wealthwhich is extracted from the bowels of the earth, cannot be set forthwithout taking in a large part of geology. 

When a definition so manifestly surpasses in extent what it professes todefine, we must suppose that it is not meant to be interpreted literally, though the limitations with which it is to be understood are not stated. 

Perhaps it will be said, that Political Economy is conversant with suchonly of the laws of the production of wealth as are applicable to _all_kinds of wealth: those which relate to the details of particular tradesor employments forming the subject of other and totally distinctsciences. 

If, however, there were no more in the distinction between PoliticalEconomy and physical science than this, the distinction, we may ventureto affirm, would never have been made. No similar division exists in anyother department of knowledge. We do not break up zoology or mineralogyinto two parts; one treating of the properties common to all animals, orto all minerals; another conversant with the properties peculiar to eachparticular species of animals or minerals. The reason is obvious; thereis no distinction _in kind_ between the general laws of animal or ofmineral nature and the peculiar properties of particular species. Thereis as close an analogy between the general laws and the particular ones, as there is between one of the general laws and another: most commonly, indeed, the particular laws are but the complex result of a plurality ofgeneral laws modifying each other. A separation, therefore, between thegeneral laws and the particular ones, merely because the former aregeneral and the latter particular, would run counter both to thestrongest motives of convenience and to the natural tendencies of themind. If the case is different with the laws of the production ofwealth, it must be because, in this case, the general laws differ inkind from the particular ones. But if so, the difference in kind is theradical distinction, and we should find out what that is, and found ourdefinition upon it. 

But, further, the recognised boundaries which separate the field ofPolitical Economy from that of physical science, by no means correspondwith the distinction between the truths which concern all kinds ofwealth and those which relate only to some kinds. The three laws ofmotion, and the law of gravitation, are common, as far as humanobservation has yet extended, to all matter; and these, therefore, asbeing among the laws of the production of all wealth, should form partof Political Economy. There are hardly any of the processes of industrywhich do not partly depend upon the properties of the lever; but itwould be a strange classification which included those properties amongthe truths of Political Economy. Again, the latter science has manyinquiries altogether as special, and relating as exclusively toparticular sorts of material objects, as any of the branches of physicalscience. The investigation of some of the circumstances which regulatethe price of corn, has as little to do with the laws common to theproduction of all wealth, as any part of the knowledge of theagriculturist. The inquiry into the rent of mines or fisheries, or intothe value of the precious metals, elicits truths which have immediatereference to the production solely of a peculiar kind of wealth; yetthese are admitted to be correctly placed in the science of PoliticalEconomy. 

The real distinction between Political Economy and physical science mustbe sought in something deeper than the nature of the subject-matter;which, indeed, is for the most part common to both. Political Economy, and the scientific grounds of all the useful arts, have in truth one andthe same subject-matter; namely, the objects which conduce to man'sconvenience and enjoyment: but they are, nevertheless, perfectlydistinct branches of knowledge. 

3. If we contemplate the whole field of human knowledge, attained orattainable, we find that it separates itself obviously, and as it werespontaneously, into two divisions, which stand so strikingly inopposition and contradistinction to one another, that in allclassifications of our knowledge they have been kept apart. These are, _physical_ science, and _moral_ or psychological science. The differencebetween these two departments of our knowledge does not reside in thesubject-matter with which they are conversant: for although, of thesimplest and most elementary parts of each, it may be said, with anapproach to truth, that they are concerned with different subject-matters--namely, the one with the human mind, the other with all thingswhatever except the mind; this distinction does not hold between thehigher regions of the two. Take the science of politics, for instance, or that of law: who will say that these are physical sciences? and yetis it not obvious that they are conversant fully as much with matter aswith mind? Take, again, the theory of music, of painting, of any otherof the fine arts, and who will venture to pronounce that the facts theyare conversant with belong either wholly to the class of matter, orwholly to that of mind?

The following seems to be the _rationale_ of the distinction betweenphysical and moral science. 

In all the intercourse of man with nature, whether we consider him asacting upon it, or as receiving impressions from it, the effect orphenomenon depends upon causes of two kinds: the properties of theobject acting, and those of the object acted upon. Everything which canpossibly happen in which man and external things, are jointly concerned, results from the joint operation of a law or laws of matter, and a lawor laws of the human mind. Thus the production of corn by human labouris the result of a law of mind, and many laws of matter. The laws ofmatter are those properties of the soil and of vegetable life whichcause the seed to germinate in the ground, and those properties of thehuman body which render food necessary to its support. The law of mindis, that man desires to possess subsistence, and consequently wills thenecessary means of procuring it. 

Laws of mind and laws of matter are so dissimilar in their nature, thatit would be contrary to all principles of rational arrangement to mixthem up as part of the same study. In all scientific methods, therefore, they are placed apart. Any compound effect or phenomenon which dependsboth on the properties of matter and on those of mind, may thus becomethe subject of two completely distinct sciences, or branches of science;one, treating of the phenomenon in so far as it depends upon the laws ofmatter only; the other treating of it in so far as it depends upon thelaws of mind. 

The physical sciences are those which treat of the laws of matter, andof all complex phenomena in so far as dependent upon the laws of matter. The mental or moral sciences are those which treat of the laws of mind, and of all complex phenomena in so far as dependent upon the laws ofmind. 

Most of the moral sciences presuppose physical science; but few of thephysical sciences presuppose moral science. The reason is obvious. Thereare many phenomena (an earthquake, for example, or the motions of theplanets) which depend upon the laws of matter exclusively; and havenothing whatever to do with the laws of mind. Many, therefore, of thephysical sciences may be treated of without any reference to mind, andas if the mind existed as a recipient of knowledge only, not as a causeproducing effects. But there are no phenomena which depend exclusivelyupon the laws of mind; even the phenomena of the mind itself beingpartially dependent upon the physiological laws of the body. All themental sciences, therefore, not excepting the pure science of mind, musttake account of a great variety of physical truths; and (as physicalscience is commonly and very properly studied first) may be said topresuppose them, taking up the complex phenomena where physical scienceleaves them. 

Now this, it will be found, is a precise statement of the relation inwhich Political Economy stands to the various sciences which aretributary to the arts of production. 

The laws of the production of the objects which constitute wealth, arethe subject-matter both of Political Economy and of almost all thephysical sciences. Such, however, of those laws as are purely laws ofmatter, belong to physical science, and to that exclusively. Such ofthem as are laws of the human mind, and no others, belong to PoliticalEconomy, which finally sums up the result of both combined. 

