Principles of political economy with some of their applications to social philosophy. In two volumes

Preface

THE appearance of a treatise like the present, on a subject on which so many works of merit already exist, may be thought to require some explanation.

It might perhaps be sufficient to say, that no existing treatise on Political Economy contains the latest improvements which have been made in the theory of the subject. Many new ideas, and new applications of ideas, have been elicited by the discussions of the last few years, especially those on Currency, on Foreign Trade, and on the important topics connected more or less intimately with Colonization : and there seems reason that the field of Political Economy should be re-surveyed in its whole extent, if only for the purpose of incorporating the results of these speculations, and bringing them into harmony with the principles previously laid down by the best thinkers on the subject.

To supply, however, these deficiencies in former treatises bearing a similar title, is not the sole, or even the principal object which the Author hasin view. The a2 iv PREFACE.

design of the book is different from that of any treatise on Political Economy which has been produced in England since the work of Adam Smith.

The most characteristic quality of that work, and the one in which it most differs from some others which have equalled or even surpassed it as mere expositions of the general principles of the subject, is that it invariably associates the principles with their applications. This of itself imples a much wider range of ideas and of topics, than are included in political economy, considered as a branch of abstract speculation. For practical purposes, political economy is inseparably intertwined with many other branches of social philosophy. Except on matters of mere detail, there are perhaps no practical questions, even among those which approach nearest to the character of purely economical questions, which admit of being decided on economical premises alone. And it is because Adam Smith never loses sight of this truth; because, in his applications of Political Economy, he perpetually appeals to other and often far larger considerations than pure Political Economy affords—that he gives that well-grounded feeling of command over the principles of the subject for purposes of practice, owing to which the

“Wealth of Nations,” alone among treatises on Political

PREFACE. Vv

Economy, has not only been popular with general readers, but has impressed itself strongly on the minds of men of the world and of legislators.

It appears to the present writer, that a work similar in its object and general conception to that of Adam Smith, but adapted to the more extended knowledge and improved ideas of the present age, is the kind of contribution which Political Economy at present requires. The “Wealth of Nations” is in many parts obsolete, and in all, imperfect. Political Economy, properly so called, has grown up almost from infancy since the time of Adam Smith; and the philosophy of society, from which practically that eminent thinker never separated his more peculiar theme, though still in a very early stage of its progress, has advanced many steps beyond the point at which he left it. No attempt, however, has yet been made to combine his practical mode of treating his subject with the increased knowledge since acquired of its theory, or to exhibit the economical phenomena of society in the relation in which they stand to the best social ideas of the present time, as he did, with such admirable success, in reference to the philosophy of his century.

Such is the idea which the writer of the present work has kept before him. To succeed even partially in val PREFACE.

realizing it, would be a sufficiently useful achievement, to induce him to incur willingly all the chances of failure. It is requisite, however, to add, that although his object is practical, and, as far as the nature of the subject admits, popular, he has not attempted to purchase either of those advantages by the sacrifice of strict scientific reasoning. Though he desires that his treatise should be more than a mere exposition of the abstract doctrines of Political Economy, he is also desirous that such an exposition should be found in it.

OF

CS elsE gt WR S eV OWE Mon:

Page PRELIMINARY FUEMARES) sac ciceccecesssveenseescsextrssustersuasesseseenecseenaresnnnucacass 1 BOOK PRODUCTION.

Cuarror I. Of the Requisites of Production.

§ 1. Requisites of production, what... icc ceteees 29 2. The function of labour defined............s:ccccscssesscssesecesteeseesssaseseene 31 3. Does nature contribute more to the efficacy of labour in some

occupations than in Others? ..sccseseeseseetsseeneeseseseeeeeeseness 33 4. Some natural agents limited, others practically unlimited, in QUATEEY oo... secs sseseesecseseereseesesnestnanencneesecvssesuenesseescasenenvensen onset 34

Cuaprer Il. Of Labour, as an Agent of Production. § 1. Labour employed either directly about the thing produced, or in operations preparatory to its production................. 37 2. Labour employed in producing subsistence for subsequent

TROUT ccscacesectees cotenaitcencencenancandeneresCotsints 39 3. — in producing materials 42 4, — or implements 44 5. — in the protection of labour ... 45 6. — in the transport and distribution of the mratnce oosbHeMSONSCaONs 47 7. Labour which relates to human beings ...........6..cceeeeeees 49 8. Labour of invention and GisCOVELY ............csccceseceeeecsesenesesseeeeeen 51 9. Labour agricultural, manufacturing, and commercial _............ 53

Vill CONTENTS.

Cuaprer III. Of Unproductive Labour.

