The Development of Economic Doctrine: An Introductory Survey

CHAPTER VIII

MÜLLER, LIST AND VON THÜNEN

Müller

OF the group of three German writers discussed in this chapter, Adam Müller1 (1779-1829) is the least known in this country. His has been a curious fate. If not entirely forgotten, he at least suffered a considerable measure of neglect until, quite recently, the neo-romantic school in Germany, elaborating a point of view similar to his, have recalled him from his oblivion and have engineered for him a reasonably successful revival. Dr. Spann would persuade us (according to the edition consulted) that Müller was the greatest economist of all, or of his own, times. As his contemporaries included a Ricardo and a Malthus, even the more cautious eulogy savours of extravagance. To others, again, it may appear that Müller was not an economist at all, but rather that he was merely one who wallowed in windy words. Yet even if doubts be entertained on this point, he is rightly admitted here as representing a distinct line of criticism and because of his spiritual kinship with List.

Müller would probably have regarded himself as primarily a political writer, and only secondarily as an exponent of economic doctrine. His views on politics, it is true, are such that in his presentation politics and economics become inextricably intertwined; yet at the same time it is abundantly clear that his mind is preoccupied with considerations usually regarded as non-economic. To him more than to anyone else is due the reaction against certain aspects of Adam Smith’s teaching. Smith, without doubt, had raised his theory on the instincts and actions of the individual, though he had been by no means so one-sided as later criticism suggested. Without violent injustice, Adam Smith’s state could therefore be represented as being a conglomeration of individuals, the national wealth as the summation of individual substances; and for him the economic impulse was to be sought in the individual heart, moved by highly enlightened self-interest. In the phrase which later became so much beloved, Adam Smith was “atomistic”; the public interest, so far as it was considered, was a byproduct, due to the silent functioning of an unseen hand. With Adam Müller, on the other hand, the State comes first, and the individual has only significance in relation to the State. It is therefore necessary to approach Müller’s contribution to economics by way of his more general political doctrine.

Two dominant influences are obvious in the writings of Müller. In the first place, he was part and parcel of the so-called Romantic movement, and the leading representative of that movement on the political and economic side. As to the precise significance of the Romantic movement, as it existed in Germany, the phrase is one of those which are better left vaguely sensed than precisely defined. As a school the Romantics strove for the unseen and the eternal, for the intangible and the infinite; they concerned themselves with the ultimate riddles of life, and so tended to a mysticism incomprehensible to those entangled in the seen and the temporal. The other primary influence is that of Burke, to whom Müller consistently refers in words of the highest eulogy.

The central point in Müller’ s theory is the Aristotelian doctrine that man is inconceivable outside the State. Every individual is in the centre of civil life, interwoven with the State on all sides, just as every individual is at the central point in the life-period of the State, with a past lying behind, which must be respected, and a future which must be cared for. The State, then, is not an artificial creation, begotten for the attainment of particular ends and objects in civil life; it is the sum-total of civil life itself. In a phrase to which Müller constantly recurs, it is not merely a fundamental human need; it is the supreme human need.2

Moreover—a point in which the influence of Burke becomes apparent—the State represents a continuity through time. In the great warfare which man wages with the earth, he has need of allies, and the alliance extends not merely to all those who are contemporaries in the struggle, but it also embraces all past generations, since no generation can successfully conduct this warfare, relying on its own strength alone. The State, then, is this double alliance, not merely of all who are at any time living together, but also of all those who follow each other in time.3 It is thus immortal and to be viewed not as something static, but as in continual motion. The mutual interdependence of all, in the stream of time, is thus made fundamental. The analogy of the household continually recurs in Müller; each individual can produce and possess only in so far as he is a member of a group which together makes up a household,4 and it is because Müller believed that in the Middle Ages society was in fact constituted on such a family basis that his writings are so full of eulogies of the feudal system and of the place and function of a nobility in the State. That the State should be a leviathan, consuming the individual, is of the essence of Müller’s political doctrine, and it is a not uncommon point of view in German speculation; what is more peculiar to him is that he somehow persuaded himself that his ideal was embodied in the feudal system.

With such a hasty sketch of the political background, it is possible to approach the more specifically economic doctrines of Müller. And first of all, his antagonism to individualism leads him to reiterated condemnation of absolute private property, that evil legacy of the Roman law, so gloriously absent under the feudal system. The result of cutting the individual off from the whole is that each and all will live in poverty, possessed by a lust for exclusive possession which no wealth, however great, may satisfy.5 As the members of a family, on an equal share-out, are all poorer than they were before, although arithmetically there has been no change in the sum-total of wealth, so in society there is a force present which heightens all values.6 Müller, indeed, finds that there are three kinds of property: (a) pure private property; (b) corporative property; and (c) State property. Moreover, all these elements are, or should be, present in all property, and the individual only possesses in so far as he is at all times prepared to share with others what is peculiarly his, and, should occasion arise, to surrender it to the State. Real property exists only in common possession, and all private property is but a right of usufruct.7 Müller’s devotion to the feudal system is due to the fact that in his view it embodied this principle; and indeed in one place he oddly defines feudalism as embracing all the legal hindrances in the way of private property.8

Turning more to the nature of wealth and the meaning of production, Müller repeatedly emphasizes his divergences from Adam Smith. In opposition to the doctrine of laissez-faire, what should be the task of the statesman? It should be to consider the totality of the needs of his State, viewed in the light of eternity. Non-intervention is but the consecration of the right of absolute property, the renunciation of the claims of the State to all property.9 The doctrine which appeals to a law of Nature is “revolutionary” in so far as it implies that human institutions and laws are bankrupt.10 For Müller, the State is always in the centre of all things, and consequently all wealth, all production, all consumption must alike be viewed in the light of their reaction on this eternal thing which we call the State. Value itself, as distinguished from price (which relates to the moment), is indeed but the significance which a thing has in the State, and for the perpetual rejuvenation of the State,11 and it is Müller’s central criticism of orthodox Political Economy that it is a theory of wealth which takes no account of the value of things in this high sense.12 It concerns itself with things, never with persons. Adam Smith, in Müller’s indictment, is concerned only with tangible things that can be bought and sold; and admittedly, Smith’s discussion of productive and unproductive labour, if viewed apart from the development of that rather foolish controversy, does seem rather harsh on the philosopher whose philosophizings are not embodied in a vendible book. But the question “What is wealth?” cannot, according to Müller, be considered apart from the other question: “How does wealth come about? ‘13 A system of Political Economy which aims at the multiplication of “products,” and which removes all hindrances to the further increase of products, may result in a wealth which has no guarantee of its continued existence.14 Adam Smith, in limiting wealth to products which possess exchangeable value, had, like his predecessors, neglected other equally important questions. Amongst other things, for instance, he had forgotten to consider what is the force or activity in the State which maintains wealth.15

Thus we arrive at a view of Political Economy which is largely emancipated from external things which, if important, are important only because they increase the productive powers of the persons concerned.16 We have to discard the habit of counting wealth by sums and by figures. As Müller, with characteristic Romantic affectation, observes: “Nothing is worthy of admiration that can be expressed in numbers.”17 He is indeed at one with Lauderdale, to whom he refers with approval, in rejecting current views on production and parsimony. The economic activity of society is at once an unending consumption and an unending production, and an excess of production over consumption is only apparent. National wealth is not to be arrived at by subtracting the nation’s needs from the nation’s products; that merely leaves a “dead deposit of possessions”; on the contrary, true consumption is itself a source of national wealth, which exists in use as well as in possession.18 Out of the everlasting conflict between production and consumption there arises a higher product, which may be called the national credit, the national power, faith in the State, the State itself.19 The State is thus not merely the cradle in which all wealth is produced and the guarantor of all wealth; it is at the same time the end of all production and consumption.

Akin to this is Müller’s position with regard to what he termed spiritual capital. It is in keeping with his reverence for tradition and continuity that he should replace the familiar trinity of “land, labour and capital” by “Nature, man and the past”20 Capital is the contribution made by past generations to the present race of men for use in their struggle with Nature, and as such it belongs to the whole race of men and to all generations of men, subject to a right of usufruct.21 But so viewed, the legacy of the past is not merely material; it is also spiritual in character; hence alongside capital, as interpreted by Smith, it is necessary to find a place for spiritual capital. To this idea Müller constantly recurs in one form or another. In this sense the wealth of the State comprises, among other more obvious things, the arts of administration, the constitution, the laws, and all great national memories.22 At times particular emphasis is laid on the element of legislation, as when he declares that the legislation of a Christian state is the only real wealth of that state, a proposition in an especial degree true of England, for England’s power rests not on the soil or on labour, but on capital—the divine capital of laws, customs, national reputation and credit.23

Another point on which the polemic of Müller is directed against Adam Smith relates to division of labour. The citizen, he says truly, must not cease to be a complete man merely because he looks after his own business; and in an imaginative passage he pictures man in the beginning of society revealed in the comprehensive fullness of his capacities. The whole State is then but a single man; but likewise the individual man is no less than the State. All those who come after this original man together make up the complete man in whom the various occupations of life are in as natural equilibrium as they were in him. Thus division of labour (or of the various functions of society) is only possible by a personal relationship among those concerned, so that together, by their union, they shall represent a great and complete person.24 But while by progressive division of labour there is on this side an ever greater departure from the original man, in whom all activities were combined, the needs of each individual remain the same. Each one can therefore labour only on condition that all others labour for him. He needs the totality of all others; in short, society, the union of all economic functions, the State, remains the “need of all needs,” and this uniting force must become stronger as division of labour is carried further.25

Adam Smith’s curious explanation of division of labour, as due to a “propensity to truck,” is mildly described by Müller as incomplete. Division of labour springs from, and is dependent on, capital, or in Muller’s use of the word, “the past,” which furnishes a guarantee to the worker while he is devoting himself to his particular task. Yet division of labour (and it is to Muller’s credit that he realized it) may in itself reduce men to the level of slaves and machines, unless there is a true national capital, the inheritance of the past, active in the minds of the workers to counteract these dangers.26

In the course of his criticisms of Adam Smith, Müller constantly recurs to one point in partial extenuation of Smith’s one-sidedness. It is that Smith’s doctrines are the peculiar product of Great Britain, and comprehensible when one has regard to the conditions prevailing in this country; and further, that the elements which Smith’s doctrine neglected were those of most importance to continental nations where the conditions were different. Müller constantly speaks with an embarrassing appreciation of England. Smith, he says, could afford to neglect the element of spiritual capital, because everyone in England took that side for granted. Production might there be emphasized to the apparent exclusion of the conservation or maintenance of wealth, because the principle of maintenance (Erhaltung) and of national unity had for centuries been instinctively implanted by the constitution and by the customs of the country. So also in Great Britain the application of the principle of division of labour would not have the evil effects it might have elsewhere, because of the existence there of a reintegrating national spiritual capital, whereby’ every citizen in this blessed island is again inspired and ennobled by the all-pervading spirit of former times and of common achievements in the past. It almost reads like a far-off echo of a verse in “Rule, Britannia.” Whether or not Müller’s doctrine be accepted, it is at least illuminating.

As one of Müller’s chief works is ostensibly devoted to a theory of money, a slight reference to his views on this aspect of economic doctrine may be expedient. Yet here, even more than elsewhere, Müller trails off into the mystical, the nebulous, the symbolic and, indeed, it is to be feared for most, the entirely incomprehensible. It has been shown that the fundamental need of man is for reunion with his fellows; the desire for money is a reflexion of this desire for union or, otherwise expressed, for the State. Men and things require to be linked together, and the great uniting force is the State. Money is the economic expression of this need for union, just as the law is its juridical expression. It is in fact a substitute for the State, and like the State, and, indeed, all property, it should be a common possession. Only in the moment of circulation, in passing from hand to hand, is money money; if it becomes an object of private possession and “rests,” it ceases to be money. In so far, then, as the essence of money is that it is the mortar that links society together, money for Müller is something that goes beyond the ordinary conception of the market-place. In so far as any object is desired by two persons, it becomes money. Money is thus a property inherent in all individuals (and things) in civil society by virtue of which they enter into relationship with other individuals. The citizen himself, in so far as he becomes more necessary to others, becomes money; the more excellent he is, the more he is money. So, elsewhere, the State is money; the law, likewise, is the purest form of money. Money, thus representing the need of society, is something eternal, a primitive need, existing at all times in its two forms, later represented by metallic money and the “Word.”27 It is, of course, open to anyone to define money (or anything else) as he or she chooses; but a theory of money as so defined is scarcely calculated to furnish much illumination, either at the Treasury or the Bank of England. Into the abstruseness and the curious symbolisms with which Müller’s theory of money is adorned and obscured, it is, happily, unnecessary to enter here, but it is interesting to observe that Müller notes as one of the fortunate consequences of a paper circulation the fact that it links those who hold it more closely to their particular state. World-money or metallic money, on the contrary, fosters the illusion that the holder’s interests are dependent on the stream of world trade, and thus conceals the fact that he is much more directly dependent on the internal trade of his own country and on his own sovereign. Gold and silver encourage the belief that wherever the language of metallic gold is heard, there is a man’s fatherland; paper money attaches him to his own soil.28

List

Apart from the recent revival of interest in the origins of Romanticism, Müller’s claim to consideration rests on the fact that his point of view is so largely reflected in Friedrich List29 (1789-1846). List was no visionary dreamer. He played a very practical part in the affairs of his day; and though the world broke him, he was yet a man of the world. But, to a large extent, the substance of his views is in line with Muller’s thought. What Müller saw darkly through a haze of mysticism and symbolism, and expressed in a cloud of words, List wrote and expounded in the spirit of a political pamphleteer.

For all practical purposes, List’s contribution to economic doctrine is to be found in The National System of Political Economy.30 It suffers to a considerable extent from being very largely a tract for the times, issued for the encouragement of the Germany of List’s day; and as such it is highly polemical in tone, the opponent to be disembowelled being a somewhat distorted Adam Smith, or an amalgam of Adam Smith and his less careful followers, known throughout List’s volume as “the school.” The attack on Adam Smith is lively and spirited, even if the book suffers from frequent and indeed intolerable repetition. Without aiming at a comprehensive review, certain ideas may be selected as representing the essential core of List’s criticism of “the school.”

Fundamental in his criticism is his contention that Adam Smith gives merely a theory of value, that his doctrine is nothing more than a shopkeeper’s theory built up on the conception of “value in exchange.”31 Wealth and the causes of wealth represent two entirely different ideas, and it is more important to consider the latter than the former.’32 A person may possess wealth, but if he does not possess the power of producing objects of more value than he consumes, he will become poorer. “The power of producing wealth is therefore infinitely more important than wealth itself; it insures not only the possession and the increase of what has been gained, but also the replacement of what has been lost.”33 On these lines List stresses throughout the contrast between what he calls the theory of values and the theory of productive powers, and illustrates the distinction by the example of two fathers, each with five sons and a surplus of one thousand thalers a year. The one invests his savings at interest, and keeps his sons at common hard work; the other uses his savings to educate two of his sons as “skilful and intelligent landowners,” and in enabling the other three to learn a useful trade. The former, acting on the theory of values, is the richer at his death; on the theory of productive powers, it is the latter who is to be commended.34

Throughout, therefore, it is the “development of productive powers” that has to be kept in view, and the causes that may influence this are infinite:

“The Christian religion, monogamy, abolition of slavery and of vassalage, hereditability of the throne, invention of printing, of the press, of the postal system, of money, weights and measures, of the calendar, of watches, of police, the introduction of the principle of freehold property, of means of transport, are rich sources of productive power.... We can scarcely conceive of any law or any public legal decision which would not exercise a greater or smaller influence on the increase or decrease of the productive power of the nation.”35

This, it will be observed, is nothing less than the sum total of the human legacy as incorporated in our national life, and indeed List so expresses it:

“The present state of the nations is the result of the accumulation of all discoveries, inventions, improvements, perfections, and exertions of all the generations which have lived before us; they form the mental capital of the present human race, and every separate nation is productive only in the proportion in which it has known how to appropriate these attainments of former generations and to increase them by its own acquirements ...”36

This leads to the second and even more deliberate line of attack made by List on “the school,” viz., their neglect of the national element. Quesnay had extended his investigations to the whole human race, and Adam Smith, following him, had likewise neglected true Political Economy. Taking the literal meaning of the words, Political Economy ought to have reference to the life of a nation; the school had substituted for it “cosmopolitical or world-wide economy.”37 Assuming a universal union or confederation of all nations, the Free Trade position is justified, but “the popular school has assumed as being actually in existence a state of things which has yet to come into existence.”38 The position, however, as we know it, is that between each individual and the whole of humanity stands the nation, the embodiment of a tradition which List praises in words reminiscent of Burke and Müller.39 Individuals are not merely producers and consumers, they are also citizens of states and members of nations,40 and moreover, the producing power of all individuals is to a great extent determined by the social and political circumstances of the nation.41 The function of political economy, then, is to accomplish the economic development of the nation.

