The Development of Economics

Chapter XIV

THE OPTIMISTS

A. Introduction

A reaction against certain features or doctrines of the classical school, particularly those for which Ricardo and Malthus were primarily responsible, was represented by Henry C. Carey and Claude Frédéric Bastiat. Unlike the Nationalists and the Old Historical School, these men did not object to the methods of the classical economists, or to the scope of the science as they conceived it, but they did object to the Ricardian doctrine of distribution, to the theory of progress deduced from it, and to the Malthusian doctrine of population.

In substance the doctrines these men proposed as substitutes for those of Ricardo and Malthus were identical. Carey’s were first published and a charge of plagiarism was brought against Bastiat, but probably on insufficient grounds. It seems best to regard them as independently developed, and in that case it is interesting to inquire why a reaction of this kind should have appeared almost simultaneously in the United States and France, the one voiced by a domineering, autocratic type of man who believed ardently in protection and the other by a modest, almost peasant type who believed just as ardently in free trade.

An explanation is suggested by the conditions with which each man was confronted in his own country. These conditions were very different, but they produced in each case the same reaction against Ricardianism and Malthusianism. The United States was a new country with vast, undeveloped natural resources and a relatively small but rapidly growing population. The general level of well-being was high, and opportunities for profitable enterprise were open and available to everybody. Increasing capital and increasing population in this country had always resulted, and to Carey’s generation seemed certain in the future to result, in increasing prosperity for all classes. There was no visible evidence that they ever had produced or were likely ever to produce the consequences predicted by Ricardo and Malthus. In this country, indeed, plain facts seemed to prove these men wrong.

In France there was not such a volume of undeveloped natural resources; population and capital were much greater, both absolutely and in proportion to these resources; the level of well-being was not so high; and there was no such record of prosperity in the past: and no such prospects for the future. Conditions, indeed, might be thought to verify the doctrines of Ricardo and Malthus. There was another factor in the situation there, however. Socialistic agitation was rampant and threatening. Its protagonists accepted much of the Ricardian reasoning and urged that the only remedy was a radical change in the fundamental institutions of the existing social order. For a person like Bastiat, who believed that in its fundamentals the existing social order was best and who regarded socialism as a dangerous menace, the problem was to convince the public of the advantages of the present order. In his attempts to accomplish this result he found the same difficulties with the Ricardian and the Malthusian doctrines as did Carey, and the same substitutes for them.

B. Henry C. Carey

Henry C. Carey was born in Philadelphia in 1793, the son of Mathew Carey, the publisher, book-dealer and ardent protectionist, mentioned in our accounts of Daniel Raymond and Frederick List. He received his education chiefly in his father’s business, where as a reader of manuscripts offered for publication he learned to analyze and criticize other people’s ideas. In 1821 he became head of his father’s firm and served in that capacity until 1835, when he retired to devote himself to writing and public work. He visited Europe in 1825, 1857, and 1859 and there met John Stuart Mill, Cavour, Humboldt, Liebig, Chevalier, Ferrara, and Bergfall, acquaintance with some of whom he continued in after years by correspondence.

His literary output was large, the following publications being most noteworthy: Essay on the Rate of Wages (1835), The Principles of Political Economy (1837-1840), The Past, the Present and the Future (1848), The Harmony of Interests (1852), The Principles of Social Science (1858-1859), and The Unity of Law as Exhibited in the Relation of Physical, Social, Mental and Moral Science (1872).

His views on economic subjects and especially his attitude toward the doctrines of the classical school changed considerably between the date of his earliest writings and about the middle of the century. In the first two of the above-mentioned books his dissent from these doctrines does not appear to be radical, but, beginning with The Past, the Present and the Future, it is wide and uncompromising, his criticisms of Malthus and Ricardo being especially vigorous.

His leading ideas are developed at great length and repeated over and over again in his later books. They may be summarized under the heads of value, distribution, the law of life, and the harmony of nature and protection.

