The principles of political economy: with a sketch of the rise and progress of the science

Front matter

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THE

Part I. Rise And Progress Of The Science

Definition of the Science — Its importance — Causes of its being neglected in Greece and Rome, and in the Middle Ages — Evidence on which its Conclusions are founded — Rise of the Science in Modern Europe — Mercantile System— System of M. Quesnay and the French Economists — Publication of the " Wealth of Nations" — Distinction between Politics and Statistics and Political Economy, Page 1

Section I

Definition of Production — Labour the only Source of Wealth, , ... 61

Section II

Means by which the Productive Powers of Labour are increased— (1.) Security of Property — (2.) Division of Employments among Individuals — (3.) Accumulation and Employment of Capital — (4.) Division of Employments among Different Countries, or Commerce — Money, • 73

Section III

Different Employments of Capital and Labour — Agriculture, Manufactures, and Commerce, equally advantageous — The investment of Capital in different Businesses determined by the Rate of Profit which they respectively yield, 143

Vlll CONTENTS.

Page Section IV.

Improvements in Machinery similar in their Effects to Improvements in the Skill and Dexterity of the Labourer — Do not occasion a Glut of Commodities — Sometimes force Workmen to change their Employments^ but have no tendency to lessen the effective demand for Labour — Case supposed by Mr Ricardo, with respect to IMachinery, possible, but exceedingly unlikely ever to occur — True Cause of Gluts, 165

Section V

Population always proportioned to the means of Subsistence — Capacity of the Principle of Population to repair the ravages of Plagues and Famines — Comparative increase of Capital and Population, 193

Section I

Value of two sorts — (1) Exchangeable Value — How it is determined — Conditions required to render a Commodity invariable in its Exchangeable Value — (2) Real Value — How it is determined — Conditions required to render a Commodity invariable in its Real Value — Quantity of Labour required to produce a Commodity different from the ([uantity of Labour for which it will exchange, 210, 211

Section II

Classes among which the Produce of Industry is divided — Equality of Wages in all the Different Departments of Industry — E(juality of Profits — Capitals of every degree of Durability, 227

CONTENTS. IX

Page Section III.

Cost of Production the regulating principle of Price — Influence of Variations in the Demand for and Supply of Commodities on their Price — Influence of Monopolies — Average Price always coincident with cost of Production, 248

Section IV

Commodities belong, in the earliest stage of Society, exclusively to the Labourers — Quantity of Labour required for their Production, the only principle Avhich then determines their Exchangeable Value, 261

Section V

(1.) Nature, Origin, and Progress of Corn or Produce Rents — Rent not a Cause but a Consequence of the High Value of Raw Produce — Does not enter into Price — Distinction between Agriculture and Manufactures. (II.)Money Rents depend partly on the Extent to which Tillage has been carried, and partly on Situation — The Principle that the Real Value of Commodities is regulated or determined by the Quantities of Labour required for their Production, not affected by the Payment of Rent, . 264

Section VI

Efl^ect of the employment of Capital in Production on the Exchangeable Value of Commodities— Effect of Variations in the Rate of Wages on Excliangeable Value — (1) When the Capitals employed in Production are of the same degree of Durability ; and (2) When they are of different degrees of Durability — Time not to be taken into account in estimating Value — A High Rate of Wages does not lay the Commerce of a Country under any disadvantage, 288

X CONTENTS.

Section VII. Page

Circumstances which determine the Rate of Wages — (1.) JNIarket or Real Wages depend on the proportion between Capital andPopulation — (2.) Natural or Necessary Wages depend on the Species and Quantity of Food and other articles required for the consumption of the Labourer ; different in different Countries and Periods — Effect of Fluctuations in the Rate of Wages on the Condition of the Labouring Classes — Advantage of a high rate of Wages — Advantage of having the Labourers dependent for Support on the cheapest species of Food — High Wages not a cause of Idleness — Effect of the Poor Laws and ofEducation, on the condition of the Labourers — (3.) Proportional Wages ; depend partly on the amount and species of the articles consumed by the Labourers, and partly on the productiveness of Industry, 326