It follows, therefore, that any attempt to keep economics free from politics is mistaken, and that the doctrine of laissez-faire is a delusion. As List says in one place—and he has been justified by the event—“the necessity for the intervention of legislative power and administration is everywhere more apparent the further the economy of the nation is developed.42 Laissez-faire is a maxim which sounds no less agreeable to robbers, cheats and thieves than to the merchant.43 It is not the function of the statesman to do nothing: “A statesman will know, and must know ... how the productive powers of a whole nation can be awakened, increased, and protected, and how, on the other hand, they are weakened, laid to sleep, or utterly destroyed.”44

How, then, is this task of the statesman to be accomplished? The answer brings us to what is perhaps the central point in List’s doctrine. Adam Smith had emphasized the advantages of division of labour as applied to any individual trade, as, for example, pinmaking; he had “no perception of the division of labour as affecting a whole nation,”45 and as applied to a whole nation the principle of division of labour means the symmetrical development of all the powers of which the nation is capable:

“The popular school, inasmuch as it does not duly consider the nature of the powers of production, and does not take into account the conditions of nations in their aggregate, disregards especially the importance of developing in an equal ratio agriculture, manufactures and commerce, political power and internal wealth, and disregards especially the value of a manufacturing power belonging especially to the nation and fully developed in all its branches.”46

This is the text on which List preached to the Germany of his times the imperative need for the encouragement of manufactures. His doctrine has obvious reference to the circumstances of his age as List saw them. England was the workshop of the world, intent on nipping continental manufactures in the bud; was it safe for other countries to be content with a position of subordination, accepting this “insular supremacy”? List’s argument is that the agricultural state is definitely inferior to the state which combines both agriculture and manufactures, and he is led, in emphasizing this point, to not a little disparagement of agriculture and to enthusiastic praise of the effects of manufactures in a community. Thus, while it would hardly be proper to say that he reverts to mercantilist views, it is certainly true that he is led to a position entirely antagonistic to the Physiocrats. He constantly recurs to the argument that navigation, inland and foreign trade, and agriculture itself, flourish only where manufactures have reached a high state of prosperity.47 A nation which possesses merely agriculture lacks the most essential division of operations among its inhabitants; it will attain not a half, scarcely a tenth, of the material wealth of the perfect nation.48 As against a “crippled state of agriculture,” it is urged that in the state which introduces manufactures at the right time, the agricultural and industrial productive powers will react on each other, reciprocally promoting an increase—“indeed ad infinitum” says the optimistic List.49 A nation which carries on agriculture alone is like an individual who lacks one arm,50 and how unhappy (with all respect to Varro and the Physiocrats) is the condition of such a country; for there (to quote only one outburst) “dullness of mind, awkwardness of body, obstinate adherence to old notions, customs, methods and processes, want of culture, of prosperity, and of liberty prevail.”51 Manufactures, on the other hand, are “the offspring, and at the same time the supporters and the nurses, of science and the arts.”52 It is indeed only under the influence of manufactures that agriculture itself is raised to a skilled industry, an art, a science. Into the glories of the manufacturing state, where inventions are encouraged, where genius is valued and rewarded, where the gift of time is appreciated53 it is unnecessary to enter; it is enough that “all the mental powers of a nation, its State revenue, its material and mental means of defence, and its security for national independence, are increased in equal proportion by establishing in it a manufacturing power.”54 Moreover, as has already been implied, this development of manufactures is required for the full development of agriculture itself. The farmer requires manufactures at his door, not in another country; manufactures increase the value of land tenfold, to the manifest advantage of the agricultural interests, as is evidenced by the fact that in a suitable nation the internal manufacturing production will occasion from ten to twenty times more demand for ordinary agricultural products than the most flourishing exportation of such products could do.55

These considerations indicate the functions of the State, for with List economics remains political and national. It is essential, in general terms, to promote the productive powers of the nation; in particular, it is imperative at the right time to secure the development from a lower to a higher stage—in the case which List had particularly in mind, from the purely agricultural state to the state combining agriculture and manufactures. In his complete statement, there are five stages of development through which a nation has to pass, and these he describes under the names of original barbarism, pastoral condition, agricultural condition, agricultural manufacturing condition, and agricultural manufacturing commercial condition. It is in fact, however, only with the latter three that he is concerned.56 The primary weapon whereby a nation may progress from a lower to a higher stage is Protection in one form or another; but the common view that List is a stout, uncompromising advocate of Protection is as erroneous as the not uncommon impression that Adam Smith was a free-trader sans phrase. It is true that in List the emphasis is all on Protection, because he is primarily concerned with the stage at which, on his view, Protection is appropriate. But in a complete statement of his theoretical position, List is properly to be described as being neither a Protectionist nor a free-trader. Neither policy is for him an end in itself; each is merely a means, and the appropriate policy will depend on the needs of each case. “History teaches us,” as he says, “how nations ... may and must—without on that account forfeiting the end in view—modify their systems according to the measure of their own progress.”57 In the earlier stages they will adopt Free Trade with more advanced nations as a means of raising themselves from a state of barbarism, and of making advances in agriculture; in the next they will promote the growth of manufactures, fisheries, navigation and foreign trade by means of commercial restrictions; and in the last, when they have reached the highest degree of wealth and power, they will revert to the principle of Free Trade—in order to preserve their agriculturalists, manufacturers and merchants from indolence. He cites Spain, Portugal and Naples as examples of the earliest of these stages where Free Trade is appropriate; Germany and the United States of America as examples of the next where Protection is the expedient policy, with France near the boundary of the highest stage; and Great Britain as the only example where the ultimate adoption of Free Trade is appropriate.

It is desirable to examine more closely the place, the purpose and the extent of Protection in the system of List. The ultimate goal is Free Trade, but there can be Free Trade only among equals; hence “in order to allow freedom of trade to operate naturally, the less advanced nations must first be raised by artificial measures to that stage of cultivation to which the English nation has been artificially elevated.”58 The artificial measures are, of course, represented by Protection, which is the only means of placing backward nations on terms of equality with a predominant nation.59 In speaking of the adoption of Protection, List has in mind, however, only nations of a considerable magnitude, and he speaks throughout rather contemptuously of small states. “A small state,” he says, “can never bring to complete perfection within its territory the various branches of production. In it all Protection becomes mere private monopoly.” It is only by alliances with more powerful nations and by excessive sacrifices that such a small state can with difficulty maintain its independence.60 But even where Protection is appropriate, List is under no illusion on the point that it represents an immediate sacrifice. It is a sacrifice of present advantages in order to insure future ones;61 but these sacrifices, he contends, are made good a hundredfold, and they are therefore properly to be regarded as reproductive outlay by the whole nation.62 He would doubtless have approved of the contrast recently drawn between the principle underlying a national debt and that implicit in Protection. In the case of a national debt it is thought proper that a part of the burden incurred for the benefit of the present generation should be borne by the future; under a protective system, expenditure for the benefit of the future is borne by the present; in either case, the apportionment is effected by the State, which alone has a sufficiently roving eye over time. When we turn to the extent of the Protection to be afforded, there are considerable limitations. In the first place, it is argued, on wholly orthodox lines, and in accordance with the principles of the school, that, so far as concerns the interchange of raw products, the “most extensive liberty of commerce” is always advantageous both to the individual and to the entire State. Manufactured goods are in a different case, because here restrictions on importations “call into life and activity a mass of natural powers.”63 The case for Protection is then limited to those states which, so far as manufactures are concerned, are capable of reaching the highest degree of civilization, “but which are retarded in their progress by the competition of a foreign manufacturing power,” and even so, such a measure is specifically designed for the purpose of industrial development only, and “is justifiable only until that manufacturing power is strong enough no longer to have any reason to fear foreign competition.”64 Moreover, it should not “exclude foreign competition at once and altogether, and thus isolate from other nations that nation which is thus protected.” Nor should all branches of industry be protected in the same degree; it is only the most important that require Protection.65 The importation of machinery should also be free until such time as the country is in a position to produce it for itself. As to the height of the protective barrier, List says in one passage that when an industry cannot be established by means of an original protection of from forty to sixty per cent., and cannot continue to maintain itself under a continued protection of from twenty to thirty per cent., “the fundamental conditions of manufacturing power are lacking.”66 It is also essential that the duties should be known in advance and maintained inviolably; and on this point he attacks Adam Smith, not without reason, on the ground of his (rather half-hearted) approval of retaliation—a principle which would lead, in List’s eyes, to “the most absurd and most ruinous measures,” consequent on the disturbing influence of duties imposed and again immediately removed.67

It will be observed that, for List, Protection is strictly a transitional phase, yet there is a strange contradiction between the List who is concerned with a world of warring nations, and the List who appears almost as a prophet of the League of Nations. In the one case, he proclaims the doctrine that “Germany must care for Germany, and Russia for Russia”; and urges that “instead of hoping and waiting and expecting the Messiah of a future Free Trade, it would be better that the cosmopolitan spirit should be thrown into the fire.”68 In this mood also, inspired by a love of the big battalions, List is a pan-Germanist, making it clear that Holland and Denmark must come within the German Bund;69 elsewhere that Germany, with Holland, Belgium and Switzerland, should become a “commercial and political whole,”70 and finding war itself beneficial, if it leads to Protection and the advancement of a state from the purely agricultural stage to the stage of manufactures.71 Yet elsewhere, and doubtless with sincerity, he contemplates in the by-no-means remote future, the union of all nations, and indicates the forces making in that direction; Protection is indeed but the most efficient means of furthering such a union, and hence also of promoting true freedom of trade.72 It is of the highest interest in illuminating List’s position that in his criticism of the mercantilist system, one of the reproaches he urges against it (again doubtless with sincerity) is that “chiefly owing to its utterly ignoring the principle ol cosmopolitanism, it does not recognize the future union of all nations, the establishment of perpetual peace, and of universal freedom of trade, as the goal towards which all nations have to strive, and more and more to approach.”73

Von Thünen

Despite laudable efforts, such as those of Dr. Spann, it is hardly possible to regard Johann Heinrich von Thunen74 (1783-1850), the third of the present group, as having any great spiritual kinship with Müller or List. He is indeed an economist by accident, because of his interest in one problem which was every day before his eyes as a practical agriculturalist. Also he was a man of a kindly heart who thought of his fellows, and was therefore led to jot down his reflections on the social conditions of his humbler neighbours. But it is fairly safe to say that Muller would have bored him, and he showed small interests in the problems which excited List. On the vexed question of the claims of nationality, he merely says that nations should cease to regard themselves as the “middle-point of the earth,” and recommends that they should take as their aim the well-being of humanity, adding a word in praise of England for having recently shown a disposition to follow this self-sacrificing path.75 One gets the impression that the political side of economics (fundamental with Müller and List) had little attraction for von Thünen. He was a landowner, interested in his estates and his workmen on the estates, with a passionate hobby for keeping accounts in the evening.

Von Thünen’s position in the development of economic theory is due to the work to which he gave the title of The Isolated State (Der Isolierte Staat), a work for which the whole of his life was in a sense the background. He acknowledges himself as the disciple of Adam Smith, but Smith, as he rightly says, had been confused on a number of points. He had confounded profits and interest; he had not properly explained rent; on numerous other points he was “incomplete.”76 His reverence for the master urged him to complete Smith’s doctrine. The result is The Isolated State, a book which grew in the course of its author’s life.

The Isolated State is among the most remarkable (and one is tempted to add, most curious) books in economic literature, alike in form, method and substance. In its final form it is almost formless, an obvious bringing together of notes, comments, and arithmetical examples, with little unity of subject between the abstractions of the isolated state and the consideration of the social problem, which is jointly attacked by humanitarian aspirations and algebraic formulae.

It is in regard to its method that The Isolated State is most obviously original. Von Thunen had a fresh mind, not overburdened with the learning of others: a premature engagement had snatched him betimes from the snares of excessive study and of the University of Gottingen. The whole conception of the isolated state, with which his mind had amused itself from an early age, is highly abstract, and in a sense the kernel of von Thunen’s work is concerned with unrealities. The spirit of the mathematician hangs heavily n von Thunen. On his first page he carefully sets out his “postulates “(Voraussetzungen), followed immediately by a statement of the Aufgabe, the problem to be solved. Euclid, as known to our younger days, would have smiled approval. The postulates are, in short, a definition of the unrealities implicit in the isolated state. Imagine a large town in the midst of a fruitful plain, traversed neither by navigable river nor canal; the plain consists of uniform soil capable of cultivation, ending in the remote distance in an uncultivated wilderness; there is to be no other town in the plain, so that the town supplies all the manufactures for the plain, and in return draws all its sustenance from the surrounding country. Such being assumed, there arises the question how the land will be tilled, and what effect greater or less distance from the town will exercise on agriculture.

An abstract unreal problem, it will be observed; yet, curiously, von Thunen contrives to make his discussion bristle with reality. Indeed, it may be said that von Thunen and Ricardo, the two masters of the abstract method, knew, better than any other economist, what they were talking about. Von Thunen had had practical experience of farm management on his estate at Tellow; heaven knows how he had kept accounts. His problem, being one solely of distance from the market, reduced itself ultimately into that of cost of transport, and no one had ever known, so accurately as von Thunen did, what everything on his estate had cost. The isolated state, in fact, is built up on the experience gained at Tellow, and the carefully studied accounts of years provide the concrete material from which conclusions are drawn.

It requires little proof that in the unreal conditions postulated (which also inferentially exclude the existence of any main roads), cultivation will automatically be arranged in a series of concentric circles round the town, according to the cost of transport of the commodity and the ratio in which its value stands to its bulk and weight. But von Thunen’s reputation does not depend on his success in unveiling the obvious. The order in which he arranges his six circles is in part in accordance with what might be expected, and in part somewhat surprising;77 but in any case the actual conclusion on this point is unimportant. What is significant throughout is the use of a technique suggestive, and indeed in places an anticipation, of much later methods of approach. Thus he points out that in the inner circle devoted to garden produce, milk must also be included, both by reason of cost of transport and perishability; and he goes on to explain that, accordingly, the price of milk must rise so high that the land devoted to the production of milk cannot be used more advantageously for any other product.78 After a careful analysis of the cost of transport (with due allowance for the maintenance of the horses on the journey) he presents a diminishing scale of values for grain at different distances from the town until, at a distance of 49-95 miles, the grain becomes valueless, and beyond this distance cultivation becomes impossible, even if the grain could be produced without cost.79 It is but a simple elaboration of this idea to arrive at von Thünen’s conception of rent, one of the points on which he was consciously acting as a corrective of Adam Smith. A farm or estate (ein Gut) is always provided with buildings and other equipment which can be separated from the soil; the income which the farm yields does not therefore spring wholly from the soil, but is also in part interest on capital sunk in these valuable objects. That part which remains after deduction from the total income of what is represented by interest on all capital sunk in objects which can be disassociated from the soil (and which thus belongs to the soil itself) is termed the rent of land,80 and on this definition a negative amount of rent is theoretically conceivable. A consideration of the causes that determine the price of grain naturally leads to an explanation of the origin of rent. In order to obtain the corn it needs, the town must be prepared to pay a price which is sufficient to pay the cost of production and the cost of transport in the case of the most remote producer whose grain is required. On this, von Thünen frames a general law (for the isolated state and reality) that “the price of corn must be so high, that the rent of that farm whose cost of production and delivery is highest, whose cultivation is at the same time necessary for the satisfaction of the demand for grain, shall not fall below zero.”81 But, for the purchaser, grain produced in the vicinity of the market is of equal value with that produced at a distance, and he is indifferent which of the two has cost most to bring to market. “What the producer in the neighbourhood of the town receives over and above what it costs him, is for him pure gain”; it is a gain, moreover, which is perpetual and yearly recurrent, so that the soil of his farm yields a yearly rent. Hence we get the explanation of rent: “The rent of a farm arises from the advantages which it possesses over the worst farm, whether in situation or soil, the production of which is necessary for the satisfaction of demand.”82

It is obvious at what point von Thünen has arrived; he has evolved the Ricardian theory of rent, although primarily in terms of situation and distance from the market, and not, as in the case of Ricardo, in terms of quality.83 When he comes to discuss taxes on rent, it is obvious that he has very clear ideas as to what the conception involves. If a portion of “land-rent “has to be surrendered to the State, this will, he says, in no way alter the form or the extension of agriculture. The farms whose rent is near zero, will contribute very little to such a tax, and the most remote and the worst will not be affected. Such a tax, therefore, could not detrimentally affect the extent of cultivation, the population, the application of capital, or the quantity of produce; indeed, if the whole of the rent were taken away by the tax, the cultivation of the soil would remain as before.84

In elaborating his theory of rent, von Thünen has in effect made use of the idea of the margin, and it is surprising how, throughout his speculation, he anticipated the technique of the later marginalist school. Thus, with regard to wages, he lays down the principle that on an estate, beyond a certain point, each additional worker will yield a smaller addition to the product, the twenty-second less than the twenty-first, the twenty-third less than the twenty-second and so on, and that the increase in the number of workers must therefore be continued until the additional value yielded by the last worker is equal to the wage which he receives.85 Further, the wage which the last worker receives must act as the norm for all workers, since unequal remuneration cannot be made in respect of the same work.86 Here, undisguised, is the theory of the marginal productivity of labour. So again, in discussing the relation of interest and wages, he emphasizes “the diminishing effectiveness of capital” in a wholly modern manner. By means of a lengthy table, such as von Thünen delights in, he shows that capital, as it increases in amount, can only find less profitable outlets, and that at each stage of its increase, competition will force down the rate of interest to that which the least profitable opening can afford to pay. Consequently, interest (the rent which capital yields) is determined by the yield of the last portion of capital applied; and it is notable that in determining the rate of interest von Thünen regards the successive increments of capital as being infinitely small.87

Even a brief notice of von Thünen would be incomplete without reference to an aspect of his writings which is somewhat remote from the abstract isolated state. He was troubled by the condition of the worker and the lowness of his wages, and he sought for something more satisfying than he could find in the pages of Ricardo. In a section “on the lot of the workers,’’ incorporated in the second part of The Isolated State, he gives expression to what he calls “a dream of grave substance.”88 It is a great evil, he says, that the most numerous class, that of the common hand-worker, is unrepresented in the State. The reward of the hand-worker is disproportionately low compared with that of those who conduct industry, and there is no remedy by transference from one class to the other, because of the absence of “school-knowledge,” which the worker cannot afford for his children owing to his low wage. These low wages, again, are due to the fact that, by reason of early marriages, the supply of workers is always greater than the demand. To remedy this, nothing short of a change in the character of the people is required, and von Thünen pleads for greater prevision, postponement of marriage and better education, from all of which such astonishing results are anticipated, that even the word Paradies does not appear out of place.

Viewed apart from this dream, there are two aspects of the wage-problem with which von Thünen grapples: firstly, why cannot wages rise so as to absorb the rent which the owner draws without labour? Secondly, is the low rate of wages founded in the nature of things, and thus in accordance with the will of Providence, or is the present position the result of force and oppression? On the first point von Thünen traces, in the most approved manner, the effects of a rise of wages “at the margin of cultivation, where the soil gives no rent,”89 leading ultimately to a drawing-in of the margin of cultivation towards the town, with displacement of labour and subsequent depression of wages. On the problem of the true rate of wages, von Thünen rather tends to provide one of the curiosities of economic literature. He points out that wages must comprise two constituent parts: (i) what the worker must expend for his maintenance in order to remain efficient; and (2) what he receives as a reward for his exertion,90 so that Roscher hails him as one of the earliest to view wages as something more than the price of a commodity, “labour.” But beyond this, his contribution to the theory of wages is somewhat bizarre. In the pursuit of a natural and a just rate of wages, von Thünen proves, with a vast display of mathematical formulæ, and indeed along various lines, that the true formula for wages is represented by ap, where a represents subsistence, and p the productivity of the worker. The proof, such as it is, rests on assumptions which are unreal, and the very celebrated formula cannot therefore be regarded as more than a symbol of the view that the worker should share in the prosperity which he produces. In practice, von Thünen would appear to have introduced a kind of profit-sharing scheme on his estate, which doubtless represented a distant obeisance to ap. Von Thünen himself, however, regarded the formula as his crowning achievement, and desired that it should be inscribed on his tombstone—a medium of publication in which strictness of proof is seldom exacted.

 

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91 Born in Berlin, 1779; studied in Berlin and Göttingen; received into the Roman Catholic Church in 1805; ultimately entered the Austrian State Service, and finally became Councillor in the State Chancellory in Vienna. His chief works were the Elemente der Staatskunst (1809) and the Versuche einer neuen Theorie des Geldes (1816), but there is in addition a good deal of miscellaneous writing.

92 Elemente der Staatskunst, Vol. I, pp. 29-31. The State is “das Bedürfniss aller Bedürfnisse des Herzens, des Geistes und des Leibes.” References are to the recent editions in the Herd-flamme Series.

93 Ibid., I. pp. 59-60.

94 Theorie des Geldes, p. 10.

95 Ibid., p. 7.

96 Ibid., p. 11,

97 Ibid., pp. 19-20.

98 Staatskunst, I, pp. 268-269.

99 Theorie des Geldes, pp. 702-103.

100 Ibid., p. 132.

101 Ibid., pp. 58-59.

102 Ibid., pp. 96-97.

103 Staatskunst, I, pp. 35-36.

104 Ibid., I, pp. 356-357.

105 “Welche Kraft oder Thätigkeit im Staate ist erhaltend?” (I. p. 375).

106 Theorie des Geldes, p. 14.

107 Ibid., p. 46.

108 See Theorie des Geldes, p. 66; Staatskunst, I, pp. 348, 474.

109 Theorie des Geldes, pp. 70-72. It is characteristic of the rather meaningless jargon which Müller loves that credit should be called “dieses Produkt aller Produkte.”

