XII. The Austrian School. The Theory of the Margin

CHAPTER XII

THE AUSTRIAN SCHOOL. THE THEORY OF THE MARGIN

THE present chapter is designed to give some account of the leading members of the Austrian school, which in popular acceptation has become identified with the development of the “margin” as an economic tool with far-reaching ramifications. The Austrians, however, are scarcely to be apprehended without some reference to their predecessors, and it may therefore be expedient in this case to make a slight departure from tAustrian” has become consecrated, it is further significant that, quite independently of the work of the leading Austrians, the main tenets of the Austrian point of view were expressed almost simultaneously by Jevons in England, and by the younger Walras in Lausanne. The net must therefore be spread wider in this chapter, though the mesh must still be sufficiently large to allow some quite considerable fish to escape.

Putting it crudely, and subject to later refinements, the essentials of the Austrian school may be reduced to three cardinal points. Firstly, as against all cost-of-production i theories of value, they held that value essentially springs from utility, that it reflects the mind of a person who finds something useful; secondly, that this value is determined at the “margin,” that is to say, that, successive portions of a good having diminishing utility, the crucial use which determines value is the least important use to which the good, having regard to the amount available, can be put; and thirdly, that value is reflected back from things consumed to the agents which produce these commodities, that is to say, that value sanctions costs and is not caused by costs.

Earlier Anticipations

Before the appearance of the Austrian school, these essential points had frequently gained expression, though at times rather incidentally and without a full realization of their import. Reference has been made in Chapter X to some interesting passages from Say in this sense. When Archbishop Whately opined that pearls were not valuable because men dived for them, but rather that men dived for them because they were valuable, he was expressing, without its refinements, one aspect of the essence of Austrian doctrine. Of the very considerable number of early writers who might be, and have been, cited as foreshadowing, in one way or another, the Austrian school, the most interesting is perhaps Condillac (1714-1780), who in Le Commerce et le Gouvemement, published in 1776, maintained that the value of things was “founded on their utility, or what comes to the same thing, the need we have of them, or what again comes to the same thing, the use we can make of them.” Not only so, but the value of things, he held, increases in rarity and diminishes with abundance, so that, with sufficient abundance, it may fall to the point of being nil. Thus, with Auguste Walras later, he makes value depend on” rareté,” if only this “rareté” could be assessed:” The greater or less degree of value, utility being the same, would be based solely on the degree of ‘ rareté if this degree could be known with precision.” But since it cannot, there enters an element of human estimation which, in times of dearth, for instance, magnifies the shortage. Thus the “true value” remains unknown and, assuming constant utility, value is founded not so much on the “rareté” or abundance of a commodity, as on the opinion we form regarding its “rareté” or abundance. On these lines Condillac adumbrates a wholly subjective theory of value; it is only necessary to add further his essentially Austrian dictum that “une chose n’a pas une valeur parce qu’elle coûte, comme on le suppose; mais elle coute, parce qu’elle a une valeur.”

Turning to this country, an interesting place among the forerunners of the marginal theory is occupied by W. F. Lloyd (1794-1853), who, as Professor in the University of Oxford (1832-1837), was under obligation to publish one lecture a year. The lecture for 1833 on “The Notion of Value”1 is a remarkable anticipation of the general line of thought of the Austrians, and indeed the usual type of illustration relating to the housekeeping worries of Robinson Crusoe is here in abundance. From the case of the hungry man having one, two or three ounces of food at his command, Lloyd deduces the general principle that “while he is scantily supplied with food, he holds a given portion of it in great esteem—in other words, he sets a great value on it; when his supply is increased, his esteem for a given quantity is lessened, or, in other words, he sets a less value on it.”

Even more interesting is his “good rule for distinguishing between utility and value.” “To obtain the idea of the utility of an object,” he says, “imagine what would happen, what inconvenience would arise, from the loss, not of that object alone, but of the whole species to which that object belongs.” In the case of water, for instance, in what predicament should we find ourselves if we lost, not a particular pailful, but the whole element of water? But value represents a different kind of idea; it attaches to an object in possession, which cannot therefore be unlimited. In the case of the overturned pail of water, the value is at once determined for us, either by the inconvenience of leaving unsatisfied the particular want for which the consignment of water was designed, or by the trouble of going back to the well for more water. Here is clearly prefigured the idea of total utility, and the marginal utility (the determinant of value) arrived at by considering the inconvenience resulting from the destruction of the last unit of a store.

Auguste Walras

About the same time France supplies an important anticipator of certain of the essential ideas of the marginalists in Auguste Walras2 (1801-1866), who in 1831 published a work entitled De la Nature de la Richesse et de VOrigine de la Valeur. It is a book which is marked in the crucial parts of the argument by a convincing clarity which is peculiarly French, and throughout by a tendency to repetitiveness which is peculiarly his own. His incursion into economics was, in the first place, a byproduct of other studies. He was primarily interested in natural law and the theory of property, and turning to writers on economics for enlightenment on the meaning of wealth, he found himself, in the confusion of tongues, turned empty away. Wealth and property, he argued, have a common origin in the limitation of certain goods, “la rareté de certains objets utiles.” It is this limitation, or “rareté,” that gives things value; it makes them capable of being appropriated, and thus value is an idea prior to that of property. Value is thus a complex idea, implying a comparison with other things, and ultimately their exchange; exchange implies property, and property implies limitation; for if all desirable things were unlimited, there would be no property, just as there would be no exchange.3

Walras proceeds to analyse with great incisiveness current views on the source and origin of value. In the main he holds that these fall into two schools, those who based it on utility, represented by French writers, and those who, like the English economists, tended towards a labour or cost-of-production theory.4 Taking the first of these explanations, if utility be the explanation, then, wherever there is utility, there also should value exist. But sunshine and rain are standing proofs to the contrary. They exist in such abundance that everyone can take “ à son aise et à foison” without anyone being thereby deprived. It is different with other things; there are some who possess them, and some who do not.5 It is, in short, a characteristic of all wealth, of all things possessing value, that they should be limited, and this limitation establishes a natural disproportion between the sum total of these goods and the sum total of needs which, claim the possession of these goods.6 It is this that constitutes “rareté”—a word not used in the popular sense which clings to “rarity,” but merely denoting an insufficient supply to meet all claimants. It is to this “rareté” alone that value is due. Whatever has value owes its value entirely to this principle of limitation. Utility is not the cause, though it may be a necessary condition.7 Having regard to the principle of “rareté” which underlies all value, Walras in an acute phrase suggests that one might be tempted to call Political Economy not so much the science of wealth as the science of poverty.8

Turning to the other explanation, the cost-of-production theories, Walras holds that the underlying assumption here is that all values are products, and that the value of any object represents the time and the labour lost in obtaining it, assuming—as is sometimes done—that all the other productive services can be resolved into labour. But this does not carry the analysis far enough. “The value of the products (on this view) represents the value of the productive services, and it is only because the productive services have a value that their product can have one. But we are concerned to know why the productive services have a value, and if the productive services are merely labour, why labour has a value”9—and this latter question is one which, according to Walras, Adam Smith never asked.

That the value of labour comes from its “rareté” is a proposition hard to advance in an age that knows the problem of unemployment, which indeed was known likewise in the time of Walras. But with the utmost ingenuity he avoids the obvious pitfall, shifting the weight of the argument to the element of time:

“There is no work that can be accomplished but with time and on certain conditions. But time is not for any of us an unlimited good. . . . Our life is short and our days are numbered. Time is for each of us a precious thing because it is rare. And since labour can only be accomplished with time and on conditions more or less onerous, it follows that labour has a value.”10

So with the other agents of production. Land and capital are alike limited, and therefore both have a value. Their services command a price, and the price is obviously merely the natural consequences of their limitation or “rareté.”11 There is here an obvious kinship with Cassel’s principle of scarcity. So, Walras claims, the principle of demand and supply consecrates under another name the principle he has drareté” is merely the relation which exists between the two. But even more fundamentally, that a thing may be demanded, it must be limited; that a thing may be supplied, it must be limited likewise. Only on the assumption of “rareté” do the operations of the market-place acquire a meaning.

Walras has great merit in underlining one aspect of the problem of value, which later became an essential point in the Austrian structure. His weakness is equally obvious. He leaves the idea of “rareté” somewhat vague, and makes no approach to correlating value with increasing degrees of “rareté,” The furthest he gets is to define “rareté” as existing in a certain disproportion between goods and the need of these goods. How various degrees of “rareté” would react on value, he leaves undiscussed.

