The Development of Economic Doctrine: An Introductory Survey

CHAPTER X

THE CLASSICAL TRADITION! SAY, SENIOR,
J. S. MILL AND CAIRNES

THE later development of the orthodox school of Political Economy (meaning thereby those writers who accepted in the main the body of doctrine which had been formulated by Adam Smith, Malthus and Ricardo) hardly calls for any detailed discussion in such a broad outline as this. Theirs was, in the main, a work of elaboration and systematization; yet not a few of them succeeded in emphasizing a point or, after much labour, gave birth to a phrase or an idea which long survived. It may be permissible to lump together in this chapter a few of these writers, some of whom are of considerable importance in themselves, yet for our purposes are necessarily less important than those who founded a tradition or opened up a new line of thought.

Say

Among these, pride of place, or at least priority of time, may be assigned to Jean Baptiste Say1 (1767-1832), who later has tended to suffer the neglect which is so often the Nemesis of overestimation by one’s contemporaries. It is perhaps true that primarily his great achievement was to interpret to the French people and to the world the work of Adam Smith. In the most interesting preliminary discourse prefixed to his treatise of Political Economy, he alternates between high appreciation of the work of Smith and somewhat scathing remarks upon his method or lack of method in the presentation of his arguments. “The work of Smith,” he says in an often quoted passage, “is only a confused assemblage of the soundest principles of Political Economy, supported by luminous examples and by the most curious notions of statistics, mingled with instructive reflections; but it is a complete treatise neither of the one nor of the other; his book is a vast chaos of just ideas, jumbled with positive knowledge.”2 There is some truth in the criticism, and Ricardo likewise, as has been seen, had been a most disorderly writer. It was Say’s mission to put an end to this vast chaos, to bring order and method into the statement of economic principles; also to “render the doctrine popular,” that is to say, to write a book which would be comprehended not merely by the expert.

In both respects he achieved an astounding success. He had a very clear idea of what Political Economy should be. Like other exact sciences (for such he claimed it to be), it consisted of a small number of fundamental principles, and of a large number of corollaries and consequences of these principles.3 These principles are derived from the nature of things quite as surely as are the laws of the physical world. The stage is thus set for the treatment of economics as a science, and in the title-page we have consecrated the triple division into production, distribution and consumption of wealth—exchange at this stage being quite soundly regarded as a mere step under the first head of the trilogy. So also land, labour and capital (with the entrepreneur looming large), and the corresponding revenues due to these productive agents, provide the framework of Say’s exposition. The shadow of Say does indeed lie heavily across the text-books of the nineteenth (and perhaps the twentieth) century.

He was equally successful in his other main object, that of rendering the subject “popular,” in the sense explained by him. Say had an orderly mind, and a peculiarly lucid and limpid style. Even to-day he can be read with pleasure, whereas the re-reading of Ricardo calls for fortitude and a stout heart. As a result, Say was translated into many tongues, and was something of a bestseller, and in consequence it was perhaps he, more than anyone else, who taught the early nineteenth century its economics.

Apart from this great and meritorious work of vulgarization, certain ideas were peculiarly Say’s own. Of these, the one which had in its time most renown, and which was indeed for long regarded as Say’s passport into the company of the immortals, was the once celebrated “theory of markets” (la théorie des débouchés).4 This theory, which perhaps does not come to much, is to the effect that goods and services are only superficially bought with money; they are, in fact, bought with other goods and services. The money is merely the “carriage” which, having effected the exchange of two commodities, will forthwith proceed to exchange others. But in reality, products are always exchanged against other products. Consequently, he tells us one ought not to say: “Sale does not take place because money is scarce, but because other products are so.” It is likewise an integral part of the theory that a product, when created, offers from that very moment a market for other products. General over-production is thus an impossibility. If certain products are in excess, it is because there is a deficiency elsewhere, and the cure for “over-production” in one direction is therefore more production elsewhere to serve as a débouché for this excess.

From his theory of markets Say draws three conclusions. Firstly, the more numerous and extensive the markets are, the more will they prove to be lucrative, for there will thereby be an increased demand, tending to raise the price. Secondly, from his theory he draws the time-honoured conclusion that everyone is interested in the prosperity of everyone else. It is a foolish distinction to divide the nation into producers and consumers; everyone is both. The prosperity of A makes him a good customer for B, C and D, who should therefore jointly pray for his success, just as the devout Hume prayed for the prosperity of France. In the field of the nation’s life, Say draws the conclusion (more suggestive of List and Carey) that agriculture, manufactures and commerce should flourish together, and in the international sphere (as in Adam Smith) that a nation is directly interested in being surrounded by wealthy neighbours: “car on ne gagne rien avec un peuple qui n’a pas de quoi payer.” The third conclusion, drawn from the theory of markets (and it is of the essence of Free Trade doctrine), is that imports can in no wise be detrimental to home production or industry, since what is bought from abroad is purchased with home products, for which a market has thus been opened.

There is perhaps in all this Théorie des Débouchés nothing very original. The essence of the doctrine can be found, for instance, in Quesnay’s Dialogue du Commerce, where he says categorically: “que tout achat est vente, et que toute vente est achat,” and where he contends, as has been noticed in an earlier chapter, that the mercantilist doctrine of selling more than is bought merely aims at a “commerce commence.” Nor are the conclusions drawn by Say from the Loi des Débouchés different from those to be found in Smith or Quesnay. His conclusion with regard to foreign trade, for instance, is but an echo, not merely of certain famous observations of Smith and Hume, but also of Quesnay’s dictum: “si ceux avec qui nous commerçons n’etaient pas riches, nous ferions un pauvre commerce.”