Section VIII

Division of the Produce of Industry, under deduction of Rent, between Capitalists and Labourers — Definition of Profits — Mr Ricardo's Theory of Profits ; sense in which it is true — Causes which occasion a Rise or Fall of Profits— Accumulation of Capital, not a Cause of a Fall of Profits — Influence of the decreasing Fertility of the Soil, and of Taxation on Profits, 363

Part IV. Consumption Of Wealth

Definition of Consumption — Consumption the end of Production— Test of Advantageous and Disadvantageous Consumption — Injurious operation t)f Sumptuary Laws — Advantage of a Taste for Luxuries — Error of Dr Smith's Opinion with respect to unproductive Consumption — Error of those who contend, that to facilitate Production, it IS necessary to encourage Consumption — Consumption of Government — Conclusion, 389

POLITICAL ECONOMY.

Part I. Rise And Progress Of The Science

Definition of the Science — Its Importance — Causes of its being neglected in Greece and Rome, and in the Middle Ages — Evidence on which its Conclusions are founded — Rise of the Science in Modern Europe — Mercantile System — System of M. Quesnay and the French Economists — Publication of the " Wealth of Nations" — Distinction betweeJi Politics and Statistics and Political Economy.

Political Economy* is the science of the laws which regulate the production, distribution, and consumption of those articles or products which have exchangeable value, and are either necessary, use- Jul, or agreeable to man.

* Economy, from oiy.og, a house, or family, and vo/mo:, a law — the government of a family. Hence Political Economy maybe said to be to the State what domestic economy is to a single family.

When it is said that an article or product is possessed of exchangeable value, it is meant that one or more individuals are disposed to give a certain quantity of labour, or a certain quantity of some other article or product, obtainable only by means of labour, in exchange for it.

The power or capacity which particular articles or products have of satisfying the various wants and desires of which man is susceptible, constitutes their utility, and renders them objects of demand.

An article may be possessed of the highest degree of utility, or of power to minister to our wants and enjoyments, and may be universally made use of, without possessing exchangeable value. This is an attribute or quality of those articles only which it requires some portion of voluntary human labour to produce, procure, or preserve. Without possessing utility of some species or other, no article can ever become an object of demand ; but how necessary soever any particular article may be to our comfort, or even existence, still, if it be a spontaneous production of nature — if it exists independently of human agency — and if every individual can command indefinite quantities of it without any voluntary exertion or labour of any sort, it is destitute of value, and can afford no basis for the reasonings of the economist. A commodity or a product is not valuable because it is useful ; but it is valuable because it can only be procured by the intervention of labour. It cannot justly be said, that th*? food with which we appease the cravings of hunger, or the clothes by

ii which we defend ourselves from the inclemency of the weather, are more useful than atmospheric air; and yet they are possessed of that exchangeable value of which it is totally destitute. The reason is, that food and clothes are not, like air, gratuitous products : they cannot be had at all times, and in any quantity, without exertion ; on the contrary, labour is always required for their production, or appropriation, or both ; and as no one will voluntarily sacrifice the fruits of his industry, without receiving an equivalent in return, they are truly said to possess exchangeable value.

The Economist does not investigate the laws which determine the production and distribution of such articles as exist, and may be obtained in unlimited quantities, independently of all voluntary human agency. The results of the industry of man form the only objects with which he is conversant. Political Economy might, indeed, be defined to be the science of values ; for, nothing which is not possessed of exchangeable value, or which will not be received as an equivalent for something else which it has taken some labour to produce or obtain, can ever properly be brought within the scope of its inquiries.

