Economic studies

Contents

ESSAY. PAGE.

I. The Postulates or English Political Economy 1

1. Teansfeeabilitt op Labotie 21

I

Adam Smith began the "Wealtli of Nations" about 1773^ and finished it in 1776 f; and as our modem Political Economy really begins from tliat time^ we may fairly say that it is now a hundred years old. In that century, especially in England, its career has been most remarkable. No form of philosophical speculation (some theologies excepted, which are not comparable) has ever had half or a thousandth part of the influence upon life and practice ; no abstract doctrine was eyer half as much quoted or half as much acted on. The whole legislation of England as to trade has been changed by the philosophy of trade, and the life of almost every one in England is, in consequence, different and better. Other countries, it is true, have not equally followed this teaching, but they have continually, if not equally, discussed it. The highest class of cultivated intellects is in every civilised country more or less affected by it. When a little while ago M. Thiers began to talk and act in thorough opposition to the whole Bcience, a shiver of wonder ran through Europe ; it seemed an anachronism to find so able a mind in the pre-economic

* It will be obvious that some of the leading ideas of the previous essays are repeated in this. There is, however, so much that is fresh in it, and so much danger of bungling in any attempt to disentangle the fresh matter from what was embodied in the two previous essays, that it has been thought better to run. some little risk of repetition rather than to attempt any separation of the old and new by any other hand than the auth(»r's.

f Written in 1876 or earlier.

period, and a strange survival of extinct error, to liear him expounding the good of all which Political Economy showed to be bad, and the evil of all which Political Economy proved to be good. No kind of political teaching has ever won half as many triumphs, or produced half the effects. ->^But, nevertheless, the reputation of Political Economy is not altogether satisfactory to the minds of those who most value and prize it. There is not quite the same interest felt for it, or quite the same confidence reposed in it, which there was formerly. A small knot of persons deny its value ; a good many people though sure they are wrong, are puzzled by them, and do not see how to answer them. Many young men, even studious men, especially those educated abroad, have not studied its best writers, and have but vague views about it. Though victorious, it wants part of the prestige of victory ; though rich in results, its credit is not quite as good as on that account it ought to be.

The truth is that the story of Political Economy, if I may so call it, is a curious one in itself; the science is to some extent a new sort of one in the world, and has come to be what it is in a rather strange way. That story could only be fully explained by an exposition of all the science, and an account of all who contributed to it. But I think the main and most valuable part of the truth may be set before those who will read a short description of the science as it now stands, and a rough account of the labours of four great men,* who more than any others, have made the science what it is, and placed it where it is. The knowledge so given will after all be most imperfect.

Political Economy in its complete form, and as we now have it, is an abstract science, just as statics or dynamics are deductive sciences. And, in consequence, it deals with an unreal

* The essay on J. S. Mill was not written and tliat on Adam Smith is incomplete.

and imaginary subject. Just as statics and dynamics — ^the sciences of theoretical meclianics — deal with perfectly rigid bodies, which nothing will bend or strain; with perfectly elastic planes, from which the rebound is equal to the impact ; with a world destitute of friction ; with physical materials in short which no one ever expects to find in reality — so Political Economy deals with an immaterial subject, which in the existing world cannot be found either. Political Economy deals not with the entire real man as we know him in fact, but with a simpler, imaginary man — a man answering to a pure definition from which all impairing and conflicting elements have been fined away. The abstract man of this science is engrossed with one desire only — ^the desire of possessing wealth, not of course that there ever was a being who always acted as that desire would dictate, any more than any one thinks there are in nature a world without friction or entirely elastic planes, but because it is found convenient to isolate the effects of this force from all others. The effect of the abstract hypothesis made on the necessary basis of statics and dynamics is to enable us to see the effect of the single agent, "pressure," in a simple way and free from the repressing and obscuring conditions which exist in actual nature. And in the same way the use of the primitive assumptions of Political Economy is to show how the greatest of industrial desires — the desire to obtain wealth would operate, if we consider it as operating, as far as we possibly can, by itself. The maxim of science is simply that of common sense — simple cases first ; begin with seeing how the main force acts when there is as little as possible to impede it, and when you thoroughly comprehend that, add to it in succession the separate effects of each of the encumbering and interfering agencies.