Gossen

It is now generally accepted that, apart from such incidental anticipations as are indicated above, the first reasonably complete statement of marginalist doctrine was given by Hermann Heinrich Gossen12 (1810-1858) in an extraordinary work published in 1854.13 The history of this book is one of the curiosities of economic literature. Entirely neglected on its publication, the unsold copies (which must have been virtually the whole stock) were called in by its disappointed author shortly before his death in 1858. Its life hung by a footnote in Kautz, which was sufficient, a generation later, to stimulate the interest of the economic bloodhounds and set them on its track. It has since then, of course, been reprinted, but it may be doubted whether the number of those who conscientiously read its two hundred and seventy-seven pages has thereby suffered any material increase.

Gossen’s book is indeed one of those that are made not to be read. It is repellently mathematical, with whole pages given over to symbols or to lists of numbers; even worse, it is chaotic; worse still, one can hardly escape the impression that the author had a bee, or several bees, in his bonnet. The reviewers of 1854 are hardly to be blamed if they left Gossen to languish in the list of “Books received.”

Yet to us to-day, dipping into The Laws of Human Intercourse in the light of all that has since then become commonly accepted doctrine, Gossen’s is a sufficiently remarkable book. His attitude is brazenly utilitarian; he out-benthams Bentham in his assertion that the object of every man is to raise his enjoyment of life to a maximum. But, Gossen hints, we cannot run bald-headed at our enjoyments. There are after-effects, and there are disappointments; a pleasure may generate later a feeling of the opposite kind. The fundamental principle, then, is that man should so direct his actions that the sum of his enjoyments in life should be a maximum; and this, moreover, is in accordance with the will of the Creator.14

We are therefore acting in accordance with the divine command when we seek to find out the laws which regulate our pleasures. Enjoyments, in fact, are marked by two characteristics: firstly, the magnitude of an enjoyment diminishes progressively until satiety supervenes; and secondly, there is a similar diminution in repetitions of the same enjoyment. Not only is the initial satisfaction lower, but its duration is also shorter; and, moreover, both kinds of diminution are more marked, the more frequently the repetition occurs. Gossen cites the usual illustrations: the first bite tastes the best, the second less good, still less the third. The second principle is illustrated by the poor man who finds much more pleasure in his Sunday roast than does the plutocrat who is so unfortunate as to have one every day in the week.15

From his analysis of enjoyments, Gossen elicits three fundamental principles which illustrate his pleasure-and-pain philosophy. Somewhat abridged, the essence of these is as follows:

1. In the case of each enjoyment there is a manner of enjoyment, chiefly dependent on the frequency of repetition, which will make the sum of enjoyments a maximum. If this maximum is attained, a more frequent or less frequent repetition will diminish the total enjoyment.

2. When there is a choice between several enjoyments, but insufficient time to enjoy all completely, maximum enjoyment requires that all should be partly enjoyed, even before the greatest of these enjoyments has been exhausted. At the moment of breaking off, the enjoyment which is being derived from each of the possible lines should be the same.

3. Thirdly, and rather oddly, the possibility of increasing the sum total of enjoyments is presented whenever a new enjoyment (however small in itself) is discovered, or an existing enjoyment extended. Blessed indeed is he who invents a new pleasure.16

Gossen’s theory of value is intimately interwoven with this principle of diminishing satisfaction. The prevalent confusion in economic doctrine, he holds, springs exclusively from different conceptions of value. Nothing has led to such unfortunate results as the “fiction of an absolute value,” whereas in fact there is nothing in the external world which possesses such an absolute value.17 External things have value for us, he declares, according as they help us to attain the purposes of life; in more utilitarian language the magnitude of value is measured by the extent of the enjoyment or satisfaction which anything yields.18 On this he enunciates the essentially marginalist principle that the individual “atoms” (this is Gossen’s word) of any consumption-good have highly different values. Moreover, for any man only a determinate number of these atoms has value, and beyond this point an increase is valueless; the point of valuelessness, however, is only reached after value, as represented by successive atoms, has gradually passed through the most diverse grades of magnitude. The first atom has the highest value; each additional increment has a smaller value until worthlessness supervenes.19

Moreover, in his analysis of value, Gossen is led to a classification of goods which is strongly suggestive of that advanced by Menger at a later date, and in his use of this classification in connection with the problem of the determination of value, he is the angel of Wieser. He divides goods into three classes: firstly, consumption - goods (Genussmittel), and above this goods of the second and of the third class. Goods of the second class are complementary goods—the pipe and the tobacco, the oven and the coal, the cart and the horse. The third class comprises productive-goods, whose purpose is to create consumption-goods.20 The significant thing with regard to Gossen is that, in discussing the value of the goods of the second and third classes, he plots out, if he docs not lose himself in, the field in which later Wieser was to disport himself. In the case of complementary goods, value is to be ascribed (Werth zuzuschreiben ist) because they are of assistance in preparing the way for a satisfaction, but what value should be so ascribed is not easy to determine. The combined value of, the goods will be given by the satisfaction which in combination they yield; but beyond this one cannot go with precision, since they have value only when combined, and individually they “will have value only so far as there is an intention to supply the missing units.” So, in the case of goods of the third class, the estimate is “mediate” (eine mittelbare); value can only be ascribed to these in so far as they are of assistance in producing a consumption-good, and they are worth exactly as much as is represented by the assistance they lend in producing these. Here—except that Gossen uses the word “zuschreiben” whereas Wieser uses “zurech-nen”—is the core of Wieser’s productive contribution.

In two other respects Gossen’s anticipations of the future deserve at least to be recorded. His lengthy and rather peculiar definition of “work” need not concern us unduly, except to the extent that it is based on the idea of “work” as a “disutility” which is to be balanced against the utility resulting from it. It follows, therefore, that work should be continued until a negative balance emerges from the process. Work, he tells us, is something undertaken to produce a satisfaction, that is, to create something of value, and it follows that we are in a position to increase the sum total of the enjoyments of life by work, so long as the satisfaction created by the work is to be estimated as higher than the inconvenience caused by the work.21

So also, in his study of the question of exchange and the limits to which exchange should profitably be carried, he uses the machinery of marginalism and the conception of equi-marginal value. For any given person, exchange will continue to be advantageous until the last atoms of the objects under consideration have for him equal value.22 In the light of these illustrations, it is not too much to say that in Gossen’s long-neglected work there may be found all the essential ideas and much of the technique of the Austrian school.

Jevons

The importance of William Stanley Jevons23 (1835-1882) lies in the fact that simultaneously with, and independently of, the Austrian school, he elaborated ideas fundamentally identical with theirs, and can thus claim to be one of the originators of the marginal school.24 Jevons’s Theory of Political Economy (published in 1871, the same year as Menger’s Grundsätze) is inspired throughout by a “fear of the too great influence of authoritative writers on Political Economy,” and there is in him not a little of conscious revolt against great names. So far as concerns method, he is an uncompromising advocate of the mathematical character of economics. “Economy, if it be a science at all, must be a mathematical science.”25 It is bound to be a mathematical science because it deals with quantities, with things which are capable of being more or less in magnitude; indeed there cannot be a true theory of Political Economy which dispenses with the aid of the differential calculus. Accepting sound utilitarian principles, Political Economy thus becomes a calculus of pleasures and pains; and if Jevons has doubts as to how far it is possible to conceive a unit of pleasure or pain, he takes refuge in the thought that the mind of the individual is the balance which makes its own comparisons. If we may not estimate, we may at least compare, since “pleasures, in short, are for the time being as the mind estimates them.”26 And for the immediate purpose, to compare is even more important than to measure.

Jevons’s central doctrine, which he challengingly places in the forefront of his book, is what he calls “the somewhat novel opinion that value depends entirely upon utility,”27 and he claims that it is possible to arrive at a satisfactory theory of exchange (including as a consequence the ordinary laws of supply and demand) merely by tracing out the natural laws of the variations of utility “as depending upon the quantity of commodity in our possession.” This, of course, is merely the core of Gossen, as it is of the marginal school. Utility is not an inherent quality; rather is it “a circumstance of things arising out of their relation to man’s requirements,”28 and in which the amount already possessed is therefore a material factor. Taking the too familiar case of water, “all that we can say, then, is that water up to a certain quantity is indispensable; that further quantities will have various degrees of utility; but that beyond a certain point, the utility appears to cease.”29 And in general the same principle holds: “the very same articles vary in utility according as we already possess more or less of the same article.”

