The Social System; a treatise on the principle of Exchange

Front matter

EDINBURGH: Trinted by Andrew Shortreed, Thistle Lane. A TREATISE ON THE PRINCIPLE OF EXCHANGE. BY JOHN GRAY. The Economist is not to frame systems and devise schemes for increasing the wealth and enjoyments of particular classes, but to apply himself to discover the sources of national wealth and universal prosperity. — M'Culloch. EDINBURGH: WILLIAM TAIT, PRINCE STREET: LONGMAN, REES, ORJIE, BROWN, & GREEN, LONDON: AND W. CURRY, JCN. & CO. DUBLIN. MDCCCXXXI. TO THOSE WHO CAN DISTINGUISH TRUTH AND JUSTICE FROM RECEIVED OPINION AND ESTABLISHED CUSTOM; AND WHO ARE WILLING TO ASSIST IN THE ESTABLISHMENT OF SUCH PRINCIPLES AS ARE BEST CALCULATED TO ADVANCE THE CHARACTER AND IMPROVE THE CONDITION OF THE WHOLE HUMAN RACE, THIS VOLUME IS MOST RESPECTFULLY INSCRIBED.

Preface

. A long period lias elapsed since my mind was ■first impressed with the belief that there exists in the heart and vitals of society some deeply rooted but concealed disease ; and continued reflection upon the subject, has only tended to confirm and strengthen the opinion. A notion appears to prevail amongst mankind, that there exists in our Social System a self regula ting principle, and that the stream of commerce, like that of water, only requires to be let alone to find its own level, and to flow on smoothly and prosperously. Ten years ago, I doubted, and I now deny, the existence of any such principle. I also deny the possibility of effectually removing the distresses of this country, by any other means whatever than those of association in the employ ment of capital ; and I affirm, that by such associa tion, under well digested principles, and with an improved plan of exchange, unmerited poverty

PREFACE.

. VIII may be removed, commercial difficulties of every denomination annihilated, and individual, as well as national, prosperity, established upon an ample and imperishable basis. At an early period of my life I committed to paper the opinions I then entertained upon this subject, and sent the manuscript to the most intel ligent friend I then, or have ever since, had, requesting the favour of a perusal, and of an opinion of the work ; and here is a verbatim copy of his reply:— " I had intended, as I was requested, to make a " few observations upon this work, and I have " waded through it with the view of doing so ; but " after perusing the third chapter of the last part," [the work was then divided into three parts,] " I " am convinced that any observations would be a " mere waste of time.

I should advise that the " book be put into any kitchen fire large enough " to consume it." My friend's verdict was certainly neither very complimentary nor encouraging : I had, however, but little disposition to act in accordance with his advice, and as it was quite evident that he had not understood the opinion which was intended to be stated, owing, perhaps, to the obscurity of the language, I endeavoured to console myself with the hope that, at some future period, I might be able to state my views in a more clear and intelligible manner ; and I trust that I have now done so. Some time afterwards, I re-wrote and published a part of the said work in the form of a lecture, of

PREFACE.

. IX Vi which a few hundred copies were sold immediately, and the rest were put into the hands of a London publisher, who failed shortly afterwards, and from that hour to this I have never accurately ascertained what became of them. The pamphlet I allude to was afterwards reprinted in Philadelphia, where an edition of a thousand copies was rapidly sold off. My reason for giving publicity to the foregoing statement now is to admit the justice of my friend's criticism, so far as related to the propriety of pub lishing the work in the condition in which it then was ; and as that portion of it, which was afterwards printed, was not, in any instance, so far as I know, advertised, and as no other means, save only the issuing of a few prospectuses, were taken to bring it before the public, I have here quoted, without the accustomed marks, the very few sentences it contained, which I now think worthy of preser vation.

Whilst, however, I am not anxious to rescue from oblivion the aforesaid pamphlet, which, by the way, was merely an introduction to the present subject, and contained no attempt to explain how matters might be improved ; let it not be supposed that I imagine the present work to be at all free from the same faults. Fully occupied, from a very early age, with the active business of life, I have had no opportunity of acquiring those literary qualifications, which, in this fastidious age, are so essential to accomplished authorship. But these, however undoubtedly important, are not, in the present instance, indispensable. The poet, or the

PREFACE.

. X novelist, must be rich in words as well as in thoughts, ere he can be successful ; but in mere matters of opinion, a plain man can generally tell his mind in his own way : indeed, most men in the present day can put thoughts into language suffi ciently well to be understood ; and, as the object of this little work is not to please the imagination, but to assist the judgment, to be understood is all, as a literary composition, that it aspires to. A lapse of several years, since the subject of the commercial interests of nations first occupied my mind, during which I have undergone a very full share of bodily exertion, as well as of mental anxiety and affliction, has, I trust, done something towards abating the enthusiasm of a mind naturally confident and sanguine ; but additional thought, reflection, and experience, have only tended to confirm my belief, that in the commercial affairs of society there is a tremendous evil, resembling, not the decrepitude of old age, which can merely be assisted with the crutch, but rather the thorn, which only requires to be plucked from the foot of youth to restore him to vigour and activity.

The opinions here stated are substantially the same as those which I entertained many years ago, but they are now for the first time published. One word of apology for the style. Boldness of assertion, full confidence in their own opinions, and disregard of those of other men, are the common faults of inexperienced writers ; and they are amongst mine. I find it, however, much easier thus freely to express myself, than to ape a more G

PREFACE.

. XI subdued and refined style which is not natural to me. The book may be injured by my inability to correct these faults. But for the theory therein registered, no such apology is offered : it has been forced into my mind by a constant and long con tinued intimacy with the world of business : it is here reduced to a digested and systematic form, after an attentive examination of what others have written upon the same subject, and if it cannot stand the test of the severest fire that can be opened upon it by the most accomplished and unrelenting politician, or political economist, and receive the bullets like an iron target, merely to lay them flattened at its feet, I shall not long be found to remain its advocate. Edinburgh, 14, Brandon Street, October, 1831. CONTENTS.

Chapter I

Introductory — Difficulties of the subject — Individual engagements — General distaste for the study of Social Science — Necessity of adapting parts to each other, so as to form a symmetrical whole — General disbelief in the possibility of substantial improvement, a serious obstacle to it — Favourable circumstances of the present times — Theory and practice — Miscellaneous observations, . . . . 1

Chapter II

Definition — The principle stated, explained, and its importance insisted on — Land, labour, capital, and freedom of exchange, are the four ingredients of which wealth is composed, 16

Chapter III

Sketch of a Commercial Constitution — Appropriation of Land and Capital — Direction — Management — Wages — Salaries, and general principles of the Social System, 30 y

Chapter IV

Production — Labour the Source of wealth — Security of property — Division of employments — Capital — Description of the manner in which manufactures and agriculture may be so conducted that demand must ever keep pace with production, CONTENTS. XIV Page 56

Chapter V

Exchange— Exchange the parent of Society— The present plan of Exchange radically defective — Necessity for a measure of value Gold, silver, and bank notes, as at present used, totally unfit for the purpose for which they are intended — The proper use and qualities of money defined — Description of an improved plan of Exchange — Plan of a National Bank — Gold, silver, and copper coin — Exportation and importation,

Chapter VI

Distribution — Observation upon the nature of the theory here advocated — Importance of considering the national debt in fixing the rate of wages — The proper average of wages defined — Wages — Salaries — National charges — National capital — Education — Insurances — Incapacity — Depreciation of stock Unproductive labour — Change of employment — Taxes — National balance sheet — Business for Mr Hume — Conclusion of the Chapter, 93

Chapter VII

Prevention of Forgery — Opinion stated, that the Forgery of Bank Notes may be entirely prevented — Necessity for a public criterion of genuine notes — Insufficiency of the existing plans for the prevention of forgery — Bank Notes should be all alike — Description of a plan for the prevention of forgery — Reasons for believing that the plan now proposed would be effectual, 129

Chapter VIII

Professions — ■ Distinction between Professional and Commercial Members of Society — Modes of remunerating Professional Men — Demi-professional Trades — Transfers of Private Property — Patents, ........ CONTENTS. XV

Chapter IX

Page Review of Society — Probable consequences of the Social System — Map of Society — General review of the employments of mankind, and of the manner in which the wealth of the country is now distributed, ........ 157

Chapter X

Population — Theory of Mr Malthus — It is opposed to the plainest dictates of Nature — It is contradicted by the evidence to which Mr Malthus appeals for its support — The assumed facts on which it is founded, are unreal — Even if it were true, it would be an additional argument for the establishment of the Social System — Theory of Mr Sadler — Some of his tables quoted — Effect of inequality in the ages of parents on the sexes of their children — Animals are subject to the same law — Emigration, 178

CHAPTER XL

Political Economy — A brief notice of the opinions of the Political Economists, exhibiting the difference, in some respects, between their views and those of the Author of the Social System, and tending also to illustrate and defend the principle of the foregoing pages, 226

Chapter XII

Taxation — General observations upon the effect of taxation, with reference to the present system of Commerce — Increased production the effect of large sums of money being borrowed and expended by the Government — Under the Social System taxes would be an evil exactly proportionate to their amount, 300

Chapter XIII

The public debt — Preliminary considerations — Comparison between the public and a private debt — Estimated amount of property in the British empire — Summary view of the pro gressive increase of the national debt, from the period of the revolution to 1st February, 1813, .... CONTENTS. XVI Page 321 327 337

Chapter XIV

Plan of commencement — Influence of the public press — Parliament should institute an inquiry into the causes of existing troubles, and into the character of the various remedies that have been proposed for the relief of distress — Progressive steps necessary to the formation of a National Commercial Association, .........

Chapter XV

Concluding address — If we continue to suffer from the existing commercial errors of society, it is our own fault,

Appendix

. The theory of the Social System is the result entirely of observation and reflection — The Oi'biston Co-operative Establishment — Quotation from A Word of Advice to its projectors — Observations upon the character of the late Mr Abram Combe — A memoir of him quoted — Origin of The North British Advertiser, a weekly newspaper published in Scotland, containing only advertisements — Plan of Mr Robert Owen of New Lanark — Conclusion of the appendix, and of the work, %* Add the word question to the end of the second line of page 26.

Chapter I

Introductory — Difficultivs of the subject — Individual engagements — General distaste for the study of Social Science — Necessity of adapting parts to each other, so as to form a symmetrical whole — General disbelief in the possibility of substantial improvement, a serious obstacle to it — Favourable circumstances of the present times — Theory and practice — Miscellaneous observations. Perhaps there are but few tasks more uninviting than that which is undertaken by the man who addresses his fellow creatures upon the subject of their collective prosperity. Mankind, in general, are so fully occupied with their respective individual affairs, that it is next to impossible to withdraw their attention from them for ever so short a period ; whilst the exceptions to this rule A are either taken up with some favourite theory of their own, or else are so well satisfied with things as they are, that no change is likely to be any improvement in their estimation.

And it unfortunately happens, that the study of Social Science has long retained the character of being one of the most dry and uninteresting of pursuits. Thus, whilst there appears to be nothing too insignificant to command the industry of mankind, in cases where immediate advantage to the individual is the expected result, but few persons are found willing; to trouble themselves with investigating the principles upon which the aggregate of human affairs is proceeding or should proceed. A little reflection, however, should con vince us, that it is not merely by apparent excellence in the various parts of the machinery of society, that the whole can, with any degree of certainty, be made perfect. Each part may, in every other respect, be good, but if it be found to want the quality of being properly proportioned, and adapted to every other, we have no reason to be surprised if the result be unsatisfactory : and it is by no means wonderful, that a society, possessing most of the elements of prosperity, should be struggling with adversity, unless we are well INTRODUCTORY. 3 assured that its operations are conducted upon right principles.

Another obstacle to improvement, of a very serious description, is the common disbelief in - the possibility of it. The public mind has never yet contemplated a state of prosperity beyond good wages and a brisk trade. It appears to have no conception that any change is necessary beyond parliamentary reform, free trade, and a sweeping reduction of the taxes. It appears, in fact, to be of opinion, that the general plan of society is founded upon some immutable basis, some unalterable law of nature, and that, therefore, to purge it of a few corruptions, is all that is necessary to make it go on smoothly, and as well as we have any right or reason to expect. But this is a fatal error — a disease as dread ful as it is extensive ; it is the paralysis of society, which benumbs and deadens all our exertions, and renders us the willing slaves of a condition which we possess the power of improving in a most extraordinary degree.

There are, however, some favourable features ifeu the present aspect of things. Much, from which great benefit was, at a former period, expected to arise, has already been done, but no beneficial change has taken place. War has been succeeded by a lasting peace ; the taxes have been reduced ; the acts of government have been distinguished for their liberality, and the desire to do good, has been and is abundantly exhibited : but there is still no sign of substantial improvement ; distress and dissatisfaction continue to prevail, -and the existence of danger cannot be altogether denied. Neighbouring nations are involved in no less trouble. Revolution and bloodshed, the result, no doubt, for the most part, of oppression and misgovernment, are bad evidences of the existence of general prosperity and happiness.

But this condition of things is not altogether without its advantages. Disappointed in its past hopes and expectations, the public mind will ever be upon the alert to discover new sources of evil, and new causes of dissatis faction ; for, in spite of the experienced misery of ages, the world still seems to entertain an indefinite opinion that things are not exactly as they should be, that the age of improvement may ultimately arrive; — and it will do so. » Confidence, too, in any particular set of men or of opinions, cannot be very great in a state of society wherein men of esta blished reputation for talent and integrity, and having equal access to the best sources of INTRODUCTORY. 5 information, are found to agree in almost nothing ; one party contending for free trade, another protesting against it ; one being for economy and retrenchment, whilst another insists that taxes are a positive good ; one would abolish machinerv, whilst another is enthusiastic in its praise ; one is for gold, another for paper ; and, in short, there is no unanimity : the first principles of social science are not agreed on, and the battle-field of political contention is still undeclared to have been won by any man.

But this state of things cannot last much longer. Knowledge, ever silently but cer tainly progressing in the human mind, must ultimately prevail, and whenUut a fraction of the talent that is at present devoted to the improvement of the various parts of the social system, shall be applied to the regu lation of the whole, the numerous existing political anomalies will vanish like so many shadows, and the condition of society will become as intelligible as a question in the rule of three. We have nearly all the materials necessary to ensure prosperity, and what we chiefly want, is a controlling and directing power by which the various parts of our commercial system may be so fitted and adapted to each other as to produce a harmonious instead of an incongruous whole ; and whenever such a power shall be established upon right principles, we shall cease to pine away our exis tence in unavailing complaints, and to declare that poverty and wretchedness are ever to be the lot of man.

We shall see the popu lation of this country in a state of comparative ease and affluence, with far less astonishment than we recently experienced, at seeing the public of Liverpool and Manchester, flying over space at the rate of thirty miles an hour ; and the greatest cause of astonishment will then be, that we have so long; been blind to our own interest, and to the chief cause of national difficulty and distress. The present is a peculiarly favourable period for a complete reform in the com mercial arrangements of society. The government is liberal, and will encourage it ; the higher and middling classes are as much embarrassed as any other, — it would be their interest to assist in promoting it; and the people, enlightened as they have been of late by the general spread of education, cannot much longer be in doubt as to the course they should pursue.

In entering upon the consideration of what are the bestaneans of improving the condition INTRODUCTORY. 7 of society, it is desirable that we should divest our minds, as much as possible, of the belief, that there are any fixed and immutable laws of commerce. It is the business of society to make such laws as are calculated to produce the best results, not to explore those which the accumulated ignorance of ages has entailed upon us. It is not so much what is, as what ought to be, which is the legitimate object of the political inquirer ; and, therefore, we may safely dismiss, as of little practical value, all those theories, the chief object of which is to explain how, according to the existing principles of commerce, the business of life can be best conducted. The principles them selves, it will be here contended, are founded in the deepest error, and a reformation must take place, from the root upwards, before we can enjoy those blessings which could never fail to spring from the rational appropriation of the inexhaustible resources with which nature has supplied us.

It is already objected, perhaps, from what has been said, that this is merely some new theory ; and forthwith follows the trite remark, that " theory and practice are very different things." The truth, however, is, that that which is right in theory, can never be wrong in practice. Theory and practice are very much like multiplication and division : they prove each other. The omission of some fact, or incorrect reasoning upon the facts before us, may lead us to look for a result different from that which is experienced ; but it is, nevertheless, invariably true, that that which is really true in theory is true also in practice. An engineer can ascertain whether he has taken a correct drawing of a machine, by calculating the result on paper ; for, if it does not correspond with the reality which he may have seen in operation, he knows at once that he must have committed an error in making his drawings.

A case in point may be men tioned. A person was recently employed in Edinburgh to take a copy of a machine, for the purpose of giving an estimate of its value. Having performed his work, he took the drawings to his house, and the next day he mentioned to the person that employed him, that he must have miscopied some part of the machine, because the result on paper was not the same as that which he had seen in practice : and this, upon another examination, proved to be true ; he had miscounted the teeth of one of the principal wheels. And so it is with theories of every kind. We may overlook this, or miscalculate that, INTRODUCTORY. 9 and when our projects are brought to the test of experiment, the result will be different from what we expect ; but, if it prove so, we may rest assured, that on paper there is an error exactly corresponding with the difference that is found in practice.

Were it, indeed, otherwise, it would be impossible to describe any thing, for theory is merely another name for description ; and if a true theory, that is, a correct description previous to existence, will not invariably give the result it promises when completely understood, it must be equally impossible to give a description of any thing, even after it exists, which can be at all relied upon. It is exceedingly difficult, no doubt, in endeavouring to investigate so vast a subject as the commercial affairs of nations, to be at all certain that every thing has been duly considered, and that to every division of the subject has been given its relative weight and importance ; and we may be sure, that if an age were to be spent in endeavouring to perfect a theory on paper, improvements and alterations would rapidly suggest them selves whenever we should attempt to reduce the theory to practice.

But this is not a sound reason for objecting to theories, for, upon the same principle, we might object to every thing which is susceptible of improvement. In forming an opinion of the means by which it is about to be submitted, that the commercial difficulties of nations may be entirely removed, the reader is requested to bear in mind, that I do not propose to introduce a few new springs or wheels into an old and broken down machine, for the purpose of mending it, — in which case, the utility of the said springs or wheels would require to be considered, with reference to the remaining parts of the machine to which they would have to be applied ; but I dismiss entirely the machine itself, as ill-constructed, complicated, unmendable, and of no value whatever, excepting, indeed, that the materials of which it is composed are, for the most part, good, and capable, by reconstruction, of being converted to very useful purposes.

The plan of society here to be described, must be considered separately and distinctly from that which now exists. Part cannot always be compared with part, because there is little affinity between them. We must take each as a whole, and, judging of the effects that it is calculated to produce, award the palm to that which shall be found best to deserve it. This distinction is necessary, because, if we INTRODUCTORY. II take a part of the social system, and try to apply it to the unsocial system, it will be like trying to add an additional wheel to a machine already finished : there will be no place for it. And, on the other hand, if we attempt to apply the cumbrous, complicated, and unwieldy parts, of which the existing plan of society is composed, to the new one proposed to be substituted for it, then it will be found that a great number of these parts are altogether superseded, and conse quently of no use whatever.

Another error which it is desirable to guard against, and more particularly because it is a very common one, is the habit, into which men of all denominations are very liable to fall, of judging of every thing by looking merely at the proposed result, and if it hap pens to be very different from any thing that they have ever supposed to be possible, that is argument enough to satisfy them that it is impossible. For example, if Mr Stevenson, the engineer, had announced to the world, that he intended shortly to travel the distance of a statute mile, within the space of a couple of minutes, in a vehicle of several tons weight, carrying within itself the power by which it was to be so rapidly propelled, it is more likely that he would have been thought a madman than a rational being. The result proposed to be attained would have been sufficient to ensure him the appellations of visionary and enthusiast.

Yet this miracle of modern days has been actually performed, and, being performed, men cease to wonder, because they see how it is done ; and, finding that the means, in reason as well as in fact, are equal to the attainment of the end, the miracle proves to be nothing more than the natural consequence of certain principles and combinations, which, had they been under stood in the first instance, would have prevented the wonderment altogether. Now it certainly does not follow, because a miracle has lately been performed upon a rail-road, that another miracle is about to be performed in social science ; nor is any such conclusion intended to be drawn : but it may be remarked, that the imagination has so frequently been left in the distance by reality, that our judgment of propositions would frequently be much more correct in the first instance, if we could always bring our minds to the investigation of them, rather with the belief that nothing is impossible, than that every thing is impossible, the like of which we have never seen: and, therefore, in consider ing the proposition now submitted, a correct INTRODUCTORY. 13 opinion of it will be more easily formed by dispassionately examining whether the means are equal to the end proposed to be attained, than by indulging in vague and unsupported conjectures that the end is unattainable by any means.

In most cases, truth is ultimately arrived at with much greater certainty, by an obstinate adherence to principles in themselves obviously right, than by allowing the mind to be withdrawn from them by the occasional difficulty of reconciling them with existing facts, or by the innumerable ifs and buts, which are so abundantly used in controversial writings, for the purpose of turning black into white. It is, for example, a fixed principle of human action, to attain the objects of our desires as easily as we can. Thus we walk to a place by the nearest road ; if there are many modes of doing a thing, we choose the easiest that we know of and can perform : no man offers more money for an article than is demanded for it ; and thus, facility and advantage are almost synonymous terms. To obtain what we require, therefore, as easily as we can, is clearly a law of our nature, which never can be altered, and never can be wrong.

It may indeed be said, that a man does not always go the nearest way to a place. He may be induced to go a considerable way round, because, &c. But this single word became, proves that he has two objects in view, instead of one. He may not go the nearest road, because it is dirty, or dangerous, or disagreeable, or he may intentionally pro long his walk, for the sake of walking. But in all these cases, there is obviously a double purpose to be served, and he still acts, there fore, upon the invariable principle of attaining his object as easily as he can. Apply this rule to practice. The effect of machinery is to abridge labour ; to spin cotton, for example, more easily than by any hand process. To use machinery, there fore, for the purpose of producing what we require, must be for ever right, because, to do so is to obey one of the most obvious laws of our existence.