The word value has been very frequently employed to express, not only the exchangeable worth of a commodity, or its capacity of exchanging for other commodities, but also its utiUtt/y or capacity of satisfying our wants, and of contributing to our comforts and enjoyments. But it is obvious, that the utility of commodities — that the capacity of bread, for e?:aniple, to appease hunger, or of water to quench thirst — is a totally different and distinct quality from their capacity of exchanging for other commodities. Dr Smith perceived this difference, and showed the importance of carefully distinguishing between the utility, or, as he expressed it, the *' value in usei" of commodities, and their value in exchange. But he did not always keep this distinction in view, and it has been very often lost sight of by subsequent writers. There can be no doubt, indeed, that the confounding together of these opposite qualities has been one of the principal causes of the confusion and obscurity in which many branches of the science, not in themselves difficult, are still involved. When, for instance, we say that water is highly valuable, we unquestionably attach a very different meaning to the phrase from what we attach to it when we say that gold is valuable. Water is indispensable to existence, and has, therefore, a high degree of utility, or of " value in use ;" but as it can generally be obtained in large quantities, without much labour or exertion, it has, in most places, but a very low value in exchange. Gold, on the other hand, is of comparatively little utility ; but, from its existing only in limited quantities, and from a great deal of labour being necessary to procure a small supply of it, it has a comparatively high exchangeable value, and may be exchanged or bartered for a proportionally large quantity of most other commodities. To confound these different sorts of value would evidently lead to the most erroneous conclusions. And hence, to avoid all chance of error from mistaking the sense of so important a word as value, I shall never use it except to signify exchangeable worth, or value in exchange ; and shall always use the word utility to express the power or capacity of an article to satisfy our wants, or gratify our desires.

Political Economy has been frequently defined to be " the science which treats of the production, distribution, and consumption of 'wealth-'* and if by wealth be meant those articles or products which possess exchangeable value, and are either necessary, useful, or agreeable, the definition is quite unexceptionable. But if we understand the term wealth in a more enlarged or contracted sense, it will be faulty. Mr Malthus, for example, has supposed wealth to be identical with " those material objects which are necessary, useful, and agreeable to man.*" And though we should waive any objections which may, perhaps, be justly taken to the introduction of the qualifying phrase material objects, still it is evident that the definition is essentially defective. In proof of this, it is sufficient to mention, that atmospheric air, and the heat of the sun, are both material, necessary, useful, and agreeable products ; though their independent existence, and their incapacity of special appropriation, by depriving them of exchangeable value, excludes them, as we have already shown, from the investigations of this science.

* Principles of rolilical Economi/, p. 28.

Dr Smith has not explicitly stated what was the precise meaning attached by him to the term wealth ; but he most commonly describes it to be " the annual produce of land and labour." Mr Malthus, however, has justly objected to this definition, that it refers to the sources of wealth, before we know what wealth is, and that it includes all the useless products of the earth, as well as those which are appropriated and enjoyed by man.

The definition now given does not seem liable to any of these objections. By confining the science to a discussion of the laws regulating the production, distribution, and consumption of articles or products possessing exchangeable value, we give it a distinct and definite object. When thus properly restricted, the researches of the economist occupy a field which is exclusively his own. He runs no risk of wasting his time in inquiries which belong to other sciences, or in unprofitable investigations respecting the production and consumption of articles which cannot be appropriated, and which exist independently of human industry.

Capacity of appropriation is indispensably necessary to constitute an article wealth. And I shall invariably employ this term to distinguish those products only which are obtained by the intervention of human labour, and which, consequently, can be appropriated by one individual, and consumed exclusively by him. A man is not said to be wealthy, because he has an indefinite command over atmospheric air, for this is a privilege which he enjoys in

IMPORTANCE OF THE SCIENCE. 7

common with every other man, and which can form no ground of distinction ; but he is said to be wealthy, according to the degree in which he can afford to command those necessaries, conveniences, and luxuries, which are not the gifts of nature, but the products of human industry.