There is more active dissent from Smith in Say’s doctrine of immaterial products, which may be noticed briefly.5 Smith, misled by his idea that wealth must be “susceptible of conservation,” has classified all manner of services as examples of unproductive labour. But take the case of the doctor who cures a sick man. Who (least of all the sick man) would say that this labour was unproductive? Further, was the “product” of the doctor incapable of being made the subject of an exchange? “In no wise, since the advice of the doctor has been exchanged against his fees; but the need of this advice ceased the moment it was given. Its production consisted in saying it; its consumption in hearing it; it has been consumed simultaneously with its production.”6 Such, then, are Say’s immaterial products, where consumption—the consumption of a song, for instance—necessarily coincides with production. While these may linger in the memory they have no exchangeable value once the moment of production is past, and clearly, as they are incapable of accumulation, they cannot increase the national capital. And for this reason there are dangers (which almost bring him back to Smith’s point of view) in an excessive amount of immaterial products, since in increasing this kind of productive labour, the consumption is inevitably at the same time correspondingly increased, and nothing is left over. If the consumption is a pleasure, good and well, but who is benefited if the complexity of the law merely gives employment to lawyers, and puts up their fees?7 Adam Smith smiles approval in the background.

On one other point, at least, Say went some distance towards breaking new ground, though he did not tarry long enough to harvest the fruit. Ricardo, in his twentieth chapter, pillories Say for his confused statements on value, setting out fourteen quotations and wringing his hands despairingly over the inconsistencies involved. It would indeed be difficult to summarize succinctly Say’s views on value, nor perhaps do they greatly matter. Inconsistency may spring from muddleheadedness, or from a laudable groping away from an untenable theory, even if the journey be never completed. Say, in brief, was prepared to attach much more importance to the idea of “utility” than were his English contemporaries. Indeed, by a careful choice of extracts, it is possible to find in Say an exponent of a theory of value which is wholly psychological, and in which the idea of cost of production is more or less eliminated. Doubtless these could be rebutted by other extracts, in the compilation of which Ricardo will be found serviceable. It is not, he says in one place, “the value of the productive services which determines the value of the products.” On the contrary, “it is the utility of the product which makes it sought out, and which confers upon it a value; and it is the faculty of being able to create this utility which makes the productive services be sought out, and which confers upon them a value.”8 So also he speaks of the utility of a commodity raising its price to the cost of production; if it fails to do so, nothing is of course produced.9 Even more emphatically, he states that “the value of the means of production comes from the value of the product which may result, which is founded on the use which can be made of this product or the satisfaction which can be drawn from it.”10 These, in the history of the theory of value, would be interesting utterances, even if they led nowhere. Ricardo was dissatisfied internally with his theory of value; Say was more vocal in expressing his doubts.

Lastly, Say sings the praises of the entrepreneur, is strictly non-interventionist, and represents the aspirations of an industrial age.

Senior

In such an introductory narrative as this, in which stars of the second magnitude must suffer extinction, some who are almost of the first rank must be accorded a brevity of notice which hardly corresponds with their real deserts. Of the considerable tribe of spiritual sons of Ricardo, Nassau William Senior11 (1790-1864) is the one who in the next generation most calls for notice, firstly because he was himself an interesting personality, and secondly he also has to his credit a phrase which has been tossed down the years on the waves of economic controversy. Two points in Senior are perhaps worthy of mention here, the first relating primarily to his views regarding the “scope and method” of Political Economy, the second relating to his analysis of the function of capital in production.

On the first point, Senior represents a definite narrowing of the sphere of economics, and an accentuation of the tendency towards a certain aloofness and rigidity. He is indeed in theory (he is less so in practice) the supreme exponent of that view which regards economics as an abstract and deductive science which can be most appropriately pursued in a comfortable arm-chair by the fireside, in an inspiring cloud of tobacco smoke. For him Political Economy is, in its strictest sense, the science which deals with the nature, the production and the distribution of wealth, and the economist who knows his job must stop short of anything which might be called an art. Practical questions, no matter of what kind, “no more form part of the science of Political Economy ... than navigation forms part of the science of astronomy.” Moreover, the conclusions of the economist, “whatever be their generality and their truth, do not authorize him in adding a single syllable of advice.” His business is neither to recommend nor to dissuade, but solely to state general principles.12

This represents an admirable spirit of aloofness, though it is perhaps asking too much of the economist to expect him, by a pure process of ratiocination, to arrive at conclusions, and to be thereafter content to leave them to someone else to chew. Yet Senior is herein probably merely overstressing a truth which assumes a more palatable form when he suggests that in the tangled problems of this world it may be “neither advisable, nor perhaps practicable” to regard the economic consideration as providing the sole, or perhaps even the principal, guide. In the abstract science which Senior contemplates, it will be observed, reasoning is more important than observation.13 Not only so, in his hands it professedly becomes very largely a matter of the precise meaning of terms. Thus he warns his readers that his treatise will consist, in a great degree, “of discussions as to the most convenient use of a few familiar words.”14 Had Senior lived up to his professions, Political Economy, as practised by him, would have become a useful exercise in the Socratic art of definition.

