Principles of political economy

Part The First: The Laws Of The

PRODUCTION AND DISTRIBUTION OF WEALTH.

BY H. C. CAREY,

VITHOR OF AN ESSAY ON THE KATE OF WAGES.

" All discord harmony not understood." — Pope.

"God hath made man upright, hut they have sought out many inventions.'' —

EccLESlASTES,

PHILADELPHIA:

Entered according to the Act of Congress, in the year 1837, by

CAREY, LEA & BLANCHARD,

in the Clerk's Office of the District Court of the United States in and for the Eastern District of Pennsylvania.

ERRATA.

Page 21. The extract from Col. Torrens, in the note to this page, should have been as follows : " Wealth, considered as the object of economical science, consists of those material articles which are useful or desirable to man, and which it requires some portion of voluntary exertion to procure or preserve." — p. 1.

1" 41, line 2, for "they were," read "it was." " 62, last note, for 16, read 116.

" 90, note, for 58, read 61.

" 113, line 7 from foot, for " houses," read " horses." " 172, " 2, for " doubled," read " almost doubled."

" 200, note, line 7 from foot, for " the demand," read " increase of the demand."

" 230, line 21, for " reduction," read " fall." " 235, " 22, for "those," read" that."

CONTENTS,

PAGE

Preface, v

Introduction, viii

Elementary Proposition, 1

Chap. I. Of Production, 2

II. Of Value, 7

III. Malthus, Torrens, and others, on Value, - - - 20

IV. Of Value in Land, 27

V. Effect of the Extension of Cultivation on Wages, 49

VI. Effect of the Extension of Cultivation on the Profits of Capital, 73

VII. Comparison of the Cost and Value of Existing

Landed Capital, 102

VIII. Objections, 132

IX. Results, 140

X. Fluctuations of Price, 145

XI. Review. — Mr. Malthus, -------- 158

XII. Review. — Mr. Ricardo, 187

XIII. Review.— Mr. Mill, M. Say, Col. Torrens, Mr.

Wakefield, Dr. Chalmers, 213

XIV. Review.— Mr. M'Culloch, Mr. Scrope, - - - 227 XV. Review.— Mr. Senior, 238

XVI. Review. — Critical Dissertation on Value, - - - 269

XVII. Review. — Rev. Richard Jones, 281

XVIII. Of Revenue.— Definition, 292

XIX. Of Capital. — Definition. Advantages of Capital.

XX. Of Wages and Profits.— Definition, - - - - 321

XXI. Summary, 337

Preface

In offering this work to the public, the author is perfectly aware of the disadvantage under which he labours, when attempting to controvert doctrines supported by the authority of Malthus, Ricardo, M'Culloch, and Torrens, and which are deemed by one of the most distinguished writers of the day, to be " almost too plain for formal statement."* He is fully aware that by a large portion of those who think upon Political Economy, a doubt of the truth of those doctrines is considered as evidence that they are not " even comprehended,"* and that, therefore, his book is likely to be thrown aside as unworthy of the time required for its perusal.

To all such, he wrould desire to call to mind the fact that in almost all departments of knowledge the orthodoxy of the present day is but the heresy of time past, and that many of those doctrines now held by themselves, and believed to be undeniably true, were, but a little time since, ridiculed as absurd. The disciples of Ptolemy had, as they believed, undoubted evidence of the truth of his system. They saw the sun revolve round the earth, and they found in the Scriptures confirmation of the correctness of his theory. Copernicus was denounced as a heretic, and his system was deemed too absurd for serious confutation, yet that of Ptolemy exists no longer, and it would now be as ridiculous to call in question that of Copernicus, as it was in former times to believe in its truth. Such having been the case in past times, it is possible that it may be so again, and that doctrines in Political Economy now so firmly established that to call them in question is deemed proof of want of ability

* " All this appears almost too plain for formal statement. It is, however, one of the most recent discoveries in Political Science : so recent, that it can scarcely be said to be universally admitted in this country, and that abroad i( does not seem to be even comprehended." — Senior, Outline, p. 177.

for their comprehension, may pass away and be as utterly forgotten as is now the Ptolemaic system.

