The Development of Economics

CHAPTER XII

THE NATIONALISTS

A. Introduction

At no stage in its development did the Classical Political Economy enjoy immunity from criticism. The objections brought against it varied widely in importance and character, some of them relating to non-essentials and others to essentials, and some of them being sound and others unsound. In the following chapters we shall present only those which seem to us to have had a tendency to modify or to undermine the system, and as representatives of these criticisms we have selected groups of men who in some cases differed widely from each other in other points than the one in question, and some of whom were in agreement with the classical economists on so many points that in any broad classification they should be grouped with rather than against them. These groups are roughly described by the terms the Nationalists, the Old Historical School, the Optimists, and the Socialists.

These critics were scattered chronologically throughout the entire period covered by the development of the classical system, and some of them, therefore, appeared before that development was complete. For this reason, the classical system was represented to some of them by Adam Smith only, to others by Adam Smith, Ricardo, and their adherents, and to still others by a group large enough to include John Stuart Mill.

Under the head Nationalists, we group four men who believed in common that the classical economists had neglected to give due weight to the national elements of economic life. They contended that in the science of political economy the welfare of nations should be the prime consideration and that this was frequently in conflict with that of individuals and classes; that the proper explanation of economic phenomena requires that they be contemplated from the national viewpoint; and that such contemplation frequently leads to results very different from those reached by the classical economists, whose viewpoint was individualistic and cosmopolitan. The earliest of these critics,

Lord Lauderdale, was also the least drastic, and on account of the appearance of his writings before the days of Ricardo and Mill his criticism was aimed at Adam Smith and his predecessors and contemporaries.

B. Lord Lauderdale

Lord Lauderdale, a member of a Scotch family, was born in 1759 and died in 1839. He studied jurisprudence at Glasgow and Edinburgh, and was admitted to the Scottish bar as an advocate. From 1781 to 1788 he was a member of the House of Commons. In 1789, after the death of his father, he inherited a position in the House of Lords which he held during the remainder of his life. At times he was employed by the English Government on various missions, particularly to France in connection with the treaties that were made during the period of the French Revolution. Most of his writings were on practical questions and were in monographic form.

His most pretentious work was entitled An Inquiry into the Nature and Origin of Public Wealth and was published in 1804.

1. The Distinction between Public Wealth and Private Riches.

In this book he charged that Adam Smith and his contemporaries and predecessors had identified public wealth with private riches and attempted to show that this is a grave error resulting in much fallacious reasoning.

2. Criticism of Smith’s Doctrine of Saving.

The failure of Adam Smith and others to distinguish between public wealth and private riches was also responsible, in the opinion of Lauderdale, for a second error, namely the doctrine that parsimony or saving is one of the chief, possibly the chief, means of increasing public wealth.

Smith’s reasoning on this subject was substantially as follows: Labor is the active productive agent; capital sets labor in motion; and capital is the result of saving. Therefore, the more saving the more capital; the more capital the more labor set in motion; and the more labor set in motion the more wealth.

In accordance with this view he maintained that “the wealth of man can alone be increased”:

“1. By labour, whether personal or performed by capital, employed in increasing the quantity, and meliorating the quality of the objects of his desire; and

The relative amounts of labor which can be performed respectively by personal labor and by capital depend upon the knowledge possessed by the people of a nation of the work beyond the capacity of man performable by capital. According to Lauderdale, this knowledge is not in any way related to or proportional to the volume of saving; it depends entirely upon other conditions.

The amount of capital needed by a nation depends entirely upon this knowledge and at any particular time is, therefore, strictly limited. It may be too great as well as too small, and either too great or too small an amount is detrimental to a nation, in the first case because the production of an excess of capital is a waste of labor and natural resources which might otherwise have been used in increasing consumable wealth and in the second case because the nation loses the advantage of the superior and extraordinary labor which capital alone can perform.

3. The Adjustment of the Volume of Capital to a Nation’s Needs.

The proper adjustment of the volume of capital to the nation’s need for it, in Lauderdale’s opinion, does not depend upon saving or parsimony; indeed, he felt that to place such emphasis upon saving as Adam Smith did was likely to result in overproduction of capital.

To think of saving as the only, or even as the primary, source of capital he regarded as another grave error. The most important causes of the increase of capital, he said, are the discovery by interested persons of ways in which labor may be supplanted by capital or in which labor beyond the capacity of man may be performed by it and the creation of the additional industry necessary to produce the capital for which uses have been discovered. To divert labor from the production of consumable commodities, the method of saving or parsimony, is, therefore, only one and not the chief source of capital accumulation. It is also a dangerous source since it is practised to the greatest extent by people who do not labor, and consequently by people who have no means or inducement to discover methods of supplanting or supplementing personal labor, and thus is likely to result in overproduction. On this same ground he also condemned forced saving through government action, such as a too rapid payment of the public debt.

C. Adam Heinrich Müller

The nationalistic point of view was also represented by Adam Heinrich Müller, a Prussian nobleman by birth, whose life covered the period of 1779 to 1829. He studied Protestant theology at Gottingen but in 1805 was converted to Catholicism and entered the employ of the Austrian government. The years 1806-1809 he spent in Dresden as tutor of the Saxon prince Bernard of Saxe-Weimar, subsequently reentering the service of the Austrian government, part of the time in the capacity of consul-general at Leipzig.

While in Dresden he delivered a course of lectures which were published under the title Vorlesungen über die deutsche Wissenschaft und Literatur. In after years he published other books, among which were the following:

Von der Idee des Staats (Dresden, 1809)

Die Elemente der Staatskunst (Berlin, 1809)

Die Theorie der Staatshaushaltung (Vienna, 1812)

Versuch einer neuen Theorie des Geldes (Leipzig, 1816)

Von der Notwendigheit einer Theologischen Grundlage der gesammte Staatswissenschaften (Leipzig, 1819)

The contrast between the two points of view is made more striking by Müller’s emphasis on the continuity of the state and the national economy, which he considered the greatest of all political problems. According to his view, states and nations include past and future generations as well as the present, and between these he recognized a division of labor quite as significant as that between the contemporaneous operations described by Smith. The present is the heir of the past and passes on an inheritance to the future.