But on what is reasoning to operate, if economics is primarily a matter of reasoning rather than of observation? The answer almost takes away our breath by its calm daring. All Political Economy is comprised in what flows from a few general propositions, “the result of observation and consciousness.” These propositions, to be precise, are four in number. As they are so typical of a certain phase of economic doctrine, it may be as well to reproduce them in abridged form. The first is “that every man desires to obtain additional wealth with as little sacrifice as possible.” Here is the economic man stalking abroad as a postulate on which economic science is built. The second proposition is a statement of the Malthusian law, to the effect that the population of the world is “limited only by physical or moral evil.” The third proposition is a statement which, according to the point of view, may either indicate the functions of capital or the principle of increasing returns in industry. It lays down that “the powers of labour, and of the other instruments which produce wealth, may be indefinitely increased by using their products as the means of further production.” The last of the four fundamental propositions is a statement of the Law of Diminishmg Returns as applied to agriculture. The first of these propositions, Senior obligingly tells us, is a matter of consciousness; the three others are matter of observation. Now nothing could be easier than to make hay of Senior’s four fundamental propositions or postulates. The first is presumed to be a truism; like most truisms, it is probably fundamentally untrue. The Malthusian generalization is certainly not true of all times and places (as Malthus assumed it was), and to many it has not been a matter of observation. The Laws of Increasing and Diminishing Returns again require a nicety of statement of which Senior was singularly insensible. It is certainly a crude generalization to say, with Senior, that “additional labour when employed in manufactures is more, when employed in agriculture is less, efficient in proportion.”15 This may be the result of observation, but not much is gained if the observation is inaccurate. His first principle, embodying a raw hedonism, may therefore by some be rejected. The other three propositions are anything but observations to be swallowed at sight;, they are the end of a long process of economic reasoning and observation, rather than tolerably axiomatic postulates from which reasoning may begin. This, however, for our present purpose is relatively of minor importance. What is of interest is the abstract view of Political Economy as a branch of knowledge which is wholly enfolded in four postulates which, at the bidding of a sufficiently imperious mind, can be summoned to yield up their hidden economic profundities.

Such a programme, if rigorously adhered to, might have been expected to lead to a wholly academic science resting on barren logomachies. Fortunately, however, Senior did not turn economics into a logical exercise in the inferences to be drawn from four propositions. He had an acute, a penetrating and a logical mind; and his passion for accuracy in the use of his terms and in his definitions enabled him in many respects to be usefully critical of his predecessors. In particular on one point he introduced a phrase which embodies a range of suggestive ideas, even though the phrase has likewise occasioned merriment in certain quarters. In his analysis of the agents of production, he carefully avoided the word “capital” on the ground that it “has been so variously defined that it may be doubtful whether it have any generally received meaning.”16 (Senior, careful in his nomenclature, is also careful in his use of the subjunctive.) Accordingly his instruments of production are labour, natural agents—which is certainly preferable to the fatuous use of the word “land”—and abstinence. He rejects the word “capital,” because in the ordinary acceptation of the term it has come to mean “an article of wealth, the result of human exertion, employed in the production or distribution of wealth.”17 But capital, as thus denned, is not a simple productive instrument; it is itself the result of the co-operation of labour, of the natural agents, and of the other thing which Senior calls “abstinence.” By “abstinence” Senior means “that agent, distinct from labour and the agency of Nature, the concurrence of which is necessary to the existence of capital, and which stands in the same relation to profit as labour does to wages.”18 It will be seen what Senior has done. He has replaced capital, which is normally conceived as a dead and objective thing, by a human sacrifice, obviously entitled to a reward. For that there is here a human sacrifice, Senior has no doubt: “To abstain from the enjoyment which is in our power, or to seek distant rather than immediate results, are among the most painful exertions of the human will.” Consequently, when we come to an analysis of cost of production, the elements into which it is resolved are wholly subjective. By cost of production is meant “the sum of the labour and abstinence necessary to production.”19 The reward of the capitalist is thus seen to be the reward due to abstinence, the price which it is necessary to pay in order to induce people to abstain from claiming, in the present, rights which have accrued. The word “abstinence” is perhaps unfortunate, because of its regrettable psychological association with “total”; but it is only because “abstinence” in a restricted sense has come to connote a monastic asceticism that it is possible to find amusement in the idea of a Rothschild being rewarded for his abstinence.

J. S. Mill

To withhold from John Stuart Mill20 (1806-1873) the compliment of a separate chapter, and to bundle him into a second-class compartment along with Say, Senior and Cairnes may appear little short of high treason. For all but the greatest of the dead, however, life is a continuous decline until the indignity of a recording footnote is reached. Yet there are more substantial reasons for holding that in such an introduction as this, Mill need not be subjected to a lengthy examination. With regard to Mill’s position in the development of Political Economy, there is singular unanimity among the commentators. For one, Mill briefly represents the “ restatement”; in the eyes of another, he provides “a skilful statement of the chief results of the previous generation”; a third regards him as presenting the classical doctrines in their final crystalline form; a fourth looks on his Principles as an ceuvre d’assemblage. Where so many agree, Mill himself not dissenting, it may be assumed that truth lies somewhere in the direction of these concurring pointers. Ricardo and Malthus had introduced the main themes of the economic symphony—not perhaps remarkably harmonious themes; in the interval, these themes had been somewhat distorted by critics like Rae and Lauderdale, and discordant motifs of an entirely different character had been introduced by the wind instruments of the early socialists like the St. Simonians and the Fourierists. The confused listeners were beginning to be doubtful as to what it was all about. It was time for the main theme to be restated, with the confidence and the assurance that comes from a liberal use of brass, and to work into the restatement just sufficient of the intervening dissident and dissentient themes as might be necessary for the aesthetic satisfaction of the hearers. This was the task Mill took in hand; his work is a restatement of the main doctrines of Ricardo and Malthus by one not insensible of the criticisms of the intervening thirty or forty years.