From these principles Carey developed the law that commodities exchange for each other in proportion to their costs of reproduction. Since their value tends constantly to fall on account of the increasing power of man over nature, in each succeeding period the cost of production is less than it was in the preceding and on this account no one would be willing to give for a commodity produced in the past more than it would cost to reproduce it at the present time.

The principle of exchange on the basis of the equality of services mutually rendered is also in harmony with this law, since the cost of reproduction of the exchanged commodities is the exact measure of the service each exchanger renders to the other.

“In order that quantity of labor may be a measure of value, there must be an equal power to command the services of nature. The product of two carpenters in New York or Philadelphia can generally be exchanged for that of two masons; and that of two shoemakers will not vary much in value from that of two tailors. The time of a laborer in Boston is nearly equal in value to that of another in Pittsburgh, Cincinnati, or St. Louis; but it will not be given for that of a laborer in Paris or Havre, the latter not being aided to the same extent by machinery, and being therefore more dependent on mere brute force. The value of labor, as compared with that of the commodities required for man’s support, varies to a small extent in the various portions of France, as is the case with that of the different parts of England and of India; but between the man of Paris and his competitor of Sedan, or Lille, the variation is trifling, compared with that which exists between a workman in any part of France, and one in the United States. The circumstances which affect the power of man over nature in Paris and Lille are, in a great measure, common to all the people of France; as are those which affect that of a workman in Philadelphia to all the people of the Union. Here we find the same effect at the same time, but at different places, that has before been shown to be produced at the same place, but at different times. The improved machinery of our colonists having increased their powers, their third year was more valuable than that of the two previous ones had been; and in like manner a single year’s labor in the United States is worth more than that of two in France. Labor grows in value in the direct ratio of the substitution of mental for muscular force, of the peculiar qualities by which man is distinguished from the animal, for those which he possesses in common with so many animals; and in the same precise ratio does the value of all commodities decline.”

“Twelve years since, the annual value of the land and of the mines of Great Britain, including therein the share of the Church, was estimated by Sir Robert Peel at £47,800,000 which, at twenty-five years’ purchase, would give a principal sum of nearly twelve hundred millions of pounds. Estimating the wages of laborers, miners, mechanics, and those by whom their labors are directed, at 50 pounds per annum each, the land would, then, represent the labors of twenty-four millions of men for a single year; or of one million for twenty-four years.

“Let us now suppose the island reduced to the state in which it was found by Caesar; covered with impenetrable woods, (the timber of which is of no value because of its superabundance), and abounding in marshes and swamps, heaths and sandy wastes; and then estimate the quantity of labor that would be required to place it in its present position, with its lands cleared, levelled, enclosed, and drained; with its turnpikes and railroads; its churches, school-houses, colleges, court-houses, market houses, furnaces, and forges; its coal, iron, and copper mines, and the thousands and tens of thousands of other improvements required for bringing into activity those powers for the use of which rent is paid; and it will be found that it would require the labor of millions of men for centuries even although provided with all the machinery of modern times, the best axe and the best plough, the steam engine, the railway, and its locomotive.”

While Carey frequently made use of the phrase “value of labor,” he did not apply his cost-of-reproduction principle directly to labor. He regarded the laborer as one of the two claimants to a share in the wealth produced, the other being the owners of capital, including under this head landlords. The value of land being in his view determined on the same principle as that of other things, there is no reason for putting landowners in a class by themselves, when the explanation of their share in the distribution of wealth is under consideration.

“Little as was the work that could be done with the help of an axe of stone, its service to the owner had been very great. It was, therefore, clear to him, that the man to whom he lent it should pay him largely for its use. He could, too, as we readily see, well afford to do so. Cutting, with it, more wood in a day than, without it, he could cut in a month, he would profit by its help, were he allowed but a tenth of his labor’s products. Being permitted to retain a fourth, he finds his wages much increased, notwithstanding the large proportion claimed, as profit, by his neighbor capitalist.