Müller also reacted vigorously against the tendency of Adam Smith to rivet attention on material things and enjoyments to the exclusion of others, especially moral and spiritual ones, and upon self-interest to the exclusion of other motives. Smith, he said, “shows how everything would be if everyone, regarding himself alone, should work exclusively for gain, if men should have no other or higher desire than that for physical well-being.” As an ideal to set before men he considered this very bad. The farmer, he said, should work first of all for God’s sake and for the love of it, second for gross product, and last, as a consideration to come after all of these, for net product. The administration of a landed estate he declared to be an office, a public trust (ein Amt). Woe, he cried, to the purely rational agricultural economy which sees in the laborer only labor power and in the earth only soil, neglecting everything personal.

Müller held that the individualistic point of view led Adam Smith into many other errors, among them the advocacy of free trade. Smith, he said, assumed a world market in which foreign merchants constitute a kind of separate republic and on which the principle of division of labor operates on an international scale. He held that this was as much of a chimera as the conception of a universal empire. In contrast with that conception, nations should be regarded as great human beings differing in their bodily forms, in their ways of thinking and feeling, and in their activities and lives. With such conditions it cannot be admitted that each nation should produce only those things for which it is best fitted and for other things rely upon foreign trade. The peculiarities of nationality extend to economic activities and the maintenance and development of these frequently demand, according to Müller, the imposition of import and export duties and the maintenance and development of institutions which are old and apparently incomplete.

He was equally antagonistic to the doctrine of laissez-faire. To this he held that state despotism was preferable.

D. Daniel Raymond

Raymond criticized Adam Smith for failure to explain the true nature of national wealth. In his opinion, Smith made the capital error of identifying it with the riches of individuals and of believing that the best methods of increasing and promoting the latter were also the best methods of increasing and promoting the former. In opposition to this Raymond held that the two should be carefully distinguished and that the best and proper ways of increasing and promoting the national wealth could not be discovered by a study of the best ways of increasing and promoting individual riches and should, therefore, be a separate subject for study and the special care of the political economist.

So far his criticism is identical with that of Lauderdale, but the distinction he drew between national wealth and individual riches materially differed from that author’s. The latter thought of both in terms of commodities and of identically the same commodities, and made the distinction turn upon the quality of scarcity, goods useful and desirable to men constituting national wealth and the same goods when scarce constituting individual riches, the degree of scarcity measuring such riches. Raymond made the distinction turn on the difference between goods and the capacity to produce them. According to his view, private wealth consists of property for the use of which the owner can obtain a quantity of the necessaries and comforts of life, and the use he had particularly in mind is exchange. His conception of private wealth seems to have been derived from the common conception of a wealthy person, that is, one who has a relatively large amount of property, said property consisting largely of things which can be exchanged on the markets for the necessaries, comforts, and luxuries of life.

In developing the consequences of this definition he spoke of the distinction between national property and national wealth. As is evident from the passages already quoted, a nation’s wealth is not measured by its property, which is quite inadequate to supply it with the necessaries and comforts of life. A nation with a large property might be relatively poor in the capacity to produce, and consequently in real wealth as Raymond defined that term.

(a) Adam Smith and others treated not of political but of private economy. “Political economy,” he said, “is a science which teaches the nature of public or national wealth. . . . It professes to teach the most effectual means of promoting a nation’s wealth and happiness, and it embraces every subject which has a tendency to promote them.”

(d) He criticized Smith’s doctrine of free trade, refuting his arguments one by one. He denied that each individual in seeking his own interest will employ his capital in the way most beneficial to the nation, and, while admitting that as a general rule a nation should import articles that can be produced outside cheaper than at home, he held that the exceptions to this rule are numerous. In this connection the costs of production that should be considered, he claimed, are not the initial ones but the average over a series of years. A protective policy, he believed, would in many cases reduce these.

As positive arguments in favor of protection he claimed that it is necessary, in order to give constant employment to the entire labor force; that by creating a monopoly of the home market, it promotes certainty and stability of demand; that it increases a nation’s skill in the arts and sciences, and thus its capacity for acquiring the necessaries and comforts of life; that it raises the standard of living by preventing the competition of low-priced foreign labor; and that it prevents the dumping on our markets of the surplus products of England and other countries, and the consequent demoralization of prices and destruction of home markets and domestic manufactures.

He believed that tariffs require frequent revision, very often in the direction of higher, rather than lower, levels and that the tariff should be lowest upon those articles that are not or cannot be produced in this country, and highest upon those that employ the greatest number of people.

E. Frederick List

The most influential and the best known of the Nationalists was Frederick List, who was born in the Kingdom of Württemberg, Germany in 1789. At the age of seventeen he became a clerk in one of the departments of the government and was subsequently promoted to the secretaryship of the minister who had charge of local affairs. In 1816 he was promoted to be chief examiner of accounts and to membership in the Court of Audit. In the following year, 1817, he was appointed to the newly established professorship of administration and politics in the University of Tubingen, but a reactionary ministry following the liberal one which was responsible for his appointment dismissed him from this post on account of his reform sentiments and activities. This episode marks the beginning of a conflict between him and the government which resulted in his imprisonment for a time and in his exile to the United States.

List landed in New York in June, 1825, and soon after toured the country with Lafayette, whom he had met in Paris during a forced visit to France to escape arrest. This trip brought him into contact with the leading men of the country, including politicians, and enabled him to get a first glimpse of American life under the most favorable auspices. At this time protectionism was the leading political issue in this country, and List eagerly and enthusiastically espoused the cause of the North in its advocacy of high duties, joining with Mathew Carey, Charles J. Ingersoll, and other Pennsylvania leaders in their propagandist activities. In this connection he published a series of letters addressed to Ingersoll which were subsequently reprinted in pamphlet form under the title Outlines of a New System of Political Economy and which gave him high rank among protectionist writers and considerable reputation. In 1830 President Jackson appointed him consul to Hamburg, but the appointment was not confirmed by the Senate. Subsequently he received and occupied the post of United States consul to Leipzig. While in the United States he also made a moderate fortune through the purchase and successful operation of a coal mine which, however, he subsequently lost.

The last years of his life were spent in Germany, with short visits to France and England, and were devoted chiefly to the promotion of railroad construction and agitation for the establishment of a German Zollverein. In this connection he wrote voluminously and traveled extensively, for a time editing a paper entitled Zollvereinsblatt. Beside these writings, during a visit to Paris he submitted an essay to the French Academy in competition for a prize on the topic “Lorsqu’une nation se propose d’établir la liberté du commerce ou de modifier sa législation sur les douanes, quel sont les faits qu’elle doit prendre en considération pour concilier de la manière la plus équitable les intérêts des producteur et ceux de la masse des consommateurs.” For this he received, not the prize, but the commendation of the judges, who pronounced his production “a remarkable work.” This essay was followed by the composition and publication of the book by which he is best known among economists, entitled, Das Nationale System der politischen Oekonomie, der internationale Handel, die Handels politik und der deutsche Zollverein. This book contains the most complete and exhaustive statement of his views on political economy. Compared with early writings and especially with his Outlines of American Political Economy, which appeared in 1827, and with his essay submitted to the French Academy in 1837, it indicates that his views evolved gradually under the influence of his observations and studies in Germany and the United States and especially of his American friend, Mathew Carey, and of Daniel Raymond’s book on political economy. The resemblance between Raymond’s views and List’s is so close and striking that the charge of plagiarism was raised. List, however, vigorously denied it.