Jevons is thus led, with the aid of curves now known to every beginner, to distinguish between the total utility, which may be great—indeed infinite, when a question of maintaining life is involved—and the utility belonging to any particular portion which, if it is possible to increase the supply, may become as low as we choose. For the utility of the last portion, Jevons uses the phrase “final degree of utility,” and much confusion in the past has, he contends, been caused by failure to distinguish between the total utility of a commodity which may be very great and the final degree of utility, which, by abundance verging on superfluity, may be reduced to zero.30 Such old conundrums as the comparative value of gold and iron, of water and benedictine, and all the other usual examples, rest fundamentally on a confusion with regard to the meaning of the word “value.” Water, if we talk sloppily with our eyes on value-in-use, may be said to be of infinite value; but weighed drop for drop in the balance of exchange, it makes a poor show against benedictine. Jevons would say that, so far as there is a mystery, it is because we confuse total utility with the final degree of utility.

Here, then, is what for Jevons is the “ all-important point in all economical problems,” viz., the variation of the function expressing the final degree of utility, a function which “ varies with the quantity of commodity, and ultimately decreases as that quantity increases.”31 The same principle explains, for Jevons, the distribution of a commodity between various possible uses, a classical point in the later statement of the Austrian school. Barley may be used to make beer, spirits, bread, or to feed cattle and so on. The theory of utility shows that the distribution between the various uses should be so assigned that the final degree of utility in the various directions should be equal.32

With this doctrine of diminishing utility, Jevons works out a theory of exchange. The word “value/’ owing to its horrid confusions, he would discard, and substitute for it the expression “ratio of exchange,”33 a suggestion which has not prevailed against the power of custom. The value of a commodity, if the “dangerous term” may be permitted, is measured not by total utility, but by the intensity of the need we have for it; in even more precise language, “value in exchange is defined by the terminal utility.”34 The theory of exchange corresponds; the result of exchange is that all commodities sink to the same level of utility in respect of the last portions consumed.

The opposing doctrine that value is caused by labour, or that it is proportional to labour, Jevons dismisses very curtly as one “which cannot stand for a moment.”35 As he truly says, labour once spent has no influence on the future value of any article; in this sphere of life bygones are for ever bygones.36 Yet though he holds that the value of labour is determined by the value of the produce, and not the value of the produce by that of labour,37 his complete statement contains concessions which would considerably placate an upholder of the labour theory. For labour, though never the cause of value, may be the determining circumstance, and indeed he proves as a rider to his own theory that in the case of articles which can be produced in greater or less quantity, exchange will take place in the ratio of the quantities produced by the same quantity of labour.38 In this case, then, Jevons’s view would appear to be that what is wrong with the labour theory of value is not that it is untrue, but that it gives the wrong reason for the truth which it declares.

As distinguished from the earlier forerunners, Jevons and Leon Walras (whom we can but distantly salute) are almost entitled to be regarded as extra-mural founders of the Austrian school, which we are now in a position to consider. The outstanding leaders of this group were Menger, von Wieser and Böhm-Bawerk, with perhaps Sax as the leading representative of those who might be called followers.

Menger

Of these, Karl Menger39 (1840-1921), though the least known in this country, has distinct priority in time, and, notwithstanding a smaller literary output, was probably the most influential of the group. His Grundsätze der Volkswirthschaftslehre, published in 1871, really established the school. Menger starts with a bold assertion of the universality of cause and effect. The transition from a state of want to a state in which want is satisfied is, like everything else, the result of causation. Here, then, is the subject of his analysis. Those things which have the capacity of being placed in a causal relationship with the satisfaction of human needs are called utilities. In so far as we have power to place them in this connection they are called “goods.”40

That a thing may be a “good,” four conditions are necessary. There must be a human need; the thing must have such qualities as enable it to be placed in relationship with the satisfaction of the want; this causal relationship must be recognized; and, lastly, there must be a power to dispose of the thing in such a way that it can satisfy the want. All these things are essential; if any of the four is lacking, the thing loses its quality as a “good.”41 This looks horribly abstract; but it is subtly devised with a view to further argument.

The satisfaction of needs, then, is the primary consideration; but at once we come to a distinction, and it is the first fundamental point in Menger. There are goods which can be immediately applied to the satisfaction of our needs, as, for instance, bread. Such he defines as “goods of the first order.” But apart from these, there are many things which indubitably possess the marks of “goods,” but which nevertheless stand in no immediate causal connection with the satisfaction of our needs. Their function is to produce goods which do; these are goods of the second order, and exist to produce goods of the first order with which, directly and without any mediation, we satisfy our needs. Beyond these are goods of the third order, which produce goods of the second, and so on, as far as human ingenuity cares to go. Beyond the bread is the flour; beyond the flour, the grain; beyond the grain, the field and the plough; beyond the plough, the iron. While, then, it is essential that a good should stand in causal relationship to the satisfaction of our needs, this relationship need not be direct.42

Menger at once proceeds to use his theory of the order of goods in such a way as to foreshadow one of the corner-stones of the marginalist theory. To produce goods of a lower order, the co-operation of several goods of a higher order is required; to produce bread calls not merely for meal or flour, but also for water, all the baker’s contrivances, fuel, and the baker alone knows what else. These are complementary goods. With regard to these Menger lays down two propositions which are significant, even if reasonably obvious. The first is that goods of a higher order only retain their quality as goods, if we can dispose of the corresponding complementary goods—though it is true that they may retain this quality in respect of other goods which they may also assist in producing. Thus pipes cease to be goods when the tobacco crop entirely fails, except in so far as they may remain goods for the purpose of producing soap-bubbles. The second proposition is that goods of a higher order only remain goods so long as the goods of a lower order, whose production they serve, retain the quality of goods. When golf goes wholly out of fashion, not merely do the golf-clubs become useless, but all the machinery used specifically and exclusively for the production of golf-clubs will also, in that fell day, cease to be goods.43

It will be seen to what distant end Menger is tending. The decisive position is occupied by the goods nearest the consumer, the goods of the first order; all others derive their importance from these, and have their justification in these; and they only live as goods to the extent to which they are countenanced by goods of a lower order.

The next important point in Menger arises from his distinction between economic and non-economic “goods,” and the inferences drawn therefrom. It requires time to produce goods of a lower order from those of a higher, and the man who regulates his life on economic principles (der wirthschaftende Mensch) looks ahead and balances the want (Bedarf) against the quantity of goods available. Three cases may arise. The want or need may be greater than, less than, or exactly covered by the supply.44 The first is the important case, and when this situation arises, it must further be recognized that no part of the supply can be withdrawn without leaving unsatisfied some concrete need for which previously provision had been made. In practice there are various consequences: the owner has to make a choice between the more important needs which he will continue to satisfy, and the less urgent which he must reconcile himself to leaving unsatisfied. Otherwise expressed, he must plan out the most expedient manner in which the available supply of goods can be used. This is the meaning of economics (wirthschaft), and these are economic goods.45 Economic goods, in short, are goods which we are compelled to economize because the supply is inadequate; we have to decide that they may be applied to certain purposes and should not be applied to others. In the case of non-economic goods, on the other hand, where the supply exceeds the need, there is no occasion to arrange possible uses in a descending order of importance, or to plan out the wisest employment of the available supply.46

It follows from this that the economic or non-economic character of a good is no inherent immutable property. It arises from the proportion between the want or the need and the quantity available; in short, it expresses the “rareté” of Auguste Walras. Accordingly, and further, it follows that goods may pass from one class to another by virtue of changes in this proportion. Increase of population, development of wants, the progress of men in the knowledge of what may be serviceable to their well-being, any or all of these may lead to a change in the character of the good.47

So armed, we are prepared to meet the idea of value. Value springs from the same causes as confer on certain goods the quality of being “economic goods”; it arises from the relation of wants and supply, and from the fact that in economic goods a diminution of supply leads to a want unsatisfied, or a want less adequately satisfied than before. Speaking generally, it expresses the importance or the significance which goods acquire in our eyes owing to our consciousness of the fact that we are dependent on our disposal of them for the satisfaction of our needs. Value, then, is a judgment of the mind; not a property of the thing or an independent entity.48

Different needs are of different importance. Some preserve life; some minister to our comforts; some are mere luxuries. But even so, taking the most fundamental, the importance attached to various concrete acts of satisfying the desire for food varies greatly. Up to a certain point it maintains life; later it may result in mere enjoyment. If continued (gloomy prophet!) it may turn to pain, and finally imperil life and health itself. This too familiar illustration is, however, primarily introduced in order to illustrate his scale of the importance of needs. Admittedly the demand for bread serves a more important purpose than the demand for tobacco; at least it starts off with a higher importance. But it may, and does happen, that later satisfactions from bread are less than the earlier satisfactions from tobacco. Economically, after eating for a certain time, it is wise to smoke.49