Mill’s pre-eminence rests on the extraordinary skill with which he accomplished his mission. The high moral tone which pervades the Principles made it acceptable to an age which, in essentials, was austere; and its literary competence was a feature which had not been too common a characteristic of Mill’s predecessors. In the result, it is probably true that Mill, for a period of two generations, taught this country its economics, either through his own Principles, or through other works for which these Principles cannot shake off responsibility. While this may be an excellent reason for erecting a bust of Mill in a Political Economy lecture-room, it is also a reason for assigning him disproportionately small space in an introductory history of economic doctrine. For the people who are most interesting for our present purpose are those who, however gropingly, first state a fruitful idea, not those who at the end of a generation’s discussion sum up and present the world with a restatement. Apart from certain elaborations of the theory of foreign trade, it is doubtful whether Mill added much, or anything, to the body of economic doctrine. A recent somewhat severe critic has indeed stated that, objectively, Mill teaches us nothing new, adding that it is easier to point out the doctrinal errors committed by Mill than to indicate his contribution to the development of theory.21

It does not of course follow that Mill’s presentation is colourless, or that there are not degress of emphasis, and indeed modifications, of the traditional classical doctrines. Mill, like everyone else, had his hobby horses, though they were conspicuously absent from his nursery. Without attempting to present consecutively his main ideas, which were largely the ideas of Malthus, of Ricardo and of his father, it may be permissible to indicate some of the points which, owing to the emphasis laid upon them by Mill, stand out as pre-eminently revealing the mind of the writer.

The first point of interest strikes one in the preface and on the title-page. Mill professedly set out to write an up-to-date Adam Smith. That’ in fact, he rather wrote a “readable Ricardo” is immaterial. What is of interest is the reason that impelled Mill to take Smith as his model; it is that Smith “invariably associates the principles with their applications,” and “perpetually appeals to other and often far larger considerations than pure Political Economy affords.” This point of view also affects the title-page, where, after the orthodox “Principles of Political Economy,” there appears the words: “with some of their applications to social philosophy.” Political Economy, in short, was for Mill part of something larger, and in his own mind he was not content to be merely a theorist. Like his master, Bentham, he was as much as anything a social reformer. Senior might declare that the economist, qua economist, was never authorized in adding a single syllable of advice. For Mill, to give advice was the very essence of life. His theory may, to a large extent, be a modified restatement; the essential Mill is rather to be found in his proposals for reform, whether these are to be sought in his advocacy of peasant proprietors, of co-operation, of the taxation of rent, or of restriction of inheritance.

With this general view of economics as a study which almost becomes subservient to its practical applications, it is necessary to take one tenet which is peculiarly Mill’s, and which indeed he himself regarded as the chief merit of his treatment of the subject. This is his famous distinction between the nature of the laws of production and those of distribution. The laws of the production of wealth, Mill held, “partake of the character of physical truths. There is nothing optional or arbitrary in them.” Whatever be our likes or dislikes in the matter, such principles as the Law of Diminishing Returns are there. Our opinions and our wishes have no control over the things themselves. It is, however—so Mill held—entirely different when we turn to the distribution of wealth; there we are in the realm of “human institution solely.” “The things once there,” men can do with them as they like, and it follows therefore that “the distribution of wealth depends on the laws and customs of society.”22 Such is Mill’s rigid distinction between the field of production where inexorable law, uncontrolled by man, prevails, and the other field of distribution, which is also doubtless subject to a law, but to a law of man’s making and revising. It is almost unnecessary to observe that Mill’s strict line of differentiation is indefensible. Doubtless “the things once there,” an omniscient, omnipotent, omnicompetent Parliament may decree any distribution which, in its lack of wisdom, may seem good to it; but if in these matters it errs against popular sentiment, it will not be long until the things are not there. An unquestioned power to control distribution brings little comfort, if the exercise of that power dries up the stream of production, and so leaves nothing to distribute. The difference here from the older classical economists is obvious. For them the laws of distribution were as inexorable as any other. Mill, in sweeping all this into a sphere controlled by human volition, made it possible for him to be the speculative reformer, calmly contemplating the coming of the communistic state.

