The Development of Economics

CHAPTER XXVI

ALFRED MARSHALL

In some respects Alfred Marshall’s relation to his generation was similar to that of John Stuart Mill’s to his. Like Mill, he attempted to bring the science up to date and like him he built upon classical foundations. He resembled Mill also in his humanitarian spirit and in his desire to improve conditions, especially the standard of life of the laboring classes. While not quite so close, his relation to Mill was not unlike Mill’s relation to Ricardo. His Principles, like Mill’s, was also the most widely approved and the most influential treatise on economics published in England in his generation.

Marshall’s training and background, however, were quite different from Mill’s. He attended the Merchant Tailors’ School in London, graduated at Cambridge with high honors in mathematics, and during the greater part of his active life was a teacher, from 1877 to 1885 at Bristol and Oxford and, from 1885 to the date of his retirement in 1908, at Cambridge, where he held the professorship of political economy. From the date of his retirement to that of his death in 1924 he worked in the Cambridge environment. He was also deeply religious, up to the close of his university career having intended to take holy orders in the Anglican Church. Mill, it will be remembered, never attended any school or university, having been trained by his father during the period when most youngsters attend school. He was a business man and a publicist instead of a professor, and he claimed that he was one of the few men who never had religion of any kind.

There is an interesting connection between Marshall’s abandonment of his early intention to enter holy orders and his later interest in economics. After his graduation at Cambridge, association with such men as T. H. Green, F. D. Maurice, W. K. Clifford, and Henry Sidgwick interested him in philosophical studies which, together with Darwin’s Origin of Species, unsettled his mind on theological topics and seriously disturbed his early religious convictions. They did not, however, change his fundamentally religious nature or weaken his interest in humanity. Their ultimate result was to turn his attention to the study of social ethics and economics as means to the improvement of the conditions under which men live. Marshall’s humanitarian interests were basic not only among the influences which turned his attention from mathematical and philosophical studies to economics but in determining the brand of economics he produced. His primary interest in all his writings and studies on economic subjects was to make the science a useful instrument of social amelioration and progress. Economic theory and principles were to him means to practical ends and not ends in themselves.

In order to understand Marshall’s economics one must also remember that, when he began to give serious attention to the subject, the classical school was under fire from many quarters and had already suffered a serious decline in influence, even in England, the place of its origin and development. To the critics described in Part III of this treatise must be added Cliffe Leslie, Arnold Toynbee, and Jevons, the two former strongly presenting the attitude of the German Historical School and the latter that of the Austrians, so far as the general subject of value is concerned, though developed quite independently of and contemporaneously with Menger’s earliest work. Later on Marshall followed closely and sympathetically the development of the Austrian School, though, as we have seen, he was critical of some aspects of its work. Marshall was also greatly impressed by the complexity of contemporary economic life and by the difficulty of the problem of utilizing economic doctrines and laws in its explanation.

His principal writings in book form are a little volume published in 1879, in the preparation of which his wife collaborated, entitled The Economics of Industry, a new edition of which appeared in 1899 the title Elements of Economics of Industry, Volume I of Elements of Economics; his well-known treatise entitled Principles of Economics, first published in 1890 and followed by other editions in 1891 and 1898; Industry and Trade, published in 1919; and Money, Credit, and Com-merce, published in 1920.

A. The Goal Aimed at in the “Principles”

B. Guiding Principles

1. “The Principle of Continuity.”

In expounding the results of the supplementing, extending, developing, and correcting of the old doctrines by the new and of the new distribution of emphasis, Professor Marshall tells us that he was guided by certain principles, the first of which he called the “Principle of Continuity.” He nowhere describes this principle in formal terms, but he illustrates its application in a number of ways, as the following will show.

2. The Principle of “the Marginal Increment.”

C. Use of the Doctrine of Demand and Supply

In the arrangement of the subject-matter of his treatise and in much of his reasoning Professor Marshall has been guided by the law of demand and supply, which may be regarded as the key to his system. Generally speaking, it may be said that his treatise is devoted to an analysis and explanation of demand and supply and their mutual relations. In working out the manner in which equilibrium between demand and supply is established, he makes wide use of the concepts “normal value,” “normal action,” and “representative firms.” The formulation, definition, and application of these concepts illustrate the principle of continuity as he has explained it in the passages above quoted. They do not have a fixed and unchanging content but are relative to the varying conditions of time, place, and personalities involved.

The doctrine of demand and supply determines not only his general scheme of arrangement of chapters but also his method of approach to many of the subtopics. For example, his chapters on “Demand,” “Supply,” and the “Theory of the Equilibrium of Demand and Supply” are followed by a book entitled “Value or Distribution and Exchange,” the principal subtitles of which are “Demand and Supply in Relation to Labor,” “Demand and Supply in Relation to Capital,” “Demand and Supply in Relation to Capital and Business Power,” and “Demand and Supply in Relation to Land.”