Turning to the more objective problem of the determination of value in any case, the question is complicated by reason of the fact that where a quantity of the good is in existence, different portions, applied in different directions, may yield entirely different satisfactions. Menger’s example is of the farmer who has a reasonably adequate supply of grain, which after harvest he divides into different portions and mentally allots to various purposes. The first is to preserve the lives of his family, and so we descend through next year’s seed, the brewing of beer and brandy, until we end (since the farmer has enough) with a supply of what Menger pleasingly calls “luxus-thieren”—presumably chinchillas and guinea-pigs.50 The more familiar example rings the changes on Robinson Crusoe, his man Friday, his dog and his parrot Under these circumstances, what is the value of the quantity of corn which we take as the unit? The answer, as so often, is found by asking another question: What want would remain unsatisfied in the event of the destruction or loss of the last portion in question?51 In the cases supposed, the farmer would get rid of his chinchillas; Robinson Crusoe would wring his parrot’s neck; and all other needs would remain satisfied as before. Further, as all like portions of the commodity are interchangeable, they must all have the same value; any of the sacks of grain may be the last. In the case supposed by Menger the value of the unit of corn is represented by the pleasure of keeping “luxus-thieren.” Thus in general we get the determination of value. The value of any portion of goods, when a supply exists, is represented by the least important use to which such a portion is applied.52

In the case of those goods which are in direct touch with the consumer, goods of the first order, the determination of value is thus a problem which admits of a solution which is easily comprehensible. To put the point of the previous paragraph in a slightly different form, value will be determined by the use which would first be sacrificed in the event of a curtailment of supply. And it is further clear that with a curtailment of supply, the-value will rise. Crusoe, with his six sacks of grain, evaluates each by the pleasure he derives from his parrot’s conversation. When the rats eat one sack and the stuffed parrot adorns the mantelpiece, each sack assumes the value of a dog—and so on through rising stages until, when there is only one, it has for Crusoe the supreme value he attaches to Robinson.

When we come to goods of a higher order, we are, however, confronted with complexities which the Austrian school, despite the utmost ingenuity, never satisfactorily resolved. It is fundamental to the Austrian view that value is reflected back, as against the erroneous cost-of-production theory which attributes value to a product, because goods possessing value have been spent and consumed in its production, and which thus derives the value of goods of a lower order from the value postulated to be already existing in goods of a higher order. As Menger says: “The value of goods of a higher order is always, and without exception, conditioned by the value of goods of a lower order towards the production of which they are subservient.”53 There is, indeed, the further complication that’the element of time enters, so that the value of goods of a higher order to-day reflects the prospective values, some time hence, of the goods they are instrumental in producing.54

But to determine how much value each of the goods of a higher order derives from the value of the final product is clearly no easy matter. Menger’s solution is obviously inadmissible. The difficulties are patent. Each product is the result of the co-operation of a group (which may be large) of goods of a higher order, not all of which may, however, be essential. Menger notes that grain results from the co-operation of land, manure, agricultural machinery and labour, and there may be much more.55 But, though the use of manure increases the supply obtained, nevertheless, even without any manure, the crop will not entirely fail; so also the absence of manure might be counteracted by increased labour in other directions. Moreover, there is the further complexity that complementary goods, which enter into a given combination with a view to the production of one commodity, may also, in another combination, stand in a similar relationship to an entirely different good of a lower order. There is more than one kind of agricultural produce, and very different values attach to each of them. In this criss-cross of uncertainty, how much value may we allow the manure to derive from the value of the grain? Menger rightly says that the value of a higher good cannot be equivalent to the satisfaction yielded by the whole product which it helps to create. What he suggests is that the value of a higher good is represented by the difference which its presence makes, or the loss which would be sustained by its withdrawal from the group.56 This, however, is clearly inadmissible. It is unnecessary to go into refined arithmetical examples to realize that the withdrawal or destruction of land would have a devastating effect on agriculture, and therefore, on Menger’s principles, the whole value of the product should pass to land; yet the contribution of agricultural implements and of manure cannot be denied. To the ordinary man, therefore, it would seem that, on Menger’s solution, goods of a higher order might jointly derive from a good of a lower order a greater value than that good itself possesses. Menger, it should be noted, applies, although in a very brief discussion, the same principle to the question of the determination of wages. The value of labour in any given case is represented by the loss we should suffer in the event of that labour being withdrawn.57

Lastly (or at least lastly for our purposes), Menger applies the general principles underlying his doctrine to the problem of the motives prompting to exchange, and the extent to which exchange should be carried. Daring to make game of Adam Smith’s odd phrase regarding the “propensity to truck,”58 he shows that exchange is rooted in the ordinary individualistic impulse striving for the completes satisfaction of needs. Wherever A has possession of certain quantities of a good which have for him a less value than certain quantities of another good which are in the possession of B (and the reverse position holds the other way round), it will be advantageous for both that exchange should take place; and it is only necessary to confront the six horses and the one cow which A possesses against the six cows and the one horse which B has, specifying the diminishing value which each successive unit of cow and horse has in the eyes of A and B, to see up to what point exchange should take place. It is necessary to mention this point, but unnecessary to expand it, since this is one of the points more fully developed by Böhm-Bawerk.59

Before leaving Menger, it is perhaps worthy of mention that he does not use the word “margin,” which was lying ready to hand in the writings of von Thünen. It is to Wieser that this familiar friend is due; Menger himself periphrastically speaks of the “least important” use.

Wieser

As we are here concerned only with the general ideas of the Austrian school, the other leading members must be more summarily dismissed. Menger laid down the broad lines of doctrine; the others elaborated, and the elaboration became so subtle in its higher reaches, that one is tempted to concur in the view that the consequent advantage is to be found rather in the intellectual gymnastics performed by these authors than in any new results obtained. Friedrich von Wieser60 (1851-1926), who followed Menger with his Ursprung und Hauptgesetze des Wirthschaftlichen Werthes (1884), provided in his latei Natural Value (1889) what was doubtless the most characteristic statement of Austrian doctrine. Relying on Gossen’s Law of Diminishing Satisfaction, he gives a more precise statement of the doctrine of marginal utility, to which he gave the now accepted name of “Grenz-nutzen.” His approach is definitely psychological. Our interest is primarily in our satisfactions; but under certain conditions—primarily the limitation of the supply of goods and the power to modify the extent of that supply—the interest is transferred from the need to the thing which satisfies that need, and which thus becomes invested with value.61 The most characteristic part of Wieser’s contribution to the school lies in his doctrine of Zurechnung, which has been acclimatized in this country as “imputation” or “attribution.” It has been seen that one of the leading tenets of the school is that value exists primarily and essentially in goods of the first order—goods, that is to say, which, immediately serving the uses of the consumer, obtain a value directly from an estimate of their marginal use. To all goods of higher order, production-goods, value is reflected back. The needle derives its value from the value of the stocking; the plough, ultimately, from the value of the bread, and so on. Here arises the problem of “imputation.” In a sense the higher goods have no value until a value is “imputed” or “attributed” to them; but on what principles is a share of the value to be imputed to goods of a higher order? It is scarcely too much to say that Wieser’s whole theory consists in an analysis of the working of the process of imputation. Two points are worthy of notice. Firstly, imputation follows the marginal law; here also it is in the light of the least important product that we must determine what value is to be reflected back or “imputed.”62 Secondly, he differs from Menger in his method of determining the value of complementary goods. Menger, it will be remembered, had suggested that the value in such a case would be, determined by the loss which would result from the withdrawal of the good from the combination. In a series of chapters63 Wieser argues, as against Menger, that in the case of a stock of heterogeneous goods, when one is removed, the others are simultaneously deprived of a portion of their effect. Consequently, “the deciding element is not that portion of the return which is lost through the loss of a good, but that which is secured by its possession.”64 Wieser’s own solution is to determine what he calls the “productive contribution” by the use of a series of equations, showing the results of using the goods in varying combinations.

Though Wieser furnishes the classical statement of marginalist doctrine, nevertheless he seems to attempt a reconciliation of the Austrian theory of value with the cost-of-production theory. In one passage of his Ursprung65, he speaks of the process of value-formation as being a circular course. It rises from consumption-goods to production-goods; when determined there, it again descends from production-goods to consumption-goods. The descending branch whereby, in the hard reality of practice, the cost of the production-goods has to be met by the value received from the product, is visible of all men; not so the ascending (and prior) branch, which originally gives the productive goods their value. Once value has been conferred on a good of a higher order, it appears to us as a “gegebene Thatsache,” a datum in all subsequent transactions. Thus Wieser’s view would appear to be that the cost-of-production theory of value is not so much erroneous as incomplete. It is true so far as it goes, and in most cases is so in practice; but it does not push its inquiries far enough to find the source of that value which it accepts as existing in the productive goods.

