Capital and population

Preface

My position as an economist, as exemplified in this treatise, is a peculiar one. "While classing myself, I believe justly, as a strict disciple of what is usually called the English or orthodox school, I have arrived at results, in many instances, diametrically opposed to theirs ; especially on the subjects of free trade and taxation. On the other hand, my reasoning presupposes the falsity of most of the arguments heretofore advanced in support of the very conclusions I uphold. As I antagonize the results of one side and the methods of the other, I can look for friends in neither camp, l^evertheless, as the principle I have enunciated really effects the reconciliation of two lines of thought, apparently hopelessly divergent, I may, perhaps, expect to be sustained by those of both sides who prefer construction to destruction.

It would be false modesty in me to seem unaware that the economic law I have attempted to establish equals in its influence upon economic conclusions any hitherto ascertained. Granted its truth, it throws new iv PPwEFACE,

and decisive light on nearly all the unsolved problems of the science. That it is true, I venture to be the more confident of, because I find it conceded bj both Mill and Eicardo, although thej failed to apply it, or at all recognize its importance. What I have here attempted is to reason on their lines beyond the limit where they stopped, with the result of greatly modifying and sometimes subverting their conclusions. This I have done without in any case impugning their premises, or controverting their reasoning, further than to show that, while otherwise valid, it was incomplete. My anxiety to place myself in accord with, rather than in antagonism to, these great thinkers has been so great as to lead me to injure the literary form of my work by making it substantially a critique upon Mill's "Principles " instead of an independent and consecutive argument. This has necessitated long quotations, already so familiar to students as to lack interest for them. The importance of showing that my ideas are really but the further development of those of the orthodox school must be my excuse for this ; and I shall be pardoned if it has enabled me, as I believe it has, to more readily place the law I enunciate, and in some degree elucidate, in its proper relation to the established truths of the science.

Feedeeick B. Hawley.

Few York, February^ 1882.

CONTEE'TS.

CHAPTER p^GE

II. — Inceease of Capital . . . . 13

HI. — The Tendency of Capital to outstrip Population 51

IV. — Fixed Capital . . . , . 64

VII. — Wages and Peofits . . . . 113

VIII. — Capital and Laboe . . . .180

IX. — Co-opeeation . . . . .139

X. — Feee Teade and Peotection . . . 144

XI. — The Equation" of Inteenational Demand . 175

XII. — Disteibution of Wealth in a Peotected Nation 204

XIV. — Commeece . . . . . 214

XV. — Ultimate Effects of Feee Teade and Peotection 224 XVI.— Taxation ...... 235

XVII. — Some othee Effects of the Law . . 251

XVIII.— Conclusion ...... 262

CAPITAL AND POPULATION.

CHAPTEE I.

CAPITAL.

John Stuaet Mill, in his "Principles of Political Economy," in defining capital, says :

" The distinction, then, between capital and not-capital, does not lie in the kind of commodities, but in the mind of the capitalist — in his will to employ them for one purpose rather than another ; and all property, however ill adapted in itself for the use of laborers, is a part of capital, so soon as it, or the value to be received from it, is set apart for productive reinvestment. The sum of all the values so destined by their respective possessors, composes the capital of the country. Whether all those values are in a shape directly apjjlicable to productive uses, maTces no difference. Their shape, whatever it may de, is a temporary accident ; hut, once destined for production, they do not fail to find a way of transforming themselves into things capable of being applied to it.''^ — (Mill, Book I, chapter iv, section 1.)

In Picardo's works, chapter v, " On Wages," page 51, I find the following definition :

" Capital is that part of the wealth of a country which is employed in production, and consists of food, clothing, raw materials, machinery, etc., necessary to give effect to labor.''''

It is evident that these definitions differ radically, especially in the passages which I have put in italics.

Mill includes, in the term, all wealth destined to productive consumption, whether finally so utilized or not. Until the mental disposition of the holder is changed, it remains capital, and only ceases to be such when its destination is changed to unproductive consumption. He also includes, not only the necessaries and conveniences that will, or may, actually be demanded by the laborer as wages and for the facilities and tools for production, but also the sum of such luxuries as are destined, before being consumed, to be exchanged for such necessaries and conveniences.

Ricardo's meaning is not so clear, on account of the ambiguity of the words " is employed." He seems, however, to intend to confine the term to that part of wealth actually in process of consumption by the laborer for his sustenance, or actually being used by him, as tools or machinery, to facilitate production, and to exclude not only all wealth not fitted for consumption or use by laborers, but such part as is fitted, but not at the time so employed. If this is his meaning, circulating capital becomes identical with what is commonly called " the wages fund," and fixed capital with such part of the machinery, tools, etc., as are actually in use.