Political Economy, therefore, presupposes all the physical sciences; ittakes for granted all such of the truths of those sciences as areconcerned in the production of the objects demanded by the wants ofmankind; or at least it takes for granted that the physical part of theprocess takes place somehow. It then inquires what are the phenomena of_mind_ which are concerned in the production and distribution [8] ofthose same objects; it borrows from the pure science of mind the laws ofthose phenomena, and inquires what effects follow from these mentallaws, acting in concurrence with those physical one. [9]

From the above considerations the following seems to come out as thecorrect and complete definition of Political Economy:--"The sciencewhich treats of the production and distribution of wealth, so far asthey depend upon the laws of human nature. " Or thus--science relating tothe moral or psychological laws of the production and distribution ofwealth. "

For popular use this definition is amply sufficient, but it still fallsshort of the complete accuracy required for the purposes of thephilosopher. Political Economy does not treat of the production anddistribution of wealth in all states of mankind, but only in what istermed the social state; nor so far as they depend upon the laws ofhuman nature, but only so far as they depend upon a certain portion ofthose laws. This, at least, is the view which must be taken of PoliticalEconomy, if we mean it to find any place in an encyclopedical divisionof the field of science. On any other view, it either is not science atall, or it is several sciences. This will appear clearly, if, on the onehand, we take a general survey of the moral sciences, with a view toassign the exact place of Political Economy among them; while, on theother, we consider attentively the nature of the methods or processes bywhich the truths which are the object of those sciences are arrived at. 

Man, who, considered as a being having a moral or mental nature, is thesubject-matter of all the moral sciences, may, with reference to thatpart of his nature, form the subject of philosophical inquiry underseveral distinct hypotheses. We may inquire what belongs to manconsidered individually, and as if no human being existed besideshimself; we may next consider him as coming into contact with otherindividuals; and finally, as living in a state of _society_, that is, forming part of a body or aggregation of human beings, systematicallyco-operating for common purposes. Of this last state, politicalgovernment, or subjection to a common superior, is an ordinaryingredient, but forms no necessary part of the conception, and, withrespect to our present purpose, needs not be further adverted to. 

Those laws or properties of human nature which appertain to man as amere individual, and do not presuppose, as a necessary condition, theexistence of other individuals (except, perhaps, as mere instruments ormeans), form a part of the subject of pure mental philosophy. Theycomprise all the laws of the mere intellect, and those of the purelyself-regarding desires. 

Those laws of human nature which relate to the feelings called forth ina human being by other individual human or intelligent beings, as such;namely, the _affections_, the _conscience_, or feeling of duty, and thelove of _approbation_; and to the conduct of man, so far as it dependsupon, or has relation to, these parts of his nature--form the subject ofanother portion of pure mental philosophy, namely, that portion of it onwhich _morals_, or _ethics_, are founded. For morality itself is not ascience, but an art; not truths, but rules. The truths on which therules are founded are drawn (as is the case in all arts) from a varietyof sciences; but the principal of them, and those which are most nearlypeculiar to this particular art, belong to a branch of the science ofmind. 

Finally, there are certain principles of human nature which arepeculiarly connected with the ideas and feelings generated in man byliving in a state of _society_, that is, by forming part of a union oraggregation of human beings for a common purpose or purposes. Few, indeed, of the elementary laws of the human mind are peculiar to thisstate, almost all being called into action in the two other states. Butthose simple laws of human nature, operating in that wider field, giverise to results of a sufficiently universal character, and even (whencompared with the still more complex phenomena of which they are thedetermining causes) sufficiently simple, to admit of being called, though in a somewhat looser sense, _laws_ of society, or laws of humannature in the social state. These laws, or general truths, form thesubject of a branch of science which may be aptly designated from thetitle of _social economy_; somewhat less happily by that of _speculativepolitics_, or the _science_ of politics, as contradistinguished from theart. This science stands in the same relation to the social, as anatomyand physiology to the physical body. It shows by what principles of hisnature man is induced to enter into a state of society; how this featurein his position acts upon his interests and feelings, and through themupon his conduct; how the association tends progressively to becomecloser, and the co-operation extends itself to more and more purposes;what those purposes are, and what the varieties of means most generallyadopted for furthering them; what are the various relations whichestablish themselves among human beings as the ordinary consequence ofthe social union; what those which are different in different states ofsociety; in what historical order those states tend to succeed oneanother; and what are the effects of each upon the conduct and characterof man. 

This branch of science, whether we prefer to call it social economy, speculative politics, or the natural history of society, presupposes thewhole science of the nature of the individual mind; since all the lawsof which the latter science takes cognizance are brought into play in astate of society, and the truths of the social science are butstatements of the manner in which those simple laws take effect incomplicated circumstances. Pure mental philosophy, therefore, is anessential part, or preliminary, of political philosophy. The science ofsocial economy embraces every part of man's nature, in so far asinfluencing the conduct or condition of man in society; and thereforemay it be termed speculative politics, as being the scientificfoundation of practical politics, or the art of government, of which theart of legislation is a part. [10]

It is to _this_ important division of the field of science that one ofthe writers who have most correctly conceived and copiously illustratedits nature and limits, --we mean M. Say, --has chosen to give the namePolitical Economy. And, indeed, this large extension of thesignification of that term is countenanced by its etymology. But thewords "political economy" have long ceased to have so large a meaning. Every writer is entitled to use the words which are his tools in themanner which he judges most conducive to the general purposes of theexposition of truth; but he exercises this discretion under liability tocriticism: and M. Say seems to have done in this instance, what shouldnever be done without strong reasons; to have altered the meaning of aname which was appropriated to a particular purpose (and for which, therefore, a substitute must be provided), in order to transfer it to anobject for which it was easy to find a more characteristic denomination. 