If such a simplification is necessary in physical science where the forces are obvious and few, it must much more be necessary in dealing with the science of society, where the forces are^ in comparison, very various and difficult to perceive. In this very science of Political Economy^ tlie first writers endeavoured to deal in a single science witli all tlie causes wMcli produced or impaired wealtli — "wticli as they would have said " made nations rich or poor." And this was the most natural way of beginning. Almost all science seems to have begun similarly. In each case there was some large palpable fact to be explained — some great pressing problem to be solved. And so here, if you look over the nations of the worldj you see at once that one of the greatest contrasts between them is that of comparative wealth, or comparative poverty; the palpable fact at the beginning of Political Economy is that the Dutch are rich, and others (the Tyrolese, suppose), poor — ^that England is a very rich country, and Ireland a very poor country ; how then was this difference to be accounted for, and the practical problem — money being an admitted good — to be solved, how far can we make the poor nations rich, and how are we to begin so to do ? But considered in this simple and practical way, the science of Political Economy becomes useless, because of its immense extent. The whole of a man's nature, and the whole of his circumstances, must be reckoned up and reasoned upon before you can explain his comparative wealth or poverty. To explain the difference of industrial conditions between the Tyrol and Holland, you will have, first, to state all the points of difference in religion, in morality, and in inherited character between a Dutchman and a Tyrolese — ^then state the diversities of their physical condition, and work out, as best you can, the effects of all the contrasts. And stiU further, if you try to give a universal reason why nations are poor and why nations are rich, you will not be able to arrive at any useful answer. Some will be poor because they have a bad government ; some because they are cooped up on a poor soil ; some because they have a religion which disinclines them to make money ; some because they have ancient rules, which helped them to make a beginning, but now retard themj some because tbey have never been able to make tbat beginning j and many other cases migbt be given. Tbe problem taken up in tliat form is indeterminate; wby nations are ricli or poor depends on tbe wliole intrinsic nature, and all tlie outward circumstances, of Buci. nations. Tliere is no simpler formula to be discovered, and a science which attempted to find one would of necessity have to deal with the whole of physical science ; it would be an account of all " men " and all the earth.

It is on account of its abstract character that Political Economy is often, and justly described, as a science of " ten - dencies" only; that is, the object of it is to work out and ascertain the result of certain great forces, as if these alone operated, and as if nothing else had any effect in the matter. Buti as, in matter of fact, many other forces have an effect, the computed results of the larger isolated forces wiU never exactly happen; they will only, as it is said, tend more or less to happen ; that is, they happen more and mol^ nearly in proportion as the resisting and perturbing causes in each case happen to be less and less.

The very refined nature of the modern science of Political Economy has naturally led to many mistakes about it. The mere idea of such a science has evidently never crossed the minds of many able writers, and persons who have given but slight consideration to the matter are much puzzled. Analogous sciences on physical subjects are, as has been said, easy to find, but illustrations from them do not tell much where effectual description of Political Economy is most wanted. A science occupied with human things, and professedly with a part of human things profoundly interesting, awakens a great curiosity among multitudes of little cultivation. They begin to think about it, and to read about it, and the better the books they read, the more likely are they to be puzzled by what they find. They know that they are reading words which are constantly used in common life, and about things resembling.

at leastj tliose of that life, but nevertheless the reasonings and the conclusions do not seem to belong to real life at all. Such persons know nothing about statics or dynamics ; and any attempt to explain the nature of Political Economy by an account of the nature of statics or dynamics, is only explaining obscurum per obscurius. As might be expected, the worst offenders are the uncultured moralists. They see all manner of reasonings framed, and of conclusions drawn, apparently about subjects with which morality itself is concerned deeply — about (say) industry and wealth, population and poverty, and they never dream that there is anything peculiar about these conclusions. They apply the "rules of morality to them at once j " they ask, " Is argument B true of good persons ? Would not conclusion C augment wickedness V whereas, in fact, the economical writers under consideration did not mean (and rightly did not mean) to deal with ethics at all. They only evolved an hypothesis; they did not intend that their arguments should be thought to be taken from real life, or that their conclusions should be roughly, and as they stood, applied to real life. They considered not the whole of actual human nature, but only a part of it. They dealt not with man, the moral being, but with man, the money-making animal.