The object of Political Economy is to point out the means by which the industiy of man may be rendered most productive of those necessaries, comforts, and enjoyments, which constitute wealth ; to ascertain the proportions in which this wealth is divided among the different classes of the community ; and the mode in which it may be most advantageously consumed. The intimate connection of such a science, with all the best interests of society, is abundantly obvious. There is no other, indeed, which comes so directly home to the everyday occupations and business of mankind. The consumption of wealth is indispensable to existence ; but the eternal law of Providence has decreed, that wealth can only be procured by industry, — that man must earn his bread in the sweat of his brow. This twofold necessity renders the production of wealth a constant and principal object of the exertions of the vast majority of the human race ; has subdued the natural aversion of man from labour ; given activity to indolence ; and armed the patient hand of industry with zeal to undertake, and patience to overcome, the most irksome and disagreeable tasks.

8 lIVirOllTANCE OF THE SCIENCE.

But when wealth is thus necessary, when the desire to acquire it is sufficient to induce us to submit to the greatest privations, the science which teaches the means by which its acquisition may be most effectually promoted, — by which we may be enabled to obtain the greatest possible amount of wealth with the least possible difficulty, — must certainly deserve to be carefully studied and meditated. There is no class of persons to whom this knowledge can be considered as either extrinsic or superfluous. There are some, doubtless, to whom it may be of more advantage than to others ; but it is of the utmost consequence to all. The prices of all sorts of commodities — the profits of the manufacturer and merchant — the rent of the landlord — the wages of the day-labourer— and the incidence and effect of taxes and regulations, all depend on principles which Political Economy can alone ascertain and elucidate.

Neither is the acquisition of wealth necessary only because it affords the means of subsistence : without it we should never be able to cultivate and improve our higher and nobler faculties. Where wealth has not been amassed, the mind being constantly occupied in providing for the immediate wants of the body, no time is left for its culture ; and the views, sentiments, and feelings of the people, become alike contracted, selfish, and illiberal. The possession of a decent competence, or the being able to indulge in other pursuits than those which directly tend to satisfy our animal wants and desires, is necessary to solten the selfish passions ; to improve the moral

IMPORTANCE OF THE SCIENCE. 9

and intellectual character, and to ensure any considerable proficiency in liberal studies and pursuits. And hence, the acquisition of wealth is not desirable merely as the means of procuring immediate and direct gratifications, but as being indispensably necessary to the advancement of society in civilization and refinement. Without the tranquillity and leisure afforded by the possession of accumulated wealth, those speculative and elegant studies which expand and enlarge our views, purify our taste, and lift us higher in the scale of being, can never be successfully prosecuted. It is certain, indeed, that the comparative barbarism and refinement of nations depend more on the comparative amount of their wealth than on any other circumstance. A poor people are never refined, nor a rich people ever barbarous. It is impossible to name a single nation which has made any distinguished figure, either in philosophy or the fine arts, without having been at the same time celebrated for its wealth. The age of Pericles and Phidias was the flourishing age of Grecian, as the age of Petrarch and Raphael was of Italian commerce. The influence of wealth is, in this respect, almost omnipotent. It raised Venice from the bosom of the deep, and made the desert and sandy islands on which she is built, and the unhealthy swamps of Holland, the favoured abodes of literature, of science, and of art. In our own country its efiects have been equally striking. The number and eminence of our philosophers, poets, scholars, and artists, have ever increased proportionally to the

10 NEGLECTED IN ANTIQUITY,

increase of the public wealth, or to the means of rewarding and honouring their labours.

The possession of wealth being thus indispensable to individual existence and comfort, and to the advancement of nations in civilization, it may justly excite our astonishment, that so few efforts should have been made to investigate its sources ; and that the study of Political Economy is not even yet considered as forming a principal part in a comprehensive system of education. A variety of circumstances might be mentioned, as occasioning the unmerited neglect of this science ; but of these the institution of domestic slavery in the ancient world, and the darkness of the period when the plan of education in the universities of modern Europe was first formed, seem to have had the greatest influence.