It has been well said by an eminent writer of our time, that s every one must of course think his own opinions right ; for if f he thought them wrong, they would no longer be his opinions : ' but' that ' there is a wide difference between regarding our- ' selves as infallible, and being firmly convinced of the truth of ' our creed. When,' he says, ' a man reflects on any particular ' doctrine, he may be impressed with a thorough conviction of ♦the improbability, or even impossibility of its being false: and

* so he may feel in regard to all his other opinions when he ' makes them objects of separate contemplation. And yet, ' when he views them in the aggregate, when he reflects that ' not a single being on the earth holds collectively the same, « when he looks at the past history and present state of man- ' kind, and observes the various creeds of different ages and

* nations, the peculiar modes of thinking of sects, and bodies, ' and individuals, the notions once firmly held which have been

* exploded, the prejudices once universally prevalent which ' have been removed, and the endless controversies which have ' distracted those who have made it the business of their lives ' to arrive at the truth ; and when he further dwells on the con- ' sideration, that many of these his fellow creatures have had a i conviction of the justness of their respective sentiments equal ' to his own, he cannot help the obvious inference, that in his ' own opinions it is next to impossible that there is not an ad- 1 mixture of error ; that there is an infinitely greater probability ' of his being wrong in some than right in all.'*

All that the author desires, is that his arguments may be fairly weighed, and to that end that the reader will ' strengthen ' himself, by something of an effort and a resolve, for the unprejudiced admission of any conclusion which shall appear to be ' supported by careful observation and logical argument, even i should it prove of a nature adverse to notions he may have

* previously formed for himself, or taken up, without examination, ' on the credit of others. Such an effort is, in fact,' says Sir John Herschel, 'a commencement of that intellectual discipline

* Essay on the Publication of Opinions, Section V.

* which forms one of the most important ends of. all science. ' It is the first movement of approach towards that state of ' mental purity which alone can fit us for a full and steady per- ' ception of moral beauty as well as physical adaptation. It is ' the " euphrasy and rue" with which we must " purge our sight" 'before we can receive and contemplate as they are the linea- ' ments of truth and nature.'*

The portion of his work now submitted to the reader has extended itself much beyond the limits originally assigned to it, in consequence of the necessity for examining the opposing views of other writers. The author deemed it almost useless to offer his own views without attempting to show what he considered to be the errors that existed in those who had preceded him, and the causes of those errors. How far he has succeeded the reader will decide.

Treatise of Astronomy, p. 1.

Introduction

The field of inquiry of the political economist is, by most of the modern British writers, limited to the phenomena of the production and distribution of wealth. Mr. Senior defines political economy to be the " science which treats of the nature, production, and distribution of wealth."* Mr. M'Culloch says, " it might be defined to be the science of values."f Archbishop Whateley, in order to mark more distinctly the limits within which it should be restricted, proposed to substitute for its present name that of " Catallactics, or the Science of Exchanges.";}; The most recent definition that we have seen, is contained in an able article of the London and Westminster Review,§ the writer of which is of opinion, that the science takes notice of those departments of affairs only " in which the acquisition of wealth is the main and acknowledged end," and that,

4 The political economist inquires what are the actions which

• would be produced by this desire, if, within the departments in

• question, it were unimpeded by any other. In this way,' he says, ' a nearer approximation is obtained than would other- ' wise be practicable to the real order of affairs in those depart- 4 ments. This approximation has then to be corrected by making ' proper allowance 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 1 (such as the important one of the principle of population) are 4 those corrections interpolated into the expositions of political

• economy itself; the strictness of purely scientific arrangement 4 being thereby somewhat departed from for the sake of practical

§ October, 1S36. On the Definition of Political Economy, and on the Method of Philosophical Investigation in that Science — ar. article that should be read by all students of political economy

INTRODUCTION. IX

'Utility. So far as it is known, or may be presumed, that the

• conduct of men in the pursuit of wealth is under the collateral 1 influence of any other of the properties of our nature, than the ' desire of obtaining the greatest quantity of wealth with the least ' labour and self-denial, the conclusions of political economy

* will so far fail of being applicable to the explanation or pre- 'diction of real events, until they are modified by a correct al- ' lowance for the degree of influence exercised by the other ' cause.

' Political economy may then,' he says, ' be defined as follows : ' and the definition seems to be complete.

' The science which traces the laws of such of the phenomena ' of society as arise from the combined operations of mankind ' for the production of wealth, in so far as those phenomena are ' not modified by the pursuit of any other object.'