What is now commonly understood by the term "Political Economy" is notthe science of speculative politics, but a branch of that science. Itdoes not treat of the whole of man's nature as modified by the socialstate, nor of the whole conduct of man in society. It is concerned withhim solely as a being who desires to possess wealth, and who is capableof judging of the comparative efficacy of means for obtaining that end. It predicts only such of the phenomena of the social state as take placein consequence of the pursuit of wealth. It makes entire abstraction ofevery other human passion or motive; except those which may be regardedas perpetually antagonizing principles to the desire of wealth, namely, aversion to labour, and desire of the present enjoyment of costlyindulgences. These it takes, to a certain extent, into its calculations, because these do not merely, like other desires, occasionally conflictwith the pursuit of wealth, but accompany it always as a drag, orimpediment, and are therefore inseparably mixed up in the considerationof it. Political Economy considers mankind as occupied solely inacquiring and consuming wealth; and aims at showing what is the courseof action into which mankind, living in a state of society, would beimpelled, if that motive, except in the degree in which it is checked bythe two perpetual counter-motives above adverted to, were absolute rulerof all their actions. Under the influence of this desire, it showsmankind accumulating wealth, and employing that wealth in the productionof other wealth; sanctioning by mutual agreement the institution ofproperty; establishing laws to prevent individuals from encroaching uponthe property of others by force or fraud; adopting various contrivancesfor increasing the productiveness of their labour; settling the divisionof the produce by agreement, under the influence of competition(competition itself being governed by certain laws, which laws aretherefore the ultimate regulators of the division of the produce); andemploying certain expedients (as money, credit, &c. ) to facilitate thedistribution. All these operations, though many of them are really theresult of a plurality of motives, are considered by Political Economy asflowing solely from the desire of wealth. The science then proceeds toinvestigate the laws which govern these several operations, under thesupposition that man is a being who is determined, by the necessity ofhis nature, to prefer a greater portion of wealth to a smaller in allcases, without any other exception than that constituted by the twocounter-motives already specified. Not that any political economist wasever so absurd as to suppose that mankind are really thus constituted, but because this is the mode in which science must necessarily proceed. When an effect depends upon a concurrence of causes, those causes mustbe studied one at a time, and their laws separately investigated, if wewish, through the causes, to obtain the power of either predicting orcontrolling the effect; since the law of the effect is compounded of thelaws of all the causes which determine it. The law of the centripetaland that of the tangential force must have been known before the motionsof the earth and planets could be explained, or many of them predicted. The same is the case with the conduct of man in society. In order tojudge how he will act under the variety of desires and aversions whichare concurrently operating upon him, we must know how he would act underthe exclusive influence of each one in particular. There is, perhaps, noaction of a man's life in which he is neither under the immediate norunder the remote influence of any impulse but the mere desire of wealth. With respect to those parts of human conduct of which wealth is not eventhe principal object, to these Political Economy does not pretend thatits conclusions are applicable. But there are also certain departmentsof human affairs, in which the acquisition of wealth is the main andacknowledged end. It is only of these that Political Economy takesnotice. The manner in which it necessarily proceeds is that of treatingthe main and acknowledged end as if it were the sole end; which, of allhypotheses equally simple, is the nearest to the truth. The politicaleconomist inquires, what are the actions which would be produced by thisdesire, if, within the departments in question, it were unimpeded by anyother. In this way a nearer approximation is obtained than wouldotherwise be practicable, to the real order of human affairs in thosedepartments. This approximation is then to be corrected by making properallowance for the effects of any impulses of a different description, which can be shown to interfere with the result in any particular case. Only in a few of the most striking cases (such as the important one ofthe principle of population) are these corrections interpolated into theexpositions of Political Economy itself; the strictness of purelyscientific arrangement being thereby somewhat departed from, for thesake of practical utility. So far as it is known, or may be presumed, that the conduct of mankind in the pursuit of wealth is under thecollateral influence of any other of the properties of our nature thanthe desire of obtaining the greatest quantity of wealth with the leastlabour and self-denial, the conclusions of Political Economy will so farfail of being applicable to the explanation or prediction of realevents, until they are modified by a correct allowance for the degree ofinfluence exercised by the other cause. 

Political Economy, then, may be defined as follows; and the definitionseems to be complete:--

"The science which traces the laws of such of the phenomena of societyas arise from the combined operations of mankind for the production ofwealth, in so far as those phenomena are not modified by the pursuit ofany other object. "

But while this is a correct definition of Political Economy as a portionof the field of science, the didactic writer on the subject willnaturally combine in his exposition, with the truths of the purescience, as many of the practical modifications as will, in hisestimation, be most conducive to the usefulness of his work. 

 * * * * *

The above attempt to frame a stricter definition of the science thanwhat are commonly received as such, may be thought to be of little use;or, at best, to be chiefly useful in a general survey and classificationof the sciences, rather than as conducing to the more successful pursuitof the particular science in question. We think otherwise, and for thisreason; that, with the consideration of the definition of a science, isinseparably connected that of the _philosophic method_ of the science;the nature of the process by which its investigations are to be carriedon, its truths to be arrived at. 

Now, in whatever science there are systematic differences of opinion--which is as much as to say, in all the moral or mental sciences, andin Political Economy among the rest; in whatever science there exist, among those who have attended to the subject, what are commonly calleddifferences of principle, as distinguished from differences ofmatter-of-fact or detail, --the cause will be found to be, a differencein their conceptions of the philosophic method of the science. Theparties who differ are guided, either knowingly or unconsciously, bydifferent views concerning the nature of the evidence appropriate to thesubject. They differ not solely in what they believe themselves to see, but in the quarter whence they obtained the light by which they thinkthey see it. 

The most universal of the forms in which this difference of method isaccustomed to present itself, is the ancient feud between what is calledtheory, and what is called practice or experience. There are, on socialand political questions, two kinds of reasoners: there is one portionwho term themselves practical men, and call the others theorists; atitle which the latter do not reject, though they by no means recogniseit as peculiar to them. The distinction between the two is a very broadone, though it is one of which the language employed is a most incorrectexponent. It has been again and again demonstrated, that those who areaccused of despising facts and disregarding experience build and professto build wholly upon facts and experience; while those who disavowtheory cannot make one step without theorizing. But, although bothclasses of inquirers do nothing but theorize, and both of them consultno other guide than experience, there is this difference between them, and a most important difference it is: that those who are calledpractical men require _specific_ experience, and argue wholly _upwards_from particular facts to a general conclusion; while those who arecalled theorists aim at embracing a wider field of experience, and, having argued upwards from particular facts to a general principleincluding a much wider range than that of the question under discussion, then argue _downwards_ from that general principle to a variety ofspecific conclusions. 

Suppose, for example, that the question were, whether absolute kingswere likely to employ the powers of government for the welfare or forthe oppression of their subjects. The practicals would endeavour todetermine this question by a direct induction from the conduct ofparticular despotic monarchs, as testified by history. The theoristswould refer the question to be decided by the test not solely of ourexperience of kings, but of our experience of men. They would contendthat an observation of the tendencies which human nature has manifestedin the variety of situations in which human beings have been placed, andespecially observation of what passes in our own minds, warrants us ininferring that a human being in the situation of a despotic king willmake a bad use of power; and that this conclusion would lose nothing ofits certainty even if absolute kings had never existed, or if historyfurnished us with no information of the manner in which they hadconducted themselves. 