110 Staatskunst, II, p. 6.

111 Ibid., I, p. 161.

112 Theorie des Geldes, p. 12

113 Theorie des Geldes, pp. 107-108; Staatskunst, II, p. 16. In a curious elaboration of the distinction between “physisches” and “geistiges” capital, Müller typifies them by the two great common possessions, money and language, thus giving four elements in national wealth: land, labour, physical capital (money) and spiritual capital (speech, learning and writing). Corresponding to these, since even a philosopher cannot resist the allurement of jingle, are the four classes of society: Lehrstand, Wehrstand, Nahrstand, and Verkehrstand. (Staatskunst, II, pp. 29-33)

114 Theorie des Geldes, pp. 123-124.

115 Ibid., p. 138.

116 Staatskunst, II, pp. 17-23.

117 For examples of the peculiar interpretation of money see Staatskunst, I, pp. 351-354; H, pp. 78, 97-101; Theorie des Geldes, pp. 180, 212.

118 Staatskunst, I, p. 453.

119 Born at Reutlingen in 1786; became Professor of Economics at Tübingen in 1817. Obliged to resign in 1819, he entered the Würtemberg Chamber. His agitation for reform led to his expulsion. Being released he emigrated to America, where he remained for seven years as journalist, etc. Returning to Germany. he took up the causes of railway development, and of the Zollverein. Suffering ill-health and financial embarrassment he died tragically in 1846 .

120 References to English translation by S. S. Lloyd.

121 e.g National System of Political Economy, p 279.

122 Muller’s phraseology in making the same point is interesting; he contrasts “Nationalreichthum “and” Nationalbereicherung” (Theorie des Geldes, p. 44). remained for seven years as journalist, etc. Returning to Germany, he took up the causes of railway development, and of the Zollverein. Suffering ill-health and financial embarrassment, he died tragically in 1846.

123 National System of Political Economy, p. 108, and indeed all chap. 12.

124 Ibid., p. 112.

125 Ibid., p, 113.

126 Ibid., p. 113.

127 Ibid., p. 98.

128 Ibid., p. 102.

129 Ibid., p. 141.

130 Ibid., p. 140.

131 Ibid., p. 65.

132 Ibid., p. 139.

133 Ibid., p. 208.

134 Ibid., p. 284.

135 Ibid., p. 280.

136 Ibid., p. 114.

137 Ibid., p. 89.

138 Ibid., p. 124.

139 Ibid., p. 126.

140 Ibid., p. 130.

141 Ibid., p. 159.

142 Ibid., p. 161.

143 “How can the shepherd learn to estimate the value of time, to whom time is simply a burden which his pastoral pipe or sleep alone makes tolerable to him?” (p. 163). This beautifully idyllic conception of the shepherd’s life still seems to survive from eighteenth century pastoral poetry. See Mr. Hearnshaw on the labour of the shepherd: “He sits and contemplates the stars, Nature does the rest, and he is rich” (Survey of Socialism, p. 351). As Mr. Robert Burns said of something else, supposed to be easy: “Let them try.”

144 National System of Political Economy, p. 168.

145 Ibid., pp. 194, 200.

146 Ibid., p. 143.

147 Ibid., p. 93.

148 Ibid., p. 107.

149 Ibid., p. 103.

150 Ibid., p. 142. See also p. 247.

151 Ibid., p. 117.

152 Ibid., p. 185.

153 Ibid., p. 175.

154 Ibid., p. 144.

155 Ibid., p. 144-145.

156 Ibid., pp. 251.

157 Ibid., pp. 254-255.

158 Ibid., p. 75.

159 Ibid., p. 143.

160 Ibid., p. 332.

161 Ibid., p. 148.

162 Ibid., pp. 101, 103.

163 Ibid., p. 272.

164 Born 1783, the son of a landed proprietor in Oldenberg; for a time a student at Göttingen. In 1810 he bought the estate of Tellow and remained there. Died 1850.

165 Der Isolierte Staat, p. 514. (References to the edition in the Sammlung Sozialwissenschaftlicher Meister.)

166 Ibid., p. 402.

167 Market-gardening, forestry, Fruchtwechselwirthschaft, Kopxspelwirthschaft, Dreifelderwirthschaft, cattle. (It is perhaps prudent not to translate words which can only be mistranslated.) Spann comments on the high place assigned to forestry, that its relegation in practice to remote regions is largely due to the fact that forestry is assigned to places not suitable for other culture.

168 Ibid., p. 13.

169 Ibid., p. 18.

170 Ibid., p. 23. The test of “separability from the soil” (die vom Boden getrennt werden können) obviously covers an ambiguity; does the interest on the cost of improvements not so separable fall within or without von Thünen’s conception of rent?

171 Ibid., p. 226.

172 Ibid., pp. 229-230.

173 The whole argument of The Isolated State postulates uniformity of soil, so that situation would be the only variable, yet von Thünen shows a disposition to speak of superiority in “Lage und Boden.”

174 Ibid., p. 346.

175 Ibid., pp. 415-416.

176 Ibid., p. 577.

177 Ibid., pp. 496, 498, 558. “Es folgt hieraus dass wir das zuletzt entstandene und angelegte Kapitalteilchen, durch dessen Nutzung der Zinsfuss bestimmt werden soil, sehr klein—genau genommen, unendlich klein—annehmen mussen.”

178 Ibid., p. 440.

179 It is perhaps worthy of notice that von Thünen uses the word “Grenze,” now irremediably consecrated: “An der Grenze der kultivierten Ebene des isolierten Staats, wo der Boden keine Rente gibt” (ibid., p. 463).