For increasingly, as Mill grew older, his reforming zeal led him to a Platonic and sentimental flirtation with socialism, though he was never brought to the point of seriously declaring his intentions. If the choice were between communism and individual property—not as it might be, but as it now is—then, he says, “all the difficulties, great or small, of communism, would be but as dust in the balance.”23 The socialism of Mill is a curious study, but only this need be said here. Mill was unable to resist suggestions or ideas from whatever source they came; he was likewise constitutionally incapable of assimilating these ideas with the creed in which he was brought up and which was more peculiarly his own. In consequence there is at times a considerable incongruity, not to say inconsistency, in ideas which he advances concurrently. His socialism is a deposit of a period later than his main ideas; and when a socialist outcrop is detected, it is obvious that it lies very unconformably on the older strata. In fact, in his heart Mill remained an unregenerate individualist to the end, and even his socialism is rooted in individualistic ideas. When he speaks of legislation favouring equality of fortunes, the incorrigible individualist adds: “so far as is consistent with the just claim of the individual to the fruits, whether great or small, of his or her own industry.”24 He boggles at such an embryonic socialistic proposal as progressive taxation, on the ground that “to tax the larger incomes at a higher percentage than the smaller, is to lay a tax on industry and economy; to impose a penalty on people for having worked harder and saved more than their neighbours.”25 He ties himself into knots in the chapter on Bequest and Inheritance, because even in his zeal for reform he is obsessed with the individualistic idea that bequest, as one of the sacred rights of property, must not be tampered with, and hinting at the desirability of a system which would “restrict, not what anyone might bequeath, but what anyone should be permitted to acquire, by bequest or inheritance.’26 The reforms dearest to his heart, the extension of peasant proprietorship and the fusion of labour and capital in a system of co-partnership, are of the essence of individualism, and his utterances in defence and praise of competition27 fit in badly with socialism, which, if it means anything, means the elimination of competition. Mill’s socialism was perhaps scarcely a “gesture,” as the current jargon has it; but it was a sentimental infusion which never harmonized with the rest of Mill’s system of thought, even though Mill himself was happily unaware of the fact.

Apart from the question of Mill’s general standpoint, a hint may be added regarding some of the points emphasized, or supposed to be emphasized, in his restatement. It is impossible to glance through Mill without being struck by the influence exercised on him by the Malthusian generalization; and as an increase of population is terrifying only because of the base question of food, the Law of Diminishing Returns is placed by Mill in a place of high honour or dishonour. It is the ‘ most important proposition in political economy.”28 In writing on the population question, his voice quivers with a righteous indignation which leads him to a violence of language nowhere to be found in Malthus. Excessive procreation is for Mill on the same level as drunkenness or any other physical excess, and those who are guilty should be discountenanced and despised accordingly.29 To appreciate his crusading fury in this cause, it is necessary to turn to his views regarding wages. The celebrated wages fund doctrine has, not with entire justice, become peculiarly associated with Mill—probably because when the fallacy was exposed, Mill publicly recanted, and the recantation has tended to hang round Mill’s neck the faith in respect of which he expressed his recantation. But indeed the wages fund doctrine was more or less common property. It can be deduced from Malthus; amongst other places it is to be found concisely stated by Senior in the form that wages depend “on the extent of the fund for the maintenance of labourers, compared with the number of labourers to be maintained.”30 Mill has some difficulty in getting a convenient phrase for “the aggregate of what may be called the wages fund of a country”; but his theory is essentially that of a predetermined fund set aside for wages, a definite number of workers among whom that fund must be shared, and a distribution effected under the influence of competition. From this Mill draws the inference that “wages cannot rise, but by an increase of the aggregate funds employed in hiring labourers, or a diminution in the number of competitors for hire.” The wages fund, in the sense of a portion of the capital of the country irrevocably set aside for the payment of wages, is, of course, a pure myth, but it led Mill to consider that only one method of raising wages could escape the charge of futility. That method lay in a due restriction of population.

Mill’s discussion of value is perhaps memorable, not so much by reason of its substance or conclusions, as on account of his unfortunate assurance that here at last all ghosts were laid. “Happily,” he observes, “there is nothing in the laws of value which remains for the present or any future writer to clear up; the theory of the subject is complete.”31 By a strange Nemesis this threatens to become the most frequently quoted of all Mill’s utterances, furnishing, as it does, to the young, a useful warning that it is never safe to be sure of anything.

One last curiosity in Mill is represented by his conception of the stationary state,32 a curious blend of economics, philosophy and poetry. Like Sismondi, Mill felt impelled to ask “to what goal” society is tending by its industrial progress, and “when the progress ceases, in what condition are we to expect that it will leave mankind?” Mill, it will be observed, assumes that progress must cease, just as the same Mill was flung into an agony of gloom, reflecting that as there is but a limited number of musical tones and semi-tones, and also a limited number of ways in which these may be combined, the world would one day—and that before long—have whistled its last tune.33 The annual publications of Messrs. Francis, Day and Hunter give no indication that the day is yet imminent. But to Mill it is axiomatic that, as the increase of wealth is not boundless, so beyond the progressive state, there must lie the stationary state, when the stream of human industry shall “finally spread itself out into an apparently stagnant sea.” To some this prospect of the stationary state may appear depressing, ending in shallows and in miseries; but not so to Mill, who draws a pleasantly coloured picture of a state with population and industry alike held in equilibrium, with no extremes of wealth or poverty, with no undue hustle, and over it all a faint suggestion of the indolent charm of the island of the lotus-eaters. But though stationary, so far as capital and industry are concerned, it need not be a stationary state of human improvement. It will still be open to the grandsons of Angus to write books with philosophic uplift. It is a curious epilogue to classical Political Economy, which at its beginnings—or so its critics suggested—had exalted the thruster and the climber.

Cairnes

A survey of the orthodox school, the spiritual descendents of Ricardo, may fittingly conclude with a brief reference to John Elliott Cairnes34 (1824-1875), in some ways the last of the line. When Mill recanted on the wages fund doctrine, Cairnes continued to show cause why the Master should not have succumbed to the attacks of Longe and Thornton. Among the faithless, faithful only he—or almost so, for one must not forget Professor Fawcett. A perusal of Cannes’s works reveals an acute, a vigorous and a subtle mind, engaged in refining the achievement of Mill; a mind, nevertheless, which was rather impervious to new ideas. Only two points need detain us here: firstly, his views as to the scope and function ot Political Economy, and secondly, his doctrine with regard to “non-competing groups,” which represents the most vital and enduring idea of Cairnes.