The citizens of Greece and Rome considered it degrading to engage in those occupations which form the principal business of the inhabitants of modern Europe. Instead of endeavouring to enrich themselves by their own exertions, they trusted to the reluctant labour of slaves, and to subsidies extorted from conquered countries. In some of the Grecian States, the citizens were prohibited from engaging in any species of manufacturing and commercial industry ; and in Athens and Rome, where this prohibition did not exist, these employments were universally regarded as unworthy of freemen, and were, in consequence, exclusively carried on either by slaves or by the very dregs of the people. Even Cicero, who had mastered all the philosophy of the ancient world,

AND IN THE MIDDLE AGES. 11

and raised himself above many of the prejudices of his age and country, does not scruple to affirm, that there can be nothing ingenuous in a workshop ; that commerce, when conducted on a small scale, is mean and despicable ; and when most extended, barely tolerable— Non admodum vituperanda !^ Agriculture, indeed, was treated with more respect. Some of the most distinguished characters in the earlier ages of Roman history had been actively engaged in rural affairs ; but, notwithstanding their example, the cultivation of the soil, in the flourishing period of the Republic, and under the Emperors, was almost entirely carried on by slaves, belonging to the landlord, and employed on his account. The mass of Roman citizens were either engaged in the military service, f or derived a precarious and dependant subsistence from the supplies of corn furnished by the conquered provinces. In such a state of society the relations subsisting in modern Europe between land-

12 NEGLECTED JN ANTIQUITY,

lords and teiiaiits, and masters and servants, were unknown ; and the ancients were, in consequence, entire strangers to all those interesting and important questions arising out of the rise and fall of rents and wages, which form so important a branch of economical science. The spirit of philosophy in the ancient world vyas also extremely unfavourable to the cultivation of Political Economy. The luxurious or more refined mode of living, of the rich, was regarded by the ancient moralists as an evil of the first magnitude. They considered it as subversive of those warlike virtues, which were the principal objects of their admiration ; and they, therefore, denounced the passion for accumulating wealth as fraught with the most injurious and destructive consequences. It was impossible that Political Economy could become an object of attention to minds imbued with such prejudices ; or that it could be studied by those who contemned the objects about which it is conversant, and vilified the labour by which wealth is produced.

At the establishment of our universities, the clergy were almost the exclusive possessors of the little knowledge then in existence. It was natural, therefore, that their peculiar feelings and pursuits should have a marked influence on the plans of education they were employed to frame. Grammar, rhetoric, logic, school divinity, and civil law, comprised the whole course of study. To have appointed professors to explain the principles of commerce, and the means by which labour might be rendered most effective, would have been considered as equally superfluous and de-

AND IN THE MIDDLE AGES. 18

grading to tlie dignity of science. The ancient prejudices against commerce, manufactures, and luxury, retained a powerful influence in the middle ages. None were then possessed of any clear ideas concerning the true sources of national wealth, happiness, and prosperity. The intercourse among states was extremely limited, and was maintained rather by marauding incursions, and piratical expeditions in search of plunder, than by a commerce founded on the gratification of real and reciprocal wants.

These circumstances sufficiently account for the late rise of this science, and the little attention paid to it up to a very recent period. And since it has become an object of more general attention and inquiry, the differences which have subsisted among the most eminent of its professors, have proved exceedingly unfavourable to its progress, and have generated a disposition to distrust its best established conclusions.

It is clear, however, that those who distrust the conclusions of Political Economy, because of the variety of systems that have been advanced to explain the phenomena about which it is conversant, might on the same ground distrust the conclusions of almost every other science. The discrepancy between the various systems that have successively been sanctioned by the ablest physicians, chemists, natural philosophers, and moralists, is quite as great as the discrepancy between those advanced by the ablest political economists. But who would therefore conclude, that medicine, chemistry, natural philosophy, and morals, rest on no solid foundation, or that they

14 EVIDENCE ON WHICH

are incapable of presenting us with a system of wellestablished and consentaneous truths? We do not refuse our assent to the demonstrations of Newton and Laplace, because they are subversive of the hypotheses of Ptolemy, Tycho Brahe, and Descartes ; and why should we refuse our assent to the demonstrations of Smith and Ricardo, because they have subverted the false theories that were previously advanced respecting the sources and the distribution of wealth ? Political Economy has not been exempted from the common fate of the other sciences. None of them has been instantaneously carried to perfection ; more or less of error has always insinuated itself into the speculations of their earliest cultivators. But the errors with which Political Economy was formerly infected have now nearly disappeared ; and a very few observations will suflBce to show, that it really admits of as much certainty in its conclusions as any science founded on fact and experime7it can possibly do.