. Labour does not produce objects, but utilities hy > VAM RD GH RSD TERRES ss acosnoogna ccandebebotunon sonpe cachoseesccoes 3. Productive labour is that which produces utilities fixed and

embodied in’matentall ObjeCES:.y.cscrvesccecesessicteest ccsevecsnesces: . All other labour, however useful, is classed as unproductive . Productive and Unproductive Consumption ..........ccss.cesseee-e- 6. Labour for the supply of Productive Consumption, and labour for the supply of Unproductive Consumption jSop et

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Cuaprer IV. Of Capital.

§ I. Capital is wealth appropriated to reproductive employment 2. More capital devoted to production than actually employed

3. Examination of some cases illustrative of the idea of Capital...

Cuaprer V. Fundamental Propositions respecting Capital.

+ Industry is limited! by Capital) 0. .....cceccececcscsesecccceseec.c.ccsscscce...

- — but does not always come up to that limit

- Increase of capital gives increased employment to labour, without assignable bounds..................

. Capital is the result of saving

- All Capital is consumed oe w

. Capital is kept up, not by preservation but by perpetual reproduction aa >

- Why countries recover rapidly from a state of devastation ... . Effects of defraying government expenditure by loans - Demand for commodities is not demand for labour oS 10. Fallacy respecting Taxation oo ss!

Cuaprer VI. Of Circulating and Fixed Capital.

§ 1. Fixed and Circulating Capital, what ....ccescscccccsccccccc 2. Increase of fixed capital, when at the expense of cireulating,

might be detrimental to the labourers 3. — this seldom if ever occurs

70 73

Cuarter VII.

Contents

ness of Productive Agents.

§ 1. Land, labour, and capital, are of different productiveness at different times and places

2. Causes of superior productiveness. Natural advantages ........ 3. — greater energy Of labour ..........cscee eee tsetse eees eee ceetces teens 4, — superior skill and knowledge .............2c.:ces-c1sssseceseereseeenssesnens 5. — superiority of intelligence and trustworthiness in the community generally

Appendix

Substance of three articles in the Morning Chronicle of 11th, 13th, and 16th January 1847, in reply to MM. Mounier and Rubichon and to the Quarterly Review, on the Subdivision of Landed Property in France

Page

PRINCIPLES

OF

POLITICAL ECONOMY.

PRELIMINARY REMARKS.

In every department of human affairs, Practice long precedes Science: systematic enquiry into the modes of action of the powers of nature, is the tardy product of a long course of efforts to use those powers for practical ends. The conception, accordingly, of Political Economy as a branch of science, is extremely modern; but the subject with which its enquiries are conversant has in all ages necessarily constituted one of the chief practical interests of mankind, and, in some, a most unduly engrossing one.

That subject is Wealth. Writers on Political Economy profess to teach, or to investigate, the nature of Wealth, and the laws of its production and distribution : including, directly or remotely, the operation of all the causes by which the condition of mankind, or of any society of human beings, in respect to this universal object of human desire, is made prosperous or the reverse. Not that any treatise on Political

VOL. I. B

Economy can discuss or even enumerate all these causes; but +t undertakes to set forth as much as is known of the laws and principles according to which they operate.

Every one has a notion, sufficiently correct for common purposes, of what is meant by wealth. ‘The enquiries which relate to it are in no danger of being confounded with those relating to any other of the great human interests. All know that it is one thing to berich, another thing to be enlightened, brave, or humane; that the questions how a nation is made wealthy, and how it is made free, or virtuous, or eminent in literature, in the fine arts, in arms or in polity, are totally distinct enquiries. These things, indeed, are all indirectly connected, and re-act upon one another. A people has sometimes become free, because it had first grown wealthy ; or wealthy, because it had first become free. The creed and laws of a people act powerfully upon their economical condition; and this again, by its influence on their mental developement and social relations, re-acts upon their creed and laws. But though the subjects are in very close contact, they are essentially different, and have never been supposed to be otherwise.

It is no part of the design of this treatise to aim at metaphysical nicety of. definition, where the ideas suggested by a term are already as determinate as practical purposes require. But, little as it might be expected that any mischieyous confusion of ideas could take place on a subject so simple

as the question, what is to be considered as wealth, it is matter of history that such confusion of ideas has existed—that theorists and practical politicians have been equally, and at one period universally, infected by it, and that for many generations it gave a thoroughly false direction to the policy of Europe. I refer to the set of doctrines designated, since the time of Adam Smith, by the appellation of the Mercantile System.

While this system prevailed, it was assumed, either ex-

pressly or tacitly, in the whole policy of nations, that wealth consisted solely of money; or of the precious metals, which, when not already in tke state of money, are capable of being directly converted into it. According to the doctrines then prevalent, whatever tended to heap up money or bullion in ‘a country added to its wealth. Whatever sent the precious metals out of a country impoverished it. If a country possessed no gold or silver mines, the only industry by which it could be enriched was foreign trade, being the only one which could bringin money. Any branch of trade which was supposed to send out more money than it brought in, however ample and valuable might be the returns m another shape, was looked upon as a losing trade. Exportation of goods was favoured and encouraged (even by means extremely onerous to the real resources of the country), because the exported goods being stipulated to be paid for in money, it was hoped that the returns would actually be made in gold and silver. Importation of anything, other than the precious metals, was regarded as a loss to the nation of the whole price of the things imported; unless they were brought in to be re-exported at a profit, or unless, being the materials or instruments of some industry practised in the country itself, they gave the power of producing exportable articles at smaller cost, and thereby effecting a larger exportation. The commerce of the world was looked upon as a struggle among nations, which could draw to itself the largest share of the gold and silver in existence; and in this competition no nation could gain anything, except by making others lose as much, or, at the least, preventing them from gaining it.

It often happens that the universal beliet of one age of mankind—a belief from which no one was, nor without an extraordinary effort of genius and courage, could at that time be free becomes to a subsequent age so palpable an absurdity, that the only difficulty then is to imagine how such a thing can ever have appeared credible. It has so happened with the doctrine that money is synonymous with wealth. The conceit seems too preposterous to be thought of as a

B 2 serious opinion. It looks like one of the crude fancies of childhood, instantly corrected by a word from any grown person. But let no one feel confident that he should have escaped the delusion if he had lived at the time when it preyailed. All the associations engendered by common life, and by the ordinary course of business, concurred in favouring it. So long as those associations were the only medium through which the subject was looked at, what we now think so gross an absurdity must have seemed a truism. Once questioned, indeed, it was doomed ; but no one was likely to think of questioning it whose mind had not become familiar with certain modes of stating and of contemplating economical phenomena, which have only found their way into the general understanding through the influence of Adam Smith and of his expositors.

In common discourse, wealth is always expressed in money. If you ask how rich a person is, you are answered that he has so many thousand pounds. All income and expenditure, all gains and losses, everything by which one becomes richer or poorer, are reckoned as the coming in or going out of so-much money. It is true that in the inventory of a person’s fortune are included, not only the money in his actual possession, or due to him, but all other articles of value. These however enter, not in their own character, but in virtue of the sums of money which they would sell for; and if they would sell for less, their owner is reputed less rich, although the things themselves are precisely the same. It is true, also, that people do not grow rich by keeping their money unused, and that they must be willing to spend in order to gain. Those who enrich themselves by commerce, do so by giving money for goods as well as goods for money; and the first is as necessary a part of the process as the last. But he who buys goods for purposes of gain, does so to sell them again for money, and in the expectation of receiving more money than he laid out: to get money, therefore, seems even to the person himself the ultimate end of the whole. It often happens that he is not paid in money, but in something else; having bought goods to a value equivalent, which are set off against those he sold. But he accepted these at a money valuation, and in the belief that they would bring in more money eventually than the price at which they were made over to him, A dealer doing a large amount of business, and turning over his capital rapidly, has but a small portion of it in ready money at any one time. But he only feels it valuable to him as it is convertible into money; he considers no transaction closed until the net result is either paid or credited in money: when he retires from business it is into money that he converts the whole, and not until then does he deem himself to have realized his gains: just as if money were the only wealth, and money’s worth were only the means of attaining it. If you now ask, for what end money is desirable, unless to supply the wants or pleasures of yourself or others, the champion of the system would not be at all embarrassed by the question. True, he would say, these are the uses of wealth, and very laudable uses while confined to domestic commodities, because in that case, by exactly the amount which you expend, you enrich others of your countrymen. Spend your wealth, if you please, in whatever indulgences you have a taste for; but your wealth is nof the indulgences, it is the sum of money or the annual money income with which you purchase them.

While there were so many things to render the assumption which is the basis of the mercantile system plausible, there is also some small foundation in reason, though a very insuffi¢ient one, for the distinction which that system so emphatically draws between money and every other kind of valuable possession. We really, and justly, look upon a person as possessing the advantages of wealth, not in proportion to the useful and agreeable things of which he is in the actual enjoyment, but to his command over the general fund of things useful and agreeable; the power he possesses of providing for any exigency, or obtaining any object of desire. Now, money is itself that powers while all other things, in a civilized state, seem to confer it only by their capacity of being exchanged for money. To possess any other article of wealth, is to possess that particular thing, and nothing else: if you wish for another thing instead of it, you have first to sell it, or to submit to the inconvenience and delay (if not the impossibility) of finding some one who has what you want, and is willing to barter it for what you have. But with money you are at once able to buy whatever things are for sale: and he whose fortune iS in money, or in things rapidly convertible into it, seems both to himself and others to possess not any one thing, but all the things which the money places it at his option to purchase. The greatest part of the utility of wealth, beyond a very moderate quantity, is not the indulgences it procures, bet the reserved power which its possessor holds in his hands of attaming purposes generally: and this power no other kind of wealth confers so immediately or so certainly as money. It 1s the only form of wealth which is not merely applicable to some one use, but can be turned at once to any use. And this distinction was the more likely to make an impression upon governments, as it is one of considerable importance to them. A civilized government derives comparatively little advantage from taxes unless it can collect them im money: and if it has large or sudden payments to make, especially payments in foreign countries for wars or subsidies, either for the sake of conquering or of not being conquered, (the two chief objects of national policy until a lt pr) aces any medive of pamnt exept more both individuals and governments, in a : Cee CS me attach almost ex@uaine ones to eee cae ee

: é oney, or im posse, and look upon all other things (w part of their resources) scarcely Rie nee either in esse hen viewed as as the remote

PRELIMINARY REMARKS. 7 medium of obtaining that which alone when obtained affords the indefinite, and at the same time instantaneous, command over objects of desire, which best answers to the idea of wealth.

An absurdity, however, does not cease to be an absurdity when we have discovered what were the appearances which made it plausible; and the Mercantile Theory could not fail to be seen in its true character when men began, even in an imperfect manner, to explore into the foundations of things, and seek their premises from elementary facts, and not from the forms and phrases of common discourse. So soon as they asked themselves what is really meant by money—what it is in its essential characters, and the precise nature of the functions it performs, they reflected that money, like other things, is only a desirable possession on account of its uses; and that these, instead of being, as they delusively appear, indefinite, are of a strictly defined and limited description, namely, to facilitate the distribution of the produce of industry, according to the convenience of those among whom it is shared. Further consideration showed that the uses of money are in no respect promoted by increasing the quantity which exists and circulates in a country ; the service which it performs being as well rendered by a small as by a large aggregate amount. ‘Two million quarters of corn will not feed so many persons as four millions; but two millions of pounds sterling will carry on as much traffic, will buy and sell as many commodities as four millions, though at lower nominal prices. Money, as money, satisfies no want, answers no purpose: its worth to any one, consists in its bemg a convenient shape in which to receive his incomings of all sorts, which incomings he afterwards, at the times which suit him best, converts into the forms in which they can be useful to him. ‘The difference between a country with money, and a country altogether without it, would be only one of convenience; a saving of time and trouble, like grinding by water instead of: by

PFET hand, or (to use Adam Smith’s illustration) like the benefit derived from roads; and to mistake money for wealth, is the same sort of error as to mistake the highway which may be the easiest way of getting to your house or lands, for the house and lands themselves.

Money, being the instrument of an important public and private purpose, is rightly regarded as wealth; but everything else which serves any human purpose, and which nature does not afford gratuitously, is wealth also. To be wealthy is to have a large stock of useful articles, or the means of purchasing them. Everything forms therefore a part of wealth, which has a power of purchasing ; for which anything useful or agreeable would be given in exchange. Things for which nothing could be obtained in exchange, however useful or necessary they may be, are not wealth, in the sense in which the term is used in Political Economy. Air, for example, though the most absolute of necessaries, bears no price in the market, because it can be obtained gratuitously: to accumulate a stock of it would yield no profit or advantage to any one; and the laws of its production and distribution are the subject of a very different study from Political Economy. But though air is not wealth, mankind are much richer by obtaining it gfatis, since the time and labour which would otherwise be required for supplying the most pressing of all wants, can be devoted to other purposes: It is possible to imagine circumstances in which air would

be a part of wealth. If it became customary to sojourn long in places where the air does not naturally penetrate, as in diving-bells sunk in the sea, a supply of air artificially

furnished would, like water conveyed into houses, bear a

price: and if from any revolution in nature the atmosphere

became too scanty for the consumption, or could be monopo-

lized, air might acquire a very high marketable value. In

eee 5 - ee ie Eevee isso ata mankind might at first cae _ ‘ ie ie peneiplancaltiiscl - appear to be increased, by what would be so great a calamity to them. But this would be an error; for however rich the possessor of air might become, at the expense of the rest of the community, all persons else would be poorer by all that they were compelled to pay for what they had before obtained without payment.