Böhm-Bawerk

The third of the great Austrians who form the core of the Austrian school is Eugen von Böhm-Bawerk66 (1851-1914), perhaps the best known in this country, by reason of his theories regarding interest, and his very brilliant assault on the Marxian system. For our immediate purposes, Böhm-Bawerk is the author of two considerable works, both of which have fortunately been translated, one under the title of Capital and Interest, and the other as The Positive Theory of Capital. The former is an elaborate criticism of all earlier theories of interest, so that the work is in substance a very learned and detailed history of economic doctrine on this one point. This work is wholly destructive and critical, and though it prepares the way for a statement of the author’s own views, it does not in fact contain such a statement. It is to its companion work, The Positive Theory of Capital, that we must turn to get Böhm-Bawerk’s contribution to Austrian doctrine.

So far as the main parts of his work were concerned, Böhm-Bawerk rightly recognizes that on the whole, and apart from the discussion of interest, he was able to follow in the footsteps of previous theorists (Menger and Wieser). For our present elementary purposes, it is therefore unnecessary to attempt any survey of Böhm-Bawerk as a whole. There are, however, two points in Böhm-Bawerk’s doctrine to which reference is frequently made, and which may therefore be briefly noted here. One is his theory that price is determined by what he calls the “marginal pairs”; the other is represented by his views on interest, a subject which he describes as the “heavy part” of his leading work.

The theory of the determination of price by the so-called “marginal pairs” is to be found in the concluding portions of Böhm-Bawerk’s discussion of “price,”67 in which up to a point he shrouds obvious truth behind considerable complexity of statement. In the case of isolated exchange68 the price will be “determined somewhere between the subjective valuation of the commodity by the buyer as upper limit, and the subjective valuation by the seller as lower limit.” Putting it in everyday language, in the isolated exchange the buyer will not pay more than he thinks the thing is worth, nor will the seller sell for less than he, on his side, thinks it is worth, and the actual price will fall between these two limits. Next he advances to one-sided competition among buyers,69 and again it is obvious that “the most capable competitor,” the buyer who is willing to go furthest, will be the purchaser, and it is also obvious that the price will be somewhere between his valuation (the price to which he is willing to rise) and the valuation of the “most capable of the unsuccessful competitors.” In an auction the buyer will be the man prepared to give most, and he will have to go beyond the limit set by the bidder, who, next to him, hangs on longest. All this is truth such as scarcely requires an Austrian for its unveiling.

It is when Böhm-Bawerk comes to the idea of two-sided competition70 that the idea of “marginal pairs” emerges. For the sake of clarity it may be as well to take his own example. Ten people anxious to buy a horse come to market, where they are confronted by eight people each anxious to sell a horse, and by a remarkable coincidence no one horse differs from any of the other seven in any conceivable respect. The buyers and sellers each come with a different valuation of what a horse is worth, and in Böhm-Bawerk’s illustration the valuations are as follows:

Buyers.			Sellers.
A1	values a horse at (and will buy at any price under)	£30	B1	values a horse at (and will sell at any price over)	£10
A2		28	B2		11
A3		26	B3		15
A4		24	B4		17
A5		22	B5		20
A6		21	B6		21 10
A7		20	B7		25
A8		18	B8		26
A9		17
A10		15

Under these circumstances what will happen? Clearly A1, the most capable buyer, will buy a horse; he is in fact prepared to give a price which would induce any of the eight potential sellers to part with his horse. So likewise B2 is sure to sell for similar reasons. A1 and B1 are in fact sure to do business (though not necessarily with one another). Had they met in isolation, the price arrived at between them might have been anything ranging from just over £10 to something just under £30, depending on which happened to be the better player of poker. But in actual fact the limits within which the price may range will be restricted for them by buyers and sellers with less latitude. So A2 and B2 can be relied on to do business, again within limits determined by less “capable” buyers and sellers. Looking down the table, it is clear that the last people who could do business would be in fact A5 and B5; those who just fail to do business are A6 and B6. These are the marginal pairs; and while B1, who is a certain seller, may sell his horse to any of the A’s who in fact buy, the price at which the transaction will be carried through will be determined within the limits set by the last ins and the last outs. Waiving refinements, price is determined within the limits set by the subjective valuations of the marginal pairs. The important point in all this lies in the inferences which flow from the doctrine of marginal pairs; for it follows, firstly, that every market price is itself a marginal price; and secondly, that price, despite its apparent objectivity, is the product of subjective valuations.

The other point of fundamental importance in Böhm-Bawerk, that indeed which he made peculiarly his own, is the subject of interest. The point to be explained is why present goods have a higher subjective value than future goods of a like kind and number, why in fact £100 to-day is worth £105 a year hence; in other words, why interest emerges. Of this problem neither Menger nor Wieser had given a wholly satisfactory account. Böhm-Bawerk’s explanation is largely psychological, resting on the fact that we systematically discount the future. He advances three main influences operating in this direction.71 Firstly, in so far as we expect to be better off in the future, a like sum to-day will have a higher marginal value than the same sum in those more affluent times towards which (as we hope and trust) we are steadily moving. This applies to all who, being in embarrassment, expect to escape from their toils; it applies to the vast multitude who hope to be better rewarded in future, when their deserts are more worthily recognized. It does not apply to people on the down-grade, who are moving inexorably towards a pension of 40/80ths, or something worse; but even here present goods are, in the worst case, at least equal in value to future goods, since they can in general be carried forward without loss of value, and moreover they may act in the meantime as a reserve fund for anything that may turn up. Even such people therefore will rate present goods as high as, and perhaps slightly higher than, future goods. This, then, is the first reason for discounting the future, and arises from the fact that the hope which springs eternal in the human breast leads us to anticipate less stringent days ahead.

The second reason is that, just as we tend to overestimate our means in the future, so we tend to underestimate our future wants. This likewise is a complex of various influences. Partly it is due to a lack of imagination; we do not realize how many things we shall want next year, how many pleasures will plead to be tasted, how many “calls,” not to be avoided, are sure to be made upon us. Partly it is lack of will; we are feeble creatures, running through our salary on the day we get it, although we have an intellectual apperception of the fact that there are other thirty days in the month, weakly making promises even when, in making them, we know we are letting ourselves in for trouble. As a consequence we pit our goods in the future against a body of wants and demands which, when the time comes, will be greater than we have allowed for. The effect of these two errors of optimism, in putting our future resources at a maximum and the future claims against us at a minimum leads us to think that our money will go further in future, and will therefore have a lower marginal utility than, alas, we shall find to be the case when the time comes. Thus, quite apart from the fact that life is short and uncertain and we may never have a future, “we look at the marginal utility of future goods diminished, as it were in perspective.”72

The third cause advanced by Böhm-Bawerk in explanation of the emergence of interest is of a different character. It relates to the superiority of what he calls “roundabout methods of production.” More can be produced by a wisely chosen capitalistic process than can be obtained by direct unassisted production. Longer methods of production lead to a greater product, and therefore in comparing present and future goods, present goods are technically preferable in enabling the capitalist to obtain the advantages of roundabout methods of production, and the larger yield in the future. This leads to some of the points round which most discussion has centred; it is sufficient here to note the technical superiority of present goods, viewed from the angle of roundabout processes of production.73

Menger, Wieser and Böhm-Bawerk together sufficiently represent for the beginner the core and nucleus of the Austrian school; but perhaps a fourth writer claims, and can hardly be refused, inclusion among the original founders. It is obvious to us to-day that all the essentials of the Austrian theory are applicable not merely to the economy of the individual, but also to the economy of the State; and in particular that in that most crucial point of contact between the individual and the State, represented by taxation, that which is transferred to the State will also have for the State a marginal utility. The State may take, and apply to less urgent purposes, money which might have been more profitably employed by the taxpayer. This is indeed a rather dowdy old truth, which, however, is clearly capable of being neatly dressed in a chic Viennese confection. A discussion of this aspect of the question was the peculiar contribution of Emil Sax in his Grundlegung der Theoretischen Staatswirthschaft (1887). He applied Austrian thought to the economics of the State, and in particular used it to develop a theory of taxation.

________________

74 Reprinted in the “Economic History Supplement,” No. 2. of the Economic Journal, May, 1927.

75 Born at Montpellier, 1801; Professor of Rhetoric at Evreux, 1831; Professor of Political Economy at the Athénée, Paris, 1835; later Professor of Philosophy at Caen. His son, Leon Walras, perhaps a greater man, carried on his tradition.