In the preface he professes to give a history of his opinions and to place himself in proper relations to other economists, and in the introduction he gives a statement of his attitude toward the Classical Political Economy and a summary of his doctrines. Book I, the “History,” is based upon the essay for the French Academy, and deals with the economic development of Italy, the Hansa towns, the Netherlands, England, Spain and Portugal, France, Germany, and North America. The conclusion is:

In opposition to this conception of the science he said:

“But between the individual and the whole human race there is the nation with its special language and literature, with its own origin and history, with its manners and habits, its laws and institutions, with its claims to existence, its independence, its progress, its duration, and with its distinct territory and association having not only an entirely separate existence, but having an intelligence and interest peculiarly its own; a whole existing for itself, acknowledging within itself the authority of law, but claiming and enjoying full exemption from the control of other similar associations, and consequently in the actual state of the world, able to maintain its independence only by its own strength and proper resources. As an individual acquires chiefly by the aid of the nation and in the bosom of the nation, intellectual culture, productive power, security and wellbeing, human civilization can only be conceived as possible by means of the civilization and development of nations.”

He characterized the materialism of the classical economists as follows:

In another place he said:

What he called in the summary quoted above the classical economists’ “separatism” and “disorganizing individualism” he explained as follows:

A fourth criticism is emphasized in various places, namely, that the classical economists fail to understand, and consequently to explain, the true relation between agriculture, manufacturing, and commerce. Adam Smith’s contention that from the point of view of productivity agriculture ranks first, manufacturing second, and commerce third List declared to be incorrect; the truth, according to his view, being that labor is most productive in a nation in which all three of these branches of economic activity have been harmoniously developed.

“The richest nation, being that which possesses the greatest productive power, will be, of course, that which, upon its own territory, has carried its manufactures of every kind to the highest degree of reproductiveness, and the agriculture of which furnishes its population of manufacturers with the chief part of the food and raw materials requisite for their wants and business. . . .

In contrast with the doctrines expounded by the classical economists, List in his introduction summarized his own views as follows:

(a) “Union of individual faculties in pursuit of a common end is the most effective means of obtaining individual happiness. Alone and apart from his fellows the individual is weak and helpless. The greater the number of those to whom he is socially united and the more complete the union, the greater and the more complete is the resulting moral and physical welfare of the individual members.”

(b) “The highest union of individuals realized up to the present under the rule of law is in the State and the nation. The highest imaginable is the union of all mankind.”

“Through exchange of products forced or encouraged by varieties of climate, soil and products, and through colonization forced by excess population, capital and talent, nature is constantly working towards this larger union, but at the present time is far from the goal.”

“The union of nations which arises from international trade is still very imperfect since it can be shattered, or at least weakened, by war or by the selfish action of individual nations.”

(c) “Maintenance, development, and perfecting of national spirit at present is, and must be, a chief object of national endeavor. It is no wrong and selfish aim, but a rational one, in perfect harmony with the true interests of mankind in general. It leads naturally to a final alliance of nations under the rule of law, [to] the universal union.” The chief means to this end is the development and perfection of each nation’s economy.

(d) Upon the development of a nation’s productive powers depend the development and perfection of its economy and these in turn “are not only limited by the industry, thrift, morality, and intelligence of its individual members, and by its natural resources or material capital, but also by its social, political, and municipal laws and institutions, and especially by the securities for the confirmed existence, independence and power of nationality. However industrious, thrifty, enterprising, moral and intelligent the individuals may be, without national division of labor, and national cooperation of productive powers the nation will never reach a high level of prosperity and power, or insure to itself the lasting possession of its intellectual, social, and material goods.”

(e) “In national economic development we must distinguish the following stages: the savage, the pastoral, the agricultural, the agricultural and manufacturing, the agricultural, manufacturing and commercial.”

(f) “Every nation which attaches any value to its independence and continual existence must strive to pass with all speed from a lower stage of culture to a higher, and to combine within its own territory agriculture, manufactures, shipping, and commerce.”

(g) To this end its commercial relations with other nations must be manipulated and adapted to the particular stage of development in which it finds itself. “The transition from savagery to the pastoral state, and from the latter to the agricultural state, are best effected by free trade with civilized, that is, manufacturing and commercial nations.” The transition from the agricultural through the two successive stages cannot be accomplished under free trade, because at any given moment nations are in different stages of economic development, and those in the more advanced aim to secure “a monopoly in manufactures and trade,” and to check “the progress of the less advanced nations.” During these stages, therefore, protection is necessary and advantageous.

(h) Only nations in the temperate zone and with a suitable physical equipment are capable of passing through these stages of development, “since a temperate climate is the natural home of physical and mental effort.” “Any attempt to found a native manufacturing power would be most injurious to the tropics. Unfitted by nature for such a course, they will make far greater advances in national wealth and civilization if they continue to exchange their products for the manufactures of temperate countries. This policy, of course, leaves the tropics in a state of dependence. But this dependence will be harmless, indeed it will disappear, when more of the nations of the temperate zone are upon an equality in manufactures, shipping, and political power; when it is both advantageous and possible for several manufacturing countries to prevent any of their number from misusing their power over the weaker nations of the tropics.”