The first of these methods is a method of induction, merely; the last amixed method of induction and ratiocination. The first may be called themethod _à posteriori;_ the latter, the method _à priori_. We are awarethat this last expression is sometimes used to characterize a supposedmode of philosophizing, which does not profess to be founded uponexperience at all. But we are not acquainted with any mode ofphilosophizing, on political subjects at least, to which such adescription is fairly applicable. By the method _à posteriori_ we meanthat which requires, as the basis of its conclusions, not experiencemerely, but specific experience. By the method _à priori_ we mean (whathas commonly been meant) reasoning from an assumed hypothesis; which isnot a practice confined to mathematics, but is of the essence of allscience which admits of general reasoning at all. To verify thehypothesis itself _à posteriori_, that is, to examine whether the factsof any actual case are in accordance with it, is no part of the businessof science at all, but of the _application_ of science. 

In the definition which we have attempted to frame of the science ofPolitical Economy, we have characterized it as essentially an _abstract_science, and its method as the method _à priori_. Such is undoubtedlyits character as it has been understood and taught by all its mostdistinguished teachers. It reasons, and, as we contend, must necessarilyreason, from assumptions, not from facts. It is built upon hypotheses, strictly analogous to those which, under the name of definitions, arethe foundation of the other abstract sciences. Geometry presupposes anarbitrary definition of a line, "that which has length but not breadth. "Just in the same manner does Political Economy presuppose an arbitrarydefinition of man, as a being who invariably does that by which he mayobtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial with whichthey can be obtained in the existing state of knowledge. It is true thatthis definition of man is not formally prefixed to any work on PoliticalEconomy, as the definition of a line is prefixed to Euclid's Elements;and in proportion as by being so prefixed it would be less in danger ofbeing forgotten, we may see ground for regret that this is not done. Itis proper that what is assumed in every particular case, should once forall be brought before the mind in its full extent, by being somewhereformally stated as a general maxim. Now, no one who is conversant withsystematic treatises on Political Economy will question, that whenever apolitical economist has shown that, by acting in a particular manner, alabourer may obviously obtain higher wages, a capitalist larger profits, or a landlord higher rent, he concludes, as a matter of course, thatthey will certainly act in that manner. Political Economy, therefore, reasons from _assumed_ premises--from premises which might be totallywithout foundation in fact, and which are not pretended to beuniversally in accordance with it. The conclusions of Political Economy, consequently, like those of geometry, are only true, as the commonphrase is, _in the abstract_; that is, they are only true under certainsuppositions, in which none but general causes--causes common to the_whole class_ of cases under consideration--are taken into the account. 

This ought not to be denied by the political economist. If he deny it, then, and then only, he places himself in the wrong. The _à priori_method which is laid to his charge, as if his employment of it provedhis whole science to be worthless, is, as we shall presently show, theonly method by which truth can possibly be attained in any department ofthe social science. All that is requisite is, that he be on his guardnot to ascribe to conclusions which are grounded upon an hypothesis adifferent kind of certainty from that which really belongs to them. Theywould be true without qualification, only in a case which is purelyimaginary. In proportion as the actual facts recede from the hypothesis, he must allow a corresponding deviation from the strict letter of hisconclusion; otherwise it will be true only of things such as he hasarbitrarily supposed, not of such things as really exist. That which istrue in the abstract, is always true in the concrete with proper_allowances_. When a certain cause really exists, and if left to itselfwould infallibly produce a certain effect, that same effect, _modified_by all the other concurrent causes, will correctly correspond to theresult really produced. 

The conclusions of geometry are not strictly true of such lines, angles, and figures, as human hands can construct. But no one, therefore, contends that the conclusions of geometry are of no utility, or that itwould be better to shut up Euclid's Elements, and content ourselves with"practice" and "experience. "

No mathematician ever thought that his definition of a line correspondedto an actual line. As little did any political economist ever imaginethat real men had no object of desire but wealth, or none which wouldnot give way to the slightest motive of a pecuniary kind. But they werejustified in assuming this, for the purposes of their argument; becausethey had to do only with those parts of human conduct which havepecuniary advantage for their direct and principal object; and because, as no two individual cases are exactly alike, no _general_ maxims couldever be laid down unless _some_ of the circumstances of the particularcase were left out of consideration. 

But we go farther than to affirm that the method _à priori_ is alegitimate mode of philosophical investigation in the moral sciences: wecontend that it is the only mode. We affirm that the method _àposteriori_, or that of specific experience, is altogether inefficaciousin those sciences, as a means of arriving at any considerable body ofvaluable truth; though it admits of being usefully applied in aid of themethod _à priori_, and even forms an indispensable supplement to it. 

There is a property common to almost all the moral sciences, and bywhich they are distinguished from many of the physical; this is, that itis seldom in our power to make experiments in them. In chemistry andnatural philosophy, we can not only observe what happens under all thecombinations of circumstances which nature brings together, but we mayalso try an indefinite number of new combinations. This we can seldom doin ethical, and scarcely ever in political science. We cannot try formsof government and systems of national policy on a diminutive scale inour laboratories, shaping our experiments as we think they may mostconduce to the advancement of knowledge. We therefore study nature undercircumstances of great disadvantage in these sciences; being confined tothe limited number of experiments which take place (if we may so speak)of their own accord, without any preparation or management of ours; incircumstances, moreover, of great complexity, and never perfectly knownto us; and with the far greater part of the processes concealed from ourobservation. 

The consequence of this unavoidable defect in the materials of theinduction is, that we can rarely obtain what Bacon has quaintly, but notunaptly, termed an _experimentum crucis_. 

In any science which admits of an unlimited range of arbitraryexperiments, an _experimentum crucis_ may always be obtained. Being ableto vary all the circumstances, we can always take effectual means ofascertaining which of them are, and which are not, material. Call theeffect B, and let the question be whether the cause A in any waycontributes to it. We try an experiment in which all the surroundingcircumstances are altered, except A alone: if the effect B isnevertheless produced, A is the cause of it. Or, instead of leaving A, and changing the other circumstances, we leave all the othercircumstances and change A: if the effect B in that case does _not_ takeplace, then again A is a necessary condition of its existence. Either ofthese experiments, if accurately performed, is an _experimentum crucis_;it converts the presumption we had before of the existence of aconnection between A and B into proof, by negativing every otherhypothesis which would account for the appearances. 