In his exposition of this important doctrine he first differentiates and describes the forces comprehended by the terms demand and supply, availing himself in the former case of the Austrian analysis with its concepts of utility and marginal utility, its law of satiable wants or diminishing utility, its principle of the discounting of future pleasures, its demand schedules, etc.; and in the latter case of the doctrine of marginal disutility, of the laws of increasing and diminishing returns in agriculture, of the Malthusian doctrine of population, of the doctrine of abstinence in its relation to the supply of capital, and of the division of labor and industrial organization and management in their relation to the productive efficiency of the factors of production. He then expounds his theory of the equilibrium of demand and supply in a book which contains his most characteristic work.

These chapters illustrate the manner in which he combines and utilizes the old theories and the new. The new theories, especially those of the Austrians, are, according to his view, valuable in, and are used by him in, the explanation of demand, and the old doctrines in the explanation of supply and of the equilibrium between demand and supply. His own originality and his contribution to the science consist in the manner in which he has defined these laws and principles, especially the old classical ones, and explained their operation, and in the limitations he has placed upon them.

Demand and supply to him are collective terms comprehending two great groups of opposing economic forces seeking a state of equilibrium with each other. These complexes change from time to time and from one group of men to another and in such a manner that they are not absolutely and totally different but gradually blend into each other by small, sometimes almost imperceptible, changes. Sharp lines of distinction can therefore rarely, if ever, be drawn between them. The equilibrium between these two complexes is rarely, if ever, an exact balance but a more or less close approximation.

Like demand and supply, cost of production in his usage is a collective term meaning sometimes the expenses of production as the entrepreneur comprehends them and sometimes the sacrifices of production to marginal producers or to society. The items comprehended under expenses of production are changeable and are sometimes viewed in a narrower and sometimes in a broader sense, as are also the sacrifices of production. The principle that cost of production in some one of these different senses constitutes the equilibrium point between demand and supply means not that such an equilibrium point is ever actually attained, but that in a rough sort of a way the expenses or the sacrifices of production, in some sense of those terms, acts more or less, and under different conditions in all degrees of more or less, as a sort of lodestone to the forces of demand and supply.

Some extracts from and paraphrases of portions of the closing chapter of his book, dealing with the “Theory of the Equilibrium of Demand and Supply,” in which he summarizes the detailed discussions of previous chapters, will illustrate his methods and his results.

Beginning “with a market for a very short period, such as that of a provincial corn exchange on market-day,” he finds that “the ‘higgling and bargaining’ might oscillate about a mean position, which would have some sort of right to be called the equilibrium price; but the action of dealers in offering one price or refusing another would depend little, if at all, on calculations with regard to cost of production. They would look chiefly at present demand on the one hand, and on the other at the stocks of the commodity already available. It is true that they would pay some attention to such movements of production in the near future as might throw their shadow before; but in the case of perishable goods, they would look only a very little way beyond the immediate present. Cost of production has for instance no perceptible influence on the day’s bargaining in a fish market.”

He passes from these “temporary equilibria to the stable equilibria of normal demand and normal supply” and remarks “that in the language both of professed writers on economics and men of business, there is much elasticity in the use of the term normal when applied to the causes that determine value,” but that “there is one division which, though it has no sharp outlines, is yet fairly well marked.” That is the division between (a) “long periods, in which the normal action of economic forces has time to work itself out more fully; in which therefore a temporary scarcity of skilled labour, or of any other of the agents of production, can be remedied; and in which those economies that normally result from an increase in the scale of production—normally, that is without the aid of any substantive new invention— have time to develop themselves”; and (b) “periods of time long enough to enable producers to adapt their production to changes in demand, in so far as that can be done with the existing provisions of specialized skill, specialized capital, and industrial organization; but not long enough to enable them to make any important changes in the supplies of these factors of production.”

In case (a) he takes as his “standard for estimating normal expenses of production” “a Representative firm, managed with normal ability and having normal access to the Internal and External Economies of production on a large scale” and concludes that “when the period under survey is long enough to enable the investment of capital in building up a new business to complete itself and to bear all fruits, then the marginal supply price is that, the expectation of which in the long run just suffices to induce capitalists to invest their Material capital, and workers of all grades to invest their Personal capital in the trade.” In case (b), “the stock of Material and Personal appliances of production has to be taken in a great measure for granted; and the marginal increment of supply is determined by estimates of producers as to the amount of production, it is worth their while to get out of those appliances. If trade is brisk, all energies are strained to their utmost, overtime is worked, and then the limit to production is given by want of power rather than by want of will to go further or faster. But if trade is slack, every producer has to make up his mind how near to Prime Cost it is worth his while to take fresh orders. And here there is no definite law, the chief operative force is the fear of spoiling the market; and that acts in different ways and with different strengths on different individuals and different industrial groups.”

Correctly interpreted, this doctrine applies to all classes of rents, though Ricardo applied it to farm rents only. For example, it applies “to the income yielded by appliances for production which man has made, and especially such of them as are desirable, and the supply of which cannot be rapidly increased” but to a degree which “varies with the period of time under consideration.” “The shorter the period which we are considering, and the slower the process of production of those appliances, the less part will variations in the income derived from them play in checking or increasing the supply of the commodity produced by them, and in raising or lowering its supply price; and the more nearly true will it be that, for the period under discussion, the Net income to be derived from them is to be regarded as a Producer’s Surplus or Quasi-rent.”