The National System as well as List’s other writings lack the qualities which characterize scientific works. The style is journalistic and repetitious; bad logic, inaccuracies, contradictions, and unhistorical history abound. In spite of these defects, however, he emphasized many important truths and has exerted no little influence upon economists as well as upon public men and men of affairs. His attacks upon Adam Smith have been met by many persons, most notably and directly perhaps by Professor Nicholson in his preface to Mr. Lloyd’s translation, but he has also received high praise from well-known economists, particularly those of his own nationality. In a eulogy pronounced by Professor Eheberg at the unveiling of the Kufstein memorial in 1906 occurs the following passage:

“But the essential thing is nevertheless that with this thought the whole science of political economy was placed upon another footing. As Eheberg with right says, it was by this means that the most important step was made in substituting for the Smithsonian method of economic thought a freer method. The materialistic conception of a mechanical process of nature under which valuation or value appeared as the sole essential cause of all changes was replaced by a psychological, historical conception. The attention was directed to the intelligence, the morality, the technical knowledge of men and human communities, to the transfer of these most essential causes of all economic development from generation to generation, to their extension from individual issues and centers outward to wider and wider circles, to the social and political institutions of society, which by the side of and above individuals are the bearers and executors of these psychological powers. Besides material capital and tools and machines, the productivity of industry depends upon a mass of historical circumstances, customs, bits of knowledge, practices, modes of procedure, public institutions, economic and political connections. These are the productive powers of which List speaks. Nearly all progress in Political Economy since the time of List lies in the development of this thought, in the psychological and socio-political foundation of the science.”

A little further on Schmoller adds: “With the intuitive power of genius List conceived the thought that not individuals but social communities are the powers which act or which work in an active way in the history of economic life. He conceived that the institutions which give to these social communities their united economic life and which grow out of the great common interests of the community constitute the kernel of every economic policy. . . . He helped to found the socio-political conception of political economy in contrast to the individualistic conception which neither knows social communities nor understands them.”

F. Significance of the Work of the Nationalists

The criticisms made by the Nationalists raise questions of great importance. One concerns the nature of the state and its relation to the individual. Is the conception held by Müller that the nation is the real unit, the whole, and the individual only a part, an organ, correct; or is the state merely a means to the attainment of the ends of the individuals who compose it, a tool, an instrument for the realization of their life purposes? If the latter, what shall we say about the domination of classes and of majorities, of the functions of government, and of the interests of future generations in contrast with those of the present? If the former, what are the limits of the subordination of the individual and how are the conflicting interests of present and future generations to be adjusted?

Persons who hold these conflicting views of the state and of its relation to individuals are bound to differ widely in their conception of the nature of political economy and in their solution of its problems. The line of cleavage here indicated not only separated one at least of the Nationalists from the classical school but has ever since divided political economists. To bring out this contrast and focus attention upon it was one of the services of the Nationalist group.

Another question raised was the relation between the science of political economy and the solution of the problems that confront statesmen. The Nationalists regarded such problems as the subject-matter of the science par excellence, and their solution as its only reason for existence. The classical economists did not neglect such problems, but they did not consider it their function to supply solutions for them. In their judgment such problems were usually complex, requiring for their solution a knowledge of political economy to be sure, but also a knowledge of other social sciences and the consideration of questions of expediency and frequently of local and temporary matters which lie outside the scope of any science. The function of the science of political economy, as they viewed it, was to supply principles of universal application, which could throw light upon one aspect only of the concrete problems of national and world life, and which perhaps could not completely illuminate even that one aspect. In the later development of the science the discussion of principles and of their application to problem-solving were frequently separated under such heads as “Theory” and “Practice,” “Political Economy” and “Economic Problems,” the “Science” and the “Art” of political economy, “Economic Principles” and “Application of Economic Principles.” The second part in each of these subdivisions was rarely, if ever, identical with that exclusively cultivated by the Nationalists, but it included that field in whole or in part.

A third question concerns the propriety of separating for independent study and consideration the material interests of men from their other interests, and self-interest from their other motives. The Nationalists deprecated this practice and questioned the value of its results. The classical economists followed and defended it. The discussion of this question occupied economists for two generations and cannot be said even yet to have been settled to the satisfaction of every one.

Some of their criticisms, especially of Adam Smith, were superficial and based upon either misunderstanding or misrepresentation. For example, the distinction between individual riches and national wealth drawn by Lauderdale and Raymond does not reveal any fundamental weakness in Smith’s thinking. The latter was not unmindful of the importance of developing what Raymond and List called the “national powers” and of the relation between such development and the per-capita production of wealth, nor can he be convicted of misusing value as a measure of wealth. To be sure, he did not develop the doctrine of demand and supply and its relation to value sufficiently to guard against such an attack as Lauderdale and Raymond made upon him, but neither did he make the mistake of the former in holding that the total exchange value of the aggregate wealth of the world can be increased or decreased. The fallacy involved in the conception of an increase or a decrease in the exchange value of the aggregate of the goods between which exchanges take place was not indeed exposed by Smith, but it was by his successors, notably by John Stuart Mill, and there is no reason for thinking that the former fell into that error.

Neither did these critics do justice to Smith’s theory of saving when they represented it as a mere doctrine of accumulation. It is much more than that. Its most important feature is the devotion of wealth to further production in contrast to its unproductive consumption. It involves accumulation, to be sure, but as a means to a specified end and not as an end in itself. As Mill later explained, what is saved is consumed as well as what is not saved, but by different people and for a different ultimate purpose.

Making due allowance for unjust and sometimes captious criticism, the Nationalists nevertheless rendered political economy a real service by noting the limitations of the work of the classical school and suggesting new fields of research and new services to be rendered.

Footnotes

1 Inquiry into the Nature and Origin of Public Wealth, 2d ed. (1819), pp. 57 and 58.

2 Ibid., p. 49.

3 Ibid., pp. 41 and 42.

4 Ibid., p. 43.

5 Ibid., pp. 60-107.

6 Lauderdale, op. cit., pp. 102 and 103.

7 Ibid., p. 155.

8 Ibid., p. 273.

9 Joseph Rambaud, Histoire des doctrines économique (1899), pp. 244, 245.

10 Quoted from Roscher’s Geschichte der National-Ökonomik in Deutschland, p. 765.

11 Ibid., p. 766.

12 Roscher, op. cit., p. 768.

13 Ibid., p. 769.

14 Ibid., pp. 769 and 770.

15 The differences between these editions are noted by Neil in his “Daniel Raymond,” Johns Hopkins University Studies, Vol. 15, No. 6, Ch. II.