But this can seldom be done in the moral sciences, owing to the immensemultitude of the influencing circumstances, and our very scanty means ofvarying the experiment. Even in operating upon an individual mind, whichis the case affording greatest room for experimenting, we cannot oftenobtain a _crucial_ experiment. The effect, for example, of a particularcircumstance in education, upon the formation of character, may be triedin a variety of cases, but we can hardly ever be certain that any two ofthose cases differ in all their circumstances except the solitary one ofwhich we wish to estimate the influence. In how much greater a degreemust this difficulty exist in the affairs of states, where even the_number_ of recorded experiments is so scanty in comparison with thevariety and multitude of the circumstances concerned in each. How, forexample, can we obtain a crucial experiment on the effect of arestrictive commercial policy upon national wealth? We must find twonations alike in every other respect, or at least possessed, in a degreeexactly equal, of everything which conduces to national opulence, andadopting exactly the same policy in all their other affairs, butdiffering in this only, that one of them adopts a system of commercialrestrictions, and the other adopts free trade. This would be a decisiveexperiment, similar to those which we can almost always obtain inexperimental physics. Doubtless this would be the most conclusiveevidence of all if we could get it. But let any one consider howinfinitely numerous and various are the circumstances which eitherdirectly or indirectly do or may influence the amount of the nationalwealth, and then ask himself what are the probabilities that in thelongest revolution of ages two nations will be found, which agree, andcan be shown to agree, in all those circumstances except one?

Since, therefore, it is vain to hope that truth can be arrived at, either in Political Economy or in any other department of the socialscience, while we look at the facts in the concrete, clothed in all thecomplexity with which nature has surrounded them, and endeavour toelicit a general law by a process of induction from a comparison ofdetails; there remains no other method than the _à priori_ one, or thatof "abstract speculation. "

Although sufficiently ample grounds are not afforded in the field ofpolitics, for a satisfactory induction by a comparison of the effects, the causes may, in all cases, be made the subject of specificexperiment. These causes are, laws of human nature, and externalcircumstances capable of exciting the human will to action. The desiresof man, and the nature of the conduct to which they prompt him, arewithin the reach of our observation. We can also observe what are theobjects which excite those desires. The materials of this knowledgeevery one can principally collect within himself; with reasonableconsideration of the differences, of which experience discloses to himthe existence, between himself and other people. Knowing thereforeaccurately the properties of the substances concerned, we may reasonwith as much certainty as in the most demonstrative parts of physicsfrom any assumed set of circumstances. This will be mere trifling if theassumed circumstances bear no sort of resemblance to any real ones; butif the assumption is correct as far as it goes, and differs from thetruth no otherwise than as a part differs from the whole, then theconclusions which are correctly deduced from the assumption constitute_abstract_ truth; and when completed by adding or subtracting the effectof the non-calculated circumstances, they are true in the concrete, andmay be applied to practice. 

Of this character is the science of Political Economy in the writings ofits best teachers. To render it perfect as an abstract science, thecombinations of circumstances which it assumes, in order to trace theireffects, should embody all the circumstances that are common to allcases whatever, and likewise all the circumstances that are common toany important class of cases. The conclusions correctly deduced fromthese assumptions, would be as true in the abstract as those ofmathematics; and would be as near an approximation as abstract truth canever be, to truth in the concrete. 

When the principles of Political Economy are to be applied to aparticular ease, then it is necessary to take into account all theindividual circumstances of that case; not only examining to which ofthe sets of circumstances contemplated by the abstract science thecircumstances of the case in question correspond, but likewise whatother circumstances may exist in that case, which not being common to itwith any large and strongly-marked class of cases, have not fallen underthe cognizance of the science. These circumstances have been called_disturbing causes_. And here only it is that an element of uncertaintyenters into the process--an uncertainty inherent in the nature of thesecomplex phenomena, and arising from the impossibility of being quitesure that all the circumstances of the particular case are known to ussufficiently in detail, and that our attention is not unduly divertedfrom any of them. 

This constitutes the only uncertainty of Political Economy; and not ofit alone, but of the moral sciences in general. When the disturbingcauses are known, the allowance necessary to be made for them detractsin no way from scientific precision, nor constitutes any deviation fromthe _à priori_ method. The disturbing causes are not handed over to bedealt with by mere conjecture. Like _friction_ in mechanics, to whichthey have been often compared, they may at first have been consideredmerely as a non-assignable deduction to be made by guess from the resultgiven by the general principles of science; but in time many of them arebrought within the pale of the abstract science itself, and their effectis found to admit of as accurate an estimation as those more strikingeffects which they modify. The disturbing causes have their laws, as thecauses which are thereby disturbed have theirs; and from the laws of thedisturbing causes, the nature and amount of the disturbance may bepredicted _à priori_, like the operation of the more general laws whichthey are said to modify or disturb, but with which they might moreproperly be said to be concurrent. The effect of the special causes isthen to be added to, or subtracted from, the effect of the general ones. 

These disturbing causes are sometimes circumstances which operate uponhuman conduct through the same principle of human nature with whichPolitical Economy is conversant, namely, the desire of wealth, but whichare not general enough to be taken into account in the abstract science. Of disturbances of this description every political economist canproduce many examples. In other instances the disturbing cause is someother law of human nature. In the latter case it never can fall withinthe province of Political Economy; it belongs to some other science; andhere the mere political economist, he who has studied no science butPolitical Economy, if he attempt to apply his science to practice, willfail. [11]

As for the other kind of disturbing causes, namely those which operatethrough the same law of human nature out of which the general principlesof the science arise, these might always be brought within the pale ofthe abstract science if it were worth while; and when we make thenecessary allowances for them in practice, if we are doing anything butguess, we are following out the method of the abstract science intominuter details; inserting among its hypotheses a fresh and still morecomplex combination of circumstances, and so adding _pro hác vice_ asupplementary chapter or appendix, or at least a supplementary theorem, to the abstract science. 

Having now shown that the method _à priori_ in Political Economy, andin all the other branches of moral science, is the only certain orscientific mode of investigation, and that the _à posteriori_ method, or that of specific experience, as a means of arriving at truth, isinapplicable to these subjects, we shall be able to show that the lattermethod is notwithstanding of great value in the moral sciences; namely, not as a means of discovering truth, but of verifying it, and reducingto the lowest point that uncertainty before alluded to as arising fromthe complexity of every particular case, and from the difficulty (not tosay impossibility) of our being assured _à priori_ that we have takeninto account all the material circumstances. 