76 De la Nature de la Richesse, pp. 18-19.

77 Ibid., p. 21.

78 Ibid., pp. 37-38.

79 Ibid., p. 41.

80 Ibid., p. 44.

81 Ibid., p. 81.

82 Ibid., p. 166.

83 Ibid., p. 167.

84 Ibid., p. 177.

85 Born 1810 at Düren; in the Government service without conspicuous success; retired 1847, and devoted himself to writing his book.

86 Entwicklung der Gesetze des menschlichen Verkehrs und det daraus fliessenden Regeln für menschliches Handeln. References are to the recent edition published by Prager, Berlin.

87 Entwicklung der Gesetze des menschlichen Verkehrs, p. 3.

88 Ibid., pp. 4-6.

89 Ibid., pp. 11, 12, 21.

90 Ibid, p. 46.

91 Ibid., p. 24.

92 Ibid., pp. 31, 33.

93 Ibid., pp. 24, 25, 26.

94 Ibid., p. 38.

95 Ibid., p. 84.

96 Born at Liverpool in 1835. For a time in the Mint oi Australia; 1866-1875 Professor of logic and mental and moral philosophy at Owens College, Manchester, and lecturer in political economy; 1875-1880 Professor in London.

97 The other non-Austrian founder of the Austrian school, Leon Walras (son of Auguste Walras), must be crowded out here. His Elements d’Economie Politique Pure dates from 1874, and he is thus slightly later than Menger and Jevons.

98 Theory of Political Economy, p. 3.

99 Ibid., p 10.

100 Ibid., p. 2.

101 Ibid., p. 52.

102 Ibid., p. 53.

103 Ibid., pp. 58-61.

104 Ibid., p. 62.

105 Ibid., pp. 68-70.

106 Ibid., p. 83.

107 Ibid., pp. 83, 130

108 Ibid., p. 157.

109 Ibid., p. 159.

110 Ibid., p. 161.

111 Ibid., p. 182.

112 Born 1840 at Neu Sandez in Galicia; student at Prague, Vienna and Cracow; Professor of Economics at Vienna, 1873; private tutor to Prince Rudolf of Austria. Returned to academic work, and finally retired from the university in 1903. In 1900 was made a life member of the Austrian Upper House.

113 Grundsätze, pp. 1-2.

114 Ibid., p. 3.

115 Ibid., pp. 8-9.

116 Ibid., pp. 11-17.

117 Ibid., p. 51.

118 Ibid.,pp. 52-53.

119 Ibid., p. 57.

120 Ibid., p. 62

121 Ibid., pp. 78, 86.

122 Ibid., p. 91.

123 Ibid., p. 96.

124 Ibid., p. 98.

125 Ibid., p. 99. The exact words may be given: “... der Wert einer Teilquantität der verfügbaren Giitermenge ist für jede Person demnach gleich der Bedeutung, welche die am wenigsten wichtigen der durch die Gesamtquantität noch gesicherten und mit einer gleichen Teilquantitat herbeizuführenden Bedürfnisbe-friedigungen für sie haben.” This is merely a fragment of a longer statement; Menger’s sentences and paragraphs, which are sometimes indistinguishable, frequently seem to call for dynamite.

126 Ibid., p. 124.

127 Ibid., p. 138.

128 Ibid., p. 139

129 Ibid., p. 142.

130 Ibid., pp. 149-150

131 Ibid., pp. 153-154.

132 Ibid., pp. 159-168.

133 Born 1851; educated at Vienna; for a short time in the Civil Service; then teaching in the Universities of Vienna and Prague, returning to Prague in succession to Menger. Minister of Commerce, 1917, returning later to his Chair. Died 1926.

134 Ursprung p. 80.

135 Natural Value, Book III, chap. 8.

136 Ibid., Book III, in particular chaps. 4-6.

137 Ibid., p. 85 of English translation.

138 Ursprung, p. 156.

139 Born at Bnünn, in Moravia, in 1851; studied at Vienna; employed for a time in the Finance Department of the Imperial Government. Returned to academic life, and ultimately became Professor in Vienna. In 1890, Ministerialrath in the Finance Department. Remained in the Government service until 1909; hereafter again Professor in Vienna.