16 Ibid., p. 30.

17 Thoughts on Political Economy, 1st ed., p. 33.

18 Ibid., p. 37.

19 Ibid., pp. 51 and 53.

20 Quoted by Neil, op. cit., p. 52.

21 Ibid., p. 52.

22 Neil, op. cit., p. 54.

23 Ibid., p. 30.

24 Ibid., p. 31.

25 Ibid., pp. 36-38.

26 Margaret E. Hirst, Life of Frederick List and Selections from His Writings (London, 1909), p. 123.

27 National System (Philadelphia, 1836), pp. 187 and 188.

28 Hirst, op. cit., p. 127.

29 National System, p. 262.

30 Ibid., p. 191.

31 Ibid., p. 263.

32 Ibid., pp. 212-213.

33 National System, pp. 211-212.

34 Ibid., p. 253.

35 National System, p. 234.

36 Quoted by Hirst, op. cit., pp. 133 and 134.

37 Pp. 104 and 105.

• 1Professor Schmoller found the key to the explanation of this aspect of the system in the development of the national economies of the various European states. These succeeded (in order of time) territorial, municipal, tribal, and family economies, each representative of a certain stage in the history of European civilization, and each produced by the struggle of contending forces, a higher and broader organization in each case subordinating to itself lower and narrower ones. “The essence of this system,” he says, “lies not in some doctrine of money, or of the balance of trade; not in tariff barriers, protective duties, or navigation laws, but in something far greater, namely, in the total transformation of society and its organization, as well as of the state and its institutions, in the replacing of a local and territorial economic policy by that of the national state.” More specifically he says, “The whole internal history of the seventeenth and eighteenth centuries, not only in Germany but everywhere else, is summed up in the opposition of the economic policy of the state to that of the town, the district, and the several estates; the whole foreign history is summed up in the opposition to one another of the separate interests of the newly rising states, each of which sought to obtain and retain its place in the circle of European nations, and in that foreign trade which now included America and India. What was at stake was the creation of real political economies as unified organisms, the center of which should be, not merely a state policy reaching out in all directions, but rather the living heart-beat of a united sentiment.”
• 2Professor Schmoller found the key to the explanation of this aspect of the system in the development of the national economies of the various European states. These succeeded (in order of time) territorial, municipal, tribal, and family economies, each representative of a certain stage in the history of European civilization, and each produced by the struggle of contending forces, a higher and broader organization in each case subordinating to itself lower and narrower ones. “The essence of this system,” he says, “lies not in some doctrine of money, or of the balance of trade; not in tariff barriers, protective duties, or navigation laws, but in something far greater, namely, in the total transformation of society and its organization, as well as of the state and its institutions, in the replacing of a local and territorial economic policy by that of the national state.” More specifically he says, “The whole internal history of the seventeenth and eighteenth centuries, not only in Germany but everywhere else, is summed up in the opposition of the economic policy of the state to that of the town, the district, and the several estates; the whole foreign history is summed up in the opposition to one another of the separate interests of the newly rising states, each of which sought to obtain and retain its place in the circle of European nations, and in that foreign trade which now included America and India. What was at stake was the creation of real political economies as unified organisms, the center of which should be, not merely a state policy reaching out in all directions, but rather the living heart-beat of a united sentiment.”
• 3The industrial organization of the towns was also gradually weakened by conflicts of interest between townsmen themselves and the oppression of the weaker trades by the stronger, and by the growth of domestic industries. Increasing interference of the central government in town affairs was invited by these conditions, and the power of resistance to it was weakened. The growth of a merchant class in London and some of the other large towns also contributed to the same result. The interests of this class extended beyond the boundaries of the town in which they lived and were promoted by the breaking-down of local trade barriers. The power of this class grew rapidly in and after the sixteenth century.
• 4By the seventeenth century a national commercial and industrial organization had developed, the chief organs of which were middlemen who intervened between producers and consumers and between different classes of producers. Among those of chief importance were the wool-staplers, the clothiers, the drapers, and the foreign trading companies. The wool-staplers purchased the farmers’ wool, their most important staple, and sold it to manufacturers or foreign merchants. The clothiers acted as middlemen between the carders, spinners, weavers, and other handicraftsmen engaged in transforming the wool into cloth. They purchased the wool from the staplers, delivered it to the carders and spinners, distributed the yarn among the weavers to be woven into cloth, and then placed the cloth in the hands of the “fuller,” “walker,” or “tucker” to be fulled and cleansed. The spinners, carders, weavers, and fullers were scattered throughout the hamlets and villages as well as the cities of the country, in many, perhaps most cases, doing agricultural work as a main or a side occupation. The drapers purchased the cloth and sold it to consumers or to foreign merchants; some of them were themselves connected with one of the trading companies. Foreign commerce was chiefly carried on by these latter organizations, to each of which a charter had been granted conferring the exclusive right to trade in a specified part of the world. The Eastland Company, for example, had the exclusive right to trade with Scandinavia and the Baltic region; the Russian Company, with Russia; the Merchant Adventurers, with the Netherlands; the Levant Company, with the Mediterranean region; the Guinea or African Company, with Africa; the East India Company, with the countries of Asia; and several other companies with portions of the American field. At the beginning of the seventeenth century France, Spain, and Portugal were the only countries with which trade could be carried on by an Englishman not a member of one of the companies.
• 5The literary remains of Colbert are of the same general character as those of Sully in that they consist of letters, instructions, and memoirs. They differ from Sully’s, however, in the extent to which they reflect mercantile doctrines. Colbert was the chief executor of the mercantile policy of France, and among his letters, instructions, and other papers may be found expositions and defense of nearly every feature of it. Much more completely than the English writers he reflected the doctrines of nationalism and of the entrepreneur relation of the state to industry. To a greater extent than in any other country these doctrines were realized in the practices of France during the reign of Louis XIV, and for this fact Colbert was largely responsible. Louis XIV aspired to be not only absolute sovereign in France but the dictator of Europe, and he fully realized that foreign commerce and command of the world’s supply of the precious metals would assist in the accomplishment of his purposes.
• 6Becher was at one time a court physician and professor of medicine in Mainz, whence he went to Wurzburg, and later to Vienna. At the two latter places, he was connected with the carneræ of the reigning sovereigns. He wrote on natural science as well as Kameralwissenschaft, his chief work in the latter field appearing at Frankfurt in 1668 under the title Politische Discurs von den eigentlichen Ursachen des Auf- und Abnehmens der Städte, Lander und Republiken, in specie, wie ein Land Volkreich und Nahrhaft zu machen und in rechte Societaten civilen zu bringen. In this book he defines a city as eine volkreiche, nahrhafte Gemeine and defends the following fundamental propositions: The more populous a city, the more powerful it is; but in order to be populous, it must be supplied with an abundance of nourishment; the membership of a community consists of (a) those who serve it and are supported by it, for example, government officers, clergy, learned men, physicians, apothecaries, soldiers, etc.; and (b) those who really constitute it, namely, peasants, handicraftsmen, and merchants. These three classes are essential each to the other. In explaining their mutual relations, however, he makes the following argument: “Consumption is the soul of the three classes, the only bond which holds them together and enables them to live by each other. It is on account of consumption that the merchant class is so necessary in a community, however large the peasant class may be. . . . Since the nourishing of a community can only be accomplished through the trading [Verhandlung] and turning into money [Versilberung] of goods . . . everything which hinders these operations hinders and weakens the populousness which results from it.”