180 Ibid., p. 490.

• 1So far as economic theory is concerned, it is in Plato that Greek thought advances beyond the level of such wise saws as may be extracted from Hesiod and others, and arrives at some consecutiveness. Yet Plato is the supreme example of the classical tendency to regard economics as a minor subsection of ethics and politics. It is above all in The Republic, and to a lesser extent in The Laws, where he indulges in “an old man’s game,” that Plato turns to economic questions. The former is primarily a discussion on Justice, and it is because the essential nature of Justice may perhaps be most easily discerned in the State—since for the short-sighted the larger letters may be more easily read—that the disputants turn aside in the second book to discuss the State and its origin, and are thus led to construct from the foundation an ideal polity. It is noticeable that the origin of the State is attributed wholly to economic considerations: “A state arises out of the needs of mankind; no one is self-sufficing, but all of us have many wants,” and moreover, Plato indicates that no other origin of a state can be imagined. This line of argument, after a consideration of the essential needs of mankind, leads to Plato’s discussion of division of labour, which has so often been compared with the famous chapter in Adam Smith. The essential needs of mankind are food, dwelling and clothing, so that the barest notion of a state must include four or five men—a husbandman, a builder, a weaver, and perhaps a shoemaker or a representative of some other similar occupation. Each of these is, moreover, to confine himself to his own calling. The governing considerations in the application of the principle of division of labour, as conceived by Plato, are then, firstly, that there are “diversities of natures among us which are adapted to different occupations,” and secondly, and as a consequence of this, that “all things are produced more plentifully and easily, and of a better quality, when one man does one thing which is natural to him and does it at the right time, and leaves other things.” It is in order that this principle may be satisfied that Plato then extends his State to include a considerable diversity of other crafts—sailors, traders, retailers and others.
• 2Thus we arrive at the guardians, who practise an art which is not to be combined with any other occupation, since one man cannot practise many arts with success. The guardians require careful selection; likewise very careful education. They must combine apparently contradictory qualities, inasmuch as they must be dangerous to their enemies and gentle to their friends. We are not here concerned with the lengthy discussion of the education of the guardians, nor with the subsequent distinction between “guardians in the fullest sense” (the real rulers) and the auxiliaries, but the words in which communism is enacted are of importance in specifying both the scope and the purpose of the communism prescribed. The guardians are to look round for a spot where they can best suppress insurrections within and defend the State from enemies without, and they are to encamp there. Further, in order to ward off the danger that they may become enemies instead of friends of the citizens, their whole mode of life is to be such that they will not be tempted to prey upon the other citizens. Consequently they are devoted to an ascetic method of life; they are to have no property beyond what is necessary; they are to receive a fixed rate of pay, sufficient to meet expenses and no more: “Should they ever acquire homes or lands or moneys of their own, they will become housekeepers and husbandmen instead of guardians, enemies and tyrants instead of allies of the other citizens.”
• 3Firstly, as to the scope of Plato’s communism, it is clear from the whole argument that it is prescribed only for the limited class of the guardians, who are indeed throughout to live a semi-military life. It is, in fact, the communism of the camp. The contrary view has been argued along lines which need not here be indicated, and one authority has contended that “a superficial reading of The Republic gives the impression . . . that Plato recommends communism solely for these upper sections.” It is almost sufficient to note that Aristotle himself is one of these superficial readers; it is entirely sufficient that Plato expressly describes the regulations as “appointed by us for the guardians,” and even more conclusive is his statement that if the guardians depart from their communistic life, they will become housekeepers and husbandmen.
• 4Then secondly, as to the purpose of the guardians’ communism, it is noticeable that Plato in his motives is poles asunder from other communistic dreamers. Elsewhere the cry for communism arises from an aggrieved sense of the injustice and monstrous inequality of the world. It is not so in Plato. For his guardians, communism is an act of ascetic renunciation; it is the condition on which alone they can efficiently discharge their duties. The work they have to do is so important that they may only do it properly on condition that they remain free of the snares and the entanglements of this world. In its motive therefore it is akin to the celibacy of the Roman Catholic priesthood. The object of Plato’s communism is in no way to establish a right to equal enjoyment; rather it is a part of the price that must be paid by a class on whom special responsibilities have been imposed. An interesting, if trivial sidelight, illustrative of the fact that the whole arrangements with regard to the guardians are designed to free them from the ordinary troubles of life, is furnished by the provision that when a woman guardian has a child, the process of suckling shall not be protracted too long: “the mothers will have no getting up at night or other trouble, but will hand over all this sort of thing to the nurses and attendants.”
• 5A slight glance at The Laws, as supplementing the teaching of The Republic, is almost essential. The Laws is the work of an old man whose fire is spent, and some have found in it the marks of the disillusionment of age. Yet here Plato still clings to the old ideal: “The first and highest form of the State and of the Government and of the Law is that in which there prevails most widely the ancient saying that ‘Friends have all things in common.’” But that is rather a State for gods and the sons of gods, and therefore he now outlines the State which “when created, will be nearest to immortality and the only one which takes the second place.”Such a state comprises 5,040 lots, since the city must not be too large and the citizens should be known to each other, and this figure is administratively convenient, as it is divisible by all numbers up to ten. There is no longer any question of communism, since “community of goods goes beyond their proposed origin, and nurture, and education.” The regulations throughout are to aim at a middle and contented condition of life, based on the doctrine that poverty is to be regarded as the increase of a man’s desires and not the diminution of his property. No one is to possess gold or silver except as coin for daily use, and the currency of the country is to be peculiar to it and not acceptable abroad. Inequality of condition cannot be avoided; but undue disparity, arising from extreme poverty or excessive wealth, is to be guarded against. For this purpose the population is to be divided into four classes, the limit of poverty being one lot which is to be guarded unimpaired, while the maximum possession is to be the equivalent of four lots, the surplus to be surrendered to the State. No money is to be lent at interest, and, more startling, there is to be no obligation to repay even the capital, a provision explicable on the ground that this is to be a society of half-brothers, if not of brothers, and that there is a definite restriction imposed on the amount of permissible wealth.
• 6A slight glance at The Laws, as supplementing the teaching of The Republic, is almost essential. The Laws is the work of an old man whose fire is spent, and some have found in it the marks of the disillusionment of age. Yet here Plato still clings to the old ideal: “The first and highest form of the State and of the Government and of the Law is that in which there prevails most widely the ancient saying that ‘Friends have all things in common.’” But that is rather a State for gods and the sons of gods, and therefore he now outlines the State which “when created, will be nearest to immortality and the only one which takes the second place.”Such a state comprises 5,040 lots, since the city must not be too large and the citizens should be known to each other, and this figure is administratively convenient, as it is divisible by all numbers up to ten. There is no longer any question of communism, since “community of goods goes beyond their proposed origin, and nurture, and education.” The regulations throughout are to aim at a middle and contented condition of life, based on the doctrine that poverty is to be regarded as the increase of a man’s desires and not the diminution of his property. No one is to possess gold or silver except as coin for daily use, and the currency of the country is to be peculiar to it and not acceptable abroad. Inequality of condition cannot be avoided; but undue disparity, arising from extreme poverty or excessive wealth, is to be guarded against. For this purpose the population is to be divided into four classes, the limit of poverty being one lot which is to be guarded unimpaired, while the maximum possession is to be the equivalent of four lots, the surplus to be surrendered to the State. No money is to be lent at interest, and, more startling, there is to be no obligation to repay even the capital, a provision explicable on the ground that this is to be a society of half-brothers, if not of brothers, and that there is a definite restriction imposed on the amount of permissible wealth.
• 7A slight glance at The Laws, as supplementing the teaching of The Republic, is almost essential. The Laws is the work of an old man whose fire is spent, and some have found in it the marks of the disillusionment of age. Yet here Plato still clings to the old ideal: “The first and highest form of the State and of the Government and of the Law is that in which there prevails most widely the ancient saying that ‘Friends have all things in common.’” But that is rather a State for gods and the sons of gods, and therefore he now outlines the State which “when created, will be nearest to immortality and the only one which takes the second place.”Such a state comprises 5,040 lots, since the city must not be too large and the citizens should be known to each other, and this figure is administratively convenient, as it is divisible by all numbers up to ten. There is no longer any question of communism, since “community of goods goes beyond their proposed origin, and nurture, and education.” The regulations throughout are to aim at a middle and contented condition of life, based on the doctrine that poverty is to be regarded as the increase of a man’s desires and not the diminution of his property. No one is to possess gold or silver except as coin for daily use, and the currency of the country is to be peculiar to it and not acceptable abroad. Inequality of condition cannot be avoided; but undue disparity, arising from extreme poverty or excessive wealth, is to be guarded against. For this purpose the population is to be divided into four classes, the limit of poverty being one lot which is to be guarded unimpaired, while the maximum possession is to be the equivalent of four lots, the surplus to be surrendered to the State. No money is to be lent at interest, and, more startling, there is to be no obligation to repay even the capital, a provision explicable on the ground that this is to be a society of half-brothers, if not of brothers, and that there is a definite restriction imposed on the amount of permissible wealth.
• 8Among other points it is perhaps worthy of mention that the second best State is to enjoy free trade and complete immunity from import and export duties, subject only to the importation of unnecessary luxuries and the exportation of what is wanted in the country being prohibited. Retail trade is forbidden, and there is also a curious desire to preserve the virtues and the purity of the city by removing it to a safe distance from the sea, for “the sea is pleasant enough as a daily companion, but has indeed also a bitter and brackish quality; filling the streets with merchants and shopkeepers, and begetting in the souls of men uncertain and unfaithful ways.” But into the rather wearisome details of the State contemplated in The Laws, it is unnecessary here to enter.
• 9Under the section which deals with the relationship of master and slave occurs Aristotle’s celebrated defence of slavery, which sounds so oddly in modern ears. The principle of rule and subjection is, he says, inevitable and beneficent, and there are “natural slaves,” persons who are as far inferior to others as the body is to the soul, or a beast to a man. In these cases a life of slavish subjection is advantageous. Aristotle is not blind to the obvious objection that, as he puts it, it may happen “contrary to the intention of Nature that those who possess the bodies do not possess the souls of free men and vice versa” for even if there be those who are “slaves by nature,” it calls for supreme faith to believe that the accidents of life should at any time sort out the slaves and the non-slaves, in accordance with the definition of a “natural slave.” Hence he distinguishes between natural and legal slaves, and speaks of the law being a convention according to which all conquests in war are the property of the conqueror. The whole discussion is curious and unconvincing, and is perhaps best viewed as a reflection of the fact, not merely that many slaves were well-treated, but also that their position would have been worse but for the institution of slavery.
• 10The third Greek writer to contribute certain embryonic elements to an economic science is Xenophon, who approaches matters throughout in an entirely practical spirit. His achievement is perhaps greater than has generally been admitted, and even where his speculation is confused, it may at least be pleaded on his behalf that the man who gives a wrong answer to a question has at least made some progress, insofar as he realizes that a question exists. The pleasantly innocuous dialogue Œconomicus, devoted to a discussion of the principles of estate management, opens with an analysis of wealth in the manner of Ruskin. Wealth is only wealth to him who can use it, or, more epigrammatically, useful things are those things which one knows how to use; so also, even money is not wealth to him who does not know how to use it. Further, wealth is to be interpreted in relation to needs: the man of simple tastes and little substance is wealthy in comparison with the man of great possessions on whom excessive claims rest. All this is the stuff of which proverbial philosophy and the home-spun poetry of contentment are woven. Primarily, Xenophon is an agricultural writer, and it is of interest to note that he furnishes the motto to Quesnay and the Physiocratic school many centuries later: “When husbandry flourishes, all the other arts are in good fettle; but whenever the land is compelled to lie waste, the other arts of landsmen and mariners alike wellnigh perish.” His praise of agriculture is indeed of Physiocratic excess. It is the easiest of all things to learn; none gives quicker returns (to a careful man); it is the giver of all things; no art is “dearer to servants, or pleasanter to a wife, or more delightful to children, or more agreeable to friends.” Moreover, on Xenophon has been fathered an approach to the familiar agents of production, two—land and labour—being recognized; for though agriculture or the land supplies good things in abundance, “she suffers them not to be won without toil.” So also in a fumbling way he approaches, or seems to approach, the Law of Diminishing Returns: “the landowners could all tell you how many teams and how many labourers are required for their estates. If anyone employs hands in excess of requirements, it is reckoned as a loss.”
• 11The third Greek writer to contribute certain embryonic elements to an economic science is Xenophon, who approaches matters throughout in an entirely practical spirit. His achievement is perhaps greater than has generally been admitted, and even where his speculation is confused, it may at least be pleaded on his behalf that the man who gives a wrong answer to a question has at least made some progress, insofar as he realizes that a question exists. The pleasantly innocuous dialogue Œconomicus, devoted to a discussion of the principles of estate management, opens with an analysis of wealth in the manner of Ruskin. Wealth is only wealth to him who can use it, or, more epigrammatically, useful things are those things which one knows how to use; so also, even money is not wealth to him who does not know how to use it. Further, wealth is to be interpreted in relation to needs: the man of simple tastes and little substance is wealthy in comparison with the man of great possessions on whom excessive claims rest. All this is the stuff of which proverbial philosophy and the home-spun poetry of contentment are woven. Primarily, Xenophon is an agricultural writer, and it is of interest to note that he furnishes the motto to Quesnay and the Physiocratic school many centuries later: “When husbandry flourishes, all the other arts are in good fettle; but whenever the land is compelled to lie waste, the other arts of landsmen and mariners alike wellnigh perish.” His praise of agriculture is indeed of Physiocratic excess. It is the easiest of all things to learn; none gives quicker returns (to a careful man); it is the giver of all things; no art is “dearer to servants, or pleasanter to a wife, or more delightful to children, or more agreeable to friends.” Moreover, on Xenophon has been fathered an approach to the familiar agents of production, two—land and labour—being recognized; for though agriculture or the land supplies good things in abundance, “she suffers them not to be won without toil.” So also in a fumbling way he approaches, or seems to approach, the Law of Diminishing Returns: “the landowners could all tell you how many teams and how many labourers are required for their estates. If anyone employs hands in excess of requirements, it is reckoned as a loss.”
• 12It is, however, when Quesnay advocates Free Trade and analyses the assumptions of the mercantilists, that he most clearly speaks with the voice of Adam Smith. Money is supposed to be wealth, because with money one can buy what one has need of. But money is not obtained for nothing; it also costs as much as it is worth to the buyer, and nations will always be able to obtain as much money as they require, if they have things to give in exchange for it. Wealth consists in the sum total of things necessary for life and in the annual reproduction of these things, and the quantity of money may diminish without these things being affected, since in a rich country, with freedom of commerce, there are means of supplying the place of money. The opulence of a state must not therefore be judged by the greater or less supply of money it possesses. Money is therefore but a richesse sterile, the only utility of which consists in its employment in effecting purchases and sales. Further, buying and selling are but two aspects of the same operation; every purchase is a sale, and every sale is a purchase. It follows that the central idea of the mercantilists, that of a nation selling more than it buys, is not merely erroneous but absurd: “Instead of saying that you wish our sales to exceed our purchases, which is physically impossible, you ought merely to say that you wish to purchase money with your productions.”In an effective phrase, selling more than is bought is merely a “commerce commencé,” an incomplete transaction. The argument resting on the greater durability of metal is admirably disposed of by a reductio ad absurdum, that if the contention be valid, then in logic it leads to the conclusion that any quantity of the metals, however small (being durable), is worth more than any quantity of commodities however large (being perishable). The doctrine of the balance of trade is thus reduced to “nothing and perhaps less than nothing.” Commerce not to be regarded as a state of war against an enemy; the only interest a nation has is to leave trade entirely free, in order that the greatest possible competition of buyers and sellers may guarantee the highest possible price for the sale of its products and the lowest price for the purchase of what may be necessary. Commerce cannot be conducted at the expense of other nations, for a good and a just God has decreed that commerce shall always be “le fruit d’un avantage évidemment reciproque.” All this and much more may strike the rétentive student as strangely familiar, and as an echo of certain classic passages in the fourth book of Adam Smith.
• 13Among other points it is perhaps worthy of mention that the second best State is to enjoy free trade and complete immunity from import and export duties, subject only to the importation of unnecessary luxuries and the exportation of what is wanted in the country being prohibited. Retail trade is forbidden, and there is also a curious desire to preserve the virtues and the purity of the city by removing it to a safe distance from the sea, for “the sea is pleasant enough as a daily companion, but has indeed also a bitter and brackish quality; filling the streets with merchants and shopkeepers, and begetting in the souls of men uncertain and unfaithful ways.” But into the rather wearisome details of the State contemplated in The Laws, it is unnecessary here to enter.
• 14Aristotle’s arguments, in the main, are of a highly practical character; in short, that a system of communism would not work, and that it violates natural human instincts. There would be disputes between those who get less and work more, and those who get much and work little—the old difficulty of distribution among frail, grudging and suspicious men. Unity built on communism is in fact a delusion; the common purse leads to quarrels arising out of trivial causes. Moreover there is an immense advantage in the sense of private property. It corresponds to natural instincts; “the love each individual bears to himself is not purposeless,” as he remarks in a phrase in which we seem to catch the tones of Adam Smith’s invisible hand. Again, in an argument which is still common, though of doubtful cogency, he urges that community of property would destroy the virtue of liberality. His own position is not, however, merely negative. As against reformers in a hurry in all ages, he contends that the evils are due, not to the institution which it is proposed to destroy (in this case private property), but to defects in human nature. Unless that is first amended, he would seem to say, there will be no advantage in abolishing something which in itself may be used for good or evil. “The existing system, if embellished by the moral tone of those who live under it and by a code of wise laws, would be far superior.” The ideal which Aristotle outlines is thus that of private possession with use in common, so far as that may be practicable—in modern language, private property mellowed by a sense of the responsibility of wealth, a position not so different from that of the Christian Socialists.
• 15The third Greek writer to contribute certain embryonic elements to an economic science is Xenophon, who approaches matters throughout in an entirely practical spirit. His achievement is perhaps greater than has generally been admitted, and even where his speculation is confused, it may at least be pleaded on his behalf that the man who gives a wrong answer to a question has at least made some progress, insofar as he realizes that a question exists. The pleasantly innocuous dialogue Œconomicus, devoted to a discussion of the principles of estate management, opens with an analysis of wealth in the manner of Ruskin. Wealth is only wealth to him who can use it, or, more epigrammatically, useful things are those things which one knows how to use; so also, even money is not wealth to him who does not know how to use it. Further, wealth is to be interpreted in relation to needs: the man of simple tastes and little substance is wealthy in comparison with the man of great possessions on whom excessive claims rest. All this is the stuff of which proverbial philosophy and the home-spun poetry of contentment are woven. Primarily, Xenophon is an agricultural writer, and it is of interest to note that he furnishes the motto to Quesnay and the Physiocratic school many centuries later: “When husbandry flourishes, all the other arts are in good fettle; but whenever the land is compelled to lie waste, the other arts of landsmen and mariners alike wellnigh perish.” His praise of agriculture is indeed of Physiocratic excess. It is the easiest of all things to learn; none gives quicker returns (to a careful man); it is the giver of all things; no art is “dearer to servants, or pleasanter to a wife, or more delightful to children, or more agreeable to friends.” Moreover, on Xenophon has been fathered an approach to the familiar agents of production, two—land and labour—being recognized; for though agriculture or the land supplies good things in abundance, “she suffers them not to be won without toil.” So also in a fumbling way he approaches, or seems to approach, the Law of Diminishing Returns: “the landowners could all tell you how many teams and how many labourers are required for their estates. If anyone employs hands in excess of requirements, it is reckoned as a loss.”
• 16For Monchrétien, the foreigner is in the main a person given to fraud and guile. Specifically “whatever is foreign corrupts us.” In particular, foreign books “poison our spirits and corrupt our manners,” and therefore their importation should be prohibited. Indeed Montchrétien approves of a vigorous all-round national exclusiveness, hinting at a divine ordinance which has assigned to the inhabitants of any area the use of the elements and the goods which it produces. Further, he cites with admiration the example of Lyons, which acted on the principle that “each town should have something particular and in reserve for its own children, in order that it may help them.” Montchrétien is thus a stout defender of the maxim which enjoins upon us the expediency of rendering to our own sea-maws their ancient and prescriptive dues.
• 17With regard to the industrial and manufacturing classes the argument is similar, though inevitably it seems more forced and unnatural. The common value of a commodity Is merely the value of the original material and of the cost of maintenance of the worker during the time he has been engaged. If the work of the artisan were “productive,” it would be desirable to increase the amount ot work necessary for a job. In fact, however, such labour cannot increase the wealth which the nation spends annually, because the labour is limited by the amount of this wealth, and this can only be increased by agriculture, and in no way by the expense involved in the work of the artisans (a question-begging argument; but he means for what it is worth, that to increase the number of cobblers, e.g., there must first be an increase in the number of cow hides). The product of the artisan then is merely worth the expense involved; he merely acquires a right to share in the consumption of wealth produced by the cultivator. But in contradistinction to agriculture, there is no surplus. In his own language, which happens to be correct, the worker speaks of “earning his keep”; he does not say that he produces it: “il dit qu’il gagne sa subsistance, et ne dit pas qu’il la produit.” Thus by arguments which appear thin and unconvincing, as is inevitable in the defender of a confused cause, Quesnay demonstrated that the artisan, the industrial worker, is an unproductive labourer.