140 Positive Theory of Capital, Book IV.

141 Ibid., Book IV, chap. 2.

142 Ibid., Book IV, chap. 3.

143 Ibid., Book IV, chap. 4.

144 Dealt with successively in Positive Theory of Capital, Book V, chaps. 2, 3 and 4.

145 Ibid., p. 258 (English translation).

146 See, e.g., pp. 82, 268 of the English translation.

1The Republic, Jowett’s translation, p. 49.
2Ibid., Book III, p. 106.
3The Republic, Jowett’s translation, p. 154.
4Beer, Social Struggles in Antiquity, p. 97.
5Ibid., p. 124.
6Ibid., p. 401.
7Laistner, Greek Economics, p. 16; Ways and Means, etc.
8The Laws, Jowett’s translation, p. 121.
9Ibid., p. 127.
10Ibid., Book I, chaps. 5 and 6.
11Ibid., p. 230.
12Ibid., p. 87.
13Ibid., p. 517.
14Politics, Book II, chap. 3, Welldon’s translation, p. 43.
15Ibid., Book II, chap. 5, p. 49.
16Ibid., Book I, chap. 6, Welldon, p. 13.
17Ibid., Book II, chap. 5, p. 48.
18Ad Helviam Matrem de Consolatione, chap. 9.
19Ibid., p. 92.
20Ibid., Book I, chap. 9.
21Ethics, Book V, chap. 5, Welldon’s translation, p. 149.
22Ibid., Book I, chaps. 3 and 8.
23Pliny, Book XVIII, chap. 7.
24Analyse du Tableau Économique, pp. 304-309.
25The reader who is beclouded by this brief summary should refer to the Réponse au Memoire de M.H., pp. 384-395, and the dialogue Sur les Travaux des Artisans, p. 256 et seq., where this point is discussed with much Physiocratic subtlety.
26Politics, Book III, chap. 5, Welldon, p. 113.
27Ibid., Book I, chap. 8.
28Nos. 12 and 13 of the Maximes, attached to Grains, p. 239.
29Réponse au Memoire de M.H., p. 390.
30Loeb translation, pp. 367, 409.
31Ibid., p. 153.
32Ibid., sections 71-75.
33Printed in Laistner, Greek Economics.
34Ecclesiasticus 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).
35This presumption Rae holds to be unfounded; it is by no means demonstrable that the art of the legislator is powerless to promote the prosperity of nations, and indeed the assumption should rather be the other way. The example which bulks most largely in his mind is that of the passage of the useful arts from one country to another. These transplantations were originally due to violent causes; they were the consequences of war, revolution and exile. But if such evil influences no longer operate, must we also sacrifice the indirect good which such causes may have produced, or is it not rather the duty of “the intellectual part of our nature “to achieve the good and prevent the evil? The original violent methods of dissemination of the knowledge of the arts should therefore be replaced by the direct efforts of the legislator to draw them there. Thus the legislator is called upon to act, but to act cautiously; and the weapons which Rae places in his hands for this purpose are represented by premiums, bounties and duties. This argument Rae further buttresses by the contention that cases in which private effort succeeds in transferring an industry to a new country are very rare, and that it is scarcely ever likely to be profitable. “It would be more just and judicious,” he says, “that the necessary first cost of the scheme should be borne by the whole community” rather than that we should wait “till the miscalculations of some unfortunate projector confer on us a public benefit.” Thus does the infant industry argument gently crow from its cot.
36Ibid., p. 482.
37Ibid., p. 477.
38Ibid., p. 484.
39“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.)
40Ibid., p. 405.
41Laistner, op. cit., p. 41.
42De Ira, III, 32, 33.
43“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:
44Pliny, Book XXXIII, chap. 19.
45“Et cum ille, qui quæsierat, dixisset: ‘ Quid fænerari? ’, turn Cato: ‘ Quid hominem,’ inquit, ‘ occidere’” (De Officiis, Book II, xxv; Loeb, p. 266.)
46Second Probleme Économique, p. 706.
47Rae is an interesting study for those who are fascinated by the reaction of mind on mind. Perhaps in part owing to a common American environment, there is a good deal in him that foreshadows Carey, notably in his treatment of land as an instrument, indistinguishable from other instruments, and in a doctrine that approaches Carey’s theory of value as determined by cost of reproduction.
48Pliny, Book XXXIII, chaps. 3, 4.
49Ibid., section 7.
50Sismondi (1773-1842), as a writer of economics, is extremely difficult to “place.” This is due to the fact that his was a mind in transition; he never quite lost contact with his starting point, yet he never quite arrived at his natural destination. While having kinship with many schools, he is consequently at home with none. In his first important work, De la Richesse Commerciale (1803), his position is simple; he is, as becomes a young man, content to be a not very critical follower of Adam Smith. Moreover, there is a refreshing honesty about his dis-cipleship. Of certain chapters he tells us that they contain no ideas really new to anyone who has studied Adam Smith, and further that his object is to appropriate to France the counsels which Adam Smith had intended primarily for England. There is an engaging candour in his later confession that if in this book he did not make any discoveries, he was at least well aware of the fact.
51Pliny, Book XVIII, chap. 7.
52Even 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.
53It 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.
54Sismondi’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.
55Sismondi (1773-1842), as a writer of economics, is extremely difficult to “place.” This is due to the fact that his was a mind in transition; he never quite lost contact with his starting point, yet he never quite arrived at his natural destination. While having kinship with many schools, he is consequently at home with none. In his first important work, De la Richesse Commerciale (1803), his position is simple; he is, as becomes a young man, content to be a not very critical follower of Adam Smith. Moreover, there is a refreshing honesty about his dis-cipleship. Of certain chapters he tells us that they contain no ideas really new to anyone who has studied Adam Smith, and further that his object is to appropriate to France the counsels which Adam Smith had intended primarily for England. There is an engaging candour in his later confession that if in this book he did not make any discoveries, he was at least well aware of the fact.
56What, 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.
57Sismondi’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.
58Ricardo’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.
59Probably the economic foundation is so tangled and uncertain because the main inspiration may have come from elsewhere. His view of man is that of the moralist; there is indeed an almost religious fervour in his denunciations. For Sismondi, man is a creature with whom rest, le repos, is a natural taste, and in the scheme of things this natural taste should also find its gratification. “L’homme travaille pour que l’homme se repose,” as he says with an air of benediction; but in the urge to produce, we forget the end of all labour and the purpose of life.
60Ricardo’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.
61The doctrine of the harmony of interests and of the potency of the invisible hand accordingly receives short shrift from the later Sismondi, and though he does not use the phrase, he realizes how laissez-faire may break down on inequality of bargaining power. There may be self-interest displayed in highway robbery, and self-interest may likewise dictate to the victim the expediency of offering no resistance, if acquiescence is calculated to increase his prospects of escaping unmurdered. The institutions of society have, argues Sismondi, given rise to a similar kind of restraint, though it may not be accompanied by such obvious violence. “It has as often as not placed the poor man under the necessity of submitting to increasingly onerous conditions, under the penalty of dying of hunger; in placing him in this perilous condition, it falls to society to undertake his defence.” Left to its natural course, the conflict of interests, since it may be to the interest of the weak not to resist, may lead to the triumph of injustice.
62Such 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.
63Easy enough to speak of slowing down; but how? Take, for instance, the vexed question of inventions and machinery on which Sismondi has unusual views. In the main he detests inventions; they usually, though not necessarily, lead to evil consequences. Man loses in intelligence, in bodily vigour, in health and gaiety, all that he gains in increased power to produce wealth. Even children, it is true, may make stockings from their most tender years, before they have tasted any of the enjoyments of life. But at what an odious price are these things bought! The normal effect of inventions is to diminish the labour demanded, and thereby make the country poorer, even though this broad effect may be concealed by the operation of foreign trade which, while creating prosperity in the producing country, may concentrate elsewhere the real ruin created. Thus in the case of English manufacturers, “all the suffering has fallen on continental producers, all the enjoyment has remained with the English.” It is not, however, all inventions that are to be condemned; the criterion which Sismondi applies is to be found in the pre-existence of an unsatisfied demand. “Whenever demand for consumption surpasses the means of production, any new discovery is a benefit for society, because it provides the means of satisfying existing needs. On the contrary, wherever production is fully sufficient for consumption, any similar discovery is a calamity because it does not add to the enjoyment of the consumers anything else than that of satisfying their needs at a lower price, while it suppresses the very life of the producers.” The market must first be extended; if this is done, there is room for invention. Modifying the argument, Sismondi contends that when an invention extends the market by putting the commodity at the disposal of a poorer class, it is beneficial. But if the market cannot be extended, either because all needs are already supplied or because, no matter what reduction in price is made, the poor will never be consumers, then the discovery is a calamity for the human race, for in this case it will only advantage certain manufacturers at the cost of others—or, it may be, certain nations at the cost of others. So also, when Sismondi assumes the part of a laudator temporis acti, it is one of the marks of happier times that then men only thought of inventions when a new need had made itself felt.
64When Sismondi, after an interval of sixteen years spent in historical research, returned to economics in his Nouveaux Principes d’ Économie Politique (1819) he may be a respectful admirer of Adam Smith, but he is certainly no longer a meek disciple. In the interval he had seen the world in a period of rapid transition and industrialization, a world urged from every quarter to produce more, and to produce more cheaply. He had looked upon it, and had found little to admire. Behind all this feverish accumulation there lurked the teaching of orthodox political economy; but for the maturing Sismondi, political economy ought to be something else. It was “la théorie de la bienfaisance”; its object was to increase the physical well-being of man. But in the Europe of 1819, above all in the England of that day, what had happened to the enjoyment of life? In sombre phraseology, in contrast to which Malthus appears a radiant optimist, Sismondi describes a world, hungry, suffering, degraded, and he is tempted to curse division of labour and the invention of manufactures as the rock on which the human race has made shipwreck. To Sismondi, it appears appropriate to ask the disturbing question: “Where are we going?” Where are the happy people in this world in which everywhere one observes the progress of things, everywhere the suffering of men ?
65Despotisme de la Chine, chap. 8, sec. 7, p. 645.
66Even 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.
67It is obvious at what point von Thünen has arrived; he has evolved the Ricardian theory of rent, although primarily in terms of situation and distance from the market, and not, as in the case of Ricardo, in terms of quality. When he comes to discuss taxes on rent, it is obvious that he has very clear ideas as to what the conception involves. If a portion of “land-rent “has to be surrendered to the State, this will, he says, in no way alter the form or the extension of agriculture. The farms whose rent is near zero, will contribute very little to such a tax, and the most remote and the worst will not be affected. Such a tax, therefore, could not detrimentally affect the extent of cultivation, the population, the application of capital, or the quantity of produce; indeed, if the whole of the rent were taken away by the tax, the cultivation of the soil would remain as before.
68Easy enough to speak of slowing down; but how? Take, for instance, the vexed question of inventions and machinery on which Sismondi has unusual views. In the main he detests inventions; they usually, though not necessarily, lead to evil consequences. Man loses in intelligence, in bodily vigour, in health and gaiety, all that he gains in increased power to produce wealth. Even children, it is true, may make stockings from their most tender years, before they have tasted any of the enjoyments of life. But at what an odious price are these things bought! The normal effect of inventions is to diminish the labour demanded, and thereby make the country poorer, even though this broad effect may be concealed by the operation of foreign trade which, while creating prosperity in the producing country, may concentrate elsewhere the real ruin created. Thus in the case of English manufacturers, “all the suffering has fallen on continental producers, all the enjoyment has remained with the English.” It is not, however, all inventions that are to be condemned; the criterion which Sismondi applies is to be found in the pre-existence of an unsatisfied demand. “Whenever demand for consumption surpasses the means of production, any new discovery is a benefit for society, because it provides the means of satisfying existing needs. On the contrary, wherever production is fully sufficient for consumption, any similar discovery is a calamity because it does not add to the enjoyment of the consumers anything else than that of satisfying their needs at a lower price, while it suppresses the very life of the producers.” The market must first be extended; if this is done, there is room for invention. Modifying the argument, Sismondi contends that when an invention extends the market by putting the commodity at the disposal of a poorer class, it is beneficial. But if the market cannot be extended, either because all needs are already supplied or because, no matter what reduction in price is made, the poor will never be consumers, then the discovery is a calamity for the human race, for in this case it will only advantage certain manufacturers at the cost of others—or, it may be, certain nations at the cost of others. So also, when Sismondi assumes the part of a laudator temporis acti, it is one of the marks of happier times that then men only thought of inventions when a new need had made itself felt.