To the general question of the purpose and nature of Political Economy as a study, Cairnes devoted one of his chief works, The Character and Logical Method of Political Economy. The main argument is somewhat reminiscent of Senior. Political Economy, in Cairnes’s view, has suffered from the intrusion of alien elements, represented by “considerations of equity and expediency.”35 But so long as Political Economy is given the task of accomplishing definite practical ends, it can have none of the characteristics of a science. Economics, then, for Cairnes, is to be rigidly scientific, and in order that it may be so, it is to be cut off from all practical considerations, and issue an unlimited declaration of neutrality, standing “apart from all particular systems of social and industrial existence.”36 Political Economy, he says in a passage frequently quoted, is to be regarded as

“standing neutral between competing social schemes; neutral, as the science of Mechanics stands neutral between competing plans of railway construction, in which expense, for instance, as well as mechanical efficiency, is to be considered; neutral, as Chemistry stands neutral between competing plans of sanitary improvement; as Physiology stands neutral between opposing systems of medicine. It supplies the means, or more correctly, a portion of the means for estimating all; it refuses to identify itself with any.”37

“Economic Science,” in short, “has no more connection with our present industrial system than the science of mechanics has with our present system of railways.”

This, even if truth, is an over-accentuation of truth. If this austere doctrine were honoured in practice, it would mean the separation of economics from its living inspiration; and the effect of taking at their face-value the views expressed by Cairnes elsewhere, is to accentuate the abstract, detached, academic nature of economic study. His whole argument tends to make economic science exclusively a deductive study.38 For induction, experiment is necessary, and in the nature of things this is excluded from the armoury of the economist. The facts, moreover, are too overwhelming:

“He (the economist) must take economic phenomena as they are presented to him in the world without, in all their complexity and ever-changing variety; but from facts as thus presented, if he declines to avail himself of any other path than that of strict induction, he may reason till the crack of doom without arriving at any conclusion of the slightest value.”39

But as against this handicap, the economist, compared with the physicist, has one mighty advantage. “Mankind have no direct knowledge of ultimate physical principles”; and it is only as a result of long groping, “after a long period of laborious inductive research,” that the scientist can arrive at the generalizations from which he reasons.40 But “the economist starts with a knowledge of ultimate causes”41—happy man! “He is already, at the outset of his enterprise, in the position which the physicist only attains after ages of laborious research.” These ultimate causes, needless to say, centre round the behaviour of the economic man; they consist of “certain mental feelings and certain animal propensities in human beings.” These ultimate causes, of which we have direct knowledge, are obviously closely akin to Senior’s four fundamental propositions.

The cold philosophic truth is again, perhaps, overemphasized in Cairnes’s views regarding the nature of an economic law. He rightly indicates in what sense Political Economy must be regarded as a hypothetical science.42 Its conclusions are true when no disturbing causes intervene—a condition, as Cairnes adds, which is scarcely ever realized. An economic law, in short, expresses not a positive but a hypothetical truth, and it follows also that a law relating to economic phenomena “can neither be established nor refuted by an appeal to the records of such phenomena.” The proof must rest on an appeal to certain principles of human nature, operating under certain physical conditions. So also to refute an economic law, it is necessary to show that the “principles” (i.e. of human action, etc.) do not exist, or that the economist, on the way to his conclusion, has fallen a victim to a logical gin. Putting it briefly, the nature of an economic law is such that it can neither be established nor refuted by an appeal to facts.43

Viewed merely as a question in epistemology, it may be that Cairnes’s views are defensible. It is not merely desirable, but essential, that periodically we should test the basis and limits of our knowledge—indeed, ask ourselves whether we can properly know anything at all. For this purpose a wise society maintains a staff of philosophers and metaphysicians. But the plain man has difficulty in resisting the impression that an undue addiction to questions of scope, method and what-not, betokens an unhealthily introspective frame of mind. Much of what Cairnes says, as he himself realizes, is applicable to other branches of knowledge; but so far as he was understood (or misunderstood), his influence was in the direction of making economics an abstract, formal study. It does not require much perversion of Cairnes to see in him an exponent of the view that economics is solely a deductive study, reasoning from certain general principles, proud of its impartiality in the world’s affairs, and arriving at conclusions which, in the nature of things, cannot be refuted by an appeal to the hard facts of reality. Should the facts appear to be in contradiction with economic law, so much the worse for the facts. Even if this be perversion, the fact that classical Political Economy came to appear in this guise was, in large measure, its undoing.