• 18When we turn to Aristotle, we are confronted with a writer who, by his analytical frame of mind, went further than any other thinker in antiquity in the direction of detaching a separate science of economics. This is not the place to consider his political theories, but his starting point that man is by nature a political animal enthroned for him the science of politics, so that ethics and economics alike were viewed by him from a political angle. Two points are of peculiar interest to the economist. The first is his destructive criticism of Plato’s communism in the second book of the Politics, and the other is his analysis of the household, leading to a discussion of the economic bases of society. On the former point, with the arguments of all the ages ringing in our ears, Aristotle’s contentions may appear hackneyed. What he says about the snares inherent in community of wives need not detain us; it never has been, and is not now (it may be hoped) an urgent question. But his arguments on the general question of community of property might date from the present year of grace. It is still true that “people pay most attention to their own private property and less to that in which they have but a part interest”—as witness the carved hieroglyphics on the seats in any public park contrasted with the reverence paid to the domestic Chesterfield.
• 19Apart from the dispute regarding communism, the main part of Aristotle’s economic teaching is to be found in the first book of the Politics. The place which this discussion occupies in his general treatment flows from his general theory of the State. The State has in all cases a natural existence; it is the complete development of the earlier associations, the household and the village, and Aristotle accordingly proceeds to consider, as the logical first step, the economy of the household. Here there are three fundamental relationships to be borne in mind, that of master and slave, of husband and wife, and of parent and children. The fourth and last of the parts of Domestic Economy is the art of finance, which is not to be confused with Domestic Economy, since it is the business of finance to provide and of Domestic Economy to use that which is provided.
• 20Seneca’s views on economic matters are not in the main of great interest. Money (and not merely the love of money) is emphatically the root of most evils. Envy and greed are the sources of all injustice. But in the midst of much in this train of thought which, even if true and well-expressed, has ill-founded claims to originality, there is one thought that is significant, namely that the various quarters of the earth have been differently endowed in such a manner that the peoples of the world would appear to have been called to enter into intercourse with each other for the mutual satisfaction of their needs.
• 21The distinction between agriculture on the one hand and industry and commerce on the other, is further revealed by the fact that in the former there is a surplus, while the others merely pay their way. This surplus is the famous “produit net,” the token of Nature’s superior bounty in agricultural operations. On Quesnay’s theory, agriculture is carried on by advances of various kinds (avances foncières, avances primitives, avances annuelles), some of these falling on the proprietor and some on the cultivator. But when all expenses have been met, and the cultivators have taken all that is required to maintain themselves and reimburse them in respect of their annual advances, there still remains something over, a “produit net” (a rent) which is payable to the proprietor. This “ produit net” is in fact the real revenue of the nation, and it is this which, in one form or another, supports the manufacturing and commercial classes. Thus we get the triple division of classes, so dear to the Physiocrats. There is, firstly, the class of proprietors, to whom the “produit net” is paid, whose services consist in making the avances foncières, and also in the more general and social duties which fall upon them; there is, secondly, the productive class, who cultivate the soil; and thirdly, there are all those who are lumped together under a title, which, despite all apologetics, has in it something wounding and depreciatory, the “unproductive” or sterile class. Strictly speaking, there is a fourth class, the wage-earners, but they do not occupy a large place in Physiocratic classification.
• 22It is, however, when Quesnay advocates Free Trade and analyses the assumptions of the mercantilists, that he most clearly speaks with the voice of Adam Smith. Money is supposed to be wealth, because with money one can buy what one has need of. But money is not obtained for nothing; it also costs as much as it is worth to the buyer, and nations will always be able to obtain as much money as they require, if they have things to give in exchange for it. Wealth consists in the sum total of things necessary for life and in the annual reproduction of these things, and the quantity of money may diminish without these things being affected, since in a rich country, with freedom of commerce, there are means of supplying the place of money. The opulence of a state must not therefore be judged by the greater or less supply of money it possesses. Money is therefore but a richesse sterile, the only utility of which consists in its employment in effecting purchases and sales. Further, buying and selling are but two aspects of the same operation; every purchase is a sale, and every sale is a purchase. It follows that the central idea of the mercantilists, that of a nation selling more than it buys, is not merely erroneous but absurd: “Instead of saying that you wish our sales to exceed our purchases, which is physically impossible, you ought merely to say that you wish to purchase money with your productions.”In an effective phrase, selling more than is bought is merely a “commerce commencé,” an incomplete transaction. The argument resting on the greater durability of metal is admirably disposed of by a reductio ad absurdum, that if the contention be valid, then in logic it leads to the conclusion that any quantity of the metals, however small (being durable), is worth more than any quantity of commodities however large (being perishable). The doctrine of the balance of trade is thus reduced to “nothing and perhaps less than nothing.” Commerce not to be regarded as a state of war against an enemy; the only interest a nation has is to leave trade entirely free, in order that the greatest possible competition of buyers and sellers may guarantee the highest possible price for the sale of its products and the lowest price for the purchase of what may be necessary. Commerce cannot be conducted at the expense of other nations, for a good and a just God has decreed that commerce shall always be “le fruit d’un avantage évidemment reciproque.” All this and much more may strike the rétentive student as strangely familiar, and as an echo of certain classic passages in the fourth book of Adam Smith.
• 23Aristotle’s arguments, in the main, are of a highly practical character; in short, that a system of communism would not work, and that it violates natural human instincts. There would be disputes between those who get less and work more, and those who get much and work little—the old difficulty of distribution among frail, grudging and suspicious men. Unity built on communism is in fact a delusion; the common purse leads to quarrels arising out of trivial causes. Moreover there is an immense advantage in the sense of private property. It corresponds to natural instincts; “the love each individual bears to himself is not purposeless,” as he remarks in a phrase in which we seem to catch the tones of Adam Smith’s invisible hand. Again, in an argument which is still common, though of doubtful cogency, he urges that community of property would destroy the virtue of liberality. His own position is not, however, merely negative. As against reformers in a hurry in all ages, he contends that the evils are due, not to the institution which it is proposed to destroy (in this case private property), but to defects in human nature. Unless that is first amended, he would seem to say, there will be no advantage in abolishing something which in itself may be used for good or evil. “The existing system, if embellished by the moral tone of those who live under it and by a code of wise laws, would be far superior.” The ideal which Aristotle outlines is thus that of private possession with use in common, so far as that may be practicable—in modern language, private property mellowed by a sense of the responsibility of wealth, a position not so different from that of the Christian Socialists.
• 24Coming to the question of acquisition or wealth-getting,Aristotle is concerned to show how far it is or is not a part of Domestic Economy. Clearly part of wealth-getting must belong to Domestic Economy, since the household requires to be supplied with what is necessary, if this is not already provided. This leads to the rather curious distinction between true or genuine wealth to which there is a limit, and another unnatural kind of acquisition (finance in the bad sense) to which there is no limit. Nature supplies men with the means of subsistence which are gathered in various ways, so that men’s lives may be classified as those of the nomad, the husbandman, the brigand, the fisherman and the hunter. Property which so arises is “assigned by Nature,” and such property and such alone constitutes genuine wealth. Apart from the odd appearance of the brigand in this galley, this is merely, in the main, an anticipation of Physiocratic thought. Here also, so far as concerns real wealth, that is to say the acquisition of the means of subsistence, there is a definite limit assigned, since wealth in this sense must be limited by the needs and the purpose of the household and the State.
• 25Under the section which deals with the relationship of master and slave occurs Aristotle’s celebrated defence of slavery, which sounds so oddly in modern ears. The principle of rule and subjection is, he says, inevitable and beneficent, and there are “natural slaves,” persons who are as far inferior to others as the body is to the soul, or a beast to a man. In these cases a life of slavish subjection is advantageous. Aristotle is not blind to the obvious objection that, as he puts it, it may happen “contrary to the intention of Nature that those who possess the bodies do not possess the souls of free men and vice versa” for even if there be those who are “slaves by nature,” it calls for supreme faith to believe that the accidents of life should at any time sort out the slaves and the non-slaves, in accordance with the definition of a “natural slave.” Hence he distinguishes between natural and legal slaves, and speaks of the law being a convention according to which all conquests in war are the property of the conqueror. The whole discussion is curious and unconvincing, and is perhaps best viewed as a reflection of the fact, not merely that many slaves were well-treated, but also that their position would have been worse but for the institution of slavery.
• 26Apart from the Politics, there is also a passage in the Nicomachcean Ethics (Book V, chaps. 7 and 8) which is of some economic interest. Aristotle is there concerned with justice in private dealings. Discarding the mathematical theory of proportion in which his doctrine is embedded, the central point of his teaching is that “when people get as the result of exchange exactly what they had at the beginning, neither more nor less, they are said to have what belongs to them and to be neither losers nor gainers.” How is this principle to be carried out? That things may be exchanged, they must in some sense be comparable, and hence money is invented. It measures all things, and consequently, in the case taken, that of a cobbler and a builder, it measures the number of shoes which are equivalent to a house. “As a builder then is to a cobbler, so must so many shoes be to a house or a meal.” It is the demand for mutual services which binds society together, and money is the recognized representative of this demand. Money, Aristotle says in this passage, has not a natural but a conventional (vóμω) existence, and for this reason it is called money (vóμlσμα): it is within our power to change it and make it useless, a doctrine which would seem to possess kinship with Knapp’s theory that money is a creature of the law. Money, he adds, is serviceable for future exchanges; it is a guarantee that if we do not desire a thing now, we shall be able to get it when we do want it. Though the value of money is not always the same, it tends to have a more constant value than anything else. Aristotle was obviously not unfamiliar with certain orthodox views regarding the nature and the functions of money.
• 27As against this, there is another kind of finance, which does not have a natural existence and which is ultimately based on the distinction, familiar long afterwards as that between value in use and value in exchange. Every object has two uses; the shoe has a use as a covering for the feet; it has also a use as an article of exchange. So long as we are in the region of primitive barter, we are still concerned with what is natural, but this has ceased when we come to retail trading, where exchange is “carried beyond the point of satisfying mere requirements.” Out of mere simple barter to satisfy a real need, the evil art of finance—retail trading—develops as a natural consequence after the introduction of a system of currency, the successive stages of which are noted with a fair approximation to the discussion in Jevons’s textbook. Finance, in the natural sense, is a part of Domestic Economy. Unnatural finance is not; it produces money merely by means of exchange, and here wealth is unlimited. The one, the healthy, might be described as the acquisition of the means of living, the securing of the “pre-requisites which Nature ought to provide”; the other is merely money-making. The one is laudable; the other enriches one party at the expense of the other. But of all evil forms of finance, the worst is usury, since here money produces the gain itself, and is diverted from the purpose for which it was devised.
• 28One last point worthy of passing mention is that Aristotle’s attitude towards “mechanics” and their share in the State is in line with that of most writers in antiquity. It is summed up in the general statement that all who are indispensable to the existence of the State cannot be regarded as citizens, and that in the best State (whatever may happen elsewhere) citizenship will not be conferred upon any mechanic. There is here a striking similarity to the passage in the Book of Ecclesiasticus in praise of artificers: “Without these cannot a city be inhabited”; yet “they shall not be sought for in publick counsel.”
• 29In the tangled mass of Pliny’s Natural History there are certain interesting passages relating to money. There is more than a touch of Rousseau in his assertion that the worst crime against mankind was committed by him who was the first to put a ring (of gold) upon his finger. There is much vitriolic denunciation of gold “discovered only for the ruin of mankind.” How much more happy the age when things were bartered for one another! Yet despite this, he explains, not unreasonably, the causes which led to the pre-eminence of gold, as that it suffers no damage through fire, that it wears the least of all the metals by use, that no material is more malleable, that it is not subject to rust and so on. The other passage in Pliny which has been so frequently quoted is that which relates to the extent of the farm. He refers with approval to Vergil’s maxim “to praise a large farm, but cultivate a small one,” and adds in a celebrated and ominous phrase that the widespread domains had been the ruin of Italy: “latifundia Italiam perdidere.”
• 30Apart from the Politics, there is also a passage in the Nicomachcean Ethics (Book V, chaps. 7 and 8) which is of some economic interest. Aristotle is there concerned with justice in private dealings. Discarding the mathematical theory of proportion in which his doctrine is embedded, the central point of his teaching is that “when people get as the result of exchange exactly what they had at the beginning, neither more nor less, they are said to have what belongs to them and to be neither losers nor gainers.” How is this principle to be carried out? That things may be exchanged, they must in some sense be comparable, and hence money is invented. It measures all things, and consequently, in the case taken, that of a cobbler and a builder, it measures the number of shoes which are equivalent to a house. “As a builder then is to a cobbler, so must so many shoes be to a house or a meal.” It is the demand for mutual services which binds society together, and money is the recognized representative of this demand. Money, Aristotle says in this passage, has not a natural but a conventional (vóμω) existence, and for this reason it is called money (vóμlσμα): it is within our power to change it and make it useless, a doctrine which would seem to possess kinship with Knapp’s theory that money is a creature of the law. Money, he adds, is serviceable for future exchanges; it is a guarantee that if we do not desire a thing now, we shall be able to get it when we do want it. Though the value of money is not always the same, it tends to have a more constant value than anything else. Aristotle was obviously not unfamiliar with certain orthodox views regarding the nature and the functions of money.
• 31The third Greek writer to contribute certain embryonic elements to an economic science is Xenophon, who approaches matters throughout in an entirely practical spirit. His achievement is perhaps greater than has generally been admitted, and even where his speculation is confused, it may at least be pleaded on his behalf that the man who gives a wrong answer to a question has at least made some progress, insofar as he realizes that a question exists. The pleasantly innocuous dialogue Œconomicus, devoted to a discussion of the principles of estate management, opens with an analysis of wealth in the manner of Ruskin. Wealth is only wealth to him who can use it, or, more epigrammatically, useful things are those things which one knows how to use; so also, even money is not wealth to him who does not know how to use it. Further, wealth is to be interpreted in relation to needs: the man of simple tastes and little substance is wealthy in comparison with the man of great possessions on whom excessive claims rest. All this is the stuff of which proverbial philosophy and the home-spun poetry of contentment are woven. Primarily, Xenophon is an agricultural writer, and it is of interest to note that he furnishes the motto to Quesnay and the Physiocratic school many centuries later: “When husbandry flourishes, all the other arts are in good fettle; but whenever the land is compelled to lie waste, the other arts of landsmen and mariners alike wellnigh perish.” His praise of agriculture is indeed of Physiocratic excess. It is the easiest of all things to learn; none gives quicker returns (to a careful man); it is the giver of all things; no art is “dearer to servants, or pleasanter to a wife, or more delightful to children, or more agreeable to friends.” Moreover, on Xenophon has been fathered an approach to the familiar agents of production, two—land and labour—being recognized; for though agriculture or the land supplies good things in abundance, “she suffers them not to be won without toil.” So also in a fumbling way he approaches, or seems to approach, the Law of Diminishing Returns: “the landowners could all tell you how many teams and how many labourers are required for their estates. If anyone employs hands in excess of requirements, it is reckoned as a loss.”
• 32It would, however, be a mistake to consider that the Physiocratic advocacy of Free Trade was rooted in any importance attached to foreign trade as such. On the contrary, foreign trade, like all trade, is for the Physiocrats essentially unproductive. As Quesnay specifically puts it, it is only possible to buy from the foreigner as much as one sells to him; and the consequence is that in a state of free competition in foreign trade, there can only be an exchange of value for equal value, without gain or loss on one side or the other. Reverting to Quesnay’s distinction between the two nations—agricultural and commercial—combined in a mixed kingdom, the expenses of the second, even if necessary, are to be regarded as an “onerous expense,” laid on the revenues of the landed proprietor. Foreign trade is thus primarily a liability rather than an asset. The whole tendency of Physiocratic thought is to depreciate the importance of foreign trade. It is above all by the condition of internal commerce that the wealth of a country must be judged; a nation that is making the best use of its soil and its men has no occasion to be envious of the commerce of its neighbours. It is curious that the first school in modern times to proclaim Free Trade did so, not from any belief in the advantages of foreign trade, but on general principles of a quasi-philosophical and religious nature.
• 33One last point worthy of passing mention is that Aristotle’s attitude towards “mechanics” and their share in the State is in line with that of most writers in antiquity. It is summed up in the general statement that all who are indispensable to the existence of the State cannot be regarded as citizens, and that in the best State (whatever may happen elsewhere) citizenship will not be conferred upon any mechanic. There is here a striking similarity to the passage in the Book of Ecclesiasticus in praise of artificers: “Without these cannot a city be inhabited”; yet “they shall not be sought for in publick counsel.”
• 34Seneca’s views on economic matters are not in the main of great interest. Money (and not merely the love of money) is emphatically the root of most evils. Envy and greed are the sources of all injustice. But in the midst of much in this train of thought which, even if true and well-expressed, has ill-founded claims to originality, there is one thought that is significant, namely that the various quarters of the earth have been differently endowed in such a manner that the peoples of the world would appear to have been called to enter into intercourse with each other for the mutual satisfaction of their needs.
• 35The Réflexions are arranged in a hundred short paragraphs, and may be taken as a summarized statement of economic doctrine, as apprehended by one Physiocrat. In this brief treatise—written, it is said, for the instruction of two Chinese students—there are many acute and ingenious observations embedded in a dogmatic statement of the more untenable portions of Physiocratic theory. The superiority of agriculture is here in its full glory, and the iron law of wages, as applied to the worker who has only his arms and his industry, is one of the consequences of this superiority. The simple labourer is beaten down in his negotiations with a master who has a choice among many workers. It is different with the worker on the soil: “Nature does not bargain with him to oblige him to be content with the absolutely necessary.” The happy position of the agriculturist is that he receives, over and above his subsistence, a “richesse independente et dis-ponible” which he has not bought and which he sells. The land is therefore the unique source of all wealth, and that part which it gives as a pure gift (en pur don) is the net product. There is something excessively naïve in this touching faith in the bounty of Nature which few farmers—at least in Buchan—could share. Of other points in the Réflexions, it must suffice to note Turgot’s zealous plea for the abolition of all restraints on the fixing of the rate of interest; the payment of interest, being to the advantage of both parties concerned, should be determined solely by the course of trade. On this point, which Turgot also discusses elsewhere, he reveals the logic of laissez-faire in its most cogent form.
• 36The third Greek writer to contribute certain embryonic elements to an economic science is Xenophon, who approaches matters throughout in an entirely practical spirit. His achievement is perhaps greater than has generally been admitted, and even where his speculation is confused, it may at least be pleaded on his behalf that the man who gives a wrong answer to a question has at least made some progress, insofar as he realizes that a question exists. The pleasantly innocuous dialogue Œconomicus, devoted to a discussion of the principles of estate management, opens with an analysis of wealth in the manner of Ruskin. Wealth is only wealth to him who can use it, or, more epigrammatically, useful things are those things which one knows how to use; so also, even money is not wealth to him who does not know how to use it. Further, wealth is to be interpreted in relation to needs: the man of simple tastes and little substance is wealthy in comparison with the man of great possessions on whom excessive claims rest. All this is the stuff of which proverbial philosophy and the home-spun poetry of contentment are woven. Primarily, Xenophon is an agricultural writer, and it is of interest to note that he furnishes the motto to Quesnay and the Physiocratic school many centuries later: “When husbandry flourishes, all the other arts are in good fettle; but whenever the land is compelled to lie waste, the other arts of landsmen and mariners alike wellnigh perish.” His praise of agriculture is indeed of Physiocratic excess. It is the easiest of all things to learn; none gives quicker returns (to a careful man); it is the giver of all things; no art is “dearer to servants, or pleasanter to a wife, or more delightful to children, or more agreeable to friends.” Moreover, on Xenophon has been fathered an approach to the familiar agents of production, two—land and labour—being recognized; for though agriculture or the land supplies good things in abundance, “she suffers them not to be won without toil.” So also in a fumbling way he approaches, or seems to approach, the Law of Diminishing Returns: “the landowners could all tell you how many teams and how many labourers are required for their estates. If anyone employs hands in excess of requirements, it is reckoned as a loss.”
• 37In the tangled mass of Pliny’s Natural History there are certain interesting passages relating to money. There is more than a touch of Rousseau in his assertion that the worst crime against mankind was committed by him who was the first to put a ring (of gold) upon his finger. There is much vitriolic denunciation of gold “discovered only for the ruin of mankind.” How much more happy the age when things were bartered for one another! Yet despite this, he explains, not unreasonably, the causes which led to the pre-eminence of gold, as that it suffers no damage through fire, that it wears the least of all the metals by use, that no material is more malleable, that it is not subject to rust and so on. The other passage in Pliny which has been so frequently quoted is that which relates to the extent of the farm. He refers with approval to Vergil’s maxim “to praise a large farm, but cultivate a small one,” and adds in a celebrated and ominous phrase that the widespread domains had been the ruin of Italy: “latifundia Italiam perdidere.”
• 38Ibid., pp. 369-370.
• 39With regard to the industrial and manufacturing classes the argument is similar, though inevitably it seems more forced and unnatural. The common value of a commodity Is merely the value of the original material and of the cost of maintenance of the worker during the time he has been engaged. If the work of the artisan were “productive,” it would be desirable to increase the amount ot work necessary for a job. In fact, however, such labour cannot increase the wealth which the nation spends annually, because the labour is limited by the amount of this wealth, and this can only be increased by agriculture, and in no way by the expense involved in the work of the artisans (a question-begging argument; but he means for what it is worth, that to increase the number of cobblers, e.g., there must first be an increase in the number of cow hides). The product of the artisan then is merely worth the expense involved; he merely acquires a right to share in the consumption of wealth produced by the cultivator. But in contradistinction to agriculture, there is no surplus. In his own language, which happens to be correct, the worker speaks of “earning his keep”; he does not say that he produces it: “il dit qu’il gagne sa subsistance, et ne dit pas qu’il la produit.” Thus by arguments which appear thin and unconvincing, as is inevitable in the defender of a confused cause, Quesnay demonstrated that the artisan, the industrial worker, is an unproductive labourer.
• 40Ibid., p. 140.