“In passing from the free gifts of nature through the more permanent improvements in the soil, to less permanent improvements, to farm and factory buildings, to steam-engines, etc., and finally to the less durable and less slowly made implements, we find a continuous series. And even that part of the rental value of land which is derived from advantages of situation—Situation Rent as it may be called— passes by imperceptible gradations from the character of a pure Rent, in cases in which owners of the land have had no direct part in improving its environment, to that of a Quasi-rent or even Profits when the conditions of the environment, to which land owes its Situation value, were deliberately brought about by, and at the expense of, the owners of that land in order to raise its value. Thus the Situation Rent of land presents close analogies to many different classes of income derived from advantages of the environment, from Opportunity, or Conjuncture.”

D. The Problem of Distribution

Since the explanation of the income to be derived from the command or ownership of any of the factors of production must be sought in the conditions and forces which determine their value, in treating of distribution Marshall discusses the way in which the doctrine of demand and supply operates when applied to labor, capital, and land.

Marshall follows this general exposition of the principles operative in the distribution of income first with an account of the interdependence between the demand and the supply of the different agents of production, the general principle being “that the demand for each agent increases generally with the supply of the others” and “that the demand for it is lessened when any of those others can profitably be substituted for it”; and second, with a consideration of “the special qualities and incidents of the agents of production.” These are made to appear in an inquiry (a) into the question of “how price and the causes that determine it need to be differently estimated in the case of the hiring price of labour, and the purchase price of commodities”; (b) into “the many different scopes which the usage of the market place assigns to [the term profits] and even to the more elementary term Interest”; (c) into “the influence of varieties of tenure on the form of the demand for land”; and (d) into the question “How far the general theories of Rent and Quasi-rent are applicable to the incomes earned by natural abilities, or by skill and knowledge acquired long ago, whether in the ranks of the employers, the employed, or the professional classes.”

E. An Appraisal of Marshall’s Work

Marshall succeeded in a very high degree in the performance of the task which he set himself, namely, that of presenting “a modern version of old doctrines with the aid of the new work and with reference to the new problems of our age.” He has demonstrated that the old doctrines of demand and supply, normal value, cost of production, etc., can be stated and interpreted in such a manner as to make them in some degree conform to the facts of modern life and to aid in their explanation. Perhaps he has carried his explanations as far as is necessary or desirable for the business man and the average citizen or even for the average student, but has he carried them as far as the interests of economic science require?

His task has been so carefully and so completely performed and with such objectiveness, broad-mindedness, and good judgment that most of his reasoning and most of his conclusions have been, and doubtless will for a long time continue to be, accepted as sound by economists as well as by other readers and students. His treatise is authoritative, illuminating, and very valuable, but the most careful and profound students cannot but regard it as incomplete and unsatisfactory in its discussion of the most fundamental aspects of economic theory. His treatment of the interrelations and interactions of economic forces is masterly and unsurpassed, but there are problems in the science which require for their solution something more and different. Not all the queries they raise, regarding especially the relations of cause and effect, can be answered by the principle of the balance of forces, the essential feature of which is that each cause is in turn effect and each effect in turn cause. The solution of the most important of these problems Marshall has either completely neglected or left unsatisfactory. As examples may be cited the problem of the ultimate determinants of subjective value, whether they are to be found on the side of human wants or on that of the sacrifices involved in production, and the relation of this problem to that of exchange value in general and to the value of the agents of production in particular; also the problem of interest in all except its more superficial aspects, which latter Marshall has handled in a very satisfactory manner, and the relation of this problem to that of marginal rent and wages. In fact the entire group of problems to which the Austrians primarily addressed themselves have not received adequate consideration by Marshall.

If these more fundamental problems are to receive adequate attention and if the science of economics demands their solution, it may be questioned whether the demand-and-supply method of approach and plan of organization is best or even suitable. The attempt to regard all the major problems of the science from that point of view and to force all the major discussions into the skeleton of that plan necessarily results in obscuring some of the issues and completely omitting others. It also gives an impression of superficiality which in some cases at least a close study justifies.

Footnotes

1 Alfred Marshall, Principles of Economics, 2d ed. (London: Macmillan & Co., 1891), p. ix.

2 Ibid.

3 Ibid., p. x.

4 Ibid., p. xi.

5 Principles of Economics, pp. x, xi.

6 Ibid., p. xii.

7 Ibid., pp. xii, xiii.

8 Ibid., p. xiii.

9 Ibid., p. xiv.

10 Ibid., p. xv.

11 Principles of Economics, p. 383.

12 Principles of Economics, Ch. XIV, p. 528 sq.

13 Ibid., p. 531.

14 Principles of Economics, pp. 532, 533.

15 Ibid., p. 534.

16 Ibid., p. 557.

17 Principles of Economics, p. 560.

18 Ibid., p. 558.

19 Ibid., pp. 558, 559.

20 Ibid., p. 559.

21 Principles of Economics, pp. 559, 560.

• 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.”