It is here supposed, that the principle of population is interpolated into the science on account of its " practical utility," but we are disposed to believe that it is introduced from absolute necessity. According to the commonly received theory, population tends to increase with great rapidity, and is only prevented from doing so by a constantly increasing difficulty in producing those commodities which constitute wealth. Wealth tends to increase rapidly, but the superior force of the procreative power is supposed to produce a necessity for the application of labour with a constantly decreasing return, affecting both the power of production and the mode of distribution. Here we have precisely the same opposition that exists between the centripetal and centrifugal forces. By a separate examination of the laws of both those forces, and a combination of the results, we obtain the law of the effect, which is compounded of the laws of all the causes which determine it. Herein consists the Science of Astronomy. By a separate examination of the laws of production and population, and a combination of the results thus obtained, we are enabled to obtain the law of the effect, and herein consists the Science of Political Economy. Neither of them alone constitutes a science, and the man who commences with a definition that limits him to the consideration of wealth, finds himself in the same condition with an astronomer who should undertake to give to the world a 2*

X INTRODUCTION.

treatise of Astronomy, and' commence with a definition limiting him to the consideration of the laws of Attraction.

The utter impossibility of limiting the science within the terms of the definition, will be obvious to the reader upon an examination of any work on political economy. In the recent one of Mr. Senior, we find his "second elementary proposition" to be,

' That the population of the world, or, in other words, the ' number of persons inhabiting it, is limited only by moral or ' physical evil, or by fear of a deficiency of those articles of wealth ' which the habits of the individuals of each class of its in- ' habitants lead them to require.'*

Here is a proposition in relation to population requiring to be proved, introduced into a work limited to the consideration of the production and distribution of wealth. If we look further, we find that the discussion of the relative progress of population and of wealth, with a view to ascertain the laws of production and distribution, occupies the greater part of his work.

The laws of the production and distribution of wealth, without reference to the question of population, might be discussed in a very few pages, and those of population would not occupy more. They are abundantly simple. So are those of the centripetal and centrifugal forces. In both cases it is only when we endeavour to arrive at the laws of the effects resulting from their combined action that any difficulty is experienced. The examination of that cqmbined action is, however, precluded by a definition that attempts to limit the science to what is really only one branch of it. "We are, therefore, of opinion that the limits ought to be so enlarged that the principle of population should come under consideration without a departure from " the purely scientific arrangement."

The predominant desire of man is to maintain and to improve his condition. That desire prompts him to two actions. First, to seek a partner of his pleasures and his cares — of his joys and his sorrows — by which he is enabled to continue his species — and second, to endeavour to acquire the command of those commodities which constitute wealth. If, then, we define political economy to be ' the science which traces the laws of those

* Outline, p. 139.

INTRODUCTION. XI

'phenomena of society which arise out of the desire of mankind 'to maintain and to improve their condition,' we shall have a definition which will embrace all those operations the consideration of which is now deemed to appertain to the political economist, and it will be unnecessary to exceed the limits thus prescribed, for the purpose of bringing in those which are essential to a complete treatise.

It is said that,

' Political economy considers mankind as occupied solely hi

* acquiring and consuming wealth, and aims at showing what ' is the course of action into which mankind, living in a state

* of society, would be impelled, if that motive, except in the ' degree in which it is checked by the two perpetual counter ' motives above adverted to' [aversion to labour and the desire of the present enjoyment of costly indulgences] ' were 'absolute ruler of all their actions. Under the influence of

* this desire, it shows mankind accumulating wealth, and em- ' ploying this wealth in the production of other wealth ; sanc- 1 tioning by mutual agreement the institution of property ; estab- 1 fishing laws to prevent individuals from encroaching on the ' property of others by force or fraud ; adopting various contri- ' vances for increasing the productiveness of their labour ; set-

* tling the division of the produce by agreement, under the in- ' fluence of competition (competition itself being governed by 1 certain laws, which laws are therefore the ultimate regulators ' of the division of produce ;) and employing certain expedients ' (as money, credit, &c.,) to facitate the distribution. All these ' operations, though many of them are really the result of a plu- ' rality of motives, are considered by political economy as flow- ' ing solely from a desire of wealth. ***** J\bt that any ' political economist was ever so absurd as to suppose that man- ' kind are really thus constituted, but because this is the mode ' in which the science must necessarily be studied.'*

It appears to us that the light in which mankind is viewed by the political economist, is a more agreeable one than is here shown. He regards man as desirous of maintaining and improving his condition, and employing his time and his talents

* London and Westminster Review, October, 1836.