It may be, though I do not so understand him, that by "is employed" he means, is eventually envployed — in which case his definition approaches nearer to that of Mill, but is yet far from being identical with it.

If we attempt to gather his meaning from his writings, we shall find that he uses the term, not only in accordance with both senses of his own definition, though with the first far more often than with the second, but also with the sense in which Mill has defined it. And the same remark will apply to the writings of Mill, who likewise uses it, not only in accordance with his own definition, but in accordance with both senses of Kicardo besides. Mill, indeed, seems utterly oblivious of the fact that his definition differs at all from that of his predecessor ; while Ricardo, in passages, exhibits some perception, or rather, perhaps, I should say, an indistinct feeling of the distinction to which I am drawing attention. Among others, I would instance the note to chapter viii, in which he says :

" There can be no greater error than in supposing that capital is increased by non-consumption. If the price of labor should rise so high that, notwithstanding the increase of capital, no more could be employed, I should say that such increase of capital would be still unproductively consumed."

Ricardo, as we shall see elsewhere,* and as this passage shows, perceived and acknowledged that an increase of capital, in Mill's sense of the term, does not always lead to an increase in his, although his arguments constantly assume that an increase of wealth does practically result in an increase of the wages fund and an increased production. He here perceives the dilemma, and attempts to escape from it by the assertion that such increase of capital is still " unproductively consumed " — i. e., is not capital at all. But in no sense is this true. It is not unproductively consumed in any way or shape, but eventually, though not immediately, productively consumed. He can, if he so chooses to use the word, refuse to call it capital, but he can not claim that it is unproductively consumed, for it is not consumed at all.

* For a further instance, see chapter on wages and profit.

I shall assume througliout this treatise that Ricardo intends to denote, by capital, only such portion of wealth as is actively engaged in production, as it will appear, in the course of the argument, that most of his deductions only hold good when the word is used in this exceedingly restricted sense; and no student of this most exact of deductive reasoners can doubt for a moment his intention of using the term mainly in accordance with the deductions he draws from it. Places can, indeed, be found in his writings where he gives to it a broader signification, and adopts more or less fully its popular use ; but when this occurs, the fault must be attributed rather to the application than to the accuracy of his deductions.

The assertion that both Eicardo and Mill used such a fundamental term as capital in various senses, without perceiving that they did so, is a bold one for any one to make, but it has been forced upon me by a careful, and I may say reverential, study of their writings ; and I shall, I am sure, be borne out in it by fellow-students when their attention is drawn to the subject. This at least is patent even at this stage of the inquiry, that they defined • the term very differently ; and it will be acknowledged by all that, starting thus from conflicting definitions, they proceed by the same arguments to identical conclusions. This could hardly have been the case if they had really differed in their understanding of the nature of capital ; and I do not fear to assert that in similar parts of their argument they rarely do differ in the sense in which they use the term, notwithstanding the radical difference in their definition of it.

Which definition is correct must be our next consideration ; and there can be no doubt but that the preference must be given to that of Mill. We already have a term, viz., the " wages fund," which accurately coincides with " circulating capital " as defined by Ricardo ; and a supplementary term can only lead to the further confusion of an intricate subject, while a term to define active fixed capital from idle is not needed. The popular use of the word certainly accords with Mill's definition; and the scientific sense should certainly agree with the popular, in considering as capital all wealth destined to be employed productively, and from which an increase is obtained or hoped for.

Ricardo's definition differs so much from the popular use of the word, that conclusions drawn from it, however correct, are sure to be misunderstood and misapplied in practice. Really valuable results are with difficulty reached, and, when reached, with difficulty appreciated, when the words in w^hich they are expressed are ambiguous. Furthermore, the real object of inquiry is, not how production is effected by the increase of the wages fund — that is a simple matter ; but by the general increase of wealth in all its forms — a much more complicated subject.

I would myself prefer a definition of the term, when scientifically used, broader than that of Mill, but not broader than its popular use. Wealth I would define as the existent products of labor, whose utility is not yet exhausted ; capital, as that portion of wealth from which an income or profit is expected in addition to a return of the principal. Under this definition national capital would be the same as under Mill's, for no wealth not productively employed can add to the net income of the community, but much wealth not productively employed nevertheless produces an income or profit to its possessors. All that part of wealth reserved from immediate for prolonged unproductive consumption, such as houses, places

10 CAPITAL AND P0PULATI0:N".

of amusement, works of art, etc., tlie use and enjoyment of wliicli are a source of income to tlieir possessors, I would prefer to regard as capital to them, though not of course to the community, because to their possessors they are productive. The distinction does not affect this argument, and is of no great importance, further than to notice that such wealth is of no less advantage to the nation than that productively engaged, as, although it adds nothing to the sum of material products, it immediately gratifies desires similar to those ultimately satisfied by material products, and on account of which alone material products have any utility.

Using Mill's or my own definition of capital, it will be necessary to divide it into two portions, which we will call " dead stock " and " active stock " : active stock being coincident with that portion of wealth that Ricardo defines as capital, according to our first exemplification of his meaning — i. e., all wealth that is at the time productively engaged ; and dead stock being that portion excluded by him and included by Mill — i. e., all wealth destined eventually, but not immediately, to be employed in production.

This distinction is of the first importance, and must be constantly borne in mind during any discussion and investigation of the laws and nature of capital. Although distinctly recognized by all economists,* I know

* Mill, Book I, chapter iv, section 2 : "As whatever of the produce of the country is devoted to production is capital, so, conversely, the whole of the capital of the country is devoted to production. This second proposition, however, must be taken with some limitations and explanations. A fund may be seeking for productive employment, and find none adapted to the inclinations of its possessor ; it then is capital still, but unemployed capital. Or the stock may consist of unsold goods, not susceptible of direct application to productive uses, and not, at the moof none who have realized its importance, or who have consistently observed it in their arguments. They, one and all, assume that the amount of production depends upon the amount of capital, whereas it is really dependent only on the amount of "active stock," as will be immediately acknowledged by every one who gives the subject a moment's consideration. Ricardo would have been an exception to this, criticism, if he had always been consistent with his own definition, faulty as it is. He identified "active stock" and capital; but, if he had fully appreciated the distinction, he could hardly have failed to recognize that he was defining a part of capital as if it were the whole, and that his deductions were not true of the term in its broad sense. More than any other economist, his views coincide with mine, and it is mainly owing to his failure to perceive this distinction that our conclusions differ so radically.

It is as a pupil of his and of Mill that I write, and I wish to be distinctly understood as accepting nearly- all the premises and conclusions in both of them not here especially controverted, and to draw attention to the fact that all of my premises, both so far and yet to be advanced, are theirs also with a single exception — the effect

ment, marketable ; these, until sold, are in the condition of unemployed capital. Again, artificial or accidental circumstances may render it necessary to possess a larger stock in advance — that is, a larger capital before entering on production — than is required by the nature of things. Suppose that the government lays a tax on the production in one of its earlier stages, as, for instance, by taxing the material. The manufacturer has to advance the tax before commencing the manufacture, and is, therefore, under a necessity of having a larger accumulated fund than is required for, or is actually employed in, the production which he carries on. He must have a larger capital to maintain the same quantity of productive labor."

12 CAPITAL AND POPULATIOISr.

of a high rate of wages upon population. That mj conclusions are in many points different from theirs, is solely due to their neglecting to follow up their own arguments to their proper termination. That they did not do so, we shall see, later on, was due, not so much to the want of logical acumen, as to the fact that there was nothing in their surroundings to suggest further pursuit. The economic condition of England apparently verified their conclusions, and they were naturally satisfied with such verification. I am especially anxious not to be classed in the category of those who have attempted to confute, without understanding, these great writers, but fear I shall not wholly escape, as my conclusions will run counter to some firmly-held opinions, and will conflict with many interests, both national and individual ; but I can do no more than proclaim myself their disciple, and disclaim any attempt at refuting the founders of the science. All I shall say is built upon them as a foundation, and all I hope to accomplish is to raise their structure one story higher.

CHAPTEE II.

INCREASE OF CAPITAL.

All wealth, and therefore all capital, is the result of abstinence. The products of labor may be consumed by the producer, or may be exchanged for other products to be consumed, or such products, whether made by him or acquired, may be reserved for personal consumption ; in which cases they are said to be unproductively consumed. If, on the other hand, the producer desires to save what he has brought into being, he can do so in two ways : by employing it as active, or retaining it as dead, stock. He can employ it immediately in sustaining himself and others while engaged in further production, if its nature is fitted for such use ; or he can, as soon as possible, exchange it for such things as are so fitted, and then employ them productively ; or, if he so elects, he can reserve his product, or the things for which he has exchanged it, to be ultimately but not immediately employed productively by himself or others.