This leads to an important distinction in the meaning of the word wealth, as applied to the possessions of an individual, and to those of a nation, or of mankind. In the wealth of mankind, nothing is included which does not of itself answer some purpose of utility or pleasure. To an individual, anything is wealth, which, though useless in itself, enables him to claim from others a part of their stock of things useful or pleasant. Take, for instance, a mortgage of a thousand pounds on a landed estate. This is wealth to the person to whom it brings in a revenue, and who could perhaps sell it in the market for the full amount of the debt. But it is not wealth to the country; if the engagement were annulled, the country would be neither poorer nor richer. The mortgagee would have lost a thousand pounds, and the owner of the land would have gained it. Speaking nationally, the mortgage was not itself wealth, but merely gaye A a claim to a portion of the wealth of B. It was wealth to A, and wealth which he could transfer to a third person; but what he so transferred was in fact a joint ownership, to the extent of a thousand pounds, in the land of which B was nominally the sole proprietor. The position of fundholders, or owners of the public debt of a country, is similar. They are mortgagees on the general wealth of the country. The cancelling of the debt would be no destruction of wealth, but a transfer of it: a wrongful abstraction of wealth from certain members of the community, for the profit of the government, or of the tax-payers. Funded property therefore cannot be counted as part of the national wealth. This is not always borne in mind by the dealers in statistical calculations. For example, in estimates of the gross income of the country, founded on the proceeds of the income tax, incomes derived from the s excluded: although the tax-payers are minal income, without being perhe portion levied from them in funds are not alway assessed on their whole no mitted to deduct from it t taxation to form the income of the fundholder. In this calculation, therefore, one portion of the general income of the country is counted twice over, made to appear greater than it

A country, however, may include by its citizens in the funds of foreign countries, and other debts due to them from abroad. But even this is only wealth to them, by being a part ownership in wealth held by others. It forms no part of the collective wealth of the human race. It is an element in the distribution, but not in the composition of the general wealth.

It has been proposed to define wealth as signifying “ instruments :” meaning not tools and machinery alone, but the whole accumulation possessed by individuals or communities, of means for the attaimment of their ends. Thus, a field is an instrument, because it is a means to the attainment of corn. Corn is an instrument, being a means to the attainment of flour. Flour is an instrument, being a means to the attainment of bread. Bread is an instrument, as a means to the satisfaction of hunger and to the support of life. Here we at last arrive at things which are not instruments, being desired on their own account, and not as mere means to something beyond. This view of the subject is philosophically correct ; or rather, this mode of expression may be usefully employed along with others, not as conveying a different view of the subject from the common one, but as giving more distinctness and reality to the common view. ‘It departs, however, too widely from the custom of language, to be likely to obtain general acceptation, or to be of use for any other purpose than that of occasional illustration.

Wealth, then, may be defined, all useful or agreeable things which possess exchangeable value; or, in other words, all useful or agreeable things except those which can be and the aggregate amount is by about thirty millions. in its wealth all stock held

PRELIMINARY REMARKS. ll e obtained, in the quantity desired, without labour or sacrifice. To this definition, the only objection seems to be, that it leaves in uncertainty a question which has been much debated—whether what are called immaterial products are to be considered as wealth; whether, for example, the skill of a workman, or any other natural or acquired power of body or mind, shall be called wealth, or not: a question, not of very great importance, and which, so far as requiring discussion, will be more conveniently considered in another place*.

These things having been premised respecting wealth, we shall next turn our attention to the extraordinary differences in respect to it, which exist between nation and nation, and between different ages of the world; differences both in the quantity of wealth, and in the kind of it; as well as in the manner in which the wealth existing in the community is shared among its members.

There is, perhaps, no people or community, now existing, which subsists entirely on the spontaneous produce of vegetation. But many tribes still live exclusively, or almost exclusively, on wild animals, the produce of hunting or fishing. Their clothing is skins; their habitations huts rudely formed of logs or boughs of trees, and abandoned at an hour’s notice. The food they use being little susceptible of storing up, they have no accumulation of it, and are often exposed to great privations. The wealth of such a community consists solely of the skins they wear; a few ornaments, the taste for which

-exists in most savage states; some rude utensils ; the weapons with which they kill their game, or fight with hostile competitors for the means of subsistence; canoes for crossing rivers and lakes, or fishing in the sea; and perhaps some furs, or other productions of the wilderess, collected to be exchanged with civilized people for blankets, brandy, and tobacco; of which foreign produce also there may be some unconsumed portion in store. To this scanty inventory of