[.YTROOrCTlOlV.

in the production of those commodities which are useful or agreeable to him, and which constitute wealth. He shows that his first object in so doing, is to secure the means of living, and then by employing a portion of those commodities to aid him in further production, to diminish the amount of exertion required therefor, while increasing the number of comforts, conveniences, or luxuries at his command. He inquires into the effect of accumulation in promoting the constant improvement of condition, and in so doing, indicates the advantage to be derived from economy, in diminishing the amount of sacrifice required to obtain the necessaries of life, and in increasing the means of improvement and of enjoyment. He holds up to view, not the miser denying himself the means of living, and repaying himself for his privations by gloating over his hoards of gold, but the farmer and the mechanic, enabled by the assistance of capital to acquire a constantly increasing measure of the comforts of life, with a decreasing amount of labour. He shows him thus enabled to indulge his desire of continuing his species, undeterred by the fear of wanting those comforts either for himself, or for his wife or children. He thus treats of man as a reasonable animal, and not as one disposed to sacrifice all present enjoyment for the purpose of obtaining that which he does not feel at liberty to use. He regards him as one desirous of improving his condition, physically and morally, and while tracing the laws by which his operations are governed, indicates the means by which the desired end may be attained.

When he has thus ascertained the laics by which the operations of man are governed, it becomes necessary to examine into the various disturbing causes by which in so many cases he has been deprived of the power of improving his condition. Without such examination a treatise on the science would be no more complete, than would be a treatise on astronomy in whieh no mention should be made of the causes of perturbations — or a treatise on hydraulics in which the influence of friction should be omitted. The business of the political economist is, like that of the hydrographer, to make a chart, exposing all the rocks and quicksands — all the dangers and difficulties that attend the voyage. If the master then select the course which leads him into danger, the fault is with himself.

INTRODUCTION. Xlll

Such a chart cannot be constructed without a careful examination of the logbooks of the vessels that have been engaged in the trade. Neither can the political economist dispense with an equally careful examination of the course of the various nations of the earth, with a view to examine how far observation serves to confirm or to contradict that which theory would induce him to believe to be true. By such an examination he should have it in his power to prove that the laws of nature, as expounded by him, were universally true — that the adoption of measures in accordance therewith had in all nations been accompanied by an increase of wealth — of morality — of happiness— and by an increase of numbers consequent upon the increased duration of life and increased means of enjoyment, while the contrary course had been invariably accompanied by poverty, wretchedness, and vice, preventing improvement of condition, and limiting the duration of life and the growth of population.

Improvements in machinery require always to undergo the test of application, and many of those which in theory appear perfect, fail entirely when it is attempted to apply them. Such is the case with the theories of political economists. The}' require to be compared with the results ascertained by a careful examination of facts, and rejected if found wanting. They must be universally true. It is very correctly said by the author to whom we last referred, that ' if a political economist 1 finds himself puzzled by any recent or present commercial ' phenomena ; if there is a mystery to him in the late or present ' state of the productive industry of the country, which his know- * ledge of principles does not enable him to unriddle ; he may ' be sure that something is wanting to render his system of ' opinions a safe guide in existing circumstances.' In other words, his theory must be tried by the facts.

How far this has been done, may perhaps be judged by the following admission of a recent writer, himself the able advocate of many of the theories now most prevalent, and which, we think, are least in accordance with facts. He states himself to be ' very sincerely of opinion that the science of political ' economy is yet in its infancy,' and adds, ' even the alphabet « of the science — the meaning of every common term, whether

XIV INTRODUCTION.

' used by the vulgar or by the most learned professors, is still ' unsettled. There is scarcely a term of any weight which is ' not employed by different persons, and even by the same per- ' son, to express different meanings; while the known principles 1 of the science leave unexplained some of its most important ''phenomena.''* He then enumerates various important questions, that ' the most learned economist of the day — one who ' has got all the books by heart — would be unable to answer.' That such is the case is the consequence of theories not being tested by the results of practice.f Had they been so tested it would have been found not only that many " important phenomena" were left entirely unexplained, but that they were in direct opposition to the doctrines now most generally received.

The duty of the political economist is stated by an able writer to whom we have before referred, to be ' neither to recom- ' mend nor to dissuade, but to state general principles which it ' is fatal to neglect, but neither advisable, nor perhaps possible, 1 to use as the sole, en* even the principal guides in the conduct of 4 affairs.'X

The political economist examines and states what are the laws of nature, and indicates what are the disturbing causes which have in so many cases interfered with their action; and having done this, his task is performed. Such being the case, we think some writers have erred materially in giving to the science an appearance repulsive to all the most gene-

* Wealth of Nations. Preface. By Mr. Wakefield.

t 'One of the greatest misfortunes of modern times — the separation of theory ' from practice — of the studies of the closet from the outward business of the ' world, — (a separation unknown to the better days of Greece and Rome, where the ' practical men were brought up in philosophy, and the philosophers received their ' education and formed their character in the midst of active life,) has given a wrong ' bias to the ideas and feelings both of the closet-student and the man of business. 1 Each undervalues that part of the materials of thought with which he is not fa- ' miliar. The one despises all comprehensive views, the other neglects all details. ' The one draws his notions of the universe from the few objects which compose the 'furniture of his counting house; the other having got demonstration on his side, ' and forgetting that it is only a demonstration nisi — a proof at all times liable to ' be set aside by the addition of a single new fact to the hypothesis — denies in- • stead of examining and sifting the allegations which arc opposed to him.' — London and Westminster Review, October, 183G.

t Senior, Outline of Political Economy, p. 130.

