The Development of Economics

CHAPTER XV

THE SOCIALISTS

An Introduction and an Account of Sismondi

A. The Modern Socialistic Movement

The modern socialistic movement immediately followed the French Revolution and the industrial revolution of the closing years of the eighteenth century and seems to have been in part at least a result of them. Radical theories regarding social matters seem to be a natural product of political and social upheavals, and in this case the reasons for a close connection between the two are quite evident.

In France the Revolution of 1789 destroyed the characteristic institutions of the old régime and opened new outlooks to the French people in several directions. It promised them greater economic prosperity and political power and taught them that social institutions are subject to change and control through popular initiative and action. Great expectations and a feeling of hopefulness succeeded the gloom and depression of the old regime. The belief that social ills are the product of bad government and can be eradicated and that social relations are capable of a high degree of perfection was spread abroad and was fostered by writers of high popular repute.

The industrial revolution enormously increased productive power, particularly in England and France, and opened up a brilliant prospect of economic prosperity, but it was accompanied by conditions which prevented the masses from benefiting from the increasing wealth to the degree they desired and had reason to expect. The chief of these was the development of a class solely dependent upon wages as a means of livelihood which, in the transition from the old economic regime to the new, suffered from low wages, long hours of work, unsanitary working and living quarters, and excessive labor of women and children.

Adam Smith’s Wealth of Nations taught that the interests of individuals and those of society are in essential harmony and that these interests are promoted by the laissez-faire policy of government and the play of self-interest. No essential modification of this philosophy was introduced by Ricardo and Malthus, but the former pointed out a conflict of interests between the landlord and other classes and the latter taught that the condition of the laboring class depends primarily upon the willingness of wage-earners to control their numbers. In view of the population tendencies of the time and the rapid increase of rents, the outlook thus opened up was gloomy and, to people inspired by the optimism of the French Revolution, discouraging and disheartening.

It was natural that in France, at any rate, where the optimistic philosophy of the period of the Revolution had most influence, attempts should be made to reconcile individual liberty and economic well-being. Of these there were two, the conservative one represented by Bastiat, who built upon the foundations laid by Adam Smith and the economists and tried to purge the new science of the pessimistic tendencies introduced by Malthus and Ricardo, and the radical one represented by the Socialists, who saw hope only in a fundamental transformation of economic and social institutions.

B. Sismondi

There were several phases of the socialistic movement in France, of which one was represented by Jean Charles L. Simonde de Sismondi (1773-1842), the descendant of an Italian family which was driven from Pisa in 1524 and took refuge in France. After the revocation of the Edict of Nantes, it migrated to Geneva, where Jean Charles was born May 9, 1773. After a period of study at the College de Geneve and with a business concern in Lyon and several years’ residence in Italy, he began the career of a scholar and writer, which he followed during the remainder of his life and in which he gained distinction and renown. During the second half of his life he enjoyed the acquaintance and friendship of the most distinguished people of France, including Madame de Staël, Necker, Benjamin Constant, Cuvier, and Napoleon. In 1804 and 1808 he accompanied Mme. de Staël on trips through Italy and Germany, and, when Napoleon returned from Elba in 1815, he became convinced of his sincerity and liberalism and defended his cause.

His literary output was enormous, consisting chiefly of historical works. Between 1807 and 1818 he published a Histoire des républiques italiennes in sixteen volumes; in 1811 a course of lectures delivered at Geneva on the literatures of Central Europe in four volumes; and beginning with 1815 and continuing to the end of his life, he published a history of the French people in twenty-nine volumes, two volumes being added after his death, edited by a friend from unfinished manuscript. His writings on economic topics began in 1801 when he published a Tableau de l’agriculture en Toscane. In 1803 appeared in two volumes his De la richesse commerciale, ou principes d’économie politique appliqués a la législation du commerce; in 1819, also in two volumes, his Nouveaux principes d’économie politique ou de la richesse dan ses rapports avec la population; and in 1837 and 1838, under the title, Études sur l’économie politique, a collection of essays that had previously appeared in the Revue encyclopédique and the Revue mensuelle d’économie politique. In 1836 he expounded his ideas on politics in a book entitled Études sur la constitution des peuples libres.

The facts which he was unable to harmonize with the doctrines of Adam Smith were those of the economic history of modern Europe, particularly in his own generation, such for example as the development of the factory system and its attendant consequences, especially the condition of the laboring classes, and economic crises. These seemed to him clearly to indicate a lack of harmony between the great increase in the production of wealth that had accompanied the introduction of machinery and the factory system and the well-being of society. He was, therefore, led to question the essential harmony between the interests of individuals and those of society, one of the fundamental doctrines of The Wealth of Nations, and to search for principles more in harmony with the facts he had discovered. The results of his efforts were expressed in his Nouveaux principes, the leading ideas of which may be grouped under the heads (a) the purpose and method of political economy, (b) the effects of liberty and competition, and (c) the relations of the state to industry.

Adam Smith and his followers regarded wealth as the subject-matter of political economy. They proposed to show how it is produced, exchanged, consumed, and distributed. They were well aware of the fact that these processes profoundly affect the physical and moral well-being of mankind, and they were not indifferent to these effects, but they believed that in the interests of truth and the discovery of fundamental laws, wealth phenomena should be independently and objectively studied. According to them, the pure science of political economy is not concerned either with questions of justice or with those of good and evil. These matters belong rather to the art of political economy, in which not simply what is, but what ought to be, may and should be considered. Here moral and political considerations have a place. But the pure science seeks simply to explain facts as they are and is as unmoral as physics and mathematics.