IsTaturally, too, the cultivators of the abstract science itself (even those who fully understood its peculiar nature), did not always in practice remember the remoteness to practice of that nature. On the contrary, they rushed forth into the world with hasty recommendations to instant action j whereas the very justification of their reasonings, and the very ground of their axioms was the necessity of beginning the investigation of the subject in a simple theory, and far away from the complexities of practice and action. But so much are the practical impulses of man stronger than his theoretical tastes, that the cultivators of an abstract science are always in great danger of forgetting its abstract nature ; they rush and act on it at once. In the abstract physical sciences there is an effectual penalty. A person who acted on abstract dynamics would soon break his head, but in mental and physical sciences unhappily there are no instant tests of failure. Whatever happens a man can always argue that he was right j and thus an abstract science of human things is more delicate to handle, and more likely to be misused, than a similiar science of external nature.

A sort of uncertainty likewise seems, even in the better informed minds, to creep over the subject. If it is so remote from practice, they say, how can you test it, and how can you tell that it is true ? But this is exactly so also in the corresponding physical sciences. One of the shrewdest observers of intellectual matters of the generation, the late Sir G. 0. Lewis, used to say, " My experience in this office " (he was then Secretary of State for War), "has convinced me that when you come to practice, physics are just as uncertain as metaphysics. The abstract theory of physics is unquestionably much more complete, but if you want to deal with an instance in life, you will always find that there is a ' tension,' or a ' friction,' or some other cause, which is not accurately measured, and does not figure in the abstract theory. And this is the reason why, on all such questions, scientific evidence is so conflicting. You can always obtain an eminent engineer on any side to set against an eminent engineer on the other side, because the scientific and certain part of the subject is not the whole, and there still remains an imperfectly explored residuum on which there may be different opinions." All this is as true of Political Economy as of any physical science; its deductions may be incontrovertible, and its results precisely true, whenever its assumptions are true, but these results will be very imperfect guides, wherever those assumptions are impaired by contradictory matter.

On the other side, however, it should also be said that " abstract " Political Economy is not by any means the unnatural thing which, from the account of it on paper, and the description of its difficulties, it would seem to be. Manypeople on tlie matter have "talked prose all their lives without knowing it ; " many people haye given admirable arguments on Political Economy, and have been more or less precisely aware of the difference of their assumptions from those of the real world, though they have never studied the specially abstract science, and could have given no sufficient delineation of it. The not ion of investigating how much money persons would make, who simply wished to make it, and how they would best do so, is a very simple idea. The desire for wealth — ^using wealth in the largest sense, so as to include not only the means of luxury, but the means of subsistence — is so preponderant in very many minds, that it is very easy, if necessary, to regard it as the sole object. As far as people are what we now always call men of business, money, the thing they look for and the thing they want, is their sole object, and in that sense of the phrase. Political Economy may be fairly called the science of " business."

On that account, in some very large scenes of our present English life. Political Economy is exactly true. The primary assumption on which it rests is precisely realised. On the Stock Exchange everybody does act from, a love of money; men come there to make it, and they try to make as much of it as they can. Of Lombard Street the same may be said ; the pecuniary phenomena of Lombard Street may be investigated with quite sufficient accuracy, on the assumption that bankers come there only to make money, and when there, make as much of it as they can. All markets are scenes nearly similar ; so long as they are at the market all dealers try to make the best bargain they can. As the principal nations of the world at present are nations of business — commercial nations — and as the mass of men in such nations are mainly occupied in business, it follows that with respect to those nations a simple analysis of the unchecked consequences of the "business motive " will be a near approximation to a large part of their

8o Economic Studies.

life, though it Tvill not be a perfect account of their complete career, for there is very much also in every nation besides business and besides money — ^but it will be a useful hint to a predominant characteristic of that career. Having investigated the effects of this principal motive, we may when we please, and as far as it is necessary, investigate the effects of the almost infinite number of the secondary and interfering motives.

As too, it is at present necessary for all nations to be rich in order to be influential in the world, it follows further, that an account of the commercial motive of action, taken by itself, is, as the world now stands, an analysis of the results of a principal ingredient in the days that are gone by, when poor barbarians, if warlike, were more powerful than rich civilised people. The times are gone by when civilisation enervated energy, or when wealth impeded valour. At present, courage without money is courage without guns ; and courage without guns is useless. Political Economy traces, in an abstract way, the effects of the desire to be rich, and nations must now-a-days abound in that passion if they are to have much power or much respect in the world.

On the other hand, no intellectual attempt can be more absurd than the attempt to apply the conclusions of our Political Economy to the lives of nations at a non- commercial stage of their existence. A great military nation, based on, slavery, like the Romans ; a nation bound by fixed customs like so many Oriental nations ; tribes in a state of barbarism, — are not guided principally by the commercial spirit. The money-getting element is a most subordinate one in their minds; its effects are very subordinate ones in their lives. As the commercial element is all but necessary to considerable combinations of men, that element will almost always have effects, and usually important effects, in the destiny of these combinations. But only in communities where the commercial element is the greatest element, will these effects be the

The Preliminaries of Political Economy. 8i

greatest. In so far as nations are occupied in "buying and selling," in so far will Political Economy, tlie exclusive theory of men buying and selling, come out right, and be true of them.

But it will be good as far as it goes, and, though it is not my business to say it, I think it will be the fault of the writer if the curious interest of the facts does not lead many readers to a further study of the subject.

And, though what has been explained is the principal difference between the hypothetical science of Political Economy and the real world, it is by no means the only difference. Just as this science takes an abstract and one-sided view of man, who is one of its subjects, so it also takes an abstract and one-sided view of wealth, which is its other subject. Wealth is infinitely various ; as the wants of human nature are almost innumerable, so the kinds of wealth are various. Why men want so many things is a great subject fit for inquiry. Which of them it would be wise for men to want more of, and which of them it would be wise to want less of — are also great subjects equally fit. But with these subjects Political Economy does not deal at all ; it leaves the first to the metaphysician, who has to explain, if he can, the origiu and the order of human wants ; and the second to the moralist, who is to decide, to the best of his ability, which of these tastes are to be encouraged, and when — which to be discouraged, and when. The only peculiarity of wealth with which the economist is concerned is its differentia sjpecifica — that which makes it wealth. To do so it must gratify som e want of man, or it would not be desirablB, ij j^^ j j^ would not be wealth. But whence that want comes, whether from a low part of man, or from a high, is to the economist immaterial ; whether it is a desirable want for man to gratify he cares as little, so long as that gratification does not hurt man as a wealth-producing machiae. He regards a pot of beer and a picture, a book of religion and a pack of cards, as all equally " wealth," and therefore, for his purpose, equally

a wortliy of regard. The only dmsion of wealth in Ms mind isj if I may use the words, the division between sterile and not sterile. Some things wiU help men to make new things ; some things will induce men to work and make new things ; both these classes of things are in the eyes of the economist capital or reproductiye. On the other hand, other things have no similar reproductive power; if they were taken out of the world all work would go on with equal efficiency, and as many new things would be produced. And these last are, in the eyes of the economist, unproductive opulence, just as the first were productive capital.

Further, Political Economy makes not only these assumptions as to the nature of its principal force and as to that of its object, it also makes two as to the physical conditions under which this force acts, and in which this object is supposed to exist. For its own purposes it simplifies, as we have seen, the nature of the actors, and the end of Hhe action ; we have now to see that it simplifies also the stage.

Political Economy assumes that land is " limited in quantity and variable in qualit y.^^ And, taking the whole of human tastes, this assumption has almost always been true. There has been, in almost all countries, a difficulty in obtaining land ; there has scarcely ever been a surplus of it. Still, though this assumption accurately coincides with the usual phenomena of most countries, it does not agree with all the phenomena of them all. On the contrary, in all " new " countries as they are called, land is exceedingly plentiful. There is practically no difficulty in procuring it ; in the vaUey of the Mississippi as much of the best land as anyone wants can, without serious impediment, be obtained. No doubt such land is further ofE from the best markets than most occupied land of a like kind. But in the present state of the arts such a difference in distance presents no serious difficulty. The construction even of a short railway wiU open up an entire district, and make its produce as available in the market as that of much land long before cultivated. In new countries it can hardly be said that this assumption of Political Economy is at all like the truth ; it is rather the opposite of the truth. And accordingly the doctrines of abstract Political Economy must not be applied to such countries roughly^ and without previous re-examination. One of the primitive assumptions not being true, we must be careful to reinvestigate and see whether any particular deduction which we wish to use, is, or is not, impaired — is, or is notj in consequence, untrue.