The principles on which the production and accumulation of wealth and the progress of civilization depend, are not the offspring of legislative enactments. Man must exert himself to produce wealth, because he cannot exist without it ; and the desire implanted in the breast of every individual of rising in the world and improving his condition, impels him to save and accumulate. The principles which form the basis of this science make, therefore, a part

CONCLUSIONS ARE FOUNDED. 15

of the original constitution of man, and of the physical world ; and their operation, like that of the mechanical principles, is to be traced by the aid of observation and analysis. There is, however, a material distinction between the physical and the moral and political sciences. The conclusions of the former apply in every case, while those of the latter apply only in the majority of cases. The principles on which the production and accumulation of wealth depend are inherent in our nature, and exert a powerful, but not always the sarnie degree of influence over the conduct of every individual j and the theorist must, therefore, satisfy himself with framing his general rules so as to explain their operation in the majority of instances, leaving it to the sagacity of the observer to modify them so as to suit individual cases. Thus, it is -an admitted principle in the science of Morals, as well as of Political Economy, that by far the largest proportion of the human race have a much clearer view of what is conducive to their own interests, than it is possible for any other man or select number of men to have ; and, consequently, that it is sound policy to allow each individual to follow the bent of his inclination, and to engage in any branch of industry he thinks proper. This is the general theorem ; and it is one which is established on the most comprehensive experience. It is not, however, like the laws which regulate the motions of the planetary system, — it will hold good in nineteen out of twenty instances, but the twentieth may be an exception.

It) EVIDENCE ON WHICH

But it is not required of the economist, that his theories should quadrate with the peculiar bias of the mind of a particular person. His conclusions are drawn from observing the principles which are found to determine the condition of mankind, as presented on the large scale of nations and empires. He has to deal with man in the aggregate — with states, and not with families — with the passions and propensities which actuate the great bulk of the human race, and not with those which are occasionally found to influence the conduct of a solitary individual.

It should always be kept in view, that it is never any part of the business of the economist to inquire into the means by which the fortunes of individuals may have been increased or diminished, except to ascertain their general operation and effect. The public interests ought always to form the exclusive objects of his attention. He is not to frame systems, and devise schemes, for increasing the wealth and enjoyments oi particular classes ; but to apply himself to discover the sources of itational 'wealth, and luiiversal 'prosperity, and the means by which they may be rendered most productive.

Nothing, indeed, is more common than to hear it objected to some of the best established truths in political and economical science, that they are at variance with such and such facts, and that, therefore, they must be rejected. It is cerain, however, that these objections most frequently originate in an entire misapprehension of the nature of the science.

CONCLUSIONS ARE FOUNDED. 17

It would be easy to produce a thousand instances of individuals who have been enriched by monopolies, as they are sometimes by robbery and plunder; but it would be not a little rash to conclude from thence, without farther inquiry, that the community in general can be enriched by such means ! This, however, is the single consideration to which the political economist has to attend. The question never is, whether a o-reater or smaller number of individuals can be enriched by the adoption of a particular measure, or by a particular institution, but whether its tendency is to enrich the public. Admitting that monopolies and restrictive regulations frequently enable individuals to accumulate ample fortunes, this is so far from being, as is often contended, any proof of their real advantageousness, that it is distinctly and completely the reverse. It is demonstrably certain, that if monopolies and exclusive privileges enrich theJeWy they must, to the same extent, impoverish the mani/ ; and are, therefore, as destructive of that national WEALTH, to promote which ought to be the principal object of every institution, as they are of natural freedom of industry.