INTRODUCTION.

rous feelings of mankind. Thus the same author says, ' em- ' ployed as he' [the political economist] ' is, upon a science in ' which error, or even ignorance, may be productive of such ' intense, and such extensive mischief, he is bound like a juryman, ' to give deliverance true, according to the evidence, and to ' allow neither sympathy with indigence, nor disgust at profusion ' or at avarice — neither reverence for existing institutions, nor 1 detestation of existing abuses — neither love of popularity, nor ' of paradox, nor of system, to deter him from stating what he ' believes to be the facts, or from drawing from those facts what ' appear to him to be the legitimate conclusions.'*

Few men have shown themselves actuated by a more sincere desire to benefit their species than the writer of the above passage, and few have laboured more successfully. Yet the science, to the promotion of which he has given those labours, is here placed before his readers in a light that is calculated to produce disagreeable impressions in regard to it, and to prevent others from engaging in its cultivation. In stating what are the laws which govern the operations of man, there is no occasion, however, for disgust, sympathy, or reverence. The philosopher who investigates the operations of nature as displayed in the eruptions of Etna or Vesuvius, is not required to feel or to express sympathy for the sufferers of Catania or Herculaneum : nor is he who explains the theory of the winds called upon to express regret for the numerous shipwrecks of which they are the cause. He studies the universal laws of nature, and having explained them for the benefit of the mariner, his duty is performed, and he leaves to him the management of his vessel. Such is the case with the political economist. He seeks to understand the laws of nature, and in so doing indicates the course which leads to the possession of wealth and the improvement of condition: he inquires into the errors which have misled those who have in past times sought them in, vain, leaving to his reader the choice to pursue the one and avoid the other, or not, as he deems proper. Were he required to construct a body of laws, he might deem it a question whether " sympathy" should be allowed to interfere with the performance

* Senior, Outline of Political Economy, p. 130.

XVI INTRODUCTION.

of his duty, or whether " reverence'* might warrant him in sparing institutions which he deemed opposed to the accomplishment of his object : but here he would be acting in the capacity of legislator.

We deem it the more to be regretted that such feelings should be excited, as they certainly have been, because we know of no science the study of which is calculated to excite stronger feelings of admiration. We know of none that displays more beautifully the perfect harmony of the laws of nature, or that is so little calculated to excite an unpleasant sensation. We believe that when properly expounded, those laws prove abundantly, that " God hath made man upright,"* while an examination into the various disturbing causes proves as fully that " they have sought out many inventions."* We think there is abundant evidence that the prosperity of nations and the happiness of the individuals composing them, are in the ratio in which the laws of nature have been allowed to govern their operations, and that the poverty, misery, and distress, that exist are invariably to be traced to the interference of man with those laws, and that they exist in the ratio of that interference. If such could be shown to be the case, the laws of political economy might become the principal, perhaps the " sole guides in the conduct of affairs."

To prove this is the object we have in view. How far we shall be successful in the attempt we must leave to our readers to determine. We feel assured that want of success will arise from deficiency of ability in the treatment of the materials, and not from want of the materials themselves, and that whenever the laws of nature shall be accurately traced by the political economist it will be found that they are universally true, and universally applicable, and may safely be taken as the sole guides of individuals whose desires are limited to the improvement of their own condition, as well as of legislators charged with the affairs of millions.

* Ecclesiastes, Chapter VII.

principl.es

POLITICAL ECONOMY

ELEMENTARY PROPOSITION.

Man desires to maintain and to improve his condition.

t'Ronn tio.n

Chapter I. Production

Man endeavours to maintain and to improve his condition, by employing himself in the production of those things which are useful, or agreeable, to him. As, however, he can make no addition to the quantity of existing matter, production must be confined to the alteration of that which already exists. To produce may thei-efore be defined to be to occasion an alteration in the condition of existing particles of matter, by which that matter may be rendered more usefnl, or agreeable, than in its present state.