At first sight it would seem that this limitation of abstract Political Economy would exclude it from much of the real world. New countries, one would imagine, would be among the most common of countries ; the human race has always been wandering, and must have been always reaching new countries. But, in truth, this limitation scarcely makes any new exclusion. The nature of the " man " who first occupied new countries did not " conform " to the standard of economical man \ the being of reality was not the being of the hypothesis. The first men, all researches justify us in assuming, nearly approached in nature to the present savage man. They had not probably as many curious customs or so many debasing superstitions ; they had not so many ingrained vices. But they had as little intellectual development, and as little knowledge of material things ; they were ignorant of the " calendar ;" they could with difiiculty count more than five ; they could just make a few weapons of war ; they could just construct some sort of shed that would serve for a dwelling ; but they could not make any of the articles which we now call " wealth ;" and they would not have appreciated such things. The desire, so strong in civilised man for wealth, has been excited in him by tbe experience of ages, and has been transmitted to him by inheritance. If you take a present savage, even of a high type, he will find the life of cities, the life of wealth, jpar excellence, scarcely tolerable. There is a well-known story of one savage, who, after living some forty or fifty years in a cultivated worlds in his old age returned .to die as a barbarian^ saying ''that civilisation was so much trouble he could bear it no longer/^ The first occupiers of most countries were not men eager for complex wealth } they cared only for a bare subsistence — and then to kill and eat one another.

Many ages, indeed, have always intervened between the first settlement of any country, and the rise of a strong and independent mercantile element, before the time at which the first assumption of Political Economy was at all satisfied in it. During that time such countries commenced a kind of civilisation, but it was a very different kind of civilisation from the predominantly commercial; it was in general ruled by fixed customs, as most of the East ig now; it did not allow its members to choose their own en^s and fix their own existence for themselves; on the contrary, it chose itself those ends and prescribed that existence. And the life so selected gave but little scope to the production of wealth. It was occupied either with an incessant military service, or in peace with an equally incessant but semi-religious ritual ; the labour for and the accumulation of the means of physical comfort were very secondary aims in most of the periods described by history, as they still are in by far the greater part of the .present world. For ages after their first colonisation, there was no such absorbing and self-selecting life of trade as Political Economy assumes and requires.

Accordingly, in all the old world — the world as known to the " ancients " — the land has long been occupied, and more or less usefully, more or less fully, by ancient and ineradicable races. In practice they cannot be dispossessed. In all that large part of the world, therefore, land is very scarce ; no new comers can, in fact, obtain much of it. But of late there have been immense territories — ''new worlds," to use the usual word — of which this is not true, but where the very reverse is true. Long voyages, impossible to the ancient navigator.

have been made possible by modern inventions ; and tbese voyages have discovered large regions inhabited only by men ■who fade away before the presence of civilised men. In these distant regions man seems to have been a protected, and, therefore, a feeble animal; he had not to submit to the incessant competition which has in the " old world " hardened his frame and seasoned his mind. The diseases which the European can bear, the stimulants in which he delights, the labour for which he lives, are so many poisons to the Australian or American savage. He dies of one or all of them soon after the coming of the European, and he leaves his land vacant. He has never been able to cultivate the land which he calls his, and now he drops away from it. As a singular result of this strange history, land of the best quality is now procurable ia large quantities and with great ease by civilised man. There are now countries not only called " new," because newly discovered, but new, really, because the land in them can now be used, but has never been used before.

As a matter of fact, therefore, the primitive assumption of hypothetical Political Economy, that land is always limited in quantity, as well as variable ia quality, coincides well enough with the usual facts of the world. But as the modern exception is one of great present importance to economical nations, as a matter of convenience it has become desirable (though I do not think the desirability has been usually recognised) to annex to Political Economy a full discussion of the nature and the effects of that exception. What has hitherto been the rule, and what has hitherto been the deviation from it, both become clearer when considered side by side.