Apart from questions of methodology, Cairnes is chiefly to be remembered for his conception of “non-competing groups “and the inferences drawn therefrom. His opening chapter on value (in Some Leading Principles) is primarily interesting because of his manifest failure to understand Jevons. His own view of value is in the orthodox line, but with critical reservations. He criticizes Mill’s analysis of “cost of production “with a subtlety which never abandoned him. No two ideas, he says, are more opposed to each other than “cost “and “reward of cost”44 Cost and remuneration are “economic antitheses of each other.” Wages and profits of capital, into which, in the main, Mill analyses cost of production, are not costs at all. Costs are sacrifices,45 and these factors in Mill’s analysis are the rewards of sacrifices, not the sacrifices themselves. Thus, in the orthodox form of the doctrine which Cairnes combats, cost of production is resolved solely into capitalist’s costs, and it follows likewise that the principle that cost of production determines value becomes the assertion of an identical proposition.46 Thus in place of the capitalist’s objective costs, Cairnes outlines a theory, reminiscent of Senior, in which cost of production is based on subjective considerations, and is represented by the various sacrifices made—the labour, the abstinence, the risk, not the money rewards of these various elements.47

The possibilities of determining such a subjective “cost of production,” however, need not detain us; we are concerned merely with the disentanglement of the idea of non-competing groups. It is to competition that we must look as the agent which brings remuneration into proportion with the sacrifices undergone; so also competition is the “security for the correspondence of the values of commodities with the costs of their production.”48 Cost of production will only regulate values if there is “effective competition.” Cairnes was thus led to consider how far such effectiveness of competition did exist, since, if there be any obstacle, “whether law, ignorance or poverty,” competition will be defeated, and consequently it will not follow that commodities will exchange according to their cost, i.e., the amount of sacrifice involved.49 Cairnes, somewhat too easily satisfied, finds that capital has a reasonable fullness of choice, since capital, while in a disposable form, may be applied in any direction.50 It is not so with labour. Labour, whose occupation is not yet. finally determined, does not have a choice over the entire range of industry:

“What we find, in effect, is, not a whole population competing indiscriminately for all occupations, but a series of industrial layers, superposed on one another, within each of which the various candidates for employment possess a real and effective power of selection, while those occupying the several strata are, for all purposes of effective competition, practically isolated from each other.”51

Thus we are “compelled to recognize the existence of non-competing industrial groups as a feature of our social economy.𔄭 The point, sufficiently obvious in itself, becomes important, because Cairnes uses it to make considerable modifications in the theory of value. For it is only within any group that commodities will exchange according to their cost of production; as between two non-competing groups, exchange will take place on another principle, which indeed is none other than that of reciprocal demand, familiar in the theory of foreign trade. The failure of the principle of cost in the case of non-competing groups is exemplified in the relative remuneration of the producers of different articles. Remuneration is in proportion to sacrifice within a group, but not when the comparison is instituted between two groups. The advantageousness of one group compared with another—as in the case of foreign trade—will depend on the reciprocal demands of one group for the produce of the other.52

Cairnes’s theory of non-competing groups is chiefly of interest because he uses it to undermine the traditional cost-of-production theory of value; and moreover, in shifting the emphasis to the subjective idea of the sacrifice involved, he went farther than he realized in the direction of Jevons and the Austrians. Had he gone a little farther, he would probably have gone a great deal farther. Thus in discussing why skilled labour receives higher wages than unskilled, he rightly explains that this is not in fact necessarily the case, that skill itself is not an element of cost, and that “the result in question (i.e., a higher remuneration) only occurs where skilled labour represents a monopoly.” The decisive consideration is to be sought in “the circumstances which limit the possession of this skill to a small number of persons as compared with the demand for their services.”53 A later generation would have said that when the workers are limited in numbers, the marginal productivity of labour is high; it is what Cairnes, innocent of the margin, is trying to say.

 

________________

54 Born in 1767 at Lyons; at first in business. After various ups and downs, and more experience of business, he occupied a Chair of Political Economy at the Conservatoire des Arts et M6tiers, and later for a short time at the College de France. In addition to the Traitè d’Economie Politique (1803), he also wrote a Cours Com f let d’Economie Politique Pratique (1828-1829).

55 Traits d’Economie Politique, Vol. I, p. 16-17.

56 Ibid., p. 27.

57 Traité d’Economie Politique, Vol. I, chap. 15, Des Debouches, pp. 148-165

58 Ibid., Vol. I, chap. 13.

59 Ibid., Vol. I, chap. 13, p. 121.

60 Ibid., Vol. I, pp. 124-125. It is curious to note the laissez-faire doctrine come out at this point: “Administrer ce qui devrait être abandonné à soi-même, c’est faire du mil aux administrés, et leur faire payer le mal qu’on leur fait comme si c’était un bien.”

61 Ibid., Vol. II, chap. 1, p. 9.

62 Ibid., Vol. II, p. 17.

63 “Un champ on une usine ne procurent directement aucune Batisfaction appreciable a leur possesseur; leur valeur vient done de la valeur du produit qui peut en sortir, laquelle est fondle sur l’usage qu’on peut faire de ce produit, sur la satisfaction qu’on en peut tirer “(Vol. II, p”. 24).

64 Born 1790; called to the Bar; Professor at Oxford; member of the Royal Commission on the Poor Laws, 1832.

65 Political Economy, pp. 2-3.

66 Ibid., p. 5

67 Ibid., p. 5.

68 Ibid., p. 81.

69 Ibid., p. 59

70 Ibid., p. 59.

71 Ibid., p. 59.

72 Ibid., p. 101.

73 Born 1806, the son of James Mill, and the victim of an extraordinary educational experiment which might have been expected to produce worse results than it did. For thirty-five years at the India Office. For a short time in Parliament.