“The bronze-axe being next obtained, and proving far more useful, its owner, being asked to grant its use, is now, however, required to recollect, that not only had the productiveness of labor greatly increased, but the quantity required to be given to the production of an acre had also greatly decreased, capital thus declining in its power over labor, as labor increased in its power for the reproduction of capital. He, therefore, limits himself to demanding two-thirds of the price of the more potent instrument, saying to the woodcutter: You can do twice as much work with this, as you now do with our neighbor’s stone-axe; and if I permit you to retain a third of the wood that is cut, your wages will still be doubled. This arrangement being made, the comparative effects of the earlier and later distributions are as follows:

	Total product	Laborer’s share	Capitalist’s share
First	4	1	3
Second	8	2.66	5.33

“The reward of labor has more than doubled, as a consequence of the receipt of an increased proportion of an increased quantity. The capitalist’s share has not quite doubled, he receiving a diminished proportion of the same increased quantity. The position of the laborer, which had, at first, stood as only one to three, is now as one to two; with great increase of power to accumulate, and thus to become himself a capitalist. With the substitution of mental for merely physical power, the tendency to equality becomes more and more developed.”

In a similar manner he explained the effects of the introduction in succession of axes of iron and steel, exhibiting the results as follows:

	Total	Laborer	Capitalist
First	4	1	3
Second	8	2.66	5.33
Third	16	8	8
Fourth	32	19.20	12.80

He next proceeded to show that what is true of capital invested in axes holds of capital invested in any other form, first using the building of houses as an illustration. The first house costs a relatively large amount of labor, but improvements steadily reduce the cost of subsequent ones. The value of houses, therefore, steadily falls and with it the share the owner can exact in the form of rent. He also referred to the steady fall in the rate of interest as evidence of the truth of the proposition he is defending.

He concluded this part of his exposition with the following statement:

“The general law of life, throughout all the classes, orders, genera, species, and individuals, may thus be stated:

“The nervous system varies directly as the power to maintain life: “The degree of fertility varies inversely as the development of the nervous system—animals with larger brains being always the least, and those with smaller ones, the most prolific:

“The power to maintain life, and that of procreation antagonize each other—that antagonism tending perpetually towards the establishment of an equilibrium.”

“Looking, now to the constant advancement, and ultimate perfection, of civilization, what is it we may expect from the operation of the self-adjusting law, whose existence we thus have sought to establish? All the facts of the past tend to prove, that mere muscular labor, unenlightened toil, accompanied by a general feeling of security, and unattended, therefore, by those cares which stimulate to action the nervous system of the savage, favor fertility, or permit it in the highest degree known to experience— that fertility being attended by great mortality. Civilization tending, however, towards the substitution of the natural forces for human labor, the life of the masses will not, in the future, be subjected to the lowest forms of drudgery—the necessary result of this being, either that physical vigor will decline, and thus reduce fertility, or, that the diversion of energy from the muscular to the nervous system, will serve to diminish the ratio of-procreation. Such result must be obtained, let the change of conditions be in whichsoever it may happen, of these directions. It is, however, to the latter of these changes, that we tend, amelioration in our societary condition being the consequence of those improvements which tend to enlarge the sphere of intellectual activity, and stimulate the nervous system. The more society tends to take its natural form, the more does mind mingle with muscle in the labor of producing and converting the commodities required for man’s support—all these minglings tending, in happy proportion, towards diminution of fertility, and towards increase in the power for the maintenance of human life. Such being the case, we have here a self-acting law that, while explaining the past, foreshadows the future, enabling us to see it, in the distance, working its way steadily and progressively, towards the accomplishment of ends whose beneficence is in perfect harmony with our ideas of the supreme wisdom, justice and mercy, of the great Being by whom the laws were made.”

	Takes in	Produces
The Plant	Phosphoric acid, lime, common and other salts from the soil	Perfect substance of plants
The Animal	a. Parts of plants	Perfect bone, blood and tissues
	b. The bone and tissues, with oxygen from the lungs	Phosphates and other salts in the excretions
The Soil	Excretions of animals, dead animals and plants.	Phosphoric acid, lime, etc.”

Plants, animals, and the soil thus act and react upon each other in such a manner as to produce a perfect cycle of harmonious operations. Man is but a part of the animal phase of these operations and is thus a part of the machinery through which this harmonious action is accomplished. Unlike other animals he possesses the capacity to manipulate the natural forces residing in plants, other animals, and physical nature. In his primitive condition his power in this direction but little exceeded that of other animals, but endowed as he is with peculiar gifts that power has steadily and naturally grown, and with this growth civilization has developed.

According to Carey, the peculiar gifts with which man is endowed are the social instinct, individuality, responsibility, and capacity for progress. The social instinct makes him desire association with his fellows. Individuality makes each person different from every other and thus capable of being of assistance to others. Having the power to aid, responsibility makes him desire to exercise that power, and the capacity for progress makes him desire to improve his own condition. This combination of qualities ensures association or cooperation between men wherever conditions render such association possible, and association, according to Carey, is the means through which man acquires power over nature.

According to Carey, then, the creation of conditions favorable to association between men is necessary to progress. As a means to this end he advocated protection. The reasoning by which he connected this policy with association seems to be about as follows: In order to associate, men must be in close proximity to each other; the bringing together of producers and consumers, and of different groups of producers who need each other’s products promotes proximity; protection accomplishes this result by creating a home market for manufactures, thus promoting the establishment of factories and their location near the sources of the raw products they must use and near the people who are to consume their output.

“The words commerce and trade are commonly regarded as convertible terms, yet are the ideas they express so widely different as to render it essential that their difference be clearly understood. All men are prompted to associate and combine with each other, to exchange ideas and services with each other, and thus to maintain Commerce. Some men seek to perform exchanges for other men, and thus to maintain trade.

“Commerce is the object everywhere desired, and everywhere sought to be accomplished. Traffic is the instrument used by commerce for its accomplishment, and the greater the necessity for the instrument, the less is the power of those who require to use it. The nearer the consumer and the producer, the more perfect the power of association, the less is the necessity for the trader’s services, but the greater are the powers of those who produce and consume, and desire to maintain commerce. The more distant they are, the greater is the need of the trader’s services, and the greater is his power, but the poorer and weaker become the producers and the consumers, and the smaller is the commerce.

“The value of all commodities being the measure of the obstacles standing in the way of their attainment, it follows necessarily that the former will increase with every increase of the latter, and that every step in that direction will be attended by a decline in the value of man. The necessity for using the services of the trader constituting an obstacle standing in the way of commerce, and tending to enhance the value of things, while depressing that of man, to whatever extent it can be diminished, to the same extent must it tend to diminish the value of the first, and increase that of the last. That diminution comes with the growth of wealth and population, with the development of individuality, and with the increase in the power of association; and commerce grows always in the direct ratio of its increase of power over the instrument known as trade, precisely as we see it do in reference to roads, wagons, ships, and other instruments. The men who buy and sell, who traffic and transport, desire to prevent association, and thus to preclude the maintenance of commerce; and the more perfectly their object is accomplished the larger is the proportion of the commodities passing through their hands, retained by them, and the smaller the proportion to be divided between the producers and the consumers.”

C. Frédéric Bastiat

During these years his interests were intellectual as well as agricultural. With a friend named Coudroy he studied and discussed philosophy, history, and political economy and occasionally wrote pamphlets on questions of local interest, among them le Fisc et la vigne in 1841, Mémoire sur la question vinicole in 1843, and Mémoire sur la répartition de l’impôt fonder dans le département des Landes. His mastery of the English, Italian, and Spanish languages gave him a wide range which he utilized in obtaining first-hand information about matters that interested him in the life of other European countries, particularly of England.

His reading of the classical economists and discussions with his friend developed in him a strong belief in individualism as the guiding principle in social and economic affairs. He believed that government should be strong in order to render the protection society needs but that it should leave to the individual the widest possible scope for his activities and aspirations. He early concerned himself also with the application of the principle of individualism to international commerce, having prepared in 1829 a manuscript sur le régime restrictif, which, however, the revolution of the following year prevented his publishing, and in 1834 having published Réflexions sur les pétitions de Bordeaux, Le Havre et Lyon concernant les douanes.

The conviction that freedom of commerce, which in his early writings appeared as more or less of a utopia, might be attained very soon in at least one country came as a result of his observation of the agitation for the abolition of the corn-laws then in progress in England. He followed this agitation as it was revealed in the pages of the London Globe and Traveller, to which he was a regular subscriber. Through discussions in a little club of which he was a member he learned that this movement across the Channel was very imperfectly understood in France and very incorrectly described in the French press, and he decided to make an effort to correct the false impressions that were current. To this end he prepared and sent to the Journal des économistes an article entitled “De l’influence des tarifs français et anglais sur l’avenir des deux peuples.” It was accepted and published in October, 1844, and was received with such favor that the editor of this journal encouraged Bastiat to write more on the same subject.

Reacting to this encouragement he devoted himself to his new task with ardor and enthusiasm. His convictions were strong, and he felt that the cause was worthy of his best efforts. His method was to expose the fallacies in the arguments of protectionists by putting them to the test of fundamental principles. To this end he wrote a number of articles, most of which were first published in the Journal des économistes. He also wrote a history of the free-trade league organized in England by Cobden, which he published under the title “Cobden et la ligue ou l’agitation anglaise pour la liberté des échanges.” In the preparation of this work he began a correspondence with Cobden which resulted in strong friendship and active cooperation between the two men. This book brought him the distinction of a corresponding membership in the Institute of France and a considerable reputation. In order to superintend its publication he visited Paris, where he was cordially received by economists, and soon after visited England, where he met Cobden and other members of the free-trade league.

A great change in his life came in 1846. Heretofore he had lived for the most part quietly at Mugron with occasional trips into the world outside, most of them taken in the two years immediately preceding. Now he was to became an active propagandist with headquarters at Paris. The beginning of this change dates from February, 1846, when he organized a free-trade association at Bordeaux. From there he went to Paris on a similar errand. Here he consulted journalists and government officials, addressed meetings of merchants, and wrote incessantly. He succeeded in organizing a central committee or commission for the spread of free-trade agitation throughout France. He became secretary of this commission and founded a weekly journal to be used as its organ of publicity. In the performance of the duties thus assumed he made addresses in the leading cities of France, conducted a regular course of instruction in one of the halls of Paris, and wrote many articles and letters. His writing was brilliant and his speech-making persuasive, but the progress of the cause he was promoting was slow, and before any considerable portion of the public had become converted to free trade, the revolution of February, 1848, turned his activities in another direction.

This revolution was social as well as political and brought to the front the radical elements of French society. Socialistic experimentation was indulged in by the new government, and socialistic doctrine was preached with great vigor and apparent success. Bastiat entered the lists against these new vagaries and proceeded to expose the fallacies of socialism with as much vigor and acumen as he had previously shown in exposing those of protectionism. His sphere of activity in this new field was enlarged by his election as a deputy to the Constituent Assembly and later to the Legislative Assembly. In both these bodies he was much respected and exerted great influence in spite of the fact that he was handicapped by the ravages of the disease which finally caused his premature death and which rendered public speaking difficult and only an occasional possibility. He made his pen compensate for the deficiencies of his voice, however, by writing pamphlets on nearly every phase of the current agitation and particularly in reply to the doctrines of the leading socialists. Against the doctrine of Louis Blanc he wrote Propriété et loi; against that of Considerant, Propriété et spoliation; against that of Leroux, Justice et Fraternité; against Proudhon, Capital et rente. In reply to the so-called “Comité Mimerel” he wrote Protectionism et communism; against the paper-money advocates, Maudit Argent; and against one of the Catholic manifestos, l’État.