In a barbarous state of society, where each individual endeavors to supply all his wants himself, nearly all produce destined for productive consumption immediately takes the form of " active stock " ; * but, when division of

* By the terra " active stock " I mean to include not only what is actually at the moment being consumed by the laborer, but also such stock as labor lias been established, some reservation of products must occur, at least sufficient to allow time for exchanges to be effected.

With the exception of the food which farmers reserve for the consumption of themselves, their cattle, and those of their laborers whose wants they immediately supply, very nearly all of the products of civilized labor enter first into "dead stock." All products, which the producer can not himself utilize, necessarily do so.

From this fund of " dead stock " products are distributed to the fund for unproductive consumption and to that for productive consumption. What goes to the former fund, decreases the amount of "dead stock" — what goes to the latter, increases it, as the amount of production is always, on the average, greater than that of the productive consumption which produces it ; because, when this ceases to be the case, the motive to produce is taken away. But dead stock may not be distributed at once to either fund, but may be reserved, to await contingencies. ISTow, what is it that determines the proportion in which the gross stock will be divided between these three funds ?

Evidently the relative strength of the desires to accumulate and to enjoy will determine the amount of the fund for unproductive consumption, and the rate of profit the amount of that for productive consumption ; but the rate of profit itself depends upon the amount of dead stock. Any increase of dead stock, other things (including gold) remaining the same, lowers its money-value without affecting money- wages ; or, if money- wages are lowered, its money-value suffers a yet greater deprecia-

he will require to support him until the product he is engaged upon is completed, and which is preserved by him or for him, for that purpose.

INCEEASE OF CAPITAL. 15

tion.^ In the supposed circumstances proportional wages must rise at the expense of profits. But if an increase of dead stock lowers profits, and a decrease of profits discourages the conversion of dead into active stock, it follows that the " wages-fund " will be smallest when dead stock is relatively most abundant, and when the rate of jpTojportional wages is the highest. We are entitled, then, to say that the amount of dead stock that will become active depends upon the amount of dead stock itseK, and varies inversely with it :

" When the production of a commodity is the effect of labor and expenditure, whether the commodity is susceptible of unlimited multiplication or not, there is a minimum value which is the essential condition of its being permanently produced. The value at any particular time is the result of supply and demand ; and is always that which is necessary to create a marTcet for the existing supply. But unless that value is sufficient to repay the cost of production^ and to afford^ desides, the ordinary expectation of profit^ the commodity will not continue to l)e produced. Capitalists will not go on permanently producing at a loss. They will not even go on producing at a profit less than they can live upon. Persons whose capital is already embarked, and can not be easily extricated, will persevere for a considerable time without profit, and have been known to persevere even at a loss, in hope of better times. But they will not do so indefinitely, or when there is nothing to indicate that times are likely to improve. No new capital will be invested in an employ-

* This is not true, of course, when the increase of dead stock consists wholly or largely of money. In such cases prices and profits will rise and proportional wages fall, as happens whenever the currency is inflated. But in all cases, when the increase of dead stock is due wholly to saving, there will be no increase in the amount of money through the operations of exchange until after prices have been depressed by such increase of dead stock disturbing the proportion between gold and other commodities. If such increase of stock is universal, the world over, the depression of money prices will be permanent, until such stock is unproductively consumed or the production of gold increased.

ment, unless there be an expectation, not only of some profit, but of a profit as great (regard being had to the degree of eligibility of the employment in other respects) as can be hoped for in any other occupation at that time and place. When such profit is evidently not to be had, if people do not actually withdraw their capital, they at least abstain from replacing it when consumed. The cost of production, together with the ordinary profit, may, therefore, be called the necessary price or value of all things made by labor and capital. Nobody willingly produces in the prospect of loss. Whoever does so, does it under a miscalculation, which he corrects as fast as he is able." — (Mill, Book III, chapter iii, section 1.)