74 Bousquet, Essai sur l’Évolution de la Pensée Économique p. 91.

75 Principles, Book II, chap. I.

76 Ibid., Book II, chap. I, sec. 3.

77 Ibid., Book IV, chap. 6, sec. 2.

78 Ibid., Book V, chap. 2, sec. 3.

79 Ibid., Book II, chap. 2, sec. 4.

80 Ibid., Book IV, chap. 7, sec. 7,

81 Ibid., Book I, chap. 12, sec. 2.

82 Ibid., Book II, chap. 13, sec. 1.

83 Senior, Political Economy, p. 154.

84 Principles, Book III, chap, I, sec. I.

85 Ibid., Book IV, chap. 6.

86 “I was seriously tormented by the thought of the exhaustibility of musical combinations....Most of these, it seemed to me, must have been already discovered.” (Autobiography, chap. 5.)

87 Born in Ireland in 1823; educated at Trinity College, Dublin; studied law; Professor at Dublin and Galway, and later at London. His chief works are The Character and Logical Method of Political Economy, and Some Leading Principles of Political Economy.

88 Character and Logical Method, pp. 14-16.

89 Ibid., p. 20.

90 Ibid., p. 21.

91 Ibid., p. 64.

92 Ibid., pp. 65-66

93 Ibid., pp. 70-71.

94 Ibid., p. 75.

95 Ibid., p. 51.

96 Ibid., pp. 99, 107.

97 Leading Principles, p. 50.

98 Ibid., p. 60.

99 Ibid., p. 53.

100 Ibid., p. 81.

101 Ibid., p. 63.

102 Ibid., p. 64.

103 Ibid., p. 70.

104 Ibid., p. 72.

105 Ibid., pp. 75-79.

106 Ibid., p. 85.

• 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.
• 7Among 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.
• 8When 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.
• 9Among 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.
• 10A 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.
• 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.”
• 12Aristotle’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.
• 13Under 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.
• 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.
• 15As 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.
• 16Apart 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.
• 17Apart 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.
• 18Under 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.
• 19One 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.”
• 20Coming 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.
• 21The 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.”
• 22It 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.
• 23Even 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.
• 24Apart 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.
• 25Apart 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.
• 26The 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.”
• 27For 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.
• 28Of 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?”
• 29One 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.”
• 30Seneca’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.
• 31Of 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?”
• 32The 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.”
• 33In 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.”
• 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.
• 35Apart 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.
• 36In 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.”
• 37Ibid., chap. 2, footnote, p. 39.
• 38The 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.”
• 39In 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.”
• 40See above, p. 116.
• 41The 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.
• 42It 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.
• 43The 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.
• 44Ibid., chap. 5, On Wages, p. 57.
• 45Ibid., chap. 6, On Profits, pp. 70-71.
• 46Ibid., chap. 16, p. 143.
• 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.
• 48With 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.
• 49The 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.”
• 50It 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.
• 51Mr. 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.
• 52Ibid., Vol. I, p. 68.
• 53Ibid., chap. 17, footnote, p. 160.
• 54The Republic, Jowett’s translation, p. 49.
• 55Ibid., Book III, p. 106.
• 56Beer, Social Struggles in Antiquity, p. 97.
• 57The Republic, Jowett’s translation, p. 154.
• 58The Laws, Jowett’s translation, p. 121.
• 59Ibid., p. 127.
• 60Ibid., p. 230.
• 61Politics, Book II, chap. 3, Welldon’s translation, p. 43.
• 62Ibid., p. 87.
• 63Ibid., p. 124.
• 64Ibid., p. 401.
• 65Ibid., Book II, chap. 5, p. 49.
• 66Ibid., Book I, chap. 6, Welldon, p. 13.
• 67Ibid., Book II, chap. 5, p. 48.
• 68Ibid., Book I, chap. 9.
• 69Ethics, Book V, chap. 5, Welldon’s translation, p. 149.
• 70Ibid., Book I, chaps. 3 and 8.
• 71Ibid., Book I, chaps. 5 and 6.
• 72Politics, Book III, chap. 5, Welldon, p. 113.
• 73Ibid., Book I, chap. 8.
• 74Loeb translation, pp. 367, 409.
• 75Printed in Laistner, Greek Economics.
• 76“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.)
• 77Laistner, op. cit., p. 41.
• 78Ibid., p. 153.
• 79Ibid., p. 517.
• 80Ibid., p. 92.
• 81“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:
• 82Ecclesiasticus 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).
• 83Ad Helviam Matrem de Consolatione, chap. 9.
• 84“Et cum ille, qui quæsierat, dixisset: ‘ Quid fænerari? ’, turn Cato: ‘ Quid hominem,’ inquit, ‘ occidere’” (De Officiis, Book II, xxv; Loeb, p. 266.)
• 85Ibid., p. 405.
• 86Pliny, Book XXXIII, chaps. 3, 4.
• 87De Ira, III, 32, 33.
• 88Pliny, Book XVIII, chap. 7.
• 89Pliny, Book XXXIII, chap. 19.
• 90It 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.
• 91Second Probleme Économique, p. 706.
• 92Pliny, Book XVIII, chap. 7.
• 93What, 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.
• 94Ibid., section 7.
• 95Nos. 12 and 13 of the Maximes, attached to Grains, p. 239.
• 96Analyse du Tableau Économique, pp. 304-309.
• 97Ricardo’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.
• 98Ricardo’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.
• 99Even 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.
• 100Ibid., sections 71-75.
• 101Réponse au Memoire de M.H., p. 390.
• 102Laistner, Greek Economics, p. 16; Ways and Means, etc.
• 103Ibid., p. 484.
• 104Such 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.
• 105Sismondi’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.
• 106Even 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.