• 41It is, however, in the short essay on The Ways and Means to Increase the Revenues of Athens that Xenophon is most interesting, most enlightened and perhaps also most confused. Here he is concerned with finding a “remedy for the poverty of our citizens,” and the tract therefore resolves itself into an elementary discussion of public finance. Throughout, a more liberal view than customary is manifested. The foreign residents are seen as a source of revenue, and Xenophon argues for the abolition of all regulations that inflict disabilities on this class. He is indeed anxious to attract “more and better class foreigners to settle at Athens,” and in pursuance of this policy he would show favour to merchants—by free seats at festivals and invitations to banquets. No less significant is his suggestion to raise a capital sum to provide accommodation for merchants and shops and houses for retail dealers. Equally enlightened is his contention that it is the cities which have been longest at peace that have been most prosperous; despite the booty of war, it is in peace that wealth is accumulated; it is in war-time that it is spent.
• 42The second point is more fundamental. Since there is only one source of national wealth, all taxation must ultimately fall there, and therefore all taxation should be imposed at once where the burden will ultimately fall. Quesnay, in short, advocates a single direct tax falling on the “produit net.” In this he is wholly logical on Physiocratic assumptions. Sooner or later a tax is bound to be shifted on to the “produit net,” if the “produit net” is what Quesnay considers he has shown it to be; and therefore the simplest and least onerous way of raising a revenue is to divert directly to the State a part of what is the only real national revenue. Quesnay in various places devotes considerable attention to proving the inconvenience and loss, and the detriment to the State which would result from any other method of taxation; and in particular, in The Second Economic Problem, he proves (at least to his own satisfaction) that though the landowner might imagine that he would be advantaged by some other form of taxation, yet in the end, owing to the shifting of the tax, the burden—and moreover an increased burden, owing to the inevitable incidental frictions and losses—will fall upon him. It is interesting to note, in passing, that in the course of his discussion of the incidence of taxation, Quesnay enunciates what a later generation has come to know as the Iron Law of Wages: “Wages, and in consequence the enjoyments which wage-earners can obtain, are fixed and reduced to the lowest level by the extreme competition which is among them.”
• 43Thus, in discussing “instruments,” he explains that “a field fitted for use is an instrument....The power which has made it an instrument is the agriculturalist’s labour” (p. 16). And again, “a portion of cultivated land, considered as an instrument actually subject to the operations of the husbandman, does not differ from any other instrument” (p. 40). On the question of value where articles are produced with less labour than formerly, they “procure for their owners less of other articles in exchange than they did before. They exchange, not for what labour has been actually wrought up in them, but for what is now required to make others similar to them” (p. 107).
• 44It is, however, when Quesnay advocates Free Trade and analyses the assumptions of the mercantilists, that he most clearly speaks with the voice of Adam Smith. Money is supposed to be wealth, because with money one can buy what one has need of. But money is not obtained for nothing; it also costs as much as it is worth to the buyer, and nations will always be able to obtain as much money as they require, if they have things to give in exchange for it. Wealth consists in the sum total of things necessary for life and in the annual reproduction of these things, and the quantity of money may diminish without these things being affected, since in a rich country, with freedom of commerce, there are means of supplying the place of money. The opulence of a state must not therefore be judged by the greater or less supply of money it possesses. Money is therefore but a richesse sterile, the only utility of which consists in its employment in effecting purchases and sales. Further, buying and selling are but two aspects of the same operation; every purchase is a sale, and every sale is a purchase. It follows that the central idea of the mercantilists, that of a nation selling more than it buys, is not merely erroneous but absurd: “Instead of saying that you wish our sales to exceed our purchases, which is physically impossible, you ought merely to say that you wish to purchase money with your productions.”In an effective phrase, selling more than is bought is merely a “commerce commencé,” an incomplete transaction. The argument resting on the greater durability of metal is admirably disposed of by a reductio ad absurdum, that if the contention be valid, then in logic it leads to the conclusion that any quantity of the metals, however small (being durable), is worth more than any quantity of commodities however large (being perishable). The doctrine of the balance of trade is thus reduced to “nothing and perhaps less than nothing.” Commerce not to be regarded as a state of war against an enemy; the only interest a nation has is to leave trade entirely free, in order that the greatest possible competition of buyers and sellers may guarantee the highest possible price for the sale of its products and the lowest price for the purchase of what may be necessary. Commerce cannot be conducted at the expense of other nations, for a good and a just God has decreed that commerce shall always be “le fruit d’un avantage évidemment reciproque.” All this and much more may strike the rétentive student as strangely familiar, and as an echo of certain classic passages in the fourth book of Adam Smith.
• 45Ibid., p. 280.
• 46Even a brief survey of Xenophon would be incomplete without reference to a passage in the Cyropœdia which, being quoted by Marx and others, has become one of the curiosities of economic literature. It represents division of labour as applied to the kitchen, run mad, with one man to boil fish and another to bake them. Here, surely, the centuries have shown retrogression.
• 47The Réflexions are arranged in a hundred short paragraphs, and may be taken as a summarized statement of economic doctrine, as apprehended by one Physiocrat. In this brief treatise—written, it is said, for the instruction of two Chinese students—there are many acute and ingenious observations embedded in a dogmatic statement of the more untenable portions of Physiocratic theory. The superiority of agriculture is here in its full glory, and the iron law of wages, as applied to the worker who has only his arms and his industry, is one of the consequences of this superiority. The simple labourer is beaten down in his negotiations with a master who has a choice among many workers. It is different with the worker on the soil: “Nature does not bargain with him to oblige him to be content with the absolutely necessary.” The happy position of the agriculturist is that he receives, over and above his subsistence, a “richesse independente et dis-ponible” which he has not bought and which he sells. The land is therefore the unique source of all wealth, and that part which it gives as a pure gift (en pur don) is the net product. There is something excessively naïve in this touching faith in the bounty of Nature which few farmers—at least in Buchan—could share. Of other points in the Réflexions, it must suffice to note Turgot’s zealous plea for the abolition of all restraints on the fixing of the rate of interest; the payment of interest, being to the advantage of both parties concerned, should be determined solely by the course of trade. On this point, which Turgot also discusses elsewhere, he reveals the logic of laissez-faire in its most cogent form.
• 48The full title is significant: De la Richesse Commerciale ou Principes d’Econotnie Politique appliqués à la Législation du Commerce.
• 49Quesnay’s peculiar views with regard to agriculture as the only productive activity and the only source of the national revenue lead to certain important conclusions in the field of taxation. Taxation also is subject to laws and immovable rules, capable of rigorous demonstration.Here it is only possible to note two of Quesnay’s fundamental points. The first (a counsel of perfection) is that the State should avoid loans; the statesman should hope for resources in special emergencies from the prosperity of the nation, and not from the credit of the financiers. The objection to loans is primarily that they create a “traffic in finances,” from which spring “fortunes pécuniaires” and “rentes financières.” Sterile fortunes, withdrawing money from agriculture, are thus created (the corresponding Tableau Économique would show a drain to the right to the unproductive classes). Moreover such “pecuniary fortunes” know no king nor country. In more modern language, loans lead to a rentier class operating in an international field of investment.
• 50Apart from these three main representatives of Greek thought, a passing reference is perhaps due to the dialogue called Eryxias, which is of interest as being devoted wholly to an analysis of wealth, and which clearly distinguishes between material and immaterial wealth, so that “in exchange for their art” men may obtain the necessaries of life; and to Aristophanes’ wholly diverting play Ecclesiazusœ, a skit on communism (not neglecting votes for women) which is full of the most modern thrusts.
• 51Ibid., chap. 16, p. 143.
• 52Nouveaux Principes, p. vii.
• 53Ibid., Vol. I, pp. 381-385.
• 54National System of Political Economy, p. 168.
• 55Of the philosophers (of whom Cicero, Seneca and Pliny may be taken as typical) it may be suggested that in so far as they merely censure luxury, or emphasize the beauty of simplicity and the right uses of wealth, they are primarily moral rather than economic teachers. To a considerable extent this exhausts their content. On other questions there is little that is new. One of the most illuminating passages in Cicero’s De Officiis is that in praise of agriculture, which is also and even more emphatically in dispraise of all other occupations. In itself this passage indicates why the spirit of antiquity could scarcely be expected to evolve a body of economic doctrine. As has been properly observed, Cicero is here concerned with the respectability of various occupations, not with their productiveness. Notable is his comparative tolerance towards wholesale trade, especially if it leads to a country estate. Usury naturally is condemned, in this passage on the feeble ground that it incurs people’s ill-will; but it is also to Cicero that we owe Cato’s terse comment: “How about murder?” to one who inquired: “How about money-lending?”
• 56Ibid., Vol. I, p. 68.
• 57Of the philosophers (of whom Cicero, Seneca and Pliny may be taken as typical) it may be suggested that in so far as they merely censure luxury, or emphasize the beauty of simplicity and the right uses of wealth, they are primarily moral rather than economic teachers. To a considerable extent this exhausts their content. On other questions there is little that is new. One of the most illuminating passages in Cicero’s De Officiis is that in praise of agriculture, which is also and even more emphatically in dispraise of all other occupations. In itself this passage indicates why the spirit of antiquity could scarcely be expected to evolve a body of economic doctrine. As has been properly observed, Cicero is here concerned with the respectability of various occupations, not with their productiveness. Notable is his comparative tolerance towards wholesale trade, especially if it leads to a country estate. Usury naturally is condemned, in this passage on the feeble ground that it incurs people’s ill-will; but it is also to Cicero that we owe Cato’s terse comment: “How about murder?” to one who inquired: “How about money-lending?”
• 58Ibid., Vol. I, p. 338.
• 59Nouveaux Principes, Vol. II, p. 248; Vol. I, pp. 8-9.
• 60In the tangled mass of Pliny’s Natural History there are certain interesting passages relating to money. There is more than a touch of Rousseau in his assertion that the worst crime against mankind was committed by him who was the first to put a ring (of gold) upon his finger. There is much vitriolic denunciation of gold “discovered only for the ruin of mankind.” How much more happy the age when things were bartered for one another! Yet despite this, he explains, not unreasonably, the causes which led to the pre-eminence of gold, as that it suffers no damage through fire, that it wears the least of all the metals by use, that no material is more malleable, that it is not subject to rust and so on. The other passage in Pliny which has been so frequently quoted is that which relates to the extent of the farm. He refers with approval to Vergil’s maxim “to praise a large farm, but cultivate a small one,” and adds in a celebrated and ominous phrase that the widespread domains had been the ruin of Italy: “latifundia Italiam perdidere.”
• 61Ibid., Vol. I, p. 78.
• 62Ibid., Vol. I, pp. 77-80.
• 63Ibid., Vol. II, p. 263.
• 64Apart from dithyrambic praise of agriculture, as, for instance, when Columella says that husbandry is next to and near akin to wisdom, it is notable that the writers of this group condemn slave-labour as inefficient. Pliny may be taken as typical: “It is the very worst plan of all to have land tilled by slaves let loose from the house of correction, as indeed is the case with all work entrusted to men who live without hope.” Certain sayings of Cato, as on the superiority of an agricultural population, and his dictum that he has been a useful member of society who leaves more at his death than he inherited, passed into current wisdom. But in the main these writers are concerned with tips for the landowner (and his wife): hints on the pruning of trees, where to buy tunics, the medicinal effects of cabbage, the salting of gammon and the like.
• 65Ibid., Vol. I, p. 197.
• 66The reader who desires to fail to understand Sismondi may be referred to Book II, chapters 5 and 6 of the Nouveaux Principes, on “The division of the national revenue between the various classes of citizens,” and on “The reciprocal determination of production by consumption and of expenditure by revenue.”
• 67Ibid., Vol. II, pp. 339. 363. etc.
• 68Ibid., chap. 2, footnote, p. 39.
• 69Ibid.. Vol. I, p. 322.
• 70“Nous invoquons presque constamment, pour surveiller le progres de la richesse, cette intervention qu’ Adam Smith repoussait”(ibid., Vol. I, p. 54).
• 71Ibid., p. 148.
• 72Ibid., pp. 101, 103.
• 73Ibid., p. 272.
• 74See above, p. 116.
• 75Etudes, I, p. 34.
• 76Ibid., chap. 5, On Wages, p. 57.
• 77Ibid., chap. 6, On Profits, pp. 70-71.
• 78Mr. Gonnard has very properly drawn attention to the illogical combination of pessimistic belief and the cult of individual liberty, characteristic of the school of Ricardo, which he ascribes to the Calvinistic and puritanical element in the British character. But in Ricardo’s case it must go furthei back than Calvin. See Gonnard, op, cit., Vol. II, p. 250.
• 79The similarity to Malthus and the different emphasis are alike interesting: “La population se mesure toujours, en dernière analyse, sur la demande du travail. Toutes les fois que le travail sera demandé et qu’un salaire sufnsant lui sera offert, I’ouvrier naitra pour le gagner” (ibid., Vol. II, p. 284).
• 80Ibid. Vol. I, p. 379.
• 81Ibid., chap. 17, footnote, p. 160.
• 82Ibid., Vol. II, p. 295
• 83Ibid., Vol. II, p. 317.
• 84Ibid., p. 346.
• 85See Etudes, Vol. I, p. 6?
• 86Nouveaux Principes, Vol. II, pp. 331-333.
• 87Ibid., pp. 496, 498, 558. “Es folgt hieraus dass wir das zuletzt entstandene und angelegte Kapitalteilchen, durch dessen Nutzung der Zinsfuss bestimmt werden soil, sehr klein—genau genommen, unendlich klein—annehmen mussen.”
• 88Ibid., p. 440.
• 89It is perhaps worthy of notice that von Thünen uses the word “Grenze,” now irremediably consecrated: “An der Grenze der kultivierten Ebene des isolierten Staats, wo der Boden keine Rente gibt” (ibid., p. 463).
• 90Ibid., p. 490.
• 91The Republic, Jowett’s translation, p. 49.
• 92Ibid., Book III, p. 106.
• 93Beer, Social Struggles in Antiquity, p. 97.
• 94The Republic, Jowett’s translation, p. 154.
• 95Ibid., p. 127.
• 96Ibid., p. 124.
• 97The Laws, Jowett’s translation, p. 121.
• 98Ibid., p. 87.
• 99Ibid., Book I, chaps. 5 and 6.
• 100Ibid., p. 401.
• 101Laistner, Greek Economics, p. 16; Ways and Means, etc.
• 102Ibid., p. 484.
• 103Ibid., p. 230.
• 104Ibid., Book II, chap. 5, p. 48.
• 105Ibid., p. 517.
• 106Ibid., p. 92.
• 107The reader who is beclouded by this brief summary should refer to the Réponse au Memoire de M.H., pp. 384-395, and the dialogue Sur les Travaux des Artisans, p. 256 et seq., where this point is discussed with much Physiocratic subtlety.
• 108Politics, Book II, chap. 3, Welldon’s translation, p. 43.
• 109Ibid., Book I, chaps. 3 and 8.
• 110Ad Helviam Matrem de Consolatione, chap. 9.
• 111Analyse du Tableau Économique, pp. 304-309.
• 112Ibid., p. 477.
• 113Ibid., Book II, chap. 5, p. 49.
• 114Ibid., Book I, chap. 8.
• 115Ibid., Book I, chap. 6, Welldon, p. 13.
• 116Ibid., p. 153.
• 117Ibid., Book I, chap. 9.
• 118Ecclesiasticus xxxviii. v. 32, 33. The corresponding passage on the same subject in Xenophon (Œconomicus IV, 2, 3) is interesting, inasmuch as the writer assigns reasons for the contempt of the illiberal arts: “They utterly ruin the bodies of workers and managers alike, compelling men, as they do, to lead sedentary lives and huddle indoors, or in some cases to spend the day before a fire. Then as men’s bodies become enervated, so their souls grow sicklier. And these vulgar crafts involve complete absence of leisure and hinder men from social and civic life; consequently men such as these are bad friends and indifferent defenders of their country. Moreover, in some states, particularly in those accounted warlike, no full citizen is permitted to practise the vulgar arts.” (As translated in Laistner’s Greek Economics, pp. 39, 40. See also Loeb edition, P. 391).
• 119Pliny, Book XVIII, chap. 7.
• 120Ethics, Book V, chap. 5, Welldon’s translation, p. 149.
• 121Ibid., p. 405.
• 122Nos. 12 and 13 of the Maximes, attached to Grains, p. 239.
• 123Politics, Book III, chap. 5, Welldon, p. 113.
• 124De Ira, III, 32, 33.
• 125Ibid., sections 71-75.
• 126Loeb translation, pp. 367, 409.
• 127Pliny, Book XXXIII, chap. 19.
• 128This presumption Rae holds to be unfounded; it is by no means demonstrable that the art of the legislator is powerless to promote the prosperity of nations, and indeed the assumption should rather be the other way. The example which bulks most largely in his mind is that of the passage of the useful arts from one country to another. These transplantations were originally due to violent causes; they were the consequences of war, revolution and exile. But if such evil influences no longer operate, must we also sacrifice the indirect good which such causes may have produced, or is it not rather the duty of “the intellectual part of our nature “to achieve the good and prevent the evil? The original violent methods of dissemination of the knowledge of the arts should therefore be replaced by the direct efforts of the legislator to draw them there. Thus the legislator is called upon to act, but to act cautiously; and the weapons which Rae places in his hands for this purpose are represented by premiums, bounties and duties. This argument Rae further buttresses by the contention that cases in which private effort succeeds in transferring an industry to a new country are very rare, and that it is scarcely ever likely to be profitable. “It would be more just and judicious,” he says, “that the necessary first cost of the scheme should be borne by the whole community” rather than that we should wait “till the miscalculations of some unfortunate projector confer on us a public benefit.” Thus does the infant industry argument gently crow from its cot.
• 129Réponse au Memoire de M.H., p. 390.
• 130This leads to the second and even more deliberate line of attack made by List on “the school,” viz., their neglect of the national element. Quesnay had extended his investigations to the whole human race, and Adam Smith, following him, had likewise neglected true Political Economy. Taking the literal meaning of the words, Political Economy ought to have reference to the life of a nation; the school had substituted for it “cosmopolitical or world-wide economy.” Assuming a universal union or confederation of all nations, the Free Trade position is justified, but “the popular school has assumed as being actually in existence a state of things which has yet to come into existence.” The position, however, as we know it, is that between each individual and the whole of humanity stands the nation, the embodiment of a tradition which List praises in words reminiscent of Burke and Müller. Individuals are not merely producers and consumers, they are also citizens of states and members of nations, and moreover, the producing power of all individuals is to a great extent determined by the social and political circumstances of the nation. The function of political economy, then, is to accomplish the economic development of the nation.
• 131Printed in Laistner, Greek Economics.
• 132Second Probleme Économique, p. 706.
• 133Rae is an interesting study for those who are fascinated by the reaction of mind on mind. Perhaps in part owing to a common American environment, there is a good deal in him that foreshadows Carey, notably in his treatment of land as an instrument, indistinguishable from other instruments, and in a doctrine that approaches Carey’s theory of value as determined by cost of reproduction.
• 134Ibid., p. 482.
• 135How, then, is this task of the statesman to be accomplished? The answer brings us to what is perhaps the central point in List’s doctrine. Adam Smith had emphasized the advantages of division of labour as applied to any individual trade, as, for example, pinmaking; he had “no perception of the division of labour as affecting a whole nation,” and as applied to a whole nation the principle of division of labour means the symmetrical development of all the powers of which the nation is capable:
• 136“For just as all other arts are developed to superior excellence in large cities, in that same way the food at the king’s palace is also elaborately prepared with superior excellence. For in small towns the same workman makes chairs and doors and ploughs and tables, and often this same artisan builds houses, and even so he is thankful if he can only find employment to support him. And it is, of course, impossible for a man of many trades to be proficient in all of them. In large cities, on the other hand, inasmuch as many people have demands to make upon each branch of industry, one trade alone, and very often even less than a whole trade, is enough to support a man: one man, for instance, makes shoes for men, and another for women; and there are places even where one man earns a living by only stitching shoes, another by cutting them out, another by sewing the uppers together, while there is another who performs none of these operations but only assembles the parts. It follows, therefore, as a matter of course, that he who devotes himself to a very specialized line of work is bound to do it in the best possible manner. Exactly the same thing holds true in reference to the kitchen; in any establishment where one and the same man arranges the dining couches, lays the table, bakes the bread, prepares now one sort of dish and now another, he must necessarily have things go as they may; but where it is all one man can do to stew meats and another to roast them, for one man to boil fish and another to bake them, for another to bake bread and not every sort at that, but where it suffices if he makes one kind that has a high reputation—everything that is prepared in such a kitchen will, I think, necessarily be worked out with superior excellence.” (Cyropœdia, Book VIII, ii, 5-6; Loeb translation, PP- 333-335.)
• 137Ibid., section 7.
• 138Sismondi (1773-1842), as a writer of economics, is extremely difficult to “place.” This is due to the fact that his was a mind in transition; he never quite lost contact with his starting point, yet he never quite arrived at his natural destination. While having kinship with many schools, he is consequently at home with none. In his first important work, De la Richesse Commerciale (1803), his position is simple; he is, as becomes a young man, content to be a not very critical follower of Adam Smith. Moreover, there is a refreshing honesty about his dis-cipleship. Of certain chapters he tells us that they contain no ideas really new to anyone who has studied Adam Smith, and further that his object is to appropriate to France the counsels which Adam Smith had intended primarily for England. There is an engaging candour in his later confession that if in this book he did not make any discoveries, he was at least well aware of the fact.
• 139Despotisme de la Chine, chap. 8, sec. 7, p. 645.
• 140Laistner, op. cit., p. 41.
• 141Even if little of the main Ricardian structure be left to-day, it nevertheless remains true that Ricardo was one of the dominant influences of the nineteenth century, and that, moreover, in directions which would have made Ricardo shiver to contemplate. His primary purpose was to elaborate the theory of distribution, and in particular to consider the incidence of various types of taxation. He did so on certain assumptions regarded as sacrosanct, and ruthlessly pushed on to certain logical . conclusions. There is no place in Ricardo for the waywardness of human action or for the multiplicity of causes of friction which place mere logic at a disadvantage in explaining the mechanism of society. Above all, competition—omnipresent, unrestrained and instantaneously operative—is assumed as the driving force of all action. It is not so now, nor indeed was it ever so. “Why should the manufacturer continue in the trade if his profits are below the general level?” He himself knows the answer, as he shows two chapters later, namely that people while losing money may continue in a trade for the very excellent reason that they cannot get out of it, that a shipbuilder overnight cannot turn his capital to agriculture. But such distracting knowledge of the real world has little influence on the march of Ricardo’s argument. Again, despite occasional sympathetic observations, his whole attitude to the working class is that they are merely a means to production. “Suppose the circumstances of the country to be such that the lowest labourers are not only called upon to continue their race, but to increase it; their wages would be regulated accordingly,” Marx’s Industrial Reserve Army does not more definitely set the workers aside as a separate race maintained for the high ends of enterprise. Again in another celebrated passage which very properly stuck in the throat of Sismondi, he argues against Smith for magnifying the advantages of a large gross income rather than a large net income. It is, says Ricardo, the net income that matters, and if the net income can be obtained with a smaller population, what purpose is served by the superfluity? His logic would lead to the desirability of the population being reduced to one, and that last remnant producing a vast net surplus with the aid of sorcery and mechanical contrivances. The repellant doctrine that man exists for the production of wealth, rather than that wealth exists for the use of man, here finds its classical utterance.
• 142Sismondi (1773-1842), as a writer of economics, is extremely difficult to “place.” This is due to the fact that his was a mind in transition; he never quite lost contact with his starting point, yet he never quite arrived at his natural destination. While having kinship with many schools, he is consequently at home with none. In his first important work, De la Richesse Commerciale (1803), his position is simple; he is, as becomes a young man, content to be a not very critical follower of Adam Smith. Moreover, there is a refreshing honesty about his dis-cipleship. Of certain chapters he tells us that they contain no ideas really new to anyone who has studied Adam Smith, and further that his object is to appropriate to France the counsels which Adam Smith had intended primarily for England. There is an engaging candour in his later confession that if in this book he did not make any discoveries, he was at least well aware of the fact.