In all this controversy his attitude was calm and dignified and in spite of the incisiveness of his criticism he showed appreciation of the motives of his adversaries. He gave them full credit for a desire to promote the well-being of society, but wished simply to show that they were on the wrong path and, if possible, to set them right.

Throughout these years of controversy the need for a clear formulation and exposition of general principles had grown upon him. He had always used such principles as the means of attacking what he regarded as error and felt that the failure to grasp them was the chief cause of social and economic heresy. It is probable that he also felt the need of clarifying his own thought. It is evident also that he was not satisfied with the expositions that had previously been made. He set to work upon this new task at a time when his bodily powers were greatly impaired, and it was consequently never completed. A good beginning was made, however, and the results published in a volume entitled

Harmonics économiques. His plan contemplated another volume to be called Harmonies sociales. The ideas expressed in this book were foreshadowed in many of his pamphlets but never fully developed. Indeed, it is highly probable that they developed in his own mind in the process of writing. Certain it is that previous to the publication of this book they had not been fully grasped or appreciated by his friends and coworkers, to say nothing of his opponents.

The basic principle of Bastiat’s economic and social philosophy is that individual liberty, if allowed free scope, will secure for mankind the maximum of economic and social well-being. On this doctrine he was in agreement with Adam Smith, and it was his aim in the Harmonies économiques to show in detail how this principle operates throughout the economic structure in the field of distribution as well as in that of production. To this end he attempted to show that the so-called laws sponsored by Ricardo and Malthus which revealed fundamental conflicts of interest between producers and consumers and between different classes of producers were not real and to indicate what the real ones are.

On the basis of this reasoning Bastiat denounced the Ricardian doctrine of distribution. He denied that rent is the price paid for the original and indestructible powers of the soil, claiming on the contrary that it is paid for man’s, not nature’s, part in the agricultural process. Neither, he said, is there the opposition of interests between the landlord and the other classes which Ricardo’s doctrine involves. Landlords, capitalists, and laborers, he asserted, are alike benefited and injured by the same things. They all share in the benefits of progress, but not equally. The laborer gets the lion’s share.

He illustrated this conclusion by the use of a numerical table after the manner of Carey (see above, p. 237), and compared what a day’s labor would yield in the form of satisfactions to a laborer in his time and at the beginning of things, concluding that in the matter of food it would amount to probably forty times as much, and in other things in a ratio as great or greater.

While the domain of private property thus tends relatively to decrease and that of common property to increase, Bastiat held that the former would never disappear, as Proudhon claimed that it would. Because each effort of man tends to bring larger returns, it does not follow that his efforts will ever cease.

Footnotes

1 For a description of his personality and methods of work sec Jenks’s Henry C. Carey als Nationalökonom, pp. 23-25.

2 Principles of Social Science, 1888 ed., I, 148.

3 Principles of Social Science, I, 150.

4 Ibid., I, 155.

5 Ibid., I, 175.

6 Ibid., I, 164-166.

7 Principles of Social Science, III, 111 and 112.

8 Ibid., III, pp. 113 and 114.

9 Principles of Social Science, III, p. 120.

10 Ibid., III, p. 302.

11 Ibid., III, 304 and 305.

12 Ibid., I, 82.

13 Principles of Social Science, I, 210 and 211.

14 The following details concerning Bastiat’s life were taken from R. De Fontenay’s Notice sur la vie et les écrits de Frédéric Bastiat, introducing the edition of Bastiat’s works published by Guillaumin et Cie. in Paris in 1855.

15 Frédéric Bastiat, Harmonies of Political Economy, translated by Patrick James Stirling (London, 1860), I, 108.

16 Quoted by Gide and Rist, A History of Economic Doctrines, translated by Smart and Richards, p. 332 note.

17 Gide and Rist, op. cit., p. 333.

18 Harmonies of Political Economy, p. 207.

19 Ibid., p. 194.

20 Ibid., p. 197.

21 Ibid.

22 Harmonies of Political Economy, II, Ch. XVI.

• 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.”