• 7Wilhelm Freiherr von Schroder was in the service of Austria as conductor of a factory according to plans outlined by Becher. He wrote several books, the most noteworthy of which was entitled Fürst-liche Schatz und Rentkammer, which was published in 1686. He was a strong advocate of absolute monarchy and admirably set forth the mercantilistic view of the relation of a sovereign to his people, in the following passage: “A Prince is like a housefather. Now a housefather must fertilize and plough his fields if he would reap a harvest therefrom. He must well stock his pond if he would have fish. He must feed his cattle if he would slaughter them, and well fodder his cows if he desires them to give much milk. Thus a Prince must first help his subjects to a good living, if he wishes to take anything from them.”
• 8In the Détail he gives a discussion of the relation between money and wealth in which he says: “As gold and silver are not and never have been wealth in themselves and are valued only in relation to other things necessary to life,—to which things they serve only as a guarantee and a measure of value,—it is a matter of indifference whether we have much or little of them, provided the same results are produced.” That the same results are produced by much or little he attempts to prove by the following: “Thus we learn from the old accounts that in 1250 a laborer in Paris, who to-day earns 40 or 50 sous a day, earned only 4 pennies a day, 12 one-hundredths part of what he earns now. Nevertheless he then lived with as much comfort as now because all things were in proportion. He satisfied his wants with his four pennies as well as one of the same trade now does with his 50 sous. It follows that a man who at that time had a thousand livres of rent was as rich as one who at present has one hundred thousand.”
• 9In other connections he says: “It is very certain that it [money] is not a good in itself and that the quantity of it does nothing for the opulence of a country in general provided there is enough of it to sustain the prices of the goods necessary to life.”
• 10Silver and gold, he says, have as competitors copper, leather, shells, and “a simple piece of paper which costs nothing but nevertheless performs all the functions of money to the amount of millions by passing from hand to hand an infinite number of times.” By way of illustration he refers to the Lyons fair in the following manner: “In a commerce consisting of purchases and sales to the amount of more than eighty millions not a ‘sou marque’ of money is seen. Everything is done by bills of exchange which after passing through an infinite number of hands, finally return to the original drawer.”
• 11In other connections he emphasized the need of an equilibrium between purchases and sales and the importance of proper adjustments of prices, especially of the prices of raw produce and manufactures.
• 12In order to secure these and other needed adjustments, he affirmed that reliance can be placed only on nature. The following words of his taken from Chapter V of the Dissertation present this doctrine clearly:
• 13In this book he refers with approval to Boisguillebert’s description of conditions, including his criticisms of the system of taxation. His own studies, he says, have revealed “conditions which correspond perfectly to what was written concerning them by the author of the Detail de la France, who developed and brought to the light of day very naturally the abuses and malpractices which are practiced in the imposition and the levy of the Tailles, the Aides and the Provincial tariffs.” In his memoir to Le Pelletier he also said: “Let his Majesty have the goodness to remember that the grandeur of kings can only be measured by the number of their subjects, that upon that depends all their grandeur, their power and their riches, and that without that they have only vain titles which are burdens to themselves and to everybody else and nothing more.” In his book he stresses the doctrine “that persons of all conditions should contribute to the public expenses in proportion to their revenue and their industry without privilege or exemption; that taxes ought to be easily collected in such a manner as not to give rise to contests or to vexations on the part of the fiscal agents; and that so far as possible the contributor should be able to pay all his taxes at one time.” The reform he proposed was the levy of what he called a dîme royale or royal tithe, which in substance was a tax to be derived from four different sources:
• 14In this book he refers with approval to Boisguillebert’s description of conditions, including his criticisms of the system of taxation. His own studies, he says, have revealed “conditions which correspond perfectly to what was written concerning them by the author of the Detail de la France, who developed and brought to the light of day very naturally the abuses and malpractices which are practiced in the imposition and the levy of the Tailles, the Aides and the Provincial tariffs.” In his memoir to Le Pelletier he also said: “Let his Majesty have the goodness to remember that the grandeur of kings can only be measured by the number of their subjects, that upon that depends all their grandeur, their power and their riches, and that without that they have only vain titles which are burdens to themselves and to everybody else and nothing more.” In his book he stresses the doctrine “that persons of all conditions should contribute to the public expenses in proportion to their revenue and their industry without privilege or exemption; that taxes ought to be easily collected in such a manner as not to give rise to contests or to vexations on the part of the fiscal agents; and that so far as possible the contributor should be able to pay all his taxes at one time.” The reform he proposed was the levy of what he called a dîme royale or royal tithe, which in substance was a tax to be derived from four different sources:
• 15In this book he refers with approval to Boisguillebert’s description of conditions, including his criticisms of the system of taxation. His own studies, he says, have revealed “conditions which correspond perfectly to what was written concerning them by the author of the Detail de la France, who developed and brought to the light of day very naturally the abuses and malpractices which are practiced in the imposition and the levy of the Tailles, the Aides and the Provincial tariffs.” In his memoir to Le Pelletier he also said: “Let his Majesty have the goodness to remember that the grandeur of kings can only be measured by the number of their subjects, that upon that depends all their grandeur, their power and their riches, and that without that they have only vain titles which are burdens to themselves and to everybody else and nothing more.” In his book he stresses the doctrine “that persons of all conditions should contribute to the public expenses in proportion to their revenue and their industry without privilege or exemption; that taxes ought to be easily collected in such a manner as not to give rise to contests or to vexations on the part of the fiscal agents; and that so far as possible the contributor should be able to pay all his taxes at one time.” The reform he proposed was the levy of what he called a dîme royale or royal tithe, which in substance was a tax to be derived from four different sources:
• 16The author, Richard Cantillon, was born in Ireland between 1650 and 1690. Soon after the death of Louis XIV he removed to Paris and engaged in the business of banking during the period in which John Law flourished. Being confident of the ultimate failure of the Mississippi scheme, Cantillon speculated on the bear side of the market and made a fortune, but incurred the enmity of Law and was obliged to leave France. He was murdered in London on May 16, 1734, by a discharged man-servant, who set fire to his house and stole some of his papers.