If we could be quite certain that we knew all the facts of theparticular case, we could derive little additional advantage fromspecific experience. The causes being given, we may know what will betheir effect, without an actual trial of every possible combination;since the causes are human feelings, and outward circumstances fitted toexcite them: and, as these for the most part are, or at least might be, familiar to us, we can more surely judge of their combined effect fromthat familiarity, than from any evidence which can be elicited from thecomplicated and entangled circumstances of an actual experiment. If theknowledge what are the particular causes operating in any given instancewere revealed to us by infallible authority, then, if our abstractscience were perfect, we should become prophets. But the causes are notso revealed: they are to be collected by observation; and observation incircumstances of complexity is apt to be imperfect. Some of the causesmay lie beyond observation; many are apt to escape it, unless we are onthe look-out for them; and it is only the habit of long and accurateobservation which can give us so correct a preconception what causes weare likely to find, as shall induce us to look for them in the rightquarter. But such is the nature of the human understanding, that thevery fact of attending with intensity to one part of a thing, has atendency to withdraw the attention from the other parts. We areconsequently in great danger of adverting to a portion only of thecauses which are actually at work. And if we are in this predicament, the more accurate our deductions and the more certain our conclusions inthe abstract, (that is, making abstraction of all circumstances exceptthose which form part of the hypothesis, ) the less we are likely tosuspect that we are in error: for no one can have looked closely intothe sources of fallacious thinking without being deeply conscious thatthe coherence, and neat concatenation of our philosophical systems, ismore apt than we are commonly aware to pass with us as evidence of theirtruth. 

We cannot, therefore, too carefully endeavour to verify our theory, bycomparing, in the particular cases to which we have access, the resultswhich it would have led us to predict, with the most trustworthyaccounts we can obtain of those which have been actually realized. Thediscrepancy between our anticipations and the actual fact is often theonly circumstance which would have drawn our attention to some importantdisturbing cause which we had overlooked. Nay, it often discloses to userrors in thought, still more serious than the omission of what can withany propriety be termed a disturbing cause. It often reveals to us thatthe basis itself of our whole argument is insufficient; that the data, from which we had reasoned, comprise only a part, and not always themost important part, of the circumstances by which the result is reallydetermined. Such oversights are committed by very good reasoners, andeven by a still rarer class, that of good observers. It is a kind oferror to which those are peculiarly liable whose views are the largestand most philosophical: for exactly in that ratio are their minds moreaccustomed to dwell upon those laws, qualities, and tendencies, whichare common to large classes of cases, and which belong to all place andall time; while it often happens that circumstances almost peculiar tothe particular case or era have a far greater share in governing thatone case. 

Although, therefore, a philosopher be convinced that no general truthscan be attained in the affairs of nations by the _à posteriori_ road, it does not the less behove him, according to the measure of hisopportunities, to sift and scrutinize the details of every specificexperiment. Without this, he may be an excellent professor of abstractscience; for a person may be of great use who points out correctly whateffects will follow from certain combinations of possible circumstances, in whatever tract of the extensive region of hypothetical cases thosecombinations may be found. He stands in the same relation to thelegislator, as the mere geographer to the practical navigator; tellinghim the latitude and longitude of all sorts of places, but not how tofind whereabouts he himself is sailing. If, however, he does no morethan this, he must rest contented to take no share in practicalpolitics; to have no opinion, or to hold it with extreme modesty, onthe applications which should be made of his doctrines to existingcircumstances. 

No one who attempts to lay down propositions for the guidance ofmankind, however perfect his scientific acquirements, can dispense witha practical knowledge of the actual modes in which the affairs of theworld are carried on, and an extensive personal experience of the actualideas, feelings, and intellectual and moral tendencies of his owncountry and of his own age. The true practical statesman is he whocombines this experience with a profound knowledge of abstract politicalphilosophy. Either acquirement, without the other, leaves him lame andimpotent if he is sensible of the deficiency; renders him obstinate andpresumptuous if, as is more probable, he is entirely unconscious of it. 

Such, then, are the respective offices and uses of the _à priori_ andthe _à posteriori_ methods--the method of abstract science, and that ofspecific experiment--as well in Political Economy, as in all the otherbranches of social philosophy. Truth compels us to express ourconviction that whether among those who have written on, these subjects, or among those for whose use they wrote, few can be pointed out who haveallowed to each of these methods its just value, and systematically kepteach to its proper objects and functions. One of the peculiarities ofmodern times, the separation of theory from practice--of the studies ofthe closet, from the outward business of the world--has given a wrongbias to the ideas and feelings both of the student and of the man ofbusiness. Each undervalues that part of the materials of thought withwhich he is not familiar. The one despises all comprehensive views, theother neglects details. The one draws his notion of the universe fromthe few objects with which his course of life has happened to render himfamiliar; the other having got demonstration on his side, and forgettingthat it is only a demonstration _nisi_--a proof at all times liable tobe set aside by the addition of a single new fact to the hypothesis--denies, instead of examining and sifting, the allegations which areopposed to him. For this he has considerable excuse in the worthlessnessof the testimony on which the facts brought forward to invalidate theconclusions of theory usually rest. In these complex matters, men seewith their preconceived opinions, not with their eyes: an interested ora passionate man's statistics are of little worth; and a year seldompasses without examples of the astounding falsehoods which large bodiesof respectable men will back each other in publishing to the world asfacts within their personal knowledge. It is not because a thing is_asserted_ to be true, but because in its nature it _may_ be true, thata sincere and patient inquirer will feel himself called upon toinvestigate it. He will use the assertions of opponents not as evidence, but indications leading to evidence; suggestions of the most propercourse for his own inquiries. 

But while the philosopher and the practical man bandy half-truths withone another, we may seek far without finding one who, placed on a highereminence of thought, comprehends as a whole what they see only inseparate parts; who can make the anticipations of the philosopher guidethe observation of the practical man, and the specific experience of thepractical man warn the philosopher where something is to be added to histheory. 

The most memorable example in modern times of a man who united thespirit of philosophy with the pursuits of active life, and kept whollyclear from the partialities and prejudices both of the student and ofthe practical statesman, was Turgot; the wonder not only of his age, butof history, for his astonishing combination of the most opposite, and, judging from common experience, almost incompatible excellences. 