"We have supposed in the above argument that " other things remained the same." What was included under that head was the state of the arts, social customs and regulations, the natural fertility of the soil, and the number of the population. Improvement in the two former conditions, or any increase in the two latter, will of course allow of a corresponding increase of dead stock, without its being followed by a rise of proportional wages and fall in profits ; and such increase will go partly to swell the wages-fund or active stock. It is only when the increase of capital outstrips the others that a diminution of the wages-fund and a rise of wages will occur. Economists have, I believe universally, held that such diminution of the wages-fund could be but temporary; because the stimulus to population of a high rate of wages would, before very long, readjust the ratio between capital and population. But the real stimulus to population is not a high rate of wages in the sense in which wages are compared with profits, because that surely entails a lessening of employment, but a low rate, because then nearly all the members of the laboring class are earning something, and the average of the necessities and comforts of life that laborers, employed and unemployed, receive is then greater than when some are receiving high wages and many are receiving none at alL In other words, the stimulus to population is affected not by the rate of proportional wages, as economists have hithero universally assumed, but by the proportion between the gross amount of the wages-fund and the number ^of those depending upon it for subsistence — a very different thing, for such proportion is always the least when the rate of proportional wages is highest.

The normal ratio between capital and population, when disturbed by an Increase of ca23ital, can not therefore be restored by the stimulus to population afforded by such increase ; because its tendency is not to stimulate, but to restrain. The proper proportion of dead stock can only be restored, in the absence of exceptional circumstances, by an increase of unproductive consumption, which directly decreases the fund, or by converting less of it into active stock, which indirectly decreases the fund, by preventing further additions to it being made, and thus allows the ordinary, or even a less than ordinary, unproductive consumption to deplete it. But the former of these causes can not, or rather will not, act, because, when an excess of dead stock lessens both profits and the wages-fund, neither capitalists nor laborers will have as large incomes to expend, and they will consequently consume less unproductively than before, instead of more, and will thus retard instead of assist the readjustment.

An excess of dead stock can only be practically done away with by decreasing production, and the only way to escape the necessity of so doing is to prevent a growth of capital faster than that of population.

The reader will please notice that I do not here assert over-production to be an evil, but only that over-accumulation leads necessarily to a lessened production, and tliat such lessened production is an evil.

The importance of the preceding paragraphs to the argument can hardly be overstated, and I emphasize them by thus drawing attention to them, fearing from the brevity of my statement that the importance of the principles involved will not be enough considered. They are the only necessary premises that I use, for which I am unable to find any authority in Mill and Kicardo themselves. Their truth can not be doubted, nor can it be gainsaid that, if Mill and Ricardo had taken notice of the fact that increase of dead stock decreases active stock, and restrains population instead of stimulating it, they would have modified their conclusions very nearly, if not quite, in accordance with mine.

I now desire to verify, by quotation and criticism, the somewhat bold charge I have made in the preceding chapter, that both these writers use the fundamental term " capital " loosely and inaccurately, and in conflicting senses.

In Book II, chapter xi, section 3, Mill says :

" Wages depend, then, on the proportion between the number of the laboring population and the capital, or other funds, devoted to the purchase of labor ; we will say, for shortness, the capital. If wages are higher at one time or place than at another, if the subsistence and comfort of the class of hired laborers are more ample, it is for no other reason than because capital bears a greater proportion to population. It is not the absolute amount of accumulation or of production that is of importance to the laboring class ; it is not the amount even of the funds destined for distribution among the laborers ; it is the proportion between those funds and the numbers among whom they are shared. The condition of the class can be bettered in no other way than by altering that proportion to their advantage; and every scheme for their benefit, which does not proceed on this as its foundation, is, for all permanent purposes, a delusion."

mCEEASE or CAPITAL. 19

This passage singularly exemplifies Mill's confusion of thought on the subject we are discussing. In his first sentence, if he means by wages real wages, they depend mainly on the margin of cultivation, and, in so far as they are affected by it, do not depend directly but inversely on the amount of capital, as he defines it ; though they do depend upon it in Ricardo's sense of the term. If by wages he means proportional wages, they depend not upon " the number of the laboring population," but upon the ratio of the value of the wages-fund to the value of the product. In his second sentence he treats the two clauses, " if wages are higher at one time or place than at another " and " if the subsistence and comfort of the class of hired laborers are more ample," as identical propositions. If he means by wages the rate of real wages — i. e,, the average sum of necessaries and comforts each laborer employed or unemployed receives — they are identical ; but neither assertion is true, unless he uses capital in the sense of Ricardo ; and it is hardly supposable that he does so use it, as it is very unlikely that he should attach the importance he seems to, to so simple a statement as that, the amount each laborer receives can be found by dividing the wages-fund by the number of laborers, and yet that is all the statement will then include. If he means proportional wages, and adheres to his own definition of capital, they are not identical, as his proposition is true as to the first clause and not true as to the second. If he uses the term in Ricardo's sense, they are likewise not identical, as the second is true and the first not. "Whichever way we interpret Mill's meaning, we find an inaccuracy or an inconsistency.