• 17The deviation of the market prices of commodities from “their primary and natural price” Ricardo also described as “accidental and temporary.” The demand and supply of a commodity at the moment may be such as to establish a price for it above or below the point indicated by the labor principle, but in that case the profits of the capital employed in its production will be above or below the average in other industries, and this fact will increase in the one case and decrease in the other the amount of capital employed in this industry, thus causing changes in the supply which will tend to bring the market into accord with the natural price. He concludes his discussion with these words: “In speaking, then, of the exchangeable value of commodities, or the power of purchasing possessed by any one commodity, I mean always that power which it would possess, if not disturbed by any temporary or accidental cause, and which is its natural price.”
• 18The first is indicated in the statement that “rent is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil.” He thus excludes from this category any payment received by the landlord for capital invested in or on his lands in the form of buildings, drains, hedges, fences, walls, fertilizers, and other improvements, as well as gains resulting from the removal of timber, the digging of coal or other minerals, or the quarrying of stone. Those payments he classified as profits, and said that “this is a distinction of great importance . . . for it is found, that the laws which regulate the progress of rent are widely different from those which regulate the progress of profits, and seldom operate in the same direction.”
• 19The first is indicated in the statement that “rent is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil.” He thus excludes from this category any payment received by the landlord for capital invested in or on his lands in the form of buildings, drains, hedges, fences, walls, fertilizers, and other improvements, as well as gains resulting from the removal of timber, the digging of coal or other minerals, or the quarrying of stone. Those payments he classified as profits, and said that “this is a distinction of great importance . . . for it is found, that the laws which regulate the progress of rent are widely different from those which regulate the progress of profits, and seldom operate in the same direction.”
• 20The explanation of rent in this restricted sense he finds in the fact that land is limited in quantity and not uniform in quality. “On the common principles of supply and demand,” he says, “no rent could be paid for such land [fertile land in quantities greatly beyond the needs of the population] for the reason stated why nothing is given for the use of air and water, or for any other of the gifts of nature which exist in boundless quantity.” And further : “If all land had the same properties, if it were unlimited in quantity, and uniform in quality, no charge could be made for its use, unless where it possessed peculiar advantages of situation. It is only, then, because land is not unlimited in quantity and uniform in quality, and because, in the progress of population, land of an inferior quality, or less advantageously situated, is called into cultivation, that rent is ever paid for the use of it. When in the progress of society, land of the second degree of fertility is taken into cultivation, rent immediately commences on that of the first quality, and the amount of that rent will depend on the difference in the quality of these two portions of land.”
• 21The explanation of rent in this restricted sense he finds in the fact that land is limited in quantity and not uniform in quality. “On the common principles of supply and demand,” he says, “no rent could be paid for such land [fertile land in quantities greatly beyond the needs of the population] for the reason stated why nothing is given for the use of air and water, or for any other of the gifts of nature which exist in boundless quantity.” And further : “If all land had the same properties, if it were unlimited in quantity, and uniform in quality, no charge could be made for its use, unless where it possessed peculiar advantages of situation. It is only, then, because land is not unlimited in quantity and uniform in quality, and because, in the progress of population, land of an inferior quality, or less advantageously situated, is called into cultivation, that rent is ever paid for the use of it. When in the progress of society, land of the second degree of fertility is taken into cultivation, rent immediately commences on that of the first quality, and the amount of that rent will depend on the difference in the quality of these two portions of land.”
• 22Even before land of inferior fertility is taken into cultivation, superior lands may bear rent, according to Ricardo, provided the point of diminishing returns in their cultivation has been reached. “It often, and, indeed, commonly happens,” he says, “that before No. 2, 3, 4 or 5, of the inferior lands are cultivated, capital can be employed more productively on those lands which are already in cultivation.” By way of illustration he assumes that equal amounts of capital and labor will produce on land of qualities numbered 1, 2, and 3, 100, 90 and 80 quarters of corn respectively and then adds: “It may perhaps be found, that by doubling the original capital employed on No. 1, though the produce will not be doubled, will not be increased by 100 quarters, it may be increased by eighty-five quarters, and that this quantity exceeds what could be obtained by employing the same capital on land No. 3.”
• 23“In such a case, capital will be preferably employed on the old land, and will create a rent; for rent is always the difference between the produce obtained by the employment of two equal quantities of capital and labour.” The reason for the creation of rent in this case is that the only available opportunities for the employment of additional labor and capital under the conditions assumed are either on land No. 3 or at a diminished return on land No. 1; and, since two rates of profits on the same market are impossible under competitive conditions, capital and labor must be content with the diminished returns represented by their lower productivity when added to the amounts already employed in the cultivation of No. 1, and the landlord can command the difference between their present and their former productivity.
• 24“The exchangeable value of all commodities, whether they be manufactured, or the produce of the mines, or the produce of land, is always regulated, not by the less quantity of labour that will suffice for their production under circumstances highly favorable, and exclusively enjoyed by those who have peculiar facilities of production; but by the greater quantity of labour necessarily bestowed on their production by those who have no such facilities; by those who continue to produce them under the most unfavorable circumstances; meaning by the most unfavorable circumstances the most unfavorable under which the quantity of produce required renders it necessary to carry on production.” In the case of production from land, the most unfavorable circumstances are those represented by the last application of capital and labor, namely those applied to the poorest quality of land or at the lowest returns on the superior qualities, and these, according to the proposition just discussed, yield no rent.
• 25In another passage he says: “The reason, then, why raw produce rises in comparative value, is because more labor is employed in the production of the last portion obtained, and not because rent is paid to the landlord. The value of corn is regulated by the quantity of labour bestowed on its production on that quality of land, or with that portion of capital, which pays no rent. Corn is not high because a rent is paid, but a rent is paid because corn is high.”
• 26A third corollary is that “the rise of rent is always the effect of the increasing wealth of the country, and of the difficulty of providing food for its augmented population. It is a symptom, but it is never a cause of wealth; for wealth often increases most rapidly while rent is either stationary, or even falling. Rent increases most rapidly, as the disposable land decreases in its productive powers” “When, in the progress of society,” he says, “land of the second degree of fertility is taken into cultivation, rent immediately commences on that of the first quality, and the amount of that rent will depend on the difference in the quality of these two portions of land.
• 27A third corollary is that “the rise of rent is always the effect of the increasing wealth of the country, and of the difficulty of providing food for its augmented population. It is a symptom, but it is never a cause of wealth; for wealth often increases most rapidly while rent is either stationary, or even falling. Rent increases most rapidly, as the disposable land decreases in its productive powers” “When, in the progress of society,” he says, “land of the second degree of fertility is taken into cultivation, rent immediately commences on that of the first quality, and the amount of that rent will depend on the difference in the quality of these two portions of land.