Though it is impossible to furnish any test by which a speculativethinker, either in Political Economy or in any other branch of socialphilosophy, may know that he is competent to judge of the application ofhis principles to the existing condition of his own or any other country, indications may be suggested by the absence of which he may well andsurely know that he is not competent. His knowledge must at least enablehim to explain and account for what _is_, or he is an insufficient judgeof what ought to be. If a political economist, for instance, findshimself puzzled by any recent or present commercial phenomena; if thereis any mystery to him in the late or present state of the productiveindustry of the country, which his knowledge of principle does notenable him to unriddle; he may be sure that something is wanting torender his system of opinions a safe guide in existing circumstances. Either some of the facts which influence the situation of the countryand the course of events are not known to him; or, knowing them, heknows not what ought to be their effects. In the latter case his systemis imperfect even as an abstract system; it does not enable him to tracecorrectly all the consequences even of assumed premises. Though hesucceed in throwing doubts upon the reality of some of the phenomenawhich he is required to explain, his task is not yet completed; eventhen he is called upon to show how the belief, which he deems unfounded, arose; and what is the real nature of the appearances which gave acolour of probability to allegations which examination proves to beuntrue. 

When the speculative politician has gone through this labour--has gonethrough it conscientiously, not with the desire of finding his systemcomplete, but of making it so--he may deem himself qualified to applyhis principles to the guidance of practice: but he must still continueto exercise the same discipline upon every new combination of facts asit arises; he must make a large allowance for the disturbing influenceof unforeseen causes, and must carefully watch the result of everyexperiment, in order that any residuum of facts which his principles didnot lead him to expect, and do not enable him to explain, may become thesubject of a fresh analysis, and furnish the occasion for a consequentenlargement or correction of his general views. 

The method of the practical philosopher consists, therefore, of twoprocesses; the one analytical, the other synthetical. He must _analyze_the existing state of society into its elements, not dropping and losingany of them by the way. After referring to the experience of individualman to learn the _law_ of each of these elements, that is, to learn whatare its natural effects, and how much of the effect follows from so muchof the cause when not counteracted by any other cause, there remains anoperation of _synthesis_; to put all these effects together, and, fromwhat they are separately, to collect what would be the effect of all thecauses acting at once. If these various operations could be correctlyperformed, the result would be prophecy; but, as they can be performedonly with a certain approximation to correctness, mankind can neverpredict with absolute certainty, but only with a less or greater degreeof probability; according as they are better or worse apprised what thecauses are, --have learnt with more or less accuracy from experience thelaw to which each of those causes, when acting separately, conforms, --and have summed up the aggregate effect more or less carefully. 

With all the precautions which have been indicated there will still besome danger of falling into partial views; but we shall at least havetaken the best securities against it. All that we can do more, is toendeavour to be impartial critics of our own theories, and to freeourselves, as far as we are able, from that reluctance from which fewinquirers are altogether him to expect, and do not enable him toexplain, may become the subject of a fresh analysis, and furnish theoccasion for a consequent enlargement or correction of his generalviews. 

The method of the practical philosopher consists, therefore, of twoprocesses; the one analytical, the other synthetical. He must _analyze_the existing state of society into its elements, not dropping and losingany of them by the way. After referring to the experience of individualman to learn the _law_ of each of these elements, that is, to learn whatare its natural effects, and how much of the effect follows from so muchof the cause when not counteracted by any other cause, there remains anoperation of _synthesis_; to put all these effects together, and, fromwhat they are separately, to collect what would be the effect of all thecauses acting at once. If these various operations could be correctlyperformed, the result would be prophecy; but, as they can be performedonly with a certain approximation to correctness, mankind can neverpredict with absolute certainty, but only with a less or greater degreeof probability; according as they are better or worse apprised what thecauses are, --have learnt with more or less accuracy from experience thelaw to which each of those causes, when acting separately, conforms, --andhave summed up the aggregate effect more or less carefully. 

With all the precautions which have been indicated there will still besome danger of falling into partial views; but we shall at least havetaken the best securities against it. All that we can do more, is toendeavour to be impartial critics of our own theories, and to freeourselves, as far as we are able, from that reluctance from which fewinquirers are altogether exempt, to admit the reality or relevancy ofany facts which they have not previously either taken into, or left aplace open for in, their systems. 

If indeed every phenomenon was generally the effect of no more than onecause, a knowledge of the law of that cause would, unless there was alogical error in our reasoning, enable us confidently to predict all thecircumstances of the phenomenon. We might then, if we had carefullyexamined our premises and our reasoning, and found no flaw, venture todisbelieve the testimony which might be brought to show that matters hadturned out differently from what we should have predicted. If the causesof erroneous conclusions were always patent on the face of thereasonings which lead to them, the human understanding would be a farmore trustworthy instrument than it is. But the narrowest examination ofthe process itself will help us little towards discovering that we haveomitted part of the premises which we ought to have taken into ourreasoning. Effects are commonly determined by a _concurrence_ of causes. If we have overlooked any one cause, we may reason justly from all theothers, and only be the further wrong. Our premises will be true, andour reasoning correct, and yet the result of no value in the particularcase. There is, therefore, almost always room for a modest doubt as toour practical conclusions. Against false premises and unsound reasoning, a good mental discipline may effectually secure us; but against thedanger of _overlooking_ something, neither strength of understanding norintellectual cultivation can be more than a very imperfect protection. A person may be warranted in feeling confident, that whatever he hascarefully contemplated with his mind's eye he has seen correctly; but noone can be sure that there is not something in existence which he hasnot seen at all. He can do no more than satisfy himself that he has seenall that is visible to any other persons who have concerned themselveswith the subject. For this purpose he must endeavour to place himself attheir point of view, and strive earnestly to see the object as they seeit; nor give up the attempt until he has either added the appearancewhich is floating before them to his own stock of realities, or made outclearly that it is an optical deception. 