• 143Thus we arrive in the most general terms at the functions of government. Each individual, pursuing his interests, tends to increase the speed of the machine; the task of the Government should be to slow down and regularize its movement; to exercise, in the pursuit of wealth, “une action régulatrice et modératrice.” The difference between other economists and Sismondi, as he himself expressed it, was that while they had applauded the new industrial ardour, and had urged to greater rivalry and speed, he had felt merely alarm, and had summoned the friends of humanity to assist “in retarding the social chariot which, in its accelerated course, seems to be on the point of plunging us in the abyss.”
• 144This is the text on which List preached to the Germany of his times the imperative need for the encouragement of manufactures. His doctrine has obvious reference to the circumstances of his age as List saw them. England was the workshop of the world, intent on nipping continental manufactures in the bud; was it safe for other countries to be content with a position of subordination, accepting this “insular supremacy”? List’s argument is that the agricultural state is definitely inferior to the state which combines both agriculture and manufactures, and he is led, in emphasizing this point, to not a little disparagement of agriculture and to enthusiastic praise of the effects of manufactures in a community. Thus, while it would hardly be proper to say that he reverts to mercantilist views, it is certainly true that he is led to a position entirely antagonistic to the Physiocrats. He constantly recurs to the argument that navigation, inland and foreign trade, and agriculture itself, flourish only where manufactures have reached a high state of prosperity. A nation which possesses merely agriculture lacks the most essential division of operations among its inhabitants; it will attain not a half, scarcely a tenth, of the material wealth of the perfect nation. As against a “crippled state of agriculture,” it is urged that in the state which introduces manufactures at the right time, the agricultural and industrial productive powers will react on each other, reciprocally promoting an increase—“indeed ad infinitum” says the optimistic List. A nation which carries on agriculture alone is like an individual who lacks one arm, and how unhappy (with all respect to Varro and the Physiocrats) is the condition of such a country; for there (to quote only one outburst) “dullness of mind, awkwardness of body, obstinate adherence to old notions, customs, methods and processes, want of culture, of prosperity, and of liberty prevail.” Manufactures, on the other hand, are “the offspring, and at the same time the supporters and the nurses, of science and the arts.” It is indeed only under the influence of manufactures that agriculture itself is raised to a skilled industry, an art, a science. Into the glories of the manufacturing state, where inventions are encouraged, where genius is valued and rewarded, where the gift of time is appreciated it is unnecessary to enter; it is enough that “all the mental powers of a nation, its State revenue, its material and mental means of defence, and its security for national independence, are increased in equal proportion by establishing in it a manufacturing power.” Moreover, as has already been implied, this development of manufactures is required for the full development of agriculture itself. The farmer requires manufactures at his door, not in another country; manufactures increase the value of land tenfold, to the manifest advantage of the agricultural interests, as is evidenced by the fact that in a suitable nation the internal manufacturing production will occasion from ten to twenty times more demand for ordinary agricultural products than the most flourishing exportation of such products could do.
• 145“Now in regard to trades and other means of livelihood, which ones are to be considered becoming to a gentleman and which ones are vulgar, we have been taught, in general, as follows: First, those means of livelihood are rejected as undesirable which incur people’s ill-will, as those of tax-gatherers and usurers. Unbecoming to a gentleman, too, and vulgar, are the means of livelihood of all hired workmen whom we pay for mere manual labour, not for artistic skill; for in their case the very wages they receive is a pledge of their slavery. Vulgar we must consider those also who buy from wholesale merchants to retail immediately; for they would get no profits without a great deal of downright lying; and verily there is no action that is meaner than misrepresentation. And all mechanics are engaged in vulgar trades; for no workshop can have anything liberal about it. Least respectable of all are those trades which cater to sensual pleasures:
• 146Sismondi’s central theme is simple, and it is so omnipresent that he tends to be a man of one idea. That idea is to be found in his emphasis on the evils which flow from unrestrained competition, above all as evidenced in the excessive production of goods for which there is not, and cannot be, any demand. This over-production which so haunts Sismondi is, it will be observed, a general over-production of all commodities, and not merely overproduction of certain commodities relative to others. It is, in his view, a direct result of division of labour and large-scale production. In isolation, a man produces for himself and knows when to stop and “repose”; in society he is producing for others, and cannot know when enough has been produced. To the man in isolation there is therefore a clear limit to the extent to which he should amass. The purpose of accumulation is sub sequent enjoyment and rest, and it would be folly to accumulate in excess of the power to consume. With a complex society, the efforts of men are separated from their natural rewards, so that one man labours and another man rests. Yet, though thus obscured, it is as true of society as it is of the individual that there is a limit to the power of consumption. But as this limit is no longer obvious, men are urged on by the “zeal to produce which every writer stimulates and which every Government encourages.” Demand should precede production; but what, in fact, the producer considers is whether he is capable of producing more, not whether there will be a demand for the commodity when it is produced. Production, that is to say, is based on the extent of capital at the disposal of the producer. These evil consequences are accentuated by the fact (which has much later been no immaterial factor in the tendency to industrial combination) that it is always easier to expand than to contract, that it is indeed almost impossible, for a variety of reasons, to restrict the size of an undertaking or to close down. To Sismondi, looking around, the world everywhere presented the spectacle of overstocked markets, of production for which there were no consumers—the consequence of apportioning production not to demand but to available capital.
• 147“Et cum ille, qui quæsierat, dixisset: ‘ Quid fænerari? ’, turn Cato: ‘ Quid hominem,’ inquit, ‘ occidere’” (De Officiis, Book II, xxv; Loeb, p. 266.)
• 148Sismondi’s central theme is simple, and it is so omnipresent that he tends to be a man of one idea. That idea is to be found in his emphasis on the evils which flow from unrestrained competition, above all as evidenced in the excessive production of goods for which there is not, and cannot be, any demand. This over-production which so haunts Sismondi is, it will be observed, a general over-production of all commodities, and not merely overproduction of certain commodities relative to others. It is, in his view, a direct result of division of labour and large-scale production. In isolation, a man produces for himself and knows when to stop and “repose”; in society he is producing for others, and cannot know when enough has been produced. To the man in isolation there is therefore a clear limit to the extent to which he should amass. The purpose of accumulation is sub sequent enjoyment and rest, and it would be folly to accumulate in excess of the power to consume. With a complex society, the efforts of men are separated from their natural rewards, so that one man labours and another man rests. Yet, though thus obscured, it is as true of society as it is of the individual that there is a limit to the power of consumption. But as this limit is no longer obvious, men are urged on by the “zeal to produce which every writer stimulates and which every Government encourages.” Demand should precede production; but what, in fact, the producer considers is whether he is capable of producing more, not whether there will be a demand for the commodity when it is produced. Production, that is to say, is based on the extent of capital at the disposal of the producer. These evil consequences are accentuated by the fact (which has much later been no immaterial factor in the tendency to industrial combination) that it is always easier to expand than to contract, that it is indeed almost impossible, for a variety of reasons, to restrict the size of an undertaking or to close down. To Sismondi, looking around, the world everywhere presented the spectacle of overstocked markets, of production for which there were no consumers—the consequence of apportioning production not to demand but to available capital.
• 149When Sismondi, after an interval of sixteen years spent in historical research, returned to economics in his Nouveaux Principes d’ Économie Politique (1819) he may be a respectful admirer of Adam Smith, but he is certainly no longer a meek disciple. In the interval he had seen the world in a period of rapid transition and industrialization, a world urged from every quarter to produce more, and to produce more cheaply. He had looked upon it, and had found little to admire. Behind all this feverish accumulation there lurked the teaching of orthodox political economy; but for the maturing Sismondi, political economy ought to be something else. It was “la théorie de la bienfaisance”; its object was to increase the physical well-being of man. But in the Europe of 1819, above all in the England of that day, what had happened to the enjoyment of life? In sombre phraseology, in contrast to which Malthus appears a radiant optimist, Sismondi describes a world, hungry, suffering, degraded, and he is tempted to curse division of labour and the invention of manufactures as the rock on which the human race has made shipwreck. To Sismondi, it appears appropriate to ask the disturbing question: “Where are we going?” Where are the happy people in this world in which everywhere one observes the progress of things, everywhere the suffering of men ?
• 150Pliny, Book XXXIII, chaps. 3, 4.
• 151Probably the economic foundation is so tangled and uncertain because the main inspiration may have come from elsewhere. His view of man is that of the moralist; there is indeed an almost religious fervour in his denunciations. For Sismondi, man is a creature with whom rest, le repos, is a natural taste, and in the scheme of things this natural taste should also find its gratification. “L’homme travaille pour que l’homme se repose,” as he says with an air of benediction; but in the urge to produce, we forget the end of all labour and the purpose of life.
• 152Sismondi’s central theme is simple, and it is so omnipresent that he tends to be a man of one idea. That idea is to be found in his emphasis on the evils which flow from unrestrained competition, above all as evidenced in the excessive production of goods for which there is not, and cannot be, any demand. This over-production which so haunts Sismondi is, it will be observed, a general over-production of all commodities, and not merely overproduction of certain commodities relative to others. It is, in his view, a direct result of division of labour and large-scale production. In isolation, a man produces for himself and knows when to stop and “repose”; in society he is producing for others, and cannot know when enough has been produced. To the man in isolation there is therefore a clear limit to the extent to which he should amass. The purpose of accumulation is sub sequent enjoyment and rest, and it would be folly to accumulate in excess of the power to consume. With a complex society, the efforts of men are separated from their natural rewards, so that one man labours and another man rests. Yet, though thus obscured, it is as true of society as it is of the individual that there is a limit to the power of consumption. But as this limit is no longer obvious, men are urged on by the “zeal to produce which every writer stimulates and which every Government encourages.” Demand should precede production; but what, in fact, the producer considers is whether he is capable of producing more, not whether there will be a demand for the commodity when it is produced. Production, that is to say, is based on the extent of capital at the disposal of the producer. These evil consequences are accentuated by the fact (which has much later been no immaterial factor in the tendency to industrial combination) that it is always easier to expand than to contract, that it is indeed almost impossible, for a variety of reasons, to restrict the size of an undertaking or to close down. To Sismondi, looking around, the world everywhere presented the spectacle of overstocked markets, of production for which there were no consumers—the consequence of apportioning production not to demand but to available capital.
• 153With regard to population, that apple of discord which Malthus had lightly tossed to the economists, Sismondi’s views are likewise peculiarly his own. Population, he holds, is limited by revenue. In contradistinction to what Malthus had said, population never reaches and probably never will reach the limit of possible subsistence. It is checked because it becomes impossible to buy the means of subsistence, or because people are not allowed to work in order to produce it. The check thus comes, not from the means of subsistence, but from the “will” of man, above all of the landowner who will not allow others to work unless he receives a revenue for his assent. This, of course, is scarcely in opposition to Malthus; but in his further elaboration of the element of human volonté, his views as to the natural action of man differ profoundly from those of Malthus. The vital thing on which population depends is the demand for labour. Given employment and an assured revenue, people will marry and have children; the vice of the new society is that there is no security as to the worker’s revenue, and the worker being deceived as to his position, children are born for whom there is no provision. It is a firm article of faith with Sismondi that the worker will not marry until he can afford to marry, and that he will proportion his family to his revenue—that is, assuming there is stability and a fixed revenue. But if there is no stability, if the workers are displaced by machinery, how grave is their situation! The workers’ revenue is no longer within their calculation; it may be altered by others without their knowledge; the entrepreneur himself may miscalculate. So living from day to day, the “proletarians become content that their children should do the same”; moreover, do not the children become a title to charity, and may they not spasmodically earn wages from the age of seven? Thus the restraint on marriage disappears and children are born for whom society has made no provision. It is not then so much demand for work that is important, as regular and perpetual demand; for if the demand is Intermittent, it merely creates workers in order to condemn them to death.
• 154Pliny, Book XVIII, chap. 7.
• 155The doctrine of the harmony of interests and of the potency of the invisible hand accordingly receives short shrift from the later Sismondi, and though he does not use the phrase, he realizes how laissez-faire may break down on inequality of bargaining power. There may be self-interest displayed in highway robbery, and self-interest may likewise dictate to the victim the expediency of offering no resistance, if acquiescence is calculated to increase his prospects of escaping unmurdered. The institutions of society have, argues Sismondi, given rise to a similar kind of restraint, though it may not be accompanied by such obvious violence. “It has as often as not placed the poor man under the necessity of submitting to increasingly onerous conditions, under the penalty of dying of hunger; in placing him in this perilous condition, it falls to society to undertake his defence.” Left to its natural course, the conflict of interests, since it may be to the interest of the weak not to resist, may lead to the triumph of injustice.
• 156Sismondi’s theory of distribution, on which the doctrine of over-production rests, is one of those things which are better left in their natural obscurity. His distinction between the annual production and the annual revenue, and his view that the annual production of any year is bought by the revenue of the preceding year, reveal a mind which was a stranger to strict reasoning. On this side Sismondi’s doctrines merely possess the value of antiquarian curiosities, and as such should not be withdrawn from the museum, even for purposes of examination. His strength lay in the force of his general contentions, not in the abstract reasoning on which these were based. Out of incomprehensible reasoning there emerges for Sismondi a sure conviction which is at least comprehensible, that there ought to be an equilibrium between production and consumption, and that nations may be ruined either by spending too much or too little. His is, in fact, a doctrine of under-consumption.
• 157We are back, it will be observed, at the old point. Excessive population is the offspring of instability, which itself is the offspring of over-production and of all the devilish inventions of the era of the Industrial Revolution. His views, by way of suggested remedy, even if impracticable are of interest. He accepts as almost obvious the view that the obligations of celibacy rest on the married as soon as they have the family to which they are entitled—which would appear to be one boy and one girl. To have more would be unjust and cruel, since such a course is tantamount to depriving others, either of the joys of marriage in youth or of the comforts of children in old age. Beyond this, the remedies which Sismondi hints at, rather than suggests, are drastic; he would be prepared to prohibit the marriage of the poor, or at least to require certain guarantees. The aim of the Government, so far as the agricultural population is concerned, should be to unite labour and property, and Sismondi’s suggestions would ultimately rest marriage on a property qualification. In the towns, though the task is not so easy, the end should be the same, namely, to abolish the precarious position in which the workers live, to make it possible for them to attain to a certain status, and to forbid marriage until that has been reached. This means among other things a guarantee from the employer; it means vesting in the employer the right to veto the marriage of his employees; it means, on the other side, that the worker is to be a permanent charge on his industry.
• 158It will be seen how far-reaching are the implications of the Ricardian theory. Before any other claims are considered, a slice of the produce of the earth is assigned to the landlords in return for no service rendered, a slice, moreover, which grows progressively with the increase of population, so that there is scarcely (from the point of view of Ricardian theory) any limit to the proportion of the annual produce which may be absorbed in this way. So, too, there is a complete reversal of the Physiocratic point of view which not merely assigned to the landlords a place of conspicuous honour and usefulness, but viewed the existence of rent as proof of the motherly benevolence of a bountiful Nature. Nature has now become stepmotherly: “The labour of Nature is paid, not because she does much, but because she does little. In proportion as she becomes niggardly in her gifts she exacts a greater price for her works.” Gloom is settling down on the economic horizon.
• 159Easy enough to speak of slowing down; but how? Take, for instance, the vexed question of inventions and machinery on which Sismondi has unusual views. In the main he detests inventions; they usually, though not necessarily, lead to evil consequences. Man loses in intelligence, in bodily vigour, in health and gaiety, all that he gains in increased power to produce wealth. Even children, it is true, may make stockings from their most tender years, before they have tasted any of the enjoyments of life. But at what an odious price are these things bought! The normal effect of inventions is to diminish the labour demanded, and thereby make the country poorer, even though this broad effect may be concealed by the operation of foreign trade which, while creating prosperity in the producing country, may concentrate elsewhere the real ruin created. Thus in the case of English manufacturers, “all the suffering has fallen on continental producers, all the enjoyment has remained with the English.” It is not, however, all inventions that are to be condemned; the criterion which Sismondi applies is to be found in the pre-existence of an unsatisfied demand. “Whenever demand for consumption surpasses the means of production, any new discovery is a benefit for society, because it provides the means of satisfying existing needs. On the contrary, wherever production is fully sufficient for consumption, any similar discovery is a calamity because it does not add to the enjoyment of the consumers anything else than that of satisfying their needs at a lower price, while it suppresses the very life of the producers.” The market must first be extended; if this is done, there is room for invention. Modifying the argument, Sismondi contends that when an invention extends the market by putting the commodity at the disposal of a poorer class, it is beneficial. But if the market cannot be extended, either because all needs are already supplied or because, no matter what reduction in price is made, the poor will never be consumers, then the discovery is a calamity for the human race, for in this case it will only advantage certain manufacturers at the cost of others—or, it may be, certain nations at the cost of others. So also, when Sismondi assumes the part of a laudator temporis acti, it is one of the marks of happier times that then men only thought of inventions when a new need had made itself felt.
• 160Inasmuch, then, as it is not merely accumulation of wealth that matters, but control of wealth and the direction of wealth to secure the increase of happiness, the blessedness of unlimited competition vanishes. Laissez-faire tends to incredible suffering, and it is therefore essential that there be a large measure of Government intervention. For the function of the State is to be the protector of the weak against the strong, the defender of the defenceless, the representative of the permanent interest of all against the temporary interest of each. And in the light of experience (since the days of Adam Smith, as he hints) it had become abundantly evident that there was need of such an authority “to prevent men being sacrificed to the progress of a wealth from which they will derive no profit.”
• 161It will be observed that, for List, Protection is strictly a transitional phase, yet there is a strange contradiction between the List who is concerned with a world of warring nations, and the List who appears almost as a prophet of the League of Nations. In the one case, he proclaims the doctrine that “Germany must care for Germany, and Russia for Russia”; and urges that “instead of hoping and waiting and expecting the Messiah of a future Free Trade, it would be better that the cosmopolitan spirit should be thrown into the fire.” In this mood also, inspired by a love of the big battalions, List is a pan-Germanist, making it clear that Holland and Denmark must come within the German Bund; elsewhere that Germany, with Holland, Belgium and Switzerland, should become a “commercial and political whole,” and finding war itself beneficial, if it leads to Protection and the advancement of a state from the purely agricultural stage to the stage of manufactures. Yet elsewhere, and doubtless with sincerity, he contemplates in the by-no-means remote future, the union of all nations, and indicates the forces making in that direction; Protection is indeed but the most efficient means of furthering such a union, and hence also of promoting true freedom of trade. It is of the highest interest in illuminating List’s position that in his criticism of the mercantilist system, one of the reproaches he urges against it (again doubtless with sincerity) is that “chiefly owing to its utterly ignoring the principle ol cosmopolitanism, it does not recognize the future union of all nations, the establishment of perpetual peace, and of universal freedom of trade, as the goal towards which all nations have to strive, and more and more to approach.”
• 162It will be observed that, for List, Protection is strictly a transitional phase, yet there is a strange contradiction between the List who is concerned with a world of warring nations, and the List who appears almost as a prophet of the League of Nations. In the one case, he proclaims the doctrine that “Germany must care for Germany, and Russia for Russia”; and urges that “instead of hoping and waiting and expecting the Messiah of a future Free Trade, it would be better that the cosmopolitan spirit should be thrown into the fire.” In this mood also, inspired by a love of the big battalions, List is a pan-Germanist, making it clear that Holland and Denmark must come within the German Bund; elsewhere that Germany, with Holland, Belgium and Switzerland, should become a “commercial and political whole,” and finding war itself beneficial, if it leads to Protection and the advancement of a state from the purely agricultural stage to the stage of manufactures. Yet elsewhere, and doubtless with sincerity, he contemplates in the by-no-means remote future, the union of all nations, and indicates the forces making in that direction; Protection is indeed but the most efficient means of furthering such a union, and hence also of promoting true freedom of trade. It is of the highest interest in illuminating List’s position that in his criticism of the mercantilist system, one of the reproaches he urges against it (again doubtless with sincerity) is that “chiefly owing to its utterly ignoring the principle ol cosmopolitanism, it does not recognize the future union of all nations, the establishment of perpetual peace, and of universal freedom of trade, as the goal towards which all nations have to strive, and more and more to approach.”
• 163It will be observed that, for List, Protection is strictly a transitional phase, yet there is a strange contradiction between the List who is concerned with a world of warring nations, and the List who appears almost as a prophet of the League of Nations. In the one case, he proclaims the doctrine that “Germany must care for Germany, and Russia for Russia”; and urges that “instead of hoping and waiting and expecting the Messiah of a future Free Trade, it would be better that the cosmopolitan spirit should be thrown into the fire.” In this mood also, inspired by a love of the big battalions, List is a pan-Germanist, making it clear that Holland and Denmark must come within the German Bund; elsewhere that Germany, with Holland, Belgium and Switzerland, should become a “commercial and political whole,” and finding war itself beneficial, if it leads to Protection and the advancement of a state from the purely agricultural stage to the stage of manufactures. Yet elsewhere, and doubtless with sincerity, he contemplates in the by-no-means remote future, the union of all nations, and indicates the forces making in that direction; Protection is indeed but the most efficient means of furthering such a union, and hence also of promoting true freedom of trade. It is of the highest interest in illuminating List’s position that in his criticism of the mercantilist system, one of the reproaches he urges against it (again doubtless with sincerity) is that “chiefly owing to its utterly ignoring the principle ol cosmopolitanism, it does not recognize the future union of all nations, the establishment of perpetual peace, and of universal freedom of trade, as the goal towards which all nations have to strive, and more and more to approach.”