69Sismondi’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.
70In elaborating his theory of rent, von Thünen has in effect made use of the idea of the margin, and it is surprising how, throughout his speculation, he anticipated the technique of the later marginalist school. Thus, with regard to wages, he lays down the principle that on an estate, beyond a certain point, each additional worker will yield a smaller addition to the product, the twenty-second less than the twenty-first, the twenty-third less than the twenty-second and so on, and that the increase in the number of workers must therefore be continued until the additional value yielded by the last worker is equal to the wage which he receives. Further, the wage which the last worker receives must act as the norm for all workers, since unequal remuneration cannot be made in respect of the same work. Here, undisguised, is the theory of the marginal productivity of labour. So again, in discussing the relation of interest and wages, he emphasizes “the diminishing effectiveness of capital” in a wholly modern manner. By means of a lengthy table, such as von Thünen delights in, he shows that capital, as it increases in amount, can only find less profitable outlets, and that at each stage of its increase, competition will force down the rate of interest to that which the least profitable opening can afford to pay. Consequently, interest (the rent which capital yields) is determined by the yield of the last portion of capital applied; and it is notable that in determining the rate of interest von Thünen regards the successive increments of capital as being infinitely small.
71Viewed apart from this dream, there are two aspects of the wage-problem with which von Thünen grapples: firstly, why cannot wages rise so as to absorb the rent which the owner draws without labour? Secondly, is the low rate of wages founded in the nature of things, and thus in accordance with the will of Providence, or is the present position the result of force and oppression? On the first point von Thünen traces, in the most approved manner, the effects of a rise of wages “at the margin of cultivation, where the soil gives no rent,” leading ultimately to a drawing-in of the margin of cultivation towards the town, with displacement of labour and subsequent depression of wages. On the problem of the true rate of wages, von Thünen rather tends to provide one of the curiosities of economic literature. He points out that wages must comprise two constituent parts: (i) what the worker must expend for his maintenance in order to remain efficient; and (2) what he receives as a reward for his exertion, so that Roscher hails him as one of the earliest to view wages as something more than the price of a commodity, “labour.” But beyond this, his contribution to the theory of wages is somewhat bizarre. In the pursuit of a natural and a just rate of wages, von Thünen proves, with a vast display of mathematical formulæ, and indeed along various lines, that the true formula for wages is represented by ap, where a represents subsistence, and p the productivity of the worker. The proof, such as it is, rests on assumptions which are unreal, and the very celebrated formula cannot therefore be regarded as more than a symbol of the view that the worker should share in the prosperity which he produces. In practice, von Thünen would appear to have introduced a kind of profit-sharing scheme on his estate, which doubtless represented a distant obeisance to ap. Von Thünen himself, however, regarded the formula as his crowning achievement, and desired that it should be inscribed on his tombstone—a medium of publication in which strictness of proof is seldom exacted.
72Ibid., p. 258 (English translation).
73With regard to population, that apple of discord which Malthus had lightly tossed to the economists, Sismondi’s views are likewise peculiarly his own. Population, he holds, is limited by revenue. In contradistinction to what Malthus had said, population never reaches and probably never will reach the limit of possible subsistence. It is checked because it becomes impossible to buy the means of subsistence, or because people are not allowed to work in order to produce it. The check thus comes, not from the means of subsistence, but from the “will” of man, above all of the landowner who will not allow others to work unless he receives a revenue for his assent. This, of course, is scarcely in opposition to Malthus; but in his further elaboration of the element of human volonté, his views as to the natural action of man differ profoundly from those of Malthus. The vital thing on which population depends is the demand for labour. Given employment and an assured revenue, people will marry and have children; the vice of the new society is that there is no security as to the worker’s revenue, and the worker being deceived as to his position, children are born for whom there is no provision. It is a firm article of faith with Sismondi that the worker will not marry until he can afford to marry, and that he will proportion his family to his revenue—that is, assuming there is stability and a fixed revenue. But if there is no stability, if the workers are displaced by machinery, how grave is their situation! The workers’ revenue is no longer within their calculation; it may be altered by others without their knowledge; the entrepreneur himself may miscalculate. So living from day to day, the “proletarians become content that their children should do the same”; moreover, do not the children become a title to charity, and may they not spasmodically earn wages from the age of seven? Thus the restraint on marriage disappears and children are born for whom society has made no provision. It is not then so much demand for work that is important, as regular and perpetual demand; for if the demand is Intermittent, it merely creates workers in order to condemn them to death.
74So 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.
75Thus 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.”
76Then 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.”
77Firstly, 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.
78A 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.
79The 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.”
80The 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.”
81A 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.
82A 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.
83Under 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.
84Among 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.
85Among 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.
86The 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.”
87When 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.
88Aristotle’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.
89Under 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.
90Aristotle’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.
91Seneca’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.
92For 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.
93As 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.
94Apart 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.
95Apart 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.
96In 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.”
97The 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.
98With 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.
99One 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.”
100Coming 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.
101It 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.
102With 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.
103The 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.”
104Apart 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.
105The 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.
106It 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.
107One 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.”
108Ibid., pp. 369-370.
109It 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.
110It 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.
111It 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.
112Even 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.
113The 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.”
114Apart 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.
115Seneca’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.
116Of 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?”
117In 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.”
118Of 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?”
119The 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.”
120Thus, in discussing “instruments,” he explains that “a field fitted for use is an instrument....The power which has made it an instrument is the agriculturalist’s labour” (p. 16). And again, “a portion of cultivated land, considered as an instrument actually subject to the operations of the husbandman, does not differ from any other instrument” (p. 40). On the question of value where articles are produced with less labour than formerly, they “procure for their owners less of other articles in exchange than they did before. They exchange, not for what labour has been actually wrought up in them, but for what is now required to make others similar to them” (p. 107).
121In 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.”
122The 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.
123The full title is significant: De la Richesse Commerciale ou Principes d’Econotnie Politique appliqués à la Législation du Commerce.
124Apart 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.
125Ibid., chap. 16, p. 143.
126Ibid., chap. 2, footnote, p. 39.
127Ibid., Vol. I, p. 68.
128Nouveaux Principes, p. vii.
129See above, p. 116.
130Ibid., Vol. I, p. 338.
131Ibid., chap. 5, On Wages, p. 57.
132Ibid., Vol. I, p. 78.
133Ibid., chap. 6, On Profits, pp. 70-71.
134Ibid., Vol. I, p. 197.
135Mr. 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.
136Ibid.. Vol. I, p. 322.
137Nouveaux Principes, Vol. II, p. 248; Vol. I, pp. 8-9.
138Quesnay’s peculiar views with regard to agriculture as the only productive activity and the only source of the national revenue lead to certain important conclusions in the field of taxation. Taxation also is subject to laws and immovable rules, capable of rigorous demonstration.Here it is only possible to note two of Quesnay’s fundamental points. The first (a counsel of perfection) is that the State should avoid loans; the statesman should hope for resources in special emergencies from the prosperity of the nation, and not from the credit of the financiers. The objection to loans is primarily that they create a “traffic in finances,” from which spring “fortunes pécuniaires” and “rentes financières.” Sterile fortunes, withdrawing money from agriculture, are thus created (the corresponding Tableau Économique would show a drain to the right to the unproductive classes). Moreover such “pecuniary fortunes” know no king nor country. In more modern language, loans lead to a rentier class operating in an international field of investment.
139Ibid., chap. 17, footnote, p. 160.
140Ibid., p. 346.
141Etudes, I, p. 34.
142Ibid., Vol. I, pp. 77-80.
143Ibid., pp. 496, 498, 558. “Es folgt hieraus dass wir das zuletzt entstandene und angelegte Kapitalteilchen, durch dessen Nutzung der Zinsfuss bestimmt werden soil, sehr klein—genau genommen, unendlich klein—annehmen mussen.”
144It is perhaps worthy of notice that von Thünen uses the word “Grenze,” now irremediably consecrated: “An der Grenze der kultivierten Ebene des isolierten Staats, wo der Boden keine Rente gibt” (ibid., p. 463).
145The second reason is that, just as we tend to overestimate our means in the future, so we tend to underestimate our future wants. This likewise is a complex of various influences. Partly it is due to a lack of imagination; we do not realize how many things we shall want next year, how many pleasures will plead to be tasted, how many “calls,” not to be avoided, are sure to be made upon us. Partly it is lack of will; we are feeble creatures, running through our salary on the day we get it, although we have an intellectual apperception of the fact that there are other thirty days in the month, weakly making promises even when, in making them, we know we are letting ourselves in for trouble. As a consequence we pit our goods in the future against a body of wants and demands which, when the time comes, will be greater than we have allowed for. The effect of these two errors of optimism, in putting our future resources at a maximum and the future claims against us at a minimum leads us to think that our money will go further in future, and will therefore have a lower marginal utility than, alas, we shall find to be the case when the time comes. Thus, quite apart from the fact that life is short and uncertain and we may never have a future, “we look at the marginal utility of future goods diminished, as it were in perspective.”
146The similarity to Malthus and the different emphasis are alike interesting: “La population se mesure toujours, en dernière analyse, sur la demande du travail. Toutes les fois que le travail sera demandé et qu’un salaire sufnsant lui sera offert, I’ouvrier naitra pour le gagner” (ibid., Vol. II, p. 284).

The Development of Economic Doctrine: An Introductory Survey