 * * * * *

The principles which we have now stated are by no means alien to commonapprehension: they are not absolutely hidden, perhaps, from any one, butare commonly seen through a mist. We might have presented the latterpart of them in a phraseology in which they would have seemed the mostfamiliar of truisms: we might have cautioned inquirers against tooextensive _generalization_, and reminded them that there are _exceptions_to all rules. Such is the current language of those who distrustcomprehensive thinking, without having any clear notion why or where itought to be distrusted. We have avoided the use of these expressionspurposely, because we deem them superficial and inaccurate. The error, when there is error, does _not_ arise from generalizing too extensively;that is, from including too wide a range of particular cases in a singleproposition. Doubtless, a man often asserts of an entire class what isonly true of a part of it; but his error generally consists not in makingtoo wide an assertion, but in making the wrong _kind_ of assertion: hepredicated an actual result, when he should only have predicated a_tendency_ to that result--a power acting with a certain intensity in thatdirection. With regard to _exceptions_; in any tolerably ably advancedscience there is properly no such thing as an exception. What is thoughtto be an exception to a principle is always some other and distinctprinciple cutting into the former: some other force which impinges againstthe first force, and deflects it from its direction. There are not a _law_and an _exception_ to that law--the law acting in ninety-nine cases, andthe exception in one. There are two laws, each possibly acting in thewhole hundred cases, and bringing about a common effect by their conjunctoperation. If the force which, being the less conspicuous of the two, iscalled the disturbing force, prevails sufficiently over the other forcein some one case, to constitute that case what is commonly called anexception, the same disturbing force probably acts as a modifying causein many other cases which no one will call exceptions. 

Thus if it were stated to be a law of nature, that all heavy bodies fallto the ground, it would probably be said that the resistance of theatmosphere, which prevents a balloon from falling, constitutes theballoon an exception to that pretended law of nature. But the real lawis, that all heavy bodies _tend_ to fall; and to this there is noexception, not even the sun and moon; for even they, as every astronomerknows, tend towards the earth, with a force exactly equal to that withwhich the earth tends towards them. The resistance of the atmospheremight, in the particular case of the balloon, from a misapprehension ofwhat the law of gravitation is, be said to _prevail_ over the law; butits disturbing effect is quite as real in every other case, since thoughit does not prevent, it retards the fall of all bodies whatever. Therule, and the so-called exception, do not divide the cases between them;each of them is a comprehensive rule extending to all cases. To call oneof these concurrent principles an exception to the other, issuperficial, and contrary to the correct principles of nomenclature andarrangement. An effect of precisely the same kind, and arising from thesame cause, ought not to be placed in two different categories, merelyas there does or does not exist another cause preponderating over it. 

It is only in art, as distinguished from science, that we can withpropriety speak of exceptions. Art, the immediate end of which ispractice, has nothing to do with causes, except as the means of bringingabout effects. However heterogeneous the causes, it carries the effectsof them all into one single reckoning, and according as the sum-total is_plus_ or _minus_, according as it falls above or below a certain line, Art says, Do this, or Abstain from doing it. The exception does not runby insensible degrees into the rule, like what are called exceptions inscience. In a question of practice it frequently happens that a certainthing is either fit to be done, or fit to be altogether abstained from, there being no medium. If, in the majority of cases, it is fit to bedone, that is made the rule. When a case subsequently occurs in whichthe thing ought not to be done, an entirely new leaf is turned over; therule is now done with, and dismissed: a new train of ideas is introduced, between which and those involved in the rule there is a broad line ofdemarcation; as broad and _tranchant_ as the difference between Ay andNo. Very possibly, between the last case which comes within the rule andthe first of the exception, there is only the difference of a shade: butthat shade probably makes the whole interval between acting in one wayand in a totally different one. We may, therefore, in talking of art, unobjectionably speak of the _rule_ and the _exception_; meaning by therule, the cases in which there exists a preponderance, however slight, of inducements for acting in a particular way; and by the exception, thecases in which the preponderance is on the contrary side. 

THE END. 

NOTES:

[8] We say, the _production_ and _distribution_, not, as is usual withwriters on this science, the production, distribution, and _consumption_. For we contend that Political Economy, as conceived by those verywriters, has nothing to do with the consumption of wealth, further thanas the consideration of it is inseparable from that of production, orfrom that of distribution. We know not of any _laws_ of the _consumption_of wealth as the subject of a distinct science: they can be no otherthan the laws of human enjoyment. Political economists have never treatedof consumption on its own account, but always for the purpose of theinquiry in what manner different kinds of consumption affect the productionand distribution of wealth. Under the head of Consumption, in professedtreatises on the science, the following are the subjects treated of: 1st, The distinction between _productive_ and _unproductive_ consumption; 2nd, The inquiry whether it is possible for _too much_ wealth to be _produced_, and for too great a portion of what has been produced to be applied to thepurpose of further _production_; 3rd, The theory of taxation, that is tosay, the following two questions--by whom each particular tax is paid(a question of _distribution_), and in what manner particular taxes affect_production_. 

[9] The physical laws of the production of useful objects are allequally presupposed by the science of Political Economy: most of them, however, it presupposes in the gross, seeming to say nothing about them. A few (such, for instance, as the decreasing ratio in which the produceof the soil is increased by an increased application of labour) it isobliged particularly to specify, and thus seems to borrow those truthsfrom the physical sciences to which they properly belong, and includethem among its own. 

[10] The _science_ of legislation is an incorrect and misleadingexpression. Legislation is _making laws_. We do not talk of the_science_ of _making_ anything. Even the _science of government_ wouldbe an objectionable expression, were it not that _government_ is oftenloosely taken to signify, not the act of governing, but the state orcondition of _being governed_, or of living under a government. Apreferable expression would be, the science of _political society_; aprincipal branch of the more extensive science of society, characterizedin the text. 

[11] One of the strongest reasons for drawing the line of separationclearly and broadly between science and art is the following:--That theprinciple of classification in science most conveniently follows theclassification of _causes_, while arts must necessarily be classifiedaccording to the classification of the _effects_, the production ofwhich is their appropriate end. Now an effect, whether in physics ormorals, commonly depends upon a concurrence of causes, and it frequentlyhappens that several of these causes belong to different sciences. Thusin the construction of engines upon the principles of the science of_mechanics_, it is necessary to bear in mind the _chemical_ propertiesof the material, such as its liability to oxydize; its electrical andmagnetic properties, and so forth. From this it follows that althoughthe necessary foundation of all art is science, that is, the knowledgeof the properties or laws of the objects upon which, and with which, theart dons its work; it is not equally true that every art corresponds toone particular science. Each art presupposes, not one science, butscience in general; or, at least, many distinct sciences. 

(Editor's note:)

Essays on some Unsettled Questions of Political Economy

These five essays represent Mill's earliest thoughts on economic mattersand were first composed in 1829 and 1830 before his reputation had beenestablished by the publication of _Logic_ in 1843. Their successfulreception no doubt hastened the composition of his comprehensive workthe _Principles of Political Economy_ (1848).