• 28Conversely “it follows from the same principles, that any circumstances in the society which should make it unnecessary to employ the same amount of capital on the land, and which should therefore make the portion last employed more productive, would lower rent.”
• 29Besides a decreased volume of capital and a smaller or worse fed population, Ricardo mentions “such marked improvements, in agriculture, as shall have the same effect of diminishing the necessity of cultivating the poorer lands, or of expending the same amount of capital in the cultivation of the more fertile portion” as a circumstance that may cause rents to fall. He concludes with the statement “that whatever diminishes the inequality in the produce obtained from successive portions of capital employed on the same or on new land, tends to lower rent; and that whatever increases that inequality, necessarily produces an opposite effect and tends to raise it.”
• 30Besides a decreased volume of capital and a smaller or worse fed population, Ricardo mentions “such marked improvements, in agriculture, as shall have the same effect of diminishing the necessity of cultivating the poorer lands, or of expending the same amount of capital in the cultivation of the more fertile portion” as a circumstance that may cause rents to fall. He concludes with the statement “that whatever diminishes the inequality in the produce obtained from successive portions of capital employed on the same or on new land, tends to lower rent; and that whatever increases that inequality, necessarily produces an opposite effect and tends to raise it.”
• 31Ricardo concludes his chapter on rent by noting that the landlord profits in two ways by increasing difficulties in the production of raw produce, namely by securing a larger share of the total produce and by a rise in the price and thus in the purchasing power of each unit of the product. The following are his words : “Since the same cause, the difficulty of production, raises the exchangeable value of raw produce, and raises also the proportion of raw produce paid to the landlord for rent, it is obvious that the landlord is doubly benefited by difficulty of production. First he obtains a greater share, and, secondly, the commodity in which he is paid is of greater value.”
• 32In the discussion of wages Ricardo distinguishes between what he calls the natural and the market price of labor and defines the former as “that price which is necessary to enable the labourers, one with another, to subsist and to perpetuate their race, without either increase or diminution,” and the latter as “the price which is really paid for it, from the natural operation of the proportion of the supply to the demand.” In this case, as in that of commodities in general, market price tends to conform to natural price and for the same reason, namely that, whenever the market deviates from the natural price, changes in the relation between the demand and the supply of labor take place which tend to bring them into conformity with each other. On this point Ricardo says :
• 33In the discussion of wages Ricardo distinguishes between what he calls the natural and the market price of labor and defines the former as “that price which is necessary to enable the labourers, one with another, to subsist and to perpetuate their race, without either increase or diminution,” and the latter as “the price which is really paid for it, from the natural operation of the proportion of the supply to the demand.” In this case, as in that of commodities in general, market price tends to conform to natural price and for the same reason, namely that, whenever the market deviates from the natural price, changes in the relation between the demand and the supply of labor take place which tend to bring them into conformity with each other. On this point Ricardo says :
• 34It is important to note that Ricardo thought of natural wages in terms of the necessaries and comforts of life, i.e., of the commodities and services laborers use in the satisfaction of the wants of themselves and their families. “The power of the labourer to support himself and the family which may be necessary to keep up the number of labourers,” he says, “does not depend on the quantity of money which he may receive for wages, but on the quantity of food, necessaries, and conveniences become essential to him from habit which that money will purchase. The natural price of labour, therefore, depends on the price of the food, necessaries, and conveniences required for the support of the labourer and his family. With a rise in the price of food and necessaries, the natural price of labor will rise; with the fall in their price, the natural price of labour will fall.”
• 35Ricardo’s thinking at this point is substantially like that of Malthus in his Essay on Population. Both thought that there is a certain quantity of necessaries, comforts, and conceivably luxuries to which laborers become so accustomed by habit that, if they receive less than the amount required to purchase these, they will refuse to raise families large enough to maintain their numbers; and that, if they receive more than this amount, they will raise families so large that their numbers will increase. Both believed that the amount of these necessaries, comforts, and luxuries required to induce laborers to maintain their numbers without either increase or decrease is not fixed and unchangeable, but that it varies from time to time. “It is not to be understood,” says Ricardo, “that the natural price of labor, estimated even in food and necessaries, is absolutely fixed and constant. It varies at different times in the same country and very materially differs in different countries.” It seems to have been Ricardo’s opinion that in England at least it was larger in his time than it had been in times past. “Many of the conveniences now enjoyed in an English cottage,” he says, “would have been thought luxuries at an earlier period of our history.”
• 36Ricardo’s thinking at this point is substantially like that of Malthus in his Essay on Population. Both thought that there is a certain quantity of necessaries, comforts, and conceivably luxuries to which laborers become so accustomed by habit that, if they receive less than the amount required to purchase these, they will refuse to raise families large enough to maintain their numbers; and that, if they receive more than this amount, they will raise families so large that their numbers will increase. Both believed that the amount of these necessaries, comforts, and luxuries required to induce laborers to maintain their numbers without either increase or decrease is not fixed and unchangeable, but that it varies from time to time. “It is not to be understood,” says Ricardo, “that the natural price of labor, estimated even in food and necessaries, is absolutely fixed and constant. It varies at different times in the same country and very materially differs in different countries.” It seems to have been Ricardo’s opinion that in England at least it was larger in his time than it had been in times past. “Many of the conveniences now enjoyed in an English cottage,” he says, “would have been thought luxuries at an earlier period of our history.”
• 37The demand for labor, which, in accordance with the actually existing supply, determines actual or market wages, is, according to Ricardo, determined by the amount of capital or, more accurately perhaps, is in proportion to the amount of capital. “In proportion to the increase of capital,” he says, “will be the increase in the demand for labour; in proportion to the work to be done will be the demand for those who are to do it.” In another passage he says: “Capital is that part of the wealth of a country which is employed in production, and consists of food, clothing, tools, raw materials, etc., necessary to give effect to labour“ (italics mine). Since the amount of capital may for a time increase more rapidly than the numbers of the laboring class, market wages for a considerable period may be above natural wages. “Notwithstanding the tendency of wages to conform to their natural rate, their market rate may, in an improving society, for an indefinite period, be constantly above it; for no sooner may the impulse which an increased capital gives to a new demand for labour be obeyed, than another increase of capital may produce the same effect; and thus, if the increase of capital be gradual and constant, the demand for labour may give a continued stimulus to an increase of people.”