• 164What, then, is the natural price of labour? The answer is to be found in what later, following Lassalle, came to be known as the Iron or Brazen Law of Wages. If there be obloquy attaching to the authorship of this law, it must rest, not on Ricardo, but on many Others who expressed what was tending to become a commonplace view in the late eighteenth century. The very precise statement of Turgot has already been noted. According to Ricardo, “the natural price of labour is that price which is necessary to enable the labourers, one with another, to subsist and to perpetuate their race, without either increase or diminution.” According as the price of food and necessaries rises and falls, so will the natural price of labour rise and fall. The market price of labour will tend towards the natural price, because it obviously cannot remain below it without leading to a reduction in the volume of labour, while, if it rises above it, the population will increase, and with redundancy of labour the market price will again tend to fall. For Ricardo, a complete Malthusian, “no point is better established than that the supply of labourers will always ultimately be in proportion to the means of supporting them.” The natural price of labour, in short, is the minimum cost of producing men.
• 165Easy enough to speak of slowing down; but how? Take, for instance, the vexed question of inventions and machinery on which Sismondi has unusual views. In the main he detests inventions; they usually, though not necessarily, lead to evil consequences. Man loses in intelligence, in bodily vigour, in health and gaiety, all that he gains in increased power to produce wealth. Even children, it is true, may make stockings from their most tender years, before they have tasted any of the enjoyments of life. But at what an odious price are these things bought! The normal effect of inventions is to diminish the labour demanded, and thereby make the country poorer, even though this broad effect may be concealed by the operation of foreign trade which, while creating prosperity in the producing country, may concentrate elsewhere the real ruin created. Thus in the case of English manufacturers, “all the suffering has fallen on continental producers, all the enjoyment has remained with the English.” It is not, however, all inventions that are to be condemned; the criterion which Sismondi applies is to be found in the pre-existence of an unsatisfied demand. “Whenever demand for consumption surpasses the means of production, any new discovery is a benefit for society, because it provides the means of satisfying existing needs. On the contrary, wherever production is fully sufficient for consumption, any similar discovery is a calamity because it does not add to the enjoyment of the consumers anything else than that of satisfying their needs at a lower price, while it suppresses the very life of the producers.” The market must first be extended; if this is done, there is room for invention. Modifying the argument, Sismondi contends that when an invention extends the market by putting the commodity at the disposal of a poorer class, it is beneficial. But if the market cannot be extended, either because all needs are already supplied or because, no matter what reduction in price is made, the poor will never be consumers, then the discovery is a calamity for the human race, for in this case it will only advantage certain manufacturers at the cost of others—or, it may be, certain nations at the cost of others. So also, when Sismondi assumes the part of a laudator temporis acti, it is one of the marks of happier times that then men only thought of inventions when a new need had made itself felt.
• 166Ricardo’s professions would lead the reader to expect a discussion of the proportion in which the “produce” is allotted among the various claimants. While his discussion nowhere approaches such a quantitative computation as might be anticipated, he does indicate how, in accordance with his theory, the proportion will tend to vary in future. Rent, as we have seen, will rise; wages will tend to rise nominally, owing to the increased cost of food occasioned by resort to inferior land, but real wages (being governed by subsistence considerations) will not rise. Indeed, though it may appear to be in contradiction with the stricter interpretation of the Ricardian law, the normal rise in wages will not be sufficient to compensate the worker for the rise in prices of commodities in general. With regard to profits, along with which interest is lumped, Ricardo is not entirely clear, but to one general proposition he adheres with the utmost tenacity. It is that whatever increases wages necessarily reduces profits, and indeed nothing can affect profits but a rise in wages. No place here for the “economy of high wages,” or for a consideration of those causes which may lead to variations of the output of labour. Wages and profits are diametrically opposed, and a fall in the one means a rise in the other. In the long run, as has been seen, money wages will rise, so that the rate of profit will tend to fall.
• 167Ricardo’s professions would lead the reader to expect a discussion of the proportion in which the “produce” is allotted among the various claimants. While his discussion nowhere approaches such a quantitative computation as might be anticipated, he does indicate how, in accordance with his theory, the proportion will tend to vary in future. Rent, as we have seen, will rise; wages will tend to rise nominally, owing to the increased cost of food occasioned by resort to inferior land, but real wages (being governed by subsistence considerations) will not rise. Indeed, though it may appear to be in contradiction with the stricter interpretation of the Ricardian law, the normal rise in wages will not be sufficient to compensate the worker for the rise in prices of commodities in general. With regard to profits, along with which interest is lumped, Ricardo is not entirely clear, but to one general proposition he adheres with the utmost tenacity. It is that whatever increases wages necessarily reduces profits, and indeed nothing can affect profits but a rise in wages. No place here for the “economy of high wages,” or for a consideration of those causes which may lead to variations of the output of labour. Wages and profits are diametrically opposed, and a fall in the one means a rise in the other. In the long run, as has been seen, money wages will rise, so that the rate of profit will tend to fall.
• 168Such is the Ricardian scheme of distribution; in place of the old harmony of interest, he has placed dissension and antagonism at the heart of things. “The interest of the landlord is always opposed to that of the consumer and manufacturer.” So also the interests of the worker and the employer are eternally and irreconcilably opposed; when one gains, the other loses. Further, the outlook for all, except the landlord, is a process of continual pejoration. Gone is the large-hearted optimism of Adam Smith, transmuted into a pessimism that will not be comforted. Yet Ricardo remains immovably non-interventionist. “These, then,” he says, “are the laws by which wages are regulated”; and he adds inconse-quently, “like all other contracts, wages should be left to the fair and free competition of the market, and should never be controlled by the interference of the legislature.” In a world of Ricardian gloom one might ask, and did in effect ask, why there should not be interference. An optimist carolling that God’s in His Heaven, and that all’s right with enlightened self-interest has a right to nail the laissez-faire flag to the mast, but a pessimist who merely looks forward to bad days and worse times ought not in principle to be opposed to intervention, unless his pessimism is so thorough-going as to lead to the conviction that, bad as all diseases are, all remedies for all diseases are even worse.
• 169With regard to population, that apple of discord which Malthus had lightly tossed to the economists, Sismondi’s views are likewise peculiarly his own. Population, he holds, is limited by revenue. In contradistinction to what Malthus had said, population never reaches and probably never will reach the limit of possible subsistence. It is checked because it becomes impossible to buy the means of subsistence, or because people are not allowed to work in order to produce it. The check thus comes, not from the means of subsistence, but from the “will” of man, above all of the landowner who will not allow others to work unless he receives a revenue for his assent. This, of course, is scarcely in opposition to Malthus; but in his further elaboration of the element of human volonté, his views as to the natural action of man differ profoundly from those of Malthus. The vital thing on which population depends is the demand for labour. Given employment and an assured revenue, people will marry and have children; the vice of the new society is that there is no security as to the worker’s revenue, and the worker being deceived as to his position, children are born for whom there is no provision. It is a firm article of faith with Sismondi that the worker will not marry until he can afford to marry, and that he will proportion his family to his revenue—that is, assuming there is stability and a fixed revenue. But if there is no stability, if the workers are displaced by machinery, how grave is their situation! The workers’ revenue is no longer within their calculation; it may be altered by others without their knowledge; the entrepreneur himself may miscalculate. So living from day to day, the “proletarians become content that their children should do the same”; moreover, do not the children become a title to charity, and may they not spasmodically earn wages from the age of seven? Thus the restraint on marriage disappears and children are born for whom society has made no provision. It is not then so much demand for work that is important, as regular and perpetual demand; for if the demand is Intermittent, it merely creates workers in order to condemn them to death.
• 170The doctrine of the harmony of interests and of the potency of the invisible hand accordingly receives short shrift from the later Sismondi, and though he does not use the phrase, he realizes how laissez-faire may break down on inequality of bargaining power. There may be self-interest displayed in highway robbery, and self-interest may likewise dictate to the victim the expediency of offering no resistance, if acquiescence is calculated to increase his prospects of escaping unmurdered. The institutions of society have, argues Sismondi, given rise to a similar kind of restraint, though it may not be accompanied by such obvious violence. “It has as often as not placed the poor man under the necessity of submitting to increasingly onerous conditions, under the penalty of dying of hunger; in placing him in this perilous condition, it falls to society to undertake his defence.” Left to its natural course, the conflict of interests, since it may be to the interest of the weak not to resist, may lead to the triumph of injustice.
• 171Even if little of the main Ricardian structure be left to-day, it nevertheless remains true that Ricardo was one of the dominant influences of the nineteenth century, and that, moreover, in directions which would have made Ricardo shiver to contemplate. His primary purpose was to elaborate the theory of distribution, and in particular to consider the incidence of various types of taxation. He did so on certain assumptions regarded as sacrosanct, and ruthlessly pushed on to certain logical . conclusions. There is no place in Ricardo for the waywardness of human action or for the multiplicity of causes of friction which place mere logic at a disadvantage in explaining the mechanism of society. Above all, competition—omnipresent, unrestrained and instantaneously operative—is assumed as the driving force of all action. It is not so now, nor indeed was it ever so. “Why should the manufacturer continue in the trade if his profits are below the general level?” He himself knows the answer, as he shows two chapters later, namely that people while losing money may continue in a trade for the very excellent reason that they cannot get out of it, that a shipbuilder overnight cannot turn his capital to agriculture. But such distracting knowledge of the real world has little influence on the march of Ricardo’s argument. Again, despite occasional sympathetic observations, his whole attitude to the working class is that they are merely a means to production. “Suppose the circumstances of the country to be such that the lowest labourers are not only called upon to continue their race, but to increase it; their wages would be regulated accordingly,” Marx’s Industrial Reserve Army does not more definitely set the workers aside as a separate race maintained for the high ends of enterprise. Again in another celebrated passage which very properly stuck in the throat of Sismondi, he argues against Smith for magnifying the advantages of a large gross income rather than a large net income. It is, says Ricardo, the net income that matters, and if the net income can be obtained with a smaller population, what purpose is served by the superfluity? His logic would lead to the desirability of the population being reduced to one, and that last remnant producing a vast net surplus with the aid of sorcery and mechanical contrivances. The repellant doctrine that man exists for the production of wealth, rather than that wealth exists for the use of man, here finds its classical utterance.
• 172We are back, it will be observed, at the old point. Excessive population is the offspring of instability, which itself is the offspring of over-production and of all the devilish inventions of the era of the Industrial Revolution. His views, by way of suggested remedy, even if impracticable are of interest. He accepts as almost obvious the view that the obligations of celibacy rest on the married as soon as they have the family to which they are entitled—which would appear to be one boy and one girl. To have more would be unjust and cruel, since such a course is tantamount to depriving others, either of the joys of marriage in youth or of the comforts of children in old age. Beyond this, the remedies which Sismondi hints at, rather than suggests, are drastic; he would be prepared to prohibit the marriage of the poor, or at least to require certain guarantees. The aim of the Government, so far as the agricultural population is concerned, should be to unite labour and property, and Sismondi’s suggestions would ultimately rest marriage on a property qualification. In the towns, though the task is not so easy, the end should be the same, namely, to abolish the precarious position in which the workers live, to make it possible for them to attain to a certain status, and to forbid marriage until that has been reached. This means among other things a guarantee from the employer; it means vesting in the employer the right to veto the marriage of his employees; it means, on the other side, that the worker is to be a permanent charge on his industry.
• 173Easy enough to speak of slowing down; but how? Take, for instance, the vexed question of inventions and machinery on which Sismondi has unusual views. In the main he detests inventions; they usually, though not necessarily, lead to evil consequences. Man loses in intelligence, in bodily vigour, in health and gaiety, all that he gains in increased power to produce wealth. Even children, it is true, may make stockings from their most tender years, before they have tasted any of the enjoyments of life. But at what an odious price are these things bought! The normal effect of inventions is to diminish the labour demanded, and thereby make the country poorer, even though this broad effect may be concealed by the operation of foreign trade which, while creating prosperity in the producing country, may concentrate elsewhere the real ruin created. Thus in the case of English manufacturers, “all the suffering has fallen on continental producers, all the enjoyment has remained with the English.” It is not, however, all inventions that are to be condemned; the criterion which Sismondi applies is to be found in the pre-existence of an unsatisfied demand. “Whenever demand for consumption surpasses the means of production, any new discovery is a benefit for society, because it provides the means of satisfying existing needs. On the contrary, wherever production is fully sufficient for consumption, any similar discovery is a calamity because it does not add to the enjoyment of the consumers anything else than that of satisfying their needs at a lower price, while it suppresses the very life of the producers.” The market must first be extended; if this is done, there is room for invention. Modifying the argument, Sismondi contends that when an invention extends the market by putting the commodity at the disposal of a poorer class, it is beneficial. But if the market cannot be extended, either because all needs are already supplied or because, no matter what reduction in price is made, the poor will never be consumers, then the discovery is a calamity for the human race, for in this case it will only advantage certain manufacturers at the cost of others—or, it may be, certain nations at the cost of others. So also, when Sismondi assumes the part of a laudator temporis acti, it is one of the marks of happier times that then men only thought of inventions when a new need had made itself felt.
• 174It is obvious at what point von Thünen has arrived; he has evolved the Ricardian theory of rent, although primarily in terms of situation and distance from the market, and not, as in the case of Ricardo, in terms of quality. When he comes to discuss taxes on rent, it is obvious that he has very clear ideas as to what the conception involves. If a portion of “land-rent “has to be surrendered to the State, this will, he says, in no way alter the form or the extension of agriculture. The farms whose rent is near zero, will contribute very little to such a tax, and the most remote and the worst will not be affected. Such a tax, therefore, could not detrimentally affect the extent of cultivation, the population, the application of capital, or the quantity of produce; indeed, if the whole of the rent were taken away by the tax, the cultivation of the soil would remain as before.
• 175In summary, Sismondi is a protesting voice, and it is from this point alone that he is significant. In so far as he presented a body of “doctrine” to the world, he is negligible. His chief obsession, that of a general overproduction of goods as an explanation of glutted markets and commercial crises, is obviously untenable, and the orthodox spokesmen have never had any difficulty in showing that while there may be over-production in respect of particular commodities, a uniform overproduction of all commodities simultaneously is unimaginable. Over-production, indeed, means disproportionate production; it means, within limits, that too much is produced, having regard to the volume of other products; that is to say, it involves under-production elsewhere. So also, in his doctrines with regard to machinery and improvements, and in his insistence on the existence of a previous demand before expansion is justified, Sismondi turns a blind eye to half the facts of economic life, and neglects the possible reactions which variations in the conditions of supply may exercise on demand. It is scarcely too much to say that none of the peculiar tenets of Sismondi has stood the test of time. Yet he is not thereby negligible. In an age when the protest was necessary, he affirmed that wealth was made for man and not man for wealth, as the “chrematistic” doctrine seemed to imply; in the darkest days of the Industrial Revolution he asked, very pertinently, where the world was going, and insisted on the importance for the worker of stability and status. But in truth he gets nowhere in particular. He never reached Socialism, though it would be easy to collect a nosegay of Socialist sentiments from his works, and it would be folly to ignore his influence on later Socialist writers. But his final attitude is rather one of helplessness and bewilderment before a problem of which he cannot find the solution. He is perhaps a moralist rather than an economist, reminding us, as certain of our own poets have done in these latter days, of the folly of those whose vision is machines for making more machines, of the poverty of a life which leaves no time to stand and stare. Righteous indignation, such as inspired Sismondi, is a noble passion, and the indignant prophet fulfils a useful purpose, even if indignation not infrequently leads to bad logic.
• 176It remains to be considered what can be done to protect society and the worker against the rage of inventors. Here Sismondi does not get beyond a very tentative and curious suggestion. He realizes that it would be idle to forbid the use of a pernicious invention, if other countries were still free to make use of it. The sole measure of protection which he suggests is the suppression of the privileges accorded to the inventor; if all inventions are at once made known and available to all, then, as he says, revealing the individualist at his heart, “the zeal for such discoveries will grow cold.”
• 177In elaborating his theory of rent, von Thünen has in effect made use of the idea of the margin, and it is surprising how, throughout his speculation, he anticipated the technique of the later marginalist school. Thus, with regard to wages, he lays down the principle that on an estate, beyond a certain point, each additional worker will yield a smaller addition to the product, the twenty-second less than the twenty-first, the twenty-third less than the twenty-second and so on, and that the increase in the number of workers must therefore be continued until the additional value yielded by the last worker is equal to the wage which he receives. Further, the wage which the last worker receives must act as the norm for all workers, since unequal remuneration cannot be made in respect of the same work. Here, undisguised, is the theory of the marginal productivity of labour. So again, in discussing the relation of interest and wages, he emphasizes “the diminishing effectiveness of capital” in a wholly modern manner. By means of a lengthy table, such as von Thünen delights in, he shows that capital, as it increases in amount, can only find less profitable outlets, and that at each stage of its increase, competition will force down the rate of interest to that which the least profitable opening can afford to pay. Consequently, interest (the rent which capital yields) is determined by the yield of the last portion of capital applied; and it is notable that in determining the rate of interest von Thünen regards the successive increments of capital as being infinitely small.
• 178Even a brief notice of von Thünen would be incomplete without reference to an aspect of his writings which is somewhat remote from the abstract isolated state. He was troubled by the condition of the worker and the lowness of his wages, and he sought for something more satisfying than he could find in the pages of Ricardo. In a section “on the lot of the workers,’’ incorporated in the second part of The Isolated State, he gives expression to what he calls “a dream of grave substance.” It is a great evil, he says, that the most numerous class, that of the common hand-worker, is unrepresented in the State. The reward of the hand-worker is disproportionately low compared with that of those who conduct industry, and there is no remedy by transference from one class to the other, because of the absence of “school-knowledge,” which the worker cannot afford for his children owing to his low wage. These low wages, again, are due to the fact that, by reason of early marriages, the supply of workers is always greater than the demand. To remedy this, nothing short of a change in the character of the people is required, and von Thünen pleads for greater prevision, postponement of marriage and better education, from all of which such astonishing results are anticipated, that even the word Paradies does not appear out of place.
• 179Viewed apart from this dream, there are two aspects of the wage-problem with which von Thünen grapples: firstly, why cannot wages rise so as to absorb the rent which the owner draws without labour? Secondly, is the low rate of wages founded in the nature of things, and thus in accordance with the will of Providence, or is the present position the result of force and oppression? On the first point von Thünen traces, in the most approved manner, the effects of a rise of wages “at the margin of cultivation, where the soil gives no rent,” leading ultimately to a drawing-in of the margin of cultivation towards the town, with displacement of labour and subsequent depression of wages. On the problem of the true rate of wages, von Thünen rather tends to provide one of the curiosities of economic literature. He points out that wages must comprise two constituent parts: (i) what the worker must expend for his maintenance in order to remain efficient; and (2) what he receives as a reward for his exertion, so that Roscher hails him as one of the earliest to view wages as something more than the price of a commodity, “labour.” But beyond this, his contribution to the theory of wages is somewhat bizarre. In the pursuit of a natural and a just rate of wages, von Thünen proves, with a vast display of mathematical formulæ, and indeed along various lines, that the true formula for wages is represented by ap, where a represents subsistence, and p the productivity of the worker. The proof, such as it is, rests on assumptions which are unreal, and the very celebrated formula cannot therefore be regarded as more than a symbol of the view that the worker should share in the prosperity which he produces. In practice, von Thünen would appear to have introduced a kind of profit-sharing scheme on his estate, which doubtless represented a distant obeisance to ap. Von Thünen himself, however, regarded the formula as his crowning achievement, and desired that it should be inscribed on his tombstone—a medium of publication in which strictness of proof is seldom exacted.
• 180Viewed apart from this dream, there are two aspects of the wage-problem with which von Thünen grapples: firstly, why cannot wages rise so as to absorb the rent which the owner draws without labour? Secondly, is the low rate of wages founded in the nature of things, and thus in accordance with the will of Providence, or is the present position the result of force and oppression? On the first point von Thünen traces, in the most approved manner, the effects of a rise of wages “at the margin of cultivation, where the soil gives no rent,” leading ultimately to a drawing-in of the margin of cultivation towards the town, with displacement of labour and subsequent depression of wages. On the problem of the true rate of wages, von Thünen rather tends to provide one of the curiosities of economic literature. He points out that wages must comprise two constituent parts: (i) what the worker must expend for his maintenance in order to remain efficient; and (2) what he receives as a reward for his exertion, so that Roscher hails him as one of the earliest to view wages as something more than the price of a commodity, “labour.” But beyond this, his contribution to the theory of wages is somewhat bizarre. In the pursuit of a natural and a just rate of wages, von Thünen proves, with a vast display of mathematical formulæ, and indeed along various lines, that the true formula for wages is represented by ap, where a represents subsistence, and p the productivity of the worker. The proof, such as it is, rests on assumptions which are unreal, and the very celebrated formula cannot therefore be regarded as more than a symbol of the view that the worker should share in the prosperity which he produces. In practice, von Thünen would appear to have introduced a kind of profit-sharing scheme on his estate, which doubtless represented a distant obeisance to ap. Von Thünen himself, however, regarded the formula as his crowning achievement, and desired that it should be inscribed on his tombstone—a medium of publication in which strictness of proof is seldom exacted.