Among the unfortunate consequences of this attempt to separate the consideration of wealth phenomena from that of human well-being he mentioned the tendency to overestimate the importance of the increase of wealth and to underestimate that of its distribution and in particular the consideration of wages as a mere cost of production like the prices of raw materials and machines. According to Sismondi it is only by considering wealth in its relations to men that we can get a clear idea of it. The classical economists, he claimed, confused the means with the end. He would substitute for the study of wealth that of human well-being.

In contrast he declared that “one should question absolute propositions, everything like abstractions. Political economy is not a science of calculation. It goes astray when it allows itself to be guided by numbers.” “In no science is theory more deceptive, because in none is it so difficult to take account of all the circumstances, in appearance independent, which react upon each other.” “The economist must not only follow the passage of wealth through the processes of production, consumption, circulation, and distribution, but must inquire regarding who are the consumers and the producers, must distinguish the different social classes, the different professions. They should not talk merely of wages and profits, of agriculture and industry, but also of the rich and the poor, of capitalists and laborers, of farmers and industries. They should keep men constantly in view.”

According to the teachings of the classical economists liberty and competition are beneficent forces, promotive of the well-being of society. Economic evils for the most part are due to friction in or interference with the operation of these forces, and the remedy for them should be sought in the removal of such friction or interference. On this point Sismondi took issue with them, claiming that among men as history, observation, and experience reveal them, instead of among those of the type pictured in the imaginations of the classical economists, these forces have actually produced and will normally continue to produce the steady deterioration of the laboring classes, evils of such character and magnitude as to be inconsistent with and destructive of the very well-being which these forces are supposed to promote.

That such deterioration had already taken place and was still in progress he attempted to prove by comparing the conditions under which laborers then lived and worked with those of the preceding period. In this comparison he noted the following as characteristics of the new regime: the competition of laborers with each other; the separation of labor and capital; the separation of wages and profits and the treatment of the former as a cost of production; the work of women and children; the expropriation of labor by machines; and the development of a two-class society consisting of property-owners and the proletariat.

According to Sismondi this separation of labor and property pauperizes workmen by removing the only efficient check upon an undue increase in their numbers. So long as the laborer had property he could calculate his income with accuracy and regulate the size of his family accordingly. Without property, his income is absolutely dependent upon the demand of the capitalists for his services and regarding that demand he has no certain knowledge and over it no control. Under these conditions there is no efficient check to population, and it, therefore, increases to such an extent as to create severe competition between laborers for employment, to force women and children into the laboring class, to lower wages, and to produce pauperism.

In this connection Sismondi also made use of a favorite theory regarding gross and net income. When property is widely diffused and divided, so runs the argument, the goal of production is the greatest gross income; but when it is concentrated in a few hands and the two-class system prevails, net income is the goal, that is, the largest possible margin between gross product and cost of production.

He declared that the pursuit of the net produce goal has become nearly universal in modern society and that the result has necessarily been disastrous to the laboring class, cutting down the gross product of society and forcing upon workmen severe competition, low wages, and woman and child labor.

According to Sismondi another consequence of the regime of liberty and competition has been commercial crises, of which he offered no less than three explanations or causes. One was the impossibility of acquiring exact knowledge of the market for goods on account of the wide separation of producers and consumers. Inaccurate estimates and guesses of the quantity of goods that can be sold at remunerative prices alone are possible under the modern regime, he said, and, since these are frequently wrong, maladjustments of production and consumption result in commercial crises.

A second cause he found in the alleged fact that modern producers are guided in the determination of the volume of their production by the amount of their capital instead of the demand for goods. This is a consequence of the unequal distribution of wealth, due to the concentration of property in a few hands. This condition of things brings to the few an income so large that its consumption is impossible and its accumulation and employment as capital necessary. Thus goods are produced in ever-increasing quantities without reference to the need for them, and overproduction and crises necessarily result.

Sismondi did not deny that the evils of pauperism and crises were in a sense self-corrective; that is, pauperism and its concomitants, undernourishment, disease, and death, in time reduce and ultimately wipe out overpopulation, and crises result in the destruction of goods and the loss of capital which ultimately remove the excess of goods and temporarily correct overproduction. To his mind, however, these facts did not justify the modern regime or support the view that in the long run human well-being is promoted by it. The suffering and woe which these processes of readjustment occasion outweighed, in his mind, the advantages which might be attributed to them.

Footnotes

1 J. C. L. Simonde de Sismondi, Nouveaux principes d’économie politique (Paris, 1819), I, iii.

2 J. C. L. Simonde de Sismondi, Études sur l’économie politique (Brussels, 1837), II, 2 and 3.

3 Jean-Baptiste Say, Cours complet d’économie politique pratique, I, 56.

4 Etudes, II, 3.

5 Albert Aftalion, l’Œuvre économique de Simonde de Sismondi (Paris, 1899), p. 48.

6 Ibid., pp. 56, 57, and 58.

7 Nouveaux pincipes, I, 154.

8 Nouveaux principes, I, 232, 233.

9 Gide and Rist, A History of Economic Doctrines, translated by Smart and Richards, p. 191.

10 Aftalion, op. cit., p. 76.

11 Aftalion, op. cit., pp. 77 and 78.

12 Gide and Rist, op. cit., p. 192.

13 Ibid., p. 195.

14 Aftalion, op. cit., p. 79.

15 Gide and Rist, op. cit., pp. 194, 195.

• 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: